UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): January 13, 2014 (January 10, 2014)
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
(Exact Name of Registrant as Specified in Charter)
| Delaware | 000-52013 | 20-0640002 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) |
5 Penn Plaza (4th Floor), New York, New York 10001
(Address of Principal Executive Offices, Including Zip Code)
(212) 246-6700
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4c)) |
Item 2.02 Results of Operations and Financial Condition
The disclosure provided in the first paragraph under Item 7.01 is incorporated herein by reference.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On January 10, 2014, Town Sports International Holdings, Inc. (the “Company”) announced that Daniel Gallagher, the Company’s Chief Financial Officer, will be promoted to the role of President and Chief Operating Officer, effective January 13, 2014. Mr. Gallagher, age 45, joined the Company in 1999 and has served as Chief Financial Officer of the Company since March 2008. Mr. Gallagher will continue to serve as Chief Financial Officer until the Company appoints a successor.
In connection with Mr. Gallagher’s new role, the Company and Mr. Gallagher entered into a Letter Agreement, providing that Mr. Gallagher will be entitled to an annual base salary of $385,000, subject to future adjustment based on job performance, and will initially be eligible to earn an annual performance bonus award of 50% of his base salary. In addition, subject to the approval of the Compensation Committee of the Board of Directors of the Company at the time of the regular annual grant of equity awards to senior management, but in no event later than March 14, 2014, Mr. Gallagher will receive 27,500 shares of restricted common stock of the Company pursuant to the Company’s 2006 Stock Incentive Plan, which will vest in four equal annual installments. Mr. Gallagher will also be entitled to the payment of one year of base salary, plus continuation of health, dental and disability insurance, in the event he is terminated by the Company without cause (as defined in the Letter Agreement), subject to the execution of a release agreement and continued compliance with covenants contained in any restricted stock award agreements, including non-competition and non-solicitation provisions.
The foregoing summary of the Letter Agreement does not purport to be complete. For an understanding of its terms and conditions, reference should be made to the Letter Agreement, which is attached as Exhibit 10.1 to this Current Report.
A copy of the Company’s press release, announcing Mr. Gallagher’s promotion, is filed as Exhibit 99.1 hereto and is incorporated herein by reference.
Item 7.01 Regulation FD Disclosure.
On January 13, 2014, Robert Giardina, the Chief Executive Officer of the Company, and Mr. Gallagher will attend the 16th Annual ICR XChange Conference. At the conference, the Company will provide an update as to, among other matters, the following preliminary Revenue, EBITDA and membership information for its fourth quarter ended December 31, 2013. The Company plans to announce the following preliminary estimates for the fourth quarter of 2013:
| • | Revenue for the fourth quarter is expected to be approximately $112.5 million to $113.5 million. This is approximately $2.5 million lower than our previous guidance of $115.0 million to $116.0 million. |
| • | Fourth quarter EBITDA is expected to be approximately 15% to 20% lower than previous guidance of $21.5 million, when adjusted for special or one-time charges, primarily relating to the decrease in revenue. |
| • | Fourth quarter 2013 average monthly attrition was 3.4%. |
| • | As of December 31, 2013, total ending member count was 497,000, of which 41,000 were restricted-use members. |
The above estimates are derived from preliminary internal financial reports and is subject to revision based on the completion of quarter-end accounting and financial reporting processes and year end audit necessary to finalize our financial statements as of and for the quarter and year ended December 31, 2013. We cannot assure you that, upon completion of finalization, we will not report results materially different than those set forth above. Accordingly, our actual results may differ from these estimates and such differences may be material.
The Company is expected to announce its earnings for the fourth quarter and full year ended December 31, 2013 and guidance for the first quarter of 2014 on or about February 19, 2014.
Mr. Giardina and Mr. Gallagher will be presenting at 8:30 a.m. Eastern Time and the audio portion of the presentation will be webcast live at www.mysportsclubs.com under the Investor Relations section. Materials for the presentation will be available for download on www.mysportsclubs.com under the Investor Relations section the morning of January 13, 2014. An archived replay will be available two hours after the conclusion of the event.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
| Exhibit 10.1 | Letter Agreement, dated January 10, 2014, between the Town Sports International LLC and Daniel Gallagher. | |
| Exhibit 99.1 | Company’s Press Release, dated January 10, 2014 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| TOWN SPORTS INTERNATIONAL HOLDINGS, INC. (Registrant) | ||||
| Date: January 13, 2014 | By: | /s/ David M. Kastin | ||
| David M. Kastin | ||||
| Senior Vice President - General Counsel | ||||
EXHIBIT INDEX
| Item |
Description | |
| 10.1 | Letter Agreement, dated January 10, 2014 between the Town Sports International LLC and Daniel Gallagher. | |
| 99.1 | Company’s Press Release, dated January 10, 2014 | |
Exhibit 10.1
January 10, 2014
Daniel Gallagher
c/o Town Sports International, LLC
5 Penn Plaza
New York, NY 10001
Dear Dan:
As we have discussed, Town Sports International, LLC (the “Company”) is pleased to offer you a promotion into the position of President and Chief Operating Officer effective as of Monday, January 13, 2014.
1. Position. In this new position, you will continue to report to the Chief Executive Officer. You will also continue to act in the role of Chief Financial Officer until that position has been filled and, once filled, you will assist in the orderly and smooth transition of those job responsibilities.
2. Compensation and Bonus. Your annual base salary will be $385,000, payable in accordance with the Company’s standard payroll practices and subject to all applicable tax withholdings. Future salary increases will be based on demonstrated job performance. Under the Company’s current performance bonus plan, you will have a bonus target of fifty percent (50%) of your annual base salary.
3. Restricted Stock. Subject to the further approval of the Compensation Committee of the Board of Directors, at such time as the annual award of shares of restricted common stock is made to other senior executives of Town Sports International Holdings, Inc. (“TSI Holdings”) (or any successor entity), but in no event later than March 14, 2014, you will be awarded 27,500 shares of restricted stock of TSI Holdings, which award shall vest twenty-five (25%) percent per year, commencing on the first anniversary of the award date. The award will subject to the terms and conditions of the TSI Holdings 2006 Stock Incentive Plan, as amended, and the related award agreement.
4. Severance. In the event that your employment is terminated by the Company without Cause (as hereinafter defined), subject to the execution (without revocation) of the Company’s standard release agreement within the time prescribed therein (no later than 60 days from the date of termination) and your continued compliance with the covenants contained in any and all restricted stock agreements entered into between you and TSI Holdings (including, without limitation, Section 12 thereof), you shall continue to receive your base salary (at the rate in effect at the time of termination) for a period of one (1) year from the date of termination (the “Severance Period”). Such payments will commence as soon as practical after the effectiveness of the release and the first payment shall include the payments that you would have received if the release were effective on the date of termination. The payments will be made consistent with the Company’s prevailing payroll practices and will be less all applicable withholding taxes.
During the Severance Period, up until you are eligible for coverage under another employer-sponsored plan, (i) if you elect to continue your health insurance coverage through COBRA, the Company will reimburse you for the COBRA coverage, in full, for your health and dental premium; and (ii) the Company will continue your disability insurance coverage and will pay 100% of the expense related thereto, including the applicable tax gross-up. You agree to promptly notify the Company in writing in the event that you are eligible for health or disability coverage under another employer-sponsored plan.
As used above, “Cause” means the Company’s termination of your employment as a result of: (i) repeated refusal to comply with the lawful direction of the Chief Executive Officer (which is not cured within 30 days of written notice from the Company describing such refusal to comply); (ii) the commission of any fraud, misappropriation or misconduct by you that causes, or is reasonably likely to cause, injury, monetarily or otherwise, to the Company or an affiliate; (iii) the conviction of, or pleading guilty or no contest to, a felony involving moral turpitude; (iv) an act resulting or intended to result, directly or indirectly, in material gain or personal enrichment to you at the expense of the Company or an affiliate; (v) any material breach of your fiduciary duties to the Company or an affiliate as an employee or officer; (vi) a material violation of the Company’s Code of Ethics and Business Conduct, as amended from time to time, or other policies and procedures of the Company; (vii) any breach of the terms of any non-compete, non-solicitation or confidentiality provision contained in any agreement between you and the Company or any affiliate.
Any severance provided pursuant to this provision shall be in lieu of any severance or other payment under your Executive Severance Agreement, as amended, or restricted stock or option agreements and not duplicative. In the event of a breach of the restrictive covenants to which you are bound, in addition to any other remedy available to the Company, the Company will cease payment of the severance amounts set forth in this Section 4 and may recoup any severance payments previously paid to you.
In the event your employment terminates for any reason other than by the Company without Cause, you shall not be eligible for the severance amounts in Section 4 and you shall only be entitled to payment of base salary through the date of termination, reimbursement of business expenses incurred through the date of termination in accordance with the Company’s policy and any other rights pursuant to applicable law.
5. Employment at Will. In accepting this new position, you understand and agree that your employment with the Company shall remain at-will, which means that either you or the Company are free to terminate your employment at any time, for any reason or no reason, with or without notice. Notwithstanding the foregoing, in the event of a termination without Cause (as set forth above), you will be paid the severance amounts as set forth in Section 4 above. You further understand and acknowledge that there is no written or oral contract providing you with any definite or specific term of employment. You further understand and agree that, due to your at-will status, the Company may, at any time, modify the terms of your employment, including, but not limited to, your job title, job responsibilities, compensation and benefits.
6. Section 409A. If you are a “specified employee” within the meaning of Treasury Regulation Section 1.409A-l(i) as of the date of the termination of your employment, you shall
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not be entitled to any payment or benefit that constitutes deferred compensation under 409A pursuant to this Agreement until the earlier of (i) the date which is six (6) months after your termination of employment for any reason other than death or (ii) the date of your death. The provisions of this paragraph shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). Any amounts otherwise payable to you upon or in the six (6) month period following your termination of employment that are not so paid by reason of this Section shall be paid (without interest) as soon as practicable (and in all events within thirty (30) days) after the date that is six (6) months after the date of your termination (or, if earlier, as soon as practicable, and in all events within thirty (30) days, after the date of your death). It is intended that any amounts payable under this Agreement shall comply with or be exempt from and avoid the imputation of any tax, penalty or interest under Section 409A of the Code. This Agreement shall be construed and interpreted consistent with that intent. In no event whatsoever will the Company be liable for any additional tax, interest or penalties that may be imposed on you under Section 409A of the Code or any damages for failing to comply with Section 409A of the Code. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits subject to Section 409A of the Code upon or following a termination of employment until such termination is also a “separation from service” within the meaning of Section 409A of the Code and for purposes of any such provision of this Agreement, references to a “termination of employment” and like terms shall mean separation from service. If under this Agreement an amount is paid in two or more installments, for purposes of Section 409A of the Code, each installment shall be treated as a separate and distinct payment.
7. Disputes. In the event that either party commences a litigation, arbitration, or an administrative action related to this Agreement against the other, the prevailing party shall be entitled to recover from the non-prevailing party all reasonable costs, expenses and fees, including reasonable attorney’s fees, through all appeals in prosecuting or defending such action. For purposes hereof, the “prevailing party” shall be the party who receives substantially the relief sought as determined by the trier of fact.
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Please indicate your acceptance of this offer by signing this Letter and returning the signed letter to me at the above address.
| Very truly yours, | ||
| TOWN SPORTS INTERNATIONAL, LLC | ||
| By: | /s/ Robert Giardina | |
| Name: Robert Giardina Title: Chief Executive Officer | ||
ACKNOWLEDGEMENT:
I have read and understand all of the terms of this Letter and I accept and agree to all of the terms set forth therein.
| ACCEPTED AND AGREED TO: |
| /s/ Daniel Gallagher |
| Daniel Gallagher |
| Date: January 10, 2014 |
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Exhibit 99.1
For Release on January 10, 2014
Town Sports International Holdings, Inc.
Promotes Daniel Gallagher to President and Chief Operating Officer
NEW YORK, January 10, 2014 (PR NEWSWIRE) — Town Sports International Holdings, Inc. (“TSI” or the “Company”) (NASDAQ: CLUB) today announced the promotion of Daniel Gallagher from Chief Financial Officer to President and Chief Operating Officer. In his new role, Mr. Gallagher will be responsible for all fitness club operations for the Company, and will continue to report to the CEO, Robert Giardina. Mr. Gallagher will continue to serve as Chief Financial Officer until the Company appoints a successor. Mr. Gallagher joined the Company in 1999 and has served as Chief Financial Officer of the Company since March 2008.
Bob Giardina, Chief Executive Officer of Town Sports International, commented: “I am very pleased that Dan will be our new President and Chief Operating Officer. I have known Dan for the past 15 years, and have watched him grow with our company. He has been an invaluable member of the executive team, has strong leadership skills and has earned the respect of his peers and partners. His deep knowledge of our industry and our business makes him an excellent choice to lead and I look forward to working with him for many years to come.”
About Town Sports International
New York-based Town Sports International Holdings, Inc. is a leading owner and operator of fitness clubs in the Northeast and mid-Atlantic regions of the United States and, through its subsidiaries, operated 162 fitness clubs as of September 30, 2013, comprising 108 New York Sports Clubs, 29 Boston Sports Clubs, 16 Washington Sports Clubs (two of which are partly-owned), six Philadelphia Sports Clubs, and three clubs located in Switzerland. These clubs collectively served approximately 507,000 members, including 42,000 members under its restricted student and teacher memberships as of September 30, 2013.
From time to time we may use our Web site as a channel of distribution of material company information. Financial and other material information regarding the Company is routinely posted on and accessible at http://www.mysportsclubs.com. In addition, you may automatically receive email alerts and other information about us by enrolling your email by visiting the “Email Alerts” section at http://www.mysportsclubs.com.
Town Sports International Holdings, Inc., New York
Contact Information:
Investor Contact:
(212) 246-6700 extension 1650
Investor.relations@town-sports.com
or
ICR, Inc.
Joseph Teklits / Farah Soi
(203) 682-8390
farah.soi@icrinc.com