Lifetime Fitness 2006 Annual Report Download - page 22

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financing, the proceeds of which partially repaid our revolving credit facility. We also have the ability to incur new
debt, subject to limitations under our existing credit facilities and in our debt financing agreements. Furthermore, we
have 13 centers financed by Teachers Insurance and Annuity Association of America (TIAA) that are subject to
cross-default and cross-collateral provisions, which would allow the lender to foreclose on each of these 13 centers
if there is an event of default related to one or more of these centers. If we incur additional debt, the risks associated
with our leverage, including our ability to service our debt, could intensify.
Because of the capital-intensive nature of our business, we may have to incur additional indebtedness or issue
new equity securities and, if we are not able to obtain additional capital, our ability to operate or expand our
business may be impaired and our operating results could be adversely affected.
Our business requires significant levels of capital to finance the development of additional sites for new centers and
the construction of our centers. If cash from available sources is insufficient, or if cash is used for unanticipated
needs, we may require additional capital sooner than anticipated. In the event that we are required or choose to raise
additional funds, we may be unable to do so on favorable terms or at all. Furthermore, the cost of debt financing
could significantly increase, making it cost-prohibitive to borrow, which could force us to issue new equity
securities. If we issue new equity securities, existing shareholders may experience additional dilution or the new
equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. If
we cannot raise funds on acceptable terms, we may not be able to take advantage of future opportunities or respond
to competitive pressures. Any inability to raise additional capital when required could have an adverse effect on our
business plans and operating results.
If our founder and chief executive officer leaves our company for any reason, it could have a material adverse
effect on us.
Our growth and development to date have been largely dependent upon the services of Bahram Akradi, our
Chairman of the Board of Directors, President, Chief Executive Officer and founder. If Mr. Akradi ceases to be
Chairman of the Board of Directors and Chief Executive Officer for any reason other than due to his death or
incapacity or as a result of his removal pursuant to our articles of incorporation or bylaws, we will be in default
under the loan documents for our 13 centers financed with TIAA. As a result, Mr. Akradi may be able to exert
disproportionate control over our company because of the significant consequence of his departure. We do not have
any employment or non-competition agreement with Mr. Akradi.
The health club industry is highly competitive and our competitors may have greater name recognition than we
have.
We compete with other health and fitness centers, physical fitness and recreational facilities established by local
non-profit organizations, governments, hospitals, and businesses, local salons, cafes and businesses offering similar
ancillary services, and to a lesser extent, amenity and condominium clubs and similar non-profit organizations,
exercise studios, racquet, tennis and other athletic clubs, country clubs and the home fitness equipment industry.
Competitors, which may have greater name recognition than we have, may compete with us to attract members in
our markets. Non-profit and government organizations in our markets may be able to obtain land and construct
centers at a lower cost than us and may be able to collect membership fees without paying taxes, thereby allowing
them to lower their prices. This competition may limit our ability to increase membership fees, retain members,
attract new members and retain qualified personnel.
Competitors could copy our business model and erode our market share, brand recognition and profitability.
We employ a business model that could allow competitors to duplicate our successes. We cannot assure you that our
competitors will not attempt to copy our business model and that this will not erode our market share and brand
recognition and impair our growth rate and profitability. In response to any such competitors, we may be required to
decrease our membership fees, which may reduce our operating margins and profitability.