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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended DECEMBER 31, 1997.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act for the transition period from _______to_______.
COMMISSION FILE NUMBER: 1-13290
THE SPORTS CLUB COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware 95-4479735
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification
organization) No.)
11100 Santa Monica Blvd., Suite 300
Los Angeles, California 90025
(Address of registrant's principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(310) 479-5200
Securities registered pursuant to Section 12(b) Name of each exchange on
of the Act:Title of each class which registered
Common Stock $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of None
the Act:
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Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on February 26, 1998 was $31,376,610.
The number of shares of the Common Stock, par value $ .01 per share, outstanding
(the only class of Common Stock of the registrant outstanding) was 14,218,645 on
February 26, 1998.
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PART I
ITEM 1. BUSINESS
GENERAL
The Sports Club Company, Inc. (the "Company") operates sports and
fitness Clubs ("Clubs"), primarily under the "Sports Club" and "Spectrum Club"
names. Sports Clubs have been developed as "urban country clubs" offering a full
range of services, including numerous fitness and recreation options, diverse
facilities and other amenities. Spectrum Clubs are designed as smaller-scale
Sports Clubs with an extensive but smaller range of services. Both Sports Clubs
and Spectrum Clubs are marketed to affluent, health conscience individuals who
desire a premier Club. The membership fees at Sports Clubs are higher than
membership fees charged at Spectrum Clubs; membership fees at both Clubs are
higher than those charged by most other Clubs, which do not provide as many
services.
The Company currently owns interests in fourteen Clubs. In 1997 the
Company acquired a Club in Henderson, Nevada which is now operated as The Sports
Club/Las Vegas, acquired four Clubs in Southern California from Racquetball
World which are now operated as Spectrum Clubs and opened a Spectrum Club in
Valencia, California. The Company currently operates The Sports Club/LA, The
Sports Club/Irvine, the Reebok Sports Club/NY and The Sports Club/Las Vegas and
operates 10 Spectrum Clubs in Southern California.
The Company's strategy is to develop and acquire multi-amenity
facilities complementary to existing Sports Clubs and Spectrum Clubs and to
develop and implement new programs at existing Clubs to expand membership and
increase revenues. The Company intends to develop and acquire Sports Clubs in
selected metropolitan areas where a sufficient potential membership base exists
to support a 80,000 square foot or larger facility. To expand the Spectrum Club
name and concept, the Company intends to develop and acquire suitable Clubs
located in or adjacent to metropolitan areas either near a Sports Club or in
areas where the potential membership base is significant but will not support a
Sports Club facility. The Company is currently developing additional Clubs,
including Sports Clubs in Washington, D.C., San Francisco, California, and
Boston, Massachusetts, and Spectrum Clubs in Anaheim Hills and Thousand Oaks,
California. These Clubs are expected to open from late 1998 through 2001. The
Company believes that, because of the established reputation of the Company and
the prestige associated with the Sports Clubs and the Spectrum Clubs, developers
view the Clubs as valuable components of multiuse developments.
According to the International Health, Racquet & Sportsclub Association
("IHRSA"), the industry's leading trade organization, revenues generated by the
United States fitness Club industry increased at a compound annual rate of 9.4%
from $5.5 billion in 1991 to $8.6 billion in 1996. Over the same period,
memberships in all Clubs have grown at a 4.5% compound annual growth rate, to
20.8 million. Both Club revenues and memberships have benefited from the
increasing awareness among the general public of the importance of physical
exercise. The sports and fitness Club industry is highly fragmented and
competitive. According to IHRSA, there were more than 13,000 Clubs in operation
during 1996. According to Club Industry magazine, however, the ten largest
companies in the industry account only for approximately 15% of all industry
revenue and own less than 10% of all Clubs. The Company believes that these
factors, among others, provide an opportunity for continued revenue growth for
Clubs such as Sports Clubs and Spectrum Clubs.
The Company believes that it possesses one of the most experienced
management teams in the industry. Four of the Company's executives each have
more than 18 years experience in the Club industry and have been working for the
Company and its predecessors for more than ten years. Management believes that
it has the depth and experience to manage the Company's internal and external
growth.
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The Sports Clubs
Sports Clubs are large, multi-purpose facilities, offering members and
their guests fully equipped gyms with state of the art fitness equipment, modern
programs, wellness protocols such as exercise regimens designed for specific
groups of members, extensive food and beverage selections, personal care and
beauty options, social programs, child care and valet parking. The Company
currently has four Sports Clubs in operation. The Sports Club/LA was opened in
1987 and The Sports Club/Irvine was opened in 1990. The Reebok Sports Club/NY
was developed in partnership with the Company and a subsidiary of Reebok
International, Ltd. ("Reebok") and Millennium Entertainment Partners, L.P. (with
its affiliates, "Millennium"), a substantial shareholder of the Company. The
Company manages the operations of the Club and owns a controlling 60% interest
in the Partnership that owns the Reebok Sports Club/NY with Reebok and
Millennium retaining direct interests in the partnership. The Sports Club/Las
Vegas, located in Henderson, Nevada, was acquired in August 1997.
The Sports Club/LA. The Sports Club/LA is located in West Los Angeles,
near the affluent communities of Santa Monica, Brentwood, Beverly Hills,
Westwood and Century City. The Sports Club/LA offers a 9,500 square foot coed
gym, a complete gym with equipment generally preferred by female members, a
spinning room with stationary bicycles used in an aerobic class environment and
an approximately 5,800 square foot cardio-vascular deck. Personal trainers are
available to develop and supervise members' exercise routines. The Sports
Club/LA has two 2,500 square-foot aerobics/exercise rooms featuring classes
throughout the day and evening, seven days a week, including aerobics, dance,
Step Reebok, yoga and karate. Competitive sports may be played on two
racquetball courts, two squash courts, five outdoor paddle tennis courts and a
full court basketball court (which can be converted into a volleyball court).
Additionally, there is a 25-meter indoor pool and a net-enclosed golf swing
area. Sports instructors provide lessons in racquet sports, golf and swimming.
Men's and women's locker rooms feature wood lockers and include complete
spa areas with steam rooms, saunas, jacuzzis and professional massage. The
Sports Club/LA also includes a sundeck, restaurant, sports bar, private
dining/conference room, a sports media center and a press conference area. A
full-time activities director is responsible for social and media events for
members, including organizing trips, lectures and charity events. The Sports
Club/LA also has a pro shop, hair salon, spa and childcare services.
The Sports Club/Irvine. The Sports Club/Irvine is located on a 1.46-acre
site near Newport Beach in Orange County, California. The Club offers 26,700
square feet of fully equipped gyms consisting of a 14,000 square foot coed gym
and a complete gym with equipment generally preferred by female members, a 5,000
square foot cardiovascular deck, basketball and volleyball courts, a rooftop
running track, three racquetball courts, four squash courts and two outdoor
paddle tennis courts. The volleyball/basketball gymnasium is 9,600 square feet
and can accommodate either two full court basketball games or a basketball and
volleyball game simultaneously. There is also an outdoor roof-top basketball
court, and two sand volleyball courts on adjacent property leased on a
month-to-month basis. The Club offers a variety of aerobic and exercise classes
held throughout the day, in addition to a 25-yard indoor-outdoor pool, sundeck,
social area and a roof deck featuring a net-enclosed golf swing area.
Men's and women's locker rooms feature wood lockers and include complete
spa areas with steam rooms, saunas and jacuzzis. Food and beverage facilities
include private dining rooms and conference facilities, a gourmet grill
restaurant and sports bar, a sidewalk cafe and a poolside juice bar. Massages,
facials and spa treatments are available at Oasis Body Salon, which is owned and
operated by the Company. In addition, the Club affords members the opportunity
to work with personal trainers and sports instructors, and to avail themselves
of numerous exercise and dance classes, a beauty salon and childcare services. A
full-time sports coordinator organizes sports tournaments, leagues and classes.
Reebok Sports Club/NY. The Reebok Sports Club/NY located in Manhattan's
upper west side offers among other recreational and fitness options, 13,000
square feet of weight training gyms, a 5,000 square foot cardiovascular center,
two exercise class rooms, two basketball courts, a rooftop roller-blading and
running track, a 45-foot rock climbing wall, a 25-yard Junior Olympic-size
swimming pool, complete spa facilities, a circuit training center, volleyball,
boxing, fencing, martial arts, gymnastics and badminton. In addition, the Reebok
Sports Club/NY offers members a bistro-style open grill restaurant, a sidewalk
cafe, a sun deck with
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juice bar, childcare, a body salon, children's sports programming, meeting and
banquet rooms, shoe shine, dry cleaning and tailoring services. The Company
manages and has a controlling 60% interest in the Reebok-Sports Club/NY
partnership.
The Company's agreements relating to the Reebok Sports Club/NY prohibit
the Company from engaging in pre-sale activities or opening a Club in New York
City or within a 10-mile radius of the Reebok Sports Club/NY which exceeds
30,000 square feet in size prior to June 1999. These agreements also prohibit
the Company from selling from the Reebok Sports Club/NY any footwear, apparel,
fitness equipment or other sporting goods manufactured by a competitor of
Reebok, or associating with any health Club facility affiliated with a
competitor of Reebok, through June 2002.
The Sports Club/Las Vegas. The Company acquired The Sports Club/Las
Vegas in August 1997. The Club services the fast growing Las Vegas market and is
situated in Henderson, Nevada approximately three miles east of the Las Vegas
airport. The Club offers 136,000 square feet dedicated to tennis, racquetball,
squash and basketball courts, an aquatic center, running track, state-of-the-art
weight training, resistance and cardiovascular facilities and junior recreation
rooms. In addition to indoor facilities, the Club has outdoor lighted tennis
courts and an outdoor swimming pool. Men's and women's locker rooms are equipped
with private showers, steam rooms and whirlpools. Full service toiletry
amenities such as towel service and complete vanity supplies are available for
members' use.
The Club offers children a number of interactive classes, as well as
supervised age-specific junior recreational rooms and many junior programs such
as gymnastics. The Club also provides a full service bar and cafe along with a
massage and skin care center. Members also have available for their use a beauty
salon, retail shop and physical therapy office which are provided within the
facility by third parties who lease space within the Club.
The Spectrum Clubs
The Company currently operates Spectrum Clubs at ten locations in
Southern California. While more limited in size and in terms of the social and
recreational options offered by Sports Clubs, Spectrum Clubs are generally
housed in relatively large facilities containing modern equipment and offering
members personalized training and instruction; there are, however, differences
among the Spectrum Clubs in terms of their overall size, age and aesthetic
design and the types of exercise and work-out equipment and facilities available
to members.
Spectrum Clubs typically range in size from 30,000 to 65,000 square
feet, generally include full coed weight training rooms, computerized
cardiovascular centers, aerobics and exercise classrooms (with classes held
throughout the day and evening, seven days a week), locker rooms, private
training, complete spa facilities, juice bars and towel service. While three of
the Spectrum Clubs acquired from Racquet Ball World contain sufficient space to
accommodate a Sports Club, a significant portion of the available space in such
Clubs is devoted to racquetball courts and other facilities and amenities, and
the fitness and exercise facilities in such Clubs are comparable to those
typically found at Spectrum Clubs. Certain of the Spectrum Clubs also offer
indoor swimming pools, childcare, pro shops, basketball courts, racquetball
courts, physical therapy facilities, volleyball, martial arts, dance and
children's and seniors' programs. Nine Spectrum Clubs are wholly-owned and
operated by the Company. The Company is the sole general partner, manages and
receives, as its equity interest, 46.1% of the net income generated by the
operation of the Spectrum Club/Manhattan Beach.
The SportsMed Company, Inc.
The SportsMed Company, Inc. ("SportsMed") operates facilities within The
Sports Club/LA, The Sports Club/Irvine, the Spectrum Club/Agoura Hills and a
stand alone facility in Calabasas, California. The clinics are staffed by
exercise physiologists, physical therapists and nutritionists who provide
services to members and others. A physician is employed by SCC Medical Group,
Inc. which pays a management fee to SportsMed. The Company believes that
SportsMed provides valuable services which are complementary to the other
services provided by the Clubs, and is considering expanding the SportsMed
concept to other Clubs in the future.
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SALES AND MARKETING
The "urban country club" image is essential to the Company's overall
operating and marketing strategies. The four existing Sports Clubs are marketed
as limited membership, private Clubs dedicated to personalized attention and
multiple amenities and services. The Company believes that the image of these
Clubs as leaders in the sports and fitness industry justifies charging a premium
for the added amenities that come with membership in Sports Clubs. Members
include professionals, sports and entertainment personalities and business
people, and the Company believes word-of-mouth advertising from these types of
members has enhanced the reputation of Sports Clubs and generated increased
interest among prospective members.
The Spectrum Clubs are marketed as scaled-down Sports Clubs having
modern equipment, private training, experienced, highly-trained instructors, and
aesthetically-pleasant surroundings. The Spectrum Clubs also emphasize
personalized service and instruction and the creation of a "club" atmosphere in
which members can relax and socialize. The cost of Spectrum Club membership (in
terms of both initiation fees and monthly dues) is less than membership at
Sports Clubs and, within the Southern California market, the Company believes
the Spectrum Clubs offer as many services and are as luxurious and
aesthetically-pleasing as any other Club with which they compete. Because of
their relatively smaller size, Spectrum Clubs can be developed and operated in
locations where the potential membership base is not sufficiently large to
support a Club operating under the Sports Club name.
The Company's marketing strategy is to continue to acquire and develop
Clubs that are consistent with an "urban country club" image and to develop and
implement specific sports, fitness and social programs that are designed to
attract a wider membership base without undermining that image. Both Sports
Clubs and Spectrum Clubs are marketed as multi-amenity Clubs catering to
affluent consumers, reflecting the Company's belief that prospective members are
willing to pay higher fees for well-designed, well-equipped and well-maintained
Clubs offering personalized instruction and multiple fitness and workout
options. The Company's marketing efforts at the older, more seasoned Clubs
emphasize maintaining existing members, replacing those members who leave with
new members and increasing ancillary revenues such as private training and
retail sales. The focus at the newer Clubs is on maintaining existing members
and attracting and maintaining additional members.
Word-of-mouth referrals and endorsements by existing members are the
Clubs' most important source of new members. In addition, all Clubs utilize
targeted marketing programs which include advertisements, promotions, public
relations and community events. The principal marketing media for the Clubs are
print advertisements, with some use of direct mail. The print advertisements are
supplemented by special events and special membership programs. The Clubs host
corporate parties and charity benefits and often donate free or discounted
memberships to charitable organizations. The Company also conducts periodic
membership drives whereby referring members are entitled to receive special
gifts and other incentives. Because the Sports Club and the Spectrum Club names
are widely recognized in Southern California, the Company has been able to rely,
to a large extent, on their reputation and member referrals. The Company
believes that it will be able to continue to utilize these marketing strategies
in the promotion of new Clubs.
The largest segment of the membership base for the Clubs consists of
health-conscious individuals. The Company targets five other groups in order to
expand membership: children and families, seniors, corporate members, medical
referrals and people who do not exercise on a regular basis. Each of these
groups requires specialized exercise/fitness programs, and the Company has
developed specific programs to attract members of these groups.
The Company believes the children/family market has considerable
potential, as younger members grow older, marry and have children, and seek
recreational activities in which the entire family can participate. To target
the family market, the Company has implemented "KidFit" and "TeenFit" programs
which target children between the ages of 5 and 17, and involve both one-on-one
private training and a six-week fitness training program. The Clubs'
weight-training facilities are made available to children 13 and older at
off-peak hours, and specially-designed movement classes utilizing a variety of
fitness equipment are
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offered to younger children. The Clubs maintain a summer sports camp, provide
individualized sports instruction and offer multiple fitness activities such as
gymnastics, martial arts and dance that are age appropriate.
The Company anticipates that as the current core membership group ages,
it will meet this group's changing fitness needs and attract additional members
from the senior population. The Company maintains training and exercise protocol
manuals for the senior market (which the Company generally defines as members
who are over 60 years old) which include a description of exercise and fitness
programs specifically designed for seniors. These manuals also contain
discussions of the biological, psychological and medical aspects of aging and
the benefits of regular exercise. The Company believes this market will expand
as the "baby boomers" mature.
The corporate market is a significant source of new members, due to the
proximity of the Clubs to business centers and the use of the Clubs to conduct
business and to develop and maintain business contacts. The Company targets the
corporate membership market primarily through the Sports Clubs. Sports Clubs
employ several Corporate Membership Directors whose principal responsibilities
are to solicit corporate memberships from businesses operating in the vicinity
of Sports Clubs. Sports Clubs offer corporate group-discounted initiation fees
depending upon the number of new members involved. SportsMed has developed
several corporate wellness programs to fit the needs of this particular market.
The Company believes corporations are favorably disposed to Sports Clubs and the
SportsMed programs because of the positive impact regular exercise and overall
fitness can have on employee absenteeism, morale and productivity.
Finally, the Company believes that the image of the Clubs as
multiple-amenity facilities, which offer members numerous social and
less-rigorous exercise options, will help the Company attract prospective
members who do not currently exercise regularly. The Company's "Shape Over"
program is intended to attract those people who are out of shape but who are
interested in resuming a regular exercise regimen. Prospective members are given
a free, introductory fitness consultation with Club instructors, which covers
nutritional and dietary suggestions, personalized fitness programs and home
exercise plans. In addition, the Clubs have group aerobics classes that are
specially designed for this target group. The Company believes that it can also
attract members from the medical referral market through its SportsMed
subsidiary by offering specific rehabilitation and exercise protocols to
complement other forms of physical therapy recommended by a physician or medical
group.
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EMPLOYEE TRAINING
A key component of the Company's marketing strategy is a well-trained
and knowledgeable staff. The Company has developed comprehensive training
programs which serve as educational tools to enhance the effectiveness of
Company personnel. All newly-hired employees are required to attend an
orientation seminar, which is led by members of Company management and a
personnel instructor. Topics include member service and member interaction
skills, Company history and philosophy, and safety issues. These orientation
seminars are held throughout the year.
To aid in the development and continuing education of management
employees, the Company offers a workshop entitled "Introduction to Club
Management," for newly-hired management personnel and other employees
demonstrating management skills. The workshop is intended to educate
participants in the areas of people and time management; hiring, developing,
training and evaluating employees; sales and marketing strategies; and safety
concerns. Topics are added periodically to reflect new management techniques or
operating issues. These seminars consisting of five, three hour seminars are
held six times a year or as needed for new employees, and the Company's
management personnel are required to attend periodically to maintain their
skills.
The Company provides additional seminars specifically-designed for
targeted employee groups. Seminars providing specialized instruction for program
directors, private trainers, aerobics teachers and sales/marketing personnel are
offered at various times during the year, for which attendance on the part of
newly-hired personnel within the applicable employee group is mandatory. The
Company places particular emphasis on its sales/marketing training seminars,
which are given once every two months by a personnel instructor and in which all
new membership directors complete 20 hours of participation and all other
membership directors are expected to complete four hours of participation every
two months. Topics covered include sales and marketing goals and recruitment and
qualification of prospective members.
MEMBERSHIP PROGRAMS
Sports Clubs offer three types of memberships: Executive, Racquet and
Health. The Executive membership offers the greatest number of amenities and
services, including unlimited use of all facilities, racquet sports privileges,
personal locker assignments within an executive locker room, laundry service,
free valet parking, and charge privileges for dining and other Club services.
The Racquet membership is currently only offered at The Sports Club/Irvine and
The Sports Club/Las Vegas and, in addition to use of the Club's facilities,
includes the unlimited use of racquetball, squash and paddle tennis courts at
The Sports Club/Irvine, and tennis at The Sports Club/Las Vegas. The Health
membership is the basic membership offering unlimited use of all facilities
excluding those privileges associated with a Racquet membership; courts are
available to holders of Health memberships for an additional fee.
Racquet and Health memberships are generally available at Spectrum
Clubs. The Spectrum Club/Fullerton currently offers executive memberships. At
some Spectrum Clubs, lockers may be rented by members on a monthly basis for an
additional charge. Each Club operating under the Spectrum Club name has
reciprocity with the others, thereby allowing its members unlimited use of all
Spectrum Clubs in exchange for a small increase in monthly dues. The same
reciprocity program is generally in effect at Sports Clubs. As members of the
IHRSA, Spectrum Clubs extend guest membership privileges to out-of-town visitors
who are members of IHRSA Clubs in their hometown, and the Spectrum Club members
may use IHRSA Clubs in cities to which they travel.
All memberships require a one-time initiation fee plus monthly
membership dues. Actual rates vary depending on whether the membership is for a
Sports Club or Spectrum Club and the type of membership selected. Corporate
memberships are also available. Unlike many other Clubs, the Company does not
offer financing for its memberships. Members electing to pay their Club dues on
a monthly basis must pay by the checkfree system, under which each member is
automatically debited each month for dues either through a checking account or
credit card. Prepaid memberships for an entire year entitle the member to a
discount equal to one free month. While the Company occasionally institutes
special marketing programs which include the offer of discounts on initiation
fees, the Clubs' current base membership fees for new memberships are as
follows:
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HEALTH RACQUET EXECUTIVE
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THE SPORTS CLUB/LA
Initiation Fee (1)...... $1,295 N/A $2,500
Monthly Dues............ 128 N/A 185
THE SPORTS CLUB/IRVINE
Initiation Fee.......... 750 $825 1,475 (2)
Monthly Dues............ 90 105 140
REEBOK SPORTS CLUB/NY
Initiation Fee.......... 1,150 N/A 2,000
Monthly Dues............ 165 N/A 285 (3)
THE SPORTS CLUB/LAS VEGAS
Initiation Fee.......... 400 700 N/A
Monthly Dues............ 90 130 N/A
THE SPECTRUM CLUBS
Initiation Fee.......... 325 325 300 (5)
Monthly Dues............ 57 (4) 67 (4) 135 (5)
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(1) Initiation fees for The Sports Club/LA may be paid over a two to three
month period.
(2) Initiation fees for Executive membership in The Sports Club/Irvine may
be paid over a two month period.
(3) Executive memberships with a half sized locker are also available for
$225 per month.
(4) In addition, Spectrum Club members are charged an annual towel fee of
$40.
(5) Only offered at The Spectrum Club/Fullerton.
ACQUISITION AND DEVELOPMENT OF ADDITIONAL CLUBS
The Company is continually reviewing acquisition and development
opportunities and from time to time enters into letters of intent and makes
refundable and nonrefundable deposits in order to secure opportunities during
the review process. The consummation of the such transactions is subject to
numerous conditions, including the Company's investigation of the feasibility of
the proposed transaction and the availability of suitable financing of the
Company's portion of acquisition and development costs.
Acquisition Criteria. The Company has established general criteria for
the acquisition of existing Clubs to be operated under the Sports Club and
Spectrum Club names. Sports Clubs must be at least 80,000 square feet in size
and located in a large metropolitan area. Spectrum Clubs generally must exceed
30,000 square feet. The Company seeks Clubs which have in place an initiation
fee and monthly dues structure and are located in an area with desirable
demographic characteristics for a Sports Club or a Spectrum Club, as they case
may be. The Company analyzes the number of members a Club may attract based upon
a number of factors including the current membership and the number of potential
members based upon certain demographic criteria. In addition, the current cash
flow, purchase price and anticipated capital expenditures must meet certain
requirements, and the Company must believe that it has the ability to enhance
the profitability of the Club following its acquisition.
Performance of Newly Acquired Clubs. Clubs acquired by the Company may
vary in terms of the physical layout, decor, age of equipment, staff training,
marketing programs, membership fees, ancillary
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services offered, and other characteristics, and, as a result, may have lower
operating income than a typical Sports Club or Spectrum Club. In order to
improve a Club which does not meet the standard for a Sports Club or a Spectrum
Club, as the case may be, the Company may renovate the Club, upgrade fitness
equipment, adopt fitness programs and exercise protocols, install experienced
employees, implement marketing and training programs, and introduce services and
product sales intended to enhance ancillary revenues. In conjunction with these
improvements, the Company will implement membership fee programs consistent with
other Clubs operated by the Company. Recently acquired Clubs undergoing such
improvements may perform at lower margins during the period of implementation of
the new policies and programs.
Development Criteria. The Company will develop a Club if it believes
that, when built, the Club will satisfy the same criteria utilized to consider
acquisitions of Clubs. The Company believes that, because of the established
reputation of the Company and the prestige associated with the Sports Clubs and
the Spectrum Clubs, developers view the Clubs as valuable components of
multi-use developments.
Sports Club Developments. The Company has signed leases with Millennium
to develop Sports Clubs in Washington, D.C. and San Francisco, California.
Negotiations are underway with Millennium for the development of another Sports
Club in Boston, Massachusetts. The three Clubs will be located in projects
developed by Millennium in prime, metropolitan locations which, like the Reebok
Sports Club/NY, include commercial, retail, entertainment and residential space.
These Clubs will be in the 80,000 to 100,000 square foot size range and will
offer services typically found at the Company's other Sports Club sites. The
Clubs are not expected to open until 2001. The Company believes that such
projects offer ideal locations for Sports Clubs and intends to investigate
entering into additional Sports Club developments with Millennium or other
developers in other major metropolitan areas.
The Company's agreements relating to the Reebok Sports Club/NY prohibit
the Company from opening or engaging in pre-sale activities with respect to a
Club larger than 30,000 square feet in size in New York City or within ten miles
of the Reebok Sports Club/NY prior to June 1999.
The Company has executed a letter agreement with WPI.KOLL Asia Pacific
Advisors, providing the Company a right of first refusal to develop and operate
Sports Clubs in "Mega Malls" being developed in Japan by a consortium of major
Japanese corporations. However, there has been no activity with respect to these
developments since October 1996.
Spectrum Club Developments. The Company is developing Spectrum Clubs in
Anaheim Hills and Thousand Oaks, California. Each Club would be approximately
55,000 square feet. The Company has executed a lease agreement for the Spectrum
Club/Anaheim Hills and has acquired the real property on which the Spectrum
Club/Thousand Oaks will be built. The Company expects the Spectrum Club/Thousand
Oaks to open in the fourth quarter of 1998 and the Spectrum Club/Anaheim Hills
to open in the third quarter of 1999. In addition, the Company will investigate
the development of Spectrum Clubs in multi-use developments in or adjacent to
metropolitan areas where the potential membership base is significant but will
not support a Sports Club.
Performance of Newly Developed Clubs. Based on the Company's historical
experience, a newly developed Club tends to achieve significant increases in
revenues during its first years of operation as it reaches maturity.
Recently-opened Clubs which have not achieved maturity have operated at a loss
or at only a slight profit during this period as a result of fixed expenses
which, together with variable operating expenses, approximate or exceed
membership fees and other revenues. While the Company anticipates that these
types of losses will be incurred in the future as a normal part of the Company's
operations to the extent that it develops additional Clubs, the Company believes
that its income from such Clubs will significantly increase as Clubs reach
maturity.
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COMPETITION
Although the sports and fitness industry is still fragmented, the
industry has experienced significant consolidation in recent years and certain
of the Company's competitors are significantly larger and have greater financial
and operating resources than the Company. In addition, a number of individual
and regional operators compete with the Company throughout the Company's
existing and targeted markets. Many of these Clubs attract the same types of
members targeted by Spectrum Clubs and Sports Clubs. The Company also competes
with recreational facilities established by governments and businesses, the YMCA
and YWCA, country clubs and weight-reducing salons, as well as products and
services that can be used in the home. Other entertainment and retail businesses
also compete with the Company for the discretionary income of its target market.
As the general public becomes increasingly aware of the benefits of regular
exercise, it is anticipated that additional sports and fitness businesses will
emerge to compete with established operators like the Company, some of which may
be larger and have greater financial and operating resources than the Company.
However, the Company believes that there will continue to exist a market for
Clubs and that its operating experience, its highly visible image, the
professionalism of its staff and its state-of-the-art equipment and exercise
facilities afford it an advantage over its competitors.
TRADEMARKS AND TRADENAMES
The "Sports Club" name is generally not protectable under federal or
state trademark laws. The Company is currently seeking protection of its "flying
lady" logo as a stand alone design. The Company has successfully registered The
Sports Club/LA and The Sports Club/Irvine names in combination with the "flying
lady" logo. The Company has registered The Sports Club/LA name and logo in
France, Germany and the United Kingdom and is awaiting final approval in
Australia and Japan. The Company holds a federal trademark for the Spectrum Club
name.
GOVERNMENT REGULATION
The operations and business practices of the Company are subject to
regulation at the federal, state and, in some cases, local levels. State and
local consumer protection laws and regulations govern the Company's advertising,
sales and other trade practices.
Statutes and regulations affecting the fitness industry have been
enacted or proposed in California, New York and Nevada, the states in which the
Company currently operates Clubs. Many other states into which the Company may
expand have or likely will adopt similar legislation. Typically, these statutes
and regulations prescribe certain forms and provisions of membership contracts,
afford members the right to cancel the contract within a specified time period
after signing, require an escrow of funds received from pre-opening sales or the
posting of a bond or proof of financial responsibility, and may impose numerous
limitations on the terms of membership contracts. In addition, the Company is
subject to numerous other types of federal and state regulations governing the
sale of memberships. These laws and regulations are subject to varying
interpretations by a number of state and federal enforcement agencies and
courts. In this regard, the California Civil Code imposes a maximum limit on the
amount that may be charged pursuant to a contract for health studio services.
The Company maintains internal review procedures in order to comply with these
requirements, and believes that its activities are in substantial compliance
with all applicable statutes, rules and decisions.
Under so-called state "cooling-off" statutes, a member has the right to
cancel his or her membership for a period of three to ten days (depending on the
applicable state law) and, in such event, is entitled to a refund of any down
payment. In addition, the Company's membership contracts provide that a member
may cancel his or her membership at any time for medical reasons or upon
relocation of a certain distance from the nearest Club. The specific procedures
for cancellation in these circumstances vary due to differing state laws. In
each instance, the canceling member is entitled to a refund of prepaid amounts
only. Furthermore, where permitted by law, a cancellation fee is due to the
Company upon cancellation and the Company may offset such amount against any
refunds owed.
9
<PAGE> 11
EMPLOYEES
At January 31, 1998, the Company had approximately 2,100 employees, most
of whom are employed on a part-time basis in Club operating activities such as
aerobics, private training and food and beverage services. The Company employs
614 full-time employees. Approximately 227 employees are sales personnel or
supervisory personnel involved in Club operations, and 35 are employed in
general and administrative functions. The Company is not a party to any
collective bargaining agreement with its employees. Although the Company
experiences high turnover of non-management personnel, the Company has never
experienced any labor shortages nor had any difficulty in obtaining adequate
replacements for departing employees and considers its relations with its
employees to be good.
Each of the Company's Clubs has a staff of fitness instructors trained
to assist in the sales function and to implement fitness testing and
individually-tailored exercise programs, as well as one or more managers who are
responsible for sales. Most instructors are college-educated. The Company's
aerobics instructors must have at least one year of teaching experience before
they are permitted to teach at the Clubs, and are required to participate in
ongoing training and periodic re-evaluation.
ITEM 2. PROPERTIES
The Company owns The Sports Club/Irvine, The Sports Club/LA, The Sports
Club/Las Vegas, and the Spectrum Clubs in Agoura Hills, Thousand Oaks, Canoga
Park and Fountain Valley including all underlying real estate. The Spectrum
Club/Santa Ana and the Spectrum Club/Fullerton building are leased with a
purchase option from Millennium (See "Certain Relationships and Transactions").
The land underlying the Spectrum Club/Fullerton is leased from the City of
Fullerton. All other structures in which the Clubs are located are leased from
third parties.
The Sports Club/LA property secures a loan with a balance of $22.3
million and bears interest at a fixed annual rate of 10.63%. The Company is
required to make monthly principal and interest payments of approximately
$262,000. The note matures April 1, 2003 but, if certain conditions are met, the
Company has the right to extend the term of the note by an additional five
years. All assets of The Sports Club/LA secure this loan. The building,
improvements and personal property of The Sports Club/Irvine secure a $4.9
million note bearing interest at a fixed annual rate of 6%. The note requires
quarterly principal payments of $125,000 with a balloon payment of $4.0 million
due on November 1, 1999. All assets of the Spectrum Club/Agoura Hills secure a
$2.5 million note which bears interest at a fixed annual rate of 8.5%. Monthly
principal and interest payments of $20,107 are required through the note's
maturity in April 2024.
The following table provides certain information concerning the
Company's Clubs:
<TABLE>
<CAPTION>
YEAR OPENED
APPROXIMATE ("O") OR OWN OR LEASE
SQUARE FEET ACQUIRED ("A") EXPIRATION DATE RENEWAL OPTION
----------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
The Sports Club/LA (1).... 100,000 1994 A Own N/A
The Sports Club/Irvine.... 130,000 1994 A Own N/A
Reebok Sports Club/NY (2). 140,000 1995 O 4/19/15 Three 14-year
options
The Sports Club/Las Vegas. 136,000 1997 A Own N/A
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
YEAR OPENED
APPROXIMATE ("O") OR OWN OR LEASE
SQUARE FEET ACQUIRED ("A") EXPIRATION DATE RENEWAL OPTION
----------- -------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Spectrum Club/Santa Monica 30,000 1991 A 11/14/98 Two 5-year options
Spectrum Club/Agoura Hills.. 30,000 1994 A Own N/A
Spectrum Club/Water Garden.. 19,000 1993 O 6/30/08 5-year option
Spectrum Club/Howard
Hughes Center .......... 36,000 1994 A 9/14/08 Two 5-year options
Spectrum Club/Manhattan
Beach (3)............... 65,000 1987 O 2/28/02 Three 5-year
options
Spectrum Club/Valencia.... 57,000 1997 O 7/1/12 Two 5-year options
Spectrum Club/Fullerton (4). 121,000 1997 A Building Two 10-year
12/31/17 options
Land 4/30/35 N/A
Spectrum Club/Santa Ana (5). 75,000 1997 A 12/31/17 Two 10-year
options
Spectrum Club/Canoga Park. 85,000 1997 A Own N/A
Spectrum Club/Fountain
Valley.................. 42,000 1997 A Own N/A
</TABLE>
- -----------------
(1) D. Michael Talla, the Company's Chairman and CEO has the right to 49.9%
of the first $300,000 of annual operating income from the partnership
which owns The Sports Club/LA. See "Certain Relationships and
Transactions."
(2) The Company is entitled to certain priority distributions from the
partnership which owns this Club. After payment of such priority
distributions, the Company is entitled to 60% of all additional profits.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operation - Liquidity and Capital Resources."
(3) The Company owns a 46.1% interest in the Spectrum Club/Manhattan Beach.
(4) The Company leases the building and land from different parties.
(5) The facility consists of a 75,000 square foot, two story health Club. A
52,000 square foot, three-story addition was under construction by the
prior owners. The Company is evaluating whether to complete construction
of this building.
The Company has entered into leases with Millennium relating to Sports
Clubs to be developed in Washington, D.C. and San Francisco, California. Each
lease will require payments commencing upon opening of the Clubs by the Company,
expected in 2001, based upon the landlord's development expenses; has an initial
term of 20 years; and provides the Company with three, fourteen year renewal
options. The Clubs are expected to be from 80,000 to 100,000 square feet in
size.
11
<PAGE> 13
Leases for the Clubs are generally long-term "triple net" operating
leases, which require the Company to pay all real estate taxes, insurance and
maintenance expenses, in addition to rent, having an average remaining term of
approximately 26 years (including options to extend exercisable by the Company).
The earliest expiration date of any of these leases is November 1998 (with
respect to the Spectrum Club/Santa Monica). These leases generally provide that
rent payments shall be adjusted upward periodically during the terms of the
leases, including adjustments based upon changes in the Consumer Price Index in
the surrounding area (but subject to certain maximum increases that will protect
the Company in inflationary periods), and permit extension of the primary term,
subject to certain notice requirements. The lease with Millennium relating to
the Spectrum Club/Fullerton and the Spectrum Club/Santa Ana has a term of twenty
years and provides for base rent of $1.0 million per year for the ten years of
the term and $1.2 million per year thereafter. The Company also leases
approximately 15,600 square feet of office space in a commercial building in Los
Angeles, California, for administrative, accounting and general corporate
purposes. This lease requires monthly payments of $28,875 through the end of the
lease term in March 2000.
Effective January 26, 1992, all existing public accommodations
(including the Clubs) were required to comply with the Americans with
Disabilities Act (the "ADA"). The ADA, together with many state and local
statutory provisions, generally require that buildings be made accessible to
persons with disabilities. The Company has undertaken an assessment of its Clubs
to determine the extent of non-compliance and has devised a plan to implement
corrective measures. Although the cost of compliance with existing and evolving
ADA, state and local statutory provisions cannot be predicted with certainty at
this time, the Company currently anticipates the required improvements will be
effected as part of the Company's routine capital expenditures. While the future
impact of evolving ADA, state and local statutory provisions cannot be
predicted, such expenditures are not expected to have a material adverse impact
on the Company.
The Company has agreed to operate The Sports Club/Irvine as a
first-class coed athletic and social Club facility until 1999. For a period of
15 years thereafter, the property use may not be changed if the change requires
development approval by the City of Irvine that cannot be obtained separately
from the development rights of the project in which the Club is located. If
either of these covenants is violated, the master developer of that project has
the right to purchase The Sports Club/Irvine for a cash price equal to 95% of
its original purchase price from the master developer plus 95% of the
construction costs incurred in constructing The Sports Club/Irvine.
The Company anticipates spending a total of approximately $7.0 million
at The Sports Club/Las Vegas and the four recently acquired Spectrum Clubs to
improve these facilities and equipment and ensure that the Clubs meet the
Company's quality standards. The Company believes its properties and equipment,
as well as its leased facilities, are adequate for its needs, have been
well-maintained and, other than described herein, do not require any substantial
renovation or restoration work at this time.
ITEM 3. LEGAL PROCEEDINGS
MKDG/Rhodes SC Partnership and Sports Club, Inc. v. Agricultural
Insurance Company (Los Angeles Superior Court). In connection with the
Northridge earthquake on January 17, 1994, MKDG/Rhodes SC Partnership ("MKDG")
carried excess earthquake coverage for The Sports Club/LA with Agricultural
Insurance Company ("Agricultural"). Certain of the Company's predecessors and
subsidiaries (the "SCLA Parties") were named insureds under the policy. The SCLA
Parties assigned to MKDG all of their rights to payments under the Agricultural
earthquake policy in October 1994 and retained no interest in any amounts paid
by Agricultural under that policy. Agricultural made payments totaling
approximately $3.0 million before a dispute arose under the policy. MKDG filed a
complaint against Agricultural on August 2, 1995, and Agricultural filed a
cross-complaint against MKDG and the SCLA Parties, alleging intentional
misrepresentation (fraud), negligent misrepresentation, breach of contract,
breach of implied covenant of good faith and fair dealing, rescission, money had
and received, declaratory judgment and indemnity. Agricultural seeks the return
of amounts paid plus punitive damages and attorneys fees. An appraisal hearing
is set for March 1998. Trial is scheduled on April 27, 1998. The Company is
informed that if the appraisal shows that the covered loss exceeds the policy
proceeds as claimed by MKDG, MKDG believes the matter may be settled. The
Company will seek to be indemnified by MKDG for all damages and costs incurred
in this action.
12
<PAGE> 14
ST Institute of California d/b/a Sports Training Physical Therapy, L.A.
v. The Sports Club Company, Inc. (Los Angeles Superior Court) In 1989, ST
Institute of California ("STI") leased space in both The Sports Club/LA and The
Sports Club/Irvine. In 1995, SportsMed entered into an asset purchase agreement
with STI whereby SportsMed purchased STI's assets. SportsMed agreed to make
performance payments to STI in the minimum amount of $100,000 per year. A
dispute subsequently arose between SportsMed and STI, and SportsMed ceased
making payments after having paid approximately $46,000. STI filed a complaint
on December 30, 1996, alleging damages for breach of contract, conversion,
fraud, negligent misrepresentation, and civil conspiracy. STI claims damages of
not less than $2.3 million on the first two causes of action, and not less than
$1.8 million on the fifth cause of action. The Company does not believe that it
is liable for any amounts other than performance payments under the contract.
Discovery is continuing and the parties are discussing settlement. The matter
has been set for trial on July 22, 1998.
Harvey Scott Schwartz v. LA/Irvine Sports Club, Ltd. and Sports Club,
Inc. of California. (Los Angeles Superior Court). On March 5, 1997, the Company
was served with a class action lawsuit brought on behalf of all male members,
past and present, of The Sports Club/LA and The Sports Club/Irvine. The
complaint alleges that the civil rights of the class have been violated because
of the existence of "women's preferred" gym areas at these facilities. The
complaint seeks approximately $1,000 in damages for each class member. The
Company and its counsel are presently investigating the facts of the case, the
potential size of the class, and the likelihood that a class can or will be
certified by the court. At this stage, the Company has not evaluated the scope
of damages or the amount in controversy. The Company has responded to the
complaint and discovery is continuing. The Company believes the claim is without
merit and will vigorously defend the action. Men are not prevented from using or
excluded from the "women's preferred" gym area and the Company believes that no
civil rights violation has occurred.
R.W. Management Group, Inc. v. Sequoia Athletic Club & Racquetball
World, Et Al. (Los Angeles Superior Court). On January 20, 1998, R.W. Management
Group ("RWMG") filed an action against various Racquetball World-related
entities and individuals (the "RBW Defendants"), the Spectrum Club Company, Inc.
("SCC"), and the Company, alleging, among other things, breach of contract,
breach of fiduciary duty and interference with contract. The complaint seeks
equitable relief (including a temporary restraining order, preliminary and
permanent injunction), unspecified compensatory damages, punitive damages and
attorneys' fees. The contract which RWMG alleges was breached (the "RWMG
Contract") relates to the Racquetball World Club located in Canoga Park, which
facility (the "Canoga Park Club") was acquired by SCC in December 1997. In
connection with that acquisition, SCC acquired the assets thereof and assumed
only certain designated liabilities, none of which related to the RWMG Contract;
all other obligations and liabilities associated with the Canoga Park Club were
retained by the seller. Although neither SCC nor the Company has responded to
the complaint, they believe the allegations against them are without merit, and
they intend to vigorously defend this lawsuit.
Robert Heller v. HealthFitness America, Et Al. (Los Angeles Superior
Court). On November 3, 1997, Dr. Robert Heller ("Dr. Heller") filed an action
against SportsMed, SCC Medical Group, Inc., and the Company, alleging breach of
contract in connection with a 5-year consulting agreement entered into by
SportsMed's predecessor and Dr. Heller. Dr. Heller seeks to recover $162,000 in
consulting fees ($3,000 per month for the balance of the contract's term) and
royalties generated from diagnostic materials allegedly created by Dr. Heller.
The Company, SportsMed, and SCC Medical Group, Inc. have responded to and denied
the allegations of the complaint and discovery is proceeding. Based upon
preliminary investigation, it is believed that neither the Company nor SCC
Medical Group, Inc. have any liability in connection with the contract.
SportsMed may have some minimal exposure for terminating the contract. Damages
will likely be limited because no royalties were ever generated and Dr. Heller
must mitigate damages attributable to unpaid consulting fees. The defendants
will seek mediation and believe an early settlement is likely.
Other Matters. The Company is also involved in various claims and
lawsuits incidental to its business, including claims arising from accidents and
disputes with landlords. However, in the opinion of management, the Company is
adequately insured against such claims and lawsuits involving personal injuries,
and any ultimate liability arising out of any such proceedings will not have a
material adverse effect on the financial condition, cash flow or operations of
the Company.
13
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable
14
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The Company's Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "SCY". The following table sets forth the quarterly
high and low sale prices for the Common Stock for the periods indicated, as
reported by the AMEX.
<TABLE>
<CAPTION>
CALENDAR QUARTER PRICE RANGE OF COMMON STOCK
----------------------------
HIGH LOW
----------- ----------
<S> <C> <C>
Year Ended December 31, 1996:
First Quarter.................................... $ 3.375 $ 2.125
Second Quarter................................... 3.250 2.438
Third Quarter.................................... 3.375 2.313
Fourth Quarter .................................. 3.375 2.375
Year Ended December 31, 1997:
First Quarter.................................... 5.125 2.625
Second Quarter................................... 5.375 4.125
Third Quarter.................................... 8.875 5.250
Fourth Quarter................................... 9.500 7.750
Year Ended December 31, 1998:
First Quarter (through February 26, 1998)........ 9.125 8.250
</TABLE>
As of February 26, 1998 there were 47 stockholders of record of the
Company's Common Stock. The closing price of the Common Stock as reported by the
AMEX on February 26, 1998, was $9.00.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock
and does not anticipate that it will do so in the foreseeable future. It is the
Company's present policy to retain earnings for use in its operations and the
expansion of its business. In addition, the Company's ability to pay cash
dividends is limited by its current financing agreements and may be similarly
limited by future financing agreements.
15
<PAGE> 17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the
captions "Statement of Income Data" and "Balance Sheet Data" are as of the end
of and for each of the years in the five-year period ended December 31, 1997,
and are derived from the consolidated financial statements of the Company. The
information contained in this table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's historical consolidated financial statements,
including the notes thereto, appearing elsewhere herein.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
STATEMENT OF INCOME DATA: 1993(2) 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ............................................ $ 13,195 $ 18,846 $ 34,659 $ 36,918 $ 61,154
Operating expenses:
Direct ........................................... 6,456 10,525 21,730 22,989 43,517
Selling, general and administrative .............. 3,247 3,166 5,486 6,052 6,607
Depreciation and amortization .................... 1,546 1,510 2,775 2,490 3,919
-------- -------- -------- -------- --------
Total operating expenses ....................... 11,249 15,201 29,991 31,531 54,043
-------- -------- -------- -------- --------
Income from operations (1) ................... 1,946 3,645 4,668 5,387 7,111
Other income (expense):
Interest ......................................... (538) (1,213) (2,600) (2,682) (3,206)
Minority interests ............................... -- (29) (150) (150) (22)
Equity interest in net income
of unconsolidated subsidiaries ............... 212 641 860 631 696
Non-recurring items .............................. -- -- -- (300) (2,025)
-------- -------- -------- -------- --------
Total other income (expense) ................... (326) (601) (1,890) (2,501) (4,557)
-------- -------- -------- -------- --------
Income before income taxes (1) ............... 1,620 3,044 2,778 2,886 2,554
Provision for income taxes (1) ...................... 645 1,244 1,139 1,183 1,014
-------- -------- -------- -------- --------
Net income ..................................... $ 975 $ 1,800 $ 1,639 $ 1,703 $ 1,540
======== ======== ======== ======== ========
Net income per share:
Basic .......................................... $ 0.14 $ 0.23 $ 0.14 $ 0.15 $ 0.12
======== ======== ======== ======== ========
Diluted ........................................ $ 0.14 $ 0.23 $ 0.14 $ 0.15 $ 0.12
======== ======== ======== ======== ========
Net income per share before
non-recurring items (Basic and Diluted) ............ $ 0.14 $ 0.23 $ 0.14 $ 0.17 $ 0.22
======== ======== ======== ======== ========
Weighted-average number of common shares outstanding:
Basic .......................................... 6,850 7,836 11,353 11,355 12,524
======== ======== ======== ======== ========
Diluted (3) .................................... 6,850 7,836 11,357 11,360 12,683
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 209 $ 5,042 $ 1,545 $ 4,146 $ 1,581
Current assets ................. 2,478 7,398 7,147 7,341 4,926
Property and equipment, net .... 2,794 59,811 59,956 72,736 106,791
Total assets ................... 11,561 81,676 83,161 95,697 131,561
Deferred membership revenue .... 2,503 5,878 5,614 7,481 9,936
Current liabilities ............ 5,480 11,194 11,355 14,159 26,844
Long-term debt including current 4,818 33,489 32,913 38,497 50,798
installments
Shareholders'/Owners' equity ... 2,780 37,823 39,491 41,202 58,477
</TABLE>
- ---------------------
16
<PAGE> 18
(1) Prior to October 20, 1994, the Company operated through various partnerships
and corporations. Historical data for periods through October 20, 1994, have
been adjusted to reflect compensation and tax provisions as if the Company
had operated as a corporation during such period.
(2) Effective March 1, 1993, the Company entered into a joint venture management
agreement relating to the operation of the Sports Connections. As a result
of this agreement, the Company's expenses with respect to these Clubs were
substantially eliminated, though the Company continued to receive revenues,
through 1995, from memberships sold prior to the date of the transaction.
Therefore, the results of operations for the year ended December 31, 1993
are not comparable to future periods.
(3) Does not include up to 159,081 shares to be issued on December 31, 1998, as
consideration for the acquisition of the Spectrum Clubs acquired from
Racquetball World.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere herein.
The Reebok Sports Club/NY was accounted for under the equity method of
accounting until December 30, 1996, at which time the Company acquired a
majority interest in the Club and, as a result, the operations of the Reebok
Sports Club/NY were consolidated with those of the Company. The Spectrum
Club/Manhattan Beach is accounted for under the equity method of accounting.
In July 1997, the Company opened the Spectrum Club/Valencia and, in
August 1997, acquired a Club located in Henderson, Nevada which is operated as
The Sports Club/Las Vegas in a transaction accounted for as a purchase. On
December 31, 1997, the Company acquired four Clubs from Racquetball World in a
transaction accounted for as a purchase; these Clubs are located in Southern
California and are now operated as Spectrum Clubs. Seasonal factors have not had
a significant effect on the Company's operating results.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
Revenues for the year ended December 31, 1997, were $61.2 million,
compared to $36.9 million for 1996, an increase of $24.3 million or 65.9%. An
increase of $18.1 million resulted from the inclusion of revenues of the Reebok
Sports Club/NY, which was consolidated into the Company following the
acquisition of a majority interest in the Club on December 30, 1996. An increase
of $1.6 million resulted from the opening of the Spectrum Club/Valencia, an
increase of $2.2 million resulted from the acquisition of The Sports Club/Las
Vegas and an increase of $900,000 resulted from growth at the remaining Clubs.
An increase of $1.5 million in revenues from SportsMed also contributed to the
overall increase.
Direct operating expenses increased to $43.5 million for the year ended
December 31, 1997, compared to $23.0 million for 1996. The increase resulted
primarily from the inclusion of operating expenses at the Reebok Sports Club/NY
as well as the opening of the Spectrum Club/Valencia and the acquisition of The
Sports Club/Las Vegas. Direct operating expenses as a percentage of revenues
increased to 71.2% for 1997 compared to 62.3% for 1996 due to lower margins at
the Reebok Sports Club/NY and the Spectrum Club/Valencia. Newly developed Clubs
historically operate at lower margins due to various fixed expenses such as
rent, utilities and certain payroll costs until the membership base reaches a
mature level. Similarly, newly acquired Clubs may also perform at lower margins
prior to and during implementation of new policies and programs.
Selling, general and administrative expenses were $6.6 million for the
year ended December 31, 1997, compared to $6.1 million for 1996. Selling costs
increased approximately $211,000 due to the consolidation of direct selling
expenses incurred at the Reebok Sports Club/NY, the opening of the Spectrum
Club/Valencia and the acquisition of The Sports Club/Las Vegas. General and
administrative costs increased by approximately
17
<PAGE> 19
$300,000 due to increases in corporate overhead and the addition of personnel to
accommodate new Clubs. Selling, general and administrative costs decreased as a
percentage of revenue from 16.4% for 1996 to 10.8% for 1997. This percentage
decrease resulted from the consolidation of the Reebok Sports Club/NY revenues
without a corresponding increase in general and administrative costs because the
Company managed the Club prior to the consolidation.
Depreciation and amortization expenses were $3.9 million for the year
ended December 31, 1997, compared to $2.5 million for 1996. The increase is due
primarily to the consolidation of the Reebok Sports Club/NY, the opening of the
Spectrum Club/Valencia and the acquisition of The Sports Club/Las Vegas.
Interest expense was $3.2 million in the year ended December 31, 1997, compared
to $2.7 million for 1996. Interest expense of $340,000 at the Reebok Sports
Club/NY and interest on new capital lease financings was partially offset by
increased interest income due to more available cash for investment and lower
interest expenses as other indebtedness matured.
Equity interest in net income of unconsolidated subsidiary was $696,000
for 1997 compared to $631,000 for 1996. These amounts are associated with the
Spectrum Club/Manhattan Beach's operations and the increase reflects the
Company's share of the improved profitability at that Club. Equity in the
operations of the Reebok Sports Club/NY was not significant for 1996.
The Company's net income before income taxes and non-recurring items was
$4.6 million for the year ended December 31, 1997 compared to $3.2 million for
1996. Non-recurring items for 1997 consisted of litigation settlement costs of
$2.0 million, paid to Century Entertainment Center, L.P., relating to the
closing of the Century City Spectrum Club in July 1995. Non-recurring items for
1996 consisted of a loss of $300,000 recognized on the sale of five Sports
Connection Clubs.
The Company's estimated income tax rate was 38% for the year ended
December 31, 1997, and 41% for 1996, resulting in net income of $1.5 million for
the year ended December 31, 1997, compared to net income of $1.7 million in
1996. After-tax net income before non-recurring items was $2.8 million for 1997,
compared to $1.9 million for 1996. The lower tax rate for 1997 resulted from the
reduction of valuation allowances on certain deferred income tax assets. Basic
and diluted earnings per share were $.12 and $.15 for the years ended December
31, 1997 and 1996, respectively. Basic and diluted earnings per share excluding
non-recurring items were $.22 and $.17 for the years ended December 31, 1997 and
1996, respectively.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Revenues for the year ended December 31, 1996 were $36.9 million,
compared to $34.7 million for 1995, an increase of $2.2 million or 6.3%.
Revenues increased by $289,000 as a result of greater management fees earned
from the Reebok Sports Club/NY, which opened in April 1995, by $359,000 as a
result of increased revenues from SportsMed and by $2.9 million as a result of
higher membership dues and increased ancillary revenues at existing Clubs. These
increases were partially offset by a decrease in revenues resulting from the
closure of the Spectrum Club/Century City in July 1995.
Direct operating expenses increased to $23.0 million for 1996 compared to
$21.7 million for 1995, an increase of $1.3 million, or 6.0%. SportsMed, which
was acquired on November 30, 1995, was responsible for an increase in direct
costs of $442,000, while Club operating expenses increased $858,000. Direct
operating expenses as a percentage of revenues decreased to 62.3% for 1996
compared to 62.7% for 1995. Direct operating costs without those costs
associated with SportsMed were 61.7% of revenue for 1996.
Selling, general and administrative expenses were $6.1 million for 1996
compared to $5.5 million for 1995, an increase of $600,000, or 10.9%. SportsMed
was responsible for an increase in selling, general and administrative costs of
$519,000 in 1996. The remaining increase was due to increases in corporate
overhead. As a percentage of revenues, selling, general and administrative
expenses were 16.4% for 1996 compared to 15.8% for 1995. Selling, general and
administrative expenses without those costs associated with SportsMed were 14.8%
of revenue for 1996.
18
<PAGE> 20
Depreciation and amortization expense was $2.5 million for 1996 compared
to $2.8 million for 1995, a decrease of $300,000, or 10.7%. This decrease was
primarily due to the sale of five Sports Connection Clubs in 1996. Interest
expense was $2.7 million for 1996 compared to $2.6 million for 1995.
In 1996, equity interest in net income of unconsolidated subsidiaries was
$631,000 compared to $860,000 in 1995. The Company did not record any income
from the Sports Connections for 1996 compared to $437,000 for 1995. The 1996
amounts and $443,000 in 1995 are associated primarily with the Spectrum
Club/Manhattan Beach's operations. Equity in the operations of the Reebok Sports
Club/NY was not significant during these periods.
Non-recurring items in 1996 included a $300,000 loss resulting from the
sale of five Sports Connection Clubs.
The Company's estimated income tax rate was 41% for the year ended
December 31, 1996 and 1995, resulting in net income of $1.7 million for the year
ended December 31, 1996 compared to net income of $1.6 million for 1995. Basic
and diluted earnings per share were $.15 and $.14 for the year ended December
31, 1996 and 1995, respectively. Basic and diluted earnings per share excluding
non-recurring items were $.17 and $.14 for the years ended December 31, 1996 and
1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the years ended December 31, 1997 and 1996, the Company generated
$4.5 million and $3.6 million of cash from operating activities, respectively.
At December 31, 1997, the Company had a cash balance of $1.6 million of which
$417,000 was held by the Reebok-Sports Club/NY partnership. The remaining $1.2
million was available for general corporate purposes.
On January 29, 1997, the Company instituted a stock repurchase program to
repurchase up to $3.0 million of the outstanding Common Stock. Pursuant to this
program, which was terminated in February 1998, the Company repurchased 184,766
shares of Common Stock at an aggregate cost of approximately $1.0 million or a
weighted-average price of approximately $5.58 per share.
In connection with the 1994 acquisition of The Sports Club/Irvine, MKDG
Partners agreed to pay the Company for each of the years ending December 31,
1994, 1995 and 1996, the lesser of approximately $1.0 million or the amount by
which The Sports Club/Irvine's earnings before depreciation and the Company's
administrative overhead relating to the Club for such year was less than
approximately $2.9 million. The Company received $500,000 in 1997 relating to
the 1996 shortfall. No further amounts will be received from MKDG Partners.
In June 1997, the Company issued 2,105,263 shares of its Common Stock to
Millennium in exchange for $5.0 million in cash and certain interests of
Millennium in the Reebok-Sports Club/NY partnership, including a 9.9% ownership
interest in and a $2.5 million note receivable from the partnership. The Company
currently owns a 60% interest in the Reebok-Sports Club/NY partnership. At
December 31, 1997, the Reebok-Sports Club/NY partnership had outstanding notes
payable of $2.6 million to a third party under a loan secured by equipment and
$3.6 million to the Company, which note is eliminated when presenting the
Company's December 31, 1997 consolidated balance sheet. The Reebok-Sports
Club/NY partnership achieved a positive operating cash flow in September 1995
and has improved its operations since that date. The Club is expected to
continue to improve its operating results in the future as membership levels
increase (although there can be no assurance when, if ever, such increases may
occur). The Reebok-Sports Club/NY partnership is required to pay $900,000 per
year to repay an equipment loan and $2.0 million per year to Millennium as rent.
Available cash flows of the Reebok-Sports Club/NY partnership will then be used
as follows: (i) $3.0 million per year will be used to pay to Millennium a
priority distribution, which is accounted for by the Company as additional rent
expense; and (ii) remaining cash will be distributed to the Company to satisfy
the note payable, accrued management fees and certain additional priority
distributions, which at December 31, 1997, aggregated $15.4 million. After these
amounts plus interest thereon, are paid, the Company is entitled to 60% of
future cash distributions.
19
<PAGE> 21
In July 1997, the Company opened the 57,000 square foot Spectrum
Club/Valencia. The Company's investment in the property and equipment at this
Club was approximately $4.0 million, of which $1.0 million was obtained by
equipment financing. Amounts borrowed by the Company pursuant to this financing
arrangement are generally repayable in monthly installments over five years,
with effective interest rates ranging between 8% and 10% per annum.
In July 1997, the Company acquired SportsTherapy Systems, Inc., a
physical therapy and rehab clinic located in Calabasas, California, for
approximately $485,000 in cash plus the assumption of various liabilities in the
amount of approximately $187,000, most of which consisted of bank indebtedness,
which was repaid during 1997.
In August 1997, the Company acquired a Club located in Henderson, Nevada
which is now operated as The Sports Club/Las Vegas. This Club reported gross
revenues of approximately $5.6 million during the 12 months ended December 31,
1997. This acquisition was completed with approximately $4.3 million of cash,
equipment financing of $750,000 and the issuance of 290,358 shares of the
Company's Common Stock having a value of approximately $1.7 million. The Company
expects to invest approximately $1.0 million over the next 12 months to make
improvements to this Club.
In December 1997, the Company acquired four Clubs from Racquetball World
for a total purchase price of approximately $19.4 million, consisting of $6.0
million in cash, $10.0 million in lease financing provided by Millennium, the
assumption of $2.0 million of debt and the agreement to issue to certain of the
selling entities ("Sellers") up to 159,081 shares of Common Stock (which shares
will be issued to Sellers on December 31, 1998, subject to reduction if certain
liabilities of the Clubs exceed agreed-upon amounts); these Clubs are now
operated as Spectrum Clubs. These four Clubs reported gross revenues of
approximately $8.9 million during the 12 months ended September 30, 1997.
Millennium acquired properties underlying two of the Clubs for $10.0 million and
is leasing these properties to the Company under a financing lease agreement
which is reflected as a capital lease obligation in the Company's consolidated
balance sheet. The lease has a term of 20 years and provides for annual rent of
$1.0 million for the first 10 years and $1.2 million per year thereafter. At any
time during the first three years of the lease, the Company may purchase the
leased property from Millennium for a purchase price equal to $10.0 million plus
all costs incurred by Millennium in connection with the acquisition of such
property, plus an amount sufficient to provide to Millennium a 12% compound
return on its total investment. Millennium has the right to require the Company
to acquire its interest in the property at such price if (i) the Company
receives private debt financing in excess of $95.0 million; (ii) the Company
receives public equity financing in excess of $20.0 million; (iii) a default (as
defined in the lease) occurs; or (iv) a major casualty occurs with respect to
either property. The Company sold 625,000 shares of its Common Stock to
Millennium for $5.0 million to raise capital to complete this acquisition. The
Company expects to spend approximately $4.0 million over the next 12 months in
order to renovate the recently-acquired Clubs and $2.0 million for new equipment
at these Clubs.
In December 1997, the Company acquired real property and a vacant
building in Thousand Oaks, California for $6.0 million which it expects to
redevelop as a Spectrum Club. The Company used $5.0 million of its bank credit
facility to fund this purchase. The Company expects to invest an additional $4.5
million in development costs over a nine-month period to complete construction
of this Club. The Company has entered into a lease with respect to the
development of a Spectrum Club in Anaheim Hills, California, which is currently
estimated to require approximately $2.7 million in development funds, expected
to be invested over the next eighteen months.
The Company has entered into lease agreements with respect to the
development of Sports Clubs in Washington, D.C. and San Francisco, California
and announced its intention to develop a Sports Club in Boston, Massachusetts.
These projects are scheduled to begin construction in early 1998. The Company's
portion of the development costs for these Clubs is currently estimated to be
approximately $9.0 million and is expected to be invested over a 12-month period
beginning in 2000.
20
<PAGE> 22
Other than as described herein and for normal replacement of fitness
equipment and remodeling of Clubs, the Company has no commitments for capital
expenditures. The Company expects to spend approximately $1.2 million during the
next 12 months to upgrade its management information systems. Equipment
financing has generally been available under capital lease arrangements. During
1996 and 1997, the Company obtained lease financing commitments aggregating
approximately $3.0 million which were used to finance new equipment at the
Spectrum Club/Valencia, to purchase equipment at The Sports Club/Las Vegas and
to finance normal capital expenditures at existing Clubs. At December 31, 1997,
$600,000 was still available under these facilities. The Company is currently
seeking an additional $5.0 million lease financing commitment for expected
equipment additions at the recently-acquired Spectrum Clubs, the Spectrum
Club/Thousand Oaks and for normal equipment expenditures. While capital
expenditures may fluctuate from time to time, generally the Company expects to
spend approximately 4% of revenues on facility and equipment upgrades and
replacements. In 1997, the Company invested approximately $2.5 million in
capital expenditures other than those related to new Club development.
Equipping new Clubs requires expenditures above this level.
On February 27, 1998, the Company filed a Registration Statement with
the Securities and Exchange Commission relating to the proposed offering (the
"Offering") by the Company of up to 6,000,000 shares of Common Stock (6,900,000
including the Underwriter's over-allotment option).
The Company issued a note (the "Sports Club/LA Note") which is secured by
all the assets of The Sports Club/LA. The Sports Club/LA Note bears interest at
a rate per annum equal to 10.63% and requires monthly installment payments of
approximately $262,000 with the remaining principal balance of approximately
$17.5 million due and payable on April 1, 2003. The Sports Club/LA Note may be
extended by the Company for a period of five years under certain circumstances.
The Sports Club/LA Note is not subject to prepayment until April 1, 2000;
however, AT&T has agreed to permit the Company to prepay the loan on or before
March 31, 1998 provided it pays to AT&T a prepayment fee of approximately $2.8
million. The Company intends to repay The Sports Club/LA Note from the proceeds
of the Offering. The note requires the Club to maintain a debt service coverage
ratio, as defined, of 1.4 to 1.0.
The Company issued a note (the "The Sports Club/Irvine Note") which is
secured by land, equipment, building improvements and the building housing The
Sports Club/Irvine. The Sports Club/Irvine Note was issued in connection with
the acquisition of The Sports Club/Irvine, which bears interest at the rate of
6%, requires quarterly principal payments of $125,000 (which commenced in
November 1996), and requires a payment of $4.0 million on November 1, 1999.
The Company issued a note (the "Spectrum Club/Agoura Hills Note") which
is secured by the land, equipment, building improvements and the building
housing the Spectrum Club/Agoura Hills. The Spectrum Club/Agoura Hills Note was
issued to enable the Company to complete its acquisition of the Spectrum
Club/Agoura Hills. The note bears interest at the rate of 8.5%. Monthly
principal and interest payments of $20,107 are required through the note's
maturity in April 2024.
At December 31, 1997 the Company had a $5.0 million credit facility. This
facility was fully utilized at that date. On February 23, 1998, the amount of
the facility was increased to $15.0 million. As of February 25, 1998, the amount
outstanding under the credit facility was approximately $7.8 million. The
Company may borrow funds under this facility until the earlier of June 30, 1998,
or consummation of certain financing transactions by the Company, including the
Offering. Upon consummation of such a financing transaction, the facility is due
and payable in full. Advances under the facility bear interest at a variable
rate equal to LIBOR plus 2 -1/2% or the lender's prime rate plus -1/2%. At
February 25, 1998, the advances accrued interest at the weighted-average rate of
8.33% per annum. The Company is seeking to renew and increase its credit
facility upon completion of the Offering; however, there can be no assurance
that any such renewal or increase will occur on terms favorable to the Company.
The net proceeds of the Offering would be used to repay approximately
$45.5 million of debt, to provide funds for future developments and/or
acquisitions and for general corporate purposes. However, there can be no
assurance that the Offering will be completed. The Company's long-term capital
needs are to provide funds for the developments described above, additional
development and acquisition projects and general corporate purposes. The Company
estimates that its capital expenditures for the next 12 months on the projects
currently under development will be approximately $16.8 million, which would be
financed through the net proceeds of the
21
<PAGE> 23
Offering, bank facilities and lease financings. The Company's strategy of
opportunistically acquiring additional Clubs is expected to require additional
capital. The Company believes there are a number of financing alternatives
available, including commercial credit facilities, equipment financing, mortgage
financing, and public and private debt and equity offerings. The Company will
also consider entering into joint venture and partnership agreements for the
purpose of developing new Clubs. The Company believes that the estimated net
proceeds of the Offering, together with operating cash flows and available
financings, would be sufficient for the Company's working capital and capital
expenditure needs for at least the next 12 months. However, there can be no
assurance that any such financing will be available, or if available, will be
available on commercially reasonable terms. To the extent that the Company is
unable to obtain additional financing on acceptable terms, the Company will be
forced to delay or limit its development and acquisition plans and may be unable
to fulfill its obligations under the leases described above.
FORWARD LOOKING STATEMENTS
The foregoing discussion and other published documents contain
forward-looking statements relating to the future operations of the Company,
including the Reebok Sports Club/NY and SportsMed, the adequacy of the Company's
cash for its anticipated requirements, and other matters. These forward-looking
statements are based on a series of projections and assumptions regarding the
economy, other statements which are not historical facts, the Company's
operations and the sports and fitness industry in general. These projections and
assumptions involve certain risks and uncertainties that could cause actual
results to differ materially from those included in the forward-looking
statement. Furthermore, actual results may differ from projected results as a
result of unforeseen developments relating to demand for the Company's services
and competitive pricing trends in the health and fitness market; increased
expenses; the success of planned advertising, marketing and promotional
campaigns; changes in personnel or compensation; business interruptions
resulting from earthquakes, landlord disputes or other causes; general market
acceptance of new and existing Clubs operated by the Company; changes in
membership growth patterns; the success of new products; and regulatory or legal
proceedings and rulings which might adversely affect the Company. Investors are
also directed to consider other risk and uncertainties discussed in all
documents filed by the Company with the SEC. The Company expressly disclaims any
obligation to update any forward-looking statements as a result of developments
after the date hereof.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"). SFAS 130 establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS 130
requires all items that are required to be recognized under accounting standards
as components of comprehensive income to be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period covered by that financial statement. SFAS 130 requires an enterprise
to (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. Management has not
determined whether the adoption of SFAS 130 will have a material impact on the
Company's consolidated financial position or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, Financial Reporting for Segments of a Business Enterprise, but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among
22
<PAGE> 24
other items, that a public business enterprise report a measure of segment
profit or loss, certain specific revenue and expense items, and segment assets,
information about the revenues derived from the enterprise's products or
services, and major customers. SFAS 131 also requires that the enterprise report
descriptive information about the way that the operating segments were
determined and the products and services provided by the operating segments.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. SFAS 131 need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application. Management has not determined whether the adoption of SFAS 131 will
have a material impact on the Company's financial reporting.
RECENT DEVELOPMENTS
Not applicable
23
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1996 and 1997 F-2
Consolidated Statements of Income for the Three-Year Period ended December 31, F-3
1997
Consolidated Statements of Shareholders' Equity for the Three-Year Period ended F-4
December 31, 1997
Consolidated Statements of Cash Flows for the Three-Year Period ended December F-5
31, 1997
Notes to Consolidated Financial Statements F-6
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable
24
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Sports Club Company, Inc.:
We have audited the accompanying consolidated financial statements of The Sports
Club Company, Inc. and subsidiaries (the Company) as listed in the accompanying
index. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of The Sports Club Company, Inc. and subsidiaries as of December 31,
1996 and 1997, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1997, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
February 13, 1998, except for note 6,
which is as of February 23, 1998.
F-1
<PAGE> 27
THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents, includes $727 escrowed
construction funds in 1996 $ 4,146 $ 1,581
Accounts receivable, net of allowance for doubtful
accounts of $57 and $385 in 1996 and 1997, respectively 1,376 2,072
Inventories 395 813
Other current assets 381 354
Due from affiliates 1,043 106
--------- ---------
Total current assets 7,341 4,926
Property and equipment, net 72,736 106,791
Equity interest in unconsolidated subsidiary 642 862
Costs in excess of net assets acquired, less accumulated
amortization of $454 and $822 in 1996 and 1997,
respectively 13,552 15,917
Organizational costs and other assets, net 1,426 3,065
--------- ---------
$ 95,697 $ 131,561
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable and
capitalized lease obligations $ 2,470 $ 2,975
Notes payable to bank -- 5,000
Accounts payable 1,431 948
Accrued liabilities 2,777 7,985
Deferred membership revenues 7,481 9,936
--------- ---------
Total current liabilities 14,159 26,844
Notes payable and capitalized lease obligations,
less current installments 36,027 42,823
Deferred lease obligations 3,309 2,817
Minority interest 1,000 600
--------- ---------
Total liabilities 54,495 73,084
Preferred stock, $.01 par value 1,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, $.01 par value, 40,000,000 shares authorized;
11,358,000 and 14,382,621 shares issued and outstanding at
December 31, 1996 and 1997, respectively 114 144
Additional paid-in capital 36,935 53,613
Retained earnings 4,153 5,674
Less: Treasury stock, at cost, 163,976 shares -- (954)
--------- ---------
Total shareholders' equity 41,202 58,477
--------- ---------
$ 95,697 $ 131,561
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 28
THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE-YEAR PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues $ 34,659 $ 36,918 $ 61,154
Operating expenses:
Direct 21,730 22,989 43,517
Selling, general and administrative 5,486 6,052 6,607
Depreciation and amortization 2,775 2,490 3,919
-------- -------- --------
Total operating expenses 29,991 31,531 54,043
-------- -------- --------
Income from operations 4,668 5,387 7,111
Other income (expense):
Interest (2,600) (2,682) (3,206)
Minority interests (150) (150) (22)
Equity interest in net income of unconsolidated
subsidiaries 860 631 696
Non-recurring items -- (300) (2,025)
-------- -------- --------
Total other income (expense) (1,890) (2,501) (4,557)
-------- -------- --------
Income before income taxes 2,778 2,886 2,554
Provision for income taxes 1,139 1,183 1,014
-------- -------- --------
Net income $ 1,639 $ 1,703 $ 1,540
======== ======== ========
Net income per share:
Basic $ 0.14 $ 0.15 $ 0.12
======== ======== ========
Diluted $ 0.14 $ 0.15 $ 0.12
======== ======== ========
Weighted average number of common shares outstanding:
Basic 11,353 11,355 12,524
======== ======== ========
Diluted 11,357 11,360 12,683
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 29
THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE-YEAR PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Treasury
Common Stock Paid-in Stock
---------------------- ------- Retained ---------------------
Shares Amount Capital Earnings Shares Amount
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 11,350 $ 114 $36,898 $ 811 -- --
Net income -- -- -- 1,639 -- --
Issuance of common stock to outside directors 5 -- 29 -- -- --
------- ------- ------- ------- ------- -------
Balance, December 31, 1995 11,355 114 36,927 2,450 -- --
Net income -- -- -- 1,703 -- --
Issuance of common stock to outside directors 3 -- 8 -- -- --
------- ------- ------- ------- ------- -------
Balance, December 31, 1996 11,358 114 36,935 4,153 -- --
Net income -- -- -- 1,540 -- --
Sale of common stock 2,730 27 14,973 -- -- --
Issuance of common stock in connection with
acquistion of The Sports Club/Las Vegas 291 3 1,672 -- -- --
Treasury stock repurchased -- -- -- -- 185 $(1,034)
Reissuance of treasury stock for employee stock plans -- -- -- (19) (21) 80
Issuance of common stock to outside directors 4 -- 33 -- -- --
------- ------- ------- ------- ------- -------
Balance, December 31, 1997 14,383 $ 144 $53,613 $ 5,674 164 $ (954)
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 30
THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,639 $ 1,703 $ 1,540
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,775 2,490 3,919
Accrued management fees (502) (97) --
Equity interest in net income of unconsolidated subsidiaries (860) (631) (696)
Distributions from unconsolidated subsidiaries 320 623 469
Stock issued as directors' fees 29 8 33
Loss on sale of Sports Connections -- 300 --
Minority interest in Reebok-Sports Club/NY -- -- (128)
(Increase) decrease in:
Accounts receivable, net (23) 149 (1,176)
Inventories 42 105 (395)
Other current assets (106) (12) (2,187)
Increase (decrease) in:
Accounts payable 1,011 (816) (493)
Accrued liabilities (908) 225 2,519
Deferred membership revenues (263) (633) 1,635
Deferred lease obligations 312 211 (492)
-------- -------- --------
Net cash provided by operating activities 3,466 3,625 4,548
Cash flows from investing activities:
Capital expenditures (929) (2,788) (4,899)
Business acquisitions, net of cash acquired (1,255) (2,118) (10,778)
Proceeds from sale of Sports Connections -- 3,569 --
Sale (purchase) of other non-operating assets (33) 95 --
Treasury stock acquired -- -- (1,034)
-------- -------- --------
Net cash used for investing activities (2,217) (1,242) (16,711)
Cash flows from financing activities:
(Increase) decrease in due from affiliates (2,658) 540 937
Proceeds from sale of common stock -- -- 10,000
Proceeds from notes payable and capitalized lease obligations -- 23,371 2,324
Repayments of notes payable and capitalized lease obligations (2,058) (23,693) (3,663)
Distributions and redemptions of partnership interests (30) -- --
-------- -------- --------
Net cash provided by (used for) financing activities (4,746) 218 9,598
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (3,497) 2,601 (2,565)
Cash and cash equivalents at beginning of year 5,042 1,545 4,146
-------- -------- --------
Cash and cash equivalents at end of year $ 1,545 $ 4,146 $ 1,581
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 2,585 $ 3,068 $ 3,599
======== ======== ========
Cash paid during the year for income taxes $ 1,473 $ 590 $ 306
======== ======== ========
Capital expenditures financed $ -- $ 153 $ 7,223
======== ======== ========
Stock issued in exchange for interest in Reebok-Sports Club/NY $ -- $ -- $ 5,000
======== ======== ========
Stock issued as partial consideration for The Sports Club/Las Vegas $ -- $ -- $ 1,675
======== ======== ========
Acquisitions of land & building under capital lease $ -- $ -- $ 10,000
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 31
THE SPORTS CLUB COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION
The Sports Club Company, Inc. (the "Company") operates sports and fitness Clubs
("Clubs"), primarily under the "Sports Club" and "Spectrum Club" names. Sports
Clubs have been developed as "urban country clubs" offering a full range of
services including numerous fitness and recreation options, diverse facilities
and other amenities. Spectrum Clubs are designed as smaller-scale Sports Clubs
with an extensive but smaller range of services. Both Sports Clubs and Spectrum
Clubs are marketed to affluent, health conscience individuals who desire a
premier Club.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Revenue Recognition
The Company receives a one-time non-refundable initiation fee and monthly dues
from its members. Substantially all of the Company's members join on a
month-to-month basis and can therefore cancel their membership at any time.
Initiation fees and related direct expenses, primarily sales commissions, are
deferred and recognized, on a straight-line basis, over an estimated membership
period of between two and one half and three years. Dues that are received in
advance are recognized on a pro-rata basis over the periods in which services
are to be provided.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market using the average cost
method.
Depreciation and Amortization
Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the assets, ranging from five to seven years for
equipment and 31.5 to 40 years for buildings. Leasehold improvements are
amortized using the straight-line method over the shorter of the lease term or
the estimated useful life of the improvements. Loan costs are amortized over the
terms of the related loans and organizational costs are amortized over five
years.
Predevelopment Costs
Predevelopment costs consisting of architectural and feasibility expenditures
incurred for certain prospective health and fitness projects are capitalized and
included in "Organizational costs and other assets" in the consolidated balance
sheet. Projects are reviewed periodically by management for viability. Should a
project be deemed not viable for construction, such related costs are charged to
operations at the time of determination. The Company has predevelopment costs in
the amount of $53,000 and $1.6 million
F-6
<PAGE> 32
at December 31, 1996 and 1997 respectively. Amounts charged to operations for
discontinued projects were $56,000 in the year ended December 31, 1997.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This Statement
requires that long lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net undiscounted operating cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. Adoption of
this Statement had no impact on the Company's financial position, results of
operation or liquidity.
Intangible Assets
The costs in excess of net assets of acquired businesses resulting from the
acquisitions referred to in Note 3 are being amortized on a straight-line basis
over a period of 40 years. The Company follows the provisions of SFAS No. 121
and periodically evaluates the carrying value of intangible assets and considers
the ability to generate positive cash flow through undiscounted future operating
cash flows of the acquired operation as the key factor in determining whether
the assets have been impaired. The Company has not experienced an impairment of
value of any of its intangible assets as of December 31, 1997.
Equity Interest in Unconsolidated Subsidiary
Equity interest in unconsolidated subsidiary consists of a 46.1% interest in a
Spectrum Club located in Manhattan Beach, California. The Company allocates
profits and losses on a basis defined in the partnership agreement. Summary
financial information of the unconsolidated subsidiary is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------
1996 1997
------ ------
(Amounts in thousands)
<S> <C> <C>
Revenues $5,634 $6,392
Net income 1,237 1,517
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-------------------
1996 1997
------ ------
(Amounts in thousands)
<S> <C> <C>
Current assets $ 522 $ 615
Non-current assets 2,653 2,769
------ ------
Total assets $3,175 $3,384
====== ======
Current liabilities $1,444 $1,281
Non-current liabilities 539 444
------ ------
Total liabilities 1,983 1,725
Partners' capital 1,192 1,659
------ ------
Total liabilities and partners' capital $3,175 $3,384
====== ======
</TABLE>
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred income taxes are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be applied to taxable
F-7
<PAGE> 33
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share, which is required to be adopted on December 31, 1997. SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is similar to the previously
required fully diluted earnings per share. SFAS No. 128 also requires dual
presentation of basic and diluted earnings per share on the face of the
statement of earnings for entities with complex capital structures and requires
a reconciliation of the numerator and denominator of the basic earnings per
share computation to the numerator and denominator of the diluted earnings per
share computation. SFAS No. 128 did not have a material impact on the Company.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions. These affect the reporting of assets and liabilities, the
disclosure of any contingent assets and liabilities and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from these estimates.
Fair Value of Financial Instruments
The carrying amounts of financial instruments approximate fair value as of
December 31, 1997. The carrying amounts related to cash and cash equivalents,
accounts receivable, other current assets and accounts payable approximate fair
value due to the relatively short maturity of such instruments. The fair value
of long-term debt is estimated by discounting the future cash flows of each
instrument at rates currently available to the Company for similar debt
instruments of comparable maturities by the Company's bankers.
Year 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company has completed
a year 2000 impact analysis. Financial accounting systems were recently
installed which already are year 2000 compliant. The Company is currently
implementing a new membership accounting and information system which will be
year 2000 compliant. The cost of the new system, along with necessary equipment
is estimated to be $1.2 million and will be capitalized pursuant to the
Company's accounting policies.
3. ACQUISITIONS
SportsMed
On November 30, 1995, the Company acquired 100% of the stock of The SportsMed
Company, Inc. ("SportsMed") formerly known as HealthFitness Organization of
America, Inc. The acquisition was accounted for as a purchase. Accordingly, the
operations of SportsMed are included in the accompanying statement of income
from the date of acquisition.
On July 1, 1997, the Company acquired the assets of SportsTherapy Systems, Inc.
("STS"), a physical therapy and rehab clinic located in Calabasas, California
for approximately $485,000 in cash plus the assumption of various liabilities in
the amount of $187,000. STS has been merged into the Company's SportsMed
subsidiary. In addition, the Company entered into an employment agreement with
the seller of STS pursuant to which the seller is managing the operations of
SportsMed. The acquisition was accounted
F-8
<PAGE> 34
for as a purchase. Accordingly, the operations of STS are included in the
Company's statement of income from the date of acquisition.
Sports Clubs
On December 30, 1996, the Company acquired an additional 10.1% interest in The
Reebok-Sports Club/NY partnership for $2.5 million which resulted in an increase
of the Company's total ownership in the partnership to 50.1%. This acquisition
was accounted for as a purchase and accordingly, the operations of the Club are
included in the Company's consolidated statements of income from the date of
acquisition. Prior to this acquisition, the Company's interest was recorded
under the equity method of accounting. Goodwill of approximately $3.8 million
resulted from this transaction.
On June 23, 1997, the Company completed the sale of 2,105,263 shares of its
Common Stock to Millennium Entertainment Partners, L.P., (including affiliated
entities, hereafter referred to as "Millennium"). In exchange for the newly
issued shares, the Company received $5.0 million cash, Millennium's 9.9%
Partnership interest in The Reebok-Sports Club/NY Partnership, a $2.5 million
note due from the Partnership and Millennium's rights to certain accrued
management fees due from the Partnership. This transaction increased the
Company's ownership in the Partnership to 60%. The Company also signed
definitive leases with Millennium to jointly develop Sports Clubs in Washington
D.C. and San Francisco, California on properties currently under development by
Millennium. The Company has also signed a letter of intent to develop a Sports
Club in Boston, Massachusetts on property currently under development by
Millennium.
On August 1, 1997, the Company acquired a Club in Henderson, Nevada which is now
operated as The Sports Club/Las Vegas. The purchase price of approximately $6.7
million consisted of $5.0 million in cash and 290,358 shares of the Company's
Common Stock, valued at approximately $1.7 million. The acquisition was
accounted for as a purchase. Accordingly, the operations of The Sports Club/Las
Vegas are included in the Company's statement of income from the date of
acquisition.
Spectrum Clubs
On December 31, 1997, the Company acquired four Clubs from Racquetball World,
which are now operated as Spectrum Clubs, for a total purchase price (including
the portion paid by Millennium described below) of approximately $19.4 million.
Millennium acquired properties underlying two of the Clubs for $10.0 million and
is leasing these two properties to the Company under a financing lease agreement
which is reflected as capitalized lease obligations in the Company's
consolidated balance sheet. A cash payment of approximately $6.0 million was
made to the sellers and their creditors and the Company assumed approximately
$2.0 million of liabilities. In addition, up to 159,081 shares of the Company's
Common Stock valued at approximately $1.4 million will be issued to certain of
the selling entities ("Sellers"), subject to reduction if certain liabilities of
the Clubs exceed agreed-upon amounts. In a private placement completed in
December 1997, the Company sold 625,000 shares of its Common Stock to Millennium
for $5.0 million to raise funds to complete this acquisition. The acquisition
was accounted for as a purchase. Accordingly, the operations of these four Clubs
will be included in the Company's statement of operations from the date of
acquisition.
The following pro forma financial data present the Company's unaudited pro forma
statement of income for the years ended December 31, 1996 and 1997, giving
effect to the Reebok-Sports Club/NY, The Sports Club/Las Vegas and the four
Spectrum Club acquisitions as if these transactions had occurred on January 1,
1996. None of the acquisitions was considered to be significant individually or
in the aggregate under the applicable rules of the Securities and Exchange
Commission. The operation of SportsTherapy Systems, Inc. is not material to the
consolidated statement of income, and accordingly, its impact has been excluded
from the following pro forma presentation. The unaudited pro forma condensed
statements of income do not purport to represent what the Company's actual
results of operations would have been had such transactions in fact occurred on
such date. The unaudited pro forma condensed statements of income also do not
purport to project the results of operations of the Company for any future
period.
F-9
<PAGE> 35
<TABLE>
<CAPTION>
(Unaudited)
Year ended December 31,
---------------------
1996 1997
------- -------
(in thousands,
except per share data)
<S> <C> <C>
Revenues $66,695 $72,707
Operating expenses 60,517 65,944
------- -------
Income from operations 6,178 6,763
Other expenses 5,501 6,159
------- -------
Income before provision for income taxes 677 604
Provision for income taxes 277 273
------- -------
Net income $ 400 $ 331
======= =======
Net income per share:
Basic $ .03 $ .02
======= =======
Diluted $ .03 $ .02
======= =======
Weighted average number of common shares outstanding:
Basic 14,535 14,456
======= =======
Diluted 14,540 14,615
======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation, which
is summarized as follows:
<TABLE>
<CAPTION>
At December 31,
-----------------------
1996 1997
-------- --------
(Amounts in thousands)
<S> <C> <C>
Land $ 10,234 $ 18,234
Building and improvements 58,076 82,405
Furniture, fixtures and equipment 9,126 14,095
-------- --------
77,436 114,734
Less accumulated depreciation and amortization 4,700 7,943
-------- --------
Net property and equipment $ 72,736 $106,791
======== ========
</TABLE>
Equipment under capital leases was $2,056,000 and $7,456,000 and related
accumulated amortization was $1,008,000 and 1,854,000 at December 31, 1996 and
1997, respectively.
Included in buildings and improvements at December 31, 1997, is $10,000,000 of
buildings acquired under a capital lease in connection with the acquisition of
four Spectrum Clubs (See Note 3). No amortization was recorded for the year
ending December 31, 1997.
5. NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS
Notes payable and capitalized lease obligations are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
---------------------
1996 1997
------- -------
(Amounts in thousands)
<S> <C> <C>
The Sports Club/LA note(a) $23,070 $22,378
The Sports Club/Irvine note(b) 5,375 4,875
Spectrum Club/Agoura Hills note(c) 2,550 2,533
Spectrum Clubs Fullerton and Santa Ana lease(d) -- 10,000
Equipment financing and capitalized
lease obligations(e) 4,303 5,602
Other notes payable(f) 3,199 410
------- -------
38,497 45,798
Less current installments 2,470 2,975
------- -------
$36,027 $42,823
======= =======
</TABLE>
F-10
<PAGE> 36
(a) The Sports Club/LA note bears interest at the rate of 10.63% and requires
monthly payments of approximately $262,000 with a balloon payment of
approximately $17.5 million on April 1, 2003. If certain conditions exist, the
Company may extend the term of the loan by five years. The note is secured by
all the assets of The Sports Club/LA and requires the Club to maintain a debt
service coverage ratio, as defined, of 1.4 to 1.0.
(b) The Sports Club/Irvine note was issued to previous owners of this Club. The
note is secured by land, equipment, building improvements and the building of
The Sports Club/Irvine, bears interest at the rate of 6%, and requires quarterly
principal payments of $125,000, which commenced in November 1996, and a balloon
payment of $4.0 million on November 1, 1999.
(c) The Spectrum Club/Agoura Hills note was issued by a savings and loan
association to complete the Company's acquisition of the Spectrum Club/Agoura
Hills. The note is secured by land, equipment, building improvements and the
building of the Spectrum Club/Agoura Hills. The note bears interest at the rate
of 8.5%. Monthly principal and interest payments of $20,107 are required through
the note's maturity in April 2024.
(d) In December 1997, the Company acquired four Spectrum Clubs for a total
purchase price (including the portion paid by Millennium described below) of
approximately $19.4 million. Millennium acquired properties underlying two of
the Clubs for $10.0 million and is leasing these two properties to the Company
under a financing lease agreement which is reflected as a capital lease
obligation in the Company's consolidated balance sheet. The lease requires the
Company to make annual payments of $1.0 million through 2007 and annual payments
of $1.2 million thereafter through the lease expiration date on December 31,
2017. At any time during the first three years of the lease the Company may
purchase the leased property from Millennium for an amount, currently estimated
to be approximately $10.1 million, sufficient to provide Millennium an amount
equal to $10.0 million plus all costs incurred by Millennium in connection with
the acquisition of such property, plus a 12% compound return on its total
investment. Millennium has the right to require the Company to acquire its
interest in the property at such price if (i) the Company receives private debt
financing in excess of $95.0 million, (ii) the Company receives public equity
financing in excess of $20.0 million, (iii) a default (as defined in the lease)
occurs, or (iv) a major casualty occurs with respect to either property.
(e) The equipment financing and capitalized lease obligations are secured by the
furniture, fixtures and equipment. The amounts are generally repayable in
monthly payments over five years with effective interest rates between 8% to
10%.
(f) Other notes payable in 1996 include a $2.5 million note from the
Reebok-Sports Club/NY partnership ("Partnership") payable to Millennium, a
limited partner in the Partnership. The note bears interest at the rate of 10%
and is repayable as net cash flow of the Partnership is available, with a final
maturity in December 1999. In 1997, the Company acquired this note from
Millennium (See Note 3) and therefore, this obligation is not reflected in the
Company's consolidated balance sheet at December 31, 1997.
F-11
<PAGE> 37
Future minimum annual principal payments at December 31, 1997, are as follows
(in thousands):
<TABLE>
<S> <C>
1998 ........................ $ 2,975
1999 ........................ 7,031
2000 ........................ 2,874
2001 ........................ 2,415
2002 ........................ 1,861
Thereafter .................. 28,642
-------
$45,798
</TABLE>
6. BANK CREDIT FACILITY
At December 31, 1997, the Company had a $5.0 million bank credit facility. This
facility was fully utilized at that date. On February 23, 1998, the credit
facility was amended and the amount of the facility was increased to $15.0
million. Pursuant to the February amendment, the Company may not borrow
additional funds under the credit facility after June 30, 1998, and will be
required to make monthly payments of $250,000 beginning July 1, 1998, with all
remaining amounts due and payable on October 30, 1998. In addition, the credit
facility is due and payable in full upon consummation by the Company of any debt
or equity offering. The loans are unsecured, however, the Company is prohibited
from pledging any of its assets except for normal furniture, fixture and
equipment financing. The agreement also requires the Company to maintain certain
Tangible Net Worth, Debt Coverage Ratios and Senior Liabilities to Tangible Net
Worth Ratio requirements. The Company was in compliance with its covenants as of
December 31, 1997.
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain facilities pursuant to various operating lease
agreements. The Club facility leases are generally long-term and noncancelable
triple-net leases (requiring the Company to pay all real estate taxes, insurance
and maintenance expenses), and have an average remaining term of twenty-six
years, including renewal options, with the earliest expiration date of November
1998. Future minimum noncancelable operating lease payments as of December 31,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 ............................ $ 8,019
1999 ............................ 7,912
2000 ............................ 7,672
2001 ............................ 7,608
2002 ............................ 8,211
Thereafter ...................... 84,127
--------
Total minimum lease payments $123,549
</TABLE>
Rent expense for facilities and equipment aggregated, $1,805,000, $1,960,000 and
$7,438,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
Litigation
On May 22, 1997, the Company announced that it had agreed to pay Century
Entertainment Center, L.P. ("Century") approximately $2.0 million to settle
litigation relating to the Century City Spectrum Club which was closed in July
1995. The settlement relates to a suit filed by Century City Spectrum Club
("CCS"), a subsidiary of the Company, against Century alleging breach of the
lease by the prior landlord. Century had acquired the rights under the lease in
connection with bankruptcy of the prior landlord. Century filed a
cross-complaint against CCS for rent due and against the Company as a guarantor
of CCS's obligations under the lease. The settlement has been completed with the
final payment made in February
F-12
<PAGE> 38
1998. The amount has been reflected as a non-recurring expense on the Company's
1997 statement of income.
The Company is also involved in various claims and lawsuits incidental to its
business, including claims arising from accidents and disputes with landlords.
However, in the opinion of management the Company is adequately insured against
such claims and lawsuits involving personal injuries, and any ultimate liability
arising out of any such proceedings will not have a material adverse effect on
the financial condition, cash flow or operations of the Company.
Employment Agreements
The Company currently has employment agreements with three key executive
officers which expire in 1998 and 2000. The agreements provide the executives
with a base compensation and, in the event of certain conditions, a severance
payment not to exceed three times each executive's annual compensation.
8. INCOME PER SHARE
The following is a reconciliation of the basic and diluted EPS computations for
the years 1995, 1996 and 1997:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1995 1996 1997
------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income used for basic and
diluted income per share ...................... $ 1,639 $ 1,703 $ 1,540
======= ======= =======
Shares of Common Stock and
Common Stock equivalents:
Weighted average shares used
in basic computation ....................... 11,353 11,355 12,524
Weighted stock options ...................... 4 5 159
------- ------- -------
Impact from dilutive average ................ 11,357 11,360 12,683
======= ======= =======
Income per share:
Basic....................................... $ 0.14 $ 0.15 $ 0.12
======= ======= =======
Diluted..................................... $ 0.14 $ 0.15 $ 0.12
======= ======= =======
</TABLE>
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1995 1996 1997
------ ------ ------
(Amounts in thousands)
<S> <C> <C> <C>
Federal........ $ 881 $ 915 $ 776
State ......... 258 268 238
------ ------ ------
$1,139 $1,183 $1,014
====== ====== ======
</TABLE>
F-13
<PAGE> 39
Income tax expense differs from the statutory tax rate as applied to income
before income taxes as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1995 1996 1997
------- ------- -------
(Amounts in thousands)
<S> <C> <C> <C>
Expected federal income tax expense ........ $ 945 $ 981 $ 868
State income taxes, net of federal benefit . 194 202 146
------- ------- -------
$ 1,139 $ 1,183 $ 1,014
======= ======= =======
</TABLE>
The Company's deferred tax assets and liabilities at December 31, 1996 were
approximately $416,000 and $25,000, respectively, compared with approximately
$680,000 and $2.6 million at December 31, 1997. The Company's valuation
allowance for deferred taxes was approximately $391,000 and $0 at December 31,
1996 and 1997, respectively. The Company's most significant temporary
differences relate to differences in the bases, depreciable lives and
depreciation methods of property and equipment and cost in excess of net assets
acquired for tax and financial reporting purposes.
10. STOCK PLANS
In October 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation. SFAS 123 defines a fair value based method of accounting for an
employee stock option or similar instrument and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, it allows an entity to continue to measure compensation cost for these
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees. Entities electing to remain with the accounting in APB Opinion No.
25 must make pro forma disclosures of net earnings and earnings per share, as if
the fair value based method of accounting defined in SFAS 123 had been applied.
The Company implemented the statement during the year ended December 31, 1996.
The Company has an employee stock option plan which is described below. The
Company applied APB Opinion No. 25 in accounting for its plan. Accordingly, no
compensation cost has been recognized. Had compensation cost for the Company's
plan been determined consistent with SFAS 123, the Company's net income and
income per share would have been reduced to the proforma amounts indicated
below:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income:
As reported .......................... $ 1,639 $ 1,703 $ 1,540
Pro forma ............................ 1,474 1,533 1,368
Basic income per share:
As reported .......................... $ .14 $ .15 $ .12
Pro forma ............................ .13 $ .14 $ .11
</TABLE>
The fair value of all option grants for the Company's plan are estimated on the
date of grant using the Black-Scholes option-pricing model with the
weighted-average assumptions used for all fixed option grants in 1995, 1996 and
1997 respectively: dividend yield of 0%, 0% and 0%; expected volatility of
40.0%, 51.3%, and 62.1% risk-free interest rates of 6.5%, 7.0% and 6.5% and
expected lives of 7.5 years, 7.0 years and 6.0 years.
In May 1994 the Company instituted the 1994 Stock Incentive Plan (the "Plan").
1,000,000 shares of Common Stock are reserved under the Plan, which authorizes
the issuance of various stock incentives to directors, officers, employees and
consultants including options, stock appreciation rights and purchase rights.
F-14
<PAGE> 40
Options allow for the purchase of Common Stock at prices determined by the
Company's Compensation Committee. Incentive stock options must be granted at a
price at least equal to the fair market value of a share of Common Stock on the
date the option is granted. Non-statutory options must have an exercise price
equal to at least 85% of the fair market value of the Company's Common Stock at
the date of grant. Options granted under the Plan may, at the election of the
Compensation Committee, become exercisable in installments. All options will
expire on the tenth anniversary of the grant date.
F-15
<PAGE> 41
A summary of the status of Company stock options in all its stock-based plans as
of December 31, 1995, 1996 and 1997 and changes during the years then ended are
presented below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------ -------
<S> <C> <C>
Outstanding at January 1, 1995 ................ -- --
Granted ....................................... 522,000 $6.76
Canceled ...................................... 225,000 9.00
------
Outstanding at December 31,1995 ............... 297,000 5.06
=======
Options excercisable at December 31, 1995 ..... 93,753 5.00
=======
Weighted-average fair value of options
granted during year ended December 31, 1995 2.37
Outstanding at January 1, 1996 ................ 297,000 5.06
Granted ....................................... 220,500 2.66
Canceled ...................................... 25,000 3.18
------
Outstanding at December 31, 1996 .............. 492,500 3.17
=======
Options excercisable at December 31, 1996 ..... 185,505 3.28
=======
Weighted-average fair value of options
granted during year ended December 31, 1996 1.75
Outstanding at January 1, 1997 ................ 492,500 3.17
Granted ....................................... 155,000 5.51
Canceled ...................................... 5,000 3.10
------
Outstanding at December 31, 1997 .............. 642,500 3.77
=======
Options excercisable at December 31, 1997 ..... 334,512 3.23
=======
Weighted-average fair value of options
granted during year ended December 31, 1997 3.53
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Weighted
Average
Remaining
Exercise Number Contractual Options
Prices Outstanding Life (Years) Exercisable
- -------- ----------- ------------ -----------
<S> <C> <C> <C>
$8.3750 27,000 9.84 --
5.3750 68,000 9.50 --
4.3750 60,000 9.22 --
2.7500 58,000 8.83 19,338
2.5625 68,500 8.40 22,841
2.6875 70,000 8.17 23,334
3.0000 225,000 7.58 225,000
5.2500 66,000 7.25 43,999
----------- -----------
642,500 8.60 334,512
=========== ===========
</TABLE>
Stock appreciation rights ("SAR's") may be granted in combination with options
or on a stand-alone basis. SAR's permit the holder to receive shares of stock,
cash or a combination of shares and cash based upon by the difference between
the option price and the fair market value of the Common Stock on the date of
exercise. Upon exercise of a SAR granted in combination with an option, the
related option is canceled. At December 31, 1997, no SAR's had been granted.
F-16
<PAGE> 42
Rights to purchase shares of Common Stock to be offered for direct sale under
the Plan must be at a purchase price equal to not less than 85% of the fair
market value of the shares on the day preceding the date of grant. Purchase
rights are generally exercisable for a period of thirty days following the date
of grant. At December 31, 1997, no purchase rights had been granted.
In July 1994, the Company instituted its 1994 Stock Compensation Plan for the
purpose of compensating outside directors by issuing them shares of the
Company's Common Stock as part of their directors' fees. A total of 50,000
shares are reserved for issuance pursuant to this plan. A total of 12,000 shares
have been issued to outside directors under the plan; 5,000 in 1995, 3,000 in
1996 and 4,000 in 1997.
F-17
<PAGE> 43
11. RELATED PARTY TRANSACTIONS
Due from affiliates are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------
1996 1997
------ ------
<S> <C> <C>
(In thousands)
Note receivable from the Company's CEO, including
interest at 5.3%. Secured by a pledge of 384,000
shares of the Company's Common Stock Repaid in
September 1997 .................................... $ 624 --
Advances to affiliates made in the normal course of
business, payable on demand ....................... 419 $ 106
------ ------
$1,043 $ 106
====== ======
</TABLE>
The Company manages the operation of its unconsolidated subsidiary, the Spectrum
Club/Manhattan Beach, of which it owns a 46.1% interest. The Company receives a
fee of $33,322 per month plus 4.5% of the Club's gross revenues for managing
this Club. The Company also manages the operations of the Reebok Sports Club/NY
and receives a fee of approximately 5.87% of the gross monthly collections, as
defined. Management fees relating to Reebok Sports Club/NY of $490,000 and
$779,000 for the years ended December 31, 1995 and 1996 were earned and included
in the Company's income statement. Management fees of $1.1 million relating to
Reebok Sports Club/NY were earned for the year ended December 31, 1997. This
amounts is eliminated from income and expense in the presentation of the
Company's 1997 consolidated statement of income.
The Reebok Sports Club/NY pays rent to Millennium in the amount of $2.0 million
per year, and the partnership agreement provides for a first priority annual
distribution of $3.0 to Millennium. All such, payments are reflected as rent
expense in the consolidated statement of income. The Company has entered into
leases with Millennium to develop Sports Clubs in San Francisco, California and
Washington, D.C., and is currently negotiating with Millennium with respect to
the development of a Sports Club in Boston, Massachusetts.
In June 1997 the Company issued Millennium 2,105,263 shares of its Common Stock
in exchange for $5.0 cash and certain Millennium interests in the Reebok Sports
Club/NY Partnership (See Note 3). In December 1997, the Company sold 625,000
shares of its Common Stock to Millennium for $5.0 million of cash.
In December 1997, the Company acquired four Spectrum Clubs for a total purchase
price (including the portion paid by Millennium described below) of
approximately $19.4 million. Millennium acquired the real estate at two of the
Clubs for $10.0 million and is leasing these two properties to the Company under
a financing lease agreement which is reflected as a capital lease obligation in
the Company's consolidated balance sheet. The capital lease requires the Company
to make annual payments of $1.0 million through 2007 and annual payments of $1.2
million thereafter through the lease expiration date on December 31, 2017. At
any time during the first three years of the lease the Company may purchase the
property from Millennium for a purchase price equal to an amount that would
enable Millennium to receive a return of its initial $10.0 million investment,
plus all other amounts advanced or transaction costs incurred plus a twelve
percent compound return on all such investments. Millennium has the right to
require the Company to acquire its interest in the lease and land and building
if (i) the Company receives private debt financing in excess of $95.0 million
(ii) the Company receives public equity financing in excess of $20.0 million
(iii) an event of default (as defined in the lease) occurs, or (iv) a major
casualty occurs with respect to either property.
12. CONCENTRATION OF CREDIT RISK
The Company markets its products principally to customers in Southern
California, New York City and Las Vegas. Management performs regular evaluations
concerning the ability of its customers to satisfy their
F-18
<PAGE> 44
obligations and records a provision for doubtful accounts based upon these
evaluations. The Company's credit losses for the periods presented are
insignificant and have not exceeded management's estimates.
13. SUBSEQUENT EVENT
The Company has filed a Registration Statement on Form S-2 with the
Securities and Exchange Commission relating to the proposed offering by the
Company of up to 6,000,000 shares of Common Stock (6,900,000 including the
Underwriter's over-allotment option). Estimated proceeds of such offering are
expected to be used to repay long term debt and for general corporate purposes.
There can be no assurance the offering will be completed.
F-19
<PAGE> 45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names of the directors and executive officers of the Company, as
well as their respective ages as of February 28, 1998, and positions with the
Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
D. Michael Talla.............. 51 Chairman of the Board and Chief Executive Officer
Rex A. Licklider.............. 54 Vice Chairman of the Board
John M. Gibbons............... 49 President, Chief Operating Officer and Director
Nanette Pattee Francini....... 49 Executive Vice President, Secretary and Director
Mark S. Spino................. 43 Vice President of Development
Philip J. Swain............... 40 Vice President of Operations
Timothy M. O'Brien............ 46 Chief Financial Officer and Assistant Secretary
Brian J. Collins.............. 37 Director
Andrew L. Turner.............. 51 Director
Dennison Veru................. 37 Director
</TABLE>
D. MICHAEL TALLA co-founded the Company in 1977, has served as Chief
Executive Officer since that time and has served as Chairman of the Board of
Directors since February 1994. Mr. Talla has been in the sports and fitness
industry for more than 20 years and has developed or participated in the
development of more than 20 Clubs in the United States, including all Clubs
developed by the Company. Mr. Talla holds a Bachelor of Arts Degree in Business
Administration from the University of Arizona.
REX A. LICKLIDER joined the Company as an unpaid consultant in 1991,
has served as a director of the Company since February 1994 and was named Vice
Chairman of the Board in May 1994. Effective August 1, 1996, Mr. Licklider
entered into a consulting agreement with the Company pursuant to which he
advises the Company with respect to strategic and financial matters. Prior to
his involvement with the Company, Mr. Licklider founded Com Systems, Inc., a
publicly traded long-distance telecommunications company and served in various
capacities as Chairman, President and Chief Executive Officer from 1975 until
April 1992. Mr. Licklider is a director of Deckers Outdoor Corporation,
GoldenTel, Inc., and Associated Travel Services, Inc. He also serves on the
Board of Directors of the Children's Bureau of Southern California and Los
Angeles Youth Programs, Inc. Mr. Licklider holds a Bachelor of Arts Degree in
Business Administration from the University of Arizona and a Masters in Business
Administration from the University of California at Los Angeles.
JOHN M. GIBBONS was hired by the Company to serve as Chief Financial
Officer in May 1994 and became Executive Vice President in February 1995 and
President and Chief Operating Officer on July 1, 1995. Mr. Gibbons was elected
to the Board of Directors effective August 14, 1995. From September 1993 until
May 1994, Mr. Gibbons was a self-employed financial and business consultant
whose clients included the Company. From February 1990 until September 1993, Mr.
Gibbons was employed as a Vice President by Com Systems, Inc., a publicly traded
long-distance telecommunications company located in Westlake Village,
California, serving as General Manager and Senior Vice President from December
1992 to September 1993, and as Chief Financial Officer from August 1991 through
December 1992. Mr. Gibbons
25
<PAGE> 46
has a Bachelors of Business Administration from Notre Dame and a Masters of
Business Administration from the University of Southern California, and is a
Certified Public Accountant.
NANETTE PATTEE FRANCINI co-founded the Company in 1977 and has been
principally responsible for overseeing all marketing activities since 1978. Ms.
Pattee Francini has served as a director since February 1994 and was appointed
Executive Vice-President and Secretary in May 1994. Ms. Pattee Francini has been
in the sports and fitness industry for more than 20 years and has developed or
participated in the development of more than 20 Clubs, including all Clubs
developed by the Company. Ms. Pattee Francini holds a Bachelor of Arts Degree
from the University of Arizona.
MARK S. SPINO has served the Company as Director of Development since
1980 and was appointed Vice President in 1984. Mr. Spino has been in the sports
and fitness industry for more than 15 years and has developed or participated in
the development of more than 15 Clubs in the United States, including many of
the Clubs developed by the Company. From July 1979 to June 1980, Mr. Spino was
Assistant Manager, and later Manager, of the Mid-Valley Athletic Club in Reseda,
California. Mr. Spino holds Bachelor of Arts and Master of Arts Degrees in
Physical Education from the University of Southern California.
PHILIP J. SWAIN has been employed by the Company since 1982 and has
served as Vice President of Operations since 1988. Mr. Swain has been in the
sports and fitness industry for more than 20 years and has developed or
participated in the development of more than 15 Clubs in the United States,
including many of the Clubs developed by the Company. Mr. Swain served as
Regional General Manager from 1986 until 1988. From December 1979 to November
1982, Mr. Swain was the Director of Marketing and Membership at the Mid-Valley
Athletic Club in Reseda, California. From February 1975 to December 1979, Mr.
Swain was employed by Health & Tennis Corporation of America, managing different
facilities in Detroit and Los Angeles.
TIMOTHY M. O'BRIEN has been employed as Chief Financial Officer by the
Company since February 1995. In June 1995, he was appointed Assistant Secretary.
From July 1993 until February 1995, Mr. O'Brien was employed as Vice
President/Controller of WCT Communications, Inc., a publicly traded
long-distance telecommunications company located in Santa Barbara, California.
From May 1989 until July 1993, Mr. O'Brien was Controller for Com Systems, Inc.,
a publicly traded long-distance telecommunications company located in Westlake
Village, California. Mr. O'Brien has a Bachelor of Business Administration
degree from the University of Wisconsin-Madison and is a Certified Public
Accountant.
BRIAN J. COLLINS has been Vice President and Chief Financial Officer of
Millennium Partners Management LLC and its predecessor company, affiliates of
Millennium Entertainment Partners L.P., a real estate developer of mixed use
urban entertainment projects, since December 1996. Since June 1, 1997, he has
been a principal of Millennium Partners Management LLC. From March 1993 to
November 1996, Mr. Collins was Senior Vice President at Carol Management Corp.,
an owner and operator of real estate and hotel properties and from June 1992 to
February 1993, he was President of BJC Realty Inc., a real estate consulting
firm. Mr. Collins holds a Bachelor of Arts Degree from Colgate University and a
Masters of Science from New York University Graduate School of Business.
ANDREW L. TURNER has been a director of the Company since September
1994 and has been Chairman of the Board of Directors, President and Chief
Executive Officer of Sun Healthcare Group, Inc., a publicly traded long-term
health care services provider since its formation in 1989. Mr. Turner was also
founder and previously served as Chief Operating Officer of Horizon Healthcare
Corporation, a publicly traded health care services provider, from 1986 to 1989.
Prior to 1986, Mr. Turner served as a Senior Vice President of Operations of The
Hillhaven Corporation.
DENNISON VERU has been President of Awad & Associates, a money
management division of Raymond James Financial, since November 1992. From
February 1990 to November 1992, he served as Executive Vice President,
Investments, of Smith Barney, Inc., specializing in small and medium
capitalization stocks. Prior to that, Mr. Veru was Vice President of Broad
Street Investment Management
26
<PAGE> 47
and an Assistant Vice President at Drexel Burnham Lambert. Mr. Veru serves as a
director for Lois USA, Inc. a publicly held company. Mr. Veru is a graduate of
Franklin and Marshall College.
The directors of the Company are divided into three classes having
terms expiring at the annual meetings of the Company's stockholders in 1998
(Messrs. Turner, Gibbons and Collins), 1999 (Ms. Pattee Francini and Mr. Veru)
and 2000 (Messrs. Talla and Licklider), or such later dates as their successors
are elected. At each annual meeting of stockholders, successors to the class of
directors whose term expires at such meeting will be elected to serve for
three-year terms and until their successors are elected.
Officers serve at the pleasure of the Board of Directors subject to any
rights under employment agreements.
The Board of Directors has created an Audit Committee and a
Compensation Committee. The Audit Committee, composed of Messrs. Turner and
Veru, is charged with reviewing the Company's annual audit and meeting with the
Company's independent auditors and reviewing the Company's internal controls and
financial management practices. The Compensation Committee, also composed of
Messrs, Turner and Veru, recommends to the Board of Directors compensation for
the Company's key employees and administers the 1994 Stock Incentive Plan.
CERTAIN TRANSACTIONS
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission and to furnish the Company with copies of such reports. Based on the
Company's review of the copies of those reports and written representations
which it has received, the Company believes that all such filings required to be
made from January 1, 1997 through the date hereof have been made.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to
the Chief Executive Officer and to the five other most highly compensated
executive officers for the years ended December 31, 1995, 1996 and 1997, for
services rendered. Current salaries of the Company's executives are described
below under "Employment Agreements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
NAME AND ANNUAL COMPENSATION OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS (SHARES) COMPENSATION
- ------------------ ---- --------- ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
D. Michael Talla 1997 $239,250(2) -- -- --
Chairman of the Board 1996 218,000(2) -- -- --
and Chief Executive 1995 205,250(2) -- -- --
Officer
Nanette Pattee Francini 1997 145,100 $ 10,000 15,000 --
Executive Vice President, 1996 124,175 -- 15,000 --
Secretary and Director 1995 122,200 -- -- --
John M. Gibbons 1997 245,883(4) 25,000 -- $2,256 (3)
President, Chief Operating 1996 232,800(4) 25,000 225,000 (5) --
Officer and Director 1995 218,933(4) -- 450,000 (5) --
Mark S. Spino 1997 134,125 10,000 15,000
Vice President and 1996 116,795 -- 15,000 --
Director of Development 1995 111,855 -- -- --
</TABLE>
27
<PAGE> 48
<TABLE>
<S> <C> <C> <C> <C> <C>
Philip J. Swain 1997 146,031 15,000 15,000
Vice President and 1996 131,375 -- 25,000 --
Director of Operations 1995 127,000 -- -- --
Timothy M. O'Brien 1997 137,667 10,000 15,000 1,791(3)
Chief Financial Officer 1996 122,175 5,000 20,000 --
and Assistant Secretary 1995 100,087 -- 25,000 --
</TABLE>
- ----------
(1) Includes automobile allowance.
(2) Mr. Talla also receives, on an annual basis, 49.9% of the first
$300,000 of The Sports Club/LA's net cash flow. This amount is not
included in Mr. Talla's compensation. See "Certain Relationships and
Transactions."
(3) Contribution pursuant to the Company's 401 K Profit Sharing Plan.
(4) Includes an allowance for living expenses paid to Mr. Gibbons under the
terms of his employment agreement.
(5) Options to purchase 225,000 shares at the exercise price of $9.00 per
share issued on February 27, 1995, were canceled in connection with the
issuance on July 5, 1995 of options to purchase 225,000 shares at the
exercise price of $5.00 per share. Effective April 24, 1996, The
Compensation Committee of the Board of Directors lowered the exercise
price to $3.00 per share. Pursuant to the rules of the Securities and
Exchange Commission, the cancellation and regrant of the option, and
the repricing of the option, are each deemed to constitute a separate
award.
OPTION GRANTS, EXERCISES AND YEAR-END VALUES
The following table provides information concerning stock options
granted by the Company to the Named Executive Officers during the year ended
December 31, 1997.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1997
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SHARES GRANTED TO STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE APPRECIATION FOR
OPTIONS IN OR BASE EXPIRATION OPTION TERM (1)
NAME GRANTED (2) FISCAL YEAR PRICE DATE 5% 10%
- ---- ----------- ----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Nanette Pattee Francini 15,000 9.68% $ 4.375 3/20/2007 $106,896 $170,214
Mark S. Spino....... 15,000 9.68 4.375 3/20/2007 106,896 170,214
Philip J. Swain..... 15,000 9.68 4.375 3/20/2007 106,896 170,214
Timothy M. O'Brien.. 15,000 9.68 4.375 3/20/2007 106,896 170,214
</TABLE>
- ----------
(1) The dollar amounts under these columns are the result of calculations
at the 5% and 10% annual rates of stock appreciation prescribed by the
Securities and Exchange Commission and are not intended to forecast
possible future appreciation, if any, of the Company's stock price. No
gain to the optionee is possible without an increase in the price of
the Company's stock which will benefit all stockholders commensurately.
without an increase in the price of the Company's stock, which will
benefit all stockholders commensurately.
(2) All of such options are governed by the Company's 1994 Stock Incentive
Plan
The following table provides information with respect to unexercised
stock options as of December 31, 1997. None of the Named Executive Officers
exercised stock options during the last fiscal year.
28
<PAGE> 49
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF ALL UNEXERCISED
OPTIONS UNDER THE IN-THE-MONEY OPTIONS AT
OPTION PLAN FY-END(2)
NAME EXERCISABLE/UNEXERCISABLE(1) EXCERCISABLE/UNEXERCISABLE
---- ---------------------------- --------------------------
<S> <C> <C>
John M. Gibbons............ 225,000/0 $1,406,250/$0
Nanette Pattee Francini.... 5,000/25,000 $32,813/$138,750
Mark S. Spino.............. 5,000/25,000 $32,813/$138,750
Philip J. Swain............ 8,334/31,666 $54,692/$182,496
Timothy M. O'Brien......... 23,334/36,666 $110,316/$193,747
</TABLE>
- ----------
(1) All such options are governed by the Company's 1994 Stock Incentive
Plan.
(2) An in-the-money option is an option which has an exercise price for the
Common Stock which is lower than the fair market value of the Common
Stock on a specified date. The fair market value of the Common Stock on
December 31, 1997, was $9.25, which was the closing price per share on
the American Stock Exchange on such date.
EMPLOYMENT AGREEMENTS
Effective August 10, 1994, the Company entered into Employment
Agreements with D. Michael Talla, as Chief Executive Officer, and Nanette Pattee
Francini, as Executive Vice President, each of which expire on December 31,
2000. Certain terms of Mr. Talla's employment agreement were amended by the
Board of Directors as of February 27, 1995. The Agreements provide for annual
compensation of $200,000 payable to Mr. Talla, and $120,000 payable to Ms.
Pattee Francini, subject to upward adjustment at the discretion of the Board of
Directors. In 1997, the Compensation Committee of the Board of Directors
increased Mr. Talla's and Ms. Francini's annual salaries to $225,000 and
$147,000 respectively. The Company may terminate either Employment Agreement
without penalty for cause.
The employment agreements with Mr. Talla and Ms. Pattee Francini
entitle each employee to annual performance bonuses in the discretion of the
Board of Directors, to be paid within 120 days for Mr. Talla and 150 days for
Ms. Pattee Francini following the end of each fiscal year. The employment
agreements also include severance provisions which entitle each executive
officer to severance pay if his or her employment is terminated by the Company
without cause; if the employee dies or is disabled; or if the employee
terminates the agreement as a result of a material breach by the Company of its
obligations thereunder (six months' pay for Ms. Pattee Francini and twelve
months' pay for Mr. Talla). In addition, the employment agreements provide Mr.
Talla and Ms. Pattee Francini with additional severance benefits upon
termination of employment following the occurrence of any one of the following
events without the approval of a majority of the Board of Directors: (i) the
consolidation or merger of the Company with any other corporation or other
entity; (ii) the sale or other transfer of all or substantially all of the
assets of the Company; (iii) the approval by the stockholders of the Company of
a plan of liquidation or dissolution of the Company; (iv) any person becomes the
beneficial owner directly or indirectly of 25% or more of the Company's
outstanding Common Stock; or (v) a change occurs in the composition of a
majority of the Board of Directors of the Company (unless approved by two-thirds
of the Board of Directors of the Company). If at any time within two years after
the occurrence of any one of the foregoing events Mr. Talla's or Ms. Pattee
Francini's employment is terminated (other than for cause, incapacity or death),
or Mr. Talla or Ms. Pattee Francini elects to terminate his or her employment
for "good reason" (as that term is defined in the agreements), he or she is
entitled to receive severance compensation equal to the lesser of: (i) the
maximum amount which does not constitute a "parachute payment" as defined in
Section 280G of the Internal Revenue Code of 1986, as amended; or (ii) an amount
equal to three times the aggregate of (A) his or her base annual salary then in
effect, (B) the car allowance, Club memberships and dues, and insurance benefits
paid for the employee during the one-year period immediately prior to
termination, and (C) bonuses accrued but unpaid through the date of termination
of employment. Under the agreements, "good reason" means the assignment of any
duties inconsistent with the employee's position or any other action which
diminishes the employee's position, authority or duties,
29
<PAGE> 50
which determination shall be made in good faith by the employee. If the
employment of Mr. Talla or Ms. Pattee Francini were terminated within such
period as a result of the occurrence of any of the foregoing events (assuming
that neither would be entitled to any performance bonus), the aggregate
approximate amounts payable to Mr. Talla and Ms. Francini would be $754,000 and
$477,000, respectively.
Effective as of July 1, 1995, the Company entered into an employment
agreement with John M. Gibbons, which expires June 30, 1998. The employment
agreement provides for annual base compensation of $200,000, subject to annual
review and upward adjustment at the discretion of the Board of Directors. On May
27, 1997, the Compensation Committee of the Board of Directors increased Mr.
Gibbons annual base salary to $210,000. In addition to his base salary Mr.
Gibbons is entitled to participate in any management bonus program the Board of
Directors may implement from time to time. The employment agreement also
includes a severance provision which entitles Mr. Gibbons to receive payments
equal to his base compensation until the earlier of 12 months following the date
of his termination date or the expiration of the term of the agreement, if his
employment is terminated prior to the expiration date other than for cause or by
Mr. Gibbons himself. Mr. Gibbons will be paid $40,000 for living expenses and
$7,800 each year as an auto allowance payable in equal semi-monthly
installments. Pursuant to the terms of the employment agreement, the
Compensation Committee of the Board of Directors, effective July 1, 1995,
granted Mr. Gibbons an option to purchase 225,000 shares of the Company's Common
Stock at an exercise price of $5.00 per share ("Option Shares"). One-third of
the Option Shares became immediately vested upon the grant with the remaining
two-thirds vesting in 24 equal monthly installments commencing October 21, 1995.
Concurrent with the grant of these options to purchase shares of Common Stock,
options for the purchase of 225,000 shares of Common Stock which were granted to
Mr. Gibbons on February 27, 1995 at a price of $9.00 per share were canceled.
Effective April 24, 1996, the Compensation Committee of the Board of
Directors amended the employment agreement with Mr. Gibbons to lower the
exercise price of the Option Shares to $3.00 per share, the fair market price of
a share of the Company's Common Stock, as evidenced by the closing price on the
American Stock Exchange on April 24, 1996. In exchange, Mr. Gibbons agreed to
waive 50% of the $100,000 bonus that was to be paid to him in 1996 pursuant to
the terms of his employment agreement. In addition, payment of 50% of the
remaining bonus was deferred until the second quarter of 1997.
The Company does not have written employment agreements with Messrs.
Spino, Swain, and O'Brien who currently receive annual base salaries of
$130,000, $140,000, and $134,000 respectively.
COMPENSATION OF DIRECTORS
Effective February 1995, non-employee directors of the Company are
entitled to receive an annual fee of $10,000 and a fee of $500 for each meeting
attended. Non-employee directors who are members of the Audit Committee or
Compensation Committee are entitled to receive $500 for each meeting they
attend. In addition, non-employee directors receive 1,000 shares of the
Company's Common Stock each year pursuant to the Company's 1994 Stock
Compensation Plan. Messrs. Licklider, Collins, Turner and Veru currently serve
on the Board as non-employee directors. The Company provides Mr. Licklider with
health insurance under its group insurance plan. All directors receive
reimbursement of reasonable out-of-pocket expenses incurred in connection with
meetings of the Board. Amounts paid to directors were $36,000 during 1995,
$37,026 during 1996, and $48,783 during 1997. Under the 1994 Stock Compensation
Plan an aggregate of 12,000 shares of Common Stock were issued to non-employee
directors through December 31, 1997.
COMPENSATION OF COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board ("Committee") administers the
executive compensation for the Company. Mr. Licklider was appointed Chairman on
July 8, 1994, and served continuously until August 1, 1996, when he resigned to
become a paid consultant with the Company. Mr. Turner has been a member of the
Committee since September 13, 1994, and became its Chairman on February 27,
1995. Mr. Veru was appointed to the Committee on February 20, 1996. None of
these individuals has ever been an officer or employee of the Company.
30
<PAGE> 51
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of February 20,
1998, regarding the beneficial ownership of the Company's Common Stock, by (i)
each person known by the Company to be the beneficial owner of more than five
percent of its Common Stock; (ii) each director; (iii) each executive officer
listed in the Summary Compensation Table; and (iv) all directors and executive
officers as a group. Unless otherwise indicated, each of the following
stockholders has sole voting and investment power with respect to the shares
beneficially owned, except to the extent that such authority is shared by
spouses under applicable law.
31
<PAGE> 52
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT OF
NAME OF BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER(1) OWNED SHARES (9)
------------------- ------------ -----------
<S> <C> <C>
D. Michael Talla(2)(3)............................. 4,739,905 33.2%
The Licklider Living Trust
dated May 2, 1986............................... 1,271,562 8.9%
Mona Talla(2)(3)................................... 4,739,905 33.2%
Nanette Pattee Francini(2)(3)...................... 4,739,905 33.2%
Mark S. Spino(2)(3)................................ 4,739,905 33.2%
Phil Swain(2)(3)................................... 4,739,905 33.2%
The Jared R. Talla
Irrevocable Trust dated
January 4, 1993(2)(3)........................... 4,739,905 33.2%
The Brett M. Talla
Irrevocable Trust dated
January 4, 1993(2)(3)........................... 4,739,905 33.2%
John M. Gibbons(4)................................. 266,089 1.8%
Dennison Veru...................................... 12,000 *
Timothy M. O'Brien(5).............................. 41,979 *
Andrew Turner...................................... 54,000 *
Brian Collins...................................... 1,000 *
Millennium(6)...................................... 3,929,863 27.6%
Townsend Group Investments(7)...................... 734,300 5.2%
All directors and executive officers as a group
(10 persons)(8)................................. 6,386,535 43.9%
</TABLE>
- ----------
* Less than one percent.
(1) The address of each of the foregoing persons is 11100 Santa Monica
Boulevard, Suite 300, Los Angeles, California 90025.
(2) Includes shares with respect to which the named beneficial owner shares
voting power pursuant to a voting agreement which requires each party
to vote their shares in the manner determined by a majority of all
holders. The agreement is effective until October 20, 2004 or until
terminated by persons holding 66-2/3% of the Common Stock held by all
persons subject to the agreement. Mr. Talla, Mona Talla, The Jared R.
Talla Irrevocable Trust dated January 4, 1993, The Brett M. Talla
Irrevocable Trust dated January 4, 1993, Ms. Pattee Francini, Mr. Spino
and Mr. Swain are record owners of 3,770,617; 30,953; 114,714; 114,714;
256,107; 227,969 and 173,164 shares of the Company's Common Stock,
respectively. Mr. Talla (including members of his immediate family and
trusts for their benefit) is the record owner of 4,030,998 shares.
(3) Includes 51,667 shares of Common Stock issuable within 60 days upon the
exercise of options granted to Ms. Pattee Francini, Mr. Spino and Mr.
Swain under the Company's 1994 Stock Incentive Plan. Ms. Pattee
Francini and Mr. Spino each hold options exercisable for 15,000 shares
and Mr. Swain holds options exercisable for 21,667 shares.
(4) Includes 35,500 shares owned by Mr. Gibbons, 5,000 shares owned by Mr.
Gibbons' spouse and 225,000 shares of Common Stock issuable within 60
days upon the exercise of options granted under the Company's 1994
Stock Incentive Plan, and 589 shares vested under the Company's 401K
Profit Sharing Plan.
(5) Includes 41,667 shares of Common Stock issuable within 60 days upon the
exercise of options granted under the Company's 1994 Stock Incentive
Plan, and 312 shares vested under the Company's 401K Profit Sharing
Plan.
(6) Includes 1,051,000 shares owned by Millennium Development Partners,
L.P., 625,000 shares owned by Millennium Entertainment Partners L.P.,
and 2,253,863 shares owned by Millennium Partners LLC.
32
<PAGE> 53
(7) Townsend Group Investments is a registered investment advisor. Includes
50,500 shares over which Townsend has sole voting and dispositive power
and 683,800 shares over which it exercises shared voting and
dispositive power.
(8) Includes 318,334 shares of Common Stock issuable within 60 days upon
the exercise of options granted under the Company's 1994 Stock
Incentive Plan and 901 shares vested under the Company's 401K Profit
Sharing Plan.
(9) All shares not currently outstanding that are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
are deemed to be outstanding for the purpose of computing the "Percent
of Outstanding Shares" held by the holder thereof, but are not deemed
to be outstanding for the purpose of computing the "Percent of
Outstanding Shares" held by any other shareholder, pursuant to Rule
13d-3(d)(1) under the Securities Exchange Act of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company possesses a 50.1% interest in the partnership which owns
The Sports Club/LA; Mr. Talla beneficially owns the remaining 49.9% interest.
The partnership agreement provides that, on an annual basis, the partners will
share in the first $300,000 of The Sports Club/LA's net cash flow in proportion
to their percentage interests. The next $35.0 million of net cash flow will be
distributed to the Company. All distributions of net cash flow thereafter, if
any, will be made to the partners in proportion to their percentage interests.
In addition, the partnership agreement provides the Company with an option to
purchase Mr. Talla's interest for an amount equal to the product of four times
the amount of distributions received by Mr. Talla in the year immediately
preceding the year in which the option is exercised.
As of January 1, 1997, Mr. Talla was either the guarantor of, or the
named debtor with respect to, approximately $245,000 in debts of the Company.
The Company agreed with Mr. Talla to make all payments due with respect to all
such debts, and to indemnify him with respect to all costs incurred in
connection therewith. These debts have been reflected in the Company's financial
statements. All such debts have were in full during 1997.
In April 1996, the Company extended a loan to Mr. Talla in the amount
of $600,000, secured by 384,000 shares of the Company's Common Stock. The loan
was due and payable on April 3, 1997 and bore interest at 6.8%. In 1997, The
Company's Board of Directors approved the extension of the loan and accrued
interest into a new note in the amount of $641,000 with interest at 5.9%, due on
April 3, 1998, secured by a pledge of 300,000 shares of the Company's stock. Mr.
Talla repaid this loan and accrued interest in September 1997.
Effective August 1, 1996, Mr. Licklider entered into a consulting
agreement with the Company pursuant to which Mr. Licklider received $10,000 per
month plus reimbursement for reasonable and necessary expenses. The agreement
had a one year term and on August 1, 1997 was extended through July 31, 1998.
Under the terms of the agreement, Mr. Licklider advises the Company with respect
to strategic and financial matters for a minimum of 60 hours of service per
month outside the normal scope of his duties as a director. Effective with the
commencement of the consulting agreement, Mr. Licklider resigned from the audit
and compensation committees of the Board of Directors.
Effective January 28, 1997, the Board of Directors approved the use of
up to $3.0 million to repurchase shares of the Company's Common Stock. When the
plan was terminated in February 1998, the Company had repurchased a total of
184,766 shares at prices per share ranging from a low of $3.50 on February 12,
1997, to a high of $6.675 on September 12, 1997, with a weighted-average price
of $5.58 per share. On March 27, 1997, the Company purchased from Ms. Pattee
Francini, Executive Vice President and Secretary, and Mr. Philip Swain, Vice
President of Operations, 25,000 shares and 20,000 shares, respectively, at a
price of $4.6875, representing the closing price of the Common Stock on the AMEX
on March 25, 1997. On September 12, 1997, the Company purchased from D. Michael
Talla, Chairman of the Board and Chief Executive Officer, 97,166 shares of
Common Stock at a price of $6,675, representing the average of the closing price
of the Common Stock on the AMEX for the 10 trading days immediately
33
<PAGE> 54
preceding, and ending on, September 12th. The proceeds of the purchase of Common
Stock from Mr. Talla were used to repay the loan by the Company to Mr. Talla
described above.
Millennium is the second largest shareholder of the Company, with
3,929,863 shares or 27.6% of the outstanding Common Stock. Additionally,
Millennium is a partner with the Company in the Reebok-Sports Club/NY as well as
the landlord of the building in which the Reebok Sports Club/NY is located. The
Reebok-Sports Club/NY partnership pays rent to Millennium in the amount of $2.0
million per year, and the partnership agreement provides for a first priority
annual distribution of $3.0 million to Millennium (adjusted to $2.1 million for
calendar year 1997). In June 1977, Millennium and the Company entered into
leases with respect to the development of two additional Sports Clubs in
Washington, D.C. and San Francisco, California and are negotiating the terms of
a lease for an additional Sports Club in Boston, Massachusetts (See "Business -
Developments and Acquisitions"). On June 11, 1997, the Company issued to
Millennium 2,105,203 shares of Common Stock in exchange for $10.0 million
consisting of $5.0 million in cash and certain interests of Millennium in the
Reebok-Sports Club/NY partnership, including a 9.9% interest in the partnership
and a $2.5 million promissory note issued by the partnership. The Company also
granted to Millennium certain registration and preemptive rights. In addition,
for so long as Millennium maintains at least a 12% interest in the equity
securities of the Company, the Company and certain of its shareholders have
agreed to cause a nominee of Millennium to be appointed or elected to the Board
of Directors of the Company; Brian J. Collins, an officer of Millennium, is
currently a member of the Company's Board of Directors as Millennium's nominee.
On December 31, 1997, the Company sold an additional 625,000 shares of Common
Stock to Millennium for $5.0 million, which the Company used to fund the cash
portion of the acquisition of four Spectrum Clubs from Racquetball World. In
addition, Millennium acquired properties underlying two of the Clubs for $10.0
million and is leasing these properties to the Company under a financing lease
agreement which is reflected as a capital lease obligation in the Company's
consolidated balance sheet. The lease has a term of twenty years, provides for
annual rent of $1.0 million for the first ten years and $1.2 million per year
thereafter. At any time during the first three years of the lease the Company
may purchase the leased property from Millennium for a purchase price (currently
estimated to be approximately $10.1 million) equal to $10.0 million plus all
costs incurred by Millennium in connection with the acquisition of such
property, plus a 12% compound return on its total investment. Millennium has the
right to require the Company to acquire its interest in the property at such
price if (i) the Company receives private debt financing in excess of $95.0
million (ii) the Company receives public equity financing in excess of $20.0
million ,(iii) a default (as defined in the lease) occurs, or (iv) a major
casualty occurs with respect to either property.
The Company has entered into agreements with its directors and officers
providing for the indemnification of such directors and officers by the Company
to the maximum extent permitted under Delaware law, in the event such persons
are the subject of lawsuits or otherwise suffer losses as a result of their
activities on behalf of the Company. These agreements include, among other
things, indemnity for judgments and settlements in derivative actions, prompt
payment of legal expenses in advance of indemnification and equitable
contribution by the Company in certain instances in the event a director or
officer is not entitled to full indemnification.
The Company believes that each of the foregoing transactions has been
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All transactions between the Company and any of its
directors or officers are subject to the approval of the disinterested
directors.
34
<PAGE> 55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements filed as part of this Report are listed
in Item 8 of this Report.
(2) No financial schedules have been included because they are not
applicable, not required or because required information is
included in the consolidated financial statements or notes
thereto.
(3) The following exhibits are filed as part of this Report.
EXHIBIT
NUMBER EXHIBIT
------ -------
3.1 Restated Certificate of Incorporation of the Registrant.*
3.2 Bylaws of the Registrant.*
3.3 Amendment to Bylaws dated February 1, 1995.**
4.1 Specimen Common Stock Certificate.*
9.1 Voting Agreement among D. Michael Talla, Nanette Pattee
Francini, Mark S. Spino, Peter Feinstein, Philip J. Swain and
FP II.*
10.1 1994 Stock Incentive Plan.*#
10.2 Form of Stock Option Agreement.*#
10.3 Form of Stock Purchase Agreement.*#
10.4 1994 Stock Compensation Plan.*#
10.5 Form of Indemnification Agreement between the Registrant and
its directors and certain officers.*
10.6 Indemnification Agreement between the Registrant and D.
Michael Talla.*
10.7 Indemnification Agreement between Registrant and Rex A.
Licklider.*
10.8 Employment Agreement between Registrant and D. Michael
Talla.*#
10.9 Employment Agreement between the Registrant and Nanette Pattee
Francini.*#
10.10 Promissory Notes executed by D. Michael Talla dated November
5, 1991 in favor of World Trade Bank, N.A., and related Loan
Agreement dated June 24, 1992, as amended.*
10.11 Promissory Note executed by Agoura Hills/Spectrum Club dated
March 29, 1994 in favor of Hawthorne Savings and Loan
Association.*
10.12 Lease of premises for Reebok Sports Club/NY located at 160
Columbus Avenue, New York, New York 10023 dated June 3, 1992.*
35
<PAGE> 56
EXHIBIT
NUMBER EXHIBIT
------ -------
10.13 Agreement of Purchase and Sale between MKDG/RHODES SC
Partnership and Rex Licklider dated November 19, 1993, as
amended November 19, 1993, December 10, 1993, December 31,
1993, and February 18, 1994.*
10.14 Joint Venture Agreement for Sports Connection - ES/MB between
El Segundo-TDC, Ltd. and Continental El Segundo Corporation
effective as of January 3, 1986.*
10.15 First Amendment to Joint Venture Agreement for Sports
Connection - ES/MB dated January 3, 1986.*
10.16 Restated Agreement of Limited Partnership of El Segundo-TDC,
Ltd., as amended.*
10.17 Agreement of Limited Partnership of R-SC/NY, Ltd.*
10.18 Management Agreement effective as of June 3, 1992, between
R-SC/NY, Ltd. and Pontius Realty, Inc.*
10.19 License Agreement between Reebok Fitness Centers, Inc. and
R-SC/NY, Ltd. dated June 3, 1992.*
10.20 Agreement of Purchase and Sale and Joint Escrow Instructions
entered between Hawthorne Savings and Loan Association and
Agoura Hills/Spectrum Club, Inc. effective as of April 14,
1994.*
10.21 Form of Membership Agreements for the Sports Clubs, Spectrum
Clubs and Sports Connections.*
10.22 Letter Agreement regarding R-SC/NY dated June 3, 1992.*
10.23 Club Management Contract for the Spectrum Club/Manhattan Beach
dated January 3, 1986, as amended January 3, 1986 and
September 17, 1987 and as assigned June 30, 1992.*
10.24 Agreement of Limited Partnership of NY-SC, Ltd. dated as of
April 29, 1992, as amended July 1, 1992.*
10.25 Sixth Amended and Restated Agreement of Limited Partnership of
L.A./Irvine Sports Clubs. Ltd., dated June 30, 1992.*
10.26 Memorandum of Agreement between Reebok Fitness Centers, Inc.
and the Company dated as of June 3, 1992.*
10.27 Seventh Amendment and Restated Agreement of Limited
Partnership of L.A./Irvine Sports Club, Ltd., a California
Limited Partnership, dated as of October 12, 1994.*
10.28 First Amendment to Seventh Amended and Restated Agreement of
Limited Partnership of L.A./Irvine Sports Club, Ltd., a
California Limited Partnership, dated as of October 12, 1994.*
10.29 Form of Option Agreement by and between D. Michael Talla, an
individual, TTO Partners, a California Limited Partnership,
and Sports Club, Ltd., a California Corporation, relating to
L.A./Irvine Sports Club, Ltd., a California Limited
Partnership.*
36
<PAGE> 57
EXHIBIT
NUMBER EXHIBIT
------ -------
10.30 Amended and Restated Agreement of Limited Partnership of TTO
Partners, a California Limited Partnership, dated June 30,
1992, as amended January 1, 1993, January 4, 1993 and February
12, 1994 and as assigned January 1, 1993.*
10.31 Letter Agreement dated October 11, 1994, by and between MKDG
Rhodes/SC Partnership, a General Partnership, and Rex
Licklider, including a $5,500,000 promissory note and deed of
trust to be delivered concurrently with the consummation of
the Offering.*
10.32 First Amended and Restated Agreement of Limited Partnership of
Reebok-Sports Club/NY, Ltd. dated as of October 12, 1994.*
10.33 Letter Agreement by and between Reebok Fitness Centers, Inc.
and the Company dated October 12, 1994.*
10.34 Amendment to First Amended and Restated Agreement of Limited
Partnership of Reebok-Sports Club/NY, Ltd. dated as of October
12, 1994.*
10.35 Letter Agreement by and between Reebok Fitness Centers, Inc.
and the Company, which became effective on October 29, 1994.*
10.36 License Agreement by and between Reebok Fitness Centers, Inc.
and the Company, which became effective on October 20, 1994.*
10.37 Promissory Note executed by L.A./Irvine Sports Clubs, Ltd. in
favor of MKDG/Rhodes SC Partnership, dated October 20, 1994.**
10.38 Employment Agreement between the Registrant and John M.
Gibbons.**#
10.39 First Amendment to Employment Agreement between Registrant and
D. Michael Talla, dated February 27, 1995. ***#
10.40 Amended and Restated Employment Agreement between Registrant
and John M. Gibbons, dated July 14, 1995. ***#
10.41 Settlement Agreement by and among Lincoln Metrocenter
Partners, L.P., Reebok-Sports Club/NY, Ltd., Talla New York,
Inc., RFC, Inc., and LMP Health Club Co. dated as of December
28, 1995 and Promissory Notes in connection therewith.***
10.42 Credit Agreement and related Exhibits by and between The
Sports Club Company, Inc. and HealthFitness Organization of
America, Inc. dated as of November 28, 1995.***
10.43 Notification to HealthFitness Organization of America, Inc.'s
shareholders of The Sports Club Company, Inc.'s exercise of
its option to acquire shares of HealthFitness Organization of
America, Inc. dated as of November 28, 1995.***
10.44 Loan Agreement between AT&T Commercial Finance Corporation and
L.A./Irvine Sports Clubs, Ltd. dated March 9, 1996.***
10.45 First Amendment to Loan Agreement between AT&T Commercial
Finance Corporation and L.A./Irvine Sports Clubs, Ltd., dated
March 12, 1996.***
37
<PAGE> 58
EXHIBIT
NUMBER EXHIBIT
------ -------
10.46 401-K Profit Sharing Plan and related Group Annuity Contract
No. GA-P K522 and Group Separate Account Annuity Contract No.
GA-P K523, both with Nationwide Life Insurance Company with an
effective date of February 1, 1996.****
10.47 First Amendment to Restated Employment Agreement between
Registrant and John M. Gibbons dated as of April 24,
1996.#****
10.48 Asset Purchase Agreement among 24 Hour Fitness, Inc., The
Sports Connection Holding Company, and Registrant dated as of
November 1, 1996.****
10.49 Management Agreement by and between Registrant and C.I.T.E.
Design Corp. dated as of May 2, 1996.****
10.50 Consulting Agreement by and between Registrant and Rex A.
Licklider dated as of August 1, 1996.#****
10.51 Letter Agreement by and between Registrant and WPI.Koll Asia
Pacific Advisors dated as of October 9, 1996.****
10.52 Second Amendment to Loan Agreement and related documents
between AT&T Commercial Finance Corporation and L.A./Irvine
Sports Clubs, Ltd. dated as of October 11, 1996.****
10.53 Termination Agreement by and among Bally Total Fitness Holding
Corporation, Bally Total Fitness Corporation, Bally's S.C.
Management, Inc., The Sports Connection Holding Company and
Registrant dated October 31, 1996.****
10.54 Fourth Amendment to Athletic Club Lease dated December 11,
1996, by and between Howard Hughes Properties, Limited
Partnership, a Delaware limited partnership and The Spectrum
Club Company, Inc.****
10.55 Agreement by and among Reebok-Sports Club/NY Ltd., Talla New
York, Inc., RFC, Inc., LMP Health Club Co., Millennium
Entertainment Partners, L.P. and Registrant dated as of
December 30, 1996.****
10.56 Letter Agreement between Millennium Entertainment Partners,
L.P. and the Registrant dated as of March 13, 1997.****
10.57 Loan Agreement entered into by and among the Registrant, The
Spectrum Club Company, Inc., Pontius Realty, Inc., Sports
Club, Inc. of California, Irvine Sports Club, Inc.,
HealthFitness Organization of America, Inc., L.A./Irvine
Sports Club, Ltd., Talla New York, Inc., SCC Sports Club, Inc.
and Sumitomo Bank of California dated as of March 20,
1997.****
10.58 First Amendment to Option Agreement between D. Michael Talla
and TTO Partners dated May 27, 1997.
10.59 Consulting Agreement between the Registrant and Rex A.
Licklider. #
10.60 First Amendment to Loan Agreement by and among the Registrant
and various of its subsidiaries and Sumitomo Bank of
California dated August 1, 1997.
38
<PAGE> 59
10.61 Second Amendment to Loan Agreement by and among the Registrant
and various of its subsidiaries and Sumitomo Bank of
California dated August 14, 1997.
10.62 Settlement Agreement, Agreement for Dismissal and General
Release and Waiver by and between Century Entertainment, L.P.,
the Registrant and Century City Spectrum Club, Inc. dated May
16, 1997.
10.63 Modification to the March 13, 1997 letter between Millennium
Entertainment Partners, L.P. and the Registrant dated June 10,
1997.
10.64 Asset Purchase Agreement between Green Valley Athletic Club
Limited Partnership and the Registrant dated as of May 1,
1997.
10.65 Agreement of Purchase and Sale of Real Property between Green
Valley Investment Company, Inc., and the Registrant dated as
of May 1, 1997.
10.66 Agreement for Purchase and Sale of Assets by and among HFA
Services, Inc., SportsTherapy, Inc. and Larry Schwartz made as
of July 1, 1997.
10.67 Letter Agreement between Millennium Entertainment Partners,
L.P. and the Registrant dated December 29, 1997. +
10.68 Agreement of Purchase and Sale by and among The Spectrum Club
Company, Inc., SCC I LLC and RBW/Fullerton dated as of
December 31, 1997. +
10.69 Agreement of Purchase and Sale between The Spectrum Club
Company, Inc. and Norcan dated as of December 31, 1997. +
10.70 Agreement of Purchase and Sale by and among The Spectrum Club
Company, Inc., SCC I LLC, RBW/Santa Ana and RBWSA, LLC dated
as of December 31, 1997. +
10.71 Agreement of Purchase and Sale between The Spectrum Club
Company, Inc. and Racquetball World dated as of December 31,
1997. +
10.72 Agreement of Lease between SCC I LLC and the Registrant dated
as of December 31, 1997. +
10.73 Amended and Restated Loan Agreement by and among the
Registrant and various of its subsidiaries and Sumitomo Bank
of California dated as of February 2, 1998.
10.74 Amendment of Lease between Lincoln Metrocenter Partners, L.P.
and Reebok-Sports Club/NY Ltd. as of January 31, 1998.
10.75 Letter Agreement between AT&T Commercial Finance Corporation
and L.A./Irvine Sports Clubs, Ltd. dated January 8, 1998.
10.76 Athletic Club Lease between Millennium Partners LLC and San
Francisco Sports Club, Inc. dated as of June 22, 1997.
10.77 Athletic Club Lease between Millennium Partners LLC and
Washington D.C. Sports Club, Inc. dated as of June 22, 1997
10.78 Escrow Instruction to Chicago Title Insurance Company from La
Salle Fund II and the Registrant dated July 24, 1997 regarding
purchase of real estate in Thousand Oaks, California.
10.79 First Amendment to Amended and Restated Loan Agreement by and
among the
39
<PAGE> 60
Registrant and various of its subsidiaries, Sumitomo Bank of
California and Comerica Bank - California dated as of February
23, 1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP
- ----------
# Compensation agreement or plan.
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1, declared effective on October 13, 1994 (SEC file No.
33-79552).
** Incorporated by reference to the Registrant's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on March 31,
1995 (SEC file No. 1-13290).
*** Incorporated by reference to the Registrant's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on March 29,
1996 (SEC file No. 1-13290).
**** Incorporated by reference to the Registrant's Annual Report on Form
10-K/A, filed with the Securities and Exchange Commission on October
14, 1997 (SEC file No. 1-13290).
+ Incorporated by reference to the Registrant's Form 8-K, filed with the
Securities and Exchange Commission on January 15, 1998 (SEC file No.
1-13290).
(b) Reports on Form 8-K
The following reports on Form 8-K were filed from October 1, 1997 through the
date of this report.
DATE EVENT
---- -----
November 4, 1997 Announced development of a
Spectrum Club in Thousand Oaks,
California.
December 12, 1997 Announced entering into a letter
of intent to acquire Los
Caballeros Racquet & Sports Club
in Fountain Valley, California.
January 14, 1998 Announced the acquisition of four
Racquetball World Clubs and sale
of 625,000 shares of Common Stock
to Millennium Entertainment
Partners, L.P.
February 2, 1998 Announced termination of
negotiations regarding the Los
Caballeros Racquet & Sports Club
acquisition.
(c) Exhibits
Index to Exhibits
EXHIBIT
NUMBER EXHIBIT
------ -------
10.58 First Amendment to Option Agreement between D. Michael Talla
and TTO Partners dated May 27, 1997.
40
<PAGE> 61
10.59 Consulting Agreement between the Registrant and Rex A.
Licklider. #
10.60 First Amendment to Loan Agreement by and among the Registrant
and various of its subsidiaries and Sumitomo Bank of
California dated August 1, 1997.
10.61 Second Amendment to Loan Agreement by and among the Registrant
and various of its subsidiaries and Sumitomo Bank of
California dated August 14, 1997.
10.62 Settlement Agreement, Agreement for Dismissal and General
Release and Waiver by and between Century Entertainment, L.P.,
the Registrant and Century City Spectrum Club, Inc. dated May
16, 1997.
10.63 Modification to the March 13, 1997 letter between Millennium
Entertainment Partners, L.P. and the Registrant dated June 10,
1997.
10.64 Asset Purchase Agreement between Green Valley Athletic Club
Limited Partnership and the Registrant dated as of May 1,
1997.
10.65 Agreement of Purchase and Sale of Real Property between Green
Valley Investment Company, Inc., and the Registrant dated as
of May 1, 1997.
10.66 Agreement for Purchase and Sale of Assets by and among HFA
Services, Inc., SportsTherapy, Inc. and Larry Schwartz made as
of July 1, 1997.
10.73 Amended and Restated Loan Agreement by and among the
Registrant and various of its subsidiaries and Sumitomo Bank
of California dated as of February 2, 1998.
10.74 Amendment of Lease between Lincoln Metrocenter Partners, L.P.
and Reebok-Sports Club/NY Ltd. as of January 31, 1998.
10.75 Letter Agreement between AT&T Commercial Finance Corporation
and L.A./Irvine Sports Clubs, Ltd. dated January 8, 1998.
10.76 Athletic Club Lease between Millennium Partners LLC and San
Francisco Sports Club, Inc. dated as of June 22, 1997.
10.77 Athletic Club Lease between Millennium Partners LLC and
Washington D.C. Sports Club, Inc. dated as of June 22, 1997
10.78 Escrow Instruction to Chicago Title Insurance Company from La
Salle Fund II and the Registrant dated July 24, 1997 regarding
purchase of real estate in Thousand Oaks, California.
10.79 First Amendment to Amended and Restated Loan Agreement by and
among the Registrant and various of its subsidiaries, Sumitomo
Bank of California and Comerica Bank - California dated as of
February 23, 1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP
- ----------
# Compensation agreement or plan.
41
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 26th
day of February, 1998.
THE SPORTS CLUB COMPANY, INC.
/s/ D. Michael Talla
--------------------------------------
D. Michael Talla,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant, in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ D. Michael Talla Chairman of the Board February 26, 1998
- ---------------------------------- and Chief Executive Officer
D. Michael Talla
/s/ Timothy M. O'Brien Chief Financial Officer February 26, 1998
- ---------------------------------- (Principal Financial and
Timothy M. O'Brien Accounting Officer)
/s/ Rex A. Licklider Vice Chairman of the Board February 26, 1998
- ----------------------------------
Rex A. Licklider
/s/ John M. Gibbons President, Chief Operating February 26, 1998
- ---------------------------------- Officer and Director
John M. Gibbons
/s/ Director February 26, 1998
- ----------------------------------
Brian J. Collins
/s/ Nanette Pattee Francini Director February 26, 1998
- ----------------------------------
Nanette Pattee Francini
/s/ Director February 26, 1998
- ----------------------------------
Andrew L. Turner
/s/ Dennison Veru Director February 26, 1998
- ----------------------------------
Dennison Veru
</TABLE>
42
<PAGE> 1
EXHIBIT 10.58
FIRST AMENDMENT
TO OPTION AGREEMENT
This First Amendment to Option Agreement is hereby made to amend that
certain Option Agreement entered into by and between D. Michael Talla, an
individual, and TTO Partners, a California limited partnership, on the one hand
(collectively, "Optionors"), and Sports Club, Inc. of California, a California
corporation ("Optionee"), on the other, on October 20, 1994 ("Option
Agreement") as follows:
1. Paragraph 3.1 is hereby amended by deleting the first line thereof and
adding in its place and stead the following:
"3.1. The date, if any, upon which Optionors cease to control at a
minimum 15% of the outstanding Common Stock of The Sports Club Company, Inc.;
or"
2. All other terms and conditions of the Option Agreement shall remain in
full force and effect.
Dated as of May 27, 1997
OPTIONORS: /s/ D. Michael Talla
--------------------------------------
D. Michael Talla, an individual
TTO Partners,
a California limited partnership
By: Talla Development Company,
a California corporation, as
General Partner
By: /s/ D. Michael Talla
----------------------------------
D. Michael Talla, President
OPTIONEE; Sports, Club, Inc. of California,
a California corporation
By: /s/ John M. Gibbons
----------------------------------
John M. Gibbons, President
<PAGE> 1
EXHIBIT 10.59
CONSULTING AGREEMENT
This agreement, dated as of August 1, 1997, by and between The Sports Club
Company ("SCC"), and Rex A. Licklider (the "Consultant"). Whereas, SCC desires
to retain the Consultant for certain services and the Consultant desires to
provide such services, SCC and the Consultant agree to the following:
1. Appointment. SCC hereby retains the Consultant as an independent
contractor on a part-time basis, and the Consultant hereby accepts such
retainer, upon the terms and conditions herein set forth. During the
term hereof, the Consultant shall serve at the direction of Michael
Talla or any other person appointed by him.
2. Services to be Rendered. The Consultant agrees to perform the following
services:
a) Assist the Company in strategic planning
b) Advise the President and CEO on day-to-day operations,
marketing and sales
c) Assist the Company in stockholder relations.
3) Time and Place of Work. The Consultant shall provide SCC with a minimum
of 60 hours of service per month. These services shall be performed at
the SCC's executive office in Los Angeles, Ca., or at such other place
or places as shall be mutually agreed upon.
4) Compensation. In consideration of the services to be provided by the
Consultant hereunder, SCC shall pay the Consultant at the rate of
$10,000 per month, payable in advance. SCC shall reimburse the
Consultant for all reasonable and necessary traveling expenses and
other disbursements which the Consultant shall incur, at SCC's request,
in rendering services pursuant to this agreement. The Consultant shall
render invoices and expense accounts monthly in form and detail as
specified by SCC. The Consultant acknowledges that he shall be fully
responsible for all Federal and State withholding, payroll and other
taxes, as confirmed by the Consultant's Certificate in the form of
Exhibit "A" attached hereto.
5) Term. This agreement shall be effective from August 1, 1997 until July
31, 1998. The Consultant's obligations pursuant to Paragraphs 9 and 12
below shall survive the expiration or earlier termination of this
agreement.
<PAGE> 2
6) Termination. This agreement shall terminate on the earliest of a) July
31, 1998, unless amended as provided herein, b) inability of the
Consultant to perform all services required of him under this
agreement; and/or c) mutual agreement by both parties. It will also
terminate if SCC ceases to operate as a business, merges with or is
acquired by or otherwise sells all or substantially all its assets and
properties to another entity. Upon termination, the Consultant shall
transfer to SCC all work which has been, or is in the process of being
completed, and all drawings, designs, plans, and any copyright, patent
or trademark rights made or obtained in connection therewith. In this
regard, the Consultant acknowledges and agrees that he is a
"worker-for-hire" under the Copyright Act of 1976, as amended, and all
work, products and proceeds of his work and services under this
agreement shall be and remain the sole property of SCC.
7) Limitation of Liability. The Consultant shall not be obligated to
render services or incur costs hereunder and SCC shall not be obligated
to reimburse the Consultant for expenses hereunder in excess of
$10,000, unless SCC and the Consultant shall change amount by written
amendment to this agreement.
8) Consulting for Others. The Consultant shall be free to be employed by
or otherwise render consulting services to any other individual, firm,
association or organization, provided that any such individual, firm,
association or organization does not compete with SCC absent the prior
written approval of SCC.
9) Confidential Nature of Work. Both during and after the term of this
agreement, the Consultant will not directly or indirectly use or
divulge to any one other than SCC's officers or, except in the
performance of his services under this agreement, make any use of
information or knowledge relating to a) any project on which SCC shall
have worked or shall be working on, or b) to SCC's business, which the
Consultant shall have developed, learned about or obtained during the
term of this agreement and which shall not be generally known or
recognized as standard practice. The Consultant will not utilize SCC's
name for any advertising purpose without the Company's prior written
approval.
10) Third Party Relationships. The Consultant will not enter into any
agreement or incur any obligation on SCC's behalf, or commit SCC in any
other manner without SCC's prior written consent.
<PAGE> 3
11) Nature of Relationship. It is understood that the Consultant is being
retained by SCC as an independent contractor and that the Consultant is
not, and will not act as SCC's agent nor shall the Consultant be deemed
to be an employee of the Company for the purpose of any tax withholding
or employee benefit program or otherwise, except that, Consultant will
be included in SCC health insurance program and will receive normal
executive privileges at SCC fitness facilities.
12) Invention and Patent Rights. The Consultant agrees to and does hereby
assign to SCC any inventions resulting from the performance of his
services under this agreement. SCC will prepare, file and prosecute
patent applications on such inventions whenever, in its judgment, it
feels that such applications should be filed and will pay all expenses
involved therewith.
13) Warranty. The Consultant warrants that he has the right to disclose to
SCC all information transmitted under this agreement and in relation
thereto, without violating the legal or equitable rights of any other
person or entity, and that all services rendered to or on behalf of SCC
shall be in strict accordance with all applicable federal, state and
local laws. The Consultant further agrees to indemnify and hold
harmless SCC in the event of any breach of any representation,
warranty, term or condition set forth herein.
14) Entire Agreement. This agreement (together with all Exhibits attached
hereto, which are incorporated herein by this reference) shall
constitute the entire agreement between the parties. No understandings,
agreements, discussions or representations on the subject matter hereof
shall be binding upon either of the parties, except as expressly set
forth herein or in any other written agreement executed between the
parties.
This agreement is entered into and executed as of the date above.
By: The Sports Club Company, Inc. By:
By: /s/ John Gibbons /s/ Rex Licklider
----------------------------- -----------------------------
John Gibbons, President Rex A. Licklider, Consultant
<PAGE> 4
CONSULTANT'S CERTIFICATION
I, Rex Licklider, hereby agree to the terms outlined on the attached agreement,
and I am aware that no employment withholding taxes will be deducted by The
Sports Club Company, Inc.. I accept full responsibility for the payment of my
taxes as I am self-employed. I realize that The Sports Club Company, Inc. is
not liable for any injury I may suffer while performing consulting services for
The Sports Club Company, Inc. as I am working as an independent contractor and
not an employee; further, I acknowledge that worker's compensation coverage is
not available to me, and that I must provide my own worker's compensation
insurance, as this company benefit is not provided for consultants rendering
services for the company on an independent contractor basis.
Executed on this 15th day of August 1997 in Los Angeles County.
/s/ Rex A. Licklider
- -----------------------------
Rex A. Licklider
<PAGE> 1
EXHIBIT 10.60
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement ("First Amendment") is
dated as of August 1, 1997 and is entered into by and among The Sports Club
Company, Inc., The Spectrum Club Company, Inc., Pontius Realty, Inc., Sports
Club, Inc. of California, Irvine Sports Club, Inc., HealthFitness Organization
of America, Inc., L.A./Irvine Sports Club, Ltd., Talla New York, Inc., SCC
Sports Club, Inc., and Green Valley Spectrum Club, Inc. (collectively,
"Borrowers") and Sumitomo Bank of California ("Bank").
R E C I T A L S
A. The Sports Club Company, Inc., The Spectrum Club Company,
Inc., Pontius Realty, Inc., Sports Club, Inc. of California, Irvine Sports
Club, Inc., HealthFitness Organization of America, Inc., L.A./Irvine Sports
Club, Ltd., Talla New York, Inc. and SCC Sports Club, Inc., as Borrowers, and
Bank, as lender, entered into that certain Loan Agreement dated as of March 20,
1997 ("Loan Agreement") pursuant to which Bank has provided certain credit
facilities to Borrowers.
B. The Sports Club Company, Inc. has entered into a Settlement
Agreement resolving the Century City Spectrum Club lawsuit ("Spectrum
Settlement") pursuant to which The Sports Club Company, Inc. has agreed to pay
$1,950,000 to Century Entertainment over a one year period ending February,
1998 in four equal quarterly payments. Payment of the Spectrum Settlement may
result in a violation of Section 6.4 of the Loan Agreement which requires
Borrowers to maintain, on a combined basis, a positive net income.
C. The Sports Club Company, Inc. has organized and is the sole
shareholder of Green Valley Spectrum Club, Inc., a Nevada corporation ("SCC
Nevada").
D. The Sports Club Company, Inc. and SCC Nevada are in the
process of negotiating the purchase of the assets of the Green Valley Athletic
Club located in Henderson, Nevada ("Green Valley Acquisition"). The Sports
Club Company, Inc. has entered into a letter of intent in connection with the
Green Valley Acquisition for the
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<PAGE> 2
purchase price of $6,500,000.
E. Section 6.3 of the Loan Agreement limits, among other things,
the Borrowers from making any Acquisition in an amount requiring payment in
excess of $2,500,000 of Borrower's cash within one year of such Acquisition or
a sum greater than four times the historical cash flow of the acquired entity
with acceptable adjustments for identified savings which will occur as a result
of such Acquisition.
F. In connection with the Green Valley Acquisition, Borrowers
have requested that Bank allow a borrowing under the Loan Agreement to allow
Bank to make a loan available to Borrowers.
G. In connection with the Green Valley Acquisition, SCC Nevada is
to become a Borrower under the Loan Documents and The Sports Club Company, Inc.
shall pledge all of the stock in SCC Nevada as additional collateral security
for the Obligations under the Loan Documents.
H. Bank is willing to consent to amending the Loan Agreement in
connection with the Spectrum Settlement and the Green Valley Acquisition.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Borrowers and Bank hereby agree as follows:
1. Defined Terms. Except as otherwise defined herein,
capitalized terms set forth herein without definition shall have the respective
meanings assigned to them in the Loan Agreement.
2. Profitability. Section 6.4 of the Loan Agreement is
amended solely for the second quarter of Borrowers' 1997 fiscal year to
substitute the "positive net income" requirement with a requirement that
Borrowers, on a combined basis, shall have a net income before taxes and
extraordinary items of not less than $850,000.00. Except with respect to the
above-referenced quarter, Borrowers shall at all times comply with the positive
net income requirement of Section 6.4.
-3-
<PAGE> 3
3. Acquisition. Section 6.3 of the Loan Agreement, with
respect to the $2,500,000 cap relating to Borrowers' cash and the limitation
relating to a sum not greater than four times the historical cash flow of the
acquired entity in connection with Acquisitions is waived with respect to the
Green Valley Acquisition. All other terms and conditions of the Loan Agreement
shall continue to apply with respect to the Green Valley Acquisition and all
terms and conditions of the Loan Agreement, including the above-described
limitation and cap, shall continue to apply with respect to any other
Acquisition.
4. New Borrower. SCC Nevada is hereby entering into
this First Amendment as a new Borrower under the Loan Documents and does hereby
assume all Obligations, liabilities, terms and conditions now or hereafter
existing as a Borrower under the Loan Documents. SCC Nevada agrees to execute
such further agreements, documents, financing statements, security agreements
and the like as may be required by Bank in connection with this First Amendment
and SCC Nevada's becoming an additional Borrower under the Loan Documents.
5. Pledge of Stock. The Sports Club Company, Inc.
hereby pledge all of its right, title and interest in the SCC Nevada stock to
Bank as collateral security for all of its Obligations under the Loan
Documents. In connection therewith, The Sports Club Company, Inc. agrees to
execute such agreements, financing statements and other documents and
agreements as may be required by Bank in connection with such pledge of the SCC
Nevada stock.
6. Representations and Warranties. Each representation
made by the Borrowers in the Loan Agreement is true and correct on and as of
the date hereof as though made as of the date hereof, except to the extent such
representations and warranties relate solely to an earlier date or have become
inaccurate without resulting in a breach of the Loan Agreement.
7. Full Force and Effect. Except as expressly amended
hereby, the Loan Agreement and any other Loan Documents shall remain unaltered
and in full force and effect.
-4-
<PAGE> 4
8. Counterparts. This First Amendment may be executed
in multiple counterparts, each of which shall constitute an original and all of
which, taken together, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this First Amendment has been executed as
of the date first above written.
"Borrowers"
THE SPORTS CLUB COMPANY, INC.
By /s/ Timothy O'Brien
-------------------------------------
Its Chief Financial Officer
------------------------------------
THE SPECTRUM CLUB COMPANY, INC.
By /s/ Timothy O'Brien
-------------------------------------
Its Chief Financial Officer
------------------------------------
PONTIUS REALTY, INC.
By /s/ Timothy O'Brien
-------------------------------------
Its Chief Financial Officer
-------------------------------------
SPORTS CLUB, INC. OF CALIFORNIA
By /s/ Timothy O'Brien
-------------------------------------
Its Chief Financial Officer
-----------------------------------
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<PAGE> 5
IRVINE SPORTS CLUB, INC.
By /s/ Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
HEALTH FITNESS ORGANIZATION OF AMERICA,
INC.
By /s/ Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
L.A./IRVINE SPORTS CLUB, LTD.
By Sports Club Inc. of California
-----------------------------------
Its General Partner
-----------------------------------
By /s/ Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
TALLA NEW YORK, INC.
By /s/ Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
SCC SPORTS CLUB. INC.
By /s/ Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
-6-
<PAGE> 6
GREEN VALLEY SPECTRUM CLUB, INC.
By /s/ Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
"Bank"
SUMITOMO BANK OF CALIFORNIA
By /s/ Elizabeth Toda
-----------------------------------
Its Assistant Vice President
-----------------------------------
-7-
<PAGE> 1
EXHIBIT 10.61
SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment to Loan Agreement ("Second Amendment")
is dated as of August 14, 1997 and is entered into by and among The Sports Club
Company, Inc., The Spectrum Club Company, Inc., Pontius Realty, Inc., Sports
Club, Inc. of California, Irvine Sports Club, Inc., HealthFitness Organization
of America, Inc., L.A./Irvine Sports Club, Ltd., Talla New York, Inc., SCC
Sports Club, Inc., and Green Valley Spectrum Club, Inc. (collectively,
"Borrowers") and Sumitomo Bank of California ("Bank").
R E C I T A L S
A. The Sports Club Company, Inc., The Spectrum Club Company, Inc.
("Spectrum"), Pontius Realty, Inc., Sports Club, Inc. of California, Irvine
Sports Club, Inc., HealthFitness Organization of America, Inc., L.A./Irvine
Sports Club, Ltd., Talla New York, Inc., SCC Sports Club, Inc., and Green
Valley Spectrum Club, Inc. as Borrowers, and Bank, as lender, are parties to
that certain Loan Agreement dated as of March 20, 1997 as subsequently amended
(collectively, "Loan Agreement") pursuant to which Bank has provided certain
credit facilities to Borrowers.
B. HealthFitness Organization of America, Inc., a Borrower
hereunder ("HealthFitness") has incorporated and is presently the 100%
shareholder of HFA Services, Inc., a California corporation, ("HFA"). HFA has
purchased certain assets of Sports Therapy Systems, Inc. pursuant to an
Agreement for Purchase and Sale of Assets in the amount of $472,203.00 ("STS
Acquisition").
C. Pursuant to the STS Acquisition, HFA has entered into an
"Agreement for Purchase and Sale of Assets" and an Employment Agreement with
the principal of SportsTherapy Systems, Inc., and HealthFitness Organization of
America, Inc. and Larry Schwartz have entered into a Shareholders Agreement.
D. Certain funds were advanced by Borrowers to HFA in connection
with the STS Acquisition. HFA will, however, be a Non-Borrower Affiliate under
the Loan
-2-
<PAGE> 2
Agreement. Sections 5.6, 6.2 and 6.3 of the Loan Agreement require certain
Bank consents, approvals or waivers with respect to intercompany loans,
Acquisitions and transactions with Non-Borrower Affiliates in connection with
the STS Acquisition on terms and arrangements acceptable to Bank, in its sole
discretion.
E. Bank is willing to consent to the STS Acquisition and related
actions as described above on the terms and conditions hereafter provided.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Borrowers and Bank hereby agree as follows:
1. Defined Terms. Except as otherwise defined herein,
capitalized terms set forth herein without definition shall have the respective
meanings assigned to them in the Loan Agreement.
2. Consent, Approval and Waiver. Bank approval and
consent to the STS Acquisition is subject to the following conditions, each of
which is agreed to by the Borrowers:
(a) HealthFitness does hereby pledge all of its
right, title and interest in the HFA stock to Bank as collateral
security for all of its Obligations under the Loan Documents. In
connection herewith, HealthFitness agrees to execute such pledge
agreements, financing statements and other documents and agreements as
may be required by Bank in connection with such pledge of the HFA
Stock.
(b) The STS Acquisition shall be funded by a loan
from HealthFitness to HFA in the amount of $472,203.00 ("HFA Loan").
HFA shall not be required to become a Borrower and the HFA Loan will
not be included in the aggregate amount of advances to, investments
in, or commitments to HFA for purposes of Section 5.6 of the Loan
Agreement. The HFA Loan shall be evidenced by a promissory note
("Note") in form and substance acceptable to Bank. In addition, such
Note shall be secured by a perfected first priority
-3-
<PAGE> 3
security interest in the assets of HFA. Such Note shall be assigned
and pledged by HealthFitness to Bank along with all collateral
security for the payment thereof, as additional security for
HealthFitness' Obligations under the Loan Agreement. HFA and
HealthFitness shall execute such security documents, promissory notes,
financing statements, assignments and other agreements as Bank may
require in connection herewith or therewith, such documents to be in
form and substance acceptable to Bank, including, among other things,
a restriction on any prepayment of the HFA Loan unless made with cash
generated from the operation of HFA.
3. Schedules. Schedules 5.2, 5.6 and 6.10 to the Loan
Agreement are amended as provided in the Schedules attached hereto.
4. Representations and Warranties. Each representation
made by the Borrowers in the Loan Agreement is true and correct on and as of
the date hereof as though made as of the date hereof, except to the extent such
representations and warranties relate solely to an earlier date or have become
inaccurate without resulting in a breach of the Loan Agreement.
5. Full Force and Effect. Except as expressly amended
hereby, the Loan Agreement and any other Loan Documents shall remain unaltered
and in full force and effect.
6. Counterparts. This Second Amendment may be executed
in multiple counterparts, each of which shall constitute an original and all of
which, taken together, shall constitute but one and the same instrument.
7. Amendment Fee. Borrowers shall pay to Bank,
concurrent with the execution of this Second Amendment, an amendment fee in an
amount equal to one-eighth of one percent of the Commitment ($6,250.00).
IN WITNESS WHEREOF, this Second Amendment has been executed as
of the date first above written.
"Borrowers"
-4-
<PAGE> 4
THE SPORTS CLUB COMPANY, INC.
By /s/ Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
THE SPECTRUM CLUB COMPANY, INC.
By Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
PONTIUS REALTY, INC.
By Timothy O'Brien
-----------------------------------
Its Chief financial Officer
-----------------------------------
SPORTS CLUB, INC. OF CALIFORNIA
By Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
IRVINE SPORTS CLUB, INC.
By Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
-5-
<PAGE> 5
HEALTHFITNESS ORGANIZATION OF AMERICA, INC.
By Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
L.A./IRVINE SPORTS CLUB, LTD.
By Sports Club, Inc.. of California
General Partner
By Timothy O'Brien
--------------------------
Its Chief Financial Officer
TALLA NEW YORK, INC.
By Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
SCC SPORTS CLUB, INC.
By Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
-6-
<PAGE> 6
GREEN VALLEY SPECTRUM CLUB, INC.
By Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
ACKNOWLEDGED AND AGREED:
HFA SERVICES, INC.
By Timothy O'Brien
-----------------------------------
Its Chief Financial Officer
-----------------------------------
"Bank"
SUMITOMO BANK OF CALIFORNIA
By /s/ Elizabeth Toda
-----------------------------------
Its Assistant Vice President
-----------------------------------
-7-
<PAGE> 1
EXHIBIT 10.62
SETTLEMENT AGREEMENT, AGREEMENT FOR DISMISSAL
AND GENERAL RELEASE AND WAIVER
This Settlement Agreement, Agreement for Dismissal and General Release
and Waiver ("Agreement") is entered into by and between CENTURY ENTERTAINMENT
CENTER, L.P. ("CENTURY"), on the one hand, and THE SPORTS CLUB COMPANY, INC.
("SPORTS CLUB") and Century City Spectrum Club, Inc. ("SPECTRUM"), on the
other hand, all of whom are collectively known as "the parties."
RECITALS
A. On or about August 10, 1995, SPECTRUM filed a Complaint against
CENTURY alleging causes of action for Declaratory Relief, Alternatively,
Damages for Breach of Lease in Case No. BC133264, now pending in the Superior
Court of the State of California for the County of Los Angeles (the
"Complaint");
B. In response to the Complaint, on or about September 11, 1995,
CENTURY filed an answer denying liability and asserting defenses;
C. On or about September 11, 1995, CENTURY filed a
Cross-complaint in Case No. BC133264 against SPORTS CLUB and SPECTRUM (the
"Cross-complaint") alleging causes of action for Breach of Lease and Breach of
Guaranty;
D. On or about August 14, 1996, the Court granted summary judgment
in favor of CENTURY and dismissed SPECTRUM's Complaint. The court further
granted SPECTRUM leave to amend its complaint. On or about August 16, 1996,
SPECTRUM filed an amended complaint against CENTURY (the "Amended Complaint")
alleging causes of action for Declaratory Relief, Alternatively, Damages for
Breach of Lease;
E. On or about October 10, 1996, the Court sustained CENTURY's
demurrer to the Amended Complaint without leave to amend;
F. On or about January 27, 1997, CENTURY filed an amended
cross-complaint against SPORTS CLUB and SPECTRUM for Breach of Lease and
Breach of Guaranty in Case No. BC 133264 ("the Amended Cross-complaint");
G. On or about March 4, 1997, SPORTS CLUB and SPECTRUM filed
answers to the Amended Cross-complaint, denying liability and asserting
defenses;
H. Hereinafter, the Complaint, the Amended Complaint, the
Cross-complaint and the Amended Cross-complaint will be referred to
collectively as "the Action."
I. CENTURY, SPORTS CLUB and SPECTRUM desire to resolve,
compromise and settle the claims and disputes which exist between them;
2
<PAGE> 2
J. On or about April 29, 1997, SPORTS CLUB and SPECTRUM made
to CENTURY an irrevocable and unconditional offer to settle the claims and
disputes; by letter dated May 16, 1997, CENTURY accepted the offer in its
entirety.
NOW, THEREFORE, in consideration of the above recitals, the covenants
and agreements contained herein and other good and valuable consideration, the
parties agree as follows:
AGREEMENTS
1. Payments. SPORTS CLUB and SPECTRUM will pay CENTURY, in
installments and without interest, and CENTURY will accept the total sum of One
Million Nine Hundred and Fifty Thousand Dollars ($1,950,000) (the "Settlement
Sum") which shall be applied by CENTURY to reimburse itself for all the legal
fees and costs incurred in the action and tenant improvements, leasing
commissions and future releasing costs, relating to the re-leasing of the
premises referred to in the pleadings in the Action, during the lease term,
with the balance of the Settlement Sum, if any, to be applied to past and
future rent and expenses owed by SPECTRUM under the Lease and SPORTS CLUB under
the Guaranty. SPORTS CLUB and SPECTRUM are jointly and severally liable for
payment of the Settlement Sum.
The Settlement Sum shall be paid by SPORTS CLUB and SPECTRUM
to CENTURY in the following installments without interest: (1) Five Hundred
Thousand Dollars ($500,000.00) within ninety six (96) hours of the execution
and delivery of this Agreement by CENTURY; (2) Five Hundred Thousand Dollars
($500,000.00) on August 16, 1997; (3) Five Hundred Dollars (500,000.00) on
November 16, 1997 and (4) Four Hundred and Fifty Thousand Dollars ($450,000.00)
on February 16, 1998. Each payment shall be made by check payable to CENTURY
ENTERTAINMENT CENTER, L.P.
2. Delivery of Agreement by Spectrum and Sports Club. Subject to
the execution and delivery of this Agreement by CENTURY, within ninety six (96)
hours of delivery of the Agreement executed by CENTURY, counsel for SPORTS CLUB
and SPECTRUM shall provide to counsel for CENTURY an original of the Agreement
signed by SPORTS CLUB and SPECTRUM.
3. Dismissal of the First Amended Complaint. Subject to the
execution and delivery of this Agreement by Century, within ninety six (96)
hours of delivery of the Agreement executed by CENTURY, SPECTRUM shall cause
its attorneys to file forthwith a Request for Dismissal with Prejudice of the
first Amended Complaint ("Dismissal") and upon receipt thereof to deliver to
counsel for CENTURY a conformed copy of the said Dismissal.
4. Stipulation for Judgment. Subject to the execution and
delivery of this Agreement by Century, within ninety six (96) hours of delivery
of the Agreement executed by Century, Spectrum and Sports Club shall cause its
attorneys to execute and
3
<PAGE> 3
deliver to counsel for CENTURY an original Stipulation for Judgment
("Stipulation") in favor of CENTURY on the form of Exhibit "1" attached hereto.
The Stipulation shall be held by CENTURY and its counsel and shall be not be
filed except as provided herein.
In the event any installment provided to be paid pursuant to
paragraph 1 above is not paid in full when due, SPECTRUM and SPORTS CLUB shall
be in default under this Agreement. In the event of such default, CENTURY
shall give ten (10) days' written notice to SPECTRUM and to SPORTS CLUB to cure
the default. If such installment is paid in full within ten days after written
notice, the default shall deemed to be cured.
If the default has not been cured by payment in full of such
installment within ten (10) days after written notice, counsel for CENTURY
shall complete the appropriate blank in the Stipulation with the dollar amount
of the Settlement Sum less all prior installments paid by SPECTRUM and SPORTS
CLUB to CENTURY. Thereafter, the Stipulation may be filed by CENTURY together
with a Declaration made on its behalf, stating that the default has occurred,
that written notice of default had been given and that the default has not been
cured within the permitted ten (10) day period after written notice. The
declaration shall also state the total dollar amount of installments, if any,
that have been paid. Upon the filing of such Declaration and the Stipulation,
Judgment may be entered.
5. Stipulation Regarding Disposition of First Amended
Cross-complaint. Upon payment in full of the Settlement Sum, CENTURY shall
cause its counsel to file a Request for Entry of Dismissal with prejudice of
the First Amended Cross-complaint and deliver to counsel for SPECTRUM and
SPORTS CLUB a conformed copy of said dismissal.
6. Attorney's Fees and Costs. The only attorney's fees and costs
incurred in the Action to which CENTURY is entitled are as provided in
Paragraph 1. SPECTRUM and SPORTS CLUB shall bear their own costs and
attorney's fees incurred in the Action.
7. General Release by SPORTS CLUB and SPECTRUM. SPORTS CLUB and
SPECTRUM and each of them, on their own behalf, and on behalf of their
predecessors and past or present assigns, successors in interest, affiliates,
subsidiaries, partners, employees, agents and servants (collectively "SPORTS
CLUB Parties" and "SPECTRUM Parties") hereby release and discharge CENTURY and
each of its general and limited partners, predecessors, successors, past and
present assigns, shareholders, parent corporations, subsidiaries, related or
affiliated corporations, employees, agents, servants, attorneys, officers and
directors (collectively "CENTURY Released Parties") from any and all claims,
demands, causes of action, obligations, damages and liabilities, known and
unknown, suspected and unsuspected, (collectively "Released Claims") that the
SPORTS CLUB Parties or the SPECTRUM Parties, or any of them, now own or hold,
or have at any time heretofore owned or held, against the CENTURY Released
parties, or any of them. including, but not limited to, claims arising out of
the Lease
4
<PAGE> 4
referenced in the Action (the "Lease"), and any and all claims that were
asserted in, that could have been asserted in or are in any way related to the
Action.
8. General Release by CENTURY. Except for the rights and
obligations provided in this Agreement, including the Stipulation, CENTURY, on
its own behalf, and on behalf of its predecessors and past or present assigns,
successors in interest, affiliates, subsidiaries, partners, employees, agents
and servants (collectively "CENTURY Parties") hereby releases and discharges
SPORTS CLUB and SPECTRUM, and each of their general and limited partners,
predecessors, successors, past and present assigns, shareholders, parent
corporations, subsidiaries, related or affiliated corporations, employees,
agents, servants, attorneys, officers and directors, and any other person or
entity that may have liability under the Lease (collectively "SPORTS CLUB
Released Parties") from any and all claims, demands, causes of action,
obligations, damages and liabilities, known and unknown, suspected and
unsuspected, (collectively "Released Claims") that the CENTURY Parties, or any
of them, now own or hold, or have at any time heretofore owned or held, against
the SPORTS CLUB Released Parties, or any of them. including, but not limited
to, claims arising out of or related to the Lease, and any and all claims that
were asserted in, that could have been asserted in or in any way related to the
Action.
9. Waiver and Relinquishment of Unknown Claims. It is understood
and agreed by the parties that with respect to the releases set forth in
paragraphs 7 and 8 hereof, all rights under Section 1542 of the Civil Code of
California and any similar law of any other state or territory of the United
States are hereby expressly waived and relinquished by the SPORTS CLUB Parties,
the SPECTRUM Parties and the CENTURY Parties. Said section reads as follows:
"1542. Certain claims not affected by general release. A general
release does not extend to claims which the creditor does not know or suspect
to exist in his favor at the time of executing the release, which if known by
him must have materially affected his settlement with the debtor."
In waiving and relinquishing the provisions of Section 1542 of
the California Civil Code, the SPORTS CLUB Parties, the SPECTRUM Parties, and
the CENTURY Parties acknowledge that they may hereafter discover facts,
information or evidence in addition to or different from those fact,
information or evidence, which they now believe to exist or be true, with
respect to the subject matter of the Action and other matters herein released,
but agree that they have taken that possibility into account in determining the
amount of consideration to be given under this Agreement and that the release
hereby given shall be and remain in effect as a full and complete general
release of the matters described hereinabove, notwithstanding discovery of the
existence of any such additional or different facts, information or evidence of
which the SPORTS CLUB Parties, the SPECTRUM Parties, and the CENTURY Parties
expressly and voluntarily assume the risk.
5
<PAGE> 5
10. Confidentiality. Neither SPORTS CLUB, SPECTRUM, nor any of
their agents, attorneys, officers, employees or affiliates, will communicate
with The Courtyard Club, or any of its principals, agents, or affiliates,
regarding the subject of this lawsuit, the settlement, the lease premises, the
ABC Entertainment Center, or the prospective lease of said premises or any
other premises at the Center, except only if asked to say in substance, "I or
we are barred from any communication on the subject" This paragraph does not
prohibit SPORTS CLUB from making any disclosures required by law or regulation
to any governmental entity having jurisdiction. The prohibition against
communications set forth in this paragraph shall expire upon final payment as
required under paragraph 1.
11. Warranty of Parties. Each party to this Agreement warrants
and represents that it is the owner of and has not transferred, assigned or
hypothecated any of the claims, rights, demands and causes of action it has
asserted or released herein, that no other person or entity owns, holds or has
any interest in the claims, rights or causes of action that have been released
herein, that the Agreement has been duly executed and delivered by such party
and that the Agreement constitutes a legal, valid and binding obligation of
such party, enforceable against such party in accordance with its terms.
12. Warranty of Individuals. Each individual signing this
Agreement on behalf of a corporation, partnership or limited liability company,
and each such corporation, partnership and limited liability company represents
and warrants that he has full power and authority to do so.
13. Drafting of Agreement. This Agreement has been carefully read
by, the contents hereof are known and understood by, and it is signed freely
by, the undersigned. For purposes of California Civil Code Section 1654, and
all other like purposes, this Agreement shall be deemed to have been drafted by
each of its parties.
14. Covenant Not to Sue. Except as may be necessary to enforce
the provisions of this Agreement, including the Stipulation, the parties hereto
covenant and agree not to bring any claim, action, suit or proceeding against
the other party hereto, directly or indirectly, regarding or relating in any
manner to the matters released hereby, and they further covenant and agree that
this Agreement is a bar to any such claim, action suit or proceeding.
15. Additional Documents. Each party to this Agreement shall
execute and deliver such additional documents as may be reasonably required to
carry out the intention of the parties as reflected in this Agreement.
16. Modification of Agreement. No modification of, or amendment
to, the Agreement shall be valid unless it is in writing and signed by the
party or parties to be charged.
17. Advice of Counsel. All parties signing this Agreement
represent and warrant to each other that they have had advice of counsel of
their own choosing in negotiations
6
<PAGE> 6
for and the preparation of this Agreement and that they have read this
Agreement or have had the same read to them by their counsel, and that they
have had the within Agreement fully explained by such counsel and that they are
fully aware of its contents and legal effects.
18. Assumption of Risk. All parties to this Agreement understand
and agree that in entering into this Agreement, they have not relied on any
statement of any other party or its attorney and should any party hereto be
mistaken in its belief with regard to some issue of fact or law regarding the
matters herein released or agreed to, each and every party hereto specifically
and expressly agrees to assume the risk of such mistake, if any.
19. Execution of Counterparts. This Agreement may be executed in
one or more counterparts, all of which, taken together, shall constitute one
and the same instrument.
20. Binding upon Predecessors and Successors. This Agreement
shall be binding upon and inure to the benefit of the parties hereto, their
respective predecessors, successors, affiliates, and past or present
representatives, assigns, officers, directors, agents and employees. This
Paragraph supplements Paragraph 27 below.
21. Entire Agreement. This Agreement constitutes the entire
agreement, written, oral and implied, between SPORTS CLUB, SPECTRUM and
CENTURY, and it supersedes and replaces all prior negotiations, proposed
agreements and agreements, written, oral and implied.
22. Attorney's Fees and Costs. In the event this Agreement is
breached, and any claims result, including, but not limited to, litigation,
arbitration or mediation, the prevailing party shall recover reasonable
attorney's fees and costs incurred with respect thereto.
23. Arbitration. The parties and counsel agree that any action
brought with respect to this Agreement will be resolved by binding arbitration
to be conducted under the Commercial Arbitration Rules of the American
Arbitration Association in Los Angeles, California as their sole and exclusive
remedy. If Retired Judge Lester E. Olsen is available, he shall be the sole
arbitrator.
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<PAGE> 7
24. Notices. Any notice required or permitted to be given to
SPECTRUM and SPORTS CLUB under this Agreement shall be sent by certified or
registered mail, return receipt requested, addressed as follows:
To Spectrum and Sports Club:
The Sports Club Company, Inc.
Attn.: D. Michael Talla
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
and
Lawrence R. Resnick, Esq.
RESCH POLTER ALPERT & BERGER, LLP
10390 Santa Monica Boulevard
Fourth Floor
Los Angeles, California 90025-5058
25. Payments. Any payments required to be made by SPECTRUM or
SPORTS CLUB under this Agreement shall be sent by certified or registered mail,
return receipt requested, addressed as follows:
Century Entertainment Center. L.P.
c/o Equitable Real Estate Investment Management, Inc.
19800 MacArthur Boulevard, Suite 100
Irvine, California 92715
Attention: Asset Manager
26. Governing Law. This Agreement shall be governed by California
law.
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<PAGE> 8
27. Successors and Assigns. This Settlement Agreement shall inure
to the benefit of and shall be binding upon the parties hereto, their
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the following days and year.
Dated May 16, 1997 CENTURY ENTERTAINMENT CENTER, L.P.,
a California limited partnership, by S.C.
Leasing, Inc., a California corporation,
its general partner
By: /s/ Tasaharu Ota
-----------------------------------
Yasaharu Ota
Its Secretary
Dated: May ___ ,1997 THE SPORTS CLUB COMPANY, INC.
By: /s/ David Michael Talla
-----------------------------------
David Michael Talla
Its: CEO
Dated: May ___ ,1997 CENTURY CITY SPECTRUM CLUB, INC.
By: /s/ David Michael Talla
-----------------------------------
David Michael Talla
Its: CEO
9
<PAGE> 1
EXHIBIT 10.63
THE SPORTS CLUB COMPANY, INC.
11100 SANTA MONICA BLVD., SUITE 300
LOS ANGELES, CA 90025
June 10, 1997
C1670-000
VIA FACSIMILE; ORIGINAL BY COURIER
Millennium Entertainment Partners, L.P.
1995 Broadway, 3rd Floor
New York, New York 10025
Attention: Brian J. Collins
Re: THE SPORTS CLUB COMPANY, INC./INVESTMENT TERMS
Dear Brian:
Reference is made to the Letter Agreement dated March 13, 1997 (the
"Letter Agreement"), pursuant to which Millennium Entertainment Partners, L.P.
has agreed to acquire an equity ownership interest in the Sports Club Company,
Inc. ("SCC") for an aggregate purchase price (the "Purchase Price") of ten
million dollars ($10,000,000.00) as provided therein, and SCC will acquire, as
part of the Purchase Price, certain interests in Reebok Sports Club/NY, Ltd.
(the "Partnership"). Capitalized terms used but not defined herein shall have
the meaning set forth in the Letter Agreement. The parties have agreed,
notwithstanding the terms of Paragraph 14(k) of the Letter Agreement, to extend
the term of the Letter Agreement and to effect the Closing on or about June 12,
1997. In addition, the Schedules delivered by SCC to Millennium pursuant to
the Letter Agreement are amended as set forth in the Schedules attached hereto,
and Millennium consents to the changes reflected reflected therein.
Except as modified, the Letter Agreement shall remain in full force
and effect.
<PAGE> 2
If the foregoing is acceptable to you, please date and sign the
enclosed copy of this letter and return it to me.
Very truly yours,
THE SPORTS CLUB COMPANY, INC.
By: /s/ John M. Gibbons
-----------------------------------
John Gibbons, President
Agreed and accepted this __ day of June, 1997, at New York,
New York.
MILLENNIUM ENTERTAINMENT PARTNERS L.P.
By: MILLENNIUM ENTERTAINMENT CORP.
By: /s/ Brian Collins
-----------------------------------
Brian J. Collins,
Authorized Officer
<PAGE> 1
EXHIBIT 10.64
================================================================================
ASSET PURCHASE AGREEMENT
between
GREEN VALLEY ATHLETIC CLUB LIMITED PARTNERSHIP,
a Delaware limited partnership
and
THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
Dated as of May 1, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. PURCHASE AND SALE OF ASSETS. 1
1.1 ASSETS TO BE TRANSFERRED. 1
(a) LEASED REAL PROPERTY. 1
(b) PERSONAL PROPERTY LEASES. 1
(c) MACHINERY AND EQUIPMENT. 2
(d) CONTRACTS. 2
(e) MEMBERSHIP AGREEMENTS. 2
(f) RECORDS AND FILES. 2
(g) TELEPHONE NUMBERS. 2
(h) INVENTORY. 2
(i) PROPRIETARY ASSETS. 2
1.2 EXCLUDED ASSETS. 2
(a) CONSIDERATION. 2
(b) TAX CREDITS. 3
(c) PARTNERSHIP FRANCHISE. 3
(d) TAX RECORDS. 3
(e) LICENSES; PERMITS. 3
1.3 LIABILITIES TO BE ASSUMED. 3
(a) MEMBERSHIP AGREEMENTS. 3
(b) SPECIFIED CONTRACTUAL LIABILITIES. 3
(c) LIABILITIES UNDER LEASES, PERMITS AND LICENSES. 3
1.4 LIABILITIES NOT TO BE ASSUMED. 3
(a) CERTAIN CONTRACTS. 3
(b) TAXES ARISING FROM TRANSACTION. 4
(c) INCOME AND FRANCHISE TAXES. 4
(d) INSURED CLAIMS. 4
(e) LITIGATION MATTERS. 4
(f) TRANSACTION EXPENSES. 4
(g) LIABILITY FOR BREACH. 4
(h) LIABILITIES TO AFFILIATES. 4
(i) VIOLATION OF LAW. 4
(j) INFRINGEMENTS. 4
1.5 PURCHASE PRICE. 4
1.6 DELIVERIES INTO ESCROW. 6
1.7 SELLER'S CONDITIONS TO CLOSING. 7
1.8 PURCHASER'S CONDITIONS TO CLOSING. 7
1.9 CLOSING. 10
1.10 PURCHASE PRICE ALLOCATION. 11
1.11 SALES TAXES. 11
1.12 ACCOUNTING TREATMENT. 11
1.13 TAX CONSEQUENCES. 11
1.14 FURTHER ACTION. 11
1.15 PRORATIONS. 11
</TABLE>
1
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER. 14
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC. 14
2.2 FINANCIAL STATEMENTS. 15
2.3 ABSENCE OF CHANGES. 15
2.4 TITLE TO ASSETS. 17
2.5 MEMBERS. 17
2.6 EQUIPMENT, ETC. 18
2.7 REAL PROPERTY. 18
2.8 PROPRIETARY ASSETS. 19
2.9 CONTRACTS. 19
2.10 COMPLIANCE WITH LEGAL REQUIREMENTS. 19
2.11 GOVERNMENTAL AUTHORIZATIONS. 20
2.12 EMPLOYEE MATTERS; LABOR MATTERS; AND BENEFIT PLANS. 20
2.13 ENVIRONMENTAL MATTERS. 21
2.14 RELATED PARTY TRANSACTIONS. 21
2.15 PROCEEDINGS; ORDERS. 22
2.16 AUTHORITY; BINDING NATURE OF AGREEMENTS. 22
2.17 NON-CONTRAVENTION; CONSENTS. 22
2.18 INFORMATION. 23
SECTION 3. "AS IS"; DUE DILIGENCE COMPLETED; DISCLAIMER OF ADDITIONAL WARRANTIES OF SELLER. 23
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. 24
4.1 DUE ORGANIZATION. 24
4.2 AUTHORITY; BINDING NATURE OF AGREEMENT. 24
4.3 NON-CONTRAVENTION; CONSENTS. 24
SECTION 5. INDEMNIFICATION, ETC. 25
5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. 25
5.2 INDEMNIFICATION BY SELLER. 25
5.3 INDEMNIFICATION BY PURCHASER. 26
5.4 NONEXCLUSIVITY OF INDEMNIFICATION REMEDIES. 26
5.5 LIMITATIONS ON INDEMNIFICATION. 26
5.6 DEFENSE OF THIRD PARTY CLAIMS BY SELLER. 27
5.7 DEFENSE OF THIRD PARTY CLAIMS BY PURCHASER. 28
5.8 EXERCISE OF REMEDIES BY INDEMNITEES. 29
SECTION 6. ADDITIONAL COVENANTS AND AGREEMENTS. 29
6.1 INTERIM CONDUCT OF THE BUSINESS. 29
6.2 STANDSTILL BY SELLER. 29
6.3 ACCESS. 29
6.4 PRESERVATION OF BUSINESS AND RELATIONSHIPS. 30
6.5 NO INCONSISTENT ACTION. 30
6.6 INVESTMENT OBLIGATION. 30
</TABLE>
2
<PAGE> 4
<TABLE>
<S> <C> <C>
6.7 BULK SALE. 30
6.8 LIQUOR LICENSE. 30
6.9 COMPLIMENTARY MEMBERSHIPS. 31
6.10 [Intentionally omitted] 31
MISCELLANEOUS PROVISIONS. 32
7.1 FURTHER ASSURANCES. 32
7.2 FEES AND EXPENSES. 32
7.3 ATTORNEYS' FEES. 32
7.4 NOTICES. 33
7.5 PUBLICITY; CONFIDENTIALITY. 34
7.6 [INTENTIONALLY OMITTED] 35
7.7 TIME OF THE ESSENCE. 35
7.8 HEADINGS. 35
7.9 COUNTERPARTS. 35
7.10 GOVERNING LAW;. 36
7.11 SUCCESSORS AND ASSIGNS. 36
7.12 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. 36
7.13 WAIVER. 36
7.14 AMENDMENTS. 37
7.15 SEVERABILITY. 37
7.16 PARTIES IN INTEREST. 37
7.17 ENTIRE AGREEMENT. 37
7.18 BROKERS. 37
7.19 CONSTRUCTION. 37
7.21 AUTHORITY TO SIGN. 38
7.22 SURVIVAL POST-CLOSING. 39
</TABLE>
3
<PAGE> 5
EXHIBITS
Exhibit A: Certain Definitions
Exhibit B: Form of Assignment of Contracts
Exhibit C: Form of Assignment of Leases
Exhibit D: Form of Bill of Sale
Exhibit E: Form of Restrictive Use Covenant
Exhibit F: Form of IP License
Exhibit G: Form of CC&R Amendment
Exhibit H: Form of ARC Estoppel
SCHEDULES
Schedule 1.1(d) Assumed Contracts
Schedule 1.8(a)(ii) Additional Seller Delivery Items
Schedule 6.6 List of Possible Improvements
Disclosure Schedule
4
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
May 1, 1997, by and between GREEN VALLEY ATHLETIC CLUB LIMITED PARTNERSHIP, a
Delaware limited partnership ("Seller"), and THE SPORTS CLUB COMPANY, INC., a
Delaware corporation ("Purchaser"). Certain capitalized terms used in this
Agreement are defined on Exhibit A.
RECITALS
A. Seller desires to sell to Purchaser, and Purchaser desires to
purchase from the Seller, (the "Acquisition") substantially all of the assets
used or held for use by Seller in the operation of the Green Valley Athletic
Club located at 2100 Olympic Avenue, Henderson, Nevada (the "Club").
B. Seller leases the real property and improvements
(collectively, the "Real Property") constituting a part of the Club from Green
Valley Investment Company, Inc. (the "Fee Owner")
C. Concurrently with the consummation of the Acquisition, and as
a condition thereto, Purchaser intends to purchase the Real Property from the
Fee Owner pursuant to a separate purchase agreement, dated concurrently
herewith, between Purchaser and the Fee Owner (the "Real Property Purchase
Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, Purchaser, and Seller, intending to
be legally bound, agree as follows
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 ASSETS TO BE TRANSFERRED. Subject to the terms and
conditions of this Agreement, on the Closing Date (as hereinafter defined)
Seller shall sell, transfer, convey, assign, and deliver to Purchaser and
Purchaser shall purchase and accept all of the business, rights, claims and
assets (of every kind, nature, character and description, whether real,
personal or mixed, whether tangible or intangible, whether accrued, contingent
or otherwise, and wherever situated) of the Seller, other than the Excluded
Assets (as hereinafter defined) relating to the Club (collectively, the
"Purchased Assets"). The Purchased Assets shall include, but not be limited to,
the following:
(a) LEASED REAL PROPERTY. All of the real
property leases of the Seller, including the leases described on Part 2.7 of
the Disclosure Schedule (the "Real Property Leases"), if any.
b) PERSONAL PROPERTY LEASES. All leases of
machinery, equipment,
1
<PAGE> 7
vehicles, furniture and other personal property leased by Seller, including all
such leases (the "Personal Property Leases") described on Part 2.6 of the
Disclosure Schedule.
(c) MACHINERY AND EQUIPMENT. All machinery,
equipment, vehicles, tools, supplies, spare parts, furniture and all other
personal property not included in inventory (other than personal property
leased pursuant to Personal Property Leases) owned, utilized or held for use by
Seller and relating to the Club, including, without limitation, the uninstalled
elevator, the uninstalled washer/drier and the Club's telephone system
($37,133.68 of the Purchase Price being specifically allocated to the purchase
of the telephone system free and clear of all liens, encumbrances or third
party claims).
(d) CONTRACTS. Other than the Membership
Agreements, all Contracts contractual rights, purchase orders and sales orders
(the "Assumed Contracts") of Seller that are listed on Schedule 1.1(d) and
expressly assumed by Purchaser.
(e) MEMBERSHIP AGREEMENTS. All of the Membership
Agreements, including rights to renewals, monthly membership fees subject to
Section 1.15, receivables and other rights related thereto.
(f) RECORDS AND FILES. All membership lists, in
both written format and Seller's customary machine readable format, records,
files, invoices, customer lists, blueprints, specifications, designs, drawings,
accounting records, business records, operating data and other data of Seller,
including without limitation all billing/accounting hardware and software.
(g) TELEPHONE NUMBERS. All local telephone
numbers associated with the Club.
(h) INVENTORY. All inventories of raw materials,
work-in-process and finished goods (including all such in transit) of the
Seller, together with related packaging materials (collectively the
"Inventory").
(i) PROPRIETARY ASSETS. All of Seller's right,
title and interest in any Proprietary Assets, except if and to the extent of
any rights of ANC, Inc. in and to the name "Green Valley" and the logo
identified in Part 2.8 of the Disclosure Schedule.
(j) STATUTE. The bronze statute, entitled "Match
Point", located in front of the Club.
1.2 EXCLUDED ASSETS. The provisions of Section 1.1
notwithstanding, Seller shall not sell, transfer, assign, convey or deliver to
Purchaser, and Purchaser will not purchase or accept the following assets of
Seller (collectively the "Excluded Assets"):
(a) CONSIDERATION. The consideration delivered by
Purchaser to Seller pursuant to this Agreement.
2
<PAGE> 8
(b) TAX CREDITS. Federal, state and local income
and franchise tax credits and tax refund claims.
(c) PARTNERSHIP FRANCHISE. Seller's franchise to
be a limited partnership, its certificate of limited partnership, and its books
and records having exclusively to do with its organization and capitalization.
(d) TAX RECORDS. Seller's income and franchise
tax returns and tax records.
(e) LICENSES; PERMITS. All licenses, permits and
approvals of Seller.
(f) CASH AND CASH EQUIVALENTS. All cash and
cash equivalents of Seller.
(g) STATUE. The bronze statue, entitled "Match
Point", located in front of the Club. Seller shall after the date of Closing
remove such statue, at Seller's sole expense, from in front of the Club. Such
removal shall be done so as to disrupt, to the minimum extent reasonably
possible, the daily operations of the Club. Such removal shall include
Seller's restoration of the former site of such statue to its condition
existing before such statue was first placed thereon.
1.3 LIABILITIES TO BE ASSUMED. Subject to the terms and
conditions of this Agreement, on the Closing Date, Purchaser shall assume and
agree to perform and discharge to the extent indicated below the following, and
only the following, specific debts, liabilities and obligations of the Seller
(collectively the "Assumed Liabilities"):
(a) MEMBERSHIP AGREEMENTS. Seller's obligation to
honor and service the Membership Agreements, other than any refunds arising
before Closing, the payment of which shall be the sole responsibility of Seller
and shall be paid by Seller directly.
(b) SPECIFIED CONTRACTUAL LIABILITIES. The
Specified Contractual Liabilities.
(c) LIABILITIES UNDER LEASES, PERMITS AND
LICENSES. Seller's obligations arising from and after the Closing Date under
the Real Property Leases and any of the permits or licenses assigned to
Purchaser at the Closing.
1.4 LIABILITIES NOT TO BE ASSUMED. Except as and to the
extent specifically set forth in Section 1.3, Purchaser is not assuming any
debts, liabilities, obligations or contracts of the Seller and all such debts,
liabilities, obligations and contracts shall be and remain the responsibility
of the Seller. Notwithstanding the provisions of Section 1.3 and without
limiting the generality of the foregoing, Purchaser is not assuming and the
Seller shall not be deemed to have transferred to Purchaser the following
debts, liabilities, obligations and contracts of Seller:
3
<PAGE> 9
(a) CERTAIN CONTRACTS. The obligations of the
Seller under and pursuant to any contract or lease (i) that by its terms may
not be assigned by Seller or (ii) that Seller may not assign, without another
party's consent, if such consent has not been obtained. Notwithstanding the
foregoing, however, the equipment leases identified in Part 2.6 of the
Disclosure Schedule shall be assigned to, and assumed by, Purchaser at Closing
regardless of whether the terms of such equipment leases permit such assignment
or whether the consent of any such equipment lessor has then been obtained.
(b) TAXES ARISING FROM TRANSACTION. Any United
States, foreign, state or other taxes applicable to, imposed upon or arising
out of the sale or transfer of the Purchased Assets to Purchaser and the other
transactions contemplated by this Agreement, including but not limited to any
transfer, sales, use, gross receipts or documentary stamp taxes.
(c) INCOME AND FRANCHISE TAXES. Any liability or
obligation of the Seller for Federal income taxes and any state or local
income, profit or franchise taxes (and any penalties or interest due on account
thereof).
(d) INSURED CLAIMS. Any liability of the Seller
insured against, to the extent such liability is or will be paid by an insurer.
(e) LITIGATION MATTERS. Any liability or
obligation with respect to any suits, actions, claims or Proceedings arising
out of or in any way related to the operation of the Club prior to Closing,
whether or not described on Part 2.15 of the Disclosure Schedule.
(f) TRANSACTION EXPENSES. All liabilities, costs,
obligations or expenses incurred by, or on behalf of the Seller in connection
with this Agreement and the transactions contemplated herein.
(g) LIABILITY FOR BREACH. Liabilities and
obligations of the Seller for any breach or failure to perform any of the
Seller's covenants and agreements contained in, or made pursuant to, this
Agreement, or, prior to the Closing, any other Contract, whether or not assumed
hereunder, including any breach arising from assignment of such contracts
hereunder without consent of third parties, unless Purchaser accepts such
assignment with Knowledge that such consent was not obtained.
(h) LIABILITIES TO AFFILIATES. Liabilities and
obligations of the Seller to its Affiliates.
(i) VIOLATION OF LAW. Any liability or obligation
with respect to any violation of or failure to comply with any Legal
Requirement or Order arising out of or in any way related to the Club or its
operations on or before Closing.
(j) INFRINGEMENTS. Any liability to a third party
under the Seller's
4
<PAGE> 10
Proprietary Assets.
1.5 PURCHASE PRICE.
(a) As consideration for the sale of Purchased
Assets, at Closing Purchaser shall (i) pay to the Seller a total of
$3,712,133.68 (the "Purchase Price"), and (ii) assume the Assumed Liabilities
by executing and delivering to Seller an Assignment of Contracts (the "Contract
Assignment") in substantially the form of Exhibit B and an Assignment of Leases
(the "Lease Assignment") in substantially the form of Exhibit C. The Purchase
Price shall be payable by Purchaser as follows:
(b) Purchaser has deposited into an interest
bearing escrow (the "Escrow") established with Nevada Title Company ("Deposit
Holder") the sum of $53,850, in immediately available funds (such amount,
together with the interest earned thereon, being hereinafter referred to as the
"Deposit"). The Deposit shall be credited against the Purchase Price.
(c) At Closing, such sum as may be necessary to
make Purchaser's total cash deposit with Deposit Holder equal the Purchase
Price, after giving effect to any and all of Purchaser's and Seller's credits
and debits pursuant hereto, including, without limitation, the Deposit.
(d) [Intentionally omitted]
(e) [Intentionally omitted]
(f) Purchaser and Seller agree that all sums
deposited by Purchaser pursuant hereto shall be invested in treasury bills,
certificates of deposit, short term money market instruments or bank repurchase
contracts approved by Purchaser and Seller, in such manner as to make all such
sums (and the interest earned thereon) available on the date for Closing.
Purchaser and Seller hereby instruct Deposit Holder to so invest such sums and
to return to Purchaser, upon Closing, all sums in excess of those needed to
satisfy Purchaser's obligations hereunder to Seller. Interest earned thereon
shall be for the account of Purchaser, and Purchaser shall provide Deposit
Holder with Purchaser's taxpayer identification number for use in opening the
Escrow.
(g) Any funds to be delivered hereunder shall be
immediately available federal funds wire transferred. It shall be Purchaser's
responsibility to obtain adequate wiring instructions for an escrow account of
Deposit Holder.
(h) If Purchaser has not previously terminated
this Agreement, by written notice to Seller and Deposit Holder pursuant to the
terms and conditions of this Agreement, then the Deposit Holder shall deliver
the Deposit to Seller, in accordance with such wire transfer instructions as
Seller shall give to Deposit Holder, immediately upon the expiration of the Due
Diligence Period. Thereafter, if the Closing shall fail to occur solely
because of the breach of Purchaser under this Agreement, then Seller shall be
entitled to
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retain the Deposit, as liquidated damages and not as a penalty and as Seller's
sole remedy. However, if Closing shall thereafter fail to occur for any other
reason or reasons, then Seller shall return the Deposit promptly to Purchaser
upon Purchaser's request therefor at any time after the scheduled date for
Closing, or on such sooner date as this transaction is cancelled by Purchaser
and Seller. THE PARTIES AGREE THAT THEY HAVE NEGOTIATED WITH REGARD TO THE
DETERMINATION OF DAMAGES AND HAVE CONCLUDED THAT, IF CLOSING FAILS TO OCCUR
SOLELY BECAUSE OF THE BREACH OF PURCHASER UNDER THIS AGREEMENT, THEN IT WOULD
BE IMPRACTICABLE OR EXTREMELY DIFFICULT TO DETERMINE THE SELLER'S DAMAGES, THAT
THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES IN SUCH
EVENT, AND THAT THE SELLER, AS ITS SOLE REMEDY AND NOT AS A PENALTY, SHALL BE
ENTITLED TO RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES. THE PARTIES HEREBY
ACKNOWLEDGE THAT THEY ARE IN EQUAL BARGAINING POSITIONS, ARE SOPHISTICATED IN
BUSINESS MATTERS AND WERE REPRESENTED BY COUNSEL AT ALL TIMES DURING THE
NEGOTIATION OF THIS LIQUIDATED DAMAGES PROVISION.
__________________________ __________________________
Purchaser Seller
1.6 DELIVERIES INTO ESCROW.
(a) On or before the Closing Date, Seller, shall
deposit the following items (collectively, the "Seller Delivery Items") into
the Escrow:
(i) An estoppel certificate, in form and
substance reasonably acceptable to Purchaser, from each of the Subtenants whose
Subleases are to be an Assumed Contract.
(ii) Four fully executed and notarized
originals of the CC&R Amendment.
(iii) Four duly authorized and fully
executed originals of the ARC Estoppel.
(b) On or before the Closing Date, Purchaser
shall deposit the following items (collectively, the "Purchaser Delivery
Items") into Escrow:
(i) The Purchase Price, subject to and
in accordance with the terms and conditions of Section 1.5.
(c) On or before the Closing Date, Seller and
Purchaser shall deposit the following items (collectively, the "Joint Delivery
Items") into the Escrow:
(i) Four fully executed originals of the
Contract Assignment.
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(ii) Four fully executed and notarized
originals of the Lease Assignment.
(iii) Four fully executed originals of the
Bill of Sale.
(iv) Four fully executed originals of the
license agreement for the proprietary assets referenced in Part 2.8 of the
Disclosure Schedule in the form attached hereto as Exhibit F (the "IP
License").
The Seller Delivery Items, the Purchaser Delivery Items and the Joint Delivery
Items are referred to, collectively, as the "Delivery Items".
1.7 SELLER'S CONDITIONS TO CLOSING.
(a) Seller's obligations to consummate the
Transactions are conditioned upon the following:
(i) All Delivery Items shall have been
deposited into the Escrow.
(ii) All of the representations and
warranties of Purchaser contained herein shall be true and correct in all
material respects on and as of the Closing Date as though remade and
republished as of said date.
(iii) Purchaser shall have performed and
complied with all of its obligations and covenants hereunder in all material
respects.
(b) There is no Proceeding pending or threatened
pertaining to the Transactions or their consummation that shall have been
instituted or threatened by any Governmental Body or Person.
(c) The closing of the purchase and sale of the
Real Property shall have occurred simultaneously with Closing hereunder in
accordance with the Real Property Purchase Agreement. Notwithstanding anything
to the contrary contained in this Agreement, Purchaser and Seller expressly
agree that a proper election by either Purchaser or Seller to terminate this
Agreement at any time in accordance with any of the terms hereof shall be
deemed to be a proper election by Purchaser or the Fee Owner, respectively, to
terminate the Real Property Purchase Agreement and that a proper election by
either Purchaser or the Fee Owner to terminate the Real Property Purchase
Agreement at any time in accordance with any of the terms thereof shall be
deemed to be a proper election by Purchaser or Seller, respectively, to
terminate this Agreement.
(d) Deposit Holder shall hold, for recordation by
Deposit Holder prior to Deposit Holder's recordation of the Lease Assignment,
one fully executed and notarized original of the Restrictive Use Covenant.
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1.8 PURCHASER'S CONDITIONS TO CLOSING.
(a) Purchaser's obligations to consummate the
Transactions are conditioned upon the following:
(i) All Delivery Items shall have been
deposited into the Escrow.
(ii) All items listed on Schedule
1.8(a)(ii) shall have either been delivered to Purchaser or shall be located at
the Club at Closing.
(iii) A State of Nevada business license
and a City of Henderson business license (such two licenses, the "Identified
Approval") shall have been obtained by Purchaser in Purchaser's name so as to
enable Purchaser legally to operate the Club from and after Closing; it being
agreed that Purchaser shall work diligently, with Seller's assistance if and to
the extent reasonably required and at no out-of-pocket cost or liability to
Seller, to obtain all Identified Approvals. The Purchaser's obtaining either a
liquor license for the Club or the consent of any equipment lessor identified
in Part 2.6 of the Disclosure Schedule shall not be a condition precedent to
Purchaser's obligations to consummate the Transactions.
(iv) All of the representations and
warranties of Seller contained herein shall be true and correct in all material
respects on and as of the Closing Date as though republished and remade on and
as of that date; it being expressly understood and agreed, however, that
changes in representations and warranties which do not have a material adverse
effect upon the business of the Club shall in no event be a basis giving rise
to a right of Purchaser to terminate this Agreement pursuant to Section 1.8(c).
(v) Seller shall have performed and
complied with all of its obligations and covenants hereunder in all material
respects.
(vi) The closing of the purchase and sale
of the Real Property shall have occurred simultaneously with Closing hereunder
in accordance with the Real Property Purchase Agreement. Notwithstanding
anything to the contrary contained in this Agreement, Purchaser and Seller
expressly agree that a proper election by either Purchaser or Seller to
terminate this Agreement at any time in accordance with any of the terms hereof
shall be deemed to be a proper election by Purchaser or the Fee Owner,
respectively, to terminate the Real Property Purchase Agreement and that a
proper election by either Purchaser or the Fee Owner to terminate the Real
Property Purchase Agreement at any time in accordance with any of the terms
thereof shall be deemed to be a proper election by Purchaser or Seller,
respectively, to terminate this Agreement.
(vii) Purchaser's approval, in its sole
discretion, on or before the expiration of the Due Diligence Period, of any and
all aspects of the Club and/or its
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operations, including, without limitation, all financial records of Seller,
including without limitation, operating statements, payrolls records, capital
expenditures budgeted, bid and completed, inventory, warranties and service
agreements; the reciprocal easement agreement (parking agreement) governing
common areas of Town Center together with any amendments thereto; all parking
arrangements applicable to the Club; the Club's zoning; the results of
Purchaser's physical inspections of the Club and all components thereof,
including without limitation all building equipment; a current ALTA survey for
the Club; leases or license agreements with, and estoppels from, any
subtenants, licensees or concessionaires of Seller; a preliminary title report,
based upon a current ALTA survey, together with all underlying documentation;
and the status of Purchaser's continued right, after the Closing, to retain the
existing signage for the Club located within Town Center on Sunset.
Purchaser's failure to give notice to Seller terminating this Agreement on or
before the expiration of the Due Diligence Period shall conclusively be deemed
to be Purchaser's approval of any and all aspects of the Club and/or its
operations. Subject to the terms and conditions hereof, the "Due Diligence
Period" shall mean the period from May 2, 1997 to and including the Closing
Date (which actual date of Closing may differ from the deemed date for Closing
set forth in Section 1.9(a)). Without limiting the foregoing, the Due
Diligence Period under this Agreement shall automatically be extended if and to
the extent that the "Due Diligence Period" under the Real Property Purchase
Agreement is extended.
(viii) There is no Proceeding pending or
threatened pertaining to the Transactions or their consummation that shall have
been instituted or threatened by any Governmental Body or Person.
(ix) The State of Nevada child care
license (#294-97) currently held in Densie Schnitzer's name, as described in
Part 2.10 of the Disclosure Schedule, shall (A) be in full force and effect at
Closing and (B) shall be in full force and effective immediately following
Closing, assuming that Purchaser shall have offered to rehire Ms. Schnitzer,
and Ms. Schnitzer shall have agreed to be rehired by Purchaser, immediately
following Closing.
(b) Seller shall have the right to modify, update
and supplement all representations, warranties, exhibits and schedules attached
to or delivered in connection with this Agreement through the Closing Date (any
such modification, update or supplement, a "Modification"). Notwithstanding
the foregoing, if Seller makes any Modification and if such Modification would
be likely to have a material adverse effect upon the Club and/or its
operations, then Purchaser shall have the right to terminate this Agreement by
giving a notice to Seller terminating this Agreement within 5 days of
Purchaser's receipt of the Modification, and whether or not the Due Diligence
Period has expired. If such 5-day period would expire after the Outside
Closing Date, then the Outside Closing Date shall be extended accordingly. In
the event of any such termination, the Deposit shall be returned promptly to
Purchaser, and the parties will have no further obligations to each other
hereunder. Purchaser's failure to give any such termination notice to Seller
within such 5-day period shall conclusively be deemed to be Purchaser's
approval of any such Modification.
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(c) If (i) Purchaser shall not have been able to
obtain any Identified Approvals, (ii) any material representation or warranty
of Seller shall prove to have been inaccurate or untrue in any material respect
when first made or (iii) Seller shall not have performed, in any material
respect, any of its material covenants contained in this Agreement, and in each
case by Closing, then Purchaser shall be entitled, without limitation, (A) not
to consummate the Transactions and have the Deposit Holder or Seller, as
applicable, return to Purchaser the Deposit (but without any interest thereon
for such period of time, if any, as it may have been held by Seller) less any
termination fees and expenses of Deposit Holder, or (B) to consummate the
Transactions if Purchaser, in its sole discretion, is willing to consummate the
Transactions on such basis.
1.9 CLOSING.
(a) Closing shall be deemed to occur, if at all,
at 12:01 a.m. on Friday, August 1, 1997, unless the date for Closing shall be
extended pursuant to the terms of this Agreement (August 1, 1997 or any such
other date, as applicable, the "Outside Closing Date"); it being further agreed
that Closing may actually occur, if at all, at a date and time different from
the Outside Closing Date. If all conditions precedent set forth in Sections
1.7 and 1.8 have not been satisfied or waived and the Closing shall not have
occurred on or before the Outside Closing Date, then either Purchaser or Seller
may unilaterally cancel this Agreement, at any time thereafter prior to such
satisfaction or waiver, by notice to the other, except that if the unsatisfied
condition(s) is for the benefit of the party not giving said notice, then such
party shall have the right, within three Business Days after its being served
with said notice, to waive such unsatisfied condition(s) and proceed to effect
Closing immediately. Four Business Days after the effective date of said
notice, if Closing has not been agreed to by the party not giving said notice,
as provided above, then all funds deposited by Purchaser, and all interest
earned thereon, shall be returned immediately to Purchaser but subject to
Section 1.5(h).
(b) Consummation of the Transactions (the
"Closing") will take place at the offices of Jolley, Urga, Wirth & Woodbury,
300 South Fourth Street, Eighth Floor, Las Vegas, Nevada on the Closing Date.
(c) If Closing has not occurred in accordance
with the terms and conditions of this Agreement, then this Agreement shall
automatically terminate without any further action required, and the parties
shall have no further liability hereunder.
(d) When all conditions precedent to Closing set
forth in Sections 1.7 and 1.8 shall have been satisfied, or Deposit Holder
shall have received written instruction from the party or parties, or their
respective counsel, for whose benefit any such unsatisfied condition precedent
exists waiving the satisfaction of such conditions precedent, and when each of
the parties hereto shall have otherwise instructed Deposit Holder to proceed
with the Closing, then Deposit Holder shall take the following actions in the
following order:
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(i) Disburse the Purchase Price to
Seller in accordance with Seller's instructions.
(ii) Deliver two fully executed original
copies of each of the Contract Assignment, Lease Assignment, Bill of Sale, ARC
Estoppel and the IP License and one fully executed original of the CC&R
Amendment to Seller.
(iii) Deliver two fully executed original
copies of each of the Contract Assignment, Bill of Sale, CC&R Amendment, ARC
Estoppel and the IP License and one fully executed original of the Lease
Assignment to Purchaser.
(iv) Record the Lease Assignment and
deliver conformed copies of the duly recorded Lease Assignment to each of
Seller and Purchaser.
(v) Record the CC&R Amendment and
deliver conformed copies of the duly recorded CC&R Amendment to each of Seller
and Purchaser.
1.10 PURCHASE PRICE ALLOCATION. On or prior to the Closing
Date, Purchaser, and Seller shall agree on an allocation of the Purchase Price
and Seller liabilities (which liabilities shall be treated as an additional
amount paid by Purchaser to Seller) among the Purchased Assets (the "Allocation
Statement"). The allocation set forth in the Allocation Statement will conform
to the requirements of the Treasury Regulations under Section 1060 of the Code.
The parties agree to report (on Form 8594 and otherwise) the allocation of the
Purchase Price and Seller liabilities in a manner consistent with the
Allocation Statement. The allocation prescribed by the Allocation Statement
shall be conclusive and binding upon each party for all purposes. No party
shall file any tax return or other document with, or make any statement or
declaration to, any governmental body if such document, statement or
declaration is inconsistent with the allocation prescribed by the Allocation
Statement
1.11 SALES TAXES. The Seller shall bear and pay any sales
taxes, use taxes, transfer taxes, documentary charges, recording fees, or
similar taxes, charges, fees or expenses that are or may become payable in
connection with the sale of the Purchased Assets to Purchaser or in connection
with any of the Transactions
1.12 ACCOUNTING TREATMENT. The parties intend that the
Acquisition will be treated as a purchase for accounting purposes.
1.13 TAX CONSEQUENCES. For federal income tax purposes,
the Acquisition is intended to constitute a taxable transaction.
1.14 FURTHER ACTION. After the Closing Date, Seller shall
execute and deliver such bills of sale, endorsements, assignments and other
documents and take any further action as may be reasonably necessary to assign,
convey, transfer and deliver to Purchaser good and valid title to the Purchased
Assets free and clear of any Encumbrances.
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1.15 PRORATIONS.
(a) Except as otherwise hereinafter provided, at
and as of Closing, Purchaser and Seller shall prorate in cash (i) real property
taxes and assessments for the Club on the basis of the current fiscal year if
and to the extent that Seller shall be liable for real property taxes and
assessments under the Real Property Leases, (ii) rents under the Real Property
Leases, (iii) rents under the Personal Property Leases, (iv) utility and sewer
charges, (v) payments under the Assumed Contracts, (vi) operating expenses
(including, without limitation, any relating to the summer camp and tennis
tournament operations of Seller), (vii) payments relating to Town Center and
(viii) other items customarily prorated in transactions of this sort. Seller
shall maintain in place all deposits under the Real Property Leases and all
utilities and other deposits for the benefit of the Purchaser. Seller shall
deliver to Purchaser at Closing any deposits under any Subleases that are to be
Assumed Contracts. Purchaser shall not reimburse Seller, including without
limitation by way of a credit to Seller, for any such deposits under any
Subleases that are to be Assumed Contracts so delivered by Seller to Purchaser.
Purchaser shall reimburse Seller for all other such deposits, including without
limitation by way of a credit to Seller, with an offsetting debit to Purchaser,
in the calculation of the closing prorations. Purchaser shall not, however, be
required to pay, or otherwise to bear the cost of, its share of any item to be
prorated under both this Agreement and the Real Property Purchase Agreement
more than once, i.e., Purchaser shall only be required to pay, or otherwise to
bear the cost, of its share of any such item under one of the two agreements
but not under both agreements.
(b) No pro ration shall be made for insurance
premiums on insurance policies of Seller (none of which Purchaser elects to
accept and none of which Seller elects to assign), for management fees or for
employee salaries, vacations, benefits, bonuses, payroll taxes or other
employee costs. Seller shall terminate, or cause to be terminated, as of
Closing all employees and independent contractors working at the Club and shall
pay, or cause to be paid, all employee salaries, vacations, benefits, bonuses,
payroll taxes and other employee and independent contractor costs as of and
including the Closing Date. Subject to the willingness of such employees and
independent contractors to be interviewed and, if asked by Purchaser, to be
rehired, Purchaser shall be permitted to interview and, at its election,
rehire, from and after Closing, any or all of such terminated employees and
independent contractors and shall provide all such rehired employees (but not
any rehired independent contractors) with health care insurance and benefits
and worker's compensation insurance generally consistent with that generally
provided by Purchaser to its employees.
(c) At and as of the Closing Date, Purchaser and
the Seller shall proportionately allocate all prepaid items of income,
including, without limitation, monthly dues, dues paid more than one month in
advance, and prepayments relating to the summer camp and tennis tournament
operations of Seller. Notwithstanding anything contained herein to the
contrary, there shall be no proportionate allocation of initiation fees paid
and collected in the Ordinary Course of Business. Membership dues and
prepayments collected by Purchaser or Seller, as applicable, during the first
30 days following the Closing Date shall be applied (A) first to any prorated
amounts due Seller for the month in which the
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Closing shall have occurred, (B) next to any prorated amounts due Purchaser for
the month in which the Closing shall have occurred, (C) next to any amounts due
Purchaser for the month following the month in which the Closing shall have
occurred and (D) then to any accounts receivable due Seller as of the Closing
Date for any periods prior to the month in which the Closing shall have
occurred. Membership dues and prepayments received by Purchaser or Seller, as
applicable, more than 30 days following the Closing Date shall be applied first
to the current period and then to past periods in reverse chronological order,
i.e. to more recent periods before less recent periods. Any membership dues
collected by the Seller from and after the Closing shall be held in trust for
the account of Purchaser and shall be promptly remitted to Purchaser minus any
amounts owed to the Seller as set forth in this Section 1.15(c) together with
an accounting of such membership dues in reasonable detail satisfactory to
Purchaser. Any membership dues collected by Purchaser from and after the
Closing that are owed to the Seller as set forth in this Section 1.15(c) shall
be held in trust for the account of the Seller and shall be promptly remitted
to the Seller together with an accounting of such membership dues in reasonable
detail satisfactory to the Seller.
(d) For a period of ninety (90) days following
the Closing, Purchaser agrees that Purchaser shall, in accordance with
Purchaser's standard practice in conducting and operating clubs such as the
Club, attempt to collect any monthly dues under those Member Agreements
assigned to and assumed by Purchaser which are attributable to the period prior
to the Closing; provided, however, Purchaser shall have no obligation to
commence any actions or proceedings or take any further action to collect any
such compensation, fees, revenues or income due to Seller hereunder. After the
Closing, Seller shall not take any action against any party to any Membership
Agreement assigned to and assumed by Purchaser by reason of any unpaid monthly
dues owed Seller thereunder.
(e) If real estate taxes and/or assessments,
utility charges or any other item is prorated as of Closing on any basis other
than actual amounts charged for the current period, such item or items shall be
re-prorated upon determination of such actual amounts, and the party owing
funds to the other shall promptly remit such funds to the other. If either
party owing funds hereunder to the other does not remit them within 30 days
after demand therefor, such funds shall thereafter bear interest at the lesser
of 10% per annum and the maximum lawful rate. In all events, the amount of any
refund or credit shall be the amount the refund or credit would have been
without giving effect to the Transactions. The parties shall further cooperate
so as to calculate such net final proration amount within 75 days of the
Closing. Any disagreement with respect to such final calculation shall be
resolved pursuant to binding arbitration before a "Big 6" accounting firm to be
designated by Purchaser or any other accounting firm that shall be mutually
agreed upon by the parties. Each party shall bear its own cost and expenses in
connection with such arbitration and one-half of the fees and expenses of the
arbitrator. Each party shall be entitled to provide the arbitrator with such
information as each party shall deem appropriate with respect to the matters to
be determined by such arbitrator.
(f) Final proration of percentage rents and
similar apportionable
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items which are dependent for their calculation upon the economic performance
of any Entity over a specified interval of time shall be accomplished as
follows: The parties shall await the expiration of the specified interval to
determine the gross rents, gross receipts and other economic performance over
the entire interval and then prorate the item by allocating to Seller the
product of the rents or other similar apportionable item for the entire
interval multiplied by a fraction, the numerator of which is the number of days
within the specified interval which occur before Closing and the denominator of
which is the number of days in the entire specified interval.
(g) Operating expenses which are payable (or
reimbursable) by any present Subtenant shall not be prorated hereunder (except
to the extent that Seller is due a credit for having already paid such
expense). Purchaser shall send customary statements for reimbursement of
operating expenses and taxes to said tenants after consulting with Seller with
respect to appropriate amounts due therefor, and shall remit to Seller, upon
receipt, Seller's prorated share thereof, determined as provided in subsection
(f) above.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants, to and for the benefit of the
Purchaser Indemnitees, as follows. Notwithstanding anything contained herein
to the contrary, and except for the representations and warranties made in
Sections 2.1, 2.4(a), but only if and to the extent there shall be any Breach
of such representation and warranty giving rise to Damages for which payment
shall not be available pursuant to the policy of title insurance to be issued
to Purchaser under the Real Property Purchase Agreement upon closing
thereunder, and 2.16, all of the representations and warranties made in this
Section 2 are hereby made to the Knowledge of the Seller.
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) Seller is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Seller is in good standing and qualified to do business under the
laws of, and in, the State of Nevada. Seller has all necessary power and
authority:
(i) to conduct its business in the
manner in which its business is currently being conducted;
(ii) to own and use its assets in the
manner in which its assets are currently owned and used; and
(iii) to perform its obligations under all
Seller Contracts.
(b) Seller's sole general partner is General
Partner. General Partner is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada and has all necessary
power and authority:
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(i) to conduct its business in the
manner in which its business is currently being conducted;
(ii) to own and use its assets in the
manner in which its assets are currently owned and used; and
(iii) to perform, as Seller's general
partner and on behalf of Seller as such general partner, Seller's obligations
under all Seller Contracts.
(c) Except as set forth on Part 2.1 of the
Disclosure Schedule, Seller has never conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed
name, trade name or other name.
2.2 FINANCIAL STATEMENTS.
(a) Seller has delivered, or caused to be
delivered, to Purchaser the following financial statements for the Club:
(i) the reviewed balance sheet of the
Seller at December 31, 1994 (the "Fiscal 1994 Balance Sheet"), and the related
audited statements of operations, changes in stockholder's equity and cash
flows of the Seller for the year ended December 31, 1994;
(ii) the reviewed balance sheet of the
Seller at December 31, 1995 (the "Fiscal 1995 Balance Sheet"), and the related
audited statements of operations, changes in stockholder's equity and cash
flows of the Seller for the year ended December 31, 1995;
(iii) the reviewed balance sheet of the
Seller at December 31, 1996 (the "Fiscal 1996 Balance Sheet"), and the related
audited statements of operations, changes in stockholder's equity and cash
flows of the Seller for the year ended December 31, 1996;
(iv) the unaudited balance sheet of the
Seller at January 31, 1997, February 28, 1997, March 31, 1997, April 30, 1997,
May 31, 1997 and for each completed month thereafter prior to Closing and the
related unaudited statements of operations and cash flows of the Seller, in the
format customarily prepared by Seller for its own internal use, for the one,
two, three, four, five month periods and any corresponding periods thereafter,
respectively, ended on such dates (the items referred to in Sections 2.2(a)(i),
(ii), (iii) and (iv) being collectively referred to as the "Seller Financial
Statements"); and
(b) All of the Seller Financial Statements are
accurate and complete in all material respects, and the dollar amount of each
line item included in the Seller Financial
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Statements is accurate in all material respects. The Seller Financial
Statements present fairly the financial position of the Seller as of the
respective dates thereof and the results of operations and cash flows of Seller
for the periods covered thereby. The Seller Financial Statements have been
prepared in accordance with income tax basis accounting applied on a consistent
basis throughout the periods covered.
2.3 ABSENCE OF CHANGES.
(a) Except as set forth in Part 2.3 of the
Disclosure Schedule, since December 31, 1996 (unless another date is specified
below) and as relates to the Purchased Assets:
(i) since May 1, 1997, there has not
been any loss, damage or destruction to or any interruption in the use of, any
of the Seller's assets (whether or not covered by insurance);
(ii) the Seller has not effected or been
a party to any material Acquisition Transaction;
(iii) [Intentionally omitted]
(iv) since May 1, 1997, the Seller has
not sold or otherwise transferred, and has not leased or licensed, any asset to
any other Person except for products sold by the Seller from its inventory in
the Ordinary Course of Business;
(v) the Seller has not pledged or
hypothecated any of its assets, including, without limitation, its Membership
Agreements, or otherwise permitted any of such assets to become subject to any
Encumbrance;
(vi) none of the Purchased Assets has
become bound by any Contract that is not an Excluded Contract;
(vii) no Contract relating to the Club
that is not an Excluded Contract and by which the Seller or any of the assets
owned or used by the Seller is or was bound, or under which the Seller has or
had any rights or interest, has been amended or terminated other than in the
Ordinary Course of Business or as disclosed in this Agreement, including
without limitation in the Disclosure Schedule; and
(viii) except for the Transactions, the
Seller has not entered into any transaction or taken any other action outside
the Ordinary Course of Business, including without limitation, any sales of new
or promotional Membership Agreements or any renewals of existing Membership
Agreements other than in the Ordinary Course of Business.
(ix) there has not been any material
adverse change in the Seller's business, condition, assets, liabilities,
operations, financial performance or net income, and no event has occurred that
is likely to have a material adverse effect upon
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any thereof; it being agreed that if any such material adverse change or any
such event occurs and becomes known to Seller and/or Purchaser during the last
5 days of the Due Diligence Period, then the Due Diligence Period shall be
extended until 5 business days from the earlier of (A) Purchaser's actual
knowledge of the material details of such material adverse change or such event
or (B) Purchaser's receipt of notice from Seller to Purchaser of the material
details of such material adverse change or such event. Seller shall
immediately notify Purchaser of the material details of any such material
adverse change or such event, whether the same shall occur before or after the
expiration of the Due Diligence Period. In addition, if any such material
adverse change or such event shall occur within 5 days of the otherwise
scheduled date for Closing, then the scheduled date for Closing shall be
extended until 5 Business Days from the earlier of (a) Purchaser's actual
knowledge of the material details of such material adverse change or such event
or (b) Purchaser's receipt of notice from Seller to Purchaser of the material
details of such material adverse change or such event.
2.4 TITLE TO ASSETS.
(a) Seller owns, and has good and valid title to,
all of the Purchased Assets, including, without limitation, the Membership
Agreements, free and clear of any Encumbrances.
(b) Part 2.4 of the Disclosure Schedule
identifies all material assets that are being leased or licensed to the Seller,
other than the Personal Property Leases, which are set forth in Part 2.6 of the
Disclosure Schedule, and the Real Property Leases, which are set forth in Part
2.7 of the Disclosure Schedule.
2.5 MEMBERS.
(a) Attached as Part 2.5 of the Disclosure
Schedule is the form of Membership Agreement used by the Club to govern the
memberships of its Members.
(b) Part 2.5 of the Disclosure Schedule sets
forth, as of a recent date, all accounting information that Seller maintains,
in accordance with its present operational practices and standards, regarding
its Members and the status of their Memberships (the "Facilities Schedule").
The Facilities Schedule is true, accurate and complete.
(c) Part 2.5 of the Disclosure Schedule sets
forth the Memberships issued on a promotional and/or non-fee basis. The
information set forth in this Section 2.5(c) shall also constitute a part of
the Facilities Schedule.
(d) [Intentionally omitted]
(e) Except as set forth in Part 2.5 of the
Disclosure Schedule, the terms and provisions of each Membership Agreement
comply with the provisions of Nevada Revised Statutes Section 598.948 et seq.
If and to the extent that Purchaser shall be
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required to give any refund to any Member after Closing as a result of any
failure of such Member's Membership Agreement to comply with the provisions of
Nevada Revised Statutes Section 598.948 et seq., then Seller shall pay to
Purchaser, promptly upon demand, any portion of such refund that may correspond
to either (i) any pro ration credit that Seller may have received at Closing
with respect to such Member or (ii) any initiation fee, or portion thereof,
paid by such Member to Seller prior to Closing. Neither Seller nor Purchaser
is required to notify any Member of any right arising out of the Transactions
to a refund.
(f) Initiation fees and prepaid monthly Club fees
obtained by or on behalf of the Seller from any Members are not refundable
except pursuant to the provisions of Nevada Revised Statutes Sections 598.950,
598.952, 598.954, 598.956, 598.958 and 598.960 and the terms of the Membership
Agreements.
2.6 EQUIPMENT, ETC. Part 2.6 of the Disclosure Schedule
identifies substantially all equipment owned or leased by the Seller. In the
case of leased equipment, Part 2.6 of the Disclosure Schedule further
specifies, for each piece of leased equipment, the lessor, the amount of
monthly lease payment, the remaining balance of lease payments and the
scheduled expiration date of such lease, and whether Seller may assign the
Personal Property Lease for such equipment to Purchaser without such lessor's
consent.
2.7 REAL PROPERTY. Seller does not own any real property
or any interest in real property, except for the leaseholds created under the
real property leases identified in Part 2.7 of the Disclosure Schedule (the
"Leases"). Part 2.7 of the Disclosure Schedule provides an accurate and
complete description of the monthly rental rate under each such Lease, the
termination date thereof, and extension periods thereunder. Except for the
Members, no Person has any right to occupy any part of the Club, except for
those Subtenants identified in Part 2.7 of the Disclosure Schedule. If an
estoppel certificate for the benefit of Purchaser and acceptable to Purchaser
in its sole discretion has not been obtained for any Subleases, then Part 2.7
of the Disclosure Schedule provides an accurate and complete description of the
monthly rental rate applicable to each such Sublease, the termination date
thereof, extension periods thereunder and the use thereunder. Seller has
received no notice, whether written or verbal, from the tenant under the
so-called "Wellness Center" Sublease extending, or purporting to extend, such
Sublease. Seller enjoys peaceful and undisturbed possession of the premises
under the Leases, which premises are supplied with utilities and other services
reasonably necessary for the operation thereof. Except as disclosed in Part
2.7 of the Disclosure Schedule, (a) all Leases and Subleases are legally valid
and binding and are in full force and effect; (b) there have not been and there
currently are not any material defaults thereunder by the Seller or by any
other party thereto; (c) no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder entitling the landlord or any third party to
terminate any Lease or Sublease and (d) the real property, the improvements
thereon and the uses thereof that are the subject of the Leases conform with
all applicable ordinances, regulations and building, zoning and other
applicable law. There has been no substantial damage to any portion of
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such property caused by fire or other casualty which has not been repaired to
restored. Seller has not received written notice of any Proceeding by any
Governmental Body to modify or amend the zoning statutes, ordinances,
regulations or laws, including any conditional use permits, applicable to any
such leased facilities, which would materially impair the use of such leased
facilities as currently being used or materially detract from the value
thereof. Seller has not received written notice of any Proceeding commenced by
any private person which would materially impair the use of such leased
facilities as currently being used or materially detract from the value
thereof.
2.8 PROPRIETARY ASSETS.
(a) Except as set forth in Part 2.8 of the
Disclosure Schedule, there is no material Proprietary Asset that is owned by or
licensed to the Seller or that is otherwise used in connection with the
Seller's business and that cannot freely be assigned to Purchaser.
(b) Except as set forth in Part 2.8 of the
Disclosure Schedule, the Seller has not received any written notice of any
infringement of any Proprietary Asset owned or used by any other Person.
2.9 CONTRACTS.
(a) Part 2.9 of the Disclosure Schedule lists
each Seller Contract affecting the Club and/or the Real Property, except for
any Excluded Contract and Membership Agreement. Seller has delivered to
Purchaser accurate and complete copies of all Seller Contracts identified in
Part 2.9 of the Disclosure Schedule, including all amendments thereto.
(b) Each Seller Contract identified in Part 2.9
of the Disclosure Schedule is valid and in full force and effect, and is
enforceable by the Seller in accordance with its terms, except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors rights, and
subject to general equity principles and to limitations on availability or
equitable relief, including specific performance.
(c) Except as set forth in Part 2.9 of the
Disclosure Schedule, the Seller has not received any written notice regarding
any violation or breach of, or default under, any Seller Contract, other than
any Excluded Contracts.
(d) Except as set forth in Part 2.9 of the
Disclosure Schedule, the Seller has not guaranteed or otherwise agreed to
cause, insure or become liable for, or pledged any of its assets to secure, the
performance or payment of any obligation or other Liability of any other
Person.
(e) The Contracts identified in Part 2.9 of the
Disclosure Schedule, the Membership Agreements, and the Excluded Contracts
collectively constitute
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all of the Contracts that the Seller has currently obtained, or that currently
are in force, to conduct its business in the manner in which its business is
currently being conducted.
2.10 COMPLIANCE WITH LEGAL REQUIREMENTS. Parts 2.10 and
2.11 of the Disclosure Schedule together set forth all licenses, permits and
approvals that the Seller has currently obtained, or that currently are in
force, in connection with the ownership and/or operation of the Club. Except
as set forth in Part 2.10 of the Disclosure Schedule, the Seller has not
received, at any time, any written notice from any Governmental Body or any
other Person regarding any violation of, or failure to comply with, any Legal
Requirement
2.11 GOVERNMENTAL AUTHORIZATIONS. Parts 2.10 and 2.11 of
the Disclosure Schedule together set forth all licenses, permits and approvals
that the Seller has currently obtained, or that currently are in force, in
connection with the ownership and/or operation of the Club. Except as set
forth in Part 2.11 of the Disclosure Schedule, the Seller has not received any
written notice from any Governmental Body or any other Person regarding any
violation of or failure to comply with any term or requirement of any
Governmental Authorization.
2.12 EMPLOYEE MATTERS; LABOR MATTERS; AND BENEFIT PLANS.
(a) Part 2.12 of the Disclosure Schedule sets
forth the name, position and current annual compensation and/or current hourly
rate, as applicable, of all current employees and independent contractors of
Seller, each identified as such. No management level employee has given notice
of intent to terminate employment from and after May 1, 1997, except Misty
Berg, Brian Cameron, Helene Monahan, Jeannie Sanchez and Tomi Hansen. Seller
has furnished to Purchaser true, correct and complete copies of each employment
agreement entered into with any employee of Seller.
(b) Part 2.12 of the Disclosure Schedule sets
forth a list of each collective bargaining agreement to which Seller is a party
and any other collective bargaining agreement which pertains to employees of
Seller. No legal organization or group of employees of Seller has made a
pending written demand for recognition or certification, and there are no
representation proceeds presently pending or threatened in writing, with the
National Labor Relations Board or any other Governmental Body. There are no
other organizing activities involving Seller presently being conducted or
threatened in writing, by any labor organization or group of employees of
Seller. There are no strikes, work stoppages, slow downs, lock outs, labor
disputes and materials grievances pending or threatened in writing against
Seller. There are no unfair labor practice charges or complaints pending or
threatened in writing by or on behalf of any employee or group of employees of
Seller. There are no complaints, charges or claims pending or threatened in
writing against Seller by any Governmental Body based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment by Seller of any individual. There has been no "mass layoff" or
"plant closing" as defined by the WARN Act with respect to Seller within two
(2) years prior to the date hereof.
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(c) Part 2.12 of the Disclosure Schedule briefly
describes all Benefit Plans maintained or formerly maintained by Seller. As
respects all Benefit Plans: (a) there are no funding deficiencies (determined
on a plan determination basis); (b) no Reportable Event, as defined by ERISA,
has occurred during the immediately preceding two (2) years; (c) no benefit
plan is a Multiemployer Plan, as defined in Section 4001 of ERISA; (d) no
Benefit Plan provides medical benefits, life insurance or other similar
benefits to retirees or their families; (e) no Benefit Plan is self-funded; (f)
Seller has not effected the termination or partial termination of any Benefit
Plan or participation in any Benefit Plan within the immediately preceding five
(5) years; (g) no disabled current or former employee of Seller claims or
receives or is entitled to receive disability, pension, health, welfare or life
insurance benefits from Seller; and (h) all Benefit Plans may be terminated or
modified by Seller in Seller's discretion without penalty or premium.
2.13 ENVIRONMENTAL MATTERS.
(a) During the period that the Seller has owned
or operated the Club, there have been no disposals, releases or threatened
releases of Hazardous Material on, from under or onto the Club that would give
rise to, or result in the Seller becoming subject to any Liability. Seller has
no Knowledge of any presence, disposals, releases or threatened releases of
Hazardous Material on, from, under or onto the Club that may have occurred
prior to the Seller having taken possession of any of the Club. For the
purposes of this Agreement, the terms "disposal", "release" and "threatened
release" shall have the definitions assigned thereto by CERCLA.
(b) Seller has not used, handled, generated,
manufactured or stored on under or about the Club or transported to or from the
Club any Hazardous Material, except such as are used, in the Ordinary Course of
Business, in the operation of the Club.
(c) There has been no Proceeding brought or
threatened in writing against the Seller by, or any settlement reached by the
Seller with, any party or parties alleging that the Seller is liable for the
presence, disposal, release or threatened release of any Hazardous Material on,
from, under or onto the Club or for a violation or alleged violation of any
Environmental Law relating to the Club.
(d) Seller is and at all times was in compliance
with all applicable Environmental Laws and has used and is in compliance with
all licenses, permits and authorizations required by the applicable
Environmental Laws relating to the Real Property and the Club.
(e) There are no active or inactive underground
storage tanks located on the Real Property.
2.14 RELATED PARTY TRANSACTIONS. Except as set forth in
Part 2.14 of the Disclosure Schedule, no Related Party has any direct or
indirect interest of any nature in
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any asset used in or otherwise relating to the Club.
2.15 PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.15 of the
Disclosure Schedule, there is no pending Proceeding, and the Seller has not
received any written notice of any Proceeding:
(i) that involves the Seller or that
otherwise relates to or might affect the Purchased Assets; or
(ii) that challenges, or that could be
reasonably likely to have the effect of preventing, delaying, making illegal or
otherwise interfering with, any of the Transactions.
Except as set forth in Part 2.15 of the Disclosure Schedule, no event
has occurred, and no claim, dispute or other condition or circumstance exists,
that would directly or indirectly give rise to or serve as a basis for the
commencement of any such Proceeding.
(b) Except as set forth in Part 2.15 of the
Disclosure Schedule, the Seller has received no written notice of any Order to
which the Seller, or any of the Purchased Assets owned or used by the Seller in
the operation of the Club, is subject.
2.16 AUTHORITY; BINDING NATURE OF AGREEMENTS. Seller and
General Partner each has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this Agreement and
the other Transactional Agreements to which it is a party; and the execution,
delivery and performance by the Seller and General Partner of this Agreement
and the other Transactional Agreements have been duly authorized by all
necessary action on the part of the Seller and its partners and on the part of
General Partner and its stockholders, board of directors and officers. The
board of directors of General Partner has approved, adopted and authorized this
Agreement.
2.17 NON-CONTRAVENTION; CONSENTS. Except as set forth in
Part 2.17 of the Disclosure Schedule, neither the execution and delivery of any
of the Transactional Agreements, nor the consummation or performance of any of
the Transactions, will directly or indirectly (with or without notice or lapse
of time):
(a) contravene, conflict with or result in a
violation of (i) any of the provisions of the Seller's partnership agreement or
General Partner's articles of incorporation or bylaws or (ii) any resolution
adopted by General Partner's stockholders, General Partner's board of directors
or any committee of the General Partner's board of directors;
(b) contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Transactions or to exercise any remedy or obtain any
relief under, any Legal Requirement or any Order to
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which the Seller, or any of the Purchased Assets owned or used by the Seller,
is subject;
(c) contravene, conflict with or result in a
violation or breach of, or result in a default under, any provision of, or give
any Person the right to declare a default under, any Assumed Contract:
(d) give any Person the right to (i) declare a
default or exercise any remedy under any Assumed Contract, (ii) accelerate the
maturity or performance of any Assumed Contract, or (iii) cancel, terminate or
modify any Assumed Contract; or
(e) result in the imposition or creation of any
Encumbrance upon or with respect to any Purchased Asset owned or used by the
Seller.
Except as set forth in Part 2.17 of the Disclosure Schedule, the
Seller was not, is not or will not be required to make any filing with or give
any notice to, or to obtain any Consent from, any Person in connection with the
execution and delivery of any of the Transactional Agreements or the
consummation or performance of any of the Transactions
2.18 INFORMATION. Seller has furnished and will continue
to furnish promptly to Purchaser detailed information with respect to the Club,
Purchased Assets, Assumed Liabilities, Assumed Contracts and earnings and
business operations of Seller and the Club. All information contained in the
exhibits and schedules attached to this Agreement and in the documents
furnished to Purchaser by Seller pursuant to this Agreement or otherwise, is
and shall be at the Closing, true, correct and complete. All underlying
documents incorporated or referred to in such exhibits and schedules, or in
documents otherwise furnished to Purchaser by Seller, are true, correct and
complete copies thereof, as the same have been or shall be amended or modified.
SECTION 3. "AS IS"; DUE DILIGENCE COMPLETED; DISCLAIMER OF ADDITIONAL
WARRANTIES OF SELLER.
Purchaser acknowledges that Purchaser has had or will have the
opportunity to review all documents and other information made available to
Purchaser or its Representatives. In addition, Purchaser has had or will have
the opportunity to review all reports, studies, inspections, audits,
appraisals, and other similar items which Purchaser may perform or have
performed in connection with the Transactions, and Purchaser will otherwise do
what it deems necessary in order to evaluate the financial condition, status of
title, zoning and land use and the economical and operational viability of the
Club. Purchaser acknowledges further that, prior to Closing, it will complete,
or have had the opportunity to complete, physical and financial examinations
relating to the Club and will consummate the Transactions on the basis of all
such examinations. Purchaser further acknowledges to and agrees with Seller
that, except for the representations and warranties set forth in Section 2
hereof, and subject to the terms and conditions of this Agreement, the Club
shall be sold, at Closing, "AS IS" without any warranties or representations
either expressed or implied, of any nature or type whatsoever from or on behalf
of Seller.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants, to and for the benefit of
the Seller Indemnitees, as follows:
4.1 DUE ORGANIZATION. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation and has all necessary power and authority:
(a) to conduct its business in the manner in
which its business is currently being conducted; and
(b) to own and use its assets in the manner in
which its assets are currently owned and used.
4.2 AUTHORITY; BINDING NATURE OF AGREEMENT.
(a) Purchaser has the absolute and unrestricted
right, power and authority to enter into and perform its obligations under this
Agreement and the other Transactional Agreements to which it is a party; and
(b) The execution, delivery and performance of
this Agreement and the other Transactional Agreements by Purchaser has been
duly authorized by all necessary action on the part of Purchaser and its board
of directors.
4.3 NON-CONTRAVENTION; CONSENTS. To Purchaser's
Knowledge, neither the execution and delivery of any of the Transactional
Agreements, nor the consummation or performance of any of the Transactions,
will directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a
violation of (i) any of the provisions of Purchaser's certificate or articles
of incorporation or bylaws, or (ii) any resolution adopted by Purchaser's
stockholders, Purchaser's board of directors or any committee of Purchaser's
board of directors;
(b) contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Transactions or to exercise any remedy or obtain any
relief under, any Legal Requirement or any Order to which the Purchaser, or any
of the assets owned or used by the Purchaser, is subject;
(c) contravene, conflict with or result in a
violation or breach of, or result in a default under, any provision of, or give
any Person the right to declare a default under, any contract to which
Purchaser is a party or by which it or any of its assets are bond.
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SECTION 5. INDEMNIFICATION, ETC.
5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties made by
the parties hereto in this Agreement shall survive the Closing and shall expire
on the first anniversary of the Closing Date: provided, that if, at any time
prior to the first anniversary of the Closing Date any Indemnitee (acting in
good faith) delivers a written notice alleging the existence of a Breach of any
of such representations and warranties and asserting a claim for recovery under
Section 5 based on such alleged Breach, then the claim asserted in such notice
shall survive the first anniversary of the Closing until such time as such
claim is fully and finally resolved.
(b) For purposes of this Agreement, each
statement or other item of information set forth in the Disclosure Schedule
shall be deemed to be a representation and warranty in this Agreement made by
the party by whom such schedule was delivered.
5.2 INDEMNIFICATION BY SELLER. Seller shall hold harmless
and indemnify each of the Purchaser Indemnitees from and against, and shall
compensate and reimburse each of the Purchaser Indemnitees for, any Damages
which are suffered or incurred by any of the Purchaser Indemnitees or to which
any of the Purchaser Indemnitees may otherwise become subject at any time
(regardless of whether or not such Damages relate to any third-party claim) and
which arise from, or as a result of, or are connected with:
(a) any Breach of any representation or warranty
made by Seller in this Agreement or any of the Transactional Agreements;
(b) any Breach of any covenant or obligation of
Seller in this Agreement or any of the Transactional Agreements;
(c) any Liability that arises from or relates to
any Seller Transaction Costs; or
(d) any Liability to which any of the Purchaser
Indemnitees may become subject and that arises from or relates to (i) any of
the Purchased Assets prior to Closing or (ii) Excluded Assets or (iii) any
Liability of the Seller not specifically assumed by Purchaser pursuant to this
Agreement or (iv) the operation of the Club through and including Closing;
(e) any Liability to which any of the Purchaser
Indemnitees may become subject and that arises from or relates to any claim,
demand or other action taken or made by any limited partner of Seller as a
result of or in connection with how any element(s) of the purchase prices under
this Agreement and the Real Property Purchase Agreement have been allocated as
between the two agreements and the assets being sold under each thereof.
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(f) any Liability to which any of the Purchaser
Indemnitees may become subject and that arises from or relates to any claim,
demand or other action taken or made by William C. Andrade, M.D. dba The
Medical Wellness Center under its sublease or otherwise to the effect that such
Subtenant is owed any monies for or on account of its tenant improvements;
(g) any Proceeding commenced relating to any
Breach, Liability or matter of the type referred to in clauses (a), (b), (c),
(d), (e) or (f) of this Section 5.3.
5.3 INDEMNIFICATION BY PURCHASER. Purchaser shall hold
harmless and indemnify each of the Seller Indemnitees from and against, and
shall compensate and reimburse each of the Seller Indemnitees for, any Damages
which are suffered or incurred by any of the Seller Indemnitees or to which any
of the Seller Indemnitees may otherwise become subject at any time (regardless
of whether or not such Damages relate to any third-party claim) and that arise
from, or as a result of, or are connected with:
(a) any Breach of any representation or warranty
made by Purchaser in this Agreement or any of the Transactional Agreements;
(b) any Breach of any covenant or obligation of
Purchaser in this Agreement or any of the Transactional Agreements;
(c) any Liability that arises from or relates to
any Purchaser Transaction Costs;
(d) any Liability to which any of the Seller
Indemnitees may become subject and that arises from or relates to (i) any of
the Purchased Assets subsequent to Closing or (ii) any Assumed Liability or
(iii) the operation of the Club after Closing;
(e) any Proceeding commenced relating to any
Breach, Liability or matter of the type referred to in any of clauses (a), (b)
(c) or (d) of this Section 5.3.
5.4 NONEXCLUSIVITY OF INDEMNIFICATION REMEDIES. The
indemnification remedies and other remedies provided in this Section 5 shall
not be deemed to be exclusive. Accordingly, the exercise by any Person of any
of its rights under this Section 5 shall not be deemed to be an election of
remedies and shall not be deemed to prejudice, or to constitute or operate as a
waiver of, any other right or remedy that such Person may be entitled to
exercise. In addition to any rights of setoff or other right or remedy that
any of the Indemnitees may be entitled to exercise (whether under this
Agreement under any other Contract, under any statute, rule or other Legal
Requirement, at common law in equity or otherwise), each Indemnitee shall have
the right to withhold and deduct any sum that may be owed to such Indemnitee
under this Section 5 from any amount otherwise payable by such Indemnitee to
the indemnifying party
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5.5 LIMITATIONS ON INDEMNIFICATION.
(a) Seller shall not be required to make any
indemnification payment pursuant to Section 5.2 for any Breach of any of its
representations and warranties until such time as the total amount of all
Damages (including the Damages arising from such Breach and all other Damages
arising from any other Breaches of any representations or warranties) that have
been suffered or incurred by any one or more of the Purchaser Indemnitees, or
to which any one or more of the Purchaser Indemnitees has or have otherwise
become subject, exceeds $50,000 in the aggregate, at which time such
Indemnitees shall be entitled to be indemnified against only the amount of such
Damages in excess of $50,000. Seller acknowledges and agrees that (i) the
purchase of the Purchased Assets pursuant to this Agreement is specifically
conditioned upon and directly related to the purchase of the Real Property and
related assets pursuant to the Real Property Purchase Agreement and (ii)
Purchaser is also the recipient of certain representations, warranties and
indemnification from the Fee Owner pursuant to the Real Property Purchase
Agreement. Accordingly, whether the $50,000 threshold referenced above in this
Section 5.5(a) has been exceeded is to be calculated inclusive of any "Damages"
that are suffered or incurred by any of the "Buyer's Indemnities", as
referenced in Section 13.5(i) of the Real Property Purchase Agreement.
(b) Purchaser shall not be required to make any
indemnification payment pursuant to Section 5.3 for any Breach of any of its
representations and warranties until such time as the total amount of all
Damages (including the Damages arising from such Breach and all other Damages
arising from any other Breaches of any representations or warranties) that have
been suffered or incurred by any one or more of the Seller Indemnitees, or to
which any one or more of the Seller Indemnitees has or have otherwise become
subject, exceeds $50,000 in the aggregate, at which time such Indemnitees shall
be entitled to be indemnified against only the amount of such Damages in excess
of $50,000. Purchaser acknowledges and agrees that the purchase of the
Purchased Assets pursuant to this Agreement is specifically conditioned upon
and directly related to the purchase of the Real Property and related assets
pursuant to the Real Property Purchase Agreement and (ii) Fee Owner is also the
recipient of certain representations, warranties and indemnification from
Purchaser pursuant to the Real Property Purchase Agreement. Accordingly,
whether the $50,000 threshold referenced above in this Section 5.5(b) has been
exceeded is to be calculated inclusive of any "Damages" that are suffered or
incurred by any of the "Seller's Indemnities", as referenced in Section
13.5(ii) of the Real Property Purchase Agreement.
(c) The obligations of the parties hereto to
indemnify and hold harmless a Person, pursuant to Sections 5.2(a) and 5.3(a)
above, shall terminate when the applicable representation and warranty
terminates pursuant to Section 5 .1 (a) above; provided however, such
obligation to indemnify and hold harmless shall not terminate with respect to
any matter about which an Indemnitee shall have, before the expiration of the
applicable time period, delivered written notice alleging the existence of a
Breach of any of such representations and warranties and asserting a claim for
recovery under Section 5.
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5.6 DEFENSE OF THIRD PARTY CLAIMS BY SELLER. In the event
of the assertion or commencement by any Person of any claim or Proceeding with
respect to which Seller may become obligated to indemnify, hold harmless,
compensate or reimburse any Purchaser Indemnitee pursuant to this Section 5,
Seller shall defend such claim or Proceeding at its sole expense, in which
case:
(a) Seller shall proceed to defend such claim or
Proceeding in a diligent manner with counsel reasonably satisfactory to
Purchaser;
(b) Purchaser shall make available to Seller any
non-privileged documents and materials in the possession of Purchaser that may
be necessary to the defense of such claim or Proceeding;
(c) Seller shall endeavor to keep Purchaser
informed of all material developments and events relating to such claim or
Proceeding;
(d) Purchaser shall have the right to
participate, at its own cost, in the defense of such claim or Proceeding;
(e) Purchaser shall cooperate with Seller, in a
timely manner, in the defense of such claim or Proceeding; and
(f) Seller shall have the right to settle, adjust
or compromise such claim or Proceeding with the prior written consent of
Purchaser; provided, however, that Purchaser shall not unreasonably withhold,
delay or condition such consent.
5.7 DEFENSE OF THIRD PARTY CLAIMS BY PURCHASER. In the
event of the assertion or commencement by any Person of any claim or Proceeding
with respect to which Purchaser may become obligated to indemnify, hold
harmless, compensate or reimburse any Seller Indemnitee pursuant to this
Section 5, Purchaser shall defend such claim or Proceeding at its sole expense,
in which case:
(a) Purchaser shall proceed to defend such claim
or Proceeding in a diligent manner with counsel reasonably satisfactory to
Seller;
(b) Seller shall make available to Purchaser any
non-privileged documents and materials in the possession of Seller that may be
necessary to the defense of such claim or Proceeding;
(c) Purchaser shall endeavor to keep Seller
informed of all material developments and events relating to such claim or
Proceeding;
(d) Seller shall have the right to participate,
at its own cost, in the defense of such claim or Proceeding;
(e) Seller shall cooperate with Purchaser, in a
timely manner, in
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the defense of such claim or Proceedings; and
(f) Purchaser shall have the right to settle,
adjust or compromise such claim or Proceeding with the prior written consent of
Seller; provided, however, that Purchaser shall not unreasonably withhold,
delay or condition such consent.
5.8 EXERCISE OF REMEDIES BY INDEMNITEES. Notwithstanding
anything herein to the contrary, no Indemnitee (other than Purchaser or any
successor thereto or assign thereof for the Purchaser Indemnitees or Seller or
any successor thereto or assign thereof for the Seller Indemnitees) shall be
permitted to assert any indemnification claim or exercise any other remedy
under this Agreement.
SECTION 6. ADDITIONAL COVENANTS AND AGREEMENTS.
6.1 INTERIM CONDUCT OF THE BUSINESS. At all times from
and after the date of this Agreement and through and including the Closing
Date, Seller shall cause the Club to be operated only in the lawful, ordinary
and usual course of business, and Seller shall not take any action inconsistent
therewith or engage in any transaction other than in the lawful, ordinary and
usual course of business as heretofore conducted. Without limiting the
foregoing, Seller shall maintain in full force and effect until the Closing
Date a policy or policies of insurance on the Purchased Assets which provide a
scope and amount of coverage which are usual and customary in Seller's
business; not make any non-ordinary wage or salary increases or severance
packages; and subject to Purchaser's prior reasonable written approval, not
make any material changes in its member billing practices or rates, or enter
into any material third party agreements. Seller shall maintain all of the
Purchased Assets through Closing in substantially the same level of repair as
the Purchased Assets were in during Purchaser's physical inspection of the
Purchased Assets on May 20, 1997, ordinary wear and tear excepted. Seller
shall remedy prior to Closing any and all violations of any Legal Requirement
relating to all or any part of the Purchased Assets of which Seller had
Knowledge prior to Closing.
6.2 STANDSTILL BY SELLER. From and after the date hereof
and through and including the Closing and for so long as Purchaser shall not be
in default under this Agreement, Seller shall not directly or indirectly,
solicit or initiate discussions or engage in negotiations with, or provide any
information to, or authorize any financial advisor or other person to solicit
or initiate discussions or engage in negotiations with, or provide any such
information to, any corporation, partnership, person or other entity or group
(other than Purchaser) concerning any possible proposal regarding a sale of
shares of capital stock of, or a merger, consolidation, sale of assets or other
similar transaction involving, Seller or any division or asset of Seller.
6.3 ACCESS. From the date hereof through the Closing
Date, Seller shall give Purchaser and its Representatives, or cause them to be
permitted, during normal business hours and upon reasonable notice, full access
to all properties, books, files, data, contracts, leases, commitments and
records of Seller and the Club, and during this period Seller shall furnish
Purchaser with all financial and operating data and all other information
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as to the business, properties and assets of Seller and the Club as Purchaser
may from time to time reasonably request; provided, however, that such access
and investigation shall not interfere with the conduct of the Club by Seller.
At Purchaser's reasonable request, Seller shall direct its Representatives to
cooperate with Purchaser pursuant to this Section 6.3 at no additional cost to
Purchaser. In undertaking its due diligence, Purchaser shall not disturb, to
the minimum extent reasonably possible, the operations of the Club and will
communicate with only those employees of Seller as Seller shall reasonably
authorize with the scope and tenor of such communications to be subject to the
reasonable prior approval of Seller; it being agreed, however, that the purpose
of the foregoing restrictions are to minimize disruption to the operations of
the Club, to the minimum extent reasonably possible, and to preserve its value
as a going concern and not to limit the scope or depth of the information to be
made available to Purchaser in its due diligence. The exercise by Purchaser of
any of the preceding rights, or any other act of Purchaser, shall not negate
any representation, warranty or covenant of Seller or modify any of Purchaser's
rights or Seller's obligations in the event of any Breach by Seller of any of
Seller's representations, warranties or covenants of this Agreement. Purchaser
shall indemnify, defend and hold harmless Seller from and against any and all
Damages arising out of any entry within the Club by Purchaser or its
Representatives. The indemnification of Seller by Purchaser in the preceding
sentence shall survive any termination of this agreement or the Closing for a
period of 3 years from and after the date of termination or the Closing, as the
case may be.
6.4 PRESERVATION OF BUSINESS AND RELATIONSHIPS. From the
date hereof until the Closing, Seller shall use its commercially reasonable
efforts to preserve the Club's business and its organization intact, including
without limitation to preserve Seller's present relationships with suppliers,
customers and others having business relationships with Seller regarding the
Club. Seller shall promptly arrange for utility telephone service to be
transferred to Purchaser at Closing.
6.5 NO INCONSISTENT ACTION. Each of the parties hereto
will use such party's commercially reasonable efforts to consummate the
transaction contemplated by this Agreement and shall not take any action
inconsistent with such party's obligations hereunder or which could hinder or
delay the consummation of the transactions contemplated hereby.
6.6 INVESTMENT OBLIGATION. Purchaser shall invest not
less than $1.4 million in the Club during the first 3 years following the
Closing, which investment shall include, without limitation, any expenditures
on furnishings, fixtures or equipment. Such expenditures may, but need not, be
similar in nature and magnitude to those described in the list of possible
improvements set forth in the attached Schedule 6.6.
6.7 BULK SALE. At or prior to Closing, Seller, at its
expense, shall have fully complied with all bulk sales laws (if any) applicable
to the Transactions.
6.8 LIQUOR LICENSE. Seller shall cooperate with Purchaser
(without cost or liability to Seller) in Purchaser's obtaining a transfer of
the existing liquor license for the
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Club or, if such transfer shall not be possible, obtaining a new liquor
license; it being further agreed, however, that Seller shall not permit
Purchaser to operate under Seller's liquor license, even if such operation
would be permitted by law, after Closing while Purchaser obtains its own liquor
license if Purchaser has not yet obtained its own liquor license at Closing.
Purchaser's failure to have obtained its own liquor license at Closing shall
not be grounds for delaying Closing.
6.9 COMPLIMENTARY MEMBERSHIPS.
(a) [Intentionally omitted]
(b) Up to 71 nontransferable memberships at the
Club held by current or former limited partners of Seller and identified in
Part 2.5(b) of the Disclosure Schedule shall continue to be honored by
Purchaser through, but not later than, August 31, 2005. Such memberships shall
be at the highest level of membership available to members of the Club
immediately before Closing, shall require the payment of no monthly dues or
initiation fees but shall otherwise be subject to Purchaser's rules and
regulations for Club membership and the general operations of the Club applied
on a non-discriminatory basis.
(c) Up to 100 nontransferable memberships for
employees of Seller Companies shall be honored or continue to be honored, as
applicable, by Purchaser until the first to occur, for each such membership, of
(i) the date on which such employee shall cease to be an employee of a Seller
Company, (ii) the date on which such individual ceases to maintain his or her
primary residence in the greater Las Vegas area or (iii) the date occurring 2
years after the Closing Date. If a particular such membership terminates
pursuant to either of the foregoing clauses (i) or (ii), then such membership
shall become available for another employee of the Seller Companies on the same
terms as set forth in this Section 6.9(c). Each such membership shall be at
the level of benefits elected by such employee, from time to time and subject
to the then availability of the benefits so elected, shall require the payment
of no initiation fees, shall require the payment of 50% of the otherwise
applicable monthly dues and shall otherwise be subject to Purchaser's rules and
regulations for Club memberships and the general operations of the Club applied
on a non-discriminatory basis. The employees currently holding such
memberships are set forth in Part 2.5(b) of the Disclosure Schedule. The
"Seller Companies" are Greenspun, Inc.; ANC, Inc,; Las Vegas Sun; Prime Cable;
Nextlink; Primetel; Hospitality Network; Barleys Casino; Seven Hills; and HBC
Publications.
(d) Subject to the terms and conditions of this
Section 6.9, each of the memberships described in this Section 6.9 shall remain
valid for so long as such membership is kept in good standing in accordance
with the rules of the Club consistently applied. Nothing in this Section 6.9
shall give any recipient of a membership described in this Section 6.9 any
rights against Purchaser if Purchaser shall, from time to time, either cease
operating the Club or change the manner of its operations, in any such instance
for any reason whatsoever. All such memberships shall automatically terminate
upon any sale of the Club by Purchaser to a non-Affiliate. The parties
acknowledge and agree that the
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value attributable to these memberships is $0.
6.10 [Intentionally omitted]
6.11 ACCESS TO RECORDS. For a period of seven years from
and after Closing, upon reasonable prior written notice to Purchaser, Purchaser
shall provide Seller, from time to time, with reasonable access to the books
and records for the Club's operations prior to Closing if Seller demonstrates,
to Purchaser's reasonable satisfaction, a reasonable need for such access.
Seller shall, at its own expense, be permitted to make copies of any such
records, provided that Seller shall (i) keep all such information confidential
to the extent not inconsistent with the purpose for which such access was
sought and (ii) return all such information to Purchaser, if requested to do so
by Purchaser, when Seller has completed its use of such information. Seller's
exercise of this right, if at all and from time to time, shall not be done so
as to interfere with or disrupt the conduct of Purchaser's or the Club's
business or operations.
SECTION 7. MISCELLANEOUS PROVISIONS.
7.1 FURTHER ASSURANCES. Each party hereto shall execute
and/or cause to be delivered to each other party hereto such instruments and
other documents, and shall take such other actions, as such other party may
reasonably request (prior to, at or after the Closing) for the purpose of
carrying out or evidencing any of the Transactions. Without limiting the
generality of the foregoing, at any time and from time to time after the
Closing Date, the parties shall duly execute, acknowledge and deliver all such
further assignments, conveyances, instruments and documents, and will take such
other action consistent with the terms of this Agreement, in each case, as may
be reasonably necessary to assign, transfer and convey to Purchaser good and
marketable title to any and all of the Purchased Assets, free and clear of all
Encumbrances, to carry out the transactions contemplated by this Agreement, and
to comply with the terms hereof. No party will take or knowingly permit to be
taken any action or do or knowingly permit to be done anything in the conduct
of its business, or otherwise, which would be contrary to or in breach of any
of the terms or provisions of this Agreement, or which would cause any of the
representations or warranties contained herein to become untrue or incomplete.
7.2 FEES AND EXPENSES.
(a) Subject to the provisions of Section 5
(including the indemnification and other obligations of Purchaser thereunder)
Seller shall bear and pay all its own Transaction Costs and all Transaction
Costs (including all legal fees and expenses payable to Jolley, Urga, Wirth &
Woodbury) that have been incurred or that are in the future incurred by, on
behalf of or for the benefit of, the Seller (the "Seller Transaction Costs).
(b) Subject to the provisions of Section 5
(including the indemnification and other obligations of Seller thereunder),
Purchaser shall bear and pay all Transaction Costs (including all legal fees
and expenses payable to Resch Polster Alpert &
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Berger LLP) that have been incurred or that are in the future incurred by, or
on behalf of or for the benefit of, Purchaser (the "Purchaser Transaction
Costs").
7.3 ATTORNEYS' FEES. If any legal action or other legal
proceeding relating to any of the Transactional Agreements or the enforcement
of any provision of any of the Transactional Agreements is brought against any
party hereto, the prevailing party shall be entitled to recover reasonable
attorneys' and expert witness fees, costs and disbursements (in addition to any
other relief to which the prevailing party may be entitled).
7.4 NOTICES. Any notice or other communication required
or permitted to be delivered to any party under this Agreement shall be in
writing and shall be deemed properly delivered, given and received when
delivered (by hand, by registered or certified mail, return receipt requested,
by courier or express delivery service or by telecopier with proof of
transmission and receipt) to the address or telecopier number set forth beneath
the name of such party below (or to such other address or telecopier number as
such party shall have specified in a written notice given to the other parties
hereto). In the case of any notice given by telecopier, a confirming copy
shall be sent, as soon as reasonably possible thereafter, by another approved
means specified above.
if to Purchaser: The Sports Club Company, Inc.
11100 Santa Monica Boulevard, Suite 300
Los Angeles, California 90025
Attention: D. Michael Talla
Telephone: (310) 479-5200
Telecopier: (310) 479-4350
with a copy (not constituting notice) to:
Resch Polster Alpert & Berger LLP
10390 Santa Monica Boulevard
Fourth Floor
Los Angeles California 90025-5058
Attention: Ronald M. Resch, Esq.
Telephone: (310) 277-8300
Telecopier: (310) 552-3209
if to Seller: Green Valley Athletic Club Limited
Partnership
c/o American Nevada Corporation
Green Valley Corporate Center
901 North Green Valley Parkway, Suite 200
Henderson, Nevada 89014
Attention: Legal Department
Telephone: (702) 458-8855
Telecopier: (702) 435-6605
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with a copy (not constituting notice) to.
Jolley, Urga, Wirth & Woodbury
300 South Fourth Street, Eighth Floor
Las Vegas, Nevada 89101
Attention: William R. Urga, Esq.
Telephone: (702) 385-5161
Telecopier: (702) 382-6814
if to Deposit Holder: Nevada Title Company
Green Valley Office
701 N. Green Valley Parkway, Suite 120
Henderson, Nevada 89014
Attention: Jill Hooper, re escrow no. 97-06-0229 RWC
Telephone: (702) 361-7756
Telecopier: (702) 365-3603
with a copy (not constituting notice) to the party or
parties not giving such notice to Deposit Holder.
If notice is sent by telecopier, a copy of such notice shall be concurrently
sent by one of the other means set forth in this section. Failure to do so will
not affect the validity and due delivery of such notice.
7.5 PUBLICITY; CONFIDENTIALITY. At all times before and
after the Closing Date and except as may otherwise be required by any Legal
Requirement or by the rules and regulations of the American Stock Exchange or
the Securities and Exchange Commission:
(a) no press release or other publicity
concerning any of the Transactions shall be issued or otherwise disseminated by
or on behalf of the parties hereto unless mutually agreed upon by the parties
in advance. The parties shall issue a mutually approved press release promptly
following Closing. Each of the parties shall continue to keep the existence
and terms of this Agreement and the other Transactional Agreements strictly
confidential except to the extent such information is publicly available,
lawfully obtained from independent sources or as may be required by any Legal
Requirement.
(b) Purchaser agrees to keep confidential and not
to disclose to any third party, other than to Purchaser's actual or potential
lenders or investors or their Representatives, who in turn will agree to hold
such information confidential, any information and material obtained from
Seller or any of its Representatives or to which Purchaser has access related
to the business and assets of Seller except to the extent such information is
publicly available, previously lawfully known to Purchaser, lawfully obtained
from independent sources or as may be required by any Legal Requirement. No
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such information shall be used by any such party for their own benefit.
Purchaser will promptly return, and cause all of its actual and potential
lenders, investors and each of its and their respective Representatives
promptly to return, any and all such information to Seller if Closing does not
occur, for any reason whatsoever.
(c) Seller agrees to keep confidential and not to
disclose to any third party, other than to Seller's actual or potential lenders
or investors or their Representatives, who in turn will agree to hold such
information confidential, any information and material obtained from Purchaser
or any of their respective Representatives or to which Seller has access
related to the business and assets of Purchaser except to the extent such
information is publicly available, previously lawfully known to Seller,
lawfully obtained from independent sources or as may be required by any Legal
Requirement. No such information shall be used by any such party for their own
benefit. Seller will promptly return, and cause all of its actual and
potential lenders, investors and each of its and their respective
Representatives promptly to return, any and all such information to Purchaser
if Closing does not occur, for any reason whatsoever.
7.6 [INTENTIONALLY OMITTED]
7.7 TIME OF THE ESSENCE. In connection with consummation
of the Acquisition and the Transactions, the parties agree that time is of the
essence; provided, however, that if any period or time set forth in this
Agreement ends or occurs on a day which is not a Business Day, then such period
or time shall instead end on the next immediately following Business Day.
7.8 HEADINGS. The underlined headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.
7.9 COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall constitute an original and all of
which, when taken together, shall constitute one agreement.
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7.10 GOVERNING LAW;. This Agreement shall be construed in
accordance with, and governed in all respects by the internal laws of the State
of Nevada (without giving effect to principles of conflicts of laws).
7.11 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon: the Seller and its successors and assigns (if any); and Purchaser
and its successors and assigns (if any). This Agreement shall inure to the
benefit of: Seller; Purchaser; and the respective successors and assigns (if
any) of the foregoing. Purchaser may only assign all of its rights under this
Agreement (including its indemnification rights under Section 5.2, and not any
part thereof, and then only if (a) the proposed assignee is a wholly-owned
subsidiary of Purchaser, (b) Seller is provided with a written assignment and
assumption agreement, reasonably acceptable to Seller, executed by Purchaser
and such assignee and pursuant to which such assignee assumes all of
Purchaser's rights, duties and obligations under the Transactional Agreements
and (c) Purchaser concurrently assigns all of its rights under the Real
Property Purchase Agreement to the same assignee in accordance with the terms
and conditions of the Real Property Purchase Agreement. Any such permitted
assignment and assumption shall relieve Purchaser of all of its duties and
obligations under the Transactional Agreements, except that Purchaser shall
remain liable, jointly and severally with any such assignee, for the
performance of the obligation to invest not less than $1.4 million in the Club
during the first 3 years following the Closing set forth in Section 6.6.
7.12 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights
and remedies of the parties hereto shall be cumulative (and not alternative).
Seller agrees that in the event of any Breach or threatened Breach by Seller of
any covenant, obligation or other provision set forth in this Agreement,
Purchaser shall be entitled (in addition to any other remedy that may be
available to it) to (i) a decree or order of specific performance or mandamus
to enforce the observance and performance of such covenant, obligation or other
provision, and (ii) an injunction restraining such Breach or threatened Breach.
7.13 WAIVER.
(a) Except as expressly set forth herein, no
failure on the part of any Person to exercise any power, right, privilege or
remedy under this Agreement, and no delay on the part of any Person in
exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege
or remedy.
(b) Except as expressly set forth herein, no
Person shall be deemed to have waived any claim arising out of this Agreement,
or any power, right, privilege or remedy under this Agreement, unless the
waiver of such claim, power, right, privilege or remedy is expressly set forth
in a written instrument duly executed and delivered on behalf of such Person:
and any such waiver shall not be applicable or have any effect except in the
specific instance in which it is given.
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7.14 AMENDMENTS. This Agreement may not be amended,
modified, altered or supplemented other than by means of a written instrument
duly executed and delivered on behalf of Purchaser and Seller.
7.15 SEVERABILITY. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as
to which it is determined to be invalid, unlawful, void or unenforceable, shall
not be impaired or otherwise affected and shall continue to be valid and
enforceable to the fullest extent permitted by law.
7.16 PARTIES IN INTEREST. Except for the provisions of
Section 5 hereof, none of the provisions of this Agreement is intended to
provide any rights or remedies to any Person other than the parties hereto and
their respective successors and assigns (if any).
7.17 ENTIRE AGREEMENT. The Transactional Agreements set
forth the entire understanding of the parties relating to the subject matter
thereof and supersede all prior agreements and understandings among or between
any of the parties relating to the subject matter thereof.
7.18 BROKERS. Purchaser and Seller each agrees to
indemnify, defend and hold the other harmless from any Damages arising out of
or in connection with any claim for any brokerage commission, finder's fee,
acquisition fee or like payment asserted against the indemnified party by
virtue of any action taken or allegedly taken by the indemnifying party in
connection with the Acquisition. Without limiting the generality of the
foregoing, Purchaser will pay a single $100,000 commission to The Weatherby
Company, who represents Purchaser, at Closing with respect to the acquisition
of both the Club and the Real Property and will satisfy any other obligation
owed to The Weatherby Company in connection with the closing of the Acquisition
and the acquisition of the Real Property.
7.19 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the
context requires: the singular number shall include the plural, and vice versa;
the masculine gender shall include the feminine and neuter genders; the
feminine gender shall include the masculine and neuter genders; and the neuter
gender shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement.
(c) As used in this Agreement, the words
"include" and
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"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references
in this Agreement to "Sections", "Exhibits" and "Schedules" are intended to
refer to Sections of this Agreement and Exhibits and Schedules to this
Agreement, all of which Exhibits and Schedules are hereby incorporated herein
by this reference as if set forth fully herein.
7.20 WAIVER OF JURY. With respect to any dispute arising
under or in connection with this Agreement or any related agreement, as to
which no party invokes the right to arbitration hereinabove provided, or as to
which legal action nevertheless occurs, each party hereby irrevocably waives
all rights it may have to a jury trial, and each party agrees that it will not
seek to consolidate any such action in which a jury trial has been waived with
any other action in which a jury trial cannot be or has not been waived. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY PURCHASER AND
SELLER AND EACH ACKNOWLEDGES THAT NEITHER THE OTHER PARTY NOR ANY PERSON ACTING
ON BEHALF OF THE OTHER PARTY HAS MADE ANY REPRESENTATION OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
PURCHASER AND SELLER EACH FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR
HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND
IN THE MAKING OF THIS WAIVER, BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN
FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL. PURCHASER AND SELLER EACH FURTHER ACKNOWLEDGES THAT IT HAS READ AND
UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION.
7.21 AUTHORITY TO SIGN. Each of the individuals executing
this Agreement on behalf of Purchaser and Seller, respectively, represents that
he is duly and validly authorized to do so.
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7.22 SURVIVAL POST-CLOSING. Any provisions of this
Agreement, or any other Transactional Agreement, which require observance,
performance or enforcement after Closing shall survive Closing and shall
continue to be binding on the parties hereto, subject to and in accordance with
the other terms and conditions of this Agreement and the other Transactional
Agreements.
The parties hereto have caused this Asset Purchase Agreement to be
executed and delivered as of May 1, 1997.
SELLER: GREEN VALLEY ATHLETIC CLUB LIMITED
PARTNERSHIP,
a Delaware limited partnership
By: Green Valley Sports, Inc.,
a Nevada corporation,
its general partner
By: /s/ Eric A. Traub
Its: Vice President
PURCHASER: THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By: /s/ John M. Gibbons
John M. Gibbons
President
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
1. ACQUISITION. "Acquisition" shall have the meaning specified in Recital
A of the Agreement.
2. ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale or other disposition of all or any portion of the
Seller's business or assets (other than in the Ordinary Course of Business);
(b) the issuance, sale or other disposition of (i) any partnership
interest in the Seller, or (ii) any security, instrument or obligation that is
or may become convertible into or exchangeable for any partnership interest in
the Seller: or
(c) any merger, consolidation, business combination share exchange,
reorganization or similar transaction involving the Seller.
3. AFFILIATE. "Affiliate" shall mean and include:
(i) any current or former shareholder, director or officer of,
as applicable, the Seller or Purchaser;
(ii) any sibling, uncle, aunt, niece or nephew of any person
described in clause (i);
(iii) any ancestor or lineal descendant of any person described
in clauses (i) or (ii);
(iv) any current or former spouse of any person described in
clauses (i), (ii) or (iii) or any person who is a member of the same household
of the person described in clauses (i), (ii) or (iii) or who has resided with
such person for more than 10 days in any calendar year;
(v) any ancestor or lineal descendant of any person described in
clauses (i), (ii), (iii) or (iv);
(vi) any entity or person in which any of the foregoing have a
direct or indirect interest (except through ownership of less than 5% of the
outstanding shares of any entity whose securities are listed on a national
securities exchange or traded in the national over-the-counter market).
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4. ARCHITECTURAL REVIEW COMMITTEE. "Architectural Review Committee" shall
mean the Architectural Review Committee for Town Center established under the
CC&R.
5. ARC ESTOPPEL. "ARC Estoppel" shall mean an estoppel certificate from
the Architectural Review Committee, which shall be in form and substance
identical to the form of estoppel attached hereto and incorporated herein by
this reference as Exhibit H.
6. ASSUMED CONTRACTS. Assumed Contracts shall have the meaning set forth
in Section l.l(d).
7. ASSUMED LIABILITIES. Assumed Liabilities shall have the meaning set
forth in Section 1.3.
8. BENEFIT PLAN. "Benefit Plan" shall mean any defined benefit plan or
defined contribution plan maintained or formerly maintained by Seller or any
predecessor or Affiliate of Seller.
9. BILL OF SALE. "Bill of Sale" shall have the meaning set forth in
Section 1.5(a) of the Agreement.
10. BREACH. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been any
inaccuracy in or breach of, or any failure to comply with or perform such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach or failure.
11. BUSINESS DAY. "Business Day" shall mean any day other than Saturday,
Sunday or any other day which is a legal holiday under the laws of either of the
States of California or Nevada.
12. CC&R. "CC&R" shall mean the Third Amendment to and Restatement of
Declaration of Covenants, Conditions and Restrictions recorded February 10, 1993
in Book 930218 as Document No. 00166 of Official Records of Clark County, Nevada
regarding Town Center.
13. CC&R AMENDMENT. "CC&R Amendment" shall mean an amendment to the CC&R
which shall be in form and substance identical to the form of amendment attached
hereto and incorporated herein by this reference as Exhibit G.
14. CERCLA. "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
15. CLOSING. "Closing" shall have the meaning specified in Section 1.9(b)
of the Agreement.
16. CLOSING DATE. "Closing Date" shall mean the date on which the Closing
shall
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occur.
17. CLUB. "Club" shall have the meaning specified in Recital A of the
Agreement.
18. CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
19. CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
20. CONTRACT. "Contract" shall mean any written agreement, contract,
understanding, arrangement instrument, note, guaranty, indemnity,
representation, warranty, deed, assignment, power of attorney, certificate,
purchase order, work order, insurance policy, benefit plan, commitment covenant,
assurance or undertaking of any nature that relate to the Club and/or its
operations.
21. CONTRACT ASSIGNMENT. "Contract Assignment" shall have the meaning set
forth in Section 1.5(a) of the Agreement.
22. DAMAGES. "Damages" shall mean any loss, damage, injury, Liability,
claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including
any reasonable legal fee, expert fee, accounting fee or advisory fee), charge,
reasonable cost (including any reasonable cost of investigation) or reasonable
expense of any nature.
23. DELIVERY ITEMS. "Delivery Items" shall have the meaning set forth in
Section 1.6 of the Agreement.
24. DEPOSIT. "Deposit" shall have the meaning set forth in Section 1.5(b)
of the Agreement.
25. DEPOSIT HOLDER. "Deposit Holder" shall have the meaning set forth in
Section 1.5(b) of the Agreement.
26. DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to Purchaser, a copy of which
is attached to the Agreement and incorporated in the Agreement by reference.
27. DUE DILIGENCE PERIOD. "Due Diligence Period" shall have the meaning
set forth in Section 1.8(a)(vii) of the Agreement.
28. ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, right of possession,
lease, tenancy, license, Order, option, right of first refusal, imperfection of
title, or Tax; provided that Encumbrance shall not include publicly recorded
Encumbrances (i) that are not liens, or (ii) that do not restrict or affect the
intended use of the Purchased Assets. Encumbrance shall further not include any
Taxes that are not yet due and payable if such Taxes are to be prorated between
Purchaser and Seller. Encumbrance shall further not include any matter
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disclosed in the Disclosure Schedule or the Restrictive Use Covenant.
29. ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
company, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
30. ENVIRONMENTAL LAW. "Environmental Law" shall mean CERCLA, the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 1100 et
seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections
136 et seq., the Safe Drinking Water Act, 42 U.S.C. Sections 300f et seq., the
Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq., the Oil Pollution
Act of 1990, 33 U.S.C. Sections 1001 et seq., the Hazardous Materials
Transportation Act, as amended, 42 U.S.C. Sections 1801 et seq., and the
corresponding regulations, state laws and regulations, local ordinances and
permit requirements which may be applicable.
31. ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and all rules, regulations, directives and orders
promulgated thereunder.
32. ESCROW. "Escrow" shall have the meaning set forth in Section 1.5(b) of
the Agreement.
33. EXCLUDED ASSETS. "Excluded Assets" shall have the meaning set forth in
Section 1.2 of the Agreement.
34. EXCLUDED CONTRACT. "Excluded Contract" shall mean any Seller Contract,
other than the Membership Agreements, that:
(a) Seller has entered into in the Ordinary Course of Business;
(b) has a term of less than 30 days or may be terminated by the
Seller (without penalty) 30 days after the delivery of a termination notice by
the Seller; and
(c) does not contemplate or involve the payment of cash or other
consideration in an amount or having a value in excess of $10,000.
35. FACILITIES SCHEDULE. "Facilities Schedule" shall have the meaning set
forth in Section 2.5 of the Agreement.
36. FEE OWNER. "Fee Owner" shall have the meaning set forth in Recital B
of the Agreement.
37. FISCAL 1994 BALANCE SHEET. "Fiscal 1994 Balance Sheet" shall have the
meaning set forth in Section 2.2(a)(i) of the Agreement.
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38. FISCAL 1995 BALANCE SHEET. "Fiscal 1995 Balance Sheet" shall have the
meaning set forth in Section 2.2(a)(ii) of the Agreement.
39. FISCAL 1996 BALANCE SHEET. "Fiscal 1996 Balance Sheet" shall have the
meaning set forth in Section 2.2(a)(iii) of the Agreement.
40. GENERAL PARTNER. "General Partner" shall mean Green Valley Sports,
Inc., a Nevada corporation.
41. GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any:
(a) permit, license, certificate, franchise, concession, approval,
consent, ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating, registration, qualification or authorization
issuable or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement; or
(b) right under any Contract with any Governmental Body.
42. GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal);
(d) multi-national organization or body; or
(e) individual, Entity or body exercising, or entitled to exercise,
any executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature.
43. HAZARDOUS MATERIAL. "Hazardous Material" shall mean:
(a) any petroleum, waste oil, crude oil, asbestos, urea formaldehyde
or polychlorinated biphenyl:
(b) any waste, gas or other substance or material that is explosive
or radioactive;
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(c) any "hazardous substance," "pollutant," "contaminant," "hazardous
waste." "regulated substance." "hazardous chemical" or "toxic chemical" as
designated, listed or defined (whether expressly or by reference) in any
Environmental Law (including CERCLA, any other so-called "superfund" or
"superlien" law, the Resource Conservation Recovery Act, the Federal Water
Pollution Control Act, the Toxic Substances Control Act, the Emergency Planning
and Community Right-to-Know Act and the respective regulations promulgated
thereunder);
(d) any other substance or material (regardless of physical form) or
form of energy that is subject to any Legal Requirement which regulates or
establishes standards of conduct in connection with, or which otherwise relates
to, the protection of human health, plant life, animal life, natural resources,
property or the enjoyment of life or property from the presence in the
environment of any solid, liquid, gas, odor, noise or form of energy; and
(e) any compound, mixture, solution, product or other substance or
material that contains any substance or material referred to in clause "(a)",
"(b)", "(c)" or "(d)" above
44. INDEMNITEES. "Indemnitees" shall as the context may indicate sometimes
refer to either the Purchaser Indemnitees or the Seller Indemnitees, or both.
45. IDENTIFIED APPROVALS. "Identified Approvals" shall have the meaning
set forth in Section 1.8(a)(iii).
46. INVENTORY. "Inventory" shall have the meaning set forth in Section
1.1(i) of the Agreement.
47. IP LICENSE. "IP License" shall have the meaning set forth in Section
1.6(c)(iv).
48. KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter only if such individual is actually aware of
such fact or other matter.
In the case of Purchaser, Purchaser shall be deemed to have "Knowledge" of
a particular fact or other matter only if any of D. Michael Talla, John Gibbons,
or Timothy O'Brien has Knowledge of such fact or other matter.
In the case of Seller, Seller shall be deemed to have "Knowledge" of a
particular fact or other matter only if any of Misty Chadwick, Eric A. Traub and
Rita McCreery has Knowledge of such fact or other matter.
49. LEASES. "Leases" shall have the meaning set forth in Section 2.7 of
the Agreement.
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50. LEASE ASSIGNMENT. "Lease Assignment" shall have the meaning set forth
in Section 1.5(a) of the Agreement.
51. LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state
local, municipal, foreign or other law, statute, legislation, constitution, law
resolution, ordinance, code edict, decree, proclamation, treaty, convention,
rule, regulation, ruling, directive, pronouncement, requirement, specification,
determination, decision, opinion or interpretation issued enacted adopted,
passed, approved, promulgated, made, implemented or otherwise put into effect by
or under the authority of any Governmental Body.
52. LIABILITY. "Liability" shall mean any debt, obligation, duty or
liability of any nature (whether known or unknown and whether absolute, accrued,
contingent or otherwise), regardless of whether such debt, obligation, duty or
liability would be required to be disclosed on a balance sheet and regardless of
whether such debt obligation, duty or liability is immediately due and payable.
53. MEMBER. "Member" shall mean an individual who as of the Closing Date
is a member in good standing of the Club under the terms of a valid Membership
Agreement.
54. MEMBERSHIP AGREEMENT. "Membership Agreement" shall mean any written
agreement between a Member and, or on behalf of, the Seller pursuant to which
such Member is entitled to use of the facilities and services of the Seller at
the Club.
55. MODIFICATION. "Modification" shall have the meaning set forth in
Section 1.8(b) of the Agreement.
56. ORDER. "Order" shall mean any:
(a) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence, subpoena,
writ or award issued, made, entered, rendered or otherwise put into effect by or
under the authority of any court, administrative agency or other Governmental
Body or any arbitrator or arbitration panel; or
(b) Contract with any Governmental Body that is or has been entered
into in connection with any Proceeding.
57. ORDINARY COURSE OF BUSINESS. An action taken by or on behalf of the
Seller shall not be deemed to have been taken in the "Ordinary Course of
Business" unless
(a) such action is generally consistent with the Seller's past
practices and is taken in the ordinary course of the Seller's normal day-to-day
operations; and
(b) such action is not required to be authorized by the Seller's
stockholders, the Seller's board of directors or any committee of the Seller's
board of directors and does not require any other separate or special
authorization of any nature.
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58. OUTSIDE CLOSING DATE. "Outside Closing Date" shall have the meaning
set forth in Section 1.9(a) of the Agreement.
59. PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
60. PERSONAL PROPERTY LEASES. "Personal Property Leases" shall have the
meaning set forth in Section 1.1(b) of the Agreement.
61. PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), prosecution, contest, hearing, inquiry,
inquest, audit, examination or investigation brought, conducted or heard by or
before, or that otherwise involves, any Governmental Body, judge, arbitrator or
arbitration panel.
62. PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service mark (whether registered or unregistered), service mark
application, copyright (whether registered or unregistered), copyright
application, trade secret, know-how, franchise, system, computer software,
invention, design, blueprint, proprietary product, technology, proprietary right
or other intellectual property right or intangible asset.
63. PURCHASE PRICE. "Purchase Price" shall have the meaning set forth in
Section 1.5(a) of the Agreement.
64. PURCHASED ASSETS. "Purchased Assets" shall have the meaning set forth
in Section 1.1 of the Agreement.
65. PURCHASER. "Purchaser" shall mean The Sports Club Company, Inc., a
Delaware corporation.
66. PURCHASER DELIVERY ITEMS. "Purchaser Delivery Items" shall have the
meaning set forth in Section 1.6(b) of the Agreement.
67. PURCHASER INDEMNITEES. "Purchaser Indemnitees" shall mean the
following Persons:
(a) Purchaser;
(b) Purchaser's current and future Affiliates;
(c) the respective Representatives of the Persons referred to in
clauses (a) and (b) above; and
(d) the respective successors and permitted assigns of the Persons
referred to in clauses (a), (b), and (c) above.
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68. PURCHASER TRANSACTION COSTS. "Purchaser Transaction Costs" shall have
the meaning specified in Section 7.2(b) of the Agreement.
69. REAL PROPERTY. "Real Property" shall have the meaning specified in
Recital B of the Agreement.
70. REAL PROPERTY LEASES. "Real Property Leases" shall have the meaning
set forth in Section 1.1(a).
71. REAL PROPERTY PURCHASE AGREEMENT. "Real Property Purchase Agreement"
shall have the meaning specified in Recital C of the Agreement.
72. RELATED PARTY. Each of the following shall be deemed to be a "Related
Party":
(a) Seller;
(b) each individual who is, or who has been within the past twelve
(12) months, an officer or shareholder of the Seller or of any of its
predecessors in interest;
(c) each member of the family of each of the individuals referred to
in clauses "(a)" and "(b)" above; and
(d) any Entity (other than the Seller) in which any one of the
individuals referred to in clauses "(a)", "(b)" and "(c)" above holds (or in
which more than one of such individuals collectively hold), beneficially or
otherwise, a material voting, proprietary or equity interest.
73. REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives. Seller
and all other Related Parties shall be deemed to be "Representatives" of Seller.
74. RESTRICTIVE USE COVENANT. "Restrictive Use Covenant" shall mean a
covenant restricting the uses to which the Real Property may be put, the form of
which is attached hereto as Exhibit E, that is to be executed by Fee Owner and
recorded as an Encumbrance against the Real Property as part of the closing
under the Real Property Purchase Agreement.
75. SELLER. "Seller" shall mean Green Valley Athletic Club Limited
Partnership, a Delaware limited partnership.
76. SELLER CONTRACT. "Seller Contract" shall mean any Contract:
(a) to which the Seller is a party;
(b) by which the Seller or any of its assets is bound or under which
the
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Seller has any obligation; or
(c) under which the Seller has any right or interest.
77. SELLER DELIVERY ITEMS. "Seller Delivery Items" shall have the meaning
set forth in Section 1.6(b) of the Agreement.
78. SELLER FINANCIAL STATEMENTS. "Seller Financial Statements" shall have
the meaning set forth in Section 2.2(iv) of the Agreement.
79. SELLER INDEMNITEES. "Seller Indemnities" shall mean the following
Persons:
(a) Seller;
(b) Seller's current and future Affiliates;
(c) the respective Representatives of the Persons referred to in
clauses (a) and (b) above; and
(d) the respective successors and permitted assigns of the Persons
referred to in clauses (a), (b) and (c) above.
80. SELLER TRANSACTION COSTS. "Seller Transaction Costs" shall have the
meaning specified in Section 7.2(a) of the Agreement.
81. SPECIFIED CONTRACTUAL LIABILITIES. "Specified Contractual Liabilities"
shall mean the obligations of the Seller under the Assumed Contracts, but only
to the extent such obligations (a) arise after the Closing Date, (b) do not
arise from or relate to any breach by, or on behalf of, the Seller of any
provision of any of such contracts, (c) do not arise from or relate to any
event, circumstance or condition occurring or existing on or prior to the
Closing Date that, with notice or lapse of time, would constitute or result in a
breach of, any of such contracts, and (d) are ascertainable (in nature and
amount) solely by reference to the express terms of such contracts; provided,
however that notwithstanding anything contained herein or in the Agreement, the
"Specified Contractual Liabilities" shall not include and Purchaser shall not be
required to assume or to perform or discharge, except if and to the extent the
same shall have been prorated as part of the Closing in favor of Purchaser or
except as may otherwise be expressly provided in the Agreement:
(i) any Liability with respect to any accounts payable or any
short-term or long-term indebtedness of the Seller;
(ii) any Liability of the Seller arising from or relating to any
action taken by the Seller, or any failure on the part of the Seller to take any
action, at any time prior to, on or after the Closing Date;
(iii) any Liability of the Seller arising from or relating to
(x) any
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services performed or provided by the Seller, or (y) any claim, Order or
Proceeding against the Seller;
(iv) any Liability of the Seller for the payment of any Tax;
(v) any Liability of the Seller to any employee or former
employee of the Seller (whether for salaries, wages, severance pay, vacation
pay, benefits or other compensation);
(vi) any Liability under any Contact, if (x) an accurate and
complete copy, in all material respects, of such Contract and all amendments
thereto insofar as it and they pertain to such liability shall not have been
furnished to Purchaser by the Seller prior to the Closing Date or (y) except for
any Identified Approvals, any Consent required to be obtained from any Person
with respect to the assignment or delegation to Purchaser of any rights or
obligations under such Contract shall not have been obtained prior to the
Closing Date;
(vii) any obligation of the Seller to indemnify or defend any
other Person against or in connection with any infringement claim or similar
claim;
(viii) any Liability that is inconsistent with or that
constitutes an inaccuracy in, or that arises or exists by virtue of any Breach
of, any covenant or obligation of the Seller; or
(ix) any other Liability that is not specifically included in
the Specified Contractual Liabilities or otherwise is not expressly assumed by
Purchaser in the Agreement.
82. SUBLEASE. "Sublease" shall mean any sublease, license agreement,
concession agreement or other agreement, written or oral, pursuant to which any
Person, other than a Member, has any right to occupy or use any portion of the
Club for any purpose whatsoever.
83. SUBTENANT. "Subtenant" shall mean any party having the right to use or
occupy any portion of the Club under any Sublease.
84. TAX. "Tax" shall mean any tax (including any income tax, franchise
tax, capital gains tax, estimated tax, gross receipts tax, value-added tax,
surtax, excise tax, ad valorem tax transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), (a) imposed,
assessed or collected by or under the authority of any Governmental Body, or (b)
payable pursuant to any tax-sharing agreement or similar Contract.
85. TOWN CENTER. "Town Center" shall mean that certain shopping center
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located on Sunset Road and Olympic Avenue between Mountain Vista Street and
Green Valley Parkway, Henderson, Nevada.
86. TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean:
(a) the Agreement;
(b) the Contract Assignment;
(c) the Lease Assignment; and
(d) the Bill of Sale.
87. TRANSACTION COSTS. "Transaction Costs" shall mean all fees, costs and
expenses (including all legal, auditing and accounting expenses) that have been
incurred or that are in the future incurred by, on behalf of or for the benefit
of any party hereto in connection with:
(a) the negotiation, preparation and review of any letter of intent
or similar document relating to any of the Transactions;
(b) the investigation and review conducted by the Purchaser and its
Representatives with respect to the Seller's business;
(c) the negotiation, preparation and review of this Agreement
(including the Disclosure Schedule), the other Transactional Agreements and all
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with the Transactions;
(d) the preparation and submission of any filing or notice required
to be made or given in connection with any of the Transactions, and the
obtaining of any Consent required to be obtained in connection with any of the
Transactions; and
(e) the consummation and performance of the Transactions.
88. TRANSACTIONS. "Transactions" shall mean (a) the execution and delivery
of the respective Transactional Agreements, and (b) all of the transactions
contemplated by the respective Transactional Agreements, including:
(a) the Acquisition in accordance with the Agreement; and
(b) the performance by Seller and Purchaser of their respective
obligations under the Transactional Agreements and the exercise by the Seller
and Purchaser of their respective rights under the Transactional Agreements.
89. WARN ACT. "WARN Act" shall mean the Workers Adjustment and
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Retraining Notification Act, 29 U.S.C. 2201, as amended and all rules,
regulations, directives and orders promulgated thereunder.
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EXHIBIT 10.65
AGREEMENT OF PURCHASE AND
SALE OF REAL PROPERTY
This Agreement of Purchase and Sale of Real Property (this
"Agreement") is entered into as of May 1, 1997, with reference to the following
basic facts:
A. Seller ("Seller"): Green Valley Investment Company, Inc.,
a Nevada corporation;
B. Buyer ("Buyer"): The Sports Club Company, Inc.,
a Delaware corporation
(or its assignee as herein provided);
C. Property to be purchased (collectively referred to herein as the
"Property"): (i) The fee simple interest in that certain real property (the
"Real Property") commonly known as 2100 Olympic Avenue, Henderson, Clark
County, Nevada (the legal description of which is set forth as Exhibit A
hereto), (ii) all existing and partially completed improvements to the Real
Property, (iii) all leases, warranties, bonds, and other contract rights,
except to the extent, if any, that Buyer has elected not to acquire such
contract rights (which election may not be made with respect to leases of space
wherein Seller is the lessor), licenses (other than any licenses of any name or
logo from ANC, Inc. that Seller may have), all telephone numbers, if any,
relating to the Real Property, all accounts and accounts receivable, general
intangibles, all replacement reserves held by or on behalf of any lender or
mortgage insurer with respect to the Real Property, and all other intangible
personal property relating to the Real Property (the "Contract Rights"), (iv)
all furniture, furnishings, fixtures, equipment and all other tangible personal
property owned by Seller and located at or relating to the Real Property or its
development, rehabilitation, or operation (the "Tangible Personalty"),
including, without limitation, all site plans, surveys, geological and
environmental and soils studies and reports, surveys and reports, architectural
renderings and models, plans and specifications, engineering plans and studies,
floor plans, landscaping plans and other similar plans and diagrams, all
telephone equipment, all television antennae and cable systems, all computer
hardware and software, all manuals and all works of art, (v) all shrubs, trees,
plants, signs, sign pylons, awnings and other fixtures thereon or relating
thereto and owned by Seller, (vi) all oil, gas, water and mineral (including
both hydrocarbons and other minerals) rights and shares of stock pertaining to
water or water rights, whether or not appurtenant thereto, owned by Seller or
any affiliate of Seller's, ownership of which affects the Real Property, (vii)
all easements, rights of way, and other rights appurtenant thereto, and (viii)
all other rights, privileges and appurtenances owned by Seller and in any way
related to the foregoing. The Real Property shall also be deemed to include
all interest, if any, of Seller in (x) strips or gores, if any, between the
property described in Exhibit A hereto and abutting land, and (y) land lying in
or under the bed of any street, alley, road or right-of-way, opened or
proposed, abutting or adjacent to or within the specifically-described
property.
<PAGE> 2
D. Seller leases the Real Property and related improvements to Green
Valley Athletic Club Limited Partnership (the "Operator") pursuant to that
certain Ground Lease, dated November 13, 1986, between Seller and Operator (the
"Ground Lease"). Operator operates a health and fitness facility on the Real
Property (the "Club").
E. Concurrently with the consummation of this transaction, and as a
condition thereto, Buyer intends to purchase certain assets (the "Club Assets")
from the Operator pursuant to a separate purchase agreement, dated concurrently
herewith, between Buyer and the Operator (the "Club Purchase Agreement").
F. Any capitalized term not otherwise defined in this Agreement shall
have the meaning given it in Exhibit B, entitled "Certain Definitions".
THE AGREEMENT
1. SALE OF THE PROPERTY. Seller agrees to bargain, sell, grant,
convey and deliver, and Buyer agrees to purchase and accept the Property (the
"Acquisition") for the price and on the terms and conditions set forth herein.
Notwithstanding the foregoing, however, Buyer is not purchasing and accepting,
and Seller is not bargaining, selling, granting, conveying and delivering, the
obligations of Seller under and pursuant to any Contract Right (i) that by its
terms may not be assigned by Seller or (ii) that Seller may not assign, without
another party's consent, if such consent has not been obtained. Without
limiting the generality of the foregoing, Buyer is not assuming, and Seller
shall not be deemed to have transferred to Buyer, the obligations of Seller
under and pursuant to any Contract Rights to the extent that the same have not
been disclosed to Buyer by Seller in writing prior to the end of the Due
Diligence Period (as defined below).
2. CLOSING.
2.1 "Closing" shall mean the date on which a grant,
bargain and sale deed in the form of Exhibit C transferring title to the Real
Property from Seller to Buyer (the "Deed") is recorded, in conformity with the
laws of the State of Nevada.
2.2 Closing shall be deemed to occur, if at all, at 12:01
a.m. on Friday, August 1, 1997, unless the date for Closing shall be extended
pursuant to the terms of this Agreement (August 1, 1997 or any such other date,
as applicable, the "Outside Closing Date"); it being further agreed that
Closing may actually occur, if at all, at a date and time different from the
Outside Closing Date. If all conditions precedent set forth in Sections 8 and
9 have not been satisfied or waived and the Closing shall not have occurred on
or before the Outside Closing Date, then either Buyer or Seller may
unilaterally cancel this Agreement, at any time thereafter prior to such
satisfaction or waiver, by notice to the other, except that if the unsatisfied
condition(s) is for the benefit of the party not giving said notice, then such
party shall have the right, within three Business Days after its being served
with said notice, to waive such unsatisfied condition(s) and proceed to effect
Closing immediately. Four Business Days after the effective date of said
notice, if Closing has not been agreed to by the party not giving said notice,
as provided above,
<PAGE> 3
then all funds deposited by Buyer, and all interest earned thereon, shall be
returned immediately to Buyer but subject to Section 3.4.
2.3 Consummation of the Transactions (the "Closing") will
take place at the offices of Jolley, Urga, Wirth & Woodbury, 300 South Fourth
Street, Eighth Floor, Las Vegas, Nevada.
2.4 If Closing has not occurred in accordance with the
terms and conditions of this Agreement, then this Agreement shall automatically
terminate without any further action required, and the parties shall have no
further liability hereunder.
2.5 When all conditions precedent to Closing set forth in
Sections 8 and 9 shall have been satisfied, or Deposit Holder shall have
received written instruction from the party or parties, or their respective
counsel, for whose benefit any such unsatisfied condition precedent exists
waiving the satisfaction of such conditions precedent, and when each of the
parties hereto shall have otherwise instructed Deposit Holder to proceed with
the Closing, then Deposit Holder shall take the following actions in the
following order:
(i) Record the Restrictive Use Covenant.
(ii) Record the Deed and Lease Assignment.
(iii) Disburse the Purchase Price to Seller in
accordance with Seller's instructions.
(iv) Deliver two fully executed original copies of
each of the Contract Assignment, Lease Assignment and Bill of Sale and a
conformed copy of each of the duly recorded Deed and Lease Assignment to
Seller.
(v) Deliver two fully executed original copies of
each of the Contract Assignment, and Bill of Sale, one fully executed original
copy of the Lease Assignment and a conformed copy of each of the duly recorded
Deed and Lease Assignment to Buyer.
(vi) Cause a policy of title insurance in
accordance with the requirements of Section 4.3 to be issued and delivered
promptly to Buyer.
<PAGE> 4
3. PURCHASE PRICE AND OTHER CONSIDERATION.
3.1 PURCHASE PRICE.
(i) As consideration for the sale of Property, at
Closing Buyer shall (i) pay to the Seller a total of $1,325,000 (the "Purchase
Price"), and (ii) assume certain liabilities by executing and delivering to
Seller an Assignment of Contracts (the "Contract Assignment") in substantially
the form of Exhibit D and an Assignment of Leases (the "Lease Assignment") in
substantially the form of Exhibit E. The Purchase Price shall be payable by
Buyer as follows:
(ii) Buyer has deposited into an interest bearing
escrow (the "Escrow") established with Nevada Title Company ("Deposit Holder")
the sum of $46,150, in immediately available funds (such amount, together with
the interest earned thereon, being hereinafter referred to as the "Deposit").
The Deposit shall be credited against the Purchase Price.
(iii) At Closing, such sum as may be necessary to
make Buyer's total cash deposit with Deposit Holder equal the Purchase Price,
after giving effect to any and all of Buyer's and Seller's credits and debits
pursuant hereto, including, without limitation, the Deposit.
(iv) As additional consideration for the sale of
the Property, Buyer will issue, or cause to be issued, to Seller, at Closing,
$1,675,000 worth of shares of the authorized but unissued Common Stock, $.01
par value of The Sports Club Company, Inc. pursuant to the terms and conditions
set forth on Schedule 3.1(iv).
3.2 INVESTMENT OF DEPOSITS. Buyer, and Seller agree that
all sums deposited by Buyer pursuant hereto shall be invested in treasury
bills, certificates of deposit, short term money market instruments or bank
repurchase contracts approved by Buyer and Seller, in such manner as to make
all such sums (and the interest earned thereon) available on the date for
Closing. Buyer and Seller hereby instruct Deposit Holder to so invest such
sums and to return to Buyer, upon Closing, all sums in excess of those needed
to satisfy Buyer's obligations hereunder to Seller. Interest earned thereon
shall be for the account of Buyer, and Buyer shall provide Deposit Holder with
Buyer's taxpayer identification number for use in opening the Escrow.
3.3 FORM OF FUNDS. Any funds to be delivered hereunder
shall be immediately available federal funds wire transferred. It shall be
Buyer's responsibility to obtain adequate wiring instructions for an escrow
account of Deposit Holder.
3.4 LIQUIDATED DAMAGES. If Buyer has not previously
terminated this Agreement, by written notice to Seller and Deposit Holder
pursuant to the terms and conditions of this Agreement, then the Deposit Holder
shall deliver the Deposit to Seller, in accordance with such wire transfer
instructions as Seller shall give to Deposit Holder, immediately upon the
expiration of the Due Diligence Period. Thereafter, if the Closing
<PAGE> 5
shall fail to occur solely because of the breach of Buyer under this Agreement,
then Seller shall be entitled to retain the Deposit, as liquidated damages and
not as a penalty and as Seller's sole remedy. However, if Closing shall
thereafter fail to occur for any other reason or reasons, then Seller shall
return the Deposit promptly to Buyer upon Buyer's request therefor at any time
after the scheduled date for Closing, or on such sooner date as this
transaction is cancelled by Buyer and Seller. THE PARTIES AGREE THAT THEY HAVE
NEGOTIATED WITH REGARD TO THE DETERMINATION OF DAMAGES AND HAVE CONCLUDED THAT,
IF CLOSING FAILS TO OCCUR SOLELY BECAUSE OF THE BREACH OF BUYER UNDER THIS
AGREEMENT, THEN IT WOULD BE IMPRACTICABLE OR EXTREMELY DIFFICULT TO DETERMINE
THE SELLER'S DAMAGES, THAT THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE
OF THE DAMAGES IN SUCH EVENT, AND THAT THE SELLER, AS ITS SOLE REMEDY AND NOT
AS A PENALTY, SHALL BE ENTITLED TO RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES.
THE PARTIES HEREBY ACKNOWLEDGE THAT THEY ARE IN EQUAL BARGAINING POSITIONS, ARE
SOPHISTICATED IN BUSINESS MATTERS AND WERE REPRESENTED BY COUNSEL AT ALL TIMES
DURING THE NEGOTIATION OF THIS LIQUIDATED DAMAGES PROVISION.
---------------- -----------------
Buyer's Initials Seller's Initials
3.5 PURCHASE PRICE ALLOCATION. On or prior to the
Closing Date, Buyer, and Seller shall agree on an allocation of the Purchase
Price and Seller liabilities (which liabilities shall be treated as an
additional amount paid by Buyer to Seller) among the Property (the "Allocation
Statement"). The allocation set forth in the Allocation Statement will conform
to the requirements of the Treasury Regulations under Section 1060 of the Code.
The parties agree to report (on Form 8594 and otherwise) the allocation of the
Purchase Price and Seller liabilities in a manner consistent with the
Allocation Statement. The allocation prescribed by the Allocation Statement
shall be conclusive and binding upon each party for all purposes. No party
shall file any tax return or other document with, or make any statement or
declaration to, any governmental body if such document, statement or
declaration is inconsistent with the allocation prescribed by the Allocation
Statement
4. TITLE.
4.1 [INTENTIONALLY OMITTED].
4.2 TRANSFER AND CONDITION OF TITLE. At Closing, Seller
shall convey good and marketable and insurable fee simple title to the Real
Property and the fixtures and improvements thereon to Buyer, by the Deed,
subject only to items indicated in the Title Commitment and the Survey, shall
convey the Tangible Personalty by a Bill of Sale in substantially the form of
Exhibit F (the "Bill of Sale"), and shall convey the Contract Rights by (i) the
Contract Assignment, and (ii) the Lease Assignment.
4.3 EVIDENCE OF TITLE. Seller shall, at Seller's expense
at Closing, provide Buyer with evidence of Buyer's title to the Real Property
and the fixtures and
<PAGE> 6
improvements thereon as required under Section 4.2, in the form of an ALTA
policy of title insurance (or, at Buyer's sole election, a title binder) issued
in form identical to the Pro Forma Policy, including without limitation the
handwritten changes thereon, with liability in the amount shown on the Pro
Forma Policy; provided, however, that Buyer shall bear any incremental premium
expense between the premium for a CLTA policy and the premium for an ALTA
policy. Additionally, Buyer shall have the option to obtain, at its own
expense, endorsements to said policy or binder to assure access, no violation
of conditions, covenants or restrictions, and such additional endorsements
(including, without limitation, for zoning classification) to said policy or
binder as Buyer determines to be reasonably necessary or appropriate.
5. DELIVERY OF DOCUMENTS.
5.1 INITIAL DELIVERIES. As soon as reasonably possible
following execution hereof, if Seller has not already done so, Seller shall
deliver to Buyer for Buyer's approval as to form and content, originals or
legible copies of the following , to the extent that they exist and are either
in Seller's possession or may reasonably be obtained by Seller (and, if any of
the following are discovered by and/or prepared by or on behalf of Seller after
the date hereof but prior to Closing, each such item shall be delivered to
Buyer immediately).
(i) All notes, mortgages, deeds of trust,
security agreements, commitments for financing, and related documents affecting
any part of the Property, which will exist upon and following Closing,
including, without limitation, the First Note and the First Encumbrance, and,
if reasonably available to Seller, the lenders' title insurance policy (if any)
issued in connection with the First Encumbrance.
(ii) The Ground Lease and all documents evidencing
the balance of the Contract Rights, including, without limitation, the
following:
(a) All architectural, planning,
surveying, maintenance, property management, construction, brokerage,
other service, advertising, billboard rental, personal property
rental, and other agreements affecting the Property now in effect or
which will be in effect at Closing, and a listing and description of
all such agreements which are not in writing.
(b) A listing of all construction and
equipment warranties and contractor's bonds in effect, if any,
affecting the Property, or Seller's certification that there are no
such warranties or bonds.
(c) All existing insurance policies
covering the Property.
(d) All documents evidencing rights of
use or licenses relating to the Property.
(e) All pending lease proposals relating
to the Property.
<PAGE> 7
(iii) An inventory of all Tangible Personalty,
prepared to the best of Seller's knowledge. All manufacturer's or supplier's
literature, design data and other information available to Seller regarding the
Tangible Personalty shall be made available to Buyer by Seller prior to Closing
and shall be located at the Club at Closing.
(iv) All plans, specifications, surveys,
geological studies and reports, environmental studies and reports, engineering
studies or reports relating to the Real Property prepared within five years of
the date hereof. Seller need not deliver prior to Closing, but shall make
available for Buyer's review prior to Closing, all such items prepared more
than five years before the date hereof. All such items prepared more than five
years prior to the date hereof shall in any event be located at the Club at
Closing.
(v) All building permits, certificates and
similar items and all certificates of occupancy and similar documents issued to
or in the possession of Seller, evidencing appropriate regulatory approval of
the start, and, as applicable, completion of construction of the improvements
on the Real Property, and all permits and licenses for the operation thereof
obtained, from time to time, by Seller that either were obtained within five
years of the date hereof or are currently in force. Seller need not deliver
prior to Closing, but shall make available for Buyer's review prior to Closing,
all such items obtained more than five years before the date hereof or not
currently in force. All such items obtained more than five years prior to the
date hereof or not currently in force shall in any event be located at the Club
at Closing.
(vi) The most recent ad valorem tax statements and
notices from all taxing authorities having jurisdiction over the Property.
(vii) If Seller is a corporation, a current
certificate of good standing relating to Seller.
(viii) Seller need not deliver, but shall make
available for Buyer's review, all books and records covering the ownership,
improvement, and operations of the Property for the last three years,
including, without limitation, monthly operating statements, cash receipts
journals, and occupancy reports.
(ix) The most current notice, report, or other
written correspondence, if any, with respect to each part of the Property, from
each governmental body having jurisdiction of any part of the Property which
has prepared and delivered such reports or correspondence, if any, including,
without limitation, reports with respect to the water and sewer systems.
(x) At least one complete set of "as built" plans
for the Real Property and the improvements thereon.
5.2 PENDING CLOSING.
(i) [Intentionally omitted]
<PAGE> 8
(ii) From the date hereof until Closing, if Seller
learns of any fact or circumstance which causes, or has a reasonable likelihood
of causing, a representation or warranty of Seller's hereunder to be untrue or
misleading, or learns of any other fact or circumstance which materially
affects the Property, Seller shall notify Buyer within five days after Seller
learns thereof (but in no event later than Closing).
(iii) On or before the Closing Date, Seller shall
deposit the following items (collectively, the "Seller Delivery Items") into
the Escrow:
(a) the Restrictive Use Covenant,
originally executed and notarized.
(b) the Deed, originally executed and
notarized.
(iv) On or before the Closing Date, Buyer shall
deposit the following items (collectively, the "Buyer Delivery Items") into
Escrow:
(a) The Purchase Price, subject to and
in accordance with the terms and conditions of Section 3.1.
(v) On or before the Closing Date, Seller and
Buyer shall deposit the following items (collectively, the "Joint Delivery
Items") into the Escrow:
(a) Four fully executed originals of the
Contract Assignment.
(b) Four fully executed and notarized
originals of the Lease Assignment.
(c) Four fully executed originals of the
Bill of Sale.
The Seller Delivery Items, the Buyer Delivery Items and the Joint Delivery
Items are referred to, collectively, as the "Delivery Items."
5.3 UPON CLOSING. At Closing, Seller shall deliver to
Buyer the original of the Ground Lease, books, records, and all other contracts
described in Section 5.1 to the extent that Seller has such original documents,
all keys relating to the operation of the Property, and all other documents
which may be required to properly transfer to Buyer title to all of the
Property, all duly executed, and, as needed, notarized, written notification to
all tenants informing them of this transaction and instructing them to pay all
future rent to Buyer, and all other documents or items reasonably necessary,
appropriate, or convenient to effect the intent hereof.
<PAGE> 9
6. PRORATIONS.
6.1 GENERAL. Except as otherwise hereinafter provided,
at and as of Closing, Buyer and Seller shall prorate in cash real property
taxes and assessments on the basis of the current fiscal year, impound account
balances, governmental inspection and license fees, if any, rents, payments
relating to Town Center, utility and sewer charges, service contracts, service
contract bonus payments, unredeemed parking validations, and other similar
items. Rents shall be prorated as if all rents indicated on the Rental
Statement, as updated, are current. Buyer shall have no obligation to attempt
to collect any delinquent rent, if any, but shall pay over to Seller any rent
collected by Buyer after Closing relating to a period of time prior to Closing.
Rents received by Buyer shall be applied first to the current period and then
to past periods, in reverse chronological order. Rents, if any, received by
Seller after Closing relating to periods of time after Closing shall be
promptly delivered to Buyer by Seller. Without limiting the generality of the
foregoing, Seller shall cause all accounts payable that relate to the Property
and/or its operations pre-Closing to be paid as of the Closing Date. Buyer
shall not, however, be required to pay, or otherwise to bear the cost of, its
share of any item to be prorated under both this Agreement and the Club
Purchase Agreement more than once, i.e., Buyer shall only be required to pay,
or otherwise to bear the cost, of its share of any such item under one of the
two agreements but not under both agreements.
6.2 ITEMS NOT TO BE PRORATED. No proration shall be made
for premiums on any insurance policies carried by Seller applicable to the
Property (none of which are being assigned to or assumed by Buyer), for
management fees or for employee salaries, vacations, benefits, bonuses, payroll
taxes or other employee costs. Seller shall terminate and pay for all such
services as of Closing.
6.3 REPRORATIONS. If real estate taxes and/or
assessments, utility charges or any other item is prorated as of Closing on any
basis other than actual amounts charged for the current period, such item or
items shall be re-prorated upon determination of such actual amounts, and the
party owing funds to the other shall promptly remit such funds to the other.
If either party owing funds hereunder to the other does not remit them within
30 days after demand therefor, such funds shall thereafter bear interest at the
lesser of 10% per annum and the maximum lawful rate. In all events, the amount
of any refund or credit shall be the amount the refund or credit would have
been without giving effect to the Transactions. If Buyer elects to pursue
obtaining a property tax reassessment for the Property for the year of Closing
and/or any subsequent year, all benefits thereof shall belong solely to Buyer.
The parties shall further cooperate so as to calculate such net final proration
amount within 75 days of the Closing. Any disagreement with respect to such
final calculation shall be resolved pursuant to binding arbitration before a
"Big 6" accounting firm to be designated by Buyer or any other accounting firm
that shall be mutually agreed upon by the parties. Each party shall bear its
own cost and expenses in connection with such arbitration and one-half of the
fees and expenses of the arbitrator. Each party shall be entitled to provide
the arbitrator with such information as each party shall deem appropriate with
respect to the matters to be determined by such arbitrator.
<PAGE> 10
6.4 COMPUTATION OF CERTAIN PRORATIONS.
(i) Final proration of percentage rents and
similar apportionable items which are dependent for their calculation upon the
economic performance of the Property (or a portion thereof) over a specified
interval of time shall be accomplished as follows: The parties shall await the
expiration of the specified interval to determine the gross rents, gross
receipts and other economic performance over the entire interval and then
prorate the item by allocating to Seller the product of the rents or other
similar apportionable item for the entire interval multiplied by a fraction,
the numerator of which is the number of days within the specified interval
which occur before Closing and the denominator of which is the number of days
in the entire specified interval.
(ii) Operating expenses which are payable (or
reimbursable) by any present tenant of the Property or any portion thereof
shall not be prorated hereunder (except to the extent that Seller is due a
credit for having already paid such expense). Buyer shall send customary
statements for reimbursement of operating expenses and taxes to said tenants
after consulting with Seller with respect to appropriate amounts due therefor,
and shall remit to Seller, upon receipt, Seller's prorated share thereof,
determined as provided in subsection (i) above.
7. COSTS.
7.1 SELLER'S COST. Seller shall pay the following:
(i) Costs of obtaining the Pro Forma Policy, and
a CLTA policy of title insurance or title binder called for in Section 4 but
without regard to the incremental premium costs of obtaining an ALTA policy of
title insurance, rather than a CLTA policy, the costs of all endorsements
thereto and one-half of all fees and costs of Escrow Holder.
(ii) All recording fees, intangible taxes and
similar costs, relating to the transfer of the Property pursuant hereto.
(iii) All documentary transfer taxes, and all
sales, use, and similar taxes, if any, payable in connection with the
transactions contemplated by this Agreement.
(iv) Cost of obtaining all reports Seller is
required hereunder or by law to deliver to Buyer.
(v) Seller's Transaction Costs.
7.2 BUYER'S COSTS. Buyer shall pay the following:
(i) The incremental costs of obtaining an ALTA
policy of insurance rather than a CLTA policy, all endorsements thereto and all
charges incurred in connection with obtaining them, including, without
limitation, the cost of obtaining the Survey, and one- half of all fees and
costs of Escrow Holder.
<PAGE> 11
(ii) Buyer's Transaction Costs.
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION.
8.1 Buyer's obligation to perform under this Agreement is
subject to and contingent upon the satisfaction of each and every one of the
following conditions. Buyer's failure to disapprove any item or matter within
a specified time limit therefor shall be deemed to be approval.
(i) TITLE MATTERS.
(a) [Intentionally omitted].
(b) The ability of the issuer of the Pro
Forma Policy to issue its policy of title insurance, upon recordation of the
Deed, insuring title to the Property being vested in Buyer as required in
Section 4.3. Said issuer may not satisfy this condition by removing an
exception to title on the basis of an indemnification by Seller or any other
person unless Buyer has given its written consent thereto after full written
disclosure to Buyer of the nature and substance of such exception and
indemnification.
(ii) DELIVERY ITEMS. All Delivery Items shall
have been deposited into the Escrow.
(iii) IDENTIFIED APPROVALS. All government and
third party consents and approvals to the consummation of the Transactions
identified by Buyer to Seller in writing during the Due Diligence Period (the
"Identified Approvals") shall have been obtained; it being agreed that Buyer
shall work diligently, with Seller's assistance if and to the extent reasonably
required and at no out-of-pocket cost or liability to Seller, to obtain all
Identified Approvals. A liquor license for the Club shall not be an Identified
Approval.
(iv) TRUTH OF REPRESENTATIONS AND WARRANTIES. All
of the representations and warranties of Seller contained herein shall be true
and correct in all material respects on and as of the Closing Date as though
republished and remade on and as of that date; it being expressly understood
and agreed, however, that changes in representations and warranties which do
not have a material adverse effect upon the business of the Property shall in
no event be a basis giving rise to a right of Buyer to terminate this Agreement
pursuant to Section 8.3.
(v) COMPLIANCE WITH COVENANTS. Seller shall have
performed and complied with all of its obligations and covenants hereunder in
all material respects.
(vi) CONCURRENT CLOSING. The closing of the
purchase and sale under the Club Purchase Agreement shall have occurred
simultaneously with Closing hereunder. Notwithstanding anything to the
contrary contained in this Agreement, Buyer and Seller expressly agree that a
proper election by either Buyer or Seller to terminate this
<PAGE> 12
Agreement at any time in accordance with any of the terms hereof shall be
deemed to be a proper election by Buyer or Operator, respectively, to terminate
the Club Purchase Agreement and that a proper election by either Buyer or
Operator to terminate the Club Purchase Agreement at any time in accordance
with any of the terms thereof shall be deemed to be a proper election by Buyer
or Seller, respectively, to terminate this Agreement.
(vii) CONDITION OF THE PROPERTY. Buyer's approval,
in its sole discretion, on or before the expiration of the Due Diligence
Period, of any and all aspects of the Property and/or its operations, including
without limitation all parts, components, and conditions thereof (including,
without limitation, heating, electrical, plumbing, sewer, paving, amenities,
air conditioning, water, and roof, and geological and soils and environmental
conditions and construction quality). Buyer's failure to give notice to Seller
terminating this Agreement on or before the expiration of the Due Diligence
Period shall conclusively be deemed to be Buyer's approval of any and all
aspects of the Property and/or its operations. Subject to the terms and
conditions hereof, the "Due Diligence Period" shall mean the period from May 2,
1997 to and including the Closing Date (which actual date of Closing may differ
from the deemed date for Closing set forth in Section 2.2). Without limiting
the foregoing, the Due Diligence Period under this Agreement shall
automatically be extended if and to the extent that the "Due Diligence Period"
under the Club Purchase Agreement is extended.
(viii) NO PROCEEDING. There is no Proceeding
pending or threatened pertaining to the Transactions or their consummation by
any Person.
(ix) CC&R AMENDMENT. Deposit Holder shall hold,
for recordation by Deposit Holder prior to Deposit Holder's recordation of the
Deed, one fully executed and notarized original of the CC&R Amendment.
8.2 Seller shall have the right to modify, update and
supplement all representations, warranties, exhibits and schedules attached to
or delivered in connection with this Agreement through the Closing Date (any
such modification, update or supplement, a "Modification"). Notwithstanding
the foregoing, if Seller makes any Modification and if such Modification would
be likely to have a material adverse effect upon the Property and/or its
operations, then Buyer shall have the right to terminate this Agreement by
giving a notice to Seller terminating this Agreement within 5 days of Buyer's
receipt of the Modification, and whether or not the Due Diligence Period has
expired. If such 5-day period would expire after the Outside Closing Date,
then the Outside Closing Date shall be extended accordingly. In the event of
any such termination, the Deposit shall be returned promptly to Buyer, and the
parties will have no further obligations to each other hereunder. Buyer's
failure to give any such termination notice to Seller within such 5-day period
shall conclusively be deemed to be Buyer's approval of any such Modification.
8.3 If (i) Buyer shall not have been able to obtain any
Identified Approvals, (ii) any material representation or warranty of Seller
shall prove to have been inaccurate or untrue in any material respect when
first made or (iii) Seller shall not have
<PAGE> 13
performed, in any material respect, any of its material covenants contained in
this Agreement, and in each case by Closing, then Buyer shall be entitled,
without limitation, (A) not to consummate the Transactions and have the Deposit
Holder or Seller, as applicable, return to Buyer the Deposit (but without any
interest thereon for such period of time, if any, as it may have been held by
Seller) less any termination fees and expenses of Deposit Holder, or (B) to
consummate the Transactions if Seller, in its sole discretion, is willing to
consummate the Transactions on such basis.
9. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION. Seller's
obligation to perform under this Agreement is subject to and contingent upon
the satisfaction of each and every one of the following conditions; however,
Seller's proceeding with Closing shall not be deemed to mean that any or all of
such conditions were satisfied or waived, nor shall it impair in any manner
Seller's right to rely on Buyer's representations and warranties contained
herein.
(i) All Delivery items shall have been deposited
into the Escrow.
(ii) All of the representations and warranties of
Purchaser contained herein shall be true and correct in all material respects
on and as of the Closing Date as though remade and republished as of said date.
(iii) Purchaser shall have performed and complied
with all of its obligations and covenants hereunder in all material respects.
(iv) The closing of the purchase and sale under
the Club Purchase Agreement shall have occurred simultaneously with Closing
hereunder. Notwithstanding anything to the contrary contained in this
Agreement, Buyer and Seller expressly agree that a proper election by either
Buyer or Seller to terminate this Agreement at any time in accordance with any
of the terms hereof shall be deemed to be a proper election by Buyer or
Operator, respectively, to terminate the Club Purchase Agreement and that a
proper election by either Buyer or Operator to terminate the Club Purchase
Agreement at any time in accordance with any of the terms thereof shall be
deemed to be a proper election by Buyer or Seller, respectively, to terminate
this Agreement.
(v) There is no Proceeding pending or threatened
pertaining to the Transactions or their consummation by any Person.
10. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents
and warrants, to and for the benefit of the Buyer Indemnitees, as follows.
Notwithstanding anything contained herein to the contrary, all of the
representations and warranties made in this Section 10 are hereby made to the
Knowledge of the Seller, except that the representation and warranty made in
Section 10.5 shall not be made to Seller's Knowledge if and to the extent there
shall be any Breach of such representation and warranty giving rise to any
Damages for which payment shall not be available pursuant to the policy of
title insurance to be issued, upon recordation of the Deed, to Buyer as
required in Section 4.3.
<PAGE> 14
10.1 The improvements on the Real Property, and all parts
and components thereof, and the use thereof conform to all applicable fire,
zoning, health, environmental, subdivision, building, labor and other codes,
laws, rules, and regulations, and there is no violation thereof with respect to
the Property. Seller has received no written notice of, nor does it have any
knowledge of, any pending or threatened, in writing, action or governmental
proceeding in eminent domain, zoning change, or otherwise, which would directly
or indirectly materially adversely affect the Property, nor does Seller know of
any fact which might give rise to any such proceeding.
10.2 The Property is not in violation of any federal,
state or local law, ordinance or regulation relating to the environmental
conditions on, under or about the Real Property, including, but not limited to,
soil and groundwater condition. Neither Seller nor any third party has used,
generated, manufactured, stored or disposed of on, under or about the Real
Property or transported to or from the Real Property, or incorporated into any
of the improvements thereon, any flammable or explosive material, radioactive
material, hazardous waste, toxic substance or related material ("Hazardous
Materials"), except such as are used, in the Ordinary Course of Business, in
the operations of the Club. There has been no Proceeding brought or threatened
in writing against the Seller by, or any settlement reached by the Seller with,
any party or parties alleging that the Seller is liable for the presence,
disposal, release or threatened release of any Hazardous Material on, from,
under or onto the Real Property or improvements thereon or for a violation or
alleged violation of any applicable Environmental Laws relating to the Real
Property and improvements thereon. Seller is and at all times was in
compliance with all applicable Environmental Laws relating to the Real Property
and improvements thereon and has used and is in compliance with all licenses,
permits and authorizations required by any such applicable Environmental laws.
There are no active or inactive underground storage tanks located on the Real
Property. For the purpose of this Agreement "Hazardous Materials" shall
include but not be limited to substances defined as "hazardous substances,"
"hazardous materials," or "toxic substances" in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sec
9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq.; or the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq. or in the regulations adopted and publications promulgated
pursuant to said laws.
Seller has not released or agreed to any limitation of liability of
any person, firm or entity with respect to its or their obligations arising
pursuant to any of the foregoing laws or regulations or any state law or
regulation regarding Hazardous Materials.
10.3 All permits, declarations, and other evidences of
compliance from regulatory authorities required to be obtained in connection
with the improvements at the Real Property (including, without limitation,
certificates of occupancy), have been obtained; said improvements have been
constructed pursuant to contracts which are in accordance with such permits,
declarations and evidences of compliance; all warranties which have not by the
passage of time expired from contractors having constructed said improvements
are in full force and effect.
<PAGE> 15
10.4 Seller shall maintain all of the Property through
Closing in substantially the same level of repair as the Property was in during
Buyer's physical inspection of the Property on May 20, 1997, ordinary wear and
tear excepted. Seller shall remedy prior to Closing any and all violations of
any Legal Requirement relating to all or any part of the Property of which
Seller had knowledge prior to Closing. The Tangible Personalty includes all
personal property located on the Real Property or in the improvements thereon
at the time of Buyer's inspection (other than the personal property of
tenants).
10.5 No person or entity has any right, title or interest
in or to the Property other than as set forth in the Pro Forma Policy. Seller
has not executed any prior assignment of the Contract Rights.
10.6 Seller performed no act and executed no document
which might prevent Buyer from, or limit Buyer in, operating under the terms
and conditions of the Contract Rights.
10.7 No person holds an option or right of first refusal
to purchase all or any portion of the Property. The Real Property has direct
access to one or more publicly dedicated streets. Seller possesses marketable
title to the Property.
10.8 No part of any improvement on the Real Property
encroaches upon any property adjacent thereto or upon any easement, nor is
there any encroachment upon the Real Property other than as set forth in the
Survey.
10.9 There is no lease or rental agreement affecting the
Property other than the Ground Lease. Except as otherwise indicated on the
Disclosure Schedule, all of the obligations of the lessor and lessee under the
Ground Lease have been fully performed if such obligation has matured as of the
date of Closing, no default exists under the Ground Lease and the Ground Lease
is in full force and effect. There has been no modification or amendment of
the Ground Lease or any guaranty thereof other than as indicated on the
Disclosure Schedule.
10.10 There is no maintenance, construction, advertising,
management, leasing, employment, service, or other contract or obligation
affecting the Property which will be in effect or outstanding at or after
Closing, other than those transferred or disclosed to and approved by Buyer.
10.11 There is no mechanic's or materialman's lien or
similar claim or lien presently claimed or which will be claimed against the
Property for work performed or commenced, or material supplied, prior to
Closing.
10.12 None of the Contract Rights or the Tangible
Personalty is subject to any outstanding security interest not created by
Buyer, other than in favor of the holders of the promissory notes intended to
be secured by the Real Property upon Closing, as security solely therefor.
<PAGE> 16
10.13 Seller has the capacity and full power and
authorization to enter into and carry out this Agreement and the transactions
contemplated hereby.
10.14 There is no default under any existing encumbrance on
any of the Property (nor has any event occurred which, with the passage of
time, giving of notice, or both, would constitute such a default). Such
existing encumbrances secure no obligation other than those which have been
disclosed to Buyer. Except as otherwise required by the terms of Section 3,
upon Closing all such encumbrances shall have been satisfied in full and
released.
10.15 There is no suit, action or arbitration, bond
issuance or proposal therefor, proposal for public improvement assessment,
pay-back agreement, paving agreement, road expansion or improvement agreement,
utility moratorium, use moratorium, improvement moratorium, rental increase
moratorium, rent rollback, rent control, or legal, administrative, or other
proceeding or governmental investigation or requirement, formal or informal,
existing or pending or threatened in writing which affects the Property or
which materially adversely affects Seller's ability to perform hereunder, or
other charge or expense upon or relating to the Property, which has not been
disclosed to Buyer in writing prior to the date of this Agreement, or, in the
case of any such requirement, fully complied with.
10.16 The use by Buyer of any name, trademark, trade style
or trade name presently being used in connection with the Property will not,
and such present use does not now, infringe any copyright or any United States
or state trademark, or constitute unfair competition or actionable
appropriation of rights with respect to any other person, business or entity,
except for any rights that ANC, Inc. may have in and to the name "Green
Valley" and associated logo, as previously disclosed in writing to Buyer.
10.17 The Real Property consists of approximately 10 acres.
10.18 This Agreement, when executed by Seller, shall have
been duly and properly executed and neither the execution of this Agreement nor
the consummation of the transaction contemplated hereby will constitute:
(i) a default or an event which with notice or
the passage of time or both would constitute a default under, or violation or
breach of, any indenture, license, lease, franchise, mortgage, deed of trust,
or other instrument or agreement to which Seller is a party or by which Seller
or Seller's property, including without limitation the Property, may be bound,
or
(ii) an event which would permit any party to any
agreement or instrument affecting the Property or affecting Seller's ability to
perform its obligations hereunder to terminate it or permit the holder of any
indebtedness to accelerate its maturity.
<PAGE> 17
10.19 No property tax or assessment with respect to the
Property is delinquent, and all requirements of all insurance policies with
respect to the Property have been and are being fully complied with.
10.20 There is no adverse geological or soil condition
affecting the Real Property.
10.21 The Real Property is not located within an area of
unusual risk with respect to earthquake, flood, volcano, or other natural
disaster or hazard, such as earth movement or subsidence or rising groundwater.
10.22 Seller is not a "foreign person" within the meaning
of Section 1445 of the U.S. Internal Revenue Code of 1986.
10.23 Since December 31, 1996, there has not been any
material adverse change in the Property, and no event has occurred that is
likely to have a material adverse effect upon any thereof; it being agreed that
if any such material adverse change or any such event occurs and becomes known
to Seller and/or Buyer during the last 5 days of the Due Diligence Period, then
the Due Diligence Period shall be extended until 5 Business Days from the
earlier of (A) Buyer's actual knowledge of the material details of such
material adverse change or such event or (B) Buyer's receipt of notice from
Seller to Buyer of the material details of such material adverse change or such
event. Seller shall immediately notify Buyer of the material details of any
such material adverse change or such event, whether the same shall occur before
or after the expiration of the Due Diligence Period. In addition, if any such
material adverse change or such event shall occur within 5 days of the
otherwise scheduled date for Closing, then the scheduled date for Closing shall
be extended until 5 Business Days from the earlier of (A) Buyer's actual
knowledge of the material details of such material adverse change or such event
or (B) Buyer's receipt of notice from Seller to Buyer of the material details
of such material adverse change or such event.
10.24 Seller has no deposits under any leases and no
utilities or other deposits applicable to the Property to be maintained or
replaced at or after Closing.
10.25 Seller has furnished and will continue to furnish
promptly to Buyer detailed information with respect to the Property. All
information contained in the exhibits and schedules attached to this Agreement
and in the documents furnished to Buyer by Seller pursuant to this Agreement or
otherwise, is and shall be at the Closing, true, correct and complete. All
underlying documents incorporated or referred to in such exhibits and
schedules, or in documents otherwise furnished to Buyer by Seller, are true,
correct and complete copies thereof, as the same have been or shall be amended
or modified.
11. "AS IS"; DUE DILIGENCE COMPLETED; DISCLAIMER OF ADDITIONAL
WARRANTIES OF SELLER. Buyer acknowledges that Buyer has had or will have the
opportunity to review all documents and other information made available to
Buyer or its Representatives. In addition, Buyer has had or will have the
opportunity to review all reports, studies,
<PAGE> 18
inspections, audits, appraisals, and other similar items which Buyer may
perform or have performed in connection with the Transactions, and Buyer will
otherwise do what it deems necessary in order to evaluate the financial
condition, status of title, zoning and land use and the economical and
operational viability of the Property. Buyer acknowledges further that, prior
to Closing, it will complete, or have had the opportunity to complete, physical
and financial examinations relating to the Property and will consummate the
Transactions on the basis of all such examinations. Buyer further acknowledges
to and agrees with Seller that, except for the representations and warranties
set forth in Section 10 hereof, and subject to the terms and conditions of this
Agreement, the Property shall be sold, at Closing, "AS IS" without any
warranties or representations either expressed or implied, of any nature or
type whatsoever from or on behalf of Seller.
12. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants, to and for the benefit of the Seller Indemnitees, as follows, which
representations and warranties are hereby made to the knowledge of Buyer.
12.1 This Agreement, when executed by Buyer, shall have
been duly and properly executed and neither the execution of this Agreement nor
the consummation of the transaction contemplated hereby will constitute a
default or an event which with notice or the passage of time or both would
constitute a default under, or violation or breach of, any indenture, license,
lease, franchise, mortgage, deed of trust, or other instrument or agreement to
which Buyer is a party or by which Buyer or Buyer's property may be bound.
12.2 The sale of the Shares to Seller has been duly
authorized and if, as and when delivered to Seller, the Shares will be duly and
validly issued and outstanding, fully paid and nonassessable and will be free
of any mortgage, lien, charge, security interest, pledge, or other encumbrance,
including, without limitation, any of the foregoing arising under any title
retention or conditional sale agreement.
13. INDEMNIFICATION, ETC.
13.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(i) The representations and warranties made by
the parties hereto in this Agreement shall survive the Closing and shall expire
on the first anniversary of the Closing Date: provided, that if, at any time
prior to the first anniversary of the Closing Date any Indemnitee (acting in
good faith) delivers a written notice alleging the existence of a Breach of any
of such representations and warranties and asserting a claim for recovery under
Section 13 based on such alleged Breach, then the claim asserted in such notice
shall survive the first anniversary of the Closing until such time as such
claim is fully and finally resolved.
(ii) For purposes of this Agreement, each
statement or other item of information set forth in the Disclosure Schedule
shall be deemed to be a representation and warranty in this Agreement made by
the party by whom such schedule was delivered.
<PAGE> 19
13.2 INDEMNIFICATION BY SELLER. Seller shall hold
harmless and indemnify each of the Buyer Indemnitees from and against, and
shall compensate and reimburse each of the Buyer Indemnitees for, any Damages
which are suffered or incurred by any of the Buyer Indemnitees or to which any
of the Buyer Indemnitees may otherwise become subject at any time (regardless
of whether or not such Damages relate to any third-party claim) and which arise
from, or as a result of, or are connected with:
(i) any Breach of any representation or warranty
made by Seller in this Agreement or any of the Transactional Agreements;
(ii) any Breach of any covenant or obligation of
Seller in this Agreement or any of the Transactional Agreements;
(iii) any Liability that arises from or relates to
any Seller Transaction Costs; or
(iv) any Liability to which any of the Buyer
Indemnitees may become subject and that arises from or relates to (i) any of
the Property prior to Closing or (iii) any Liability of the Seller not
specifically assumed by Buyer pursuant to this Agreement or (iv) the operation
of the Property through and including Closing;
(v) any Proceeding commenced relating to any
Breach, Liability or matter of the type referred to in clauses (i), (ii), (iii)
or (iv) of this Section 13.2.
13.3 INDEMNIFICATION BY BUYER. Buyer shall hold harmless
and indemnify each of the Seller Indemnitees from and against, and shall
compensate and reimburse each of the Seller Indemnitees for, any Damages which
are suffered or incurred by any of the Seller Indemnitees or to which any of
the Seller Indemnitees may otherwise become subject at any time (regardless of
whether or not such Damages relate to any third-party claim) and that arise
from, or as a result of, or are connected with:
(i) any Breach of any representation or warranty
made by Buyer in this Agreement or any of the Transactional Agreements;
(ii) any Breach of any covenant or obligation of
Buyer in this Agreement or any of the Transactional Agreements;
(iii) any Liability that arises from or relates to
any Buyer Transaction Costs;
(iv) any Liability to which any of the Seller
Indemnitees may become subject and that arises from or relates to (i) any of
the Property subsequent to Closing or (ii) any Liability of the Seller
specifically assumed by Buyer pursuant to this Agreement or (iii) the operation
of the Property after Closing;
<PAGE> 20
(v) any Proceeding commenced relating to any
Breach, Liability or matter of the type referred to in any of clauses (i), (ii)
(iii) or (iv) of this Section 13.3.
13.4 NONEXCLUSIVITY OF INDEMNIFICATION REMEDIES. The
indemnification remedies and other remedies provided in this Section 13 shall
not be deemed to be exclusive. Accordingly, the exercise by any Person of any
of its rights under this Section 13 shall not be deemed to be an election of
remedies and shall not be deemed to prejudice, or to constitute or operate as a
waiver of, any other right or remedy that such Person may be entitled to
exercise. In addition to any rights of setoff or other right or remedy that
any of the Indemnitees may be entitled to exercise (whether under this
Agreement under any other Contract, under any statute, rule or other Legal
Requirement, at common law in equity or otherwise), each Indemnitee shall have
the right to withhold and deduct any sum that may be owed to such Indemnitee
under this Section 13 from any amount otherwise payable by such Indemnitee to
the indemnifying party
13.5 LIMITATIONS ON INDEMNIFICATION.
(i) Seller shall not be required to make any
indemnification payment pursuant to Section 13.2 for any Breach of any of its
representations and warranties until such time as the total amount of all
Damages (including the Damages arising from such Breach and all other Damages
arising from any other Breaches of any representations or warranties) that have
been suffered or incurred by any one or more of the Buyer Indemnitees, or to
which any one or more of the Buyer Indemnitees has or have otherwise become
subject, exceeds $50,000 in the aggregate, at which time such Indemnitees shall
be entitled to be indemnified against only the amount of such Damages in excess
of $50,000. Seller acknowledges and agrees that (a) the purchase of the
Property pursuant to this Agreement is specifically conditioned upon and
directly related to the purchase of the Club Assets pursuant to the Club
Purchase Agreement and (b) Buyer is also the recipient of certain
representations, warranties and indemnification from the Operator pursuant to
the Club Purchase Agreement. Accordingly, whether the $50,000 threshold
referenced in this Section 13.5(i) has been exceeded is to be calculated
inclusive of any "Damages" that are suffered or incurred by any of the
"Purchaser Indemnitees", as referenced in Section 5.5(a) of the Club Purchase
Agreement.
(ii) Buyer shall not be required to make any
indemnification payment pursuant to Section 13.3 for any Breach of any of its
representations and warranties until such time as the total amount of all
Damages (including the Damages arising from such Breach and all other Damages
arising from any other Breaches of any representations or warranties) that have
been suffered or incurred by any one or more of the Seller Indemnitees, or to
which any one or more of the Seller Indemnitees has or have otherwise become
subject, exceeds $50,000 in the aggregate, at which time such Indemnitees shall
be entitled to be indemnified against only the amount of such Damages in excess
of $50,000. Buyer acknowledges and agrees that (a) the purchase of the
Property pursuant to this Agreement is specifically conditioned upon and
directly related to the purchase of the Club Assets pursuant to the Club
Purchase Agreement and (b) Operator is also the recipient of certain
representations, warranties and indemnification
<PAGE> 21
from Buyer pursuant to the Club Purchase Agreement. Accordingly, whether the
$50,000 threshold referenced in this Section 13.5(ii) has been exceeded is to
be calculated inclusive of any "Damages" that are suffered or incurred by any
of the "Seller Indemnitees", as referenced in Section 5.5(b) of the Club
Purchase Agreement.
(iii) The obligations of the parties hereto to
indemnify and hold harmless a Person, pursuant to Sections 13.2(i) and 13.3(i)
above, shall terminate when the applicable representation and warranty
terminates pursuant to Section 13.1(i) above; provided however, such obligation
to indemnify and hold harmless shall not terminate with respect to any matter
about which an Indemnitee shall have, before the expiration of the applicable
time period, delivered written notice alleging the existence of a Breach of any
of such representations and warranties and asserting a claim for recovery under
Section 13.
13.6 DEFENSE OF THIRD PARTY CLAIMS BY SELLER. In the
event of the assertion or commencement by any Person of any claim or Proceeding
with respect to which Seller may become obligated to indemnify, hold harmless,
compensate or reimburse any Buyer Indemnitee pursuant to this Section 13,
Seller shall defend such claim or Proceeding at its sole expense, in which
case:
(i) Seller shall proceed to defend such claim or
Proceeding in a diligent manner with counsel reasonably satisfactory to Buyer;
(ii) Buyer shall make available to Seller any
non-privileged documents and materials in the possession of Buyer that may be
necessary to the defense of such claim or Proceeding;
(iii) Seller shall endeavor to keep Buyer informed
of all material developments and events relating to such claim or Proceeding;
(iv) Buyer shall have the right to participate, at
its own cost, in the defense of such claim or Proceeding;
(v) Buyer shall cooperate with Seller, in a
timely manner, in the defense of such claim or Proceeding; and
(vi) Seller shall have the right to settle, adjust
or compromise such claim or Proceeding with the prior written consent of Buyer;
provided, however, that Buyer shall not unreasonably withhold, delay or
condition such consent.
13.7 DEFENSE OF THIRD PARTY CLAIMS BY BUYER. In the event
of the assertion or commencement by any Person of any claim or Proceeding with
respect to which Buyer may become obligated to indemnify, hold harmless,
compensate or reimburse any Seller Indemnitee pursuant to this Section 13,
Buyer shall defend such claim or Proceeding at its sole expense, in which case:
(i) Buyer shall proceed to defend such claim or Proceeding in a
<PAGE> 22
diligent manner with counsel reasonably satisfactory to Seller;
(ii) Seller shall make available to Buyer any
non-privileged documents and materials in the possession of Seller that may be
necessary to the defense of such claim or Proceeding;
(iii) Buyer shall endeavor to keep Seller informed
of all material developments and events relating to such claim or Proceeding;
(iv) Seller shall have the right to participate,
at its own cost, in the defense of such claim or Proceeding;
(v) Seller shall cooperate with Buyer, in a
timely manner, in the defense of such claim or Proceedings; and
(vi) Buyer shall have the right to settle, adjust
or compromise such claim or Proceeding with the prior written consent of
Seller; provided, however, that Seller shall not unreasonably withhold, delay
or condition such consent.
13.8 EXERCISE OF REMEDIES BY INDEMNITEES. Notwithstanding
anything herein to the contrary, no Indemnitee (other than Buyer or any
successor thereto or assign thereof for the Buyer Indemnitees or Seller or any
successor thereto or assign thereof for the Seller Indemnitees) shall be
permitted to assert any indemnification claim or exercise any other remedy
under this Agreement.
14. ADDITIONAL COVENANTS AND AGREEMENTS. In addition to such
other covenants of Seller as are contained elsewhere in this Agreement, Seller
covenants and agrees as follows:
14.1 From and after the date hereof until Closing, Seller
shall lease or rent no space at the Property (including renewal of an existing
tenancy) without Buyer's prior approval, nor shall Seller otherwise deviate
from its ordinary and customary operation, maintenance, or management of the
Property.
14.2 Seller shall not further encumber the Property or any
part thereof, convey any interest therein (other than to Buyer pursuant hereto)
without Buyer's prior consent, or accept any additional advance or funds
secured or to be secured by any existing encumbrance on any of the Property, or
permit either of them, or any other note or encumbrance to which any part of
the Property is subject, to become in default prior to Closing. Seller shall
not enter into any new service, maintenance, supply or other contract affecting
the Property in any way prior to Closing without Buyer's prior approval unless
such contract is cancelable at any time on thirty days' notice or less, without
cost to Buyer.
14.3 Seller shall not, prior to Closing, cancel or reduce
the amount of coverage of any insurance policy covering the Property or any
part thereof.
<PAGE> 23
14.4 At or prior to Closing Seller, at its expense, shall
have fully complied with all bulk sales laws (if any) applicable to the
transaction contemplated hereby, and shall have obtained all necessary
governmental approvals, if any, needed by Seller to consummate the transaction
contemplated hereby.
14.5 [Intentionally omitted.]
14.6 [Intentionally omitted.]
14.7 [Intentionally omitted.]
14.8 [Intentionally omitted.]
14.9 At or prior to Closing Seller shall satisfy in full
all monetary obligations secured by any part of the Property, except as
otherwise required by the terms of Section 3.
14.10 At or prior to Closing, Seller shall provide to Buyer
an affidavit signed under penalty of perjury and complying with the
requirements of U.S. Internal Revenue Code Section 1445(b)(2). If Seller shall
not have timely furnished to Buyer said affidavit, Buyer may, at its option,
either (i) adjourn the closing until such time as Seller has complied with the
conditions set forth herein, and such adjournment shall not place Buyer in
default of its obligations hereunder, or alternatively (ii) Buyer may withhold
from the Purchase Price and remit to the Internal Revenue Service a sum equal
to 10% of the Purchase Price in accordance with the withholding obligations
imposed upon Buyer pursuant to Internal Revenue Code Section 1445. Such
withholding shall not place Buyer in default under this Agreement, and Seller
shall not be entitled to claim that such withholding shall excuse Seller's
performance under this Agreement.
14.11 From and after the date hereof and through and
including the Closing and for so long as Buyer shall not be in default under
this Agreement, Seller shall not directly or indirectly, solicit or initiate
discussions or engage in negotiations with, or provide any information to, or
authorize any financial advisor or other person to solicit or initiate
discussions or engage in negotiations with, or provide any such information to,
any corporation, partnership, person or other entity or group (other than
Buyer) concerning any possible proposal regarding a sale or other similar
transaction, direct or indirect, involving all or a substantial portion of the
Property.
14.12 From the date hereof through the Closing Date, Seller
shall give Buyer and its Representatives, or cause them to be permitted, during
normal business hours and upon reasonable notice, full access to all
properties, books, files, data, contracts, leases, commitments and records of
or pertaining to the Property, and during this period Seller shall furnish
Buyer with all financial and operating data and all other information as to the
business, properties and assets of or pertaining to the Property as Buyer may
from time to time reasonably request; provided, however, that such access and
investigation shall not
<PAGE> 24
interfere with the conduct of the Property by Seller. At Buyer's reasonable
request, Seller shall direct its Representatives to cooperate with Buyer
pursuant to this Section 14.12 at no additional cost to Buyer. In undertaking
its due diligence, Buyer shall not disturb, to the minimum extent reasonably
possible, the operations of the Property and will communicate with only those
employees of Seller as Seller shall reasonably authorize with the scope and
tenor of such communications to be subject to the reasonable prior approval of
Seller; it being agreed, however, that the purpose of the foregoing
restrictions are to minimize disruption to the operations of the Property, to
the minimum extent reasonably possible, and to preserve its value as a going
concern and not to limit the scope or depth of the information to be made
available to Buyer in its due diligence. The exercise by Buyer of any of the
preceding rights, or any other act of Buyer, shall not negate any
representation, warranty or covenant of Seller or modify any of Buyer's rights
or Seller's obligations in the event of any Breach by Seller of any of Seller's
representations, warranties or covenants of this Agreement. Buyer shall
indemnify, defend and hold harmless Seller from and against any and all Damages
arising out of any entry within the Property by Buyer or its Representatives.
The indemnification of Seller by Buyer in the preceding sentence shall survive
any termination of this agreement or the Closing for a period of 3 years from
and after the date of termination or the Closing, as the case may be.
14.13 From the date hereof until the Closing, Seller shall
use its commercially reasonable efforts to preserve the Property's business and
its organization intact, including without limitation to preserve Seller's
present relationships with suppliers, customers and others having business
relationships with Seller regarding the Property. Seller shall promptly
arrange for any utility service in Seller's name relating to the Real Property
to be transferred to Buyer at Closing.
14.14 Each of the parties hereto will use such party's
commercially reasonable efforts to consummate the transaction contemplated by
this Agreement and shall not take any action inconsistent with such party's
obligations hereunder or which could hinder or delay the consummation of the
transactions contemplated hereby.
14.15 Subject to the provisions contained in this Section
14.15 and any covenants, conditions and restrictions of record, Buyer shall,
subject to force majeure and casualty affecting all or a substantial portion
(95% of the square footage of improvements including any improvements related
and incidental to the operations) of the Club and/or Real property and for a
period not to exceed twelve (12) months as a result of any such act,
continuously remain open and operate the Club for a period of not less than
five (5) years from and after the Closing Date. The Club shall be operated and
maintained by Buyer at the highest brand standard of Buyer comparable in design
and function to Buyer's Sports Club brand as represented by Buyer's Los
Angeles, California, Irvine, California and New York City, New York locations
as of the Closing Date ("Operational Standard"). The obligations of Buyer to
operate the Club at the Operational Standard shall apply to Buyer and any owner
of all or any portion of the Club and/or Real Property who is an Affiliate of
Buyer.
14.16 Up to 10 memberships at the Club, to be held from
time to time by
<PAGE> 25
such individuals as Seller shall, from time to time, designate in writing to
Buyer, shall be honored by Buyer from and after Closing but only for so long as
Buyer or its Affiliates shall continue to operate the Club. Such memberships
shall be at the highest level of membership available, from time to time, to
members of the Club, shall require the payment of no monthly dues or initiation
fees or any fees for a membership benefit if such benefit is offered for sale
as a component of a particular membership category, but shall otherwise be
subject to Buyer's rules and regulations for Club memberships and the general
operations of the Club applied on a non-discriminatory basis. Any individual
holding such a membership shall, for so long as such individual holds such
membership and maintains his or her primary residence in Clark County, Nevada,
be entitled, if at all, to use any health and fitness facility operated by
Buyer or any affiliate of Buyer, as a visitor and otherwise upon the same terms
and conditions (including, without limitation, the payment of the same charges)
as the holder of the highest level of membership benefits at the Club then
offered for sale who had paid an initiation fee for such level of benefits
would be entitled, as a visitor, to use such health and fitness facility.
15. FEES AND EXPENSES.
15.1 Subject to the provisions of Section 13 (including
the indemnification and other obligations of Buyer thereunder) Seller shall
bear and pay all its own Transaction Costs and all Transaction Costs (including
all legal fees and expenses payable to Jolley, Urga, Wirth & Woodbury) that
have been incurred or that are in the future incurred by, on behalf of or for
the benefit of, the Seller (the "Seller Transaction Costs).
15.2 Subject to the provisions of Section 13 (including
the indemnification and other obligations of Seller thereunder), Buyer shall
bear and pay all Transaction Costs (including all legal fees and expenses
payable to Resch Polster Alpert & Berger LLP) that have been incurred or that
are in the future incurred by, or on behalf of or for the benefit of, Buyer
(the "Buyer Transaction Costs").
16. BROKERAGE COMMISSIONS. Buyer and Seller each agrees to
indemnify, defend and hold the other harmless from any Damages arising out of
or in connection with any claim for any brokerage commission, finder's fee,
acquisition fee or like payment asserted against the indemnified party by
virtue of any action taken or allegedly taken by the indemnifying party in
connection with the Acquisition. Without limiting the generality of the
foregoing, Buyer will pay a single $100,000 commission to The Weatherby
Company, who represents Buyer, at Closing with respect to the Property and the
Club Assets and will satisfy any other obligation owed to The Weatherby Company
in connection with the closing of the Acquisition and the acquisition of the
Club Assets.
17. PUBLICITY; CONFIDENTIALITY. At all times before and after the
Closing Date and except as may otherwise be required by any Legal Requirement
or by the rules and regulations of the American Stock Exchange or the
Securities and Exchange Commission:
17.1 No press release or other publicity concerning any of
the Transactions shall be issued or otherwise disseminated by or on behalf of
the parties hereto unless
<PAGE> 26
mutually agreed upon by the parties in advance. The parties shall issue a
mutually approved press release promptly following Closing. Each of the
parties shall continue to keep the existence and terms of this Agreement and
the other Transactional Agreements strictly confidential except to the extent
such information is publicly available, lawfully obtained from independent
sources or as may be required by any Legal Requirement.
17.2 Buyer agrees to keep confidential and not to disclose
to any third party, other than to Buyer's actual or potential lenders or
investors or their Representatives, who in turn will agree to hold such
information confidential, any information and material obtained from Seller or
any of its Representatives or to which Buyer has access related to the business
and assets of Seller except to the extent such information is publicly
available, previously lawfully known to Buyer, lawfully obtained from
independent sources or as may be required by any Legal Requirement. No such
information shall be used by any such party for their own benefit. Buyer will
promptly return, and cause all of its actual and potential lenders, investors
and each of its and their respective Representatives promptly to return, any
and all such information to Seller if Closing does not occur, for any reason
whatsoever.
17.3 Seller agrees to keep confidential and not to
disclose to any third party, other than to Seller's actual or potential lenders
or investors or their Representatives, who in turn will agree to hold such
information confidential, any information and material obtained from Buyer or
any of their respective Representatives or to which Seller has access related
to the business and assets of Buyer except to the extent such information is
publicly available, previously lawfully known to Seller, lawfully obtained from
independent sources or as may be required by any Legal Requirement. No such
information shall be used by any such party for their own benefit. Seller will
promptly return, and cause all of its actual and potential lenders, investors
and each of its and their respective Representatives promptly to return, any
and all such information to Buyer if Closing does not occur, for any reason
whatsoever.
18. DAMAGE OR DESTRUCTION. Should the improvements at the Real
Property be destroyed or damaged prior to Closing, Buyer may, at its election:
18.1 Terminate this Agreement without any liability to
Seller, upon notice to Seller and Deposit Holder, in which case the Deposit
shall forthwith be returned to Buyer by, as applicable, Deposit Holder or
Seller; or
18.2 Proceed with the purchase of the Property pursuant to
this Agreement with no reduction in the Purchase Price, except for a reduction
in an amount equal to the deductible under any applicable insurance coverage,
but excluding any available business interruption or rental interruption
insurance. In such case, all insurance proceeds, if any, including without
limitation any business interruption and/or rental interruption insurance
proceeds, shall be assigned to (and if received by Seller, then delivered to
and retained by Buyer, subject to the rights of existing lienholders, and,
subject to such rights, Buyer shall be entitled to settle the loss with
Seller's insurers.
<PAGE> 27
19. CONDEMNATION. In the event that condemnation or eminent
domain proceedings affecting all or any part of the Property are initiated
after the execution of this Agreement and prior to Closing, Buyer may, at its
option, terminate this Agreement by notifying Seller and Deposit Holder, in
which case the Deposit shall be forthwith returned to Buyer by, as applicable,
Deposit Holder or Seller, and neither Buyer nor Seller shall have any further
liability to one another hereunder, or, alternatively, Buyer may consummate the
transaction provided for herein, in which event Seller shall assign to Buyer
all of its right, title and interest in and to any award made or to be made in
connection with such condemnation or eminent domain proceedings.
20. MISCELLANEOUS.
20.1 NOTICES. Any notice or other communication required
or permitted to be delivered to any party under this Agreement shall be in
writing and shall be deemed properly delivered, given and received when
delivered (by hand, by registered or certified mail, return receipt requested,
by courier or express delivery service or by telecopier with proof of
transmission and receipt) to the address or telecopier number set forth beneath
the name of such party below (or to such other address or telecopier number as
such party shall have specified in a written notice given to the other parties
hereto). In the case of any notice given by telecopier, a confirming copy
shall be sent, as soon as reasonably possible thereafter, by another approved
means specified above.
if to Buyer: The Sports Club Company, Inc.
11100 Santa Monica Boulevard, Suite 300
Los Angeles, California 90025
Attention: D. Michael Talla
Telephone: (310) 479-5200
Telecopier: (310) 479-4350
with a copy (not constituting notice) to:
Resch Polster Alpert & Berger LLP
10390 Santa Monica Boulevard
Fourth Floor
Los Angeles California 90025-5058
Attention: Ronald M. Resch, Esq.
Telephone: (310) 277-8300
Telecopier: (310) 552-3209
<PAGE> 28
if to Seller: Green Valley Investment Company
c/o American Nevada Corporation
Green Valley Corporate Center
901 North Green Valley Parkway, Suite 200
Henderson, Nevada 89014
Attention: Legal Department
Telephone: (702) 458-8855
Telecopier: (702) 435-6605
with a copy (not constituting notice) to.
Jolley, Urga, Wirth & Woodbury
300 South Fourth Street, Eighth Floor
Las Vegas, Nevada 89101
Attention: William R. Urga, Esq.
Telephone: (702) 385-5161
Telecopier: (702) 382-6814
if to Deposit Holder: Nevada Title Company
Green Valley Office
701 N. Green Valley Parkway, Suite 120
Henderson, Nevada 89014
Attention: Jill Hooper, re escrow
no. 97-06-0229 RWC
Telephone: (702) 361-7756
Telecopier: (702) 365-3603
with a copy (not constituting notice) to the
party or parties not giving such notice to
Deposit Holder.
20.2 ATTORNEY'S FEES. If any legal action or other legal
proceeding relating to any of the Transactional Agreements or the enforcement
of any provision of any of the Transactional Agreements is brought against any
party hereto, the prevailing party shall be entitled to recover reasonable
attorneys' and expert witness fees, costs and disbursements (in addition to any
other relief to which the prevailing party may be entitled).
20.3 ENTIRE AGREEMENT AND AMENDMENT. This Agreement,
together with all Exhibits hereto and documents referred to herein, if any,
constitutes the entire understanding between the parties hereto, and supersedes
any and all prior written or oral agreements, arrangements and understandings
between the parties hereto. This Agreement can be amended only by a writing
signed by Buyer and Seller.
20.4 TIME OF THE ESSENCE. In connection with consummation
of the Acquisition and the Transactions, the parties agree that time is of the
essence; provided, however, that if any period or time set forth in this
Agreement ends or occurs on a day which is not a Business Day, then such period
or time shall instead end on the next immediately following Business Day.
<PAGE> 29
20.5 GOVERNING LAW;. This Agreement shall be construed in
accordance with, and governed in all respects by the internal laws of the State
of Nevada (without giving effect to principles of conflicts of laws).
20.6 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon: the Seller and its successors and assigns (if any); and Buyer and
its successors and assigns (if any). This Agreement shall inure to the benefit
of: Seller; Buyer; and the respective successors and assigns (if any) of the
foregoing. Buyer may only assign all of its rights under this Agreement
(including its indemnification rights under Section 13.2, and not any part
thereof, and then only if (a) the proposed assignee is a wholly-owned
subsidiary of Buyer, (b) Seller is provided with a written assignment and
assumption agreement, reasonably acceptable to Seller, executed by Buyer and
such assignee and pursuant to which such assignee assumes all of Buyer's
rights, duties and obligations under the Transactional Agreements and the Club
Purchase Agreement and (c) Buyer concurrently assigns all of its rights under
the Club Purchase Agreement to the same assignee in accordance with the terms
and conditions of the Asset Purchase Agreement. Any such permitted assignment
and assumption shall relieve Buyer of all of its duties and obligations under
the Transactional Agreements, except that Buyer shall remain liable, jointly
and severally with any such assignee, for the obligations under Sections
3.1(iv) and 14.15 of this Agreement.
20.7 SEVERABILITY. Whenever possible, each provision of
this Agreement and every related document shall be interpreted in such manner
as to be valid under applicable law; but, if any provision of any of the
foregoing shall be invalid or prohibited under said applicable law, such
provision shall be ineffective to the extent of such invalidity or prohibition
without invalidating the remainder of such provision, or the remaining
provisions of such document.
20.8 CONSTRUCTION.
(i) For purposes of this Agreement, whenever the
context requires: the singular number shall include the plural, and vice versa;
the masculine gender shall include the feminine and neuter genders; the
feminine gender shall include the masculine and neuter genders; and the neuter
gender shall include the masculine and feminine genders.
(ii) The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement.
(iii) As used in this Agreement, the words
"include" and "including," and variations thereof, shall not be deemed to be
terms of limitation, but rather shall be deemed to be followed by the words
"without limitation."
(iv) Except as otherwise indicated, all references
in this Agreement
<PAGE> 30
to "Sections", "Exhibits" and "Schedules" are intended to refer to Sections of
this Agreement and Exhibits and Schedules to this Agreement, all of which
Exhibits and Schedules are hereby incorporated herein by this reference as if
set forth fully herein.
20.9 SECTION HEADINGS. The headings of the sections in
this Agreement are inserted solely for convenience of reference, and are not
intended to govern, limit, or aid in the construction of any term or provision
hereof.
20.10 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights
and remedies of the parties hereto shall be cumulative (and not alternative).
Seller agrees that in the event of any Breach or threatened Breach by Seller of
any covenant, obligation or other provision set forth in this Agreement, Buyer
shall be entitled (in addition to any other remedy that may be available to it)
to (i) a decree or order of specific performance or mandamus to enforce the
observance and performance of such covenant, obligation or other provision, and
(ii) an injunction restraining such Breach or threatened Breach.
20.11 WAIVER.
(i) Except as expressly set forth herein, no
failure on the part of any Person to exercise any power, right, privilege or
remedy under this Agreement, and no delay on the part of any Person in
exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege
or remedy.
(ii) Except as expressly set forth herein, no
Person shall be deemed to have waived any claim arising out of this Agreement,
or any power, right, privilege or remedy under this Agreement, unless the
waiver of such claim, power, right, privilege or remedy is expressly set forth
in a written instrument duly executed and delivered on behalf of such Person:
and any such waiver shall not be applicable or have any effect except in the
specific instance in which it is given.
20.12 PARTIES IN INTEREST. Except for the provisions of
Section 13 hereof, none of the provisions of this Agreement is intended to
provide any rights or remedies to any Person other than the parties hereto and
their respective successors and assigns (if any).
20.13 FURTHER ASSURANCES. Each party hereto shall execute
and/or cause to be delivered to each other party hereto such instruments and
other documents, and shall take such other actions, as such other party may
reasonably request (prior to, at or after the Closing) for the purpose of
carrying out or evidencing any of the Transactions. Without limiting the
generality of the foregoing, at any time and from time to time after the
Closing Date, the parties shall duly execute, acknowledge and deliver all such
further assignments, conveyances, instruments and documents, and will take such
other action consistent with the terms of this Agreement, in each case, as may
be reasonably necessary to assign, transfer and convey to Buyer good and
marketable title to any and all
<PAGE> 31
of the Property, free and clear of all Encumbrances, to carry out the
transactions contemplated by this Agreement, and to comply with the terms
hereof. No party will take or knowing permit to be taken any action or do or
knowingly permit to be done anything in the conduct of its business, or
otherwise, which would be contrary to or in breach of any of the terms or
provisions of this Agreement, or which would cause any of the representations
or warranties contained herein to become untrue or incomplete.
20.14 COUNTERPARTS. This Agreement may be signed in
counterparts, not all of which are signed by all parties hereto but each party
hereto having signed and delivered to the other at least one of them. Any one
of such counterparts, signed by the party to be charged, shall be sufficient to
prove this Agreement.
20.15 WAIVER OF JURY. With respect to any dispute arising
under or in connection with this Agreement or any related agreement, as to
which no party invokes the right to arbitration hereinabove provided, or as to
which legal action nevertheless occurs, each party hereby irrevocably waives
all rights it may have to a jury trial, and each party agrees that it will not
seek to consolidate any such action in which a jury trial has been waived with
any other action in which a jury trial cannot be or has not been waived. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY BUYER AND SELLER
AND EACH ACKNOWLEDGES THAT NEITHER THE OTHER PARTY NOR ANY PERSON ACTING ON
BEHALF OF THE OTHER PARTY HAS MADE ANY REPRESENTATION OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. BUYER
AND SELLER EACH FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD
THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE
MAKING OF THIS WAIVER, BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
BUYER AND SELLER EACH FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE
MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION.
20.16 AUTHORITY TO SIGN. The individuals executing this
Agreement on behalf of Buyer and Seller, respectively, represent that they are
authorized to do so.
20.17 SURVIVAL POST-CLOSING. Any provisions of this
Agreement, or any other Transactional Agreement, which require observance,
performance or enforcement after Closing shall survive Closing and shall
continue to be binding on the parties hereto, subject to and in accordance with
the other terms and conditions of this Agreement and the other Transactional
Agreements.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
SELLER: THE GREEN VALLEY INVESTMENT COMPANY,
INC.,
a Nevada corporation
<PAGE> 32
By Eric A. Traub
Its Senior Vice President
Date of Execution: July 31, 1997
BUYER: THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By /s/ John M. Gibbons
Its President
Date of Execution: July 31, 1997
<PAGE> 33
EXHIBIT B
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
1. ACQUISITION. "Acquisition" shall have the meaning specified in
Section 1 of the Agreement.
2. AFFILIATE. "Affiliate" shall mean and include:
(a) any current or former shareholder, director or
officer of, as applicable, the Seller or Buyer;
(b) any sibling, uncle, aunt, niece or nephew of any
person described in clause (a);
(c) any ancestor or lineal descendant of any person
described in clauses (a) or (b);
(d) any current or former spouse of any person described
in clauses (a), (b) or (c) or any person who is a member of the same household
of the person described in clauses (a), (b) or (c) or who has resided with such
person for more than 10 days in any calendar year;
(e) any ancestor or lineal descendant of any person
described in clauses (a), (b), (c) or (d);
(f) any entity or person in which any of the foregoing
have a direct or indirect interest (except through ownership of less than 5% of
the outstanding shares of any entity whose securities are listed on a national
securities exchange or traded in the national over-the-counter market).
3. BILL OF SALE. "Bill of Sale" shall have the meaning set forth
in Section 4.2 of the Agreement.
4. BREACH. There shall be deemed to be a "Breach" of a
representation, warranty, covenant, obligation or other provision if there is
or has been any inaccuracy in or breach of, or any failure to comply with or
perform such representation, warranty, covenant, obligation or other provision;
and the term "Breach" shall be deemed to refer to any such inaccuracy, breach
or failure.
5. BUSINESS DAY. "Business Day" shall mean any day other than
Saturday, Sunday or any other day which is a legal holiday under the laws of
either of the States of California or Nevada.
<PAGE> 34
6. BUYER. "Buyer" shall mean The Sports Club Company, Inc., a
Delaware corporation.
7. BUYER DELIVERY ITEMS. "Buyer Delivery Items" shall have the
meaning set forth in Section 5.2(iv) of the Agreement.
8. BUYER INDEMNITEES. "Buyer Indemnitees" shall mean the
following Persons:
(a) Buyer;
(b) Buyer's current and future Affiliates;
(c) the respective Representatives of the Persons
referred to in clauses (a) and (b) above; and
(d) the respective successors and permitted assigns of
the Persons referred to in clauses (a), (b), and (c) above.
9. BUYER TRANSACTION COSTS. "Buyer Transaction Costs" shall have
the meaning specified in Section 15.2 of the Agreement.
10. CC&R AMENDMENT. "CC&R Amendment" shall mean an amendment to
the Third Amendment to and Restatement of Declaration of Covenants, Conditions
and Restrictions recorded February 10, 1993 in Book 930218 as Document No.
00166 of Official Records of Clark County, Nevada regarding Town Center, the
form of which is attached hereto as Exhibit H, that is to be recorded against
Town Center as part of the closing under the Club Purchase Agreement.
11. CLOSING. "Closing" shall have the meaning specified in Section
2.1 of the Agreement.
12. CLOSING DATE. "Closing Date" shall mean the date on which the
Closing shall occur.
13. CLUB. "Club" shall have the meaning set forth in Recital D of
the Agreement.
14. CLUB ASSETS. "Club Assets" shall have the meaning set forth
in Recital E of the Agreement.
15. CLUB PURCHASE AGREEMENT. "Club Purchase Agreement" shall have
the meaning specified in Recital E of the Agreement.
16. CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
17. CONTRACT ASSIGNMENT. "Contract Assignment" shall have the
meaning set
<PAGE> 35
forth in Section 3.1(i) of the Agreement.
18. CONTRACT RIGHTS. "Contract Rights" shall have the meaning set
forth in Recital C of the Agreement.
19. DAMAGES. "Damages" shall mean any loss, damage, injury,
Liability, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee
(including any reasonable legal fee, expert fee, accounting fee or advisory
fee), charge, reasonable cost (including any reasonable cost of investigation)
or reasonable expense of any nature.
20. DEED. "Deed" shall have the meaning set forth in Section 2.1
of the Agreement.
21. DELIVERY ITEMS. "Delivery Items" shall have the meaning set
forth in Section 5.2 of the Agreement.
22. DEPOSIT. "Deposit" shall have the meaning set forth in
Section 3.1(ii) of the Agreement.
23. DEPOSIT HOLDER. "Deposit Holder" shall have the meaning set
forth in Section 3.1(ii) of the Agreement.
24. DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to Buyer, a copy of
which is attached to the Agreement as Schedule 10 and incorporated in the
Agreement by reference.
25. DUE DILIGENCE PERIOD. "Due Diligence Period" shall have the
meaning set forth in Section 8.1(vii) of the Agreement.
26. ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge,
hypothecation, charge, mortgage, security interest, encumbrance, claim, right
of possession, lease, tenancy, license, Order, option, right of first refusal,
imperfection of title, or Tax; provided that Encumbrance shall not include
publicly recorded Encumbrances (i) that are not liens, or (ii) that do not
restrict or affect the intended use of the Property. Encumbrance shall further
not include any Taxes that are not yet due and payable if such Taxes are to be
prorated between Buyer and Seller. Encumbrance shall further not include any
matter disclosed in the Disclosure Schedule or the Restrictive Use Covenant.
27. ENTITY. "Entity" shall mean any corporation (including any
non-profit corporation), general partnership, limited partnership, limited
liability company, joint venture, estate, trust, cooperative, foundation,
society, political party, union, company (including any limited liability
company or joint stock company), firm or other enterprise, association,
organization or entity.
28. ENVIRONMENTAL LAWS. "Environmental Laws" shall mean CERCLA, the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 1100 et
seq., the
<PAGE> 36
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136 et
seq., the Safe Drinking Water Act, 42 U.S.C. Sections 300f et seq., the Toxic
Substances Control Act, 15 U.S.C. Sections 2601 et seq., the Oil Pollution Act
of 1990, 33 U.S.C. Sections 1001 et seq., the Hazardous Materials
Transportation Act, as amended, 42 U.S.C. Sections 1801 et seq., and the
corresponding regulations, state laws and regulations, local ordinances and
permit requirements which may be applicable.
29. ESCROW. "Escrow" shall have the meaning set forth in Section
3.1(ii) of the Agreement.
30. GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other
government;
(c) governmental or quasi-governmental authority of any
nature (including any governmental division, subdivision, department, agency,
bureau, branch, office, commission council, board, instrumentality, officer,
official, representative, organization, unit, body or Entity and any court or
other tribunal);
(d) multi-national organization or body; or
(e) individual, Entity or body exercising, or entitled to
exercise, any executive, legislative, judicial, administrative, regulatory,
police, military or taxing authority or power of any nature.
31. GROUND LEASE. "Ground Lease" shall have the meaning set forth
in Recital D of the Agreement.
32. HAZARDOUS MATERIALS. "Hazardous Materials" shall have the
meaning set forth in Section 10.2 of the Agreement.
33. INDEMNITEES. "Indemnitees" shall as the context may indicate
sometimes refer to either the Buyer Indemnitees or the Seller Indemnitees, or
both.
34. IDENTIFIED APPROVALS. "Identified Approvals" shall have the
meaning set forth in Section 8.1(iii) of the Agreement.
35. JOINT DELIVERY ITEMS. "Joint Delivery Items" shall have the
meaning set forth in Section 5.2(v) of the Agreement.
36. KNOWLEDGE. An individual shall be deemed to have "Knowledge"
of a particular fact or other matter only if such individual is actually aware
of such fact or other matter.
<PAGE> 37
In the case of Buyer, Buyer shall be deemed to have "Knowledge" of a
particular fact or other matter only if any of D. Michael Talla, John Gibbons,
or Timothy O'Brien has Knowledge of such fact or other matter.
In the case of Seller, Seller shall be deemed to have "Knowledge" of a
particular fact or other matter only if any of Misty Chadwick, Eric A. Traub
and Rita McCreery has Knowledge of such fact or other matter.
37. LEASE ASSIGNMENT. "Lease Assignment" shall have the meaning
set forth in Section 3.1(i) of the Agreement.
38. LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal,
state local, municipal, foreign or other law, statute, legislation,
constitution, law resolution, ordinance, code edict, decree, proclamation,
treaty, convention, rule, regulation, ruling, directive, pronouncement,
requirement, specification, determination, decision, opinion or interpretation
issued enacted adopted, passed, approved, promulgated, made, implemented or
otherwise put into effect by or under the authority of any Governmental Body.
39. LIABILITY. "Liability" shall mean any debt, obligation, duty
or liability of any nature (whether known or unknown and whether absolute,
accrued, contingent or otherwise), regardless of whether such debt, obligation,
duty or liability would be required to be disclosed on a balance sheet and
regardless of whether such debt obligation, duty or liability is immediately
due and payable.
40. MODIFICATION. "Modification" shall have the meaning set forth
in Section 8.2 of the Agreement.
41. OPERATOR. "Operator" shall have the meaning set forth in
Recital D of the Agreement.
42. OUTSIDE CLOSING DATE. "Outside Closing Date" shall have the
meaning set forth in Section 2.2 of the Agreement.
43. PRO FORMA POLICY. "Pro Forma Policy" shall mean the title
commitment attached hereto as Exhibit I, including any handwritten changes made
thereto and the endorsements constituting a part thereof.
44. PERSON. "Person" shall mean any individual, Entity or
Governmental Body.
45. PROCEEDING. "Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination or investigation brought,
conducted or heard by or before, or that otherwise involves, any Governmental
Body, judge, arbitrator or arbitration panel.
<PAGE> 38
46. PROPERTY. "Property" shall have the meaning set forth in
Recital C of the Agreement.
47. PURCHASE PRICE. "Purchase Price" shall have the meaning set
forth in Section 3.1(i) of the Agreement.
48. REAL PROPERTY. "Real Property" shall have the meaning
specified in Recital C of the Agreement.
49. RELATED PARTY. Each of the following shall be deemed to be a
"Related Party":
(a) Seller;
(b) each individual who is, or who has been within the
past twelve (12) months, an officer or shareholder of the Seller or of any of
its predecessors in interest;
(c) each member of the family of each of the individuals
referred to in clauses (a) and (b) above; and
(d) any Entity (other than the Seller) in which any one
of the individuals referred to in clauses (a), (b) and (c) above holds (or in
which more than one of such individuals collectively hold), beneficially or
otherwise, a material voting, proprietary or equity interest.
50. REPRESENTATIVES. "Representatives" shall mean officers,
directors, employees, agents, attorneys, accountants, advisors and
representatives. Seller and all other Related Parties shall be deemed to be
"Representatives" of Seller.
51. RESTRICTIVE USE COVENANT. "Restrictive Use Covenant" shall
mean a covenant, to be executed by Seller and recorded as an encumbrance
against the Real Property at Closing, restricting the uses for which the Real
Property may be used after Closing. The Restrictive Use Covenant shall be in
the form attached hereto as Exhibit G.
52. SELLER. "Seller" shall mean Green Valley Investment Company,
Inc., a Nevada corporation.
53. SELLER DELIVERY ITEMS. "Seller Delivery Items" shall have the
meaning set forth in Section 5.2(iii) of the Agreement.
54. SELLER INDEMNITEES. "Seller Indemnitees" shall mean the
following Persons:
(a) Seller;
(b) Seller's current and future Affiliates;
(c) the respective Representatives of the Persons
referred to in clauses
<PAGE> 39
(a) and (b) above; and
(d) the respective successors and permitted assigns of
the Persons referred to in clauses (a), (b) and (c) above.
55. SELLER TRANSACTION COSTS. "Seller Transaction Costs" shall
have the meaning specified in Section 15.1 of the Agreement.
56. SHARES. "Shares" shall have the meaning specified in Section
3.1(iv) of the Agreement.
57. SURVEY. "Survey" shall mean that certain ALTA/ACSM land title
survey, dated July 28, 1997, for the Real Property performed by Lennis Bosworth
with Surveyor's Inc., Job No. 9709.
58. TANGIBLE PERSONALTY. "Tangible Personalty" shall have the
meaning specified in Recital C of the Agreement.
59. TAX. "Tax" shall mean any tax (including any income tax,
franchise tax, capital gains tax, estimated tax, gross receipts tax,
value-added tax, surtax, excise tax, ad valorem tax transfer tax, stamp tax,
sales tax, use tax, property tax, business tax, occupation tax, inventory tax,
occupancy tax, withholding tax or payroll tax), levy, assessment, tariff,
impost, imposition, toll, duty (including any customs duty), deficiency or fee,
and any related charge or amount (including any fine, penalty or interest), (a)
imposed, assessed or collected by or under the authority of any Governmental
Body, or (b) payable pursuant to any tax-sharing agreement or similar Contract.
60. TOWN CENTER. "Town Center" shall mean that certain shopping
center located on Sunset Road and Olympic Avenue between Mountain Vista Street
and Green Valley Parkway, Henderson, Nevada.
61. TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall
mean:
(a) the Agreement;
(b) the Deed;
(c) the Contract Assignment;
(d) the Lease Assignment; and
(e) the Bill of Sale.
62. TRANSACTION COSTS. "Transaction Costs" shall mean all fees,
costs and expenses (including all legal, auditing and accounting expenses) that
have been incurred or that are in the future incurred by, on behalf of or for
the benefit of any party hereto in
<PAGE> 40
connection with:
(a) the negotiation, preparation and review of any letter
of intent or similar document relating to any of the Transactions;
(b) the investigation and review conducted by the Buyer
and its Representatives with respect to the Seller's business;
(c) the negotiation, preparation and review of this
Agreement (including the Disclosure Schedule), the other Transactional
Agreements and all certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the Transactions;
(d) the preparation and submission of any filing or
notice required to be made or given in connection with any of the Transactions,
and the obtaining of any Consent required to be obtained in connection with any
of the Transactions; and
(e) the consummation and performance of the Transactions.
63. TRANSACTIONS. "Transactions" shall mean (a) the execution and
delivery of the respective Transactional Agreements, and (b) all of the
transactions contemplated by the respective Transactional Agreements,
including:
(a) the Acquisition in accordance with the Agreement; and
(b) the performance by Seller and Buyer of their
respective obligations under the Transactional Agreements and the exercise by
the Seller and Buyer of their respective rights under the Transactional
Agreements.
<PAGE> 1
EXHIBIT 10.66
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
This Agreement is made as of July 1, 1997 at Los Angeles, California among
HFA Services, Inc. ("Buyer"), a California corporation, Sportstherapy, Inc.
("Corporation"), a California corporation and Larry Schwartz ("Schwartz") with
reference to the following facts:
A. Buyer desires to purchase from Corporation and Corporation desires to
sell to Buyer, on the terms and subject to the conditions of this Agreement, the
assets described in paragraph 1.1 below.
B. Except as specifically provided, Buyer is not assuming any obligations
or other liabilities whatever.
C. Schwartz is the sole shareholder of Corporation.
In consideration of and in reliance upon the mutual covenants, agreements,
representations and warranties contained in this agreement, the parties
therefore agree as follows:
ARTICLE ONE
1.0 Sale and Transfer of Assets. Subject to the terms and conditions set
forth in this Agreement, Corporation will sell, convey, transfer, assign and
deliver to Buyer and Buyer will purchase from Corporation the assets and rights
specifically described on Schedule 1.1 hereto (collectively the "Transferred
Assets.")
1.1 Consideration from Seller at Closing. As full payment for the transfer
of the Transferred Assets to Buyer, Buyer shall deliver at the Closing (as
defined in paragraph 2.0 below), in accordance with the provisions of paragraph
2.1, a check payable to the order of Corporation in the amount of $472,203.00.
1.2 Assumption of Obligations. Buyer will assume only those contracts
specifically listed on Schedule 1.3 (the "Listed Contracts") and those other
liabilities specifically listed on such Schedule 1.3 (the "Listed Liabilities").
Such Listed Contracts and Listed Liabilities are hereinafter collectively
referred to as the "Assumed Obligations". It is expressly understood and agreed
that Buyer will not assume, and will not be liable for, any contractual or other
obligations or liabilities whatsoever of Corporation of any kind, whether
absolute, accrued, contingent or otherwise, other than the Assumed Obligations.
Nothing in this Agreement shall be deemed to create any third party beneficiary
rights in favor of any persons who are not
<PAGE> 2
signatories to this Agreement.
1.3 Purchase Price and Allocation. The purchase price of the Transferred
Assets will be allocated in accordance with Schedule 1.4. Each of the parties
will report this transaction for federal and state tax purposes in accordance
with the allocation set forth in such Schedule.
1.4 Excise and Property Taxes. Buyer shall pay any sales and use taxes
arising from the transfer of the Transferred Assets and Corporation will pay its
portion, prorated as of July 1, 1997 (the "Effective Date"), of state and local
real and personal property taxes of the business.
ARTICLE TWO
2.0 Time and Place of Closing. The Closing for the transfer of the
Transferred Assets and assumption of the Assumed Obligations (the "Closing")
shall take place at 11100 Santa Monica Blvd., Suite 300, Los Angeles, California
at 4:00 p.m. on July 10, 1997, or at such other place and time as the parties
may agree to in writing (the "Closing Date").
2.1 Delivery at Closing. At the Closing, Buyer shall deliver to
Corporation the funds specified in paragraph 1.2 and Corporation shall deliver
to Buyer the Bill of Sale attached hereto as Exhibit A, the Lease Assignment for
real property leases attached hereto as Exhibit B(1) and all other assignments,
deeds, conveyances or other assurances, documents and instruments of transfer
reasonably requested by Buyer that will put Buyer into full possession and
enjoyment of the Transferred Assets and the Listed Contracts.
ARTICLE THREE
3.0 Representation and Warranties. Corporation and Schwartz, jointly and
severally, represent, warrant and covenant to Buyer as follows:
3.1 Organization' Standing and Qualification. Corporation is duly
organized, validly existing, and in good standing under the laws of California,
and has the corporate power to own all of its properties and assets and to carry
on its business as it is now being conducted. Neither Corporation's ownership of
its property nor the conduct of its business requires it to be qualified to do
business in any other jurisdiction. Corporation's board of directors and
shareholders have authorized the execution of this Agreement, and Corporation
has the corporate power and is duly authorized to enter into this Agreement and
complete the transactions contemplated hereby.
<PAGE> 3
This Agreement is a valid and binding obligation of Corporation.
3.2 Capital Structure of Corporation. Corporation's authorized capital
stock consists of 100,000 shares of common stock, without par value, of which
33,726 shares are issued and outstanding and are held, beneficially and of
record, by Schwartz, free and clear of any liens, charges, encumbrances or other
adverse interests whatsoever. All issued and outstanding shares have been
validly issued in full compliance with all federal and state securities laws,
are fully paid and nonassessable, and have voting rights. There are no
outstanding subscriptions, options, rights, warrants, convertible securities, or
other agreements or commitments obligating Corporation to issue or to transfer
from treasury any additional shares of its capital stock of any class.
3.3 Financial Statements; Minimum Net Worth. The balance sheet of
Corporation as of December 31, 1996 ("Balance Sheet") and the interim balance
sheet (the "Interim Balance Sheet") of Corporation as of June 30, 1997 (the
"Interim Balance Sheet Date") and the related statements of profits and losses
for the year and six month period then ended, copies of which are attached
hereto as Schedule 3.3, fairly present the financial position of Corporation as
of those dates and the results of operations for that year and period, and have
been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with that of preceding years. In addition, on the
Closing Date, the Stockholder's Equity of Corporation, calculated on a pro forma
basis as if the transfer of assets and assumption of obligations contemplated by
this Agreement had not been effected as of July 1, 1997, shall not have
decreased by more than $5,000, from the Stockholder's Equity of Corporation as
of the close of business on June 30, 1997.
3.4 Liens; Condition. Except for the lien for any current taxes or
assessments not yet delinquent and the liens in favor of Union Bank evidenced by
the UCC-1 attached hereto as Schedule 3.4, Corporation owns all of the
Transferred Assets free and clear of any liens, claims, charges, options, or
encumbrances. All of the Transferred Assets are in good condition and repair and
Buyer will be able to utilize all such Transferred Assets after the Closing in
the ordinary course of business.
3.5 Accounts Receivable. All accounts receivable reflected on the Interim
Balance Sheet arose from valid transactions in the ordinary course of
Corporation's business. By December 31, 1998, Buyer shall have collected in full
ninety four percent (94%) of the face amount of the accounts receivable
reflected on the Interim Balance Sheet.
<PAGE> 4
3.6 Interests in Corporation's Property. No officer, director, or
shareholder of Corporation has any interest in any property, real or personal,
tangible or intangible, including copyrights, trademarks, or trade names, used
in or pertaining to the business of Corporation.
3.7 Absence of Undisclosed Liabilities. There are no liabilities of
Corporation, whether absolute, accrued, contingent or otherwise, other than the
following:
(a) Liabilities disclosed or provided for in the Interim Balance Sheet;
(b) Liabilities incurred in the ordinary course of business after the
Interim Balance Sheet Date, none of which has been adverse to the business of
Corporation, and none of which is attributable to any period prior to the
Interim Balance Sheet Date.
3.8 Absence of Specified Changes. Since the Interim Balance Sheet
Date there has not been:
(a) Any change in the business, results of operations, assets, financial
condition, or manner of conducting the business of Corporation other than
changes in the ordinary course of business, none of which has had an adverse
effect on the business, results of operations, assets, financial condition, or
prospects of Corporation;
(b) Any damage, destruction, or loss (whether or not covered by insurance)
adversely affecting any aspect of the business or operations of Corporation;
(c) Any direct or indirect redemption or other acquisition by Corporation
of any of Corporation's shares of capital stock of any class, or any
declaration, setting aside, or payment of any dividend or other distribution in
respect of Corporation's capital stock of any class;
(d) Any increase in the compensation payable or to become payable by
Corporation to any of its officers, employees, or agents;
(e) Any option to purchase, or other right to acquire, stock of any class
of Corporation granted by Corporation to any person;
(f) Any employment, bonus, or deferred compensation agreement entered into
between Corporation and any of its directors, officers, or other employees or
consultants;
<PAGE> 5
(g) Any issuance of capital stock of any class by Corporation;
(h) Any indebtedness incurred by Corporation for borrowed money or any
commitment to borrow money entered into by Corporation or any guaranty given by
Corporation;
(i) Any amendment to Corporation's articles of incorporation or bylaws; or
(j) Any other change in the way the Corporation conducts its business.
3.9 Permits, Licenses and Franchises. Corporation has obtained all
necessary permits, licenses, franchises, and other authorizations and has
complied with all laws applicable to the conduct of its business in the manner
and in the areas in which business is presently being conducted; and all such
permits, licenses, franchises, and authorizations are valid and in full force
and effect. Corporation has not engaged in any activity that would cause
revocation or suspension of any such permits, licenses, franchises, or
authorizations; no action or proceeding looking to or contemplating the
revocation or suspension of any of them is pending or threatened; and no
approvals or authorizations will be required after the Closing to permit Buyer
to conduct Corporation's business as presently conducted.
3.10 Judgments, Decrees or Orders Restraining Business. Corporation is not
a party to or subject to any judgment, decree, or order entered in any suit or
proceeding brought by any governmental agency or by any other person, enjoining
Corporation with respect to any business practice, the acquisition of any
property, or the conduct of business in any area. Corporation has never been
named defendant in any judicial or arbitration proceeding. In addition, no
judicial or arbitration proceeding is currently pending or threatened against
Corporation, other than any claims related to unpaid payroll taxes, all of which
Corporation specifically confirms will remain its sole responsibility after the
Closing, together with all liabilities other than those specifically included in
the Assumed Obligations.
3.11 Insurance. During each of the past five fiscal years, Corporation has
been adequately insured by financially sound and reputable insurers with respect
to personal injury claims and all other risks normally insured against, in
amounts normally carried by companies similarly situated; all such policies are
in full force and effect and will remain in effect after the Closing Date with
respect to any claims arising on or prior to the Closing Date; all premiums due
on such policies have been fully paid; and no notice of cancellation or
termination has been received with
<PAGE> 6
respect to any policy.
3.12 Disclosure. No representation or warranty by Corporation or Schwartz
in this Agreement and no statement by Corporation, or any executive officer or
other person contained in any document, certificate, or other writing furnished
by or on behalf of Corporation to Buyer in connection with this transaction,
contains or will contain any untrue statement of material fact, or omits or will
omit to state any material fact necessary to make it not misleading or necessary
to fully provide the information required to be provided in the document,
certificate, or other writing. Corporation, its sole shareholder, and its
officers and directors have no knowledge of any existing fact, matter or
threatened event relating to its business which is not disclosed herein and
which may have a materially adverse effect upon the results of operations,
liabilities, assets, prospects, business or condition, financial or otherwise,
of Buyer after the Closing. Without limiting the generality of the foregoing,
Corporation, its shareholders and its officers and directors have no reason to
believe that any of Corporation's existing referral sources will refer fewer
patients and clients to Buyer after the Closing Date or that Corporation's
existing patients and clients will not use the services of Buyer after the
Closing Date for any reason other than their not needing further medical care at
such time.
3.13 Powers of Attorney. Corporation has no powers of attorney outstanding
other than those issued in the ordinary course of business with respect to
insurance, tax, and customs matters.
3.14 No Violation of Other Instruments. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, (1) violate any provision of Corporation's articles of incorporation
or bylaws; (2) violate any provision of, or result in the acceleration of any
obligation under, or result in the imposition of any lien or encumbrance on any
Transferred Assets pursuant to the terms of, any mortgage, note, lien, lease,
franchise, license, permit, agreement, instrument, order, arbitration award,
judgment, or decree; (3) result in the termination of any license, franchise,
lease, or permit to which Corporation is a party or by which Corporation is
bound; or (4) violate or conflict with any other restriction of any kind or
character to which Corporation is subject. Corporation's board of directors and
shareholders will take any additional actions required by law or by
Corporation's articles of incorporation or bylaws, or otherwise necessary to
authorize the execution, delivery and performance of this Agreement.
<PAGE> 7
3.15 Contracts. Corporation is not in default under any of the Listed
Contracts, has not committed any acts which, with the giving of notice would
give rise to a default thereunder, and has not received notice that any party to
any of such Listed Contracts intends to cancel, terminate or seek a modification
of any of them. All Listed Contracts are valid, in full force and effect and are
assignable to Corporation and, subject to the effect of bankruptcy, insolvency
or similar laws affecting the rights of creditors' generally, will remain
binding in accordance with their terms after the Closing.
3.16 Systems Facility Data. The "Sportstherapy Systems Facility Data"
attached as Schedule 3.16 is true and correct in all respects and there has been
no material change in the comparable data for the May 1 through June 30, 1997
period.
ARTICLE FOUR
4.0 Buyer's Representations and Warranties. Buyer represents and warrants
to Corporation as follows:
4.1 Organization and Standing of Buyer. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California.
4.2 Corporate Power and Action. Buyer has the corporate power to execute
and deliver this Agreement and has taken (or by the Closing Date will have
taken) all actions required by law, its articles of incorporation, its bylaws,
or otherwise, to authorize the execution and delivery of this Agreement. This
Agreement is a valid and binding obligation of Buyer.
4.3 No Violation of Other Instruments. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, (1) violate any provision of the articles of incorporation or bylaws
of Buyer; (2) violate any material provision of or result in the acceleration of
any material obligation under any mortgage, note, lien, lease, franchise,
license, permit, agreement, instrument, order, arbitration award, judgment, or
decree to which Buyer is a party or by which it is bound; (3) result in the
termination of any material license, franchise, lease, or permit to which Buyer
is a party or by which either is bound; or (4) violate or conflict with any
other material restriction of any kind or character to which Buyer is subject.
ARTICLE FIVE
5.0 Conditions Precedent to Buyer's Obligation to Close. Buyer's
obligation to consummate the purchase and sale is subject
<PAGE> 8
to the satisfaction, on or before the Closing Date, of the following conditions:
5.1 Performance of Acts and Undertakings of Corporation. Each of the acts
and undertakings of Corporation to be performed on or before the Closing Date
pursuant to the terms of this Agreement shall have been duly performed.
5.2 Certified Resolutions. Corporation shall have furnished Buyer with a
copy, certified by Corporation's secretary, of (1) a resolution or resolutions
duly adopted by Corporation's board of directors and shareholder authorizing and
approving this Agreement, and the execution of the documents and completion of
transactions contemplated hereby.
5.3 Continued Accuracy of Corporation's Representations and Warranties.
All of the representations and warranties of Corporation contained in this
Agreement, including in the Schedules attached hereto, shall be true in every
respect on and as of the Closing Date, with the same effect as though such
representations and warranties had been made on and as of that date; and Buyer
shall have received at the Closing a certificate, dated the Closing Date and
executed by the president or a vice president of Corporation, containing a
representation and warranty to that effect.
5.4 Consents. All consents of other parties to mortgages, notes, leases,
franchises, agreements, licenses, and permits of Corporation necessary to permit
consummation of the transactions contemplated hereby shall have been obtained.
5.5 Employment Agreements. As of the Closing Date, Buyer will have no
liability to any executive or other employees of Corporation or to any tax or
other governmental authorities with respect to any employment of such employees
by Corporation on or prior to the Effective Date.
ARTICLE SIX
6.0 Conditions Precedent to Corporation's Obligation to Close.
Corporation's obligation to close is subject to the satisfaction on or prior to
the Closing Date of the following conditions:
6.1 Performance of Acts and Undertakings by Buyer. Each of Buyer's acts
and undertakings to be performed on or before the Closing Date pursuant to this
Agreement shall have been performed.
6.2 Certified Resolutions. Buyer shall have furnished
<PAGE> 9
Corporation with certified copies of resolutions duly adopted by the board of
directors and shareholder of Buyer authorizing and approving the execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement.
6.3 Continued Accuracy of Buyer's Representations and Warranties. The
representations and warranties of Buyer contained in this Agreement shall be
true on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of that date; and
Corporation shall have received at the Closing a certificate, dated the Closing
Date and executed on behalf of Buyer by its president or any vice president,
containing a representation and warranty to that effect.
ARTICLE SEVEN
7.0 Buyer's Investigation. Prior to the Closing Date, Buyer may directly
or through its representatives make such investigation of the assets and
business of Corporation (including, without limitation, confirmation of its
accounts, accounts receivable and liabilities, and investigation of its titles
to and the condition of its assets and equipment) as Buyer deems necessary or
advisable. The investigation shall not limit or otherwise affect (1)
Corporation's representations and warranties contained or provided for in this
Agreement, (2) Buyer's right to rely on those representations and warranties, or
(3) Buyer's right to terminate this Agreement as provided in this Article Seven
and in Article Nine. Corporation shall allow Buyer and its representatives full
access, at reasonable times after the date of execution of this Agreement, to
the premises and to all the books, records, and assets of Corporation, and
Corporation's officers shall furnish to Buyer such financial and operating data
and other information with respect to the business and Transferred Assets of
Corporation as Buyer shall from time to time reasonably request. Buyer agrees
not to disclose any confidential information obtained in the course of its
investigation or use it for any purposes other than evaluation of Corporation
with respect to the contemplated purchase of the Transferred Assets and
assumption of the Assumed Obligations.
7.1 Notice. As soon as practicable, and in any event within 20 days after
the receipt of any supporting documentation requested by Buyer, Buyer shall give
Corporation notice if Buyer has decided that it wishes to terminate this
Agreement based on any information obtained during the course of its
investigation. The notice shall specify the information obtained during the
investigation on which Buyer's decision to terminate is based. Corporation shall
have 10 days after the receipt of the notice to review that information with
Buyer. If Buyer does not withdraw
<PAGE> 10
its notice within this 10 day period, then all further obligations of Buyer and
of Corporation under this Agreement shall terminate without further liability of
Buyer to Corporation or of Corporation to Buyer, except their respective
obligations to return documents as provided in Article Nine. If Buyer does not
advise Corporation within the 20 day period specified in the first sentence of
this subparagraph that it wishes to terminate this Agreement, Buyer shall be
deemed to be satisfied with the information relating to Corporation obtained
during the course of its investigation, subject to Buyer's rights concerning the
continued accuracy of Corporation's warranties and representations set forth in
Article Five, Paragraph 5.3.
ARTICLE EIGHT
8.0 Survival of Representations, Warranties and Indemnities. No
representations or warranties whatever are made by any party except as
specifically set forth in this Agreement (including in the Schedules hereto), or
in an instruments, certificate, opinion, or other writing provided for in this
Agreement. All statements contained in any of these instruments, certificates,
opinions, or other writings will be considered to be representation and
warranties under this Agreement. The representations, warranties, and
indemnities made by the parties in this agreement or in instruments,
certificates, opinions, or other writings provided for in this Agreement to be
performed or complied with by the respective parties under it before the Closing
Date, will be continuing and will survive the Closing, but will expire on the
first anniversary of the Closing Date, unless a specific claim in writing with
respect to these matters has been made, or an action at law or in equity has
been commenced or filed, before that date. Nothing in this paragraph will affect
the obligations and indemnities of the parties with respect to covenants and
agreements contained in this agreement that are permitted to be performed, in
whole or in part, after the Closing Date, including, without limitation, the
representations in paragraph 3.5 regarding accounts receivables, which will not
expire until December 31, 1998, unless a claim or action with respect thereto
has been made or filed by such date.
ARTICLE NINE
9.0 Grounds for Termination. In addition to the termination rights
provided for in Article Seven, this Agreement and the transactions contemplated
under this Agreement may be terminated at any time prior to the Closing Date,
either before or after the meeting of Corporation's shareholders:
(a) By mutual consent of Buyer and Corporation;
<PAGE> 11
(b) By Buyer if there has been a material misrepresentation or a material
breach of warranty in Corporation's representations and warranties set forth in
this Agreement, including in any Schedule or certificate delivered pursuant to
this Agreement, it being understood that any failure by Corporation to have the
pro-forma Stockholders' Equity as of the Closing required by paragraph 3.3,
shall be deemed material;
(c) By Corporation if there has been a material misrepresentation or a
material breach of warranty in Buyer's representations and warranties set forth
in this Agreement;
(d) By Buyer or Corporation if either party shall have determined in its
sole discretion that the transactions contemplated by this Agreement have become
inadvisable or impracticable by reason of the institution or threat of
institution, by governmental authorities (local, state, or federal) or by any
other person, of material litigation or proceedings against either or both of
the parties, it being understood and agreed that a written request by
governmental authorities for information with respect to the proposed
transactions, which information could be used in connection with such litigation
or proceedings, may be deemed by Buyer or Corporation to be a threat of material
litigation or proceedings, whether such request is received before or after the
date of this Agreement;
(e) By Buyer if it has determined that the business, assets, or financial
condition of Corporation, taken as a whole, have been materially and adversely
affected, whether by reason of changes, developments, or operations in the
ordinary course of business or otherwise;
(f) By Corporation or by Buyer if the Closing Date has not occurred by
July 31, 1997.
9.1 Right to Proceed. In the event that this Agreement is terminated
pursuant to this Article Nine or Article Seven, or because of the failure to
satisfy any of the conditions specified in Article Five or Article Six, all
further obligations of Buyer and of Corporation under this Agreement shall
terminate without further liability of Buyer to Corporation or Corporation to
Buyer, except for the obligations of both parties under Article Seven and of
Buyer under Paragraph 9.2 of this Article Nine; provided, however, anything in
this Agreement to the contrary notwithstanding, that if Corporation fails to
furnish any of the documents referred to in Article Seven or fails to satisfy
any of the conditions specified in Article Five, Buyer shall nonetheless have
the right, in its discretion, to proceed with the transactions contemplated by
this Agreement, and if Buyer fails
<PAGE> 12
to satisfy any of the conditions specified in Article Six, Corporation shall
nonetheless have the right, in its discretion, to proceed with the transactions
contemplated by this Agreement.
9.2 Return of Corporation's Documents in Event of Termination. In the
event of the termination of this Agreement for any reason, Buyer will return to
Corporation all documents, work papers, and other materials (including copies)
relating to the transactions contemplated by this Agreement, whether obtained
before or after execution of this Agreement. Buyer will not use any information
so obtained for any purpose, and will take all practicable steps to have such
information kept confidential.
ARTICLE TEN
10.0 Public Announcement. Neither Buyer nor Corporation, without the
consent of the other, shall make any public announcement or issue any press
release with respect to this Agreement or the transactions contemplated by it,
which consent shall not be unreasonably withheld.
ARTICLE ELEVEN
11.0 Covenant to Operate in Ordinary Course. Between the date of this
Agreement and the Closing Date, Corporation shall operate its business only in
the ordinary course and in a normal manner consistent with past practice. During
this period, Corporation shall not encumber any asset or enter into any
transaction or make any commitment relating to its assets or business otherwise
than in the ordinary course of its business (consistent with its prior
practices), or take any action that would render inaccurate any representation
or warranty contained in this Agreement or would cause a breach of any other
covenant under this Agreement, without first obtaining the written consent of
Buyer.
11.1 Network and Managed Care Contracts. After the Closing, Corporation
shall use its best efforts to have all of its network and managed care contracts
assigned to Buyer.
<PAGE> 13
ARTICLE TWELVE
12.0 Governing Law; Successors and Assigns: Counterparts; Entire
Agreement. This Agreement (a) shall be construed under and in accordance with
the laws of the State of California; (b) shall be binding on and shall inure to
the benefit of the parties to the Agreement and their respective successors and
heirs; (c) may be executed in one or more counterparts, all of which shall be
considered one and the same agreement, and shall become effective when one or
more counterparts shall have been signed and delivered by each of the parties;
and (d) embodies the entire agreement and understanding, superseding all prior
agreements and understandings between the parties relating to the subject matter
of this Agreement.
12.1 Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the fifth day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
To Corporation at: 23603 Park Sorrento, Suite 101 Calabasas, California 91302
To Buyer at: 11100 Santa Monica Boulevard, Suite 300 Los Angeles, California
90025
Any party may change its address for purposes of this paragraph by giving the
other parties written notice of the new address in the manner set forth above.
12.2 Severability. If any term or provision of this Agreement is
unenforceable for any reason, all other terms and provisions shall continue in
effect to the fullest extent permitted by law.
12.3 Indemnity to Buyer. Corporation and Schwartz hereby jointly and
severally indemnify and agree to hold Buyer and its officers, directors,
employees, agents, parents, and affiliates harmless from and against all claims,
losses, damages, costs, diminutions in value, liabilities, proceedings,
deficiencies or expenses, including without limitation, interest, penalties and
reasonable accounting fees and other costs and amounts paid in investigation or
settlement of any of the foregoing (individually "Claim" and collectively the
"Claims") (i) incurred in connection with, or arising out of or relating to the
breach of any representation, warranty or other agreement or obligation of
Corporation or Schwartz pursuant to this Agreement; (ii) arising
<PAGE> 14
from any liabilities or obligations (including without limitation, tax
liabilities) not specifically assumed by Buyer as part of the Assumed
Obligations, or (iii) relating to the Transferred Assets.
12.4 Indemnity to Corporation. Buyer hereby indemnifies and agrees to hold
Schwartz and Corporation and its officers, directors, employees, agents and
affiliates harmless from and against all Claims incurred in connection with or
arising out of or relating to Buyer's breach of any representation, warranty or
other agreement or obligation pursuant to this Agreement.
12.5 Amendments. This Agreement may be amended only by the written
agreement of all parties hereto.
<PAGE> 15
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its duly authorized officers, all as of the day and
year first above written.
SPORTSTHERAPY SYSTEMS, INC.,
a California corporation
By: /s/ Larry Schwartz
--------------------------------------
President
HFA SERVICES, INC.
a California corporation
By: /s/ Timothy O'Brien
--------------------------------------
Chief Financial Officer
By: /s/ Larry Schwartz
--------------------------------------
Larry Schwartz
<PAGE> 1
================================================================================
EXHIBIT 10.73
AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of February 2, 1998
between
THE SPORTS CLUB COMPANY, INC.,
and various of its subsidiaries,
as Borrowers,
and
SUMITOMO BANK OF CALIFORNIA,
and such other financial institutions
as may become a lending party hereto
as Banks
and
SUMITOMO BANK OF CALIFORNIA,
as Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS 1
1.1 Defined Terms 1
1.2 Use of Defined Terms 12
1.3 Accounting Terms 12
1.4 Exhibits and Schedules 13
ARTICLE 2 LOANS AND LETTERS OF CREDIT 14
2.1 General Provisions Regarding Line A Loans and
Borrowing Procedures 14
2.2 The Line B Loan 15
2.3 Prime Rate Loans 16
2.4 Eurodollar Loans 16
2.5 Redesignation of Loans 17
2.6 Standby Letters of Credit 18
2.7 Agent's Right to Assume Funds Available for Advances 20
ARTICLE 3 PAYMENTS AND FEES 22
3.1 Principal and Interest 22
3.2 Fees 24
3.3 Eurodollar Fees and Costs 24
3.4 Letter of Credit Fees 26
3.5 Agent Fee 26
3.6 Late Payments/Default Rate 26
3.7 Computation of Interest and Fees 27
3.8 Non-Banking Days 27
3.9 Manner and Treatment of Payments 27
3.10 Funding Sources 27
3.11 Failure to Charge Not Subsequent Waiver 28
3.12 Agent's Right to Assume Payments Will be Made by Borrowers 28
3.13 Survivability 28
3.14 Unused Line Fee 28
ARTICLE 4 REPRESENTATIONS AND WARRANTIES 29
4.1 Existence and Qualification; Power; Compliance With Laws 29
4.2 Authority; Compliance With Other Agreements and
Instruments and Government Regulations 30
4.3 No Governmental Approvals Required 31
4.4 Subsidiaries 31
4.5 Financial Statements 32
4.6 No Other Liabilities; No Material Adverse Changes 32
4.7 Intangible Assets 32
4.8 Filing of Financing Statements 32
4.9 Public Utility Holding Company Act 33
4.10 Litigation 33
4.11 Binding Obligations 33
4.12 No Default 33
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
4.13 ERISA 33
4.14 Regulations G, T, U and X; Investment Company Act 34
4.15 Disclosure 34
4.16 Tax Liability 34
4.17 Projections 34
4.18 Fiscal Year 35
4.19 Employee Matters 35
ARTICLE 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION
REPORTING REQUIREMENTS) 36
5.1 Payment of Taxes and Other Potential Charges 36
5.2 Preservation of Existence 36
5.3 Maintenance of Properties 36
5.4 Maintenance of Insurance 37
5.5 Compliance With Laws 37
5.6 Additional Borrowers 37
5.7 Inspection Rights 37
5.8 Keeping of Records and Books of Account 38
5.9 Compliance With Agreements, Duties and Obligations 38
5.10 Use of Proceeds 38
ARTICLE 6 NEGATIVE COVENANTS 39
6.1 Disposition of Property 39
6.2 Transactions with Borrowers and Non-Borrower Affiliates 39
6.3 Mergers, Investments, Acquisitions and New Club Developments 39
6.4 Profitability 40
6.5 Redemption, Dividends and Distributions; Payments to Partners 40
6.6 ERISA 41
6.7 Change in Nature of Business/Management 41
6.8 Transactions with AT&T Commercial 42
6.9 Indebtedness, Guaranties and Liens 42
6.10 Transactions with Affiliates 43
6.11 Change in Fiscal Year 43
6.12 Capital Expenditures 43
6.13 Tangible Net Worth 44
6.14 Ratio of Total Unsubordinated Liabilities to
Tangible Net Worth 44
6.15 Debt Service Coverage Ratio 44
6.16 Attrition 44
6.17 Loans to Officers 45
6.18 Deposit Accounts 45
6.19 Ratio of Debt to EBITDA 45
6.20 Liquidity Requirement 45
ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS 46
7.1 Financial and Business Information 46
7.2 Compliance Certificates 48
7.3 Revisions or Updates to Schedules 49
ARTICLE 8 CONDITIONS 50
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
8.1 Initial Loans, Etc 50
8.2 Any Loan 51
8.3 Line B Loans 52
ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT 53
9.1 Events of Default 53
9.2 Remedies Upon Event of Default 55
ARTICLE 10 THE AGENT 57
10.1 Appointment and Authorization 57
10.2 Agent and Affiliates 57
10.3 Proportionate Interest of the Banks in any Collateral 57
10.4 Banks' Credit Decisions 57
10.5 Action by Agent 58
10.6 Liability of Agent 58
10.7 Indemnification 59
10.8 Successor Agent 60
ARTICLE 11 MISCELLANEOUS 61
11.1 Pledge of Partnership Interests of L.A./Irvine
Sports Clubs, Ltd. 61
11.2 Cumulative Remedies; No Waiver 61
11.3 Amendments; Consents 61
11.4 Costs, Expenses and Taxes 62
11.5 Nature of Banks' Obligations 62
11.6 Survival of Representations and Warranties 63
11.7 Notices 63
11.8 Execution of Loan Documents 63
11.9 Sharing of Setoffs 63
11.10 Binding Effect; Assignment 64
11.11 Assignment of Deposits 64
11.12 Participation of Loan 64
11.13 Indemnity by Borrowers 64
11.14 Nonliability of Banks 65
11.15 No Third Parties Benefited 66
11.16 Further Assurances 66
11.17 Integration 66
11.18 Governing Law 66
11.19 Severability of Provisions 67
11.20 Headings 67
11.21 Time of the Essence 67
11.22 Securities Representation 67
11.23 Joint Borrower Provisions 67
11.24 Waiver of Jury Trial 72
</TABLE>
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<PAGE> 5
Exhibits
A-1 Line A Note
A-2 Line B Note
B Request for Standby Letter of Credit
C Request for Loan
D Request for Redesignation of Loans
Schedules
4.2 Necessary Consents
4.4 Subsidiaries
4.6 Material Contingent Liabilities
4.8 Governmental Agencies With Which Financing Statements Need be Filed
and/or Recorded
4.10 Litigation
4.13 Plans Subject to ERISA
4.17 Projections
5.2 Preservation of Existence
5.6 Additional Borrowers
6.9 Indebtedness, Guaranties and Liens
6.10 Transactions with Affiliates
6.17 Loans to Officers
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<PAGE> 6
AMENDED AND RESTATED LOAN AGREEMENT
Dated as of February 2, 1998
WHEREAS, The Sports Club Company, Inc., The Spectrum Club Company,
Inc., Pontius Realty, Inc., Sports Club, Inc. of California, Irvine Sports Club,
Inc., The SportsMed Company, Inc., formerly HealthFitness Organization of
America, Inc., L.A./Irvine Sports Clubs, Ltd., Talla New York, Inc., SCC Sports
Club, Inc., and Green Valley Spectrum Club, Inc., are parties to that certain
Loan Agreement dated as of March 20, 1997 as amended by a First Amendment dated
as of August 1, 1997 and a Second Amendment dated as of August 14, 1997
(collectively, "Original Loan Agreement") with Sumitomo Bank of California as
lender (sometimes hereafter referred to as "Sumitomo Bank"); and
WHEREAS, Borrowers (as defined below) and Sumitomo Bank of
California have agreed to an amendment and restatement of the existing credit
facility to provide for, among other things, a restructuring of the credit
facility as an agented credit facility, and a modification of the credit lines
to provide for, among other things, a revolving working capital line with a
revolving standby letter of credit subfacility and a non-revolving acquisition
bridge facility; and
WHEREAS, Borrowers, Agent (as defined below) and Banks (as defined
below) do hereby enter into this Amended and Restated Loan Agreement
("Agreement") in place and stead of the Original Loan Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the meanings set forth respectively after each:
"Acquisition" means any transaction, or any series of related
transactions, by which any Borrower and/or any of its Subsidiaries
directly or indirectly acquires control of any going business or all or
substantially all of the assets of any firm, partnership, joint venture,
limited liability company, corporation or division thereof, whether
through purchase of assets, merger or otherwise, (control meaning
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies of such entities); provided that, in
any event, the term "Acquisition" shall include any acquisition in which
any Borrower and/or any Subsidiaries thereof controls a majority in
ordinary voting power of the securities of a corporation which have
ordinary voting power for the election of directors or other governing
body of a corporation (other than securities having such power
-1-
<PAGE> 7
only by reason of the happening of a contingency), or control 50% or
more ownership interest in any partnership, limited liability company or
joint venture.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (and
its correlative meanings, "controlled by" and "under common control
with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise), provided that, in any event, any Person that
owns, directly or indirectly, 50% or more of the securities having
ordinary voting power for the election of directors or other governing
body of a corporation (other than securities having such power only by
reason of the happening of a contingency), or 50% or more of the
partnership or other ownership interests of any other Person (other than
as a limited partner of such other Person), will be deemed to control
such corporation or other Person.
"Agent" means Sumitomo Bank of California, a California state
bank, when acting in its capacity as Agent under any of the Loan
Documents, and any successor Agent.
"Agent's Office" means the office designated by Agent as its
address for purposes of notice under this Agreement.
"Agreement" means this Amended and Restated Loan Agreement, either
as originally executed or as it may from time to time be supplemented,
modified, amended, restated or extended.
"AT&T Commercial" means AT&T Commercial Finance Corporation, a
Delaware corporation.
"Attrition" means, for any given period, the reduction in number
of gross members exclusive of any new members.
"Bank" or "Banks" means individually or collectively Sumitomo Bank
and any one or more Banks or other financial institutions which become
lending parties to this Agreement in accordance with the terms hereof.
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday on which all of the Banks are open for business at their
respective addresses for notice designated as provided herein.
"Borrower or Borrowers" means, individually or collectively, The
Sports Club Company, Inc., The Spectrum Club Company, Inc., Pontius
Realty, Inc., Sports Club, Inc. of California, Irvine Sports Club, Inc.,
The SportsMed Company, Inc., L.A./Irvine Sports Clubs, Ltd., Talla New
York, Inc., SCC Sports Club, Inc., Green Valley Spectrum Club, Inc.,
Spectrum Club/Anaheim Hills, Inc. and any subsequent Person who becomes a
Borrower pursuant to the terms hereof.
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<PAGE> 8
"Capital Expenditure" means any expenditure (including any
capitalized lease expenditure) that is considered a capital expenditure
under generally accepted accounting principles, consistently applied,
including, without limitation, any amount that is required to be treated
as a capitalized asset pursuant to Financial Accounting Standards Board
Statement No. 13.
"Cash" means, when used in connection with any Person, all
monetary and non-monetary items belonging to such Person that are treated
as cash in accordance with generally accepted accounting principles,
consistently applied.
"Cash Equivalents" means, when used in connection with any Person,
such Person's Investments in:
(a) Government Securities due within one year after the
date of the making of the Investment;
(b) certificates of deposit issued by, bank deposits in,
bankers' acceptances of, and repurchase agreements covering,
Government Securities executed by, any bank doing business in and
incorporated under the Laws of the United States of America or any
state thereof and having on the date of such Investment combined
capital, surplus and undivided profits of at least $100,000,000,
in each case due within one year after the date of the making of
the Investment; and/or
(c) readily marketable commercial paper of corporations
doing business in and incorporated under the Laws of the United
States of America or any state thereof given on the date of such
Investment the highest credit rating by NCO/Moody's Commercial
Paper Division of Moody's Investors Service, Inc. or Standard &
Poor's Corporation, in each case due within six months after the
date of the making of the Investment.
"Certificate of a Responsible Official" means a certificate signed
by a Responsible Official of the Person providing the certificate.
"Closing Date" means the Banking Day on which the consummation of
all of the transactions contemplated in Section 8.1 occurs.
"Club" means a health and fitness facility operated by any
Borrower.
"Collateral" means, collectively, all Property on or in which the
Agent or any Bank has a Lien pursuant to this Agreement or any other Loan
Document.
-3-
<PAGE> 9
"Commitment" means, collectively, the Line A Commitment and the
Line B Commitment as may be reduced or offset under this Agreement. The
respective percentage obligations of each Bank with respect to the
Commitment are as follows:
<TABLE>
<CAPTION>
Bank Amount Percentage
---- ------ ----------
<S> <C> <C>
Sumitomo Bank $10,000,000 100%
</TABLE>
"Davis Payments" means payments made by MKDG/Rhodes SC Partnership
in connection with the minimum cash flow generated by Irvine Sports Club,
Inc. pursuant to (i) that certain Agreement for Purchase and Sale dated
as of November 19, 1993 between MKDG/Rhodes SC Partnership and Rex
Licklider and (ii) that certain Assignment of Contract Rights made by Rex
Licklider to SCC, Inc. dated as of October 11, 1994.
"Default" means any Event of Default and/or any event that, with
the giving of notice or passage of time or both, would be an Event of
Default.
"Default Rate" means the rate of interest per annum otherwise
provided under this Agreement plus two percent (2%).
"Designated Deposit Account" means deposit account no. 01800220570
to be maintained by Borrowers with Agent at Agent's Office, or such other
deposit account as from time to time designated by Borrowers by written
notification to Agent and approved by Agent.
"Designated Eurodollar Market" means, with respect to any
Eurodollar Loan, the London Eurodollar Market, or such other Eurodollar
Market as may from time to time be designated by Agent.
"dollars" or "$" means United States dollars.
"EBITDA" means, for any fiscal period, (a) the consolidated net
income before extraordinary items of Borrowers and their Subsidiaries for
that period, determined in accordance with generally accepted accounting
principles, consistently applied, plus (b) consolidated interest expense
for that period, plus (c) income tax expense for that fiscal period, plus
(d) depreciation expense for that fiscal period plus (e)amortization
expense for that fiscal period.
"ERISA" means the Employee Retirement Income Security Act of 1974,
and any regulations issued pursuant thereto, as amended or replaced and
as in effect from time to time.
"Eurodollar Banking Day" means any Banking Day on which dealings
in dollar deposits are conducted by and between banks in the Designated
Eurodollar Market.
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<PAGE> 10
"Eurodollar Lending Office" means as to each Bank, its office or
branch so designated by written notice to Borrowers and Agent as its
Eurodollar Lending Office. If no Eurodollar Lending Office separately is
designated by a Bank, its Eurodollar Lending Office shall be its office
as designated for purposes of notice hereunder.
"Eurodollar Loan" means a Loan made hereunder and designated or
redesignated as a Eurodollar Loan in accordance with Article 2.
"Eurodollar Market" means a regular established market located
outside the United States of America by and among banks for Eurodollar
Obligations.
"Eurodollar Obligations" means eurocurrency liabilities, as
defined in Regulation D.
"Eurodollar Period" means, as to each Eurodollar Loan, the period
commencing on the date specified by Borrowers pursuant to Sections 2.1(b)
or 2.5(c) and ending 30, 60 or 90 days thereafter, as specified by
Borrowers in the applicable Request for Loan or Request for Redesignation
of Loans, provided that:
(a) The first day of any Eurodollar Period shall be a
Eurodollar Banking Day;
(b) Any Eurodollar Period that would otherwise end on a day
that is not a Eurodollar Banking Day shall be extended to the next
succeeding Eurodollar Banking Day unless such Eurodollar Banking
Day falls in another calendar month, in which case such Eurodollar
Period shall end on the next preceding Eurodollar Banking Day; and
(c) No Eurodollar Period shall extend beyond the Maturity
Date.
"Eurodollar Rate" means, with respect to any Eurodollar Loan, (a)
the LIBOR Rate offered for deposits as of about 10:00 a.m., Los Angeles
time, two (2) Eurodollar Banking Days before the first day of the
applicable Eurodollar Period in an aggregate amount approximately equal
to the amount of such Eurodollar Loan and for a period of time comparable
to the number of days in the applicable Eurodollar Period divided by (b)
1.00 minus the Reserve Percentage. The determination of the Eurodollar
Rate by Agent shall be conclusive in the absence of manifest error.
"Eurodollar Rate Spread" means the additional component of
interest, expressed as a percentage per annum of two and one-half percent
(2.5%), to be added to the Eurodollar Rate in determining the applicable
rate of interest for Eurodollar Loans.
"Event of Default" shall have the meaning provided in Section 9.1.
"Government Securities" means readily marketable direct
obligations of the United States of America or obligations fully
guarantied by the United States of America.
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<PAGE> 11
"Governmental Agency" means (a) any international, foreign,
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, authority,
board, bureau, commission, department, instrumentality or public body,
(c) any court, administrative tribunal or public utility, or (d) any
arbitration tribunal or other non-governmental authority to whose
jurisdiction a Person has consented.
"Investment" means, when used in connection with any Person, any
investment by or of that Person, whether by means of purchase or other
acquisition of stock or other securities or by means of loan, advance,
capital contribution, guaranty or other debt or equity participation or
interest in any other Person, or otherwise, and includes, without
limitation, any partnership and joint venture interests of such Person.
"Issuing Bank" means, with respect to any Standby Letter of
Credit, Sumitomo Bank or any other Bank designated by Borrowers (with the
consent of the Requisite Banks) which issued that Standby Letter of
Credit.
"Laws" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, regulations, ordinances, codes
and administrative or judicial precedents.
"LIBOR Rate" means the interest (rounded upward to the nearest
1/16th of one percent) as determined by the British Bankers Association
and disseminated daily as an average of the rate at which certain major
banks would offer U.S. dollar deposits for the applicable Eurodollar
Period to other major banks in the London inter-bank market.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
security interest, encumbrance, lien or charge of any kind, whether
voluntarily incurred or arising by operation of Law or otherwise,
affecting any Property, including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and/or the filing of or agreement to give
any financing statement under the Uniform Commercial Code or comparable
Laws of any jurisdiction.
"Line A Availability" means, as of each date of determination the
Line A Commitment less any amount by which Borrowers have failed to
comply with the Liquidity Requirement.
"Line A Availability Period" means the period from the Closing
Date through June 30, 1998.
"Line A Commitment" means the commitment by Banks to make
revolving loans to Borrowers in an aggregate principal amount not to
exceed $2,000,000.
"Line A Letter of Credit Usage" means, at any date of
determination, the sum of (i) the maximum aggregate amount that is or at
any time thereafter may become available for drawing or payment under
issued and outstanding Standby Letters of Credit issued
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<PAGE> 12
pursuant to a subline under the Line A Commitment, plus (ii) the
aggregate amount of all drawings honored or payments made by the Issuing
Bank under such Standby Letters of Credit and not yet reimbursed by
Borrowers, but in no event to exceed the Maximum Letter of Credit Amount.
"Line A Loan" means any advance made by any Bank under the Line A
Commitment.
"Line A Maturity Date" means October 30, 1998.
"Line B Availability" means, as of each date of determination, the
Line B Commitment minus the aggregate amount of all Line B Loans made by
the Banks and less any amount by which Borrowers have failed to comply
with the Liquidity Requirement.
"Line B Availability Period" means the period from the Closing
Date through June 30, 1998.
"Line B Commitment" means the commitment by Banks to make
non-revolving Loans in an aggregate principal amount not to exceed
$8,000,000 (including any Outstanding Standby Letters of Credit, not to
exceed the Maximum Standby Letter of Credit Amount).
"Line B Loan" means any advance made by any Banks under the Line B
Commitment.
"Line B Maturity Date" means October 30, 1998.
"Liquidity Requirement" means the liquidity amounts as required in
Section 6.20 hereof.
"Loan" or "Loans" means the advances to be made by Banks to
Borrowers pursuant to this Agreement. Each individual Loan shall consist
of advances made by Banks pursuant to Article 2, including advances made
as new advances, and also including advances made by converting or
redesignating existing advances in accordance with the provisions of
Article 2. In connection with each Loan, the amount of such Loan by each
Bank shall be determined according to that Bank's percentage share of the
Commitment.
"Loan Documents" means, collectively, this Agreement, the Notes,
the Pledge Agreement, the Pledge Agreement (Partnership), the Standby
Letters of Credit, any assignments, any financing statements and any
other certificates, documents or agreements of any type of nature
heretofore or hereafter executed or delivered by Borrowers and/or any one
or more of their Subsidiaries or Affiliates to Agent or to Banks in any
way relating to or in furtherance of this Agreement, in each case either
as originally executed or as the same may from time to time be
supplemented, modified, amended, restated or extended.
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<PAGE> 13
"Maturity Date" means the Line A Maturity Date or the Line B
Maturity Date, as applicable.
"Maximum Revolving Loan Amount" means, as of any date of
determination thereof, the Line A Commitment.
"Maximum Standby Letter of Credit Amount" means $5,000,000.
"Multiemployer Plan" means any employee benefit plan of the type
described in Section 4001(a)(3) of ERISA.
"Non-Borrower Affiliate" means any Affiliate of a Borrower, now
existing or hereafter acquired, that is not a Borrower hereunder.
"Note" means any of the promissory notes executed by Borrowers in
favor of Banks evidencing the Loans made by Banks or any of them under
the Commitment, substantially in the form of Exhibit(s) A-1 and A-2
hereto, either as originally executed or as the same may from time to
time be supplemented, modified, amended, renewed, extended or refinanced.
When the term "Note" is modified by the terms "Line A" or "Line B", it
refers to the Note executed to evidence Loans under the Commitment so
designated.
"Obligations" means all present and/or future obligations of every
kind or nature of Borrowers or any Party at any time and/or from time to
time owed to Agent or Banks or any one or more of them, under any one or
more of the Loan Documents, whether due or to become due, matured or
unmatured, liquidated or unliquidated, or contingent or noncontingent,
including obligations of performance as well as obligations of payment,
and including interest that accrues prior to or after the commencement of
any bankruptcy or insolvency proceeding by or against any Borrower or any
Party.
"Opinion of Counsel" means the favorable written legal opinion of
Kinsella, Boesch, Fujikawa and Towle, as counsel to Borrowers and their
Subsidiaries, in a form acceptable to Agent, together with copies of all
factual certificates and legal opinions upon which such counsel has
relied.
"Outstanding Standby Letters of Credit " means, as of any date of
determination thereof, the aggregate face amount of all Standby Letters
of Credit outstanding on such date, not to exceed the Maximum Standby
Letter of Credit Amount.
"Party" means any Person (including Borrowers and/or any
Subsidiaries or Affiliates of Borrowers), other than Agent and Banks,
which now or hereafter is a party to any of the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereof established under ERISA.
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<PAGE> 14
"Person" means any entity, whether an individual, trustee,
corporation, general partnership, limited partnership, limited liability
company, joint stock company, trust, unincorporated organization, bank,
business association, firm, joint venture, Governmental Agency, or
otherwise.
"Plan" means any employee benefit plan subject to ERISA and
maintained by Borrowers and/or any Subsidiary thereof or to which
Borrowers and/or any Subsidiary thereof are required to contribute on
behalf of their employees.
"Pledge Agreement" means that amended and restated pledge
agreement to be executed and delivered by The Sports Club Company, Inc.
and Sports Club, Inc. of California, to Agent on behalf of the Banks,
dated as of even date herewith, either as originally executed or as it
may from time to time be supplemented, modified, amended, restated or
extended.
"Pledge Agreement (Partnership)" means the amended and restated
pledge agreement to be executed and delivered by one or more Borrowers,
as applicable, to Agent on behalf of the Banks, dated as of even date
herewith, either as originally executed or as it may from time to time be
supplemented, modified, amended, restated or extended.
"Prime Rate" means the floating commercial loan rate of Sumitomo
Bank, announced from time to time as its "prime rate", which interest
rate may not necessarily be the lowest interest rate at which Sumitomo
Bank is willing to extend credit facilities.
"Prime Rate Loan" means a Loan made under the Line A Commitment or
the Line B Commitment and designated or redesignated as a Prime Rate Loan
in accordance with Article 2, or converted to a Prime Rate Loan in
accordance with Section 3.3(a).
"Prime Rate Spread" means the additional component of interest,
expressed as a percentage per annum of one-half of one percent (.5%), to
be added to the Prime Rate in determining the applicable rate of interest
for Prime Rate Loans.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Qualified Stock Repurchase" means the common stock repurchase
program instituted in February, 1997; provided that the aggregate amount
expended in repurchasing common stock of SCC, Inc. shall not exceed
$3,000,000.
"Regulations G,T,U and X " means Regulation G,T,U, and X as at any
time amended, of the Board of Governors of the Federal Reserve System, or
any other regulation in substance substituted therefor.
"Request for Standby Letter of Credit" means a written request for
the issuance of a Standby Letter of Credit substantially in the form of
Exhibit "B", signed by a Responsible
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<PAGE> 15
Official of a Borrower on behalf of the Borrowers and properly completed
to provide all information required to be included therein.
"Request for Loan" means a written request for a Loan
substantially in the form of Exhibit "C", signed by a Responsible
Official of a Borrower on behalf of the Borrowers and properly completed
to provide all information required to be included therein.
"Request for Redesignation of Loans" means a written request for
redesignation of Loans substantially in the form of Exhibit "D", signed
by a Responsible Official of a Borrower on behalf of the Borrowers and
properly completed to provide all information required to be included
therein.
"Requisite Banks" means, at any time, Banks holding at least 70%
of the aggregate unpaid amount of the Loans outstanding, or, if no Loans
then are outstanding, Banks having at least 70% of the aggregate
Commitment then in effect.
"Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member banks
of the Federal Reserve System for eurocurrency liabilities, as defined in
Regulation D, rounded upward to the nearest 1/100th of one percent. The
percentage will be expressed as a decimal, and will include, without
limitation, marginal, emergency, supplemental, special, and other reserve
percentages.
"Responsible Official" means:
(a) When used with reference to any Person, other than an
individual, any corporate officer of such Person, general partner
of such Person, corporate officer of a corporate general partner
of such Person, or corporate officer of a corporate general
partner of a partnership that is a general partner of such Person,
or any other responsible official thereof duly acting on behalf
thereof; and
(b) When used with reference to a Person who is an
individual, such Person.
Except as otherwise specifically provided herein, any requirement that
any document or certificate be signed or executed by any Person requires
that such document or certificate be signed or executed by a Responsible
Official of such Person, and that the Responsible Official signing or
executing such document or certificate on behalf of such Person shall be
authorized to do so by all necessary corporate, partnership and/or other
action.
"Right of Others" means, as to any Property in which a Person has
an interest, any legal or equitable claim, right, title or other interest
(other than a Lien) in or with respect to that Property held by any other
Person, and any option or right held by any other Person to acquire any
such claim, right, title or other interest, including any option or right
to acquire a Lien.
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"SCC, Inc." means The Sports Club Company, Inc., a Delaware
corporation.
"Special Eurodollar Circumstance" means the application or
adoption of any Law or interpretation, or any change therein or thereof,
or any change in the interpretation or administration thereof by any
Governmental Agency, central bank or comparable authority charged with
the interpretation or administration thereof, or compliance by any Bank
or its Eurodollar Lending Office with any request or directive (whether
or not having the force of Law) of any such Governmental Agency, central
bank or comparable authority, or the existence or occurrence of
circumstances affecting the Designated Eurodollar Market generally, in
each case, that is beyond the reasonable control of such Bank.
"Special Deposit Account Agreement" means the deposit account
agreement executed and delivered by L.A./Irvine Sports Clubs, Ltd., by
and between L.A./Irvine Sports Clubs, Ltd., AT&T Commercial and Agent,
dated as of May 12, 1997 or as it may from time to time be supplemented,
modified, amended, restated or extended.
"Standby Letter of Credit" means any standby letter of credit
issued by the Issuing Bank pursuant to Section 2.6, in the standard form
for standby letters of credit of the Issuing Bank, either as originally
issued or as the same may from time to time be supplemented, modified,
amended, renewed or extended.
"Subordination Agreement" means the subordination agreement
between Sumitomo Bank and AT&T Commercial, dated as of March 20, 1997 and
as it may from time to time be supplemented, modified, amended, renewed
or extended.
"Subsidiary" means, as of any date of determination thereof and
with respect to any Person, any corporation, limited liability company,
partnership or joint venture, whether now existing or hereafter organized
or acquired: (a) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors or
other governing body (other than securities having such power only by
reason of the happening of a contingency) are at the time owned by such
Person and/or one or more Subsidiaries of such Person, or (b) in the case
of a partnership, joint venture or limited liability company, of which
such Person or a Subsidiary of such Person is a general partner or joint
venturer or of which a majority of the partnership or other ownership
interests are at the time owned by such Person and/or one or more of its
Subsidiaries.
"Tangible Net Worth" means, as of any date of determination
thereof, the consolidated net worth of Borrowers, excluding goodwill,
patents, trademarks, trade names, organization expenses, capitalized
acquisition expenses, deferred tax assets and money due from any
Affiliate, officers, directors or shareholders of Borrowers or their
Subsidiaries, determined in accordance with generally accepted accounting
principles, consistently applied.
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"The Sports Club/Irvine" means the athletic club owned by Irvine
Sports Club, Inc. located at 1980 Main Street, Irvine, California.
"The Sports Club/LA" means the athletic club owned by L.A./Irvine
Sports Clubs, Ltd. located at 1835 Sepulveda Boulevard, West Los Angeles,
California.
"to the best knowledge of" means, when modifying a representation,
warranty or other statement of any Person, that the fact or situation
described therein is known by the Person (or, in the case of a Person
other than a natural Person, known by a Responsible Official of that
Person) making the representation, warranty or other statement, or with
the exercise of reasonable due diligence under the circumstances (in
accordance with the standard of what a reasonable Person in similar
circumstances would have done) should have been known by the Person (or,
in the case of a Person other than a natural Person, should have been
known by a Responsible Official of that Person).
"Total Unsubordinated Liabilities" means, as of any date of
determination thereof, the sum of (a) all liabilities that should be
reflected as a liability in a consolidated balance sheet of Borrowers and
its Subsidiaries on such date prepared in accordance with generally
accepted accounting principles, consistently applied, minus (b)
subordinated debt as to which a subordination agreement acceptable to
Agent has been executed, plus (c) the aggregate face amount of all
outstanding Standby Letters of Credit and other letters of credit issued
at the request of Borrowers; provided, however, that any amount described
in clause (c) shall be added only to the extent that the Standby Letter
of Credit or other letter of credit covers liabilities that would not be
reflected in a consolidated balance sheet of Borrowers and its
Subsidiaries on such date.
"Total Outstanding" means, as of any date of determination
thereof, the sum of (a) all outstanding Line A Loans evidenced by the
Line A Note on that date (b) all outstanding Line B Loans evidenced by
the Line B Note on that date and (c) Outstanding Standby Letters of
Credit.
"type", when used with respect to any Loan, means the designation
of whether such Loan is a Prime Rate Loan or a Eurodollar Loan.
1.2 Use of Defined Terms. Any defined term used in the plural
shall refer to all members of the relevant class, and any defined term used in
the singular shall refer to any one or more of the members of the relevant
class.
1.3 Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed in conformity with, and all
financial data required to be submitted by this Agreement shall be prepared in
conformity with, generally accepted accounting principles applied on a
consistent basis, as in effect on the date hereof, except as otherwise
specifically prescribed herein.
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1.4 Exhibits and Schedules. All exhibits and schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference.
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ARTICLE 2
LOANS AND LETTERS OF CREDIT
2.1 General Provisions Regarding Line A Loans and Borrowing
Procedures
(a) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time during the Line A
Availability Period, each Bank shall, pro rata according to that Bank's
percentage of the then Commitment, make Line A Loans to Borrowers in such
amounts as Borrowers may request that do not exceed in the aggregate at
any one time outstanding the amount of the then applicable Line A
Availability; provided that, Banks shall not be obligated to make a Line
A Loan if, after giving effect to all Line A Loans to be made by Banks,
the Line A Commitment would exceed $2,000,000. Except as may otherwise be
payable on an earlier date as provided in Section 3.1, all Obligations of
Borrowers hereunder shall be due and payable on the Line A Maturity Date.
Subject to the limitations set forth herein and in Section 3.1(e),
Borrowers may borrow, repay and reborrow under the Line A Commitment
without premium or penalty.
(b) Except as otherwise provided in Section 2.5(c), each
Line A Loan shall be made pursuant to a written Request for Loan. Not
later than 11:00 a.m., Los Angeles time, at least two (2) Banking Days
prior to the date that a proposed Loan is to be made (unless greater
notice is required by Section 2.4), Agent shall have received, at Agent's
Office, a properly completed Request for Loan specifying the requested
(1) date of such Loan, (2) type of Loan, (3) amount of such Loan, and (4)
in the case of a Eurodollar Loan, specifying the Eurodollar Period. Agent
may, in its sole and absolute discretion, permit any Request for Loan to
be made by telephone or telecopier by a Responsible Official of a
Borrower on behalf of the Borrowers, in which case such Borrower shall
confirm same by mailing or faxing a written Request for Loan to Agent
within 48 hours following the Loan. If Borrowers fail to make a written
Request for Loan, Borrowers hereby waive the right to dispute the amount,
interest rate or term of any such Loan made upon such telephone request.
(c) Promptly following receipt of a Request for Loan, Agent
shall notify each Bank by telephone, telecopier or Telex of the date and
type of the Loan, the applicable Interest Period (in the case of a
Eurodollar Loan), and that Bank's pro rata portion of the Loan. Not later
than 11:00 a.m., Los Angeles time, on the date specified for any Loan,
each Bank shall make its portion of the Loan in immediately available
funds available to the Agent at the Agent's Office. Upon fulfillment of
the applicable conditions set forth in Article 8, all Line A Loans shall
be credited in immediately available funds to Borrowers' Designated
Deposit Account, or to such other deposit account of Borrowers with Agent
as Borrowers may specify in writing to Agent.
(d) Unless the Requisite Banks otherwise consent, the
aggregate amount of each Eurodollar Loan shall be in an integral multiple
of $250,000, and the aggregate amount of each Prime Rate Loan shall be in
an integral multiple of $100,000 or the balance of the Line A
Availability.
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(e) The amount of each Line A Loan may not be more than the
Line A Availability.
(f) The Line A Loans made by each Bank shall be evidenced
by that Bank's Line A Note.
(g) A Request for Loan shall be irrevocable upon receipt by
Agent.
2.2 The Line B Loan
(a) During the Line B Availability Period, and subject to
the applicable conditions set forth in Article 8 hereof, each Bank shall,
on a non-revolving basis and pro rata according to that Bank's percentage
of the then Commitment, make advances to Borrowers, which may not at any
time exceed the Line B Availability. This is a non-revolving line of
credit. Any amount borrowed, even if repaid before the end of the Line B
Availability Period, permanently reduces the Line B Availability and such
amounts may not be reborrowed. Banks shall not be obligated to make a
Line B Loan if, after giving effect to all Line B Loans to be made by
Banks, and the Outstanding Standby Letters of Credit, the Line B
Commitment would exceed $8,000,000.
(b) Each Line B Loan shall be used solely to fund new Club
developments or Acquisitions. Each Line B Loan shall be in an integral
multiple of $250,000, or for the remaining Line B Availability, if less.
(c) Each Line B Loan shall be made pursuant to a written
Request for Loan. Borrower shall also comply with Section 8.3 of this
Agreement. Not later than 11:00 a.m., Los Angeles time, on at least two
(2) Banking Days prior to the date that a proposed Loan is to be made
(unless greater notice is required by Section 2.4), the Agent shall have
received, at Agent's Office, a properly completed Request for Loan
specifying the requested (1) date of such Loan, (2) type of Loan, (3)
amount of such Loan, and (4) in the case of a Eurodollar Loan, specifying
the Eurodollar Period. Agent may, in its sole and absolute discretion,
permit any Request for Loan to be made by telephone or telecopier by a
Responsible Official of a Borrower on behalf of the Borrowers, in which
case such Borrower shall confirm same by mailing or faxing a written
Request for Loan to Agent within 48 hours following the Loan. If
Borrowers fail to make a written Request for Loan, Borrowers hereby waive
the right to dispute the amount, interest rate or term of any such Loan
made upon such telephone request.
(d) Promptly following receipt of a Request for Loan, Agent
shall notify each Bank by telephone, telecopier or Telex of the date and
type of the Loan, the applicable Interest Period (in the case of a
Eurodollar Loan), and that Bank's pro rata portion of the Loan. Not later
than 11:00 a.m., Los Angeles time, on the date specified for any Loan,
each Bank shall make its portion of the Loan in immediately available
funds available to the Agent at the Agent's Office. Upon fulfillment of
the applicable conditions set forth in Article 8, all Line B Loans shall
be credited in immediately available funds to Borrower's
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Designated Deposit Account, or to such other deposit account of Borrowers
with Agent as Borrowers may specify in writing to Agent.
(e) Unless the Requisite Banks otherwise agree, the
aggregate amount of each Eurodollar Loan shall be in an integral multiple
of $250,000, and the aggregate amount of each Prime Rate Loan shall be in
an integral multiple of $100,000.
(f) The amount of each Line B Loan may not be more than the
Line B Availability.
(g) The Line B Loans made by each Bank shall be evidenced
by that Bank's Line B Note.
(h) A Request for Loan shall be irrevocable upon receipt by
Agent.
2.3 Prime Rate Loans. All Loans shall constitute Prime Rate Loans
unless properly designated or redesignated as Eurodollar Loans pursuant to
Sections 2.4 or 2.5.
2.4 Eurodollar Loans
(a) Subject to the terms and conditions set forth in this
Agreement, Borrowers may, from time to time, designate all or any portion
of Line A Loans or Line B Loans to be Eurodollar Loans.
(b) Each request by Borrowers for a Eurodollar Loan shall
be made pursuant to a Request for Loan received by Agent, at Agent's
Office, not later than 12:00 noon, Los Angeles time, at least three (3)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period.
(c) At or about 10:00 a.m., Los Angeles time, two (2)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period, Agent shall determine the applicable Eurodollar Rate (which
determination shall be conclusive in the absence of manifest error) and
promptly shall give notice of the same to Borrowers and the Banks by
telephone or telecopier.
(d) Upon fulfillment of the applicable conditions set forth
in Article 8, a Eurodollar Loan shall become effective on the first day
of the applicable Eurodollar Period.
(e) Unless the Requisite Banks otherwise consent, no more
than six (6) Eurodollar Loans, in the aggregate, shall be outstanding at
any one time.
(f) Nothing contained herein shall require any Bank to fund
any Eurodollar Loan in the Designated Eurodollar Market.
2.5 Redesignation of Loans.
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(a) Subject to Section 8.2, if any Eurodollar Loan is not
repaid or, in the case of a Line B Loan, renewed on the last day of the
applicable Eurodollar Period, such Eurodollar Loan automatically shall be
redesignated as a Prime Rate Loan on such date.
(b) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time from the Closing Date until
the thirty-second day preceding the Line A Maturity Date, Borrowers may
request that all or a portion of outstanding Prime Rate Loans be
redesignated as a Eurodollar Loan or that a maturing Eurodollar Loan be
redesignated as a new Eurodollar Loan, provided that no Loan redesignated
as a Eurodollar Loan shall have a Eurodollar Period expiring after the
Maturity Date.
(c) Each redesignation of all or a portion of outstanding
Prime Rate Loans or to renew a maturing Eurodollar Loan as a Eurodollar
Loan shall be made pursuant to a written Request for Redesignation of
Loans. Not later than 12:00 noon, Los Angeles time, at least three (3)
Eurodollar Banking Days prior to the first day of the applicable
Eurodollar Period, Agent shall have received, at Agent's Office, a
properly completed Request for Redesignation of Loans specifying the
requested (1) date of redesignation and (2) amount of Loans to be
redesignated as a Eurodollar Loan, and (3) the applicable Eurodollar
Period. Agent may, in its sole and absolute discretion, permit a Request
for Redesignation of Loans to be made by telephone by a Responsible
Official of a Borrower on behalf of the Borrowers, in which case such
Borrower shall confirm same by mailing or faxing a written Request for
Redesignation of Loans to Agent within 48 hours following the date of
redesignation. If Borrowers fail to make a written Request for
Redesignation of Loans, Borrowers hereby waive the right to dispute the
amount, interest rate or term of any such Eurodollar Loan.
(d) Unless the Requisite Banks otherwise consent, the
amount of such Loans to be redesignated as a Eurodollar Loan shall be an
integral multiple of $250,000.
(e) With respect to any redesignation of a Loan as a
Eurodollar Loan, at or about 10:00 a.m., Los Angeles time, three (3)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period, Agent shall determine the applicable Eurodollar Rate (which
determination shall be conclusive in the absence of manifest error) and
promptly shall give notice of the same to Borrowers and the Banks by
telephone or telecopier.
(f) Upon fulfillment of the applicable conditions set forth
in Article 8, the redesignation of all or a portion of outstanding Loans
as a Eurodollar Loan shall become effective on the first day of the
applicable Eurodollar Period.
(g) Nothing contained herein shall require any Bank to fund
any Eurodollar Loan resulting from redesignation of all or a portion of
any of its Prime Rate Loans, in the Designated Eurodollar Market.
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(h) A request for Redesignation of Loans shall be
irrevocable upon receipt by Agent.
. 2.6 Standby Letters of Credit
(a) Subject to the terms and conditions hereof, at any time
and from time to time from the Closing Date through the Banking Day
immediately preceding July 1, 1998, the Issuing Bank shall issue such
Standby Letters of Credit as a Responsible Official of a Borrower on
behalf of the Borrowers may request by a Request for Standby Letter of
Credit; provided that, upon giving effect to such Standby Letter of
Credit, (i) Total Outstanding shall not exceed $10,000,000, (ii) Line B
Availability shall not exceed $8,000,000 and (iii) Outstanding Standby
Letters of Credit shall not exceed the Maximum Standby Letter of Credit
Amount. If any Standby Letter of Credit is cancelled or otherwise expires
or terminates without it being drawn upon, Line B Availability shall not
be permanently reduced by the amount of such Standby Letter of Credit,
but instead such amount may be reborrowed. Unless the Requisite Banks
otherwise consent in writing, the term of any Standby Letter of Credit
shall not exceed the Line B Maturity Date. If on the Line B Maturity
Date, there exist any Outstanding Standby Letters of Credit, Borrowers
shall provide to Agent a standby letter of credit issued by a bank
satisfactory to the Requisite Banks, in form and substance satisfactory
to the Requisite Banks, in favor of the Banks in a face amount equal to
Outstanding Standby Letters of Credit on that date, or shall make other
provisions satisfactory to the Requisite Banks for the collateralization
or settlement of such Outstanding Standby Letters of Credit. No Standby
Letter of Credit shall be issued except in the ordinary course of
business of Borrowers or their Subsidiaries. Unless otherwise agreed to
by the Requisite Banks, the face amount of any Standby Letter of Credit
shall not be less than $250,000.
(b) Each Request for Standby Letter of Credit shall be
submitted to the Issuing Bank not later than 11:00 a.m., Los Angeles
time, at least five (5) Banking Days prior to the date upon which the
requested Standby Letter of Credit is to be issued and Borrowers shall
execute such documents and agreements relating to such Standby Letter of
Credit as the Issuing Bank may reasonably require. Upon issuance of a
Standby Letter of Credit, the Issuing Bank promptly shall notify the
Agent and the Banks of the amount and terms thereof. The Issuing Bank
shall notify the Agent and the Banks within ten (10) days after the end
of each month of all payments, reimbursements, expirations, negotiations,
transfers and other activity during that month with respect to
outstanding Standby Letters of Credit.
(c) Upon the issuance of a Standby Letter of Credit, each
Bank shall be deemed to have purchased a pro rata participation therein
from the Issuing Bank in a amount equal to that Bank's pro rata share,
according to its percentage of the Commitment, of the face amount of the
Standby Letter of Credit. Without limiting the scope and nature of each
Bank's participation in any Standby Letter of Credit, to the extent that
the Issuing Bank has not been reimbursed by Borrowers for any payment
required to be made by the Issuing Bank under any Standby Letter of
Credit, each Bank shall, pro rata according to
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its participation, reimburse the Issuing Bank promptly upon demand for
the amount of such payment. The obligation of each Bank to so reimburse
the Issuing Bank shall be absolute and unconditional and shall not be
affected by the occurrence of any Event of Default or any other
occurrence or event. Any such reimbursement shall not relieve or
otherwise impair the obligation of Borrowers to reimburse the Issuing
Bank for the amount of any payment made by the Issuing Bank under any
Standby Letter of Credit together with interest as hereinafter provided.
(d) Borrowers agree to pay to the Issuing Bank, at its
Office designated as the address for notices pursuant to this Agreement,
or at such other payment location as the Issuing Bank shall have
specified in writing to Borrowers, with respect to each Standby Letter of
Credit, within one (1) Banking Day after demand therefor, a principal
amount equal to any payment made by the Issuing Bank under that Standby
Letter of Credit, together with interest on such amount from the date of
any payment made by the Issuing Bank through the date of payment by
Borrowers at the rate provided for in Section 3.6. The principal amount
of any such payment made by Borrowers to the Issuing Bank shall be used
to reimburse the Issuing Bank for the payment made by it under the
Standby Letter of Credit. Each Bank that has reimbursed the Issuing Bank
pursuant to Section 2.6(c) for its pro rata share of any payment made by
the Issuing Bank under a Standby Letter of Credit thereupon shall acquire
a pro rata participation, to the extent of such reimbursement, in the
claim of the Issuing Bank against Borrowers under this Section 2.6(d).
(e) At all times prior to the Line A Maturity Date, if
Borrowers fail to make any payment required by Section 2.6(d), Agent may,
but is not required to, without notice to or the consent of Borrowers,
make Line B Loans under the Commitment in an aggregate amount equal to
the amount paid by Issuing Bank on the relevant Standby Letter of Credit,
whether or not the same would cause the Line B Commitment to exeed
$8,000,000, and, for this purpose, the conditions precedent set forth in
Article 8 and the amount limitations set forth in Section 2.1(d) shall
not apply. The proceeds of such Line B Loans shall be retained by Issuing
Bank to reimburse it for the payment made by it under the Standby Letter
of Credit.
(f) The issuance of any supplement, modification,
amendment, renewal or extension to or of any Standby Letter of Credit
shall be treated in all respects the same as the issuance of a new
Standby Letter of Credit.
(g) The obligation of Borrowers to pay to the Issuing Bank
the amount of any payment made by the Issuing Bank under any Standby
Letter of Credit shall be absolute, unconditional and irrevocable.
Without limiting the foregoing, such obligation of Borrowers shall not be
affected by any of the following circumstances absent the Issuing Bank's
gross negligence or willful misconduct:
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(i) any lack of validity or enforceability of
the Standby Letter of Credit, this Agreement, or any other
agreement or instrument relating thereto;
(ii) any amendment or waiver of or any consent
to departure from the Standby Letter of Credit, this Agreement,
or any other agreement or instrument relating thereto;
(iii) the existence of any claim, setoff,
defense or other rights which Borrowers may have at any time
against any Bank, any beneficiary of the Standby Letter of Credit
(or any Persons or entities for whom any such beneficiary may be
acting) or any other Person, whether in connection with the
Standby Letter of Credit, this Agreement or any other agreement
or instrument relating thereto, or any unrelated transactions;
(iv) any demand, statement or any other
document presented under the Standby Letter of Credit proving to
be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect
whatsoever;
(v) payment by the Issuing Bank under the
Standby Letter of Credit against presentation of a draft or any
accompanying document which does not strictly comply with the
terms of the Standby Letter of Credit;
(vi) the solvency (or insolvency) or financial
responsibility (or lack thereof) of any party issuing any
documents in connection with a Standby Letter of Credit;
(vii) any error in the transmission of any
message relating to a Standby Letter of Credit, or any delay or
interruption in any such message not caused by the Issuing Bank;
and/or
(viii) any error, neglect or default of any
correspondent of the Issuing Bank in connection with a Standby
Letter of Credit.
2.7 Agent's Right to Assume Funds Available for Advances. Unless
the Agent shall have been notified by any Bank at least two hours prior to the
funding by the Agent of any Loan that such Bank does not intend to make
available to the Agent such Bank's portion of the total amount of such Loan, the
Agent may assume that such Bank has made such amount available to the Agent on
the date of the Loan and the Agent may, in reliance upon such assumption, make
available to Borrowers a corresponding amount. If such corresponding amount is
not in fact made available to the Agent by such Bank, the Agent shall be
entitled to recover such corresponding amount on demand from such Bank, which
demand shall be made in a reasonably prompt manner. If such Bank does not pay
such corresponding amount forthwith upon the Agent's demand therefor, the Agent
promptly shall notify Borrowers and Borrowers shall pay such corresponding
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amount to the Agent. The Agent also shall be entitled to recover from such Bank
or Borrowers, as the case may be, interest on such corresponding amount in
respect of each day from the date such corresponding amount was made available
by the Agent to Borrowers to the date such corresponding amount is recovered by
the Agent, at a rate per annum equal to the actual cost to the Agent of funding
such amount as notified by the Agent to such Bank or Borrowers, as the case may
be. Nothing herein shall be deemed to relieve any Bank from its obligation to
fulfill its share of the Commitment or to prejudice any rights which the Agent
or Borrowers may have against any Bank as a result of any default by such Bank
hereunder.
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ARTICLE 3
PAYMENTS AND FEES
3.1 Principal and Interest.
(a) Interest shall be payable on the outstanding daily
unpaid principal amount of each Loan from the date thereof until payment
in full is made and shall accrue and be payable at the rates set forth
herein both before and after default and before and after maturity and
judgment, with overdue amounts to bear interest at the rate set forth in
Section 3.6, to the fullest extent permitted by applicable Law. Upon any
partial prepayment or redesignation of outstanding Prime Rate Loans to
Eurodollar Loans, interest accrued through the date of such prepayment or
redesignation shall be payable on the next following interest payment
date occurring pursuant to Section 3.1(b). Upon any partial prepayment or
payment in full or redesignation or conversion of any Eurodollar Loan or
upon any payment or redesignation in full of all outstanding Prime Rate
Loans, interest accrued through the date of such prepayment, payment,
redesignation or conversion shall be payable on such date.
(b) Interest accrued on each Prime Rate Loan shall be
payable on the first day of each month, commencing with the first such
date to occur after the Closing Date. Agent shall use its best efforts to
notify Borrowers of the amount of interest so payable prior to each
interest payment date, but failure of Agent to do so shall not excuse
payment of such interest when payable. Except as otherwise provided in
Section 3.6, the unpaid principal amount of any Prime Rate Loan shall
bear interest at a fluctuating rate per annum equal to the Prime Rate
plus the applicable Prime Rate Spread. Each change in the interest rate
shall take effect simultaneously with the corresponding change in the
Prime Rate and/or the Prime Rate Spread. Each change in the Prime Rate
shall be effective as of 12:01 a.m. on the Banking Day on which the
change in the Prime Rate is announced, unless otherwise specified in such
announcement, in which case the change shall be effective as so
specified.
(c) Interest accrued on each Eurodollar Loan shall be
payable on the first day of each month, commencing with the first such
date to occur after the Closing Date, and on the maturity date of that
Eurodollar Loan. Agent shall use its best efforts to notify Borrowers of
the amount of interest so payable prior to each interest payment date,
but failure of Agent to do so shall not excuse payment of such interest
when payable. Except as otherwise provided in Section 3.6, the unpaid
principal amount of any Eurodollar Loan shall bear interest at a rate per
annum equal to the Eurodollar Rate for that Eurodollar Loan plus the
Eurodollar Rate Spread.
(d) If not sooner paid, the principal indebtedness under
this Agreement shall be payable as follows:
(i) subject to the right to renew or convert a
Eurodollar Rate Loan to a Prime Rate Loan, the principal amount of
each Loan shall
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immediately be payable in Cash on the Maturity Date of such Loan
or, in the case of a Eurodollar Loan, on the last day of the
Eurodollar Period for such Loan;
(ii) the principal indebtedness evidenced by
the Line A Note shall be payable in Cash within two (2) Banking
Days in the amount by which the aggregate outstanding amount of
Line A Loans at any time exceeds the Line A Availability. The
outstanding principal indebtedness evidenced by the Line A Note
shall, in any event, be payable on the Line A Maturity Date.
(iii) the principal indebtedness evidenced by
the Line B Note shall be payable in cash on the Maturity Date.
(iv) In addition to all other payments
hereunder, commencing on July 1, 1998 and on the same date of each
month thereafter, Borrowers shall pay $250,000, which monthly
payment shall be applied first to principal outstanding under the
Line B Note with any excess being applied to the Line A Note. On
July 1, 1998, if no amounts are owing under the Line A or the Line
B Commitments, but there exist any Outstanding Standby Letters of
Credit, Borrowers shall pay, in addition to all other payments
hereunder, $250,000 commencing July 1, 1998 and on the same date
of each month thereafter, each of which monthly payments shall be
held by Agent as collateral security for any such Outstanding
Standby Letter of Credit.
(e) The Notes, or any of them, may, at any time and from
time to time, be paid or prepaid in whole or in part without premium or
penalty, except that (i) any partial prepayment shall be an integral
multiple of $100,000, (ii) Agent shall have received notice, by telephone
or telecopier, of any prepayment prior to 12:00 noon on the Banking Day
of such prepayment (unless greater notice is otherwise required by this
Agreement), which notice shall identify the date and amount of the
prepayment and the Loan(s) being prepaid, (iii) each prepayment of
principal, except for partial prepayments of Prime Rate Loans, shall be
accompanied by payment of interest accrued through the date of payment on
the amount of principal paid, (iv) except as required by subsections
(d)(ii) above, no Eurodollar Loan may be paid or prepaid in whole or in
part prior to the last day of the applicable Eurodollar Period without
the prior consent of the Requisite Banks, and, notwithstanding such
required prepayment or such consent, any payment or prepayment of all or
any part of Eurodollar Loan on a day other than the last day of the
applicable Eurodollar Period shall be made on a Eurodollar Banking Day,
as applicable, shall be preceded by at least four (4) Eurodollar Banking
Days' written notice to Agent of the date and amount of such payment or
prepayment, and shall be subject to Section 3.3(c), and (vi) each partial
prepayment of principal on the Line B Note shall be applied to the
installments due under such Notes in the inverse order of their maturity,
and, until all outstanding indebtedness evidenced by the Line B Note has
been repaid in full, shall not reduce or abate the Obligation of
Borrowers to make mandatory payments of principal on the scheduled
payment dates as provided above.
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(f) In addition to all other payments hereunder, all
Obligations, including payment of all indebtedness owing under the Notes,
shall be fully due and payable upon the consummation of SCC, Inc.'s
$85,000,000 proposed note offering or other equity or debt offering in
any amount.
(g) In addition to all other payments hereunder, Borrower
shall make mandatory reductions of the Obligations upon the receipt of
proceeds from the financing or re-financing of any real property assets
of Borrowers or Non-Borrower Affiliates to the extent such proceeds
exceed the existing debt associated with the respective real property;
provided, however, that the terms and conditions of such financing or
re-financing, including the amount and form of the proceeds thereof shall
be acceptable to Agent and Requisite Banks. Borrowers shall apply the
payment of such proceeds first to the indebtedness outstanding under the
Line B Note with any excess being applied to the Line A Note.
3.2 Fees.
(a) On the Closing Date Borrowers shall pay to Banks a
commitment fee equal to .5% of the Commitment. Such commitment fee shall
be fully earned on the Closing Date. In the event any Bank ceases to be a
party to this Agreement at a time when no Event of Default has occurred
and is continuing, such Bank shall rebate to Agent the pro rata portion
of such commitment fee attributable to the months remaining until the
Maturity Date. Agent shall distribute the rebated fee to the Banks
according to any increase in their pro rata share of the Commitment, to
any replacement Bank according to its pro rata share of the Commitment,
or if no Banks assume the departing Bank's pro rata share of the
Commitment, to the Borrowers.
(b) On July 1, 1998, Borrowers shall pay to Banks a fee
equal to 1.5% of the then total outstanding balance owing to Banks
hereunder.
3.3. Eurodollar Fees and Costs
(a) If, after the date hereof, the existence or occurrence
of any Special Eurodollar Circumstance shall, in the reasonable
discretion of any Bank, make it unlawful, impossible or impracticable for
such Bank or its Eurodollar Lending Office to make or maintain any
Eurodollar Loan, or materially restrict the authority of such Bank to
purchase or sell, or to take deposits of, dollars in the Designated
Eurodollar Market, or to determine or charge interest rates based upon
the Eurodollar Rate, then such Bank will notify Agent and such Bank's
obligation to make Eurodollar Loans shall be suspended for the duration
of such illegality, impossibility or impracticability and Agent forthwith
shall give notice thereof to the other Banks and Borrowers. Upon receipt
of such notice, the outstanding principal amount of such Bank's
Eurodollar Loans, together with accrued interest thereon, automatically
shall be converted to Prime Rate Loans on either (1) the last day of the
Eurodollar Period(s) applicable to such Eurodollar Loans if such Bank may
lawfully
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continue to maintain and fund such Eurodollar Loans to such day(s) or (2)
immediately if such Bank may not lawfully continue to fund and maintain
such Eurodollar Loans to such day(s), provided that in such event the
conversion shall not be subject to payment of a prepayment fee under
Section 3.3(c). In the event that such Bank is unable, for the reasons
set forth above, to make, maintain or fund any Eurodollar Loan, such Bank
shall fund such amount as a Prime Rate Loan, and such amount shall be
treated in all respects as a Prime Rate Loan.
(b) If, with respect to any proposed Eurodollar Loan:
(1) Agent reasonably determines that, by reason of
Special Eurodollar Circumstances, deposits in dollars (in the
applicable amounts) are not being offered to each of the Banks in
the Designated Eurodollar Market for the applicable Eurodollar
Period; or
(2) the Requisite Banks advise Agent that the
Eurodollar Rate as determined by the Banks (i) does not represent
the effective pricing to the Banks for deposits in dollars in the
Designated Eurodollar Market in the relevant amount for the
applicable Eurodollar Period, or (ii) will not adequately and
fairly reflect the cost to such Banks of making the applicable
Eurodollar Loans;
then Agent forthwith shall give notice thereof to Borrowers and the
Banks, whereupon until Agent notifies Borrowers that the circumstances
giving rise to such suspension no longer exist, and the obligation of the
Banks to make any future Eurodollar Loans shall be suspended.
(c) Upon payment or prepayment of any Eurodollar Loan, or
conversion of a Eurodollar Loan to a Prime Rate Loan (other than as the
result of a conversion required under Section 3.3(a)), on a day other
than the last day in the applicable Eurodollar Period (whether
voluntarily, involuntarily, by reason of acceleration, or otherwise),
Borrowers shall pay to the Banks an amount equal to the accrued interest
on the amount prepaid plus a prepayment fee equal to the amount (if any)
by which: (1) the additional interest which would have been payable on
the amount prepaid had it not been paid until the last day of the
Eurodollar Period, exceeds (2) the interest which would have been
recoverable by placing the amount prepaid on deposit in the Eurodollar
market for a period starting on the date on which it was prepaid and
ending on the last day of the Eurodollar Period for such portion, plus
all reasonable out-of-pocket expenses incurred by Banks and reasonably
attributable to such payment or prepayment; provided that no prepayment
fee shall be payable (and no credit or rebate shall be required) if the
product of the foregoing formula is not positive. Each Bank's
determination of the amount of any prepayment fee payable under this
Section 3.3(c) shall be conclusive in the absence of manifest error.
(d) Borrowers hereby indemnify each Bank against, and
agrees to hold each Bank harmless from and reimburse each Bank on demand
for, all reasonable costs, expenses, claims, penalties, liabilities,
losses, legal fees and damages (including, without
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limitation, any interest paid by any Bank for deposits in dollars in the
Designated Eurodollar Market and any loss sustained by any Bank in
connection with the reemployment of funds) incurred or sustained by such
Bank, as reasonably determined by such Bank, as a result of any failure
of Borrowers to borrow on the date or in the amount specified in any
Request for Loan or Request for Redesignation of Loans; provided that
such Bank shall not be entitled to indemnification for any loss caused by
its own gross negligence or willful misconduct. The determination of such
amount by each Bank shall be conclusive in the absence of manifest error.
(e) Any Bank requesting any payment from Borrowers under
this Section 3.3, shall, at the request of Borrowers, provide reasonable
detail to Borrowers regarding the manner in which the amount of any such
payment has been determined.
3.4 Letter of Credit Fees. Borrowers shall pay to the Issuing Bank
a letter of credit fee of 1.5% of the face amount of the Standby Letter of
Credit for the term of such Standby Letter of Credit issued under Section 2.6,
payable at the time of issuance. Each Standby Letter of Credit fee is earned
upon issuance of each Standby Letter of Credit and is nonrefundable. The Issuing
Bank promptly shall make available to the Agent in immediately available funds,
and the Agent promptly shall make available to the Banks in immediately
available funds, pro rata according to their percentages of the Commitment, the
portion of each Standby Letter of Credit fee which is for the account of the
Banks as aforesaid.
3.5 Agent Fee. Upon the Closing Date and from time to time
thereafter, Borrowers shall pay to Agent, fees as agreed between Borrowers and
Agent in a separate agreement.
3.6 Late Payments/Default Rate.
(a) Should any installment of principal or interest or any
fee or cost or other amount payable under any Loan Document to the Agent
or any Bank not be paid when due, such installment shall thereafter bear
interest at a fluctuating interest rate per annum at all times equal to
two percent (2.0%) above the then prevailing applicable Prime Rate based
interest rate for all Loans made hereunder, to the fullest extent
permitted by applicable Law. Accrued and unpaid interest on past due
amounts (including, without limitation, interest on past due interest)
shall be compounded monthly, on the last day of each calendar month, to
the fullest extent permitted by applicable Law and payable on the first
day of the following month.
(b) Upon the occurrence and during the continuance of any
other Event of Default, at the option of the Requisite Banks, Borrowers
shall pay interest on the outstanding principal and interest at the
Default Rate. This shall not constitute a waiver of any Event of Default.
3.7 Computation of Interest and Fees. All computations of interest
and fees under any Loan Document that relate to any Prime Rate Loan or any
Eurodollar Loan shall be calculated on the basis of a year of 360 days and the
actual number of days elapsed.
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3.8 Non-Banking Days. If any payment to be made by Borrowers or
any other Party under any Loan Document shall come due on a day other than a
Banking Day (and a Eurodollar Banking Day, in the case of a Eurodollar Loan),
payment shall be made on the next succeeding Banking Day (and, in the case of a
Eurodollar Loan, the next succeeding Eurodollar Banking Day that is also a
Banking Day) and the extension of time shall be reflected in computing interest.
3.9 Manner and Treatment of Payments.
(a) Borrowers agree that interest and principal payments
and any fees will be deducted automatically on the due date from the
Designated Deposit Account, or any other accounts of Borrowers held by
Agent which contain sufficient funds. Such debits shall occur on the
dates the payments become due. If the due date does not fall on a Banking
Day, Agent will cause such debits to be made on the first Banking Day
following the due date. Borrowers shall maintain sufficient funds in the
Designated Deposit Account on the dates Agent enters debits authorized by
this Agreement. If there are insufficient funds in the Designated Deposit
Account or the other accounts of Borrowers on the date Agent enters any
debit authorized by this Agreement, Borrowers shall immediately, after
notice from Agent, pay such shortfall to Agent. The amount of all
payments received by the Agent for the account of each Bank shall be
immediately paid by the Agent to the applicable Bank in immediately
available funds. All payments shall be made in lawful money of the United
States of America.
(b) Each Bank shall use its best efforts to keep a record
of Loans made by it and payments received by it with respect to each Note
and such record shall be presumptive evidence of the amounts owing.
(c) Each payment or prepayment on account of any Loan shall
be made and applied pro rata according to the outstanding Loans made by
each Bank.
(d) Each payment of any amount payable by Borrowers and/or
any other Party under this Agreement and/or any other Loan Document shall
be made free and clear of, and without reduction by reason of, any taxes,
assessments or other charges imposed by any Governmental Agency, central
bank or comparable authority.
3.10 Funding Sources. Nothing in this Agreement shall be deemed to
obligate Agent or any Bank to obtain the funds for any Loan in any particular
place or manner or to constitute a representation by Agent or any Bank that it
has obtained or will obtain the funds for any Loan in any particular place or
manner.
3.11 Failure to Charge Not Subsequent Waiver. Any decision by
Agent or any Bank not to require payment of any interest (including default
interest), fee, cost or other amount payable under any Loan Document on any
occasion shall in no way limit or be deemed a waiver
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of Agent's or such Bank's right to require full payment of any interest
(including default interest), fee, cost or other amount payable under any Loan
Document on any other or subsequent occasion.
3.12 Agent's Right to Assume Payments Will be Made by Borrowers.
Unless the Agent shall have been notified by Borrowers prior to the date on
which any payment to be made by Borrowers hereunder is due that Borrowers do not
intend to remit such payment, the Agent may, in its discretion, assume that
Borrowers will make such payment when so due and the Agent may, in its
discretion and in reliance upon such assumption, make available to each Bank on
such payment date an amount equal to such Bank's share of such assumed payment.
If Borrowers do not in fact make such payment to the Agent, each Bank shall
forthwith on demand repay to the Agent the amount of such assumed payment made
available to such Bank, together with interest thereon in respect of each day
from and including the date such amount was made available by the Agent to such
Bank to the date such amount is repaid to the Agent at a rate per annum equal to
the actual cost to the Agent of funding such amount as notified by the Agent to
such Bank.
3.13 Survivability. All of Borrowers' obligations under this
Article 3 shall survive for one year following the date on which all Loans
hereunder are fully paid.
3.14 Unused Line Fee. On the last day of each calendar quarter,
commencing with the first such date to occur after the Closing Date, Borrower
shall pay to Banks a fee of .25% per annum based on the difference between the
Line A Commitment and an amount equal to the weighted average Total Outstanding
during the previous quarterly period or portion thereof. On the last day of each
calendar quarter, commencing with the first such date to occur after the Closing
Date, Borrower shall pay to Banks a fee of .25% per annum on the difference
between the Line B Commitment and an amount equal to the weighted average
balance of the principal amounts of the outstanding Line B Loans during the
previous quarterly period or portion thereof.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to Agent and each Bank, as of the
Closing Date, that:
4.1 Existence and Qualification; Power; Compliance With Laws
(a) The Sports Club Company, Inc. is a corporation duly
formed, validly existing and in good standing under the Laws of
Delaware. The chief executive offices of SCC, Inc. are in Los
Angeles, California.
(b) The Spectrum Club Company, Inc. is a corporation duly
formed, validly existing and in good standing under the Laws of
California. Its chief executive offices are in Los Angeles,
California.
(c) Pontius Realty, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California.
Its chief executive offices are in Los Angeles, California.
(d) Sports Club, Inc. of California is a corporation duly
formed, validly existing and in good standing under the Laws of
California. Its chief executive offices are in Los Angeles,
California.
(e) Irvine Sports Club, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California.
Its chief executive offices are in Los Angeles, California.
(f) The SportsMed Company, Inc. is a corporation duly
formed, validly existing and in good standing under the Laws of
California. Its chief executive offices are in Los Angeles,
California.
(g) SCC Sports Club, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of Texas. Its
chief executive offices are in Los Angeles, California.
(h) L.A./Irvine Sports Clubs, Ltd. is a limited partnership
duly formed, validly existing and in good standing under the Laws of
California. Its chief executive offices are in Los Angeles,
California.
(i) Talla New York, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of New York.
Its chief executive offices are in Los Angeles, California.
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(j) Green Valley Spectrum Club, Inc. is a corporation duly
formed, validly existing and in good standing under the Laws of
Nevada. Its chief executive offices are in Los Angeles, California.
(k) Spectrum Club/Anaheim Hills, Inc. is a corporation duly
formed, validly existing and in good standing under the Laws of
California. Its chief executive offices are in Los Angeles,
California.
Each Borrower is duly qualified or registered to transact business and is in
good standing in each other jurisdiction in which the conduct of its business or
the ownership or leasing of its Properties makes such qualification or
registration necessary, except where the failure so to qualify or register and
to be in good standing would not have a material adverse effect on the business,
operations or condition (financial or otherwise) of such Borrower and its
Subsidiaries, taken as a whole. Each Borrower has all requisite power and
authority to conduct its business, to own and lease its Properties and to
execute, deliver and perform all of its Obligations under the Loan Documents.
All outstanding shares of capital stock of each Borrower, as applicable, are
duly authorized, validly issued, fully paid, non-assessable and issued in
compliance with all applicable state and federal securities and other Laws. Each
Borrower is in compliance with all Laws and other legal requirements applicable
to its business, has obtained all authorizations, consents, approvals, orders,
licenses and permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing from, any
Governmental Agency that are necessary for the transaction of its business,
except where the failure so to comply, file, register, qualify or obtain
exemptions would not have a material adverse effect on the business, operations
or condition (financial or otherwise) of such Borrower and its Subsidiaries,
taken as a whole.
4.2 Authority; Compliance With Other Agreements and Instruments
an. The execution, delivery and performance by each Borrower and its
Subsidiaries of the Loan Documents to which it is a Party have been duly
authorized by all necessary action, and do not and will not:
(a) Except as set forth in Schedule 4.2, require any
consent or approval not heretofore obtained of any partner, director,
stockholder, security holder or creditor;
(b) Violate or conflict with any provision of such Party's
partnership agreement, certificate of limited partnership, charter,
articles of incorporation or bylaws, or amendments thereto, as
applicable;
(c) Result in or require the creation or imposition of any
Lien or Right of Others (other than as provided under the Loan Documents)
upon or with respect to any Property now owned or leased or hereafter
acquired by such Party;
(d) Violate any provision of any Law (including, without
limitation, Regulations G, T, U and/or X of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award presently in effect and having applicability to
such Party; or
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<PAGE> 36
(e) Result in a breach of or constitute a default under, or
cause or permit the acceleration of any obligation owed under, any
indenture or loan or credit agreement or any other material agreement,
lease or instrument to which such Party is a party or by which such Party
or any of its Property is bound or affected;
and no Borrower nor any Subsidiary thereof is in default under any Law,
order, writ, judgment, injunction, decree, determination or award, or any
indenture, agreement, lease or instrument described in this Section
4.2(e), in any respect that is materially adverse to the interests of
Agent or any Bank or that would have any material adverse effect on the
business, operations or condition (financial or otherwise) of Borrowers
and their Subsidiaries, taken as a whole.
4.3 No Governmental Approvals Required. No authorization, consent,
approval, order, license or permit from, or filing, registration or
qualification with, or exemption from any of the foregoing from, any
Governmental Agency is or will be required to authorize or permit under
applicable Law the execution, delivery and performance by any Borrower or any
Subsidiary thereof of the Loan Documents to which it is a Party.
4.4 Subsidiaries.
(a) Except as described in Schedule 4.4, Borrowers do not
own any capital stock, partnership interest, joint venture interest or
other equity interest in any Person. Unless otherwise indicated in
Schedule 4.4 all of the outstanding shares of capital stock or
partnership or joint venture interests of each Borrower are owned of
record and beneficially by Borrowers and all securities and interests so
owned are duly authorized, validly issued, fully paid, non-assessable and
issued in compliance with all applicable state and federal securities and
other Laws, and are free and clear of all Liens and Rights of Others.
(b) Each Subsidiary identified in Schedule 5.2 as an
"Inactive Subsidiary" has (i) aggregate collections or distributions of
cash from its operations of less than $50,000 and (ii) no tangible or
intangible real or personal property assets having an aggregate fair
market value in excess of $50,000.
(c) Each Subsidiary of each Borrower is a legal entity of
the form described for that Subsidiary in Schedule 4.4, duly formed,
validly existing and in good standing under the Laws of its jurisdiction
of formation, is duly qualified or registered to transact business and is
in good standing in each other jurisdiction in which the conduct of its
business or the ownership or leasing of its Properties makes such
qualification or registration necessary, except where the failure so to
qualify or register and to be in good standing does not have a material
adverse effect on the business, operations or condition (financial or
otherwise) of the Borrowers and their Subsidiaries, taken as a whole, and
has all requisite legal power and authority to conduct its business and
to own and lease its Properties and to execute, deliver and perform all
of its Obligations under the Loan Documents.
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(d) Each Subsidiary of each Borrower is in compliance with
all Laws and other legal requirements applicable to its business, has
obtained all authorizations, consents, approvals, orders, licenses and
permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing
from, any Governmental Agency that are necessary for the transaction of
its business, except where the failure to so comply, file, register,
qualify or obtain exemptions would not have a material adverse effect on
the business, operations or condition (financial or otherwise) of the
Borrowers and their Subsidiaries, taken as a whole.
4.5 Financial Statements. Borrowers have furnished to Agent and
the Banks (a) the audited consolidated balance sheet of Borrowers and their
Subsidiaries as at December 31, 1996, and audited consolidated income statement
and cash flow statement of Borrowers and their Subsidiaries for their fiscal
year then ended, and (b) the unaudited consolidated balance sheets of Borrowers
and their Subsidiaries as at September 30, 1997, and unaudited consolidated
income statements, cash flow statements of Borrowers and their Subsidiaries and
unaudited individual Club operating statements for such month and for the
portion of their fiscal year ended with such month. Such financial statements
fairly present the financial condition, results of operations and cash flow of
Borrowers and their Subsidiaries as at such dates and for such periods, in
conformity with generally accepted accounting principles, consistently applied,
provided that the balance sheets and statements referred to in (b) above are
subject to normal year-end audit adjustments.
4.6 No Other Liabilities; No Material Adverse Changes. Except as
set forth in Schedule 4.6 hereto, Borrowers and their Subsidiaries do not have
any material liability or material contingent liability not reflected or
disclosed in the financial statements or notes thereto described in Section 4.5.
There has been no material adverse change in the business, operations or
condition (financial or otherwise) of Borrowers and their Subsidiaries, taken as
a whole, since the date of the financial statements described in Section 4.5(b).
4.7 Intangible Assets. Borrowers and their Subsidiaries own, or
possess the unrestricted right to use, all trademarks, trade names, copyrights,
patents, patent rights, licenses and deferred tax assets that are used in the
conduct of their businesses as now operated, and no such intangible asset, to
the best knowledge of Borrowers, conflicts with the valid trademark, trade name,
copyright, patent, patent right or deferred tax asset of any other Person to the
extent that such conflict would have a material adverse effect on the business,
operations or condition (financial or otherwise) of Borrowers and their
Subsidiaries, taken as a whole.
4.8 Filing of Financing Statements. Upon the filing and/or
recording of financing statements describing the Collateral with the
Governmental Agencies listed in Schedule 4.8, and except for the requirement
that continuation statements periodically be filed and/or recorded with respect
thereto, and upon the taking of possession of the stock certificates of any and
all Borrowers, other than SCC, Inc., all necessary steps will have been taken to
fully perfect and to maintain fully perfected the Liens of Agent and the Banks
on the Collateral, to the fullest extent that such Liens may be perfected
pursuant to Article 9 of the Uniform Commercial Code.
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4.9 Public Utility Holding Company Act. No Borrower or any
Subsidiary thereof is a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.10 Litigation. Except for (a) the matters set forth in Schedule
4.10, (b) any matter fully covered as to subject matter and amount (subject to
applicable deductibles and retentions) by insurance for which the insurance
carrier has not asserted lack of subject matter coverage or reserved its right
to do so, or (c) any matter, or series of related matters, involving a
threatened claim against Borrowers of less than $100,000, there are no actions,
suits or proceedings pending or, to the best knowledge of Borrowers, threatened
against or affecting Borrowers or any of its Subsidiaries or any Property of any
of them in any court of Law or before any Governmental Agency.
4.11 Binding Obligations. Each of the Loan Documents to which any
Borrower or any Subsidiary thereof is a Party will, when executed and delivered
by such Party, constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms.
4.12 ERISA. No event has occurred and is continuing that is a
Default.
4.13 ERISA
(a) Except as disclosed in Schedule 4.13, there are
no Plans.
(b) With respect to each Plan:
(1 such Plan complies in all material
respects with ERISA and any other applicable Law;
(2 such Plan has not incurred any material
"accumulated funding deficiency", as that term is defined in
Section 302 of ERISA;
(3 no "reportable event" (as defined in
Section 4043 of ERISA) has occurred that could result in the
termination or disqualification of such Plan;
and
(4 no Borrower nor any Subsidiary thereof has
engaged in any "prohibited transaction" (as defined in Section
4975 of the Internal Revenue Code of 1954, as amended).
(c) no Borrower nor any Subsidiary thereof is or has
been a party to any Multi employer Plan.
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(d) Borrowers and their Subsidiaries are in compliance with
each covenant contained in Section 6.6.
4.14 Regulations G, T, U and X; Investment Company Act. No
Borrower nor any of its Subsidiaries is engaged t principally, or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" or "margin security" within the
meanings of Regulations G, T, U or X, respectively, of the Board of Governors of
the Federal Reserve System. If requested by Agent or any Bank, Borrowers will
furnish or will cause their Subsidiaries, as requested, to furnish Agent or any
Bank with a statement or statements in conformity with the requirements of
Federal Reserve Forms G-3 and/or U-1 referred to in Regulations G or U of said
Board of Governors. No part of the proceeds of any Loan hereunder will be used
to purchase or carry any such "margin security" or "margin stock" or to extend
credit to others for the purpose of purchasing or carrying any such "margin
security" or "margin stock" in violation of Regulations G, T, U or X of said
Board of Governors. No Borrower nor any of its Subsidiaries is or is required to
be registered under the Investment Company Act of 1940.
4.15 Disclosure. No written statement made by Borrowers or any
Subsidiary thereof to Agent or any Bank in connection with this Agreement, or in
connection with any Loan, or in connection with the issuance of any Letter of
Credit, contains any untrue statement of a material fact or omits a material
fact necessary to make the statement made not misleading. To the best knowledge
of Borrowers, there is no fact which Borrowers have not disclosed to Agent and
the Banks in writing which materially and adversely affects nor, so far as
Borrowers can now foresee, is reasonably likely to prove to affect materially
and adversely the business, operations, Properties, prospects, profits or
condition (financial or otherwise) of Borrowers and their Subsidiaries, taken as
a whole, or the ability of Borrowers and their Subsidiaries to perform their
Obligations under the Loan Documents.
4.16 Tax Liability. Borrowers and their Subsidiaries have filed
all income tax returns which are required to be filed, and have paid, or made
provision for the payment of, all taxes which have become due pursuant to said
returns or pursuant to any assessment received by any Borrower or any Subsidiary
thereof, except such taxes, if any, as are being contested in good faith and as
to which adequate reserves have been provided.
4.17 Projections. The financial projections set forth in Schedule
4.17 are based on facts known to Borrowers and on assumptions that are
reasonable and consistent with such facts. To the best knowledge of Borrowers,
except as may be disclosed on Schedule 4.17, no material fact or assumption is
omitted as a basis for such projections, and such projections are reasonably
based on such facts and assumptions. Nothing in this Section 4.17 shall be
construed as a representation that such projections in fact will be achieved.
4.18 Fiscal Year. Borrowers and their Subsidiaries each operate on
a fiscal year corresponding to the calendar year and ending on December 31, the
fiscal months of which correspond to the calendar months of the calendar year.
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4.19 Employee Matters. There is no strike, work stoppage or labor
dispute with any union or group of employees pending or overtly threatened
involving Borrowers or any of their Subsidiaries. Since June 1996, there has
been no increase in the salary, bonus or other compensation arrangements of the
employees of Borrowers and their Subsidiaries other than normal increases in the
ordinary course of business.
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ARTICLE 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
So long as any Loan or any other indebtedness owing in connection
therewith remains unpaid hereunder or any portion of the Commitment remains
outstanding, Borrowers shall, and shall cause each of its Subsidiaries to,
unless the Requisite Bank otherwise consent in writing:
5.1 Payment of Taxes and Other Potential Charges. Pay and
discharge promptly all taxes, assessments and governmental charges or levies
imposed upon any of them, upon their respective Property or any part thereof,
upon their respective income or profits or any part thereof or upon any right or
interest of Agent or any Bank under any Loan Document, except that Borrowers and
their Subsidiaries shall not be required to pay or cause to be paid (a) any
income or gross receipts tax generally applicable to banks or (b) any tax,
assessment, charge or levy that is not yet past due, or is being contested in
good faith by appropriate proceedings, so long as the relevant entity has
established and maintains adequate reserves for the payment of the same and by
reason of such nonpayment and contest no material item or portion of Property of
Borrowers and their Subsidiaries, taken as a whole, is in jeopardy of being
seized, levied upon or forfeited.
5.2 Preservation of Existence. Preserve and maintain their
respective existences, except for mergers permitted in Section 6.3 of this
Agreement. Preserve and maintain all material licenses, rights, franchises and
privileges in the jurisdiction of their formation and all authorizations,
consents, approvals, orders, licenses, permits, or exemptions from, or
registrations with, any Governmental Agency that are necessary for the
transaction of their respective business. Qualify and remain qualified to
transact business in each jurisdiction in which such qualification is necessary
in view of their respective business, except any Subsidiaries listed in Schedule
5.2 that are inactive or have immaterial assets. With respect to any
Subsidiaries listed in Schedule 5.2 that are inactive or have immaterial assets,
Borrowers shall immediately give Agent and the Banks written notice of any
change in such entities' respective existences or statuses of qualification.
5.3 Maintenance of Properties. Maintain, preserve and protect all
of their respective Properties and equipment in good order and condition,
subject to replacement wear and tear in the ordinary course of business, and not
permit any waste of their respective Properties, except that the failure to
maintain, preserve and protect a particular item of Property or equipment that
is not of significant value, either intrinsically or to the operations of
Borrowers and their Subsidiaries, taken as a whole, shall not constitute a
violation of this covenant.
5.4 Maintenance of Insurance. Maintain liability and casualty
insurance with responsible insurance companies acceptable to the Requisite Banks
in such amounts and against such risks as is usually carried by responsible
companies engaged in similar businesses and owning similar Properties in the
general areas in which Borrowers and their Subsidiaries operate; and, as
requested by the Agent, cause the Agent and the Banks to be designated as
additional insureds and loss payees with respect to such insurance, and obtain
the written agreement of such insurers that
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such insurance shall not be canceled or terminated, nor shall the coverage or
terms or exclusions thereof be materially modified, without at least thirty (30)
days prior written notice to the Agent.
5.5 Compliance With Laws. Comply with the requirements of all
applicable Laws and orders of any Governmental Agency, noncompliance with which
could materially adversely affect the business, operations or condition
(financial or otherwise) of Borrowers and their Subsidiaries, taken as a whole,
except that Borrowers and their Subsidiaries need not comply with a requirement
then being contested by any of them in good faith by appropriate proceedings so
long as no interest of Agent or any Bank would be materially impaired thereby.
5.6 Additional Borrowers. In the event (i) the aggregate amount of
all advances to, investments in or commitments to any Non-Borrower Affiliate by
Borrowers, after the date hereof, exceeds at any time $200,000, in addition to
the amounts set forth for the Non-Borrower Affiliates in Schedule 5.6, but
excluding accrued management fees owing to Borrowers from such Non-Borrower
Affiliates, (ii) any Non-Borrower Affiliate identified in Schedule 5.2 ceases to
meet the criteria for an "Inactive Subsidiary", (iii) any Borrower becomes a
majority shareholder or a general partner of any Non-Borrower Affiliate now or
hereafter existing, or (iv) any Borrower or Borrowers, taken as a whole, obtain
a majority of the partnership or other ownership interests of any Non-Borrower
Affiliate, Borrowers shall cause such Non-Borrower Affiliate to become a
Borrower hereunder or enter into such other agreement or arrangement with Banks
concerning such Non-Borrower Affiliate as may be acceptable to the Requisite
Bank in its sole discretion. In order to add a Non-Borrower Affiliate as a
Borrower hereunder, the Borrowers shall deliver to Agent and Banks (a) the
agreement of such Non-Borrower Affiliate to be added as a Borrower hereunder and
to be bound by the terms hereof, (b) the agreement of the owners of all capital
stock or other ownership interests, as applicable, of such new Borrower to
become a party to the Pledge Agreement, (c) the certificates and other documents
required to be delivered pursuant to the terms of the Pledge Agreement, and (d)
such other documents as the Requisite Banks may reasonably require. Schedule 5.6
attached hereto sets forth as of the date hereof the amount of all advances to,
investments in or commitments to any Non-Borrower Affiliate by Borrowers, the
percentage ownership of each Borrower in any Non-Borrower Affiliate, and
Borrowers which are general partners of any Non-Borrower Affiliate.
5.7 Inspection Rights. Upon reasonable notice by Agent or any Bank
to Borrowers, at any time during regular business hours and as reasonably
requested, permit Agent or any Bank, or any employee, agent or representative
thereof, to examine, audit and make copies and abstracts from the records and
books of account and to visit and inspect the Properties of Borrowers and their
Subsidiaries and to discuss the affairs, finances and accounts of Borrowers and
their Subsidiaries with any of their officers and key employees, customers or
vendors, and, upon request, furnish promptly to Agent or any Bank true copies of
all financial information and internal management reports made available to the
senior management of Borrowers or any of their Subsidiaries. If any of
Borrowers' Property, books or records are in the possession of a third party,
Borrowers, upon not less than three (3) days' advance notice, hereby authorize
such third party to permit Agent or the Banks to have access to perform
inspections or audits and to respond to Agent's or a Bank's request for
information concerning such Property, books or records. If an
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Event of Default has occurred and is continuing, no advance notice of any audits
and inspections shall be required.
5.8 Keeping of Records and Books of Account. Keep adequate records
and books of account reflecting all financial transactions in conformity with
generally accepted accounting principles, consistently applied, and in material
conformity with all applicable requirements of any Governmental Agency having
regulatory jurisdiction over Borrowers or any of their Subsidiaries.
5.9 Compliance With Agreements, Duties, Obligations. Promptly and
fully comply with all their respective agreements, duties and obligations under
the Loan Documents, and with material terms of any other material agreements,
indentures, leases and/or instruments to which any one or more of them is a
party, whether such other agreements, indentures, leases and/or instruments are
with Agent and any Bank or another Person.
5.10 Use of Proceeds. Use the proceeds of the Loans for the
following purposes only: Line A shall be used for working capital purposes,
Standby Letters of Credit and to fund the acquisition and the development of new
Clubs; Line B shall be used only to fund acquisitions of new Clubs and the
development of new Clubs.
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ARTICLE 6
NEGATIVE COVENANTS
So long as any Loan or other indebtedness owing in connection
therewith remains unpaid hereunder or any portion of the Commitment remains
outstanding, Borrowers shall not (and shall cause each of their Subsidiaries to
not) unless the Requisite Banks otherwise consent in writing:
6.1 Disposition of Property. Sell, assign, exchange, transfer,
lease or otherwise dispose of, or contract to sell, assign, exchange, transfer,
lease or otherwise dispose of, any of their respective Properties, whether now
owned or hereafter acquired, and whether to an Affiliate or otherwise, except
(a) Properties sold, assigned, exchanged, transferred, leased or otherwise
disposed of in the ordinary course of business, and (b) as permitted under
Section 6.3.
6.2 Transactions with Borrowers and Non-Borrower Affiliates.
Advance funds to, guarantee obligations of, or make any tes other investments in
or commitments or make distributions to any Non-Borrower Affiliate unless (a)
such Non-Borrower Affiliate is made a Borrower under this Agreement or some
other arrangement acceptable to the Requisite Banks in their sole discretion is
made in accordance with Section 5.6, or (b) the aggregate amount of all advances
to, guaranties of, investments in and commitments to all Non-Borrower Affiliates
does not exceed $200,000, in addition to the amounts set forth for the
Non-Borrower Affiliates in Schedule 5.6, but excluding accrued management fees
owing to Borrowers from such Non-Borrower Affiliates, Borrowers shall provide
Agent and Banks a monthly report detailing such transactions, such report to be
in a form as is acceptable to Agent and Requisite Banks. The Borrowers shall
have the right, with the consent of the Requisite Banks, not to be unreasonably
withheld but subject to such terms and conditions as the Requisite Banks may
require, to add any Non-Borrower Affiliate as a Borrower hereunder. In addition
to the foregoing, Borrowers shall not (and shall cause each of their
Subsidiaries to not) advance any funds to or transfer any assets to any Borrower
or Non-Borrower Affiliate which is indebted to AT&T Commercial in excess of what
is then owed by such advancing or lending Borrower to such recipient Borrower or
Non-Borrower Affiliate without the Requisite Banks' prior written consent.
6.3 Mergers, Investments, Acquisitions and New Club Developments .
Merge, consolidate or amalgamate with or into any Person, except mergers,
consolidations or amalgamations of a Subsidiary of a Borrower into a Borrower
(with such Borrower as the surviving entity) prior notice of the details of
which shall have been given to the Agent and Banks. Make any Acquisition or
enter into any agreement to make any Acquisition (a) in an amount requiring
payment in excess of $2,500,000 of Borrowers' cash within one year of such
Acquisition or (b) at a sum greater than four times the historical cash flow of
the acquired entity with acceptable adjustments for identifiable savings which
will occur as a result of such Acquisition. Pursue any new Club developments
which are not projected to generate positive EBITDA for the twelve-month period
commencing on the first anniversary following completion of such new Club
developments. In connection with an Acquisition meeting the above requirements,
the Borrowers may enter into a partnership or a corporate or other joint venture
with one or more unaffiliated Persons, and may incur debt in the form of
purchase money or lessor financing. In any event, no
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more than three mergers, Acquisitions or new Clubs in the "pre sale phase of
development" shall be pursued at any given time. "Pre sale phase of development"
shall mean the period during which memberships in the new Clubs are offered for
sale prior to the date the Club opens for business. Prior to any Acquisition,
Borrowers shall deliver to Agent and Banks (i) a pro forma financial statement
giving effect to the proposed Acquisition, (ii) a pro forma compliance
certificate executed by a Responsible Official of a Borrower certifying that
giving effect to the proposed Acquisition, Borrowers shall be in compliance with
the terms of this Section 6.3 and all other terms and financial covenants set
forth in this Agreement, (iii) a schedule of sources and uses of funds, and (iv)
such other details about such Acquisition as Agent or any Bank may request.
Prior approval of any Acquisition shall be required for the Requisite Banks.
Concurrent with the execution of this Agreement, Banks acknowledge
receipt of a request from Borrowers for funding an amount not to exceed
$6,000,000 in connection with the purchase of land and a building by The
Spectrum Club Company, Inc. and its development as a new Spectrum Club in
Thousand Oaks, California (the "Thousand Oaks Club"). Funding for the Thousand
Oaks Club Acquisition has been approved subject to the following:
(a) the occurrence of no material adverse change with
respect to the Borrowers or the proposed Acquisition and no Default
having occurred prior to such funding or would occur as a result of such
funding;
(b) a concurrent closing of the escrow with respect to the
Thousand Oaks Club pursuant to the escrow instructions as provided to
Agent and Banks; and
(c) evidence of full compliance with all other terms and
conditions of this Agreement both before and after such Acquisition.
6.4 Profitability. Fail to maintain on a combined basis a positive
net income after taxes and extraordinary items on a monthly basis.
6.5 Redemption, Dividends and Distributions; Payments to Partners.
Redeem or repurchase stock or partnership interests, declare or pay any
dividends or make any other distribution, whether of capital, income or
otherwise, and whether in Cash or other Property, except that, subject to
applicable statutory restrictions and provided no Event of Default exists or
would exist after such action, (a) any Borrower or Subsidiary of a Borrower may,
subject to Section 6.2, declare and pay dividends or make distributions directly
or indirectly to another Borrower, (b) SCC, Inc. may make a Qualified Stock
Repurchase, (c) Borrowers and Subsidiaries may, subject to Section 6.2, pay
partner distributions as required under the partnership agreements as currently
in effect as of the date hereof, or with such amendments as are approved in
writing by the Requisite Banks, of L.A./Irvine Sports Clubs, Ltd., El Segundo
TDC, Ltd., Sports Connection-ES/MB and Reebok-Sports Club/NY or any other entity
approved in writing by the Requisite Banks pursuant to Section 5.6 of this
Agreement, and (d) Borrowers and Subsidiaries may declare or make operating
distributions or declare or pay dividends or make distributions in connection
with the purchase of partnership interests in L.A./Irvine Sports Clubs, Ltd., El
Segundo TDC, Ltd., Sports Connection-ES/MB and/or Reebok-Sports Club/NY or any
other
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entity approved in writing by the Requisite Banks pursuant to Sections 5.6 and
6.2 of this Agreement.
6.6 ERISA.
(a) At any time, maintain, or be or become obligated to
contribute on behalf of its employees to, any Plan, other than those
Plans disclosed in Schedule 4.13.
(b) At any time, permit any Plan to:
(1 engage in any "prohibited transaction",
as such term is defined in Section 4975 of the Internal
Revenue Code of 1954, as amended;
(2 incur any material "accumulated funding
deficiency", as that term is defined in Section 302 of ERISA;
or
(3 terminate in a manner which could result in
liability of Borrowers or any Subsidiary thereof to the Plan or to
the PBGC or the imposition of a Lien on the Property of Borrowers
or any Subsidiary thereof pursuant to Section 4068 of ERISA.
(c) At any time, assume any obligation to contribute to any
Multiemployer Plan, nor shall Borrowers or any Subsidiary thereof acquire
any Person or assets of any Person which has, or has had at any time from
and after January 2, 1974, an obligation to contribute to any
Multiemployer Plan.
(d) Fail immediately to notify Agent and Banks of the
occurrence of any "reportable event" (as defined in Section 4043 of
ERISA) or of any "prohibited transaction" (as defined in Section 4975 of
the Internal Revenue Code of 1954, as amended) with respect to any Plan
or any trust created thereunder. Upon request by Agent or any Bank,
Borrowers promptly shall furnish to Agent and Banks copies of any reports
or other documents filed by Borrowers or any Subsidiary thereof with the
United States Secretary of Labor, the PBGC and/or the Internal Revenue
Service, with respect to any Plan.
(e) At any time, permit any Plan to fail to comply with
ERISA or other applicable Law in any material respect.
6.7 Change in Nature of Business/Management. Make any material
change in the nature of the business of Borrowers and their Subsidiaries, as
conducted and presently proposed to be conducted, or remove or allow removal of
D. Michael Talla, John Gibbons or Timothy O'Brien from any management position
presently held by him, unless evidence of satisfactory progress to procure a
replacement acceptable to the Requisite Banks is delivered to Agent and Banks
within 30 days thereafter.
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6.8 Transactions with AT&T Commercial. Create, incur, assume or
suffer to exist (and shall cause each of their Affiliates to not create, incur
or assume or suffer to exist) any additional indebtedness for borrowed money or
any liability to AT&T Commercial in excess of the then current outstandings
under the "Loan Agreement," as that term is defined in the Subordination
Agreement (provided that such limitation shall not affect AT&T Commercial's
right to make advances or charges in connection with its rights and remedies
under such Loan Agreement or a refinancing of the then existing amounts owing
under such Loan Agreement); guaranty or otherwise become responsible for the
indebtedness or obligations of any other Person to AT&T Commercial; modify,
supplement or amend (and cause each of their Affiliates to not modify,
supplement or amend) any loan documents with AT&T Commercial which would
directly or indirectly affect or modify the terms of the Subordination
Agreement.
6.9 Indebtedness, Guaranties and Liens. Create, incur, assume or
suffer to exist any Lien of any nature upon or with respect to any of their
respective Properties, whether now owned or hereafter acquired; create, incur or
assume any indebtedness for borrowed money or in connection with the purchase of
Property or any liability to the issuer of any letter of credit; guaranty or
otherwise become responsible (including, but not limited to, any agreement to
purchase any obligations, stock, Property, goods or services or to supply or
advance any funds, Property, goods or services) for the indebtedness or
obligations of any other Person; or incur any lease obligation that is required
to be capitalized under generally accepted accounting principles, except:
(a) Indebtedness and Liens securing obligations incurred in
the ordinary course of business and incurred in connection with purchase
money transactions including real estate or equipment or fixture
purchases, provided that the amount of such transactions does not exceed
an aggregate amount of $1,000,000 principal (or the equivalent thereof)
in any one fiscal year;
(b) Indebtedness and Liens securing obligations incurred in
connection with purchase money equipment financing for new Club
developments or Acquisitions to the extent permitted under Section 6.3;
(c) Indebtedness and Liens (i) securing obligations
incurred in connection with the financing or re-financing of any real
property assets of Borrowers or Non-Borrower Affiliates, to the extent
such financing has been approved by the Requisite Banks, or (ii) incurred
in connection with SCC, Inc.'s $85,000,000 proposed note offering or
other equity or debt offering in any amount, to the extent the proceeds
of such Indebtedness and/or Liens are used to pay in full all
Obligations, including payment of all indebtedness owing under the Notes.
(d) Liens securing the claims or demands of materialmen,
mechanics, and other like Persons not yet delinquent or being contested
in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
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(e) Indebtedness, liabilities, guaranties or Liens in favor
of Agent and Banks under this Agreement, the Notes and the other Loan
Documents;
(f) Indebtedness and Liens listed on Schedule 6.9 or
Indebtedness and Liens arising out of the extension or refinancing of the
obligations of Borrowers described on Schedule 6.9, provided that such
obligations are not increased and are not secured by any additional
property;
(g) Guaranties arising from endorsement, in the
ordinary course of collection, of negotiable instruments;
(h) Indebtedness and Liens for taxes and assessments or
other government charges or levies if not yet due and payable or, if due
and payable, which are being contested in good faith by appropriate
proceedings and for which appropriate reserves are maintained;
(i) Liens under workers' compensation, unemployment
insurance, social security, or similar legislation, if they are being
contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(j) Trade credit for goods and services provided to
the Borrowers and the Subsidiaries in the ordinary course of business;
and
(k) Indebtedness, Liens or Guaranties in favor of
AT&T Commercial consented to by the Requisite Banks in their sole and
absolute discretion.
6.10 Transactions with Affiliates. Enter into any transaction of
any kind with any Affiliate of Borrowers other than (a) transactions between or
among Borrowers and their Subsidiaries so long as, as a result of such
transactions, the aggregate amount advanced to, invested in or committed to any
Non-Borrower Affiliate on or after January 1, 1997, does not exceed $200,000,
(b) arms-length transactions with Affiliates which are permitted with
non-Affiliates pursuant to Sections 6.1, 6.3, 6.5, and (c) those transactions
listed in Schedules 6.10 and 6.17.
6.11 Change in Fiscal Year. Change its fiscal year, or the fiscal
months thereof.
6.12 Capital Expenditures. Make or incur obligations for Capital
Expenditures, exclusive of Capital Expenditures relating to Acquisitions, new
Club developments or other like expansions, in the aggregate for Borrowers and
their Subsidiaries in any one fiscal year of less than 2% or greater than 4% of
Borrowers' revenues derived from operation of the Clubs for such fiscal year
before restatements for acquisitions accounted for using the pooling method of
accounting. (Subject to Section 6.3, Borrowers may make Capital Expenditures
relating to Acquisitions, new Club developments or other like expansions.)
6.13 Tangible Net Worth. Permit Tangible Net Worth, as of the last
day of any fiscal quarter of Borrowers and their Subsidiaries ending during any
period specified below, to be
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less than $22,871,200 plus 80% of Borrowers' cumulative net income after
December 31, 1996 not reduced by net losses and increased 100% by funds
generated from any equity offering. This Tangible Net Worth covenant shall be
revised upon the occurrence of any goodwill resulting from qualified business
acquisitions or a Qualified Stock Repurchase.
6.14 Ratio of Total Unsubordinated Liabilities to Tangible Net
Worth. Permit the ratio of Total Unsubordinated Liabilities to Tangible Net
Worth, as of the last day of any fiscal quarter of Borrowers and their
Subsidiaries to be greater than 2.40:1.00; provided, that Banks agree such
maximum ratio shall be adjusted for (a) qualified business acquisitions and (b)
the Qualified Stock Repurchase.
6.15 Debt Service Coverage Ratio
(a) For Borrowers and their Subsidiaries, permit the ratio
of (i) EBITDA plus (ii) the Davis Payments plus (iii) cash income from
equity interests to (x) interest expense on all indebtedness plus (y) the
current portion of long term debt of Borrowers, calculated at the end of
each fiscal quarter on a rolling four-quarters basis to be less than
1.40:1.00;
(b) For L.A./Irvine Sports Clubs, Ltd., permit the ratio of
(i) EBITDA generated by The Sports Club/LA less (ii) a management fee
equal to 4% of the revenues generated by The Sports Club/LA (to the
extent not already included in EBITDA) to (x) interest expense on the
indebtedness of L.A./Irvine Sports Club, Ltd. plus (y) the current
portion of long term debt of L.A./Irvine Sports Clubs, Ltd., calculated
at the end of each fiscal quarter on a rolling four-quarters basis to be
less than 1.75:1.00;
(c) For Borrowers and their Subsidiaries, excluding
L.A./Irvine Sports Clubs, Ltd., permit the ratio of (i) EBITDA for
Borrowers and their Subsidiaries excluding L.A./Irvine Sports Club, Ltd.
plus (ii) the cash proceeds received with regard to the Davis Payments
plus (iii) cash income from equity interests plus (iv) an adjustment
which represents a management fee equal to 4% of the revenues generated
by The Sports Club/LA (to the extent not already included in EBITDA) to
(x) interest expense on all indebtedness excluding the indebtedness of
L.A./Irvine Sports Clubs, Ltd., calculated at the end of each fiscal
quarter on a rolling four-quarters basis to be less than 0.85:1.00.
6.16 Attrition. With respect to The Sports Club/LA and The Sports
Club/Irvine, permit the aggregate weighted average of the ratio of (a) Attrition
to (b) the average number of gross members during the preceding consecutive six
month period to exceed 30% on an annualized basis.
6.17 Loans to Officers. Make any loans, advances or other
extensions of credit to any of Borrowers' executives, officers, directors,
shareholders or employees (or any relatives of any of the foregoing) in an
aggregate amount exceeding $200,000, other than those set forth on Schedule
6.17.
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6.18 Deposit Accounts. Except with respect to the special deposit
account referenced in the Special Deposit Account Agreement, establish any
deposit accounts in the name of any Sports Club Party (as that term is defined
in the Subordination Agreement) without the prior written consent of the
Requisite Banks.
6.19 Ratio of Debt to EBITDA. Permit the ratio of notes payable
and capitalized lease obligations (as that line item is disclosed on Borrower's
consolidated balance sheet in their 10K and 10Q) to EBITDA, as of the last day
of the fiscal quarter of Borrowers and their Subsidiaries, calculated at the end
of each such quarter on a rolling four (4) quarter basis, to be greater than
4.5:1.
6.20 Liquidity Requirement. Allow unrestricted cash deposits
and/or borrowing availability under the Commitment to be at any time in an
amount less than $1,000,000.
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ARTICLE 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 Financial and Business Information. So long as any Loan
remains unpaid, or any other Obligation remains unpaid or unperformed, or any
portion of the Commitment remains outstanding, Borrowers shall, in addition to
complying with the requirements of Section 8.3 of this Agreement, and unless the
Requisite Banks otherwise consent in writing, deliver to Agent, at Borrowers'
sole expense:
(a) As soon as practicable, and in any event within 30 days
after the end of each fiscal month of Borrowers, (i) consolidated balance
sheets of Borrowers and their Subsidiaries as at the end of such month,
setting forth in comparative form the corresponding figures as at the end
of the corresponding month of their preceding fiscal year, (ii) Club
operating statements of each Club as at the end of such month, (iii)
consolidated income statements of Borrowers and their Subsidiaries for
such month and for the portion of their fiscal year ended with such
month, setting forth in comparative form the corresponding figures for
the corresponding periods of their preceding fiscal year and (iv)
consolidated cash flow statements of Borrowers and their Subsidiaries for
the portion of their fiscal year ended with such month, setting forth in
comparative form the corresponding figures for the corresponding periods
of their preceding fiscal year, all in reasonable detail. The preceding
financial statements shall be certified by a Responsible Official of a
Borrower as fairly presenting the financial condition, results of
operations and cash flow of Borrowers and their Subsidiaries in
accordance with generally accepted accounting principles, consistently
applied, as at such date and for such periods, subject only to normal
year-end audit adjustments.
(b) As soon as practicable, and in any event within 45 days
after the end of each quarter of Borrowers (including the last quarter of
each fiscal year, provided that with respect to such last quarter the
financial statements required hereby may be in preliminary form, prior to
year-end audit adjustments), (i) consolidated balance sheets of Borrowers
and their Subsidiaries as at the end of such quarter, setting forth in
comparative form the corresponding figures as at the end of the
corresponding quarter of their preceding fiscal year, (ii) consolidated
income statements of Borrowers and their Subsidiaries for such quarter
and for the portion of their fiscal year ended with such quarter, setting
forth in comparative form the corresponding figures for the corresponding
periods of their preceding fiscal year and (iii) consolidated cash flow
statements of Borrowers and their Subsidiaries for the portion of their
fiscal year ended with such quarter, setting forth in comparative form
the corresponding figures for the corresponding periods of their
preceding fiscal year, all in reasonable detail.
The preceding financial statements shall be certified by a Responsible
Official of a Borrower as fairly presenting the financial condition,
results of operations and cash flow of Borrowers and their Subsidiaries
in accordance with generally accepted accounting principles, consistently
applied, as at such date and for such periods, subject only to normal
year-end audit adjustments.
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(c) As soon as practicable, and in any event within 90 days
after the close of each fiscal year of Borrowers, (i) consolidated
balance sheets of Borrowers and their Subsidiaries as at the end of such
fiscal year, setting forth in comparative form the corresponding figures
as at the end of their preceding fiscal year, and (ii) consolidated
income statements and cash flow statements of Borrowers and their
Subsidiaries for such fiscal year, setting forth in comparative form the
corresponding figures for their previous fiscal year, all in reasonable
detail. Such balance sheets and statements shall be prepared in
accordance with generally accepted accounting principles, consistently
applied, and such consolidated balance sheet and consolidated statements
shall be accompanied by a report and unqualified opinion of independent
public accountants of recognized standing selected by Borrowers and
reasonably satisfactory to the Requisite Banks, which report and opinion
shall be prepared in accordance with generally accepted auditing
principles as at such date, and shall be subject only to such
qualifications and exceptions as are acceptable to the Requisite Banks in
the exercise of their reasonable discretion. Such accountants' report and
opinion shall be accompanied by (1) a copy of any "management letter"
provided by such accountants to Borrowers, and (2) a certificate stating
that, in making the audit necessary for the certification of such
financial statements and such report, such accountants have obtained no
knowledge of any Default, or, if, in the opinion of such accountants, any
such Default shall exist, stating the nature and status of such Default,
and setting forth the financial calculations under Sections 6.13 through
6.20, inclusive, as of the date of the balance sheet.
(d) As soon as practicable, and in any event within 30 days
after the end of each month of Borrowers, a Certificate of a Responsible
Official of a Borrower setting forth a schedule of Capital Expenditures
made by Borrowers and/or their Subsidiaries during such month, and during
their fiscal year to date, separately for each Club.
(e) As soon as practicable, and in any event within 30 days
after the start of each fiscal year of Borrowers, a monthly budget for
the then started fiscal year including, without limiting the generality
of the foregoing, monthly projected consolidated balance sheets, income
statements and cash flow statements of Borrowers and their Subsidiaries
and individual Club operating statements, all in reasonable detail.
(f) Within 30 days following the end of each month, a
membership information report for each Club and in the aggregate in the
form now prepared by Borrowers on a monthly basis, reflecting no less
than the immediately preceding consecutive six months, and reflecting the
number of members, the number of new memberships sold and Attrition, and
supplemented by such additional information as Agent may request.
(g) Within 30 days after the close of each fiscal year of
Borrowers, Borrowers' budget of capital expenditures for capital
improvements, replacements and other related purposes for the following
fiscal year.
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(h) Within the earlier of 5 days after (i) the same are
filed with the Securities and Exchange Commission ("SEC") or (ii) the
same are required to be filed with the SEC, subject to allowable SEC
extensions, copies of each annual report, proxy or financial statement or
other report or communication sent to the shareholders of Borrowers, and
copies of all annual, regular, periodic and special reports and
registration statements which Borrowers may file or be required to file
with the Securities and Exchange Commission or any similar or
corresponding Governmental Agency or with any securities exchange.
(i) Within 5 days after receipt of copies of all
correspondence and notices received by Borrowers from the Internal
Revenue Service ("IRS") relating to any adverse action or determination
by the IRS in respect of any Borrower's tax status under the Internal
Revenue Code.
(j) Immediately upon becoming aware of the existence of any
condition or event which constitutes a Default, a written notice
specifying the nature and period of existence thereof and what action
Borrowers or their Subsidiaries are taking or propose to take with
respect thereto.
(k) Promptly upon request by Agent or the Requisite Banks,
copies of any detailed audit reports submitted to Borrowers or any of
their Subsidiaries by independent accountants in connection with the
accounts or books of Borrowers or any of their Subsidiaries, or any audit
of any of them.
(l) Promptly after request by Agent or the Requisite Banks,
copies of any report or other document filed by Borrowers or any of their
Subsidiaries with any Governmental Agency.
(m) Promptly upon becoming aware that any Person asserts a
claim against Borrowers or any of their Subsidiaries in excess of
$500,000 and that such Person has given notice or taken any other action
with respect to a claimed default or event of default, a written notice
specifying the notice given or action taken by such Person and the nature
of the claimed default or event of default and what action Borrowers or
their Subsidiaries are taking or propose to take with respect thereto.
(n) Such other data and information as from time to time
may be reasonably requested by Agent or the Requisite Banks.
7.2 Compliance Certificates. So long as any Loan remains unpaid,
or any other Obligation remains unpaid or unperformed, or any portion of the
Commitment remains outstanding, Borrowers shall, unless the Requisite Banks
otherwise consent in writing, deliver to Agent, at Borrowers' sole expense, not
later than 45 days after the end of each fiscal quarter of Borrower, a
Certificate of a Responsible Official of a Borrower (a) setting forth
computations showing, in detail satisfactory to the Requisite Banks, whether
Borrowers and their Subsidiaries were in compliance with their obligations
pursuant to Sections 6.11 through 6.16, inclusive;
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(b) stating that a review of the activities of Borrowers and their Subsidiaries
during such fiscal period has been made under supervision of the certifying
Responsible Official with a view to determining whether during such fiscal
period Borrowers and their Subsidiaries performed and observed all their
respective Obligations under the Loan Documents, and either (i) stating that, to
the best knowledge of the certifying Responsible Official, during such fiscal
period, Borrowers and their Subsidiaries performed and observed each covenant
and condition of the Loan Documents applicable to them, or (ii) if Borrowers and
their Subsidiaries have not performed and observed such covenants and
conditions, specifying all such Defaults and their nature and status; (c)
stating that no Borrower or Affiliate has incurred any indebtedness to AT&T
Commercial in violation of Section 6.8; and (d) stating that the Properties of
Borrowers and their Subsidiaries are being maintained and are in reasonable
working order and condition, ordinary replacement wear and tear excepted.
7.3 Revisions or Updates to Schedules. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect, upon request by
Agent, Borrowers promptly shall provide to Agent such revisions or updates to
such Schedule(s) as may be necessary or appropriate to update or correct such
Schedule(s); provided that no such revisions or updates to any Schedule(s) shall
be deemed to have amended, modified or superseded such Schedule(s) as originally
attached hereto, or to have cured any breach of warranty or representation
resulting from the inaccuracy or incompleteness of any such Schedule(s), unless
and until the Requisite Banks, in their sole and absolute discretion, shall have
accepted in writing such revisions or updates to such Schedule(s).
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ARTICLE 8
CONDITIONS
8.1 Initial Loans, Etc. The obligation of each Bank to make the
initial Loans and to issue the initial Standby Letter of Credit, each are
subject to the following conditions precedent (in addition to any applicable
conditions precedent set forth elsewhere in this Article 8), each of which shall
be satisfied prior to or concurrently with the making of the initial Loans and
the issuance of the initial Letter of Credit (unless Banks, in their sole and
absolute discretion, shall agree otherwise):
(a) Agent shall have received all of the following, each of
which shall be originals unless otherwise specified, each properly
executed by a Responsible Official of each party thereto, each dated as
of the Closing Date and each in form and substance satisfactory to Agent
and its legal counsel (unless otherwise specified or, in the case of the
date of any of the following, unless Agent otherwise agrees or directs):
(1) four executed counterparts of this
Agreement;
(2) the Line A Notes and Line B Notes executed by
Borrowers payable to the order of Banks;
(3) with respect to each Borrower and any and each
Subsidiary thereof, such documentation as Agent may require to
establish the due organization, valid existence and good standing
of such Borrower and each such Subsidiary, its qualification to
engage in business in each jurisdiction in which it is engaged in
business or required to be so qualified, its authority to execute,
deliver and perform any Loan Documents to which it is a Party, and
the identity, authority and capacity of each Responsible Official
thereof authorized to act on its behalf, including, without
limitation, certified copies of articles of incorporation and
amendments thereto, bylaws and amendments thereto, partnership
agreements, certificates of limited partnerships, certificates of
good standing and/or qualification to engage in business,
certificates of corporate resolutions, incumbency certificates,
Certificates of Responsible Officials, and the like;
(4) the Pledge Agreement;
(5) the Pledge Agreement (Partnership);
(6) the Subordination Agreement;
(7) the Special Deposit Account Agreement;
(8) such Loan Documents (in addition to the Pledge
Agreement and the Pledge Agreement (Partnership)) as Agent or
Requisite Banks may require pledging Property of Borrowers and/or
any of their Subsidiaries, together with such
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related financing statements or other documents as Agent or
Requisite Banks may request to perfect, effect, facilitate,
consent to, give notice of or otherwise evidence any Liens created
thereby;
(9) the Opinion of Counsel;
(10) a Certificate of a Responsible Official of
Borrowers certifying that the conditions specified in Sections
8.1(c) and 8.1(d) have been satisfied;
(11) evidence that all Liens or Rights of Others on
or in the Property of Borrowers and/or their Subsidiaries (other
than such Liens and Rights of Others as are permitted by Section
6.8) have been terminated or discharged;
(12) evidence that all indebtedness of Borrowers
(other than such indebtedness as is permitted by Section 6.8) has
been satisfied or discharged;
(13) such other certificates, documents, consents or
opinions as Agent or Requisite Banks reasonably may require.
(b) Duly executed financing statements with respect to the
Collateral shall have been filed and/or recorded with such Governmental
Agencies, and in such jurisdictions and locales, as Agent or Requisite
Banks may specify.
(c) The representations and warranties of Borrowers
contained in Article 4 shall be true and correct as of the date made or
reaffirmed.
(d) Borrowers and their Subsidiaries and any other Parties
shall be in compliance with all the terms and provisions of the Loan
Documents, and no Default shall have occurred and be continuing.
(e) The fees referred to in Sections 3.2 and 3.5 have been
paid to Banks and/or Agent, as applicable.
8.2 Any Loan. In addition to any applicable conditions precedent
set forth elsewhere in this Article 8, the obligation of Banks to make any Loan,
to redesignate any Loan, and issue any Standby Letter of Credit are subject to
the following conditions precedent:
(a) except (i) for representations and warranties which
speak as of a particular date or are no longer true and correct as a
result of a change which is permitted by this Agreement or (ii) as
disclosed by Borrowers and approved in writing by the Requisite Banks,
the representations and warranties contained in Article 4 shall be true
and correct on and as of the date of the Loan or redesignation or
issuance or creation, as the case may be, as though made on and as of
that date;
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(b) except for (i) the matters set forth in Schedule 4.10,
(ii) any matter fully covered as to subject matter and amount (subject to
applicable deductibles and retentions) by insurance for which the
insurance carrier has not asserted lack of subject matter coverage or
reserved its right to do so, or (iii) any matter, or series of related
matters, involving a claim against Borrowers of less than $100,000, there
shall be no actions, suits or proceedings pending against or affecting
Borrowers or any of their Subsidiaries or any Property of any of them in
any court of Law or before any Governmental Agency which might reasonably
be expected to have a material adverse effect on the business, operations
or condition (financial or otherwise) of Borrowers and their
Subsidiaries, taken as a whole;
(c) no material adverse change shall have occurred in the
business, operations or condition (financial or otherwise) of Borrowers
and their Subsidiaries, taken as a whole, since the Closing Date;
(d) no Default shall have occurred and be continuing;
(e) Agent shall have timely received a properly completed
Request for Loan, Request for Redesignation of Loans or Request for
Standby Letter of Credit, as the case may be, in compliance with all
applicable provisions of Article 2; and Agent shall have received, dated
as of the date of the Loan or redesignation or issuance or creation, as
the case may be, a Certificate of a Responsible Official of a Borrower to
the effect that all of the above conditions have been satisfied, with any
changes or exceptions thereto being described in a schedule attached to
such certificate and with such changes or exceptions being subject to the
approval of the Requisite Banks; and
(f) Agent shall have received, in form and substance
satisfactory to the Requisite Banks such other certificates, documents or
consents as the Requisite Banks reasonably may require.
8.3 Line B Loans. In addition to any applicable conditions
precedent set forth elsewhere in this Article 8, the obligation of Banks to make
any Line B Loan shall be subject to delivery at least ten (10) days prior to any
such Line B Loan being made by Borrowers to Agent and Banks and the Requisite
Banks' satisfactory review of (i) a letter of intent with respect to each
proposed acquisition, (ii) a pro forma financial statement giving effect to the
proposed acquisition, (iii) a pro forma compliance certificate executed by a
Responsible Official of a Borrower certifying that giving effect to the proposed
acquisition, Borrowers shall be in compliance with the financial covenants set
forth in this Agreement, and (iv) a schedule of sources and uses of funds.
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ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
9.1 Events of Default. The existence or occurrence of any one or
more of the following events, whatever the reason therefor, shall constitute an
Event of Default:
(a) Borrowers fail to pay any installment of principal or
interest on any indebtedness on any of the Notes or any portion thereof,
or to reimburse Agent or any Bank for any payment made under any Letter
of Credit, or to pay any fee or any other amount due Agent or any Bank
under any Loan Document, within five (5) Banking Days following the
giving of notice by Agent or Requisite Banks of such Default; or
(b) Any failure to comply with Section 7.1(j); or
(c) Any failure to comply with Section 6.8; or
(d) Borrowers, any of their Subsidiaries or any other Party
fails to perform or observe any other term, covenant or agreement
contained in any Loan Document, including, but not limited to, those set
forth in Articles 6 and 7 of this Agreement, on its part to be performed
or observed within fifteen (15) days after the giving of written notice
by Agent or Borrowers otherwise becoming aware of such Default; or
(e) Any representation or warranty made in any Loan
Document or in any certificate, agreement, instrument or other document
made or delivered by any Party pursuant to or in connection with any Loan
Document proves to have been incorrect when made in any respect that is
materially adverse to the interests of Agent or the Banks; or
(f) the occurrence of any "Event of Default" under that
certain Loan Agreement dated as of March 9, 1996, between L.A./Irvine
Sports Clubs, Ltd. and AT&T Commercial Finance Corporation, a Delaware
corporation (as such term is defined therein); or
(g) Borrowers or any of their Subsidiaries (i) fail to pay
the principal, or any principal installment, of any present or future
indebtedness for borrowed money of $200,000 or more or in connection with
the purchase or lease of Property, or any guaranty of present or future
indebtedness for borrowed money of $200,000 or more or issued in
connection with the purchase or lease of Property, on its part to be
paid, when due (or within any stated grace period), whether at the stated
maturity, upon acceleration, by reason of required prepayment or
otherwise or (ii) fails to perform or observe any other term, covenant or
agreement on its part to be performed or observed in connection with any
present or future indebtedness for borrowed money of $200,000 or more or
in connection with the purchase or lease of Property, or of any guaranty
of present or future indebtedness of $200,000 or more for borrowed money
or issued in connection with the purchase or lease of Property, if as a
result of such failure any holder or holders thereof (or an agent or
trustee on its or their behalf) has the right to declare such
indebtedness due before the date
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on which it otherwise would become due, or has commenced judicial or
nonjudicial action to collect such indebtedness or to foreclose or
otherwise realize upon security held therefor, or has taken or is taking
such other actions as might materially adversely affect the Collateral,
the interests of any Bank under the Loan Documents or the ability of
Borrowers or their Subsidiaries to pay and perform their Obligations
under the Loan Documents; or
(h) Any Loan Document, at any time after its execution and
delivery and for any reason other than the agreement of the Requisite
Banks or satisfaction in full of all the Obligations, ceases to be in
full force and effect or is declared by a court of competent jurisdiction
to be null and void, invalid or unenforceable in any respect which, in
the reasonable opinion of the Requisite Banks, is materially adverse to
the interests of the Banks; or any Party thereto denies that it has any
or further liability or obligation under any Loan Document, or purports
to revoke, terminate or rescind same; or
(i) A final judgment against any Borrower or any of its
Subsidiaries is entered for the payment of money in excess of $500,000
and such judgment remains unsatisfied without procurement of a stay of
execution for more than thirty (30) calendar days after the date of entry
of judgment; or
(j) Any Borrower or any of Subsidiary thereof, is the
subject of an order for relief in a bankruptcy case, or is unable or
admits in writing its inability to pay its debts as they mature, or makes
an assignment for the benefit of creditors; or applies for or consents to
the appointment of any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer for it or for all or any
part of its Property; or any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer is appointed without the
application or consent of that Person and the appointment continues
undischarged or unstayed for thirty (30) calendar days; or institutes or
consents to any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, custodianship, conservatorship,
liquidation, rehabilitation or similar case or proceedings relating to it
or to all or any part of its Property under the Laws of any jurisdiction;
or any similar case or proceeding is instituted without the consent of
that Person and continues undismissed or unstayed for thirty (30)
calendar days; or any judgment, writ, warrant of attachment or execution
or similar process is issued or levied against all or any material part
of the Property of any such Person and is not released, vacated or fully
bonded within thirty (30) calendar days after its issue or levy; or
(k) Except as otherwise expressly permitted by any Loan
Document or agreed to by the Requisite Banks, any Lien on any Collateral
created by any Loan Document, at any time after the execution and
delivery of that Loan Document and for any reason other than satisfaction
in full of all Obligations, ceases or fails to constitute a valid,
perfected and subsisting first priority Lien on the Collateral purported
to be covered thereby (unless such cessation or failure is the fault of
Agent or the Banks to timely file continuation statements); or
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(l) Any Borrower or any Subsidiary thereof is dissolved or
liquidated or all or substantially all of the assets of any Borrower or
any Subsidiary thereof are sold or otherwise transferred in violation of
the provisions of this Agreement without the written consent of the
Requisite Banks.
9.2 Remedies Upon Event of Default. Without limiting any other
rights or remedies of Agent or Banks provided for elsewhere in this Agreement,
or the Loan Documents, or by applicable Law, or in equity or otherwise:
(a) Upon the occurrence of any Event of Default other than
an Event of Default described in Section 9.1(h):
(1) the Commitment to make Loans and all other
obligations of the Agent or the Banks and all rights of Borrowers
and any other Parties under the Loan Documents shall terminate
without notice to or demand upon Borrowers, which are expressly
waived by Borrowers, except that the Requisite Banks may waive the
Event of Default or, without waiving, determine, upon terms and
conditions satisfactory to Banks, to make further Loans, which
waiver or determination shall apply equally to, and shall be
binding upon, all of the Banks; and
(2) the Requisite Banks may request the Agent to,
and the Agent thereupon shall declare all or any part of the
unpaid principal of all Notes, all interest accrued and unpaid
thereon and all other amounts payable under the Loan Documents to
be forthwith due and payable, whereupon the same shall become and
be forthwith due and payable, without protest, presentment, notice
of dishonor, demand or further notice of any kind, all of which
are expressly waived by Borrowers.
(b) Upon the occurrence of any Event of Default described
in Section 9.1(h):
(1) the Commitment to make Loans and all other
obligations of Agent or any Bank and all rights of Borrowers and
any other Parties under the Loan Documents shall terminate without
notice to or demand upon Borrowers, which are expressly waived by
Borrowers, except that all of the Banks may waive the Event of
Default or, without waiving, determine, in their sole discretion,
to make further Loans; and
(2) the unpaid principal of all Notes, all interest
accrued and unpaid thereon and all other amounts payable under the
Loan Documents shall be forthwith due and payable, without
protest, presentment, notice of dishonor, demand or further notice
of any kind, all of which are expressly waived by Borrowers.
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(c) Upon the occurrence of any Event of Default, Agent and
the Banks or any of them, without notice to or demand upon Borrowers,
which are expressly waived by Borrowers, except as required by California
Commercial Code Section 9504 or any modification or replacement statute
thereof, or by the terms of this Agreement, may proceed (but only with
the consent of the Requisite Banks) to protect, exercise and enforce its
rights and remedies under the Loan Documents against Borrowers and such
other rights and remedies as are provided by Law or equity.
(d) The order and manner in which the Banks' rights and
remedies are to be exercised shall be determined by the Requisite Banks
in their sole discretion, and all payments received by Agent and the
Banks shall be applied first to the costs and expenses (including outside
attorneys' fees and disbursements) of the Agent, acting as Agent and of
the Banks pro rata and thereafter to the Obligations owed to the Banks,
pro rata, under the Agreement. For the purpose of computing Borrowers'
Obligations under the Loan Documents, payments shall be applied, first,
to the costs and expenses of Agent and the Banks, as set forth above,
second, to the payment of accrued and unpaid interest due under any Loan
Documents to and including the date of such application, third, to the
payment of all unpaid principal amounts due under any Loan Documents
(including, for the purposes hereof, principal due under the Notes and
reimbursement due for payments made under Letters of Credit), and fourth,
to the payment of all other amounts (including fees) then owing to Agent
and the Banks under the Loan Documents. No application of payments will
cure any Event of Default, or prevent acceleration, or continued
acceleration, of amounts payable under the Loan Documents, or prevent the
exercise, or continued exercise, of rights or remedies of Banks hereunder
or thereunder or at Law or in equity.
(e) Upon the occurrence of any event that would be an Event
of Default under Section 9.1(i) with the passage of time, Agent and the
Banks may take such action as the Requisite Banks deem necessary to
protect the interests of the Banks under the Loan Documents.
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ARTICLE 10
THE AGENT
10.1 Appointment and Authorization. Each Bank hereby irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under the Loan Documents as are delegated to the Agent
by the terms thereof or are reasonably incidental, as determined by the Agent,
thereto. This appointment and authorization is intended solely for the purpose
of facilitating the servicing of the Loans and does not constitute appointment
of the Agent as trustee for any Bank or as representative of any Bank for any
other purpose and, except as specifically set forth in the Loan Documents to the
contrary, the Agent shall take such action and exercise such powers only in an
administrative and ministerial capacity.
10.2 Agent and Affilkiates. Sumitomo Bank (and each successor
Agent) has the same rights and powers under the Loan Documents as any other Bank
and may exercise the same as though it was not the Agent, and the term "Bank" or
"Banks" includes Sumitomo Bank in its individual capacity. Sumitomo Bank (and
each successor Agent) and its Affiliates may accept deposits from, lend money to
and generally engage in any kind of banking, trust or other business with
Borrowers, any Subsidiary thereof, or any Affiliate of Borrowers or any
Subsidiary thereof, as if it was not the Agent and without any duty to account
therefor to the Banks. Sumitomo Bank (and each successor Agent) need not account
to any other Bank for any monies received by it for reimbursement of its costs
and expenses as Agent hereunder, or for any monies received by it in its
capacity as a Bank hereunder.
10.3 Proportionate Interest of the Banks in any Collateral. The
Agent, on behalf of all the Banks, shall hold in teral accordance with the Loan
Documents all items of Collateral or interests therein received or held by the
Agent. Subject to the Agent's and the Banks' rights to reimbursement for their
costs and expenses hereunder (including attorneys' fees and disbursements and
other professional services) and subject to the application of payments in
accordance with Section 9.2(d), each Bank shall have an interest in any
Collateral or interests therein in the same proportions that the aggregate
Obligations owed such Bank under the Loan Documents bear to the aggregate
Obligations owed under the Loan Documents to all the Banks, without priority or
preference among the Banks.
10.4 Banks' Credit Decisions. Each Bank agrees that it has,
independently and without reliance upon the Agent, any other Bank or the
directors, officers, agents, employees or attorneys of the Agent or of any other
Bank, and instead in reliance upon information supplied to it by or on behalf of
Borrowers and upon such other information as it has deemed appropriate, made its
own independent credit analysis and decision to enter into this Agreement. Each
Bank also agrees that it shall, independently and without reliance upon the
Agent, any other Bank or the directors, officers, agents, employees or attorneys
of the Agent or of any other Bank, continue to make its own independent credit
analyses and decisions in acting or not acting under the Loan Documents.
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10.5 Action by Agent
(a) The Agent may assume that no Default has occurred and
is continuing, unless the Agent has actual knowledge of the Default, has
received notice from Borrowers stating the nature of the Default, or has
received notice from a Bank stating the nature of the Default and that
such Bank considers the Default to have occurred and to be continuing.
(b) The Agent has only those obligations under the Loan
Documents as are expressly set forth therein.
(c) Except for any obligation expressly set forth in the
Loan Documents and as long as the Agent may assume that no Event of
Default has occurred and is continuing, the Agent may, but shall not be
required to exercise its discretion to act or not act, except that the
Agent shall be required to act or not act upon the instructions of the
Requisite Banks (or of all the Banks, to the extent required by Section
11.3) and those instructions shall be binding upon the Agent and all the
Banks, provided that the Agent shall not be required to act or not act if
to do so would be contrary to any Loan Document or to applicable Law.
(d) If the Agent may not assume that no Event of Default
has occurred and is continuing, the Agent shall give notice thereof to the
Banks and shall act or not act upon the instructions of the Requisite
Banks (or of all the Banks, to the extent required by Section 11.3),
provided that the Agent shall not be required to act or not act if to do
so would be contrary to any Loan Document or to applicable Law, and except
that if the Requisite Banks (or all the Banks, if required under Section
11.3) fail, for five (5) Banking Days after the receipt of notice from the
Agent, to instruct the Agent, then the Agent, in its discretion, may act
or not act as it deems advisable for the protection of the interests of
the Banks.
(e) The Agent shall have no liability to any Bank for
acting, or not acting, as instructed by the Requisite Banks (or all the
Banks, if required under Section 11.3), notwithstanding any other
provision hereof.
10.6 Liability of Agent. Neither the Agent nor any of its
directors, officers, agents, employees or attorneys shall be liable for any
action taken or not taken by them under or in connection with the Loan
Documents, except for their own gross negligence or willful misconduct. Without
limitation on the foregoing, the Agent and its directors, officers, agents,
employees and attorneys:
(a) May treat the payee of any Note as the holder thereof
until the Agent receives notice of the assignment or transfer thereof, in
form satisfactory to the Agent, signed by the payee, and may treat each
Bank as the owner of that Bank's interest in the Obligations for all
purposes of this Agreement until the Agent receives notice of the
assignment or transfer thereof, in form satisfactory to the Agent, signed
by that Bank.
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(b) May consult with legal counsel (including in-house
legal counsel), accountants (including in-house accountants) and other
professionals or experts selected by it, or with legal counsel,
accountants or other professionals or experts for Borrowers and/or their
Subsidiaries or the Banks, and shall not be liable for any action taken or
not taken by it in good faith in accordance with the advice of such legal
counsel, accountants or other professionals or experts.
(c) Shall not be responsible to any Bank for any statement,
warranty or representation made in any of the Loan Documents or in any
notice, certificate, report, request or other statement (written or oral)
given or made in connection with any of the Loan Documents.
(d) Except to the extent expressly set forth in the Loan
Documents, shall have no duty to ask or inquire as to the performance or
observance by Borrowers or their Subsidiaries of any of the terms,
conditions or covenants of any of the Loan Documents or to inspect any
Collateral or the Property, books or records of Borrowers or their
Subsidiaries.
(e) Will not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness, effectiveness,
sufficiency or value of any Loan Document, any other instrument or writing
furnished pursuant thereto or in connection therewith, or any Collateral.
(f) Will not incur any liability by acting or not acting in
reliance upon any Loan Document, notice, consent, certificate, statement,
request or other instrument or writing believed by it to be genuine and
signed or sent by the proper party or parties.
(g) Will not incur any liability for any arithmetical error
in computing any amount paid or payable by the Borrowers or any Subsidiary
or Affiliate thereof or paid or payable to or received or receivable from
any Bank under any Loan Document, including, without limitation,
principal, interest, commitment fees, advances and other amounts; provided
that, promptly upon discovery of such an error in computation, the Agent,
the Banks and (to the extent applicable) Borrowers and/or their
Subsidiaries or Affiliates shall make such adjustments as are necessary to
correct such error and to restore the parties to the position that they
would have occupied had the error not occurred.
10.7 Indemnification. Each Bank shall, ratably in accordance with
its percentage of the total Commitment, indemnify and hold the Agent and its
directors, officers, agents, employees and attorneys harmless against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
(including, without limitation, attorneys' fees and disbursements) that may be
imposed on, incurred by or asserted against it or them in any way relating to or
arising out of the Loan Documents (other than losses incurred by reason of the
failure of Borrowers to pay the indebtedness represented by the Notes and the
Letters of Credit) or any action taken or not taken
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by it as Agent thereunder, except such as result from its own gross negligence
or willful misconduct. Without limitation on the foregoing, each Bank shall
reimburse the Agent upon demand for that Bank's ratable share of any cost or
expense incurred by the Agent in connection with the negotiation, preparation,
execution, delivery amendment, waiver, restructuring, reorganization (including
a bankruptcy reorganization), enforcement or attempted enforcement of the Loan
Documents, to the extent that Borrowers or any other Party are required by
Section 11.4 to pay that cost or expense but fails to do so upon demand.
10.8 Successor Agent. The Agent may resign as such at any time by
written notice to Borrowers and the Banks, to be effective upon a successor's
acceptance of appointment as Agent. The Requisite Banks at any time may remove
the Agent by written notice to that effect to be effective on such date as the
Requisite Banks designate. In either event: (a) The Requisite Banks shall
appoint a successor Agent, who must be from among the Banks, provided that any
resigning Agent shall be entitled to appoint a successor Agent from among the
Banks, subject to acceptance of appointment by that successor Agent, if the
Requisite Banks have not appointed a successor Agent within thirty (30) days
after the date the resigning Agent gave notice of resignation; (b) Upon a
successor's acceptance of appointment as Agent, the successor will thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the resigning Agent or the removed Agent; and (c) Upon the effectiveness of
any resignation or removal, the resigning Agent or the removed Agent thereupon
will be discharged from its duties and obligations thereafter arising under the
Loan Documents other than obligations arising as a result of any action or
inaction of the resigning Agent or the removed Agent prior to the effectiveness
of such resignation or removal.
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ARTICLE 11
MISCELLANEOUS
11.1 Pledge of Partnership Interests of L.A./Irvine Sports Clubs,
Ltd. Banks agree that Borrowers shall not be obligated to pledge to, Banks any
partnership interests or stock interest they may have in L.A./Irvine Sports
Clubs, Ltd. or Sports Club, Inc. of California in the event such pledge would
violate any agreement of any Borrower with AT&T Commercial.
11.2 Cumulative Remedies; No Waiver. The rights, powers,
privileges and remedies of Agent and the Banks provided herein or in any Note or
other Loan Document are cumulative and not exclusive of any right, power,
privilege or remedy provided by Law or equity. No failure or delay on the part
of Agent or any Bank in exercising any right, power, privilege or remedy may be,
or may be deemed to be, a waiver thereof; nor may any single or partial exercise
of any right, power, privilege or remedy preclude any other or further exercise
of the same or any other right, power, privilege or remedy. The terms and
conditions of Article 8 hereof are inserted for the sole benefit of Agent and
the Banks and Agent (acting with the consent of the Requisite Banks) or the
Requisite Banks may waive them in whole or in part, with or without terms or
conditions, in respect of any Loan or Letter if Credit, without prejudicing
Agent's or any Bank's rights to assert them in whole or in part in respect of
any other Loan or Letter of Credit.
11.3 Amendments; Consents. No amendment, modification, supplement,
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by the Borrowers or any other Party therefrom, may in any event be
effective unless in writing signed by Agent with approval of the Requisite Banks
(and, in the case of amendments, modifications or supplements of or to any Loan
Document to which any Borrower is a Party, the approval in writing of such
Borrower), and then only in the specific instance and for the specific purpose
given; and, without the approval in writing of all the Banks, no amendment,
modification, supplement, termination, waiver or consent may be effective:
(a) To amend or modify the principal of, or the amount of
principal, principal prepayments or the rate of interest payable on, any
Note, or the amount of the Commitment or of any commitment fee payable
to any Bank, or any other fee or amount payable to any Bank under the
Loan Documents or to allow any material release of Collateral;
(b) To postpone any date fixed for any payment of principal
of, prepayment of principal of or any installment of interest on, any
Note, or the facility fee, or any installment of any commitment fee, or
any reimbursement obligation due under any Standby Letter of Credit, or
to extend the term of the Commitment;
(c) To amend or modify the provisions of (1) the
definitions of "Commitment", "Maximum Standby Letter of Credit Amount",
"Maximum Loan Amount", Requisite Banks or "Total Outstanding"; (2)
Articles 8 or 9; or (3) this Section 11.3; or
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(d) To amend or modify any other definition or provision of
this Agreement that expressly requires the consent or approval of the
Requisite Banks or some other number of Banks.
Any amendment, modification, supplement, termination, waiver or consent pursuant
to this Section 10.2 shall apply equally to and shall be binding upon, Agent and
all the Banks.
11.4 Costs, Expenses and Taxes. Borrowers shall pay on demand the
reasonable costs and expenses, including attorneys' fees, of Agent and the Banks
in connection with the negotiation, preparation, execution and delivery of the
Loan Documents, and of Agent and the Banks in connection with the amendment,
waiver, refinancing, restructuring, reorganization (including a bankruptcy
reorganization) and enforcement or attempted enforcement of the Loan Documents,
and any matter related thereto, including, without limitation, filing fees,
recording fees, title insurance fees, appraisal fees, search fees, audit costs
incurred by Agent or the Banks during the continuance of or in connection with
the occurrence of an Event of Default and other out-of-pocket expenses and the
reasonable fees and out-of-pocket expenses of any legal counsel, independent
public accountants and other outside experts retained by Agent or any Banks, and
including, without limitation, any costs, expenses or fees incurred or suffered
by Agent or any Banks in connection with or during the course of any bankruptcy
or insolvency proceedings of any Borrower or any Subsidiary thereof. Borrowers
shall pay any and all documentary and other taxes (other than income or gross
receipts taxes generally applicable to banks) and all costs, expenses, fees and
charges payable or determined to be payable in connection with the filing or
recording of this Agreement, any other Loan Document or any other instrument or
writing to be delivered hereunder or thereunder, or in connection with any
transaction pursuant hereto or thereto, and shall reimburse, hold harmless and
indemnify Agent and the Banks from and against any and all loss, liability or
legal or other expense with respect to or resulting from any delay in paying or
failure to pay any tax, cost, expense, fee or charge or that any of them may
suffer or incur by reason of the failure of any Party to perform any of its
Obligations. Any amount payable to Agent or any Bank under this Section 11.4
shall bear interest from the fifth Banking Day following the date of demand for
payment at the rate provided for in Section 3.6.
11.5 Nature of Banks' Obligations. The obligations of the Banks
hereunder are several and not joint or joint and several. Nothing contained in
this Agreement or any other Loan Document and no action taken by the Agent or
the Banks or any of them pursuant hereto or thereto may, or may be deemed to,
make the Banks a partnership, an association, a joint venture or other entity,
either among themselves or with the Borrowers or any Affiliate of the Borrowers.
Each Bank's obligation to make any Loan pursuant hereto is several and not joint
or joint and several, and is conditioned upon the performance by all other Banks
of their obligations to make Loans. A default by any Bank will not increase the
percentage of the Commitment attributable to any other Bank. Any Bank not in
default may, if it desires, assume in such proportion as the nondefaulting Banks
agree the obligations of any Bank in default, but is not obligated to do so.
11.6 Survival of Representations and Warranties. All
representations and warranties contained herein or in any other Loan Document,
or in any certificate or other writing
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delivered by or on behalf of any one or more of the Parties to any Loan
Document, will survive the making and repayment of the Loans hereunder and the
execution and delivery of the Notes, and have been or will be relied upon by
Agent and each Bank, notwithstanding any investigation made by Agent or any Bank
or on their behalf.
11.7 Notices. Except as otherwise expressly provided in the Loan
Documents: (a) All notices, requests, demands, directions and other
communications provided for hereunder or under any other Loan Document must be
in writing and must be mailed, telecopied or personally delivered to the
appropriate party at the address set forth on the signature pages of this
Agreement or other applicable Loan Document or, as to any party to any Loan
Document, at any other address as may be designated by it in a written notice
sent to all other parties to such Loan Document in accordance with this Section
11.7; and (b) Any notice, request, demand, direction or other communication
given by telecopier must be confirmed within 48 hours by letter mailed or
delivered to the appropriate party at its respective address. Except as
otherwise expressly provided in any Loan Document, if any notice, request,
demand, direction or other communication required or permitted by any Loan
Document is given by mail it will be effective on the earlier of receipt or the
third calendar day after deposit in the United States mail with first class or
airmail postage prepaid; if given by telecopier, upon electronic confirmation of
receipt, and if given after 4:30 p.m., effective on the next business day; or if
given by personal delivery when delivered.
11.8 Execution of Loan Documents. Unless Agent otherwise specifies
with respect to any Loan Document, this Agreement and any other Loan Document
may be executed in any number of counterparts and any party hereto or thereto
may execute any counterpart, each of which when executed and delivered will be
deemed to be an original and all of which counterparts of this Agreement or any
other Loan Document, as the case may be, when taken together will be deemed to
be but one and the same instrument. The execution of this Agreement or any other
Loan Document by any party hereto or thereto will not become effective until
counterparts hereof or thereof, as the case may be, have been executed by all
the parties hereto or thereto.
11.9 Sharing of Setoffs. Each Bank severally agrees that if it,
through the exercise of any right of setoff, banker's lien or counterclaim
against Borrowers, or otherwise receives payment of the Obligations held by it
that is ratably more than any other Bank, through any means, receives in payment
of the Obligations held by that Bank, then: (a) The Bank exercising the right of
setoff, banker's lien or counterclaim or otherwise receiving such payment shall
purchase, and shall be deemed to have simultaneously purchased, from the other
Bank a participation in the Obligations held by the other Bank and shall pay to
the other Bank a purchase price in an amount so that the share of the
Obligations held by each Bank after the exercise of the right of setoff,
banker's lien or counterclaim or receipt of payment shall be in the same
proportion that existed prior to the exercise of the right of setoff, banker's
lien or counterclaim or receipt of payment; and (b) Such other adjustments and
purchases of participations shall be made from time to time as shall be
equitable to ensure that all of the Banks share any payment obtained in respect
of the Obligations ratably in accordance with each Bank's share of the
Obligations immediately prior to, and without taking into account, the payment;
provided that, if all or any portion of a disproportionate payment obtained as a
result of the exercise of the right of setoff, banker's lien, counterclaim or
otherwise is thereafter recovered from the purchasing Bank by Borrowers or any
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Person claiming through or succeeding to the rights of Borrowers, the purchase
of a participation shall be rescinded and the purchase price thereof shall be
restored to the extent of the recovery, but without interest. Each Bank that
purchases a participation in the Obligations pursuant to this Section 11.9 shall
from and after the purchase have the right to give all notices, requests,
demands, directions and other communications under this Agreement with respect
to the portion of the Obligations purchased to the same extent as though the
purchasing Bank were the owner of the Obligations purchased. Each Borrower
expressly consents to the foregoing arrangements and agrees that any Bank
holding a participation in an Obligation so purchased may exercise any and all
rights of setoff, banker's lien or counterclaim with respect to the
participation as fully as if the Bank were the original owner of the Obligation
purchased; provided, however, that each Bank agrees that it shall not exercise
any right of setoff, banker's lien or counterclaim without first obtaining the
consent of the Requisite Banks.
11.10 Binding Effect; Assignment. This Agreement and the other
Loan Documents shall be binding upon and shall inure to the benefit of the
parties hereto and thereto and their respective successors and assigns, except
that Borrowers and/or their Affiliates may not assign their rights hereunder or
thereunder or any interest herein or therein without the prior written consent
of all the Banks. Banks reserve the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or in any interest in, such
Bank's rights and obligations under the Loan Documents, except that no Bank
shall have the right to sell, assign, pledge or transfer any participation in
its rights hereunder or any interest herein (other than to a Federal Reserve
Bank for 90 days or less or to any Affiliate of such Bank) without the consent
of the Agent and Requisite Banks.
11.11 Assignment of Deposits. As security for the prompt payment
and performance of all Obligations, Borrowers hereby assigns to Agent and Banks
a security interest in all their right, title, and interest in and to any and
all deposit accounts now or hereafter maintained with Agent or any Bank except
the deposit account set forth in the Special Deposit Account Agreement, and the
proceeds thereof.
11.12 Participation of Loan. Banks shall have the right to
participate, sell or assign interests in the Loans with financial institutions
on such terms and conditions as may be acceptable to Agent and Requisite Banks.
11.13 Indemnity by Borrowers. Borrowers agree to indemnify, save
and hold harmless Agent and Banks and their directors, officers, agents,
attorneys and employees (collectively the "Indemnitees") from and against: (a)
Any and all claims, demands, actions or causes of action that are asserted
against any Indemnitee by any Person (other than Agent or a Bank) if the claim,
demand, action or cause of action directly or indirectly relates to a claim,
demand, action or cause of action that such Person has or asserts against
Borrowers, any Affiliate of Borrowers or any officer, director or shareholder of
Borrowers and arises out of or relates to the relationship between Borrowers and
Banks under any of the Loan Documents or the transactions contemplated thereby;
and (b) Any and all liabilities, losses, costs or expenses (including attorneys'
fees and disbursements and other professional services) that any Indemnitee
suffers or incurs as a result of the assertion of any foregoing claim, demand,
action or cause of
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action; provided that no Indemnitee shall be entitled to indemnification for any
loss caused by its own gross negligence or willful misconduct. Each Indemnitee
is authorized to employ counsel of its own choosing in enforcing its rights
hereunder and in defending against any claim, demand, action or cause of action
covered by this Section 11.13; provided that each Indemnitee shall endeavor, in
connection with any matter covered by this Section 11.13 which also involves
other Indemnitees, to use reasonable efforts to avoid unnecessary duplication of
effort by counsel for all Indemnitees. Any obligation or liability of Borrowers
to any Indemnitee under this Section 11.13 shall be and hereby is covered and
secured by the Loan Documents and the Collateral, and shall survive the
expiration or termination of this Agreement and the repayment of all Loans and
the payment and performance of all other Obligations owed to Agent and/or Banks.
11.4 Nonliability of Banks. Borrowers acknowledge and agree that:
(a) Any inspections of Collateral made by or through Agent
or any Bank are for purposes of administration of the Loan only and
Borrowers are not entitled to rely upon the same;
(b) By accepting or approving anything required to be
observed, performed, fulfilled or given to Agent or the Banks pursuant
to the Loan Documents, including any certificate, financial statement,
insurance policy or other document, neither Agent nor any Bank shall be
deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not
constitute a warranty or representation to anyone with respect thereto
by Agent or the Banks;
(c) The relationship between Borrowers and Agent and Banks
is, and shall at all times remain, solely that of borrower and lenders;
neither Agent nor any Bank shall under any circumstance be construed to
be partners or joint venturers of Borrowers or its Affiliates; neither
Agent nor any Bank shall under any circumstance be deemed to be in a
relationship of confidence or trust or a fiduciary relationship with
Borrowers or their Affiliates, or to owe any fiduciary duty to Borrowers
or their Affiliates; neither Agent nor any Bank shall undertake or
assume any responsibility or duty to Borrowers or their Affiliates to
select, review, inspect, supervise, pass judgment upon or inform
Borrowers or their Affiliates of any matter in connection with their
Property, any Collateral held by Agent or any Bank or the operations of
Borrowers or their Affiliates; Borrowers and their Affiliates shall rely
entirely upon their own judgment with respect to such matters; and any
review, inspection, supervision, exercise of judgment or supply of
information undertaken or assumed by Agent or Banks in connection with
such matters is solely for the protection of Agent and Banks and no
Borrower or any other Person is entitled to rely thereon; and
(d) Agent and Banks shall not be responsible or liable to
any Person for any loss, damage, liability or claim of any kind relating
to injury or death to Persons or damage to Property caused by the
actions, inaction or negligence of Borrowers and/or
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their Affiliates and Borrowers hereby indemnify and hold Bank harmless
from any such loss, damage, liability or claim.
11.15 No Third Parties Benefited. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
Borrowers and Agent and Banks in connection with the Loans, and is made for the
sole protection of Borrowers and Agent and Banks, and their successors and
assigns. Except as provided in Section 11.13, no other Person shall have any
rights of any nature hereunder or by reason hereof.
11.16 Further Assurances. Borrowers and their Subsidiaries shall,
at their expense and without expense to Agent or any Bank, do, execute and
deliver such further acts and documents as Agent or any Bank from time to time
reasonably require for the assuring and confirming unto Agent and Banks of the
rights hereby created or intended now or hereafter so to be, or for carrying out
the intention or facilitating the performance of the terms of any Loan Document,
or for assuring the validity, perfection, priority or enforceability of any Lien
under any Loan Document.
11.17 Integration. This Agreement, together with the other Loan
Documents, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof. In the event of any conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
rights or remedies in favor of Agent or Banks in any other Loan Document shall
not be deemed a conflict with this Agreement. Each Loan Document was drafted
with the joint participation of the respective parties thereto and shall be
construed neither against nor in favor of any party, but rather in accordance
with the fair meaning thereof.
11.18 Governing Law. Except to the extent otherwise provided
therein, each Loan Document shall be governed by, and construed and enforced in
accordance with, the local Laws of California; provided that the local Laws of
California shall not apply with respect to any foreclosure of real Property
Collateral located outside California, and in no event shall California Code of
Civil Procedure ss.ss. 726 and/or 580a and/or 580b and/or 580d apply to any such
foreclosure outside of California or to the right of Agent and Banks to obtain a
deficiency judgment for all Obligations remaining due following such
foreclosure.
11.19 Severability of Provisions. Any provision in any Loan
Document that is held to be inoperative, unenforceable or invalid as to any
party or in any jurisdiction shall, as to that party or jurisdiction, be
inoperative, unenforceable or invalid without affecting the remaining provisions
or the operation, enforceability or validity of that provision as to any other
party or in any other jurisdiction, and to this end the provisions of all Loan
Documents are declared to be severable.
11.20 Headings. Article and Section headings in this Agreement and
the other Loan Documents are included for convenience of reference only and are
not part of this Agreement or the other Loan Documents for any other purpose.
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11.21 Time of the Essence. Time is of the essence of the Loan
Documents.
11.22 Securities Representation. Each Bank hereby represents that
any disposition by it of all or any part of its rights under the Loan Documents
shall not violate Section 5 of the Securities Act of 1933 to the extent, if any,
applicable.
11.23 Joint Borrower Provisions. Borrowers acknowledge and agree
that Borrowers shall be jointly and severally liable for all obligations arising
under this Agreement, any/or Loan Documents. In furtherance thereof, Borrowers
acknowledge and agree as follows:
(a) In lieu of maintaining accounts in the name of each of
the Persons comprising Borrower (for purposes of this Section, each such
Person being referred to as a "Borrowing Entity"), Agent shall maintain
a single designated deposit account for Borrowers. Any advance made by
Bank hereunder shall be made jointly and severally to all Borrowing
Entities. Any payments received by any Bank likewise shall be credited
to all Borrowing Entities. While it is anticipated that SCC, Inc. will
make Requests for Loans or for Standby Letters of Credit, Requests for
Loans or for Standby Letters of Credit may be made by any Borrowing
Entity and Agent and any Bank, in its discretion, is authorized to honor
and rely upon any such Request or any instructions received from any
Responsible Official of any Borrowing Entity. It is expressly agreed and
understood by each Borrowing Entity that Agent and each Bank shall have
no responsibility to inquire into the appointment, allocation or
disposition of any Loans made to Borrowers. All Loans are to be made for
the collective account of Borrowers. For the purpose of implementing the
joint borrower provisions of the Loan Documents, including without
limitation the giving and receiving of notices and other communications,
the making of Requests for Loans or Requests for Standby Letters of
Credit, the execution and delivery of certificates and the receiving and
allocating of disbursements from Bank, Borrowers hereby irrevocably
appoint each other as the agent and attorney-in-fact for all purposes of
the Loan Documents.
(b) It is understood and agreed that the handling of this
credit facility on a joint borrowing basis as set forth in this
Agreement is solely as an accommodation to Borrowers and at the request
of Borrowers, and that Agent and Banks shall incur no liability to
Borrowers or any Borrowing Entity as a result thereof. To induce Agent
and Banks to do so, and in consideration thereof, each Borrowing Entity
hereby agrees to indemnify Agent and Banks and hold Agent and Banks
harmless from and against any and all liabilities, expenses, losses,
damages and/or claims of damage or injury asserted against Agent and
Banks by Borrowers or by any other Person arising from or incurred by
reason of Agent's or any Bank's handling of the financing arrangement of
Borrowers as herein provided, reliance by Agent and Banks on any
requests or instructions from any Borrowing Entity, or any other action
taken by Agent and Banks.
(c) Each of the Borrowers represents and warrants to Agent
and Banks that the request for joint handling of the Loans was made
jointly by the Borrowing
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Entities and that the Borrowing Entities are engaged in an integrated
operation that requires financing on a basis permitting the availability
of credit from time to time to each of the Borrowing Entities as required
for the continued successful operation of each of them and their
integrated operations. Each Borrowing Entity expects to derive benefit,
directly or indirectly, from such availability because the successful
operation of the Borrower is dependent on the continued successful
performance of the functions of the integrated group.
(d) Each Borrower acknowledges that the liens and security
interests created or granted herein and by the other Loan Documents will
or may secure obligations of persons or entities other than itself and,
in full recognition of that fact, each Borrower consents and agrees that
any action by Agent or any Bank with respect to the following shall not
affect the enforceability or security hereof or of any other Loan
Document:
(1) supplement, modify, amend, extend, renew,
accelerate, or otherwise change the time for payment or the terms
of the obligations of the other Borrowers or any part thereof,
including any increase or decrease of the rate(s) of interest
thereon;
(2) supplement, modify, amend or waive, or enter
into or give any agreement, approval or consent with respect to,
the obligations of the other Borrowers or any part thereof or any
of the Loan Documents or any additional security or guaranties, or
any condition, covenant, default, remedy, right, representation or
term thereof or thereunder;
(3) accept new or additional instruments, documents
or agreements in exchange for or relative to any of the Loan
Documents or the obligations of Borrowers or any part thereof;
(4) accept partial payments on the obligations of
Borrowers;
(5) receive and hold additional security or
guaranties for the obligations of Borrowers or any part thereof;
(6) release, reconvey, terminate, waive, abandon,
subordinate, exchange, substitute, transfer and enforce any
security or guaranties, and apply any security and direct the
order or manner of sale thereof as Agent or Banks in their sole
and absolute discretion may determine;
(7) release any person or entity or any guarantor
from any personal liability with respect to the obligations of
Borrowers or any part thereof;
(8) settle, release on terms satisfactory to Agent
or Banks or by operation of applicable laws or otherwise liquidate
or enforce any obligations of
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Borrowers and any security or guaranty therefor in any manner,
consent to the transfer of any security and bid and purchase at
any sale; and
(9) consent to the merger, change or any other
restructuring or termination of the corporate existence of
Borrowers or any other person, and correspondingly restructure the
obligations of Borrowers, and any such merger, change,
restructuring or termination shall not affect the liability of
Borrowers or the continuing existence of any lien or security
interest hereunder, under any other Loan Document to which any
Borrower is a party or the enforceability hereof or thereof with
respect to all or any part of the obligations of Borrowers.
Upon the occurrence of and during the continuance of any
Event of Default, Agent and Banks may enforce this Agreement and the
other Loan Documents independently as to each Borrower and independently
of any other remedy or security Agent or Banks at any time may have or
hold in connection with the obligations of Borrowers, and it shall not
be necessary for Agent or Banks to marshal assets in favor of any of the
Borrowers or any other person or entity or to proceed upon or against
and/or exhaust any other security or remedy before proceeding to enforce
this Agreement and the other Loan Documents. Each of the Borrowers
expressly waives any right to require Agent or Banks to marshal assets
in favor of any Borrower or any other person or entity or to proceed
against any other person or entity or any Collateral provided by any
other person, and agrees that Agent or Banks may proceed against any
persons or entities and/or Collateral in such order as it shall
determine in its sole and absolute discretion. Agent or Banks may file a
separate action or actions against any Borrower, whether action is
brought or prosecuted with respect to any other security or against any
other person, or whether any other person or entity is joined in any
such action or actions. Each of the Borrowers agrees that Agent or Banks
and each of the Borrowers and any other person or entity may deal with
each other in connection with the obligations of Borrowers or otherwise,
or alter any contracts or agreements now or hereafter existing between
any of them, in any manner whatsoever, all without in any way altering
or affecting the security of this Agreement or the other Loan Documents.
The rights of Agent and Banks hereunder and under the other Loan
Documents shall be reinstated and revived, and the enforceability of
this Agreement and the other Loan Documents shall continue, with respect
to any amount at any time paid on account of the obligations of
Borrowers which thereafter shall be required to be restored or returned
by Agent and Bank upon bankruptcy, insolvency or reorganization of any
Borrower or any other person, or otherwise, all as though such amount
had not been paid. The enforceability of this Agreement and the other
Loan Documents at all times shall remain effective even though the
obligations of Borrowers, including any part thereof or any other
security or guaranty therefor, may be or hereafter may become invalid or
otherwise unenforceable as against any of the Borrowers or any other
person or entity and whether or not any of the Borrowers or any other
person or entity shall have any personal liability with respect thereto.
Each of the Borrowers expressly waives any and all defenses now or
hereafter arising or asserted by reason of (a) any disability or other
defense of any of the other Borrowers or any other person or entity with
respect to the obligations of Borrowers,
-69-
<PAGE> 75
(b) the unenforceability or invalidity of any security or guaranty for
the obligations of Borrowers or the lack of perfection or continuing
perfection or failure of priority of any security for the obligations of
Borrowers, (c) the cessation for any cause whatsoever of the liability of
any other Borrower or any other person or entity (other than by reason of
the full payment and performance of all obligations of Borrowers), (d)
any failure of Agent or any Bank to marshal assets in favor of any of the
Borrowers or any other person, (e) any failure of Agent or any Bank to
give notice of sale or other disposition to any of the other Borrowers or
any other person or entity or any defect in any notice that may be given
in connection with any sale or disposition, (f) any failure of Agent or
any Bank to comply in any non-material respect with applicable laws in
connection with the sale or other disposition of any Collateral or other
security for any obligation of Borrowers, (g) any act or omission of
Agent or any Bank or others that directly or indirectly results in or
aids the discharge or release of any Borrower or any other person or
entity or the obligations of Borrowers or any other security or guaranty
therefor by operation of law or otherwise, (h) any law which provides
that the obligation of a surety or guarantor must neither be larger in
amount nor in other respects more burdensome than that of the principal
or which reduces a surety's or guarantor's obligation in proportion to
the principal obligation, (i) any failure of Agent or any Bank to file or
enforce a claim in any bankruptcy or other proceeding with respect to any
person, (j) the election by Agent or any Bank, in any bankruptcy
proceeding of any person, of the application or non-application of
Section 1111(b)(2) of the United States Bankruptcy Code, (k) any
extension of credit or the grant of any lien under Section 364 of the
United States Bankruptcy Code, (l) any use of cash collateral under
Section 363 of the United States Bankruptcy Code, (m) any agreement or
stipulation with respect to the provision of adequate protection in any
bankruptcy proceeding of any person, (n) the avoidance of any lien or
security interest in favor of Agent or any Bank for any reason, or (o)
any bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, liquidation or dissolution proceeding commenced by or against any
person, including any discharge of, or bar or stay against collecting,
all or any of the obligations of Borrowers (or any interest thereon) in
or as a result of any such proceeding.
(e) Each of the Borrowers represents and warrants to Agent
and Banks that such Borrower has established adequate means of obtaining
from the other Borrowers, on a continuing basis, financial and other
information pertaining to the businesses, operations and condition
(financial and otherwise) of the other Borrowers and their respective
properties, and each of the Borrowers now is and hereafter will be
completely familiar with the businesses, operations and condition
(financial and otherwise) of the other Borrowers and their respective
properties. Each of the Borrowers hereby expressly waives and
relinquishes any duty on the part of Agent or any Bank to disclose to
such Borrower any matter, fact or thing related to the businesses,
operations or condition (financial or otherwise) of any other Borrower
or such other Borrower's properties, whether now known or hereafter
known by Agent or any Bank during the life of this Agreement. With
respect to any of the obligations of Borrowers, Agent and Banks need not
inquire into the powers of any of the Borrowers or the officers or
employees acting or purporting to act on its behalf.
-70-
<PAGE> 76
(f) Notwithstanding anything to the contrary elsewhere
contained herein or in any other Loan Document to which any Borrower is
a party, each of the Borrowers hereby waives with respect to each other
Borrower and its respective successors and assigns (including any
surety) and any other party any and all rights at law or in equity, to
subrogation, to reimbursement, to exoneration, to contribution, to
setoff or to any other rights that could accrue to a surety against a
principal, to a guarantor against a maker or obligor, to an
accommodation party against the party accommodated, or to a holder or
transferee against a maker and which each of the Borrowers may have or
hereafter acquire against any other Borrower or any other party in
connection with or as a result of any Borrower's execution, delivery
and/or performance of this Agreement or any other Loan Document to which
any such Borrower is a party until the Obligations hereunder are paid in
full. Each of the Borrowers agrees that it shall not have or assert any
such rights against any other Borrower or any such Borrower's successors
and assigns or any other person or entity (including any surety), either
directly or as an attempted setoff to any action commenced against such
Borrower by the other such Borrower (as borrower or in any other
capacity) or any other person until the obligations hereunder are paid
in full. Each of the Borrowers hereby acknowledges and agrees that this
waiver is intended to benefit Agent and Banks and shall not limit or
otherwise affect any of the Borrowers' liability hereunder, under any
other Loan Document to which any Borrower is a party, or the
enforceability hereof or thereof.
-71-
<PAGE> 77
(g) Each of the Borrowers warrants and agrees that each of
the waivers and consents set forth herein is made with full knowledge of
its significance and consequences, with the understanding that events
giving rise to any defense waived may diminish, destroy or otherwise
adversely affect rights which each of the Borrowers otherwise may have
against the other Borrowers, Agent or any Bank, or others, or against
any Collateral. If any of the waivers or consents herein are determined
to be contrary to any applicable law or public policy, such waivers and
consents shall be effective to the maximum extent permitted by law.
11.24 Waiver of Jury Trial. The parties to this Agreement
acknowledge that jury trials often entail additional expenses and delays not
occasioned by nonjury trials. The parties to this Agreement further agree and
stipulate that a fair trial may be had before a state or federal judge by means
of a bench trial without a jury. In view of the foregoing, and as a specifically
negotiated provision of this Agreement, each party to this Agreement hereby
expressly waives any right to trial by jury of any claim, demand, action or
cause of action (1) arising under this Agreement or any other instrument,
document or agreement executed or delivered in connection herewith, or (2) in
any way connected with or related or incidental to the dealings of the parties
hereto or any of them with respect to this Agreement or any other instrument,
document or agreement executed or delivered in connection herewith, or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether sounding in contract or tort or otherwise; and
each party hereby agrees and consents that any such claim, demand, action or
cause of action shall be decided by court trial without a jury, and that any
party to this Agreement may file an original counterpart or a copy of this
section with any court as written evidence of the consent of the parties hereto
to the waiver of their right to trial by jury.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
BORROWERS:
BORROWERS:
THE SPORTS CLUB COMPANY, INC. THE SPECTRUM CLUB COMPANY, INC.,
a Delaware corporation a California corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
--------------------------------- ----------------------------
Its: Chief Financial Officer Its: Chief Financial Officer
PONTIUS REALTY, INC., L.A./IRVINE SPORTS CLUB, LTD.,
a California corporation a California limited partnership
By: /s/ Timothy O'Brien By: Sports Club, Inc. of
--------------------------------- California, general partner
Timothy O'Brien
Its: Chief Financial Officer
-72-
<PAGE> 78
<TABLE>
<S> <C>
By: /s/ Timothy O'Brien
----------------------------
Timothy O'Brien
Its: Chief Financial Officer
SPORTS CLUB, INC. OF CALIFORNIA, TALLA NEW YORK, INC.,
a California corporation a New York corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
--------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
IRVINE SPORTS CLUB, INC., GREEN VALLEY SPECTRUM
a California corporation CLUB, INC., a Nevada corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
--------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
THE SPORTSMED COMPANY, INC., SPECTRUM CLUB/ANAHEIM HILLS, INC., a
a California corporation California corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
--------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
SCC SPORTS CLUB, INC.,
a Texas corporation
By: /s/ Timothy O'Brien
---------------------------------
Timothy O'Brien
Its: Chief Financial Officer
</TABLE>
Borrowers Address:
c/o The Sports Club Company
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Telephone: (310) 479-5200
Facsimile: (310) 479-5740
-73-
<PAGE> 79
AGENT:
SUMITOMO BANK OF CALIFORNIA
By /s/ Elizabeth M. Toda
------------------------------
Elizabeth M. Toda
Vice President
Address:
Sumitomo Bank of California
611 West Sixth Street, Suite 3900
Los Angeles, California 90017
Attn: Elizabeth M. Toda, Vice President
Telecopier: (213) 622-1385
Telephone: (213) 362-5700
BANKS:
SUMITOMO BANK OF CALIFORNIA
By /s/ Elizabeth M. Toda
------------------------------
Elizabeth M. Toda
Vice President
Address:
Sumitomo Bank of California
611 West Sixth Street, Suite 3900
Los Angeles, California 90017
Attn: Elizabeth M. Toda, Vice President
Telecopier: (213) 622-1385
Telephone: (213) 362-5700
-74-
<PAGE> 1
EXHIBIT 10.74
AMENDMENT OF LEASE
THIS AMENDMENT OF LEASE (this "Amendment"), made and effective as of the 31st
day of January, 1998, by and between Lincoln Metrocenter Partners, L.P., a New
York limited partnership ("Landlord") and Reebok-Sports Club/NY Ltd. a New York
limited partnership ("Tenant").
WITNESSETH:
WHEREAS, by Agreement of Lease, dated as of June 3, 1992 (the "Original
Lease"), as amended by various amendments of Original Lease, as so amended,
being hereinafter referred to as the "Lease"), Landlord, and R-SC/NY, Ltd.,
predecessor-in-interest to Tenant have previously entered into a lease of the
demised premises, as same are more particularly identified in the Lease;
WHEREAS, Landlord and Tenant desire to modify and amend the Lease to
provide, inter alia, for the increase of base rent thereof and in certain other
respects as set forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, and of the sum of Ten Dollars ($10.00) paid by Tenant to
Landlord, and for other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, the parties hereto, for
themselves, their legal representatives, successors and assigns, hereby agree as
follows:
1. Definitions. All capitalized terms used herein shall have the meanings
ascribed to them in the Lease, unless otherwise defined herein.
2. Minimum Annual Rent. Article 58 (A) of the Lease is amended to provide
that as of the effective date hereof through and including the Expiration
Date, the Minimum Annual Rent payable with respect to the demised premises
shall be increased to the sum of TWO MILLION TWENTY-EIGHT THOUSAND FIVE
HUNDRED NINETY-ONE and 00/100 ($2,028,591.00) Dollars per annum, payable
by Tenant to Landlord in equal monthly installments of ONE HUNDRED
SIXTY-NINE THOUSAND FORTY-NINE and 23/100 ($169,049.23) Dollars.
3. Notice: Article 74(C)(x) of the Lease shall be deleted in its entirety and
replaced with the following:
(x) to the Landlord as follows:
Lincoln Metrocenter Partners L.P.
c/o Millennium Partners
1995 Broadway, 3rd Floor
New York, New York 10023
Attention: Christopher M. Jeffries
<PAGE> 2
Fax: (212) 595-1831
with a copy of Notices of default, termination or cancellation
to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Eric R. Landan, Esq.
Fax: (212) 856-7805
4. Full Force and Effect of Lease. Except as modified by this Amendment, the
Lease and all covenants, agreements, terms and conditions thereof shall
remain in full force and effect and are hereby in all respects ratified
and confirmed. From and after the date hereof, all references to the Lease
shall mean the Lease as amended hereby.
5. Entire Agreement. The Lease as amended by this Amendment constitutes the
entire understanding between the parties hereto with respect to the
matters contained herein, and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
6. Miscellaneous. This Amendment shall be governed in all respects by the
laws of the State of New York.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment of
Lease as of the date first above written.
LANDLORD:
LINCOLN METROCENTER PARTNERS L.P.
By: Metrocenter Associates LP,
its general partner
By: W.S. Triangle, Inc,
its general partner
By: /s/ Brian J. Collins
-----------------------------
Name: Brian J. Collins
Title: Vice President
TENANT:
REEBOK-SPORTS CLUB.NY, LTD.
By: /s/ Sports Club Co. G.P.
-----------------------------------
By: /s/ John Gibbons
------------------------------
Name: John Gibbons
Title: President
<PAGE> 1
EXHIBIT 10.75
January 8, 1998
Mr. John Gibbons
President
The Sports Club Company
11100 Santa Monica Blvd.
Suite 300
Los Angeles, CA 90025
Re: AT&T Commercial Finance Corporation Loan to LA/Irvine Sports Club,
Ltd. (the "Loan")
Dear John:
Per our conversation and our discussions with Ed Andrews, and notwithstanding
the provisions of Section 2.04 of the Loan Agreement ("Loan Agreement") made as
of March 9, 1996 by and between AT&T Commercial Finance Corporation ("AT&T CFC")
and L.A./Irvine Sports Clubs, Ltd. ("Borrower") prohibiting prepayment of the
above-referenced Loan, AT&T CFC agrees as follows:
AT&T CFC will accept a prepayment of the Loan in full during the period from
January 15, 1998 to March 31, 1998, subject to the following conditions:
1. AT&T CFC's receipt of at least 10 days prior written notice of Borrower's
intent to repay the Loan in its entirety, including all principal,
interest, late fees and any other Loan obligations. Such notice shall
specify expected date of prepayment so that AT&T CFC may prepare a payoff
letter for the Loan; and
2. AT&T CFC's receipt of a Prepayment Premium in the amount of $2,800,000 at
the time of payment of all other amounts then outstanding under the Loan.
Borrower shall prepare and deliver to AT&T CFC at Borrower's expense such
releases of all liens or interests held by AT&T CFC in connection with the Loan
as Borrower deems appropriate. AT&T CFC will execute and forward such releases
per Borrower's direction upon its receipt of the Prepayment Premium specified
above and all other amounts outstanding under the Loan.
<PAGE> 2
John Gibbons
January 8, 1998
Page 2
The limited waiver by AT&T CFC of the prohibition against full prepayment during
the time period and subject to the conditions described above and this letter
shall not:
a. operate as a waiver of any right, power or remedy of the Lender
under the Loan Documents;
b. operate as a waiver of any provision of the Loan Documents except as
specifically set forth herein;
c. be deemed a waiver of any other subsequent or different prepayment
term or other term or condition with such provision or any other
provision of the Loan Agreement; or
d. be deemed a course of dealing with respect to any such limited
waiver.
Terms defined in the Loan Agreement which are used herein shall have the same
meaning set forth in the Loan Agreement unless otherwise specified herein.
Please confirm your acceptance of the terms of this limited offer of early
prepayment rights by signing and returning one original of this letter to my
attention by no later than January 16, 1998. We will understand your failure to
timely sign and return this letter to be a rejection of the offer contained
herein.
If you have any questions, please do not hesitate to call me.
Sincerely,
/s/ Jeffrey M. Del Porto
Jeffrey M. Del Porto
- --------------------------------------------------------------------------------
THE ABOVE TERMS ARE ACCEPTED BY:
L.A. Sports Club, Ltd.
By: Sports Club, Inc. of California,
Its: General Partner
By: John M. Gibbons
---------------------------------
Its: President
---------------------------------
cc: Rob Golding
Deborah Heilman
<PAGE> 1
EXHIBIT 10.76
ATHLETIC CLUB LEASE
LANDLORD: MILLENNIUM PARTNERS LLC
TENANT: S.F. SPORTS CLUB, INC.
-ii-
<PAGE> 2
ATHLETIC CLUB LEASE
SAN FRANCISCO, CALIFORNIA
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Premises and Common Areas................................................. 1
2. Term...................................................................... 3
3. Options to Extend......................................................... 5
4. Membership................................................................ 5
5. Rent...................................................................... 5
6. Club Name................................................................. 7
7. Common Area Charges/Operating Expenses.................................... 7
8. Use ..................................................................... 13
9. Notices................................................................... 15
10. Brokers................................................................... 16
11. Holding Over.............................................................. 17
12. Taxes..................................................................... 17
13. Condition of Premises..................................................... 19
14. Alterations............................................................... 20
15. Repairs................................................................... 21
16. Liens..................................................................... 22
17. Entry by Landlord......................................................... 22
18. Utilities and Services.................................................... 23
19. Indemnification........................................................... 24
20. Insurance................................................................. 25
21. Damage or Destruction..................................................... 28
22. Eminent Domain............................................................ 31
23. Defaults and Remedies..................................................... 32
24. Assignment and Subletting................................................. 34
25. Subordination............................................................. 35
26. Estoppel Certificate...................................................... 36
27. Construction.............................................................. 36
28. Successors and Assigns.................................................... 37
29. Surrender of Premises..................................................... 37
30. Attorneys' Fees........................................................... 37
31. Performance by Landlord................................................... 37
32. Late Charge and Interest.................................................. 37
33. Mortgagee Protection...................................................... 38
34. Definition of Landlord.................................................... 38
35. Waiver.................................................................... 38
36. Parking................................................................... 39
37. CC&Rs..................................................................... 39
38. Headings.................................................................. 39
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
39. Examination of Lease...................................................... 39
40. Time...................................................................... 39
41. Prior Agreement: Amendments............................................... 39
42. Severability.............................................................. 40
43. Limitation on Liability................................................... 40
44. Riders.................................................................... 40
45. Modification for Lender................................................... 40
46. Security Agreements/Leasehold Mortgages................................... 41
47. Authorizations............................................................ 41
48. Signage................................................................... 41
49. Default by Landlord....................................................... 42
50. Reasonable Consents....................................................... 43
51. No recording.............................................................. 43
52. Force Majeure............................................................. 43
53. Guaranty.................................................................. 43
54. Condition Precedent....................................................... 43
Signature Page................................................................
</TABLE>
Exhibits:
Exhibit A - Legal Description of Premises
Exhibit B - Site Plan
Exhibit C - Work Letter
Exhibit D - Intentionally Omitted
Exhibit E - Guaranty Form
-ii-
<PAGE> 4
INDEX OF MAJOR DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION REFERENCE FOR DEFINITION
- ------------ --------------------------------
<S> <C>
Abatement Notice 49
Actual Statement 7.4
Alteration Threshold 8.2
Annual Base Report 5.1
Annual Base Rent Amount 5.1
Assignment Date 24.2
Assignment Notice 24.2
CC&Rs 8.2
Claims 19.1
Club 1.2
Commencement Date 2.1
Common Areas 1.3
Lease Period 5.2
Common Area Expenses 7.1
Condominium Association 8.2
Condominium Documents 8.2
Cure Period 49
CPI 5.2
CPI Increase 5.2
Default 23.1
Depository 21.2
Development 1.1
Floor Area 1.5
Force Majeure 52
Hazardous Materials 8.3
Improvements 1.2
Initial Term 2.1
In-Lieu Tax 12.4
Landlord Introductory Paragraph
Landlord's First Substantial Completion
Landlord's Second Substantial Completion 2.1
Estimate Notice
Lease 2.1
Lease Period Introductory Paragraph
Lease Year 5.2
Lender's Notice 46.2
Monthly Base Rent 5.1
Non-Disturbance Agreement 25
Noticed Lender 49
Common Area Expenses 7.1
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
Operating Expenses 3
Option Date 7.1
Option Periods 3
Options 3
Other Parkers 36.1
Partial Taking 22.1
Premises 1.1
Projected Repair Date 21.3
Property 1.2
Receipts Tax 12.4
Secured Lender 21.6
Signage Approval Factors 48
Substantial Taking 22.1
Substantially Complete 2.1
Tenant Introductory Paragraph
Tenant's Insurance Share 21.6
Tenant's Lender 46.2
Tenant's Parkers 36.1
Tenant's Share 7.3
Term 2.1
Termination Notice 49
Total Taking 22.1
Trade Fixtures 1.2
Uninsured Contribution Amount 21.1
Work Letter 1.1
</TABLE>
-iv-
<PAGE> 6
ATHLETIC CLUB LEASE
SAN FRANCISCO, CALIFORNIA
THIS LEASE (the "LEASE") is made as of the __ day of __________, 1997,
by and between MILLENNIUM PARTNERS LLC ("LANDLORD"), and S.F. SPORTS CLUB,
INC., a Delaware corporation ("TENANT").
1. Premises and Common Areas.
1.1 Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the space (the "PREMISES") in a building (the "Building") to be
constructed on that certain parcel of real property, in which the Improvements
(as defined herein) are to be constructed, more particularly described in
Exhibit A attached hereto and made a part hereof. This Lease is subject to all
matters of record affecting the Property (as defined herein) and all matters
that would be revealed by an accurate survey of the Property. The Premises shall
constitute part of a development (the "DEVELOPMENT") as shown on the site plan
attached hereto as Exhibit B and made a part hereof. The Premises are designated
on the hatched portion of Exhibit B, with all depictions thereon being subject
to normal construction variances and tolerances, and as otherwise provided in
this Lease. Landlord at its sole cost shall, in accordance with the work letter
agreement attached hereto as Exhibit C and made a part hereof (the "WORK
LETTER"), perform Landlord's Work and as part of Landlord's Work, shall cause
the utility connections specified in the Work Letter to be available in the
locations specified in the Work Letter.
1.2 Construction of Premises. Tenant shall cause the Premises to be
improved with improvements (the "IMPROVEMENTS") in accordance with the Work
Letter (defined as the "BUILDING IMPROVEMENTS" in the Work Letter) and, subject
to Force Majeure (as defined herein) to the extent provided herein, within the
time(s) set forth therein; the Improvements are to be used as a first-class
athletic club facility (the "CLUB") more particularly described in Article 8
hereof. The design of the Improvements shall be subject to Landlord's approval,
as provided in the Work Letter. In accordance with the terms of the Work Letter
Landlord shall provide Tenant with a contribution in an amount not to exceed
$85.00 per rentable square foot of the Premises (with such amount being referred
to as "Landlord's" Contribution" and/or the "Allowance"). Tenant shall equip the
Club with all required Trade Fixtures (as defined herein) as may be necessary to
operate the Club in accordance with Section 8.1. Title to the Improvements and
all alterations and additions thereto and replacements thereof (other than Trade
Fixtures) thereafter constructed or installed on the Premises shall be and
remain in Landlord. All Trade Fixtures, however, shall remain Tenant's property
upon the expiration or sooner termination of this Lease. "TRADE FIXTURES" means
Tenant's athletic equipment and machines and all of Tenant's furniture and other
personal property not affixed to the Premises in such a manner as to do material
damage upon their removal. The Premises and the Improvements are sometimes
hereinafter collectively referred to as the "PROPERTY."
<PAGE> 7
1.3 Common Areas. Tenant shall have the nonexclusive right to use the
Common Areas (as defined herein), in common with other tenants and/or occupants
of the Development, subject to the Condominium Documents (as defined herein),
the CC&Rs (as defined herein) and any other nondiscriminatory rules and
regulations that Landlord and/or the Condominium Association (as hereafter
defined), as applicable, shall adopt for the Development so long as such CC&Rs
and rules and regulations do not (i) materially interfere with Tenant's
operations on the Premises; (ii) materially increase Tenant's obligations under
this Lease, or (iii) materially decrease Tenant's rights under this Lease.
"COMMON AREAS" means all common areas and facilities of the Development that are
now or hereafter made available for the general use, convenience and benefit of
Landlord, other persons entitled to occupy a portion of the Development and/or
their customers, employees and invitees, including common monuments and signs;
transportation facilities areas including bus stops, taxi-limousine stands, and
bicycle parking areas; trash enclosures; landscaped areas; areas designated as
pedestrian walkways or pedestrian bridges; and parking areas.
1.4 Control of Common Areas. Provided Landlord does not unreasonably
interfere with, hinder or obstruct Tenant's use of the Premises or Tenant's
ability to conduct business from the Premises, and does not otherwise materially
diminish any of Tenant's rights pursuant to this Lease, Landlord reserves the
right from time to time:
(i) To make changes to the Common Areas, or their design, including
changes in the location, size, shape and number of driveways, entrances, parking
areas, loading and unloading areas, ingress, egress, direction of traffic,
landscaped areas and walkways. Landlord shall keep Tenant apprised as to any
proposed change to the Common Areas or their design; and
(ii) To close temporarily any portions of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available.
Landlord agrees that rerouting of pedestrian walkways within
the Common Areas and/or rerouting of vehicles shall not be done in a manner
which would materially hinder or obstruct Tenant's ability to conduct business
from the Premises.
1.5 Definition of Floor Area. The term "FLOOR AREA" as used in this Lease
shall mean the rentable square footage of the Premises (or, where applicable, of
other premises located or proposed in or outside the Development), measured from
the exterior surface of building walls (and from extensions thereof, in the case
of openings), and from the exterior surface of any demising partitions. At such
time as the Improvements have been constructed, Landlord and Tenant shall
execute an amendment to this Lease documenting the Floor Area of the Premises.
2. Term.
2.1 Commencement. This Lease constitutes a binding agreement and the
obligations of Landlord and Tenant hereunder shall be effective upon execution
and delivery of this Lease by
-2-
<PAGE> 8
both Landlord and Tenant. However, the initial term ("INITIAL TERM") of this
Lease shall commence upon the date (the "COMMENCEMENT DATE") which is the
earlier of (i) the date upon which Tenant commences business operations from the
Premises, or (ii) the date which shall occur six (6) months after Landlord shall
"Substantially Complete" (as hereafter defined) "Landlord's Work" (as defined in
the Work Letter). "Substantially Complete" means (as certified by Landlord's
architect) complete subject to the completion of minor punch-list type items or
other minor components of Landlord's Work, the performance of which will not
materially interfere with Tenant's Work to ready the Premises for Tenant's use
and occupancy thereof. Landlord shall diligently proceed to complete said punch
list items. If Landlord shall be delayed in substantially completing Landlord's
Work and such delay shall be caused by or shall arise out of or in connection
with any of the following (each a "Tenant Delay"):
(i) Tenant's direction that Landlord delay in proceeding with any
segment or part of Landlord's Work (except under circumstances where the basis
for such direction is the fact that Landlord must rectify an error in Landlord's
Work that is not otherwise attributable to Tenant); or
(ii) Tenant's changes in or alterations to the Work Letter, provided
that if in Landlord's reasonable judgment (after due investigation) such changes
or alterations are likely to constitute a Tenant Delay, Landlord shall advise
Tenant within five (5) days after Landlord shall have made such determination
thereof; or
(iii) Tenant's request for any materials, finishes or installations
not originally contemplated by this Lease or contained in the Work Letter,
provided that to the extent Landlord becomes aware that any such request will
delay Landlord, Landlord shall promptly advise Tenant thereof; or
(iv) the performance of work by any person, or entity employed or
hired by Tenant that actually delays Landlord in the completion of said work,
provided that if Landlord shall be aware of any such delay, Landlord shall
immediately notify Tenant thereof; or
(v) any acts or omissions of Tenant, or of any affiliate of
Tenant; or
(vi) Tenant's unreasonable delay or refusal in making changes to the
Work Letter reasonably requested by Landlord; or
(vii) any breach of any of the terms of this Lease by Tenant that
delays Landlord in substantially completing Landlord's Work; or
(viii) any unreasonable failure on Tenant's part to cooperate with
Landlord in connection with Landlord's performance of Landlord's Work
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then notwithstanding anything in this Lease to the contrary, Landlord's Work
shall be deemed to be Substantially Complete as of the date that substantial
completion would have occurred but for such delay and Tenant shall reimburse
Landlord for any additional out-of-pocket costs, incurred by reason of any such
delay.
The parties shall execute an acknowledgment that Landlord's Work has been
completed (or deemed to be completed) and that the Commencement Date has
occurred, as soon as reasonably practicable thereafter. Neither Landlord's
failure to request nor Tenant's failure to execute such agreement shall affect
the Commencement Date. Landlord shall give Tenant notice, not less than one
hundred and twenty (120) days prior to the date that Landlord anticipates
Landlord shall Substantially Complete Landlord's Work (with such notice being
"Landlord's First Substantial Completion Estimate Notice"). In addition to the
foregoing notice to Tenant, Landlord shall provide a second notice to Tenant
(with such notice being "Landlord's Second Substantial Completion Estimate
Notice") not less than thirty (30) days prior to the date upon which Landlord
anticipates that Landlord shall Substantially Complete Landlord's Work. The
Initial Term shall terminate on the twentieth anniversary of the Commencement
Date. Reference in this Lease to "LEASE YEAR" shall mean each successive
twelve-month period during the Term commencing on January 1 and ending December
31 (or such other twelve month period as shall be reasonably designated by
Landlord), provided that the first Lease Year shall begin upon the Commencement
Date and end on December 31 of the calendar year in which the Commencement Date
occurs, and the last Lease Year shall end on the last day of the Initial Term or
the last day of the last exercised Option Period (as defined herein) hereunder.
"TERM" as used herein shall mean the Initial Term and all exercised Option
Periods.
2.2 Access Prior to Commencement. Until the Commencement Date (but no
sooner than the satisfaction of the conditions under Section 54 below), and
subject to all applicable laws and ordinances, Tenant shall be entitled to
maintain an office either within the Development or at a location suitable
therefor reasonably acceptable to Landlord and Tenant, or, at Landlord's
election, on the surface parking area (if any) adjacent to said Development, all
at no cost to Tenant for Base Rent, Common Area Expenses or real property taxes,
for its pre-opening and construction period activity. Tenant shall be entitled
to hang a banner or other signage in the Development, subject to compliance with
applicable laws, regulations, permits, approvals, ordinances, the Condominium
Documents (if applicable) and CC&Rs and subject to Landlord's prior approval of
all Signage Approval Factors (as defined herein). Such office shall be deemed to
constitute a part of the Premises for all purposes (including, without
limitation, Article 19 (Indemnification) and Article 20 (Insurance) and Tenant's
obligation to pay for utilities), but Tenant shall not be required to pay Base
Rent, Common Area Expenses or real property taxes with respect thereto. If
Landlord makes available the surface parking area for the purpose of such
temporary office, it shall be Tenant's obligation, at its sole cost, to provide
a trailer for Tenant's use on such parking area and to pay all costs and
expenses and bear all liabilities associated therewith.
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3. Options to Extend. Landlord hereby grants to Tenant three (3)
successive options (the "OPTIONS") to extend the term of this Lease, each for a
168-month period (the "OPTION PERIODS"), upon the same terms and conditions as
those set forth in this Lease for the Initial Term (except that no options to
extend other than the Options are granted), and except that the applicable
Monthly Base Rent (as defined herein) shall be increased in accordance with
Section 5.2 below. In order to exercise an Option, Tenant must give notice to
Landlord of its intention to exercise the applicable Option on or before the
date (the "Option Date") which is six months prior to the end of the Initial
Term or the previous Option Period, as applicable; provided, however, that it
shall be a condition precedent to the exercise of each Option that Tenant shall
not be in Default as of the respective Option Date. Tenant's election not to
exercise an Option, or the passage of an Option Date without exercise of the
subject Option, shall thereby terminate the subsequent Option or Options. The
Options are personal to Tenant and may not be assigned except in connection with
a permitted assignment of Tenant's interest in this Lease.
4. Membership. Subject to availability, Tenant agrees that all
applications for membership in the Club submitted by employees of any of the
tenants of the Development shall be automatically and promptly accepted. All
Club memberships shall be subject to the nondiscriminatory rules and regulations
promulgated by Tenant for use of the Club.
5. Rent. Rent shall be calculated and payable as follows:
5.1 Annual Base Rent. During the Initial Term Tenant agrees to pay
Landlord annual base rent for the Premises (the "ANNUAL BASE RENT"), at the rate
of $33.50 (such amount being the "Initial Annual Base Rent Amount") per rentable
square foot of "Floor Area" (as hereafter defined in Section 1.5) applicable to
the Premises, which amount shall be subject to increase as provided in Section
5.2. If and to the extent that the Initial Annual Base Rent Amount (i.e., $33.50
per rentable square foot of Floor Area attributable to the Premises) shall
exceed eleven (11%) percent of the total amount of Landlord's Contribution and
Landlord's costs for constructing the Premises and performing the work required
of Landlord hereunder, then the Initial Annual Base Rent Amount shall be reduced
to an amount that shall be equal to eleven (11%) percent of such total costs.
Tenant shall pay Annual Base Rent in equal monthly installments on the first day
of each month and each monthly installment of Annual Base Rent is referred to
herein as "Monthly Base Rent." If for any reason the Initial Term commences or
ends on a day other than the first day of a calendar month, then the rental for
the first month and for the last month of the Term shall be prorated in the
proportion that the number of days during the first and last months of the Term
bears to the actual number of days in such months. In addition to Monthly Base
Rent, Tenant agrees to pay as "additional rent" (sometimes referred to as
"Additional Rent") all other charges payable by Tenant pursuant to the terms of
this Lease. Monthly Base Rent together with all such additional rent may be
collectively referred to herein as "RENT." All Rent shall be paid to Landlord,
without prior demand or notice, in lawful money of the United States of America,
at such place as Landlord may from time to time reasonably designate in writing
and shall be due and payable on the first day of each month. Rent shall be paid
to Landlord on the date due without notice or demand, and without abatement,
deduction or
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set-off except as otherwise expressly set forth in this Lease. No payment by
Tenant or receipt by Landlord of a lesser amount than the Annual Base Rent or
Additional Rent, nor shall any endorsement or statement on any check or in any
letter accompanying any check or payment, as Annual Base Rent or Additional
Rent, be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
rent and Additional Rent or pursue any other remedy provided in this Lease or by
law.
5.2 CPI Increases.
(i) The Annual Base Rent for each "Lease Period" (each "LEASE
PERIOD" being a successive five-year period which shall occur during the initial
term hereof and if this Lease shall be extended in accordance with Article 3
then a Lease Period shall also be deemed to include each successive five-year
period occurring during any Option Period with respect to which Tenant shall
have exercised an Option) which occurs subsequent to the first Lease Period,
shall be increased from the amount payable during the immediately prior Lease
Period by an amount (the "Rent Increase Amount") equal to the product of the
Annual Base Rent payable for the immediately prior Lease Period (as previously
increased pursuant to this Section 5.2) multiplied by the greater of (a) one
hundred and nine (109%) percent and (b) the "CPI Increase" (as such term is
hereinafter defined) up to a maximum of one hundred and thirteen (113%) percent.
It is expressly agreed that under no circumstances shall the Annual Base Rent
for any Lease Period be less than the Annual Base Rent for the immediately prior
Lease Period.
(ii) For purposes of this Article, the following definitions shall
apply:
(a) The term "CPI" shall mean the Consumer Price Index for all
Urban Consumers published by the Bureau of Labor Statistics of the U.S.
Department of Labor for San Francisco -- Oakland -- San Jose, CA, All Items
(1982-84=100), or a successor or substitute index appropriately adjusted.
(b) The term "CPI INCREASE" shall mean the percentage
increase, if any, of (x) the CPI for the month which occurred two months prior
to the first day of the Lease Period for which the Annual Base Rent is to be
determined (the "Determination Date"), over (y) the CPI for the month which is
five years earlier than the Determination Date.
(iii) In the event that the CPI ceases to use 1982-84=100 as the
basis of calculation, or if a substantial change is made in the terms or number
of items contained in the CPI, then the CPI shall be adjusted to the figure that
would have been arrived at had the manner of computing the CPI not been altered.
In the event such CPI (or a successor or substitute index) is no longer
published, a reliable governmental or other non-partisan publication evaluating
the information theretofore used in determining the CPI shall be used. No
adjustments or recomputations, retroactive or otherwise, shall be made due to a
revision which may later be made in the first published figure of the CPI for
any month.
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(iv) As soon as practicable, Landlord shall furnish to Tenant a
statement setting forth the amount of Annual Base Rent to be paid by Tenant
during the applicable Lease Period and the amount of the applicable Rent
Increase Amount.
(v) Any delay or failure of Landlord in computing or billing for the
Annual Base Rent hereinabove provided shall not constitute a waiver or in any
way impair the continuing obligation of Tenant to pay the amount of any Annual
Base Rent due hereunder. Until Landlord furnished to Tenant the statement
referred to in Subsection 5.2(iv) above (which Landlord shall do promptly
following such availability), Tenant shall pay Annual Base Rent at the annual
rate for the immediately prior Lease Period plus thirteen (13%) percent. In the
event Tenant shall have made an overpayment, the amount of such overpayment
shall be credited against Tenant's installment of Annual Base Rent and
Additional Rent next becoming due hereunder.
5.3 Free Rent Period
Provided that Tenant shall not then be in default of any of Tenant's
obligations under this Lease (following notice thereof), Tenant shall not be
required to pay Monthly Base Rent for the period (the "Free Rent Period")
commencing on the Commencement Date and continuing through and including the
date which is one hundred and twenty (120) days after the Commencement Date.
6. Club Name. Tenant shall be entitled to operate the Club under a name
incorporating the name of the Development, or under any other name selected by
Tenant and that is reasonably acceptable to Landlord. Tenant shall not use the
name "Millennium". Landlord hereby approves the name "The Sports Club/San
Francisco," although Tenant has no obligation to use such name. If Tenant
utilizes the name of the Development as a part of the name of the Club, Tenant
shall not acquire any right, title or interest in and to the name of the
Development and shall not use such name for any of its other locations.
7. Common Area Charges/Operating Expenses.
7.1 Definition. Commencing upon the Commencement Date, Tenant shall pay,
in addition to Monthly Base Rent, all assessments and charges which are assessed
against or incurred in connection with the Premises or Landlord's interest
therein under the CC&Rs and all charges assessed with respect to the Premises by
the Condominium Association (collectively, "COMMON AREA EXPENSES"). If at
anytime during the term hereof the Premises shall not be subject to a
condominium form of ownership, then in lieu of paying charges assessed by the
Condominium Association, Tenant shall pay to Landlord "Tenant's Share" (as
hereafter defined) of "Operating Expenses" (as hereafter defined"). Operating
Expenses shall mean all costs incurred by Landlord (except as hereafter defined)
in connection with the operation of the Building for each successive twelve (12)
month period (as designated by Landlord) occurring in whole or in part during
the Term (and any renewals). Tenant hereby acknowledges that Operating Expenses
shall include the following costs (by way of illustration, but not limitation):
any special or regular assessments due under the CC&Rs; real property taxes and
assessments and
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any taxes or assessments hereafter imposed in lieu thereof with respect to the
Common Areas; water and sewer charges; dues and fees paid to civic organizations
and associations in which Landlord is a member in the jurisdiction in which the
Building is located, provided that it is then customary for landlords of similar
buildings to be members of such organizations and associations; accounting fees,
legal fees; management fees (not in excess of four (4%) of the total revenue
derived by Landlord from Landlord's operation of the Development); utilities;
janitorial services; parking patrol; labor; utilities surcharges, or any other
costs levied, assessed or imposed by, or at the direction of, or resulting from
statutes or regulations or interpretations thereof, promulgated by any federal,
state, regional, municipal or local government authority in connection with the
use or occupancy of the Common Areas; the cost in excess of net insurance and
condemnation proceeds of any capital improvements (amortized over such period as
Landlord shall determine together with interest at the rate actually incurred by
Landlord from a third party lender on the unamortized balance) made to the
Common Areas, but only if incurred by Landlord (i) to comply with any
governmental law, rule or regulation which may become effective after the date
of this Lease, or (ii) where the present value of the projected costs of the
improvement (including original purchase cost, installation and subsequent
repairs and replacements) is less than the present value of the amount
reasonably anticipated to be saved as the result of such capital improvements
over the remainder of the Initial Term or an exercised Option Period, as
applicable; supplies; materials; equipment; tools; payroll expenses; rental of
personal property used in maintenance and other upkeep of the Common Areas;
costs and expenses of gardening, landscaping and irrigation; maintenance of
signs; personal property taxes levied on or attributable to personal property
used in connection with the Common Areas; reasonable audit or verification fees;
and costs and expenses (whether or not capitalized) of repairs, resurfacing,
maintenance, painting, lighting, cleaning, steam cleaning, refuse removal,
parking patrol, sweeping, sealcoating, restriping and similar items. Operating
Expenses shall not include: depreciation of any kind, including on any buildings
or parking structures located within the Development or on any equipment;
construction costs incurred in improving or modifying space for new tenants of
the Development or renovating space vacated by any tenant; any costs which are
reimbursable by (i) tenants of the Development (other than through their payment
of Operating Expenses), (ii) other third parties, or (iii) proceeds of
insurance; Landlord's executive salaries; real estate brokers' commissions; or
principal or interest on any indebtedness (except as specifically permitted
above).
7.2 Exclusions. In addition to the exclusions from Operating Expenses set
forth in Section 7.1, Operating Expenses shall not include the following:
(i) the cost of capital expenditures except for those
specifically described in Section 7.1;
(ii) costs incurred with respect to goods or services (including
utilities, capital improvements, maintenance and repair) supplied to the Common
Areas to the extent that such goods or services are designed for the exclusive
or primary use or benefit of another tenant or tenants (provided that if such
goods or services are for the primary use or benefit of another tenant or
tenants, the cost thereof shall be included in Common Area Expenses to the
extent it is fair and equitable to do so);
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(iii) costs incurred to the extent that such costs are reimbursed by
insurance;
(iv) any ground lease or master lease payments;
(v) legal fees incurred by Landlord in connection with the
preparation, negotiation and enforcement of leases, subleases and lease
renewals.
(vi) all leasing costs in the Development, including hard and soft
costs of tenant improvements and preparation of any premises, tenant
concessions, advertising costs and brokerage commissions;
(vii) costs of purchasing or installing or maintaining artwork or
signage that exclusively identifies Landlord, Landlord's agents or affiliates,
or any occupant of the Development but not Tenant (it being agreed that the cost
of any such signage that identifies the Development may be included within
Common Area Expenses);
(viii) costs of any rental or lease of equipment or capital items
that if purchased (whether outright or financed) would otherwise be excluded
from Common Area Expenses;
(ix) costs paid to affiliates of Landlord in excess of market rates;
(x) fines, penalties, late payment charges, and interest thereon,
and other amounts imposed in lieu thereof the payment of which is attributable
to Landlord's failure to act in a commercially reasonable manner;
(xi) costs to the extent arising from or relating to the negligence
or willful misconduct of Landlord or Landlord's agents, principals, employees,
licensees or affiliates;
(xii) Landlord's general overhead and general administrative
expenses;
(xiii) costs for repair or maintenance covered by warranties or
service contracts (however, the costs of the warranties or service contracts
shall be includable in Common Area Expenses);
(xiv) expenditures required by Landlord's failure to comply with
laws, regulations or orders, which are required to be complied with by Landlord
under this Lease (except to the extent expressly permitted in Section 7.1
above);
(xv) costs to repair latent or patent defects in Landlord's Work;
(xvi) costs incurred due to the violation by Landlord or any other
occupant of the Development of the terms or conditions of any lease;
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(xvii) costs arising from or relating to the presence of Hazardous
Materials (as defined herein) in or about the Development;
(xviii) any costs associated with the construction of the
Development;
(xix) insurance premiums, but only if and to the extent Landlord is
reimbursed for the cost thereof by Landlord's insurers;
(xx) bad debt expenses resulting from Landlord's negligence or
improper acts;
(xxi) costs of charitable or political contributions and fees and
dues paid to trade associations (other than as provided in Section 7.1 above);
and
(xxiii) any cost payable by Tenant pursuant to other Sections of
this Lease.
7.3 Building Insurance. Except for Landlord's cost of the all-risks
property insurance for the Improvements, as addressed in Section 20.4, if
Landlord's cost of obtaining Landlord's Insurance for the Property and/or the
Building and the operations thereof exceeds the cost of obtaining such insurance
for the first twelve (12) months following the Commencement Date, Tenant shall
pay to Landlord, in a manner similar to this Section 7.3 within thirty 30 days
after being billed therefore, an amount equal to Tenant's Share of such
increased cost.
"Tenant's Share" of Operating Expenses shall be based on the ratio between
the Floor Area of the Premises and (subject to Section 7.6 below) the total
number of square feet of Floor Area in the other tenantable portions of the
Development as of the date such Operating Expenses are incurred. Landlord and
Tenant acknowledge that at this time it is not possible to determine the
equitable allocation of all components of Operating Expenses. Accordingly,
Tenant's Share of some or all of the components of Operating Expenses may from
time to time be equitably adjusted by Landlord to a percentage other than that
which would be arrived at by the methodology hereinbefore described for the
determination of Tenant's Share, so as to ensure that Tenant will pay Tenant's
equitable share of Operating Expenses. In the event Tenant shall dispute
Landlord's determination as to the equitable allocation of any components of
Operating Expenses, as aforesaid, and if Landlord and Tenant shall have been
unable to resolve such dispute within thirty (30) days following the date that
Tenant shall have notified Landlord of such dispute, then, provided that Tenant
shall pay all such amounts as billed by Landlord on or before the due dates for
payment, Tenant may submit such dispute to binding arbitration in accordance
with the following provisions hereof. Within ten (10) days next following the
giving of any notice by Tenant to Landlord stating that it wishes such dispute
to be determined by arbitration, Landlord and Tenant shall each give notice to
the other setting forth the name and address of an arbitrator designated by the
party giving such notice. If either party shall fail to give notice of such
designation within said ten (10) days, then the arbitrator to be chosen by such
party shall be chosen in the same manner as hereinafter provided for the
appointment of the third arbitrator in the case where the two arbitrators chosen
hereunder are unable to agree upon such appointment. The two arbitrators shall
designate a third arbitrator. If the two arbitrators shall fail to agree upon
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the designation of a third arbitrator within ten (10) days after the designation
of the second arbitrator, then either party may apply to the American
Arbitration Association or any successor organization thereto ("AAA") for the
designation of such arbitrator; provided, however, nothing contained herein
shall be construed to require submission of any dispute to the AAA. All
arbitrators shall be persons who shall have had at least ten (10) years
experience in the business of operating or managing commercial real estate in
San Francisco and shall not be affiliated with either Landlord or Tenant. The
three arbitrators shall conduct such hearings as they deem appropriate, making
their determination in writing and giving notice to Landlord and Tenant of their
determination within ten (10) days, if at all possible, after the designation of
the third arbitrator; the concurrence of any two of said arbitrators shall be
binding upon Landlord and Tenant. Any award of the arbitrators shall be limited
to the determination as to whether Landlord made an equitable allocation of the
component(s) of Operating Expenses which are the subject of such dispute. If it
is determined that Landlord has not equitably allocated a component of Operating
Expenses, then the arbitrators shall determine the equitable allocation thereof.
The determination in any arbitration held pursuant to this Section 7.3 shall be
final and binding upon Landlord and Tenant. Each party shall pay its own counsel
fees and expenses, if any, in connection with any arbitration under this Section
7.3, and each party shall pay the fees and expenses of the one of the two
original arbitrators appointed by or for such party and the fees and expenses of
the third arbitrator shall be borne by the parties equally.
7.4 Statements. As soon as possible after the beginning of the Initial
Term Landlord shall give to Tenant a statement estimating the Common Area
Expenses or Operating Expenses, as applicable for the first Lease Year.
Thereafter, Landlord shall give Tenant, prior to the expiration of each Lease
Year, a statement estimating the Common Area Expenses or Operating Expenses, as
applicable for the following Lease Year. The estimated Common Area Expenses or
Operating Expenses, as applicable shall be the estimated amount of Common Area
Expenses payable by Tenant as described above. The estimated Common Area
Expenses or Operating Expenses, as applicable amount shall be divided into
twelve equal monthly installments (or, as to the first and last Lease Year,
divided by the number of calendar months in such Lease Year), and Tenant shall
pay to Landlord Tenant's monthly installment of such Common Area Expenses or
Operating Expenses, as applicable on the first day of each month during the Term
as additional rent. If, in any Lease Year, the actual Common Area Expenses or
Operating Expenses, as applicable are less than the estimate for that Lease
Year, then upon receipt of Landlord's statement ("ACTUAL STATEMENT") of actual
Common Area Expenses or Operating Expenses, as applicable for said Lease Year
(which Landlord shall deliver to Tenant within ninety days after the expiration
of each Lease Year), any overpayment made by Tenant on the monthly installment
basis shall be credited towards the next monthly installment(s) falling due and
the estimated monthly installments of such assessments shall be adjusted to
reflect such lower assessments. Similarly, if the actual Common Area Expenses or
Operating Expenses, as applicable for any calendar year are greater than the
estimated payments made by Tenant for such Lease Year, Tenant shall pay the
amount of such difference to Landlord within thirty days after invoice;
provided, however, that if the amount due exceeds 1/2 of Monthly Base Rent then
in effect, Tenant may pay such amount in thirty day installments with each
installment in the amount of the lesser of the remainder due or 1/2 of the
Monthly Base Rent then in effect. Notwithstanding that
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the Term may have terminated or expired and Tenant has vacated the Premises,
when the final determination is made of the actual Common Area Expenses for the
last Lease Year, Tenant shall immediately pay any increase due over the
estimated Common Area Expenses or Operating Expenses (as applicable) paid and,
conversely, any overpayment made in the event actual Common Area Expenses or
Operating Expenses (as applicable) decrease, shall be rebated by Landlord to
Tenant within thirty days after such determination. The foregoing provision
shall survive the expiration or earlier termination of this Lease.
7.5 Audit. Upon prior notice, but not more frequently than once each Lease
Year, Tenant shall have the right to examine Landlord's books and records with
regard to Common Area Expenses or Operating Expenses, as applicable during
normal business hours. If Tenant disputes the amount of Common Area Expenses or
Operating Expenses, as applicable set forth in any Actual Statement delivered by
Landlord or otherwise paid by Tenant, Tenant must notify Landlord of such
dispute in writing within three months following Tenant's receipt of the Actual
Statement. Tenant's failure to notify Landlord of a dispute within said three
month period shall be deemed Tenant's acceptance and approval of the accuracy of
the Actual Statement. Provided Tenant has timely given the required dispute
notice and has paid the amounts claimed to be due under the Actual Statement
(including the disputed amount), Tenant shall have the right, to be exercised,
if at all, not later than three months after the date Tenant gave the dispute
notice, to cause Landlord's books and records with respect to the relevant Lease
Year to be audited by a certified public accountant, or by another Tenant
representative mutually acceptable to Landlord and Tenant. The amounts payable
under the preceding paragraph by Landlord to Tenant or by Tenant to Landlord as
the case may be shall be appropriately adjusted on the basis of such audit. If
such audit discloses a liability for further refund by Landlord to Tenant in
excess of 5% of the Common Area Expense payments or Operating Expense payments
(as applicable) previously made by Tenant for such Lease Year, Landlord shall
pay for the reasonable cost of the audit not to exceed $7,500.00; otherwise,
Tenant shall pay for the cost of the audit. Notwithstanding the foregoing, if
any audit conducted by Tenant discloses that Landlord over-reported Common Area
Expenses or Operating Expenses by more than 5% for the period covered by the
audit, then Tenant shall be entitled to audit Common Area Expenses for all
preceding years as to which records are available; Landlord shall maintain said
records for a minimum of 60 months after the end of each Lease Year.
7.6 Notwithstanding anything to the contrary contained herein, if in any
Lease Year during which Tenant shall be paying Operating Expenses the total
Floor Area of buildings in the Development which are tenantable is not fully
occupied, then the Operating Expenses for such Lease Year shall be deemed to be
an amount that would be incurred if such total Floor Area were occupied for such
Lease Year, but in no event shall Tenant be required to pay more than 100% of
the actual Operating Expenses.
8. Use.
8.1 Permitted Use. The Property shall be used exclusively for a
first-class coed athletic club operated by an operator with first-class
expertise, reputation and experience, and
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Tenant shall not use or permit the Property to be used for any other purpose, or
by an operator other than Tenant or an affiliate of Tenant, without the prior
consent of Landlord. As used herein, "FIRST-CLASS" shall mean comparable to
other athletic clubs with comparable facilities operated by Tenant or Tenant's
affiliates as of the date hereof. As a part of the athletic club operated from
the Premises, Tenant shall be entitled to use portions of the Premises for uses
complementary to an athletic club (but only in support of Tenant's primary
operation as an athletic club), such as a pro shop, child care facility and
delicatessen, so long as the type and quality of such complementary uses are
consistent with the services offered in other first-class athletic clubs;
provided, however, no popcorn or candy (other than for consumption at the
Premises) shall be sold from the Property. Any complementary uses may be
achieved through a license, which license shall be subject to all terms and
conditions of this Lease but shall not otherwise require Landlord's prior
approval.
8.2 Compliance with Laws.
(i) Tenant shall not use or occupy the Premises in violation of (i)
law or the certificate of occupancy issued for the Improvements, (ii) any
condominium declaration, offering plan, by-laws, house rules,, and other
requirements instruments or declarations (collectively the "Condominium
Documents") now or hereafter ratified by any condominium association or
equivalent (such entity being the "Condominium Association") having jurisdiction
over the Premises (iii) any private covenants, conditions or restrictions or
reciprocal easement agreements (collectively, the "CC&Rs") which may now or
hereafter be recorded encumbering the Development or (iv) any liquor license
issued with respect to the Club, and shall, upon notice from Landlord,
discontinue any use of the Premises which is in violation of law or of said
certificate of occupancy or is a violation of the Condominium Documents, the
CC&R's or said liquor license. Notwithstanding the foregoing, after the date
hereof Landlord shall not amend or modify any existing CC&Rs or create new CC&Rs
or Condominium Documents which materially adversely affect any of Tenant's
rights hereunder or materially increase its obligations hereunder.
(ii) Tenant shall comply with any law or directive of any
governmental authority having jurisdiction which by reason of the nature of
Tenant's particular use or occupancy shall impose any duty upon Tenant or
Landlord with respect to the Premises or with respect to the use or occupancy
thereof.
(iii) Tenant shall not do or permit to be done anything which will
increase the cost of (unless Tenant pays such increased cost) or which will
invalidate any fire, extended coverage or any other insurance policy covering
the Improvements and/or property located therein. In the event Tenant does or
permits anything to be done which increases the cost of any insurance maintained
by Landlord hereunder, Tenant shall promptly, upon demand, as Landlord's sole
remedy for such increase (but without limiting any other remedies that may be
available to Landlord if the cause of such increase is otherwise violative of
any provisions of this Lease), reimburse Landlord for such increase. Tenant
shall not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with the rights of other tenants or
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occupants of the Development, or use or allow the Premises to be used for any
unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on
or about the Premises; Landlord, however, acknowledges that certain noise and
vibration are incident to Tenant's use of the Premises, and that to the extent
the same shall not exceed noise levels generated by other athletic clubs in
similar types of buildings and shall not otherwise exceed the legally
permissible decibel levels, the same shall not constitute nuisance for the
purposes hereof.
(iv) Tenant shall not commit or suffer to be committed any waste in
or upon the Premises.
(v) Tenant shall be responsible for obtaining, at Tenant's sole cost
and expense, all required licenses and/or permits authorizing the use of the
Premises for an athletic and social club with the necessary cooking facilities
required for Tenant's cooking operations for the Club.
8.3 Hazardous Materials.
(i) Tenant shall not use or permit any hazardous, toxic or
radioactive materials ("HAZARDOUS MATERIALS"), to be brought upon, kept or used
in or about the Premises, the Improvements or the Common Areas by Tenant, its
agents, employees or contractors, unless such Hazardous Materials are necessary
or useful to and customarily used in Tenant's business and will be used, kept
and stored in a manner that complies with all laws regulating any such Hazardous
Materials. In addition, Tenant shall be entitled to use general office supplies,
normal janitorial supplies, supplies used in maintaining its equipment and
swimming pool supplies in a manner that complies with all laws regulating their
use. If Tenant breaches the covenants and obligations set forth herein or, if
the presence of Hazardous Materials on, in or about the Premises, the
Improvements, or any other portion of the Development caused or permitted by
Tenant, its agents, employees, or contractors, results in contamination of the
Premises, the Improvements, or any other portion of the Development, then Tenant
shall indemnify, defend and hold Landlord and the owner(s) and operator(s) of
the Common Areas free and harmless from and against any and all claims,
judgments, damages, penalties, fines, costs, liabilities and losses (including
diminution in the value of the Premises and/or the Common Areas, damages for the
loss or restriction on use of rentable or useable space or of any amenity of the
Premises, the Improvements, or any other portion of the Development, and sums
paid in settlement of claims, attorneys' fees, consultant fees and expert fees)
which arise during or after the Term as a result of such contamination. This
indemnification by Tenant of Landlord and the owner(s) and operator(s) of the
Common Areas, includes any and all costs incurred in connection with any
investigation of site conditions or any clean up, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of the presence of such Hazardous Materials in, on
or about the Premises, the Improvements, or the soil or ground water on or under
the Development. The provisions of this Subsection 8.3(i) shall survive the
expiration or earlier termination of this Lease.
(ii) Landlord shall not cause or permit any Hazardous Materials to
be brought upon, kept or used in or about the Premises or any other portion of
the Development by
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Landlord, its agents, employees or contractors unless such Hazardous Materials
are used, kept and stored in a manner that complies with all laws regulating
such Hazardous Materials. If Landlord breaches the covenants and obligations set
forth herein or if contamination of the Premises or any other portion of the
Development by Hazardous Materials otherwise occurs which is caused by Landlord
or its agents, then Landlord shall indemnify, defend and hold Tenant free and
harmless from and against any and all claims, judgments, damages (but not
consequential damages), penalties, fines, costs and liabilities and losses
(including any diminution in the value of the Club) and sums paid in settlement
of claims, attorneys' fees, consultants' fees and expert fees) which arise
during or after the Term as a result of such contamination. This indemnification
by Landlord of Tenant includes any and all costs incurred in connection with any
investigation of site conditions or any clean up, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of the presence of such Hazardous Materials in, or
about the Premises. The provisions of this Subsection 8.3(ii) shall survive the
expiration or earlier termination of this Lease.
8.4 Restrictions.
Landlord hereby agrees that neither Landlord nor any individual(s),
firm or corporation controlled by, controlling or under common control with
Landlord shall lease to, sublease to, consent to an assignment or sublease to,
operate, own or become financially interested in, any other athletic club within
the Development.
9. Notices. All notices, consents, approvals, determinations and other
communications required or permitted to be given hereunder must be in writing
and may be given only by personal delivery, overnight delivery, facsimile
transmission or by mail, and if given by mail shall be deemed sufficiently given
only if sent by registered or certified mail, return receipt requested, to the
following address of the party to receive such notice, signed by a duly
authorized representative of the sending party. Notices shall be deemed received
if sent in compliance with the aforesaid requirements, upon actual receipt for
notices given by personal delivery or facsimile and upon the earlier of actual
receipt or the date three business days after deposit of any notice in the
United States mail if sent by registered or certified mail.
If to Landlord: Millennium Partners LLC
1995 Broadway
New York, New York 10023
Attention: Mr. Brian J. Collins
Fax: (212) 579-0662
With a copy to: Stroock & Stroock & Lavan, L.L.P.
180 Maiden Lane
New York, New York 10035
Attention: Roger M. Roisman, Esq.
Fax: (212) 806-6006
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If to Tenant: SCC Sports Club, Inc.
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Attention: Real Estate Dept.
with a copy to: Resch Polster Alpert & Berger LLP
10390 Santa Monica Boulevard
Fourth Floor
Los Angeles, California 90025
Attention: Ronald M. Resch, Esq.
Fax: (310) 552-3209
Either party may specify a different address for notice purposes by
written notice to the other.
10. Brokers. Landlord and Tenant each warrant to the other that such party
has not had any dealings with any real estate broker or agent in connection with
the negotiation of this Lease other than the Weatherby Company (the "Broker"),
and that such party knows of no real estate broker or agent other than Broker
who is or might be entitled to a commission in connection with this Lease. If
Landlord or Tenant has dealt with any person or real estate broker or agent with
respect to the transaction contemplated by this Lease (other than Broker), the
party so dealing with such person or broker or agent shall be solely responsible
for the payment of any fee due such person or broker or agent and such party
shall hold the other free and harmless from and against any liability in respect
thereto, including attorneys' fees and costs. Notwithstanding the foregoing,
Landlord shall be responsible for payment of all fees to which Broker is
entitled by reason of this transaction, and Landlord shall make such payment to
Broker in accordance with a separate agreement between Landlord and Broker.
11. Holding Over. If Tenant holds over after the expiration or earlier
termination of the Term without the express consent of Landlord, Tenant shall
become a tenant at sufferance only, at a rental rate equal to 125% of the
Monthly Base Rent in effect upon the date of such expiration (prorated on a
daily basis), plus 100% of the other elements of Rent, and otherwise subject to
the terms, covenants and conditions herein specified, so far as applicable.
Acceptance by Landlord of Rent after such expiration or earlier termination
shall not result in a renewal of this Lease. The foregoing provisions of this
Article 11 are in addition to and do not affect Landlord's right of re-entry or
any rights of Landlord hereunder or as otherwise provided by law.
12. Taxes.
12.1 Payment. Commencing upon the Commencement Date, Tenant shall be
liable for and shall pay to Landlord in equal monthly installments with its
payment of Monthly Base Rent, all (i) real property taxes, (ii) personal
property taxes, (iii) general and special assessments, (iv) water and sewer
taxes, bonds, assessments and related charges, (v) excises, levies, license and
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permit fees and (vi) all other governmental charges, general and special,
ordinary and extraordinary, of any kind and nature whatsoever, which at any time
during or applicable to the Term may be assessed, levied, confirmed, imposed
upon, or become due and payable out of or in respect of, or become a lien on the
Premises, the Improvements or any portion thereof. If a separate real property
tax bill is not issued for the Premises at any time during the Term, but
Landlord receives a tax bill for a larger parcel of real property including the
Premises, Landlord shall bill Tenant for a pro rata share of such taxes;
Landlord shall provide Tenant with an invoice therefor together with a detailed
explanation of any proration, which proration shall be made on the basis of
Tenant's Share of the ratio between Floor Area of the Premises and the total
square feet of the Floor Area of the other tenantable portions of the taxed unit
of which the Premises form part. If Landlord shall receive any bills,
assessments or other official notices regarding any such taxes or other charges,
it shall promptly forward the same to Tenant, but an inadvertent failure (or
failures) to do so shall not be deemed a breach hereof. All such taxes,
assessments, charges and the like billed directly to Tenant or passed on to
Tenant by Landlord and paid by Tenant pursuant to the provisions of this Section
12.1 shall be excluded from Common Area Expenses or Operating Expenses, as
applicable. All taxes becoming a lien upon the Premises or any portion thereof
during the first and last Lease Year shall be prorated between Landlord and
Tenant to the first and last day of the Term, respectively. Upon Tenant's
request in writing, Landlord shall furnish to Tenant proof reasonably
satisfactory to Tenant of payment of the matters referred to in this Article. If
the Premises are separately assessed for real property taxes, Tenant shall have
the right, following notice to Landlord, to protest, contest or object to the
amount or validity of any such taxes, impositions or assessments; provided,
however, that this right to contest shall not be deemed or construed to relieve,
modify or extend Tenant's obligation to pay any such tax, imposition or
assessment before delinquency thereof unless Tenant has provided a bond or other
security satisfactory to Landlord. Tenant shall indemnify and defend Landlord
and save Landlord harmless from all costs, liabilities and expenses incurred in
connection with such proceedings.
12.2 Trade Fixtures. Tenant shall be liable for and shall pay, before
delinquency, all taxes levied against Trade Fixtures.
12.3 Protest. Tenant shall have the right, at its sole cost, to request
Landlord, by notice to Landlord given not less than ten days before the last
date for filing any necessary protest or petition or taking any other necessary
action, to initiate and prosecute any proceeding for the purpose of reducing the
assessed valuation of the Premises for tax purposes. In the event that Tenant in
good faith shall request Landlord, pursuant to the preceding sentence, to
initiate and prosecute any proceeding, Landlord shall, at Tenant's sole expense,
take all steps reasonably necessary to commence such proceeding and thereafter
shall diligently prosecute the same to completion. Any actual out-of-pocket
costs, including reasonable attorneys' fees, incurred by Landlord in connection
with any such proceeding brought at Tenant's request shall be payable upon
demand, as additional rent, by Tenant to Landlord. Any refund of moneys received
by Landlord resulting from such proceeding attributable to the Premises and
relating to real property taxes which may have been paid by Tenant shall be
refunded by Landlord to Tenant, together with all accrued interest which is
awarded thereon and received by Landlord; provided that if any such
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refund shall be made with respect to Landlord's property other than the
Premises, then Tenant's right to the same shall be limited to its pro rata
portion thereof, after payment or credit first (to the extent such monies are
received by Landlord from the taxing authority), to Tenant for Landlord's costs
previously paid by Tenant to Landlord as above provided and second (after all
costs incurred by Landlord have been recovered), for any other actual
out-of-pocket costs, including reasonable attorneys' fees incurred by Tenant in
connection with any such proceeding. Tenant's rights to refunds under this
Section 12.3, if any, shall survive the expiration of this Lease.
12.4 Definition. As used in this Lease, the term "REAL PROPERTY TAXES"
shall include any form of assessment, license fee, license tax, business license
fee, commercial rental tax, levy, charge, tax or similar imposition, imposed by
any authority having the direct power to tax, including any city, county, state
or federal government, or any school, agricultural, lighting, drainage or other
improvement or special assessment district thereof, as against any legal or
equitable interest of Landlord in the Premises, including, but not limited to,
the following: any tax on Landlord's "right" to rent or "right" to other income
from the Premises or as against Landlord's business of leasing the Premises; any
assessment, tax, fee, levy or charge in substitution, partially or totally, of
any assessment, tax, fee, levy or charge previously included within the
definition of real estate tax ("IN-LIEU TAX"); any assessment, tax, fee, levy or
charge allocable to or measured by the area of the Premises or the rent payable
hereunder ("RECEIPTS TAX"), including any gross income tax or excise tax levied
by the state, city or federal government, or any political subdivision thereof,
with respect to the receipt of such rent, or upon or with respect to the
possessing, leasing, operating, managing, maintaining, altering, repairing,
using or occupying by Tenant of the Premises, or any portion thereof; any
assessment, tax, fee, levy or charge upon this transaction or upon any document
to which Tenant is a transferring party creating or transferring an interest or
an estate in the Premises; any assessment, fee, levy or charge by any
governmental agency related to any transportation plan, fund or system
instituted within the geographic area of which the Premises are a part; and
reasonable legal and other professional fees, costs and disbursements incurred
in connection with proceedings to reasonably contest, determine or reduce real
property taxes. Notwithstanding any provision of this Article 12 expressed or
implied to the contrary, Tenant shall not be required to pay any documentary
transfer taxes or recording taxes incurred by Landlord or Landlord's federal or
state income, franchise, inheritance or estate taxes or any local income,
franchise, inheritance or estate taxes, or other taxes in lieu thereof, except
for any In-Lieu Tax or any Receipts Tax.
13. Condition of Premises.
13.1 Landlord's Work. Landlord hereby agrees to cause to be
completed those acts and/or improvements described as the Landlord's Work in the
Work Letter within the time(s) set forth therein, subject to Force Majeure or
any Tenant Delay. Landlord hereby agrees that all work to be performed by
Landlord pursuant to the Work Letter shall be constructed by Landlord or
Landlord's contractor in a good and workmanlike first-class manner and in full
compliance with all governmental regulations, ordinances and laws existing at
the time of construction. Landlord agrees to abide by its obligations, if any,
under the CC&Rs. By taking possession of the Premises
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upon completion of the Landlord's Work and for commencement of the construction
of the Improvements, Tenant shall be deemed to have: (a) acknowledged that
Landlord's Work is substantially complete and is accepted "as is" and "with all
faults"; (b) accepted the Premises as suitable for the purposes for which the
Premises are leased; and (c) acknowledged that the Premises are in a good and
satisfactory condition. Landlord hereby disclaims, and Tenant hereby waives to
the full extent permitted by law, any implied warranty that the Premises are
suitable for Tenant's intended commercial purpose, and any and all other implied
warranties (whether arising by virtue of statute, case law or otherwise). The
foregoing provisions shall not be construed to relieve Landlord from its
obligations which are expressly set forth in this Lease.
13.02 Design Changes. In order to provide Landlord with the
necessary flexibility in the planning and organizing of the Building, Tenant
agrees that the design of the Building (including the location of the demising
walls for the Premises) and elements of Landlord's Work shall be subject to such
changes as Landlord shall deem to be necessary or beneficial to the Building or
its tenants, provided, however, that the resulting Premises shall be
substantially equivalent for Tenant's purposes as prior to such changes
14. Alterations.
14.1 Landlord's Approval. From and after the later of (x) the Commencement
Date, or (y) completion of the Improvements, Tenant, without obtaining
Landlord's prior consent, may only make alterations, additions or improvements
in or to the Premises which (i) are nonstructural in nature, and (ii) do not
affect the exterior of the Premises or other exterior portions of the
Improvements (but only to the extent generally visible from the Common Areas).
All alterations, additions and improvements other than those described in
Subsections 14.1 (i) and (ii) shall require Landlord's prior consent. Before
proceeding with any alteration, addition or improvement which requires
Landlord's prior consent hereunder, Tenant shall submit to Landlord plans and
specifications, including any applicable mechanical, electrical and plumbing
drawings, for the work to be done, which plans and specifications shall require
Landlord's approval. If Landlord shall disapprove of any of Tenant's plans and
specifications, Tenant shall be advised of the reasons for such disapproval.
14.2 Requirements. Tenant agrees to provide Landlord with notice of all
alterations, additions or improvements Tenant intends to make to the Premises
whether or not they require Landlord's prior consent as provided above. Tenant
shall cause Tenant's contractor to obtain on behalf of Tenant and at Tenant's
sole cost and expense all necessary governmental permits and certificates for
the commencement and prosecution of any alteration, addition or improvement and
for final approval thereof upon completion. All such work shall be done at such
times and in such manner as Landlord may from time to time designate. Tenant
covenants and agrees that all work done by Tenant shall be performed in full
compliance with the Condominium Documents, the CC&Rs, in full compliance with
all laws, rules, orders, ordinances, regulations and requirements of all
governmental agencies, offices, and boards having jurisdiction, and in full
compliance with the rules, regulations and requirements of any insurance rating
bureau having jurisdiction of the Premises. Before commencing any work, Tenant
shall give Landlord at least ten days' notice of the proposed commencement of
such work in order to provide Landlord with an opportunity to
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post notices of nonresponsibility. Tenant further covenants and agrees that any
mechanic's lien recorded against the Premises for work claimed to have been done
for, or materials claimed to have been furnished to, Tenant will be discharged
by Tenant, by bond or otherwise, as provided in Article 16. All alterations,
additions or improvements upon the Premises made by either party, including all
wallcovering, built-in cabinetry, paneling and the like, shall, at Landlord's
option, upon the expiration or sooner termination of the Term become the
property of Landlord, and shall, at such time, remain upon, and be surrendered
by Tenant with the Premises, as a part thereof.
14.3 Removal. All articles of personal property and movable furniture,
including Trade Fixtures and any other of Tenant's furniture and equipment which
are installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant and may be removed by Tenant at any time during the Term
provided Tenant repairs any damage caused by such removal. If Tenant shall fail
to remove all of its effects from the Premises upon the termination of this
Lease, for any cause whatsoever, Landlord may, at it option, remove the same in
any manner that Landlord shall choose, and store said effects without liability
to Tenant for loss thereof so long as Landlord exercises reasonable care in
doing so. In such event, Tenant agrees to pay Landlord upon demand any and all
reasonable expenses actually paid to third parties incurred in such removal,
including court costs and attorneys' fees and storage charges on such effects
for any length of time that the same shall be in Landlord's possession. Landlord
may, at its option, upon at least ten business days' prior notice to Tenant of
the date, time and place of such sale, sell said effects, or any of the same, at
private sale and without legal process, for such price as Landlord may obtain
and apply the proceeds of such sale to any amounts due under this Lease from
Tenant to Landlord and to the expense incident to the removal and sale of said
effects. Any rights of Landlord under this Section 14.3 shall be subject to the
rights of lienholders with a security interest in Tenant's personal property.
15. Repairs.
15.1 Tenant's Obligations. Except as otherwise hereinafter provided,
Tenant, at Tenant's sole cost and expense, shall keep, maintain (including
necessary replacements) and preserve the Property and every portion thereof, all
equipment, facilities and amenities used in connection therewith and all items
located on or about the Property, including plumbing, mechanical systems, floors
and utility systems (including HVAC system) and all portions thereof in
first-class condition and repair and shall, when and if needed, at Tenant's sole
cost and expense (subject to the damage and destruction provisions herein), make
all repairs to the Property and every part thereof including the interior walls
but excluding the structural columns described in Section 15.2, shall repaint
the interior and the exterior of the Improvements as necessary, replace all
broken window glass, and repair all facilities except for: the structural
columns described in Section 15.2. Tenant's obligation to keep, maintain,
preserve and repair the Premises shall specifically extend to the cleanup and
removal of all Hazardous Materials to the extent required in Article 8. Tenant
shall, upon the expiration or sooner termination of the Term, surrender the
Property to Landlord in its condition as of the commencement of Tenant's
operation of the Club for member use, usual and ordinary wear and tear and any
alterations, additions and
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improvements permitted under this Lease excepted, and except as otherwise
provided in Articles 21 and 22. Landlord shall have no obligation to alter,
remodel, improve, repair, decorate or paint the Property or any part thereof,
except as provided in Section 15.2 and except for cleanup and removal of
Hazardous Materials to the extent required in Article 8. The parties hereto
affirm that Landlord has made no representations to Tenant respecting the
condition of the Property except as specifically set forth in Article 13. In
addition, the parties hereto affirm that Landlord shall have absolutely no
obligation to keep, maintain or repair any portion of the interior of the
Premises except as herein expressly provided. Landlord shall be responsible for
repairs to the Property caused by the negligence or willful misconduct of
Landlord or its employees, agents, or contractors. Notwithstanding the
foregoing, to the extent that insurance carried by Landlord or Tenant provides
coverage for the cost of any maintenance or repair or replacement which is
Tenant's obligation pursuant hereto, Tenant shall be entitled to all benefits of
such insurance.
15.2 Landlord's Obligations. Landlord shall (subject to reimbursement
therefor pursuant to Section 7 above) keep, maintain and repair the Common Areas
in a first-class manner and be responsible for the repair and maintenance of the
structural elements of the Development except to the extent that the necessity
for any repair or maintenance shall be attributable to alterations performed by
or through Tenant or by the negligence or willful misconduct of Tenant or its
employees, agents, contractors, licensees or invitees. Notwithstanding the
foregoing, Landlord shall (without being subject to reimbursement therefor
pursuant to Section 7), repair all defects in Landlord's construction of the
Building. Landlord shall grant easements and/or grant rights of way to the
extent necessary for utility companies to bring those services identified in the
Work Letter to the Premises. Notwithstanding anything to the contrary contained
in this Article 15 or elsewhere in this Lease, during any period during the Term
that the Premises shall be subject to a condominium form of ownership, Landlord
shall use diligent efforts to cause the Condominium Association to fulfill all
obligations on its part to perform its repair and maintenance obligations in
accordance with the Condominium Documents.
16. Liens. Except with respect to a security agreement, financing
statement, financing lien or other instrument securing the financing of Trade
Fixtures and Tenant's other furniture, fixtures, equipment and improvements
approved by Landlord, Tenant shall not permit to be recorded against the
Premises or any portion of the Development or against Tenant's leasehold
interest in the Premises, any mechanics', materialmen's or other liens,
including any state, federal or local Hazardous Material clean-up liens for
which Tenant is responsible under Article 8. Landlord shall have the right at
all reasonable times to post and keep posted on the Premises any notices which
it deems necessary for protection from such liens. If any such lien is recorded,
and is not discharged by Tenant by bond or otherwise within thirty days after
the recording thereof, Landlord may, without waiving its rights and remedies
based on such breach of Tenant and without releasing Tenant from any of its
obligations, cause such liens to be released by any means it shall deem proper,
including payment in satisfaction of the claim giving rise to such lien. Tenant
shall pay to Landlord at once, upon notice by Landlord, any sum paid by Landlord
to remove such liens, together with interest at the lesser of (x) the rate of
12% per annum and (z) the highest rate then legally permissible from the date of
such payment by Landlord together with Landlord's reasonable attorneys' fees and
other expenses incurred by Landlord in connection with obtaining
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such release. Tenant expressly reserves the right to contest the validity of any
such liens and to post bonds suitable to cause the release of any such liens so
long as (i) prior to any such contest (and no later than 30 days after such lien
has been filed) Tenant at its sole expense provides to Landlord a bond
indemnifying against such lien that complies with all applicable laws, and (ii)
Tenant contests such lien diligently and in good faith; provided, however, the
foregoing right of Tenant to contest any such lien shall not impair or otherwise
affect Tenant's indemnification and other obligations with respect to such lien.
17. Entry by Landlord. Landlord reserves and shall at any and all
reasonable times during normal business hours upon giving at least one business
day's prior notice to Tenant (except in the case of emergencies, in which case
no notice shall be necessary) have the right to enter the Premises and the
Improvements to (i) inspect the same, (ii) show the Premises and the
Improvements to prospective lenders or purchasers (and prospective tenants
during the last twelve months of the Term), (iii) post notices of
nonresponsibility, and (iv) alter, improve or repair the Common Areas or any
other portion of the Development, all without being deemed guilty of any
eviction of Tenant and without abatement of rent. Landlord shall provide Tenant
with the opportunity to escort Landlord with regard to any entry pursuant hereto
(except in case of an emergency). Landlord shall indemnify Tenant and hold
Tenant harmless from and against any and all claims, damages, losses or costs
(excluding consequential damages) incurred by Tenant as a result of Landlord's
entry upon the Premises pursuant to this Article 17 to the extent not covered by
insurance carried by Tenant or required to be carried by Tenant hereunder.
Landlord may, in order to carry out such purposes, erect scaffolding and other
necessary structures if reasonably required by the character of the work to be
performed, provided that to the extent within Landlord's reasonable control, the
business of Tenant shall be interfered with as little as is reasonably
practicable (it being agreed that Landlord shall not be required to employ
overtime or premium labor). It is understood and agreed that no provision of
this Lease shall be construed as obligating Landlord to perform any repairs,
alterations or decorations except as otherwise expressly agreed herein by
Landlord.
18. Utilities and Services.
(i) Tenant agrees to pay all charges for utilities and services used
by it on the Premises, including, but not limited to gas, electricity,
telephone, sanitary sewer, storm drainage, water, and trash collection. Landlord
shall, at Landlord's cost and expense, supply hot water for heat to such
distribution facilities as may exist in the Premises following completion of
Landlord's Work. Tenant shall maintain in good working order and make all
necessary repairs and replacements to such distribution facilities to the extent
the same are located within or exclusively service the Premises at Tenant's own
cost and expense. Heat shall be supplied to the Premises at such times and
periods as Tenant shall reasonably require for conducting its business at the
Premises in the manner contemplated by the Lease. Landlord shall supply (or
cause to be supplied) chilled condenser water to the Premises at such hours (not
to exceed eighteen (18) hours per day) as Tenant may designate. Within thirty
(30) days following demand therefor, Tenant shall pay to Landlord, as Additional
Rent, Landlord's then established charges which shall not exceed one hundred
(100%) percent of Landlord's out-of-pocket costs for the quantities of
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such condenser water as Tenant may consume, as shown on the meter installed by
Landlord (but maintained by Tenant) plus Landlord's administrative charge of
five (5%) percent. Subject to Landlord's obligation to make utility easements
and rights of way available pursuant to the provisions of Section 15.2 and to
bring utility lines to the Premises pursuant to Section 1.1, Landlord shall not
be liable for damages or otherwise for any failure or interruption of any
utility or other service furnished to the Premises, unless such failure shall be
due to the negligence or willful misconduct of Landlord, its agents, licensees
or employees and is not covered by rent abatement and business interruption
insurance carried or required to be carried by Tenant. Subject to Landlord's
obligation to make utility easements and rights of way available pursuant to the
provisions of Section 15.2 and to bring utility lines to the Premises pursuant
to Section 1.1, Landlord does not warrant that any of the utilities and services
mentioned herein will be free from interruptions caused by repairs, renewals,
improvements, alterations, strikes, lockouts, accidents, inability of Landlord
to obtain fuel or supplies, or any other cause or causes beyond the reasonable
control of Landlord. Any such interruption of service shall never be deemed an
eviction or disturbance of Tenant's use and possession of the Premises, or any
part thereof, or give Tenant any right to terminate this Lease.
(ii) Tenant agrees that it will not install any equipment which will
exceed or overload the capacity of any utility facilities, and that if any
equipment installed by Tenant shall require additional utility facilities in
excess of those specified in the Work Letter, the same shall be installed at
Tenant's expense in accordance with plans and specifications to be approved in
writing by Landlord in accordance with the standards set forth in Article 14.
19. Indemnification.
19.1 Tenant's Indemnity. Notwithstanding (i) the limits of Tenant's
insurance specified in Section 20.1 below and (ii) whether Tenant's insurance
shall be in full force and effect, Tenant shall indemnify, defend and hold
Landlord and the Condominium Association (if applicable) harmless from all
costs, expenses, penalties, claims, demands and liabilities ("CLAIMS") arising
from Tenant's use of the Property or the conduct of its business or from any
activity, work, or thing done by Tenant in or about the Premises. Tenant shall
further indemnify, defend and hold Landlord and the Condominium Association (if
applicable) harmless from all Claims arising from any Default, or arising from
any act, neglect, fault or omission of Tenant or of its agents, employees or
licensees in the Premises, the Common Areas and/or other areas of the
Development, or arising from any act, neglect, fault or omission of Tenant's
invitees in the Premises, and from and against all costs, attorneys' fees,
expenses and liabilities incurred in connection with such Claim or any action or
proceeding brought thereon, but this indemnity shall not extend to Claims to the
extent resulting from negligent acts or omissions or willful misconduct of
Landlord or the Condominium Association, as applicable, their respective
employees, agents, licensees or invitees, to consequential or punitive damages
or to Claims that are as applicable covered by property insurance carried by
Landlord or the Condominium Association or required to be carried by Landlord
hereunder. In case any action or proceeding shall be brought against Landlord
and/or the Condominium Association, as applicable by reason of any such claim,
Tenant, upon notice from Landlord and/or the Condominium Association, as
applicable, shall defend the
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same at Tenant's expense by counsel approved by Landlord and/or the Condominium
Association, as applicable. Tenant, as a material part of the consideration to
Landlord, hereby assumes all risk of damage to property or injury to persons in,
upon or about the Property from any cause whatsoever, except that for which
Landlord may be liable pursuant to the indemnity contained in Section 19.2.
19.2 Landlord's Indemnity. Landlord shall indemnify, defend and hold
Tenant harmless from any and all Claims arising from any activity, work, or
thing done by Landlord in or about the Development. Landlord shall further
indemnify, defend and hold Tenant harmless from all Claims arising from any
breach or default in the performance of any obligation to be performed by
Landlord under the terms of this Lease or arising from any act, neglect, fault
or omission of Landlord or of its licensees, invitees, agents or employees
within the Development (provided, however, it is agreed that tenants or other
occupants of the Development and their respective licensees, invitees, agents or
employees shall not be deemed to be Landlord's licensees, invitees, agents or
employees) and from and against all costs, attorneys' fees, expenses and
liabilities incurred in connection with such Claims or any action or proceeding
brought thereon, but this indemnity shall not extend to Claims to the extent
resulting from the negligent acts or omissions or willful misconduct of Tenant,
its employees, agents or licensees, to consequential or punitive damages or to
Claims that are covered by property insurance carried by Tenant or required to
be carried by Tenant hereunder. In case any action or proceeding shall be
brought against Tenant by reason of any such Claims, Landlord, upon notice from
Tenant, shall defend the same at Landlord's expense by counsel approved by
Tenant; it being agreed that Stroock & Stroock & Lavan LLP and/or counsel
designated by Landlord's insurer are acceptable to Tenant for such purpose.
19.3 No Release of Insurers. Tenant's and Landlord's indemnification
obligations under Sections 19.1 and 19.2 are not intended to and shall not
relieve any insurance carrier of its obligations under policies carried by
Landlord or Tenant, and such indemnification obligations shall survive the
expiration or earlier termination of this Lease.
20. Insurance.
20.1 Tenant's Insurance. Tenant shall, during the Term and any other
period of occupancy of the Premises, at its sole cost and expense, keep in full
force and effect the following insurance:
(i) Property. Standard form property insurance insuring against the
perils of fire, extended coverage, vandalism, malicious mischief, special
extended coverage ("ALL-RISK") and sprinkler leakage, covering all property
owned by Tenant, for which Tenant is legally liable or that was installed solely
at Tenant's expense, and which is located on the Premises, including interior
improvements, furniture, fittings, installations, Trade Fixtures, equipment,
facilities and any other personal property and any alterations, additions and
improvements constructed by Tenant pursuant to Section 14.1 hereof (but
excluding any property required to be insured by Landlord under Section 20.4),
in an amount not less than the full replacement cost thereof. All proceeds
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from the insurance required under this Section 20.1(i) shall be used for the
repair, restoration or replacement of the damaged or destroyed property unless
this Lease terminates pursuant to Section 21, in which event the provisions of
Section 20.3 shall control.
(ii) Liability. Comprehensive General Liability Insurance insuring
Tenant against any liability arising out of the lease, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be in the amount of not less than $5,000,000.00 Combined Single Limit for
injury to, or death of one or more persons in an occurrence, and for damage to
tangible property (including loss of use) in an occurrence. Any such coverage
requirement may be satisfied by an "umbrella policy." Such policies shall insure
the hazards of premises and operations, independent contractors, contractual
liability (covering the indemnity contained in Article 19) and shall (a) name
Landlord, the Condominium Association (if applicable) and any mortgagee of
Landlord as additional insureds, (b) contain a cross liability provision, and
(c) contain a provision that "the insurance provided Tenant hereunder shall be
primary and noncontributing with any other insurance available to Landlord or
the Condominium Association," so long as such provision may be available.
(iii) Workers' Compensation. Workers' Compensation and Employer's
Liability insurance (as required by state law).
(iv) Rental Interruption. Twelve months' rent abatement and business
interruption insurance which shall cover Tenant's monetary obligations under
this Lease and any direct or indirect loss of earnings attributable to perils
insured against under extended coverage all-risk property insurance; provided,
however, that Tenant shall be entitled to self-insure such risk.
(v) Liquor. Liquor liability insurance coverage with commercially
reasonable coverage limits, but in no event less than $5,000,000.00 per
occurrence, naming Landlord, the Condominium Association and any mortgagee of
Landlord as additional insureds. Any such coverage requirement may be satisfied
by an "umbrella policy."
20.2 Requirements. All policies required of Tenant shall be written by an
insurer satisfactory to Landlord. Prior to the date Tenant enters the Premises,
but in no event later than sixty days after the execution of this Lease, Tenant
shall deliver to Landlord copies of policies or certificates evidencing the
existence of the amounts and forms of coverage required (or, in the event of
self-insuring as permitted in subsection 20.01 (iv) only, evidence of Tenant's
net worth of not less $10,000,000). No such policy shall be cancelable or
reducible in coverage except after thirty days' prior written notice to
Landlord. Tenant shall, within thirty days prior to the expiration of such
policies, furnish Landlord with renewals, certificates of insurance, or
"binders" thereof, and, if Tenant fails to do so within ten days following
notice of such failure, then, upon an additional notice to Tenant, Landlord may
order such insurance and charge the cost thereof to Tenant as additional rent.
If Landlord obtains any insurance that is the responsibility of Tenant under
this Article 20, Landlord shall deliver to Tenant a statement setting forth the
cost of any such insurance and showing in reasonable detail the manner in which
it has been computed, and, if
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obtainable, a certificate of insurance naming Tenant as the insured or as an
additional insured. Tenant's obligation to carry insurance provided for in this
Article 20 may be satisfied by inclusion within the coverage of any blanket
policy or policies of insurance carried or maintained by Tenant, provided that
the coverage required herein will not be reduced or diminished by reason of the
use of such blanket policies of insurance.
20.3 Proceeds Upon Termination. In the event of damage to or destruction
of the Improvements resulting in termination of this Lease pursuant to Article
21, (i) Landlord shall be entitled to all proceeds of the insurance required to
be maintained under Section 20.4 (subject to Landlord's obligation to cause such
proceeds to be disbursed for the purposes of restoration, as herein provided)
and (ii) Tenant shall immediately pay to Landlord all of its property insurance
proceeds, if any, plus any deductible amount (subject to the limitation
described below) relating to the Improvements and all other items of property
which would have become Landlord's property upon expiration or earlier
termination of this Lease absent such damage or destruction (but not relating to
Trade Fixtures or Tenant's other equipment, furniture or personal property).
Notwithstanding the foregoing, Tenant shall not be required to pay any such
deductible amounts to Landlord unless Landlord can demonstrate that it has
entered into a new lease with a nonaffiliate of Landlord for an athletic club on
the Premises within twelve months after termination of this Lease.
20.4 Landlord's Insurance. Landlord may, but shall not be obligated to,
take out and carry any form or forms of insurance ("Landlord's Insurance") as it
may reasonably determine advisable, or as may be required by Landlord's
mortgagee; provided, however, that Landlord shall be required to carry (i)
Comprehensive General Liability Insurance in amounts not less than those
required of Tenant pursuant to Subsection 20.1 and (ii) insurance against any
peril insurable under an all-risks property insurance policy covering the
Improvements, exclusive of any item insured by Tenant pursuant to Section
20.1(i), in an amount which is one hundred (100%) of the full replacement cost
of the Improvements. Landlord's obligation to carry the all-risks property
insurance provided for in this Section 20.4 may be satisfied by inclusion of the
Improvements within the coverage of any blanket policy or policies of insurance
carried or maintained by Landlord, provided that the coverage required herein
will not be reduced or diminished by reason of the use of such blanket policies
of insurance. Tenant shall reimburse Landlord, as additional rent payable in
equal monthly installments, the cost of the all-risks property insurance for the
Improvements required by this Section 20.4 commencing within thirty days
following demand therefor, and the premiums for such insurance will not be
included in the "Insurance Escalation" (as hereafter defined). In the event such
all-risks property insurance covers improvements other than the Improvements,
Tenant's pro rata share will be that proportion that the Floor Area of the
Improvements bears to the total Floor Area of all improvements covered by such
policy.
20.5 Insurance Escalation. Except for Landlord's cost of the all-risks
property insurance for the Improvements, as addressed in Section 20.4 above, if
Landlord's cost of obtaining Landlord's Insurance for the Property and/or the
Building and the operations thereof exceeds the cost of obtaining such insurance
for the first twelve (12) months following the
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Commencement Date, Tenant shall pay to Landlord, within thirty 30 days, after
being billed therefore, an amount equal to Tenant's Share of such increased
cost.
20.6 Compliance. Landlord and Tenant shall promptly comply with all
reasonable requirements of the insurance authority or of any insurer now or
hereafter relating to the Premises.
20.7 Waiver of Subrogation. All policies of all-risk, fire, extended
coverage or similar property insurance which either party obtains or is required
to maintain in connection with the Development, and the insurance required to be
obtained by Tenant pursuant to the provisions of Subsection 20.1 (iv), and, if
obtainable, all liability policies, shall include or shall be deemed to include
a clause or endorsement denying the insurer any rights of subrogation against
the other party. Landlord and Tenant waive all rights of recovery against the
other for injury or loss due to hazards covered by insurance containing or
deemed to contain such a waiver of subrogation clause or endorsement to the
extent of the injury or loss covered thereby.
21. Damage or Destruction.
21.1 (i) Tenant's Reconstruction. In the event the Improvements shall be
damaged by fire or other perils and this Lease shall not be terminated as
hereafter provided, Tenant, at its sole cost and expense, shall within a period
of thirty (30) days thereafter, commence repair, reconstruction and restoration
of the Improvements to their condition existing immediately prior to such damage
and prosecute the same diligently to completion in compliance with all
applicable laws, and this Lease shall continue in full force and effect unless
this Lease is terminated as hereinafter provided. Any such repair,
reconstruction and restoration shall be performed strictly in accordance with
the provisions of Article 14 and Tenant shall be entitled to apply the insurance
proceeds to the repair, reconstruction and restoration in the manner provided in
Section 21.2. If at any time Tenant shall fail to prosecute such work of repair
or rebuilding with diligence, then Landlord may give to Tenant notice of such
failure and if such failure continues for twenty days thereafter, then Landlord,
in addition to all other rights which it may have, may enter upon the Premises,
provide labor and/or materials, cause the performance of any contract and/or
take such other action as it may deem advisable to prosecute such work. For this
purpose, any contracts made by Tenant for purposes of accomplishing repair,
reconstruction and restoration of the Improvements shall be in a form assignable
to Landlord and shall be subject to Landlord's approval. Landlord shall be
entitled to reimbursement for its costs and expenses in performing such work
from any insurance proceeds and any other moneys held by the Depository (as
defined herein) for application to the cost of such work in accordance with
Section 21.2. All costs and expenses incurred by Landlord in carrying out such
work for which it is not reimbursed by the Depository shall be paid by Tenant
upon demand, which demand may be made by Landlord periodically as such costs and
expenses are incurred, in addition to any damages to which Landlord may be
entitled hereunder.
(ii) Uninsured Casualty. In the event the Improvements shall be
damaged by peril which is not covered by insurance required to be maintained
hereunder (or which is
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otherwise maintained), and if a duly qualified contractor certifies, in good
faith and fair dealing, that the amount required to repair such damage exceeds
the "Uninsured Contribution Amount" (as defined herein), Tenant shall have the
option to terminate this Lease upon giving notice to Landlord of its exercise of
such termination option within sixty days after such damage or destruction. Upon
such termination of this Lease, the parties shall be released without further
obligations to the other coincident with the surrender of possession of the
Premises to Landlord, except for items which theretofore accrued and are then
unpaid and any obligations specified in this Lease which are to survive the
termination of this Lease. Notwithstanding the foregoing, in the event that
Tenant exercises its option to terminate this Lease pursuant to the provisions
of this Subsection 21.1 (ii), Landlord shall have the option, exercisable within
thirty days after Landlord's receipt of Tenant's termination notice, to notify
Tenant that Landlord elects to fund the amount required to repair such damage
and destruction in excess of the Uninsured Contribution Amount, in which case
such repair, reconstruction and restoration shall be performed pursuant to the
procedures set forth in this Subsection 21.1(ii), except that Tenant shall
contribute the Uninsured Contribution Amount and Landlord shall fund any
additional amounts necessary to accomplish such repair, reconstruction and
restoration. The "UNINSURED CONTRIBUTION AMOUNT" shall be Five Hundred Thousand
($500,000.00) Dollars if the casualty occurs during the first 180 calendar
months of the Initial Term, which amount shall be reduced at the beginning of
193rd calendar month of the Initial Term, and every 12 months thereafter, by One
Hundred Thousand ($100,000.00) Dollars, until (but not including) the beginning
of the last 12 months of the Initial Term. The One Hundred Thousand
($100,000.00) Dollars Uninsured Contribution Amount in effect for the last 12
months of the Initial Term shall remain throughout any Option Periods.
(iii) Landlord Termination. In the event that any portion of the
Development (including the Building) shall be damaged to such an extent that
Landlord, the Condominium Association or any of Landlord's lenders shall elect
not to restore same, then Landlord shall have the right to terminate this Lease
within ninety (90) days following the date of the damage or destruction or, if
applicable, within a reasonable time after Landlord shall have been notified of
the Condominium Association's or lender's decision not to restore. Upon such
termination of this Lease, the parties shall be released without further
obligations to the other coincident with the surrender of possession of the
Premises to Landlord, except for items which theretofore accrued and are then
unpaid and any obligations specified in this Lease which are to survive the
termination of this Lease. Subject to the rights of Landlord's lenders and/or
the Condominium Association, Landlord shall not elect to terminate this Lease
unless a material portion of the Development (i.e., more than 25%) shall have
been damaged.
21.2 Depository. The "DEPOSITORY" shall be a bank or trust company
authorized to do business in California with a net worth of at least
$10,000,000.00 selected by Tenant and approved by Landlord; provided, however,
that if (i) Tenant does not make such a selection within ten business days after
notice and demand by Landlord, then Landlord may select the Depository and (ii)
if Landlord has a lender whose loan is secured by the Property, then anyone,
excluding Landlord or any affiliate of Landlord, designated by such lender shall
be the Depository. Subject to Section 21.6, all property insurance moneys
recovered on account of damage or
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destruction to the Improvements shall be applied to the payment of the cost of
repairing and replacing the Improvements. If net available insurance moneys
shall be insufficient to pay the entire cost of such work, then Tenant shall
bear the cost thereof in excess of the net available insurance moneys. Except
for work which is reasonably expected to cost less than $100,000.00 (with
respect to which Landlord shall hold the proceeds), the Depository shall hold
insurance proceeds and shall disburse said proceeds during the course of the
work of repair, reconstruction and restoration in accordance with the provisions
set forth below unless the Depository is Landlord's lender or a designee of such
lender, in which event the provisions of the loan documentation shall control.
The Depository shall not be required to make disbursements more often than at
thirty day intervals. Landlord, Tenant and the Depository shall reasonably,
promptly and in good faith prepare and execute reasonable and appropriate
instructions for disbursement of the proceeds which shall include a procedure
for receipt of certificates, plans, notices, lien releases and applications for
payment. Notwithstanding anything to the contrary contained herein, disbursement
of such insurance proceeds shall in all events (i) be subject to such
requirements as may be imposed by the Condominium Association and/or any
mortgagee of Landlord and (ii) include a procedure for a retainage of 10% of the
cost of the work from each draw disbursed in connection with such restoration
until at least 30 days after the completion of all work. If, after all of said
work shall be completed in accordance with the terms of this Lease and all
governmental approvals and permits required have been obtained, there are funds
held by the Depository for application to the cost of such work in excess of the
amounts withdrawn, then such funds (after first applying such funds to the costs
and expenses of the Depository) shall be delivered to Tenant; provided, however,
that if the funds held by the Depository are a result of any insurance carried
by Landlord or Section 21.5, such funds shall be delivered to Landlord. The
Depository may retain free of trust its reasonable fees and expenses for acting
as such.
In the event there are not sufficient funds held by the Depository
to pay its fees and expenses, Landlord and Tenant shall share equally the fees
and expenses of the Depository.
21.3 No Termination or Rental Abatement. No destruction of or damage to
the Property or any part thereof, whether such destruction or damage be partial
or total or whether such destruction or damage shall have been covered by
insurance or not, shall entitle or permit Tenant to surrender or terminate this
Lease (except as provided in Section 21.1(ii)) or relieve Tenant from liability
to pay in full the rents and other sums and charges payable by Tenant hereunder
(except as provided in Section 21.5), or from any of its obligations under this
Lease. Tenant hereby waives any rights now or hereafter conferred upon it by
statute or other law to surrender this Lease or to quit or surrender the
Property or any part thereof, or to receive any suspension, diminution,
abatement or reduction of the rent or other sums and charges payable by Tenant
hereunder on account of any such destruction or damage.
21.4 Limited Rental Abatement. Notwithstanding anything to the contrary
contained herein, in the event that the Improvements shall be damaged by peril
which is not covered by insurance required to be maintained hereunder (or which
is otherwise maintained) then, to the extent not covered by the rent abatement
insurance or business interruption insurance required to be carried by Tenant
pursuant to Subsection 20.1 (iv) (whether by self insuring or otherwise),
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unless such damage was caused by the wrongful act or neglect of Tenant, Tenant
shall be entitled to abate its obligations to pay Monthly Base Rent and, as
applicable, Common Area Expenses or Operating Expenses, for the period from the
date of such peril until the earlier of (i) the date upon which Tenant opens for
operation of its business, or (ii) the date which is nine months after the date
of such peril provided that such nine month period shall be reduced to the
extent that Tenant does not diligently seek to repair the damage caused as a
result of such peril. From and after the expiration of such rental abatement,
Tenant's obligation to pay Monthly Base Rent and, as applicable Common Area
Expenses or Operating Expenses shall once again commence.
21.5 Lender's Prior Rights to Insurance Proceeds. Notwithstanding anything
to the contrary herein, Tenant acknowledges that the rights of any lender
holding a mortgage or deed of trust against the Premises ("SECURED LENDER") to
any insurance proceeds applicable to the Improvements, except for Tenant's
Insurance Share, shall be superior to the rights of Landlord and Tenant to such
proceeds. "TENANT'S INSURANCE SHARE" is equal to Tenant's "pro rata share" (as
determined in accordance with Section 22.1) of the insurance proceeds payable
for the damaged Improvements. Landlord agrees to use commercially reasonable
efforts to cause the Secured Lender to make the insurance proceeds in which the
Secured Lender has a prior interest available to Tenant for reconstruction as
contemplated in this Lease. If, within 270 days following a casualty, a Secured
Lender has not made such proceeds available for reconstruction, then at Tenant's
election this Lease shall terminate as of said 270th day, unless Landlord gives
notice to Tenant on or before said 270th day that Landlord is willing to provide
the sums necessary for reconstruction in excess of any deductibles and Tenant's
Insurance Share, in which case this Lease shall not terminate and Landlord shall
deposit such sums with the Depository and Tenant shall reconstruct the Premises
in accordance with the provisions of this Article 21. The disbursement of any
insurance proceeds applicable to the Improvements shall be subject to the
control of the Secured Lender notwithstanding anything to the contrary in
Section 21.2.
22. Eminent Domain.
22.1 Permanent Taking. In case all of the Property (a "TOTAL TAKING"), or
such part thereof as shall substantially interfere with Tenant's use and
occupancy thereof to the extent Tenant cannot operate the Club (a "SUBSTANTIAL
TAKING"), shall be taken for any public or quasi-public purpose by any lawful
power or authority by exercise of the right of appropriation, condemnation or
eminent domain, or sold to prevent, or in lieu of, such taking, this Lease shall
automatically terminate effective as of the date possession is required to be
surrendered to said authority. In the event the amount of property or the type
of estate taken shall not substantially interfere with the conduct of Tenant's
business (a "PARTIAL TAKING"), Tenant shall restore the Property to
substantially its same condition prior to such Partial Taking and a fair and
equitable allowance shall be made to Tenant for the rent corresponding to the
time during which, and to the part of the Property of which, Tenant shall be so
deprived on account of such taking. Tenant shall not assert any claim against
Landlord for any compensation because of such taking. In the event of a Total
Taking, Substantial Taking or Partial Taking, any award shall belong to and be
paid to Landlord subject to the rights of any mortgagee of Landlord's interest
in the Premises or the
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beneficiary of any deed of trust which constitutes an encumbrance thereon,
except that Tenant shall be entitled to any portion of such award related to (i)
Trade Fixtures or Tenant's other equipment and/or personal property which is
taken, (ii) Tenant's moving expenses and loss of goodwill, (iii) Tenant's
"pro-rata share" of the straight-line (on a 20-year basis) unamortized costs of
the Improvements taken, and (iv) in the case of a Partial Taking only, the
amount required to restore the Property to substantially its same condition
prior to such Partial Taking which shall be held by the Depository for Landlord
and shall be disbursed to Tenant for the purposes of such restoration upon the
same terms and conditions as if they were insurance proceeds under Section 21
hereof. For the purposes of this Section 22.1, "PRO-RATA SHARE" shall be
determined by the proportion that the cost paid by Tenant for the taken
Improvements bears to the total of those costs paid therefor by Landlord and
Tenant: Nothing contained in this Section 22.1 shall be deemed to give Landlord
any interest in any award made to Tenant for the taking of Trade Fixtures or
Tenant's other personal property, fixtures and goodwill and for relocation
expenses. Landlord agrees not to interfere with Tenant's right to participate in
any condemnation proceedings. The provisions of this Section 22.1 shall survive
the termination of this Lease.
22.2 Temporary Taking. In the event of taking of the Property or any part
thereof for temporary use, (i) this Lease shall be and remain unaffected thereby
and rent shall not abate, and (ii) Tenant shall be entitled to receive for
itself such portion or portions of any award made for such use with respect to
the period of the taking which is within the Term, provided that if such taking
shall remain in force at the expiration or earlier termination of this Lease,
Tenant shall then pay to Landlord a sum equal to the reasonable cost of
performing Tenant's obligations under Article 15 with respect to surrender of
the Property and upon such payment shall be excused from such obligations. For
purpose of this Section 22.2 a temporary taking shall be defined as a taking for
a period of ninety days or less.
22.3 Waiver. Landlord and Tenant each hereby waive any statutory rights of
termination which may arise by reason of a taking.
23. Defaults and Remedies.
23.1 Defaults. The occurrence of any one or more of the following events
shall constitute a default hereunder by Tenant ("DEFAULT"):
(i) The vacation or abandonment of the Premises by Tenant or failure
to continuously operate the Club in accordance with Article 8 hereof where
Tenant has failed to cure such vacation, abandonment or failure to operate
within thirty days following notice from Landlord to Tenant of the need for such
cure (the parties agree, however, that cessation of operations of business from
the Premises from time to time for periods not exceeding forty-five days for the
purpose of making alterations, additions or improvements to the Property shall
not be considered vacation or abandonment of the Premises);
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(ii) The failure by Tenant to make any payment of Rent or any other
payment required to be made by Tenant hereunder (including the Work Letter),
where such failure shall continue for a period of ten business days following
notice from Landlord to Tenant that such payment is due; provided, however,
Tenant shall be entitled to such notice and opportunity to cure on only two
occasions during any 12-month period;
(iii) The failure by Tenant to observe or perform any of the
covenants or provisions of this Lease (including the Work Letter) to be observed
or performed by Tenant, other than as specified in Subsections 23.1(i) or (ii),
where such failure shall continue for a period of thirty (30) days after notice
thereof from Landlord to Tenant. If the nature of the Default is such that more
than thirty (30) days are reasonably required for its cure, then Tenant shall
not be deemed to be in Default if Tenant shall commence such cure within said
thirty-day period and thereafter diligently prosecutes such cure to completion,
which completion shall occur not later than 120 days from the date of such
notice from Landlord; or
(iv) (a) The making by Tenant of any general assignment for the
benefit of creditors; (b) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or a petition for reorganization or arrangement under
any law relating to bankruptcy unless, in the case of a petition filed against
Tenant, the same is dismissed within 120 days; (c) the appointment of a trustee
or receiver to take possession of substantially all of Tenant's assets located
at the Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within 120 days; or (d) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease where such seizure is not discharged
within 120 days.
Any notice provided for in this Section 23.1 shall be in addition
to, and not in lieu of, any statutorily-required notice regarding unlawful
detainer actions.
23.2 Remedies. In the event of any Default, in addition to any other
remedies available to Landlord at law or in equity, Landlord shall have the
immediate option to terminate this Lease and all rights of Tenant hereunder. In
the event that Landlord shall elect to so terminate this Lease then Landlord may
recover from Tenant:
(i) the worth at the time of award of any unpaid Rent which had been
earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid Monthly Base Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided.
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As used in Subsection 23.2(i) and (ii), the "worth at the time of
award" is computed by allowing interest at the rate of 12% per annum. As used in
Subsection 23.2(iii), the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus 1%. Notwithstanding anything to the contrary
contained in this Lease, neither Landlord nor Tenant shall be liable for
consequential or punitive damages which may be suffered by the other as a result
of a default by Landlord or default by Tenant under this Lease.
23.3 Re-entry. In the event of any Default, Landlord shall also have the
right, without terminating this Lease, to re-enter the Premises and remove all
persons and property from the Premises; such property may be removed and stored
in a public warehouse or elsewhere at the cost of and for the account of Tenant.
No re-entry or taking possession of the Premises by Landlord pursuant to this
Section 23.3 shall be construed as an election to terminate this Lease unless a
notice of such intention is given to Tenant or unless the termination thereof is
decreed by a court of competent jurisdiction.
23.4 Cumulative Rights. Except as otherwise expressly provided in this
Lease, all rights, options and remedies of Landlord contained in this Lease
shall be construed and held to be cumulative, and no one of them shall be
exclusive of the others, and Landlord shall have the right to pursue any one or
all of such remedies or any other remedy or relief which may be provided by law,
whether or not stated in this Lease. No waiver of any Default shall be implied
from any acceptance by Landlord of any rent or other payments due hereunder or
any omission by Landlord to take any action on account of such Default if such
Default persists or is repeated, and no express waiver shall affect Defaults
other than as specified in said waiver.
24. Assignment and Subletting.
24.1 Landlord's Consent. Tenant shall not, either voluntarily or by
operation of law, assign, sublet, pledge, encumber hypothecate or transfer this
Lease, without the prior consent of Landlord, which consent may be granted or
withheld in Landlord's sole and absolute discretion. Without limiting the
foregoing, it shall be a condition to Landlord's consent hereunder that the
assignee execute, acknowledge and deliver to Landlord an agreement whereby such
assignee agrees to be bound by all of the covenants and agreements in this Lease
which Tenant has agreed to keep, observe or perform.
24.2 Notice. Subject to the provisions of Article 46, in the event Tenant
desires to assign, sublet, hypothecate or otherwise transfer this Lease (other
than to Tenant's Lender in which case Article 46 shall apply) then at least
thirty days prior to the date when Tenant desires the transaction to be
effective (the "ASSIGNMENT DATE"), Tenant shall give Landlord a notice (the
"ASSIGNMENT NOTICE"), which shall set forth the name, address and business of
the proposed assignee or sublessee, information (including references)
concerning the character, ownership, and financial condition of the proposed
assignee or sublessee, the Assignment Date, and any ownership or commercial
relationship between Tenant and the proposed assignee or sublessee. If
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Landlord requests additional detail within ten days after Tenant's initial
submission, the Assignment Notice shall not be deemed to have been received
until Landlord receives such additional detail, and without otherwise limiting
the provisions of Section 24.1 above, Landlord may withhold consent to any
assignment or sublease until such information is provided to it.
24.3 Ownership Transfers. Any dissolution, merger, consolidation, or other
reorganization of the corporation which constitutes Tenant, or the sale or other
transfer of more than 50% of the corporate stock of the corporation, or the sale
of more than 50% of the value of the assets of the corporation, shall be deemed
an assignment prohibited by this Article 24 unless (i) Landlord's consent is
obtained, or (ii) the net worth of Tenant's parent corporation or the
reorganized tenant entity, as applicable, shall not be less than the net worth
of Tenant's parent corporation as of the date hereof and if the net worth of the
reorganized tenant entity shall be less than the net worth of Tenant's parent
corporation as of the date hereof, the parent corporation directly or indirectly
retains control of the reorganized tenant entity and continues to guaranty the
obligations of Tenant hereunder and in either event subject to the express
condition that the Premises shall (to Landlord's reasonable satisfaction) be
operated in a manner consistent with the standards applicable with Sports/Club
New York as of the date hereof. The term "CONTROL" as used in this Section 24.3
shall mean the direction of the management and policies of a person or entity,
whether through the ownership of voting securities, by contract or by law.
24.4 No Release. Any sale, assignment, subletting, hypothecation or
transfer of this Lease that is not in compliance with the provisions of this
Article 24 shall, at Landlord's option, be void. The consent by Landlord to any
assignment or sublease shall not be construed as relieving Tenant or any
assignee of this Lease from any liability or obligation hereunder whether or not
then accrued. This Article 24 shall be fully applicable to all further sales,
hypothecations, transfers and assignments of any portion of the Premises by any
successor or assignee of Tenant.
25. Subordination. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee with a lien on the Premises or any ground
lessor with respect to the Premises, this Lease shall be subject and subordinate
at all times to: (i) all ground leases or underlying leases which may now exist
or hereafter be executed affecting the Premises, (ii) the lien of any mortgage
or deed of trust which may now exist or hereafter be executed in any amount for
which the Premises is specified as security, and (iii) the Condominium Documents
(as same may now or hereafter exist) and (iv) any CC&Rs (as may now or hereafter
exist) that do not materially increase Tenant's obligations hereunder nor
materially decrease Tenant's rights hereunder. Notwithstanding the foregoing,
Landlord shall have the right to subordinate or cause to be subordinated any
such ground leases or underlying leases or any such liens to this Lease. In the
event that any ground lease or underlying lease terminates for any reason or any
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, Tenant shall, notwithstanding any subordination, attorn
to and become the tenant of the successor in interest to Landlord. Tenant
covenants and agrees to execute and deliver within fifteen business days after
demand by Landlord and in the form requested by Landlord, any additional
documents evidencing the subordination of this Lease with respect to any such
ground leases or underlying leases, the
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lien of any such mortgage or deed of trust, the Condominium Documents or the
CC&Rs, and, effective upon a failure to do so, Tenant hereby irrevocably
appoints Landlord as attorney-in-fact of Tenant to execute, deliver and record
any such document in the name and on behalf of Tenant. In consideration of, and
as a condition precedent to, Tenant's agreement to be bound by the subordination
provisions of this Article 25, Landlord shall provide to Tenant for Tenant's
execution, a commercially reasonable subordination, attornment and
nondisturbance agreement ("NON-DISTURBANCE AGREEMENT"), in recordable form, that
in any event shall not provide for any material increase in Tenant's obligations
nor any material decrease in Tenant's rights under this Lease and shall be
executed by all future ground lessors, mortgageholders and deed of trust
beneficiaries of any of Landlord's interest in the Premises desiring to
subordinate this Lease to the ground lease, mortgage or deed of trust, as
applicable. In the event Landlord fails to obtain any Non-Disturbance Agreement,
then, as to the mortgage, deed of trust or ground lease which would have been
the subject thereof, this Article 25 shall be void and of no force or effect.
26. Estoppel Certificate.
26.1 Delivery. Within fifteen business days following any request which
Landlord or Tenant may make from time to time, the other party shall execute and
deliver to the requesting party a statement certifying: (i) the Commencement
Date; (ii) the fact that this Lease is unmodified and in full force and effect
(or, if there has been modification hereto, that this Lease is in full force and
effect, and stating the date and nature of such modification); (iii) the date to
which the rental and other sums payable under this Lease have been paid; (iv)
that to the best of the certifying party's knowledge there is no current default
under this Lease by either Landlord or Tenant except as specified in the
statement; and (v) such other matters reasonably requested by the requesting
party. Landlord and Tenant intend that any statement delivered pursuant to this
Section 26.1 may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Premises, the Club or any interest in either, and
said statement shall so state.
26.2 Failure to Deliver. Landlord's or Tenant's failure to deliver any
statement required pursuant to Section 26.1 within such time shall be conclusive
upon such failing party (i) that this Lease is in full force and effect, without
modification except as may be reasonably represented in good faith by Landlord
or Tenant, (ii) that there is no uncured default in Landlord's or Tenant's
performance, and (iii) that not more than one month's rental has been paid in
advance.
26.3 Financial Statements. Within 10 days after Landlord's written
request, Tenant shall furnish to Landlord (i) no more often than once per
calendar-quarter, the most current existing audited financial statements of
Tenant (which shall, at a minimum, include a balance sheet and income
statement), and (ii) if at any time Tenant is not a publicly-traded entity or an
affiliate thereof which files consolidated financial statements, such other
information relating to Tenant's financial condition as may be reasonably
required by Landlord.
27. Construction. This Lease is to be governed by and construed in
accordance with the internal laws of the State of California. Whenever the
context so requires herein, the neuter gender shall include the masculine and
feminine, and the singular number shall include the plural,
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and vice versa. This Agreement shall be construed as having been drafted by both
parties, jointly, and not in favor of or against one party or the other. When
used herein, the terms "including," "include," "including without limitation,"
and similar terms shall be construed as prefacing examples, components or
illustrations rather than exhaustive definitions, unless a contrary intent is
specifically stated, such as "including and expressly limited to," or in
similarly unambiguous terms.
28. Successors and Assigns. Except as otherwise provided in this Lease,
all of the covenants, conditions and provisions of this Lease shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
29. Surrender of Premises. The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation hereof, shall not work a merger, and shall,
at the option of Landlord, operate as an assignment to it of any or all
subleases or subtenancies. Upon the expiration or earlier termination of this
Lease, Tenant shall surrender the Premises and, subject to the provisions of
Article 14, all alterations and additions thereto, in good order, repair and
condition, reasonable wear and tear excepted.
30. Attorneys' Fees. If Landlord should bring suit for possession of the
Premises, or if Landlord or Tenant should bring suit for the recovery of any sum
due under this Lease or because of the breach of any provisions of this Lease,
or for any other relief against the other hereunder, or in the event of any
other litigation between the parties with respect to this Lease, including any
action for declaratory relief filed by Landlord or Tenant, then the prevailing
party shall be entitled to an award of all costs and expenses, including
reasonable attorneys' fees, in addition to all other relief awarded.
31. Performance by Landlord. If Tenant shall fail to pay any sum of money
owed hereunder, or if Tenant shall fail to perform any other act on its part to
be performed hereunder, and (except in the event of an emergency) such failure
shall continue beyond the cure periods set forth in Section 23.1, Landlord may,
without waiving or releasing Tenant from the obligations of Tenant, but shall
not be obligated to, make any such payment or perform any such other act to be
made or performed by Tenant. All sums so paid by Landlord and all necessary
incidental costs together with interest thereon at the rate of 12% per annum,
from the date of such payment by Landlord, shall be payable to Landlord upon
demand as additional rent.
32. Late Charge and Interest. Tenant acknowledges that the late payment by
Tenant to Landlord of any sums due under this Lease will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impractical to fix. Such costs include processing and
accounting charges, and late charges that may be imposed on Landlord by the
terms of any encumbrance or note secured by any encumbrance covering the
Premises. Therefore, if any installment of Monthly Base Rent or any other sum of
money due hereunder is not timely paid by Tenant and such failure continues for
ten days after notice thereof from Landlord, Tenant shall pay to Landlord, as
additional rent, the sum of 4% of the overdue amount as a late charge; provided,
however, Tenant shall be entitled to such 10-day notice and opportunity to cure
on only two occasions during any 12-month period. To the extent permitted
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by applicable law, such overdue amount shall also bear interest commencing upon
the due date, as additional rent, at the lesser of the maximum rate than
permitted by law and 12% per annum. Landlord's acceptance of any late charge or
interest shall not constitute a waiver of Tenant's default with respect to the
overdue amount or prevent Landlord from exercising any of the other rights and
remedies available to Landlord under this Lease or any law now or hereafter in
effect. Notwithstanding anything to the contrary contained herein, in no event
shall Tenant be required to pay any amounts that would be characterized as
interest under applicable law in excess of the amounts that could be lawfully
charged, collected and received by Landlord under applicable law. Landlord and
Tenant intend to comply with all usury laws with respect to this Lease.
33. Mortgagee Protection. In the event of any default on the part of
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgage given by Landlord covering the
Premises whose address shall have been furnished to Tenant, and shall offer such
beneficiary or mortgagee the same opportunity to cure Landlord's default as
provided to Landlord under Article 49 plus an additional period of 60 days. In
addition, in those instances which reasonably require such beneficiary or
mortgagee to be in possession of, or have title to, the Development (or any
portion thereof) to cure any such default, the time herein allowed to such
beneficiary or mortgagee to cure such default shall be deemed extended to
include the period of time reasonably necessary to obtain such possession or
title with due diligence, and in those instances in which such beneficiary or
mortgagee is prohibited by any process or injunction issued by any court or by
reason of any action by any court having jurisdiction of any bankruptcy or
insolvency proceeding involving Landlord from commencing or prosecuting
foreclosure or other appropriate proceedings in the nature thereof, the time
herein allowed such beneficiary or mortgagee to prosecute such foreclosure or
other proceeding shall be extended for the period of such prohibition.
34. Definition of Landlord. The term "Landlord", as used in this Lease, so
far as covenants or obligations on the part of Landlord are concerned, shall be
limited to mean and include only the owner or owners, at the time in question,
of Landlord's interest under this Lease. In the event of any transfer,
assignment or other conveyance or transfer of such title, Landlord herein named
(and in case of any subsequent transfer or conveyance, the then grantor) shall
(in absence of a writing hereafter described) be automatically freed and
relieved from and after the date of such transfer, assignment or conveyance of
all liability as respects the performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter to be performed, and in
absence of any writing to the contrary, the transferee shall be to have assumed
same. Landlord may transfer its interest in the Premises or this Lease without
the consent of Tenant and such transfer or subsequent transfer shall not be
deemed a violation on Landlord's part of any of the terms or conditions of this
Lease.
35. Waiver. A waiver of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any subsequent breach of
the same or any other term, covenant or condition herein contained, nor shall
any custom or practice which may grow up between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of Landlord or Tenant to insist upon the performance by Tenant or
Landlord,
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respectively, in strict accordance with said terms. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent. No acceptance by Landlord of a lesser sum than the Monthly Base Rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such installment
or other amount or pursue any other remedy provided in this Lease.
36. Parking. Landlord shall make up to one hundred and fifty (150)
parking spaces available on a non-exclusive basis, for daily use between 6:00
a.m. (or such earlier time that the parking garage shall open) and 6:00 p.m., by
Tenant and Tenant's members. Landlord shall charge Tenant an amount equal to
seventy-five (75%) percent of the then market rate for such parking spaces in
the vicinity of the Building (as reasonably determined by Landlord).
37. CC&Rs. Tenant shall faithfully observe and comply with the Condominium
Documents, and all reasonable and nondiscriminatory rules and regulations
Landlord shall adopt for the Development (as the same may be changed from time
to time) and the CC&Rs. Landlord shall not be responsible to Tenant for the
violation or nonperformance by any other tenant or occupant of the Development
of the Condominium Documents (if applicable) any of said rules, regulations or
CC&Rs. Landlord agrees that future amendments to the CC&Rs and any such rules
and regulations shall not materially interfere with or interrupt Tenant's
ability to operate a first-class Club in accordance with the terms and
provisions of this Lease and shall not materially increase Tenant's obligations
hereunder nor materially decrease Tenant's rights hereunder, nor be enforced as
to Tenant discriminatorily.
38. Headings. The Article and Section headings of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
39. Examination of Lease. Submission of this instrument for examination or
signature by Landlord or Tenant does not constitute a reservation of or option
for lease, and it is not effective as a lease or otherwise until execution by
and delivery to both Landlord and Tenant.
40. Intentionally Omitted.
41. Prior Agreement; Amendments. This Lease, together with the addenda and
exhibits attached hereto, contains all of the agreements of the parties hereto
with respect to any matter covered or mentioned in this Lease, and no prior
agreement or understanding pertaining to any such matter shall be effective for
any purpose. No provision of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective successors
in interest (subject to the consent requirement in Article 24). The parties
acknowledge
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that all prior agreements, representations and negotiations are deemed
superseded by this Lease to the extent they are not incorporated herein.
42. Severability. Any provision of this Lease which shall prove to be
invalid, void or illegal in no way affects, impairs or invalidates any other
provision hereof, and such other provisions shall remain in full force and
effect.
43. Limitation on Liability. It is expressly understood and agreed that
any money judgment against Landlord resulting from any default or other claim
arising under this Lease shall be satisfied only out of Landlord's interest in
(i) the Premises, if the Premises shall then be subject to a condominium form of
ownership or (ii) the Development if the Premises shall not then be subject to
Condominium Ownership. No other real, personal or mixed property of Landlord,
wherever situated, shall be subject to levy on any such judgment obtained
against Landlord. If Landlord's interest in the Premises or Development, as
applicable, is insufficient for the payment of such judgment, Tenant shall not
institute any further action, suit, claim or demand, in law or in equity,
against Landlord for or on the account of such deficiency. Tenant hereby waives,
to the fullest extent waivable under law, any right to satisfy said money
judgment against Landlord except from Landlord's interest in the Development or
Premises, as applicable, and except as otherwise provided above.
44. Riders. Clauses, plats, exhibits, addenda and riders, if any, affixed
to this Lease are a part hereof.
45. Modification for Lender. If, in connection with obtaining
construction, interim or permanent financing for the Premises or consent of
Landlord's existing lenders to the terms of the transactions contemplated
pursuant to this Lease, a lender shall request reasonable modifications in this
Lease as a condition to such financing or the granting of its consent, Tenant
will not unreasonably withhold, delay or defer its consent thereto, provided
that such modifications do not materially increase the obligations of Tenant
hereunder, materially decrease Tenant's rights hereunder or materially adversely
affect the leasehold interest hereby created; provided, further, however, that
Tenant shall have no obligation to agree to any such modifications unless such
modifications are approved by Tenant's Lender. If, in connection with obtaining
financing for the Improvements, Tenant's Lender (as defined in Article 46) shall
request reasonable modifications to this Lease, Landlord agrees to make
reasonable nonmaterial modifications to this Lease and further agrees not to
unreasonably withhold, delay or defer its consent thereto provided such
modifications do not decrease the monetary obligations of Tenant hereunder or
materially affect Landlord's rights hereunder; provided, however, that Landlord
shall have no obligation to agree to any such modifications unless such
modifications are approved by Landlord's mortgagee.
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46. Security Agreements/Leasehold Mortgages .
A. Tenant covenants and agrees that Tenant shall not encumber or place or
permit to be placed any mortgages or other encumbrances on the leasehold
interest granted hereunder and that no security agreement, whether by way of
conditional bill of sale, chattel mortgage or instrument of similar import,
shall be placed upon any improvement made by Tenant which is affixed to the
realty.
B. In the event that any of the machinery, fixtures, furniture and
equipment installed by Tenant in the Premises are purchased or acquired by
Tenant subject to a chattel mortgage, conditional sale agreement or other title
retention or security agreement, Tenant undertakes and agrees that no such
chattel mortgage, conditional sale agreement or other title retention or
security agreement or Uniform Commercial Code ("UCC") filing statement shall be
permitted to be filed as a lien against the Building and real property of which
the Premises form a part and to cause to be inserted in any of the above
described title retention, chattel mortgage or security agreements the following
provision:
"Notwithstanding anything to the contrary herein, this chattel mortgage,
conditional sale agreement, title retention agreement or security
agreement shall not create or be filed as a lien against the land,
building and improvements comprising the real property in which the goods,
machinery, equipment, appliances or other personal property covered hereby
are to be located or installed."
C. In addition to any other rights that Landlord may have by reason of
Tenant's failure to comply herewith, if any such leasehold mortgage or other
encumbrance, lien or UCC filing statement, based on an agreement as above
described, is filed as an encumbrance, as applicable, against the Building or
improvements of which the Premises form a part, the Premises and/or any interest
thereon, Tenant shall, within thirty (30) days following written notice thereof
from Landlord, cause such leasehold mortgage or other encumbrance, lien or
notice to be removed or discharged at Tenant's own cost and expense, and
Tenant's failure to do so shall constitute a breach of a material provision of
this Lease.
47. Authorizations. Each individual executing this Lease on behalf of
Landlord or Tenant represents and warrants that he or she is duly authorized to
execute and deliver this Lease on behalf of Landlord or Tenant, respectively, in
accordance with the provisions of duly adopted corporate resolutions, and that
this Lease has been duly and properly executed and delivered by Landlord or
Tenant, respectively.
48. Signage. Tenant agrees that any and all exterior building signs on the
Premises shall be subject to the approval of Landlord (and if applicable the
Condominium Association) with respect to the graphics, materials, color, design,
lettering, language, lighting, specifications and exact location ("SIGNAGE
APPROVAL FACTORS"), and that Tenant shall be entitled to the legal maximum of
such exterior building signs. All signage shall be of a size not in excess of
that permitted by applicable law and shall otherwise comply with applicable
laws, regulations, permits,
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approvals, ordinances, the Condominium Documents and CC&Rs; provided, however,
that no change in the CC&Rs shall require Tenant to modify its original (or, if
theretofore modified, its then-existing) exterior signs. At the expiration or
sooner termination of this Lease, Tenant shall, at Tenant's sole cost and
expense, cause all such signage to be removed from the exterior of the
Improvements and shall cause the exterior of the Improvements to be restored to
the condition existing prior to the placement of such signage. If Tenant fails
to remove such signs and restore the exterior of the Improvements by the
expiration or sooner termination of this Lease, then Landlord may perform such
work, and all costs and expenses incurred by Landlord in so performing shall be
reimbursed by Tenant to Landlord within ten days after Tenant's receipt of an
invoice therefor. In addition to the foregoing, at all times Tenant shall be
entitled to erect and maintain, as needed in Tenant's judgment but subject to
Landlord's approval, throughout the Development, appropriate directional signage
with respect to Tenant's parking.
49. Default by Landlord. Landlord shall not be in default hereunder unless
Landlord fails to perform the obligations required of Landlord within a
reasonable time, but in no event later than thirty days after notice by Tenant
to Landlord and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address have been furnished in writing to Tenant
("NOTICED LENDER"), specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such thirty day
period and thereafter diligently prosecutes the same to completion. In addition,
the Noticed Lender shall be entitled to such additional period of time to cure
any such default as is set forth in Section 33 hereof. Notwithstanding anything
in this Lease to the contrary, if (i) access to the Premises is unavailable as a
result of any blockage occurring in the Common Areas that is caused by Landlord
or its agents, Tenant shall have the right to give Landlord and any Noticed
Lender notice of such events ("ABATEMENT NOTICE"). If the blockage in the Common
Areas which denies access to the Premises has not been repaired within the "Cure
Period" Tenant's obligations to pay Monthly Base Rent and Common Area Expenses
(or if applicable, Operating Expenses) shall be abated for the period after the
Abatement Notice until the cure of the condition giving rise to such notice for
the entire amount of Monthly Base Rent and Common Area Expenses (or if
applicable, Operating Expenses) if the condition giving rise to such abatement
right is a denial of access to the Premises due to a blockage of the Common
Areas. In the event that for a period of ninety consecutive days following the
Abatement Notice, the condition giving rise to such notice has not been cured,
Tenant shall have the right to deliver an additional notice ("TERMINATION
NOTICE") to Landlord and the Noticed Lender specifying that such item has not
been cured within such period and if such condition is not then cured within
thirty business days after the Termination Notice, Tenant may terminate this
Lease by giving notice thereof to Landlord and the Noticed Lender prior to the
date upon which such condition is cured. The foregoing rights and remedies are
in addition to all other rights and remedies available to Tenant at law or in
equity. Except as provided in this Section 49, Tenant shall not have the right
to terminate this Lease as a result of Landlord's default hereunder. Landlord's
liability hereunder in the event of a default shall be limited as set forth in
Section 43. Notwithstanding anything to the contrary contained herein, if the
blockage occurring in the Common Areas is the
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result of a fire or other casualty or a taking in eminent domain, then this
Section 49 shall be inapplicable and Sections 21 and 22 shall govern the rights
of the parties.
50. Reasonable Consents. Except for any matter which has a material impact
on the exterior appearance of the Improvements or except as otherwise provided
herein, any time the consent, approval, determination, designation, or other
discretionary judgment is required of Landlord or Tenant under this Lease, such
consent, approval, determination, designation, or other discretionary judgment
shall not be unreasonably delayed, withheld, conditioned, exercised or decided,
notwithstanding the presence in some instances of words to that effect and their
absence in other instances.
51. No recording. It is expressly agreed that Tenant may not and shall not
record this Lease or any memorandum hereof.
52. Force Majeure. The occurrence of any of the following events shall be
referred to herein as "FORCE MAJEURE" and shall excuse such obligations of
Landlord or Tenant as are thereby rendered impossible or reasonably
impracticable for so long as such event continues: strikes; lockouts; labor
disputes; acts of God; inability to obtain labor, materials or reasonable
substitutes therefor; governmental restrictions, regulations or controls;
judicial orders; enemy or hostile governmental action; civil commotion; fire or
other casualty; and other causes beyond the reasonable control of the party
obligated to perform (excluding financial inability). Notwithstanding the
foregoing, the occurrence of such events shall not excuse Tenant's obligations
to pay Monthly Base Rent, Common Area Expenses or any other sums hereunder (but
may delay the commencement of such obligations to the limited extent expressly
provided for in Section 2.1 above) or excuse such obligations as this Lease may
otherwise impose on the party to obey, remedy or avoid such event.
53. Guaranty. Currently with the execution hereof by Tenant and as a
condition to the effectiveness of this Lease, Tenant shall cause The Sports Club
Company to execute and deliver to Landlord a guaranty of this Lease in the form
and substance set forth in Exhibit E attached hereto which is acceptable to
Landlord.
54. Condition Precedent. Landlord and Tenant shall each have the right to
terminate this Lease on thirty (30) days' written notice to the other party
(without penalty) if Landlord shall not have closed upon additional financing
for the construction of the Improvements and other portions of the Development
(all such approvals and terms to be acceptable to Landlord in its sole and
absolute discretion) not later than December 31, 1998 ("Deadline Date"). In the
event that Tenant shall serve a termination notice pursuant to this Article 54
and Landlord shall secure the necessary financing within the aforesaid thirty
(30) day period or Landlord shall fund the Improvements and construction without
the required financing (it being expressly agreed that Landlord shall have no
obligation whatsoever to do so), then Tenant's termination notice shall be of no
force and effect. In the event Landlord or Tenant shall terminate this Lease, as
aforesaid, neither party shall have any further rights or obligations hereunder.
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IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
LANDLORD: MILLENNIUM PARNTERS LLC
By: Millennium Partners Management
LLC
By: /s/ Brian J. Collins
----------------------------------
Its: Vice President
TENANT: S.F. SPORTS CLUB, INC.
a Delaware corporation
By: /s/ John M. Gibbons
----------------------------------
Its: President
-----------------------------
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EXHIBIT A
LEGAL DESCRIPTION
<PAGE> 50
EXHIBIT B
SITE PLAN
<PAGE> 51
EXHIBIT C
WORK LETTER
<PAGE> 52
EXHIBIT D
INTENTIONALLY OMITTED
<PAGE> 53
EXHIBIT E
GUARANTY OF LEASE
1. The undersigned (hereinafter called "Guarantor"), as a material
inducement to and in consideration of MILLENNIUM PARTNERS LLC, ("LANDLORD"),
entering into a written lease (the "LEASE") with S.F. SPORTS CLUB, INC., a
Delaware corporation ("TENANT"), guarantees to Landlord, and its successors, the
full and timely performance by Tenant and its successors of each and all of the
provisions (as defined below) of the Lease and any and all modifications or
extensions thereof, including without limitation the payment of all Rent (as
defined in the Lease) and all other indebtedness (as defined below) accruing
under the Lease. The word "indebtedness" is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations and
liabilities of Tenant heretofore, now or hereafter made, incurred or created,
whether voluntary or involuntary, and however arising, whether or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined.
The word "provision" is used herein in its most comprehensive sense and includes
any and all terms, agreements, covenants, conditions, clauses, qualifications,
restrictions, reservations, or any other stipulations in the Lease that define
or otherwise control, establish or limit the performance required or permitted
under the Lease.
2. Guarantor agrees that the liability under this Guaranty of Lease shall
be primary and that in any right or action which may accrue to Landlord, or its
successors (as defined below) under the Lease or this Guaranty of Lease,
Landlord or its successors, at their option, may bring a separate action against
Guarantor whether action is brought or prosecuted against any other Guarantor or
Tenant, or all, or whether any other guarantor or Guarantor or Tenant, or all,
are joined in the action. The guaranty hereunder shall continue regardless of
whether recovery upon such indebtedness may be or hereafter become barred by any
statute of limitations, the benefit of which as to liability under this Guaranty
of Lease is expressly waived by Guarantor, provided that Landlord has, within
the applicable statute of limitations period filed an action against Tenant with
respect to such specific indebtedness. No delay or omission in the exercise of
any right or remedy of Landlord upon any default under the Lease by Tenant, or
upon any indebtedness hereunder shall impair such a right or remedy or shall be
construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent
shall not constitute a waiver of any default; it shall constitute only a waiver
of timely payment for the particular Rent payment involved. Any waiver by
Landlord of any default must be express and in writing and shall not be a waiver
of any other default concerning the same or any other provision of the Lease.
3. This Guaranty of Lease shall guaranty the performance by Tenant and its
successors, of the Lease as changed. Assignment of the Lease or subletting of
the premises (whether or not in compliance with the Lease) shall not affect this
Guaranty of Lease.
4. If Tenant or any successor of Tenant shall default under the Lease in
the payment of Rent, or other indebtedness, or in the performance of any of the
provisions of the Lease, and if such default shall not have been cured within
the time specified in the Lease for curing said
<PAGE> 54
default, Guarantor shall, without relieving Tenant of any additional liability
under the Lease, within fifteen days after written demand by Landlord to
Guarantor, pay such Rent or other indebtedness, and pay the costs and expenses,
including reasonable attorneys' fees, which may have been incurred by Landlord
as a result of any such default or in the enforcement of Tenant's obligations
under any provision of the Lease. In the alternative, in the event of any such
default as above described, Landlord may, following fifteen days' prior written
notice to Guarantor, proceed against Guarantor or Tenant, or Landlord can
enforce against Guarantor or Tenant, or any or all of them, any rights that it
has under the Lease, or pursuant to applicable law. The word "law" is used
herein in its most comprehensive sense and includes any judicial decision,
statute, constitution, ordinance, resolution, regulation, rule, administrative
order, or other requirement of any municipal, county, state, federal, or other
governmental agency or authority having jurisdiction over Landlord, Tenant,
Guarantor, and/or the Premises, or any or all of them, in effect at the time of
execution of the Lease or at any time during the Term, including, without
limitation, any regulation or order of a quasi-official entity or body. If the
Lease terminates and Landlord has any rights it can enforce against Tenant after
termination, Landlord can enforce those rights against Guarantor without giving
previous notice to Guarantor, or without making any demand. Guarantor waives the
right to require Landlord to (a) proceed against Tenant; (b) proceed against or
exhaust any security that Landlord holds from Tenant; or (c) pursue any other
remedy in Landlord's power. Guarantor waives any defense by reason of any
disability of Tenant. Until all of Tenant's obligations to Landlord have been
discharged in full, Guarantor shall have no right of subrogation against Tenant.
Except as otherwise specifically provided in this Guaranty of Lease, Guarantor
waives any right to assert or claim that it has been exonerated by any action
taken by Landlord which impairs any of Guarantor's rights to be subrogated to
Landlord's right against Tenant. Guarantor waives the right to enforce any
remedies that Landlord now has, or later may have, against Tenant until such
time as all indebtedness of Tenant (relative to Landlord) has been satisfied.
Except as otherwise specifically provided in this Guaranty of Lease, Guarantor
waives all presentments, demands for performance, notices of nonperformance,
protests, notices of protest, notices of dishonor, and notices of acceptance of
this Guaranty of Lease, and waives all notices of the existence, creation, or
incurrence of new or additional obligations under the Lease. Except to the
extent such rights of Guarantor or obligations of Landlord are otherwise
addressed in this Guaranty of Lease, Guarantor expressly waives all statutory
suretyship defenses. Any notice to Guarantor shall comply with the provisions of
Paragraph 9 of the Lease and shall be sent to 11100 Santa Monica Boulevard,
Suite 300, Los Angeles, California 90025, or to any other address of which
Landlord has been notified in writing from Guarantor.
5. Guarantor authorizes Landlord, without notice or demand and without
affecting the Guarantor's liability hereunder, to renew, extend, modify, or
otherwise change the provisions of the Lease, at any time and from time to time.
This Guaranty of Lease shall not be affected by any such renewal, extension, or
modification, or by any indulgences or forbearance given by Landlord, and notice
of any such act is waived by Guarantor. Landlord may, without notice, assign
this Guaranty of Lease in whole or in part, but only together with an assignment
of the Lease. Notwithstanding the above, Landlord may, but shall not be required
to, request Guarantor to reaffirm promptly in writing its obligations under this
Guaranty of Lease.
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6. If Landlord disposes of, sells, transfers, assigns, hypothecates, or
otherwise conveys its interest in the Lease, or any part thereof, "Landlord" as
used in this Guaranty of Lease, shall mean Landlord's successor. In the event of
any assignment or subletting (as permitted under the Lease) of Tenant's interest
therein, "Tenant" as used in this Guaranty of Lease shall mean Tenant's
successor. The word "successor" is used herein in its most comprehensive sense
and includes any assignee, sublessee, transferee, personal representative, heir
or other person or entity succeeding lawfully, and pursuant to the provisions of
the Lease, to the rights or obligations of either party.
7. If Landlord is required to enforce any of the Guarantor's obligations,
the nonprevailing party, or any of them, shall pay to the other all costs
incurred, including, without limitation, reasonable attorneys' fees, which
obligation by such party to pay such costs shall begin to accrue upon retention
by the prevailing party of attorneys, and shall be enforceable and payable
regardless of whether suit is brought by said attorneys or prosecuted to
judgment.
8. The provisions of this Guaranty of Lease shall be governed by and
construed in accordance with the laws of the State of California and its terms
and provisions may not be waived, altered, modified or amended except in writing
duly signed by the parties hereto. If any provision of this Guaranty of Lease
shall for any reason be determined by a court of competent jurisdiction to be
unenforceable by Landlord in any respect, such unenforceability shall not affect
any other provision hereof, and this Guaranty of Lease shall be construed as if
such unenforceable provision had not been contained herein. This Guaranty of
Lease has been drafted jointly by Landlord and Guarantor, and consequently,
shall be construed neutrally.
9. Guarantor's obligations under this Guaranty of Lease shall be binding
upon Guarantor's successors and shall inure to the benefit of and shall be
enforceable by Landlord, its successors and assigns.
10. Terms capitalized, but not otherwise defined herein, shall have the
same meaning ascribed to them in the Lease.
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11. Notwithstanding any provision hereof or of any other document to the
contrary, Guarantor's obligations pursuant to this Guaranty of Lease relate only
to those obligations of Tenant accruing under the Lease prior to the fifteenth
(15th) anniversary of the Commencement Date, and, if Tenant is not in default
under the Lease on said fifteenth (15th) anniversary thereupon all obligations
of Guarantor pursuant to, and this Guaranty of Lease, shall terminate and be of
no further force or effect.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty of Lease as of ______,
1997.
THE SPORTS CLUB COMPANY, INC.
a Delaware corporation
By: /s/ John M. Gibbons
------------------------------------
<PAGE> 1
EXHIBIT 10.77
ATHLETIC CLUB LEASE
LANDLORD: MILLENNIUM PARTNERS LLC
TENANT: WASHINGTON D.C. SPORTS CLUB, INC.
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<PAGE> 2
ATHLETIC CLUB LEASE
WASHINGTON, D.C.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Premises and Common Areas.......................................................... 1
2. Term............................................................................... 3
3. Options to Extend.................................................................. 5
4. Membership......................................................................... 5
5. Rent............................................................................... 5
6. Club Name.......................................................................... 7
7. Common Area Charges/Operating Expenses............................................. 7
8. Use................................................................................ 13
9. Notices............................................................................ 15
10. Brokers............................................................................ 16
11. Holding Over....................................................................... 17
12. Taxes.............................................................................. 17
13. Condition of Premises.............................................................. 19
14. Alterations........................................................................ 20
15. Repairs............................................................................ 21
16. Liens.............................................................................. 22
17. Entry by Landlord.................................................................. 22
18. Utilities and Services............................................................. 23
19. Indemnification.................................................................... 24
20. Insurance.......................................................................... 25
21. Damage or Destruction.............................................................. 28
22. Eminent Domain..................................................................... 31
23. Defaults and Remedies.............................................................. 32
24. Assignment and Subletting.......................................................... 34
25. Subordination...................................................................... 35
26. Estoppel Certificate............................................................... 36
27. Construction....................................................................... 36
28. Successors and Assigns............................................................. 37
29. Surrender of Premises.............................................................. 37
30. Attorneys' Fees.................................................................... 37
31. Performance by Landlord............................................................ 37
32. Late Charge and Interest........................................................... 37
33. Mortgagee Protection............................................................... 38
34. Definition of Landlord............................................................. 38
35. Waiver............................................................................. 38
36. Parking............................................................................ 39
37. CC&Rs.............................................................................. 39
38. Headings........................................................................... 39
</TABLE>
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<TABLE>
<S> <C> <C>
39. Examination of Lease............................................................... 39
40. Time............................................................................... 39
41. Prior Agreement: Amendments........................................................ 39
42. Severability....................................................................... 40
43. Limitation on Liability............................................................ 40
44. Riders............................................................................. 40
45. Modification for Lender............................................................ 40
46. Security Agreements/Leasehold Mortgages............................................ 41
47. Authorizations..................................................................... 41
48. Signage............................................................................ 41
49. Default by Landlord................................................................ 42
50. Reasonable Consents................................................................ 43
51. No recording....................................................................... 43
52. Force Majeure...................................................................... 43
53. Guaranty........................................................................... 43
54. Condition Precedent................................................................ 43
Signature Page.........................................................................
</TABLE>
Exhibits:
Exhibit A - Legal Description of Premises
Exhibit B - Site Plan
Exhibit C - Work Letter
Exhibit D - Intentionally Omitted
Exhibit E - Guaranty Form
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<PAGE> 4
INDEX OF MAJOR DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION REFERENCE FOR DEFINITION
- ------------ --------------------------------
<S> <C>
Abatement Notice 49
Actual Statement 7.4
Alteration Threshold 8.2
Annual Base Report 5.1
Annual Base Rent Amount 5.1
Assignment Date 24.2
Assignment Notice 24.2
CC&Rs 8.2
Claims 19.1
Club 1.2
Commencement Date 2.1
Common Areas 1.3
Lease Period 5.2
Common Area Expenses 7.1
Condominium Association 8.2
Condominium Documents 8.2
Cure Period 49
CPI 5.2
CPI Increase 5.2
Default 23.1
Depository 21.2
Development 1.1
Floor Area 1.5
Force Majeure 52
Hazardous Materials 8.3
Improvements 1.2
Initial Term 2.1
In-Lieu Tax 12.4
Landlord Introductory Paragraph
Landlord's First Substantial Completion
Landlord's Second Substantial Completion 2.1
Estimate Notice
Lease 2.1
Lease Period Introductory Paragraph
Lease Year 5.2
Lender's Notice 46.2
Monthly Base Rent 5.1
Non-Disturbance Agreement 25
Noticed Lender 49
Common Area Expenses 7.1
</TABLE>
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<TABLE>
<S> <C>
Operating Expenses 3
Option Date 7.1
Option Periods 3
Options 3
Other Parkers 36.1
Partial Taking 22.1
Premises 1.1
Projected Repair Date 21.3
Property 1.2
Receipts Tax 12.4
Secured Lender 21.6
Signage Approval Factors 48
Substantial Taking 22.1
Substantially Complete 2.1
Tenant Introductory Paragraph
Tenant's Insurance Share 21.6
Tenant's Lender 46.2
Tenant's Parkers 36.1
Tenant's Share 7.3
Term 2.1
Termination Notice 49
Total Taking 22.1
Trade Fixtures 1.2
Uninsured Contribution Amount 21.1
Work Letter 1.1
</TABLE>
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<PAGE> 6
ATHLETIC CLUB LEASE
WASHINGTON, D.C.
THIS LEASE (the "LEASE") is made as of the 22 day of June, 1997, by and
between MILLENNIUM PARTNERS LLC ("LANDLORD"), and WASHINGTON D.C. SPORTS CLUB,
INC., a Delaware corporation ("TENANT").
1. Premises and Common Areas.
1.1 Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the space (the "PREMISES") in a building (the "BUILDING") to be
constructed on that certain parcel of real property, in which the Improvements
(as defined herein) are to be constructed, more particularly described in
Exhibit A attached hereto and made a part hereof. This Lease is subject to all
matters of record affecting the Property (as defined herein) and all matters
that would be revealed by an accurate survey of the Property. The Premises shall
constitute part of a development (the "DEVELOPMENT") as shown on the site plan
attached hereto as Exhibit B and made a part hereof. The Premises are designated
on the hatched portion of Exhibit B, with all depictions thereon being subject
to normal construction variances and tolerances, and as otherwise provided in
this Lease. Landlord at its sole cost shall, in accordance with the work letter
agreement attached hereto as Exhibit C and made a part hereof (the "WORK
LETTER"), perform Landlord's Work and as part of Landlord's Work, shall cause
the utility connections specified in the Work Letter to be available in the
locations specified in the Work Letter.
1.2 Construction of Premises. Tenant shall cause the Premises to be
improved with improvements (the "IMPROVEMENTS") in accordance with the Work
Letter (defined as the "BUILDING IMPROVEMENTS" in the Work Letter) and, subject
to Force Majeure (as defined herein) to the extent provided herein, within the
time(s) set forth therein; the Improvements are to be used as a first-class
athletic club facility (the "CLUB") more particularly described in Article 8
hereof. The design of the Improvements shall be subject to Landlord's approval,
as provided in the Work Letter. In accordance with the terms of the Work Letter
Landlord shall provide Tenant with a contribution in an amount not to exceed
$85.00 per rentable square foot of the Premises (with such amount being referred
to as "Landlord's" Contribution" and/or the "Allowance"). Tenant shall equip the
Club with all required Trade Fixtures (as defined herein) as may be necessary to
operate the Club in accordance with Section 8.1. Title to the Improvements and
all alterations and additions thereto and replacements thereof (other than Trade
Fixtures) thereafter constructed or installed on the Premises shall be and
remain in Landlord. All Trade Fixtures, however, shall remain Tenant's property
upon the expiration or sooner termination of this Lease. "TRADE FIXTURES" means
Tenant's athletic equipment and machines and all of Tenant's furniture and other
personal property not affixed to the Premises in such a manner as to do material
damage upon their removal. The Premises and the Improvements are sometimes
hereinafter collectively referred to as the "PROPERTY."
<PAGE> 7
1.3 Common Areas. Tenant shall have the nonexclusive right to use the
Common Areas (as defined herein), in common with other tenants and/or occupants
of the Development, subject to the Condominium Documents (as defined herein),
the CC&Rs (as defined herein) and any other nondiscriminatory rules and
regulations that Landlord and/or the Condominium Association (as hereafter
defined), as applicable, shall adopt for the Development so long as such CC&Rs
and rules and regulations do not (i) materially interfere with Tenant's
operations on the Premises; (ii) materially increase Tenant's obligations under
this Lease, or (iii) materially decrease Tenant's rights under this Lease.
"COMMON AREAS" means all common areas and facilities of the Development that are
now or hereafter made available for the general use, convenience and benefit of
Landlord, other persons entitled to occupy a portion of the Development and/or
their customers, employees and invitees, including common monuments and signs;
transportation facilities areas including bus stops, taxi-limousine stands, and
bicycle parking areas; trash enclosures; landscaped areas; areas designated as
pedestrian walkways or pedestrian bridges; and parking areas.
1.4 Control of Common Areas. Provided Landlord does not unreasonably
interfere with, hinder or obstruct Tenant's use of the Premises or Tenant's
ability to conduct business from the Premises, and does not otherwise materially
diminish any of Tenant's rights pursuant to this Lease, Landlord reserves the
right from time to time:
(i) To make changes to the Common Areas, or their design,
including changes in the location, size, shape and number of driveways,
entrances, parking areas, loading and unloading areas, ingress, egress,
direction of traffic, landscaped areas and walkways. Landlord shall keep Tenant
apprised as to any proposed change to the Common Areas or their design; and
(ii) To close temporarily any portions of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available.
Landlord agrees that rerouting of pedestrian walkways within
the Common Areas and/or rerouting of vehicles shall not be done in a manner
which would materially hinder or obstruct Tenant's ability to conduct business
from the Premises.
1.5 Definition of Floor Area. The term "FLOOR AREA" as used in this
Lease shall mean the rentable square footage of the Premises (or, where
applicable, of other premises located or proposed in or outside the
Development), measured from the exterior surface of building walls (and from
extensions thereof, in the case of openings), and from the exterior surface of
any demising partitions. At such time as the Improvements have been constructed,
Landlord and Tenant shall execute an amendment to this Lease documenting the
Floor Area of the Premises.
2. Term.
2.1 Commencement. This Lease constitutes a binding agreement and the
obligations of Landlord and Tenant hereunder shall be effective upon execution
and delivery of this Lease by
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<PAGE> 8
both Landlord and Tenant. However, the initial term ("INITIAL TERM") of this
Lease shall commence upon the date (the "COMMENCEMENT DATE") which is the
earlier of (i) the date upon which Tenant commences business operations from the
Premises, or (ii) the date which shall occur six (6) months after Landlord shall
"Substantially Complete" (as hereafter defined) "Landlord's Work" (as defined in
the Work Letter). "Substantially Complete" means (as certified by Landlord's
architect) complete subject to the completion of minor punch-list type items or
other minor components of Landlord's Work, the performance of which will not
materially interfere with Tenant's Work to ready the Premises for Tenant's use
and occupancy thereof. Landlord shall diligently proceed to complete said punch
list items. If Landlord shall be delayed in substantially completing Landlord's
Work and such delay shall be caused by or shall arise out of or in connection
with any of the following (each a "Tenant Delay"):
(i) Tenant's direction that Landlord delay in proceeding with any
segment or part of Landlord's Work (except under circumstances where the basis
for such direction is the fact that Landlord must rectify an error in Landlord's
Work that is not otherwise attributable to Tenant); or
(ii) Tenant's changes in or alterations to the Work Letter,
provided that if in Landlord's reasonable judgment (after due investigation)
such changes or alterations are likely to constitute a Tenant Delay, Landlord
shall advise Tenant within five (5) days after Landlord shall have made such
determination thereof; or
(iii) Tenant's request for any materials, finishes or
installations not originally contemplated by this Lease or contained in the Work
Letter, provided that to the extent Landlord becomes aware that any such request
will delay Landlord, Landlord shall promptly advise Tenant thereof; or
(iv) the performance of work by any person, or entity employed or
hired by Tenant that actually delays Landlord in the completion of said work,
provided that if Landlord shall be aware of any such delay, Landlord shall
immediately notify Tenant thereof; or
(v) any acts or omissions of Tenant, or of any affiliate of
Tenant; or
(vi) Tenant's unreasonable delay or refusal in making changes to
the Work Letter reasonably requested by Landlord; or
(vii) any breach of any of the terms of this Lease by Tenant that
delays Landlord in substantially completing Landlord's Work; or
(viii) any unreasonable failure on Tenant's part to cooperate
with Landlord in connection with Landlord's performance of Landlord's Work
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<PAGE> 9
then notwithstanding anything in this Lease to the contrary, Landlord's Work
shall be deemed to be Substantially Complete as of the date that substantial
completion would have occurred but for such delay and Tenant shall reimburse
Landlord for any additional out-of-pocket costs, incurred by reason of any such
delay.
The parties shall execute an acknowledgment that Landlord's Work has
been completed (or deemed to be completed) and that the Commencement Date has
occurred, as soon as reasonably practicable thereafter. Neither Landlord's
failure to request nor Tenant's failure to execute such agreement shall affect
the Commencement Date. Landlord shall give Tenant notice, not less than one
hundred and twenty (120) days prior to the date that Landlord anticipates
Landlord shall Substantially Complete Landlord's Work (with such notice being
"Landlord's First Substantial Completion Estimate Notice"). In addition to the
foregoing notice to Tenant, Landlord shall provide a second notice to Tenant
(with such notice being "Landlord's Second Substantial Completion Estimate
Notice") not less than thirty (30) days prior to the date upon which Landlord
anticipates that Landlord shall Substantially Complete Landlord's Work. The
Initial Term shall terminate on the twentieth anniversary of the Commencement
Date. Reference in this Lease to "LEASE YEAR" shall mean each successive
twelve-month period during the Term commencing on January 1 and ending December
31 (or such other twelve month period as shall be reasonably designated by
Landlord), provided that the first Lease Year shall begin upon the Commencement
Date and end on December 31 of the calendar year in which the Commencement Date
occurs, and the last Lease Year shall end on the last day of the Initial Term or
the last day of the last exercised Option Period (as defined herein) hereunder.
"TERM" as used herein shall mean the Initial Term and all exercised Option
Periods.
2.2 Access Prior to Commencement. Until the Commencement Date (but no
sooner than the satisfaction of the conditions under Section 54 below), and
subject to all applicable laws and ordinances, Tenant shall be entitled to
maintain an office either within the Development or at a location suitable
therefor reasonably acceptable to Landlord and Tenant, or, at Landlord's
election, on the surface parking area (if any) adjacent to said Development, all
at no cost to Tenant for Base Rent, Common Area Expenses or real property taxes,
for its pre-opening and construction period activity. Tenant shall be entitled
to hang a banner or other signage in the Development, subject to compliance with
applicable laws, regulations, permits, approvals, ordinances, the Condominium
Documents (if applicable) and CC&Rs and subject to Landlord's prior approval of
all Signage Approval Factors (as defined herein). Such office shall be deemed to
constitute a part of the Premises for all purposes (including, without
limitation, Article 19 (Indemnification) and Article 20 (Insurance) and Tenant's
obligation to pay for utilities), but Tenant shall not be required to pay Base
Rent, Common Area Expenses or real property taxes with respect thereto. If
Landlord makes available the surface parking area for the purpose of such
temporary office, it shall be Tenant's obligation, at its sole cost, to provide
a trailer for Tenant's use on such parking area and to pay all costs and
expenses and bear all liabilities associated therewith.
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<PAGE> 10
3. Options to Extend. Landlord hereby grants to Tenant three (3)
successive options (the "OPTIONS") to extend the term of this Lease, each for a
168-month period (the "OPTION PERIODS"), upon the same terms and conditions as
those set forth in this Lease for the Initial Term (except that no options to
extend other than the Options are granted), and except that the applicable
Monthly Base Rent (as defined herein) shall be increased in accordance with
Section 5.2 below. In order to exercise an Option, Tenant must give notice to
Landlord of its intention to exercise the applicable Option on or before the
date (the "Option Date") which is six months prior to the end of the Initial
Term or the previous Option Period, as applicable; provided, however, that it
shall be a condition precedent to the exercise of each Option that Tenant shall
not be in Default as of the respective Option Date. Tenant's election not to
exercise an Option, or the passage of an Option Date without exercise of the
subject Option, shall thereby terminate the subsequent Option or Options. The
Options are personal to Tenant and may not be assigned except in connection with
a permitted assignment of Tenant's interest in this Lease.
4. Membership. Subject to availability, Tenant agrees that all
applications for membership in the Club submitted by employees of any of the
tenants of the Development shall be automatically and promptly accepted. All
Club memberships shall be subject to the nondiscriminatory rules and regulations
promulgated by Tenant for use of the Club.
5. Rent. Rent shall be calculated and payable as follows:
5.1 Annual Base Rent. During the Initial Term Tenant agrees to pay
Landlord annual base rent for the Premises (the "ANNUAL BASE RENT"), at the rate
of $33.50 (such amount being the "Initial Annual Base Rent Amount") per rentable
square foot of "Floor Area" (as hereafter defined in Section 1.5) applicable to
the Premises, which amount shall be subject to increase as provided in Section
5.2. If and to the extent that the Initial Annual Base Rent Amount (i.e., $33.50
per rentable square foot of Floor Area attributable to the Premises) shall
exceed eleven (11%) percent of the total amount of Landlord's Contribution and
Landlord's costs for constructing the Premises and performing the work required
of Landlord hereunder, then the Initial Annual Base Rent Amount shall be reduced
to an amount that shall be equal to eleven (11%) percent of such total costs.
Tenant shall pay Annual Base Rent in equal monthly installments on the first day
of each month and each monthly installment of Annual Base Rent is referred to
herein as "Monthly Base Rent." If for any reason the Initial Term commences or
ends on a day other than the first day of a calendar month, then the rental for
the first month and for the last month of the Term shall be prorated in the
proportion that the number of days during the first and last months of the Term
bears to the actual number of days in such months. In addition to Monthly Base
Rent, Tenant agrees to pay as "additional rent" (sometimes referred to as
"Additional Rent") all other charges payable by Tenant pursuant to the terms of
this Lease. Monthly Base Rent together with all such additional rent may be
collectively referred to herein as "RENT." All Rent shall be paid to Landlord,
without prior demand or notice, in lawful money of the United States of America,
at such place as Landlord may from time to time reasonably designate in writing
and shall be due and payable on the first day of each month. Rent shall be paid
to Landlord on the date due without notice or demand, and without abatement,
deduction or
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set-off except as otherwise expressly set forth in this Lease. No payment by
Tenant or receipt by Landlord of a lesser amount than the Annual Base Rent or
Additional Rent, nor shall any endorsement or statement on any check or in any
letter accompanying any check or payment, as Annual Base Rent or Additional
Rent, be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
rent and Additional Rent or pursue any other remedy provided in this Lease or by
law.
5.2 CPI Increases.
(i) The Annual Base Rent for each "Lease Period" (each "LEASE
PERIOD" being a successive five-year period which shall occur during the initial
term hereof and if this Lease shall be extended in accordance with Article 3
then a Lease Period shall also be deemed to include each successive five-year
period occurring during any Option Period with respect to which Tenant shall
have exercised an Option) which occurs subsequent to the first Lease Period,
shall be increased from the amount payable during the immediately prior Lease
Period by an amount (the "Rent Increase Amount") equal to the product of the
Annual Base Rent payable for the immediately prior Lease Period (as previously
increased pursuant to this Section 5.2) multiplied by the greater of (a) one
hundred and nine (109%) percent and (b) the "CPI Increase" (as such term is
hereinafter defined) up to a maximum of one hundred and thirteen (113%) percent.
It is expressly agreed that under no circumstances shall the Annual Base Rent
for any Lease Period be less than the Annual Base Rent for the immediately prior
Lease Period.
(ii) For purposes of this Article, the following definitions
shall apply:
(a) The term "CPI" shall mean the Consumer Price Index for
all Urban Consumers published by the Bureau of Labor Statistics of the U.S.
Department of Labor for Washington, D.C. -- MD -- VA, All Items (1982-84=100),
or a successor or substitute index appropriately adjusted.
(b) The term "CPI INCREASE" shall mean the percentage
increase, if any, of (x) the CPI for the month which occurred two months prior
to the first day of the Lease Period for which the Annual Base Rent is to be
determined (the "Determination Date"), over (y) the CPI for the month which is
five years earlier than the Determination Date.
(iii) In the event that the CPI ceases to use 1982-84=100 as the
basis of calculation, or if a substantial change is made in the terms or number
of items contained in the CPI, then the CPI shall be adjusted to the figure that
would have been arrived at had the manner of computing the CPI not been altered.
In the event such CPI (or a successor or substitute index) is no longer
published, a reliable governmental or other non-partisan publication evaluating
the information theretofore used in determining the CPI shall be used. No
adjustments or recomputations, retroactive or otherwise, shall be made due to a
revision which may later be made in the first published figure of the CPI for
any month.
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(iv) As soon as practicable, Landlord shall furnish to Tenant a
statement setting forth the amount of Annual Base Rent to be paid by Tenant
during the applicable Lease Period and the amount of the applicable Rent
Increase Amount.
(v) Any delay or failure of Landlord in computing or billing for
the Annual Base Rent hereinabove provided shall not constitute a waiver or in
any way impair the continuing obligation of Tenant to pay the amount of any
Annual Base Rent due hereunder. Until Landlord furnished to Tenant the statement
referred to in Subsection 5.2(iv) above (which Landlord shall do promptly
following such availability), Tenant shall pay Annual Base Rent at the annual
rate for the immediately prior Lease Period plus thirteen (13%) percent. In the
event Tenant shall have made an overpayment, the amount of such overpayment
shall be credited against Tenant's installment of Annual Base Rent and
Additional Rent next becoming due hereunder.
5.3 Free Rent Period
Provided that Tenant shall not then be in default of any of
Tenant's obligations under this Lease (following notice thereof), Tenant shall
not be required to pay Monthly Base Rent for the period (the "Free Rent Period")
commencing on the Commencement Date and continuing through and including the
date which is one hundred and twenty (120) days after the Commencement Date.
6. Club Name. Tenant shall be entitled to operate the Club under a name
incorporating the name of the Development, or under any other name selected by
Tenant and that is reasonably acceptable to Landlord. Tenant shall not use the
name "Millennium". Landlord hereby approves the name "The Sports
Club/Washington, D.C." although Tenant has no obligation to use such name. If
Tenant utilizes the name of the Development as a part of the name of the Club,
Tenant shall not acquire any right, title or interest in and to the name of the
Development and shall not use such name for any of its other locations.
7. Common Area Charges/Operating Expenses.
7.1 Definition. Commencing upon the Commencement Date, Tenant shall pay,
in addition to Monthly Base Rent, all assessments and charges which are assessed
against or incurred in connection with the Premises or Landlord's interest
therein under the CC&Rs and all charges assessed with respect to the Premises by
the Condominium Association (collectively, "COMMON AREA EXPENSES"). If at
anytime during the term hereof the Premises shall not be subject to a
condominium form of ownership, then in lieu of paying charges assessed by the
Condominium Association, Tenant shall pay to Landlord "Tenant's Share" (as
hereafter defined) of "Operating Expenses" (as hereafter defined"). Operating
Expenses shall mean all costs incurred by Landlord (except as hereafter defined)
in connection with the operation of the Building for each successive twelve (12)
month period (as designated by Landlord) occurring in whole or in part during
the Term (and any renewals). Tenant hereby acknowledges that Operating Expenses
shall include the following costs (by way of illustration, but not limitation):
any special or regular assessments due under the CC&Rs; real property taxes and
assessments and
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any taxes or assessments hereafter imposed in lieu thereof with respect to the
Common Areas; water and sewer charges; dues and fees paid to civic organizations
and associations in which Landlord is a member in the jurisdiction in which the
Building is located, provided that it is then customary for landlords of similar
buildings to be members of such organizations and associations; accounting fees,
legal fees; management fees (not in excess of four (4%) of the total revenue
derived by Landlord from Landlord's operation of the Development); utilities;
janitorial services; parking patrol; labor; utilities surcharges, or any other
costs levied, assessed or imposed by, or at the direction of, or resulting from
statutes or regulations or interpretations thereof, promulgated by any federal,
state, regional, municipal or local government authority in connection with the
use or occupancy of the Common Areas; the cost in excess of net insurance and
condemnation proceeds of any capital improvements (amortized over such period as
Landlord shall determine together with interest at the rate actually incurred by
Landlord from a third party lender on the unamortized balance) made to the
Common Areas, but only if incurred by Landlord (i) to comply with any
governmental law, rule or regulation which may become effective after the date
of this Lease, or (ii) where the present value of the projected costs of the
improvement (including original purchase cost, installation and subsequent
repairs and replacements) is less than the present value of the amount
reasonably anticipated to be saved as the result of such capital improvements
over the remainder of the Initial Term or an exercised Option Period, as
applicable; supplies; materials; equipment; tools; payroll expenses; rental of
personal property used in maintenance and other upkeep of the Common Areas;
costs and expenses of gardening, landscaping and irrigation; maintenance of
signs; personal property taxes levied on or attributable to personal property
used in connection with the Common Areas; reasonable audit or verification fees;
and costs and expenses (whether or not capitalized) of repairs, resurfacing,
maintenance, painting, lighting, cleaning, steam cleaning, refuse removal,
parking patrol, sweeping, sealcoating, restriping and similar items. Operating
Expenses shall not include: depreciation of any kind, including on any buildings
or parking structures located within the Development or on any equipment;
construction costs incurred in improving or modifying space for new tenants of
the Development or renovating space vacated by any tenant; any costs which are
reimbursable by (i) tenants of the Development (other than through their payment
of Operating Expenses), (ii) other third parties, or (iii) proceeds of
insurance; Landlord's executive salaries; real estate brokers' commissions; or
principal or interest on any indebtedness (except as specifically permitted
above).
7.2 Exclusions. In addition to the exclusions from Operating Expenses
set forth in Section 7.1, Operating Expenses shall not include the following:
(i) the cost of capital expenditures except for those
specifically described in Section 7.1;
(ii) costs incurred with respect to goods or services (including
utilities, capital improvements, maintenance and repair) supplied to the Common
Areas to the extent that such goods or services are designed for the exclusive
or primary use or benefit of another tenant or tenants (provided that if such
goods or services are for the primary use or benefit of another tenant or
tenants, the cost thereof shall be included in Common Area Expenses to the
extent it is fair and equitable to do so);
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(iii) costs incurred to the extent that such costs are reimbursed
by insurance;
(iv) any ground lease or master lease payments;
(v) legal fees incurred by Landlord in connection with the
preparation, negotiation and enforcement of leases, subleases and lease
renewals.
(vi) all leasing costs in the Development, including hard and
soft costs of tenant improvements and preparation of any premises, tenant
concessions, advertising costs and brokerage commissions;
(vii) costs of purchasing or installing or maintaining artwork or
signage that exclusively identifies Landlord, Landlord's agents or affiliates,
or any occupant of the Development but not Tenant (it being agreed that the cost
of any such signage that identifies the Development may be included within
Common Area Expenses);
(viii) costs of any rental or lease of equipment or capital items
that if purchased (whether outright or financed) would otherwise be excluded
from Common Area Expenses;
(ix) costs paid to affiliates of Landlord in excess of market
rates;
(x) fines, penalties, late payment charges, and interest thereon,
and other amounts imposed in lieu thereof the payment of which is attributable
to Landlord's failure to act in a commercially reasonable manner;
(xi) costs to the extent arising from or relating to the
negligence or willful misconduct of Landlord or Landlord's agents, principals,
employees, licensees or affiliates;
(xii) Landlord's general overhead and general administrative
expenses;
(xiii) costs for repair or maintenance covered by warranties or
service contracts (however, the costs of the warranties or service contracts
shall be includable in Common Area Expenses);
(xiv) expenditures required by Landlord's failure to comply with
laws, regulations or orders, which are required to be complied with by Landlord
under this Lease (except to the extent expressly permitted in Section 7.1
above);
(xv) costs to repair latent or patent defects in Landlord's Work;
(xvi) costs incurred due to the violation by Landlord or any
other occupant of the Development of the terms or conditions of any lease;
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(xvii) costs arising from or relating to the presence of
Hazardous Materials (as defined herein) in or about the Development;
(xviii) any costs associated with the construction of the
Development;
(xix) insurance premiums, but only if and to the extent Landlord
is reimbursed for the cost thereof by Landlord's insurers;
(xx) bad debt expenses resulting from Landlord's negligence or
improper acts;
(xxi) costs of charitable or political contributions and fees and
dues paid to trade associations (other than as provided in Section 7.1 above);
and
(xxiii) any cost payable by Tenant pursuant to other Sections of
this Lease.
7.3 Building Insurance. Except for Landlord's cost of the all-risks
property insurance for the Improvements, as addressed in Section 20.4, if
Landlord's cost of obtaining Landlord's Insurance for the Property and/or the
Building and the operations thereof exceeds the cost of obtaining such insurance
for the first twelve (12) months following the Commencement Date, Tenant shall
pay to Landlord, in a manner similar to this Section 7.3 within thirty 30 days
after being billed therefore, an amount equal to Tenant's Share of such
increased cost.
"Tenant's Share" of Operating Expenses shall be based on the ratio
between the Floor Area of the Premises and (subject to Section 7.6 below) the
total number of square feet of Floor Area in the other tenantable portions of
the Development as of the date such Operating Expenses are incurred. Landlord
and Tenant acknowledge that at this time it is not possible to determine the
equitable allocation of all components of Operating Expenses. Accordingly,
Tenant's Share of some or all of the components of Operating Expenses may from
time to time be equitably adjusted by Landlord to a percentage other than that
which would be arrived at by the methodology hereinbefore described for the
determination of Tenant's Share, so as to ensure that Tenant will pay Tenant's
equitable share of Operating Expenses. In the event Tenant shall dispute
Landlord's determination as to the equitable allocation of any components of
Operating Expenses, as aforesaid, and if Landlord and Tenant shall have been
unable to resolve such dispute within thirty (30) days following the date that
Tenant shall have notified Landlord of such dispute, then, provided that Tenant
shall pay all such amounts as billed by Landlord on or before the due dates for
payment, Tenant may submit such dispute to binding arbitration in accordance
with the following provisions hereof. Within ten (10) days next following the
giving of any notice by Tenant to Landlord stating that it wishes such dispute
to be determined by arbitration, Landlord and Tenant shall each give notice to
the other setting forth the name and address of an arbitrator designated by the
party giving such notice. If either party shall fail to give notice of such
designation within said ten (10) days, then the arbitrator to be chosen by such
party shall be chosen in the same manner as hereinafter provided for the
appointment of the third arbitrator in the case where the two arbitrators chosen
hereunder are unable to agree upon such appointment. The two arbitrators shall
designate a third arbitrator. If the two arbitrators shall fail to agree upon
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the designation of a third arbitrator within ten (10) days after the designation
of the second arbitrator, then either party may apply to the American
Arbitration Association or any successor organization thereto ("AAA") for the
designation of such arbitrator; provided, however, nothing contained herein
shall be construed to require submission of any dispute to the AAA. All
arbitrators shall be persons who shall have had at least ten (10) years
experience in the business of operating or managing commercial real estate in
Washington, D.C. and shall not be affiliated with either Landlord or Tenant. The
three arbitrators shall conduct such hearings as they deem appropriate, making
their determination in writing and giving notice to Landlord and Tenant of their
determination within ten (10) days, if at all possible, after the designation of
the third arbitrator; the concurrence of any two of said arbitrators shall be
binding upon Landlord and Tenant. Any award of the arbitrators shall be limited
to the determination as to whether Landlord made an equitable allocation of the
component(s) of Operating Expenses which are the subject of such dispute. If it
is determined that Landlord has not equitably allocated a component of Operating
Expenses, then the arbitrators shall determine the equitable allocation thereof.
The determination in any arbitration held pursuant to this Section 7.3 shall be
final and binding upon Landlord and Tenant. Each party shall pay its own counsel
fees and expenses, if any, in connection with any arbitration under this Section
7.3, and each party shall pay the fees and expenses of the one of the two
original arbitrators appointed by or for such party and the fees and expenses of
the third arbitrator shall be borne by the parties equally.
7.4 Statements. As soon as possible after the beginning of the Initial
Term Landlord shall give to Tenant a statement estimating the Common Area
Expenses or Operating Expenses, as applicable for the first Lease Year.
Thereafter, Landlord shall give Tenant, prior to the expiration of each Lease
Year, a statement estimating the Common Area Expenses or Operating Expenses, as
applicable for the following Lease Year. The estimated Common Area Expenses or
Operating Expenses, as applicable shall be the estimated amount of Common Area
Expenses payable by Tenant as described above. The estimated Common Area
Expenses or Operating Expenses, as applicable amount shall be divided into
twelve equal monthly installments (or, as to the first and last Lease Year,
divided by the number of calendar months in such Lease Year), and Tenant shall
pay to Landlord Tenant's monthly installment of such Common Area Expenses or
Operating Expenses, as applicable on the first day of each month during the Term
as additional rent. If, in any Lease Year, the actual Common Area Expenses or
Operating Expenses, as applicable are less than the estimate for that Lease
Year, then upon receipt of Landlord's statement ("ACTUAL STATEMENT") of actual
Common Area Expenses or Operating Expenses, as applicable for said Lease Year
(which Landlord shall deliver to Tenant within ninety days after the expiration
of each Lease Year), any overpayment made by Tenant on the monthly installment
basis shall be credited towards the next monthly installment(s) falling due and
the estimated monthly installments of such assessments shall be adjusted to
reflect such lower assessments. Similarly, if the actual Common Area Expenses or
Operating Expenses, as applicable for any calendar year are greater than the
estimated payments made by Tenant for such Lease Year, Tenant shall pay the
amount of such difference to Landlord within thirty days after invoice;
provided, however, that if the amount due exceeds 1/2 of Monthly Base Rent then
in effect, Tenant may pay such amount in thirty day installments with each
installment in the amount of the lesser of the remainder due or 1/2 of the
Monthly Base Rent then in effect. Notwithstanding that
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the Term may have terminated or expired and Tenant has vacated the Premises,
when the final determination is made of the actual Common Area Expenses for the
last Lease Year, Tenant shall immediately pay any increase due over the
estimated Common Area Expenses or Operating Expenses (as applicable) paid and,
conversely, any overpayment made in the event actual Common Area Expenses or
Operating Expenses (as applicable) decrease, shall be rebated by Landlord to
Tenant within thirty days after such determination. The foregoing provision
shall survive the expiration or earlier termination of this Lease.
7.5 Audit. Upon prior notice, but not more frequently than once each
Lease Year, Tenant shall have the right to examine Landlord's books and records
with regard to Common Area Expenses or Operating Expenses, as applicable during
normal business hours. If Tenant disputes the amount of Common Area Expenses or
Operating Expenses, as applicable set forth in any Actual Statement delivered by
Landlord or otherwise paid by Tenant, Tenant must notify Landlord of such
dispute in writing within three months following Tenant's receipt of the Actual
Statement. Tenant's failure to notify Landlord of a dispute within said three
month period shall be deemed Tenant's acceptance and approval of the accuracy of
the Actual Statement. Provided Tenant has timely given the required dispute
notice and has paid the amounts claimed to be due under the Actual Statement
(including the disputed amount), Tenant shall have the right, to be exercised,
if at all, not later than three months after the date Tenant gave the dispute
notice, to cause Landlord's books and records with respect to the relevant Lease
Year to be audited by a certified public accountant, or by another Tenant
representative mutually acceptable to Landlord and Tenant. The amounts payable
under the preceding paragraph by Landlord to Tenant or by Tenant to Landlord as
the case may be shall be appropriately adjusted on the basis of such audit. If
such audit discloses a liability for further refund by Landlord to Tenant in
excess of 5% of the Common Area Expense payments or Operating Expense payments
(as applicable) previously made by Tenant for such Lease Year, Landlord shall
pay for the reasonable cost of the audit not to exceed $7,500.00; otherwise,
Tenant shall pay for the cost of the audit. Notwithstanding the foregoing, if
any audit conducted by Tenant discloses that Landlord over-reported Common Area
Expenses or Operating Expenses by more than 5% for the period covered by the
audit, then Tenant shall be entitled to audit Common Area Expenses for all
preceding years as to which records are available; Landlord shall maintain said
records for a minimum of 60 months after the end of each Lease Year.
7.6 Notwithstanding anything to the contrary contained herein, if in any
Lease Year during which Tenant shall be paying Operating Expenses the total
Floor Area of buildings in the Development which are tenantable is not fully
occupied, then the Operating Expenses for such Lease Year shall be deemed to be
an amount that would be incurred if such total Floor Area were occupied for such
Lease Year, but in no event shall Tenant be required to pay more than 100% of
the actual Operating Expenses.
8. Use.
8.1 Permitted Use. The Property shall be used exclusively for a
first-class coed athletic club operated by an operator with first-class
expertise, reputation and experience, and
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Tenant shall not use or permit the Property to be used for any other purpose, or
by an operator other than Tenant or an affiliate of Tenant, without the prior
consent of Landlord. As used herein, "FIRST-CLASS" shall mean comparable to
other athletic clubs with comparable facilities operated by Tenant or Tenant's
affiliates as of the date hereof. As a part of the athletic club operated from
the Premises, Tenant shall be entitled to use portions of the Premises for uses
complementary to an athletic club (but only in support of Tenant's primary
operation as an athletic club), such as a pro shop, child care facility and
delicatessen, so long as the type and quality of such complementary uses are
consistent with the services offered in other first-class athletic clubs;
provided, however, no popcorn or candy (other than for consumption at the
Premises) shall be sold from the Property. Any complementary uses may be
achieved through a license, which license shall be subject to all terms and
conditions of this Lease but shall not otherwise require Landlord's prior
approval.
8.2 Compliance with Laws.
(i) Tenant shall not use or occupy the Premises in violation of
(i) law or the certificate of occupancy issued for the Improvements, (ii) any
condominium declaration, offering plan, by-laws, house rules,, and other
requirements instruments or declarations (collectively the "Condominium
Documents") now or hereafter ratified by any condominium association or
equivalent (such entity being the "Condominium Association") having jurisdiction
over the Premises (iii) any private covenants, conditions or restrictions or
reciprocal easement agreements (collectively, the "CC&RS") which may now or
hereafter be recorded encumbering the Development or (iv) any liquor license
issued with respect to the Club, and shall, upon notice from Landlord,
discontinue any use of the Premises which is in violation of law or of said
certificate of occupancy or is a violation of the Condominium Documents, the
CC&R's or said liquor license. Notwithstanding the foregoing, after the date
hereof Landlord shall not amend or modify any existing CC&Rs or create new CC&Rs
or Condominium Documents which materially adversely affect any of Tenant's
rights hereunder or materially increase its obligations hereunder.
(ii) Tenant shall comply with any law or directive of any
governmental authority having jurisdiction which by reason of the nature of
Tenant's particular use or occupancy shall impose any duty upon Tenant or
Landlord with respect to the Premises or with respect to the use or occupancy
thereof.
(iii) Tenant shall not do or permit to be done anything which
will increase the cost of (unless Tenant pays such increased cost) or which will
invalidate any fire, extended coverage or any other insurance policy covering
the Improvements and/or property located therein. In the event Tenant does or
permits anything to be done which increases the cost of any insurance maintained
by Landlord hereunder, Tenant shall promptly, upon demand, as Landlord's sole
remedy for such increase (but without limiting any other remedies that may be
available to Landlord if the cause of such increase is otherwise violative of
any provisions of this Lease), reimburse Landlord for such increase. Tenant
shall not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with the rights of other tenants or
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occupants of the Development, or use or allow the Premises to be used for any
unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on
or about the Premises; Landlord, however, acknowledges that certain noise and
vibration are incident to Tenant's use of the Premises, and that to the extent
the same shall not exceed noise levels generated by other athletic clubs in
similar types of buildings and shall not otherwise exceed the legally
permissible decibel levels, the same shall not constitute nuisance for the
purposes hereof.
(iv) Tenant shall not commit or suffer to be committed any waste
in or upon the Premises.
(v) Tenant shall be responsible for obtaining, at Tenant's sole
cost and expense, all required licenses and/or permits authorizing the use of
the Premises for an athletic and social club with the necessary cooking
facilities required for Tenant's cooking operations for the Club.
8.3 Hazardous Materials.
(i) Tenant shall not use or permit any hazardous, toxic or
radioactive materials ("HAZARDOUS MATERIALS"), to be brought upon, kept or used
in or about the Premises, the Improvements or the Common Areas by Tenant, its
agents, employees or contractors, unless such Hazardous Materials are necessary
or useful to and customarily used in Tenant's business and will be used, kept
and stored in a manner that complies with all laws regulating any such Hazardous
Materials. In addition, Tenant shall be entitled to use general office supplies,
normal janitorial supplies, supplies used in maintaining its equipment and
swimming pool supplies in a manner that complies with all laws regulating their
use. If Tenant breaches the covenants and obligations set forth herein or, if
the presence of Hazardous Materials on, in or about the Premises, the
Improvements, or any other portion of the Development caused or permitted by
Tenant, its agents, employees, or contractors, results in contamination of the
Premises, the Improvements, or any other portion of the Development, then Tenant
shall indemnify, defend and hold Landlord and the owner(s) and operator(s) of
the Common Areas free and harmless from and against any and all claims,
judgments, damages, penalties, fines, costs, liabilities and losses (including
diminution in the value of the Premises and/or the Common Areas, damages for the
loss or restriction on use of rentable or useable space or of any amenity of the
Premises, the Improvements, or any other portion of the Development, and sums
paid in settlement of claims, attorneys' fees, consultant fees and expert fees)
which arise during or after the Term as a result of such contamination. This
indemnification by Tenant of Landlord and the owner(s) and operator(s) of the
Common Areas, includes any and all costs incurred in connection with any
investigation of site conditions or any clean up, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of the presence of such Hazardous Materials in, on
or about the Premises, the Improvements, or the soil or ground water on or under
the Development. The provisions of this Subsection 8.3(i) shall survive the
expiration or earlier termination of this Lease.
(ii) Landlord shall not cause or permit any Hazardous Materials
to be brought upon, kept or used in or about the Premises or any other portion
of the Development by
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Landlord, its agents, employees or contractors unless such Hazardous Materials
are used, kept and stored in a manner that complies with all laws regulating
such Hazardous Materials. If Landlord breaches the covenants and obligations set
forth herein or if contamination of the Premises or any other portion of the
Development by Hazardous Materials otherwise occurs which is caused by Landlord
or its agents, then Landlord shall indemnify, defend and hold Tenant free and
harmless from and against any and all claims, judgments, damages (but not
consequential damages), penalties, fines, costs and liabilities and losses
(including any diminution in the value of the Club) and sums paid in settlement
of claims, attorneys' fees, consultants' fees and expert fees) which arise
during or after the Term as a result of such contamination. This indemnification
by Landlord of Tenant includes any and all costs incurred in connection with any
investigation of site conditions or any clean up, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of the presence of such Hazardous Materials in, or
about the Premises. The provisions of this Subsection 8.3(ii) shall survive the
expiration or earlier termination of this Lease.
8.4 Restrictions.
Landlord hereby agrees that neither Landlord nor any
individual(s), firm or corporation controlled by, controlling or under common
control with Landlord shall lease to, sublease to, consent to an assignment or
sublease to, operate, own or become financially interested in, any other
athletic club within the Development.
9. Notices. All notices, consents, approvals, determinations and other
communications required or permitted to be given hereunder must be in writing
and may be given only by personal delivery, overnight delivery, facsimile
transmission or by mail, and if given by mail shall be deemed sufficiently given
only if sent by registered or certified mail, return receipt requested, to the
following address of the party to receive such notice, signed by a duly
authorized representative of the sending party. Notices shall be deemed received
if sent in compliance with the aforesaid requirements, upon actual receipt for
notices given by personal delivery or facsimile and upon the earlier of actual
receipt or the date three business days after deposit of any notice in the
United States mail if sent by registered or certified mail.
If to Landlord: Millennium Partners LLC
1995 Broadway
New York, New York 10023
Attention: Mr. Brian J. Collins
Fax: (212) 579-0662
With a copy to: Stroock & Stroock & Lavan, L.L.P.
180 Maiden Lane
New York, New York 10035
Attention: Roger M. Roisman, Esq.
Fax: (212) 806-6006
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If to Tenant: SCC Sports Club, Inc.
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Attention: Real Estate Dept.
with a copy to: Resch Polster Alpert & Berger LLP
10390 Santa Monica Boulevard
Fourth Floor
Los Angeles, California 90025
Attention: Ronald M. Resch, Esq.
Fax: (310) 552-3209
Either party may specify a different address for notice purposes by
written notice to the other.
10. Brokers. Landlord and Tenant each warrant to the other that such
party has not had any dealings with any real estate broker or agent in
connection with the negotiation of this Lease other than the Weatherby Company
(the "Broker"), and that such party knows of no real estate broker or agent
other than Broker who is or might be entitled to a commission in connection with
this Lease. If Landlord or Tenant has dealt with any person or real estate
broker or agent with respect to the transaction contemplated by this Lease
(other than Broker), the party so dealing with such person or broker or agent
shall be solely responsible for the payment of any fee due such person or broker
or agent and such party shall hold the other free and harmless from and against
any liability in respect thereto, including attorneys' fees and costs.
Notwithstanding the foregoing, Landlord shall be responsible for payment of all
fees to which Broker is entitled by reason of this transaction, and Landlord
shall make such payment to Broker in accordance with a separate agreement
between Landlord and Broker.
11. Holding Over. If Tenant holds over after the expiration or earlier
termination of the Term without the express consent of Landlord, Tenant shall
become a tenant at sufferance only, at a rental rate equal to 125% of the
Monthly Base Rent in effect upon the date of such expiration (prorated on a
daily basis), plus 100% of the other elements of Rent, and otherwise subject to
the terms, covenants and conditions herein specified, so far as applicable.
Acceptance by Landlord of Rent after such expiration or earlier termination
shall not result in a renewal of this Lease. The foregoing provisions of this
Article 11 are in addition to and do not affect Landlord's right of re-entry or
any rights of Landlord hereunder or as otherwise provided by law.
12. Taxes.
12.1 Payment. Commencing upon the Commencement Date, Tenant shall be
liable for and shall pay to Landlord in equal monthly installments with its
payment of Monthly Base Rent, all (i) real property taxes, (ii) personal
property taxes, (iii) general and special assessments, (iv) water and sewer
taxes, bonds, assessments and related charges, (v) excises, levies, license and
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permit fees and (vi) all other governmental charges, general and special,
ordinary and extraordinary, of any kind and nature whatsoever, which at any time
during or applicable to the Term may be assessed, levied, confirmed, imposed
upon, or become due and payable out of or in respect of, or become a lien on the
Premises, the Improvements or any portion thereof. If a separate real property
tax bill is not issued for the Premises at any time during the Term, but
Landlord receives a tax bill for a larger parcel of real property including the
Premises, Landlord shall bill Tenant for a pro rata share of such taxes;
Landlord shall provide Tenant with an invoice therefor together with a detailed
explanation of any proration, which proration shall be made on the basis of
Tenant's Share of the ratio between Floor Area of the Premises and the total
square feet of the Floor Area of the other tenantable portions of the taxed unit
of which the Premises form part. If Landlord shall receive any bills,
assessments or other official notices regarding any such taxes or other charges,
it shall promptly forward the same to Tenant, but an inadvertent failure (or
failures) to do so shall not be deemed a breach hereof. All such taxes,
assessments, charges and the like billed directly to Tenant or passed on to
Tenant by Landlord and paid by Tenant pursuant to the provisions of this Section
12.1 shall be excluded from Common Area Expenses or Operating Expenses, as
applicable. All taxes becoming a lien upon the Premises or any portion thereof
during the first and last Lease Year shall be prorated between Landlord and
Tenant to the first and last day of the Term, respectively. Upon Tenant's
request in writing, Landlord shall furnish to Tenant proof reasonably
satisfactory to Tenant of payment of the matters referred to in this Article. If
the Premises are separately assessed for real property taxes, Tenant shall have
the right, following notice to Landlord, to protest, contest or object to the
amount or validity of any such taxes, impositions or assessments; provided,
however, that this right to contest shall not be deemed or construed to relieve,
modify or extend Tenant's obligation to pay any such tax, imposition or
assessment before delinquency thereof unless Tenant has provided a bond or other
security satisfactory to Landlord. Tenant shall indemnify and defend Landlord
and save Landlord harmless from all costs, liabilities and expenses incurred in
connection with such proceedings.
12.2 Trade Fixtures. Tenant shall be liable for and shall pay, before
delinquency, all taxes levied against Trade Fixtures.
12.3 Protest. Tenant shall have the right, at its sole cost, to request
Landlord, by notice to Landlord given not less than ten days before the last
date for filing any necessary protest or petition or taking any other necessary
action, to initiate and prosecute any proceeding for the purpose of reducing the
assessed valuation of the Premises for tax purposes. In the event that Tenant in
good faith shall request Landlord, pursuant to the preceding sentence, to
initiate and prosecute any proceeding, Landlord shall, at Tenant's sole expense,
take all steps reasonably necessary to commence such proceeding and thereafter
shall diligently prosecute the same to completion. Any actual out-of-pocket
costs, including reasonable attorneys' fees, incurred by Landlord in connection
with any such proceeding brought at Tenant's request shall be payable upon
demand, as additional rent, by Tenant to Landlord. Any refund of moneys received
by Landlord resulting from such proceeding attributable to the Premises and
relating to real property taxes which may have been paid by Tenant shall be
refunded by Landlord to Tenant, together with all accrued interest which is
awarded thereon and received by Landlord; provided that if any such
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refund shall be made with respect to Landlord's property other than the
Premises, then Tenant's right to the same shall be limited to its pro rata
portion thereof, after payment or credit first (to the extent such monies are
received by Landlord from the taxing authority), to Tenant for Landlord's costs
previously paid by Tenant to Landlord as above provided and second (after all
costs incurred by Landlord have been recovered), for any other actual
out-of-pocket costs, including reasonable attorneys' fees incurred by Tenant in
connection with any such proceeding. Tenant's rights to refunds under this
Section 12.3, if any, shall survive the expiration of this Lease.
12.4 Definition. As used in this Lease, the term "REAL PROPERTY TAXES"
shall include any form of assessment, license fee, license tax, business license
fee, commercial rental tax, levy, charge, tax or similar imposition, imposed by
any authority having the direct power to tax, including any city, county, the
District of Columbia, state or federal government, or any school, agricultural,
lighting, drainage or other improvement or special assessment district thereof,
as against any legal or equitable interest of Landlord in the Premises,
including, but not limited to, the following: any tax on Landlord's "right" to
rent or "right" to other income from the Premises or as against Landlord's
business of leasing the Premises; any assessment, tax, fee, levy or charge in
substitution, partially or totally, of any assessment, tax, fee, levy or charge
previously included within the definition of real estate tax ("IN-LIEU TAX");
any assessment, tax, fee, levy or charge allocable to or measured by the area of
the Premises or the rent payable hereunder ("Receipts TAX"), including any gross
income tax or excise tax levied by any governmental authorities, or any
political subdivision thereof, with respect to the receipt of such rent, or upon
or with respect to the possessing, leasing, operating, managing, maintaining,
altering, repairing,
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using or occupying by Tenant of the Premises, or any portion thereof; any
assessment, tax, fee, levy or charge upon this transaction or upon any document
to which Tenant is a transferring party creating or transferring an interest or
an estate in the Premises; any assessment, fee, levy or charge by any
governmental agency related to any transportation plan, fund or system
instituted within the geographic area of which the Premises are a part; and
reasonable legal and other professional fees, costs and disbursements incurred
in connection with proceedings to reasonably contest, determine or reduce real
property taxes. Notwithstanding any provision of this Article 12 expressed or
implied to the contrary, Tenant shall not be required to pay any documentary
transfer taxes or recording taxes incurred by Landlord or Landlord's federal or
state income, franchise, inheritance or estate taxes or any local income,
franchise, inheritance or estate taxes, or other taxes in lieu thereof, except
for any In-Lieu Tax or any Receipts Tax.
13. Condition of Premises.
13.1 Landlord's Work. Landlord hereby agrees to cause to be
completed those acts and/or improvements described as the Landlord's Work in the
Work Letter within the time(s) set forth therein, subject to Force Majeure or
any Tenant Delay. Landlord hereby agrees that all work to be performed by
Landlord pursuant to the Work Letter shall be constructed by Landlord or
Landlord's contractor in a good and workmanlike first-class manner and in full
compliance with all governmental regulations, ordinances and laws existing at
the time of construction. Landlord agrees to abide by its obligations, if any,
under the CC&Rs. By taking possession of the Premises upon completion of the
Landlord's Work and for commencement of the construction of the Improvements,
Tenant shall be deemed to have: (a) acknowledged that Landlord's Work is
substantially complete and is accepted "as is" and "with all faults"; (b)
accepted the Premises as suitable for the purposes for which the Premises are
leased; and (c) acknowledged that the Premises are in a good and satisfactory
condition. Landlord hereby disclaims, and Tenant hereby waives to the full
extent permitted by law, any implied warranty that the Premises are suitable for
Tenant's intended commercial purpose, and any and all other implied warranties
(whether arising by virtue of statute, case law or otherwise). The foregoing
provisions shall not be construed to relieve Landlord from its obligations which
are expressly set forth in this Lease.
13.02 Design Changes. In order to provide Landlord with the
necessary flexibility in the planning and organizing of the Building, Tenant
agrees that the design of the Building (including the location of the demising
walls for the Premises) and elements of Landlord's Work shall be subject to such
changes as Landlord shall deem to be necessary or beneficial to the Building or
its tenants, provided, however, that the resulting Premises shall be
substantially equivalent for Tenant's purposes as prior to such changes
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14. Alterations.
14.1 Landlord's Approval. From and after the later of (x) the
Commencement Date, or (y) completion of the Improvements, Tenant, without
obtaining Landlord's prior consent, may only make alterations, additions or
improvements in or to the Premises which (i) are nonstructural in nature, and
(ii) do not affect the exterior of the Premises or other exterior portions of
the Improvements (but only to the extent generally visible from the Common
Areas). All alterations, additions and improvements other than those described
in Subsections 14.1 (i) and (ii) shall require Landlord's prior consent. Before
proceeding with any alteration, addition or improvement which requires
Landlord's prior consent hereunder, Tenant shall submit to Landlord plans and
specifications, including any applicable mechanical, electrical and plumbing
drawings, for the work to be done, which plans and specifications shall require
Landlord's approval. If Landlord shall disapprove of any of Tenant's plans and
specifications, Tenant shall be advised of the reasons for such disapproval.
14.2 Requirements. Tenant agrees to provide Landlord with notice of all
alterations, additions or improvements Tenant intends to make to the Premises
whether or not they require Landlord's prior consent as provided above. Tenant
shall cause Tenant's contractor to obtain on behalf of Tenant and at Tenant's
sole cost and expense all necessary governmental permits and certificates for
the commencement and prosecution of any alteration, addition or improvement and
for final approval thereof upon completion. All such work shall be done at such
times and in such manner as Landlord may from time to time designate. Tenant
covenants and agrees that all work done by Tenant shall be performed in full
compliance with the Condominium Documents, the CC&Rs, in full compliance with
all laws, rules, orders, ordinances, regulations and requirements of all
governmental agencies, offices, and boards having jurisdiction, and in full
compliance with the rules, regulations and requirements of any insurance rating
bureau having jurisdiction of the Premises. Before commencing any work, Tenant
shall give Landlord at least ten days' notice of the proposed commencement of
such work in order to provide Landlord with an opportunity to post notices of
nonresponsibility. Tenant further covenants and agrees that any mechanic's lien
recorded against the Premises for work claimed to have been done for, or
materials claimed to have been furnished to, Tenant will be discharged by
Tenant, by bond or otherwise, as provided in Article 16. All alterations,
additions or improvements upon the Premises made by either party, including all
wallcovering, built-in cabinetry, paneling and the like, shall, at Landlord's
option, upon the expiration or sooner termination of the Term become the
property of Landlord, and shall, at such time, remain upon, and be surrendered
by Tenant with the Premises, as a part thereof.
14.3 Removal. All articles of personal property and movable furniture,
including Trade Fixtures and any other of Tenant's furniture and equipment which
are installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant and may be removed by Tenant at any time during the Term
provided Tenant repairs any damage caused by such removal. If Tenant shall fail
to remove all of its effects from the Premises upon the termination of this
Lease, for any cause whatsoever, Landlord may, at it option, remove the same in
any manner that Landlord shall choose, and store said effects without liability
to Tenant for loss thereof so long as
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Landlord exercises reasonable care in doing so. In such event, Tenant agrees to
pay Landlord upon demand any and all reasonable expenses actually paid to third
parties incurred in such removal, including court costs and attorneys' fees and
storage charges on such effects for any length of time that the same shall be in
Landlord's possession. Landlord may, at its option, upon at least ten business
days' prior notice to Tenant of the date, time and place of such sale, sell said
effects, or any of the same, at private sale and without legal process, for such
price as Landlord may obtain and apply the proceeds of such sale to any amounts
due under this Lease from Tenant to Landlord and to the expense incident to the
removal and sale of said effects. Any rights of Landlord under this Section 14.3
shall be subject to the rights of lienholders with a security interest in
Tenant's personal property.
15. Repairs.
15.1 Tenant's Obligations. Except as otherwise hereinafter provided,
Tenant, at Tenant's sole cost and expense, shall keep, maintain (including
necessary replacements) and preserve the Property and every portion thereof, all
equipment, facilities and amenities used in connection therewith and all items
located on or about the Property, including plumbing, mechanical systems, floors
and utility systems (including HVAC system) and all portions thereof in
first-class condition and repair and shall, when and if needed, at Tenant's sole
cost and expense (subject to the damage and destruction provisions herein), make
all repairs to the Property and every part thereof including the interior walls
but excluding the structural columns described in Section 15.2, shall repaint
the interior and the exterior of the Improvements as necessary, replace all
broken window glass, and repair all facilities except for: the structural
columns described in Section 15.2. Tenant's obligation to keep, maintain,
preserve and repair the Premises shall specifically extend to the cleanup and
removal of all Hazardous Materials to the extent required in Article 8. Tenant
shall, upon the expiration or sooner termination of the Term, surrender the
Property to Landlord in its condition as of the commencement of Tenant's
operation of the Club for member use, usual and ordinary wear and tear and any
alterations, additions and improvements permitted under this Lease excepted, and
except as otherwise provided in Articles 21 and 22. Landlord shall have no
obligation to alter, remodel, improve, repair, decorate or paint the Property or
any part thereof, except as provided in Section 15.2 and except for cleanup and
removal of Hazardous Materials to the extent required in Article 8. The parties
hereto affirm that Landlord has made no representations to Tenant respecting the
condition of the Property except as specifically set forth in Article 13. In
addition, the parties hereto affirm that Landlord shall have absolutely no
obligation to keep, maintain or repair any portion of the interior of the
Premises except as herein expressly provided. Landlord shall be responsible for
repairs to the Property caused by the negligence or willful misconduct of
Landlord or its employees, agents, or contractors. Notwithstanding the
foregoing, to the extent that insurance carried by Landlord or Tenant provides
coverage for the cost of any maintenance or repair or replacement which is
Tenant's obligation pursuant hereto, Tenant shall be entitled to all benefits of
such insurance.
15.2 Landlord's Obligations. Landlord shall (subject to reimbursement
therefor pursuant to Section 7 above) keep, maintain and repair the Common Areas
in a first-class manner and be responsible for the repair and maintenance of the
structural elements of the Development
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except to the extent that the necessity for any repair or maintenance shall be
attributable to alterations performed by or through Tenant or by the negligence
or willful misconduct of Tenant or its employees, agents, contractors, licensees
or invitees. Notwithstanding the foregoing, Landlord shall (without being
subject to reimbursement therefor pursuant to Section 7), repair all defects in
Landlord's construction of the Building. Landlord shall grant easements and/or
grant rights of way to the extent necessary for utility companies to bring those
services identified in the Work Letter to the Premises. Notwithstanding anything
to the contrary contained in this Article 15 or elsewhere in this Lease, during
any period during the Term that the Premises shall be subject to a condominium
form of ownership, Landlord shall use diligent efforts to cause the Condominium
Association to fulfill all obligations on its part to perform its repair and
maintenance obligations in accordance with the Condominium Documents.
16. Liens. Except with respect to a security agreement, financing
statement, financing lien or other instrument securing the financing of Trade
Fixtures and Tenant's other furniture, fixtures, equipment and improvements
approved by Landlord, Tenant shall not permit to be recorded against the
Premises or any portion of the Development or against Tenant's leasehold
interest in the Premises, any mechanics', materialmen's or other liens,
including any state, federal or local Hazardous Material clean-up liens for
which Tenant is responsible under Article 8. Landlord shall have the right at
all reasonable times to post and keep posted on the Premises any notices which
it deems necessary for protection from such liens. If any such lien is recorded,
and is not discharged by Tenant by bond or otherwise within thirty days after
the recording thereof, Landlord may, without waiving its rights and remedies
based on such breach of Tenant and without releasing Tenant from any of its
obligations, cause such liens to be released by any means it shall deem proper,
including payment in satisfaction of the claim giving rise to such lien. Tenant
shall pay to Landlord at once, upon notice by Landlord, any sum paid by Landlord
to remove such liens, together with interest at the lesser of (x) the rate of
12% per annum and (z) the highest rate then legally permissible from the date of
such payment by Landlord together with Landlord's reasonable attorneys' fees and
other expenses incurred by Landlord in connection with obtaining such release.
Tenant expressly reserves the right to contest the validity of any such liens
and to post bonds suitable to cause the release of any such liens so long as (i)
prior to any such contest (and no later than 30 days after such lien has been
filed) Tenant at its sole expense provides to Landlord a bond indemnifying
against such lien that complies with all applicable laws, and (ii) Tenant
contests such lien diligently and in good faith; provided, however, the
foregoing right of Tenant to contest any such lien shall not impair or otherwise
affect Tenant's indemnification and other obligations with respect to such lien.
17. Entry by Landlord. Landlord reserves and shall at any and all
reasonable times during normal business hours upon giving at least one business
day's prior notice to Tenant (except in the case of emergencies, in which case
no notice shall be necessary) have the right to enter the Premises and the
Improvements to (i) inspect the same, (ii) show the Premises and the
Improvements to prospective lenders or purchasers (and prospective tenants
during the last twelve months of the Term), (iii) post notices of
nonresponsibility, and (iv) alter, improve or repair the Common Areas or any
other portion of the Development, all without being deemed guilty of any
eviction of Tenant and without abatement of rent. Landlord shall provide Tenant
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with the opportunity to escort Landlord with regard to any entry pursuant hereto
(except in case of an emergency). Landlord shall indemnify Tenant and hold
Tenant harmless from and against any and all claims, damages, losses or costs
(excluding consequential damages) incurred by Tenant as a result of Landlord's
entry upon the Premises pursuant to this Article 17 to the extent not covered by
insurance carried by Tenant or required to be carried by Tenant hereunder.
Landlord may, in order to carry out such purposes, erect scaffolding and other
necessary structures if reasonably required by the character of the work to be
performed, provided that to the extent within Landlord's reasonable control, the
business of Tenant shall be interfered with as little as is reasonably
practicable (it being agreed that Landlord shall not be required to employ
overtime or premium labor). It is understood and agreed that no provision of
this Lease shall be construed as obligating Landlord to perform any repairs,
alterations or decorations except as otherwise expressly agreed herein by
Landlord.
18. Utilities and Services.
(i) Tenant agrees to pay all charges for utilities and services
used by it on the Premises, including, but not limited to gas, electricity,
telephone, sanitary sewer, storm drainage, water, and trash collection. Landlord
shall, at Landlord's cost and expense, supply hot water for heat to such
distribution facilities as may exist in the Premises following completion of
Landlord's Work. Tenant shall maintain in good working order and make all
necessary repairs and replacements to such distribution facilities to the extent
the same are located within or exclusively service the Premises at Tenant's own
cost and expense. Heat shall be supplied to the Premises at such times and
periods as Tenant shall reasonably require for conducting its business at the
Premises in the manner contemplated by the Lease. Landlord shall supply (or
cause to be supplied) chilled condenser water to the Premises at such hours (not
to exceed eighteen (18) hours per day) as Tenant may designate. Within thirty
(30) days following demand therefor, Tenant shall pay to Landlord, as Additional
Rent, Landlord's then established charges which shall not exceed one hundred
(100%) percent of Landlord's out-of-pocket costs for the quantities of such
condenser water as Tenant may consume, as shown on the meter installed by
Landlord (but maintained by Tenant) plus Landlord's administrative charge of
five (5%) percent. Subject to Landlord's obligation to make utility easements
and rights of way available pursuant to the provisions of Section 15.2 and to
bring utility lines to the Premises pursuant to Section 1.1, Landlord shall not
be liable for damages or otherwise for any failure or interruption of any
utility or other service furnished to the Premises, unless such failure shall be
due to the negligence or willful misconduct of Landlord, its agents, licensees
or employees and is not covered by rent abatement and business interruption
insurance carried or required to be carried by Tenant. Subject to Landlord's
obligation to make utility easements and rights of way available pursuant to the
provisions of Section 15.2 and to bring utility lines to the Premises pursuant
to Section 1.1, Landlord does not warrant that any of the utilities and services
mentioned herein will be free from interruptions caused by repairs, renewals,
improvements, alterations, strikes, lockouts, accidents, inability of Landlord
to obtain fuel or supplies, or any other cause or causes beyond the reasonable
control of Landlord. Any such interruption of service shall never be deemed an
eviction or disturbance of Tenant's use and possession of the Premises, or any
part thereof, or give Tenant any right to terminate this Lease.
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(ii) Tenant agrees that it will not install any equipment which
will exceed or overload the capacity of any utility facilities, and that if any
equipment installed by Tenant shall require additional utility facilities in
excess of those specified in the Work Letter, the same shall be installed at
Tenant's expense in accordance with plans and specifications to be approved in
writing by Landlord in accordance with the standards set forth in Article 14.
19. Indemnification.
19.1 Tenant's Indemnity. Notwithstanding (i) the limits of Tenant's
insurance specified in Section 20.1 below and (ii) whether Tenant's insurance
shall be in full force and effect, Tenant shall indemnify, defend and hold
Landlord and the Condominium Association (if applicable) harmless from all
costs, expenses, penalties, claims, demands and liabilities ("CLAIMS") arising
from Tenant's use of the Property or the conduct of its business or from any
activity, work, or thing done by Tenant in or about the Premises. Tenant shall
further indemnify, defend and hold Landlord and the Condominium Association (if
applicable) harmless from all Claims arising from any Default, or arising from
any act, neglect, fault or omission of Tenant or of its agents, employees or
licensees in the Premises, the Common Areas and/or other areas of the
Development, or arising from any act, neglect, fault or omission of Tenant's
invitees in the Premises, and from and against all costs, attorneys' fees,
expenses and liabilities incurred in connection with such Claim or any action or
proceeding brought thereon, but this indemnity shall not extend to Claims to the
extent resulting from negligent acts or omissions or willful misconduct of
Landlord or the Condominium Association, as applicable, their respective
employees, agents, licensees or invitees, to consequential or punitive damages
or to Claims that are as applicable covered by property insurance carried by
Landlord or the Condominium Association or required to be carried by Landlord
hereunder. In case any action or proceeding shall be brought against Landlord
and/or the Condominium Association, as applicable by reason of any such claim,
Tenant, upon notice from Landlord and/or the Condominium Association, as
applicable, shall defend the same at Tenant's expense by counsel approved by
Landlord and/or the Condominium Association, as applicable. Tenant, as a
material part of the consideration to Landlord, hereby assumes all risk of
damage to property or injury to persons in, upon or about the Property from any
cause whatsoever, except that for which Landlord may be liable pursuant to the
indemnity contained in Section 19.2.
19.2 Landlord's Indemnity. Landlord shall indemnify, defend and hold
Tenant harmless from any and all Claims arising from any activity, work, or
thing done by Landlord in or about the Development. Landlord shall further
indemnify, defend and hold Tenant harmless from all Claims arising from any
breach or default in the performance of any obligation to be performed by
Landlord under the terms of this Lease or arising from any act, neglect, fault
or omission of Landlord or of its licensees, invitees, agents or employees
within the Development (provided, however, it is agreed that tenants or other
occupants of the Development and their respective licensees, invitees, agents or
employees shall not be deemed to be Landlord's licensees, invitees, agents or
employees) and from and against all costs, attorneys' fees, expenses and
liabilities incurred in connection with such Claims or any action or proceeding
brought thereon, but this
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indemnity shall not extend to Claims to the extent resulting from the negligent
acts or omissions or willful misconduct of Tenant, its employees, agents or
licensees, to consequential or punitive damages or to Claims that are covered by
property insurance carried by Tenant or required to be carried by Tenant
hereunder. In case any action or proceeding shall be brought against Tenant by
reason of any such Claims, Landlord, upon notice from Tenant, shall defend the
same at Landlord's expense by counsel approved by Tenant; it being agreed that
Stroock & Stroock & Lavan LLP and/or counsel designated by Landlord's insurer
are acceptable to Tenant for such purpose.
19.3 No Release of Insurers. Tenant's and Landlord's indemnification
obligations under Sections 19.1 and 19.2 are not intended to and shall not
relieve any insurance carrier of its obligations under policies carried by
Landlord or Tenant, and such indemnification obligations shall survive the
expiration or earlier termination of this Lease.
20. Insurance.
20.1 Tenant's Insurance. Tenant shall, during the Term and any other
period of occupancy of the Premises, at its sole cost and expense, keep in full
force and effect the following insurance:
(i) Property. Standard form property insurance insuring against
the perils of fire, extended coverage, vandalism, malicious mischief, special
extended coverage ("ALL-RISK") and sprinkler leakage, covering all property
owned by Tenant, for which Tenant is legally liable or that was installed solely
at Tenant's expense, and which is located on the Premises, including interior
improvements, furniture, fittings, installations, Trade Fixtures, equipment,
facilities and any other personal property and any alterations, additions and
improvements constructed by Tenant pursuant to Section 14.1 hereof (but
excluding any property required to be insured by Landlord under Section 20.4),
in an amount not less than the full replacement cost thereof. All proceeds from
the insurance required under this Section 20.1(i) shall be used for the repair,
restoration or replacement of the damaged or destroyed property unless this
Lease terminates pursuant to Section 21, in which event the provisions of
Section 20.3 shall control.
(ii) Liability. Comprehensive General Liability Insurance
insuring Tenant against any liability arising out of the lease, use, occupancy
or maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be in the amount of not less than $5,000,000.00 Combined Single Limit for
injury to, or death of one or more persons in an occurrence, and for damage to
tangible property (including loss of use) in an occurrence. Any such coverage
requirement may be satisfied by an "umbrella policy." Such policies shall insure
the hazards of premises and operations, independent contractors, contractual
liability (covering the indemnity contained in Article 19) and shall (a) name
Landlord, the Condominium Association (if applicable) and any mortgagee of
Landlord as additional insureds, (b) contain a cross liability provision, and
(c) contain a provision that "the insurance provided Tenant hereunder shall be
primary and noncontributing with any other insurance available to Landlord or
the Condominium Association," so long as such provision may be available.
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(iii) Workers' Compensation. Workers' Compensation and Employer's
Liability insurance (as required by state law).
(iv) Rental Interruption. Twelve months' rent abatement and
business interruption insurance which shall cover Tenant's monetary obligations
under this Lease and any direct or indirect loss of earnings attributable to
perils insured against under extended coverage all-risk property insurance;
provided, however, that Tenant shall be entitled to self-insure such risk.
(v) Liquor. Liquor liability insurance coverage with commercially
reasonable coverage limits, but in no event less than $5,000,000.00 per
occurrence, naming Landlord, the Condominium Association and any mortgagee of
Landlord as additional insureds. Any such coverage requirement may be satisfied
by an "umbrella policy."
20.2 Requirements. All policies required of Tenant shall be written by
an insurer satisfactory to Landlord. Prior to the date Tenant enters the
Premises, but in no event later than sixty days after the execution of this
Lease, Tenant shall deliver to Landlord copies of policies or certificates
evidencing the existence of the amounts and forms of coverage required (or, in
the event of self-insuring as permitted in subsection 20.01 (iv) only, evidence
of Tenant's net worth of not less $10,000,000). No such policy shall be
cancelable or reducible in coverage except after thirty days' prior written
notice to Landlord. Tenant shall, within thirty days prior to the expiration of
such policies, furnish Landlord with renewals, certificates of insurance, or
"binders" thereof, and, if Tenant fails to do so within ten days following
notice of such failure, then, upon an additional notice to Tenant, Landlord may
order such insurance and charge the cost thereof to Tenant as additional rent.
If Landlord obtains any insurance that is the responsibility of Tenant under
this Article 20, Landlord shall deliver to Tenant a statement setting forth the
cost of any such insurance and showing in reasonable detail the manner in which
it has been computed, and, if obtainable, a certificate of insurance naming
Tenant as the insured or as an additional insured. Tenant's obligation to carry
insurance provided for in this Article 20 may be satisfied by inclusion within
the coverage of any blanket policy or policies of insurance carried or
maintained by Tenant, provided that the coverage required herein will not be
reduced or diminished by reason of the use of such blanket policies of
insurance.
20.3 Proceeds Upon Termination. In the event of damage to or destruction
of the Improvements resulting in termination of this Lease pursuant to Article
21, (i) Landlord shall be entitled to all proceeds of the insurance required to
be maintained under Section 20.4 (subject to Landlord's obligation to cause such
proceeds to be disbursed for the purposes of restoration, as herein provided)
and (ii) Tenant shall immediately pay to Landlord all of its property insurance
proceeds, if any, plus any deductible amount (subject to the limitation
described below) relating to the Improvements and all other items of property
which would have become Landlord's property upon expiration or earlier
termination of this Lease absent such damage or destruction (but not relating to
Trade Fixtures or Tenant's other equipment, furniture or personal property).
Notwithstanding the foregoing, Tenant shall not be required to pay any such
deductible amounts
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to Landlord unless Landlord can demonstrate that it has entered into a new lease
with a nonaffiliate of Landlord for an athletic club on the Premises within
twelve months after termination of this Lease.
20.4 Landlord's Insurance. Landlord may, but shall not be obligated to,
take out and carry any form or forms of insurance ("Landlord's Insurance") as it
may reasonably determine advisable, or as may be required by Landlord's
mortgagee; provided, however, that Landlord shall be required to carry (i)
Comprehensive General Liability Insurance in amounts not less than those
required of Tenant pursuant to Subsection 20.1 and (ii) insurance against any
peril insurable under an all-risks property insurance policy covering the
Improvements, exclusive of any item insured by Tenant pursuant to Section
20.1(i), in an amount which is one hundred (100%) of the full replacement cost
of the Improvements. Landlord's obligation to carry the all-risks property
insurance provided for in this Section 20.4 may be satisfied by inclusion of the
Improvements within the coverage of any blanket policy or policies of insurance
carried or maintained by Landlord, provided that the coverage required herein
will not be reduced or diminished by reason of the use of such blanket policies
of insurance. Tenant shall reimburse Landlord, as additional rent payable in
equal monthly installments, the cost of the all-risks property insurance for the
Improvements required by this Section 20.4 commencing within thirty days
following demand therefor, and the premiums for such insurance will not be
included in the "Insurance Escalation" (as hereafter defined). In the event such
all-risks property insurance covers improvements other than the Improvements,
Tenant's pro rata share will be that proportion that the Floor Area of the
Improvements bears to the total Floor Area of all improvements covered by such
policy.
20.5 Insurance Escalation. Except for Landlord's cost of the all-risks
property insurance for the Improvements, as addressed in Section 20.4 above, if
Landlord's cost of obtaining Landlord's Insurance for the Property and/or the
Building and the operations thereof exceeds the cost of obtaining such insurance
for the first twelve (12) months following the Commencement Date, Tenant shall
pay to Landlord, within thirty 30 days, after being billed therefore, an amount
equal to Tenant's Share of such increased cost.
20.6 Compliance. Landlord and Tenant shall promptly comply with all
reasonable requirements of the insurance authority or of any insurer now or
hereafter relating to the Premises.
20.7 Waiver of Subrogation. All policies of all-risk, fire, extended
coverage or similar property insurance which either party obtains or is required
to maintain in connection with the Development, and the insurance required to be
obtained by Tenant pursuant to the provisions of Subsection 20.1 (iv), and, if
obtainable, all liability policies, shall include or shall be deemed to include
a clause or endorsement denying the insurer any rights of subrogation against
the other party. Landlord and Tenant waive all rights of recovery against the
other for injury or loss due to hazards covered by insurance containing or
deemed to contain such a waiver of subrogation clause or endorsement to the
extent of the injury or loss covered thereby.
21. Damage or Destruction.
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21.1 (i) Tenant's Reconstruction. In the event the Improvements shall be
damaged by fire or other perils and this Lease shall not be terminated as
hereafter provided, Tenant, at its sole cost and expense, shall within a period
of thirty (30) days thereafter, commence repair, reconstruction and restoration
of the Improvements to their condition existing immediately prior to such damage
and prosecute the same diligently to completion in compliance with all
applicable laws, and this Lease shall continue in full force and effect unless
this Lease is terminated as hereinafter provided. Any such repair,
reconstruction and restoration shall be performed strictly in accordance with
the provisions of Article 14 and Tenant shall be entitled to apply the insurance
proceeds to the repair, reconstruction and restoration in the manner provided in
Section 21.2. If at any time Tenant shall fail to prosecute such work of repair
or rebuilding with diligence, then Landlord may give to Tenant notice of such
failure and if such failure continues for twenty days thereafter, then Landlord,
in addition to all other rights which it may have, may enter upon the Premises,
provide labor and/or materials, cause the performance of any contract and/or
take such other action as it may deem advisable to prosecute such work. For this
purpose, any contracts made by Tenant for purposes of accomplishing repair,
reconstruction and restoration of the Improvements shall be in a form assignable
to Landlord and shall be subject to Landlord's approval. Landlord shall be
entitled to reimbursement for its costs and expenses in performing such work
from any insurance proceeds and any other moneys held by the Depository (as
defined herein) for application to the cost of such work in accordance with
Section 21.2. All costs and expenses incurred by Landlord in carrying out such
work for which it is not reimbursed by the Depository shall be paid by Tenant
upon demand, which demand may be made by Landlord periodically as such costs and
expenses are incurred, in addition to any damages to which Landlord may be
entitled hereunder.
(ii) Uninsured Casualty. In the event the Improvements shall be
damaged by peril which is not covered by insurance required to be maintained
hereunder (or which is otherwise maintained), and if a duly qualified contractor
certifies, in good faith and fair dealing, that the amount required to repair
such damage exceeds the "Uninsured Contribution Amount" (as defined herein),
Tenant shall have the option to terminate this Lease upon giving notice to
Landlord of its exercise of such termination option within sixty days after such
damage or destruction. Upon such termination of this Lease, the parties shall be
released without further obligations to the other coincident with the surrender
of possession of the Premises to Landlord, except for items which theretofore
accrued and are then unpaid and any obligations specified in this Lease which
are to survive the termination of this Lease. Notwithstanding the foregoing, in
the event that Tenant exercises its option to terminate this Lease pursuant to
the provisions of this Subsection 21.1 (ii), Landlord shall have the option,
exercisable within thirty days after Landlord's receipt of Tenant's termination
notice, to notify Tenant that Landlord elects to fund the amount required to
repair such damage and destruction in excess of the Uninsured Contribution
Amount, in which case such repair, reconstruction and restoration shall be
performed pursuant to the procedures set forth in this Subsection 21.1(ii),
except that Tenant shall contribute the Uninsured Contribution Amount and
Landlord shall fund any additional amounts necessary to accomplish such repair,
reconstruction and restoration. The "UNINSURED CONTRIBUTION AMOUNT" shall be
Five Hundred Thousand ($500,000.00) Dollars if the casualty occurs during the
first 180 calendar
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months of the Initial Term, which amount shall be reduced at the beginning of
193rd calendar month of the Initial Term, and every 12 months thereafter, by One
Hundred Thousand ($100,000.00) Dollars, until (but not including) the beginning
of the last 12 months of the Initial Term. The One Hundred Thousand
($100,000.00) Dollars Uninsured Contribution Amount in effect for the last 12
months of the Initial Term shall remain throughout any Option Periods.
(iii) Landlord Termination. In the event that any portion of the
Development (including the Building) shall be damaged to such an extent that
Landlord, the Condominium Association or any of Landlord's lenders shall elect
not to restore same, then Landlord shall have the right to terminate this Lease
within ninety (90) days following the date of the damage or destruction or, if
applicable, within a reasonable time after Landlord shall have been notified of
the Condominium Association's or lender's decision not to restore. Upon such
termination of this Lease, the parties shall be released without further
obligations to the other coincident with the surrender of possession of the
Premises to Landlord, except for items which theretofore accrued and are then
unpaid and any obligations specified in this Lease which are to survive the
termination of this Lease. Subject to the rights of Landlord's lenders and/or
the Condominium Association, Landlord shall not elect to terminate this Lease
unless a material portion of the Development (i.e., more than 25%) shall have
been damaged.
21.2 Depository. The "DEPOSITORY" shall be a bank or trust company
authorized to do business in California with a net worth of at least
$10,000,000.00 selected by Tenant and approved by Landlord; provided, however,
that if (i) Tenant does not make such a selection within ten business days after
notice and demand by Landlord, then Landlord may select the Depository and (ii)
if Landlord has a lender whose loan is secured by the Property, then anyone,
excluding Landlord or any affiliate of Landlord, designated by such lender shall
be the Depository. Subject to Section 21.6, all property insurance moneys
recovered on account of damage or destruction to the Improvements shall be
applied to the payment of the cost of repairing and replacing the Improvements.
If net available insurance moneys shall be insufficient to pay the entire cost
of such work, then Tenant shall bear the cost thereof in excess of the net
available insurance moneys. Except for work which is reasonably expected to cost
less than $100,000.00 (with respect to which Landlord shall hold the proceeds),
the Depository shall hold insurance proceeds and shall disburse said proceeds
during the course of the work of repair, reconstruction and restoration in
accordance with the provisions set forth below unless the Depository is
Landlord's lender or a designee of such lender, in which event the provisions of
the loan documentation shall control. The Depository shall not be required to
make disbursements more often than at thirty day intervals. Landlord, Tenant and
the Depository shall reasonably, promptly and in good faith prepare and execute
reasonable and appropriate instructions for disbursement of the proceeds which
shall include a procedure for receipt of certificates, plans, notices, lien
releases and applications for payment. Notwithstanding anything to the contrary
contained herein, disbursement of such insurance proceeds shall in all events
(i) be subject to such requirements as may be imposed by the Condominium
Association and/or any mortgagee of Landlord and (ii) include a procedure for a
retainage of 10% of the cost of the work from each draw disbursed in connection
with such restoration until at least 30 days after the completion of all work.
If, after all of said work shall be completed in accordance with the terms of
this Lease and all
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governmental approvals and permits required have been obtained, there are funds
held by the Depository for application to the cost of such work in excess of the
amounts withdrawn, then such funds (after first applying such funds to the costs
and expenses of the Depository) shall be delivered to Tenant; provided, however,
that if the funds held by the Depository are a result of any insurance carried
by Landlord or Section 21.5, such funds shall be delivered to Landlord. The
Depository may retain free of trust its reasonable fees and expenses for acting
as such.
In the event there are not sufficient funds held by the
Depository to pay its fees and expenses, Landlord and Tenant shall share equally
the fees and expenses of the Depository.
21.3 No Termination or Rental Abatement. No destruction of or damage to
the Property or any part thereof, whether such destruction or damage be partial
or total or whether such destruction or damage shall have been covered by
insurance or not, shall entitle or permit Tenant to surrender or terminate this
Lease (except as provided in Section 21.1(ii)) or relieve Tenant from liability
to pay in full the rents and other sums and charges payable by Tenant hereunder
(except as provided in Section 21.5), or from any of its obligations under this
Lease. Tenant hereby waives any rights now or hereafter conferred upon it by
statute or other law to surrender this Lease or to quit or surrender the
Property or any part thereof, or to receive any suspension, diminution,
abatement or reduction of the rent or other sums and charges payable by Tenant
hereunder on account of any such destruction or damage.
21.4 Limited Rental Abatement. Notwithstanding anything to the contrary
contained herein, in the event that the Improvements shall be damaged by peril
which is not covered by insurance required to be maintained hereunder (or which
is otherwise maintained) then, to the extent not covered by the rent abatement
insurance or business interruption insurance required to be carried by Tenant
pursuant to Subsection 20.1 (iv) (whether by self insuring or otherwise), unless
such damage was caused by the wrongful act or neglect of Tenant, Tenant shall be
entitled to abate its obligations to pay Monthly Base Rent and, as applicable,
Common Area Expenses or Operating Expenses, for the period from the date of such
peril until the earlier of (i) the date upon which Tenant opens for operation of
its business, or (ii) the date which is nine months after the date of such peril
provided that such nine month period shall be reduced to the extent that Tenant
does not diligently seek to repair the damage caused as a result of such peril.
From and after the expiration of such rental abatement, Tenant's obligation to
pay Monthly Base Rent and, as applicable Common Area Expenses or Operating
Expenses shall once again commence.
21.5 Lender's Prior Rights to Insurance Proceeds. Notwithstanding
anything to the contrary herein, Tenant acknowledges that the rights of any
lender holding a mortgage or deed of trust against the Premises ("SECURED
LENDER") to any insurance proceeds applicable to the Improvements, except for
Tenant's Insurance Share, shall be superior to the rights of Landlord and Tenant
to such proceeds. "TENANT'S INSURANCE SHARE" is equal to Tenant's "pro rata
share" (as determined in accordance with Section 22.1) of the insurance proceeds
payable for the damaged Improvements. Landlord agrees to use commercially
reasonable efforts to cause the Secured Lender to make the insurance proceeds in
which the Secured Lender has a prior interest
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available to Tenant for reconstruction as contemplated in this Lease. If, within
270 days following a casualty, a Secured Lender has not made such proceeds
available for reconstruction, then at Tenant's election this Lease shall
terminate as of said 270th day, unless Landlord gives notice to Tenant on or
before said 270th day that Landlord is willing to provide the sums necessary for
reconstruction in excess of any deductibles and Tenant's Insurance Share, in
which case this Lease shall not terminate and Landlord shall deposit such sums
with the Depository and Tenant shall reconstruct the Premises in accordance with
the provisions of this Article 21. The disbursement of any insurance proceeds
applicable to the Improvements shall be subject to the control of the Secured
Lender notwithstanding anything to the contrary in Section 21.2.
22. Eminent Domain.
22.1 Permanent Taking. In case all of the Property (a "TOTAL TAKING"),
or such part thereof as shall substantially interfere with Tenant's use and
occupancy thereof to the extent Tenant cannot operate the Club (a "SUBSTANTIAL
TAKING"), shall be taken for any public or quasi-public purpose by any lawful
power or authority by exercise of the right of appropriation, condemnation or
eminent domain, or sold to prevent, or in lieu of, such taking, this Lease shall
automatically terminate effective as of the date possession is required to be
surrendered to said authority. In the event the amount of property or the type
of estate taken shall not substantially interfere with the conduct of Tenant's
business (a "PARTIAL TAKING"), Tenant shall restore the Property to
substantially its same condition prior to such Partial Taking and a fair and
equitable allowance shall be made to Tenant for the rent corresponding to the
time during which, and to the part of the Property of which, Tenant shall be so
deprived on account of such taking. Tenant shall not assert any claim against
Landlord for any compensation because of such taking. In the event of a Total
Taking, Substantial Taking or Partial Taking, any award shall belong to and be
paid to Landlord subject to the rights of any mortgagee of Landlord's interest
in the Premises or the beneficiary of any deed of trust which constitutes an
encumbrance thereon, except that Tenant shall be entitled to any portion of such
award related to (i) Trade Fixtures or Tenant's other equipment and/or personal
property which is taken, (ii) Tenant's moving expenses and loss of goodwill,
(iii) Tenant's "pro-rata share" of the straight-line (on a 20-year basis)
unamortized costs of the Improvements taken, and (iv) in the case of a Partial
Taking only, the amount required to restore the Property to substantially its
same condition prior to such Partial Taking which shall be held by the
Depository for Landlord and shall be disbursed to Tenant for the purposes of
such restoration upon the same terms and conditions as if they were insurance
proceeds under Section 21 hereof. For the purposes of this Section 22.1,
"PRO-RATA SHARE" shall be determined by the proportion that the cost paid by
Tenant for the taken Improvements bears to the total of those costs paid
therefor by Landlord and Tenant: Nothing contained in this Section 22.1 shall be
deemed to give Landlord any interest in any award made to Tenant for the taking
of Trade Fixtures or Tenant's other personal property, fixtures and goodwill and
for relocation expenses. Landlord agrees not to interfere with Tenant's right to
participate in any condemnation proceedings. The provisions of this Section 22.1
shall survive the termination of this Lease.
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22.2 Temporary Taking. In the event of taking of the Property or any
part thereof for temporary use, (i) this Lease shall be and remain unaffected
thereby and rent shall not abate, and (ii) Tenant shall be entitled to receive
for itself such portion or portions of any award made for such use with respect
to the period of the taking which is within the Term, provided that if such
taking shall remain in force at the expiration or earlier termination of this
Lease, Tenant shall then pay to Landlord a sum equal to the reasonable cost of
performing Tenant's obligations under Article 15 with respect to surrender of
the Property and upon such payment shall be excused from such obligations. For
purpose of this Section 22.2 a temporary taking shall be defined as a taking for
a period of ninety days or less.
22.3 Waiver. Landlord and Tenant each hereby waive any statutory rights
of termination which may arise by reason of a taking.
23. Defaults and Remedies.
23.1 Defaults. The occurrence of any one or more of the following events
shall constitute a default hereunder by Tenant ("DEFAULT"):
(i) The vacation or abandonment of the Premises by Tenant or
failure to continuously operate the Club in accordance with Article 8 hereof
where Tenant has failed to cure such vacation, abandonment or failure to operate
within thirty days following notice from Landlord to Tenant of the need for such
cure (the parties agree, however, that cessation of operations of business from
the Premises from time to time for periods not exceeding forty-five days for the
purpose of making alterations, additions or improvements to the Property shall
not be considered vacation or abandonment of the Premises);
(ii) The failure by Tenant to make any payment of Rent or any
other payment required to be made by Tenant hereunder (including the Work
Letter), where such failure shall continue for a period of ten business days
following notice from Landlord to Tenant that such payment is due; provided,
however, Tenant shall be entitled to such notice and opportunity to cure on only
two occasions during any 12-month period;
(iii) The failure by Tenant to observe or perform any of the
covenants or provisions of this Lease (including the Work Letter) to be observed
or performed by Tenant, other than as specified in Subsections 23.1(i) or (ii),
where such failure shall continue for a period of thirty (30) days after notice
thereof from Landlord to Tenant. If the nature of the Default is such that more
than thirty (30) days are reasonably required for its cure, then Tenant shall
not be deemed to be in Default if Tenant shall commence such cure within said
thirty-day period and thereafter diligently prosecutes such cure to completion,
which completion shall occur not later than 120 days from the date of such
notice from Landlord; or
(iv) (a) The making by Tenant of any general assignment for the
benefit of creditors; (b) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or a petition for reorganization or arrangement under
any law relating to bankruptcy unless, in the case
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of a petition filed against Tenant, the same is dismissed within 120 days; (c)
the appointment of a trustee or receiver to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within 120 days; or (d) the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease where such
seizure is not discharged within 120 days.
Any notice provided for in this Section 23.1 shall be in addition
to, and not in lieu of, any statutorily-required notice regarding unlawful
detainer actions.
23.2 Remedies. In the event of any Default, in addition to any other
remedies available to Landlord at law or in equity, Landlord shall have the
immediate option to terminate this Lease and all rights of Tenant hereunder. In
the event that Landlord shall elect to so terminate this Lease then Landlord may
recover from Tenant:
(i) the worth at the time of award of any unpaid Rent which had
been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid Monthly Base Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided.
As used in Subsection 23.2(i) and (ii), the "worth at the time of
award" is computed by allowing interest at the rate of 12% per annum. As used in
Subsection 23.2(iii), the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus 1%. Notwithstanding anything to the contrary
contained in this Lease, neither Landlord nor Tenant shall be liable for
consequential or punitive damages which may be suffered by the other as a result
of a default by Landlord or default by Tenant under this Lease.
23.3 Re-entry. In the event of any Default, Landlord shall also have the
right, without terminating this Lease, to re-enter the Premises and remove all
persons and property from the Premises; such property may be removed and stored
in a public warehouse or elsewhere at the cost of and for the account of Tenant.
No re-entry or taking possession of the Premises by Landlord pursuant to this
Section 23.3 shall be construed as an election to terminate this Lease unless a
notice of such intention is given to Tenant or unless the termination thereof is
decreed by a court of competent jurisdiction.
23.4 Cumulative Rights. Except as otherwise expressly provided in this
Lease, all rights, options and remedies of Landlord contained in this Lease
shall be construed and held to be
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cumulative, and no one of them shall be exclusive of the others, and Landlord
shall have the right to pursue any one or all of such remedies or any other
remedy or relief which may be provided by law, whether or not stated in this
Lease. No waiver of any Default shall be implied from any acceptance by Landlord
of any rent or other payments due hereunder or any omission by Landlord to take
any action on account of such Default if such Default persists or is repeated,
and no express waiver shall affect Defaults other than as specified in said
waiver.
24. Assignment and Subletting.
24.1 Landlord's Consent. Tenant shall not, either voluntarily or by
operation of law, assign, sublet, pledge, encumber hypothecate or transfer this
Lease, without the prior consent of Landlord, which consent may be granted or
withheld in Landlord's sole and absolute discretion. Without limiting the
foregoing, it shall be a condition to Landlord's consent hereunder that the
assignee execute, acknowledge and deliver to Landlord an agreement whereby such
assignee agrees to be bound by all of the covenants and agreements in this Lease
which Tenant has agreed to keep, observe or perform.
24.2 Notice. Subject to the provisions of Article 46, in the event
Tenant desires to assign, sublet, hypothecate or otherwise transfer this Lease
(other than to Tenant's Lender in which case Article 46 shall apply) then at
least thirty days prior to the date when Tenant desires the transaction to be
effective (the "ASSIGNMENT DATE"), Tenant shall give Landlord a notice (the
"ASSIGNMENT NOTICE"), which shall set forth the name, address and business of
the proposed assignee or sublessee, information (including references)
concerning the character, ownership, and financial condition of the proposed
assignee or sublessee, the Assignment Date, and any ownership or commercial
relationship between Tenant and the proposed assignee or sublessee. If Landlord
requests additional detail within ten days after Tenant's initial submission,
the Assignment Notice shall not be deemed to have been received until Landlord
receives such additional detail, and without otherwise limiting the provisions
of Section 24.1 above, Landlord may withhold consent to any assignment or
sublease until such information is provided to it.
24.3 Ownership Transfers. Any dissolution, merger, consolidation, or
other reorganization of the corporation which constitutes Tenant, or the sale or
other transfer of more than 50% of the corporate stock of the corporation, or
the sale of more than 50% of the value of the assets of the corporation, shall
be deemed an assignment prohibited by this Article 24 unless (i) Landlord's
consent is obtained, or (ii) the net worth of Tenant's parent corporation or the
reorganized tenant entity, as applicable, shall not be less than the net worth
of Tenant's parent corporation as of the date hereof and if the net worth of the
reorganized tenant entity shall be less than the net worth of Tenant's parent
corporation as of the date hereof, the parent corporation directly or indirectly
retains control of the reorganized tenant entity and continues to guaranty the
obligations of Tenant hereunder and in either event subject to the express
condition that the Premises shall (to Landlord's reasonable satisfaction) be
operated in a manner consistent with the standards applicable with Sports/Club
New York as of the date hereof. The term "CONTROL" as
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used in this Section 24.3 shall mean the direction of the management and
policies of a person or entity, whether through the ownership of voting
securities, by contract or by law.
24.4 No Release. Any sale, assignment, subletting, hypothecation or
transfer of this Lease that is not in compliance with the provisions of this
Article 24 shall, at Landlord's option, be void. The consent by Landlord to any
assignment or sublease shall not be construed as relieving Tenant or any
assignee of this Lease from any liability or obligation hereunder whether or not
then accrued. This Article 24 shall be fully applicable to all further sales,
hypothecations, transfers and assignments of any portion of the Premises by any
successor or assignee of Tenant.
25. Subordination. Without the necessity of any additional document
being executed by Tenant for the purpose of effecting a subordination, and at
the election of Landlord or any mortgagee with a lien on the Premises or any
ground lessor with respect to the Premises, this Lease shall be subject and
subordinate at all times to: (i) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Premises, (ii) the lien of
any mortgage or deed of trust which may now exist or hereafter be executed in
any amount for which the Premises is specified as security, and (iii) the
Condominium Documents (as same may now or hereafter exist) and (iv) any CC&Rs
(as may now or hereafter exist) that do not materially increase Tenant's
obligations hereunder nor materially decrease Tenant's rights hereunder.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
conveyance in lieu of foreclosure is made for any reason, Tenant shall,
notwithstanding any subordination, attorn to and become the tenant of the
successor in interest to Landlord. Tenant covenants and agrees to execute and
deliver within fifteen business days after demand by Landlord and in the form
requested by Landlord, any additional documents evidencing the subordination of
this Lease with respect to any such ground leases or underlying leases, the lien
of any such mortgage or deed of trust, the Condominium Documents or the CC&Rs,
and, effective upon a failure to do so, Tenant hereby irrevocably appoints
Landlord as attorney-in-fact of Tenant to execute, deliver and record any such
document in the name and on behalf of Tenant. In consideration of, and as a
condition precedent to, Tenant's agreement to be bound by the subordination
provisions of this Article 25, Landlord shall provide to Tenant for Tenant's
execution, a commercially reasonable subordination, attornment and
nondisturbance agreement ("NON-DISTURBANCE AGREEMENT"), in recordable form, that
in any event shall not provide for any material increase in Tenant's obligations
nor any material decrease in Tenant's rights under this Lease and shall be
executed by all future ground lessors, mortgageholders and deed of trust
beneficiaries of any of Landlord's interest in the Premises desiring to
subordinate this Lease to the ground lease, mortgage or deed of trust, as
applicable. In the event Landlord fails to obtain any Non-Disturbance Agreement,
then, as to the mortgage, deed of trust or ground lease which would have been
the subject thereof, this Article 25 shall be void and of no force or effect.
26. Estoppel Certificate.
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26.1 Delivery. Within fifteen business days following any request which
Landlord or Tenant may make from time to time, the other party shall execute and
deliver to the requesting party a statement certifying: (i) the Commencement
Date; (ii) the fact that this Lease is unmodified and in full force and effect
(or, if there has been modification hereto, that this Lease is in full force and
effect, and stating the date and nature of such modification); (iii) the date to
which the rental and other sums payable under this Lease have been paid; (iv)
that to the best of the certifying party's knowledge there is no current default
under this Lease by either Landlord or Tenant except as specified in the
statement; and (v) such other matters reasonably requested by the requesting
party. Landlord and Tenant intend that any statement delivered pursuant to this
Section 26.1 may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Premises, the Club or any interest in either, and
said statement shall so state.
26.2 Failure to Deliver. Landlord's or Tenant's failure to deliver any
statement required pursuant to Section 26.1 within such time shall be conclusive
upon such failing party (i) that this Lease is in full force and effect, without
modification except as may be reasonably represented in good faith by Landlord
or Tenant, (ii) that there is no uncured default in Landlord's or Tenant's
performance, and (iii) that not more than one month's rental has been paid in
advance.
26.3 Financial Statements. Within 10 days after Landlord's written
request, Tenant shall furnish to Landlord (i) no more often than once per
calendar-quarter, the most current existing audited financial statements of
Tenant (which shall, at a minimum, include a balance sheet and income
statement), and (ii) if at any time Tenant is not a publicly-traded entity or an
affiliate thereof which files consolidated financial statements, such other
information relating to Tenant's financial condition as may be reasonably
required by Landlord.
27. Construction. This Lease is to be governed by and construed in
accordance with the internal laws of the District of Columbia. Whenever the
context so requires herein, the neuter gender shall include the masculine and
feminine, and the singular number shall include the plural, and vice versa. This
Agreement shall be construed as having been drafted by both parties, jointly,
and not in favor of or against one party or the other. When used herein, the
terms "including," "include," "including without limitation," and similar terms
shall be construed as prefacing examples, components or illustrations rather
than exhaustive definitions, unless a contrary intent is specifically stated,
such as "including and expressly limited to," or in similarly unambiguous terms.
28. Successors and Assigns. Except as otherwise provided in this Lease,
all of the covenants, conditions and provisions of this Lease shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
29. Surrender of Premises. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation hereof, shall not work a merger, and
shall, at the option of Landlord, operate as an assignment to it of any or all
subleases or subtenancies. Upon the expiration or earlier termination of this
Lease, Tenant shall surrender the Premises and, subject to the provisions of
Article 14, all alterations and additions thereto, in good order, repair and
condition, reasonable wear and tear excepted.
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30. Attorneys' Fees. If Landlord should bring suit for possession of the
Premises, or if Landlord or Tenant should bring suit for the recovery of any sum
due under this Lease or because of the breach of any provisions of this Lease,
or for any other relief against the other hereunder, or in the event of any
other litigation between the parties with respect to this Lease, including any
action for declaratory relief filed by Landlord or Tenant, then the prevailing
party shall be entitled to an award of all costs and expenses, including
reasonable attorneys' fees, in addition to all other relief awarded.
31. Performance by Landlord. If Tenant shall fail to pay any sum of
money owed hereunder, or if Tenant shall fail to perform any other act on its
part to be performed hereunder, and (except in the event of an emergency) such
failure shall continue beyond the cure periods set forth in Section 23.1,
Landlord may, without waiving or releasing Tenant from the obligations of
Tenant, but shall not be obligated to, make any such payment or perform any such
other act to be made or performed by Tenant. All sums so paid by Landlord and
all necessary incidental costs together with interest thereon at the rate of 12%
per annum, from the date of such payment by Landlord, shall be payable to
Landlord upon demand as additional rent.
32. Late Charge and Interest. Tenant acknowledges that the late payment
by Tenant to Landlord of any sums due under this Lease will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impractical to fix. Such costs include processing and
accounting charges, and late charges that may be imposed on Landlord by the
terms of any encumbrance or note secured by any encumbrance covering the
Premises. Therefore, if any installment of Monthly Base Rent or any other sum of
money due hereunder is not timely paid by Tenant and such failure continues for
ten days after notice thereof from Landlord, Tenant shall pay to Landlord, as
additional rent, the sum of 4% of the overdue amount as a late charge; provided,
however, Tenant shall be entitled to such 10-day notice and opportunity to cure
on only two occasions during any 12-month period. To the extent permitted by
applicable law, such overdue amount shall also bear interest commencing upon the
due date, as additional rent, at the lesser of the maximum rate than permitted
by law and 12% per annum. Landlord's acceptance of any late charge or interest
shall not constitute a waiver of Tenant's default with respect to the overdue
amount or prevent Landlord from exercising any of the other rights and remedies
available to Landlord under this Lease or any law now or hereafter in effect.
Notwithstanding anything to the contrary contained herein, in no event shall
Tenant be required to pay any amounts that would be characterized as interest
under applicable law in excess of the amounts that could be lawfully charged,
collected and received by Landlord under applicable law. Landlord and Tenant
intend to comply with all usury laws with respect to this Lease.
33. Mortgagee Protection. In the event of any default on the part of
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgage given by Landlord covering the
Premises whose address shall have been furnished to Tenant, and shall offer such
beneficiary or mortgagee the same opportunity to cure Landlord's default as
provided to Landlord under Article 49 plus an additional period of 60 days. In
addition, in those instances which reasonably require such beneficiary or
mortgagee to be in possession of, or have
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title to, the Development (or any portion thereof) to cure any such default, the
time herein allowed to such beneficiary or mortgagee to cure such default shall
be deemed extended to include the period of time reasonably necessary to obtain
such possession or title with due diligence, and in those instances in which
such beneficiary or mortgagee is prohibited by any process or injunction issued
by any court or by reason of any action by any court having jurisdiction of any
bankruptcy or insolvency proceeding involving Landlord from commencing or
prosecuting foreclosure or other appropriate proceedings in the nature thereof,
the time herein allowed such beneficiary or mortgagee to prosecute such
foreclosure or other proceeding shall be extended for the period of such
prohibition.
34. Definition of Landlord. The term "Landlord", as used in this Lease,
so far as covenants or obligations on the part of Landlord are concerned, shall
be limited to mean and include only the owner or owners, at the time in
question, of Landlord's interest under this Lease. In the event of any transfer,
assignment or other conveyance or transfer of such title, Landlord herein named
(and in case of any subsequent transfer or conveyance, the then grantor) shall
(in absence of a writing hereafter described) be automatically freed and
relieved from and after the date of such transfer, assignment or conveyance of
all liability as respects the performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter to be performed, and in
absence of any writing to the contrary, the transferee shall be to have assumed
same. Landlord may transfer its interest in the Premises or this Lease without
the consent of Tenant and such transfer or subsequent transfer shall not be
deemed a violation on Landlord's part of any of the terms or conditions of this
Lease.
35. Waiver. A waiver of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any subsequent breach of
the same or any other term, covenant or condition herein contained, nor shall
any custom or practice which may grow up between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of Landlord or Tenant to insist upon the performance by Tenant or
Landlord, respectively, in strict accordance with said terms. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent. No acceptance by Landlord of a lesser sum than the
Monthly Base Rent and additional rent then due shall be deemed to be other than
on account of the earliest installment of such rent, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such installment or other amount or pursue any other remedy provided
in this Lease.
36. Parking. Landlord shall make up to two hundred (200) parking
spaces available on a non-exclusive basis, for daily use between 6:00 a.m. (or
such earlier time that the parking garage shall open) and 6:00 p.m., by Tenant
and Tenant's members. Landlord shall charge Tenant an amount equal to
seventy-five (75%) percent of the then market rate for such parking spaces in
the vicinity of the Building (as reasonably determined by Landlord).
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37. CC&Rs. Tenant shall faithfully observe and comply with the
Condominium Documents, and all reasonable and nondiscriminatory rules and
regulations Landlord shall adopt for the Development (as the same may be changed
from time to time) and the CC&Rs. Landlord shall not be responsible to Tenant
for the violation or nonperformance by any other tenant or occupant of the
Development of the Condominium Documents (if applicable) any of said rules,
regulations or CC&Rs. Landlord agrees that future amendments to the CC&Rs and
any such rules and regulations shall not materially interfere with or interrupt
Tenant's ability to operate a first-class Club in accordance with the terms and
provisions of this Lease and shall not materially increase Tenant's obligations
hereunder nor materially decrease Tenant's rights hereunder, nor be enforced as
to Tenant discriminatorily.
38. Headings. The Article and Section headings of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
39. Examination of Lease. Submission of this instrument for examination
or signature by Landlord or Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
40. Intentionally Omitted.
41. Prior Agreement; Amendments. This Lease, together with the addenda
and exhibits attached hereto, contains all of the agreements of the parties
hereto with respect to any matter covered or mentioned in this Lease, and no
prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provision of this Lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest (subject to the consent requirement in Article
24). The parties acknowledge that all prior agreements, representations and
negotiations are deemed superseded by this Lease to the extent they are not
incorporated herein.
42. Severability. Any provision of this Lease which shall prove to be
invalid, void or illegal in no way affects, impairs or invalidates any other
provision hereof, and such other provisions shall remain in full force and
effect.
43. Limitation on Liability. It is expressly understood and agreed that
any money judgment against Landlord resulting from any default or other claim
arising under this Lease shall be satisfied only out of Landlord's interest in
(i) the Premises, if the Premises shall then be subject to a condominium form of
ownership or (ii) the Development if the Premises shall not then be subject to
Condominium Ownership. No other real, personal or mixed property of Landlord,
wherever situated, shall be subject to levy on any such judgment obtained
against Landlord. If Landlord's interest in the Premises or Development, as
applicable, is insufficient for the payment of such judgment, Tenant shall not
institute any further action, suit, claim or demand, in law or in equity,
against Landlord for or on the account of such deficiency. Tenant hereby waives,
to the fullest extent waivable under law, any right to satisfy said money
judgment against Landlord
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except from Landlord's interest in the Development or Premises, as applicable,
and except as otherwise provided above.
44. Riders. Clauses, plats, exhibits, addenda and riders, if any,
affixed to this Lease are a part hereof.
45. Modification for Lender. If, in connection with obtaining
construction, interim or permanent financing for the Premises or consent of
Landlord's existing lenders to the terms of the transactions contemplated
pursuant to this Lease, a lender shall request reasonable modifications in this
Lease as a condition to such financing or the granting of its consent, Tenant
will not unreasonably withhold, delay or defer its consent thereto, provided
that such modifications do not materially increase the obligations of Tenant
hereunder, materially decrease Tenant's rights hereunder or materially adversely
affect the leasehold interest hereby created; provided, further, however, that
Tenant shall have no obligation to agree to any such modifications unless such
modifications are approved by Tenant's Lender. If, in connection with obtaining
financing for the Improvements, Tenant's Lender (as defined in Article 46) shall
request reasonable modifications to this Lease, Landlord agrees to make
reasonable nonmaterial modifications to this Lease and further agrees not to
unreasonably withhold, delay or defer its consent thereto provided such
modifications do not decrease the monetary obligations of Tenant hereunder or
materially affect Landlord's rights hereunder; provided, however, that Landlord
shall have no obligation to agree to any such modifications unless such
modifications are approved by Landlord's mortgagee.
46. Security Agreements/Leasehold Mortgages.
A. Tenant covenants and agrees that Tenant shall not encumber or place
or permit to be placed any mortgages or other encumbrances on the leasehold
interest granted hereunder and that no security agreement, whether by way of
conditional bill of sale, chattel mortgage or instrument of similar import,
shall be placed upon any improvement made by Tenant which is affixed to the
realty.
B. In the event that any of the machinery, fixtures, furniture and
equipment installed by Tenant in the Premises are purchased or acquired by
Tenant subject to a chattel mortgage, conditional sale agreement or other title
retention or security agreement, Tenant undertakes and agrees that no such
chattel mortgage, conditional sale agreement or other title retention or
security agreement or Uniform Commercial Code ("UCC") filing statement shall be
permitted to be filed as a lien against the Building and real property of which
the Premises form a part and to cause to be inserted in any of the above
described title retention, chattel mortgage or security agreements the following
provision:
"Notwithstanding anything to the contrary herein, this chattel mortgage,
conditional sale agreement, title retention agreement or security
agreement shall not create or be filed as a lien against the land,
building and improvements comprising the real property in which the
goods, machinery, equipment, appliances or other personal property
covered hereby are to be located or installed."
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C. In addition to any other rights that Landlord may have by reason of
Tenant's failure to comply herewith, if any such leasehold mortgage or other
encumbrance, lien or UCC filing statement, based on an agreement as above
described, is filed as an encumbrance, as applicable, against the Building or
improvements of which the Premises form a part, the Premises and/or any interest
thereon, Tenant shall, within thirty (30) days following written notice thereof
from Landlord, cause such leasehold mortgage or other encumbrance, lien or
notice to be removed or discharged at Tenant's own cost and expense, and
Tenant's failure to do so shall constitute a breach of a material provision of
this Lease.
47. Authorizations. Each individual executing this Lease on behalf of
Landlord or Tenant represents and warrants that he or she is duly authorized to
execute and deliver this Lease on behalf of Landlord or Tenant, respectively, in
accordance with the provisions of duly adopted corporate resolutions, and that
this Lease has been duly and properly executed and delivered by Landlord or
Tenant, respectively.
48. Signage. Tenant agrees that any and all exterior building signs on
the Premises shall be subject to the approval of Landlord (and if applicable the
Condominium Association) with respect to the graphics, materials, color, design,
lettering, language, lighting, specifications and exact location ("SIGNAGE
APPROVAL FACTORS"), and that Tenant shall be entitled to the legal maximum of
such exterior building signs. All signage shall be of a size not in excess of
that permitted by applicable law and shall otherwise comply with applicable
laws, regulations, permits, approvals, ordinances, the Condominium Documents and
CC&Rs; provided, however, that no change in the CC&Rs shall require Tenant to
modify its original (or, if theretofore modified, its then-existing) exterior
signs. At the expiration or sooner termination of this Lease, Tenant shall, at
Tenant's sole cost and expense, cause all such signage to be removed from the
exterior of the Improvements and shall cause the exterior of the Improvements to
be restored to the condition existing prior to the placement of such signage. If
Tenant fails to remove such signs and restore the exterior of the Improvements
by the expiration or sooner termination of this Lease, then Landlord may perform
such work, and all costs and expenses incurred by Landlord in so performing
shall be reimbursed by Tenant to Landlord within ten days after Tenant's receipt
of an invoice therefor. In addition to the foregoing, at all times Tenant shall
be entitled to erect and maintain, as needed in Tenant's judgment but subject to
Landlord's approval, throughout the Development, appropriate directional signage
with respect to Tenant's parking.
49. Default by Landlord. Landlord shall not be in default hereunder
unless Landlord fails to perform the obligations required of Landlord within a
reasonable time, but in no event later than thirty days after notice by Tenant
to Landlord and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address have been furnished in writing to Tenant
("NOTICED LENDER"), specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such thirty day
period and thereafter diligently prosecutes the same to
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completion. In addition, the Noticed Lender shall be entitled to such additional
period of time to cure any such default as is set forth in Section 33 hereof.
Notwithstanding anything in this Lease to the contrary, if (i) access to the
Premises is unavailable as a result of any blockage occurring in the Common
Areas that is caused by Landlord or its agents, Tenant shall have the right to
give Landlord and any Noticed Lender notice of such events ("ABATEMENT NOTICE").
If the blockage in the Common Areas which denies access to the Premises has not
been repaired within the "Cure Period" Tenant's obligations to pay Monthly Base
Rent and Common Area Expenses (or if applicable, Operating Expenses) shall be
abated for the period after the Abatement Notice until the cure of the condition
giving rise to such notice for the entire amount of Monthly Base Rent and Common
Area Expenses (or if applicable, Operating Expenses) if the condition giving
rise to such abatement right is a denial of access to the Premises due to a
blockage of the Common Areas. In the event that for a period of ninety
consecutive days following the Abatement Notice, the condition giving rise to
such notice has not been cured, Tenant shall have the right to deliver an
additional notice ("TERMINATION NOTICE") to Landlord and the Noticed Lender
specifying that such item has not been cured within such period and if such
condition is not then cured within thirty business days after the Termination
Notice, Tenant may terminate this Lease by giving notice thereof to Landlord and
the Noticed Lender prior to the date upon which such condition is cured. The
foregoing rights and remedies are in addition to all other rights and remedies
available to Tenant at law or in equity. Except as provided in this Section 49,
Tenant shall not have the right to terminate this Lease as a result of
Landlord's default hereunder. Landlord's liability hereunder in the event of a
default shall be limited as set forth in Section 43. Notwithstanding anything to
the contrary contained herein, if the blockage occurring in the Common Areas is
the result of a fire or other casualty or a taking in eminent domain, then this
Section 49 shall be inapplicable and Sections 21 and 22 shall govern the rights
of the parties.
50. Reasonable Consents. Except for any matter which has a material
impact on the exterior appearance of the Improvements or except as otherwise
provided herein, any time the consent, approval, determination, designation, or
other discretionary judgment is required of Landlord or Tenant under this Lease,
such consent, approval, determination, designation, or other discretionary
judgment shall not be unreasonably delayed, withheld, conditioned, exercised or
decided, notwithstanding the presence in some instances of words to that effect
and their absence in other instances.
51. No recording. It is expressly agreed that Tenant may not and shall
not record this Lease or any memorandum hereof.
52. Force Majeure. The occurrence of any of the following events shall
be referred to herein as "FORCE MAJEURE" and shall excuse such obligations of
Landlord or Tenant as are thereby rendered impossible or reasonably
impracticable for so long as such event continues: strikes; lockouts; labor
disputes; acts of God; inability to obtain labor, materials or reasonable
substitutes therefor; governmental restrictions, regulations or controls;
judicial orders; enemy or hostile governmental action; civil commotion; fire or
other casualty; and other causes beyond the reasonable control of the party
obligated to perform (excluding financial inability).
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Notwithstanding the foregoing, the occurrence of such events shall not excuse
Tenant's obligations to pay Monthly Base Rent, Common Area Expenses or any other
sums hereunder (but may delay the commencement of such obligations to the
limited extent expressly provided for in Section 2.1 above) or excuse such
obligations as this Lease may otherwise impose on the party to obey, remedy or
avoid such event.
53. Guaranty. Currently with the execution hereof by Tenant and as a
condition to the effectiveness of this Lease, Tenant shall cause The Sports Club
Company to execute and deliver to Landlord a guaranty of this Lease in the form
and substance set forth in Exhibit E attached hereto which is acceptable to
Landlord.
54. Condition Precedent. Landlord and Tenant shall each have the right
to terminate this Lease on thirty (30) days' written notice to the other party
(without penalty) if Landlord shall not have closed upon additional financing
for the construction of the Improvements and other portions of the Development
(all such approvals and terms to be acceptable to Landlord in its sole and
absolute discretion) not later than December 31, 1998 ("Deadline Date"). In the
event that Tenant shall serve a termination notice pursuant to this Article 54
and Landlord shall secure the necessary financing within the aforesaid thirty
(30) day period or Landlord shall fund the Improvements and construction without
the required financing (it being expressly agreed that Landlord shall have no
obligation whatsoever to do so), then Tenant's termination notice shall be of no
force and effect. In the event Landlord or Tenant shall terminate this Lease, as
aforesaid, neither party shall have any further rights or obligations hereunder.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
LANDLORD: MILLENNIUM PARTNERS LLC
By: Millennium Partners Management LLC
By: /s/ Brian J. Collins
-------------------------------------
Its: Vice President
TENANT: WASHINGTON D.C. SPORTS CLUB, INC.
a Delaware corporation
By: /s/ John M. Gibbons
-------------------------------------
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<PAGE> 49
Its: President
-------------------------------
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EXHIBIT A
LEGAL DESCRIPTION
<PAGE> 51
EXHIBIT B
SITE PLAN
<PAGE> 52
EXHIBIT C
WORK LETTER
<PAGE> 53
EXHIBIT D
INTENTIONALLY OMITTED
<PAGE> 54
EXHIBIT E
GUARANTY OF LEASE
1. The undersigned (hereinafter called "Guarantor"), as a material
inducement to and in consideration of MILLENNIUM PARTNERS LLC, ("LANDLORD"),
entering into a written lease (the "LEASE") with WASHINGTON D.C. SPORTS CLUB,
INC., a Delaware corporation ("TENANT"), guarantees to Landlord, and its
successors, the full and timely performance by Tenant and its successors of each
and all of the provisions (as defined below) of the Lease and any and all
modifications or extensions thereof, including without limitation the payment of
all Rent (as defined in the Lease) and all other indebtedness (as defined below)
accruing under the Lease. The word "indebtedness" is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations and
liabilities of Tenant heretofore, now or hereafter made, incurred or created,
whether voluntary or involuntary, and however arising, whether or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined.
The word "provision" is used herein in its most comprehensive sense and includes
any and all terms, agreements, covenants, conditions, clauses, qualifications,
restrictions, reservations, or any other stipulations in the Lease that define
or otherwise control, establish or limit the performance required or permitted
under the Lease.
2. Guarantor agrees that the liability under this Guaranty of Lease
shall be primary and that in any right or action which may accrue to Landlord,
or its successors (as defined below) under the Lease or this Guaranty of Lease,
Landlord or its successors, at their option, may bring a separate action against
Guarantor whether action is brought or prosecuted against any other Guarantor or
Tenant, or all, or whether any other guarantor or Guarantor or Tenant, or all,
are joined in the action. The guaranty hereunder shall continue regardless of
whether recovery upon such indebtedness may be or hereafter become barred by any
statute of limitations, the benefit of which as to liability under this Guaranty
of Lease is expressly waived by Guarantor, provided that Landlord has, within
the applicable statute of limitations period filed an action against Tenant with
respect to such specific indebtedness. No delay or omission in the exercise of
any right or remedy of Landlord upon any default under the Lease by Tenant, or
upon any indebtedness hereunder shall impair such a right or remedy or shall be
construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent
shall not constitute a waiver of any default; it shall constitute only a waiver
of timely payment for the particular Rent payment involved. Any waiver by
Landlord of any default must be express and in writing and shall not be a waiver
of any other default concerning the same or any other provision of the Lease.
3. This Guaranty of Lease shall guaranty the performance by Tenant and
its successors, of the Lease as changed. Assignment of the Lease or subletting
of the premises (whether or not in compliance with the Lease) shall not affect
this Guaranty of Lease.
4. If Tenant or any successor of Tenant shall default under the Lease in
the payment of Rent, or other indebtedness, or in the performance of any of the
provisions of the Lease, and if such default shall not have been cured within
the time specified in the Lease for curing said
<PAGE> 55
default, Guarantor shall, without relieving Tenant of any additional liability
under the Lease, within fifteen days after written demand by Landlord to
Guarantor, pay such Rent or other indebtedness, and pay the costs and expenses,
including reasonable attorneys' fees, which may have been incurred by Landlord
as a result of any such default or in the enforcement of Tenant's obligations
under any provision of the Lease. In the alternative, in the event of any such
default as above described, Landlord may, following fifteen days' prior written
notice to Guarantor, proceed against Guarantor or Tenant, or Landlord can
enforce against Guarantor or Tenant, or any or all of them, any rights that it
has under the Lease, or pursuant to applicable law. The word "law" is used
herein in its most comprehensive sense and includes any judicial decision,
statute, constitution, ordinance, resolution, regulation, rule, administrative
order, or other requirement of any municipal, county, state, federal, or other
governmental agency or authority having jurisdiction over Landlord, Tenant,
Guarantor, and/or the Premises, or any or all of them, in effect at the time of
execution of the Lease or at any time during the Term, including, without
limitation, any regulation or order of a quasi-official entity or body. If the
Lease terminates and Landlord has any rights it can enforce against Tenant after
termination, Landlord can enforce those rights against Guarantor without giving
previous notice to Guarantor, or without making any demand. Guarantor waives the
right to require Landlord to (a) proceed against Tenant; (b) proceed against or
exhaust any security that Landlord holds from Tenant; or (c) pursue any other
remedy in Landlord's power. Guarantor waives any defense by reason of any
disability of Tenant. Until all of Tenant's obligations to Landlord have been
discharged in full, Guarantor shall have no right of subrogation against Tenant.
Except as otherwise specifically provided in this Guaranty of Lease, Guarantor
waives any right to assert or claim that it has been exonerated by any action
taken by Landlord which impairs any of Guarantor's rights to be subrogated to
Landlord's right against Tenant. Guarantor waives the right to enforce any
remedies that Landlord now has, or later may have, against Tenant until such
time as all indebtedness of Tenant (relative to Landlord) has been satisfied.
Except as otherwise specifically provided in this Guaranty of Lease, Guarantor
waives all presentments, demands for performance, notices of nonperformance,
protests, notices of protest, notices of dishonor, and notices of acceptance of
this Guaranty of Lease, and waives all notices of the existence, creation, or
incurrence of new or additional obligations under the Lease. Except to the
extent such rights of Guarantor or obligations of Landlord are otherwise
addressed in this Guaranty of Lease, Guarantor expressly waives all statutory
suretyship defenses. Any notice to Guarantor shall comply with the provisions of
Paragraph 9 of the Lease and shall be sent to 11100 Santa Monica Boulevard,
Suite 300, Los Angeles, California 90025, or to any other address of which
Landlord has been notified in writing from Guarantor.
5. Guarantor authorizes Landlord, without notice or demand and without
affecting the Guarantor's liability hereunder, to renew, extend, modify, or
otherwise change the provisions of the Lease, at any time and from time to time.
This Guaranty of Lease shall not be affected by any such renewal, extension, or
modification, or by any indulgences or forbearance given by Landlord, and notice
of any such act is waived by Guarantor. Landlord may, without notice, assign
this Guaranty of Lease in whole or in part, but only together with an assignment
of the Lease. Notwithstanding the above, Landlord may, but shall not be required
to, request Guarantor to reaffirm promptly in writing its obligations under this
Guaranty of Lease.
-2-
<PAGE> 56
6. If Landlord disposes of, sells, transfers, assigns, hypothecates, or
otherwise conveys its interest in the Lease, or any part thereof, "Landlord" as
used in this Guaranty of Lease, shall mean Landlord's successor. In the event of
any assignment or subletting (as permitted under the Lease) of Tenant's interest
therein, "Tenant" as used in this Guaranty of Lease shall mean Tenant's
successor. The word "successor" is used herein in its most comprehensive sense
and includes any assignee, sublessee, transferee, personal representative, heir
or other person or entity succeeding lawfully, and pursuant to the provisions of
the Lease, to the rights or obligations of either party.
7. If Landlord is required to enforce any of the Guarantor's
obligations, the nonprevailing party, or any of them, shall pay to the other all
costs incurred, including, without limitation, reasonable attorneys' fees, which
obligation by such party to pay such costs shall begin to accrue upon retention
by the prevailing party of attorneys, and shall be enforceable and payable
regardless of whether suit is brought by said attorneys or prosecuted to
judgment.
8. The provisions of this Guaranty of Lease shall be governed by and
construed in accordance with the laws of the District of Columbia and its terms
and provisions may not be waived, altered, modified or amended except in writing
duly signed by the parties hereto. If any provision of this Guaranty of Lease
shall for any reason be determined by a court of competent jurisdiction to be
unenforceable by Landlord in any respect, such unenforceability shall not affect
any other provision hereof, and this Guaranty of Lease shall be construed as if
such unenforceable provision had not been contained herein. This Guaranty of
Lease has been drafted jointly by Landlord and Guarantor, and consequently,
shall be construed neutrally.
9. Guarantor's obligations under this Guaranty of Lease shall be binding
upon Guarantor's successors and shall inure to the benefit of and shall be
enforceable by Landlord, its successors and assigns.
10. Terms capitalized, but not otherwise defined herein, shall have the
same meaning ascribed to them in the Lease.
-3-
<PAGE> 57
11. Notwithstanding any provision hereof or of any other document to the
contrary, Guarantor's obligations pursuant to this Guaranty of Lease relate only
to those obligations of Tenant accruing under the Lease prior to the fifteenth
(15th) anniversary of the Commencement Date, and, if Tenant is not in default
under the Lease on said fifteenth (15th) anniversary thereupon all obligations
of Guarantor pursuant to, and this Guaranty of Lease, shall terminate and be of
no further force or effect.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty of Lease as of June 20,
1997.
THE SPORTS CLUB COMPANY, INC.
a Delaware corporation
By: /s/ John M. Gibbons
---------------------------------
-4-
<PAGE> 1
EXHIBIT 10.78
ESCROW INSTRUCTIONS
TO: CHICAGO TITLE COMPANY, licensed by the Calif. Dept. of Insurance
2801 TOWNSGATE ROAD, SUITE 120, WESTLAKE VILLAGE, CA 91361
Phone: (805) 497-7430 Fax: (818) 706-0998
Escrow No. 7901363-J30 Escrow Officer Lexi Hammer Date July 24, 1997
Attached hereto as Exhibit "A" is a
STANDARD OFFER, AGREEMENT AND ESCROW INSTRUCTIONS FOR PURCHASE OF REAL
ESTATE (Non-Residential), American Industrial Real Estate Association plus
Addendum and Exhibit A
executed by and between
LaSalle Fund II (SELLER)
and
The Sports Club Company, Inc. (BUYER)
dated July 8, 1997. Said agreement is the complete agreement between the
parties, and is to be construed as your escrow instructions. You as escrow
holder, are instructed to act in accordance with the terms and conditions of
said agreement insofar as is required to close this escrow. Specifically, you
are to be concerned only with paragraphs 1, 2.1, 2.2, 3.1, 4, 8.1, 8.2, 8.3,
8.4, 8.7, 9, 10, 11, 15, 19, 23, 24, 25, 27 and 29
All other terms, conditions and provisions of the agreement affect the
principals only and you, as escrow holder, are not to be concerned or liable
therefore. The undersigned, as principals to said attached Exhibit "A" hereby
agree as a condition of your acceptance of the limited agency, to be bound by
the following general provisions. Said general provisions are hereby
incorporated as a part of these instructions and made a part thereof.
[X] See attached page for additional instructions.
THE GENERAL PROVISIONS ATTACHED ARE HEREBY INCORPORATED AND MADE A PART OF THESE
INSTRUCTIONS.
<PAGE> 2
THE FOREGOING TERMS, CONDITIONS, PROVISIONS AND INSTRUCTIONS HAVE BEEN READ AND
ARE UNDERSTOOD AND AGREED TO BY EACH OF THE UNDERSIGNED.
Lynn C. Thurber, Daniel W. Cummings, The Sports Club Company, Inc.
Robert C. Spoerri and Stuart L. Scott, not
personally but as Trustees under that certain
Declaration of Trust, dated October 1, 1983,
creating LASALLE FUND II, acting through its
agent and manager: LASALLE ADVISORS LIMITED,
a Delaware Partnership, By: /s/ Mark Spino
Agent --------------------------
/s/ Jana Langston By: Vice President
- ---------------------------------- -------------------------
By: Jana Langston, Principal
CHICAGO TITLE COMPANY
/s/ LEXI HAMMER
- ---------------------------------
Escrow Officer, Lexi Hammer
(Page 1)
<PAGE> 3
ESCROW INSTRUCTIONS CONTINUED
TO: CHICAGO TITLE COMPANY Escrow No. 7901363 - J30
Date July 24, 1997
Assume a 30 day month in any proration therein provided, and unless otherwise
instructed, you are to use the information contained in the latest available tax
statement, including any supplemental taxes of record, rental statement as
provided by seller and beneficiary's or association statements delivered into
escrow for proration purposes.
Upon close of escrow you are instructed to charge our respective accounts the
costs attributable to each including but not limited to those indicated herein
and/or in accordance with our respective estimated statements attached hereto
and made a part hereof.
Time is of the essence of these instructions. If this escrow is not in a
condition to close by the TIME LIMIT DATE of October 21, 1997 and written demand
for cancellation is received by you from any principal to this escrow after said
date, you shall act in accordance with paragraph 7 of the General Provisions. If
no conflicting instruction or demand for cancellation is made, you will proceed
to close this escrow when the principals have complied with the escrow
instructions. In the event one or more of the General Provisions are held to be
invalid in judicial proceedings, those remaining will continue to be operative.
Any amendments of or supplements to any instructions affecting this escrow must
be in writing. The principals will hand you any funds and instruments required
from each respectively to complete this escrow.
If any check submitted to escrow is dishonored when presented for payment, you
are authorized to notify all principals and/or their respective agents of such
non payment.
You are instructed to deliver and/or record all documents and disburse all funds
when you can comply with these instructions and insure title as called for
herein. These instructions may be executed in counterparts and together shall
constitute one and the same document. If these instructions relate to a sale,
buyer agrees to buy and seller agrees to sell upon the terms and conditions
hereof. All documents, balances and statements due the undersigned are to be
mailed to the respective addresses shown herein, unless otherwise directed. In
the event that any party to this escrow utilizes facsimile transmitted signed
documents, all parties hereby agree to accept and hereby instruct the
escrowholder to rely upon such documents as if they bore original signatures.
Buyer and seller further acknowledge that any documents to be recorded bearing
non original (facsimile) signatures will not be accepted for recording by the
county recorder.
GENERAL PROVISIONS
1. The phrase "close of escrow" (or COE) as used in this escrow means the
date on which documents are recorded, unless otherwise specified.
2. Recordation of any instruments delivered through this escrow, if necessary
or proper for the issuance of the policy of title insurance called for, is
authorized.
3. No examination or insurance as to the amount or payment of personal
property taxes is required unless specifically requested.
4. You and any of your affiliates or employees are authorized to use the
information and documents in this escrow for any purpose. You are further
authorized to furnish to any broker or lender identified with this
transaction or anyone acting on behalf of such broker or lender, any
instructions, amendments, statements, or notices of cancellation given in
connection with this escrow.
<PAGE> 4
5. All written notices, communications, change of instructions and documents
are required to be delivered timely at the office of Chicago Title Company
as set forth herein.
6. All funds received in this escrow shall be deposited with other escrow
funds in one or more escrow (demand) accounts of Chicago Title Company in
any state or national bank. The parties to this escrow understand that the
escrow accounts you maintain with the depository institutions contribute
to your value as a customer of these institutions which, in turn, may make
available to Chicago Title Company an array of bank services,
accommodations or other benefits. You shall have no obligation to account
for the value realized by Chicago Title Company from these services,
accommodations or other benefits. You shall have no obligation to account
for the value realized by Chicago Title Company from these services,
accommodations or other benefits. All disbursements shall be made by your
check, unless otherwise instructed. You shall not be responsible for any
delay in closing if funds received by escrow are not available for
immediate withdrawal. Chicago Title Company may, at its option, require
concurrent instructions from all principals prior to release of any funds
on deposit in this escrow.
7. If demand to cancel is submitted after the Time Limit Date, any principal
so requesting you to cancel this escrow shall file notice of demand to
cancel in your office in writing. You shall within three (3) working days
thereafter mail by certified mail one copy of such notice to each of the
other principals at the address stated in this escrow. Unless written
objection thereto is filed in your office by a principal within fifteen
(15) calendar days after the date of such mailing, you are instructed to
cancel this escrow. If this is a sale escrow, you may return the lender's
papers and/or funds upon lender's demand.
8. In the event that his escrow is canceled, any fees or charges due Chicago
Title Company including cancellation fees and any expenditures incurred or
authorized shall be paid from funds on deposit unless otherwise
specifically agreed to or determined by a court of competent jurisdiction.
Upon payment thereof, return documents and monies to the respective
parties depositing same, or as ordered by the court, and void any executed
instruments.
9. If there is no written activity by a principal to this escrow within any
six-month period after the Time Limit Date set forth herein, Chicago Title
Company may, at its option, terminate its agency obligation and cancel
this escrow, returning all documents, monies or other items held, to the
respective parties entitled thereto, less any fees and charges as provided
herein.
10. If, for any reason, funds are retained or remain in escrow after the
closing date, you may deduct therefrom a reasonable charge as custodian,
of not less than $25.00 per month, unless otherwise specified.
11. In the event that you should receive or become aware of conflicting
demands or claims with respect to this escrow, or the rights of any of the
parties hereto, or any money or property deposited herein, you shall have
the absolute right at your option to discontinue any or all further acts
until such conflict is resolved to your satisfaction.
12. You are released from and shall have no liability, obligation or
responsibility with respect to (a) withholding of funds pursuant to
Section 1445 of the Internal Revenue Code of 1986 as amended, and to
Sections 18662 and 18668 of the California Revenue and Taxation Code, (b)
advising the parties as to the requirements of said Section 1445, (c)
determining whether the transferor is a foreign person or a non-resident
under such Section, nor (d) obtaining a non foreign affidavit or other
exemption from withholding under said Sections nor otherwise making any
inquiry concerning compliance with such Sections by any party to the
transaction.
13. The parties hereto, by execution of these instructions acknowledge that
the escrowholder assumes
<PAGE> 5
no responsibility or liability whatsoever for the supervision of any act
or the performance of any condition which is a condition subsequent to the
closing of this escrow.
(Page 2)
<PAGE> 6
ESCROW INSTRUCTIONS CONTINUED
TO: CHICAGO TITLE COMPANY Escrow No. 7901363 - J30
Date July 24, 1997
14. In the absence of instructions to the contrary, you are hereby authorized
to utilize wire services, overnight, next day, or other expedited delivery
services (as opposed to the regular U.S. Mail) and to charge the
respective party's account accordingly.
15. If you pay a demand to reconvey a revolving line of credit or equityline
deed of trust, you are hereby instructed on my behalf and for my benefit,
to request that the lender issuing said demand cancel said revolving line
or equityline of credit.
16. You are authorized to destroy or otherwise dispose of any and all
documents, papers, instructions, correspondence and other material
pertaining to this escrow at the expiration of six (6) years from the
close of escrow or cancellation thereof, without liability and without
further notice.
IMPORTANT NOTICE
Except for wire transfers, funds remitted to this escrow are subject to
availability requirements imposed by Section 12413.1 of the California Insurance
Code. CASHIER'S, CERTIFIED or TELLER'S checks, payable to CHICAGO TITLE COMPANY
are generally available for disbursement on the next business day following the
date of deposit.
Other forms of payments may cause extended delays in the closing of your
transaction pursuant to the requirements imposed by State Law.
(Wire transfer information available upon request)
ALL PARTIES TO THIS ESCROW ACKNOWLEDGE THAT CHICAGO TITLE COMPANY DOES NOT
PROVIDE LEGAL ADVICE NOR HAS IT MADE ANY INVESTIGATION, REPRESENTATIONS OR
ASSURANCES WHATSOEVER REGARDING THE LEGAL ASPECTS OR COMPLIANCE OF THIS
TRANSACTION WITH ANY TAX, SECURITIES OR ANY OTHER STATE OR FEDERAL LAWS. IT IS
RECOMMENDED THAT THE PARTIES OBTAIN INDEPENDENT LEGAL COUNSEL AS TO SUCH
MATTERS.
(Page 3)
<PAGE> 7
ESCROW INSTRUCTIONS CONTINUED
TO: CHICAGO TITLE COMPANY Escrow No. 7901363 - J30
Date July 24, 1997
Escrow holder is instructed that buyer will obtain hazard/fire/other insurance,
if any, direct and outside escrow prior to the close of escrow and escrow holder
is not to be further concerned therewith.
PARAGRAPH 11.3 OF CONTRACT IS CLARIFIED AS FOLLOWS: Any adjustments for
utilities and operating expenses shall be prorated between seller and buyer
direct and outside of escrow. In the event escrow holder is requested to prorate
same prior to close of escrow, seller and buyer will hand escrow holder a
request for proration of same together with a completed schedule of said
utilities and operating expenses to be prorated.
PARAGRAPH 27 OF CONTRACT IS CLARIFIED AS FOLLOWS: In addition, buyer will
provide escrow holder, during the time allowed for buyer's due diligence, with
buyer's duly executed resolution of the board of directors for the transaction
described herein.
PARAGRAPH 29 OF CONTRACT IS CLARIFIED AS FOLLOWS: Buyer to advise escrow holder
in writing, within the time allowed for buyer's due diligence, if buyer desires
ALTA Owners Policy. Buyer acknowledges that it is buyer's responsibility, if
buyer desires said ALTA Owners Policy, to provide Chicago Title Company with an
ALTA Survey sufficient in the opinion of Chicago Title Company to allow issuance
of the ALTA Owners Policy. If escrow holder is not so advised that buyer desires
an ALTA Owners Policy, the policy issued at closing will be a CLTA Owners
Policy.
The parties hereto acknowledge that the interest-bearing account for the benefit
of buyer cannot be opened prior to receipt by escrow holder of signed Escrow
Instructions and Deposit Investment Instructions BY ALL PARTIES and clearance of
funds deposited.
The legal description for the property described herein is as follows:
Lot 1 of Tract No. 3736, in the City of Thousand Oaks, County of Ventura, State
of California, as per Map recorded in Book 95, pages 50 through 55 inclusive of
Maps, in the office of the County Recorder of said County.
and is commonly known as:
275 Conejo Ridge Avenue, Thousand Oaks, CA 91361
NOTWITHSTANDING ANY PROVISION TO THE CONTRARY HEREIN, buyer and seller
acknowledge that in the event of cancellation of this escrow, escrow holder
requires mutually signed cancellation instructions directing the disbursement of
any funds on deposit with escrow holder.
(Page 4)
<PAGE> 8
[LOGO]
STANDARD OFFER, AGREEMENT AND ESCROW
INSTRUCTIONS FOR PURCHASE OF REAL ESTATE
(Non-Residential)
American Industrial Real Estate Association
July 8, 1997
-----------------------------
(Date for Reference Purposes)
1. Buyer.
1.1 THE SPORTS CLUB COMPANY (the "Buyer") hereby offers to purchase the
real property, hereinafter described, from the owner thereof (the "Seller")
(collectively, the "Parties" or individually, a "Party"), through an escrow (the
"Escrow") to close on 105 days after the Date of Agreement (the "Expected
Closing Date") to be held by Chicago Title Company (the "Escrow Holder") whose
address is 2801 Townsgate Road, Suite 120, Westlake Village, CA 91361, Attn:
Lexi Hammer, Phone No. 805-497-7430, Facsimile No. 818-706-0998 upon the terms
and conditions set forth in this agreement (the "Agreement"). Buyer shall have
the right to assign Buyer's rights hereunder, but any such assignment shall not
relieve Buyer of Buyer's obligations herein unless the Seller expressly releases
Buyer.
1.2 The term "Date of Agreement as used herein shall be the date when by
execution and delivery (as defined in paragraph 20.2) of this document or a
subsequent counter-offer thereto. Buyer and Seller have reached agreement in
writing whereby Seller agrees to sell, and Buyer agrees to purchase, the
Property upon terms accepted by both Parties.
2. Property.
2.1 The real property (the "Property") that is the subject of this offer
consists of (insert a brief physical description) an industrial building of
approximately 88,242 square feet is located in the City of Thousand Oaks, County
of Ventura, State of California, is commonly known by the street address of 275
Conejo Ridge and is legally described as: See Exhibit A attached.
2.2 If the legal description of the Property is not complete or is
inaccurate, this Agreement shall not be invalid and the legal description shall
be completed or corrected to meet the requirements of Chicago Title Insurance
Company (the "Title Company"), which Title Company shall issue the title policy
hereinafter described.
2.3 The Property includes, at no additional cost to Buyer, the permanent
improvements thereon, including those items which the law of the state in which
the Property is located provides is part of the Property, as well as the
following items, if any, owned by Seller and presently located in the Property:
electrical distribution systems (power panels, buss ducting, conduits,
disconnects, lighting fixtures), telephone distribution systems (lines, jacks
and connections), space heaters, air conditioning equipment, air lines, fire
sprinkler systems, security systems, carpets, window coverings, wall coverings,
and (collectively, the "Improvements").
2.4 If the Property is located in the State of California, the Broker(s)
is/are required under the Alquist-Priolo Special Studies Zones Act, to disclose
to a prospective purchaser of real property whether the property being purchased
is located within a delineated special studies zone (a zone that encompasses a
potentially or recently active trace of an earthquake fault that is deemed by
the State Geologist to be sufficiently active and well defined enough to
constitute a potential hazard to structures from surface faulting or fault
(creep). If the Property is located within such a special studies zone, its
development may
<PAGE> 9
require a geologic report from a state registered geologist. In accordance with
such law, the Broker(s) hereby inform(s) Buyer that the Property:
[X] (a) is not within such a special studies zone.
[ ] (b) is within such a special studies zone.
2.5 If (1) the property is located in the State of California, (2) the
improvements were constructed prior to 1975, and (3) the improvements include
structures with (i) pre-cast (e.g., tilt-up) concrete or reinforced masonry
walls together with wood frame floors or roofs or (ii) unreinforced masonry
walls, California law requires that Seller or Seller's Broker provide Buyer with
a copy of The Commercial Property Owner's Guide to Earthquake Safety (the
"Booklet") published by the California Seismic Safety Commission. Seller and
Seller's Broker hereby inform Buyer that the Property:
[ ] (a) meets the foregoing requirements, and Seller and Seller's
Broker are required to provide Buyer with a copy of the Booklet.
Seller or Seller's Broker shall, within five (5) business days of
the Date of Agreement, deliver to Buyer a copy of the Booklet and
a completed "Commercial Property Earthquake Weakness Disclosure
Report" contained in the Booklet duly executed by Seller. Within
five (5) business days of Buyer's receipt of said Disclosure
Report, Buyer shall deliver a duly countersigned copy of the same
to Escrow Holder, with a copy to Seller and Seller's Broker.
Escrow Holder is hereby instructed that the Escrow shall not close
unless and until Escrow Holder has received the Disclosure Report
duly signed by both Seller and Buyer.
[X] (b) does not meet the foregoing requirements requiring the
delivery of the Booklet.
3. Purchase Price.
3.1 The purchase price (the "Purchase Price") to be paid by Buyer to
Seller for the Property shall be $5,950,000, payable as follows:
(a) Cash down payment, including the Deposit as defined in paragraph 4.3
(or if an all cash transaction, the Purchase Price): $5,950,000
Total Purchase Price: $5,950,000
4. Deposits.
4.1 Buyer hereby delivers a check in the sum of $50,000, payable to
Chicago Title Company, to be (check applicable box) [X] forthwith deposited in
the payee's trust account; [ ] held uncashed until the Date of Agreement. When
cashed, the check shall be deposited into the payee's trust account to be
applied toward the Purchase Price of the property at the Closing, as defined in
paragraph 8.3. Should Buyer and Seller not enter into an agreement for purchase
and sale, Buyer's check or funds shall, upon request by Buyer, be promptly
returned to Buyer.
- ---------- ----------
- ---------- ----------
Initials Initials
Page 1
<PAGE> 10
4.2 Within 75 days after the Date of Agreement, Buyer shall deposit with
Escrow Holder the additional sum of $50,000 to be applied to the Purchase Price
at the Closing.
4.3 The funds deposited with Escrow Holder by or on behalf of Buyer
under paragraphs 4.1 and 4.2 above (collectively the "Deposit"), shall be
deposited by Escrow Holder in such State or Federally chartered bank as Buyer
may select and in such interest-bearing account or accounts as Escrow Holder or
Broker(s) deem appropriate and consistent with the timing requirements of this
transaction. The interest therefrom shall accrue to the benefit of Buyer who
hereby acknowledges that there may be penalties or interest forfeitures if the
applicable instrument is redeemed prior to its specified maturation.
Buyer's Federal Tax Identification Number is __________________.
7. Real Estate Brokers.
7.1 The following real estate broker(s) (collectively, the "Brokers")
and brokerage relationships exist in this transaction and are consented to by
the parties (check applicable boxes):
[X] The Seeley Company represents Seller exclusively ("Seller's Broker")
[X] Weatherby Company represents Buyer exclusively ("Buyer's Broker"); or
[ ] __________________ represents both seller and Buyer ("Dual Agency"). (Also
see Paragraph 26.) (the "Broker(s)"), all such named Broker(s) being the
procuring cause(s) of this Agreement. See paragraph 26 for Disclosure Regarding
the Nature of Real Estate Agency Relationship. Buyer shall use the services of
Buyer's Broker exclusively in connection with any and all negotiations and
offers with respect to the property described in paragraph 2.1 for a period of
one year from the date above.
7.2 Buyer and Seller each represent and warrant to the other that
he/she/it has had no dealings with any person, firm, broker or finder in
connection with the negotiation of this Agreement and/or the consummation of the
purchase and sale contemplated herein, other than the Broker(s) named in
paragraph 7.1, and no broker or other person, firm or entity, other than said
Broker(s) is/are entitled to any commission or finder's fee in connection with
this transaction as the result of any dealings or acts of such Party. Buyer and
Seller do each hereby agree to indemnify, defend, protect and hold the other
harmless from and against any costs, expenses or liability for compensation,
commission or charges which may be claimed by any broker, finder or other
similar party other than said named Broker(s) by reason of any dealings or act
of the indemnifying Party.
8. Escrow and Closing.
8.1 Upon acceptance hereof by Seller, this Agreement, including any
counter-offers incorporated herein by the Parties, shall constitute not only the
agreement of purchase and sale between Buyer and Seller, but also instructions
to Escrow Holder for the consummation of the Agreement through the Escrow.
Escrow Holder shall not prepare any further escrow instructions restating or
amending this Agreement unless specifically so instructed by the Parties.
8.2 Escrow Holder is hereby authorized and instructed to conduct the
Escrow in accordance with this Agreement, applicable law, custom and practice of
the community in which Escrow Holder is located, including any reporting
requirements of the Internal Revenue Code. In the event of a conflict between
the law of the state where the Property is located and the law of the state
where the Escrow Holder is located, the law of the state where the Property is
located shall prevail.
<PAGE> 11
8.3 Subject to satisfaction of the contingencies herein described,
Escrow Holder shall close this escrow (the "Closing") by recording the grant
deed and other documents required to be recorded and by disbursing the funds and
documents in accordance with this Agreement.
8.4 If this transaction is terminated for non-satisfaction and
non-waiver of a Buyer's Contingency, as defined in paragraph 9.4, then neither
of the Parties shall thereafter have any liability to the other under this
Agreement, except to the extent of the breach of any affirmative covenant or
warranty in this Agreement that may have been involved. In the event of such
termination, Buyer shall be promptly refunded all funds deposited by or on
behalf of Buyer with a Broker. Escrow Holder or Seller, less only Title Company
and Escrow Holder cancellation fees and costs, all of which shall be Buyer's
obligation.
8.5 The Closing shall occur on the Expected Closing Date, or as soon
thereafter as the Escrow is in condition for Closing; provided, however, that if
the Closing does not occur by the Expected Closing Date and the Expected Closing
Date is not extended by mutual instructions of the Parties, a Party hereto not
then in default under this Agreement may notify the other Party, Escrow Holder,
and Broker(s), in writing that, unless the Closing occurs within five (5)
business days following said notice, the Escrow and this Agreement shall be
deemed terminated without further notice or instructions.
8.6 Should the Closing not occur during said five (5) day period, this
Agreement and Escrow shall be deemed terminated and Escrow Holder shall
forthwith return all monies and documents, less only Escrow Holder's reasonable
fees and expenses, to the Party who deposited them. Such Party shall indemnify
and hold Escrow Holder harmless in connection with such return. However, no
refunds or documents shall be returned to a party claimed by written notice to
Escrow Holder to be in default under this Agreement.
8.7 Except as otherwise provided herein, the termination of Escrow and
this Agreement and/or the return of deposited funds or documents shall not
relieve or release either Buyer or Seller from any obligation to pay Escrow
Holder's fees and costs or constitute a waiver, release or discharge of any
breach or default that has occurred in the performance of the obligations,
agreements, covenants or warranties contained herein.
8.8 If this Agreement terminates for any reason other than Seller's
breach or default, then at Seller's request, and as a condition to the return on
Buyer's deposit, Buyer shall within five (5) days after written request deliver
to Seller, at no charge, copies of all surveys, engineering studies, soil
reports, maps, master plans, feasibility studies and other similar items
prepared by or for Buyer that pertain to the Property.
9. Contingencies to Closing.
9.1 The Closing of this transaction, is contingent upon the satisfaction
or waiver of the following contingencies:
(b) Physical Inspection. Buyer's written approval, within 75 days
following the Date of Agreement of an inspection by Buyer, at Buyer's expense,
of the physical aspects of the Property.
- ---------- ----------
- ---------- ----------
Initials Initials
Page 2
<PAGE> 12
(c) Hazardous Substance Conditions Report. Buyer's written approval
within 75 days following the Date of Agreement, or a Hazardous Substance
Conditions Report concerning the Property and relevant adjoining properties.
Such report will be obtained at Buyer's direction and expense. A Hazardous
Substance for purposes of this Agreement is defined as any substance whose
nature and/or quantity of existence, use, manufacture disposal or effect, render
it subject to Federal, state of local regulation, investigation, redemption or
removal as potentially injurious to public health or welfare. A Hazardous
Substance Condition for purposes of this Agreement is defined as the existence
on, under or relevantly adjacent to the Property of a Hazardous Substance that
would require remediation and/or removal under applicable Federal, state or
local law.
(d) Soil Inspection. Buyer's written approval, within 75 days after the
later of the Date of Agreement, of a soil test report concerning the Property.
Said report shall be obtained at Buyer's direction and expense.
(e) Governmental Approvals. Buyer's receipt within 75 days of the Date
of Agreement, of all approvals and permits from government agencies or
departments which have or may have jurisdiction over the Property which Buyer
deems necessary or desirable in connection with its intended use of the
Property, including, but not limited to, permits and approvals required with
respect to zoning, planning, building and safety, fire, police, handicapped
access, transportation and environmental matters. Buyer's failure to deliver to
Escrow Holder and Seller written notice terminating the Agreement prior to the
expiration of said 75 day period as a result of Buyer's failure to obtain such
approvals and permits shall be conclusively deemed to be Buyer's waiver of this
condition to Buyer's obligations under this Agreement. See Addendum.
(f) Condition of Title. Buyer's written approval of a current
preliminary title report concerning the Property (the "PTR") issued by the Title
Company, as well as all documents (the "Underlying Documents") referred to in
the PTR, and the issuance by the Title Company of the title policy described in
10.1. Seller shall cause the PTR and all Underlying Documents to be delivered to
Buyer promptly after the Date of Agreement. Buyer's approval is to be given
within 75 days after the Date of Agreement. The disapproval by Buyer of any
monetary encumbrance, which by the terms of this Agreement is not to remain
against the Property after the Closing, shall not be considered a failure of
this condition as Seller shall have the obligation, at Seller's expense, to
satisfy and remove such disapproved monetary encumbrance at or before the
Closing.
(g) Survey. Buyer's written approval, within 75 days after the Date of
Agreement, of an ALTA title supplement based upon a survey prepared to American
Land Title Association (the "ALTA") standards for an owner's policy by a
licensed surveyor, showing the legal description and boundary lines of the
Property, any easements of record, and any improvements, poles, structures and
things located within ten (10) feet either side of the Property boundary lines.
The survey shall be prepared at Buyer's direction and expense. If Buyer has
obtained a survey and approved the ALTA title supplement, Buyer may elect within
the period allowed for Buyer's approval of a survey to have an ALTA extended
coverage owner's form of title policy, in which event Buyer shall pay any
additional premium attributable thereto.
(i) Other Agreements. Buyer's written approval, within 75 days after the
Date of Agreement, of a copy of any other agreements ("Other Agreement") known
to Seller that will affect the Property beyond the Closing. Seller shall cause
said copies to be delivered to Buyer promptly after the Date of Agreement.
(l) Destruction, Damage or Loss. There shall not have occurred prior to
the Closing, a destruction of, or damage or loss to, the Property or any portion
thereof, from any cause whatsoever, which would cost more than $50,000 to repair
or cure. If the cost of repair or cure is $50,000 or less Seller shall repair or
cure the loss prior to the Closing. Buyer shall have the option, within ten (10)
days after receipt of written notice of a loss costing more than $50,000 to
repair or cure, to either terminate this transaction or to purchase the Property
notwithstanding such loss, but without deduction or offset against the Purchase
price. If the cost to repair or cure is more than $50,000, and Buyer does not
elect to terminate this transaction, Buyer shall be entitled to any insurance
proceeds applicable to such loss. Unless otherwise notified in writing by either
Party or Broker, Escrow Holder shall assume no destruction, damage or loss
costing more than $50,000 to repair or cure has occurred prior to Closing.
(m) Material Change. No Material Change, as hereinafter defined, shall
have occurred with respect to the Property that has not been approved in writing
by Buyer. For purposes of this Agreement, a
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"Material Change" shall be a change in the status of the use, occupancy,
tenants, or condition of the Property as reasonably expected by the Buyer, that
occurs after the date of this offer and prior to the Closing. Buyer shall have
ten (10) days following receipt of written notice from any source of any such
Material Change within which to approve or disapprove same. Unless otherwise
notified in writing by either Party or Broker, Escrow Holder shall assume that
no Material Change has occurred prior to the Closing.
(n) Seller Performance. The delivery of all documents and the due
performance by Seller of each and every undertaking and agreement to be
performed by Seller under this Agreement.
(o) Breach of Warranty. That each representation and warranty of Seller
herein be true and correct as of the Closing. Escrow Holder shall assume that
this condition has been satisfied unless notified to the contrary in writing by
Buyer or Broker(s) prior to the Closing.
(p) Broker's Fee. Payment at the Closing of such Broker's Fee as is
specified in this Agreement or later written instructions to Escrow Holder
executed by Seller and Broker(s). It is agreed by Buyer, Seller and Escrow
Holder that Broker(s) is/are a third party beneficiary of this Agreement insofar
as the Broker's fee is concerned, and that no change shall be made by Buyer,
Seller or Escrow Holder with respect to the time of payment, amount of payment,
or the conditions to payments of the Broker's fee specified in this Agreement,
without the written consent of Broker(s).
9.2 All of the contingencies specified in subparagraphs (a) through (o)
of paragraph 9.1 are for the benefit of, and may be waived by, Buyer, and may be
elsewhere herein referred to as "Buyer Contingencies."
9.3 If Buyer shall fail, within the applicable time specified, to
approve or disapprove in writing to Escrow Holder, Seller and the other Party's
Broker, any item, matter or document subject to Buyer's approval under the terms
of this Agreement, it shall be conclusively presumed that Buyer has approved
such item, matter or document. Buyer's conditional approval shall constitute a
disapproval, unless provision is made by the Seller within the time specified
therefor by the Buyer in the conditional approval shall constitute a
disapproval, unless provision is made by the Seller within the time specified
therefor by the Buyer in the conditional approval or by this Agreement,
whichever is later, for the satisfaction of the condition imposed by the Buyer.
9.4 If any Buyer's Contingency is not satisfied or if Buyer disapproves
any matter subject to its approval within the time period applicable thereto
("Disapproved Item"), Seller shall have the right within ten (10) days following
the expiration of the time period applicable to such Buyer Contingency or
receipt of notice of Buyer's disapproval, as the case may be, to elect to cure
such Disapproval Item prior to the Expected Closing Date ("Seller's Election").
Seller's Date shall be conclusively presumed to be Seller's Election not to cure
such Disapproved Item. If Seller elects, either by written notice or failure to
give written notice, not to cure a Disapproved Item, Buyer shall have the
election, within ten (10) days after Seller's Election, to either accept title
to the Property subject to that Disapproved Item, or to terminate this
transaction. Buyer's failure to elect termination by written notice to Seller
within said ten (10) day period shall constitute Buyer's election to accept
title to the Property subject to that Disapproved Item without deduction or
offset. Unless the parties mutually instruct otherwise, if the time periods for
the satisfaction of contingencies or for Seller's and Buyer's said Elections
would expire on a date after the Expected Closing Date, the Expected Closing
Date shall be deemed extended to coincide with the expiration of three (3)
business days following the expiration of: (a) the applicable contingency
period(s), (b) the period within which the Seller may elect to cure the
Disapproved Item, or (c) if Seller elects not to cure, the period within which
Buyer may elect to terminate this transaction, whichever is later.
9.5 Buyer understands and agrees that until such time as all Buyer's
Contingencies have been satisfied or waived, Seller and/or its agents may
solicit, entertain and/or accept back-up offers to purchase the subject Property
in the event the transaction covered by this Agreement is not consummated.
9.6 As defined in subparagraph 9.1(c), Buyer and Seller acknowledge that
extensive local, state and Federal legislation establish broad liability upon
owners and/or users of real property for the investigation and remediation of a
Hazardous Substance Condition. The determination of the existence of a Hazardous
Substance Condition and the evaluation of the impact of such a condition are
highly technical and beyond the expertise of Broker(s). Buyer and Seller
acknowledge that they have been advised by Broker(s) to consult their own
technical and legal experts with respect to the possible Hazardous Substance
Condition aspects of this Property or adjoining properties, and Buyer and Seller
are not relying upon any
<PAGE> 14
investigation by or statement of Broker(s) with respect thereto. Buyer and
Seller hereby assume all responsibility for the impact of such Hazardous
Substance Conditions upon their respective interests herein.
10. Documents Required at Closing:
10.1 Escrow Holder shall cause to be issued to Buyer a standard coverage
(or ALTA extended, if so elected under paragraph 9.1(I) owner's form-policy of
title insurance effective as of the Closing, issued by the Title Company in the
full amount of the Purchase Price, insuring title to the Property vested in
Buyer, subject only to the exceptions approved by Buyer. In the event there is a
Purchase Money Deed of Trust in this transaction, the policy of title insurance
shall be a joint protection policy insuring both Buyer and Seller.
"IMPORTANT: IN A PURCHASE OR EXCHANGE OF REAL PROPERTY, IT MAY BE ADVISABLE TO
OBTAIN TITLE INSURANCE IN CONNECTION WITH THE CLOSE OF ESCROW SINCE THERE MAY BE
PRIOR RECORDED LIENS AND ENCUMBRANCES WHICH AFFECT YOUR INTEREST IN THE PROPERTY
BEING ACQUIRED. A NEW POLICY OF TITLE INSURANCE SHOULD BE OBTAINED IN ORDER TO
ENSURE YOUR INTEREST IN THE PROPERTY THAT YOU ARE ACQUIRING."
10.2 Seller shall deliver or cause to be delivered to Escrow Holder in
time for delivery to Buyer at the Closing, an original ink signed:
(a) Grant deed (or equivalent), duly executed and in recordable form,
conveying fee title to the Property to Buyer.
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<PAGE> 15
(c) If applicable, the Other Agreements together with duly executed
consignments thereof by Seller and Buyer.
(e) An affidavit executed by Seller to the effect that Seller is not a
"foreign person" within the meaning of Internal Revenue Code Section 1445 or
successor statutes. If Seller does not provide such affidavit in form reasonably
satisfactory to Buyer at least three (3) business days prior to the Closing,
Escrow Holder shall at the Closing deduct from Seller's proceeds and remit to
Internal Revenue Service such sum as is required by applicable Federal law with
respect to purchases from foreign sellers.
10.3 Buyer shall deliver or cause to be delivered to Seller through
escrow:
(a) The cash portion of the Purchase Price and such additional sums as
are required of Buyer under this Agreement for prorations, expenses and
adjustments. The balance of the cash portion of the Purchase Price, including
Buyer's escrow charges and other cash charges, if any, shall be deposited by
Buyer with Escrow Holder, by cashier's check drawn upon a local major banking
institution, federal funds wire transfer, or any other method acceptable to
Escrow Holder as immediately collectable funds, no later than 11:00 o'clock A.M.
on the business day prior to the Expected Closing Date.
11. Prorations, Expenses and Adjustments.
11.1 Taxes. Real property taxes and special assessments payable by the
owner of the Property shall be prorated through Escrow as of the date of the
Closing, based upon the latest tax bill available. The Parties agree to prorate
as of the Closing any taxes assessed against the Property by supplemental bill
levied by reason of events occurring prior to the Closing. Payment shall be made
promptly in cash upon receipt of a copy of any such supplemental bill of the
amount necessary to accomplish such proration.
11.3 Expenses. Utilities, and operating expenses shall be prorated as of
the date of Closing.
11.5 Post Closing Matters. Any item to be prorated that is not determined
or determinable at the Closing shall be promptly adjusted by the Parties by
appropriate cash payment outside of the Escrow when the amount due is
determined.
11.8 Escrow Costs and Fees. Buyer and Seller shall each pay one-half of
the Escrow Holder's charges and Seller shall pay the usual recording fees and
any required documentary transfer taxes. Seller shall pay the premium for a
standard coverage owner's or joint protection policy of title insurance.
12. Representation and Warranties of Seller and Disclaimer.
12.1 Seller's warranties and representation shall not survive the Closing
for a period not to exceed one year and delivery of the deed, and, unless
otherwise noted herein, are true, material and relied upon by Buyer and
Broker(s) in all respects, both as of the Date of Agreement, and as of the date
of Closing. Seller hereby makes the following warranties and representations to
Buyer and Broker(s):
(a) Authority of Seller. Seller is the owner of the Property and/or has
the full right, power and authority to sell, convey and transfer the Property to
Buyer as provided herein, and to perform Seller's obligations hereunder.
(b) Maintenance During Escrow and Equipment Condition At Closing. Except
as otherwise provided in Paragraph 9.1(k) hereof dealing with destruction,
damage or loss, Seller shall maintain the Property until the Closing in its
present condition, ordinary wear and tear excepted. See Addendum.
(c) See Addendum.
(d) Compliance. Seller has no knowledge of any aspect or conditions of
the Property which violates applicable laws, rules, regulations, codes, or
covenants, conditions or restrictions, or of improvements or alterations made to
the Property without a permit where one was required, or of any unfulfilled
order or directive of any applicable governmental agency or casualty insurance
company that
<PAGE> 16
any work of investigation, remediation, repair, maintenance or improvement is to
be performed on the Property.
(e) Changes in Agreements. Prior to the Closing, Seller will not violate
or modify, orally or in writing, any Existing Lease or Other Agreement, or
create any new leases or other agreements affecting the Property, without
Buyer's written approval, which approval will not be unreasonably withheld.
(f) Possessory Rights. Seller has no knowledge that anyone will, at the
Closing, have any right to possession of the Property, except as disclosed by
this Agreement or otherwise in writing to Buyer.
(g) Mechanics' Liens. There are no unsatisfied mechanic's or
materialman's lien rights concerning the Property.
(h) See Addendum.
(i) Notice of Changes. Seller will promptly notify Buyer and Broker(s)
in writing of any Material Change (as defined in paragraph 9.1(l)) affecting the
Property that becomes known to Seller prior to the Closing.
(k) No Seller Bankruptcy Proceedings. Seller is not the subject of a
bankruptcy, insolvency or probate proceeding.
12.2 Buyer hereby acknowledges that, except as otherwise stated in this
Agreement, Buyer is purchasing the Property in its existing condition and will,
by the time called for herein, make or have waived all inspections of the
Property Buyer believes are necessary to protect its own interest in, and its
contemplated use of, the Property. The Parties acknowledge that, except as
otherwise stated in this Agreement, no representations, inducements, promises,
agreements, assurances, oral or written, concerning the Property, or any aspect
of the Occupational Safety and Health Act, hazardous substance laws, or any
other act, ordinance or law, have been made by either Party or Broker, or relied
upon by either Party hereto.
13. Possession.
13.1 Possession of the Property shall be given to Buyer at the Closing.
14. Buyer's Entry.
14.1 At any time during the Escrow period, Buyer, and its agents and
representatives, shall have the right at reasonable times and subject to rights
of tenants under Existing Leases, to enter upon the Property for the purpose of
making inspections and tests specified in this Agreement. Following any such
entry or work, unless otherwise directed in writing by Seller, Buyer shall
return the Property to the condition it was in prior to such entry or work,
including the recompaction or removal or any disrupted soil or material as
Seller may reasonably direct. All such inspections and tests and any other work
conducted or materials furnished with respect to the Property by or for Buyer
shall be paid for by Buyer as and when due and Buyer shall indemnify, defend,
protect and hold harmless Seller and the Property of and from any and all
claims, liabilities, demands, losses, costs, expenses (including reasonable
attorney's fees), damages or recoveries, including those for injury to person or
property, arising out of or relating to any such work or materials or the acts
or omissions of Buyer, its agents or employees in connection therewith.
15. Further Documents and Assurances.
15.1 Buyer and Seller shall each, diligently and in good faith, undertake
all actions and procedures reasonably required to place the Escrow in condition
for Closing as and when required by this Agreement. Buyer and Seller agree to
provide all further information, and to execute and deliver all further
documents and instruments, reasonably required by Escrow Holder or the Title
Company.
16. Attorneys Fees.
16.1 In the event of any litigation or arbitration between the Buyer,
Seller, and Broker(s), or any of them, concerning this transaction, the
prevailing party shall be entitled to reasonable attorney's fees and
<PAGE> 17
costs. The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
17. Prior Agreements/Amendments.
17.1 The contract in effect as of the Date of Agreement supersedes any
and all prior agreements between Seller and Buyer regarding the Property.
17.2 Amendments to this Agreement are effective only if made in writing
and executed by Buyer and Seller.
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18. BROKER'S RIGHTS.
18.1 If this sale shall not be consummated due to default of either the
Buyer or seller, the defaulting party shall be liable to and shall pay to
Broker(s) the commission that Broker(s) would have received had the sale been
consummated. This obligation of buyer, if Buyer is the defaulting party, is in
addition to any obligation with respect to liquidated damages.
18.2 Upon the Closing, Broker(s) is/are authorized to publicize the facts
of this transaction.
19. NOTICES.
19.1 Whenever any Party hereto, Escrow Holder or Broker(s) herein shall
desire to give or serve notice, demand, request, approval or other
communication, each such communication shall be in writing and shall be
delivered personally, by messenger or by mail, postage prepaid, addressed as set
forth adjacent to that party's or Broker's signature on this Agreement or by
telecopy with receipt confirmed by telephone. Service of any such communication
shall be deemed made on the date of actual receipt at such address.
19.2 Any Party or Broker hereto may from time to time, by notice in
writing served upon the other Party as aforesaid, designate a different address
to which, or a different person or additional persons to whom, all
communications are thereafter to be made.
20. DURATION OF OFFER.
20.1 If this offer shall not be accepted by Seller on or before 5:00 P.M.
according to the time standard applicable to the city of Los Angeles on the date
of July 15, 1997, it shall be deemed automatically revoked.
20.2 The acceptance of this offer, or of any subsequent counter-offer
hereto, that creates an agreement between the Parties as described in paragraph
1.2, shall be deemed made upon delivery to the other Party or either Broker
herein of a duly executed writing unconditionally accepting the last outstanding
offer or counter-offer.
21. LIQUIDATED DAMAGES. (This Liquidated Damages paragraph is applicable only if
initialed by both parties.)
21.1 THE PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE OR EXTREMELY
DIFFICULT TO FIX, PRIOR TO SIGNING THIS AGREEMENT, THE ACTUAL DAMAGES WHICH
<PAGE> 18
WOULD BE SUFFERED BY SELLER IF BUYER FAILS TO PERFORM ITS OBLIGATIONS UNDER THIS
AGREEMENT. THEREFORE, IF, AFTER THE SATISFACTION OR WAIVER OF ALL CONTINGENCIES
PROVIDED FOR THE BUYER'S BENEFIT, BUYER BREACHES THIS AGREEMENT, SELLER SHALL BE
ENTITLED TO LIQUIDATED DAMAGES IN THE AMOUNT OF $100,000 PLUS INTEREST, IF ANY,
ACCRUED THEREON. UPON PAYMENT OF SAID SUM TO SELLER, BUYER SHALL BE RELEASED
FROM ANY FURTHER LIABILITY TO SELLER, AND ANY ESCROW CANCELLATION FEES AND TITLE
COMPANY CHARGES SHALL BE PAID BY SELLER.
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Buyer Initials
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Seller Initials
22. ARBITRATION OF DISPUTES. (This Arbitration of Disputes paragraph is
applicable only if initialed by both parties and is subjected to paragraph 23,
below.)
22.1 ANY CONTROVERSY AS TO WHETHER SELLER IS ENTITLED TO THE LIQUIDATED
DAMAGES AND/OR BUYER IS ENTITLED TO THE RETURN DEPOSIT MONEY, SHALL BE
DETERMINED BY BINDING ARBITRATION BY, AND UNDER THE COMMERCIAL RULES (the
'COMMERCIAL RULES") OF, THE AMERICAN ARBITRATION ASSOCIATION. HEARINGS ON SUCH
ARBITRATION SHALL BE HELD IN THE COUNTY WHERE THE PROPERTY IS LOCATED. ANY SUCH
CONTROVERSY SHALL BE ARBITRATED BY THREE (3) ARBITRATORS WHO SHALL BE IMPARTIAL
REAL ESTATE BROKERS WITH AT LEAST FIVE (5) FULL TIME YEARS OF EXPERIENCE IN THE
AREA WHERE THE PROPERTY IS LOCATED, IN THE TYPE OF REAL ESTATE THAT IS THE
SUBJECT OF THIS AGREEMENT AND SHALL BE APPOINTED UNDER THE COMMERCIAL RULES. THE
ARBITRATORS SHALL HEAR AND DETERMINE SAID CONTROVERSY IN ACCORDANCE WITH
APPLICABLE LAW AND THE INTENTION OF THE PARTIES AS EXPRESSED IN THE AGREEMENT,
AS THE SAME MAY HAVE BEEN DULY MODIFIED IN WRITING BY THE PARTIES PRIOR TO THE
ARBITRATION. UPON THE EVIDENCE PRODUCED AT AN ARBITRATION HEARING SCHEDULED AT
THE REQUEST OF EITHER PARTY. SUCH PRE-ARBITRATION DISCOVERY SHALL BE PERMITTED
AS IS AUTHORIZED UNDER THE COMMERCIAL RULES OR STATE LAW APPLICABLE TO
ARBITRATION PROCEEDINGS. THE AWARD SHALL BE EXECUTED BY AT LEAST TWO (2) OF THE
THREE (3) ARBITRATORS, BE RENDERED WITHIN THIRTY (30) DAYS AFTER THE CONCLUSION
OF THE HEARING, AND MAY INCLUDE ATTORNEYS' FEES AND COSTS TO THE PREVAILING
PARTY PER PARAGRAPH 16 HEREOF. JUDGEMENT MAY BE ENTERED ON THE AWARD IN ANY
COURT OF COMPETENT JURISDICTION NOTWITHSTANDING THE FAILURE OF A PARTY DULY
NOTIFIED OF THE ARBITRATION HEARING TO APPEAR THEREAT.
22.2 BUYER'S RESORT TO OR PARTICIPATION IN SUCH ARBITRATION PROCEEDINGS
SHALL NOT BAR SUIT IN A COURT OF COMPETENT JURISDICTION BY THE BUYER FOR DAMAGES
AND/OR SPECIFIC PERFORMANCE UNLESS OR UNTIL THE ARBITRATION RESULTS IN AN AWARD
TO THE SELLER OF LIQUIDATION DAMAGES, IN WHICH EVENT SUCH AWARD SHALL ACT AS A
BAR AGAINST ANY ACTION BY BUYER FOR DAMAGES AND/OR SPECIFIC PERFORMANCE.
22.3 NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE
ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE
<PAGE> 19
LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE
GIVING UP YOUR JUDICIAL RIGHT TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED
TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR
AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
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Buyer Initials
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23. APPLICABLE LAW.
23.1 This agreement shall be governed by, and paragraph 22.3 amended to
refer to, the laws of the state in which the Property is located.
24. TIME OF ESSENCE
24.1 Time is of the essence of the Agreement.
25. COUNTERPARTS.
25.1 This Agreement may be executed by Buyer and Seller in counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument. Escrow Holder, after verifying that the
counterparts are identical except for the signatures, is authorized and
instructed to combine the signed signature pages on one of the counterparts,
which shall constitute the Agreement.
26. DISCLOSURES REGARDING THE NATURE OF A REAL ESTATE AGENCY RELATIONSHIP.
26.1 The Parties and Broker(s) agree that their relationship(s) shall be
governed by the principles set forth in California Civil Code, Section 2375, as
summarized in the following paragraph 26.2.
26.2 When entering into a discussion with a real estate agent regarding
a real estate transaction, a Buyer or Seller should from the outset understand
what type of agency relationship or representation it has with the agent or
agents in the transaction. Buyer and Seller acknowledge being advised by the
Broker(s) in this transaction, as follows:
(a) Seller's Agent. A Seller's agent under a listing agreement
with the Seller acts as the agent for the Seller only. A Seller's agent or
subagent has the following affirmative obligations: (1) To the Seller. A
fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with
the Seller. (2) To the Buyer and the Seller: a. Diligent exercise of reasonable
skill and care in performance of the agent's duties. b. A duty of honest and
fair dealing and good faith. c. A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the Parties. An
agent is not obligated to reveal to either Party any
<PAGE> 20
confidential information obtained from the other Party which does not involve
the affirmative duties set forth above.
(b) Buyers Agent. A selling agent can, with a Buyer's consent,
agree to act as agent for the buyer only. In these situations, the agent is not
the Seller's agent, even if by agreement the agent may a receive compensation
for services rendered, either in full or in part from Seller. An agent acting
only for a Buyer has the following affirmative obligations. (I) To the Buyer. A
fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with
the Buyer. (2) To the Buyer and the Sellers: a. Diligent exercise of reasonable
skill and care in performance of the agent's duties. b. A duty of honest and
fair dealing and good faith. c. A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the Parties. An
agent is not obligated to reveal to either Party any confidential information
obtained from the other Party which does not involve the affirmative duties set
forth above.
(c) Agent Representing Both Seller and Buyer. A real estate
agent, either acting directly or through one or more associate licenses, can
legally be the agent of both the Seller and the Buyer in a transaction, but only
with the knowledge and consent of both the Seller and the Buyer. (I) In a dual
agency situation, the agent has the following affirmative obligations to both
the Seller and the Buyer: a. A fiduciary duty of utmost care, integrity,
honesty, and loyalty in the dealings with either Seller or the Buyer. b. Other
duties to the Seller and the Buyer as stated above in their respective sections
(a) and (b) of this paragraph 26.2.(2) In representing both the Seller and the
Buyer, the agent may not without the express permission of the respective party,
disclose to the other Party that the Seller will accept a price less than the
listing price or that the Buyer will pay a price greater than the price offered.
(3) The above duties of the agent in a real estate transaction do not relieve a
Seller or Buyer from the responsibilities to protect their own interests. Buyer
and Seller should carefully read all agreements to assure that they adequetely
express their understanding of the transaction. A real estate agent is a person
qualified to advise about real estate. If legal or tax advise is desired,
consult a competent professional.
(d) Further Disclosures. Throughout this transaction Buyer and
Seller may receive more than one disclosure, depending upon the number of agents
assisting in the transaction. Buyer and Seller should each read its contents
each time it is presented, considering the relationship between them and the
real estate agent in this transaction and that disclosure.
26.3 Confidential Information: Buyer and Seller agree to identify to
Broker(s) as "Confidential" any communication given Broker(s) that is considered
by such Party to be confidential.
27. ADDITIONAL PROVISIONS:
Additional provisions of this offer, if any, are as follows or are attached
hereto by an addendum consisting of paragraphs 29 through 35(It will be presumed
no other provisions are included unless specified here.)
The undersigned herein represents to the seller that Board of Directors
approval of this purchase shall be obtained within the contractual time
allowed for the buyer's due diligence.
BUYER AND SELLER HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN AND ARE NOW ADVISED BY
THE BROKER(S) TO CONSULT AND RETAIN THEIR OWN EXPERTS TO ADVISE AND REPRESENT
THEU CONCERNING THE LEGAL AND INCOME TAX EFFECTS OF THIS AGREEMENT. AS WELL AS
THE CONDITION AND/OR LEGALITY OF THE PROPERTY, THE IMPROVEMENTS AND EOUIPMENT
THEREIN THE SOIL THEREOF, THE CONDITION OF TITLE THERETO, THE SURVEY THEREOF,
THE ENVIRONMENTAL ASPECTS THEREOF. THE INTENDED AND/OR PERMITTED USAGE THEREOF,
THE EXISTENCE AND NATURE OF TENDENCIES THEREIN, THE OUTSTANDING OTHER AREEMENTS,
IF ANY, WITH RESPECT THERETO, AND THE EXISTlNG OR CONTEMPLATED FINANCING
THEREOF,
<PAGE> 21
AND THAT THE BROKER(S) IS/ARE NOT TO BE RESPONSIBLE FOR PURSUING THE
INVESTIGATION OF ANY SUCH MATTERS UNLESS EXPRESSLY OTHERWISE AGREED TO IN
WRITING BY BROKER(S) AND BUYER OR SELLER.
THIS FORM IS NOT FOR USE IN CONNECTION
WITH THE SALE OF RESIDENTIAL PROPERTY.
If this agreement has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker(s) or their agents or employees as to the legal effect, or
tax consequences of this Agreement of the transaction involved herein. The
undersigned Buyer offers and agrees to buy the Property on the terms and
conditions stated and acknowledges receipt of a copy hereof.
BROKER: BUYER:
WEATHERBY COMPANY THE SPORTS CLUB COMPANY
By /S/ Bill Weatherby Date 7/7/97 By /S/ Mark Spino Date 7/9/97
- ----------------------------------- -----------------------------------
Name Printed: Bill Weatherby Name Printed: Mark Spino
------------------ ------------------
Title: Owner/Broker Title: Vice President
------------------ ------------------
3231 Ocean Park, Suite 113 111000 Santa Monica Blvd: Suite 300
- ----------------------------------- -----------------------------------
Address Address
Santa Monica, CA 90405 West Los Angeles, CA 90025
- ----------------------------------- -----------------------------------
310-479-5200 310-479-8899 310-479-5200 310-479-8899
- ----------------------------------- -----------------------------------
Telephone Facsimile No. Telephone Facsimile No.
28. Acceptance.
28.1 Seller accepts the foregoing offer to purchase the Property and
hereby agrees to sell the property to Buyer on the terms and conditions therein
specified.
28.2 Seller acknowledges that Broker(s) has/have been retained to locate
a Buyer and is/are the procuring cause of the purchase and sale of the Property
set forth in this Agreement. In consideration of real estate brokerage service
rendered by Broker(s), Seller agrees to pay Broker(s) a real estate brokerage
fee in a sum equal to $36,000 plus 5% of the portion of the Purchase Price in
excess of $600,000 (the "Broker(s) Fee") divided equally in such shares as said
Broker(s) shall direct in writing. As is provided in paragraph 9.1(o), this
Agreement shall serve as an irrevocable instruction to Ecrow Holder to pay such
brokerage fee to Broker(s) out of the proceeds accruing to the account of Seller
at the Closing.
28.3 Seller acknowledges receipt of a copy hereof and athorizes the
Broker(s) to deliver a signed copy to Buyer.
BROKER SELLER:
The Seeley Company The Trustees of Lasalle Fund II
- ----------------------------------- -------------------------------------
By Date By: LaSalle Advisors, Limited,
- ----------------------------------- -------------------------------------
Name Printed: John R. DeGrinis Its agents and manager
----------------- -------------------------------------
Title: Vice President By Date
----------------- -------------------------------------
16830 Ventura Blvd.; Suite S Name Printed:
- -----------------------------------
Address Title: Principal
Encino, CA 91436 -------------------
- ----------------------------------- c/o LaSalle Partners, 200 E. Randolph
818-905-5800 818-905-6130 -------------------------------------
- ----------------------------------- Address
Telephone Facsimile No. Chicago, IL 60601
-------------------------------------
312-228-2217 312-782-4339
-------------------------------------
Telephone Facsimile No.
PAGE 6
These forms are often motified to meet changing requirements of law and needs of
the industry. Alway write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association. 345 So. Figueroa
Street M-1, Los Angeles, CA 90071. (213) 687-8777.
Copyright 1989-By American Industrial Real Estate Associations. All rights
reserved. No part of these works may be reproduced in any
form without permission in writing.
<PAGE> 1
EXHIBIT 10.79
FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this
"Amendment"), dated as of February 23, 1998, is entered into by and among THE
SPORTS CLUB COMPANY, INC., a Delaware corporation, and certain of its
subsidiaries identified in the signature pages to this Amendment (collectively,
the "Borrowers"), SUMITOMO BANK OF CALIFORNIA, a California banking corporation
("Sumitomo"), COMERICA BANK - CALIFORNIA, a California banking corporation
("Comerica", and collectively with Sumitomo, the "Banks"), and Sumitomo in its
capacity as agent for the Banks (in such capacity, the "Agent"), in light of the
following facts:
RECITALS
A. The Borrowers, Sumitomo and the Agent are parties to that certain
Amended and Restated Loan Agreement, dated as of February 2, 1998 (the "Loan
Agreement"), pursuant to which Sumitomo as the sole "Bank" thereunder has
provided the Borrowers with certain credit facilities.
B. The Borrowers, the Banks hereunder and the Agent wish to amend
the Loan Agreement (i) to add Comerica as a Bank thereunder, (ii) to increase
the amount of the Line B Commitment from $8,000,000 to $13,000,000, and (iii) to
make certain conforming changes to the Loan Agreement and the related Loan
Documents to give effect to the foregoing modifications.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers, the Banks and the Agent hereby agree as follows:
1. Defined Terms. All initially capitalized terms set forth without
definition in this Amendment (including, without limitation, in the recitals
hereto) shall have the respective meanings assigned thereto in the Loan
Agreement.
2. Addition of Comerica as a Bank. The Borrowers and Sumitomo hereby
consent to Comerica being added as a Bank for all purposes under the Loan
-1-
<PAGE> 2
Agreement pursuant to the terms of that certain Assignment and Assumption
Agreement, its related Request for Registration and the Consent of Agent and
Borrowers, each dated on or about the date hereof.
3. Amendments to Definitions. Section 1.1 of the Loan Agreement is hereby
amended such that each of the definitions set forth below shall read in full as
follows:
"Bank" or "Banks" means individually or collectively Sumitomo Bank,
Comerica Bank - California and any one or more banks or other
financial institutions which become lending parties to this
Agreement in accordance with the terms hereof.
"Commitment" means, collectively, the Line A Commitment and the Line
B Commitment as may be reduced under this Agreement. The respective
percentage obligations of each Bank with respect to the Commitment
are as follows:
<TABLE>
<CAPTION>
Bank Amount Percentage
---- ------ ----------
<S> <C> <C>
Sumitomo Bank $10,000,000 66__%
Comerica Bank - California $ 5,000,000 33__%
</TABLE>
"Line B Availability" means, as of each date of determination, the
Line B Commitment minus the aggregate amount of all Line B Loans
made by the Banks (including any Outstanding Standby Letters of
Credit, not to exceed the Maximum Standby Letter of Credit Amount)
and less any amount by which Borrowers have failed to comply with
the Liquidity Requirement.
"Line B Commitment" means the commitment by Banks to make
non-revolving loans in an aggregate principal amount not to exceed
$13,000,000 (including any Outstanding Standby Letters of Credit,
not to exceed the Maximum Standby Letter of Credit Amount).
4. The Line B Loan. Section 2.2(a) of the Loan Agreement is amended and
restated to read as follows:
-2-
<PAGE> 3
"(a) During the Line B Availability Period, and subject to the
applicable conditions set forth in Article 8 hereof, each Bank
shall, on a non-revolving basis and pro rata according to that
Bank's percentage of the then Commitment, make advances to
Borrowers, which may not at any time exceed the Line B Availability.
This is a non-revolving line of credit. Any amount borrowed, even if
repaid before the end of the Line B Availability Period, permanently
reduces the Line B Availability and such amounts may not be
reborrowed. Banks shall not be obligated to make a Line B Loan if,
after giving effect to all Line B Loans to be made by Banks, and the
Outstanding Standby Letters of Credit, the Line B Commitment would
exceed $13,000,000."
5. Standby Letters of Credit. Sections 2.6(a) and 2.6(e) of the Loan
Agreement are amended and restated to read as follows:
"(a) Subject to the terms and conditions hereof, at any time and
from time to time from the Closing Date through the Banking Day
immediately preceding July 1, 1998, the Issuing Bank shall issue
such Standby Letters of Credit as a Responsible Official of a
Borrower on behalf of the Borrowers may request by a Request for
Standby Letter of Credit; provided that, upon giving effect to such
Standby Letter of Credit, (i) Total Outstanding shall not exceed
$15,000,000, (ii) Line B Availability shall not exceed $13,000,000
and (iii) Outstanding Standby Letters of Credit shall not exceed the
Maximum Standby Letter of Credit Amount. If any Standby Letter of
Credit is canceled or otherwise expires or terminates without it
being drawn upon, Line B Availability shall not be permanently
reduced by the amount of such Standby Letter of Credit, but instead
such amount may be reborrowed. Unless the Requisite Banks otherwise
consent in writing, the term of any Standby Letter of Credit shall
not exceed the Line B Maturity Date. If on the Line B Maturity Date,
or upon any earlier termination or acceleration of the Commitment
and any Loans thereunder, there exist any Outstanding Standby
Letters of Credit, Borrowers shall provide to Agent a standby letter
of credit issued by a bank satisfactory to the Requisite Banks, in
form and substance satisfactory to the Requisite Banks, in favor of
the Banks in a face amount equal to Outstanding Standby Letters of
Credit on that date,
-3-
<PAGE> 4
or shall make other provisions satisfactory to the Requisite Banks
for the collateralization or settlement of such Outstanding Standby
Letters of Credit. No Standby Letter of Credit shall be issued
except in the ordinary course of business of Borrowers or their
Subsidiaries. Unless otherwise agreed to by the Requisite Banks, the
face amount of any Standby Letter of Credit shall not be less than
$250,000."
"(e) At all times prior to the Line A Maturity Date, if Borrowers
fail to make any payment required by Section 2.6(d), Agent may, but
is not required to, without notice to or the consent of Borrowers,
make Line B Loans under the Commitment in an aggregate amount equal
to the amount paid by Issuing Bank on the relevant Standby Letter of
Credit, whether or not the same would cause the Line B Commitment to
exceed $13,000,000, and, for this purpose, the conditions precedent
set forth in Article 8 and the amount limitations set forth in
Section 2.1(d) shall not apply. The proceeds of such Line B Loans
shall be retained by Issuing Bank to reimburse it for the payment
made by it under the Standby Letter of Credit."
1. Equity or Debt Offering. Section 3.1(f) of the Loan Agreement is
amended and restated to read as follows:
"(f) In addition to all other payments hereunder, all Obligations,
including payment of all indebtedness owing under the Notes, shall
be fully due and payable upon the consummation of SCC, Inc.'s
$50,000,000 proposed securities offering or other equity or debt
offering in any amount by or for the benefit of any of the
Borrowers, and the Commitment shall terminate."
2. Indebtedness, Guaranties and Liens. Section 6.9(c) of the Loan
Agreement is amended and restated to read as follows:
"(c) Indebtedness and Liens (i) securing obligations incurred in
connection with the financing or re-financing of any real property
assets of Borrowers or Non-Borrower Affiliates, to the extent such
financing has been approved by the Requisite Banks, or (ii) incurred
in connection with SCC, Inc.'s $50,000,000 proposed securities
offering or other equity or debt offering in any amount by or for
the benefit of any of the Borrowers, to the extent the proceeds of
such Indebtedness and/or Liens
-4-
<PAGE> 5
are used to pay in full all Obligations, including payment of all
indebtedness owing under the Notes."
3. Ratio of Debt to EBITDA. Section 6.19 of the Loan Agreement is
amended and restated to read as follows:
"6.19 Ratio of Debt to EBITDA. Permit the ratio of notes payable and
capitalized lease obligations (as that line item is disclosed on
Borrower's consolidated balance sheet in their 10K and 10Q) to
EBITDA, as of the last day of the fiscal quarter of Borrowers and
their Subsidiaries, calculated at the end of each such quarter on a
rolling four (4) quarter basis, to be greater than 4.5:1. For the
purposes of the calculation of this ratio, The Spectrum Club's
Fullerton and Santa Ana lease obligation in the amount of
$10,000,000 by and between SCC I LLC, as Landlord, and The Sports
Club Company, Inc. as Tenant, dated as of December 31, 1997, shall
not be included as debt."
4. Conditions Precedent. The effectiveness of this Amendment is
subject to the prior satisfaction of each of the following conditions:
(a) Execution and Delivery of this Amendment. The Agent shall have
received this Amendment, duly executed by an authorized officer of
(i) each of the Borrowers, (ii) the Agent and (iii) each of the
Banks;
(b) Execution and Delivery of Notes. The Borrowers shall have executed
to the order of the applicable Banks and delivered to the Agent each
of the Notes, evidencing such Banks shares of the Commitment.
(c) Execution and Delivery of Assignment and Assumption Agreement. The
Agent shall have received the Assignment and Assumption Agreement
and its related Request for Registration and Consent of Agent and
Borrowers, which are referred to in paragraph 2 of this Amendment,
in each case duly executed by an authorized officer of each
signatory thereto.
(d) Agent Fee. The Borrowers shall have paid to the Agent a fee as
agreed between Borrowers and Agent in a separate agreement, which
fee shall be fully earned by Agent on the effective date of this
Amendment.
-5-
<PAGE> 6
(e) Commitment Fee. The Borrowers shall have paid to Banks a
commitment fee equal to .5% of the Commitment (i.e., .5%
multiplied by $15,000,000 or $75,000), of which commitment fee
$50,000 has already been paid to Sumitomo, and the remaining
$25,000 shall be paid to Comerica. Such commitment fee paid
to Sumitomo has been fully earned, and such commitment fee
paid to Comerica shall be fully earned on the effective date
of this Amendment. In the event any Bank ceases to be a party
to this Agreement at a time when no Event of Default has
occurred and is continuing, such Bank shall rebate to Agent
the pro rata portion of such commitment fee attributable to
the months remaining until the Maturity Date. Agent shall
distribute the rebated fee to the Banks according to any
increase in their pro rata share of the Commitment, to any
replacement Bank according to its pro rata share of the
Commitment, or if no Banks assume the departing Bank's pro
rata share of the Commitment, to the Borrowers.
(f) Delivery of Corporate Resolutions. Agent shall have received a
corporate resolution from each Borrower, duly executed by an
authorized officer of such Borrower, which shall approve (i) the
addition of Comerica as a Bank under the Loan Agreement; and (ii)
the increase in the amount of the Line B Commitment as set forth in
this Amendment, in a form acceptable to Agent.
(g) Delivery of Opinion Letter. Agent shall have received a favorable
written legal opinion of Kinsella, Boesch, Fujikawa & Towle, as
counsel to Borrowers and their subsidiaries, in a form acceptable to
Agent.
5. Representations and Warranties. Each representation and warranty
made by the Borrowers in Article 4 of the Loan Agreement is true and correct on
and as of the date hereof as though made as of the date hereof, except to the
extent such representations and warranties relate solely to an earlier date.
Borrowers have furnished to Agent and the Banks (b) the unaudited consolidated
balance sheets of Borrowers and their Subsidiaries as at December 31, 1997, and
unaudited consolidated income statements, cash flow statements of Borrowers and
their Subsidiaries and unaudited individual Club operating statements for such
month and for their fiscal year ended with such month. Such financial statements
fairly present the financial condition, results of operations and cash flow of
Borrowers and their Subsidiaries as at
-6-
<PAGE> 7
such dates and for such periods, in conformity with generally accepted
accounting principles, consistently applied, provided that the balance sheets
and statements referred to above are subject to normal year-end audit
adjustments.
6. Full Force and Effect. Each of the Loan Documents is hereby
amended such that all references to the Loan Agreement contained in any of such
documents shall be deemed to be made with respect to the Loan Agreement as
amended by this Amendment. Except as amended hereby, the Loan Agreement and the
other Loan Documents shall remain unaltered and in full force and effect. 1.
7. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall constitute an original and all of which, taken
together, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
by their respective duly authorized officers as of the date first above written.
The "Borrowers"
THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By /s/ Timothy O'Brien
-------------------------------------------
Timothy O'Brien
Chief Financial Officer
-7-
<PAGE> 8
THE SPECTRUM CLUB COMPANY, INC.,
a California corporation
By /s/ Timothy O'Brien
-------------------------------------------
Timothy O'Brien
Chief Financial Officer
PONTIUS REALTY, INC.,
a New York corporation
By /s/ Timothy O'Brien
-------------------------------------------
Timothy O'Brien
Chief Financial Officer
SPORTS CLUB, INC. OF CALIFORNIA,
a California corporation
By /s/ Timothy O'Brien
-------------------------------------------
Timothy O'Brien
Chief Financial Officer
IRVINE SPORTS CLUB, INC.,
a California corporation
By /s/ Timothy O'Brien
-------------------------------------------
Timothy O'Brien
Chief Financial Officer
-8-
<PAGE> 9
THE SPORTSMED COMPANY, INC.,
a California corporation
By /s/ Timothy O'Brien
----------------------------------------
Timothy O'Brien
Chief Financial Officer
L.A./IRVINE SPORTS CLUB, LTD.,
a California limited partnership
By: Sports Club, Inc. of California,
General Partner
By /s/ Timothy O'Brien
----------------------------------
Timothy O'Brien
Chief Financial Officer
TALLA NEW YORK, INC.,
a New York corporation
By /s/ Timothy O'Brien
----------------------------------------
Timothy O'Brien
Chief Financial Officer
SCC SPORTS CLUB, INC.,
a Texas corporation
-9-
<PAGE> 10
By /s/ Timothy O'Brien
----------------------------------------
Timothy O'Brien
Chief Financial Officer
GREEN VALLEY SPECTRUM CLUB, INC.,
a Nevada corporation
By /s/ Timothy O'Brien
----------------------------------------
Timothy O'Brien
Chief Financial Officer
SPECTRUM CLUB/ANAHEIM HILLS, INC.,
a California corporation
By /s/ Timothy O'Brien
----------------------------------------
Timothy O'Brien
Chief Financial Officer
-10-
<PAGE> 11
The "Agent"
SUMITOMO BANK OF CALIFORNIA,
a California banking corporation
By /s/ Elizabeth M. Toda
----------------------------------------
Elizabeth M. Toda
Vice President
The "Banks"
SUMITOMO BANK OF CALIFORNIA,
a California banking corporation
By /s/ Elizabeth M. Toda
----------------------------------------
Elizabeth M. Toda
Vice President
COMERICA BANK - CALIFORNIA,
a California banking corporation
By /s/ Joseph Yurosek
----------------------------------------
Joseph Yurosek
Vice President
Address:
Comerica Bank - California
301 E. Ocean Boulevard, Suite 1800
Long Beach, California 90802
Attn: Joseph Yurosek, Vice President
Telecopier: (562) 595-8251
Telephone: (562) 590-2530
-11-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY FORM OWNER OWNERSHIP
- ---------- ---- ----- ---------
<S> <C> <C> <C>
TVE, Inc. (Inactive) Corporation The Sports Club Company, Inc. 100.00%
Century City Spectrum, Inc. (Inactive) Corporation The Sports Club Company, Inc. 100.00%
The Sports Connection Holding Company Corporation The Sports Club Company, Inc. 100.00%
(Inactive)
The Spectrum Club Company, Inc. Corporation The Sports Club Company, Inc. 100.00%
Sports Club, Inc. of California Corporation The Sports Club Company, Inc. 100.00%
Pontius Realty, Inc. Corporation The Sports Club Company, Inc. 100.00%
Irvine Sports Club, Inc. Corporation The Sports Club Company, Inc. 100.00%
The SportsMed Company, Inc. Corporation The Sports Club Company, Inc. 100.00%
SCC Sports Club, Inc. (Inactive) Corporation The Sports Club Company, Inc. 100.00%
L.A./Irvine Sports Clubs, Ltd. Partnership Sports Club, Inc. of California 50.10%
Talla New York, Inc. Corporation Sports Club, Inc. of California 100.00%
Reebok-Sports Club/NY Partnership Talla New York, Inc. 50.10%
The Sports Club Company, Inc. 9.90%
El Segundo-TDC, Ltd. Partnership The Spectrum Club Company, Inc. 17.19%
Pontius Realty, Inc. 0.75%
Sports Club, Inc. of California 9.89%
The Sports Club Company, Inc. 9.89%
Sports Connection ES/MB Partnership The Spectrum Club Company, Inc. 43.73%
El Segundo-TDC, Ltd. 6.27%
Green Valley Spectrum Club, Inc. Corporation The Sports Club Company, Inc. 100.00%
SF Sports Club, Inc. Corporation The Sports Club Company, Inc. 100.00%
Washington D.C. Sports Club, Inc. Corporation The Sports Club Company, Inc. 100.00%
HFA Services, Inc. Corporation Health Fitness Organization 100.00%
of America, Inc.
Sepulveda Realty and Development Co. Inc. Corporation The Sports Club Company, Inc. 100.00%
Spectrum Club / Anaheim Hills Corporation The Sports Club Company, Inc. 100.00%
</TABLE>
2/24/98
<PAGE> 1
EXHIBIT 23.1
The Board of Directors and Stockholders
The Sports Club Company, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
333-38459) on Form S-3 and the Registration Statement (No. 333-26421) on Form
S-8 of the Sports Club Company, Inc. of our report dated February 13, 1998,
except for Note 6, which is as of February 23, 1998, relating to the
consolidated balance sheets of The Sports Club Company, Inc. as of December 31,
1996 and 1997, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, which report appears in the December 31, 1997 annual report
on Form 10-K of the Sports Club Company, Inc.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
February 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,581
<SECURITIES> 0
<RECEIVABLES> 2,457
<ALLOWANCES> 385
<INVENTORY> 813
<CURRENT-ASSETS> 4,926
<PP&E> 114,734
<DEPRECIATION> 7,943
<TOTAL-ASSETS> 131,561
<CURRENT-LIABILITIES> 26,844
<BONDS> 0
0
0
<COMMON> 144
<OTHER-SE> 58,333
<TOTAL-LIABILITY-AND-EQUITY> 131,561
<SALES> 61,154
<TOTAL-REVENUES> 61,154
<CGS> 43,517
<TOTAL-COSTS> 43,517
<OTHER-EXPENSES> 10,526
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,206
<INCOME-PRETAX> 2,554
<INCOME-TAX> 1,014
<INCOME-CONTINUING> 1,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,540
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
