SEC Form S filed

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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SCHEDULE 14F-1

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REPORT OF CHANGE IN MAJORITY OF DIRECTORS
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER

Town Sports International Holdings, Inc.

(Exact name of Registrant as specified in its charter)

 

TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
1001 US North Highway 1, Suite 602
Jupiter, Florida 33477

 

Information Statement Pursuant to Section 14(f) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 14f-1
Notice in Change in the Composition of the Board of Directors
December 28, 2020

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NO VOTE OR OTHER ACTION OF THE COMPANY’S STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.

 

You are urged to read this Information Statement carefully and in its entirety. However, you are not required to take any action in connection with this Information Statement. References throughout this Information Statement to “Company,” “we,” “us,” and “our” refer to Town Sports International Holdings, Inc.

 

INTRODUCTION

 

This Information Statement is being mailed on or about December 30, 2020, to the stockholders of record of common stock, par value $0.001 per share (the “Common Stock”) of Town Sports International Holdings, Inc., a Delaware corporation (the “Company,” “we,” “us” and “ours”), as of the close of business on December 22, 2020 (the “Record Date”) in accordance with the requirements of Section 14(f) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14f-1 promulgated thereunder in connection with an anticipated change in majority control of the Company’s Board of Directors (the “Board”) other than by a meeting of stockholders. Section 14(f) of the Exchange Act and Rule 14f-1 require the mailing to our stockholders the information set forth in this Information Statement at least 10 days prior to the date a change in a majority of our directors occurs (otherwise than at a meeting of our stockholders). Accordingly, the change in a majority of our directors pursuant to the transactions described herein will not occur until at least 10 days following the mailing of this Information Statement.

 

DESCRIPTION OF THE CHANGE IN CONTROL

 

On December 28, 2020 (the “Closing Date”), the Company, entered into a credit agreement (the “Credit Agreement”) with the several lenders party thereto (the “Lenders”) and Alter Domus (US) LLC, as administrative agent (the “Administrative Agent”), pursuant to which the Lenders agreed to provide senior secured first lien term loans in an aggregate principal amount of up to $100.0 million to the Company consisting of (a) initial senior secured first lien term loans in an aggregate principal amount of $5.0 million (the “Initial Loans”), which Initial Loans were drawn at closing, and (b) senior secured first lien delayed draw term loans in an aggregate principal amount of up to $95.0 million (the “Delayed Draw Term Loans” and, together with the Initial Loans, the “Loans”), in each case, subject to the terms and conditions set forth in the Credit Agreement. In order to incur any of the Delayed Draw Term Loans, the Company must satisfy certain conditions, including, but not limited to, the following: (i) if the incurrence of such Delayed Draw Term Loans occurs on or prior to June 30, 2021, (a) unless made in connection with any acquisition approved by the majority of the Board, the proceeds of such Delayed Draw Term Loans must be used in compliance with the Approved Budget (as defined in the Credit Agreement), and (b) the Unrestricted Cash (as defined in the Credit Agreement) of the Company and its subsidiaries immediately prior to such incurrence may not exceed $5.0 million and, (ii) if the incurrence occurs after June 30, 2021, the Consolidated Total Leverage Ratio (as defined in the Credit Agreement) for the prior four fiscal quarter period may not exceed 4.00 to 1.00 after giving pro forma effect to the incurrence of such Delayed Draw Term Loans. The Company’s obligations under the Credit Agreement are guaranteed by certain subsidiaries of the Company (collectively with the Company, the “Guarantors”). On the Closing Date, the Company, the Guarantors and the Administrative Agent entered into a guarantee and collateral agreement pursuant to which the Guarantors guaranteed the debt under the Credit Agreement and the Company and the Guarantors granted a first-priority lien on substantially all of their assets (subject to certain exceptions) in favor of the Administrative Agent and the Lenders.

 

On the Closing Date, the Company paid in-kind in the form of additional term loans a closing fee equal to $10.0 million, representing 10.0% of the aggregate principal amount of the commitments provided by the Lenders as of the Closing Date. Borrowings under the Credit Agreement accrue interest at a rate of either 10.0% per annum payable in cash or 12.0% per annum payable in-kind. The Credit Agreement will mature on December 28, 2025 (or, if such day is not a business day, the immediately precedent business day). Prior to the second anniversary of the Closing Date, the Loans may be prepaid at their principal amount plus a make whole premium. On or after the second anniversary of the Closing Date, the Company may prepay the Loans, in whole or in part, at any time, subject to a prepayment premium equal to (a) 10.0% of the principal amount prepaid if prepaid before the third anniversary of the Closing Date and (b) 5.0% of the principal amount prepaid if prepaid after the third anniversary of the Closing Date but prior to the fourth anniversary of the Closing Date. Thereafter, no prepayment premium is applicable.

 

The Credit Agreement also provides that PW Partners Capital Management LLC may elect to provide, on or prior to January 29, 2021, up to $10.0 million of additional commitments to lend Delayed Draw Term Loans, subject to the terms and conditions set forth in the Credit Agreement, including the payment by the Company of a closing fee representing 10.0% of such additional commitments to be paid in-kind in the form of additional term loans and the issuance of shares of Common Stock.

 

As compensation for agreeing to provide the Loans and related commitments, on the Closing Date, affiliates of Kennedy Lewis Investment Management LLC (“KLIM”) received approximately 41.5 million shares of Common Stock, equal to 51% of the fully diluted outstanding Common Stock as of the Closing Date (such shares, the “Consideration Shares”). After giving effect to the receipt of the Consideration Shares, KLIM beneficially owned 45,735,483 shares of Common Stock, representing approximately 56.2% of the Common Stock outstanding after the issuance. The borrowing of the Loans pursuant to the Credit Agreement together with the issuance of the Consideration Shares is referred to herein as the “Transactions”.

 

In connection with the Transactions, the Company’s Board increased the size of the Board from four to five directors, Martin J. Annese and Jeffery Crivello then tendered their resignations as members of the Board and the remaining members of the Board appointed David Chene, Doug Logigian and Brian Dubin as new members to fill the vacancies created by the increase in the size of the Board and subsequent resignations, with the appointment of Doug Logigian to take effect ten days after transmission of this Information Statement on Form 14f-1 to all holders of our Common Stock. As a result of the Transactions, KLIM became the majority stockholder of the Company.

 

The change in a majority of our directors will occur upon the expiration of the ten-day period from the date of mailing this Information Statement required under Rule 14f-1.

 

CHANGE IN MAJORITY OF BOARD OF DIRECTORS

 

Prior to the closing of the Transactions, the directors of the Company were Patrick Walsh, Martin J. Annese, Jeffery Crivello and Justin Lundberg. Upon closing of the Transactions, Martin J. Annese and Jeffery Crivello resigned and David Chene, Doug Logigian and Brian Dubin were appointed to the Board with the appointment of Doug Logigian to take effect ten days after transmission of this Information Statement on Form 14f-1 to all holders of our Common Stock. As a result of the Transactions, the Company will experience a change in a majority of the members of its Board.

 

VOTING SECURITIES

 

Our Amended and Restated Certificate of Incorporation authorizes us to issue 100,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”). As of the Record Date, 29,726,375 shares of our Common Stock and no shares of our Preferred Stock were issued and outstanding.

 

DIRECTORS AND EXECUTIVE OFFICERS

 

As noted above, in connection with the Transactions, the Company’s Board of Directors increased the size of the Board from four to five directors, Martin J. Annese and Jeffery Crivello then tendered their resignations as members of the Board and the remaining directors appointed David Chene, Doug Logigian and Brian Dubin (each of whom are affiliated with KLIM) as new members of the Board to fill the vacancies created by the increase in board size and resignations with the appointment of Doug Logigian to take effect ten days after transmission of this Information Statement on Form 14f-1 to all holders of our Common Stock.

 

Each member of the Board will serve as a director until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Company’s Amended and Restated Articles of Incorporation and Third Amended and Restated Bylaws, as the case may be.

 

The table below sets forth the names and ages of the directors and executive officers of the Company immediately prior to the closing of the Transactions, as well as the position(s) and office(s) with the Company held by those individuals. A summary of the background and experience of each of those individuals is set forth after the table.

 

(1) On March 16, 2020, Thomas J. Galligan III notified the Company of his resignation as a member of the Board; on April 17, 2020, Spencer Wells notified the Company of his resignation as a member of the Board; and on January 15, 2020, Marcus B. Dunlop and Mandy Lam notified the Company of each of their respective resignations as members of the Board.

(2)The Company appointed Phillip Juhan as Chief Financial Officer with immediate effect as of March 23, 2020.

 

Patrick Walsh has served as a director since March 2015, and Chairman of the Board from April 2015 to May 2015. Mr. Walsh served as Executive Chairman from June 2015 to August 2016. Mr. Walsh has served as Chairman and Chief Executive Officer of the Company since September 2016. Mr. Walsh is also the Chief Executive Officer of PW Partners Atlas Funds, LLC, the general partner of various investment funds, and its affiliates, which he founded in August 2012. From September 2011 to August 2012, Mr. Walsh was Managing Partner of PWK Partners, LLC, an investment firm. From March 2008 to September 2011, Mr. Walsh served as partner at Oak Street Capital Management, LLC, an investment firm. From August 2004 to February 2008, Mr. Walsh was Vice President at Deutsche Bank Securities, Inc. He also serves as a director of BJ’s Restaurants, Inc., an owner and operator of casual dining restaurants, since June 2014, and as a director of Del Taco Restaurants, Inc., an owner, operator and franchisor of casual Mexican restaurants, since June 2015.

 

Mr. Walsh’s qualifications to serve on our Board include his years of experience as an investor and fund manager, and his knowledge of the capital markets and corporate finance. In addition, Mr. Walsh’s role as the Chief Executive Officer of the Company provides the Board with valuable insight into the management and operation of the Company.

 

Martin J. Annese has served as a director since March 2015. Mr. Annese has served as principal of MJA consulting, a consulting firm since May 2012, a Board Advisor to Ratner Companies since August 2014, and a Board Advisor to First Priority Group, LLC, a manufacturer and upfitter of emergency vehicles, since June 2018. From April 2008 to May 2012, Mr. Annese served as Chief Operating Officer of the Company. Prior to joining the Company, from 1993 to 2005, Mr. Annese held executive positions at Starbucks Coffee Company and PepsiCo Inc.

 

Mr. Annese’s many years of experience as an executive of various companies, and his work as a consultant, allow him to provide important guidance on the Company’s management and operations to our Board. We believe that Mr. Annese’s management expertise enables him to serve as an effective contributor to our Board.

 

Jeffery Crivello was appointed to the Board on April 3, 2020 and has substantial experience in a number of senior executive roles in both public and private companies. He currently serves as Chief Executive Officer of BBQ Holdings, Inc., a public company that owns and operates a range of restaurants across North America. Mr. Crivello has been a director of BBQ Holdings, Inc. since August 2017 and has been its CEO since November 2017. From January 2015 until January 2020, Mr. Crivello served as the Chief Financial Officer of the hedge fund PW Partners Capital Management, LLC, where he had primary responsibility for operations and accounting. From 2012 to 2015, Mr. Crivello served as a Managing Member of Maize Capital Group, LLC, a commodity investment firm. Since 2001, Mr. Crivello has served as President of TREW Capital Management, Inc., a consulting and investment firm where he has had primary responsibility for operations.

 

Mr. Crivello’s experience as a public company chief executive offers the Board valuable operational and oversight experience. In addition, Mr. Crivello’s investment background enables him to provide valuable guidance to the Board on finance matters. We believe that Mr. Crivello’s business and investment knowledge enables him to serve as an effective contributor to our Board.

 

Justin Lundberg was appointed to the Board on July 15, 2020. He is an attorney admitted to the bar in 2002, who has practiced in Boston, Massachusetts for large firms in the areas of intellectual property and litigation. Since January 2019, Mr. Lundberg has been General Counsel and Chairman of the Board of Directors for Nature’s Remedy of Massachusetts, a legal cannabis retailer. Mr. Lundberg also owned and operated several large multi-sport health and fitness clubs from 2005 to 2017, and since August 2016, has taught business studies courses specializing in the field of Sport Management at Assumption College in Worcester, Massachusetts. In 2018, he was a consultant to the Company. He is also a licensed real estate broker, and has been a director at MOK Capital Advisors, an investor in the health and wellness sector, since November 2018.

 

Mr. Lundberg has an extensive management background in the fitness and health and wellness industries, as both an owner and operator of gyms. In addition, he offers the Board valuable experience in legal and real estate matters. We believe that Mr. Lundberg’s track record of management and leadership in our sector enable him to be an effective contributor to our Board.

 

Executive Officers

 

Phillip Juhan was appointed as Chief Financial Officer on March 23, 2020. Mr. Juhan, age 46, has served as Vice President of Business Operations for the Company since August 13, 2018. Mr. Juhan brings a number of years of progressive experience in both financial and entrepreneurial leadership roles. From 2002 to 2014, Mr. Juhan worked in the Investment Banking Division of Prudential Financial and the Bank of Montreal, where he led consumer focused research within the Financial Services (Real Estate, Gaming and Lodging) and Consumer (Broadlines Retail and Restaurants) sectors. Since 2014, Mr. Juhan has served as Founder and President of B.L.K. LLC, a restaurant operating company, and as Founder and General Partner of Simple PropCo LLC, a Georgia based real estate holding company.

 

The following table sets forth certain information regarding the Company’s directors and executive officers following the funding of the Initial Loans.

 

Directors and officers following the Transactions

Biographical information about Messrs. Walsh, Juhan and Lundberg are included above.

 

David Chene is the co-founder and co-portfolio manager of KLIM. Prior to founding KLIM in 2016, Mr. Chene was a Managing Director with CarVal Investors L.P. (“CarVal”), responsible for managing the U.S. Corporate Securities business based in Minneapolis, from 2012 to 2016. Prior to his role in the United States, he was Co-Head of CarVal’s European Corporate Securities business based in London. Before joining CarVal, Mr. Chene worked at Credit Suisse Group AG (“Credit Suisse”) from 2010-2012. Prior to his position at Credit Suisse, Mr. Chene was a Senior Distressed Trader for Morgan Stanley from 2009 to 2010, a Research Analyst at DiMaio Ahmad Capital, LLC from 2003 to 2009 and a Research Analyst at CIBC World Markets Inc. from 2001 to 2003. Mr. Chene received a BA in Business Economics and Accounting from the University of California at Los Angeles in 2001.

 

Doug Logigian has been a Partner and President of Kennedy Lewis Investment Management since 2019.  Mr. Logigian held a variety of positions with GSO Capital Partners and Blackstone from 2006 to 2019, most recently as Senior Managing Director. Prior to joining GSO Capital Partners in 2006, Mr. Logigian worked as an Associate at Citibank. Mr. Logigian received a B.A. with honors from Harvard University.

Brian Dubin is Partner at KLIM and has worked at KLIM since 2018.  Mr. Dubin was a Senior Analyst at Mariner Investment Group, LLC from 2015 to 2018, a Partner and Research Analyst at MehanCombs, LP from 2012 to 2015, a Senior Analyst at Eos Partners LP from 2008 to 2012, an Analyst at GSO Capital Partners from 2005 to 2008 and an Investment Banking Analyst at UBS Group AG from 2003 to 2005. Mr. Dubin received a BS from the Wharton School at the University of Pennsylvania in 2002.

 

CORPORATE GOVERNANCE AND BOARD MATTERS

 

Director Independence

 

The Board affirmatively has determined that a majority of the Company’s pre-Transaction directors - Messrs. Annese, Lundberg and Crivello - were independent under the listing standards of Nasdaq, with respect to the Board and committee service. The Board will determine the independence of Messrs. Chene, Dubin and Logigian at the first meeting after the Transactions. Mr. Walsh is not considered independent due to his current service as Chief Executive Officer. In making its independence determinations, the Board considers and reviews any commercial, charitable and employment transactions and relationships known to the Board (including those identified through annual directors’ questionnaires) that exist between us and our subsidiaries and the entities with which certain of our directors, director nominees or members of their immediate families are, or have been, affiliated.

 

Board Structure

 

The Board currently has four members (with a fifth member to join the Board ten days after transmission of this Information Statement on Form 14f-1 to all holders of our Common Stock) and the following five committees: Audit; Compensation; Nominating and Corporate Governance; Special Committee and Acquisition and Finance.

 

Board Committees and Meetings

 

Prior to the Transactions, the Board consisted of Martin J. Annese, Patrick Walsh, Justin Lundberg and Jeffrey Crivello. In 2019 the Board consisted of Martin J. Annese, Marcus B. Dunlop, Thomas J. Galligan III, Mandy Lam, Patrick Walsh and L. Spencer Wells. The Board held nine meetings during the fiscal year ended December 31, 2019 (the “2019 Fiscal Year”). In the 2019 Fiscal Year, each director attended or participated in 75% or more of the aggregate of (i) the total number of meetings of the Board, and (ii) the total number of meetings held by all committees of the Board on which such director served (in each case, for meetings held during the period in the 2019 Fiscal Year for which such director served).

 

The Board meets in executive session, without the presence of any of the Company’s officers, at least twice per year and upon the request of any independent director. Currently, all directors are independent, other than Mr. Walsh who is not currently considered to be independent due to his current position as the Company’s Chief Executive Officer.

 

All members of the Board attended the Annual Meeting via the Internet. Our Chairman of the Board was present at the 2019 Annual Meeting of Stockholders.

 

Committee Membership

 

The following table sets forth the name of each pre-Transaction director and the Board committee on which each such director was a member:

 

Committee membership of the post-Transaction Board members will be determined at the first Board meeting following the Transactions.

Audit Committee

 

The Audit Committee appoints our independent registered public accounting firm, reviews the plan for and the results of the independent audit, approves the fees of our independent registered public accounting firm, reviews with management and the independent registered public accounting firm our quarterly and annual financial statements and our internal accounting, financial and disclosure controls, reviews and approves certain transactions between Town Sports and its officers, directors and affiliates and performs other duties and responsibilities as set forth in a charter approved by the Board. Prior to the Transactions, the Audit Committee consisted of: Martin J. Annese, Justin Lundberg and Jeffery Crivello. Each member of our pre-Transaction Audit Committee was independent, as independence is defined for purposes of Audit Committee membership by the listing standards of Nasdaq and the applicable rules and regulations of the SEC.

 

Jason M. Fish served as a member of the Audit Committee for part of 2019. Mr. Fish did not seek re-election as a director at our 2019 annual meeting of stockholders, and accordingly stepped down from the Board on May 20, 2019. Thomas J. Galligan III served as a member of the Audit Committee for all of 2019. Mr. Galligan resigned from the Board on March 16, 2020. Spencer Wells served as a member of the Audit Committee for all of 2019. Mr. Wells resigned from the Board on April 17, 2020. The Audit Committee held four meetings during the 2019 Fiscal Year.

 

The Board has determined that each member of the Audit Committee is able to read and understand fundamental financial statements, including our balance sheet, income statement and cash flow statement, as required by Nasdaq rules. In addition, the Board has determined that Jeffery Crivello satisfied the Nasdaq rule requiring that at least one member of the Audit Committee of our Board have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the member’s financial sophistication, including being, or having been, a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. The Board has also determined that Jeffery Crivello is an “audit committee financial expert” as defined by the SEC.

 

Compensation Committee

 

The Compensation Committee of our Board evaluates performance and establishes and oversees executive compensation policy and makes decisions about base pay, incentive pay and any supplemental benefits for our executive officers. The Compensation Committee also administers our stock incentive plans and approves, or recommends that the Board approve, the grant of equity awards, the timing of the grants and the number of shares for which equity awards are to be granted to our executive officers and other employees. The Compensation Committee also performs other duties and responsibilities as set forth in a charter approved by the Board. The pre-Transaction Compensation Committee consisted of: Martin J. Annese and Jeffery Crivello.

 

Marcus B. Dunlop served as a member of the Compensation Committee for all of 2019. Mr. Dunlop resigned from the Board on January 15, 2020. Thomas J. Galligan III served as a member of the Compensation Committee for all of 2019. Mr. Galligan resigned from the Board on March 16, 2020. Spencer Wells served as a member of the Compensation Committee for all of 2019. Mr. Wells resigned from the Board on April 17, 2020.

 

In fulfilling its responsibilities, the Compensation Committee is entitled to delegate any or all of its responsibilities to a subcommittee of the Compensation Committee. The Compensation Committee held two meetings during the 2019 Fiscal Year. From time to time the Compensation Committee will consult with the Chief Executive Officer and Chairman, as applicable, when considering the compensation of the Company’s other executive officers. No named executive officer has a role in determining or recommending compensation for outside directors.

 

In addition, the Compensation Committee has the authority under its charter to retain outside consultants or advisors, as it deems necessary or advisable.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee of our Board selects nominees to be recommended to the Board for nomination for election as directors and for any vacancies in such positions. The Nominating and Corporate Governance Committee also oversees the evaluation of our Board and management and oversees our Code of Ethics and Business Conduct. The Nominating and Corporate Governance Committee also performs other duties and responsibilities as set forth in a charter approved by the Board. The pre-Transaction Nominating and Corporate Governance Committee consisted of: Martin J. Annese (Chair) and Jeffery Crivello.

 

Martin J. Annese, Marcus B. Dunlop Thomas J. Galligan, L. Spencer Wells (Chair) and Mandy Lam had served as members of the Nominating and Corporate Governance Committee for all of 2019. Mr. Dunlop and Ms. Lam resigned from the Board on January 15, 2020, Thomas J. Galligan on March 16, 2020 and L. Spencer Wells (Chair) on April 17, 2020. Each member of the Nominating and Corporate Governance Committee is independent, as independence is defined for purposes of Nominating and Corporate Governance Committee membership by the listing standards of Nasdaq. The Nominating and Corporate Governance Committee held two meetings during the 2019 Fiscal Year.

 

The Board seeks to ensure that the Board is composed of members whose particular experience, qualifications, attributes and skills, when taken together, will allow the Board to satisfy its oversight responsibilities effectively. In that regard, in identifying or reviewing proposed candidates for membership on the Board, the Nominating and Corporate Governance Committee considers all factors it deems appropriate. The Nominating and Corporate Governance Committee considers director nominees on a case-by-case basis, and therefore has not formalized any specific, minimum qualifications that it believes must be met by a director nominee, identified any specific qualities or skills that it believes are necessary for one or more of our directors to possess, or formalized a process for identifying and evaluating nominees for director, including nominees recommended by stockholders. Although the Board does not have a policy with regard to the consideration of diversity in identifying director nominees, among the many factors that the Nominating and Corporate Governance Committee considers, are the benefits to the Company of gender and racial diversity in the Board composition.

 

Please see the descriptions of the respective backgrounds of each of our directors set forth in the section of this Information Statement titled “Directors and Executive Officers.” We believe that the current directors bring expertise, leadership skills and institutional knowledge that make them valuable to the Company.

 

The Nominating and Corporate Governance Committee’s policy is to consider director candidates that are recommended by stockholders. The Nominating and Corporate Governance Committee will evaluate nominees for director recommended by stockholders in the same manner as nominees recommended by other sources. Stockholders wishing to bring a nomination for a director candidate at a stockholders’ meeting must give written notice to our General Counsel or person serving as secretary of the Board, pursuant to the procedures set forth in the section of this Information Statement titled “Communicating with the Board.” The stockholder’s notice must set forth all information relating to each person whom the stockholder proposes to nominate that is required to be disclosed under applicable rules and regulations of the SEC and our By-Laws.

 

Executive Committee

 

The Board had previously constituted an Executive Committee with authority to carry out certain Board functions during intervals between meetings of the Board. There were no Executive Committee meetings held during the 2019 Fiscal Year and the Board disbanded this committee effective February 12, 2019.

 

Special Committee

 

On April 14, 2020, the Board resolved to establish a Special Committee of the Board of Directors (“Special Committee”) to assist the Board in the evaluation of any strategic alternative transaction where a conflict of interest existed that could affect, or be perceived to affect, the Board’s ability to evaluate, negotiate or execute such strategic alternative on an independent basis and in the best interests of the Company. Upon receipt from the Board of a referral of a potentially conflicted strategic alternative transaction, the Special Committee is empowered to advise the Board on such a transaction, make recommendations to the Board, and if the Board determines to pursue such transaction, evaluate and negotiate the terms thereof. In fulfilling its responsibilities, the Special Committee is entitled to retain its own financial, legal or other advisors who will report to the Special Committee, and may delegate its authority to subcommittees as it deems appropriate. The pre-Transaction Special Committee consisted of: Martin J. Annese and Jeffery Crivello.

 

Acquisition and Finance Committee

 

The Acquisition and Finance Committee of our Board was created in February 2018. The Acquisition and Finance Committee reviews acquisition strategies with the Company’s management and investigates potential acquisition candidates for the Board’s consideration and recommends acquisition strategies to the Board, as appropriate; authorizes and approves the negotiation by the Company of proposed acquisitions by the Company; reviews with management the integration of any acquired businesses and whether the proposed acquisitions meet the Company’s business objectives and strategic plans; reviews proposals for the issuance of debt financing for the Company and its subsidiaries and makes recommendations concerning those proposals to the Board; makes recommendations to the Board concerning the level of debt and nature of debt; makes recommendations concerning the appointment and compensation of counsel, investment advisors and underwriting firms used by the Company, and to oversees the work performed by these individuals and firms on behalf of the Company; meets with and requests information from the Company, and advisors or outside counsel, as necessary to perform the duties of the committee; reviews proposals relating to the repayment of debt or other long-term financing arrangements for the Company and its subsidiaries; annually reviews the Company’s financing guidelines and makes recommendations to the Board concerning criteria that should govern its financings; reports to the Board how it has discharged its duties and met its responsibilities, as necessary; and has the ability to retain special legal, accounting or other consultants or advisors to advise the Acquisition and Finance Committee without seeking Board approval. The pre-Transaction Acquisition and Finance Committee consisted of: Martin J. Annese and Patrick Walsh. There were no Acquisition and Finance Committee meetings held during the 2019 Fiscal Year.

 

Risk Management

 

The Company is exposed to a number of risks including financial risks, operational risks and risks relating to regulatory and legal compliance. During each meeting of the Board, management discusses with the Board the Company’s major risk exposures and the steps management has taken to monitor and control such exposures, including the guidelines and policies to govern the process by which risk assessment and risk management are undertaken. For example, at Board meetings, the Board will discuss with management factors affecting the Company’s financial risk, which may include, among others, events impacting revenue, cost saving initiatives, and capital expenditure budgets and results; factors affecting the Company’s operations, including, among others customer satisfaction, logistics related to the opening of new clubs or closing of clubs, hiring and promotion plans for club and corporate personnel, marketing programs, and factors related to regulatory and legal compliance, including, among others, updates of pending litigation, discussions with contract counterparties, and relevant regulatory updates.

 

Board Leadership Structure

 

The Board does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board. The Board has determined that having the Company’s Chief Executive Officer serve as Chairman is in the best interest of the Company’s stockholders at this time. This structure makes the best use of the Chief Executive Officer’s extensive knowledge of the Company and its industry, as well as fostering greater communication between the Company’s management and the Board.

 

Board Role in Risk Oversight