<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 200549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) DECEMBER 31, 1997
THE SPORTS CLUB COMPANY, INC.
Delaware 1-13290 95-4479735
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Indentification No.)
11100 Santa Monica Boulevard, Suite 300
Los Angeles, California 90025
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 479-5200
(Former name or former address, if changed since last report.) Not applicable
Page 1 of 3
Index of Exhibits on Page 3.
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ITEM 2. ACQUISITION OF ASSETS.
On December 31, 1997, the Company acquired the assets of four
Racquetball World Health and Fitness Clubs located in Santa Ana, Canoga Park,
Fountain Valley and Fullerton, California. The aggregate purchase price for the
clubs was $17 million. The real property interests underlying two of the clubs
were acquired by an affiliate of Millennium Entertainment Partners, L.P. (MEP),
a stockholder of the Company, for $10 million. Concurrently, the Company entered
into a lease, accounted for as a financing lease, whereby the Company will lease
these facilities for $1 million per year. The lease has a twenty year initial
term with two ten-year renewal options and provides for a scheduled rent
increase to $1.2 million per year for years 11-20. The lease also contains a PUT
option, which allows MEP to sell, assign or otherwise transfer it's interests in
the real property to the Company upon the occurrence of certain events. The
remaining assets were purchased by the Company for $5 million cash, and up to
additional $1.5 million of the Company's common stock due to the sellers upon
the completion of certain transactions as defined in the purchase agreement. The
related costs of the acquisition are estimated at $500,000.
Concurrent with the transaction the Company issued 625,000 shares of its
common stock to MEP for $5 million.
The acquisition has been accounted for as a purchase, accordingly the
Company will include the operations of the acquired clubs in the consolidated
financial statements from the date of acquisition. The Company will operate
these four clubs as Spectrum Clubs.
The Clubs were acquired from the following parties:
<TABLE>
<CAPTION>
CLUB SELLER
---- ------
<S> <C>
Santa Ana RBW/Santa Ana, a California Limited
Partnership and RBWSA, LLC.
Canoga Park Norcan, a California Limited Partnership.
Fullerton RBW/Fullerton, a California Limited
Partnership.
Fountain Valley Racquetball World, a California Limited
Partnership.
</TABLE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) & (b) Financial Statements and Pro forma financial information.
Any financial statements and pro forma financial information required
will be filed within 60 days hereof in accordance with Rule 3-05 of Regulation
S-X.
Page 2 of 3
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(c) Exhibits
--------
1. Letter agreement dated December 29, 1997 between
Millennium Entertainment Partners, L.P. and the Company
regarding Millennium's purchase of 625,000 shares of the
Company's common stock.
2. Agreement of Purchase and Sale by and among The Spectrum
Club Company, Inc., SCC I LLC and RBW/Fullerton, a
California Limited Partnership, dated as of December 31,
1997.
3. Agreement of Purchase and Sale by and among The Spectrum
Club Company, Inc., SCC I LLC and Norcan, a California
Limited Partnership, dated as of December 31, 1997.
4. Agreement of Purchase and Sale by and among The Spectrum
Club Company, Inc., SCC I LLC, RBW/Santa Ana, a California
Limited Partnership, and RBWSA, LLC dated as of December
31, 1997.
5. Agreement of Purchase and Sale by and among The Spectrum
Club Company, Inc. and Racquetball World, a California
Limited Partnership, dated as of December 31, 1997.
6. Agreement of Lease dated as of December 31, 1997, by and
between SCC I LLC and the Company.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned hereunto
duly authorized.
THE SPORTS CLUB COMPANY, INC.
By: /s/ Timothy O'Brien
-------------------------------------
Timothy O'Brien
Chief Financial Officer
January 14, 1998
Page 3 of 3
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EXHIBIT 1
THE SPORTS CLUB COMPANY
11100 Santa Monica Blvd., Suite 300
Los Angeles, CA 90025
December 29, 1997
C1670
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:
This letter sets forth the basic terms and conditions (the "Agreement")
under which Millennium Entertainment Partners, L.P. ("Millennium") will purchase
from The Sports Club Company, Inc. ("SCC") 625,000 shares (the "Shares") of
SCC's authorized but unissued common stock, $.01 par value per share (the
"Common Stock"), for an aggregate purchase price of Five Million Dollars, as
provided herein. SCC shall cause the Shares to be listed on the American Stock
Exchange as soon as practicable after the Closing (defined below), but in no
event later than 30 days following the Closing.
1. PURCHASE AND SALE OF STOCK; PAYMENT. Subject to the terms and
conditions of this Agreement and the simultaneous closing of the transactions
contemplated under the RBW Lease Agreement (defined below), SCC will issue and
sell to Millennium the Shares of Common Stock at $8.00 per share, for an
aggregate purchase price of Five Million Dollars (the "Stock Purchase Price").
The Stock Purchase Price will be paid by Millennium to SCC at the Closing in
same-day funds.
2. CLOSING. The closing (the "Closing") of the sale of the Shares and
all the other transactions contemplated hereunder shall be held at the offices
of Kinsella, Boesch, Fujikawa & Towle, LLP, 1901 Avenue of the Stars, Seventh
Floor, Los Angeles, California 90067-6009, at 11:00 A.M., local time, on
December 31, or on such other date as may be agreed upon in writing by
Millennium and SCC (the "Closing Date").
3. REPRESENTATIONS AND WARRANTIES OF SCC. SCC hereby makes the following
representations and warranties:
(a) SCC is a corporation duly organized, validly existing and in
good standing
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Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 2
under the laws of the State of Delaware, has all requisite corporate power and
authority to own and hold under lease the properties and assets it purports to
own and hold under lease and to carry on its business as now being conducted and
is not required to be qualified to do business as a foreign corporation in any
jurisdiction, except where so qualified or where the failure to be so qualified
would not have a material adverse effect on the business, financial condition or
properties of SCC and its Subsidiaries (as defined in Paragraph 3(b)), taken as
a whole.
(b) SCC owns a 50% or greater interest or otherwise controls each
of the corporations, limited partnerships and the general partnership listed on
Schedule 3(b) hereto (each, a "Subsidiary"), each of which is duly organized,
validly existing and, in the case of the corporations and limited partnerships,
in good standing under the laws of its state of organization, and has its
principal executive offices in Los Angeles, California (except for the
Reebok-Sports Club/NY, which has its chief executive offices in New York). Each
Subsidiary has all requisite corporate or other power and authority to own and
hold under lease the properties and assets it purports to own and hold under
lease and to carry on its businesses now being conducted and is not required to
be qualified to do business as a foreign corporation or partnership in any
jurisdiction, except where so qualified or whether failure to be so qualified
would not have a material adverse effect on the business or properties of SCC
and the Subsidiaries taken as a whole. Schedule 3(b) hereto sets forth the name
and state of organization of each Subsidiary. Except for the Subsidiaries, SCC
does not own a 50% or greater interest in, have a material economic interest in,
or otherwise control any corporation, general partnership, limited partnership,
limited liability company or other entity.
(c) The authorized capital stock of SCC consists of 40,000,000
shares of Common Stock, 13,757,621 shares of which have been duly authorized and
validly issued, and are fully paid and non-assessable, and except as set forth
on Schedule 3(c) hereto, there do not exist any other authorized or outstanding
securities, options, warrants, calls, commitments, rights to subscribe or other
instruments, agreements or rights of any character, or any pre-emptive rights,
convertible into or exchangeable for, or requiring or relating to the issuance,
transfer or sale of, any shares of capital stock or other securities of SCC
(collectively, "Equity Securities") or any Subsidiary.
(d) The execution and the delivery by SCC of this Agreement, and
the consummation of the transactions contemplated hereby, do not and will not
(i) conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a default under, (iii) result in a violation of, or (iv)
require any authorization, consent or approval not heretofore obtained pursuant
to, any binding written or oral agreement or instrument including, without
limitation, any charter, bylaw, trust instrument, indenture or evidence of
indebtedness, lease, contract or other obligation or commitment (each, a
"Contractual Obligation") binding upon SCC or any Subsidiary or any of their
properties or assets, or any law, rule, regulation, restriction, order, writ,
judgment,
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Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 3
award, determination, injunction or decree of any court or government,
or any decision or ruling of any arbitrator (each, a "Requirement of Law")
binding upon or applicable to SCC or any Subsidiary or any of their properties
or assets.
(e) The issuance and sale of the Shares to Millennium and the
consummation of all other transactions contemplated hereunder have been duly
authorized and if, as and when the Shares are delivered to Millennium, 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 (each, a "Lien"), other than those imposed pursuant
to this Agreement and securities laws of general application. This Agreement
constitutes the legal, valid and binding obligation of SCC and is enforceable
against SCC in accordance with its terms, subject to applicable bankruptcy,
insolvency or other similar laws or proceedings limiting creditors' rights
generally and to general equitable principles.
(f) Attached hereto as Schedule 3(f) is a true and complete list
of SCC's Annual Report on Form 10-K for the year ended December 31, 1996, and
the Quarterly Reports on Form 10-Q for the three fiscal quarters ending
September 30, 1997, and all amendments thereto, which include the consolidated
financial statements of SCC for its fiscal year ended December 31, 1996, and for
the nine months ended September 30, 1997 (collectively, the "SCC Financial
Statements") and all Form 8-Ks filed since December 31, 1996 (collectively, the
"Reports"). Each of the Reports complied in all material respects with the rules
of the SEC applicable to such Report on the date filed with the SEC, and none of
the Reports contained, on the date of filing with the SEC, any untrue statement
of a material fact, or omitted to state any material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
materially misleading. All of the SCC Financial Statements (subject to year-end
accruals in the case of the September 30, 1997 financial statements): (i) have
been prepared from and on the basis of, and are in accordance with, the books
and records of SCC and with generally accepted accounting principles applied on
a basis consistent with prior accounting periods; (ii) fairly and accurately
present the financial condition of SCC as of the date of each such SCC Financial
Statement and the results of its operations for the periods therein specified;
and (iii) except in the case of the September 30, 1997 financial statements, are
accompanied by the audit opinion of SCC's independent public accountants. There
are no undisclosed liabilities which should be disclosed in the SCC Financial
Statements pursuant to generally accepted accounting principles.
(g) Except as set forth on Schedule 3(g), since September 30,
1997, there has not been nor is there currently pending any change in the
business, business plan, operations, commercial practices, properties, assets or
condition, financial or otherwise, of SCC and the Subsidiaries other than
changes in the ordinary course of business, none of which, singly or in the
aggregate, would have a material adverse effect on the business, financial
condition or properties of SCC and the Subsidiaries, taken as a whole (a
"Material Adverse Effect").
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Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 4
(h) SCC and each Subsidiary have complied with all Requirements
of Law in the conduct of its business and corporate affairs, and SCC and each
Subsidiary have all governmental consents, licenses, approvals, permits or
authorizations and all other rights required for the operation of its business,
as now conducted, except where failure to comply, singly or in the aggregate,
would not have a Material Adverse Effect.
(i) Except as set forth on Schedule 3(i) there is not pending,
or, to the best knowledge of SCC, threatened, any action, suit, ruling, order,
decree, judgment, stipulation or legal, administrative, arbitration or other
proceeding or governmental investigation (each, a "Proceeding") to which SCC or
any Subsidiary is a party, which if adversely determined, would have a Material
Adverse Effect.
(j) There has been no material violation or violations by SCC or
any Subsidiary of any environmental or safety statute, law or regulation
(collectively, "Environmental Laws"). As of the Closing, no "Hazardous
Material", as defined below, is or will be present on any SCC or Subsidiary
facility in violation of any Environmental Law. There are no Hazardous Materials
present at any SCC or Subsidiary facility that would have a Material Adverse
Effect. For the purposes of this section, the term "Hazardous Material" shall
mean any material or substances which are prohibited or regulated by any
environmental law or which has been designated by any governmental authority to
be radioactive, toxic, hazardous or otherwise a danger to health, reproduction
or the environment.
(k) Subject to the accuracy of Millennium's representation set
forth in paragraph 4 hereof, the offer and sale of the Shares to Millennium will
be exempt from the Securities Act of 1933, as amended (the "Act").
(l) Neither SCC nor any Subsidiary is now, or has ever been,
subject to any pension, profit sharing or other similar plan which is or was
subject to the Employee Retirement Income Securities Act of 1974, as amended
("ERISA"); no "prohibited transaction" within the meaning of Section 406(a) of
ERISA, and no "reportable event" within the meaning of Section 4043(b) of ERISA,
has occurred with respect to any employee benefit plan of SCC or any Subsidiary;
all employee benefit plans have been established and operated in full compliance
with all Requirements of Law.
(m) SCC and the 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 SCC or any Subsidiary, except such taxes, if any, as are
being contested in good faith and as to which adequate reserves have been
provided.
<PAGE> 5
Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 5
(n) Neither this Agreement nor any exhibit hereto nor any
certificate, document, writing or other instrument furnished to Millennium by
SCC in connection with this Agreement contained or will contain any untrue
statement of material fact or omit to state any material fact necessary in order
to make the statements contained herein or therein, in light of the
circumstances they were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF MILLENNIUM. Millennium hereby makes
the following representations and warranties:
(a) Millennium is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of New York.
(b) The execution and the delivery by Millennium of this
Agreement, its purchase of the Shares and consummation of all other transaction
contemplated hereunder, do not and will not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in a violation of, or (iv) require any authorization,
consent or approval not heretofore obtained pursuant to, any Contractual
Obligation or Requirement of Law to which Millennium is a party or is otherwise
subject.
(c) The purchase of the Shares and the consummation of all other
transactions contemplated hereunder have been duly authorized by Millennium.
This Agreement constitutes the legal, valid and binding obligation of Millennium
and is enforceable against Millennium in accordance with its terms, subject to
applicable bankruptcy, insolvency or other similar laws or proceedings affecting
creditors rights generally and to general equitable principles.
(d) Millennium is purchasing the Shares for its own account for
investment and not with a view to, or for resale in connection with, any
"distribution" thereof for purposes of the Act. Millennium is an "accredited
investor" as such term is defined in Regulation D under the Act. Millennium
acknowledges that the Shares shall be "restricted securities" within the meaning
of Rule 144 ("Rule 144") of the Securities and Exchange Commission ("SEC") under
the Act, will contain a transfer restriction legend and may only be resold
pursuant to an effective registration statement filed with the SEC under the
Act, or pursuant to Rule 144 or another valid exemption from the registration
requirements of the Act as established by an opinion of counsel reasonably
acceptable to SCC.
(e) Millennium is familiar with, and its representatives prior to
Closing will have been given full access by SCC to, all information concerning
the business and financial condition, properties, operations and prospects of
SCC that Millennium has deemed relevant for purposes of making the investment
contemplated by this Agreement. By reason of Millennium's
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Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 6
knowledge and experience in financial and business matters in general, the
business of SCC and investments of the type contemplated by this Agreement in
particular, Millennium is capable of evaluating the merits and risks of making
the investment in the Shares and is able to bear the economic risk of the
investment (including a complete loss of its investment in the Shares).
5. CONDITIONS TO THE OBLIGATIONS OF SCC. The obligations of SCC to
consummate the transactions contemplated by this Agreement on the Closing Date
shall be subject to the satisfaction of each of the conditions set forth in this
Paragraph 5, unless waived by SCC, on or prior to the Closing Date:
(a) The representations and warranties of Millennium set forth in
Paragraph 4 shall be true and correct in all material respects as of the Closing
Date as though made on and as of such date; Millennium shall have performed all
obligations and complied with all covenants required to be performed or complied
with by Millennium under this Agreement on or prior to the Closing Date; and SCC
shall have received from Millennium a certificate to such effect, dated the
Closing Date, signed by an agent duly authorized to act on its behalf.
(b) No order, injunction, decree or other action or legal,
administrative, arbitration or other proceeding by any person other than SCC or
investigation by any governmental agency or authority shall be pending or, to
the knowledge of Millennium, threatened, challenging or imposing a material
limitation on the execution, delivery or performance of this Agreement, or the
consummation of any of the transactions contemplated hereby.
(c) All proceedings taken in connection with the transactions
contemplated hereby and all documents incident to such transactions shall be
reasonably satisfactory in form and substance to SCC and its counsel.
6. CONDITIONS TO THE OBLIGATIONS OF MILLENNIUM. The obligations of
Millennium to consummate the transactions under this Agreement on the Closing
Date shall be subject to the satisfaction of each of the conditions set forth in
this Paragraph 6, unless waived by Millennium, on or prior to the Closing Date.
(a) The representations and warranties of SCC set forth in
Paragraph 3 shall be true and correct in all material respects as of the Closing
Date as though made on and as of such date; SCC shall have performed all
obligations and complied with all covenants required to be performed or complied
with by SCC under this Agreement on or prior to the Closing Date; and Millennium
shall have received on the Closing Date from SCC a certificate or certificates,
dated the Closing Date, to such effect, which certificate or certificates shall
be signed by an authorized officer of SCC.
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Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 7
(b) No order, injunction, decree or other action or legal,
administrative, arbitration or other proceeding by any person other than
Millennium or investigation by any governmental agency or authority shall be
pending or, to the knowledge of SCC, threatened, challenging or imposing a
material limitation on the execution, delivery or performance of this Agreement,
the consummation of any of the transactions contemplated hereby or the operation
by SCC of its businesses as now conducted.
(c) All proceedings taken in connection with the transactions
contemplated hereby and all documents incident to such transactions shall be
reasonably satisfactory in form and substance to Millennium and its counsel.
(d) Millennium shall have received from outside counsel to SCC an
opinion, addressed to Millennium, in form and substance reasonably satisfactory
to Millennium and its counsel, confirming certain legal matters related to SCC
and the transactions contemplated hereby.
7. REGISTRATION OF THE SHARES.
(a) Until the earlier of the second anniversary of the Closing
Date and the date Millennium shall become entitled to sell all of the Shares
pursuant to subsection (k) of Rule 144, Millennium shall have the right to
require SCC to file with the SEC, at SCC's sole cost and expense, on no more
than one occasion, a registration statement on Form S-3 (or such other form as
the SEC may from time to time prescribe for such purposes) covering as many of
the Shares as Millennium elects to include therein (the "Millennium Registration
Statement") and to cause the Millennium Registration Statement to be declared
effective by the SEC within 90 days thereafter and to maintain the effectiveness
of the Millennium Registration Statement until the earlier of (i) the completion
of the offering covered by the Millennium Registration Statement, (ii) the third
anniversary of the effectiveness of the Millennium Registration Statement and
(iii) the date Millennium shall become entitled to sell all of the Shares
pursuant to subsection (k) of Rule 144; in the event SCC proposes to register an
underwritten offering of its Common Stock for its own account under the Act, it
shall have the right to delay or suspend the filing or effectiveness of the
Millennium Registration Statement for up to an aggregate of 104 days in any
12-month period to facilitate such registration. If Millennium proposes to
effect an underwritten offering, SCC shall enter into an Underwriting Agreement
in customary form with the managing underwriter selected by Millennium.
Notwithstanding the foregoing, in the event of a material development in
the business of SCC, SCC shall advise Millennium of such event and Millennium
shall cease using the prospectus included in the Millennium Registration
Statement until forty-eight (48) hours following the public disclosure of such
event. SCC shall promptly disclose all such material developments provided that
it shall be entitled to delay such disclosure for a reasonable period of time
for valid business
<PAGE> 8
Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 8
purposes, not to exceed five (5) business days without the consent of
Millennium, which consent shall not be unreasonably withheld.
(b) If, at any time or from time to time, SCC determines to
register any of its securities for its own account or the account of any other
shareholder, other than a registration relating to employee benefit plans (or
the resale of securities acquired pursuant thereto) or a transaction pursuant to
Rule 145 of the SEC, SCC shall include in such registration such number of the
Shares as Millennium shall request in writing within ten (10) business days
following receipt of notice of such registration, provided that, if such
registration is underwritten, it shall be a condition that Millennium
participate in such underwriting and enter into an underwriting agreement in
customary form with the managing underwriter selected by SCC. If the managing
underwriter determines that market forces require limitation of the number of
shares to be underwritten, the number of Shares owned by Millennium to be
included in the registration may be limited or eliminated, provided that,
Millennium shall be treated on at least a pari passu basis with all other
shareholders participating in such registration.
(c) All registration expenses in connection with the
registrations contemplated by this Paragraph 8 shall be borne by SCC, but all
selling expenses of Millennium (including broker fees, underwriting commissions
and the cost of any special legal counsel representing Millennium) shall be
borne by Millennium. In connection with any such registration statement,
Millennium shall promptly furnish SCC with such written representations,
information and consents regarding Millennium, the Shares and the intended
method of distribution of the Shares as shall be necessary for inclusion in the
Registration Statement.
8. CONFIDENTIALITY. Except as required by law or with the consent of the
other party, neither party hereto shall disclose to any third party the terms
hereof or the transactions contemplated hereby except to its employees,
partners, investors, prospective investors, lenders and agents; provided that,
such persons are required to maintain the confidentiality of such information.
9. BROKERS AND FINDERS. Neither Millennium nor SCC, nor any person
acting on behalf of either of them, has employed any broker, agent or finder, or
incurred any liability for any brokerage fees, agents' commissions, finders'
fees or advisory fees in connection with the transactions contemplated hereby;
and SCC shall indemnify and hold Millennium harmless in respect of any "Damages"
(as defined in Paragraph 10(e) hereof) arising out of any agreements,
arrangements or understandings claimed to have been made by SCC, or any person
acting on its behalf, with any third party; and Millennium shall indemnify and
hold SCC harmless in respect of any Damages arising out of any agreements,
arrangements or understandings claimed to have been made by Millennium, or any
person acting on its behalf, with any third party.
10. INDEMNIFICATION.
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Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 9
(a) SCC shall indemnify Millennium and/or its "Affiliates" (as
hereinafter defined) (the "Millennium Indemnified Parties" and each individually
a "Millennium Indemnified Party") against, and shall hold the Millennium
Indemnified Parties harmless from, and defend the Millennium Indemnified Parties
against, any and all Damages incurred or suffered by the Millennium Indemnified
Parties arising out of any misrepresentation, inaccuracy or omission in any
representation or warranty, or any breach of any warranty, covenant or agreement
made or to be performed by SCC. Promptly after receipt by a Millennium
Indemnified Party of notice of the commencement of any action, such party will,
if a claim in respect thereof is to be made against SCC under this Paragraph 10,
notify SCC in writing of the commencement thereof. In case any such action is
brought against any Millennium Indemnified Party and such Millennium Indemnified
Party notifies SCC of the commencement thereof, SCC will be entitled to
participate therein.
(b) Millennium hereby indemnifies SCC and/or their Affiliates
(the "SCC Indemnified Parties" and each individually a "SCC Indemnified Party")
against, and shall hold the SCC Indemnified Parties harmless from, and defend
the SCC Indemnified Parties against, any and all Damages incurred or suffered by
the SCC Indemnified Parties arising out of any misrepresentation, inaccuracy or
omission in any representation or warranty, or any breach of any warranty,
covenant or agreement made or to be performed by Millennium. Promptly after
receipt by a SCC Indemnified Party of notice of the commencement of any action,
such party will, if a claim in respect thereof is to be made against Millennium
under this Paragraph 12, notify Millennium in writing of the commencement
thereof. In case any such action is brought against a SCC Indemnified Party and
such SCC Indemnified Party notifies Millennium of the commencement thereof,
Millennium will be entitled to participate therein.
(c) In order for a party (the "Indemnified Party") to be entitled
to any indemnification provided for under this Agreement arising out of
involving a claim or demand made by any person against the indemnified party (a
"Third Party"), such Indemnified Party must notify the indemnifying party (the
"Indemnified Party") in writing, and in reasonable detail, of the Third Party
Claim as promptly as reasonably possible after receipt by such Indemnified Party
of written notice of the Third Party Claim, and shall deliver to the
Indemnifying Party, within fifteen business days after the Indemnified Party's
receipt thereof, copies of all notices and documents (including court papers)
received by the Indemnified Party relating to the Third Party Claim; provided,
however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the Indemnifying Party
shall have been actually prejudiced as a result of such failure.
(d) If a Third Party Claim is made against an Indemnified Party,
the Indemnifying Party will be entitled to participate in the defense thereof
(provided no actual or potential conflict of interest exists with respect to
such assumption) and, if it so chooses and
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Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 10
acknowledges its obligation to indemnify the Indemnified Party therefor, to
assume the defense thereof with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party. Should the Indemnifying Party
so elect to assume the defense of a Third Party Claim, the Indemnifying Party
will not be liable to the Indemnified Party for legal expenses subsequently
incurred by the Indemnified Party in connection with the defense thereof. If the
Indemnifying Party assumes such defense, the Indemnified Party shall have the
right to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnifying Party, it being
understood that the Indemnifying Party shall be liable for the fees and expenses
of counsel employed by the Indemnified Party for any period during which the
Indemnifying Party has not assumed the defense thereof. If the Indemnifying
Party chooses to defend any Third Party Claim, all the parties hereto shall
cooperate in the defense or prosecution thereof. Such cooperation shall include
the retention and (upon the Indemnifying Party's request) the provision to the
Indemnifying Party of non-privileged records and information which are
reasonably relevant to such Third Party Claim (it being understood that the
Indemnified Party shall supply privileged and non-privileged records to counsel
for the Indemnifying Party, to the extent the Indemnifying Party's counsel has
assumed the defense of such Third Party Claim), and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. Whether or not the Indemnifying Party shall
have assumed the defense of a Third Party Claim, the Indemnified Party shall not
admit any liability with respect to, or settle, compromise or discharge, such
Third Party Claim without the Indemnifying Party's prior written consent (which
consent shall not be unreasonably withheld). If, by reason of any Third Party
Claim as to which there exists an obligation to indemnify an Indemnified Party
hereunder, a lien, attachment, garnishment or execution is placed upon any of
the property or assets of any Indemnified Party. The Indemnifying Party shall
also, promptly upon demand, furnish an indemnity bond or take other actions
satisfactory to the Indemnified Party to obtain the prompt release of such lien,
attachment, garnishment or execution. If any judgment or arbitration award is
issued or affirmed in respect of any Third Party Claim, the Indemnifying Party
shall satisfy such judgment or award within 30 days of the date it is rendered,
unless the Indemnifying Party in good faith takes all necessary actions to
appeal such judgment or award, including posting any necessary bond and taking
all other actions required in connection with such appeal on a timely basis.
(e) As used herein the term "Affiliate" means, with respect to
any person: (i) any person who is an "affiliate" of such person as defined in
Rule 12b-2 of the SEC under the Securities and Exchange Act of 1934, as amended,
(ii) any family member of such person, and (iii) any person who is a director,
officer or partner or holds a similar position with such entity or any entity in
which such person has a 10% or greater equity or profit interest.
(f) As used herein the term "Damages" means any and all claims,
actions, demands, losses, costs, expenses, liabilities, damages and recoveries
to the full amount of the actual damage occasioned by each deficiency,
misrepresentation, inaccuracy, omission or breach, in each
<PAGE> 11
Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 11
case including interest, penalties or other damages (including, without
limitation, reasonable attorneys' fees and other costs and expenses reasonably
incurred in investigating or in attempting to avoid the same or oppose the
imposition thereof or of enforcing this indemnity).
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties and agreements made by SCC and Millennium in this Agreement or in any
certificate or other instrument delivered pursuant hereto shall survive the
Closing and any investigation and discovery by SCC or by Millennium, as the case
may be, made at any time with respect thereto; provided, however, that neither
Millennium nor SCC shall have any liability to the other for any
misrepresentation, inaccuracy or omission in any representation or warranty, or
any breach of any representation or warranty, unless the party asserting a claim
with respect to any thereof gives to the other written notice of such claim on
or before the date which is one (1) year following the Closing Date.
12. MISCELLANEOUS PROVISIONS.
(a) SCC and Millennium hereby covenant and agree to use their
respective best efforts to perform each of their obligations hereunder, to
deliver all certificates and to satisfy all other conditions set forth in this
Agreement and to close the transactions contemplated by this Agreement on the
Closing Date.
(b) This Agreement is executed by, and shall be binding upon and
inure to the benefit of, the parties hereto and each of their respective
successors and assigns, provided that neither this Agreement nor any right
pursuant hereto nor interest herein shall be assignable by either party hereto
without the prior written consent of the other party hereto, except as expressly
permitted herein, provided that all rights hereunder may be assigned to an
Affiliate of Millennium that is controlled by Christopher M. Jeffries or jointly
controlled by Christopher M. Jeffries and Goldman Sachs & Co. (or its
Affiliates); except for such permitted assigns, none of the provisions of this
Agreement shall be for the benefit of or enforceable by any other person.
(c) All notices, requests, demands and other communications which
are required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person or upon receipt when
transmitted by telecopy, messenger or air courier, or seventy two (72) hours
after deposit in the U.S. Mails, mailed by certified or registered first class
mail, postage prepaid, return receipt requested, and duly addressed to the party
to whom the same is so given or made:
If to Millennium, to:
Millennium Entertainment Partners, L.P.
<PAGE> 12
Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 12
1995 Broadway, 3rd Floor
New York, New York 10023
Telecopier No.: (212) 595-1831
Attn: Brian Collins
With a copy to:
Eric Landau, Esq.
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
New York, New York 10022
Telecopier No.: (212) 856-7805
If to Buyer, to:
The Sports Club Company, Inc.
11100 Santa Monica Blvd., Suite 300
West Los Angeles, California 90025
Attention: John Gibbons, President
Telecopier No.: (310)479-5740
With a copy to:
Ronald K. Fujikawa, Esq.
Kinsella, Boesch, Fujikawa & Towle
1901 Avenue of the Stars, 7th Floor
Los Angeles, California 90067
Telecopier No.: (310)284-6018
Any party may change its address or facsimile number for purposes of this
Paragraph 12(c) by giving notice to the others in accordance with the terms
hereof.
(d) This Agreement may be executed in any number of counterparts,
and each such counterpart will for all purposes be deemed an original, and all
such counterparts shall constitute one and the same instrument.
(e) This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York applicable to
contracts entered into and to be wholly performed therein.
<PAGE> 13
Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 13
(f) If either party should institute any action to enforce or
interpret any term or provision of this Agreement, the party prevailing in such
action shall be entitled to its attorneys' fees, out-of-pocket disbursements and
all other expenses from the non-prevailing party in such action.
(g) This Agreement (together with all Exhibits and Schedules
attached hereto and all other documents referenced herein) constitutes the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof and supersedes all prior and contemporaneous written
and oral negotiations, discussions, agreements and understandings with respect
to such subject matter.
(h) Except as otherwise specifically provided herein, each party
shall bear its own costs in connection with the transactions contemplated
hereby.
(i) Each of Millennium and SCC have participated in the
negotiation and drafting of this Agreement. Accordingly, each of the parties
hereby waives any statutory provision, judicial precedent or other rule of law
to the effect that contractual ambiguities are to be construed against the party
who shall have drafted the same.
<PAGE> 14
Millennium Entertainment
Partners, L.P.
December 29, 1997
Page 14
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 M. Gibbons, President
Agreed and accepted this 29 day of December, 1997, at New York,
New York.
MILLENNIUM ENTERTAINMENT PARTNERS L.P.
By: MILLENNIUM ENTERTAINMENT ASSOC. L.P.
By: MILLENNIUM ENTERTAINMENT CORP.
By: /s/ Philip H. Lovett
----------------------------------------
Philip H. Lovett,
Vice President
<PAGE> 1
EXHIBIT 2
AGREEMENT OF PURCHASE AND SALE
BY AND AMONG
THE SPECTRUM CLUB COMPANY, INC., SCC I LLC,
AND RBW/FULLERTON, A CALIFORNIA
LIMITED PARTNERSHIP
Dated as of December 31, 1997
<PAGE> 2
AGREEMENT OF PURCHASE AND SALE
This Agreement of Purchase and Sale is entered into as of December 31,
1997 ("AGREEMENT"), by and among The Spectrum Club Company, Inc., a Delaware
corporation ("SCC"), SCC I LLC, a Delaware limited liability company ("SCC I
LLC"), and RBW/Fullerton, a California limited partnership (the "PARTNERSHIP" or
"SELLER"). SCC and SCC I LLC are hereinafter referred to collectively as
"BUYER".
R E C I T A L S:
A. SCC owns and operates upscale health and fitness clubs under the name
"Spectrum Clubs," in California, SCC I LLC is a company formed in order to enter
in this Agreement and certain related transactions.
B. Seller operates a health and fitness facility (the "CLUB") in
Fullerton, California. G. Barton Heuler ("HEULER") and Donald P. Tormey
("TORMEY") are the managing general partners (the "GENERAL PARTNER") of the
Partnership.
C. Simultaneously with the execution and delivery of this Agreement,
Buyer is entering into an Agreement of Purchase and Sale (the "SANTA ANA
PURCHASE AGREEMENT") with the limited partnership and limited liability company
that own and operate the Racquetball World health and fitness facility in Santa
Ana, California (the "SANTA ANA CLUB"). Shortly following the execution and
delivery of this Agreement and the Santa Ana Purchase Agreement, Buyer will
enter into Agreements of Purchase and Sale (collectively, the "OTHER PURCHASE
AGREEMENTS") with two other limited partnerships which own and operate
Racquetball World health and fitness facilities in Canoga Park, and Fountain
Valley, and will enter into an Option Agreement with the limited partnership
which owns and operates a health and fitness facility in Buena Park (the "OPTION
AGREEMENT"). Such health and fitness facilities in Canoga Park, Fountain Valley
and Buena Park are hereinafter referred to collectively as the "OTHER CLUBS"and
individually as the Canoga Park Club, the Fountain Valley Club and the Buena
Park Club. The consummation of the transactions contemplated by this Agreement
is expressly conditioned on the simultaneous closing of the Santa Ana and all
Other Purchase Agreements.
C. Buyer wishes to purchase from Seller, and Seller wishes to sell and
transfer to Buyer, substantially all the assets and properties used or held for
use by Seller in connection with the operation of the Club's health and fitness
business and catering business, subject to the terms and conditions set forth in
this Agreement.
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<PAGE> 3
A G R E E M E N T:
In consideration of the premises and the mutual covenants and agreements
hereinafter set forth, Buyer and Seller hereby agree as follows:
SECTION 1. TRANSFER OF ASSETS
1.1. PURCHASE AND SALE OF ASSETS.
1.1.1. ASSETS. Subject to the terms and conditions hereinafter set
forth, on the "Closing Date" (as defined in SECTION 5) and excluding the
"Excluded Assets" (as defined in SECTION 1.1.2), Buyer shall purchase and
acquire from Seller, and Seller shall sell, transfer, assign and convey to
Buyer, all of Seller's right, title and interest in and to all of the assets and
properties of Seller (of every kind and character, whether real, personal or
mixed, whether tangible and intangible, whether accrued, contingent or otherwise
and wherever situated), relating to the operation of the Club's health and
fitness business (the "HEALTH/FITNESS BUSINESS") and catering business,
respectively, as the same shall exist immediately prior to the Closing,
including, without limitation, the following:
(a) all real property leases described in Schedule 1.1.1(a)
attached hereto (the "REAL PROPERTY LEASES");
(b) all leases of personal property covering (by way of
example and not limitation) machinery, equipment, vehicles, furniture and other
personal property, which personal property leases are described in Schedule
1.1.1(b) attached hereto (the "PERSONAL PROPERTY LEASES");
(c) all of Seller's right, title and interest as ground
lessee under that certain Ground Lease dated April 11, 1980, with the City of
Fullerton, as ground lessor (the "GROUND LEASE"), and in and to all improvements
and fixtures thereon and all easements, rights of way and other rights
appurtenant thereto in any way related to the Ground Lease (the "IMPROVEMENTS");
(d) all furniture, furnishings, equipment, machines,
computers, tools, supplies, spare (or replacement) parts and other personal
property owned by Seller and listed in Schedule 1.1.1(d) attached hereto (the
"PERSONAL PROPERTY");
(e) all membership agreements, contracts, forms, instruments
and other writings under which members are entitled to use the facilities and
services at the Club, including all amendments, renewals and extensions thereof
(the "MEMBERSHIP AGREEMENTS");
(f) all agreements, contracts, forms, instruments and other
writings (other than the Membership Agreements), and all rights thereunder or
thereto, which are identified in Schedule 1.1.1(f) attached hereto (the
"CONTRACTS");
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<PAGE> 4
(g) all records, files and other data relating to the
Health/Fitness Business and catering business, including, without limitation,
all membership lists (in both written form and in the Club's standard
machine-readable format), customer lists, supplier/vendor lists, invoices, plans
and specifications, designs, drawings, accounting/business records and accounts
receivable aging schedules but excluding Seller's partnership books and records
(the "BUSINESS RECORDS");
(h) all licenses, approvals, permits and authorizations
(including any such licenses, approvals, permits and authorizations issued by
governmental agencies or authorities having jurisdiction of the Health/Fitness
Business and/or catering business) which are required in connection with the
operation of the Health/Fitness Business and/or the catering business, to the
extent the same can be transferred and assigned to Buyer pursuant to the terms
hereof (the "LICENSES");
(i) all inventory of finished products, raw materials and
work-in-process, whether located at the Club or elsewhere, including all food
and beverage inventory and all equipment or property (to the extent not included
in any of the other subparts of this Paragraph 1.1.1 and used by the Club to
prepare and serve food and beverage offerings to patrons and guests) (the
"INVENTORY");
(j) all trademarks, trade names, copyrights, patents and
other proprietary rights (whether or not registered), and all applications
relative to any of the foregoing, which Seller uses in connection with the
operation of its Health/Fitness Business and catering business, as the case may
be, which are listed in Schedule 1.1.1(j) attached hereto (the "PROPRIETARY
RIGHTS");
(k) all advance payments, prepaid items and credits of all
kinds of the Club, other than (i) utility deposits of the Club in an amount not
to exceed sixty thousand dollars ($60,000.00), which together with utility
deposits of the Fullerton Club, Fountain Valley Club and Canoga Park Club, shall
be in an aggregate amount not exceeding seventy-five thousand dollars ($75,000)
(the "UTILITY DEPOSITS"); (ii) prepaid catering services; and (iii) advance
payments, prepaid items and credits relating to Excluded Assets;
(l) all rights, claims and causes of action which Seller
could assert against any other person or entity for the breach of any duty or
violation of any right prior to the Closing Date, to the extent such breach or
violation relates, directly or indirectly, to the Health/Fitness Business and/or
catering business ("LITIGATION RIGHTS"); and
(m) all accounts receivable and other rights to payment
owing to Seller and arising out of the operation of its Health/Fitness Business
and catering business (including, without limitation, all rights to payment
under Membership Agreements and Contracts) (collectively, "RECEIVABLES").
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<PAGE> 5
All of the assets and properties described in this SECTION 1.1.1 are
collectively referred to herein as the "TRANSFERRED ASSETS".
1.1.2. EXCLUDED ASSETS. Anything in this SECTION 1.1 to the
contrary notwithstanding, the Transferred Assets shall not include, and Seller
shall retain for its own use and benefit (collectively, "EXCLUDED ASSETS"), (a)
all cash and cash equivalents (including, without limitation, all bank accounts,
marketable securities and certificates of deposit) of Seller; (b) any and all
assets and properties (including, without limitation, investments in the
securities of any publicly- or privately-held company or other entity and
certain rights to utilize vacation or resort facilities under a "time-share"
arrangement) of Seller that are unrelated to its operation of the Health/Fitness
Business or catering business; (c) all books and other limited partnership
records of Seller other than the Business Records; (d) advance payments, prepaid
items and credits relating to (i) Federal, state and local income taxes covering
periods subsequent to the Closing Date, (ii) any of the assets, properties or
rights identified in this SECTION 1.1.2; (iii) the Utility Deposits, and (iv)
pre-paid catering services, and (e) Seller's rights and interest under all
contracts, agreements, instruments and other arrangements, except to the extent
that such contracts, agreements, instruments and other arrangements constitute
"Assumed Obligations" (as defined in SECTION 3.1 hereof).
1.2. INSTRUMENTS OF TRANSFER. On the Closing Date, Seller shall deliver,
or cause to be delivered, to Buyer duly executed instruments of transfer and
assignment, including, without limitation, an Assignment and Assumption of Lease
in favor of SCC I LLC substantially in the form of Exhibit "A-1" with respect to
the Ground Lease, ("LEASE ASSIGNMENT"), and Bills of Sale in favor of SCC
substantially in the form of Exhibit "A-2", in form and substance reasonably
satisfactory to Buyer and its counsel, sufficient to vest in SCC I LLC all of
Seller's right, title and interest in and under the Ground Lease and
Improvements, and to vest in SCC all other Transferred assets other than the
Ground Lease and Improvements, free and clear of any and all liens, claims,
security interests, assessments, encumbrances, mechanic's and materialman's
liens currently in effect or hereafter perfected based upon work performed or
materials supplied prior to the date hereof and/or any other rights of third
parties (other than membership rights and rights to obtain catering services)
with respect to any of the Transferred Assets (collectively, "LIENS"), except
for such Liens which are specifically set forth in the Schedules hereto at the
time this Agreement is executed hereto and which are not required to be removed
at or prior to the Closing pursuant to any other provisions of this Agreement.
1.3. DELIVERY OF POSSESSION. At the Closing, Seller shall deliver
possession of the Transferred Assets to Buyer, at the location where, in the
ordinary course of business, such are usually and customarily located. Title and
risk of loss (including risk of theft) in and to the Transferred Assets shall
pass to and be vested in Buyer, effective at the time of Closing on the Closing
Date, and Seller shall have no further liability with respect to the Transferred
Assets or the Assumed Obligations, except for liability under this Agreement or
any "Ancillary Documents" (as defined in SECTION 8.14.1 hereof) and for the
negligence or wilful misconduct of the Club, or any of its employees and/or
persons acting on its behalf.
1.4. CONSENTS TO ASSIGNMENT. Any other provision of this Agreement to
the contrary
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<PAGE> 6
notwithstanding, this Agreement shall not constitute an agreement to assign any
Membership Agreement, Contract, License or other Transferred Asset, or any
benefit arising thereunder or resulting therefrom, if an attempted assignment of
any thereof, without the consent of any other party thereto, would constitute a
breach or in any way materially adversely affect the rights of Buyer or Seller
with respect thereto. If such consent is not obtained, or if an attempted
assignment would be ineffective or would materially adversely affect Seller's
rights relative to such Membership Agreement, Contract, License or other
Transferred Asset so that Buyer would not in fact receive substantially all of
such rights, Seller shall cooperate in any arrangement Buyer may reasonably
request in writing to provide for Buyer the benefits with respect to any such
Membership Agreement, Contract, License or other Transferred Asset, including
enforcement for the benefit of Buyer of any and all rights of Seller against any
other party with respect thereto arising out of the breach or cancellation
thereof by such party or otherwise; and any transfer or assignment of any
Membership Agreement, Contract, License or other Transferred Asset which shall
require the consent or approval of any other party shall be made subject to such
consent or approval being obtained; provided, however, that nothing contained in
this SECTION 1.4 shall affect the liability, if any, of Seller pursuant to this
Agreement for failing to have disclosed the need for, and failing to obtain, any
such required consent or approval.
SECTION 2. PURCHASE PRICE; MANNER OF PAYMENT
2.1. CONSIDERATION AND MODE OF PAYMENT. The aggregate purchase price to
be paid by Buyer for the Transferred Assets and the other rights provided herein
consists of all of the obligations of Buyer under and pursuant to this
Agreement, including, without limitation, its obligations under the provisions
of SECTION 3 hereof, and the following (collectively, the "PURCHASE PRICE"):
2.1.1. CASH PAYMENT. Subject to the terms of SECTION 4.2.3 hereof,
at the Closing, Buyer shall pay to Seller (a) the cash amount set forth in
Schedule 2.1.1(a) (the "CLOSING CASH PAYMENT"), and (b) subject to the holdback
described in Section 3.2.1, an amount equal to $348,960.00 which will be used by
Seller to pay or otherwise satisfy all of Seller's debts, obligations and other
liabilities owing to unsecured creditors of Seller, as renegotiated by Seller
pursuant to SECTION 3.2.2 (the "CLOSING DATE LIABILITIES"). Buyer and Seller
shall allocate that portion of the Purchase Price attributable to the Real
Property as set forth in Schedule 12.16 (the "REAL PROPERTY PURCHASE PRICE"),
and such allocation shall be binding on the parties hereto, and neither Buyer
nor Seller shall file any tax return or take any position inconsistent with such
allocation in any dealing with any governmental agency or authority.
2.1.2. ISSUANCE OF COMMON STOCK. On the Closing Date, SCC shall
cause its parent, The Sports Club Company, Inc., (the "Parent") to issue to
Seller and certain of the Other Clubs an aggregate number of shares of the
Parent's Common Stock, $.01 par value (the "ACQUISITION SHARES"), which, subject
to Section 11.6 hereof, will be distributed among the Partnership, the Santa Ana
and Canoga Park Clubs as follows: $150,000 of such Acquisition Shares shall be
issued to the limited
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<PAGE> 7
partnership owning the Santa Ana Club; $150,000 of such Shares shall be issued
to Seller; and $1,085,000 of such Shares will be issued to the limited
partnership owning the Canoga Park Club. The Acquisition Shares will not be
registered under applicable provisions of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), or any state securities (or "Blue Sky") laws, and will
therefore constitute "restricted securities" as defined in Rule 144 ("RULE 144")
of the Securities and Exchange Commission (the "SEC"). None of such Acquisition
Shares allocated to Seller, the Santa Ana and the Canoga Park Clubs may be sold
or otherwise distributed by Seller to any person or entity prior to the
expiration of one (1)-year following the Closing Date (the "TRIGGER DATE"); and,
upon the request of holders of more than fifty percent (50%) of all Acquisition
Shares, the Parent shall register the offer and sale of all such Acquisition
Shares owned by the requesting holders on a Form S-3 registration statement to
be filed with the SEC as soon after the Trigger Date as is reasonably
practicable, at SCC's sole cost and expense. If, prior to the Trigger Date, the
Parent shall file a registration statement with the SEC covering the issuance by
the Parent of any of its securities (other than in connection with a merger,
acquisition or other reorganization or with respect to one or more of its stock
option or stock compensation plans), then the holders of that portion of the
Acquisition Shares which will have been allocated to Seller shall have one (1)
"piggyback" registration right with respect to the Acquisition Shares owned by
them, subject to the terms and conditions set forth on Exhibit "B". If thirty
(30) days prior to the Trigger Date, Seller's counsel provides the Parent an
opinion of counsel satisfactory to Parent's counsel to the effect that Seller
may transfer the Acquisition Shares to certain partners or members of Seller
without registration under the Securities Act, then the Parent will include the
Acquisition Shares held by such partners or members in the Form S-3 Registration
Statement or in the other registration statement referenced in the preceding
sentence of this Section 2.1.2. The actual number of Acquisition Shares shall be
subject to adjustment pursuant to Section 11.6 hereof.
2.2. METHOD OF PAYMENT. All amounts to be paid or disbursed to Seller
pursuant to this Agreement (including the amounts payable pursuant to SECTION
2.1.1) shall be paid to a bank account designated by Seller, in Los Angeles
Clearinghouse funds or equivalent "next day" funds. No interest shall be payable
with respect to any payment made pursuant to SECTION 2.1.
SECTION 3. TREATMENT OF LIABILITIES
3.1. NO ASSUMPTION OF EXISTING LIABILITIES. Except as expressly set
forth in this Agreement, Buyer is not assuming, whether directly or indirectly,
and shall have no liability or obligation with respect to, any of the debts,
liabilities or obligations of Seller or the Club, all of which (except as
otherwise set forth below) shall be and remain the sole obligation and liability
of Seller.
3.2. PAYMENT AND SATISFACTION OF LIABILITIES.
3.2.1. CLOSING DATE LIABILITIES. As noted in SECTION 2.1.1(B) and
subject to SECTION 3.4 hereof, Buyer will be entitled to withhold the sum of
$348,960.00 (the "WITHHELD AMOUNT"), which will be handled and disbursed as
follows:
(a) At the Closing, Seller shall provide Buyer with a written
schedule (attached
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<PAGE> 8
hereto as Schedule 3.2.1) which sets forth all Closing Date Liabilities
(including all real property taxes, accounts payable and accrued expenses of
Seller relative to periods prior to the Closing Date). On the Closing Date,
Buyer shall provide to Seller sufficient funds to pay those Closing Date
Liabilities marked with an asterisk (*) in Schedule 3.2.1.
(b) On a weekly or other periodic basis following the Closing
Date, Seller shall instruct Buyer in writing of which Closing Date Liabilities
are to be paid, identifying, with respect to each such Liability, the creditor
and the amount to be paid thereto. Subject to Buyer's approval and consent,
Buyer will remit an amount necessary to satisfy such identified Closing Date
Liabilities, and Seller shall promptly remit to the applicable creditors the
amounts necessary to satisfy such Liabilities.
(c) If any of the Closing Date Liabilities includes the payment
of an amount that should be prorated and for which Buyer is responsible pursuant
to Section 4.2.3 hereof, Buyer will contribute an amount to the Withheld Amount
to cover such prorated portion. Alternatively, if Buyer shall pay any liability
or obligation from and after the Closing which includes a prorated item for
which Seller is responsible, then Buyer shall be entitled to reimburse itself
for such payment and reduce the Withheld Amount on a dollar-for-dollar basis.
Nothing contained herein shall affect or limit either party's responsibility for
its share of any prorated items pursuant to said Section 4.2.3 hereof.
(d) If Seller is successful in negotiating a reduction in the
amount of any Closing Date Liability as contemplated by Section 3.2.2 hereof,
then Seller shall provide Buyer with a Renegotiated Debt Agreement (as defined
in said Section 3.2.2) relative to such Closing Date Liability executed by the
applicable creditor, and an appropriate adjustment in Schedule 3.2.1 reflecting
all Closing Date Liabilities shall be made; provided that, Seller acknowledges
that if the total amount of the Closing Date Liabilities ultimately paid or
satisfied by Buyer is less than the Withheld Amount, Buyer shall be entitled to
retain such excess funds. Similarly, if the amount of the Closing Date
Liabilities, plus any other debts, liabilities or obligations of Seller which
relate to pre-Closing activities (even though asserted or coming to Seller's or
Buyer's attention post-Closing), shall exceed the amount of the Withheld Amount,
Seller understands that Buyer is not assuming, and shall not be deemed to have
assumed, any of such additional liabilities or obligations, and all of such
additional liabilities and obligations (including Closing Date Liabilities)
shall be and remain the sole obligation and responsibility of Seller.
Simultaneously with the execution and delivery of this Agreement, SCC has
purchased and acquired from Wells Fargo Bank N.A. certain promissory notes and
deeds of trust (the "WELLS FARGO DEBT") pursuant to a Note Purchase Agreement
and Assignment and Assumption Agreement dated as of December 24, 1997, relating
to the Club and the Santa Ana Club, respectively; accordingly, Seller shall have
no liability with respect to the Wells Fargo Debt.
3.2.2. NEGOTIATING DISCOUNTS. From and after the Closing, Seller
will continue to use its best efforts to negotiate discounts with respect to all
Closing Date Liabilities so that the Closing Date Liabilities shall be less than
the Withheld Amount, if reasonably practicable.
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<PAGE> 9
To the extent creditors of Seller agree to accept a discount off the amounts
otherwise due and owing to such creditors as full payment of such debt or
liability, Seller shall cause such creditors to execute written acknowledgements
confirming such agreement in substantially the form of Exhibit "C"
("RENEGOTIATED DEBT AGREEMENTS"). Seller shall provide Buyer with true and
correct copies of all Renegotiated Debt Agreements executed by Seller and the
applicable creditors as of the Closing Date, and thereafter as contemplated by
Section 3.2.1 hereof.
3.3. ASSUMPTION OF CERTAIN LIABILITIES.
3.3.1. ASSUMPTION OF SPECIFIC OBLIGATIONS. Effective as of the
Closing Date, SCC shall assume and be liable for the specific debts, obligations
and liabilities of Seller set forth in Schedule 3.3.1 and no others
(collectively, the "ASSUMED OBLIGATIONS"), in connection with the consummation
of the transactions contemplated hereby.
3.3.2. MANNER OF ASSUMPTION. SCC's assumption of the Assumed
Obligations shall be evidenced by one or more Assignment and Assumption
Agreements substantially in the form of Exhibit "D" ("ASSUMPTION AGREEMENTS").
It is not the intention of either SCC or Seller that the assumption by SCC of
the Assumed Obligations pursuant to the Assumption Agreements shall in any way
enlarge the rights of third parties under, or with respect to, the agreements or
instruments to which such Assumed Obligations relate. Nothing contained herein
shall prevent or otherwise limit Buyer from contesting in good faith any of the
Assumed Obligations with the obligee.
3.4. CONDITION TO CLOSING. In addition to the other conditions to
Buyer's and Seller's obligations to close specified in SECTIONS 9 AND 10 hereof,
and notwithstanding any other term or provision hereof, each of Buyer and Seller
shall have the right to terminate this Agreement and refrain from consummating
the transactions contemplated hereby without liability if the aggregate amounts
payable to Seller pursuant to SECTION 2.1.1(b) (and subject to the terms of
SECTION 3.2.1) are insufficient to pay, satisfy or otherwise discharge in full
the Closing Date Liabilities, as confirmed by signed and completed Renegotiated
Debt Agreements.
3.5. ALL OTHER LIABILITIES TO BE RETAINED BY SELLER. Anything herein to
the contrary notwithstanding, neither SCC nor SCC I LLC is assuming and neither
shall have liability with respect to, and Seller shall be solely liable and
responsible for, all debts, liabilities and obligations which are not included
in the Assumed Obligations including, without limitation, the following: (a) any
claim, demand, debt or liability asserted by a creditor of Seller that shall
exceed, or be in addition to, the aggregate amount of the Closing Date
Liabilities; (b) any debts, claims, demands, liabilities or other obligations,
whether known or unknown and whether fixed, accrued or contingent, which are not
disclosed on the "Club Financial Statements" (as defined in SECTION 6.8 hereof);
(c) liabilities under any Membership Agreement or Contract that accrued, arose
or otherwise relates to any period prior to the Closing Date; (d) any contract,
agreement, commitment or obligation that is included in or otherwise related to
any Excluded Assets; (e) except as otherwise provided in this Agreement,
liabilities or obligations of Seller to any partner, employee, officer,
director, shareholder or other person who controls, is controlled by or is under
common control
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with Seller or any general partner thereof (each, a "SELLER AFFILIATE"), whether
relating to (i) unpaid salary, severance, retirement or other benefits; (ii)
wrongful discharge or termination; or (iii) any loans or other advances made to
Seller or the Club by any partner, employee, officer, director, shareholder or
Seller Affiliate; (f) liabilities under any employee benefit plan or program in
effect as of the Closing Date; (g) liabilities or obligations of Seller or the
Club relating to any breach, or from any fact or transaction involving a breach,
by Seller or the Club of any covenant, agreement, representation or warranty
contained herein or arising from, out of, or in connection with, the
transactions contemplated by this Agreement; (h) liabilities or obligations
incurred by Seller, the Club or any Seller Affiliate on or after the Closing
Date; (i) liabilities or obligations in respect of or arising out of any goods,
merchandise or services provided by the Club to or for the benefit of any member
or patron on or before the Closing Date or relating to the alleged breach of any
duty or violation of any right owed or held by any other person or entity; (j)
liabilities or obligations involving the payment of any domestic (federal, state
or local) or foreign taxes on or measured by income, which are due or shall
become due as a result of the operation of the Club through the Closing Date,
including, without limitation, any minimum tax imposed under Section 56 of the
Internal Revenue Code of 1986, as amended (the "CODE"), or any comparable tax
imposed under any other tax statute, or interest or penalties relating thereto;
(k) liabilities or obligations relating to the payment or deposit of (or the
failure to pay or deposit) all Federal, state or local payroll or withholding
taxes (including interest, penalties and other assessments) which were required
to be paid or deposited by Seller or any Seller Affiliate with a financial
institution for all periods up to and including the Closing Date; and (l)
liabilities or obligations owed by Seller or any Seller Affiliate to any person
or entity with respect to any existing or pending lawsuit, arbitration or other
legal proceeding or any litigation, arbitration or other legal proceeding that
may be instituted against Seller or any Seller Affiliate subsequent to the
Closing Date that relates to facts or events arising or occurring prior to the
Closing Date. The foregoing obligations and liabilities are hereinafter
collectively referred to as the "RETAINED OBLIGATIONS".
3.6. RIGHT OF ENFORCEMENT AND SETTLEMENT. From and after the Closing
Date, SCC shall have complete control over the satisfaction and discharge of the
Assumed Obligations and the right to commence, conduct and control all
negotiations and proceedings with respect thereto. Seller shall notify SCC
promptly of any claim made which arose, accrued or otherwise relates to any
Assumed Obligation and shall not, except with SCC's prior written consent,
voluntarily settle or offer to settle, or consent to any compromise or admit
liability with respect to, any such claim. Seller shall cooperate with SCC in
any reasonable manner requested by Buyer in connection with any negotiations or
proceedings involving any Assumed Obligation.
SECTION 4. USE OF TITLE COMPANY; PRORATIONS.
4.1. DESIGNATION OF TITLE COMPANY. As soon after the date hereof as is
reasonably practicable, Seller and Buyer shall jointly instruct a title company
designated by Buyer, that upon satisfaction or waiver of the conditions set
forth in SECTION 9 AND 10 below, it shall record a Memorandum of Assignment of
Lease ("MEMORANDUM") and deliver to SCC I LLC or its agent the "Title Insurance"
defined and described in SECTION 5.2.2 below. Except as otherwise provided in
this SECTION 4, Seller shall pay all costs relating to the transfer of its
interest in the Ground Lease
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pursuant to the Lease Assignment, including, without limitation, all real estate
brokerage commissions, if any; documentary or other transfer taxes; recording
and reconveyance fees necessary to extinguish any and all existing Liens; and
costs of preparing, executing and acknowledging the Lease Assignment and other
instruments necessary to transfer good and marketable title to Seller's
leasehold interest in the Ground Lease and Improvements to SCC I LLC in
accordance with this Agreement. Buyer shall pay all premiums, fees and costs
related to the issuance of the Preliminary Title Report under SECTION 8.12 and
the Title Insurance, together with the cost of recording the Memorandum and
other instruments conveying Seller's leasehold interest in the Ground Lease and
Improvements to SCC I LLC.
4.2. EXPENSES AND PRORATIONS.
4.2.1. PRORATIONS AND REIMBURSEMENT. Except as otherwise provided
herein, at and as of the Closing, Buyer and Seller shall prorate in cash (a)
rents payable by Seller under the Real Property Leases (other than the Ground
Lease dated April 11, 1980 between the City of Fullerton and the Partnership, as
amended), (b) rents payable by Seller under the Personal Property Leases, (c)
utility and sewer charges and all operating expenses of Seller to the extent
attributable to its Health/Fitness Business and catering business, (d) all
utility, service and other charges relating to the club, and (e) other items
which are typically prorated in similar transactions but only to the extent
attributable to the Health/Fitness Business or to Seller's catering business.
Seller shall maintain in place for the benefit of Buyer all deposits under the
Real Property Leases and Personal Property Leases, as well as all utilities and
other deposits held by third parties, subject to Seller's right to retain the
Utility Deposits at and as of the Closing.
4.2.2. TERMINATION OF EMPLOYEES. Effective as of the Closing,
Seller shall terminate, or cause to be terminated, all of its employees and
independent contractors, and Seller shall pay, or cause to be paid, all accrued
employee salaries, vacation, sick pay, bonuses, payroll taxes and other employee
and independent contractor costs/fees as of the Closing Date; provided that, SCC
shall promptly reimburse Seller for the aggregate amount paid to those
terminated employees who are not rehired by Buyer immediately following the
Closing, in respect of accrued but unused vacation pay (and to the extent
required under Seller's employment policies, in respect of sick pay). SCC shall
have the right to hire, from and after the Closing, such of Seller's former
employees as it deems necessary to operate the Club following the Closing,
subject to the same general compensation and benefits package (including health
care and worker's compensation insurance) as shall be offered to SCC's other
employees occupying the same or similar positions. Any of Seller's former
employees who are hired by SCC immediately following the Closing shall, in
addition to the standard vacation and sick days granted to SCC's employees
occupying the same or similar position, be granted by SCC additional vacation
and sick days equal to the number of their accrued but unused vacation and sick
days with Seller as of the Closing Date. Seller shall deliver to SCC copies of
Forms W-2 for all employees whom SCC may employ after the Closing Date, and
copies of all payroll records for such employees, in each case from the date of
each such person's employment through the business day immediately preceding the
Closing Date; Schedule 6.23.3 hereto identifies all such employees.
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4.2.3. METHOD OF PRORATING. All prorations hereunder shall be made
on the basis of the actual number of days elapsed and shall be prorated as of
the Closing Date, unless otherwise provided herein. Absent unforeseen
circumstances, the parties shall endeavor to complete all prorations
contemplated by this SECTION 4.2 within sixty (60) days following the Closing
Date. [In order to allow for prompt settlement of all prorated amounts
hereunder, Seller acknowledges that the Withheld Amount shall be withheld by
Buyer as of the Closing Date, and any and all prorations shall be credited or
debited against such withheld sum as provided in SECTION 3.2.1 or this SECTION
4.2.3.] If the Withheld Amount shall be insufficient to reimburse Buyer for
Seller's share of all such prorated items, Seller shall remit the amount of such
shortfall to Buyer within three (3) days of its receipt of notice from Buyer
regarding such reimbursement request. If either Seller or Buyer shall dispute
any proration calculations hereunder and shall be unable to resolve such dispute
within ten (10) days after commencement of settlement discussions, the parties
shall submit such dispute to a nationally-recognized accounting firm acceptable
to them, provided such firm shall not have been engaged by either Buyer or
Seller at any time within the past ten (10) years, and the determination of such
chosen firm shall be conclusive and binding. Each party shall be entitled to
provide the accounting firm with all information which it deems relevant to the
matters in dispute, and the fees of the accounting firm for providing such
services shall be borne equally by Buyer and Seller.
SECTION 5. CLOSING; DELIVERIES
5.1. CLOSING. The closing of the purchase and sale of the Transferred
Assets and related assumption of the Assumed Obligations by Buyer pursuant to
the terms hereof (the "CLOSING") shall be held at the offices of Kinsella,
Boesch, Fujikawa & Towle, LLP, 1901 Avenue of the Stars, 7th Floor, Los Angeles,
California 90067, at 10:00 A.M. (California time), on December 31, 1997, or at
such other date, place or time as the parties shall otherwise agree upon in
writing (the date of the Closing being referred to herein as the "CLOSING
DATE").
5.2. SELLER DELIVERIES AT CLOSING. In addition to all other deliveries
required to be made at the Closing as described elsewhere herein, at or before
the Closing, on the Closing Date, Seller shall deliver, or cause to be
delivered, to SCC I LLC the following documents:
5.2.1. LEASE ASSIGNMENT. One or more Lease Assignments conveying to
SCC I LLC Seller's leasehold interest in the Ground Lease, as well as all of
Seller's right, title and interest in and to all Improvements, which Lease
Assignments (a) shall be executed by a duly authorized representative of Seller
and notarized for recording, and (b) shall convey to SCC I LLC good and
marketable title to such leasehold interest and Improvements, free and clear of
any and all Liens except for those exceptions approved by Buyer pursuant to
SECTION 8.12 hereof (the "PERMITTED EXCEPTIONS"); and
5.2.2. TITLE INSURANCE. An American Land Title Association ("ALTA")
standard coverage policy of title insurance covering SCC I LLC's interest in the
Ground Lease (the "TITLE INSURANCE") with liability in the aggregate amount of
the Real Property Purchase Price, insuring SCC I LLC that its interest in the
Ground Lease is vested in it, subject only to the Permitted
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Exceptions. Although it is Seller's obligation to furnish the Title Insurance
required by this SECTION 5.2.2, Buyer shall pay the premiums for such Title
Insurance. The Title Insurance shall include appropriate endorsements for zoning
classification, including for parking.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to, and agrees with, Buyer as follows:
6.1. ORGANIZATION, GOOD STANDING, POWER, ETC.
The Partnership is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of California, and it
conducts no business nor owns or leases any assets or properties outside the
State of California. The Partnership has all requisite partnership power and
authority to (i) execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby and (ii) own or
lease and operate its properties and to carry on its business as it is presently
being conducted. The Partnership's sole managing general partners are Heuler and
Tormey, and each of Heuler and Tormey owns his partnership interest in his
individual capacity and has all necessary power and authority (x) to manage and
operate the Partnership's business in the manner in which it is currently being
conducted; (y) to perform, as the Partnership's managing general partners and on
behalf of the Partnership as such managing general partners, the Partnership's
obligations under the Membership Agreements and Contracts; and (z) to execute
and deliver this Agreement on behalf of the Partnership. Other than "Sequoia
Athletic Club Fullerton" and "Sequoia Conference Center Fullerton", the
Partnership has never conducted any business at the Club under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name.
6.2. CHARTER DOCUMENTS. Included as part of Exhibit E are true, correct
and complete copies of the Partnership's Agreement of Limited Partnership (the
"PARTNERSHIP AGREEMENT") and Certificate of Limited Partnership (Form LP-1)
("CERTIFICATE"), as amended to date. Each of the Partnership Agreement and
Certificate is in full force and effect.
6.3. SUBSIDIARIES, DIVISIONS AND AFFILIATES. No person or entity other
than Seller, and no Seller Affiliate (other than partners of Seller), has any
legal or equitable right, title or interest in or to any of the Transferred
Assets.
6.4. AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement and the "ANCILLARY DOCUMENTS" (as defined in SECTION 8.14.1)
by the Partnership, and the consummation of the transactions contemplated hereby
and thereby, will have been duly and validly authorized by the General Partners
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the requisite number of limited partners of the
Partnership as required by the Partnership Agreement as of the Closing Date. On
the Closing Date, this Agreement will have been, and the Ancillary Documents
will be, duly and validly authorized, executed and delivered by the Partnership.
This Agreement constitutes a valid and binding
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obligation of Seller, enforceable against it in accordance with its terms,
except (a) that such enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally, (b)
to the extent that enforceability may be limited by California courts with
respect to any "unconscionable" provisions contained therein, and (c) that
certain of the covenants contained herein may not be specifically enforceable
and courts may award money damages rather than specific performance of
contractual provisions involving matters other than the payment of money.
6.5. EFFECT OF AGREEMENT, ETC. The execution, delivery and performance
of this Agreement by Seller, and the consummation by Seller of the transactions
contemplated hereby, will not, with or without the giving of notice and the
lapse of time, or both, (a) violate any provision of law, statute, ordinance,
rule, regulation or executive order to which Seller is subject; (b) violate any
judgment, order, writ or decree of any court, arbitrator or governmental
authority applicable to Seller; or (c) result in the breach of or conflict with
any term, covenant, condition or provision of, result in the modification or
termination of, constitute a default under, or result in the creation or
imposition of any Lien upon any of the Transferred Assets pursuant to, Seller's
Partnership Agreement or Certificate or the LLC's Charter Documents, or any
commitment, contract, agreement or instrument, including any of the Membership
Agreements or Contracts, to which Seller is a party or by which any of the
Transferred Assets is or may be bound or affected.
6.6. RESTRICTIONS; BURDENSOME AGREEMENTS. Except as otherwise disclosed
in Schedule 6.6 or as specifically disclosed elsewhere in this Agreement or in
the other Schedules hereto, neither Seller nor the General Partners are parties
to any contract, commitment or agreement, nor is any of them or any of the
Transferred Assets subject to, or bound or affected by, any partnership
restriction, judgment, decree, law, statute, ordinance, rule, regulation or
other restriction of any kind or character which would, individually or in the
aggregate, materially adversely affect Buyer's purchase, ownership and operation
of the Transferred Assets from and after the Closing.
6.7. NOTICES AND CONSENTS, ETC. Except as otherwise disclosed in
Schedule 6.7 or as specifically disclosed elsewhere in this Agreement or in the
other Schedules hereto, no notice to, consent, authorization or approval of, or
exemption by, any other person (including, without limitation, any governmental,
public or self-regulatory body or authority), other than notice, consents or
approvals which Seller shall have obtained as of the Closing Date, is required
in connection with the execution, delivery and performance by Seller of this
Agreement or any of the instruments or agreements herein referred to (including
any Ancillary Documents), or the taking of any action by Seller herein
contemplated.
6.8. FINANCIAL STATEMENTS. Seller has delivered, or caused to be
delivered, to Buyer the following financial statements of Seller: an audited
balance sheet as at September 30, 1996, and an audited statement of operations
for the year then ended; an unaudited balance sheet as at September 30, 1997,
and an unaudited statement of operations for the year then ended; and an
unaudited balance sheet as at October 31, 1997 and an unaudited statement of
operations for the month then ended (collectively, the "CLUB FINANCIAL
STATEMENTS"). The Club Financial Statements
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are true, accurate and complete in all material respects, and the dollar amount
of each line item included in the Club Financial Statements is accurate in all
material respects. The Club Financial Statements have been prepared from the
books and records of Seller, which are maintained on an [accrual] basis, in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered, and present fairly the financial position
of Seller as of the respective dates thereof and the results of operations for
the periods covered thereby. Seller has no, and is not subject to, any debts,
liabilities or obligations of any nature, whether absolute, contingent or
otherwise, not fully and properly reflected or reserved against in the Club
Financial Statements, except debts, liabilities and obligations incurred by
Seller in the ordinary course of business since October 31, 1997 (the "CUT-OFF
DATE").
6.9. ACCOUNTS RECEIVABLE. All Receivables reflected in the Club
Financial Statements are included in Seller's Business Records and, at the close
of business on the day immediately preceding the Closing Date, will represent
receivables which (a) arose from bona fide transactions in the ordinary course
of Seller's business, (b) represent amounts payable to Seller consistent with
past practices and policies; and (c) were, and are in the aggregate believed to
be, good and collectible in the amounts shown (less the amount of the reserves
shown in respect of such Receivables, which reserves are disclosed in the Club
Financial Statements and the Business Records, and which were, and will have
been, provided for in accordance with generally accepted accounting principles
applied on a consistent basis with prior practice) in accordance with Seller's
past practices and policies.
6.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 6.10, since the Cut-Off Date, Seller has not: (a) suffered any adverse
change in, or the occurrence of any events which, individually or in the
aggregate, has or have had, or, to the best knowledge of the General Partners
might reasonably be expected to have, a material adverse effect on, the
Transferred Assets, or Buyer's use and enjoyment thereof from and after the
Closing Date; (b) incurred damage to or destruction of any material Transferred
Asset, or material portion of the Transferred Assets, by casualty, whether or
not covered by insurance; (c) incurred any material obligation or liability
(fixed or contingent) except (i) current trade or business obligations incurred
in the ordinary course of business, none of which was entered into for
inadequate consideration, (ii) obligations and liabilities under the Membership
Agreements and Contracts to the extent required thereby, and (iii) obligations
and liabilities under this Agreement; (d) made or entered into contracts or
commitments to make any capital expenditures in excess of $10,000 in the
aggregate; (e) mortgaged, pledged or subjected to Lien any of the Transferred
Assets (except for (x) the lien of taxes not yet due and payable, and (y) such
imperfections of title and encumbrances, if any, which do no detract from the
value, or interfere with the current use, of any of the Transferred Assets or
otherwise impair the Club's business operations); (f) sold, transferred or
leased any material Transferred Asset, or material portion of the Transferred
Assets, or cancelled or compromised any debt or material claim, except in each
case in the ordinary course of business; (g) amended, modified or terminated any
of the contracts, agreements, leases or arrangements which are, or would
otherwise have been, listed in Schedule 1.1.1(f); (h) waived or released any
other rights of material value; (i) made any loan or advance to any person other
than loans or advances to employees consistent with past policy and in the
ordinary course of business and not exceeding five
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thousand dollars ($5,000) in the aggregate; (j) declared or paid any dividend,
distribution or other payment to any person or entity, or purchased or redeemed
any interest in Seller held by any person or entity; or (k) entered into any
transaction not in the ordinary course of business which would, individually or
in the aggregate, materially adversely affect the Transferred Assets.
6.11. TITLE TO ASSETS; ABSENCE OF LIENS AND ENCUMBRANCES, ETC. Except as
set forth on Schedule 6.11, (a) Seller has good title to, and owns outright, the
Transferred Assets owned by it, which include substantially all of Seller's
assets and properties reflected in the Club Financial Statements, excluding the
Excluded Assets, free and clear of all Liens (except for (i) the lien of taxes
not yet due and payable and (ii) such imperfections or defects of title, if any,
which do not materially detract from the value, or interfere with the current
use, of any of the Transferred Assets or otherwise impair the Club's business
operations); and (b) the sale and delivery of the Transferred Assets pursuant to
the terms hereof will vest in Buyer good and marketable title thereto, free and
clear of all Liens or other defects of any nature (except as set forth in
clauses (a)(i) and (a)(ii) above). The Transferred Assets are located only in
the State of California, and none of such Assets was removed from another state.
All Real Property Leases, Personal Property Leases, Contracts, the Ground Lease
and other agreements and instruments under which Seller holds, leases or is
entitled to the use of any Real or Personal Property included in the Transferred
Assets (a correct and complete list of all such Leases, Contracts and other
agreements and instruments being set forth in Schedules 1.1.1 (a), (b) and (f),
respectively), are in full force and effect, and all rentals, royalties and
other payments accruing thereunder prior to the date hereof have been duly paid
and Seller enjoys peaceable and undisturbed possession under all such Leases,
Contracts and other agreements and instruments (including the Ground Lease).
With respect to Real Property and Personal Property Leases, Schedules 1.1.1(a)
and 1.1.1(b), respectively, identify the lessor of each such item, the amount of
the monthly lease payment required thereby and the scheduled expiration date of
the applicable Lease, and said Schedules are true, accurate and complete.
6.12. PERSONAL PROPERTY. Schedule 1.1.1(d) contains a correct and
complete list, as of the date hereof, of all Personal Property owned by Seller
and included in the Transferred Assets, indicating, for each such item, where it
is located. All Personal Property utilized by Seller in connection with its
Health/Fitness Business and catering business prior to the date hereof is
included in the Transferred Assets. Except as otherwise indicated on Schedule
1.1.1(d), all Personal Property is in reasonably good working condition and
repair, is free of known deficiencies, defects or operating problems, has been
adequately maintained in accordance with applicable operating or maintenance
manuals or standard industry practice and has been suitable to Seller for the
uses for which said Personal Property has been employed, and (b) to the best
knowledge of the General Partners, conforms in all material respects with all
laws, ordinances, regulations, orders or other similar governmental requirements
relating to its use, as the same are currently in effect. Seller possesses
complete control over, and all right, title and interest in and to, all
Litigation Rights, and Seller has not assigned or transferred any right or
interest in any such Litigation Rights to any third party, whether voluntarily
or by operation of law. Seller has previously disclosed to Buyer any and all
pending matters comprising the Litigation Rights and has made, or will after the
date of this Agreement make, available to Buyer and its counsel all relevant
files and documents with respect to each matter included within the Litigation
Rights. Provided Buyer elects to continue to prosecute
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any matters included in the Litigation Rights, Seller shall cause its legal
counsel to cooperate with Buyer's counsel in connection with Buyer's counsel's
assumption of control over the prosecution of any such matters (including the
preparation and filing of all necessary papers with the applicable courts to
substitute in Buyer's counsel in place of Seller's counsel). Seller shall
continue to exercise control over the prosecution of any matters included within
the Litigation Rights which are not assumed by Buyer hereunder.
6.13. INVENTORY. The Inventory is of a quality which makes it usable,
merchantable and/or saleable, as applicable, at regular prices in the ordinary
course of business.
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6.14. MEMBERS; MEMBERSHIP AGREEMENTS.
6.14.1. FORM OF MEMBERSHIP AGREEMENT. Attached as Exhibit "F" is
the form (or forms) of Membership Agreement used by Seller to govern the
memberships of its Members ("MEMBERSHIPS").
6.14.2. INFORMATION REGARDING MEMBERSHIPS. Schedule 6.14(a) sets
forth, as of a recent date, in the aggregate, (a) monthly Club dues under all
Membership Agreements, (b) the amount of prepaid Club dues, (c) the number of
renewable Memberships and the terms thereof, and (d) those Memberships issued on
a promotional or non-fee basis (the "FACILITIES SCHEDULE"). Schedule 6.14(b)
sets forth an accurate and complete listing, as of a recent date, of (i) the
name and address of each current member of the Club, (ii) each member's monthly
Club fee and any amounts due and owing under his/her Membership Agreement as of
the date of the Facilities Schedule (indicating, in each case, the aging of any
amounts due and owing for more than thirty (30) days), (iii) the amount of the
Member's prepaid Club dues, if any, and (iv) the number of months of service
covered by each such prepayment.
6.14.3. COMPLIANCE WITH LAW. Except as otherwise set forth in
Schedule 6.14(a), the terms and provisions of each Membership Agreement comply
with the provisions of Section 1812.80 et seq. of the California Civil Code, as
amended (the "CIVIL CODE"). If and to the extent that Buyer shall be required to
give any refund to any member after the Closing as a result of the failure of
such member's Membership Agreement to comply with the provisions of Section
1812.80 et seq. of the Civil Code, then Seller shall pay to Buyer, promptly upon
demand, the amount of such refund if it relates to (a) any prepaid or deferred
payment under a Membership Agreement made prior to the Closing Date, or (b) any
initiation fee, or portion thereof, paid by such member to Seller prior to the
Closing Date. Neither the Club nor Buyer is required to notify any member of any
right to a refund as a result of the transactions contemplated by this
Agreement.
6.15. INSURANCE. There are no outstanding or unsatisfied
requirements or recommendations imposed or made by any of Seller's current
insurance companies with respect to current policies covering any of the
Transferred Assets, or by any governmental authority requiring or recommending,
with respect to any of the Transferred Assets, that any repairs or other work be
done on or with respect to, or requiring or recommending any equipment or
facilities be installed on or in connection with, any of the Transferred Assets.
Seller has carried worker's compensation and comprehensive general liability
insurance, respectively, in such amounts and having such policy exclusions and
conditions, as Seller deemed reasonable and consistent with standard industry
practice, and all such policies of insurance are in full force and effect as of
the date hereof (and will remain in full force and effect through the Closing
Date). Schedule 6.15 sets forth a correct and complete description of (a) all
currently effective insurance policies and fidelity and surety bonds, if any,
covering the Transferred Assets, and (b) for the five-year period ending on the
date hereof, (i) all accidents, casualties or damage occurring on or about the
Club's premises or otherwise relating to the Transferred Assets or the
Health/Fitness Business or the catering business of Seller, and (ii) claims for
damages, contribution or indemnification and settlements (including pending
settlement
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negotiations) relating thereto. Except as set forth on Schedule 6.15, there are
no disputes with underwriters of any such policies or bonds, and all premiums
due and payable thereon have been paid. Seller and the Transferred Assets are in
compliance with all conditions contained in such policies or bonds, except for
non-compliance which, individually or in the aggregate, would not have a
material adverse effect on the Transferred Assets.
6.16. AGREEMENTS, ARRANGEMENTS, ETC.
6.16.1. NO OTHER CONTRACTS. Except for the Partnership Agreement,
Membership Agreements and Contracts listed on Schedule 1.1.1(f), the Ground
Lease and the Real and Personal Property Leases, those agreements and contracts
included within or relating to the Excluded Assets or Retained Obligations and
those agreements and contracts which are immaterial to Seller's Health/Fitness
Business or catering business, as applicable, Seller is not a party to, nor is
it or any of the Transferred Assets bound by, any lease, license, employment
agreement, sales/supplier or distribution agreement, sales representative or
broker agreement, joint venture or partnership agreement, indemnification or
guarantor agreement, loan or credit agreement, security or pledge agreement,
advertising or public relations agreement, non-competition agreement or purchase
order or commitment. Correct and complete originals of all Membership Agreements
and Contracts will be delivered to Buyer at or prior to the Closing.
6.16.2. EFFECTIVENESS OF CONTRACTS. To the best knowledge of the
General Partners, each Membership Agreement, Contract, Ground Lease, Real
Property Lease and Personal Property Lease included in the Transferred Assets is
valid, in full force and effect and enforceable in all material respects by
Seller in accordance with its terms, except (a) to the extent that its
enforceability may be limited by applicable insolvency, bankruptcy or similar
laws affecting the enforcement of creditors' rights generally, (b) to the extent
that enforceability may be limited by California courts with respect to any
"unconscionable" provisions contained therein, and (c) that certain of the
covenants contained therein may not be specifically enforceable and courts may
award money damages rather than specific performance of contractual provisions
involving matters other than the payment of money.
6.16.3. NO DEFAULTS. Except as otherwise set forth on Schedule
6.16.3, Seller has fulfilled, or has taken all action reasonably necessary to
enable it to fulfill when due, all of its obligations under each Membership
Agreement, Contract, Ground Lease, Real Property Lease and Personal Property
Lease, except where the failure to do so would not, individually or in the
aggregate, have a material adverse effect on the Transferred Assets.
Furthermore, there has not occurred any default by or on the part of Seller, or
any event which, with the giving of notice or the lapse of time (or both), would
constitute a default, nor to the knowledge of Seller has there occurred any
default by others or any event which, with giving of notice or the lapse of time
(or both), will become a default under any of the Membership Agreements,
Contracts, Ground Lease, Real Property Leases or Personal Property Leases,
except defaults, if any, which have not resulted and will not result in any
material loss to or liability of Seller or any of its successors or assigns.
Seller is not in arrears in any material respect with respect to the performance
or satisfaction of the terms or conditions to be performed or satisfied by it
under any Membership Agreement, Contract,
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Ground Lease, Real Property Lease or Personal Property Lease, and, to the best
of the General Partners' knowledge, no waiver or indulgence has been granted by
any of the parties thereto.
6.16.4. CONTRACTS ASSIGNABLE. Except as otherwise set forth on
Schedule 6.16.4, each of the Membership Agreements, Contracts, Ground Lease,
Real Property Leases and Personal Property Leases included in the Transferred
Assets is assignable by Seller to Buyer without the consent of the other party
(or parties) thereto, except for such of the Membership Agreements, Contracts
and Personal Property Leases which in the aggregate do not constitute a material
portion of the Transferred Assets. To the extent the consent of any party to a
Membership Agreement, Contract, Ground Lease, Real Property Lease or Personal
Property Lease is required, then Seller shall provide Buyer with true and
correct copies of all such consents at the Closing.
6.17. PERMITS, LICENSES, AND PROPRIETARY RIGHTS.
6.17.1. LICENSES. Other than the Licenses and except as disclosed
in Schedule 6.17.1, there are no permits, licenses, orders or approvals of
governmental or administrative authorities or other persons required to permit
Seller to carry on the Health/Fitness Business or the catering business as
currently conducted, and all Licenses are in full force and effect, may be
transferred and assigned to Buyer on the Closing Date without the consent or
approval of any other person or entity and will remain valid and in effect in
connection with Buyer's use and operation of the Transferred Assets from and
after the Closing.
6.17.2. PROPRIETARY RIGHTS. Other than the Proprietary Rights,
there is no proprietary right or asset which Seller requires or upon which it
relies in operating its Health/Fitness Business or catering business, as the
case may be. Except as set forth in Schedule 6.17.2, Seller has not (i)
infringed, and is not now infringing, upon any patent, trademark, copyright,
trade name or trade secret belonging to any other person or entity and has not
and is not now engaging in any form of unfair competition, and (ii) received any
written notice of any infringement or misappropriation of any Proprietary Right
owned or used by any other person or entity.
6.18. COMPLIANCE WITH APPLICABLE LAWS. The conduct by Seller of its
Health/Fitness Business and catering business does not violate or infringe any
law, statute, ordinance, regulation or executive order (including, without
limitation, Section 1812.80 et seq. of the Civil Code, the Occupational Safety
and Health Act, the National Environmental Policy Act and the Foreign Corrupt
Practices Act, as amended, and the respective regulations thereunder) currently
in effect, except in each case for violations or infringements which do not and
will not, individually or in the aggregate, have a material adverse effect on
the Transferred Assets or Buyer's operation thereof from and after the Closing
Date. Seller is not in default under any governmental or administrative License
issued to it or under any governmental or administrative order or demand
directed to it, or with respect to any order, writ, injunction or decree of any
court which, in any case, materially adversely affects the Transferred Assets.
6.19. LITIGATION. Except as set forth on Schedule 6.19, there is no
claim, action, suit,
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grievance, arbitration, investigation, proceeding or hearing (or notice of
hearing) pending or, to the best of the General Partners' knowledge, threatened,
before any court or governmental municipal or administrative authority or
private arbitration tribunal against or relating to or affecting Seller, the
General Partners or any of the Transferred Assets, including without limitation,
proceedings for or involving tenant evictions, collections, condemnations,
eminent domain, alleged building code, zoning or environmental violations, or
personal injuries or property damage alleged to have occurred on or about the
real property covered by the Ground Lease (the "REAL PROPERTY") or by reason of
the construction of any Improvements thereon or the use and operation of the
Real Property or any present plan or study by any governmental authority, agency
or employee thereof which in any way challenges, affects or would challenge or
affect the continued authorization of the ownership, construction, use and
operation of the Real Property, or the transactions contemplated by this
Agreement. Nor are any facts known to the General Partners which they believe
could reasonably give rise to any such claim, action, suit, proceeding,
arbitration, investigation or hearing and which may have an adverse effect upon
the business of the Club, the value of the Transferred Assets or the
transactions contemplated by this Agreement. Seller has not waived any statute
of limitations or other affirmative defense with respect to any of the Assumed
Obligations. There is no continuing order, injunction or decree of any court,
arbitrator or governmental or administrative authority to which Seller or the
General Partners are parties, or, to the best knowledge of the General Partners,
to which Seller or the General Partners are subject. Neither Seller nor the
General Partners, nor any current officer, director, partner or employee of
Seller or any Seller Affiliate, has been permanently or temporarily enjoined or
barred by order, judgment or decree of any court, tribunal, agency or
self-regulatory body from engaging in or continuing any conduct or practice in
connection with the Health/Fitness Business or catering business, as the case
may be.
6.20. REAL PROPERTY. Seller does not own any real property or possess
any interest in real property, except for its leasehold interest in the Real
Property pursuant to the Ground Lease and the leaseholds created under the Real
Property Leases identified in Schedule 1.1.1(a). Said Schedule 1.1.1(a) contains
an accurate and complete description of the monthly rental rate under each such
Real Property Lease, the termination date thereof, and extension periods
thereunder. Except for the members and guests, no person has any right to occupy
any part of the Club, except for those subtenants, if any, identified in
Schedule 1.1.1(a) (which, with respect to each such sublease, identifies the
monthly rental rate payable thereunder, the termination date thereof, extension
periods, if any, thereunder and the use thereunder by the subtenant). The Club
enjoys peaceful and undisturbed possession of the premises covered by the Ground
Lease and each Real Property Lease, which premises are supplied with utilities
and other services reasonably necessary for the operation thereof. Except as
otherwise disclosed in Schedule 1.1.1(a), (a) the Ground Lease and all such Real
Property 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 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 tenant (as the case may be) or any other
party to terminate the Ground Lease and/or any such Real Property Lease or
sublease, and (d) the Real Property, all Improvements thereon and the uses
thereof that are the subject of the Ground Lease and/or such Real Property
Leases or subleases conform with all applicable ordinances, regulations and
building,
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zoning and other applicable laws. There has been no substantial damage to any
portion of the Real Property or Club caused by fire or other casualty which has
not been fully and completely repaired or restored. Seller has not received
written notice of any proposed action or proceeding by any governmental agency,
body or other authority 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 proposed action or 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. Schedule 1.1.1(a) also describes the amount of all deposits (including
security and utilities deposits) under the Ground Lease, the Real Property
Leases and subleases paid by or to Seller with respect to its Health/Fitness
Business and/or catering business, as applicable.
6.21. NO INTEREST IN COMPETITORS, ETC. Set forth on Schedule 6.21 is a
list describing the extent to which Seller, the General Partners or any Seller
Affiliate, directly or indirectly, owns more than a five percent (5%) interest
in or controls, or is an employee, officer, director or partner of or
participant in (but only to the extent such participation exceeds 5%) or
consultant to, any privately-held or -owned corporation, partnership, limited
partnership, joint venture, association or other entity which is a competitor,
supplier or customer of Seller or any Seller Affiliate, or has any type of
business or professional relationship with Seller or such Seller Affiliate
(except that the 5% ownership interest referred to in this SECTION 6.21 shall
not exceed one percent (1%) to the extent any such corporation, partnership,
limited partnership, joint venture, association or other entity is
publicly-held).
6.22. BOOKS AND RECORDS. The books of account and other financial and
corporate records of each Club (including, without limitation, the Business
Records and the Club Financial Statements) are in all material respects
complete, correct and up to date, and fairly present the corporate status,
financial condition and results of operations of Seller at the dates and for the
periods for which such information was given (and such Business Records were
maintained).
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6.23. EMPLOYEE BENEFIT PLANS, ETC.
6.23.1. ERISA
(a) As used herein:
(i) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
(ii) "ERISA AFFILIATE" means any person that for purposes of
Title IV of ERISA is a member of Seller's controlled group, or under
common control with Seller, within the meaning of Section 414 of the
Internal Revenue Code of 1986, as amended.
(b) Neither Seller, nor any ERISA Affiliate of Seller, has at any
time adopted, maintained, contributed to, or agreed to contribute to any
single-employer or multi-employer pension plan which is a "defined benefit plan"
as defined in Section 3(35) of ERISA.
(c) Seller does not have any "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA which is now in effect, except for
any such Plan listed on Schedule 6.23.2.
6.23.2. OTHER SELLER PLANS.
(a) All "employee welfare benefit plans" (within the meaning of
Section 3(1) of ERISA) maintained by any Partnership (or to which any
Partnership contributes) are described in Schedule 6.23.2 ("PLANS"). Seller has
no other employee welfare benefit plans.
(b) Seller has no obligations with respect to any health,
accident, medical or severance pay arrangements owing to retired or terminated
employees.
(c) Seller has received a determination letter from the Internal
Revenue Service which provides that Seller's 401(k) Plan is qualified under the
terms of Sections 401(a) and 401(k) of the Code, and neither Seller nor the
General Partner is aware of any condition or circumstance which may adversely
affect such qualification. Seller's 401(k) Plan is in compliance with the actual
deferral percentage ("ADP") and, if applicable, the average contribution
percentage ("ACP") requirements of Sections 401(k) and 401(m) of the Code,
respectively. Seller has contributed to such 401(k) Plan the amount of all
salary deferrals regarding compensation payable to participating employees prior
to the date of this Agreement, and, as of the Closing Date, Seller shall have
contributed all such amounts and shall have made all required employer matching
contributions through said Date. Prior to the date hereof, there have been no
uncorrected "prohibited transactions" within the meaning of Sections 406 through
408 of ERISA or Section 4975 of the Code.
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6.23.3. LIST OF EMPLOYEES. Schedule 6.23.3 includes a correct and
complete list of the names of all employees of Seller (which distinguishes
between full-time and part-time employees) and the aggregate compensation
(including bonuses, executive incentive compensation and commissions, if any)
paid to or accrued for the benefit of such employees during calendar year 1996
and through the date hereof, to the extent such employees were still employed by
Seller as of such date; said Schedule 6.23.3 also identifies those of such
employees (identified by an asterisk (*)) to whom Buyer intends to offer
employment on and after the Closing Date.
6.24. LABOR MATTERS. Seller is in material compliance with all Federal
and state laws regarding employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice. There is no unfair labor practice complaint against Seller
pending or threatened before the National Labor Relations Board ("NLRB") or any
state or local agency, and there is no labor strike, dispute, work stoppage or
slowdown, lockout, grievance, controversy or other labor problem pending or, to
the best of Seller's and the General Partner's knowledge, threatened against or
affecting Seller, nor to the best of the General Partner's knowledge does any
basis therefor exist. Seller is not a party to, nor bound by, any union,
collective bargaining or other labor agreement covering all or any portion of
its employees, nor has any group or organization of Seller's employees made any
demand for recognition or certification upon either Seller, the NLRB or any
state or local agency; and no representation proceedings are pending or
threatened against Seller before the NLRB or any such other state or local
agency. There has been no "mass layoff" or "plant closing" within the meaning of
the Worker Adjustment and Retraining Notification Act, 29 U.S.C. ??2101 et seq.,
involving Seller within the two (2)-year period prior to the date hereof, nor
will any "plant closing" or "mass layoff" occur as a result of Seller's
termination of its employees pursuant to SECTION 4.2.2 hereof.
6.25. SUFFICIENCY OF ASSETS. The Transferred Assets, taken in the
aggregate, are sufficient, and constitute all of the property (other than the
Excluded Assets) and rights necessary, for the continuation of the
Health/Fitness Business and catering business from and after the Closing Date on
a basis consistent with its operations as exist on and as of the date hereof.
6.26. ENVIRONMENTAL MATTERS. For all periods prior to the Closing Date,
Seller's operations have been conducted in compliance with all "Environmental
Laws" (as hereinafter defined), including, without limitation, those regulating
the use, handling, storage, disposal, emission and transportation of "Hazardous
Materials" (as hereinafter defined). Seller has not received, within five years
prior to the Closing Date, any notice from any Federal, state or local
governmental agency or body ("GOVERNMENTAL ENTITY") that Seller or the Real
Property on which the Club operates is or was in violation of any Environmental
Law or is being investigated as a result of an alleged or potential violation of
any Environmental Law. Seller does not currently own, lease or operate any real
property (including the Real Property) at which Hazardous Materials are present
in violation of any Environmental Law or in quantities or at levels that require
investigation, removal or remediation under any Environmental Law, nor, to the
best knowledge of the General Partner, are Hazardous Materials present in
quantities or at levels that require investigation, removal or remediation under
any Environmental Law at any real property formerly
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owned, leased or operated by Seller. There are no Liens as the result of the
operation of any Environmental Laws held by any Governmental Entity or other
person with respect to any real property currently owned, leased or operated by
Seller (including the Real Property). There are no underground storage tanks or
aboveground storage tanks containing Hazardous Materials at or under any real
property currently owned, leased or operated by Seller (including the Real
Property), and Seller's use, handling, storage, disposal, emission and
transportation of Hazardous Materials, if applicable, is in compliance with all
Environmental Laws. As used herein, "ENVIRONMENTAL LAWS" shall mean all
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises and similar items of
all Governmental Entities and all applicable judicial, administrative and
regulatory decrees, judgments and orders relating to Hazardous Materials or the
protection of the environment or human health and safety in effect as of the
Closing Date, including, without limitation: (i) all requirements, including,
without limitation, those pertaining to notification, warning, reporting,
licensing, permitting, investigation, removal and remediation of Hazardous
Materials; and (ii) the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Clean Air Act (42
U.S.C. Section 7401 et seq.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.), the Porter-Cologne Water Quality Control Act (California
Water Code Section 13000 et seq.), the California Hazardous Waste Control Law
(Division 20, Chapter 6.5 of the California Health and Safety Code, Section 2100
et seq.), the Safe Drinking Water and Toxic Enforcement Act of 1986 (Division
20, Chapter 6.6 of the California Health and Safety Code, Section 25249.5 et
seq.), the Carpenter-Presley-Tanner Hazardous Substance Account Act (California
Health & Safety Codes Section 25300 et seq.), the Hazardous Materials Release
Response Plans and Inventory (Division 20, Chapter 6.95 of the California Health
and Safety Code, Section 25500 et seq.), and all similar Federal, state, local
and municipal laws in effect as of the Closing Date. As used herein, "HAZARDOUS
MATERIALS" shall mean (A) any and all asbestos, gasoline, diesel fuel,
petroleum, petroleum hydrocarbons, petroleum by-products, polychlorinated
biphenyls, trichlorethylene, ureaformaldehyde and radon gas; (B) any substance
the presence of which requires removal or remediation under any Environmental
Law; (C) any substance which is toxic, infectious, radioactive, carcinogenic or
mutagenic; (D) any materials, waste, chemicals and substances defined, listed,
characterized or referred to as "hazardous substances", "hazardous waste",
"infectious waste", "medical waste", "extremely hazardous waste", "hazardous
materials", "toxic chemicals", "toxic substances", "toxic waste", "toxic
materials", "contaminants", "pollutants", "carcinogens", "reproductive
toxicants" or any variant or similar designations; and (E) any other substance
which is regulated under any Environmental Laws, provided such substance is
present in the action levels, concentrations or quantity thresholds specified
herein.
6.27. SECURITIES LAW MATTERS.
6.27.1. INVESTMENT REPRESENTATION. Subject to the terms of Section
11.6 hereof, Seller will be acquiring that portion of the Acquisition Shares
distributable to it at the Closing for its own account for investment only and
not with a view to, or for resale in connection with, any "distribution" thereof
for purposes of the Securities Act. Seller acknowledges that no
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advertising, general solicitation or other means were used by SCC with respect
to the offer of the Acquisition Shares, and that the Acquisition Shares have not
been registered under the Securities Act or any state securities laws and can be
transferred only if so registered or unless an exemption from such registration
is available. Seller acknowledges that the Acquisition Shares shall be
"restricted securities" within the meaning of Rule 144 ("RULE 144") of the SEC,
will contain a transfer restriction legend and may only be resold pursuant to an
effective registration statement filed with the SEC under the Securities Act,
pursuant to Rule 144 or pursuant to another valid exemption from the
registration requirements of the Securities Act as confirmed by an opinion of
counsel reasonably acceptable to Buyer.
6.27.2. ACCESS TO INFORMATION. Buyer has not refused to provide
Seller or the General Partners with any information which they may have
requested. Seller is familiar with, and its representatives (including the
General Partners) have been given full access by Buyer to, all information
concerning the business and financial condition, properties, operations and
prospects of Buyer that Seller has deemed relevant for purposes of making the
investment decision to acquire the Acquisition Shares contemplated by this
Agreement. In this regard, Seller acknowledges having received copies of SCC's
Annual Report on Form 10-K for the year ended December 31, 1996, and Quarterly
Reports on Form 10-Q for each of the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997, respectively, and Current Reports on Form 8-K dated
May 22, 1997 and November 4, 1997, and December 12, 1997, respectively
(collectively, the "SEC FILINGS"). By reason of the knowledge and experience of
the General Partners in financial and business matters in general, and in the
business of Buyer and investments of the type contemplated by this Agreement in
particular, Seller and the General Partners are capable of evaluating the merits
and risks of making the investment in the Acquisition Shares and are able to
bear the economic risk of the investment (including a complete loss of such
investment).
6.28. PAST DUE OBLIGATIONS. Except as otherwise set forth on Schedule
6.28, no Closing Date Liabilities or Assumed Obligations have given rise, or
shall give rise within five days after the Closing Date (except to the extent
such Closing Date Liabilities will have been paid or satisfied by Seller prior
to the Closing so as to relieve Buyer of all liability therefor), to any
additional liability to Buyer on account of their being past due.
6.29. EFFECT OF TRANSACTION. Seller is not, and will not become as a
result of the completion of the transaction contemplated by this Agreement,
"insolvent", as that term is defined in Section 3439.02 of the Civil Code;
Seller is not entering into the purchase transaction with Buyer with the intent
to hinder, delay or defraud any of its creditors; and upon completion of the
purchase transaction on the Closing Date, (a) the value of that portion of the
Acquisition Shares to be owned by it and the Excluded Assets will not be
unreasonably small in relation to Seller's remaining business operations, and
(b) Seller will not incur any debts which it will not be able to pay as they
become due.
6.30. SALES TAX, TAX DEPOSITS, ETC. Seller is required by applicable
Federal, state or local law to hold a resale permit, given the nature of its
past and current business operations, and such resale permit is in full force
and effect as of the date hereof. All Federal, state and local
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partnership tax returns, and all taxes, interests, penalties and other amounts
due and owing thereunder, have been timely filed and paid, as the case may be,
for all periods up to and including the Closing Date; and all withholding,
payroll and other taxes which are required by applicable law to have been paid
or deposited with a financial institution have been so paid and deposited, as
applicable, for all periods up to and including the Closing Date. Seller has no
liability for any taxes, or any interest or penalties in respect thereof, of any
nature that may be assessed against Buyer or become a Lien against any of the
Transferred Assets.
6.31. OTHER INFORMATION. None of the information furnished by Seller or
any of its representatives to Buyer or any of its representatives in connection
with the transactions contemplated hereby, which is contained in this Agreement
(including the Schedules and Exhibits) or any Ancillary Document or any
certificate or instrument delivered or to be delivered by or on behalf of Seller
in connection with the transactions contemplated hereby, contains any untrue
statement of a fact or omits a material fact necessary to make the information
contained herein or therein, under the circumstances in which such statements
were made (or omitted), not materially misleading. Further, neither the General
Partners nor any other employee of Seller knows of any current fact, state of
affairs or circumstance relating to the Health/Fitness Business or the catering
business which might result in a material adverse change in the condition
(financial or otherwise), properties, assets, liabilities, business or results
of operations of the Club other than such as are fairly and fully disclosed in
the Club Financial Statements.
6.32. KNOWLEDGE OF THE SELLER. As to each representation and warranty
made by Seller under this Section 6, any fact or information known to the
General Partners or to Neal Swerdlow ("SWERDLOW"), or notice received by the
General Partners or Swerdlow, shall be imputed to Seller as if such fact or
information were known to Seller or such notice had been received by Seller.
6.33. TITLE; RIGHTS. Seller is the sole owner of the leasehold interest
in and under the Ground Lease, free and clear of any Liens, except for the
Permitted Exceptions. Seller has not committed or obligated itself in any manner
whatsoever to sell, lease or encumber said leasehold interest or the Real
Property or any interest therein to any party, other than under the Real
Property Leases identified on Schedule 1.1.1(a). No rights of first refusal
regarding Seller's leasehold interest or the Real Property exist under the
organizational documents of Seller or under any agreement by which Seller may be
bound or affected.
6.34. GOVERNMENTAL APPROVALS; NOTICES. Except as set forth on Schedule
6.34, the Improvements and Seller's use of the Real Property pursuant to the
Ground Lease fully comply in all material respects with all zoning, building,
health, traffic, environmental, flood control, fire safety, handicap and other
applicable laws, regulations, ordinances and rulings of all local, state and
federal authorities and any other governmental entity having jurisdiction over
the Real Property. Except as set forth in such Schedule 6.34, all requisite
certificates of occupancy, licenses, permits, authorizations and other approvals
have been duly obtained and are in full force and effect. To Seller's actual
knowledge, there are no petitions, actions, hearings, planned or contemplated,
relating to or affecting the zoning or use of the Real Property or any
contiguous property. Seller has received no notice, written or otherwise, of any
pending, threatened or proposed governmental
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action with respect to any public or utility improvements, improvement
moratorium, assessments for public improvements, nor has Seller received any
such notice with respect to any other actions which might have a material
adverse effect upon the Ground Lease, the Real Property or Buyer's ability to
utilize same after the Closing in the manner Seller is currently utilizing the
Real Property. Seller is not aware of and has not received any written or other
notices from any insurance companies, governmental agencies or from any other
parties of any conditions, defects or inadequacies with respect to the Ground
Lease or the Real Property (including health hazards or dangers, nuisance or
waste, which, if not corrected, would result in termination of insurance
coverage or increase its costs) or from governmental agencies or any other
parties with respect to any violations of building codes and/or zoning
ordinances or other governmental laws, regulations or orders with respect to the
Ground Lease or the Real Property, pending or threatened condemnation
proceedings with respect to the Ground Lease or the Real Property, or any
proceedings which could or would cause the change, redefinition or other
modification of the zoning classification, or of any building or environmental
code requirements applicable to the Ground lease or the Real Property or any
part thereof, or any property adjacent to the Real Property. Seller shall
immediately notify Buyer of any violations or conditions of which Seller
receives notice (whether written or oral).
6.35. MAINTENANCE. The Real Property, including all systems and
components contained in the Improvements forming a part thereof, have been, and
will be through the Closing Date, maintained by Seller in substantially the same
condition as they exist on the date hereof, normal wear and tear excepted.
6.36. NON-ENCROACHMENT. To the best of Seller's knowledge, Seller's
operation of the Real Property pursuant to the Ground Lease and any Improvements
thereon do not violate, and the Real Property (including said improvements) do
not encroach upon or otherwise violate, the rights of any adjacent properties or
any third parties. In addition, no improvement on any adjacent property or
belonging to any third party, and no action by any third party, encroaches upon
Seller's exclusive rights to use and occupy the Real Property and Improvements
pursuant to the Ground Lease.
6.37. NO ADVERSE CONDITION. To Seller's knowledge, the Real Property is
not subject to any material adverse geologic problem or soil condition and, over
the past five years, the Real Property has not experienced any material damage
from earthquakes, floods, earth subsidence or other similar occurrence of any
nature which has not been substantially restored, repaired or corrected. Since
the Cut-Off Date, there has been no material adverse event or changes affecting
the Ground Lease or the Real Property, or any part or portion thereof.
6.38. CONTRACTS. Except as set forth on Schedule 6.38, as of the
Closing, Buyer will have no obligations whatsoever under any management,
service, sales, marketing, leasing or other agency agreements, supply or
maintenance contracts, licenses or permits, equipment or other leases, franchise
arrangements, brokerage contracts, representations, warranties and guaranties of
architects, contractors and suppliers and others and similar agreements
affecting the Ground Lease or the Real Property, or any portion thereof.
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6.39. COLLECTIVE BARGAINING AGREEMENTS AND BENEFIT PLANS. No collective
bargaining agreements between Seller and any labor organization apply to the
operation and/or management of the Real Property pursuant to the Ground Lease.
6.40. BANKRUPTCY, ETC. No bankruptcy, insolvency, rearrangement or
similar action involving its interest in the Ground Lease or the Real Property,
whether voluntary or involuntary, is pending or threatened, and Seller has
never:
6.40.1. filed a voluntary petition in bankruptcy;
6.40.2. been adjudicated a bankrupt or insolvent or filed a
petition or action seeking any reorganization, arrangement, recapitalization,
readjustment, liquidation, dissolution or similar relief under any Federal
bankruptcy act or any other laws;
6.40.3. sought or acquiesced in the appointment of any trustee,
receiver or liquidator of all or any substantial part of its or his properties,
the Real Property, personal property or any portion thereof, or
6.40.4. made an assignment for the benefit of creditors or
admitted in writing its or his inability to pay its or his debts generally as
the same become due.
Seller is not anticipating or contemplating any of the actions set
forth in Sections 6.40.1 through 6.40.4, inclusive, hereof.
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SECTION 7. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to and agrees with Seller as
follows:
7.1. ORGANIZATION, ETC. SCC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby, and to own or lease and operate its properties and to carry on its
business as it is presently being conducted. SCC I LLC is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware and has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby, and to own or lease and operate its properties
and to carry on its business as it is presently being conducted.
7.2. AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement and the Ancillary Documents by Buyer, and the consummation of
the transactions contemplated hereby and thereby, will have been duly and
validly authorized by SCC's Board of Directors and SCC I LLC's [members]
[management board] on and as of the Closing Date. On the Closing Date, this
Agreement (a) will have been, and the Ancillary Documents will be, duly and
validly authorized, executed and delivered by Buyer, and (b) constitutes a valid
and binding obligation of Buyer, enforceable against it in accordance with its
terms, except (i) that such enforcement may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors? rights generally,
(ii) to the extent that enforceability may be limited by California courts with
respect to any ?unconscionable? provisions contained therein, and (iii) that
certain of the covenants contained herein may not be specifically enforceable
and courts may award money damages rather than specific performance of
contractual provisions involving matters other than the payment of money.
7.3. EFFECT OF AGREEMENT, ETC. The execution, delivery and performance
of this Agreement by Buyer and consummation by Buyer of the transactions
contemplated hereby, will not, with or without the giving of notice or the lapse
of time, or both, (a) violate any provision of law, statute, rule, regulation or
executive order to which Buyer is subject; (b) violate any judgment, order, writ
or decree of any court applicable to Buyer; or (c) result in the breach of or
conflict with any term, covenant, condition or provision of Buyer's charter
documents, as amended, or any commitment, contract or other agreement or
instrument to which Buyer is a party or by which any of its properties or assets
may be bound.
7.4. ISSUANCE OF SHARES. The issuance of the Acquisition Shares to
Seller and the Santa Ana and Canoga Park Clubs has been duly authorized and if,
as and when delivered to Seller, the Acquisition Shares will be duly and validly
issued, fully paid and non-assessable and will be free of any Lien (except as
otherwise expressly provided in SECTION 11.6 hereof). Buyer shall take all
action necessary to list the Acquisition Shares on the AMEX as soon after the
Closing Date as is reasonably practicable.
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7.5. LITIGATION. There are no actions, suits, proceedings or
governmental investigations or inquiries pending or, to the best knowledge of
Buyer, threatened against Buyer, which, in the reasonable judgment of Buyer,
would prevent the consummation of the transactions contemplated hereby.
7.6. NOTICES AND CONSENTS, ETC. No notice to, consent, authorization or
approval of, or exemption by, any other person (including, without limitation,
any Governmental Entity), other than notice, consents or approvals which Buyer
shall have obtained as of the Closing Date, is required in connection with the
execution, delivery and performance by Buyer of this Agreement or any of the
instruments or agreements herein referred to (including any Ancillary
Documents), or the taking of any action by Buyer herein contemplated.
7.7. FINANCIAL STATEMENTS. All financial statements which SCC has
delivered to Seller pursuant to SECTION 6.27.2 hereof (collectively, the "BUYER
FINANCIAL STATEMENTS") are true, accurate and complete in all material respects,
and the dollar amount of each line item included in the Buyer Financial
Statements is accurate in all material respects. The Buyer Financial Statements
have been prepared from the books and records of SCC, which are maintained on an
accrual basis in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered, and present fairly
the financial position of SCC as of the respective dates thereof and the results
of operations for the periods covered thereby. SCC is not subject to any debts,
liabilities or obligations of any nature, whether absolute, contingent or
otherwise, not fully and properly reflected or reserved against in the Buyer
Financial Statements, except for debts, liabilities and obligations incurred by
SCC in the ordinary course of business since the date of the most recent
financial statements included in the Buyer Financial Statements.
7.8. ACCESS TO INFORMATION. Seller has not refused to provide Buyer with
any information Buyer has requested. Buyer is familiar with, and its
representatives have been given full access to, all information concerning the
business and financial condition, properties, operations and prospects of Seller
that Buyer has deemed relevant for purposes of proceeding with the transactions
contemplated by this Agreement. Anything herein to the contrary notwithstanding,
the acknowledgements of Buyer reflected in this Section 7.8 shall not restrict
or in any way limit Buyer's rights and remedies in the event any of the
representations or warranties of Seller or the General Partners contained in
this Agreement are incorrect or inaccurate in any material respect.
7.9. OTHER INFORMATION. The information furnished by SCC or any of its
representatives to Seller or any of its representatives in connection with the
transactions contemplated hereby, which is contained in this Agreement
(including any Exhibits) or any Ancillary Document or SEC Filings or any
certificate, instrument delivered or to be delivered by or on behalf of Buyer in
connection with the transactions contemplated hereby, does not contain any
untrue statement of a fact or omit to state a material fact necessary to make
the information contained herein or therein, taken as a whole, not materially
misleading under the circumstances in which such statements have been made (or
omitted). Further, SCC knows of no current fact, state of affairs or
circumstance relating to its operations which might result in a material adverse
change in the condition (financial or otherwise), properties, assets,
liabilities, business or results of
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operations of Buyer other than such as are fairly and fully disclosed in the
Buyer Financial Statements or SEC Filings, taken as a whole.
SECTION 8. COVENANTS
8.1. PRE-CLOSING COVENANTS. From and after the date hereof up to (and
including) the Closing Date, Seller shall (a) conduct its Health/Fitness
Business and catering business only in the ordinary course of business,
consistent with past practices; (b) not sell, transfer or convey, or grant any
Lien on or with respect to, any Transferred Assets; (c) not purchase or acquire,
or make any commitment to purchase or acquire, any assets or properties which
would constitute Transferred Assets without the prior consent of Buyer; (d) not
make any changes in its Membership billing practices or rates or afford any
existing or prospective member any discounts, deferrals or other concessions
under any Membership Agreement or otherwise; (e) not make any capital
expenditures without Buyer's prior approval; (f) not take any action, or fail or
refuse to take any action, which would increase any of the liabilities or
obligations included in the Assumed Obligations other than in the ordinary
course of business; and (g) not take, permit to be taken or refrain from taking,
any action or decision which would cause any of Seller's representations and
warranties set forth in SECTION 6 (including, without limitation, SECTION 6.10)
to be untrue or inaccurate on and as of the Closing Date (as if made on and as
of such Date).
8.2. NO OTHER NEGOTIATIONS. From and after the date hereof up through
the earlier of (a) the Closing Date, or (b) the date that Seller and Buyer shall
agree in writing to terminate all negotiations with respect to the transactions
contemplated by this Agreement, and provided Buyer shall not be in breach of any
material term or provision hereof, neither Seller, the General Partners nor any
Seller Affiliate shall, directly or indirectly, solicit, initiate or otherwise
engage in any negotiations or discussions with, or provide any information to,
any other person or entity concerning the purchase of all or substantially all
the properties and assets of Seller, regardless of the form or structure of any
such transaction.
8.3. ACCESS. From the date hereof through the Closing Date, Seller shall
afford 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 Seller and the
General Partners (including, without limitation, all Business Records, Club
Financial Statements, Membership Agreements and Contracts) to the extent
relevant to the Transferred Assets or the operation of Seller's Health/Fitness
Business or catering business, and during this period, Seller shall furnish
Buyer with all financial, operating and other information and data as to the
Transferred Assets as Buyer may reasonably request. At Buyer's request, Seller
shall direct its representatives and employees to cooperate with Buyer and its
representatives pursuant to this SECTION 8.3 at no additional cost to Buyer. In
undertaking its due diligence hereunder, Buyer shall not disturb, to the extent
reasonably possible, the operations of Seller and will communicate with only
those employees of Seller whom Seller shall have identified for such purpose.
The exercise by Buyer of any of the preceding rights, or any other act of Buyer,
shall not negate, modify or otherwise affect any representation, warranty or
covenant of Seller or the General Partners or modify any of Buyer's rights or
Seller's or the General Partners' obligations in the
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event of any breach of any of such representations, warranties or covenants
under this Agreement.
8.4. PRESERVATION OF BUSINESS AND RELATIONSHIPS. From the date hereof
until the Closing, Seller shall use its best efforts to preserve its business
and organization intact, including, without limitation, to preserve the Club's
present relationships with suppliers, customers, members, patrons and others
having business relationships with it. Seller shall promptly arrange for utility
and telephone service to be transferred to Buyer at Closing. Each of the parties
hereto will use their best efforts to consummate the transactions 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.
8.5. CONFIDENTIALITY. Neither Buyer nor Seller, nor any of their
respective officers, directors, partners, employees or other representatives,
shall directly or indirectly disclose to any other person or entity (including,
without limitation, any members, patrons or partners of any Club) the fact that
Buyer and Seller have entered into this Agreement, the identity of Buyer as the
potential acquiring party and/or any of the terms or provisions of this
Agreement, except (a) to such party's financing sources, professional advisors
and employees who are involved in the negotiation of the transactions
contemplated by this Agreement; (b) to the extent necessary to obtain the
consent of the requisite number of limited partners in Seller to authorize
Seller's entering into this Agreement; and (c) to the extent disclosed in
Buyer's press releases or other public announcements or required by law or
judicial process. To the extent Seller discloses any such information to any of
its employees or partners as permitted by this SECTION 8.5, Seller will take all
reasonable precautions necessary to insure the continued confidentiality of such
information (including, with respect to disclosures to its employees, requiring
that they execute confidentiality letters in form and substance reasonably
acceptable to Buyer and its legal counsel).
8.6. PUBLICITY. Both Buyer and Seller acknowledge that SCC is a
publicly-held corporation whose securities are listed on AMEX and is therefore
subject to various rules and regulations of both the SEC and AMEX regarding the
timing and content of public disclosures regarding its business operations.
While SCC will provide Seller with copies of all proposed press releases or
other public disclosures concerning its proposed purchase of the Transferred
Assets and will consider in good faith any suggested changes or revisions
thereto communicated in writing by Seller, SCC shall have the right to finalize
and disseminate all such press releases or other public disclosures which SCC's
counsel deems necessary to comply with any such applicable rules and
regulations. Prior to the Closing, Seller shall not issue any press release or
otherwise make any public announcement or disclosure regarding SCC's proposed
purchase of the Transferred Assets without the prior written consent of SCC,
which consent may not be unreasonably withheld or delayed.
8.7. RIGHT OF FIRST REFUSAL. If Buyer's purchase of the Transferred
Assets is not consummated for any reason other than Buyer's breach, then, for
the one (1)-year period following the date on which Buyer or Seller abandons the
transactions contemplated hereby (as confirmed in writing by Buyer or Seller, as
applicable), Buyer shall have a right of first refusal with respect to any bona
fide offer to purchase the Health/Fitness Business, catering business and/or
related assets
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of Seller (regardless of the form of transaction) (the "OFFER"). Following
Seller's receipt of an Offer (but in no event more than five (5) business days
after receipt), Seller will forward a copy thereof to Buyer, and, for a period
of thirty (30) days thereafter (the "OPTION PERIOD"), Buyer will have the right,
but not the obligation, to elect to purchase Seller's business and/or assets at
the price and terms set forth in the Offer. If any of the consideration payable
by the offeror consists of non-cash property, Buyer shall have the right to pay
the fair market value of such non-cash property in cash or securities. If Buyer
and Seller are unable to agree on the fair market value of such consideration
within five (5) days following Buyer's receipt of the Offer, then the parties
shall submit their respective valuations of such consideration to a
mutually-acceptable investment banking firm to calculate such fair market value,
and the decision of such firm shall be conclusive and binding. If the investment
banking firm is unable to complete its fair market value calculations within ten
(10) days following the commencement of its engagement, then the Option Period
shall be extended for a reasonable period of time thereafter (but in no event
more than that number of days which shall equal the number of days it shall have
taken the investment banking firm to complete its calculations). The fees and
expenses of the investment banking firm engaged pursuant to this SECTION 8.7
shall be borne equally by Seller and Buyer. The consummation of Buyer's purchase
of Seller's Health/Fitness Business, catering business and/or related assets in
accordance with this SECTION 8.7 shall occur, if at all, within the later of
forty-five (45) days following expiration of the Option Period or the closing
date set forth in the Offer (the "PURCHASE PERIOD"). If Buyer fails or otherwise
elects not to exercise such right within the Option Period, Seller may
consummate the sale transaction with the offeror on the terms and conditions set
forth in the Offer. If any of such terms or conditions change in a manner more
favorable to the offeror, or if the transaction is not consummated with such
offeror within the Purchase Period, then Buyer's right of first refusal shall
once again be effective with respect to any such modified terms/conditions or to
that (or any subsequent) Offer, as applicable. Further, if the Offer only
contemplates the purchase of a portion of Seller's Health/Fitness Business,
catering business or other related assets, then Buyer's rights under this
SECTION 8.7 shall continue in effect (during such one-year period) with respect
to any and all subsequent offers for the balance of Seller's assets and
properties comprising Seller's Health/Fitness Business and/or catering business,
as the case may be.
8.8. APPROVAL OF LIMITED PARTNERS. Seller represents and warrants that
it has obtained the approval of the requisite number of limited partners to the
transactions contemplated by this Agreement, as prescribed by applicable
provisions of the Partnership Agreement.
8.9. PERMITS. By no later than the Closing, Seller shall furnish to
Buyer all building permits, certificates of occupancy and other governmental
approvals confirming that each of the Improvements with respect to the Real
Property has been completed in compliance with, and that the Real Property is
being operated in compliance with, the Ground Lease and all applicable laws and
regulations. At such time, Seller shall also provide Buyer with all surveys and
geological, environmental and soil and engineering studies and reports prepared
within five years prior to the date hereof with respect to the Real Property,
together with a complete set of "as-built" plans with respect to the
Improvements located on or affixed to the Real Property.
8.10. DOCUMENTS. At the Closing, Seller shall deliver all books and
records and other
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documents relating to the ownership and operation of the Real Property, as well
as all keys with respect to the Club.
8.11. SURVEY. Prior to the Closing, Buyer shall obtain and cause to be
furnished to the Title Company in connection with the Title Company's issuance
of the Title Insurance pursuant to SECTION 4.1 surveys for the Real Property
prepared by registered public surveyors. Such surveys shall be certified as in
accordance with the minimum standard detail requirements of ALTA/ASCM land title
surveys and shall be reasonably acceptable to of the Title Company.
8.12. PRELIMINARY TITLE REPORT. Prior to the execution of this
Agreement, Seller has caused to be furnished to Buyer, at Buyer's expense, a
Preliminary Title Report (the "PTR") dated as of December 3, 1997 from Chicago
Title Company with respect to the Real Property, together with copies of all
documents pertaining to all exceptions, including, but not limited to,
covenants, conditions, restrictions, reservations, easements, rights-of-way of
record, liens and other matters of record. Buyer hereby approves the exceptions
identified therein.
8.13. LIENS. Seller agrees to keep the Real Property free from any Liens
through the date of Closing, other than Permitted Exceptions, and to indemnify
and save Buyer harmless from any such Liens and all attorneys' fees and other
costs and expenses incurred by reason any Liens, other than Permitted
Exceptions, which relate back to Seller's ownership or operation of the Real
Property pursuant to the Ground Lease.
8.14. POST-CLOSING COVENANTS. Notwithstanding the consummation of the
transactions contemplated by this Agreement on the Closing Date, Buyer and
Seller shall observe, satisfy and perform the following duties and obligations:
8.14.1. SELLER'S FURTHER ASSURANCES. After the Closing hereunder,
Seller shall, at the request of Buyer, execute, acknowledge and deliver to
Buyer, without further consideration, all such further assignments, conveyances,
endorsements, deeds, powers of attorney, consents, instruments and other
documents (together with the instruments referred to in SECTION 1.2,
collectively, the "ANCILLARY DOCUMENTS") and take such other action as Buyer may
reasonably request (a) to transfer to and vest in Buyer, and protect Buyer's
right, title and interest in and to, all of the Transferred Assets and (b)
otherwise to consummate the transactions contemplated by this Agreement.
8.14.2. NON-COMPETITION.
(a) Each of Seller, the General Partners and each of the
individuals listed in SCHEDULE 8.14.2 (individually, an "OBLIGOR") agrees for
itself and for each Seller Affiliate that, for a period of three (3) years from
and after the Closing Date, neither it nor any of its agents or representatives
shall, directly or indirectly, and whether as a principal, agent or otherwise,
or alone or in association with any other person (including any other Seller
Affiliate) (a "COMPETING ENTITY"), carry on, be engaged or take part in, consult
or advise, or own, share in the earnings of, or invest in the stock, bonds or
other securities of, any entity (other than Buyer) which is engaged
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in the business of owning or operating (i) a health/fitness facility or business
within a twenty (20)-mile radius of the Club or any Other Club, or (ii) a
catering business within a three (3)-mile radius of the Club or any Other Club
which, as of the date of this Agreement, owns or operates a catering business (a
"COMPETING ACTIVITY").
(b) If a court of competent jurisdiction deems the length
or geographic scope of the separate non-competition covenants described in this
SECTION 8.14.2(a) to be unreasonably long or broad, as the case may be, such
that either (or both) such covenants is therefore deemed wholly or partially
unenforceable, the parties intend that the affected non-competition covenant be
modified by the court to reflect the maximum time period and the broadest
geographic scope that such court deems permissible under the circumstances, and
that such modified non-competition covenant be enforced to the fullest extent
permitted by said court. In such event, this Agreement shall be deemed amended
to accommodate the court's modification of said non-competition covenant in
accordance with this SECTION 8.14.2(b).
(c) Notwithstanding the foregoing, no Obligor shall be
deemed to be in violation of the terms of this SECTION 8.14.2 by reason of such
Obligor's investing in stocks, bonds or other securities of any Competing Entity
engaged in a Competing Activity (but without otherwise participating in such
business), if (i) such stock, bonds or other securities are listed on any
national or regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such
investment does not exceed, in the case of any class of the capital stock of any
one issuer, one percent (1%) of the issued and outstanding shares, or, in the
case of bonds or other securities, five percent (5%) of the aggregate principal
amount thereof issued and outstanding.
(d) Notwithstanding the provisions of SECTION 12.16
hereof, Seller acknowledges that the allocation of that portion of the Purchase
Price reflected in Schedule 12.16 to the non-competition covenant contained in
this SECTION 8.14.2 is not intended by any party to define or limit any claims
for damages that Buyer may have in the event of the breach of this SECTION
8.14.2 by any Obligor, or Buyer's need for or right to equitable remedies to
enforce the terms of this SECTION 8.14.2.
(e) The parties hereto acknowledge that the breach, or
threatened breach, by any Obligor of any of the terms of this SECTION 8.14.2
would cause Buyer irreparable harm and injury that could not be compensated by
an award of monetary damages. Accordingly, in the event of any breach or
threatened breach, Buyer shall be entitled to equitable relief (including,
without limitation, specific performance, temporary restraining orders and
preliminary or permanent injunction) in addition to all other rights and
remedies provided hereunder.
8.14.3. EMPLOYEE BENEFIT PLANS
(a) Following the Closing, Seller shall retain as Retained
Obligations, and be solely obligated to satisfy and discharge in a prompt and
timely fashion, all obligations and liabilities (including, without limitation,
(i) all liabilities for all contributions
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required to have been made to all plans as described in SECTION 6.23.2(c), and
for all claims incurred, whether or not reported, on or before the Closing Date
under all Plans, and (ii) all liabilities or obligations for unpaid
compensation, disability, retirement, severance insurance including under COBRA
or medical or life benefits) to employees or former employees of Seller which
shall exist or have accrued as of the Closing Date.
(b) Seller shall indemnify, hold harmless and defend Buyer
and its shareholders, officers, directors, members, employees and
representatives, and their respective successors and assigns, from and against
any and all claims, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees and disbursements of counsel) incurred by
Buyer or such persons, arising from or in connection with any liabilities or
obligations of Seller under SECTION 8.14.3(a).
8.14.4. BOOKS, RECORDS, ETC. For a period of five (5) years from
and after the Closing Date, Buyer and Seller each shall retain, and shall, at
the request of the other or the other's representatives, make available to the
other, all of the original books and records of the Seller existing on the
Closing Date, possession of which such party is entitled to under this
Agreement, at a location in the Southern California area specified in a written
notice to the other delivered within 10 days after the Closing Date (or at any
other location in the United States to which Buyer or Seller, as the case may
be, has removed such books and records after notice to the other party), for the
inspection and copying thereof (which inspection and copying to be at the sole
cost and expense of the inspecting party).
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SECTION 9. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE
The obligation of Buyer to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the satisfaction of each
of the conditions set forth in this SECTION 9, unless waived by Buyer:
9.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES, PERFORMANCE OF
COVENANTS AND RELATED CERTIFICATE. The representations and warranties of the
Seller set forth in SECTION 6 shall be true and correct in all material respects
as of the Closing Date as though made on and as of such date; Seller shall have
performed all obligations and complied with all covenants required to be
performed or to be complied with by it under this Agreement on or prior to the
Closing Date; and Seller shall have delivered to Buyer a certificate to such
effect, dated the Closing Date, signed by the General Partners or other person
duly authorized to act on Seller's behalf.
9.2. NO PENDING OR THREATENED LEGAL ACTION. No order, injunction, decree
or other action or legal, administrative, arbitration or other proceeding by any
person or investigation by any governmental entity shall be pending or
threatened, which challenges, imposes or threatens to impose a material
limitation on the execution, delivery or performance of this Agreement, or the
consummation of any of the transactions contemplated hereby.
9.3. APPROVALS, NOTICES, CONSENTS, ETC. Seller shall have obtained, and
Buyer shall have received true and correct copies of, all notices, approvals and
consents which are required to enable Seller to transfer good and marketable
title to the Transferred Assets to Buyer, free and clear of any and all Liens,
and each approval and/or consent shall be in full force and effect and be
reasonably satisfactory in form and substance to Buyer and its counsel.
9.4. LIMITED PARTNER APPROVAL. The approval of the requisite number of
limited partners of Seller to the transactions contemplated hereby (as described
in SECTION 8.8 hereof) shall not have been revoked, rescinded or repealed, and
shall be in full force and effect as of the Closing Date.
9.5. SECRETARY'S CERTIFICATE. Buyer shall have received an accurate
certificate, dated the Closing Date, of the General Partners of Seller with
respect to (a) the approval of the requisite number or percentage of limited
partners of Seller to the transactions contemplated by this Agreement as
prescribed by applicable provisions of the Partnership Agreement; (b) the
resolutions adopted by the General Partners and such limited partners approving
this Agreement and the transactions contemplated hereby; and (c) the incumbency
and specimen signature of the General Partners and each other person executing
this Agreement and any other agreement or Ancillary Document being (or to be)
executed by each such Partnership, and a certification by another person as to
the incumbency and specimen signature of said General Partners or other person.
9.6. GOOD STANDING CERTIFICATES, ETC. Buyer shall have received (a) a
certificate of the Office of the Secretary of State of the State of California,
dated within five (5) days before the Closing Date, certifying that the records
of the State of California regarding Seller reflect neither a
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certificate of dissolution, a court order declaring dissolution, a merger or
consolidation which terminated its existence, nor suspension of its powers,
rights and privileges, and that in accordance with the records of the State of
California, Seller is authorized to exercise all of its powers, rights and
privileges in the State of California, and (b) a telegram or other document from
one or more appropriate officials of such State, or an affidavit of counsel with
respect to telephone conversations with such officials, dated within five days
before the Closing Date, to the same effect.
9.7. CLEARANCE CERTIFICATES. To the extent available from such offices,
Buyer shall have received certificates from the Franchise Tax Board and the
Employment Development Department confirming the absence of any and all taxes,
penalties, interest and/or other amounts due and owing by Seller to such
governmental agency (or agencies) with respect to its operations prior to the
Closing Date. Further, Buyer shall have received a certificate or other written
confirmation from ADP or other financial institution or data payroll service
dated as of the day immediately prior to the Closing Date to the effect that all
withholding and payroll tax deposits required to have been made by Seller prior
to the Closing Date have been timely made.
9.8. RELEASE OF SECURITY INTERESTS. Buyer shall have received true and
correct copies of all releases of all security interests in the Transferred
Assets which may have existed prior to the Closing Date (including, without
limitation, security interests held by any lender or other third party) and
completed UCC release or termination statements or reconveyances of deeds of
trust or releases of any mortgages suitable for filing with the appropriate
governmental agencies to terminate and release all previously-filed UCC-1
financing statements, deeds of trust or mortgages on or with respect to any
Transferred Assets.
9.9. RENEGOTIATION OF INDEBTEDNESS. Seller shall have entered into
binding agreements with certain of its creditors in the form of Exhibit "C" such
that the aggregate amount of Closing Date Liabilities as of the Closing Date
shall not exceed the Maximum Liability Amount, and the terms and conditions
applicable to the assumption and satisfaction of all Assumed Obligations shall
be acceptable to Buyer in its sole discretion.
9.10. NO MATERIAL ADVERSE CHANGES. Between the Cut-Off Date and the
Closing Date, there shall not have occurred any material adverse change in or
with respect to any of the Transferred Assets, the Health/Fitness Business or
the catering business which will continue or extend beyond the Closing Date
(whether or not any such material adverse change is covered by insurance).
9.11. EXECUTION AND DELIVERY OF OTHER AGREEMENT AND INSTRUMENTS. Buyer
and Seller shall have executed and delivered all requested Ancillary Documents,
and all other agreements, instruments and other contracts which are required to
enable Buyer to purchase and acquire the Transferred Assets in accordance with
the terms and provisions of this Agreement or which Buyer otherwise requires to
be executed in connection with the consummation of the transactions contemplated
hereby.
9.12. ENVIRONMENTAL AUDIT. Buyer shall have received and approved a
Phase I
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environmental analysis as of a recent date relating to the Real Property.
9.13. APPROVAL OF SCHEDULES. Buyer shall have approved the form and
content of all Schedules which are required to be prepared or otherwise provided
by Seller but which were not attached to this Agreement as of the date hereof.
9.14. POWERS OF ATTORNEY. Buyer shall have received duly executed and
acknowledged powers of attorney, reasonably satisfactory in form and substance
to Buyer and its counsel, giving Buyer or its designee the authority to act on
behalf of Seller and in its name, place and stead with respect to all of the
Transferred Assets and Assumed Obligations, to the extent permitted by law.
Buyer shall indemnify and hold Seller harmless from any liability of Seller
which results from any acts of Buyer taken under such powers of attorneys in
violation of this Agreement.
9.15. APPROVAL OF BOARD OF DIRECTORS. Buyer's Board of Directors shall
have approved of Buyer's executing and delivering this Agreement and purchasing
the Transferred Assets in accordance with the terms hereof.
9.16. CONSUMMATION OF OTHER TRANSACTIONS. All conditions precedent and
other contingencies of Buyer described or referred to in the Other Purchase
Agreements shall have been satisfied or waived by Buyer, and Buyer's purchase
and acquisition of the "Transferred Assets" (as described and defined in the
Other Purchase Agreements, the "OTHER TRANSFERRED ASSETS") shall be consummated
in accordance with the terms of the applicable Other Purchase Agreements
simultaneously with the closing of the transactions contemplated by this
Agreement on the Closing Date.
9.17. SERVICES AGREEMENT. Buyer will have entered into an agreement with
California Recreational Services ("CRS") under which CRS shall provide specific
data processing and Membership accounting services for Buyer's benefit, upon
terms and conditions acceptable to Buyer and CRS.
9.18. OPINION OF SELLER'S COUNSEL. Seller's counsel shall have furnished
Buyer with its opinion on certain matters relating to the transactions
contemplated hereby in form acceptable to Buyer and its counsel.
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SECTION 10. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE
The obligations of Seller to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the satisfaction of each
of the conditions set forth in this SECTION 10, unless waived by Seller.
10.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES OF BUYER, PERFORMANCE
OF COVENANTS, AND RELATED CERTIFICATE. The representations and warranties of
Buyer set forth in SECTION 7 shall be true and correct in all material respects
as of the Closing Date as though made on and as of such date; Buyer shall have
performed all obligations and complied with all covenants required to be
performed or to be complied with by Buyer under this Agreement on or prior to
the Closing Date; and Buyer shall have delivered to Seller a certificate to such
effect, dated the Closing Date, signed by an officer duly authorized to act on
its behalf.
10.2. NO PENDING OR THREATENED LEGAL ACTION. No order, injunction,
decree or other action or legal, administrative, arbitration or other proceeding
by any person or investigation by any governmental entity shall be pending or
threatened, which challenges, imposes or threatens to impose a material
limitation on the execution, delivery or performance of this Agreement, or the
consummation of any of the transactions contemplated hereby.
10.3. SECRETARY'S CERTIFICATE. Seller shall have received an accurate
certificate of the Secretary of Buyer, dated the Closing Date, with respect to
(a) the resolutions adopted by the Board of Directors of Buyer approving this
Agreement and the transactions contemplated hereby; and (b) the incumbency and
specimen signature of each officer of Buyer executing this Agreement and any
other agreement or Ancillary Document to be executed by Buyer, and certification
by another officer of Buyer as to the incumbency and specimen signature of said
signing officer(s).
10.4. ASSUMPTION OF LIABILITIES. Buyer shall have executed and
delivered, and Seller shall have received copies of, Assignment and Assumption
Agreements, under which Buyer has agreed to satisfy and perform all Assumed
Obligations in accordance with the terms thereof.
10.5. EXECUTION AND DELIVERY OF OTHER AGREEMENTS. Buyer and Seller shall
have executed and delivered all other agreements, instruments and contracts
which are required to enable Seller to carry out the terms and provisions of
this Agreement.
10.6. APPROVAL OF LIMITED PARTNERS. The General Partner of Seller shall
have obtained the approval or consent of the requisite number of limited
partners required to approve the sale of the Transferred Assets in accordance
with applicable provisions of its Partnership Agreement, and said approval or
consent shall be in full force and effect as of the Closing Date.
10.7. CONSUMMATION OF OTHER TRANSACTIONS. All conditions precedent and
other contingencies of Seller described or referred to in the Other Purchase
Agreements shall have been satisfied or waived by Seller, and Seller's
conveyance of the Other Transferred Assets shall be consummated in accordance
with the terms of the applicable Other Purchase Agreements
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<PAGE> 42
simultaneously with the closing of the transactions contemplated by this
Agreement on the Closing Date.
10.8. OPINION OF BUYER'S COUNSEL. Buyer's counsel shall have furnished
Seller with its opinion on certain matters relating to the transactions in form
acceptable to Seller and its counsel.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1. SURVIVAL. The representations and warranties set forth in this
Agreement, any Exhibit or Schedule, the Ancillary Documents and any certificate
or instrument delivered in connection herewith shall survive the execution and
delivery of this Agreement and any investigation made by any party hereto at any
time thereafter.
11.2. INDEMNIFICATION BY SELLER. Seller acknowledges and agrees with
Buyer that, regardless of any investigation made at any time by or on behalf of
Buyer or any information Buyer may have and, regardless of the Closing
hereunder, Seller shall indemnify Buyer and its respective directors, officers,
shareholders, members, employees and representatives, and their respective
successors and assigns (individually, a "BUYER INDEMNIFIED PARTY"), and hold
each Buyer Indemnified Party harmless from, against and in respect of any and
all costs, losses, claims, causes of action, demands, liabilities, fines,
penalties, damages and/or expenses (including interest which may be imposed in
connection therewith and court costs and reasonable fees and disbursements of
counsel) incurred by any of them in connection with:
11.2.1. PRE-CLOSING DATE MATTERS All liabilities of or claims
against any Buyer Indemnified Party of any nature, whether accrued, absolute,
contingent or otherwise, arising out of or relating to the Transferred Assets,
the Health/Fitness Business or the catering business, as applicable, and
attributable to any state of facts existing or any event occurring on or before
the Closing Date (whether known or unknown to Seller or Buyer), to the extent
not included in the Assumed Obligations or in excess of amounts shown to be
Closing Date Liabilities or otherwise specified in this Agreement to be the
obligation of Buyer, regardless of when such claim or liability is asserted
against the applicable Buyer Indemnified Party, and all liabilities of or claims
against any Buyer Indemnified Party or Seller of any nature, whether accrued,
absolute, contingent or otherwise, relating to the Excluded Assets or the
Retained Obligations and attributable to any state of facts existing or any
event occurring either before or after the Closing Date (whether known or
unknown to Seller or Buyer) regardless of when such claim or liability is
asserted against the applicable Buyer Indemnified Party;
11.2.2. LIABILITY CLAIMS all personal injury or other liability
claims which relate to any products sold, services provided, any state of facts
existing or any event occurring on or before the Closing Date;
11.2.3. BREACH OF THIS AGREEMENT any breach of any of the
representations, warranties, covenants or agreements made by the General
Partners or Seller in this Agreement, any
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Exhibit or Schedule, any Ancillary Document or any certificate of instrument
delivered in connection herewith;
11.2.4. TAXES, ETC. any taxes of any kind whatsoever, or expenses,
interest or penalties relating thereto, which arise out of or result from the
transactions contemplated by this Agreement other than state and/or local sales
or use taxes;
11.2.5. NON-ASSUMED OBLIGATIONS any attempt (whether or not
successful) by any person to cause or require a Buyer Indemnified Party to pay
or discharge any debt, obligation, liability or commitment of Seller, the
General Partners or Seller Affiliate which is not included in the Assumed
Obligations or the existence of which would constitute a breach of any
representation, warranty, covenant or agreement of Seller or the General
Partners notwithstanding the Closing; or
11.2.6. OTHER INCIDENTAL MATTERS any action, suit, proceeding,
compromise, settlement, assessment or judgment arising out of or incidental to
any of the matters indemnified against in this SECTION 11.2; provided, however,
that Seller shall not be obligated to indemnify a Buyer Indemnified Party and
hold it harmless under this SECTION 11.2 with respect to any settlement of a
claim to which Seller has not consented, if such consent has not been
unreasonably withheld or delayed.
If, by reason of the claim of any third party relating to any of
the matters subject to indemnification under this SECTION 11.2, a lien,
attachment, garnishment or execution is placed upon any of the property or
assets of any Buyer Indemnified Party, Seller shall also furnish an indemnity
bond satisfactory to Buyer to obtain the prompt release of such lien,
attachment, garnishment or execution.
11.3. INDEMNIFICATION BY BUYER. Buyer hereby covenants and agrees with
Seller that, regardless of any investigation made at any time by or on behalf of
Seller or any information it may have and, regardless of the Closing hereunder,
Buyer shall indemnify Seller, the General Partners, and all directors, officers,
employees, partners, representatives and their respective successors and assigns
(individually a "SELLER INDEMNIFIED PARTY"), and hold each Seller Indemnified
Party harmless from, against and in respect of any and all costs, losses,
claims, causes of action, demands, liabilities, fines, penalties, damages and/or
expenses (including interest which may be imposed in connection therewith and
court costs and reasonable attorneys' fees and disbursements of counsel)
incurred by any of them in connection with:
11.3.1. POST-CLOSING DATE MATTERS all liabilities of or claims
against any Seller Indemnified Party of any nature, whether accrued, absolute,
contingent or otherwise, (x) with respect to the Assumed Obligations, or (y)
attributable or relating to the operation by Buyer of the Transferred Assets
from and after the Closing Date, except if such liability results from or arises
in connection with the breach of any of the representations, warranties,
covenants or agreements made by the General Partner or Seller in this Agreement,
any Schedule or Exhibit, any Ancillary Document or any certificate or instrument
delivered in connection herewith;
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11.3.2. BREACH OF TERMS OF THIS AGREEMENT any breach of any of the
representations, warranties, covenants or agreements made by Buyer in this
Agreement, any Exhibit or Schedule, any Ancillary Document or any certificate or
instrument delivered in connection herewith;
11.3.3. ASSUMED OBLIGATIONS any attempt (whether or not
successful) by any person to cause or require a Seller Indemnified Party to pay
or discharge any debt, obligation, liability or commitment which is included in
the Assumed Obligations, notwithstanding the Closing; or
11.3.4. OTHER INCIDENTAL MATTERS any action, suit, proceeding,
compromise, settlement, assessment or judgment arising out of or incidental to
any of the matters indemnified against in this SECTION 11.3; provided, however,
that Buyer shall not be obligated to indemnify a Seller Indemnified Party under
this SECTION 11.3 with respect to any settlement of a claim to which the Buyer
has not consented, if such consent has not been unreasonably withheld or
delayed.
If, by reason of the claim of any third party relating to any of
the matters subject to indemnification under this SECTION 11.3, a lien,
attachment, garnishment or execution is placed upon any of the property or
assets of any Seller Indemnified Party, Buyer shall also furnish an indemnity
bond satisfactory to Seller to obtain the prompt release of such lien,
attachment, garnishment or execution.
11.4. RIGHT TO DEFEND, ETC. If the facts giving rise to any such
indemnification shall involve any actual claim or demand by any third party
against a Buyer Indemnified Party or a Seller Indemnified Party (referred to
hereinafter as an "INDEMNIFIED PARTY"), the indemnifying parties shall be
entitled to notice of and entitled (without prejudice to the right of any
Indemnified Party to participate at its own expense through counsel of its own
choosing) to defend or prosecute such claim at their expense and through counsel
of their own choosing if they give written notice of their intention to do so no
later than the time by which the interests of the Indemnified Party would be
materially prejudiced as a result of its failure to have received such notice;
provided, however, that if the defendants in any action shall include both the
indemnifying parties and an Indemnified Party, and the Indemnified Party shall
have reasonably concluded that counsel selected by the indemnifying parties has
a conflict of interest because of the availability of different or additional
defenses to the Indemnified Party, the Indemnified Party shall have the right to
select separate counsel to participate in the defense of such action on its
behalf, at the expense of the indemnifying party (or parties). The Indemnified
Party shall cooperate fully in the defense of such claim and shall make
available to the indemnifying parties pertinent information under its control
relating thereto, but shall be entitled to be reimbursed, as provided in this
SECTION 11, for all costs and expenses incurred by it in connection therewith.
11.5. SUBROGATION. If the Indemnified Party receives payment or other
indemnification from the indemnifying party hereunder, the indemnifying party
shall be subrogated to the extent of such payment or indemnification to all
rights in respect of the subject matter of such claim to which the Indemnified
Party may be entitled, to institute appropriate action for the recovery thereof,
and
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the Indemnified Party shall reasonably assist and cooperate with the
indemnifying party at no expense to the Indemnified Party in enforcing such
rights.
11.6. RIGHT TO OFFSET. Anything herein to the contrary notwithstanding,
if Seller fails to reimburse Buyer for any amounts to which Buyer is entitled
under this Agreement, including, without limitation, this SECTION 11
("REIMBURSABLE AMOUNTS") within ten (10) days after written demand therefor,
then, during the one-year period following the Closing Date, Buyer shall have
the right to recover the Reimbursable Amount from the number of Acquisition
Shares then held by Seller in accordance with this SECTION 11.6. The number of
such Shares which Buyer shall have the right to recover pursuant to this SECTION
11.6 shall be determined by multiplying (a) the number of Acquisition Shares
held by Seller by (b) the average closing price of a share of Buyer's Common
Stock as reported on AMEX for the 10 business days preceding the Closing Date
(the "STOCK PRICE"), deducting from said product (c) the Reimbursable Amount,
and dividing the remaining number by the Stock Price. Any fractional shares will
be disregarded. If Buyer and Seller are unable to resolve any accounting issue
relating to whether Buyer is entitled to deduct a Reimbursable Amount pursuant
to this SECTION 11.6 within 10 days after Buyer's notifying Seller of any such
claim, then the parties shall resort to the dispute resolution mechanism set
forth in SECTION 4.2.3 hereof, and the determination of such accounting firm on
all accounting matters shall be binding on the party. If one or more such
disputes are outstanding at the time the one-year period expires, such disputes
shall be resolved in accordance with the terms hereof notwithstanding such
expiration. Any disputes other than accounting matters shall not be subject to
resolution by such accounting firm.
SECTION 12. MISCELLANEOUS
12.1. EXPENSES, ETC. Buyer and Seller shall pay their own respective
expenses and the fees and expenses of their respective counsel in connection
with this Agreement.
12.2. SPECIFIC PERFORMANCE. Anything herein to the contrary
notwithstanding, Seller and Buyer acknowledge that the Transferred Assets are
unique and that Seller and Buyer will have no adequate remedy at law if the
other party (or parties) shall fail to perform any of its obligations hereunder.
In such event, Buyer or Seller, as the case may be, shall have the right, in
addition to any other rights it may have hereunder or under applicable law, to
equitable remedies (including, without limitation, specific performance,
temporary restraining orders and preliminary and permanent injunctions).
12.3. NO WAIVER; CUMULATIVE REMEDIES. No action taken pursuant to this
Agreement, including any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representation, warranty, covenant or agreement contained herein and/or in
any Ancillary Document or other document. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach, whether of the same or any different term. No
right or remedy which any party hereto may possess or elect to exercise shall be
exclusive of any other right or remedy, all of which shall be cumulative and in
addition to all such rights and remedies.
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12.4. BINDING EFFECT, BENEFITS. This Agreement shall be binding on and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but this Agreement may not be assigned by any party
hereto without the prior written consent of the other. Notwithstanding the
foregoing, no consent shall be necessary for Buyer to assign this Agreement to
any person, corporation or other entity that controls, is controlled by or is
under common control with Buyer (an "Affiliate"); provided, that (i) Buyer shall
remain directly and primarily liable for the performance of its obligations
hereunder, and (ii) any such Affiliate to which Buyer assigns this Agreement
shall agree to observe and be bound by all the terms and provisions hereof.
Except as otherwise set forth herein, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto and
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
12.5. NOTICES. All notices, requests, demands and other communications
which are required or permitted under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person or upon receipt
when transmitted by telecopy, messenger or air courier, or seventy two (72)
hours after deposit in the U.S. Mails, mailed by certified or registered first
class mail, postage prepaid, return receipt requested, and duly addressed to the
party to whom the same is so given or made:
If to The Partnership or the LLC, to:
Sequoia Athletic Club & Racquetball World
7530 Orangethorpe Avenue
Buena Park, California 90621
Attention: Dr. G. Barton Heuler,
General Partner
Telecopier No.: (714) 523-5490
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With a copy to:
Edward T. Swanson, Esq.
Swanson & Meepos LLC
1875 Century Park East
Suite 800
Los Angeles, California 90067
Telecopier No.: (310) 282-0325
If to The Spectrum Club Company, Inc., to:
11100 Santa Monica Blvd., Suite 300
West Los Angeles, California 90025
Attention: John Gibbons, President
Telecopier No.: (310) 479-5740
With a copy to:
Ronald K. Fujikawa, Esq.
Kinsella, Boesch, Fujikawa & Towle
1901 Avenue of the Stars, 7th Floor
Los Angeles, California 90067
Telecopier No.: (310)284-6018
If to SCC I LLC Partners, to:
1995 Broadway
New York, New York
Telecopier No.: (212) 595-1831
Attn: Brian J. Collins
With a copy to:
Eric R. Landau, Esq.
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
New York, New York 10022
Telecopier No.: (212) 339-9150
Any party may change its address or facsimile number for purposes of this
SECTION 12.5 by giving notice to the others in accordance with the terms hereof.
12.6. ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto,
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which are incorporated herein by this reference) and the Ancillary Documents
constitute the entire agreement and understanding among the parties with respect
to the subject matter hereof and supersede all prior agreements,
representations, warranties, statements, promises and understandings, whether
written or oral, with respect to such subject matter. No party hereto shall be
bound by or charged with any written or oral agreements, representations,
warranties, statements, promises or understandings not specifically set forth in
this Agreement, any Exhibit, Schedule or Ancillary Document.
12.7. HEADINGS; CERTAIN TERMS. The section and other headings contained
in this Agreement are for reference purposes only and shall not be deemed to be
a part of this Agreement or to affect the meaning or interpretation of this
Agreement or any term or provision hereof. As used in this Agreement, the term
"including" means "including, but not limited to" unless otherwise specified;
the word "or" means "and/or," and the word "person" means and refers to any
individual, corporation, trust, partnership, joint venture, government or
governmental authority, or any other entity.
12.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same instrument.
12.9. GOVERNING LAW. This Agreement shall be governed by, and construed
(as to both validity and performance) and enforced in accordance with, the laws
of the State of California applicable to contracts executed and to be wholly
performed therein.
12.10. SEVERABILITY; CONSTRUCTION. If any term or provision of this
Agreement shall to any extent be invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby, and each other term and provision of
the Agreement shall be valid and enforced to the fullest extent permitted by
law. Both Seller and Buyer have participated in the negotiation and drafting of
this Agreement. Accordingly, each of Seller and Buyer waives any statutory
provision, judicial decision or other rule of law to the effect that contractual
ambiguities are to be construed against the party who shall have drafted the
provision in question.
12.11. NO BROKERS. Except as otherwise set forth in Schedule 12.11 or in
the Real Property Purchase Agreement, each of Buyer and Seller represents and
warrants that it has not engaged any person to act as a broker or finder in
connection with the execution of this Agreement, and that no person is entitled
to any fee or compensation as a result of the consummation of the transactions
contemplated hereby.
12.12. JURISDICTION; WAIVER OF JURY TRIAL. Except as provided in
Sections 4.2.3 and 11.6, the parties hereto (a) hereby irrevocably submit to the
jurisdiction of any court of the State of California or any federal court
sitting in the State of California for the purposes of any suit, action or other
proceeding arising out of this Agreement or any Ancillary Document, or any of
the transactions contemplated hereby, which is brought by or against any of the
parties hereto, and (b) hereby irrevocably agree that all claims in respect of
any such suit, action or proceeding may be
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heard and determined in any such court. In connection with any dispute arising
under or in connection with this Agreement, any Ancillary Document or any other
agreement or instrument, 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 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.
12.13. AMENDMENTS. This Agreement may not be amended or modified except
by an instrument or instruments in writing signed by the party or parties
against whom enforcement of any such amendment or modification is sought.
12.14. DISCLOSURE. Any disclosure by either party hereto pursuant to any
specific provision of this Agreement shall be deemed a disclosure for all other
purposes of this Agreement.
12.15. SECTION REFERENCES. All references contained in this Agreement to
any section number and to any Exhibit or Schedule are references to sections of,
or Exhibits or Schedules attached to, this Agreement, unless otherwise
specifically stated.
12.16. ALLOCATION OF PURCHASE PRICE FOR TAX PURPOSES. After the Closing
the parties will jointly agree as to the allocation of the Purchase Price and
shall file the forms required by Section 1060 of the Code in accordance
therewith.
12.17. USE OF TERMS. In this Agreement, the terms "Club" and "Seller"
are used to distinguish the legal entity (Seller) from the health/fitness
facility operated by it (the Club). However, such usage is not intended to, and
shall not, limit or reduce the legal duties and obligations of Seller (if "Club"
is used in its stead), nor shall it be deemed to exonerate or eliminate the
liability or obligation of a Club (if "Seller" is used in its stead).
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement, or
have caused this Agreement to be signed in their respective names by an officer
thereunder duly authorized, on the date first above written.
THE SPECTRUM CLUB COMPANY, INC.
By: /s/ John M. Gibbons
------------------------------------
John M. Gibbons, President
SCC I LLC PARTNERS
By: /s/ Philip H. Lovett
------------------------------------
Authorized Officer
RBW/Fullerton,
a California Limited Partnership
By: /s/ Dr. G. Barton Heuler
------------------------------------
Dr. G. Barton Heuler,
Co-Managing General Partner
By: /s/ Donald P. Tormey
------------------------------------
Donald P. Tormey,
Co-Managing General Partner
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LIST OF SCHEDULES
Schedule 1.1.1(a) List of Real Property Leases
Schedule 1.1.1(b) List of Personal Property Leases
Schedule 1.1.1(c) Real Property Owned by Seller
Schedule 1.1.1(d) Personal Property Owned by Seller
Schedule 1.1.1(f) Contracts
Schedule 1.1.1(j) Proprietary Rights
Schedule 2.1.1(a) Closing Cash Payment
Schedule 3.2.1 Closing Date Liabilities
Schedule 3.3.1 Debts, Obligations, Liabilities of Seller
Schedule 6.6 Restrictions; Burdensome Agreements
Schedule 6.7 Notices and Consents
Schedule 6.10 Absence of Certain Changes or Events
Schedule 6.11 Title; Liens/Encumbrances
Schedule 6.14(a) Facilities Schedule
Schedule 6.14(b) Information Regarding Memberships
Schedule 6.15 Insurance Policies/Bonds
Schedule 6.16.3 Non-Defaults
Schedule 6.16.4 Contracts NOT Assignable
Schedule 6.17.1 Licenses
Schedule 6.17.2 Proprietary Rights
Schedule 6.19 Litigation
Schedule 6.21 Interest in Competitors
Schedule 6.23.2 Employee Benefit Plans
Schedule 6.23.3 List of All Employees of Seller
Schedule 6.28 Past Due Obligations
Schedule 6.33 Title; Rights
Schedule 6.34 Governmental Approvals; Notices
Schedule 6.38 Contracts
Schedule 8.14.2 Non-Competition
Schedule 12.11 No Brokers
Schedule 12.16 Allocation of Purchase Price for Tax Purposes
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LIST OF EXHIBITS
Exhibit A-1 Assignment and Assumption of Ground Lease
Exhibit A-2 Bill of Sale
Exhibit B Registration Rights re: Acquisition Shares
Exhibit C Renegotiated Debt Agreements
Exhibit D-1 Assignment and Assumption of Subleases
Exhibit D-2 Assignment and Assumption Agreement
Exhibit E Partnership Agreement of Limited Partnerships; Articles of
Organization and Operating Agreement of LLC
Exhibit F Form Membership Agreement
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EXHIBIT 3
AGREEMENT OF PURCHASE AND SALE
BY AND AMONG
THE SPECTRUM CLUB COMPANY, INC., AND
NORCAN, A CALIFORNIA LIMITED PARTNERSHIP
Dated as of December 31, 1997
<PAGE> 2
AGREEMENT OF PURCHASE AND SALE
This Agreement of Purchase and Sale is entered into as of December 31,
1997 ("Agreement"), by and among The Spectrum Club Company, Inc., a Delaware
corporation ("SCC" or "Buyer"), and Norcan, a California limited partnership
("Seller").
R E C I T A L S:
A. SCC owns and operates upscale health and fitness clubs under the name
"Spectrum Clubs," in California.
B. Seller operates a health and fitness facility (the "CLUB") in Canoga
Park, California. G. Barton Heuler ("Heuler") and Wilfred Huse ("Huse") are the
managing general partners (collectively, the "General Partner") of the
Partnership.
C. Simultaneously with the execution and delivery of this Agreement,
Buyer is entering into an Agreement of Purchase and Sale (the "FOUNTAIN VALLEY
PURCHASE AGREEMENT") with the limited partnership that owns and operates the
Racquetball World health and fitness facility in Fountain Valley, California
(the "FOUNTAIN VALLEY CLUB"). Prior to the date hereof, SCC and SCCI LLC, a
Delaware limited liability company ("Millennium"), entered into Agreements of
Purchase and Sale (collectively, the "OTHER PURCHASE AGREEMENTS") with two other
limited partnerships which own and operate Racquetball World health and fitness
facilities in Santa Ana and Fullerton, and intend to enter into an Option
Agreement with the limited partnership which owns and operates a health and
fitness facility in Buena Park (the "OPTION AGREEMENT"). Such health and fitness
facilities in Santa Ana, Fullerton and Buena Park are hereinafter referred to
collectively as the "OTHER CLUBS" and individually as the the "SANTA ANA CLUB",
the "FULLERTON CLUB" and the "BUENA PARK CLUB". The consummation of the
transactions contemplated by this Agreement is expressly conditioned on the
simultaneous closing of the Fountain Valley and all Other Purchase Agreements.
C. Buyer wishes to purchase from Seller, and Seller wishes to sell and
transfer to Buyer, substantially all the assets and properties used or held for
use by Seller in connection with the operation of the Club's health and fitness
business, subject to the terms and conditions set forth in this Agreement.
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A G R E E M E N T:
In consideration of the premises and the mutual covenants and agreements
hereinafter set forth, Buyer and Seller hereby agree as follows:
SECTION 1. TRANSFER OF ASSETS
1.1. PURCHASE AND SALE OF ASSETS.
1.1.1. ASSETS. Subject to the terms and conditions hereinafter
set forth, on the "Closing Date" (as defined in SECTION 5) and excluding the
"Excluded Assets" (as defined in SECTION 1.1.2), Buyer shall purchase and
acquire from Seller, and Seller shall sell, transfer, assign and convey to
Buyer, all of Seller's right, title and interest in and to all of the assets and
properties of Seller (of every kind and character, whether real, personal or
mixed, whether tangible and intangible, whether accrued, contingent or otherwise
and wherever situated), relating to the operation of the Club's health and
fitness business (the "HEALTH/FITNESS BUSINESS"), as the same shall exist
immediately prior to the Closing, including, without limitation, the following:
(a) all real property leases described in Schedule
1.1.1(a) attached hereto (the "REAL PROPERTY LEASES");
(b) all leases of personal property covering (by way of
example and not limitation) machinery, equipment, vehicles, furniture and other
personal property, which personal property leases are described in Schedule
1.1.1(b) attached hereto (the "PERSONAL PROPERTY LEASES");
(c) all real property owned by Seller and more
particularly described in Schedule 1.1.1(c), together with all improvements and
fixtures thereon and all easements, rights of way and other rights appurtenant
thereto in any way related to such real property (the "REAL PROPERTY");
(d) all furniture, furnishings, equipment, machines,
computers, tools, supplies, spare (or replacement) parts and other personal
property owned by Seller and listed in Schedule 1.1.1(d) attached hereto (the
"PERSONAL PROPERTY");
(e) all membership agreements, contracts, forms,
instruments and other writings under which members are entitled to use the
facilities and services at the Club, including all amendments, renewals and
extensions thereof (the "MEMBERSHIP AGREEMENTS");
(f) all agreements, contracts, forms, instruments and
other writings (other than the Membership Agreements), and all rights thereunder
or thereto, which are identified in Schedule 1.1.1(f) attached hereto (the
"CONTRACTS");
(g) all records, files and other data relating to the
Health/Fitness
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Business, including, without limitation, all membership lists (in both written
form and in the Club's standard machine-readable format), customer lists,
supplier/vendor lists, invoices, plans and specifications, designs, drawings,
accounting/business records and accounts receivable aging schedules but
excluding Seller's partnership books and records (the "BUSINESS RECORDS");
(h) all licenses, approvals, permits and authorizations
(including any such licenses, approvals, permits and authorizations issued by
governmental agencies or authorities having jurisdiction of the Health/Fitness
Business) which are required in connection with the operation of the
Health/Fitness Business, to the extent the same can be transferred and assigned
to Buyer pursuant to the terms hereof (the "LICENSES");
(i) all inventory of finished products, raw materials and
work-in-process, whether located at the Club or elsewhere, including all food
and beverage inventory and all equipment or property (to the extent not included
in any of the other subparts of this Paragraph 1.1.1 and used by the Club to
prepare and serve food and beverage offerings to patrons and guests) (the
"INVENTORY");
(j) all trademarks, trade names, copyrights, patents and
other proprietary rights (whether or not registered), and all applications
relative to any of the foregoing, which Seller uses in connection with the
operation of its Health/Fitness Business which are listed in Schedule 1.1.1(j)
attached hereto (the "PROPRIETARY RIGHTS");
(k) all advance payments, prepaid items and credits of
all kinds of the Club, other than (i) utility deposits of the Club in an amount
not to exceed Five Thousand Dollars ($5,000), which together with utility
deposits of the Fullerton Club, Fountain Valley Club and Santa Ana Club, shall
be in an aggregate amount not exceeding seventy-five thousand dollars ($75,000)
(the "UTILITY DEPOSITS"); and (ii) advance payments, prepaid items and credits
relating to Excluded Assets;
(l) all rights, claims and causes of action which Seller
could assert against any other person or entity for the breach of any duty or
violation of any right prior to the Closing Date, to the extent such breach or
violation relates, directly or indirectly, to the Health/Fitness Business
("LITIGATION RIGHTS"); and
(m) all accounts receivable and other rights to payment
owing to Seller and arising out of the operation of its Health/Fitness Business
(including, without limitation, all rights to payment under Membership
Agreements and Contracts) (collectively, "RECEIVABLES").
All of the assets and properties described in this SECTION 1.1.1 are
collectively referred to herein as the "TRANSFERRED ASSETS".
1.1.2. EXCLUDED ASSETS. Anything in this SECTION 1.1 to the
contrary notwithstanding, the Transferred Assets shall not include, and Seller
shall retain for its own use and benefit (collectively, "EXCLUDED ASSETS"), (a)
all cash and cash equivalents (including, without
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limitation, all bank accounts, marketable securities and certificates of
deposit) of Seller; (b) any and all assets and properties (including, without
limitation, investments in the securities of any publicly or privately-held
company or other entity and certain rights to utilize vacation or resort
facilities under a "time-share" arrangement) of Seller that are unrelated to its
operation of the Health/Fitness Business; (c) that certain parcel of real
property located in Camarillo, California, which Seller uses for purposes
unrelated to the Health Fitness Business (the "CAMARILLO PROPERTY"); (d) all
books and other limited partnership records of Seller other than the Business
Records; (e) advance payments, prepaid items and credits relating to (i)
Federal, state and local income taxes covering periods subsequent to the Closing
Date, (ii) any of the assets, properties or rights identified in this SECTION
1.1.2; and (iii) the Utility Deposits, and (f) Seller's rights and interest
under all contracts, agreements, instruments and other arrangements, except to
the extent that such contracts, agreements, instruments and other arrangements
constitute "Assumed Obligations" (as defined in SECTION 3.1 hereof).
1.2. INSTRUMENTS OF TRANSFER. On the Closing Date, Seller shall deliver,
or cause to be delivered, to Buyer duly executed instruments of transfer and
assignment, including, without limitation, a Grant Deed substantially in the
form of Exhibit "A-1" ("GRANT DEED") and Bill of Sale substantially in the form
of Exhibit "A-2", in form and substance reasonably satisfactory to Buyer and its
counsel, sufficient to vest in Buyer all of Seller's right, title and interest
in and to the Real Property and all other Transferred Assets, free and clear of
any and all liens, claims, security interests, assessments, encumbrances,
mechanic's and materialman's liens currently in effect or hereafter perfected
based upon work performed or materials supplied prior to the date hereof and/or
any other rights of third parties (other than membership rights and rights to
obtain catering services) with respect to any of the Transferred Assets
(collectively, "LIENS"), except for such Liens which are specifically set forth
in the Schedules hereto and which are not required to be removed at or prior to
the Closing pursuant to any other provisions of this Agreement.
1.3. DELIVERY OF POSSESSION. At the Closing, Seller shall deliver
possession of the Transferred Assets to Buyer, at the location where, in the
ordinary course of business, such are usually and customarily located. Title and
risk of loss (including risk of theft) in and to the Transferred Assets shall
pass to and be vested in Buyer, effective at the time of Closing on the Closing
Date, and Seller shall have no further liability with respect to the Transferred
Assets or the Assumed Obligations, except for liability under this Agreement or
any "Ancillary Documents" (as defined in SECTION 8.14.1 hereof) and for the
negligence or wilful misconduct of the Club, or any of its employees and/or
persons acting on its behalf.
1.4. CONSENTS TO ASSIGNMENT. Any other provision of this Agreement to
the contrary notwithstanding, this Agreement shall not constitute an agreement
to assign any Membership Agreement, Contract, License or other Transferred
Asset, or any benefit arising thereunder or resulting therefrom, if an attempted
assignment of any thereof, without the consent of any other party thereto, would
constitute a breach or in any way materially adversely affect the rights of
Buyer or Seller with respect thereto. If such consent is not obtained, or if an
attempted assignment would be ineffective or would materially adversely affect
Seller's rights relative to such Membership Agreement, Contract, License or
other Transferred Asset so that Buyer would not in
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fact receive substantially all of such rights, Seller shall cooperate in any
arrangement Buyer may reasonably request in writing to provide for Buyer the
benefits with respect to any such Membership Agreement, Contract, License or
other Transferred Asset, including enforcement for the benefit of Buyer of any
and all rights of Seller against any other party with respect thereto arising
out of the breach or cancellation thereof by such party or otherwise; and any
transfer or assignment of any Membership Agreement, Contract, License or other
Transferred Asset which shall require the consent or approval of any other party
shall be made subject to such consent or approval being obtained; provided,
however, that nothing contained in this SECTION 1.4 shall affect the liability,
if any, of Seller pursuant to this Agreement for failing to have disclosed the
need for, and failing to obtain, any such required consent or approval.
SECTION 2. PURCHASE PRICE; MANNER OF PAYMENT
2.1. CONSIDERATION AND MODE OF PAYMENT. The aggregate purchase price to
be paid by Buyer for the Transferred Assets and the other rights provided herein
consists of all of the obligations of Buyer under and pursuant to this
Agreement, including, without limitation, its obligations under the provisions
of SECTION 3 hereof, and the following (collectively, the "PURCHASE PRICE"):
2.1.1. CASH PAYMENT. Subject to the terms of SECTION 4.2.3
hereof, at the Closing, Buyer shall pay to Seller (a) the sum of $250,000 (the
"CLOSING CASH PAYMENT"), and (b) subject to the holdback described in Section
3.2.1, an amount equal to $1,819,255, which will be used by Seller to pay or
otherwise satisfy all of Seller's debts, obligations and other liabilities owing
to all secured and unsecured creditors of Seller, as renegotiated by Seller
pursuant to SECTION 3.2.2 (the "CLOSING DATE LIABILITIES"). Buyer and Seller
shall allocate that portion of the Purchase Price attributable to the Real
Property (the "REAL PROPERTY PURCHASE PRICE"), and shall allocate the Purchase
Price among all other Transferred Assets in accordance with Section 12.16, and
such allocations shall be binding on the parties hereto, and neither Buyer nor
Seller shall file any tax return or take any position inconsistent with such
allocation in any dealing with any governmental agency or authority.
2.1.2. ISSUANCE OF COMMON STOCK. On the Closing Date, SCC shall
cause its parent, The Sports Club Company, Inc., (the "Parent"), to issue to
Seller and the Santa Ana and Fullerton Clubs an aggregate number of shares of
the Parent's Common Stock, $.01 par value (the "ACQUISITION SHARES"), which,
subject to Section 11.6 hereof, will be distributed among the Club and the Santa
Ana and Fullerton Clubs as follows: $1,142,500 of such Shares shall be issued to
the Club; and $150,000 of such Shares shall be issued to each of the Santa Ana
and Fullerton Clubs. The Acquisition Shares shall not be registered under
applicable provisions of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), or any state securities (or "Blue Sky") laws, and will therefore
constitute "restricted securities" as defined in Rule 144 ("RULE 144") of the
Securities and Exchange Commission (the "SEC"). None of such Acquisition Shares
issued to the Club or to the Santa Ana and Fullerton Clubs may be sold or
otherwise distributed by Seller or such other Clubs to any person or entity
prior to the expiration of one (1)-year following the Closing Date (the "TRIGGER
DATE"); and, upon the request of holders of more than fifty percent (50%) of all
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Acquisition Shares, the Parent shall register the offer and sale of all such
Acquisition Shares owned by the requesting holders on a Form S-3 registration
statement to be filed with the SEC as soon after the Trigger Date as is
reasonably practicable, at SCC's sole cost and expense. If, prior to the Trigger
Date, the Parent shall file a registration statement with the SEC covering the
issuance by the Parent of any of its securities (other than in connection with a
merger, acquisition or other reorganization or with respect to one or more of
its stock option or stock compensation plans), then the holders of that portion
of the Acquisition Shares which will have been allocated to Seller shall have
one (1) "piggyback" registration right with respect to the Acquisition Shares
owned by them, subject to the terms and conditions set forth on Exhibit "B". If
thirty (30) days prior to the Trigger Date, Seller's counsel provides the Parent
an opinion of counsel satisfactory to Parent's counsel to the effect that Seller
may transfer the Acquisition Shares to certain partners or members of Seller
without registration under the Securities Act, then the Parent will include the
Acquisition Shares held by such partners or members in the Form S-3 Registration
Statement or in the other registration statement referenced in the preceding
sentence of this Section 2.1.2. The actual number of Acquisition Shares issuable
to Seller and the Santa Ana and Fullerton Clubs shall be subject to adjustment
pursuant to Section 11.6 hereof.
2.2. METHOD OF PAYMENT. All amounts to be paid or disbursed to Seller
pursuant to this Agreement (including the amounts payable pursuant to SECTION
2.1.1) shall be paid to a bank account designated by Seller, in Los Angeles
Clearinghouse funds or equivalent "next day" funds. No interest shall be payable
with respect to any payment made pursuant to SECTION 2.1.
SECTION 3. TREATMENT OF LIABILITIES
3.1. NO ASSUMPTION OF EXISTING LIABILITIES. Except as expressly set
forth in this Agreement, Buyer is not assuming, whether directly or indirectly,
and shall have no liability or obligation with respect to, any of the debts,
liabilities or obligations of Seller or the Club, all of which (except as
otherwise set forth below) shall be and remain the sole obligation and liability
of Seller.
3.2. PAYMENT AND SATISFACTION OF LIABILITIES.
3.2.1. CLOSING DATE LIABILITIES. As noted in SECTION 2.1.1(b)
and subject to SECTION 3.4 hereof, Buyer will be entitled to withhold the sum of
$1,819,255 (the "WITHHELD AMOUNT"), which will be handled and disbursed as
follows:
(a) At the Closing, the sum of $1,509,461 will be paid to the
Small Business Administration, which holds a note and deed of trust encumbering
the Real Property (the "SBA DEBT"), and the sum of $309,794 will be paid to the
Los Angeles County Tax Assessor to pay accrued but unpaid taxes assessed against
the Real Property (the "REAL PROPERTY TAXES").
(b) At the Closing, Seller shall provide Buyer with a written
schedule (which will be attached hereto at the Closing as Schedule 3.2.1) which
sets forth all Closing Date Liabilities (excluding the SBA Debt and the Real
Property Taxes, but including all accounts payable and
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accrued expenses of Seller relative to periods prior to the Closing Date). On
the Closing Date, Buyer shall provide to Seller sufficient funds to pay those
Closing Date Liabilities marked with an asterisk (*) in Schedule 3.2.1.
(c) On a weekly or other periodic basis following the Closing
Date, Seller shall instruct Buyer in writing of which Closing Date Liabilities
are to be paid, identifying, with respect to each such Liability, the creditor
and the amount to be paid thereto. Subject to Buyer's approval and consent,
Buyer will remit an amount necessary to satisfy such identified Closing Date
Liabilities, and Seller shall promptly remit to the applicable creditors the
amounts necessary to satisfy such Liabilities.
(d) If any of the Closing Date Liabilities includes the payment
of an amount that should be prorated and for which Buyer is responsible pursuant
to Section 4.2.3 hereof, Buyer will contribute an amount to the Withheld Amount
to cover such prorated portion. Alternatively, if Buyer shall pay any liability
or obligation from and after the Closing which includes a prorated item for
which Seller is responsible, then Buyer shall be entitled to reimburse itself
for such payment and reduce the Withheld Amount on a dollar-for-dollar basis.
Nothing contained herein shall affect or limit either party's responsibility for
its share of any prorated items pursuant to said Section 4.2.3 hereof.
(e) If Seller is successful in negotiating a reduction in the
amount of any Closing Date Liability as contemplated by Section 3.2.2 hereof,
then Seller shall provide Buyer with a Renegotiated Debt Agreement (as defined
in said Section 3.2.2) relative to such Closing Date Liability executed by the
applicable creditor, and an appropriate adjustment in Schedule 3.2.1 reflecting
all Closing Date Liabilities shall be made; provided that, Seller acknowledges
that if the total amount of the Closing Date Liabilities ultimately paid or
satisfied by Seller is less than the Withheld Amount, Buyer shall be entitled to
retain such excess funds. Similarly, if the amount of the Closing Date
Liabilities, plus any other debts, liabilities or obligations of Seller which
relate to pre-Closing activities (even though asserted or coming to Seller's or
Buyer's attention post-Closing), shall exceed the amount of the Withheld Amount,
Seller understands that Buyer is not assuming, and shall not be deemed to have
assumed, any of such additional liabilities or obligations, and all of such
additional liabilities and obligations (including Closing Date Liabilities)
shall be and remain the sole obligation and responsibility of Seller.
3.2.2. NEGOTIATING DISCOUNTS. From and after the Closing, Seller
will continue to use its best efforts to negotiate discounts with respect to all
Closing Date Liabilities so that the Closing Date Liabilities shall be less than
the Withheld Amount, if reasonably practicable. To the extent creditors of
Seller agree to accept a discount off the amounts otherwise due and owing to
such creditors as full payment of such debt or liability, Seller shall cause
such creditors to execute written acknowledgements confirming such agreement in
substantially the form of Exhibit "C" ("RENEGOTIATED DEBT AGREEMENTS"). Seller
shall provide Buyer with true and correct copies of all Renegotiated Debt
Agreements executed by Seller and the applicable creditors as of the Closing
Date and thereafter as contemplated by Section 3.2.1 hereof.
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3.3. ASSUMPTION OF CERTAIN LIABILITIES.
3.3.1. ASSUMPTION OF SPECIFIC OBLIGATIONS. Effective as of the
Closing Date, SCC shall assume and be liable for the specific debts, obligations
and liabilities of Seller set forth in Schedule 3.3.1 and no others
(collectively, the "ASSUMED OBLIGATIONS"), in connection with the consummation
of the transactions contemplated hereby.
3.3.2. MANNER OF ASSUMPTION. SCC's assumption of the Assumed
Obligations shall be evidenced by one or more Assignment and Assumption
Agreements substantially in the form of Exhibit "D" ("ASSUMPTION AGREEMENTS").
It is not the intention of either SCC or Seller that the assumption by SCC of
the Assumed Obligations pursuant to the Assumption Agreements shall in any way
enlarge the rights of third parties under, or with respect to, the agreements or
instruments to which such Assumed Obligations relate. Nothing contained herein
shall prevent or otherwise limit Buyer from contesting in good faith any of the
Assumed Obligations with the obligee.
3.4. CONDITION TO CLOSING. In addition to the other conditions to
Buyer's and Seller's obligations to close specified in SECTIONS 9 AND 10 hereof,
and notwithstanding any other term or provision hereof, each of Buyer and Seller
shall have the right to terminate this Agreement and refrain from consummating
the transactions contemplated hereby without liability if the aggregate amounts
payable to Seller pursuant to SECTION 2.1.1(b) (and subject to the terms of
SECTION 3.2.1) are insufficient to pay, satisfy or otherwise discharge in full
the Closing Date Liabilities, as set forth in Schedule 3.2.1 (and as further
reduced pursuant to signed and completed Renegotiated Debt Agreements).
3.5. ALL OTHER LIABILITIES TO BE RETAINED BY SELLER. Anything herein to
the contrary notwithstanding, Buyer is not assuming and shall have no liability
with respect to, and Seller shall be solely liable and responsible for, all
debts, liabilities and obligations which are not included in the Assumed
Obligations including, without limitation, the following: (a) any claim, demand,
debt or liability asserted by a creditor of Seller that shall exceed, or be in
addition to, the aggregate amount of the Closing Date Liabilities; (b) any
debts, claims, demands, liabilities or other obligations, whether known or
unknown and whether fixed, accrued or contingent, which are not disclosed on the
"Club Financial Statements" (as defined in SECTION 6.8 hereof); (c) liabilities
under any Membership Agreement or Contract that accrued, arose or otherwise
relates to any period prior to the Closing Date; (d) any contract, agreement,
commitment or obligation that is included in or otherwise related to any
Excluded Assets (including, without limitation, any debts, obligations or
liabilities relating to, or affecting, the Camarillo Property); (e) except as
otherwise provided in this Agreement, liabilities or obligations of Seller to
any partner, employee, officer, director, shareholder or other person who
controls, is controlled by or is under common control with Seller or any general
partner thereof (each, a "SELLER AFFILIATE"), whether relating to (i) unpaid
salary, severance, retirement or other benefits; (ii) wrongful discharge or
termination; or (iii) any loans or other advances made to Seller or the Club by
any partner, employee, officer, director, shareholder or Seller Affiliate; (f)
liabilities under any employee benefit plan or program in effect as of the
Closing Date; (g) liabilities or obligations of Seller or the Club relating to
any breach, or from any
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fact or transaction involving a breach, by Seller or the Club of any covenant,
agreement, representation or warranty contained herein or arising from, out of,
or in connection with, the transactions contemplated by this Agreement; (h)
liabilities or obligations incurred by Seller, the Club or any Seller Affiliate
on or after the Closing Date; (i) liabilities or obligations in respect of or
arising out of any goods, merchandise or services provided by the Club to or for
the benefit of any member or patron on or before the Closing Date or relating to
the alleged breach of any duty or violation of any right owed or held by any
other person or entity; (j) liabilities or obligations involving the payment of
any domestic (federal, state or local) or foreign taxes on or measured by
income, which are due or shall become due as a result of the operation of the
Club through the Closing Date, including, without limitation, any minimum tax
imposed under Section 56 of the Internal Revenue Code of 1986, as amended (the
"CODE"), or any comparable tax imposed under any other tax statute, or interest
or penalties relating thereto; (k) liabilities or obligations relating to the
payment or deposit of (or the failure to pay or deposit) all Federal, state or
local payroll or withholding taxes (including interest, penalties and other
assessments) which were required to be paid or deposited by Seller or any Seller
Affiliate with a financial institution for all periods up to and including the
Closing Date; and (l) liabilities or obligations owed by Seller or any Seller
Affiliate to any person or entity with respect to any existing or pending
lawsuit, arbitration or other legal or proceeding, or any litigation,
arbitration or other legal proceeding that may be instituted against Seller or
any Seller Affiliate subsequent to the Closing Date but that relates to facts or
events arising or occurring prior to the Closing Date. The foregoing obligations
and liabilities are hereinafter collectively referred to as the "RETAINED
OBLIGATIONS".
3.6. RIGHT OF ENFORCEMENT AND SETTLEMENT. From and after the Closing
Date, SCC shall have complete control over the satisfaction and discharge of the
Assumed Obligations and the right to commence, conduct and control all
negotiations and proceedings with respect thereto. Seller shall notify SCC
promptly of any claim made which arose, accrued or otherwise relates to any
Assumed Obligation and shall not, except with SCC's prior written consent,
voluntarily settle or offer to settle, or consent to any compromise or admit
liability with respect to, any such claim. Seller shall cooperate with SCC in
any reasonable manner requested by Buyer in connection with any negotiations or
proceedings involving any Assumed Obligation.
SECTION 4. USE OF TITLE COMPANY; PRORATIONS.
4.1. DESIGNATION OF TITLE COMPANY. As soon after the date hereof as is
reasonably practicable, Seller and Buyer shall jointly instruct a title company
designated by Buyer ("TITLE COMPANY") that upon satisfaction or waiver of the
conditions set forth in SECTION 9 AND 10 below, it shall record the Grant Deed
and deliver to Buyer or its agent the "Title Insurance" defined and described in
SECTION 5.2.2 below. Except as otherwise provided in SCHEDULE 3.3.1 hereto or in
this SECTION 4, Seller shall pay all costs relating to the transfer of the Real
Property, including, without limitation, all real estate brokerage commissions,
if any; documentary or other transfer taxes; recording and reconveyance fees
necessary to extinguish any and all existing Liens; and costs of preparing,
executing and acknowledging the Grant Deed (or Deeds) and other instruments
necessary to transfer good and marketable title to the Real Property to Buyer in
accordance with this Agreement. Buyer shall pay all premiums, fees and costs
related to the issuance of the
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Preliminary Title Report under SECTION 8.12 and the Title Insurance, together
with the cost of recording the Grant Deed (or Deeds) and other instruments
conveying title to the Real Property to Buyer. If required by Title Company,
Seller acknowledges that Buyer shall have the right to deposit with Title
Company that portion of the Withheld Amount necessary to pay, satisfy and
discharge the SBA Debt and Real Property Taxes pursuant to Section 3.2.1(a), and
to calculate any prorated expense items that are capable of being prorated as of
the Closing Date, as required by Section 4.2 hereof. To the extent required by
Title Company, Buyer and Seller shall execute any agreement or other form
required by Title Company to act as escrow in connection with the completion of
the transactions contemplated hereby, and Buyer shall be responsible for Title
Company's fees for serving in such capacity.
4.2. EXPENSES AND PRORATIONS.
4.2.1. PRORATIONS AND REIMBURSEMENT. Except as otherwise
provided herein, at and as of the Closing, Buyer and Seller (or Title Company,
to the extent it shall be authorized pursuant to SECTION 4.1 above), shall
prorate in cash (a) rents payable by Seller under the Real Property Leases, (b)
rents payable by Seller under the Personal Property Leases, (c) utility and
sewer charges and all operating expenses of Seller to the extent attributable to
its Health/Fitness Business, (d) all utility, service and other charges relating
to the Real Property, and (e) other items which are typically prorated in
similar transactions but only to the extent attributable to the Health/Fitness
Business. Seller shall maintain in place for the benefit of Buyer all deposits
under the Real Property Leases and Personal Property Leases, as well as all
utilities and other deposits held by third parties, subject to Seller's right to
retain the Utility Deposits at and as of the Closing.
4.2.2. TERMINATION OF EMPLOYEES. Effective as of the Closing,
Seller shall terminate, or cause to be terminated, all of its employees and
independent contractors, and Seller shall pay, or cause to be paid, all accrued
employee salaries, vacation, sick pay, bonuses, payroll taxes and other employee
and independent contractor costs/fees as of the Closing Date; provided that, SCC
shall promptly reimburse Seller for the aggregate amount paid to those
terminated employees who are not rehired by Buyer immediately following the
Closing, in respect of accrued but unused vacation pay (and to the extent
required under Seller's employment policies, in respect of sick pay). SCC shall
have the right to hire, from and after the Closing, such of Seller's former
employees as it deems necessary to operate the Club following the Closing,
subject to the same general compensation and benefits package (including health
care and worker's compensation insurance) as shall be offered to SCC's other
employees occupying the same or similar positions. Any of Seller's former
employees who are hired by SCC immediately following the Closing shall, in
addition to the standard vacation and sick days granted to SCC's employees
occupying the same or similar position, be granted by SCC additional vacation
and sick days equal to the number of their accrued but unused vacation and sick
days with Seller as of the Closing Date. Seller shall deliver to SCC copies of
Forms W-2 for all employees whom SCC may employ after the Closing Date, and
copies of all payroll records for such employees, in each case from the date of
each such person's employment through the business day immediately preceding the
Closing Date; Schedule 6.23.3 hereto identifies all such employees.
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4.2.3. METHOD OF PRORATING. All prorations hereunder shall be
made on the basis of the actual number of days elapsed and shall be prorated as
of the Closing Date, unless otherwise provided herein. Absent unforeseen
circumstances, Buyer and Seller (or Title Company, to the extent authorized
pursuant to SECTION 4.1 hereof), shall endeavor to complete all prorations
contemplated by this SECTION 4.2 within sixty (60) days following the Closing
Date. In order to allow for prompt settlement of all prorated amounts hereunder,
Seller acknowledges that the Withheld Amount shall be withheld by Buyer as of
the Closing Date, and any and all prorations shall be credited or debited
against such withheld sum as provided in Section 3.2.1 or this Section 4.2.3. If
the Withheld Funds shall be insufficient to reimburse Buyer for Seller's share
of all such prorated items, Seller shall remit the amount of such shortfall to
Buyer within three (3) days of its receipt of notice from Buyer regarding such
reimbursement request. If either Seller or Buyer shall dispute any proration
calculations hereunder and shall be unable to resolve such dispute within ten
(10) days after commencement of settlement discussions, the parties shall submit
such dispute to a nationally-recognized accounting firm acceptable to them,
provided such firm shall not have been engaged by either Buyer or Seller at any
time within the past ten (10) years, and the determination of such chosen firm
shall be conclusive and binding. Each party shall be entitled to provide the
accounting firm with all information which it deems relevant to the matters in
dispute, and the fees of the accounting firm for providing such services shall
be borne equally by Buyer and Seller.
SECTION 5. CLOSING; DELIVERIES
5.1. CLOSING. The closing of the purchase and sale of the Transferred
Assets and related assumption of the Assumed Obligations by Buyer pursuant to
the terms hereof (the "CLOSING") shall be held at the offices of Kinsella,
Boesch, Fujikawa & Towle, LLP, 1901 Avenue of the Stars, 7th Floor, Los Angeles,
California 90067, at 10:00 A.M. (California time), on December 31, 1997, or at
such other date, place or time as the parties shall otherwise agree upon in
writing (the date of the Closing being referred to herein as the "CLOSING
DATE").
5.2. SELLER DELIVERIES AT CLOSING. In addition to all other deliveries
required to be made at the Closing as described elsewhere herein, at or before
the Closing, on the Closing Date, Seller shall deliver, or cause to be delivered
by Title Company, to Buyer the following documents:
5.2.1. DEEDS. One or more Grant Deeds conveying to Buyer fee
simple title to the Real Property, which Grant Deed (or Deeds) (a) shall be
executed by a duly authorized representative of Seller and notarized for
recording, and (b) shall convey to Buyer good and marketable title to the Real
Property, free and clear of any and all Liens except for those exceptions
approved by Buyer pursuant to SECTION 8.12 hereof (the "PERMITTED EXCEPTIONS");
and
5.2.2. TITLE INSURANCE. An American Land Title Association
("ALTA") standard coverage policy of title insurance covering the Real Property
(the "TITLE Insurance") with liability in the aggregate amount of the Real
Property Purchase Price, insuring Buyer that fee title to the Real Property is
vested in it, subject only to the Permitted Exceptions. Although it is Seller's
obligation to furnish the Title Insurance required by this SECTION 5.2.2, Buyer
shall pay the premiums for such Title Insurance. The Title Insurance shall
include appropriate endorsements for
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zoning classification, including for parking.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to, and agrees with, Buyer as follows:
6.1. ORGANIZATION, GOOD STANDING, POWER, ETC.
The Partnership is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of California, and it
conducts no business nor owns or leases any assets or properties outside the
State of California. The Partnership has all requisite partnership power and
authority to (i) execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby and (ii) own or
lease and operate its properties and to carry on its business as it is presently
being conducted. The Partnership's managing general partners are Heuler and
Huse, and each of Heuler and Huse owns his partnership interest in his
individual capacity and has all necessary power and authority (x) to manage and
operate the Partnership's business in the manner in which it is currently being
conducted; (y) to perform, as the Partnership's managing general partner and on
behalf of the Partnership as such managing general partner, the Partnership's
obligations under the Membership Agreements and Contracts; and (z) to execute
and deliver this Agreement on behalf of the Partnership. Other than "Sequoia
Athletic Club Canoga Park", "Racquetball World - Canoga Park", the Partnership
has never conducted any business at the Club under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name, assumed name, trade name or
other name.
6.2. CHARTER DOCUMENTS.
Included as part of Exhibit E are true, correct and complete
copies of the Partnership's Agreement of Limited Partnership (the "PARTNERSHIP
AGREEMENT") and Certificate of Limited Partnership (Form LP-1) ("CERTIFICATE"),
as amended to date. Each of the Partnership Agreement and Certificate is in full
force and effect.
6.3. SUBSIDIARIES, DIVISIONS AND AFFILIATES. No person or entity other
than Seller, and no Seller Affiliate (other than partners of Seller), has any
legal or equitable right, title or interest in or to any of the Transferred
Assets.
6.4. AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement and the "ANCILLARY DOCUMENTS" (as defined in SECTION 8.14.1)
by the Partnership, and the consummation of the transactions contemplated hereby
and thereby, will have been duly and validly authorized by the General Partners,
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the requisite number of limited partners of the
Partnership as required by the Partnership Agreement as of the Closing Date. On
the Closing Date, this Agreement will have been, and the Ancillary Documents
will be, duly and validly authorized, executed and delivered by the Partnership.
This Agreement constitutes a valid and binding obligation of Seller, enforceable
against it in accordance with its terms, except (a) that such
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enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally, (b) to the extent that
enforceability may be limited by California courts with respect to any
"unconscionable" provisions contained therein, and (c) that certain of the
covenants contained herein may not be specifically enforceable and courts may
award money damages rather than specific performance of contractual provisions
involving matters other than the payment of money.
6.5. EFFECT OF AGREEMENT, ETC. The execution, delivery and performance
of this Agreement by Seller, and the consummation by Seller of the transactions
contemplated hereby, will not, with or without the giving of notice and the
lapse of time, or both, (a) violate any provision of law, statute, ordinance,
rule, regulation or executive order to which Seller is subject; (b) violate any
judgment, order, writ or decree of any court, arbitrator or governmental
authority applicable to Seller; or (c) result in the breach of or conflict with
any term, covenant, condition or provision of, result in the modification or
termination of, constitute a default under, or result in the creation or
imposition of any Lien upon any of the Transferred Assets pursuant to, Seller's
Partnership Agreement or Certificate, or any commitment, contract, agreement or
instrument, including any of the Membership Agreements or Contracts, to which
Seller is a party or by which any of the Transferred Assets is or may be bound
or affected.
6.6. RESTRICTIONS; BURDENSOME AGREEMENTS. Except as otherwise disclosed
in Schedule 6.6 or as specifically disclosed elsewhere in this Agreement or in
the other Schedules hereto, neither Seller nor the General Partner is a party to
any contract, commitment or agreement, nor is either of them or any of the
Transferred Assets subject to, or bound or affected by, any partnership
restriction, judgment, decree, law, statute, ordinance, rule, regulation or
other restriction of any kind or character which would, individually or in the
aggregate, materially adversely affect Buyer's purchase, ownership and operation
of the Transferred Assets from and after the Closing.
6.7. NOTICES AND CONSENTS, ETC. Except as otherwise disclosed in
Schedule 6.7 or as specifically disclosed elsewhere in this Agreement or in the
other Schedules hereto, no notice to, consent, authorization or approval of, or
exemption by, any other person (including, without limitation, any governmental,
public or self-regulatory body or authority), other than notice, consents or
approvals which Seller shall have obtained as of the Closing Date, is required
in connection with the execution, delivery and performance by Seller of this
Agreement or any of the instruments or agreements herein referred to (including
any Ancillary Documents), or the taking of any action by Seller herein
contemplated.
6.8. FINANCIAL STATEMENTS. Seller has delivered, or caused to be
delivered, to Buyer the following financial statements of Seller: an audited
balance sheet as at September 30, 1996, and an audited statement of operations
for the year then ended; an unaudited balance sheet as at September 30, 1997,
and an unaudited statement of operations for the year then ended; and an
unaudited balance sheet as at October 31, 1997 and an unaudited statement of
operations for the month then ended (collectively, the "CLUB FINANCIAL
STATEMENTS"). The Club Financial Statements are true, accurate and complete in
all material respects, and the dollar amount of each line item
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included in the Club Financial Statements is accurate in all material respects.
The Club Financial Statements have been prepared from the books and records of
Seller, which are maintained on an accrual basis, in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered, and present fairly the financial position of Seller as of the
respective dates thereof and the results of operations for the periods covered
thereby. Seller has no, and is not subject to, any debts, liabilities or
obligations of any nature, whether absolute, contingent or otherwise, not fully
and properly reflected or reserved against in the Club Financial Statements,
except debts, liabilities and obligations incurred by Seller in the ordinary
course of business since October 31, 1997 (the "CUT-OFF DATE").
6.9. ACCOUNTS RECEIVABLE. All Receivables reflected in the Club
Financial Statements are included in Seller's Business Records and, at the close
of business on the day immediately preceding the Closing Date, will represent
receivables which (a) arose from bona fide transactions in the ordinary course
of Seller's business, (b) represent amounts payable to Seller consistent with
past practices and policies; and (c) were, and are in the aggregate believed to
be, good and collectible in the amounts shown (less the amount of the reserves
shown in respect of such Receivables, which reserves are disclosed in the Club
Financial Statements and the Business Records, and which were, and will have
been, provided for in accordance with generally accepted accounting principles
applied on a consistent basis with prior practice) in accordance with Seller's
past practices and policies.
6.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 6.10, since the Cut-Off Date, Seller has not: (a) suffered any adverse
change in, or the occurrence of any events which, individually or in the
aggregate, has or have had, or, to the best knowledge of the General Partner
might reasonably be expected to have, a material adverse effect on, the
Transferred Assets, or Buyer's use and enjoyment thereof from and after the
Closing Date; (b) incurred damage to or destruction of any material Transferred
Asset, or material portion of the Transferred Assets, by casualty, whether or
not covered by insurance; (c) incurred any material obligation or liability
(fixed or contingent) except (i) current trade or business obligations incurred
in the ordinary course of business, none of which was entered into for
inadequate consideration, (ii) obligations and liabilities under the Membership
Agreements and Contracts to the extent required thereby, and (iii) obligations
and liabilities under this Agreement; (d) made or entered into contracts or
commitments to make any capital expenditures in excess of $10,000 in the
aggregate; (e) mortgaged, pledged or subjected to Lien any of the Transferred
Assets (except for (x) the lien of taxes not yet due and payable, and (y) such
imperfections of title and encumbrances, if any, which do no detract from the
value, or interfere with the current use, of any of the Transferred Assets or
otherwise impair the Club's business operations); (f) sold, transferred or
leased any material Transferred Asset, or material portion of the Transferred
Assets, or cancelled or compromised any debt or material claim, except in each
case in the ordinary course of business; (g) amended, modified or terminated any
of the contracts, agreements, leases or arrangements which are, or would
otherwise have been, listed in Schedule 1.1.1(f); (h) waived or released any
other rights of material value; (i) made any loan or advance to any person other
than loans or advances to employees consistent with past policy and in the
ordinary course of business and not exceeding five thousand dollars ($5,000) in
the aggregate; (j) declared or paid any dividend, distribution or other payment
to any person or entity, or
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purchased or redeemed any interest in Seller held by any person or entity; or
(k) entered into any transaction not in the ordinary course of business which
would, individually or in the aggregate, materially adversely affect the
Transferred Assets.
6.11. TITLE TO ASSETS; ABSENCE OF LIENS AND ENCUMBRANCES, ETC. Except as
set forth on Schedule 6.11, (a) Seller has good title to, and owns outright, the
Transferred Assets owned by it, which include substantially all of Seller's
assets and properties reflected in the Club Financial Statements, excluding the
Excluded Assets, free and clear of all Liens (except for (i) the lien of taxes
not yet due and payable and (ii) such imperfections or defects of title, if any,
which do not materially detract from the value, or interfere with the current
use, of any of the Transferred Assets or otherwise impair the Club's business
operations); and (b) the sale and delivery of the Transferred Assets pursuant to
the terms hereof will vest in Buyer good and marketable title thereto, free and
clear of all Liens or other defects of any nature (except as set forth in
clauses (a)(i) and (a)(ii) above). The Transferred Assets are located only in
the State of California, and none of such Assets was removed from another state.
All Real Property Leases, Personal Property Leases, Contracts and other
agreements and instruments under which Seller holds, leases or is entitled to
the use of any Real or Personal Property included in the Transferred Assets (a
correct and complete list of all such Leases, Contracts and other agreements and
instruments being set forth in Schedules 1.1.1 (a), (b) and (f), respectively),
are in full force and effect, and all rentals, royalties and other payments
accruing thereunder prior to the date hereof have been duly paid and Seller
enjoys peaceable and undisturbed possession under all such Leases, Contracts and
other agreements and instruments. With respect to Real Property and Personal
Property Leases, Schedules 1.1.1(a) and 1.1.1(b), respectively, identify the
lessor of each such item, the amount of the monthly lease payment required
thereby and the scheduled expiration date of the applicable Lease, and said
Schedules are true, accurate and complete.
6.12. PERSONAL PROPERTY. Schedule 1.1.1(d) contains a correct and
complete list, as of the date hereof, of all Personal Property owned by Seller
and included in the Transferred Assets, indicating, for each such item, where it
is located. All Personal Property utilized by Seller in connection with its
Health/Fitness Business prior to the date hereof is included in the Transferred
Assets. Except as otherwise indicated on Schedule 1.1.1(d), all Personal
Property is in reasonably good working condition and repair, is free of known
deficiencies, defects or operating problems, has been adequately maintained in
accordance with applicable operating or maintenance manuals or standard industry
practice and has been suitable to Seller for the uses for which said Personal
Property has been employed, and (b) to the best knowledge of the General
Partner, conforms in all material respects with all laws, ordinances,
regulations, orders or other similar governmental requirements relating to its
use, as the same are currently in effect. Seller possesses complete control
over, and all right, title and interest in and to, all Litigation Rights, and
Seller has not assigned or transferred any right or interest in any such
Litigation Rights to any third party, whether voluntarily or by operation of
law. Seller has previously disclosed to Buyer any and all pending matters
comprising the Litigation Rights and has made, or will after the date of this
Agreement make, available to Buyer and its counsel all relevant files and
documents with respect to each matter included within the Litigation Rights.
Provided Buyer elects to continue to prosecute any matters included in the
Litigation Rights, Seller shall cause its legal counsel to cooperate with
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Buyer's counsel in connection with Buyer's counsel's assumption of control over
the prosecution of any such matters (including the preparation and filing of all
necessary papers with the applicable courts to substitute in Buyer's counsel in
place of Seller's counsel). Seller shall continue to exercise control over the
prosecution of any matters included within the Litigation Rights which are not
assumed by Buyer hereunder.
6.13. INVENTORY. The Inventory is of a quality which makes it usable,
merchantable and/or saleable, as applicable, at regular prices in the ordinary
course of business.
6.14. MEMBERS; MEMBERSHIP AGREEMENTS.
6.14.1. FORM OF MEMBERSHIP AGREEMENT. Attached as Exhibit "F" is
the form (or forms) of Membership Agreement used by Seller to govern the
memberships of its Members ("MEMBERSHIPS").
6.14.2. INFORMATION REGARDING MEMBERSHIPS. Schedule 6.14(a) sets
forth, as of a recent date, in the aggregate, (a) monthly Club dues under all
Membership Agreements, (b) the amount of prepaid Club dues, (c) the number of
renewable Memberships and the terms thereof, and (d) those Memberships issued on
a promotional or non-fee basis (the "FACILITIES SCHEDULE"). Schedule 6.14(b)
sets forth an accurate and complete listing, as of a recent date, of (i) the
name and address of each current member of the Club, (ii) each member's monthly
Club fee and any amounts due and owing under his/her Membership Agreement as of
the date of the Facilities Schedule (indicating, in each case, the aging of any
amounts due and owing for more than thirty (30) days), (iii) the amount of the
Member's prepaid Club dues, if any, and (iv) the number of months of service
covered by each such prepayment.
6.14.3. COMPLIANCE WITH LAW. Except as otherwise set forth in
Schedule 6.14(a), the terms and provisions of each Membership Agreement comply
with the provisions of Section 1812.80 et seq. of the California Civil Code, as
amended (the "CIVIL CODE"). If and to the extent that Buyer shall be required to
give any refund to any member after the Closing as a result of the failure of
such member's Membership Agreement to comply with the provisions of Section
1812.80 et seq. of the Civil Code, then Seller shall pay to Buyer, promptly upon
demand, the amount of such refund if it relates to (a) any prepaid or deferred
payment under a Membership Agreement made prior to the Closing Date, or (b) any
initiation fee, or portion thereof, paid by such member to Seller prior to the
Closing Date. Neither the Club nor Buyer is required to notify any member of any
right to a refund as a result of the transactions contemplated by this
Agreement.
6.15. INSURANCE. There are no outstanding or unsatisfied requirements or
recommendations imposed or made by any of Seller's current insurance companies
with respect to current policies covering any of the Transferred Assets, or by
any governmental authority requiring or recommending, with respect to any of the
Transferred Assets, that any repairs or other work be done on or with respect
to, or requiring or recommending any equipment or facilities be installed on or
in connection with, any of the Transferred Assets. Seller has carried worker's
compensation
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and comprehensive general liability insurance, respectively, in such amounts and
having such policy exclusions and conditions, as Seller deemed reasonable and
consistent with standard industry practice, and all such policies of insurance
are in full force and effect as of the date hereof (and will remain in full
force and effect through the Closing Date). Schedule 6.15 sets forth a correct
and complete description of (a) all currently effective insurance policies and
fidelity and surety bonds, if any, covering the Transferred Assets, and (b) for
the five-year period ending on the date hereof, (i) all accidents, casualties or
damage occurring on or about the Club's premises or otherwise relating to the
Transferred Assets or the Health/Fitness Business or the catering business of
Seller, and (ii) claims for damages, contribution or indemnification and
settlements (including pending settlement negotiations) relating thereto. Except
as set forth on Schedule 6.15, there are no disputes with underwriters of any
such policies or bonds, and all premiums due and payable thereon have been paid.
Seller and the Transferred Assets are in compliance with all conditions
contained in such policies or bonds, except for non-compliance which,
individually or in the aggregate, would not have a material adverse effect on
the Transferred Assets.
6.16. AGREEMENTS, ARRANGEMENTS, ETC.
6.16.1. NO OTHER CONTRACTS. Except for the Partnership
Agreement, Membership Agreements and Contracts listed on Schedule 1.1.1(f), the
Real and Personal Property Leases, those agreements and contracts included
within or relating to the Excluded Assets or Retained Obligations and those
agreements and contracts which are immaterial to Seller's Health/Fitness
Business, Seller is not a party to, nor is it or any of the Transferred Assets
bound by, any lease, license, employment agreement, sales/supplier or
distribution agreement, sales representative or broker agreement, joint venture
or partnership agreement, indemnification or guarantor agreement, loan or credit
agreement, security or pledge agreement, advertising or public relations
agreement, non-competition agreement or purchase order or commitment. Correct
and complete originals of all Membership Agreements and Contracts will be
delivered to Buyer at or prior to the Closing.
6.16.2. EFFECTIVENESS OF CONTRACTS. To the best knowledge of the
General Partner, each Membership Agreement, Contract, Real Property Lease and
Personal Property Lease included in the Transferred Assets is valid, in full
force and effect and enforceable in all material respects by Seller in
accordance with its terms, except (a) to the extent that its enforceability may
be limited by applicable insolvency, bankruptcy or similar laws affecting the
enforcement of creditors' rights generally, (b) to the extent that
enforceability may be limited by California courts with respect to any
"unconscionable" provisions contained therein, and (c) that certain of the
covenants contained therein may not be specifically enforceable and courts may
award money damages rather than specific performance of contractual provisions
involving matters other than the payment of money.
6.16.3. NO DEFAULTS. Except as otherwise set forth on Schedule
6.16.3, Seller has fulfilled, or has taken all action reasonably necessary to
enable it to fulfill when due, all of its obligations under each Membership
Agreement, Contract, Real Property Lease and Personal Property Lease, except
where the failure to do so would not, individually or in the aggregate, have
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a material adverse effect on the Transferred Assets. Furthermore, there has not
occurred any default by or on the part of Seller, or any event which, with the
giving of notice or the lapse of time (or both), would constitute a default, nor
to the knowledge of Seller has there occurred any default by others or any event
which, with giving of notice or the lapse of time (or both), will become a
default under any of the Membership Agreements, Contracts, Real Property Leases
or Personal Property Leases, except defaults, if any, which have not resulted
and will not result in any material loss to or liability of Seller or any of its
successors or assigns. Seller is not in arrears in any material respect with
respect to the performance or satisfaction of the terms or conditions to be
performed or satisfied by it under any Membership Agreement, Contract, Real
Property Lease or Personal Property Lease, and, to the best of the General
Partner's knowledge, no waiver or indulgence has been granted by any of the
parties thereto.
6.16.4. CONTRACTS ASSIGNABLE. Except as otherwise set forth on
Schedule 6.16.4, each of the Membership Agreements, Contracts, Real Property
Leases and Personal Property Leases included in the Transferred Assets is
assignable by Seller to Buyer without the consent of the other party (or
parties) thereto, except for such of the Membership Agreements, Contracts and
Personal Property Leases which in the aggregate do not constitute a material
portion of the Transferred Assets. To the extent the consent of any party to a
Membership Agreement, Contract, Real Property Lease or Personal Property Lease
is required, then Seller shall provide Buyer with true and correct copies of all
such consents at the Closing.
6.17. PERMITS, LICENSES, AND PROPRIETARY RIGHTS.
6.17.1. LICENSES. Other than the Licenses and except as
disclosed in Schedule 6.17.1, there are no permits, licenses, orders or
approvals of governmental or administrative authorities or other persons
required to permit Seller to carry on the Health/Fitness Business as currently
conducted, and all Licenses are in full force and effect, may be transferred and
assigned to Buyer on the Closing Date without the consent or approval of any
other person or entity and will remain valid and in effect in connection with
Buyer's use and operation of the Transferred Assets from and after the Closing.
6.17.2. PROPRIETARY RIGHTS. Other than the Proprietary Rights,
there is no proprietary right or asset which Seller requires or upon which it
relies in operating its Health/Fitness Business. Except as set forth in Schedule
6.17.2, Seller has not (i) infringed, and is not now infringing, upon any
patent, trademark, copyright, trade name or trade secret belonging to any other
person or entity and has not and is not now engaging in any form of unfair
competition, and (ii) received any written notice of any infringement or
misappropriation of any Proprietary Right owned or used by any other person or
entity.
6.18. COMPLIANCE WITH APPLICABLE LAWS. The conduct by Seller of its
Health/Fitness Business does not violate or infringe any law, statute,
ordinance, regulation or executive order (including, without limitation, Section
1812.80 et seq. of the Civil Code, the Occupational Safety and Health Act, the
National Environmental Policy Act and the Foreign Corrupt Practices Act, as
amended, and the respective regulations thereunder) currently in effect, except
in each case for
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violations or infringements which do not and will not, individually or in the
aggregate, have a material adverse effect on the Transferred Assets or Buyer's
operation thereof from and after the Closing Date. Seller is not in default
under any governmental or administrative License issued to it or under any
governmental or administrative order or demand directed to it, or with respect
to any order, writ, injunction or decree of any court which, in any case,
materially adversely affects the Transferred Assets.
6.19. LITIGATION. Except as set forth on Schedule 6.19, there is no
claim, action, suit, grievance, arbitration, investigation, proceeding or
hearing (or notice of hearing) pending or, to the best of the General Partner's
knowledge, threatened, before any court or governmental municipal or
administrative authority or private arbitration tribunal against or relating to
or affecting Seller, the General Partner or any of the Transferred Assets,
including without limitation, proceedings for or involving tenant evictions,
collections, condemnations, eminent domain, alleged building code, zoning or
environmental violations, or personal injuries or property damage alleged to
have occurred on the Real Property or by reason of the construction of any
improvements thereon or the use and operation of the Real Property or any
present plan or study by any governmental authority, agency or employee thereof
which in any way challenges, affects or would challenge or affect the continued
authorization of the ownership, construction, use and operation of the Real
Property, or the transactions contemplated by this Agreement. Nor are any facts
known to the General Partner which he believes could reasonably give rise to any
such claim, action, suit, proceeding, arbitration, investigation or hearing and
which may have an adverse effect upon the business of the Club, the value of the
Transferred Assets or the transactions contemplated by this Agreement. Seller
has not waived any statute of limitations or other affirmative defense with
respect to any of the Assumed Obligations. There is no continuing order,
injunction or decree of any court, arbitrator or governmental or administrative
authority to which Seller or the General Partner is a party, or, to the best
knowledge of the General Partner, to which Seller or the General Partner is
subject. Neither Seller nor the General Partner, nor any current officer,
director, partner or employee of Seller or any Seller Affiliate, has been
permanently or temporarily enjoined or barred by order, judgment or decree of
any court, tribunal, agency or self-regulatory body from engaging in or
continuing any conduct or practice in connection with the Health/Fitness
Business.
6.20. REAL PROPERTY. Seller does not own any real property or possess
any interest in real property, except for the Real Property and the leaseholds
created under the Real Property Leases identified in Schedule 1.1.1(a) and the
Camarillo Property (which is part of the Excluded Assets). Said Schedule
1.1.1(a) contains an accurate and complete description of the monthly rental
rate under each such Real Property Lease, the termination date thereof, and
extension periods thereunder. Except for the members and guests, no person has
any right to occupy any part of the Club, except for those subtenants, if any,
identified in Schedule 1.1.1(a) (which, with respect to each such sublease,
identifies the monthly rental rate payable thereunder, the termination date
thereof, extension periods, if any, thereunder and the use thereunder by the
subtenant). The Club enjoys peaceful and undisturbed possession of the premises
covered by each Real Property Lease, which premises are supplied with utilities
and other services reasonably necessary for the operation thereof. Except as
otherwise disclosed in Schedule 1.1.1(a), (a) all such Real Property Leases and
subleases are legally valid and binding and are in full force and effect; (b)
there have not been and
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there currently are not any material defaults thereunder by 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 tenant (as the case
may be) or any other party to terminate any such Real Property Lease or
sublease, and (d) the real property, any improvements thereon and the uses
thereof that are the subject of such Real Property Leases or subleases conform
with all applicable ordinances, regulations and building, zoning and other
applicable laws. There has been no substantial damage to any portion of the Real
Property caused by fire or other casualty which has not been fully and
completely repaired or restored. Seller has not received written notice of any
proposed action or proceeding by any governmental agency, body or other
authority 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 proposed action or 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.
Schedule 1.1.1(a) also describes the amount of all deposits (including security
and utilities deposits) under the Real Property Leases and subleases paid by or
to Seller with respect to its Health/Fitness Business.
6.21. NO INTEREST IN COMPETITORS, ETC. Set forth on Schedule 6.21 is a
list describing the extent to which Seller, the General Partner or any Seller
Affiliate, directly or indirectly, owns more than a five percent (5%) interest
in or controls, or is an employee, officer, director or partner of or
participant in (but only to the extent such participation exceeds 5%) or
consultant to, any privately-held or -owned corporation, partnership, limited
partnership, joint venture, association or other entity which is a competitor,
supplier or customer of Seller or any Seller Affiliate, or has any type of
business or professional relationship with Seller or such Seller Affiliate
(except that the 5% ownership interest referred to in this SECTION 6.21 shall
not exceed one percent (1%) to the extent any such corporation, partnership,
limited partnership, joint venture, association or other entity is
publicly-held).
6.22. BOOKS AND RECORDS. The books of account and other financial and
corporate records of the Club (including, without limitation, the Business
Records and the Club Financial Statements) are in all material respects
complete, correct and up to date, and fairly present the corporate status,
financial condition and results of operations of Seller at the dates and for the
periods for which such information was given (and such Business Records were
maintained).
6.23. EMPLOYEE BENEFIT PLANS, ETC.
6.23.1. ERISA
(a) As used herein:
(i) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
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(ii) "ERISA AFFILIATE" means any person that for
purposes of Title IV of ERISA is a member of Seller's controlled group,
or under common control with Seller, within the meaning of Section 414
of the Internal Revenue Code of 1986, as amended.
(b) Neither Seller, nor any ERISA Affiliate of Seller, has at
any time adopted, maintained, contributed to, or agreed to contribute to any
single-employer or multi-employer pension plan which is a "defined benefit plan"
as defined in Section 3(35) of ERISA.
(c) Seller does not have any "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA which is now in effect, except for
any such Plan listed on Schedule 6.23.2.
6.23.2. OTHER SELLER PLANS.
(a) All "employee welfare benefit plans" (within the meaning of
Section 3(1) of ERISA) maintained by any Partnership (or to which any
Partnership contributes) are described in Schedule 6.23.2 ("PLANS"). Seller has
no other employee welfare benefit plans.
(b) Seller has no obligations with respect to any health,
accident, medical or severance pay arrangements owing to retired or terminated
employees.
(c) Seller has received a determination letter from the Internal
Revenue Service which provides that Seller's 401(k) Plan is qualified under the
terms of Sections 401(a) and 401(k) of the Code, and neither Seller nor the
General Partner is aware of any condition or circumstance which may adversely
affect such qualification. Seller's 401(k) Plan is in compliance with the actual
deferral percentage ("ADP") and, if applicable, the average contribution
percentage ("ACP") requirements of Sections 401(k) and 401(m) of the Code,
respectively. Seller has contributed to such 401(k) Plan the amount of all
salary deferrals regarding compensation payable to participating employees prior
to the date of this Agreement, and, as of the Closing Date, Seller shall have
contributed all such amounts and shall have made all required employer matching
contributions through said Date. Prior to the date hereof, there have been no
uncorrected "prohibited transactions" within the meaning of Sections 406 through
408 of ERISA or Section 4975 of the Code.
6.23.3. LIST OF EMPLOYEES. Schedule 6.23.3 includes a correct
and complete list of the names of all employees of Seller (which distinguishes
between full-time and part-time employees) and the aggregate compensation
(including bonuses, executive incentive compensation and commissions, if any)
paid to or accrued for the benefit of such employees during calendar year 1996
and through the date hereof, to the extent such employees were still employed by
Seller as of such date; said Schedule 6.23.3 also identifies those of such
employees (identified by an asterisk (*)) to whom Buyer intends to offer
employment on and after the Closing Date.
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6.24. LABOR MATTERS. Seller is in material compliance with all Federal
and state laws regarding employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice. There is no unfair labor practice complaint against Seller
pending or threatened before the National Labor Relations Board ("NLRB") or any
state or local agency, and there is no labor strike, dispute, work stoppage or
slowdown, lockout, grievance, controversy or other labor problem pending or, to
the best of Seller's and the General Partner's knowledge, threatened against or
affecting Seller, nor to the best of the General Partner's knowledge does any
basis therefor exist. Seller is not a party to, nor bound by, any union,
collective bargaining or other labor agreement covering all or any portion of
its employees, nor has any group or organization of Seller's employees made any
demand for recognition or certification upon either Seller, the NLRB or any
state or local agency; and no representation proceedings are pending or
threatened against Seller before the NLRB or any such other state or local
agency. There has been no "mass layoff" or "plant closing" within the meaning of
the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section 2101 et
seq.,involving Seller within the two (2)-year period prior to the date hereof,
nor will any "plant closing" or "mass layoff" occur as a result of Seller's
termination of its employees pursuant to SECTION 4.2.2 hereof.
6.25. SUFFICIENCY OF ASSETS. The Transferred Assets, taken in the
aggregate, are sufficient, and constitute all of the property (other than the
Excluded Assets) and rights necessary, for the continuation of the
Health/Fitness Business from and after the Closing Date on a basis consistent
with its operations as exist on and as of the date hereof.
6.26. ENVIRONMENTAL MATTERS. For all periods prior to the Closing Date,
Seller's operations have been conducted in compliance with all "Environmental
Laws" (as hereinafter defined), including, without limitation, those regulating
the use, handling, storage, disposal, emission and transportation of "Hazardous
Materials" (as hereinafter defined). Seller has not received, within five years
prior to the Closing Date, any notice from any Federal, state or local
governmental agency or body ("GOVERNMENTAL ENTITY") that Seller or the Real
Property on which the Club operates is or was in violation of any Environmental
Law or is being investigated as a result of an alleged or potential violation of
any Environmental Law. Seller does not currently own, lease or operate any real
property (including the Real Property) at which Hazardous Materials are present
in violation of any Environmental Law or in quantities or at levels that require
investigation, removal or remediation under any Environmental Law, nor, to the
best knowledge of the General Partner, are Hazardous Materials present in
quantities or at levels that require investigation, removal or remediation under
any Environmental Law at any real property formerly owned, leased or operated by
Seller. There are no Liens as the result of the operation of any Environmental
Laws held by any Governmental Entity or other person with respect to any real
property currently owned, leased or operated by Seller (including the Real
Property). There are no underground storage tanks or aboveground storage tanks
containing Hazardous Materials at or under any real property currently owned,
leased or operated by Seller (including the Real Property), and Seller's use,
handling, storage, disposal, emission and transportation of Hazardous Materials,
if applicable, is in compliance with all Environmental Laws. As used herein,
"ENVIRONMENTAL LAWS" shall mean all statutes, regulations, rules, ordinances,
codes, licenses, permits, orders, approvals, plans, authorizations, concessions,
franchises and similar items of all
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Governmental Entities and all applicable judicial, administrative and
regulatory decrees, judgments and orders relating to Hazardous Materials or the
protection of the environment or human health and safety in effect as of the
Closing Date, including, without limitation: (i) all requirements, including,
without limitation, those pertaining to notification, warning, reporting,
licensing, permitting, investigation, removal and remediation of Hazardous
Materials; and (ii) the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Clean Air Act (42
U.S.C. Section 7401 et seq.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.), the Porter-Cologne Water Quality Control Act (California
Water Code Section 13000 et seq.), the California Hazardous Waste Control Law
(Division 20, Chapter 6.5 of the California Health and Safety Code, Section 2100
et seq.), the Safe Drinking Water and Toxic Enforcement Act of 1986 (Division
20, Chapter 6.6 of the California Health and Safety Code, Section 25249.5 et
seq.), the Carpenter-Presley-Tanner Hazardous Substance Account Act (California
Health & Safety Codes Section 25300 et seq.), the Hazardous Materials Release
Response Plans and Inventory (Division 20, Chapter 6.95 of the California Health
and Safety Code, Section 25500 et seq.), and all similar Federal, state, local
and municipal laws in effect as of the Closing Date. As used herein, "HAZARDOUS
MATERIALS" shall mean (A) any and all asbestos, gasoline, diesel fuel,
petroleum, petroleum hydrocarbons, petroleum by-products, polychlorinated
biphenyls, trichlorethylene, ureaformaldehyde and radon gas; (B) any substance
the presence of which requires removal or remediation under any Environmental
Law; (C) any substance which is toxic, infectious, radioactive, carcinogenic or
mutagenic; (D) any materials, waste, chemicals and substances defined, listed,
characterized or referred to as "hazardous substances", "hazardous waste",
"infectious waste", "medical waste", "extremely hazardous waste", "hazardous
materials", "toxic chemicals", "toxic substances", "toxic waste", "toxic
materials", "contaminants", "pollutants", "carcinogens", "reproductive
toxicants" or any variant or similar designations; and (E) any other substance
which is regulated under any Environmental Laws, provided such substance is
present in the action levels, concentrations or quantity thresholds specified
herein.
6.27. SECURITIES LAW MATTERS.
6.27.1. INVESTMENT REPRESENTATION. Subject to the terms of
Section 11.6 hereof, Seller will be acquiring that portion of the Acquisition
Shares distributable to it at the Closing for its own account for investment
only and not with a view to, or for resale in connection with, any
"distribution" thereof for purposes of the Securities Act. Seller acknowledges
that no advertising, general solicitation or other means were used by SCC with
respect to the offer of the Acquisition Shares, and that the Acquisition Shares
have not been registered under the Securities Act or any state securities laws
and can be transferred only if so registered or unless an exemption from such
registration is available. Seller acknowledges that the Acquisition Shares shall
be "restricted securities" within the meaning of Rule 144 ("RULE 144") of the
SEC, will contain a transfer restriction legend and may only be resold pursuant
to an effective registration statement filed with the SEC under the Securities
Act, pursuant to Rule 144 or pursuant to another valid exemption from the
registration requirements of the Securities Act as confirmed by an opinion of
counsel reasonably acceptable to Buyer.
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6.27.2. ACCESS TO INFORMATION. Buyer has not refused to provide
Seller or the General Partner with any information which they may have
requested. Seller is familiar with, and its representatives (including the
General Partner) have been given full access by Buyer to, all information
concerning the business and financial condition, properties, operations and
prospects of Buyer that Seller has deemed relevant for purposes of making the
investment decision to acquire the Acquisition Shares contemplated by this
Agreement. In this regard, Seller acknowledges having received copies of SCC's
Annual Report on Form 10-K for the year ended December 31, 1996, and Quarterly
Reports on Form 10-Q for each of the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997, respectively, and Current Reports on Form 8-K dated
May 22, 1997 and November 4, 1997, and December 12, 1997, respectively
(collectively, the "SEC FILINGS"). By reason of the knowledge and experience of
the General Partner in financial and business matters in general, and in the
business of Buyer and investments of the type contemplated by this Agreement in
particular, Seller and the General Partner are capable of evaluating the merits
and risks of making the investment in the Acquisition Shares and are able to
bear the economic risk of the investment (including a complete loss of such
investment).
6.28. PAST DUE OBLIGATIONS. Except as otherwise set forth on Schedule
6.28, no Closing Date Liabilities or Assumed Obligations have given rise, or
shall give rise within five days after the Closing Date (except to the extent
such Closing Date Liabilities will have been paid or satisfied by Seller prior
to the Closing so as to relieve Buyer of all liability therefor), to any
additional liability to Buyer on account of their being past due.
6.29. EFFECT OF TRANSACTION. Seller is not, and will not become as a
result of the completion of the transaction contemplated by this Agreement,
"insolvent", as that term is defined in Section 3439.02 of the Civil Code;
Seller is not entering into the purchase transaction with Buyer with the intent
to hinder, delay or defraud any of its creditors; and upon completion of the
purchase transaction on the Closing Date, (a) the value of that portion of the
Acquisition Shares to be owned by it and the Excluded Assets will not be
unreasonably small in relation to Seller's remaining business operations, and
(b) Seller will not incur any debts which it will not be able to pay as they
become due.
6.30. SALES TAX, TAX DEPOSITS, ETC. Seller is required by applicable
Federal, state or local law to hold a resale permit, given the nature of its
past and current business operations, and such resale permit is in full force
and effect as of the date hereof. All Federal, state and local partnership tax
returns, and all taxes, interests, penalties and other amounts due and owing
thereunder, have been timely filed and paid, as the case may be, for all periods
up to and including the Closing Date; and all withholding, payroll and other
taxes which are required by applicable law to have been paid or deposited with a
financial institution have been so paid and deposited, as applicable, for all
periods up to and including the Closing Date. Seller has no liability for any
taxes, or any interest or penalties in respect thereof, of any nature that may
be assessed against Buyer or become a Lien against any of the Transferred
Assets.
6.31. OTHER INFORMATION. None of the information furnished by Seller or
any of its
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representatives to Buyer or any of its representatives in connection with the
transactions contemplated hereby, which is contained in this Agreement
(including the Schedules and Exhibits) or any Ancillary Document or any
certificate or instrument delivered or to be delivered by or on behalf of Seller
in connection with the transactions contemplated hereby, contains any untrue
statement of a fact or omits a material fact necessary to make the information
contained herein or therein, under the circumstances in which such statements
were made (or omitted), not materially misleading. Further, neither the General
Partner nor any other employee of Seller knows of any current fact, state of
affairs or circumstance relating to the Health/Fitness Business which might
result in a material adverse change in the condition (financial or otherwise),
properties, assets, liabilities, business or results of operations of the Club
other than such as are fairly and fully disclosed in the Club Financial
Statements.
6.32. KNOWLEDGE OF THE SELLER. As to each representation and warranty
made by Seller under this Section 6, any fact or information known to the
General Partner or to Neal Swerdlow ("SWERDLOW"), or notice received by the
General Partner or Swerdlow, shall be imputed to Seller as if such fact or
information were known to Seller or such notice had been received by Seller.
Additionally, any information known to either Huse or Heuler shall be deemed
known by the "General Partner" for purposes of this Agreement.
6.33. TITLE; RIGHTS. Seller is the sole owner of the Real Property, free
and clear of any Liens, except for the Permitted Exceptions. Seller has not
committed or obligated itself in any manner whatsoever to sell, lease or
encumber the Real Property or any interest therein to any party, other than
under the Real Property Leases identified on Schedule 1.1.1(a). No rights of
first refusal regarding the Real Property exist under the organizational
documents of Seller or under any agreement by which Seller may be bound or
affected.
6.34. GOVERNMENTAL APPROVALS; NOTICES. Except as set forth on Schedule
6.34, the improvements on the Real Property and Seller's use of the Real
Property fully comply in all material respects with all zoning, building,
health, traffic, environmental, flood control, fire safety, handicap and other
applicable laws, regulations, ordinances and rulings of all local, state and
federal authorities and any other governmental entity having jurisdiction over
the Real Property. Except as set forth in such Schedule 6.34, all requisite
certificates of occupancy, licenses, permits, authorizations and other approvals
have been duly obtained and are in full force and effect. To Seller's actual
knowledge, there are no petitions, actions, hearings, planned or contemplated,
relating to or affecting the zoning or use of the Real Property or any
contiguous property. Seller has received no notice, written or otherwise, of any
pending, threatened or proposed governmental action with respect to any public
or utility improvements, improvement moratorium, assessments for public
improvements, nor has Seller received any such notice with respect to any other
actions which might have a material adverse effect upon the Real Property or
Buyer's ability to utilize same after the Closing in the manner Seller is
currently utilizing the Real Property. Seller is not aware of and has not
received any written or other notices from any insurance companies, governmental
agencies or from any other parties of any conditions, defects or inadequacies
with respect to the Real Property (including health hazards or dangers, nuisance
or waste, which, if not corrected, would result in termination of insurance
coverage or increase its costs) or from governmental
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agencies or any other parties with respect to any violations of building codes
and/or zoning ordinances or other governmental laws, regulations or orders with
respect to the Real Property, pending or threatened condemnation proceedings
with respect to the Real Property, or any proceedings which could or would cause
the change, redefinition or other modification of the zoning classification, or
of any building or environmental code requirements applicable to the Real
Property or any part thereof, or any property adjacent to the Real Property.
Seller shall immediately notify Buyer of any violations or conditions of which
Seller receives notice (whether written or oral).
6.35. MAINTENANCE. The Real Property, including all systems and
components contained in the improvements forming a part thereof, have been, and
will be through the Closing Date, maintained by Seller in substantially the same
condition as they exist on the date hereof, normal wear and tear excepted.
6.36. NON-ENCROACHMENT. To the best of Seller's knowledge, Seller's
operation of the Real Property and any improvements thereon do not violate, and
the Real Property (including said improvements) do not encroach upon or
otherwise violate, the rights of any adjacent properties or any third parties.
In addition, no improvement on any adjacent property or belonging to any third
party, and no action by any third party, encroaches upon Seller's exclusive
rights to use and occupy the Real Property and improvements.
6.37. NO ADVERSE CONDITION. To Seller's knowledge, the Real Property is
not subject to any material adverse geologic problem or soil condition and, over
the past five years, the Real Property has not experienced any material damage
from earthquakes, floods, earth subsidence or other similar occurrence of any
nature which has not been substantially restored, repaired or corrected. Since
the Cut-Off Date, there has been no material adverse event or changes affecting
the Real Property, or any part or portion thereof.
6.38. CONTRACTS. Except as set forth on Schedule 6.38, as of the
Closing, Buyer will have no obligations whatsoever under any management,
service, sales, marketing, leasing or other agency agreements, supply or
maintenance contracts, licenses or permits, equipment or other leases, franchise
arrangements, brokerage contracts, representations, warranties and guaranties of
architects, contractors and suppliers and others and similar agreements
affecting the Real Property, or any portion thereof.
6.39. COLLECTIVE BARGAINING AGREEMENTS AND BENEFIT PLANS. No collective
bargaining agreements between Seller and any labor organization apply to the
operation and/or management of the Real Property.
6.40. BANKRUPTCY, ETC. No bankruptcy, insolvency, rearrangement or
similar action involving the Real Property, whether voluntary or involuntary, is
pending or threatened, and Seller has never:
6.40.1. filed a voluntary petition in bankruptcy;
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6.40.2. been adjudicated a bankrupt or insolvent or filed a
petition or action seeking any reorganization, arrangement, recapitalization,
readjustment, liquidation, dissolution or similar relief under any Federal
bankruptcy act or any other laws;
6.40.3. sought or acquiesced in the appointment of any trustee,
receiver or liquidator of all or any substantial part of its or his properties,
the Real Property, personal property or any portion thereof, or
6.40.4. made an assignment for the benefit of creditors or
admitted in writing its or his inability to pay its or his debts generally as
the same become due.
Seller is not anticipating or contemplating any of the actions
set forth in Sections 6.40.1 through 6.40.4, inclusive, hereof.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to and agrees with Seller as
follows:
7.1. ORGANIZATION, ETC. SCC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby, and to own or lease and operate its properties and to carry on its
business as it is presently being conducted.
7.2. AUTHORIZATION OF AGREEMENT. The execution, delivery and
performance of this Agreement and the Ancillary Documents by Buyer, and the
consummation of the transactions contemplated hereby and thereby, will have been
duly and validly authorized by SCC's Board of Directors on and as of the Closing
Date. On the Closing Date, this Agreement (a) will have been, and the Ancillary
Documents will be, duly and validly authorized, executed and delivered by Buyer,
and (b) constitutes a valid and binding obligation of Buyer, enforceable against
it in accordance with its terms, except (i) that such enforcement may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally, (ii) to the extent that enforceability may be
limited by California courts with respect to any "unconscionable" provisions
contained therein, and (iii) that certain of the covenants contained herein may
not be specifically enforceable and courts may award money damages rather than
specific performance of contractual provisions involving matters other than the
payment of money.
7.3. EFFECT OF AGREEMENT, ETC. The execution, delivery and
performance of this Agreement by Buyer and consummation by Buyer of the
transactions contemplated hereby, will not, with or without the giving of notice
or the lapse of time, or both, (a) violate any provision of law, statute, rule,
regulation or executive order to which Buyer is subject; (b) violate any
judgment, order, writ or decree of any court applicable to Buyer; or (c) result
in the breach of or conflict with any term, covenant, condition or provision of
Buyer's charter documents, as amended, or any
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commitment, contract or other agreement or instrument to which Buyer is a party
or by which any of its properties or assets may be bound.
7.4. ISSUANCE OF SHARES. The issuance of the Acquisition Shares to
Seller and to the Fullerton and Santa Ana Clubs has been duly authorized and if,
as and when delivered to Seller, the Acquisition Shares will be duly and validly
issued, fully paid and non-assessable and will be free of any Lien (except as
otherwise expressly provided in SECTION 11.6 hereof). Buyer shall take all
action necessary to list the Acquisition Shares on the AMEX as soon after the
Closing Date as is reasonably practicable.
7.5. LITIGATION. There are no actions, suits, proceedings or
governmental investigations or inquiries pending or, to the best knowledge of
Buyer, threatened against Buyer, which, in the reasonable judgment of Buyer,
would prevent the consummation of the transactions contemplated hereby.
7.6. NOTICES AND CONSENTS, ETC. No notice to, consent, authorization or
approval of, or exemption by, any other person (including, without limitation,
any Governmental Entity), other than notice, consents or approvals which Buyer
shall have obtained as of the Closing Date, is required in connection with the
execution, delivery and performance by Buyer of this Agreement or any of the
instruments or agreements herein referred to (including any Ancillary
Documents), or the taking of any action by Buyer herein contemplated.
7.7. FINANCIAL STATEMENTS. All financial statements which SCC has
delivered to Seller pursuant to SECTION 6.27.2 hereof (collectively, the "BUYER
FINANCIAL STATEMENTS") are true, accurate and complete in all material respects,
and the dollar amount of each line item included in the Buyer Financial
Statements is accurate in all material respects. The Buyer Financial Statements
have been prepared from the books and records of SCC, which are maintained on an
accrual basis in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered, and present fairly
the financial position of SCC as of the respective dates thereof and the results
of operations for the periods covered thereby. SCC is not subject to any debts,
liabilities or obligations of any nature, whether absolute, contingent or
otherwise, not fully and properly reflected or reserved against in the Buyer
Financial Statements, except for debts, liabilities and obligations incurred by
SCC in the ordinary course of business since the date of the most recent
financial statements included in the Buyer Financial Statements.
7.8. ACCESS TO INFORMATION. Seller has not refused to provide Buyer with
any information Buyer has requested. Buyer is familiar with, and its
representatives have been given full access to, all information concerning the
business and financial condition, properties, operations and prospects of Seller
that Buyer has deemed relevant for purposes of proceeding with the transactions
contemplated by this Agreement. Anything herein to the contrary notwithstanding,
the acknowledgements of Buyer reflected in this Section 7.8 shall not restrict
or in any way limit Buyer's rights and remedies in the event any of the
representations or warranties of Seller or the General Partner contained in this
Agreement are incorrect or inaccurate in any material respect.
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7.9. OTHER INFORMATION. The information furnished by SCC or any of its
representatives to Seller or any of its representatives in connection with the
transactions contemplated hereby, which is contained in this Agreement
(including any Exhibits) or any Ancillary Document or SEC Filings or any
certificate, instrument delivered or to be delivered by or on behalf of Buyer in
connection with the transactions contemplated hereby, does not contain any
untrue statement of a fact or omit to state a material fact necessary to make
the information contained herein or therein, taken as a whole, not materially
misleading under the circumstances in which such statements have been made (or
omitted). Further, SCC knows of no current fact, state of affairs or
circumstance relating to its operations which might result in a material adverse
change in the condition (financial or otherwise), properties, assets,
liabilities, business or results of operations of Buyer other than such as are
fairly and fully disclosed in the Buyer Financial Statements or SEC Filings,
taken as a whole.
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SECTION 8. COVENANTS
8.1. PRE-CLOSING COVENANTS. From and after the date hereof up to (and
including) the Closing Date, Seller shall (a) conduct its Health/Fitness
Business only in the ordinary course of business, consistent with past
practices; (b) not sell, transfer or convey, or grant any Lien on or with
respect to, any Transferred Assets; (c) not purchase or acquire, or make any
commitment to purchase or acquire, any assets or properties which would
constitute Transferred Assets without the prior consent of Buyer; (d) not make
any changes in its Membership billing practices or rates or afford any existing
or prospective member any discounts, deferrals or other concessions under any
Membership Agreement or otherwise; (e) not make any capital expenditures without
Buyer's prior approval; (f) not take any action, or fail or refuse to take any
action, which would increase any of the liabilities or obligations included in
the Assumed Obligations other than in the ordinary course of business; and (g)
not take, permit to be taken or refrain from taking, any action or decision
which would cause any of Seller's representations and warranties set forth in
SECTION 6 (including, without limitation, SECTION 6.10) to be untrue or
inaccurate on and as of the Closing Date (as if made on and as of such Date).
8.2. NO OTHER NEGOTIATIONS. From and after the date hereof up through
the earlier of (a) the Closing Date, or (b) the date that Seller and Buyer shall
agree in writing to terminate all negotiations with respect to the transactions
contemplated by this Agreement, and provided Buyer shall not be in breach of any
material term or provision hereof, neither Seller, the General Partner nor any
Seller Affiliate shall, directly or indirectly, solicit, initiate or otherwise
engage in any negotiations or discussions with, or provide any information to,
any other person or entity concerning the purchase of all or substantially all
the properties and assets of Seller, regardless of the form or structure of any
such transaction.
8.3. ACCESS. From the date hereof through the Closing Date, Seller
shall afford 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
Seller and the General Partner (including, without limitation, all Business
Records, Club Financial Statements, Membership Agreements and Contracts) to the
extent relevant to the Transferred Assets or the operation of Seller's
Health/Fitness Business, and during this period, Seller shall furnish Buyer with
all financial, operating and other information and data as to the Transferred
Assets as Buyer may reasonably request. At Buyer's request, Seller shall direct
its representatives and employees to cooperate with Buyer and its
representatives pursuant to this SECTION 8.3 at no additional cost to Buyer. In
undertaking its due diligence hereunder, Buyer shall not disturb, to the extent
reasonably possible, the operations of Seller and will communicate with only
those employees of Seller whom Seller shall have identified for such purpose.
The exercise by Buyer of any of the preceding rights, or any other act of Buyer,
shall not negate, modify or otherwise affect any representation, warranty or
covenant of Seller or the General Partner or modify any of Buyer's rights or
Seller's or the General Partner's obligations in the event of any breach of any
of such representations, warranties or covenants under this Agreement.
8.4. PRESERVATION OF BUSINESS AND RELATIONSHIPS. From the date hereof
until the
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Closing, Seller shall use its best efforts to preserve its business and
organization intact, including, without limitation, to preserve the Club's
present relationships with suppliers, customers, members, patrons and others
having business relationships with it. Seller shall promptly arrange for utility
and telephone service to be transferred to Buyer at Closing. Each of the parties
hereto will use their best efforts to consummate the transactions 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.
8.5. CONFIDENTIALITY. Neither Buyer nor Seller, nor any of their
respective officers, directors, partners, employees or other representatives,
shall directly or indirectly disclose to any other person or entity (including,
without limitation, any members, patrons or partners of any Club) the fact that
Buyer and Seller have entered into this Agreement, the identity of Buyer as the
potential acquiring party and/or any of the terms or provisions of this
Agreement, except (a) to such party's financing sources, professional advisors
and employees who are involved in the negotiation of the transactions
contemplated by this Agreement; (b) to the extent necessary to obtain the
consent of the requisite number of limited partners in Seller to authorize
Seller's entering into this Agreement; and (c) to the extent disclosed in
Buyer's press releases or other public announcements or required by law or
judicial process. To the extent Seller discloses any such information to any of
its employees or partners as permitted by this SECTION 8.5, Seller will take all
reasonable precautions necessary to insure the continued confidentiality of such
information (including, with respect to disclosures to its employees, requiring
that they execute confidentiality letters in form and substance reasonably
acceptable to Buyer and its legal counsel).
8.6. PUBLICITY. Both Buyer and Seller acknowledge that SCC is a
publicly-held corporation whose securities are listed on AMEX and is therefore
subject to various rules and regulations of both the SEC and AMEX regarding the
timing and content of public disclosures regarding its business operations.
While SCC will provide Seller with copies of all proposed press releases or
other public disclosures concerning its proposed purchase of the Transferred
Assets and will consider in good faith any suggested changes or revisions
thereto communicated in writing by Seller, SCC shall have the right to finalize
and disseminate all such press releases or other public disclosures which SCC's
counsel deems necessary to comply with any such applicable rules and
regulations. Prior to the Closing, Seller shall not issue any press release or
otherwise make any public announcement or disclosure regarding SCC's proposed
purchase of the Transferred Assets without the prior written consent of SCC,
which consent may not be unreasonably withheld or delayed.
8.7. RIGHT OF FIRST REFUSAL. If Buyer's purchase of the Transferred
Assets is not consummated for any reason other than Buyer's breach, then, for
the one (1)-year period following the date on which Buyer or Seller abandons the
transactions contemplated hereby (as confirmed in writing by Buyer or Seller, as
applicable), Buyer shall have a right of first refusal with respect to any bona
fide offer to purchase the Health/Fitness Business and/or related assets of
Seller (regardless of the form of transaction) (the "OFFER"). Following Seller's
receipt of an Offer (but in no event more than five (5) business days after
receipt), Seller will forward a copy thereof to Buyer, and, for a period of
thirty (30) days thereafter (the "OPTION PERIOD"), Buyer will have the
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right, but not the obligation, to elect to purchase Seller's business and/or
assets at the price and terms set forth in the Offer. If any of the
consideration payable by the offeror consists of non-cash property, Buyer shall
have the right to pay the fair market value of such non-cash property in cash or
securities. If Buyer and Seller are unable to agree on the fair market value of
such consideration within five (5) days following Buyer's receipt of the Offer,
then the parties shall submit their respective valuations of such consideration
to a mutually-acceptable investment banking firm to calculate such fair market
value, and the decision of such firm shall be conclusive and binding. If the
investment banking firm is unable to complete its fair market value calculations
within ten (10) days following the commencement of its engagement, then the
Option Period shall be extended for a reasonable period of time thereafter (but
in no event more than that number of days which shall equal the number of days
it shall have taken the investment banking firm to complete its calculations).
The fees and expenses of the investment banking firm engaged pursuant to this
SECTION 8.7 shall be borne equally by Seller and Buyer. The consummation of
Buyer's purchase of Seller's Health/Fitness Business and/or related assets in
accordance with this SECTION 8.7 shall occur, if at all, within the later of
forty-five (45) days following expiration of the Option Period or the closing
date set forth in the Offer (the "PURCHASE PERIOD"). If Buyer fails or otherwise
elects not to exercise such right within the Option Period, Seller may
consummate the sale transaction with the offeror on the terms and conditions set
forth in the Offer. If any of such terms or conditions change in a manner more
favorable to the offeror, or if the transaction is not consummated with such
offeror within the Purchase Period, then Buyer's right of first refusal shall
once again be effective with respect to any such modified terms/conditions or to
that (or any subsequent) Offer, as applicable. Further, if the Offer only
contemplates the purchase of a portion of Seller's Health/Fitness Business or
other related assets, then Buyer's rights under this SECTION 8.7 shall continue
in effect (during such one-year period) with respect to any and all subsequent
offers for the balance of Seller's assets and properties comprising Seller's
Health/Fitness Business.
8.8. APPROVAL OF LIMITED PARTNERS. Seller represents and warrants that
it has obtained the approval of the requisite number of limited partners to the
transactions contemplated by this Agreement, as prescribed by applicable
provisions of the Partnership Agreement.
8.9. PERMITS. By no later than the Closing, Seller shall furnish to
Buyer all building permits, certificates of occupancy and other governmental
approvals confirming that each of the improvements with respect to the Real
Property has been completed in compliance with, and that the Real Property is
being operated in compliance with, all applicable laws and regulations. At such
time, Seller shall also provide Buyer with all surveys and geological,
environmental and soil and engineering studies and reports prepared within five
years prior to the date hereof with respect to the Real Property, together with
a complete set of "as-built" plans with respect to the improvements located on
or affixed to the Real Property.
8.10. DOCUMENTS. At the Closing, Seller shall deliver all books and
records and other documents relating to the ownership and operation of the Real
Property, as well as all keys with respect to the Club.
8.11. SURVEY. Prior to the Closing, Buyer shall obtain and cause to be
furnished to the
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Title Company in connection with the Title Company's issuance of the Title
Insurance pursuant to SECTION 4.1 and SECTION 5.2.2 surveys for the Real
Property prepared by registered public surveyors. Such surveys shall be
certified as in accordance with the minimum standard detail requirements of
ALTA/ASCM land title surveys and shall be reasonably acceptable to of the Title
Company.
8.12. PRELIMINARY TITLE REPORT. Prior to the execution of this
Agreement, Seller has caused to be furnished to Buyer, at Buyer's expense, a
Preliminary Title Report (the "PTR") dated as of December 3, 1997, from Chicago
Title Company with respect to the Real Property, together with copies of all
documents pertaining to all exceptions, including, but not limited to,
covenants, conditions, restrictions, reservations, easements, rights-of-way of
record, liens and other matters of record. Buyer hereby approves the exceptions
identified therein.
8.13. LIENS. Seller agrees to keep the Real Property free from any Liens
through the date of Closing, other than Permitted Exceptions and to indemnify
and save Buyer harmless from any such Liens and all attorneys' fees and other
costs and expenses incurred by reason any Liens, other than Permitted
Exceptions, which relate back to Seller's ownership or operation of the Real
Property.
8.14. POST-CLOSING COVENANTS. Notwithstanding the consummation of the
transactions contemplated by this Agreement on the Closing Date, Buyer and
Seller shall observe, satisfy and perform the following duties and obligations:
8.14.1. SELLER'S FURTHER ASSURANCES. After the Closing
hereunder, Seller shall, at the request of Buyer, execute, acknowledge and
deliver to Buyer, without further consideration, all such further assignments,
conveyances, endorsements, deeds, powers of attorney, consents, instruments and
other documents (together with the instruments referred to in SECTION 1.2,
collectively, the "ANCILLARY DOCUMENTS") and take such other action as Buyer may
reasonably request (a) to transfer to and vest in Buyer, and protect Buyer's
right, title and interest in and to, all of the Transferred Assets and (b)
otherwise to consummate the transactions contemplated by this Agreement.
8.14.2. NON-COMPETITION.
(a) Each of Seller, the General Partner and each of
the individuals listed in SCHEDULE 8.14.2 (individually, an "OBLIGOR") agrees
for itself and for each Seller Affiliate that, for a period of three (3) years
from and after the Closing Date, neither it nor any of its agents or
representatives shall, directly or indirectly, and whether as a principal, agent
or otherwise, or alone or in association with any other person (including any
other Seller Affiliate) (a "COMPETING ENTITY"), carry on, be engaged or take
part in, consult or advise, or own, share in the earnings of, or invest in the
stock, bonds or other securities of, any entity (other than Buyer) which is
engaged in the business of owning or operating a health/fitness facility or
business within a twenty (20)-mile radius of the Club or any Other Club (a
"COMPETING ACTIVITY").
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(b) If a court of competent jurisdiction deems the
length or geographic scope of the separate non-competition covenants described
in this SECTION 8.14.2(A) to be unreasonably long or broad, as the case may be,
such that either (or both) such covenants is therefore deemed wholly or
partially unenforceable, the parties intend that the affected non-competition
covenant be modified by the court to reflect the maximum time period and the
broadest geographic scope that such court deems permissible under the
circumstances, and that such modified non-competition covenant be enforced to
the fullest extent permitted by said court. In such event, this Agreement shall
be deemed amended to accommodate the court's modification of said
non-competition covenant in accordance with this SECTION 8.14.2(B).
(c) Notwithstanding the foregoing, no Obligor shall be
deemed to be in violation of the terms of this SECTION 8.14.2 by reason of such
Obligor's investing in stocks, bonds or other securities of any Competing Entity
engaged in a Competing Activity (but without otherwise participating in such
business), if (i) such stock, bonds or other securities are listed on any
national or regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such
investment does not exceed, in the case of any class of the capital stock of any
one issuer, one percent (1%) of the issued and outstanding shares, or, in the
case of bonds or other securities, five percent (5%) of the aggregate principal
amount thereof issued and outstanding.
(d) Notwithstanding the provisions of SECTION 12.16
hereof, Seller acknowledges that the allocation of that portion of the Purchase
Price reflected in Schedule 12.16 to the non-competition covenant contained in
this SECTION 8.14.2 is not intended by any party to define or limit any claims
for damages that Buyer may have in the event of the breach of this SECTION
8.14.2 by any Obligor, or Buyer's need for or right to equitable remedies to
enforce the terms of this SECTION 8.14.2.
(e) The parties hereto acknowledge that the breach, or
threatened breach, by any Obligor of any of the terms of this SECTION 8.14.2
would cause Buyer irreparable harm and injury that could not be compensated by
an award of monetary damages. Accordingly, in the event of any breach or
threatened breach, Buyer shall be entitled to equitable relief (including,
without limitation, specific performance, temporary restraining orders and
preliminary or permanent injunction) in addition to all other rights and
remedies provided hereunder.
8.14.3. EMPLOYEE BENEFIT PLANS
(a) Following the Closing, Seller shall retain as
Retained Obligations, and be solely obligated to satisfy and discharge in a
prompt and timely fashion, all obligations and liabilities (including, without
limitation, (i) all liabilities for all contributions required to have been made
to all plans as described in SECTION 6.23.2(C), and for all claims incurred,
whether or not reported, on or before the Closing Date under all Plans, and (ii)
all liabilities or obligations for unpaid compensation, disability, retirement,
severance insurance including under COBRA or medical or life benefits) to
employees or former employees of Seller which shall exist or have accrued as of
the Closing Date.
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(b) Seller shall indemnify, hold harmless and defend
Buyer and its shareholders, officers, directors, members, employees and
representatives, and their respective successors and assigns, from and against
any and all claims, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees and disbursements of counsel) incurred by
Buyer or such persons, arising from or in connection with any liabilities or
obligations of Seller under SECTION 8.14.3(A).
8.14.4. BOOKS, RECORDS, ETC. For a period of five (5) years from
and after the Closing Date, Buyer and Seller each shall retain, and shall, at
the request of the other or the other's representatives, make available to the
other, all of the original books and records of the Seller existing on the
Closing Date, possession of which such party is entitled to under this
Agreement, at a location in the Southern California area specified in a written
notice to the other delivered within 10 days after the Closing Date (or at any
other location in the United States to which Buyer or Seller, as the case may
be, has removed such books and records after notice to the other party), for the
inspection and copying thereof (which inspection and copying to be at the sole
cost and expense of the inspecting party).
SECTION 9. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE
The obligation of Buyer to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the satisfaction of each
of the conditions set forth in this SECTION 9, unless waived by Buyer:
9.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES, PERFORMANCE OF
COVENANTS AND RELATED CERTIFICATE. The representations and warranties of Seller
set forth in SECTION 6 shall be true and correct in all material respects as of
the Closing Date as though made on and as of such date; Seller shall have
performed all obligations and complied with all covenants required to be
performed or to be complied with by it under this Agreement on or prior to the
Closing Date; and Seller shall have delivered to Buyer a certificate to such
effect, dated the Closing Date, signed by the General Partner or other person
duly authorized to act on its behalf.
9.2. NO PENDING OR THREATENED LEGAL ACTION. No order, injunction,
decree or other action or legal, administrative, arbitration or other proceeding
by any person or investigation by any governmental entity shall be pending or
threatened, which challenges, imposes or threatens to impose a material
limitation on the execution, delivery or performance of this Agreement, or the
consummation of any of the transactions contemplated hereby.
9.3. APPROVALS, NOTICES, CONSENTS, ETC. Seller shall have obtained,
and Buyer shall have received true and correct copies of, all notices, approvals
and consents which are required to enable Seller to transfer good and marketable
title to the Transferred Assets to Buyer, free and clear of any and all Liens,
and each approval and/or consent shall be in full force and effect and be
reasonably satisfactory in form and substance to Buyer and its counsel.
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9.4. LIMITED PARTNER APPROVAL. The approval of the requisite number of
limited partners of Seller to the transactions contemplated hereby (as described
in SECTION 8.8 hereof) shall not have been revoked, rescinded or repealed, and
shall be in full force and effect as of the Closing Date.
9.5. SECRETARY'S CERTIFICATE. Buyer shall have received an accurate
certificate, dated the Closing Date, of the General Partner of Seller with
respect to (a) the approval of the requisite number or percentage of limited
partners of Seller to the transactions contemplated by this Agreement as
prescribed by applicable provisions of the Partnership Agreement; (b) the
resolutions adopted by the General Partner and such limited partners approving
this Agreement and the transactions contemplated hereby; and (c) the incumbency
and specimen signature of the General Partner and each other person executing
this Agreement and any other agreement or Ancillary Document being (or to be)
executed by each such Partnership, and a certification by another person as to
the incumbency and specimen signature of said General Partner or other person.
9.6. GOOD STANDING CERTIFICATES, ETC. Buyer shall have received (a) a
certificate of the Office of the Secretary of State of the State of California,
dated within five (5) days before the Closing Date, certifying that the records
of the State of California regarding Seller reflect neither a certificate of
dissolution, a court order declaring dissolution, a merger or consolidation
which terminated its existence, nor suspension of its powers, rights and
privileges, and that in accordance with the records of the State of California,
Seller is authorized to exercise all of its powers, rights and privileges in the
State of California, and (b) a telegram or other document from one or more
appropriate officials of such State, or an affidavit of counsel with respect to
telephone conversations with such officials, dated within five days before the
Closing Date, to the same effect.
9.7. CLEARANCE CERTIFICATES. To the extent issued by such offices, Buyer
shall have received certificates from the Franchise Tax Board and the Employment
Development Department confirming the absence of any and all taxes, penalties,
interest and/or other amounts due and owing by Seller to such governmental
agency (or agencies) with respect to its operations prior to the Closing Date.
Further, Buyer shall have received a certificate or other written confirmation
from ADP or other financial institution or data payroll service dated as of the
day immediately prior to the Closing Date to the effect that all withholding and
payroll tax deposits required to have been made by Seller prior to the Closing
Date have been timely made.
9.8. RELEASE OF SECURITY INTERESTS. Buyer shall have received true and
correct copies of all releases of all security interests in the Transferred
Assets which may have existed prior to the Closing Date (including, without
limitation, security interests held by any lender or other third party) and
completed UCC release or termination statements or reconveyances of deeds of
trust or releases of any mortgages suitable for filing with the appropriate
governmental agencies to terminate and release all previously-filed UCC-1
financing statements, deeds of trust or mortgages on or with respect to any
Transferred Assets.
9.9. RENEGOTIATION OF INDEBTEDNESS. Seller shall have entered into
binding agreements with certain of its creditors in the form of Exhibit "C" such
that the aggregate amount of Closing
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Date Liabilities as of the Closing Date shall not exceed the Withheld Amount,
and the terms and conditions applicable to the assumption and satisfaction of
all Assumed Obligations shall be acceptable to Buyer in its sole discretion.
9.10. NO MATERIAL ADVERSE CHANGES. Between the Cut-Off Date and the
Closing Date, there shall not have occurred any material adverse change in or
with respect to any of the Transferred Assets or the Health/Fitness Business
which will continue or extend beyond the Closing Date (whether or not any such
material adverse change is covered by insurance).
9.11. EXECUTION AND DELIVERY OF OTHER AGREEMENT AND INSTRUMENTS. Buyer
and Seller shall have executed and delivered all requested Ancillary Documents,
and all other agreements, instruments and other contracts which are required to
enable Buyer to purchase and acquire the Transferred Assets in accordance with
the terms and provisions of this Agreement or which Buyer otherwise requires to
be executed in connection with the consummation of the transactions contemplated
hereby.
9.12. ENVIRONMENTAL AUDIT. Buyer shall have received and approved a
Phase I environmental analysis as of a recent date relating to the Real
Property.
9.13. APPROVAL OF SCHEDULES. Buyer shall have approved the form and
content of all Schedules which are required to be prepared or otherwise provided
by Seller but which were not attached to this Agreement as of the date hereof.
9.14. POWERS OF ATTORNEY. Buyer shall have received duly executed and
acknowledged powers of attorney, reasonably satisfactory in form and substance
to Buyer and its counsel, giving Buyer or its designee the authority to act on
behalf of Seller and in its name, place and stead with respect to all of the
Transferred Assets and Assumed Obligations, to the extent permitted by law.
Buyer shall indemnify and hold Seller harmless from any liability of Seller
which results from any acts of Buyer taken under such powers of attorneys in
violation of this Agreement.
9.15. APPROVAL OF BOARD OF DIRECTORS. Buyer's Board of Directors shall
have approved of Buyer's executing and delivering this Agreement and purchasing
the Transferred Assets in accordance with the terms hereof.
9.16. CONSUMMATION OF OTHER TRANSACTIONS. All conditions precedent and
other contingencies of Buyer described or referred to in the Fountain Valley and
the Other Purchase Agreements shall have been satisfied or waived by Buyer, and
Buyer's purchase and acquisition of the "Transferred Assets" (as described and
defined in the Fountain Valley and the Other Purchase Agreements, the "OTHER
TRANSFERRED ASSETS") shall be consummated in accordance with the terms of the
applicable Other Purchase Agreements simultaneously with the closing of the
transactions contemplated by this Agreement on the Closing Date.
9.17. SERVICES AGREEMENT. Buyer will have entered into an agreement with
California Recreational Services ("CRS") under which CRS shall provide specific
data processing and
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Membership accounting services for Buyer's benefit, upon terms and conditions
acceptable to Buyer and CRS.
9.18. OPINION OF SELLER'S COUNSEL. Seller's counsel shall have furnished
Buyer with its opinion on certain matters relating to the transactions
contemplated hereby in form acceptable to Buyer and its counsel.
SECTION 10. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE
The obligations of Seller to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the satisfaction of each
of the conditions set forth in this SECTION 10, unless waived by Seller.
10.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES OF BUYER, PERFORMANCE
OF COVENANTS, AND RELATED CERTIFICATE. The representations and warranties of
Buyer set forth in SECTION 7 shall be true and correct in all material respects
as of the Closing Date as though made on and as of such date; Buyer shall have
performed all obligations and complied with all covenants required to be
performed or to be complied with by Buyer under this Agreement on or prior to
the Closing Date; and Buyer shall have delivered to Seller a certificate to such
effect, dated the Closing Date, signed by an officer duly authorized to act on
its behalf.
10.2. NO PENDING OR THREATENED LEGAL ACTION. No order, injunction,
decree or other action or legal, administrative, arbitration or other proceeding
by any person or investigation by any governmental entity shall be pending or
threatened, which challenges, imposes or threatens to impose a material
limitation on the execution, delivery or performance of this Agreement, or the
consummation of any of the transactions contemplated hereby.
10.3. SECRETARY'S CERTIFICATE. Seller shall have received an accurate
certificate of the Secretary of Buyer, dated the Closing Date, with respect to
(a) the resolutions adopted by the Board of Directors of Buyer approving this
Agreement and the transactions contemplated hereby; and (b) the incumbency and
specimen signature of each officer of Buyer executing this Agreement and any
other agreement or Ancillary Document to be executed by Buyer, and certification
by another officer of Buyer as to the incumbency and specimen signature of said
signing officer(s).
10.4. ASSUMPTION OF LIABILITIES. Buyer shall have executed and
delivered, and Seller shall have received copies of, Assignment and Assumption
Agreements, under which Buyer has agreed to satisfy and perform all Assumed
Obligations in accordance with the terms thereof.
10.5. EXECUTION AND DELIVERY OF OTHER AGREEMENTS. Buyer and Seller shall
have executed and delivered all other agreements, instruments and contracts
which are required to enable Seller to carry out the terms and provisions of
this Agreement.
10.6. APPROVAL OF LIMITED PARTNERS. The General Partner of Seller shall
have obtained the approval or consent of the requisite number of limited
partners required to approve the sale of
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the Transferred Assets in accordance with applicable provisions of its
Partnership Agreement, and said approval or consent shall be in full force and
effect as of the Closing Date.
10.7. CONSUMMATION OF OTHER TRANSACTIONS. All conditions precedent and
other contingencies of Seller described or referred to in the Fountain Valley
and the Other Purchase Agreements shall have been satisfied or waived by Seller,
and Seller's conveyance of the Other Transferred Assets shall be consummated in
accordance with the terms of the applicable Fountain Valley and Other Purchase
Agreements simultaneously with the closing of the transactions contemplated by
this Agreement on the Closing Date.
10.8. OPINION OF BUYER'S COUNSEL. Buyer's counsel shall have furnished
Seller with its opinion on certain matters relating to the transactions
contemplated hereby in form acceptable to Seller and its counsel.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1. SURVIVAL. The representations and warranties set forth in this
Agreement, any Exhibit or Schedule, the Ancillary Documents and any certificate
or instrument delivered in connection herewith shall survive the execution and
delivery of this Agreement and any investigation made by any party hereto at any
time thereafter.
11.2. INDEMNIFICATION BY SELLER. Seller acknowledges and agrees with
Buyer that, regardless of any investigation made at any time by or on behalf of
Buyer or any information Buyer may have and, regardless of the Closing
hereunder, Seller shall indemnify Buyer and its respective directors, officers,
shareholders, members, employees and representatives, and their respective
successors and assigns (individually, a "BUYER INDEMNIFIED PARTY"), and hold
each Buyer Indemnified Party harmless from, against and in respect of any and
all costs, losses, claims, causes of action, demands, liabilities, fines,
penalties, damages and/or expenses (including interest which may be imposed in
connection therewith and court costs and reasonable fees and disbursements of
counsel) incurred by any of them in connection with:
11.2.1. PRE-CLOSING DATE MATTERS All liabilities of or claims
against any Buyer Indemnified Party of any nature, whether accrued, absolute,
contingent or otherwise, arising out of or relating to the Transferred Assets or
the Health/Fitness Business and attributable to any state of facts existing or
any event occurring on or before the Closing Date (whether known or unknown to
Seller or Buyer), to the extent not included in the Assumed Obligations or in
excess of amounts shown to constitute Closing Date Liabilities in Schedule 3.2.1
or otherwise specified in this Agreement to be the obligation of Buyer,
regardless of when such claim or liability is asserted against the applicable
Buyer Indemnified Party, and all liabilities of or claims against any Buyer
Indemnified Party or Seller of any nature, whether accrued, absolute, contingent
or otherwise, relating to the Excluded Assets or the Retained Obligations and
attributable to any state of facts existing or any event occurring either before
or after the Closing Date (whether known or unknown to Seller or Buyer)
regardless of when such claim or liability is asserted against the applicable
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Buyer Indemnified Party;
11.2.2. LIABILITY CLAIMS all personal injury or other liability
claims which relate to any products sold, services provided, any state of facts
existing or any event occurring on or before the Closing Date;
11.2.3. BREACH OF THIS AGREEMENT any breach of any of the
representations, warranties, covenants or agreements made by the General Partner
or Seller in this Agreement, any Exhibit or Schedule, any Ancillary Document or
any certificate of instrument delivered in connection herewith;
11.2.4. TAXES, ETC. any taxes of any kind whatsoever, or
expenses, interest or penalties relating thereto, which arise out of or result
from the transactions contemplated by this Agreement other than state and/or
local sales or use taxes;
11.2.5. NON-ASSUMED OBLIGATIONS any attempt (whether or not
successful) by any person to cause or require a Buyer Indemnified Party to pay
or discharge any debt, obligation, liability or commitment of Seller, the
General Partner or Seller Affiliate which is not included in the Assumed
Obligations or the existence of which would constitute a breach of any
representation, warranty, covenant or agreement of Seller or the General Partner
notwithstanding the Closing; or
11.2.6. OTHER INCIDENTAL MATTERS any action, suit, proceeding,
compromise, settlement, assessment or judgment arising out of or incidental to
any of the matters indemnified against in this SECTION 11.2; provided, however,
that Seller shall not be obligated to indemnify a Buyer Indemnified Party and
hold it harmless under this SECTION 11.2 with respect to any settlement of a
claim to which Seller has not consented, if such consent has not been
unreasonably withheld or delayed.
If, by reason of the claim of any third party relating to any of
the matters subject to indemnification under this SECTION 11.2, a lien,
attachment, garnishment or execution is placed upon any of the property or
assets of any Buyer Indemnified Party, Seller shall also furnish an indemnity
bond satisfactory to Buyer to obtain the prompt release of such lien,
attachment, garnishment or execution.
11.3. INDEMNIFICATION BY BUYER. Buyer hereby covenants and agrees with
Seller that, regardless of any investigation made at any time by or on behalf of
Seller or any information it may have and, regardless of the Closing hereunder,
Buyer shall indemnify Seller, the General Partner, and all directors, officers,
employees, partners, representatives and their respective successors and assigns
(individually a "SELLER INDEMNIFIED PARTY"), and hold each Seller Indemnified
Party harmless from, against and in respect of any and all costs, losses,
claims, causes of action, demands, liabilities, fines, penalties, damages and/or
expenses (including interest which may be imposed in connection therewith and
court costs and reasonable attorneys' fees and disbursements of counsel)
incurred by any of them in connection with:
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11.3.1. POST-CLOSING DATE MATTERS all liabilities of or claims
against any Seller Indemnified Party of any nature, whether accrued, absolute,
contingent or otherwise, (x) with respect to the Assumed Obligations, or (y)
attributable or relating to the operation by Buyer of the Transferred Assets
from and after the Closing Date, except if such liability results from or arises
in connection with the breach of any of the representations, warranties,
covenants or agreements made by the General Partner or Seller in this Agreement,
any Schedule or Exhibit, any Ancillary Document or any certificate or instrument
delivered in connection herewith;
11.3.2. BREACH OF TERMS OF THIS AGREEMENT any breach of any of
the representations, warranties, covenants or agreements made by Buyer in this
Agreement, any Exhibit or Schedule, any Ancillary Document or any certificate or
instrument delivered in connection herewith;
11.3.3. ASSUMED OBLIGATIONS any attempt (whether or not
successful) by any person to cause or require a Seller Indemnified Party to pay
or discharge any debt, obligation, liability or commitment which is included in
the Assumed Obligations, notwithstanding the Closing; or
11.3.4. OTHER INCIDENTAL MATTERS any action, suit, proceeding,
compromise, settlement, assessment or judgment arising out of or incidental to
any of the matters indemnified against in this SECTION 11.3; provided, however,
that Buyer shall not be obligated to indemnify a Seller Indemnified Party under
this SECTION 11.3 with respect to any settlement of a claim to which the Buyer
has not consented, if such consent has not been unreasonably withheld or
delayed.
If, by reason of the claim of any third party relating to any of
the matters subject to indemnification under this SECTION 11.3, a lien,
attachment, garnishment or execution is placed upon any of the property or
assets of any Seller Indemnified Party, Buyer shall also furnish an indemnity
bond satisfactory to Seller to obtain the prompt release of such lien,
attachment, garnishment or execution.
11.4. RIGHT TO DEFEND, ETC. If the facts giving rise to any such
indemnification shall involve any actual claim or demand by any third party
against a Buyer Indemnified Party or a Seller Indemnified Party (referred to
hereinafter as an "INDEMNIFIED PARTY"), the indemnifying parties shall be
entitled to notice of and entitled (without prejudice to the right of any
Indemnified Party to participate at its own expense through counsel of its own
choosing) to defend or prosecute such claim at their expense and through counsel
of their own choosing if they give written notice of their intention to do so no
later than the time by which the interests of the Indemnified Party would be
materially prejudiced as a result of its failure to have received such notice;
provided, however, that if the defendants in any action shall include both the
indemnifying parties and an Indemnified Party, and the Indemnified Party shall
have reasonably concluded that counsel selected by the indemnifying parties has
a conflict of interest because of the availability of different or additional
defenses to the Indemnified Party, the Indemnified Party shall have the right to
select separate counsel to participate in the defense of such action on its
behalf, at the expense of the indemnifying party (or parties). The Indemnified
Party shall cooperate fully in the defense of such claim and
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shall make available to the indemnifying parties pertinent information under its
control relating thereto, but shall be entitled to be reimbursed, as provided in
this SECTION 11, for all costs and expenses incurred by it in connection
therewith.
11.5. SUBROGATION. If the Indemnified Party receives payment or other
indemnification from the indemnifying party hereunder, the indemnifying party
shall be subrogated to the extent of such payment or indemnification to all
rights in respect of the subject matter of such claim to which the Indemnified
Party may be entitled, to institute appropriate action for the recovery thereof,
and the Indemnified Party shall reasonably assist and cooperate with the
indemnifying party at no expense to the Indemnified Party in enforcing such
rights.
11.6. RIGHT TO OFFSET. Anything herein to the contrary notwithstanding,
if Seller fails to reimburse Buyer for any amounts to which Buyer is entitled
under this Agreement, including, without limitation, this SECTION 11
("REIMBURSABLE AMOUNTS") within ten (10) days after written demand therefor,
then, during the one-year period following the Closing Date, Buyer shall have
the right to recover the Reimbursable Amount from the number of Acquisition
Shares then held by Seller in accordance with this SECTION 11.6. The number of
such Shares which Buyer shall have the right to recover pursuant to this SECTION
11.6 shall be determined by multiplying (a) the number of Acquisition Shares
held by Seller by (b) the average closing price of a share of Buyer's Common
Stock as reported on AMEX for the 10 business days preceding the Closing Date
(the "STOCK PRICE"), deducting from said product (c) the Reimbursable Amount,
and dividing the remaining number by the Stock Price. Any fractional shares will
be disregarded. If Buyer and Seller are unable to resolve any accounting issue
relating to whether Buyer is entitled to deduct a Reimbursable Amount pursuant
to this SECTION 11.6 within 10 days after Buyer's notifying Seller of any such
claim, then the parties shall resort to the dispute resolution mechanism set
forth in SECTION 4.2.3 hereof, and the determination of such accounting firm on
all accounting matters shall be binding on the party. If one or more such
disputes are outstanding at the time the one-year period expires, such disputes
shall be resolved in accordance with the terms hereof notwithstanding such
expiration. Any disputes other than accounting matters shall not be subject to
resolution by such accounting firm.
SECTION 12. MISCELLANEOUS
12.1. EXPENSES, ETC. Buyer and Seller shall pay their own respective
expenses and the fees and expenses of their respective counsel in connection
with this Agreement.
12.2. SPECIFIC PERFORMANCE. Anything herein to the contrary
notwithstanding, Seller and Buyer acknowledge that the Transferred Assets are
unique and that Seller and Buyer will have no adequate remedy at law if the
other party (or parties) shall fail to perform any of its obligations hereunder.
In such event, Buyer or Seller, as the case may be, shall have the right, in
addition to any other rights it may have hereunder or under applicable law, to
equitable remedies (including, without limitation, specific performance,
temporary restraining orders and preliminary and permanent injunctions).
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12.3. NO WAIVER; CUMULATIVE REMEDIES. No action taken pursuant to this
Agreement, including any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representation, warranty, covenant or agreement contained herein and/or in
any Ancillary Document or other document. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach, whether of the same or any different term. No
right or remedy which any party hereto may possess or elect to exercise shall be
exclusive of any other right or remedy, all of which shall be cumulative and in
addition to all such rights and remedies.
12.4. BINDING EFFECT, BENEFITS. This Agreement shall be binding on and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but this Agreement may not be assigned by any party
hereto without the prior written consent of the other. Notwithstanding the
foregoing, no consent shall be necessary for Buyer to assign this Agreement to
any person, corporation or other entity that controls, is controlled by or is
under common control with Buyer (an "Affiliate"); provided, that (i) Buyer shall
remain directly and primarily liable for the performance of its obligations
hereunder, and (ii) any such Affiliate to which Buyer assigns this Agreement
shall agree to observe and be bound by all the terms and provisions hereof.
Except as otherwise set forth herein, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto and
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
12.5. NOTICES. All notices, requests, demands and other communications
which are required or permitted under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person or upon receipt
when transmitted by telecopy, messenger or air courier, or seventy two (72)
hours after deposit in the U.S. Mails, mailed by certified or registered first
class mail, postage prepaid, return receipt requested, and duly addressed to the
party to whom the same is so given or made:
If to the Partnership, to:
Norcan, a California Limited Partnership
c/o Sequoia Athletic Club & Racquetball World
7530 Orangethorpe Avenue
Buena Park, California 90621
Attention: Dr. G. Barton Heuler,
General Partner
Telecopier No.: (714) 523-5490
With a copy to:
Edward T. Swanson, Esq.
Swanson & Meepos LLC
1875 Century Park East
Suite 800
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Los Angeles, California 90067
Telecopier No.: (310) 282-0325
If to The Spectrum Club Company, Inc., to:
11100 Santa Monica Blvd., Suite 300
West Los Angeles, California 90025
Attention: John Gibbons, President
Telecopier No.: (310) 479-5740
With a copy to:
Ronald K. Fujikawa, Esq.
Kinsella, Boesch, Fujikawa & Towle
1901 Avenue of the Stars, 7th Floor
Los Angeles, California 90067
Telecopier No.: (310)284-6018
Any party may change its address or facsimile number for purposes of this
SECTION 12.5 by giving notice to the others in accordance with the terms hereof.
12.6. ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto, which are incorporated herein by this reference) and the
Ancillary Documents constitute the entire agreement and understanding among the
parties with respect to the subject matter hereof and supersede all prior
agreements, representations, warranties, statements, promises and
understandings, whether written or oral, with respect to such subject matter. No
party hereto shall be bound by or charged with any written or oral agreements,
representations, warranties, statements, promises or understandings not
specifically set forth in this Agreement, any Exhibit, Schedule or Ancillary
Document.
12.7. HEADINGS; CERTAIN TERMS. The section and other headings contained
in this Agreement are for reference purposes only and shall not be deemed to be
a part of this Agreement or to affect the meaning or interpretation of this
Agreement or any term or provision hereof. As used in this Agreement, the term
"including" means "including, but not limited to" unless otherwise specified;
the word "or" means "and/or," and the word "person" means and refers to any
individual, corporation, trust, partnership, joint venture, government or
governmental authority, or any other entity.
12.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same instrument.
12.9. GOVERNING LAW. This Agreement shall be governed by, and construed
(as to both validity and performance) and enforced in accordance with, the laws
of the State of California
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applicable to contracts executed and to be wholly performed therein.
12.10. SEVERABILITY; CONSTRUCTION. If any term or provision of this
Agreement shall to any extent be invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby, and each other term and provision of
the Agreement shall be valid and enforced to the fullest extent permitted by
law. Both Seller and Buyer have participated in the negotiation and drafting of
this Agreement. Accordingly, each of Seller and Buyer waives any statutory
provision, judicial decision or other rule of law to the effect that contractual
ambiguities are to be construed against the party who shall have drafted the
provision in question.
12.11. NO BROKERS. Except as otherwise set forth in Schedule 12.11 or in
the Real Property Purchase Agreement, each of Buyer and Seller represents and
warrants that it has not engaged any person to act as a broker or finder in
connection with the execution of this Agreement, and that no person is entitled
to any fee or compensation as a result of the consummation of the transactions
contemplated hereby.
12.12. JURISDICTION; WAIVER OF JURY TRIAL. Except as provided in
Sections 4.2.3 and 11.6, the parties hereto (a) hereby irrevocably submit to the
jurisdiction of any court of the State of California or any federal court
sitting in the State of California for the purposes of any suit, action or other
proceeding arising out of this Agreement or any Ancillary Document, or any of
the transactions contemplated hereby, which is brought by or against any of the
parties hereto, and (b) hereby irrevocably agree that all claims in respect of
any such suit, action or proceeding may be heard and determined in any such
court. In connection with any dispute arising under or in connection with this
Agreement, any Ancillary Document or any other agreement or instrument, 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 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.
12.13. AMENDMENTS. This Agreement may not be amended or modified except
by an instrument or instruments in writing signed by the party or parties
against whom enforcement of any such amendment or modification is sought.
12.14. DISCLOSURE. Any disclosure by either party hereto pursuant to any
specific provision
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of this Agreement shall be deemed a disclosure for all other purposes of this
Agreement.
12.15. SECTION REFERENCES. All references contained in this Agreement to
any section number and to any Exhibit or Schedule are references to sections of,
or Exhibits or Schedules attached to, this Agreement, unless otherwise
specifically stated.
12.16. ALLOCATION OF PURCHASE PRICE FOR TAX PURPOSES. After the Closing
the parties will jointly agree as to the allocation of the Purchase Price and
shall file the forms required by Section 1060 of the Code in accordance
therewith.
12.17. USE OF TERMS. In this Agreement, the terms "Club" and "Seller"
are used to distinguish the legal entity (Seller) from the health/fitness
facility operated by it (the Club). However, such usage is not intended to, and
shall not, limit or reduce the legal duties and obligations of Seller (if "Club"
is used in its stead), nor shall it be deemed to exonerate or eliminate the
liability or obligation of a Club (if "Seller" is used in its stead).
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement, or
have caused this Agreement to be signed in their respective names by an officer
thereunder duly authorized, on the date first above written.
THE SPECTRUM CLUB COMPANY, INC.
By: /s/ John M. Gibbons
----------------------------
John M. Gibbons, President
NORCAN,
a California Limited Partnership
By: /s/ Dr. G. Barton Heuler
-----------------------------
Dr. G. Barton Heuler
Co-Managing General Partner
By: /s/ Wilfred Huse
-----------------------------
Wilfred Huse
Co-Managing General Partner
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LIST OF SCHEDULES
Schedule 1.1.1(a) List of Real Property Leases
Schedule 1.1.1(b) List of Personal Property Leases
Schedule 1.1.1(c) Real Property Owned by Seller
Schedule 1.1.1(d) Personal Property Owned by Seller
Schedule 1.1.1(f) Contracts
Schedule 1.1.1(j) Proprietary Rights
Schedule 3.2.1 Closing Date Liabilities
Schedule 3.3.1 Debts, Obligations, Liabilities of Seller
Schedule 6.6 Restrictions; Burdensome Agreements
Schedule 6.7 Notices and Consents
Schedule 6.10 Absence of Certain Changes or Events
Schedule 6.11 Title; Liens/Encumbrances
Schedule 6.14(a) Facilities Schedule
Schedule 6.14(b) Information Regarding Memberships
Schedule 6.15 Insurance Policies/Bonds
Schedule 6.16.3 Defaults
Schedule 6.16.4 Contracts Not Assignable
Schedule 6.17.1 Licenses
Schedule 6.17.2 Proprietary Rights
Schedule 6.19 Litigation
Schedule 6.21 Interest in Competitors
Schedule 6.23.2 Employee Benefit Plans
Schedule 6.23.3 List of All Employees of Seller
Schedule 6.28 Past Due Obligations
Schedule 6.34 Governmental Approvals; Notices
Schedule 6.38 Contracts
Schedule 8.14.2 Non-Competition
Schedule 12.11 No Brokers
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LIST OF EXHIBITS (CANOGA PARK)
Exhibit A-1 Form Grant Deed
Exhibit A-2 Form Bill of Sale
Exhibit B Registration Rights re: Acquisition Shares
Exhibit C Renegotiated Debt Agreements
Exhibit D-1 Assignment and Assumption of Leases
Exhibit D-2 Assignment and Assumption Agreement
Exhibit E Partnership Agreement of Limited Partnerships
Exhibit F Form Membership Agreement
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EXHIBIT 4
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
<PAGE> 2
AGREEMENT OF PURCHASE AND SALE
This Agreement of Purchase and Sale is entered into as of December 31,
1997 ("Agreement"), by and among The Spectrum Club Company, Inc., a Delaware
corporation ("SCC"), SCC I LLC, a Delaware limited liability company ("SCC I
LLC"), RBW Santa Ana, a California limited partnership ("the Partnership"), and
RBWSA, LLC, a California limited liability company (the "LLC") (SCC and SCC I
LLC are hereinafter referred to collectively as "Buyer" and the Partnership and
the LLC are hereinafter referred to collectively as "Seller").
R E C I T A L S:
A. SCC owns and operates upscale health and fitness clubs under the name
"Spectrum Clubs," in California, SCC I LLC is a company formed in order to enter
in this Agreement and certain related transactions.
B. Seller operates a health and fitness facility (the "CLUB") in Santa
Ana, California. G. Barton Heuler ("Heuler") is the managing general partner
(the "General Partner") of the Partnership.
C. Simultaneously with the execution and delivery of this Agreement,
Buyer is entering into an Agreement of Purchase and Sale (the "FULLERTON
PURCHASE AGREEMENT") with the limited partnership that owns and operates the
Racquetball World health and fitness facility in Fullerton, California (the
"FULLERTON CLUB"). Shortly following the execution and delivery of this
Agreement and the Fullerton Purchase Agreement, Buyer proposes to enter into
Agreements of Purchase and Sale (collectively, the "OTHER PURCHASE AGREEMENTS")
with two other limited partnerships which own and operate Racquetball World
health and fitness facilities in Canoga Park and Fountain Valley, and an Option
Agreement with the limited partnership which owns and operates a health and
fitness facility in Buena Park (the "OPTION AGREEMENT"). Such health and fitness
facilities in Canoga Park, Fountain Valley and Buena Park are hereinafter
referred to collectively as the "OTHER CLUBS"and individually as the "CANOGA
PARK CLUB", the "FOUNTAIN VALLEY CLUB" and the "BUENA PARK CLUB". The
consummation of the transactions contemplated by this Agreement is expressly
conditioned on the simultaneous closing of the Fullerton and all Other Purchase
Agreements.
C. Buyer wishes to purchase from Seller, and Seller wishes to sell and
transfer to Buyer, substantially all the assets and properties used or held for
use by Seller in connection with the operation of the Club's health and fitness
business and catering business, subject to the terms and conditions set forth in
this Agreement.
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A G R E E M E N T:
In consideration of the premises and the mutual covenants and agreements
hereinafter set forth, Buyer and Seller hereby agree as follows:
SECTION 1. TRANSFER OF ASSETS
1.1. PURCHASE AND SALE OF ASSETS.
1.1.1. ASSETS. Subject to the terms and conditions hereinafter set
forth, on the "Closing Date" (as defined in SECTION 5) and excluding the
"Excluded Assets" (as defined in SECTION 1.1.2), Buyer shall purchase and
acquire from Seller, and Seller shall sell, transfer, assign and convey to
Buyer, all of Seller's right, title and interest in and to all of the assets and
properties of Seller (of every kind and character, whether real, personal or
mixed, whether tangible and intangible, whether accrued, contingent or otherwise
and wherever situated), relating to the operation of the Club's health and
fitness business (the "HEALTH/FITNESS BUSINESS") and catering business,
respectively, as the same shall exist immediately prior to the Closing,
including, without limitation, the following:
(a) all real property leases described in Schedule 1.1.1(a)
attached hereto (the "REAL PROPERTY LEASES");
(b) all leases of personal property covering (by way of
example and not limitation) machinery, equipment, vehicles, furniture and other
personal property, which personal property leases are described in Schedule
1.1.1(b) attached hereto (the "PERSONAL PROPERTY LEASES");
(c) all real property owned by Seller and more particularly
described in Schedule 1.1.1(c), together with all improvements and fixtures
thereon and all easements, rights of way and other rights appurtenant thereto in
any way related to such real property (the "REAL PROPERTY");
(d) all furniture, furnishings, equipment, machines,
computers, tools, supplies, spare (or replacement) parts and other personal
property owned by Seller and listed in Schedule 1.1.1(d) attached hereto (the
"PERSONAL PROPERTY");
(e) all membership agreements, contracts, forms, instruments
and other writings under which members are entitled to use the facilities and
services at the Club, including all amendments, renewals and extensions thereof
(the "MEMBERSHIP AGREEMENTS");
(f) all agreements, contracts, forms, instruments and other
writings (other than the Membership Agreements), and all rights thereunder or
thereto, which are identified in Schedule 1.1.1(f) attached hereto (the
"CONTRACTS");
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(g) all records, files and other data relating to the
Health/Fitness Business and catering business, including, without limitation,
all membership lists (in both written form and in the Club's standard
machine-readable format), customer lists, supplier/vendor lists, invoices, plans
and specifications, designs, drawings, accounting/business records and accounts
receivable aging schedules but excluding Seller's partnership books and records
(the "BUSINESS RECORDS");
(h) all licenses, approvals, permits and authorizations
(including any such licenses, approvals, permits and authorizations issued by
governmental agencies or authorities having jurisdiction of the Health/Fitness
Business and/or catering business) which are required in connection with the
operation of the Health/Fitness Business and/or the catering business, to the
extent the same can be transferred and assigned to Buyer pursuant to the terms
hereof (the "LICENSES");
(i) all inventory of finished products, raw materials and
work-in-process, whether located at the Club or elsewhere, including all food
and beverage inventory and all equipment or property (to the extent not included
in any of the other subparts of this Paragraph 1.1.1 and used by the Club to
prepare and serve food and beverage offerings to patrons and guests) (the
"INVENTORY");
(j) all trademarks, trade names, copyrights, patents and
other proprietary rights (whether or not registered), and all applications
relative to any of the foregoing, which Seller uses in connection with the
operation of its Health/Fitness Business and catering business, as the case may
be, which are listed in Schedule 1.1.1(j) attached hereto (the "PROPRIETARY
RIGHTS");
(k) all advance payments, prepaid items and credits of all
kinds of the Club, other than (i) utility deposits of the Club in an amount not
to exceed Fifteen Thousand Dollars ($15,000), which together with utility
deposits of the Fullerton Club, Fountain Valley Club and Canoga Park Club, shall
be in an aggregate amount not exceeding seventy-five thousand dollars ($75,000)
(the "UTILITY DEPOSITS"); (ii) prepaid catering services; and (iii) advance
payments, prepaid items and credits relating to Excluded Assets;
(l) all rights, claims and causes of action which Seller
could assert against any other person or entity for the breach of any duty or
violation of any right prior to the Closing Date, to the extent such breach or
violation relates, directly or indirectly, to the Health/Fitness Business and/or
catering business ("LITIGATION RIGHTS"); and
(m) all accounts receivable and other rights to payment
owing to Seller and arising out of the operation of its Health/Fitness Business
and catering business (including, without limitation, all rights to payment
under Membership Agreements and Contracts) (collectively, "RECEIVABLES").
All of the assets and properties described in this SECTION 1.1.1 are
collectively referred to herein as
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the "TRANSFERRED ASSETS".
1.1.2. EXCLUDED ASSETS. Anything in this SECTION 1.1 to the
contrary notwithstanding, the Transferred Assets shall not include, and Seller
shall retain for its own use and benefit (collectively, "EXCLUDED ASSETS"), (a)
all cash and cash equivalents (including, without limitation, all bank accounts,
marketable securities and certificates of deposit) of Seller; (b) any and all
assets and properties (including, without limitation, investments in the
securities of any publicly- or privately-held company or other entity and
certain rights to utilize vacation or resort facilities under a "time-share"
arrangement) of Seller that are unrelated to its operation of the Health/Fitness
Business or catering business; (c) all books and other limited partnership
records of Seller other than the Business Records; (d) advance payments, prepaid
items and credits relating to (i) Federal, state and local income taxes covering
periods subsequent to the Closing Date, (ii) any of the assets, properties or
rights identified in this SECTION 1.1.2; (iii) the Utility Deposits, and (iv)
pre-paid catering services, and (e) Seller's rights and interest under all
contracts, agreements, instruments and other arrangements, except to the extent
that such contracts, agreements, instruments and other arrangements constitute
"Assumed Obligations" (as defined in SECTION 3.1 hereof).
1.2. INSTRUMENTS OF TRANSFER. On the Closing Date, Seller shall deliver,
or cause to be delivered, to Buyer duly executed instruments of transfer and
assignment, including, without limitation, Grant Deeds in favor of SCC I LLC
substantially in the form of Exhibit "A-1" ("GRANT DEEDS") and Bills of Sale in
favor of SCC substantially in the form of Exhibit "A-2", in form and substance
reasonably satisfactory to Buyer and its counsel, sufficient to vest in SCC I
LLC all of Seller's right, title and interest in and to the Real Property, and
to vest in SCC all other Transferred Assets other than the Real Property, free
and clear of any and all liens, claims, security interests, assessments,
encumbrances, mechanic's and materialman's liens currently in effect or
hereafter perfected based upon work performed or materials supplied prior to the
date hereof and/or any other rights of third parties (other than membership
rights and rights to obtain catering services) with respect to any of the
Transferred Assets (collectively, "LIENS"), except for such Liens which are
specifically set forth in the Schedules hereto and which are not required to be
removed at or prior to the Closing pursuant to any other provisions of this
Agreement.
1.3. DELIVERY OF POSSESSION. At the Closing, Seller shall deliver
possession of the Transferred Assets to Buyer, at the location where, in the
ordinary course of business, such are usually and customarily located. Title and
risk of loss (including risk of theft) in and to the Transferred Assets shall
pass to and be vested in Buyer, effective at the time of Closing on the Closing
Date, and Seller shall have no further liability with respect to the Transferred
Assets or the Assumed Obligations, except for liability under this Agreement or
any "Ancillary Documents" (as defined in SECTION 8.14.1 hereof) and for the
negligence or wilful misconduct of the Club, or any of its employees and/or
persons acting on its behalf.
1.4. CONSENTS TO ASSIGNMENT. Any other provision of this Agreement to
the contrary notwithstanding, this Agreement shall not constitute an agreement
to assign any Membership Agreement, Contract, License or other Transferred
Asset, or any benefit arising thereunder or resulting therefrom, if an attempted
assignment of any thereof, without the consent of any other
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party thereto, would constitute a breach or in any way materially adversely
affect the rights of Buyer or Seller with respect thereto. If such consent is
not obtained, or if an attempted assignment would be ineffective or would
materially adversely affect Seller's rights relative to such Membership
Agreement, Contract, License or other Transferred Asset so that Buyer would not
in fact receive substantially all of such rights, Seller shall cooperate in any
arrangement Buyer may reasonably request in writing to provide for Buyer the
benefits with respect to any such Membership Agreement, Contract, License or
other Transferred Asset, including enforcement for the benefit of Buyer of any
and all rights of Seller against any other party with respect thereto arising
out of the breach or cancellation thereof by such party or otherwise; and any
transfer or assignment of any Membership Agreement, Contract, License or other
Transferred Asset which shall require the consent or approval of any other party
shall be made subject to such consent or approval being obtained; provided,
however, that nothing contained in this SECTION 1.4 shall affect the liability,
if any, of Seller pursuant to this Agreement for failing to have disclosed the
need for, and failing to obtain, any such required consent or approval.
SECTION 2. PURCHASE PRICE; MANNER OF PAYMENT
2.1. CONSIDERATION AND MODE OF PAYMENT. The aggregate purchase price to
be paid by Buyer for the Transferred Assets and the other rights provided herein
consists of all of the obligations of Buyer under and pursuant to this
Agreement, including, without limitation, its obligations under the provisions
of SECTION 3 hereof, and the following (collectively, the "PURCHASE PRICE"):
2.1.1. CASH PAYMENT. Subject to the terms of SECTION 4.2.3 hereof,
at the Closing, Buyer shall pay to Seller (a) the cash amount set forth in
Schedule 2.1.1(a) (the "CLOSING CASH PAYMENT"), and (b) subject to the holdback
described in Section 3.2.1, an amount equal to $886,667, which will be used by
Seller to pay or otherwise satisfy all of Seller's debts, obligations and other
liabilities owing to all unsecured creditors of Seller, as renegotiated by
Seller pursuant to SECTION 3.2.2 (the "CLOSING DATE Liabilities"). Buyer and
Seller shall allocate that portion of the Purchase Price attributable to the
Real Property as set forth in Schedule 12.16 (the "REAL PROPERTY PURCHASE
PRICE"), and such allocation shall be binding on the parties hereto, and neither
Buyer nor Seller shall file any tax return or take any position inconsistent
with such allocation in any dealing with any governmental agency or authority.
2.1.2. ISSUANCE OF COMMON STOCK. On the Closing Date, SCC shall
cause its parent, The Sports Club Company, Inc., (the "Parent"), to issue to
Seller and certain of the Other Clubs an aggregate number of shares of the
Parent's Common Stock, $.01 par value (the "ACQUISITION SHARES"), which, subject
to Section 11.6 hereof, will be distributed among the Partnership, the LLC and
the Fullerton and Canoga Park Clubs as follows: $150,000 of such Acquisition
Shares shall be issued to Seller; $150,000 of such Shares shall be issued to the
limited partnership owning the Fullerton Club; and $1,085,000 of such Shares
shall be issued to the limited partnership owning the Canoga Park Club. The
Acquisition Shares shall not be registered under applicable provisions of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), or any state
securities (or "Blue Sky") laws, and will therefore constitute "restricted
securities" as defined in
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Rule 144 ("RULE 144") of the Securities and Exchange Commission (the "SEC").
None of such Acquisition Shares allocated to Seller, the Fullerton and the
Canoga Park Clubs may be sold or otherwise distributed by Seller to any person
or entity prior to the expiration of one (1)-year following the Closing Date
(the "TRIGGER DATE"); and, upon the request of holders of more than fifty
percent (50%) of all Acquisition Shares, the Parent shall register the offer and
sale of all such Acquisition Shares owned by the requesting holders on a Form
S-3 registration statement to be filed with the SEC as soon after the Trigger
Date as is reasonably practicable, at SCC's sole cost and expense. If, prior to
the Trigger Date, the Parent shall file a registration statement with the SEC
covering the issuance by the Parent of any of its securities (other than in
connection with a merger, acquisition or other reorganization or with respect to
one or more of its stock option or stock compensation plans), then the holders
of that portion of the Acquisition Shares which will have been allocated to
Seller shall have one (1) "piggyback" registration right with respect to the
Acquisition Shares owned by them, subject to the terms and conditions set forth
on Exhibit "B". If thirty (30) days prior to the Trigger Date, Seller's counsel
provides the Parent an opinion of counsel satisfactory to Parent's counsel to
the effect that Seller may transfer the Acquisition Shares to certain partners
or members of Seller without registration under the Securities Act, then the
Parent will include the Acquisition Shares held by such partners or members in
the Form S-3 Registration Statement or in the other registration statement
referenced in the preceding sentence of this Section 2.1.2. The actual number of
Acquisition Shares shall be subject to adjustment pursuant to Section 11.6
hereof.
2.2. METHOD OF PAYMENT. All amounts to be paid or disbursed to Seller
pursuant to this Agreement (including the amounts payable pursuant to SECTION
2.1.1) shall be paid to a bank account designated by Seller, in Los Angeles
Clearinghouse funds or equivalent "next day" funds. No interest shall be payable
with respect to any payment made pursuant to SECTION 2.1.
SECTION 3. TREATMENT OF LIABILITIES
3.1. NO ASSUMPTION OF EXISTING LIABILITIES. Except as expressly set
forth in this Agreement, Buyer is not assuming, whether directly or indirectly,
and shall have no liability or obligation with respect to, any of the debts,
liabilities or obligations of Seller or the Club, all of which (except as
otherwise set forth below) shall be and remain the sole obligation and liability
of Seller.
3.2. PAYMENT AND SATISFACTION OF LIABILITIES.
3.2.1. CLOSING DATE LIABILITIES. As noted in SECTION 2.1.1(B) and
subject to SECTION 3.4 hereof, Buyer will be entitled to withhold the sum of
$886,667 (the "WITHHELD AMOUNT"), which will be handled and disbursed as
follows:
(a) At the Closing, Seller shall provide Buyer with a written
schedule (which will be attached hereto at the Closing as Schedule 3.2.1) which
sets forth all Closing Date Liabilities (including all real property taxes,
accounts payable and accrued expenses of Seller relative to periods prior to the
Closing Date). On the Closing Date, Buyer shall provide to Seller sufficient
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funds to pay those Closing Date Liabilities marked with an asterisk (*) in
Schedule 3.2.1.
(b) On a weekly or other periodic basis following the Closing Date,
Seller shall instruct Buyer in writing of which Closing Date Liabilities are to
be paid, identifying, with respect to each such Liability, the creditor and the
amount to be paid thereto. Subject to Buyer's approval and consent, Buyer will
remit an amount necessary to satisfy such identified Closing Date Liabilities,
and Seller shall promptly remit to the applicable creditors the amounts
necessary to satisfy such Liabilities.
(c) If any of the Closing Date Liabilities includes the payment of
an amount that should be prorated and for which Buyer is responsible pursuant to
Section 4.2.3 hereof, Buyer will contribute an amount to the Withheld Amount to
cover such prorated portion. Alternatively, if Buyer shall pay any liability or
obligation from and after the Closing which includes a prorated item for which
Seller is responsible, then Buyer shall be entitled to reimburse itself for such
payment and reduce the Withheld Amount on a dollar-for-dollar basis. Nothing
contained herein shall affect or limit either party's responsibility for its
share of any prorated items pursuant to said Section 4.2.3 hereof.
(d) If Seller is successful in negotiating a reduction in the
amount of any Closing Date Liability as contemplated by Section 3.2.2 hereof,
then Seller shall provide Buyer with a Renegotiated Debt Agreement (as defined
in said Section 3.2.2) relative to such Closing Date Liability executed by the
applicable creditor, and an appropriate adjustment in Schedule 3.2.1 reflecting
all Closing Date Liabilities shall be made; provided that, Seller acknowledges
that if the total amount of the Closing Date Liabilities ultimately paid or
satisfied by Buyer is less than the Withheld Amount, Buyer shall be entitled to
retain such excess funds. Similarly, if the amount of the Closing Date
Liabilities, plus any other debts, liabilities or obligations of Seller which
relate to pre-Closing activities (even though asserted or coming to Seller's or
Buyer's attention post-Closing), shall exceed the amount of the Withheld Amount,
Seller understands that Buyer is not assuming, and shall not be deemed to have
assumed, any of such additional liabilities or obligations, and all of such
additional liabilities and obligations (including Closing Date Liabilities)
shall be and remain the sole obligation and responsibility of Seller.
Simultaneously with the execution and delivery of this Agreement, SCC has
purchased and acquired from Wells Fargo Bank N.A. certain promissory notes and
deeds of trust (the "WELLS FARGO DEBT") pursuant to a Note Purchase Agreement
and Assignment and Assumption Agreement dated as of December 24, 1997, relating
to the Club and the Santa Ana Club, respectively; accordingly, Seller shall have
no liability with respect to the Wells Fargo Debt.
3.2.2. NEGOTIATING DISCOUNTS. From and after the Closing, Seller
will continue to use its best efforts to negotiate discounts with respect to all
Closing Date Liabilities so that the Closing Date Liabilities shall be less than
the Withheld Amount, if reasonably practicable. To the extent creditors of
Seller agree to accept a discount off the amounts otherwise due and owing to
such creditors as full payment of such debt or liability, Seller shall cause
such creditors to
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execute written acknowledgements confirming such agreement in substantially the
form of Exhibit "C" ("RENEGOTIATED DEBT AGREEMENTS"). Seller shall provide Buyer
with true and correct copies of all Renegotiated Debt Agreements executed by
Seller and the applicable creditors as of the Closing Date and thereafter as
contemplated by Section 3.2.1 hereof.
3.3. ASSUMPTION OF CERTAIN LIABILITIES.
3.3.1. ASSUMPTION OF SPECIFIC OBLIGATIONS. Effective as of the
Closing Date, SCC shall assume and be liable for the specific debts, obligations
and liabilities of Seller set forth in Schedule 3.3.1 and no others
(collectively, the "ASSUMED OBLIGATIONS"), in connection with the consummation
of the transactions contemplated hereby.
3.3.2. MANNER OF ASSUMPTION. SCC's assumption of the Assumed
Obligations shall be evidenced by one or more Assignment and Assumption
Agreements substantially in the form of Exhibit "D" ("ASSUMPTION AGREEMENTS").
It is not the intention of either SCC or Seller that the assumption by SCC of
the Assumed Obligations pursuant to the Assumption Agreements shall in any way
enlarge the rights of third parties under, or with respect to, the agreements or
instruments to which such Assumed Obligations relate. Nothing contained herein
shall prevent or otherwise limit Buyer from contesting in good faith any of the
Assumed Obligations with the obligee.
3.4. CONDITION TO CLOSING. In addition to the other conditions to
Buyer's and Seller's obligations to close specified in SECTIONS 9 AND 10 hereof,
and notwithstanding any other term or provision hereof, each of Buyer and Seller
shall have the right to terminate this Agreement and refrain from consummating
the transactions contemplated hereby without liability if the aggregate amounts
payable to Seller pursuant to SECTION 2.1.1(B) (and subject to the terms of
SECTION 3.2.1) are insufficient to pay, satisfy or otherwise discharge in full
the Closing Date Liabilities, as confirmed by signed and completed Renegotiated
Debt Agreements.
3.5. ALL OTHER LIABILITIES TO BE RETAINED BY SELLER. Anything herein to
the contrary notwithstanding, neither SCC nor SCC I LLC is assuming and neither
shall have liability with respect to, and Seller shall be solely liable and
responsible for, all debts, liabilities and obligations which are not included
in the Assumed Obligations including, without limitation, the following: (a) any
claim, demand, debt or liability asserted by a creditor of Seller that shall
exceed, or be in addition to, the aggregate amount of the Closing Date
Liabilities; (b) any debts, claims, demands, liabilities or other obligations,
whether known or unknown and whether fixed, accrued or contingent, which are not
disclosed on the "Club Financial Statements" (as defined in SECTION 6.8 hereof);
(c) liabilities under any Membership Agreement or Contract that accrued, arose
or otherwise relates to any period prior to the Closing Date; (d) any contract,
agreement, commitment or obligation that is included in or otherwise related to
any Excluded Assets; (e) except as otherwise provided in this Agreement,
liabilities or obligations of Seller to any partner, employee, officer,
director, shareholder or other person who controls, is controlled by or is under
common control with Seller or any general partner thereof (each, a "SELLER
AFFILIATE"), whether relating to (i) unpaid salary, severance, retirement or
other benefits; (ii) wrongful discharge or termination; or (iii) any
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loans or other advances made to Seller or the Club by any partner, employee,
officer, director, shareholder or Seller Affiliate; (f) liabilities under any
employee benefit plan or program in effect as of the Closing Date; (g)
liabilities or obligations of Seller or the Club relating to any breach, or from
any fact or transaction involving a breach, by Seller or the Club of any
covenant, agreement, representation or warranty contained herein or arising
from, out of, or in connection with, the transactions contemplated by this
Agreement; (h) liabilities or obligations incurred by Seller, the Club or any
Seller Affiliate on or after the Closing Date; (i) liabilities or obligations in
respect of or arising out of any goods, merchandise or services provided by the
Club to or for the benefit of any member or patron on or before the Closing Date
or relating to the alleged breach of any duty or violation of any right owed or
held by any other person or entity; (j) liabilities or obligations involving the
payment of any domestic (federal, state or local) or foreign taxes on or
measured by income, which are due or shall become due as a result of the
operation of the Club through the Closing Date, including, without limitation,
any minimum tax imposed under Section 56 of the Internal Revenue Code of 1986,
as amended (the "CODE"), or any comparable tax imposed under any other tax
statute, or interest or penalties relating thereto; (k) liabilities or
obligations relating to the payment or deposit of (or the failure to pay or
deposit) all Federal, state or local payroll or withholding taxes (including
interest, penalties and other assessments) which were required to be paid or
deposited by Seller or any Seller Affiliate with a financial institution for all
periods up to and including the Closing Date; and (l) liabilities or obligations
owed by Seller or any Seller Affiliate to any person or entity with respect to
any existing or pending lawsuit, arbitration or other legal or proceeding, or
any litigation, arbitration or other legal proceeding that may be instituted
against Seller or any Seller Affiliate subsequent to the Closing Date but that
relates to facts or events arising or occurring prior to the Closing Date. The
foregoing obligations and liabilities are hereinafter collectively referred to
as the "RETAINED OBLIGATIONS".
3.6. RIGHT OF ENFORCEMENT AND SETTLEMENT. From and after the Closing
Date, SCC shall have complete control over the satisfaction and discharge of the
Assumed Obligations and the right to commence, conduct and control all
negotiations and proceedings with respect thereto. Seller shall notify SCC
promptly of any claim made which arose, accrued or otherwise relates to any
Assumed Obligation and shall not, except with SCC's prior written consent,
voluntarily settle or offer to settle, or consent to any compromise or admit
liability with respect to, any such claim. Seller shall cooperate with SCC in
any reasonable manner requested by Buyer in connection with any negotiations or
proceedings involving any Assumed Obligation.
SECTION 4. USE OF TITLE COMPANY; PRORATIONS.
4.1. DESIGNATION OF TITLE COMPANY. As soon after the date hereof as is
reasonably practicable, Seller and Buyer shall jointly instruct a title company
designated by Buyer ("TITLE COMPANY") that upon satisfaction or waiver of the
conditions set forth in SECTION 9 AND 10 below, it shall record the Grant Deed
and deliver to SCC I LLC or its agent the "Title Insurance" defined and
described in SECTION 5.2.2 below. Except as otherwise provided in this SECTION
4, Seller shall pay all costs relating to the transfer of the Real Property,
including, without limitation, all real estate brokerage commissions, if any;
documentary or other transfer taxes; recording and reconveyance fees necessary
to extinguish any and all existing Liens; and costs of preparing,
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executing and acknowledging the Grant Deed (or Deeds) and other instruments
necessary to transfer good and marketable title to the Real Property to SCC I
LLC in accordance with this Agreement. Buyer shall pay all premiums, fees and
costs related to the issuance of the Preliminary Title Report under SECTION 8.12
and the Title Insurance, together with the cost of recording the Grant Deed (or
Deeds) and other instruments conveying title to the Real Property to SCC I LLC.
4.2. EXPENSES AND PRORATIONS.
4.2.1. PRORATIONS AND REIMBURSEMENT. Except as otherwise provided
herein, at and as of the Closing, Buyer and Seller shall prorate in cash (a)
rents payable by Seller under the Real Property Leases, (b) rents payable by
Seller under the Personal Property Leases, (c) utility and sewer charges and all
operating expenses of Seller to the extent attributable to its Health/Fitness
Business and the catering business, (d) all utility, service and other charges
relating to the Real Property, and (e) other items which are typically prorated
in similar transactions but only to the extent attributable to the
Health/Fitness Business or to Seller's catering business. Seller shall maintain
in place for the benefit of Buyer all deposits under the Real Property Leases
and Personal Property Leases, as well as all utilities and other deposits held
by third parties, subject to Seller's right to retain the Utility Deposits at
and as of the Closing.
4.2.2. TERMINATION OF EMPLOYEES. Effective as of the Closing,
Seller shall terminate, or cause to be terminated, all of its employees and
independent contractors, and Seller shall pay, or cause to be paid, all accrued
employee salaries, vacation, sick pay, bonuses, payroll taxes and other employee
and independent contractor costs/fees as of the Closing Date; provided that, SCC
shall promptly reimburse Seller for the aggregate amount paid to those
terminated employees who are not rehired by Buyer immediately following the
Closing, in respect of accrued but unused vacation pay (and to the extent
required under Seller's employment policies, in respect of sick pay). SCC shall
have the right to hire, from and after the Closing, such of Seller's former
employees as it deems necessary to operate the Club following the Closing,
subject to the same general compensation and benefits package (including health
care and worker's compensation insurance) as shall be offered to SCC's other
employees occupying the same or similar positions. Any of Seller's former
employees who are hired by SCC immediately following the Closing shall, in
addition to the standard vacation and sick days granted to SCC's employees
occupying the same or similar position, be granted by SCC additional vacation
and sick days equal to the number of their accrued but unused vacation and sick
days with Seller as of the Closing Date. Seller shall deliver to SCC copies of
Forms W-2 for all employees whom SCC may employ after the Closing Date, and
copies of all payroll records for such employees, in each case from the date of
each such person's employment through the business day immediately preceding the
Closing Date; Schedule 6.23.3 hereto identifies all such employees.
4.2.3. METHOD OF PRORATING. All prorations hereunder shall be made
on the basis of the actual number of days elapsed and shall be prorated as of
the Closing Date, unless otherwise provided herein. Absent unforeseen
circumstances, the parties shall endeavor to complete all prorations
contemplated by this SECTION 4.2 within sixty (60) days following the Closing
Date. In order to allow for prompt settlement of all prorated amounts hereunder,
Seller
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acknowledges that the Withheld Amount shall be withheld by Buyer as of the
Closing Date, and any and all prorations shall be credited or debited against
such withheld sum as provided in Section 3.2.1 or this Section 4.2.3. If the
Withheld Funds shall be insufficient to reimburse Buyer for Seller's share of
all such prorated items, Seller shall remit the amount of such shortfall to
Buyer within three (3) days of its receipt of notice from Buyer regarding such
reimbursement request. If either Seller or Buyer shall dispute any proration
calculations hereunder and shall be unable to resolve such dispute within ten
(10) days after commencement of settlement discussions, the parties shall submit
such dispute to a nationally-recognized accounting firm acceptable to them,
provided such firm shall not have been engaged by either Buyer or Seller at any
time within the past ten (10) years, and the determination of such chosen firm
shall be conclusive and binding. Each party shall be entitled to provide the
accounting firm with all information which it deems relevant to the matters in
dispute, and the fees of the accounting firm for providing such services shall
be borne equally by Buyer and Seller.
SECTION 5. CLOSING; DELIVERIES
5.1. CLOSING. The closing of the purchase and sale of the Transferred
Assets and related assumption of the Assumed Obligations by Buyer pursuant to
the terms hereof (the "CLOSING") shall be held at the offices of Kinsella,
Boesch, Fujikawa & Towle, LLP, 1901 Avenue of the Stars, 7th Floor, Los Angeles,
California 90067, at 10:00 A.M. (California time), on December 31, 1997, or at
such other date, place or time as the parties shall otherwise agree upon in
writing (the date of the Closing being referred to herein as the "CLOSING
DATE").
5.2. SELLER DELIVERIES AT CLOSING. In addition to all other deliveries
required to be made at the Closing as described elsewhere herein, at or before
the Closing, on the Closing Date, Seller shall deliver, or cause to be
delivered, to SCC I LLC the following documents:
5.2.1. DEEDS. One or more Grant Deeds conveying to SCC I LLC fee
simple title to the Real Property, which Grant Deed (or Deeds) (a) shall be
executed by a duly authorized representative of Seller and notarized for
recording, and (b) shall convey to SCC I LLC good and marketable title to the
Real Property, free and clear of any and all Liens except for those exceptions
approved by Buyer pursuant to SECTION 8.12 hereof (the "PERMITTED EXCEPTIONS");
and
5.2.2. TITLE INSURANCE. An American Land Title Association ("ALTA")
standard coverage policy of title insurance covering the Real Property (the
"TITLE INSURANCE") with liability in the aggregate amount of the Real Property
Purchase Price, insuring SCC I LLC that fee title to the Real Property is vested
in it, subject only to the Permitted Exceptions. Although it is Seller's
obligation to furnish the Title Insurance required by this SECTION 5.2.2, Buyer
shall pay the premiums for such Title Insurance. The Title Insurance shall
include appropriate endorsements for zoning classification, including for
parking.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to, and agrees with, Buyer as follows:
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6.1. ORGANIZATION, GOOD STANDING, POWER, ETC.
6.1.1. The Partnership is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of California,
and it conducts no business nor owns or leases any assets or properties outside
the State of California. The Partnership has all requisite partnership power and
authority to (i) execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby and (ii) own or
lease and operate its properties and to carry on its business as it is presently
being conducted. The Partnership's sole managing general partner is Heuler, and
Heuler owns his partnership interest in his individual capacity and has all
necessary power and authority (x) to manage and operate the Partnership's
business in the manner in which it is currently being conducted; (y) to perform,
as the Partnership's managing general partner and on behalf of the Partnership
as such managing general partner, the Partnership's obligations under the
Membership Agreements and Contracts; and (z) to execute and deliver this
Agreement on behalf of the Partnership. Other than "Sequoia Athletic Club Santa
Ana", "Sequoia Athletic Club - Santa Ana", "Racquetball World" and "Racquetball
World Santa Ana", the Partnership has never conducted any business at the Club
under or otherwise used, for any purpose or in any jurisdiction, any fictitious
name, assumed name, trade name or other name.
6.1.2. The LLC is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of California,
and it conducts no business nor owns or leases any assets or properties outside
the State of California. The LLC has all requisite corporate power and authority
to (i) execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby and (ii) own or lease and
operate its properties and to carry on its business as it is presently being
conducted. The members of the LLC are duly authorized to manage and operate the
LLC's business in the manner in which it is currently being conducted; (y) to
perform obligations under the Membership Agreements and Contracts; and (z) to
execute and deliver this Agreement on behalf of the LLC. Other than "Sequoia
Athletic Club Santa Ana", "Sequoia Athletic Club - Santa Ana", "Racquetball
World" and "Racquetball World Santa Ana", the LLC has never conducted any
business at the Club under or otherwise used, for any purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or other name.
6.2. CHARTER DOCUMENTS.
6.2.1. LIMITED PARTNERSHIP AGREEMENT. Included as part of Exhibit E
are true, correct and complete copies of the Partnership's Agreement of Limited
Partnership (the "PARTNERSHIP AGREEMENT") and Certificate of Limited Partnership
(Form LP-1) ("CERTIFICATE"), as amended to date. Each of the Partnership
Agreement and Certificate is in full force and effect.
6.2.2. Included as part of Exhibit E are true, correct and complete
copies of the LLC's Articles of Organization and Operating Agreement (the "LLC
Charter Documents"), as amended to date. Each of the LLC Charter Documents is in
full force and effect.
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6.3. SUBSIDIARIES, DIVISIONS AND AFFILIATES. No person or entity other
than Seller, and no Seller Affiliate (other than partners of Seller), has any
legal or equitable right, title or interest in or to any of the Transferred
Assets.
6.4. AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement and the "ANCILLARY DOCUMENTS" (as defined in SECTION 8.14.1)
by the Partnership, and the consummation of the transactions contemplated hereby
and thereby, will have been duly and validly authorized by the General Partners,
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the requisite number of limited partners of the
Partnership as required by the Partnership Agreement as of the Closing Date. The
execution, delivery and performance of this Agreement and the "Ancillary
Documents" by the LLC, and the consummation of the transactions contemplated
hereby and thereby, will have been duly and validly authorized by the members of
the LLC. On the Closing Date, this Agreement will have been, and the Ancillary
Documents will be, duly and validly authorized, executed and delivered by the
Partnership and the LLC. This Agreement constitutes a valid and binding
obligation of Seller, enforceable against it in accordance with its terms,
except (a) that such enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally, (b)
to the extent that enforceability may be limited by California courts with
respect to any "unconscionable" provisions contained therein, and (c) that
certain of the covenants contained herein may not be specifically enforceable
and courts may award money damages rather than specific performance of
contractual provisions involving matters other than the payment of money.
6.5. EFFECT OF AGREEMENT, ETC. The execution, delivery and performance
of this Agreement by Seller, and the consummation by Seller of the transactions
contemplated hereby, will not, with or without the giving of notice and the
lapse of time, or both, (a) violate any provision of law, statute, ordinance,
rule, regulation or executive order to which Seller is subject; (b) violate any
judgment, order, writ or decree of any court, arbitrator or governmental
authority applicable to Seller; or (c) result in the breach of or conflict with
any term, covenant, condition or provision of, result in the modification or
termination of, constitute a default under, or result in the creation or
imposition of any Lien upon any of the Transferred Assets pursuant to, Seller's
Partnership Agreement or Certificate or the LLC's Charter Documents, or any
commitment, contract, agreement or instrument, including any of the Membership
Agreements or Contracts, to which Seller is a party or by which any of the
Transferred Assets is or may be bound or affected.
6.6. RESTRICTIONS; BURDENSOME AGREEMENTS. Except as otherwise disclosed
in Schedule 6.6 or as specifically disclosed elsewhere in this Agreement or in
the other Schedules hereto, neither Seller nor the General Partner is a party to
any contract, commitment or agreement, nor is either of them or any of the
Transferred Assets subject to, or bound or affected by, any partnership
restriction, judgment, decree, law, statute, ordinance, rule, regulation or
other restriction of any kind or character which would, individually or in the
aggregate, materially adversely affect Buyer's purchase, ownership and operation
of the Transferred Assets from and after the Closing.
6.7. NOTICES AND CONSENTS, ETC. Except as otherwise disclosed in
Schedule 6.7 or as
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specifically disclosed elsewhere in this Agreement or in the other Schedules
hereto, no notice to, consent, authorization or approval of, or exemption by,
any other person (including, without limitation, any governmental, public or
self-regulatory body or authority), other than notice, consents or approvals
which Seller shall have obtained as of the Closing Date, is required in
connection with the execution, delivery and performance by Seller of this
Agreement or any of the instruments or agreements herein referred to (including
any Ancillary Documents), or the taking of any action by Seller herein
contemplated.
6.8. FINANCIAL STATEMENTS. Seller has delivered, or caused to be
delivered, to Buyer the following financial statements of Seller: an audited
balance sheet as at September 30, 1996, and an audited statement of operations
for the year then ended; an unaudited balance sheet as at September 30, 1997,
and an unaudited statement of operations for the year then ended; and an
unaudited balance sheet as at October 31, 1997 and an unaudited statement of
operations for the month then ended (collectively, the "CLUB FINANCIAL
STATEMENTS"). The Club Financial Statements are true, accurate and complete in
all material respects, and the dollar amount of each line item included in the
Club Financial Statements is accurate in all material respects. The Club
Financial Statements have been prepared from the books and records of Seller,
which are maintained on an [ACCRUAL] basis, in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered, and present fairly the financial position of Seller as of the
respective dates thereof and the results of operations for the periods covered
thereby. Seller has no, and is not subject to, any debts, liabilities or
obligations of any nature, whether absolute, contingent or otherwise, not fully
and properly reflected or reserved against in the Club Financial Statements,
except debts, liabilities and obligations incurred by Seller in the ordinary
course of business since October 31, 1997 (the "CUT-OFF DATE").
6.9. ACCOUNTS RECEIVABLE. All Receivables reflected in the Club
Financial Statements are included in Seller's Business Records and, at the close
of business on the day immediately preceding the Closing Date, will represent
receivables which (a) arose from bona fide transactions in the ordinary course
of Seller's business, (b) represent amounts payable to Seller consistent with
past practices and policies; and (c) were, and are in the aggregate believed to
be, good and collectible in the amounts shown (less the amount of the reserves
shown in respect of such Receivables, which reserves are disclosed in the Club
Financial Statements and the Business Records, and which were, and will have
been, provided for in accordance with generally accepted accounting principles
applied on a consistent basis with prior practice) in accordance with Seller's
past practices and policies.
6.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 6.10, since the Cut-Off Date, Seller has not: (a) suffered any adverse
change in, or the occurrence of any events which, individually or in the
aggregate, has or have had, or, to the best knowledge of the General Partner
might reasonably be expected to have, a material adverse effect on, the
Transferred Assets, or Buyer's use and enjoyment thereof from and after the
Closing Date; (b) incurred damage to or destruction of any material Transferred
Asset, or material portion of the Transferred Assets, by casualty, whether or
not covered by insurance; (c) incurred any material obligation or liability
(fixed or contingent) except (i) current trade or business obligations incurred
in the ordinary course
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of business, none of which was entered into for inadequate consideration, (ii)
obligations and liabilities under the Membership Agreements and Contracts to the
extent required thereby, and (iii) obligations and liabilities under this
Agreement; (d) made or entered into contracts or commitments to make any capital
expenditures in excess of $10,000 in the aggregate; (e) mortgaged, pledged or
subjected to Lien any of the Transferred Assets (except for (x) the lien of
taxes not yet due and payable, and (y) such imperfections of title and
encumbrances, if any, which do no detract from the value, or interfere with the
current use, of any of the Transferred Assets or otherwise impair the Club's
business operations); (f) sold, transferred or leased any material Transferred
Asset, or material portion of the Transferred Assets, or cancelled or
compromised any debt or material claim, except in each case in the ordinary
course of business; (g) amended, modified or terminated any of the contracts,
agreements, leases or arrangements which are, or would otherwise have been,
listed in Schedule 1.1.1(f); (h) waived or released any other rights of material
value; (i) made any loan or advance to any person other than loans or advances
to employees consistent with past policy and in the ordinary course of business
and not exceeding five thousand dollars ($5,000) in the aggregate; (j) declared
or paid any dividend, distribution or other payment to any person or entity, or
purchased or redeemed any interest in Seller held by any person or entity; or
(k) entered into any transaction not in the ordinary course of business which
would, individually or in the aggregate, materially adversely affect the
Transferred Assets.
6.11. TITLE TO ASSETS; ABSENCE OF LIENS AND ENCUMBRANCES, ETC. Except as
set forth on Schedule 6.11, (a) Seller has good title to, and owns outright, the
Transferred Assets owned by it, which include substantially all of Seller's
assets and properties reflected in the Club Financial Statements, excluding the
Excluded Assets, free and clear of all Liens (except for (i) the lien of taxes
not yet due and payable and (ii) such imperfections or defects of title, if any,
which do not materially detract from the value, or interfere with the current
use, of any of the Transferred Assets or otherwise impair the Club's business
operations); and (b) the sale and delivery of the Transferred Assets pursuant to
the terms hereof will vest in Buyer good and marketable title thereto, free and
clear of all Liens or other defects of any nature (except as set forth in
clauses (a)(i) and (a)(ii) above). The Transferred Assets are located only in
the State of California, and none of such Assets was removed from another state.
All Real Property Leases, Personal Property Leases, Contracts and other
agreements and instruments under which Seller holds, leases or is entitled to
the use of any Real or Personal Property included in the Transferred Assets (a
correct and complete list of all such Leases, Contracts and other agreements and
instruments being set forth in Schedules 1.1.1 (a), (b) and (f), respectively),
are in full force and effect, and all rentals, royalties and other payments
accruing thereunder prior to the date hereof have been duly paid and Seller
enjoys peaceable and undisturbed possession under all such Leases, Contracts and
other agreements and instruments. With respect to Real Property and Personal
Property Leases, Schedules 1.1.1(a) and 1.1.1(b), respectively, identify the
lessor of each such item, the amount of the monthly lease payment required
thereby and the scheduled expiration date of the applicable Lease, and said
Schedules are true, accurate and complete.
6.12. PERSONAL PROPERTY. Schedule 1.1.1(d) contains a correct and
complete list, as of the date hereof, of all Personal Property owned by Seller
and included in the Transferred Assets, indicating, for each such item, where it
is located. All Personal Property utilized by Seller in
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connection with its Health/Fitness Business and catering business prior to the
date hereof is included in the Transferred Assets. Except as otherwise indicated
on Schedule 1.1.1(d), all Personal Property is in reasonably good working
condition and repair, is free of known deficiencies, defects or operating
problems, has been adequately maintained in accordance with applicable operating
or maintenance manuals or standard industry practice and has been suitable to
Seller for the uses for which said Personal Property has been employed, and (b)
to the best knowledge of the General Partner, conforms in all material respects
with all laws, ordinances, regulations, orders or other similar governmental
requirements relating to its use, as the same are currently in effect. Seller
possesses complete control over, and all right, title and interest in and to,
all Litigation Rights, and Seller has not assigned or transferred any right or
interest in any such Litigation Rights to any third party, whether voluntarily
or by operation of law. Seller has previously disclosed to Buyer any and all
pending matters comprising the Litigation Rights and has made, or will after the
date of this Agreement make, available to Buyer and its counsel all relevant
files and documents with respect to each matter included within the Litigation
Rights. Provided Buyer elects to continue to prosecute any matters included in
the Litigation Rights, Seller shall cause its legal counsel to cooperate with
Buyer's counsel in connection with Buyer's counsel's assumption of control over
the prosecution of any such matters (including the preparation and filing of all
necessary papers with the applicable courts to substitute in Buyer's counsel in
place of Seller's counsel). Seller shall continue to exercise control over the
prosecution of any matters included within the Litigation Rights which are not
assumed by Buyer hereunder.
6.13. INVENTORY. The Inventory is of a quality which makes it usable,
merchantable and/or saleable, as applicable, at regular prices in the ordinary
course of business.
6.14. MEMBERS; MEMBERSHIP AGREEMENTS.
6.14.1. FORM OF MEMBERSHIP AGREEMENT. Attached as Exhibit "F" is
the form (or forms) of Membership Agreement used by Seller to govern the
memberships of its Members ("MEMBERSHIPS").
6.14.2. INFORMATION REGARDING MEMBERSHIPS. Schedule 6.14(a) sets
forth, as of a recent date, in the aggregate, (a) monthly Club dues under all
Membership Agreements, (b) the amount of prepaid Club dues, (c) the number of
renewable Memberships and the terms thereof, and (d) those Memberships issued on
a promotional or non-fee basis (the "FACILITIES SCHEDULE"). Schedule 6.14(b)
sets forth an accurate and complete listing, as of a recent date, of (i) the
name and address of each current member of the Club, (ii) each member's monthly
Club fee and any amounts due and owing under his/her Membership Agreement as of
the date of the Facilities Schedule (indicating, in each case, the aging of any
amounts due and owing for more than thirty (30) days), (iii) the amount of the
Member's prepaid Club dues, if any, and (iv) the number of months of service
covered by each such prepayment.
6.14.3. COMPLIANCE WITH LAW. Except as otherwise set forth in
Schedule 6.14(a), the terms and provisions of each Membership Agreement comply
with the provisions of Section 1812.80 et seq. of the California Civil Code, as
amended (the "CIVIL CODE").
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If and to the extent that Buyer shall be required to give any refund to any
member after the Closing as a result of the failure of such member's Membership
Agreement to comply with the provisions of Section 1812.80 et seq. of the Civil
Code, then Seller shall pay to Buyer, promptly upon demand, the amount of such
refund if it relates to (a) any prepaid or deferred payment under a Membership
Agreement made prior to the Closing Date, or (b) any initiation fee, or portion
thereof, paid by such member to Seller prior to the Closing Date. Neither the
Club nor Buyer is required to notify any member of any right to a refund as a
result of the transactions contemplated by this Agreement.
6.15. INSURANCE. There are no outstanding or unsatisfied requirements or
recommendations imposed or made by any of Seller's current insurance companies
with respect to current policies covering any of the Transferred Assets, or by
any governmental authority requiring or recommending, with respect to any of the
Transferred Assets, that any repairs or other work be done on or with respect
to, or requiring or recommending any equipment or facilities be installed on or
in connection with, any of the Transferred Assets. Seller has carried worker's
compensation and comprehensive general liability insurance, respectively, in
such amounts and having such policy exclusions and conditions, as Seller deemed
reasonable and consistent with standard industry practice, and all such policies
of insurance are in full force and effect as of the date hereof (and will remain
in full force and effect through the Closing Date). Schedule 6.15 sets forth a
correct and complete description of (a) all currently effective insurance
policies and fidelity and surety bonds, if any, covering the Transferred Assets,
and (b) for the five-year period ending on the date hereof, (i) all accidents,
casualties or damage occurring on or about the Club's premises or otherwise
relating to the Transferred Assets or the Health/Fitness Business or the
catering business of Seller, and (ii) claims for damages, contribution or
indemnification and settlements (including pending settlement negotiations)
relating thereto. Except as set forth on Schedule 6.15, there are no disputes
with underwriters of any such policies or bonds, and all premiums due and
payable thereon have been paid. Seller and the Transferred Assets are in
compliance with all conditions contained in such policies or bonds, except for
non-compliance which, individually or in the aggregate, would not have a
material adverse effect on the Transferred Assets.
6.16. AGREEMENTS, ARRANGEMENTS, ETC.
6.16.1. NO OTHER CONTRACTS. Except for the Partnership Agreement,
Membership Agreements and Contracts listed on Schedule 1.1.1(f), the Real and
Personal Property Leases, those agreements and contracts included within or
relating to the Excluded Assets or Retained Obligations and those agreements and
contracts which are immaterial to Seller's Health/Fitness Business or catering
business, as applicable, Seller is not a party to, nor is it or any of the
Transferred Assets bound by, any lease, license, employment agreement,
sales/supplier or distribution agreement, sales representative or broker
agreement, joint venture or partnership agreement, indemnification or guarantor
agreement, loan or credit agreement, security or pledge agreement, advertising
or public relations agreement, non-competition agreement or purchase order or
commitment. Correct and complete originals of all Membership Agreements and
Contracts will be delivered to Buyer at or prior to the Closing.
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6.16.2. EFFECTIVENESS OF CONTRACTS. To the best knowledge of the
General Partner, each Membership Agreement, Contract, Real Property Lease and
Personal Property Lease included in the Transferred Assets is valid, in full
force and effect and enforceable in all material respects by Seller in
accordance with its terms, except (a) to the extent that its enforceability may
be limited by applicable insolvency, bankruptcy or similar laws affecting the
enforcement of creditors' rights generally, (b) to the extent that
enforceability may be limited by California courts with respect to any
"unconscionable" provisions contained therein, and (c) that certain of the
covenants contained therein may not be specifically enforceable and courts may
award money damages rather than specific performance of contractual provisions
involving matters other than the payment of money.
6.16.3. NO DEFAULTS. Except as otherwise set forth on Schedule
6.16.3, Seller has fulfilled, or has taken all action reasonably necessary to
enable it to fulfill when due, all of its obligations under each Membership
Agreement, Contract, Real Property Lease and Personal Property Lease, except
where the failure to do so would not, individually or in the aggregate, have a
material adverse effect on the Transferred Assets. Furthermore, there has not
occurred any default by or on the part of Seller, or any event which, with the
giving of notice or the lapse of time (or both), would constitute a default, nor
to the knowledge of Seller has there occurred any default by others or any event
which, with giving of notice or the lapse of time (or both), will become a
default under any of the Membership Agreements, Contracts, Real Property Leases
or Personal Property Leases, except defaults, if any, which have not resulted
and will not result in any material loss to or liability of Seller or any of its
successors or assigns. Seller is not in arrears in any material respect with
respect to the performance or satisfaction of the terms or conditions to be
performed or satisfied by it under any Membership Agreement, Contract, Real
Property Lease or Personal Property Lease, and, to the best of the General
Partner's knowledge, no waiver or indulgence has been granted by any of the
parties thereto.
6.16.4. CONTRACTS ASSIGNABLE. Except as otherwise set forth on
Schedule 6.16.4, each of the Membership Agreements, Contracts, Real Property
Leases and Personal Property Leases included in the Transferred Assets is
assignable by Seller to Buyer without the consent of the other party (or
parties) thereto, except for such of the Membership Agreements, Contracts and
Personal Property Leases which in the aggregate do not constitute a material
portion of the Transferred Assets. To the extent the consent of any party to a
Membership Agreement, Contract, Real Property Lease or Personal Property Lease
is required, then Seller shall provide Buyer with true and correct copies of all
such consents at the Closing.
6.17. PERMITS, LICENSES, AND PROPRIETARY RIGHTS.
6.17.1. LICENSES. Other than the Licenses and except as disclosed
in Schedule 6.17.1, there are no permits, licenses, orders or approvals of
governmental or administrative authorities or other persons required to permit
Seller to carry on the Health/Fitness Business or the catering business as
currently conducted, and all Licenses are in full force and effect, may be
transferred and assigned to Buyer on the Closing Date without the consent or
approval of any other person or entity and will remain valid and in effect in
connection with Buyer's use and operation of
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the Transferred Assets from and after the Closing.
6.17.2. PROPRIETARY RIGHTS. Other than the Proprietary Rights,
there is no proprietary right or asset which Seller requires or upon which it
relies in operating its Health/Fitness Business or catering business, as the
case may be. Except as set forth in Schedule 6.17.2, Seller has not (i)
infringed, and is not now infringing, upon any patent, trademark, copyright,
trade name or trade secret belonging to any other person or entity and has not
and is not now engaging in any form of unfair competition, and (ii) received any
written notice of any infringement or misappropriation of any Proprietary Right
owned or used by any other person or entity.
6.18. COMPLIANCE WITH APPLICABLE LAWS. The conduct by Seller of its
Health/Fitness Business and catering business does not violate or infringe any
law, statute, ordinance, regulation or executive order (including, without
limitation, Section 1812.80 et seq. of the Civil Code, the Occupational Safety
and Health Act, the National Environmental Policy Act and the Foreign Corrupt
Practices Act, as amended, and the respective regulations thereunder) currently
in effect, except in each case for violations or infringements which do not and
will not, individually or in the aggregate, have a material adverse effect on
the Transferred Assets or Buyer's operation thereof from and after the Closing
Date. Seller is not in default under any governmental or administrative License
issued to it or under any governmental or administrative order or demand
directed to it, or with respect to any order, writ, injunction or decree of any
court which, in any case, materially adversely affects the Transferred Assets.
6.19. LITIGATION. Except as set forth on Schedule 6.19, there is no
claim, action, suit, grievance, arbitration, investigation, proceeding or
hearing (or notice of hearing) pending or, to the best of the General Partner's
knowledge, threatened, before any court or governmental municipal or
administrative authority or private arbitration tribunal against or relating to
or affecting Seller, the General Partner or any of the Transferred Assets,
including without limitation, proceedings for or involving tenant evictions,
collections, condemnations, eminent domain, alleged building code, zoning or
environmental violations, or personal injuries or property damage alleged to
have occurred on the Real Property or by reason of the construction of any
improvements thereon or the use and operation of the Real Property or any
present plan or study by any governmental authority, agency or employee thereof
which in any way challenges, affects or would challenge or affect the continued
authorization of the ownership, construction, use and operation of the Real
Property, or the transactions contemplated by this Agreement. Nor are any facts
known to the General Partner which he believes could reasonably give rise to any
such claim, action, suit, proceeding, arbitration, investigation or hearing and
which may have an adverse effect upon the business of the Club, the value of the
Transferred Assets or the transactions contemplated by this Agreement. Seller
has not waived any statute of limitations or other affirmative defense with
respect to any of the Assumed Obligations. There is no continuing order,
injunction or decree of any court, arbitrator or governmental or administrative
authority to which Seller or the General Partner is a party, or, to the best
knowledge of the General Partner, to which Seller or the General Partner is
subject. Neither Seller nor the General Partner, nor any current officer,
director, partner or employee of Seller or any Seller Affiliate, has been
permanently or temporarily enjoined or barred
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by order, judgment or decree of any court, tribunal, agency or self-regulatory
body from engaging in or continuing any conduct or practice in connection with
the Health/Fitness Business or catering business, as the case may be.
6.20. REAL PROPERTY. Seller does not own any real property or possess
any interest in real property, except for the Real Property and the leaseholds
created under the Real Property Leases identified in Schedule 1.1.1(a). Said
Schedule 1.1.1(a) contains an accurate and complete description of the monthly
rental rate under each such Real Property Lease, the termination date thereof,
and extension periods thereunder. Except for the members and guests, no person
has any right to occupy any part of the Club, except for those subtenants, if
any, identified in Schedule 1.1.1(a) (which, with respect to each such sublease,
identifies the monthly rental rate payable thereunder, the termination date
thereof, extension periods, if any, thereunder and the use thereunder by the
subtenant). The Club enjoys peaceful and undisturbed possession of the premises
covered by each Real Property Lease, which premises are supplied with utilities
and other services reasonably necessary for the operation thereof. Except as
otherwise disclosed in Schedule 1.1.1(a), (a) all such Real Property 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 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
tenant (as the case may be) or any other party to terminate any such Real
Property Lease or sublease, and (d) the real property, any improvements thereon
and the uses thereof that are the subject of such Real Property Leases or
subleases conform with all applicable ordinances, regulations and building,
zoning and other applicable laws. There has been no substantial damage to any
portion of the Real Property caused by fire or other casualty which has not been
fully and completely repaired or restored. Seller has not received written
notice of any proposed action or proceeding by any governmental agency, body or
other authority 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 proposed action or 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.
Schedule 1.1.1(a) also describes the amount of all deposits (including security
and utilities deposits) under the Real Property Leases and subleases paid by or
to Seller with respect to its Health/Fitness Business and/or catering business,
as applicable.
6.21. NO INTEREST IN COMPETITORS, ETC. Set forth on Schedule 6.21 is a
list describing the extent to which Seller, the General Partner or any Seller
Affiliate, directly or indirectly, owns more than a five percent (5%) interest
in or controls, or is an employee, officer, director or partner of or
participant in (but only to the extent such participation exceeds 5%) or
consultant to, any privately-held or -owned corporation, partnership, limited
partnership, joint venture, association or other entity which is a competitor,
supplier or customer of Seller or any Seller Affiliate, or has any type of
business or professional relationship with Seller or such Seller Affiliate
(except that the 5% ownership interest referred to in this SECTION 6.21 shall
not exceed one percent (1%) to the extent any such corporation, partnership,
limited partnership, joint venture, association or other entity is
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publicly-held).
6.22. BOOKS AND RECORDS. The books of account and other financial and
corporate records of each Club (including, without limitation, the Business
Records and the Club Financial Statements) are in all material respects
complete, correct and up to date, and fairly present the corporate status,
financial condition and results of operations of Seller at the dates and for the
periods for which such information was given (and such Business Records were
maintained).
6.23. EMPLOYEE BENEFIT PLANS, ETC.
6.23.1. ERISA
(a) As used herein:
(i) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated
and rulings issued thereunder.
(ii) "ERISA AFFILIATE" means any person that for purposes of
Title IV of ERISA is a member of Seller's controlled group, or under
common control with Seller, within the meaning of Section 414 of the
Internal Revenue Code of 1986, as amended.
(b) Neither Seller, nor any ERISA Affiliate of Seller, has at any
time adopted, maintained, contributed to, or agreed to contribute to any
single-employer or multi-employer pension plan which is a "defined benefit plan"
as defined in Section 3(35) of ERISA.
(c) Seller does not have any "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA which is now in effect, except for
any such Plan listed on Schedule 6.23.2.
6.23.2. OTHER SELLER PLANS.
(a) All "employee welfare benefit plans" (within the meaning of
Section 3(1) of ERISA) maintained by any Partnership (or to which any
Partnership contributes) are described in Schedule 6.23.2 ("PLANS"). Seller has
no other employee welfare benefit plans.
(b) Seller has no obligations with respect to any health,
accident, medical or severance pay arrangements owing to retired or terminated
employees.
(c) Seller has received a determination letter from the Internal
Revenue Service which provides that Seller's 401(k) Plan is qualified under the
terms of Sections 401(a) and 401(k) of the Code, and neither Seller nor the
General Partner is aware of any condition or circumstance which may adversely
affect such qualification. Seller's 401(k) Plan is in compliance
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with the actual deferral percentage ("ADP") and, if applicable, the average
contribution percentage ("ACP") requirements of Sections 401(k) and 401(m) of
the Code, respectively. Seller has contributed to such 401(k) Plan the amount of
all salary deferrals regarding compensation payable to participating employees
prior to the date of this Agreement, and, as of the Closing Date, Seller shall
have contributed all such amounts and shall have made all required employer
matching contributions through said Date. Prior to the date hereof, there have
been no uncorrected "prohibited transactions" within the meaning of Sections 406
through 408 of ERISA or Section 4975 of the Code.
6.23.3. LIST OF EMPLOYEES. Schedule 6.23.3 includes a correct and
complete list of the names of all employees of Seller (which distinguishes
between full-time and part-time employees) and the aggregate compensation
(including bonuses, executive incentive compensation and commissions, if any)
paid to or accrued for the benefit of such employees during calendar year 1996
and through the date hereof, to the extent such employees were still employed by
Seller as of such date; said Schedule 6.23.3 also identifies those of such
employees (identified by an asterisk (*)) to whom Buyer intends to offer
employment on and after the Closing Date.
6.24. LABOR MATTERS. Seller is in material compliance with all Federal
and state laws regarding employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice. There is no unfair labor practice complaint against Seller
pending or threatened before the National Labor Relations Board ("NLRB") or any
state or local agency, and there is no labor strike, dispute, work stoppage or
slowdown, lockout, grievance, controversy or other labor problem pending or, to
the best of Seller's and the General Partner's knowledge, threatened against or
affecting Seller, nor to the best of the General Partner's knowledge does any
basis therefor exist. Seller is not a party to, nor bound by, any union,
collective bargaining or other labor agreement covering all or any portion of
its employees, nor has any group or organization of Seller's employees made any
demand for recognition or certification upon either Seller, the NLRB or any
state or local agency; and no representation proceedings are pending or
threatened against Seller before the NLRB or any such other state or local
agency. There has been no "mass layoff" or "plant closing" within the meaning of
the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section 2101 et
seq., involving Seller within the two (2)-year period prior to the date hereof,
nor will any "plant closing" or "mass layoff" occur as a result of Seller's
termination of its employees pursuant to SECTION 4.2.2 hereof.
6.25. SUFFICIENCY OF ASSETS. The Transferred Assets, taken in the
aggregate, are sufficient, and constitute all of the property (other than the
Excluded Assets) and rights necessary, for the continuation of the
Health/Fitness Business and catering business from and after the Closing Date on
a basis consistent with its operations as exist on and as of the date hereof.
6.26. ENVIRONMENTAL MATTERS. For all periods prior to the Closing Date,
Seller's operations have been conducted in compliance with all "Environmental
Laws" (as hereinafter defined), including, without limitation, those regulating
the use, handling, storage, disposal, emission and transportation of "Hazardous
Materials" (as hereinafter defined). Seller has not received, within five years
prior to the Closing Date, any notice from any Federal, state or local
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governmental agency or body ("GOVERNMENTAL ENTITY") that Seller or the Real
Property on which the Club operates is or was in violation of any Environmental
Law or is being investigated as a result of an alleged or potential violation of
any Environmental Law. Seller does not currently own, lease or operate any real
property (including the Real Property) at which Hazardous Materials are present
in violation of any Environmental Law or in quantities or at levels that require
investigation, removal or remediation under any Environmental Law, nor, to the
best knowledge of the General Partner, are Hazardous Materials present in
quantities or at levels that require investigation, removal or remediation under
any Environmental Law at any real property formerly owned, leased or operated by
Seller. There are no Liens as the result of the operation of any Environmental
Laws held by any Governmental Entity or other person with respect to any real
property currently owned, leased or operated by Seller (including the Real
Property). There are no underground storage tanks or aboveground storage tanks
containing Hazardous Materials at or under any real property currently owned,
leased or operated by Seller (including the Real Property), and Seller's use,
handling, storage, disposal, emission and transportation of Hazardous Materials,
if applicable, is in compliance with all Environmental Laws. As used herein,
"ENVIRONMENTAL LAWS" shall mean all statutes, regulations, rules, ordinances,
codes, licenses, permits, orders, approvals, plans, authorizations, concessions,
franchises and similar items of all Governmental Entities and all applicable
judicial, administrative and regulatory decrees, judgments and orders relating
to Hazardous Materials or the protection of the environment or human health and
safety in effect as of the Closing Date, including, without limitation: (i) all
requirements, including, without limitation, those pertaining to notification,
warning, reporting, licensing, permitting, investigation, removal and
remediation of Hazardous Materials; and (ii) the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the
Clean Air Act (42 U.S.C. Section 7401 et seq.), the Occupational Safety and
Health Act (29 U.S.C. Section 651 et seq.), the Porter-Cologne Water Quality
Control Act (California Water Code Section 13000 et seq.), the California
Hazardous Waste Control Law (Division 20, Chapter 6.5 of the California Health
and Safety Code, Section 2100 et seq.), the Safe Drinking Water and Toxic
Enforcement Act of 1986 (Division 20, Chapter 6.6 of the California Health and
Safety Code, Section 25249.5 et seq.), the Carpenter-Presley-Tanner Hazardous
Substance Account Act (California Health & Safety Codes Section 25300 et seq.),
the Hazardous Materials Release Response Plans and Inventory (Division 20,
Chapter 6.95 of the California Health and Safety Code, Section 25500 et seq.),
and all similar Federal, state, local and municipal laws in effect as of the
Closing Date. As used herein, "HAZARDOUS MATERIALS" shall mean (A) any and all
asbestos, gasoline, diesel fuel, petroleum, petroleum hydrocarbons, petroleum
by-products, polychlorinated biphenyls, trichlorethylene, ureaformaldehyde and
radon gas; (B) any substance the presence of which requires removal or
remediation under any Environmental Law; (C) any substance which is toxic,
infectious, radioactive, carcinogenic or mutagenic; (D) any materials, waste,
chemicals and substances defined, listed, characterized or referred to as
"hazardous substances", "hazardous waste", "infectious waste", "medical waste",
"extremely hazardous waste", "hazardous materials", "toxic chemicals", "toxic
substances", "toxic waste", "toxic materials", "contaminants", "pollutants",
"carcinogens", "reproductive toxicants" or any variant or similar designations;
and (E) any other substance which is regulated under any Environmental Laws,
provided such substance is present in the action levels, concentrations or
quantity thresholds
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specified herein.
6.27. SECURITIES LAW MATTERS.
6.27.1. INVESTMENT REPRESENTATION. Subject to the terms of
Section 11.6 hereof, Seller will be acquiring that portion of the Acquisition
Shares distributable to it at the Closing for its own account for investment
only and not with a view to, or for resale in connection with, any
"distribution" thereof for purposes of the Securities Act. Seller acknowledges
that no advertising, general solicitation or other means were used by SCC with
respect to the offer of the Acquisition Shares, and that the Acquisition Shares
have not been registered under the Securities Act or any state securities laws
and can be transferred only if so registered or unless an exemption from such
registration is available. Seller acknowledges that the Acquisition Shares shall
be "restricted securities" within the meaning of Rule 144 ("RULE 144") of the
SEC, will contain a transfer restriction legend and may only be resold pursuant
to an effective registration statement filed with the SEC under the Securities
Act, pursuant to Rule 144 or pursuant to another valid exemption from the
registration requirements of the Securities Act as confirmed by an opinion of
counsel reasonably acceptable to Buyer.
6.27.2. ACCESS TO INFORMATION. Buyer has not refused to provide
Seller or the General Partner with any information which they may have
requested. Seller is familiar with, and its representatives (including the
General Partner) have been given full access by Buyer to, all information
concerning the business and financial condition, properties, operations and
prospects of Buyer that Seller has deemed relevant for purposes of making the
investment decision to acquire the Acquisition Shares contemplated by this
Agreement. In this regard, Seller acknowledges having received copies of SCC's
Annual Report on Form 10-K for the year ended December 31, 1996, and Quarterly
Reports on Form 10-Q for each of the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997, respectively, and Current Reports on Form 8-K dated
May 22, 1997 and November 4, 1997, and December 12, 1997, respectively
(collectively, the "SEC FILINGS"). By reason of the knowledge and experience of
the General Partner and of the members of the LLC in financial and business
matters in general, and in the business of Buyer and investments of the type
contemplated by this Agreement in particular, Seller and the General Partner are
capable of evaluating the merits and risks of making the investment in the
Acquisition Shares and are able to bear the economic risk of the investment
(including a complete loss of such investment).
6.28. PAST DUE OBLIGATIONS. Except as otherwise set forth on Schedule
6.28, no Closing Date Liabilities or Assumed Obligations have given rise, or
shall give rise within five days after the Closing Date (except to the extent
such Closing Date Liabilities will have been paid or satisfied by Seller prior
to the Closing so as to relieve Buyer of all liability therefor), to any
additional liability to Buyer on account of their being past due.
6.29. EFFECT OF TRANSACTION. Seller is not, and will not become as a
result of the completion of the transaction contemplated by this Agreement,
"insolvent", as that term is defined in Section 3439.02 of the Civil Code;
Seller is not entering into the purchase transaction with Buyer with the intent
to hinder, delay or defraud any of its creditors; and upon completion of the
purchase
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transaction on the Closing Date, (a) the value of that portion of the
Acquisition Shares to be owned by it and the Excluded Assets will not be
unreasonably small in relation to Seller's remaining business operations, and
(b) Seller will not incur any debts which it will not be able to pay as they
become due.
6.30. SALES TAX, TAX DEPOSITS, ETC. Seller is required by applicable
Federal, state or local law to hold a resale permit, given the nature of its
past and current business operations, and such resale permit is in full force
and effect as of the date hereof. All Federal, state and local partnership tax
returns, and all taxes, interests, penalties and other amounts due and owing
thereunder, have been timely filed and paid, as the case may be, for all periods
up to and including the Closing Date; and all withholding, payroll and other
taxes which are required by applicable law to have been paid or deposited with a
financial institution have been so paid and deposited, as applicable, for all
periods up to and including the Closing Date. Seller has no liability for any
taxes, or any interest or penalties in respect thereof, of any nature that may
be assessed against Buyer or become a Lien against any of the Transferred
Assets.
6.31. OTHER INFORMATION. None of the information furnished by Seller or
any of its representatives to Buyer or any of its representatives in connection
with the transactions contemplated hereby, which is contained in this Agreement
(including the Schedules and Exhibits) or any Ancillary Document or any
certificate or instrument delivered or to be delivered by or on behalf of Seller
in connection with the transactions contemplated hereby, contains any untrue
statement of a fact or omits a material fact necessary to make the information
contained herein or therein, under the circumstances in which such statements
were made (or omitted), not materially misleading. Further, neither the General
Partner nor any other employee of Seller knows of any current fact, state of
affairs or circumstance relating to the Health/Fitness Business or the catering
business which might result in a material adverse change in the condition
(financial or otherwise), properties, assets, liabilities, business or results
of operations of the Club other than such as are fairly and fully disclosed in
the Club Financial Statements.
6.32. KNOWLEDGE OF THE SELLER. As to each representation and warranty
made by Seller under this Section 6, any fact or information known to the
General Partner or to Neal Swerdlow ("SWERDLOW"), or notice received by the
General Partner or Swerdlow, shall be imputed to Seller as if such fact or
information were known to Seller or such notice had been received by Seller.
6.33. TITLE; RIGHTS. Seller is the sole owner of the Real Property, free
and clear of any Liens, except for the Permitted Exceptions. Seller has not
committed or obligated itself in any manner whatsoever to sell, lease or
encumber the Real Property or any interest therein to any party, other than
under the Real Property Leases identified on Schedule 1.1.1(a). No rights of
first refusal regarding the Real Property exist under the organizational
documents of Seller or under any agreement by which Seller may be bound or
affected.
6.34. GOVERNMENTAL APPROVALS; NOTICES. Except as set forth on Schedule
6.34, the improvements on the Real Property and Seller's use of the Real
Property fully comply in all material respects with all zoning, building,
health, traffic, environmental, flood control, fire safety,
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handicap and other applicable laws, regulations, ordinances and rulings of all
local, state and federal authorities and any other governmental entity having
jurisdiction over the Real Property. Except as set forth in such Schedule 6.34,
all requisite certificates of occupancy, licenses, permits, authorizations and
other approvals have been duly obtained and are in full force and effect. To
Seller's actual knowledge, there are no petitions, actions, hearings, planned or
contemplated, relating to or affecting the zoning or use of the Real Property or
any contiguous property. Seller has received no notice, written or otherwise, of
any pending, threatened or proposed governmental action with respect to any
public or utility improvements, improvement moratorium, assessments for public
improvements, nor has Seller received any such notice with respect to any other
actions which might have a material adverse effect upon the Real Property or
Buyer's ability to utilize same after the Closing in the manner Seller is
currently utilizing the Real Property. Seller is not aware of and has not
received any written or other notices from any insurance companies, governmental
agencies or from any other parties of any conditions, defects or inadequacies
with respect to the Real Property (including health hazards or dangers, nuisance
or waste, which, if not corrected, would result in termination of insurance
coverage or increase its costs) or from governmental agencies or any other
parties with respect to any violations of building codes and/or zoning
ordinances or other governmental laws, regulations or orders with respect to the
Real Property, pending or threatened condemnation proceedings with respect to
the Real Property, or any proceedings which could or would cause the change,
redefinition or other modification of the zoning classification, or of any
building or environmental code requirements applicable to the Real Property or
any part thereof, or any property adjacent to the Real Property. Seller shall
immediately notify Buyer of any violations or conditions of which Seller
receives notice (whether written or oral).
6.35. MAINTENANCE. The Real Property, including all systems and
components contained in the improvements forming a part thereof, have been, and
will be through the Closing Date, maintained by Seller in substantially the same
condition as they exist on the date hereof, normal wear and tear excepted.
6.36. NON-ENCROACHMENT. To the best of Seller's knowledge, Seller's
operation of the Real Property and any improvements thereon do not violate, and
the Real Property (including said improvements) do not encroach upon or
otherwise violate, the rights of any adjacent properties or any third parties.
In addition, no improvement on any adjacent property or belonging to any third
party, and no action by any third party, encroaches upon Seller's exclusive
rights to use and occupy the Real Property and improvements.
6.37. NO ADVERSE CONDITION. To Seller's knowledge, the Real Property is
not subject to any material adverse geologic problem or soil condition and, over
the past five years, the Real Property has not experienced any material damage
from earthquakes, floods, earth subsidence or other similar occurrence of any
nature which has not been substantially restored, repaired or corrected. Since
the Cut-Off Date, there has been no material adverse event or changes affecting
the Real Property, or any part or portion thereof.
6.38. CONTRACTS. Except as set forth on Schedule 6.38, as of the
Closing, Buyer will
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have no obligations whatsoever under any management, service, sales, marketing,
leasing or other agency agreements, supply or maintenance contracts, licenses or
permits, equipment or other leases, franchise arrangements, brokerage contracts,
representations, warranties and guaranties of architects, contractors and
suppliers and others and similar agreements affecting the Real Property, or any
portion thereof.
6.39. COLLECTIVE BARGAINING AGREEMENTS AND BENEFIT PLANS. No collective
bargaining agreements between Seller and any labor organization apply to the
operation and/or management of the Real Property.
6.40. BANKRUPTCY, ETC. No bankruptcy, insolvency, rearrangement or
similar action involving the Real Property, whether voluntary or involuntary, is
pending or threatened, and Seller has never:
6.40.1. filed a voluntary petition in bankruptcy;
6.40.2. been adjudicated a bankrupt or insolvent or filed a
petition or action seeking any reorganization, arrangement, recapitalization,
readjustment, liquidation, dissolution or similar relief under any Federal
bankruptcy act or any other laws;
6.40.3. sought or acquiesced in the appointment of any trustee,
receiver or liquidator of all or any substantial part of its or his properties,
the Real Property, personal property or any portion thereof, or
6.40.4. made an assignment for the benefit of creditors or
admitted in writing its or his inability to pay its or his debts generally as
the same become due.
Seller is not anticipating or contemplating any of the actions set
forth in Sections 6.40.1 through 6.40.4, inclusive, hereof.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to and agrees with Seller as
follows:
7.1. ORGANIZATION, ETC. SCC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby, and to own or lease and operate its properties and to carry on its
business as it is presently being conducted. SCC I LLC is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware and has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby, and to own or lease and operate its properties
and to carry on its business as it is presently being conducted.
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7.2. AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement and the Ancillary Documents by Buyer, and the consummation of
the transactions contemplated hereby and thereby, will have been duly and
validly authorized by SCC's Board of Directors and the appropriate persons at
SCC I LLC on and as of the Closing Date. On the Closing Date, this Agreement (a)
will have been, and the Ancillary Documents will be, duly and validly
authorized, executed and delivered by Buyer, and (b) constitutes a valid and
binding obligation of Buyer, enforceable against it in accordance with its
terms, except (i) that such enforcement may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights generally,
(ii) to the extent that enforceability may be limited by California courts with
respect to any "unconscionable" provisions contained therein, and (iii) that
certain of the covenants contained herein may not be specifically enforceable
and courts may award money damages rather than specific performance of
contractual provisions involving matters other than the payment of money.
7.3. EFFECT OF AGREEMENT, ETC. The execution, delivery and performance
of this Agreement by Buyer and consummation by Buyer of the transactions
contemplated hereby, will not, with or without the giving of notice or the lapse
of time, or both, (a) violate any provision of law, statute, rule, regulation or
executive order to which Buyer is subject; (b) violate any judgment, order, writ
or decree of any court applicable to Buyer; or (c) result in the breach of or
conflict with any term, covenant, condition or provision of Buyer's charter
documents, as amended, or any commitment, contract or other agreement or
instrument to which Buyer is a party or by which any of its properties or assets
may be bound.
7.4. ISSUANCE OF SHARES. The issuance of the Acquisition Shares to
Seller and the Fullerton and Canoga Park Clubs has been duly authorized and if,
as and when delivered to Seller, the Acquisition Shares will be duly and validly
issued, fully paid and non-assessable and will be free of any Lien (except as
otherwise expressly provided in SECTION 11.6 hereof). Buyer shall take all
action necessary to list the Acquisition Shares on the AMEX as soon after the
Closing Date as is reasonably practicable.
7.5. LITIGATION. There are no actions, suits, proceedings or
governmental investigations or inquiries pending or, to the best knowledge of
Buyer, threatened against Buyer, which, in the reasonable judgment of Buyer,
would prevent the consummation of the transactions contemplated hereby.
7.6. NOTICES AND CONSENTS, ETC. No notice to, consent, authorization or
approval of, or exemption by, any other person (including, without limitation,
any Governmental Entity), other than notice, consents or approvals which Buyer
shall have obtained as of the Closing Date, is required in connection with the
execution, delivery and performance by Buyer of this Agreement or any of the
instruments or agreements herein referred to (including any Ancillary
Documents), or the taking of any action by Buyer herein contemplated.
7.7. FINANCIAL STATEMENTS. All financial statements which SCC has
delivered to Seller
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pursuant to SECTION 6.27.2 hereof (collectively, the "BUYER FINANCIAL
STATEMENTS") are true, accurate and complete in all material respects, and the
dollar amount of each line item included in the Buyer Financial Statements is
accurate in all material respects. The Buyer Financial Statements have been
prepared from the books and records of SCC, which are maintained on an accrual
basis in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods covered, and present fairly the
financial position of SCC as of the respective dates thereof and the results of
operations for the periods covered thereby. SCC is not subject to any debts,
liabilities or obligations of any nature, whether absolute, contingent or
otherwise, not fully and properly reflected or reserved against in the Buyer
Financial Statements, except for debts, liabilities and obligations incurred by
SCC in the ordinary course of business since the date of the most recent
financial statements included in the Buyer Financial Statements.
7.8. ACCESS TO INFORMATION. Seller has not refused to provide Buyer with
any information Buyer has requested. Buyer is familiar with, and its
representatives have been given full access to, all information concerning the
business and financial condition, properties, operations and prospects of Seller
that Buyer has deemed relevant for purposes of proceeding with the transactions
contemplated by this Agreement. Anything herein to the contrary notwithstanding,
the acknowledgements of Buyer reflected in this Section 7.8 shall not restrict
or in any way limit Buyer's rights and remedies in the event any of the
representations or warranties of Seller or the General Partner contained in this
Agreement are incorrect or inaccurate in any material respect.
7.9. OTHER INFORMATION. The information furnished by SCC or any of its
representatives to Seller or any of its representatives in connection with the
transactions contemplated hereby, which is contained in this Agreement
(including any Exhibits) or any Ancillary Document or SEC Filings or any
certificate, instrument delivered or to be delivered by or on behalf of Buyer in
connection with the transactions contemplated hereby, does not contain any
untrue statement of a fact or omit to state a material fact necessary to make
the information contained herein or therein, taken as a whole, not materially
misleading under the circumstances in which such statements have been made (or
omitted). Further, SCC knows of no current fact, state of affairs or
circumstance relating to its operations which might result in a material adverse
change in the condition (financial or otherwise), properties, assets,
liabilities, business or results of operations of Buyer other than such as are
fairly and fully disclosed in the Buyer Financial Statements or SEC Filings,
taken as a whole.
SECTION 8. COVENANTS
8.1. PRE-CLOSING COVENANTS. From and after the date hereof up to (and
including) the Closing Date, Seller shall (a) conduct its Health/Fitness
Business and catering business only in the ordinary course of business,
consistent with past practices; (b) not sell, transfer or convey, or grant any
Lien on or with respect to, any Transferred Assets; (c) not purchase or acquire,
or make any commitment to purchase or acquire, any assets or properties which
would constitute Transferred Assets without the prior consent of Buyer; (d) not
make any changes in its Membership billing practices or rates or afford any
existing or prospective member any discounts, deferrals or other concessions
under any Membership Agreement or otherwise; (e) not make any capital
expenditures
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without Buyer's prior approval; (f) not take any action, or fail or refuse to
take any action, which would increase any of the liabilities or obligations
included in the Assumed Obligations other than in the ordinary course of
business; and (g) not take, permit to be taken or refrain from taking, any
action or decision which would cause any of Seller's representations and
warranties set forth in SECTION 6 (including, without limitation, SECTION 6.10)
to be untrue or inaccurate on and as of the Closing Date (as if made on and as
of such Date).
8.2. NO OTHER NEGOTIATIONS. From and after the date hereof up through
the earlier of (a) the Closing Date, or (b) the date that Seller and Buyer shall
agree in writing to terminate all negotiations with respect to the transactions
contemplated by this Agreement, and provided Buyer shall not be in breach of any
material term or provision hereof, neither Seller, the General Partner nor any
Seller Affiliate shall, directly or indirectly, solicit, initiate or otherwise
engage in any negotiations or discussions with, or provide any information to,
any other person or entity concerning the purchase of all or substantially all
the properties and assets of Seller, regardless of the form or structure of any
such transaction.
8.3. ACCESS. From the date hereof through the Closing Date, Seller shall
afford 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 Seller and the
General Partner (including, without limitation, all Business Records, Club
Financial Statements, Membership Agreements and Contracts) to the extent
relevant to the Transferred Assets or the operation of Seller's Health/Fitness
Business or catering business, and during this period, Seller shall furnish
Buyer with all financial, operating and other information and data as to the
Transferred Assets as Buyer may reasonably request. At Buyer's request, Seller
shall direct its representatives and employees to cooperate with Buyer and its
representatives pursuant to this SECTION 8.3 at no additional cost to Buyer. In
undertaking its due diligence hereunder, Buyer shall not disturb, to the extent
reasonably possible, the operations of Seller and will communicate with only
those employees of Seller whom Seller shall have identified for such purpose.
The exercise by Buyer of any of the preceding rights, or any other act of Buyer,
shall not negate, modify or otherwise affect any representation, warranty or
covenant of Seller or the General Partner or modify any of Buyer's rights or
Seller's or the General Partner's obligations in the event of any breach of any
of such representations, warranties or covenants under this Agreement.
8.4. PRESERVATION OF BUSINESS AND RELATIONSHIPS. From the date hereof
until the Closing, Seller shall use its best efforts to preserve its business
and organization intact, including, without limitation, to preserve the Club's
present relationships with suppliers, customers, members, patrons and others
having business relationships with it. Seller shall promptly arrange for utility
and telephone service to be transferred to Buyer at Closing. Each of the parties
hereto will use their best efforts to consummate the transactions 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.
8.5. CONFIDENTIALITY. Neither Buyer nor Seller, nor any of their
respective officers, directors, partners, employees or other representatives,
shall directly or indirectly disclose to any
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other person or entity (including, without limitation, any members, patrons or
partners of any Club) the fact that Buyer and Seller have entered into this
Agreement, the identity of Buyer as the potential acquiring party and/or any of
the terms or provisions of this Agreement, except (a) to such party's financing
sources, professional advisors and employees who are involved in the negotiation
of the transactions contemplated by this Agreement; (b) to the extent necessary
to obtain the consent of the requisite number of limited partners in Seller to
authorize Seller's entering into this Agreement; and (c) to the extent disclosed
in Buyer's press releases or other public announcements or required by law or
judicial process. To the extent Seller discloses any such information to any of
its employees or partners as permitted by this SECTION 8.5, Seller will take all
reasonable precautions necessary to insure the continued confidentiality of such
information (including, with respect to disclosures to its employees, requiring
that they execute confidentiality letters in form and substance reasonably
acceptable to Buyer and its legal counsel).
8.6. PUBLICITY. Both Buyer and Seller acknowledge that SCC is a
publicly-held corporation whose securities are listed on AMEX and is therefore
subject to various rules and regulations of both the SEC and AMEX regarding the
timing and content of public disclosures regarding its business operations.
While SCC will provide Seller with copies of all proposed press releases or
other public disclosures concerning its proposed purchase of the Transferred
Assets and will consider in good faith any suggested changes or revisions
thereto communicated in writing by Seller, SCC shall have the right to finalize
and disseminate all such press releases or other public disclosures which SCC's
counsel deems necessary to comply with any such applicable rules and
regulations. Prior to the Closing, Seller shall not issue any press release or
otherwise make any public announcement or disclosure regarding SCC's proposed
purchase of the Transferred Assets without the prior written consent of SCC,
which consent may not be unreasonably withheld or delayed.
8.7. RIGHT OF FIRST REFUSAL. If Buyer's purchase of the Transferred
Assets is not consummated for any reason other than Buyer's breach, then, for
the one (1)-year period following the date on which Buyer or Seller abandons the
transactions contemplated hereby (as confirmed in writing by Buyer or Seller, as
applicable), Buyer shall have a right of first refusal with respect to any bona
fide offer to purchase the Health/Fitness Business, catering business and/or
related assets of Seller (regardless of the form of transaction) (the "OFFER").
Following Seller's receipt of an Offer (but in no event more than five (5)
business days after receipt), Seller will forward a copy thereof to Buyer, and,
for a period of thirty (30) days thereafter (the "OPTION PERIOD"), Buyer will
have the right, but not the obligation, to elect to purchase Seller's business
and/or assets at the price and terms set forth in the Offer. If any of the
consideration payable by the offeror consists of non-cash property, Buyer shall
have the right to pay the fair market value of such non-cash property in cash or
securities. If Buyer and Seller are unable to agree on the fair market value of
such consideration within five (5) days following Buyer's receipt of the Offer,
then the parties shall submit their respective valuations of such consideration
to a mutually-acceptable investment banking firm to calculate such fair market
value, and the decision of such firm shall be conclusive and binding. If the
investment banking firm is unable to complete its fair market value calculations
within ten (10) days following the commencement of its engagement, then the
Option Period shall be extended for a reasonable period of time thereafter (but
in no event more than that number of
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days which shall equal the number of days it shall have taken the investment
banking firm to complete its calculations). The fees and expenses of the
investment banking firm engaged pursuant to this SECTION 8.7 shall be borne
equally by Seller and Buyer. The consummation of Buyer's purchase of Seller's
Health/Fitness Business, catering business and/or related assets in accordance
with this SECTION 8.7 shall occur, if at all, within the later of forty-five
(45) days following expiration of the Option Period or the closing date set
forth in the Offer (the "PURCHASE PERIOD"). If Buyer fails or otherwise elects
not to exercise such right within the Option Period, Seller may consummate the
sale transaction with the offeror on the terms and conditions set forth in the
Offer. If any of such terms or conditions change in a manner more favorable to
the offeror, or if the transaction is not consummated with such offeror within
the Purchase Period, then Buyer's right of first refusal shall once again be
effective with respect to any such modified terms/conditions or to that (or any
subsequent) Offer, as applicable. Further, if the Offer only contemplates the
purchase of a portion of Seller's Health/Fitness Business, catering business or
other related assets, then Buyer's rights under this SECTION 8.7 shall continue
in effect (during such one-year period) with respect to any and all subsequent
offers for the balance of Seller's assets and properties comprising Seller's
Health/Fitness Business and/or catering business, as the case may be.
8.8. APPROVAL OF LIMITED PARTNERS. Seller represents and warrants that
it has obtained the approval of the requisite number of limited partners to the
transactions contemplated by this Agreement, as prescribed by applicable
provisions of the Partnership Agreement.
8.9. PERMITS. By no later than the Closing, Seller shall furnish to
Buyer all building permits, certificates of occupancy and other governmental
approvals confirming that each of the improvements with respect to the Real
Property has been completed in compliance with, and that the Real Property is
being operated in compliance with, all applicable laws and regulations. At such
time, Seller shall also provide Buyer with all surveys and geological,
environmental and soil and engineering studies and reports prepared within five
years prior to the date hereof with respect to the Real Property, together with
a complete set of "as-built" plans with respect to the improvements located on
or affixed to the Real Property.
8.10. DOCUMENTS. At the Closing, Seller shall deliver all books and
records and other documents relating to the ownership and operation of the Real
Property, as well as all keys with respect to the Club.
8.11. SURVEY. Prior to the Closing, Buyer shall obtain and cause to be
furnished to the Title Company in connection with the Title Company's issuance
of the Title Insurance pursuant to SECTION 4.1 surveys for the Real Property
prepared by registered public surveyors. Such surveys shall be certified as in
accordance with the minimum standard detail requirements of ALTA/ASCM land title
surveys and shall be reasonably acceptable to of the Title Company.
8.12. PRELIMINARY TITLE REPORT. Prior to the execution of this
Agreement, Seller has caused to be furnished to Buyer, at Buyer's expense, a
Preliminary Title Report (the "PTR") dated as of December 3, 1997, from Chicago
Title Company with respect to the Real Property, together with copies of all
documents pertaining to all exceptions, including, but not limited to,
covenants,
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conditions, restrictions, reservations, easements, rights-of-way of record,
liens and other matters of record. Buyer hereby approves the exceptions
identified therein.
8.13. LIENS. Seller agrees to keep the Real Property free from any Liens
through the date of Closing, other than Permitted Exceptions and to indemnify
and save Buyer harmless from any such Liens and all attorneys' fees and other
costs and expenses incurred by reason any Liens, other than Permitted
Exceptions, which relate back to Seller's ownership or operation of the Real
Property.
8.14. POST-CLOSING COVENANTS. Notwithstanding the consummation of the
transactions contemplated by this Agreement on the Closing Date, Buyer and
Seller shall observe, satisfy and perform the following duties and obligations:
8.14.1. SELLER'S FURTHER ASSURANCES. After the Closing hereunder,
Seller shall, at the request of Buyer, execute, acknowledge and deliver to
Buyer, without further consideration, all such further assignments, conveyances,
endorsements, deeds, powers of attorney, consents, instruments and other
documents (together with the instruments referred to in SECTION 1.2,
collectively, the "ANCILLARY DOCUMENTS") and take such other action as Buyer may
reasonably request (a) to transfer to and vest in Buyer, and protect Buyer's
right, title and interest in and to, all of the Transferred Assets and (b)
otherwise to consummate the transactions contemplated by this Agreement.
8.14.2. NON-COMPETITION.
(a) Each of Seller, the General Partner and each of the
individuals listed in SCHEDULE 8.14.2 (individually, an "OBLIGOR") agrees for
itself and for each Seller Affiliate that, for a period of three (3) years from
and after the Closing Date, neither it nor any of its agents or representatives
shall, directly or indirectly, and whether as a principal, agent or otherwise,
or alone or in association with any other person (including any other Seller
Affiliate) (a "COMPETING ENTITY"), carry on, be engaged or take part in, consult
or advise, or own, share in the earnings of, or invest in the stock, bonds or
other securities of, any entity (other than Buyer) which is engaged in the
business of owning or operating (i) a health/fitness facility or business within
a twenty (20)-mile radius of the Club or any Other Club, or (ii) a catering
business within a three (3)-mile radius of the Club or any Other Club which, as
of the date of this Agreement, owns or operates a catering business (a
"COMPETING ACTIVITY").
(b) If a court of competent jurisdiction deems the length
or geographic scope of the separate non-competition covenants described in this
SECTION 8.14.2(a) to be unreasonably long or broad, as the case may be, such
that either (or both) such covenants is therefore deemed wholly or partially
unenforceable, the parties intend that the affected non-competition covenant be
modified by the court to reflect the maximum time period and the broadest
geographic scope that such court deems permissible under the circumstances, and
that such modified non-competition covenant be enforced to the fullest extent
permitted by said court. In such event, this Agreement shall be deemed amended
to accommodate the court's modification of
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said non-competition covenant in accordance with this SECTION 8.14.2(b).
(c) Notwithstanding the foregoing, no Obligor shall be
deemed to be in violation of the terms of this SECTION 8.14.2 by reason of such
Obligor's investing in stocks, bonds or other securities of any Competing Entity
engaged in a Competing Activity (but without otherwise participating in such
business), if (i) such stock, bonds or other securities are listed on any
national or regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such
investment does not exceed, in the case of any class of the capital stock of any
one issuer, one percent (1%) of the issued and outstanding shares, or, in the
case of bonds or other securities, five percent (5%) of the aggregate principal
amount thereof issued and outstanding.
(d) Notwithstanding the provisions of SECTION 12.16
hereof, Seller acknowledges that the allocation of that portion of the Purchase
Price reflected in Schedule 12.16 to the non-competition covenant contained in
this SECTION 8.14.2 is not intended by any party to define or limit any claims
for damages that Buyer may have in the event of the breach of this SECTION
8.14.2 by any Obligor, or Buyer's need for or right to equitable remedies to
enforce the terms of this SECTION 8.14.2.
(e) The parties hereto acknowledge that the breach, or
threatened breach, by any Obligor of any of the terms of this SECTION 8.16.2
would cause Buyer irreparable harm and injury that could not be compensated by
an award of monetary damages. Accordingly, in the event of any breach or
threatened breach, Buyer shall be entitled to equitable relief (including,
without limitation, specific performance, temporary restraining orders and
preliminary or permanent injunction) in addition to all other rights and
remedies provided hereunder.
8.14.3. EMPLOYEE BENEFIT PLANS
(a) Following the Closing, Seller shall retain as Retained
Obligations, and be solely obligated to satisfy and discharge in a prompt and
timely fashion, all obligations and liabilities (including, without limitation,
(i) all liabilities for all contributions required to have been made to all
plans as described in SECTION 6.23.2(c), and for all claims incurred, whether or
not reported, on or before the Closing Date under all Plans, and (ii) all
liabilities or obligations for unpaid compensation, disability, retirement,
severance insurance including under COBRA or medical or life benefits) to
employees or former employees of Seller which shall exist or have accrued as of
the Closing Date.
(b) Seller shall indemnify, hold harmless and defend Buyer
and its shareholders, officers, directors, members, employees and
representatives, and their respective successors and assigns, from and against
any and all claims, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees and disbursements of counsel) incurred by
Buyer or such persons, arising from or in connection with any liabilities or
obligations of Seller under SECTION 8.14.3(a).
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8.14.4. BOOKS, RECORDS, ETC. For a period of five (5) years from
and after the Closing Date, Buyer and Seller each shall retain, and shall, at
the request of the other or the other's representatives, make available to the
other, all of the original books and records of the Seller existing on the
Closing Date, possession of which such party is entitled to under this
Agreement, at a location in the Southern California area specified in a written
notice to the other delivered within 10 days after the Closing Date (or at any
other location in the United States to which Buyer or Seller, as the case may
be, has removed such books and records after notice to the other party), for the
inspection and copying thereof (which inspection and copying to be at the sole
cost and expense of the inspecting party).
SECTION 9. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE
The obligation of Buyer to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the satisfaction of each
of the conditions set forth in this SECTION 9, unless waived by Buyer:
9.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES, PERFORMANCE OF
COVENANTS AND RELATED CERTIFICATE. The representations and warranties of Seller
set forth in SECTION 6 shall be true and correct in all material respects as of
the Closing Date as though made on and as of such date; Seller shall have
performed all obligations and complied with all covenants required to be
performed or to be complied with by it under this Agreement on or prior to the
Closing Date; and Seller shall have delivered to Buyer a certificate to such
effect, dated the Closing Date, signed by the General Partner or other person
duly authorized to act on its behalf.
9.2. NO PENDING OR THREATENED LEGAL ACTION. No order, injunction, decree
or other action or legal, administrative, arbitration or other proceeding by any
person or investigation by any governmental entity shall be pending or
threatened, which challenges, imposes or threatens to impose a material
limitation on the execution, delivery or performance of this Agreement, or the
consummation of any of the transactions contemplated hereby.
9.3. APPROVALS, NOTICES, CONSENTS, ETC. Seller shall have obtained, and
Buyer shall have received true and correct copies of, all notices, approvals and
consents which are required to enable Seller to transfer good and marketable
title to the Transferred Assets to Buyer, free and clear of any and all Liens,
and each approval and/or consent shall be in full force and effect and be
reasonably satisfactory in form and substance to Buyer and its counsel.
9.4. LIMITED PARTNER APPROVAL. The approval of the requisite number of
limited partners of Seller to the transactions contemplated hereby (as described
in SECTION 8.8 hereof) shall not have been revoked, rescinded or repealed, and
shall be in full force and effect as of the Closing Date.
9.5. SECRETARY'S CERTIFICATE. Buyer shall have received an accurate
certificate, dated the Closing Date, of the General Partner of Seller with
respect to (a) the approval of the requisite
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number or percentage of limited partners of Seller to the transactions
contemplated by this Agreement as prescribed by applicable provisions of the
Partnership Agreement; (b) the resolutions adopted by the General Partner and
such limited partners approving this Agreement and the transactions contemplated
hereby; and (c) the incumbency and specimen signature of the General Partner and
each other person executing this Agreement and any other agreement or Ancillary
Document being (or to be) executed by each such Partnership, and a certification
by another person as to the incumbency and specimen signature of said General
Partner or other person.
9.6. GOOD STANDING CERTIFICATES, ETC. Buyer shall have received (a) a
certificate of the Office of the Secretary of State of the State of California,
dated within five (5) days before the Closing Date, certifying that the records
of the State of California regarding Seller reflect neither a certificate of
dissolution, a court order declaring dissolution, a merger or consolidation
which terminated its existence, nor suspension of its powers, rights and
privileges, and that in accordance with the records of the State of California,
Seller is authorized to exercise all of its powers, rights and privileges in the
State of California, and (b) a telegram or other document from one or more
appropriate officials of such State, or an affidavit of counsel with respect to
telephone conversations with such officials, dated within five days before the
Closing Date, to the same effect.
9.7. CLEARANCE CERTIFICATES. To the extent issued by such offices, Buyer
shall have received certificates from the Franchise Tax Board and the Employment
Development Department confirming the absence of any and all taxes, penalties,
interest and/or other amounts due and owing by Seller to such governmental
agency (or agencies) with respect to its operations prior to the Closing Date.
Further, Buyer shall have received a certificate or other written confirmation
from ADP or other financial institution or data payroll service dated as of the
day immediately prior to the Closing Date to the effect that all withholding and
payroll tax deposits required to have been made by Seller prior to the Closing
Date have been timely made.
9.8. RELEASE OF SECURITY INTERESTS. Buyer shall have received true and
correct copies of all releases of all security interests in the Transferred
Assets which may have existed prior to the Closing Date (including, without
limitation, security interests held by any lender or other third party) and
completed UCC release or termination statements or reconveyances of deeds of
trust or releases of any mortgages suitable for filing with the appropriate
governmental agencies to terminate and release all previously-filed UCC-1
financing statements, deeds of trust or mortgages on or with respect to any
Transferred Assets.
9.9. RENEGOTIATION OF INDEBTEDNESS. Seller shall have entered into
binding agreements with certain of its creditors in the form of Exhibit "C" such
that the aggregate amount of Closing Date Liabilities as of the Closing Date
shall not exceed the Maximum Liability Amount, and the terms and conditions
applicable to the assumption and satisfaction of all Assumed Obligations shall
be acceptable to Buyer in its sole discretion.
9.10. NO MATERIAL ADVERSE CHANGES. Between the Cut-Off Date and the
Closing Date, there shall not have occurred any material adverse change in or
with respect to any of the Transferred Assets, the Health/Fitness Business or
the catering business which will continue or
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extend beyond the Closing Date (whether or not any such material adverse change
is covered by insurance).
9.11. EXECUTION AND DELIVERY OF OTHER AGREEMENT AND INSTRUMENTS. Buyer
and Seller shall have executed and delivered all requested Ancillary Documents,
and all other agreements, instruments and other contracts which are required to
enable Buyer to purchase and acquire the Transferred Assets in accordance with
the terms and provisions of this Agreement or which Buyer otherwise requires to
be executed in connection with the consummation of the transactions contemplated
hereby.
9.12. ENVIRONMENTAL AUDIT. Buyer shall have received and approved a
Phase I environmental analysis as of a recent date relating to the Real
Property.
9.13. APPROVAL OF SCHEDULES. Buyer shall have approved the form and
content of all Schedules which are required to be prepared or otherwise provided
by Seller but which were not attached to this Agreement as of the date hereof.
9.14. POWERS OF ATTORNEY. Buyer shall have received duly executed and
acknowledged powers of attorney, reasonably satisfactory in form and substance
to Buyer and its counsel, giving Buyer or its designee the authority to act on
behalf of Seller and in its name, place and stead with respect to all of the
Transferred Assets and Assumed Obligations, to the extent permitted by law.
Buyer shall indemnify and hold Seller harmless from any liability of Seller
which results from any acts of Buyer taken under such powers of attorneys in
violation of this Agreement.
9.15. APPROVAL OF BOARD OF DIRECTORS. Buyer's Board of Directors shall
have approved of Buyer's executing and delivering this Agreement and purchasing
the Transferred Assets in accordance with the terms hereof.
9.16. CONSUMMATION OF OTHER TRANSACTIONS. All conditions precedent and
other contingencies of Buyer described or referred to in the Other Purchase
Agreements shall have been satisfied or waived by Buyer, and Buyer's purchase
and acquisition of the "Transferred Assets" (as described and defined in the
Other Purchase Agreements, the "OTHER TRANSFERRED ASSETS") shall be consummated
in accordance with the terms of the applicable Other Purchase Agreements
simultaneously with the closing of the transactions contemplated by this
Agreement on the Closing Date.
9.17. SERVICES AGREEMENT. Buyer will have entered into an agreement with
California Recreational Services ("CRS") under which CRS shall provide specific
data processing and Membership accounting services for Buyer's benefit, upon
terms and conditions acceptable to Buyer and CRS.
9.18. OPINION OF SELLER'S COUNSEL. Seller's counsel shall have furnished
Buyer with its opinion on certain matters relating to the transactions
contemplated hereby in form acceptable to Buyer and its counsel.
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SECTION 10. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE
The obligations of Seller to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the satisfaction of each
of the conditions set forth in this SECTION 10, unless waived by Seller.
10.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES OF BUYER, PERFORMANCE
OF COVENANTS, AND RELATED CERTIFICATE. The representations and warranties of
Buyer set forth in SECTION 7 shall be true and correct in all material respects
as of the Closing Date as though made on and as of such date; Buyer shall have
performed all obligations and complied with all covenants required to be
performed or to be complied with by Buyer under this Agreement on or prior to
the Closing Date; and Buyer shall have delivered to Seller a certificate to such
effect, dated the Closing Date, signed by an officer duly authorized to act on
its behalf.
10.2. NO PENDING OR THREATENED LEGAL ACTION. No order, injunction,
decree or other action or legal, administrative, arbitration or other proceeding
by any person or investigation by any governmental entity shall be pending or
threatened, which challenges, imposes or threatens to impose a material
limitation on the execution, delivery or performance of this Agreement, or the
consummation of any of the transactions contemplated hereby.
10.3. SECRETARY'S CERTIFICATE. Seller shall have received an accurate
certificate of the Secretary of Buyer, dated the Closing Date, with respect to
(a) the resolutions adopted by the Board of Directors of Buyer approving this
Agreement and the transactions contemplated hereby; and (b) the incumbency and
specimen signature of each officer of Buyer executing this Agreement and any
other agreement or Ancillary Document to be executed by Buyer, and certification
by another officer of Buyer as to the incumbency and specimen signature of said
signing officer(s).
10.4. ASSUMPTION OF LIABILITIES. Buyer shall have executed and
delivered, and Seller shall have received copies of, Assignment and Assumption
Agreements, under which Buyer has agreed to satisfy and perform all Assumed
Obligations in accordance with the terms thereof.
10.5. EXECUTION AND DELIVERY OF OTHER AGREEMENTS. Buyer and Seller shall
have executed and delivered all other agreements, instruments and contracts
which are required to enable Seller to carry out the terms and provisions of
this Agreement.
10.6. APPROVAL OF LIMITED PARTNERS. The General Partner of Seller shall
have obtained the approval or consent of the requisite number of limited
partners required to approve the sale of the Transferred Assets in accordance
with applicable provisions of its Partnership Agreement, and said approval or
consent shall be in full force and effect as of the Closing Date.
10.7. CONSUMMATION OF OTHER TRANSACTIONS. All conditions precedent and
other contingencies of Seller described or referred to in the Other Purchase
Agreements shall have been
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satisfied or waived by Seller, and Seller's conveyance of the Other Transferred
Assets shall be consummated in accordance with the terms of the applicable Other
Purchase Agreements simultaneously with the closing of the transactions
contemplated by this Agreement on the Closing Date.
10.8. OPINION OF BUYER'S COUNSEL. Buyer's counsel shall have furnished
Seller with its opinion on certain matters relating to the transactions
contemplated hereby in form acceptable to Seller and its counsel.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1. SURVIVAL. The representations and warranties set forth in this
Agreement, any Exhibit or Schedule, the Ancillary Documents and any certificate
or instrument delivered in connection herewith shall survive the execution and
delivery of this Agreement and any investigation made by any party hereto at any
time thereafter.
11.2. INDEMNIFICATION BY SELLER. Seller acknowledges and agrees with
Buyer that, regardless of any investigation made at any time by or on behalf of
Buyer or any information Buyer may have and, regardless of the Closing
hereunder, Seller shall indemnify Buyer and its respective directors, officers,
shareholders, members, employees and representatives, and their respective
successors and assigns (individually, a "BUYER INDEMNIFIED PARTY"), and hold
each Buyer Indemnified Party harmless from, against and in respect of any and
all costs, losses, claims, causes of action, demands, liabilities, fines,
penalties, damages and/or expenses (including interest which may be imposed in
connection therewith and court costs and reasonable fees and disbursements of
counsel) incurred by any of them in connection with:
11.2.1. PRE-CLOSING DATE MATTERS All liabilities of or claims
against any Buyer Indemnified Party of any nature, whether accrued, absolute,
contingent or otherwise, arising out of or relating to the Transferred Assets,
the Health/Fitness Business or the catering business, as applicable, and
attributable to any state of facts existing or any event occurring on or before
the Closing Date (whether known or unknown to Seller or Buyer), to the extent
not included in the Assumed Obligations or in excess of amounts shown to
constitute Closing Date Liabilities in Schedule 3.2.1 or otherwise specified in
this Agreement to be the obligation of Buyer, regardless of when such claim or
liability is asserted against the applicable Buyer Indemnified Party, and all
liabilities of or claims against any Buyer Indemnified Party or Seller of any
nature, whether accrued, absolute, contingent or otherwise, relating to the
Excluded Assets or the Retained Obligations and attributable to any state of
facts existing or any event occurring either before or after the Closing Date
(whether known or unknown to Seller or Buyer) regardless of when such claim or
liability is asserted against the applicable Buyer Indemnified Party;
11.2.2. LIABILITY CLAIMS all personal injury or other liability
claims which relate to any products sold, services provided, any state of facts
existing or any event occurring on or before the Closing Date;
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11.2.3. BREACH OF THIS AGREEMENT any breach of any of the
representations, warranties, covenants or agreements made by the General Partner
or Seller in this Agreement, any Exhibit or Schedule, any Ancillary Document or
any certificate of instrument delivered in connection herewith;
11.2.4. TAXES, ETC. any taxes of any kind whatsoever, or expenses,
interest or penalties relating thereto, which arise out of or result from the
transactions contemplated by this Agreement other than state and/or local sales
or use taxes;
11.2.5. NON-ASSUMED OBLIGATIONS any attempt (whether or not
successful) by any person to cause or require a Buyer Indemnified Party to pay
or discharge any debt, obligation, liability or commitment of Seller, the
General Partner or Seller Affiliate which is not included in the Assumed
Obligations or the existence of which would constitute a breach of any
representation, warranty, covenant or agreement of Seller or the General Partner
notwithstanding the Closing; or
11.2.6. OTHER INCIDENTAL MATTERS any action, suit, proceeding,
compromise, settlement, assessment or judgment arising out of or incidental to
any of the matters indemnified against in this SECTION 11.2; provided, however,
that Seller shall not be obligated to indemnify a Buyer Indemnified Party and
hold it harmless under this SECTION 11.2 with respect to any settlement of a
claim to which Seller has not consented, if such consent has not been
unreasonably withheld or delayed.
If, by reason of the claim of any third party relating to any of
the matters subject to indemnification under this SECTION 11.2, a lien,
attachment, garnishment or execution is placed upon any of the property or
assets of any Buyer Indemnified Party, Seller shall also furnish an indemnity
bond satisfactory to Buyer to obtain the prompt release of such lien,
attachment, garnishment or execution.
11.3. INDEMNIFICATION BY BUYER. Buyer hereby covenants and agrees with
Seller that, regardless of any investigation made at any time by or on behalf of
Seller or any information it may have and, regardless of the Closing hereunder,
Buyer shall indemnify Seller, the General Partner, and all directors, officers,
employees, partners, representatives and their respective successors and assigns
(individually a "SELLER INDEMNIFIED PARTY"), and hold each Seller Indemnified
Party harmless from, against and in respect of any and all costs, losses,
claims, causes of action, demands, liabilities, fines, penalties, damages and/or
expenses (including interest which may be imposed in connection therewith and
court costs and reasonable attorneys' fees and disbursements of counsel)
incurred by any of them in connection with:
11.3.1. POST-CLOSING DATE MATTERS all liabilities of or claims
against any Seller Indemnified Party of any nature, whether accrued, absolute,
contingent or otherwise, (x) with respect to the Assumed Obligations, or (y)
attributable or relating to the operation by Buyer of the Transferred Assets
from and after the Closing Date, except if such liability results from or arises
in connection with the breach of any of the representations, warranties,
covenants or agreements made
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by the General Partner or Seller in this Agreement, any Schedule or Exhibit, any
Ancillary Document or any certificate or instrument delivered in connection
herewith;
11.3.2. BREACH OF TERMS OF THIS AGREEMENT any breach of any of the
representations, warranties, covenants or agreements made by Buyer in this
Agreement, any Exhibit or Schedule, any Ancillary Document or any certificate or
instrument delivered in connection herewith;
11.3.3. ASSUMED OBLIGATIONS any attempt (whether or not
successful) by any person to cause or require a Seller Indemnified Party to pay
or discharge any debt, obligation, liability or commitment which is included in
the Assumed Obligations, notwithstanding the Closing; or
11.3.4. OTHER INCIDENTAL MATTERS any action, suit, proceeding,
compromise, settlement, assessment or judgment arising out of or incidental to
any of the matters indemnified against in this SECTION 11.3; provided, however,
that Buyer shall not be obligated to indemnify a Seller Indemnified Party under
this SECTION 11.3 with respect to any settlement of a claim to which the Buyer
has not consented, if such consent has not been unreasonably withheld or
delayed.
If, by reason of the claim of any third party relating to any of
the matters subject to indemnification under this SECTION 11.3, a lien,
attachment, garnishment or execution is placed upon any of the property or
assets of any Seller Indemnified Party, Buyer shall also furnish an indemnity
bond satisfactory to Seller to obtain the prompt release of such lien,
attachment, garnishment or execution.
11.4. RIGHT TO DEFEND, ETC. If the facts giving rise to any such
indemnification shall involve any actual claim or demand by any third party
against a Buyer Indemnified Party or a Seller Indemnified Party (referred to
hereinafter as an "INDEMNIFIED PARTY"), the indemnifying parties shall be
entitled to notice of and entitled (without prejudice to the right of any
Indemnified Party to participate at its own expense through counsel of its own
choosing) to defend or prosecute such claim at their expense and through counsel
of their own choosing if they give written notice of their intention to do so no
later than the time by which the interests of the Indemnified Party would be
materially prejudiced as a result of its failure to have received such notice;
provided, however, that if the defendants in any action shall include both the
indemnifying parties and an Indemnified Party, and the Indemnified Party shall
have reasonably concluded that counsel selected by the indemnifying parties has
a conflict of interest because of the availability of different or additional
defenses to the Indemnified Party, the Indemnified Party shall have the right to
select separate counsel to participate in the defense of such action on its
behalf, at the expense of the indemnifying party (or parties). The Indemnified
Party shall cooperate fully in the defense of such claim and shall make
available to the indemnifying parties pertinent information under its control
relating thereto, but shall be entitled to be reimbursed, as provided in this
SECTION 11, for all costs and expenses incurred by it in connection therewith.
11.5. SUBROGATION. If the Indemnified Party receives payment or other
indemnification
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from the indemnifying party hereunder, the indemnifying party shall be
subrogated to the extent of such payment or indemnification to all rights in
respect of the subject matter of such claim to which the Indemnified Party may
be entitled, to institute appropriate action for the recovery thereof, and the
Indemnified Party shall reasonably assist and cooperate with the indemnifying
party at no expense to the Indemnified Party in enforcing such rights.
11.6. RIGHT TO OFFSET. Anything herein to the contrary notwithstanding,
if Seller fails to reimburse Buyer for any amounts to which Buyer is entitled
under this Agreement, including, without limitation, this SECTION 11
("REIMBURSABLE AMOUNTS") within ten (10) days after written demand therefor,
then, during the one-year period following the Closing Date, Buyer shall have
the right to recover the Reimbursable Amount from the number of Acquisition
Shares then held by Seller in accordance with this SECTION 11.6. The number of
such Shares which Buyer shall have the right to recover pursuant to this SECTION
11.6 shall be determined by multiplying (a) the number of Acquisition Shares
held by Seller by (b) the average closing price of a share of Buyer's Common
Stock as reported on AMEX for the 10 business days preceding the Closing Date
(the "STOCK PRICE"), deducting from said product (c) the Reimbursable Amount,
and dividing the remaining number by the Stock Price. Any fractional shares will
be disregarded. If Buyer and Seller are unable to resolve any accounting issue
relating to whether Buyer is entitled to deduct a Reimbursable Amount pursuant
to this SECTION 11.6 within 10 days after Buyer's notifying Seller of any such
claim, then the parties shall resort to the dispute resolution mechanism set
forth in SECTION 4.2.3 hereof, and the determination of such accounting firm on
all accounting matters shall be binding on the party. If one or more such
disputes are outstanding at the time the one-year period expires, such disputes
shall be resolved in accordance with the terms hereof notwithstanding such
expiration. Any disputes other than accounting matters shall not be subject to
resolution by such accounting firm.
SECTION 12. MISCELLANEOUS
12.1. EXPENSES, ETC. Buyer and Seller shall pay their own respective
expenses and the fees and expenses of their respective counsel in connection
with this Agreement.
12.2. SPECIFIC PERFORMANCE. Anything herein to the contrary
notwithstanding, Seller and Buyer acknowledge that the Transferred Assets are
unique and that Seller and Buyer will have no adequate remedy at law if the
other party (or parties) shall fail to perform any of its obligations hereunder.
In such event, Buyer or Seller, as the case may be, shall have the right, in
addition to any other rights it may have hereunder or under applicable law, to
equitable remedies (including, without limitation, specific performance,
temporary restraining orders and preliminary and permanent injunctions).
12.3. NO WAIVER; CUMULATIVE REMEDIES. No action taken pursuant to this
Agreement, including any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representation, warranty, covenant or agreement contained herein and/or in
any Ancillary Document or other document. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as
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a waiver of any subsequent breach, whether of the same or any different term. No
right or remedy which any party hereto may possess or elect to exercise shall be
exclusive of any other right or remedy, all of which shall be cumulative and in
addition to all such rights and remedies.
12.4. BINDING EFFECT, BENEFITS. This Agreement shall be binding on and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but this Agreement may not be assigned by any party
hereto without the prior written consent of the other. Notwithstanding the
foregoing, no consent shall be necessary for Buyer to assign this Agreement to
any person, corporation or other entity that controls, is controlled by or is
under common control with Buyer (an "Affiliate"); provided, that (i) Buyer shall
remain directly and primarily liable for the performance of its obligations
hereunder, and (ii) any such Affiliate to which Buyer assigns this Agreement
shall agree to observe and be bound by all the terms and provisions hereof.
Except as otherwise set forth herein, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto and
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
12.5. NOTICES. All notices, requests, demands and other communications
which are required or permitted under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person or upon receipt
when transmitted by telecopy, messenger or air courier, or seventy two (72)
hours after deposit in the U.S. Mails, mailed by certified or registered first
class mail, postage prepaid, return receipt requested, and duly addressed to the
party to whom the same is so given or made:
If to The Partnership or the LLC, to:
Sequoia Athletic Club & Racquetball World
7530 Orangethorpe Avenue
Buena Park, California 90621
Attention: Dr. G. Barton Heuler,
General Partner
Telecopier No.: (714) 523-5490
With a copy to:
Edward T. Swanson, Esq.
Swanson & Meepos LLC
1875 Century Park East
Suite 800
Los Angeles, California 90067
Telecopier No.: (310) 282-0325
If to The Spectrum Club Company, Inc., to:
11100 Santa Monica Blvd., Suite 300
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West Los Angeles, California 90025
Attention: John Gibbons, President
Telecopier No.: (310) 479-5740
With a copy to:
Ronald K. Fujikawa, Esq.
Kinsella, Boesch, Fujikawa & Towle
1901 Avenue of the Stars, 7th Floor
Los Angeles, California 90067
Telecopier No.: (310)284-6018
If to SCC I LLC Partners, to:
1995 Broadway
New York, New York
Telecopier No.: (212) 595-1831
Attn: Brian J. Collins
With a copy to:
Eric R. Landau, Esq.
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
New York, New York 10022
Telecopier No.: (212) 339-9150
Any party may change its address or facsimile number for purposes of this
SECTION 12.5 by giving notice to the others in accordance with the terms hereof.
12.6. ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto, which are incorporated herein by this reference) and the
Ancillary Documents constitute the entire agreement and understanding among the
parties with respect to the subject matter hereof and supersede all prior
agreements, representations, warranties, statements, promises and
understandings, whether written or oral, with respect to such subject matter. No
party hereto shall be bound by or charged with any written or oral agreements,
representations, warranties, statements, promises or understandings not
specifically set forth in this Agreement, any Exhibit, Schedule or Ancillary
Document.
12.7. HEADINGS; CERTAIN TERMS. The section and other headings contained
in this Agreement are for reference purposes only and shall not be deemed to be
a part of this Agreement or to affect the meaning or interpretation of this
Agreement or any term or provision hereof. As used in this Agreement, the term
"including" means "including, but not limited to" unless otherwise
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specified; the word "or" means "and/or," and the word "person" means and refers
to any individual, corporation, trust, partnership, joint venture, government or
governmental authority, or any other entity.
12.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same instrument.
12.9. GOVERNING LAW. This Agreement shall be governed by, and construed
(as to both validity and performance) and enforced in accordance with, the laws
of the State of California applicable to contracts executed and to be wholly
performed therein.
12.10. SEVERABILITY; CONSTRUCTION. If any term or provision of this
Agreement shall to any extent be invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby, and each other term and provision of
the Agreement shall be valid and enforced to the fullest extent permitted by
law. Both Seller and Buyer have participated in the negotiation and drafting of
this Agreement. Accordingly, each of Seller and Buyer waives any statutory
provision, judicial decision or other rule of law to the effect that contractual
ambiguities are to be construed against the party who shall have drafted the
provision in question.
12.11. NO BROKERS. Except as otherwise set forth in Schedule 12.11 or in
the Real Property Purchase Agreement, each of Buyer and Seller represents and
warrants that it has not engaged any person to act as a broker or finder in
connection with the execution of this Agreement, and that no person is entitled
to any fee or compensation as a result of the consummation of the transactions
contemplated hereby.
12.12. JURISDICTION; WAIVER OF JURY TRIAL. Except as provided in
Sections 4.2.3 and 11.6, the parties hereto (a) hereby irrevocably submit to the
jurisdiction of any court of the State of California or any federal court
sitting in the State of California for the purposes of any suit, action or other
proceeding arising out of this Agreement or any Ancillary Document, or any of
the transactions contemplated hereby, which is brought by or against any of the
parties hereto, and (b) hereby irrevocably agree that all claims in respect of
any such suit, action or proceeding may be heard and determined in any such
court. In connection with any dispute arising under or in connection with this
Agreement, any Ancillary Document or any other agreement or instrument, 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 IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER,
BY INDEPENDENT
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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.
12.13. AMENDMENTS. This Agreement may not be amended or modified except
by an instrument or instruments in writing signed by the party or parties
against whom enforcement of any such amendment or modification is sought.
12.14. DISCLOSURE. Any disclosure by either party hereto pursuant to any
specific provision of this Agreement shall be deemed a disclosure for all other
purposes of this Agreement.
12.15. SECTION REFERENCES. All references contained in this Agreement to
any section number and to any Exhibit or Schedule are references to sections of,
or Exhibits or Schedules attached to, this Agreement, unless otherwise
specifically stated.
12.16. ALLOCATION OF PURCHASE PRICE FOR TAX PURPOSES. After the Closing
the parties will jointly agree as to the allocation of the Purchase Price and
shall file the forms required by Section 1060 of the Code in accordance
therewith.
12.17. USE OF TERMS. In this Agreement, the terms "Club" and "Seller"
are used to distinguish the legal entity (Seller) from the health/fitness
facility operated by it (the Club). However, such usage is not intended to, and
shall not, limit or reduce the legal duties and obligations of Seller (if "Club"
is used in its stead), nor shall it be deemed to exonerate or eliminate the
liability or obligation of a Club (if "Seller" is used in its stead).
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement, or
have caused this Agreement to be signed in their respective names by an officer
thereunder duly authorized, on the date first above written.
THE SPECTRUM CLUB COMPANY, INC.
By: John M. Gibbons
------------------------------------
John M. Gibbons, President
SCC I LLC PARTNERS
By: /s/ Philip H. Lovett
------------------------------------
Authorized Officer
RBW Santa Ana,
a California Limited Partnership
By: /s/ Dr. G. Barton Heuler
------------------------------------
Dr. G. Barton Heuler, Member
Managing General Partner
RPWSA, LLC
a California limited liability company
By: RBW SANTA ANA MEMBER
By: /s/ Dr. G. Barton Heuler
------------------------------------
Dr. G. Barton Heuler,
Managing General Partner
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LIST OF SCHEDULES
Schedule 1.1.1(a) List of Real Property Leases
Schedule 1.1.1(b) List of Personal Property Leases
Schedule 1.1.1(c) Real Property Owned by Seller
Schedule 1.1.1(d) Personal Property Owned by Seller
Schedule 1.1.1(f) Contracts
Schedule 1.1.1(j) Proprietary Rights
Schedule 2.1.1(a) Closing Cash Payment
Schedule 3.2.1 Closing Date Liabilities
Schedule 3.3.1 Debts, Obligations, Liabilities of Seller
Schedule 6.6 Restrictions; Burdensome Agreements
Schedule 6.7 Notices and Consents
Schedule 6.10 Absence of Certain Changes or Events
Schedule 6.11 Title; Liens/Encumbrances
Schedule 6.14(a) Facilities Schedule
Schedule 6.14(b) Information Regarding Memberships
Schedule 6.15 Insurance Policies/Bonds
Schedule 6.16.3 Defaults
Schedule 6.16.4 Contracts Not Assignable
Schedule 6.17.1 Licenses
Schedule 6.17.2 Proprietary Rights
Schedule 6.19 Litigation
Schedule 6.21 Interest in Competitors
Schedule 6.23.2 Employee Benefit Plans
Schedule 6.23.3 List of All Employees of Seller
Schedule 6.28 Past Due Obligations
Schedule 6.34 Governmental Approvals; Notices
Schedule 6.33 Title; Rights
Schedule 6.38 Contracts
Schedule 8.14.2 Non-Competition
Schedule 12.11 No Brokers
Schedule 12.16 Allocation of Purchase Price for Tax Purposes
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LIST OF EXHIBITS
Exhibit A-1 Form Grant Deed
Exhibit A-2 Form Bill of Sale
Exhibit B Registration Rights re: Acquisition Shares
Exhibit C Renegotiated Debt Agreements
Exhibit D-1 Assignment and Assumption of Subleases
Exhibit D-2 Assignment and Assumption Agreement
Exhibit E Partnership Agreement of Limited Partnerships; Articles of
Organization and Operating Agreement of LLC
Exhibit F Form Membership Agreement
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EXHIBIT 5
AGREEMENT OF PURCHASE AND SALE
BY AND AMONG
THE SPECTRUM CLUB COMPANY, INC., AND
RACQUETBALL WORLD, A CALIFORNIA LIMITED PARTNERSHIP
Dated as of December 31, 1997
<PAGE> 2
AGREEMENT OF PURCHASE AND SALE
This Agreement of Purchase and Sale is entered into as of December 31,
1997 ("Agreement"), by and among The Spectrum Club Company, Inc., a Delaware
corporation ("SCC" or "Buyer"), and Racquetball World, a California limited
partnership ("Seller").
R E C I T A L S:
A. SCC owns and operates upscale health and fitness clubs under the name
"Spectrum Clubs," in California.
B. Seller operates a health and fitness facility (the "CLUB") in
Fountain Valley, California. G. Barton Heuler ("Heuler") and John Okada
("Okada") are two of the general partners (collectively, the "General Partner")
of the Partnership.
C. Simultaneously with the execution and delivery of this Agreement,
Buyer is entering into an Agreement of Purchase and Sale (the "CANOGA PARK
PURCHASE AGREEMENT") with the limited partnership that owns and operates the
Racquetball World health and fitness facility in Canoga Park, California (the
"CANOGA PARK CLUB"). Prior to the date hereof, SCC and SCCI LLC, a Delaware
limited liability company ("Millennium"), entered into Agreements of Purchase
and Sale (collectively, the "OTHER PURCHASE AGREEMENTS") with two other limited
partnerships which own and operate Racquetball World health and fitness
facilities in Santa Ana and Fullerton, and intend to enter into an Option
Agreement with the limited partnership which owns and operates a health and
fitness facility in Buena Park (the "OPTION Agreement"). Such health and fitness
facilities in Santa Ana, Fullerton and Buena Park are hereinafter referred to
collectively as the "OTHER CLUBS" and individually as the the "SANTA ANA CLUB",
the "FULLERTON CLUB" and the "BUENA PARK CLUB". The consummation of the
transactions contemplated by this Agreement is expressly conditioned on the
simultaneous closing of the Canoga Park and all Other Purchase Agreements.
C. Buyer wishes to purchase from Seller, and Seller wishes to sell and
transfer to Buyer, substantially all the assets and properties used or held for
use by Seller in connection with the operation of the Club's health and fitness
business, subject to the terms and conditions set forth in this Agreement.
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A G R E E M E N T:
In consideration of the premises and the mutual covenants and agreements
hereinafter set forth, Buyer and Seller hereby agree as follows:
SECTION 1. TRANSFER OF ASSETS
1.1. PURCHASE AND SALE OF ASSETS.
1.1.1. ASSETS. Subject to the terms and conditions hereinafter
set forth, on the "Closing Date" (as defined in SECTION 5) and excluding the
"Excluded Assets" (as defined in SECTION 1.1.2), Buyer shall purchase and
acquire from Seller, and Seller shall sell, transfer, assign and convey to
Buyer, all of Seller's right, title and interest in and to all of the assets and
properties of Seller (of every kind and character, whether real, personal or
mixed, whether tangible and intangible, whether accrued, contingent or otherwise
and wherever situated), relating to the operation of the Club's health and
fitness business (the "HEALTH/FITNESS BUSINESS"), as the same shall exist
immediately prior to the Closing, including, without limitation, the following:
(a) all real property leases described in Schedule
1.1.1(a) attached hereto (the "REAL PROPERTY LEASES");
(b) all leases of personal property covering (by way
of example and not limitation) machinery, equipment, vehicles, furniture and
other personal property, which personal property leases are described in
Schedule 1.1.1(b) attached hereto (the "PERSONAL PROPERTY LEASES");
(c) all real property owned by Seller and more
particularly described in Schedule 1.1.1(c), together with all improvements and
fixtures thereon and all easements, rights of way and other rights appurtenant
thereto in any way related to such real property (the "REAL PROPERTY");
(d) all furniture, furnishings, equipment, machines,
computers, tools, supplies, spare (or replacement) parts and other personal
property owned by Seller and listed in Schedule 1.1.1(d) attached hereto (the
"PERSONAL PROPERTY");
(e) all membership agreements, contracts, forms,
instruments and other writings under which members are entitled to use the
facilities and services at the Club, including all amendments, renewals and
extensions thereof (the "MEMBERSHIP AGREEMENTS");
(f) all agreements, contracts, forms, instruments and
other writings (other than the Membership Agreements), and all rights thereunder
or thereto, which are identified in Schedule 1.1.1(f) attached hereto (the
"CONTRACTS");
(g) all records, files and other data relating to the
Health/Fitness
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Business, including, without limitation, all membership lists (in both written
form and in the Club's standard machine-readable format), customer lists,
supplier/vendor lists, invoices, plans and specifications, designs, drawings,
accounting/business records and accounts receivable aging schedules but
excluding Seller's partnership books and records (the "BUSINESS RECORDS");
(h) all licenses, approvals, permits and
authorizations (including any such licenses, approvals, permits and
authorizations issued by governmental agencies or authorities having
jurisdiction of the Health/Fitness Business) which are required in connection
with the operation of the Health/Fitness Business, to the extent the same can be
transferred and assigned to Buyer pursuant to the terms hereof (the "LICENSES");
(i) all inventory of finished products, raw materials
and work-in-process, whether located at the Club or elsewhere, including all
food and beverage inventory and all equipment or property (to the extent not
included in any of the other subparts of this Paragraph 1.1.1 and used by the
Club to prepare and serve food and beverage offerings to patrons and guests)
(the "INVENTORY");
(j) all trademarks, trade names, copyrights, patents
and other proprietary rights (whether or not registered), and all applications
relative to any of the foregoing, which Seller uses in connection with the
operation of its Health/Fitness Business which are listed in Schedule 1.1.1(j)
attached hereto (the "PROPRIETARY RIGHTS");
(k) all advance payments, prepaid items and credits of
all kinds of the Club, other than advance payments, prepaid items and credits
relating to Excluded Assets;
(l) all rights, claims and causes of action which
Seller could assert against any other person or entity for the breach of any
duty or violation of any right prior to the Closing Date, to the extent such
breach or violation relates, directly or indirectly, to the Health/Fitness
Business ("LITIGATION RIGHTS"); and
(m) all accounts receivable and other rights to
payment owing to Seller and arising out of the operation of its Health/Fitness
Business (including, without limitation, all rights to payment under Membership
Agreements and Contracts) (collectively, "RECEIVABLES").
All of the assets and properties described in this SECTION 1.1.1 are
collectively referred to herein as the "TRANSFERRED ASSETS".
1.1.2. EXCLUDED ASSETS. Anything in this SECTION 1.1 to the
contrary notwithstanding, the Transferred Assets shall not include, and Seller
shall retain for its own use and benefit (collectively, "EXCLUDED ASSETS"), (a)
all cash and cash equivalents (including, without limitation, all bank accounts,
marketable securities and certificates of deposit) of Seller; (b) any and all
assets and properties (including, without limitation, investments in the
securities of any publicly-or privately-held company or other entity and
certain rights to utilize vacation or resort facilities under a "time-share"
arrangement) of Seller that are unrelated to its operation of the Health/Fitness
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Business; (c) all books and other limited partnership records of Seller other
than the Business Records; (d) advance payments, prepaid items and credits
relating to (i) Federal, state and local income taxes covering periods
subsequent to the Closing Date, and (ii) any of the assets, properties or rights
identified in this SECTION 1.1.2; and (e) Seller's rights and interest under all
contracts, agreements, instruments and other arrangements, except to the extent
that such contracts, agreements, instruments and other arrangements constitute
"Assumed Obligations" (as defined in SECTION 3.1 hereof).
1.2. INSTRUMENTS OF TRANSFER. On the Closing Date, Seller shall deliver,
or cause to be delivered, to Buyer duly executed instruments of transfer and
assignment, including, without limitation, a Grant Deed substantially in the
form of Exhibit "A-1" ("GRANT DEED") and a Bill of Sale substantially in the
form of Exhibit "A-2", in form and substance reasonably satisfactory to Buyer
and its counsel, sufficient to vest in Buyer all of Seller's right, title and
interest in and to the Real Property and all other Transferred Assets, free and
clear of any and all liens, claims, security interests, assessments,
encumbrances, mechanic's and materialman's liens currently in effect or
hereafter perfected based upon work performed or materials supplied prior to the
date hereof and/or any other rights of third parties (other than membership
rights and rights to obtain catering services) with respect to any of the
Transferred Assets (collectively, "LIENS"), except for such Liens which are
specifically set forth in the Schedules hereto and which are not required to be
removed at or prior to the Closing pursuant to any other provisions of this
Agreement.
1.3. DELIVERY OF POSSESSION. At the Closing, Seller shall deliver
possession of the Transferred Assets to Buyer, at the location where, in the
ordinary course of business, such are usually and customarily located. Title and
risk of loss (including risk of theft) in and to the Transferred Assets shall
pass to and be vested in Buyer, effective at the time of Closing on the Closing
Date, and Seller shall have no further liability with respect to the Transferred
Assets or the Assumed Obligations, except for liability under this Agreement or
any "Ancillary Documents" (as defined in SECTION 8.14.1 hereof) and for the
negligence or wilful misconduct of the Club, or any of its employees and/or
persons acting on its behalf.
1.4. CONSENTS TO ASSIGNMENT. Any other provision of this Agreement to
the contrary notwithstanding, this Agreement shall not constitute an agreement
to assign any Membership Agreement, Contract, License or other Transferred
Asset, or any benefit arising thereunder or resulting therefrom, if an attempted
assignment of any thereof, without the consent of any other party thereto, would
constitute a breach or in any way materially adversely affect the rights of
Buyer or Seller with respect thereto. If such consent is not obtained, or if an
attempted assignment would be ineffective or would materially adversely affect
Seller's rights relative to such Membership Agreement, Contract, License or
other Transferred Asset so that Buyer would not in fact receive substantially
all of such rights, Seller shall cooperate in any arrangement Buyer may
reasonably request in writing to provide for Buyer the benefits with respect to
any such Membership Agreement, Contract, License or other Transferred Asset,
including enforcement for the benefit of Buyer of any and all rights of Seller
against any other party with respect thereto arising out of the breach or
cancellation thereof by such party or otherwise; and any transfer or assignment
of any Membership Agreement, Contract, License or other Transferred Asset which
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<PAGE> 6
shall require the consent or approval of any other party shall be made subject
to such consent or approval being obtained; provided, however, that nothing
contained in this SECTION 1.4 shall affect the liability, if any, of Seller
pursuant to this Agreement for failing to have disclosed the need for, and
failing to obtain, any such required consent or approval.
SECTION 2. PURCHASE PRICE; MANNER OF PAYMENT
2.1. CONSIDERATION AND MODE OF PAYMENT. The aggregate purchase price to
be paid by Buyer for the Transferred Assets and the other rights provided herein
consists of all of the obligations of Buyer under and pursuant to this
Agreement, including, without limitation, its obligations under the provisions
of SECTION 3 hereof, and, subject to the terms of Sections 3.2.1 and 4.2.3
hereof, a cash payment (the "CLOSING CASH PAYMENT") in the amount of $2,200,000
(collectively, the "PURCHASE PRICE"). Pursuant to Section 3.2.1, a portion of
the Closing Cash Payment shall be used by Seller to pay or otherwise satisfy all
of Seller's debts, obligations and other liabilities owing to all secured and
unsecured creditors of Seller, as renegotiated by Seller pursuant to SECTION
3.2.2 (the "CLOSING DATE LIABILITIES"). Buyer and Seller shall allocate that
portion of the Purchase Price attributable to the Real Property (the "REAL
PROPERTY PURCHASE PRICE"), and shall allocate the Purchase Price among all other
Transferred Assets in accordance with Section 12.16, and such allocations shall
be binding on the parties hereto, and neither Buyer nor Seller shall file any
tax return or take any position inconsistent with such allocation in any dealing
with any governmental agency or authority.
2.2. METHOD OF PAYMENT. All amounts to be paid or disbursed to Seller
pursuant to this Agreement shall be paid to a bank account designated by Seller,
in Los Angeles Clearinghouse funds or equivalent "next day" funds. No interest
shall be payable with respect to any payment made pursuant to SECTION 2.1.
SECTION 3. TREATMENT OF LIABILITIES
3.1. NO ASSUMPTION OF EXISTING LIABILITIES. Except as expressly set
forth in this Agreement, Buyer is not assuming, whether directly or indirectly,
and shall have no liability or obligation with respect to, any of the debts,
liabilities or obligations of Seller or the Club, all of which (except as
otherwise set forth below) shall be and remain the sole obligation and liability
of Seller.
3.2. PAYMENT AND SATISFACTION OF LIABILITIES.
3.2.1. CLOSING DATE LIABILITIES. As noted in SECTION 2.1.1(b)
and subject to SECTION 3.4 hereof, Buyer will be entitled to withhold from the
Closing Cash Payment the sum of $331,862 (the "WITHHELD AMOUNT"), which will be
handled and disbursed as follows:
(a) At the Closing, the sum of $71,772 will be paid to the Los
Angeles County Assessor to pay accrued but unpaid taxes assessed against the
Real Property (the "Real Property Taxes"), the sum of $50,000 will be paid to
A.M. Razo, Inc. (the "AMR Payment"), and an amount of not in excess of
$10,200.00 will be paid to Norman G. Wenzel, D.B.A. "A-1 Neon
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<PAGE> 7
Signs ("the A-1 Payment") in full satisfaction for the release of his lien
recorded against the Real Property. To the extent the A-1 Payment is less than
$10,200, the balance shall be applied against Closing Date Liabilities in
accordance with the other provisions of this Section 3.2.1
(b) At the Closing, Seller shall provide Buyer with a written
schedule (which will be attached hereto at the Closing as Schedule 3.2.1) which
sets forth all Closing Date Liabilities (excluding the Real Property Taxes, the
AMR Payment and the A-1 Payment, but including all accounts payable and accrued
expenses of Seller relative to periods prior to the Closing Date). On the
Closing Date, Buyer shall provide to Seller sufficient funds to pay those
Closing Date Liabilities marked with an asterisk (*) in Schedule 3.2.1.
(c) On a weekly or other periodic basis following the Closing
Date and for a period of ninety (90) days thereafter (the "HOLDBACK PERIOD"),
Seller shall instruct Buyer in writing of which Closing Date Liabilities are to
be paid, identifying, with respect to each such Liability, the creditor and the
amount to be paid thereto. Subject to Buyer's approval and consent, Buyer will
remit an amount necessary to satisfy such identified Closing Date Liabilities,
and Seller shall promptly remit to the applicable creditors the amounts
necessary to satisfy such Liabilities.
(d) If any of the Closing Date Liabilities includes the payment
of an amount that should be prorated and for which Buyer is responsible pursuant
to Section 4.2.3 hereof, Buyer will contribute an amount to the Withheld Amount
to cover such prorated portion. Alternatively, if Buyer shall pay any liability
or obligation from and after the Closing which includes a prorated item for
which Seller is responsible, then Buyer shall be entitled to reimburse itself
for such payment and reduce the Withheld Amount on a dollar-for-dollar basis.
Nothing contained herein shall affect or limit either party's responsibility for
its share of any prorated items pursuant to said Section 4.2.3 hereof.
(e) If Seller is successful in negotiating a reduction in the
amount of any Closing Date Liability as contemplated by Section 3.2.2 hereof,
then Seller shall provide Buyer with a Renegotiated Debt Agreement (as defined
in said Section 3.2.2) relative to such Closing Date Liability executed by the
applicable creditor, and an appropriate adjustment in Schedule 3.2.1 reflecting
all Closing Date Liabilities shall be made; provided that, Seller acknowledges
that if the total amount of the Closing Date Liabilities ultimately paid or
satisfied by Seller is less than the Withheld Amount upon the expiration of the
Holdback Period, Buyer shall remit the full amount of such excess funds to
Seller within two days following the expiration of the Holdback Period, without
interest. Similarly, if the amount of the Closing Date Liabilities, plus any
other debts, liabilities or obligations of Seller which relate to pre-Closing
activities (even though asserted or coming to Seller's or Buyer's attention
post-Closing), shall exceed the amount of the Withheld Amount, Seller
understands that Buyer is not assuming, and shall not be deemed to have assumed,
any of such additional liabilities or obligations, and all of such additional
liabilities and obligations (including Closing Date Liabilities) shall be and
remain the sole obligation and responsibility of Seller.
3.2.2. NEGOTIATING DISCOUNTS. From and after the Closing, Seller
will
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continue to use its best efforts to negotiate discounts with respect to all
Closing Date Liabilities so that the Closing Date Liabilities shall be less than
the Withheld Amount, if reasonably practicable. To the extent creditors of
Seller agree to accept a discount off the amounts otherwise due and owing to
such creditors as full payment of such debt or liability, Seller shall cause
such creditors to execute written acknowledgements confirming such agreement in
substantially the form of Exhibit "C" ("RENEGOTIATED DEBT AGREEMENTS"). Seller
shall provide Buyer with true and correct copies of all Renegotiated Debt
Agreements executed by Seller and the applicable creditors as of the Closing
Date and thereafter as contemplated by Section 3.2.1 hereof.
3.3. ASSUMPTION OF CERTAIN LIABILITIES.
3.3.1. ASSUMPTION OF SPECIFIC OBLIGATIONS. Effective as of the
Closing Date, SCC shall assume and be liable for the specific debts, obligations
and liabilities of Seller set forth in Schedule 3.3.1 and no others
(collectively, the "ASSUMED OBLIGATIONS"), in connection with the consummation
of the transactions contemplated hereby.
3.3.2. MANNER OF ASSUMPTION. SCC's assumption of the Assumed
Obligations shall be evidenced by one or more Assignment and Assumption
Agreements substantially in the form of Exhibit "D" ("ASSUMPTION AGREEMENTS").
It is not the intention of either SCC or Seller that the assumption by SCC of
the Assumed Obligations pursuant to the Assumption Agreements shall in any way
enlarge the rights of third parties under, or with respect to, the agreements or
instruments to which such Assumed Obligations relate. Nothing contained herein
shall prevent or otherwise limit Buyer from contesting in good faith any of the
Assumed Obligations with the obligee.
3.4. CONDITION TO CLOSING. In addition to the other conditions to
Buyer's and Seller's obligations to close specified in SECTIONS 9 AND 10 hereof,
and notwithstanding any other term or provision hereof, each of Buyer and Seller
shall have the right to terminate this Agreement and refrain from consummating
the transactions contemplated hereby without liability if the aggregate amounts
payable to Seller pursuant to SECTION 2.1.1(b) (and subject to the terms of
SECTION 3.2.1) are insufficient to pay, satisfy or otherwise discharge in full
the Closing Date Liabilities, as set forth in Schedule 3.2.1 (and as further
reduced pursuant to signed and completed Renegotiated Debt Agreements).
3.5. ALL OTHER LIABILITIES TO BE RETAINED BY SELLER. Anything herein to
the contrary notwithstanding, Buyer is not assuming and shall have no liability
with respect to, and Seller shall be solely liable and responsible for, all
debts, liabilities and obligations which are not included in the Assumed
Obligations including, without limitation, the following: (a) any claim, demand,
debt or liability asserted by a creditor of Seller that shall exceed, or be in
addition to, the aggregate amount of the Closing Date Liabilities; (b) any
debts, claims, demands, liabilities or other obligations, whether known or
unknown and whether fixed, accrued or contingent, which are not disclosed on the
"Club Financial Statements" (as defined in SECTION 6.8 hereof); (c) liabilities
under any Membership Agreement or Contract that accrued, arose or otherwise
relates to any period prior to the Closing Date; (d) any contract, agreement,
commitment or obligation that is included in or
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otherwise related to any Excluded Assets; (e) except as otherwise provided in
this Agreement, liabilities or obligations of Seller to any partner, employee,
officer, director, shareholder or other person who controls, is controlled by or
is under common control with Seller or any general partner thereof (each, a
"SELLER AFFILIATE"), whether relating to (i) unpaid salary, severance,
retirement or other benefits; (ii) wrongful discharge or termination; or (iii)
any loans or other advances made to Seller or the Club by any partner, employee,
officer, director, shareholder or Seller Affiliate; (f) liabilities under any
employee benefit plan or program in effect as of the Closing Date; (g)
liabilities or obligations of Seller or the Club relating to any breach, or from
any fact or transaction involving a breach, by Seller or the Club of any
covenant, agreement, representation or warranty contained herein or arising
from, out of, or in connection with, the transactions contemplated by this
Agreement; (h) liabilities or obligations incurred by Seller, the Club or any
Seller Affiliate on or after the Closing Date; (i) liabilities or obligations in
respect of or arising out of any goods, merchandise or services provided by the
Club to or for the benefit of any member or patron on or before the Closing Date
or relating to the alleged breach of any duty or violation of any right owed or
held by any other person or entity; (j) liabilities or obligations involving the
payment of any domestic (federal, state or local) or foreign taxes on or
measured by income, which are due or shall become due as a result of the
operation of the Club through the Closing Date, including, without limitation,
any minimum tax imposed under Section 56 of the Internal Revenue Code of 1986,
as amended (the "CODE"), or any comparable tax imposed under any other tax
statute, or interest or penalties relating thereto; (k) liabilities or
obligations relating to the payment or deposit of (or the failure to pay or
deposit) all Federal, state or local payroll or withholding taxes (including
interest, penalties and other assessments) which were required to be paid or
deposited by Seller or any Seller Affiliate with a financial institution for all
periods up to and including the Closing Date; and (l) liabilities or obligations
owed by Seller or any Seller Affiliate to any person or entity with respect to
any existing or pending lawsuit, arbitration or other legal or proceeding, or
any litigation, arbitration or other legal proceeding that may be instituted
against Seller or any Seller Affiliate subsequent to the Closing Date but that
relates to facts or events arising or occurring prior to the Closing Date. The
foregoing obligations and liabilities are hereinafter collectively referred to
as the "RETAINED OBLIGATIONS".
3.6. RIGHT OF ENFORCEMENT AND SETTLEMENT. From and after the Closing
Date, SCC shall have complete control over the satisfaction and discharge of the
Assumed Obligations and the right to commence, conduct and control all
negotiations and proceedings with respect thereto. Seller shall notify SCC
promptly of any claim made which arose, accrued or otherwise relates to any
Assumed Obligation and shall not, except with SCC's prior written consent,
voluntarily settle or offer to settle, or consent to any compromise or admit
liability with respect to, any such claim. Seller shall cooperate with SCC in
any reasonable manner requested by Buyer in connection with any negotiations or
proceedings involving any Assumed Obligation.
SECTION 4. USE OF TITLE COMPANY; PRORATIONS.
4.1. DESIGNATION OF TITLE COMPANY. As soon after the date hereof as is
reasonably practicable, Seller and Buyer shall jointly instruct a title company
designated by Buyer ("TITLE COMPANY") that upon satisfaction or waiver of the
conditions set forth in SECTION 9 AND 10 below,
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it shall record the Grant Deed and deliver to Buyer or its agent the "Title
Insurance" defined and described in SECTION 5.2.2 below. Except as otherwise
provided in Schedule 3.3.1 hereto this SECTION 4, Seller shall pay all costs
relating to the transfer of the Real Property, including, without limitation,
all real estate brokerage commissions, if any; documentary or other transfer
taxes; recording and reconveyance fees necessary to extinguish any and all
existing Liens; and costs of preparing, executing and acknowledging the Grant
Deed (or Deeds) and other instruments necessary to transfer good and marketable
title to the Real Property to Buyer in accordance with this Agreement. Buyer
shall pay all premiums, fees and costs related to the issuance of the
Preliminary Title Report under SECTION 8.12 and the Title Insurance, together
with the cost of recording the Grant Deed (or Deeds) and other instruments
conveying title to the Real Property to Buyer. If required by Title Company,
Seller acknowledges that Buyer shall have the right to deposit with Title
Company that portion of the Withheld Amount necessary to pay, satisfy and
discharge any taxes or Liens affecting the Real Property, and to calculate any
prorated expense items that are capable of being prorated as of the Closing
Date, as required by Section 4.2 hereof. To the extent required by Title
Company, Buyer and Seller shall execute any agreement or other form required by
Title Company to act as escrow in connection with the completion of the
transactions contemplated hereby, and Buyer shall be responsible for one-half of
Title Company's fees for serving in such capacity.
4.2. EXPENSES AND PRORATIONS.
4.2.1. PRORATIONS AND REIMBURSEMENT. Except as otherwise
provided herein, at and as of the Closing, Buyer and Seller (or Title Company,
to the extent it shall be authorized pursuant to SECTION 4.1 above), shall
prorate in cash (a) rents payable by Seller under the Real Property Leases, (b)
rents payable by Seller under the Personal Property Leases, (c) utility and
sewer charges and all operating expenses of Seller to the extent attributable to
its Health/Fitness Business, (d) all utility, service and other charges relating
to the Real Property, and (e) other items which are typically prorated in
similar transactions but only to the extent attributable to the Health/Fitness
Business. Seller shall maintain in place for the benefit of Buyer all deposits
under the Real Property Leases and Personal Property Leases, as well as all
utilities and other deposits held by third parties.
4.2.2. TERMINATION OF EMPLOYEES. Effective as of the Closing,
Seller shall terminate, or cause to be terminated, all of its employees and
independent contractors, and Seller shall pay, or cause to be paid, all accrued
employee salaries, vacation, sick pay, bonuses, payroll taxes and other employee
and independent contractor costs/fees as of the Closing Date; provided that, SCC
shall promptly reimburse Seller for the aggregate amount paid to those
terminated employees who are not rehired by Buyer immediately following the
Closing, in respect of accrued but unused vacation pay (and to the extent
required under Seller's employment policies, in respect of sick pay). SCC shall
have the right to hire, from and after the Closing, such of Seller's former
employees as it deems necessary to operate the Club following the Closing,
subject to the same general compensation and benefits package (including health
care and worker's compensation insurance) as shall be offered to SCC's other
employees occupying the same or similar positions. Any of Seller's former
employees who are hired by SCC immediately following the Closing shall,
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in addition to the standard vacation and sick days granted to SCC's employees
occupying the same or similar position, be granted by SCC additional vacation
and sick days equal to the number of their accrued but unused vacation and sick
days with Seller as of the Closing Date. Seller shall deliver to SCC copies of
Forms W-2 for all employees whom SCC may employ after the Closing Date, and
copies of all payroll records for such employees, in each case from the date of
each such person's employment through the business day immediately preceding the
Closing Date; Schedule 6.23.3 hereto identifies all such employees.
4.2.3. METHOD OF PRORATING. All prorations hereunder shall be
made on the basis of the actual number of days elapsed and shall be prorated as
of the Closing Date, unless otherwise provided herein. Absent unforeseen
circumstances, Buyer and Seller (or Title Company, to the extent authorized
pursuant to SECTION 4.1 hereof), shall endeavor to complete all prorations
contemplated by this SECTION 4.2 within sixty (60) days following the Closing
Date. In order to allow for prompt settlement of all prorated amounts hereunder,
Seller acknowledges that the Withheld Amount shall be withheld by Buyer as of
the Closing Date and through the Holdback Period, and any and all prorations
shall be credited or debited against such withheld sum as provided in Section
3.2.1 or this Section 4.2.3. If the Withheld Funds shall be insufficient to
reimburse Buyer for Seller's share of all such prorated items, Seller shall
remit the amount of such shortfall to Buyer within three (3) days of its receipt
of notice from Buyer regarding such reimbursement request. If either Seller or
Buyer shall dispute any proration calculations hereunder and shall be unable to
resolve such dispute within ten (10) days after commencement of settlement
discussions, the parties shall submit such dispute to a nationally-recognized
accounting firm acceptable to them, provided such firm shall not have been
engaged by either Buyer or Seller at any time within the past ten (10) years,
and the determination of such chosen firm shall be conclusive and binding. Each
party shall be entitled to provide the accounting firm with all information
which it deems relevant to the matters in dispute, and the fees of the
accounting firm for providing such services shall be borne equally by Buyer and
Seller.
SECTION 5. CLOSING; DELIVERIES
5.1. CLOSING. The closing of the purchase and sale of the Transferred
Assets and related assumption of the Assumed Obligations by Buyer pursuant to
the terms hereof (the "CLOSING") shall be held at the offices of Kinsella,
Boesch, Fujikawa & Towle, LLP, 1901 Avenue of the Stars, 7th Floor, Los Angeles,
California 90067, at 10:00 A.M. (California time), on December 31, 1997, or at
such other date, place or time as the parties shall otherwise agree upon in
writing (the date of the Closing being referred to herein as the "CLOSING
DATE").
5.2. SELLER DELIVERIES AT CLOSING. In addition to all other deliveries
required to be made at the Closing as described elsewhere herein, at or before
the Closing, on the Closing Date, Seller shall deliver, or cause to be delivered
by Title Company, to Buyer the following documents:
5.2.1. DEEDS. One or more Grant Deeds conveying to Buyer fee
simple title to the Real Property, which Grant Deed (or Deeds) (a) shall be
executed by a duly authorized representative of Seller and notarized for
recording, and (b) shall convey to Buyer good and
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marketable title to the Real Property, free and clear of any and all Liens
except for those exceptions approved by Buyer pursuant to SECTION 8.12 hereof
(the "PERMITTED EXCEPTIONS"); and
5.2.2. TITLE INSURANCE. An American Land Title Association
("ALTA") standard coverage policy of title insurance covering the Real Property
(the "TITLE Insurance") with liability in the aggregate amount of the Real
Property Purchase Price, insuring Buyer that fee title to the Real Property is
vested in it, subject only to the Permitted Exceptions. Although it is Seller's
obligation to furnish the Title Insurance required by this SECTION 5.2.2, Buyer
shall pay the premiums for such Title Insurance. The Title Insurance shall
include appropriate endorsements for zoning classification, including for
parking.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to, and agrees with, Buyer as follows:
6.1. ORGANIZATION, GOOD STANDING, POWER, ETC.
The Partnership is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of California, and it
conducts no business nor owns or leases any assets or properties outside the
State of California. The Partnership has all requisite partnership power and
authority to (i) execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby and (ii) own or
lease and operate its properties and to carry on its business as it is presently
being conducted. The Partnership's managing general partners are Heuler and
Okada, and each of Heuler and Okada owns his partnership interest in his
individual capacity and has all necessary power and authority (x) to manage and
operate the Partnership's business in the manner in which it is currently being
conducted; (y) to perform, as the Partnership's managing general partner and on
behalf of the Partnership as such managing general partner, the Partnership's
obligations under the Membership Agreements and Contracts; and (z) to execute
and deliver this Agreement on behalf of the Partnership. Other than "Sequoia
Club Fountain Valley" and "Racquetball World Fountain Valley", the Partnership
has never conducted any business at the Club under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name, assumed name, trade name or
other name.
6.2. CHARTER DOCUMENTS.
Included as part of Exhibit E are true, correct and complete
copies of the Partnership's Agreement of Limited Partnership (the "PARTNERSHIP
AGREEMENT") and Certificate of Limited Partnership (Form LP-1) ("CERTIFICATE"),
as amended to date. Each of the Partnership Agreement and Certificate is in full
force and effect.
6.3. SUBSIDIARIES, DIVISIONS AND AFFILIATES. No person or entity other
than Seller, and no Seller Affiliate (other than partners of Seller), has any
legal or equitable right, title or interest in or to any of the Transferred
Assets.
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6.4. AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement and the "ANCILLARY DOCUMENTS" (as defined in SECTION 8.14.1)
by the Partnership, and the consummation of the transactions contemplated hereby
and thereby, will have been duly and validly authorized by the General Partners,
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the requisite number of limited partners of the
Partnership as required by the Partnership Agreement as of the Closing Date. On
the Closing Date, this Agreement will have been, and the Ancillary Documents
will be, duly and validly authorized, executed and delivered by the Partnership.
This Agreement constitutes a valid and binding obligation of Seller, enforceable
against it in accordance with its terms, except (a) that such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally, (b) to the extent that
enforceability may be limited by California courts with respect to any
"unconscionable" provisions contained therein, and (c) that certain of the
covenants contained herein may not be specifically enforceable and courts may
award money damages rather than specific performance of contractual provisions
involving matters other than the payment of money.
6.5. EFFECT OF AGREEMENT, ETC. The execution, delivery and performance
of this Agreement by Seller, and the consummation by Seller of the transactions
contemplated hereby, will not, with or without the giving of notice and the
lapse of time, or both, (a) violate any provision of law, statute, ordinance,
rule, regulation or executive order to which Seller is subject; (b) violate any
judgment, order, writ or decree of any court, arbitrator or governmental
authority applicable to Seller; or (c) result in the breach of or conflict with
any term, covenant, condition or provision of, result in the modification or
termination of, constitute a default under, or result in the creation or
imposition of any Lien upon any of the Transferred Assets pursuant to, Seller's
Partnership Agreement or Certificate, or any commitment, contract, agreement or
instrument, including any of the Membership Agreements or Contracts, to which
Seller is a party or by which any of the Transferred Assets is or may be bound
or affected.
6.6. RESTRICTIONS; BURDENSOME AGREEMENTS. Except as otherwise disclosed
in Schedule 6.6 or as specifically disclosed elsewhere in this Agreement or in
the other Schedules hereto, neither Seller nor the General Partner is a party to
any contract, commitment or agreement, nor is either of them or any of the
Transferred Assets subject to, or bound or affected by, any partnership
restriction, judgment, decree, law, statute, ordinance, rule, regulation or
other restriction of any kind or character which would, individually or in the
aggregate, materially adversely affect Buyer's purchase, ownership and operation
of the Transferred Assets from and after the Closing.
6.7. NOTICES AND CONSENTS, ETC. Except as otherwise disclosed in
Schedule 6.7 or as specifically disclosed elsewhere in this Agreement or in the
other Schedules hereto, no notice to, consent, authorization or approval of, or
exemption by, any other person (including, without limitation, any governmental,
public or self-regulatory body or authority), other than notice, consents or
approvals which Seller shall have obtained as of the Closing Date, is required
in connection with the execution, delivery and performance by Seller of this
Agreement or any of the instruments or agreements herein referred to (including
any Ancillary Documents), or the taking of
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any action by Seller herein contemplated.
6.8. FINANCIAL STATEMENTS. Seller has delivered, or caused to be
delivered, to Buyer the following financial statements of Seller: an audited
balance sheet as at September 30, 1996, and an audited statement of operations
for the year then ended; an unaudited balance sheet as at September 30, 1997,
and an unaudited statement of operations for the year then ended; and an
unaudited balance sheet as at October 31, 1997 and an unaudited statement of
operations for the month then ended (collectively, the "CLUB FINANCIAL
STATEMENTS"). The Club Financial Statements are true, accurate and complete in
all material respects, and the dollar amount of each line item included in the
Club Financial Statements is accurate in all material respects. The Club
Financial Statements have been prepared from the books and records of Seller,
which are maintained on an [ACCRUAL] basis, in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered, and present fairly the financial position of Seller as of the
respective dates thereof and the results of operations for the periods covered
thereby. Seller has no, and is not subject to, any debts, liabilities or
obligations of any nature, whether absolute, contingent or otherwise, not fully
and properly reflected or reserved against in the Club Financial Statements,
except debts, liabilities and obligations incurred by Seller in the ordinary
course of business since October 31, 1997 (the "CUT-OFF DATE").
6.9. ACCOUNTS RECEIVABLE. All Receivables reflected in the Club
Financial Statements are included in Seller's Business Records and, at the close
of business on the day immediately preceding the Closing Date, will represent
receivables which (a) arose from bona fide transactions in the ordinary course
of Seller's business, (b) represent amounts payable to Seller consistent with
past practices and policies; and (c) were, and are in the aggregate believed to
be, good and collectible in the amounts shown (less the amount of the reserves
shown in respect of such Receivables, which reserves are disclosed in the Club
Financial Statements and the Business Records, and which were, and will have
been, provided for in accordance with generally accepted accounting principles
applied on a consistent basis with prior practice) in accordance with Seller's
past practices and policies.
6.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 6.10, since the Cut-Off Date, Seller has not: (a) suffered any adverse
change in, or the occurrence of any events which, individually or in the
aggregate, has or have had, or, to the best knowledge of the General Partner
might reasonably be expected to have, a material adverse effect on, the
Transferred Assets, or Buyer's use and enjoyment thereof from and after the
Closing Date; (b) incurred damage to or destruction of any material Transferred
Asset, or material portion of the Transferred Assets, by casualty, whether or
not covered by insurance; (c) incurred any material obligation or liability
(fixed or contingent) except (i) current trade or business obligations incurred
in the ordinary course of business, none of which was entered into for
inadequate consideration, (ii) obligations and liabilities under the Membership
Agreements and Contracts to the extent required thereby, and (iii) obligations
and liabilities under this Agreement; (d) made or entered into contracts or
commitments to make any capital expenditures in excess of $10,000 in the
aggregate; (e) mortgaged, pledged or subjected to Lien any of the Transferred
Assets (except for (x) the lien of taxes not yet due and payable, and (y) such
imperfections of title and encumbrances, if any, which do no detract from the
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value, or interfere with the current use, of any of the Transferred Assets or
otherwise impair the Club's business operations); (f) sold, transferred or
leased any material Transferred Asset, or material portion of the Transferred
Assets, or cancelled or compromised any debt or material claim, except in each
case in the ordinary course of business; (g) amended, modified or terminated any
of the contracts, agreements, leases or arrangements which are, or would
otherwise have been, listed in Schedule 1.1.1(f); (h) waived or released any
other rights of material value; (i) made any loan or advance to any person other
than loans or advances to employees consistent with past policy and in the
ordinary course of business and not exceeding five thousand dollars ($5,000) in
the aggregate; (j) declared or paid any dividend, distribution or other payment
to any person or entity, or purchased or redeemed any interest in Seller held by
any person or entity; or (k) entered into any transaction not in the ordinary
course of business which would, individually or in the aggregate, materially
adversely affect the Transferred Assets.
6.11. TITLE TO ASSETS; ABSENCE OF LIENS AND ENCUMBRANCES, ETC. Except as
set forth on Schedule 6.11, (a) Seller has good title to, and owns outright, the
Transferred Assets owned by it, which include substantially all of Seller's
assets and properties reflected in the Club Financial Statements, excluding the
Excluded Assets, free and clear of all Liens (except for (i) the lien of taxes
not yet due and payable and (ii) such imperfections or defects of title, if any,
which do not materially detract from the value, or interfere with the current
use, of any of the Transferred Assets or otherwise impair the Club's business
operations); and (b) the sale and delivery of the Transferred Assets pursuant to
the terms hereof will vest in Buyer good and marketable title thereto, free and
clear of all Liens or other defects of any nature (except as set forth in
clauses (a)(i) and (a)(ii) above). The Transferred Assets are located only in
the State of California, and none of such Assets was removed from another state.
All Real Property Leases, Personal Property Leases, Contracts and other
agreements and instruments under which Seller holds, leases or is entitled to
the use of any Real or Personal Property included in the Transferred Assets (a
correct and complete list of all such Leases, Contracts and other agreements and
instruments being set forth in Schedules 1.1.1 (a), (b) and (f), respectively),
are in full force and effect, and all rentals, royalties and other payments
accruing thereunder prior to the date hereof have been duly paid and Seller
enjoys peaceable and undisturbed possession under all such Leases, Contracts and
other agreements and instruments. With respect to Real Property and Personal
Property Leases, Schedules 1.1.1(a) and 1.1.1(b), respectively, identify the
lessor of each such item, the amount of the monthly lease payment required
thereby and the scheduled expiration date of the applicable Lease, and said
Schedules are true, accurate and complete.
6.12. PERSONAL PROPERTY. Schedule 1.1.1(d) contains a correct and
complete list, as of the date hereof, of all Personal Property owned by Seller
and included in the Transferred Assets, indicating, for each such item, where it
is located. All Personal Property utilized by Seller in connection with its
Health/Fitness Business prior to the date hereof is included in the Transferred
Assets. Except as otherwise indicated on Schedule 1.1.1(d), all Personal
Property is in reasonably good working condition and repair, is free of known
deficiencies, defects or operating problems, has been adequately maintained in
accordance with applicable operating or maintenance manuals or standard industry
practice and has been suitable to Seller for the uses for which said Personal
Property has been employed, and (b) to the best knowledge of the General
Partner, conforms in all
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material respects with all laws, ordinances, regulations, orders or other
similar governmental requirements relating to its use, as the same are currently
in effect. Seller possesses complete control over, and all right, title and
interest in and to, all Litigation Rights, and Seller has not assigned or
transferred any right or interest in any such Litigation Rights to any third
party, whether voluntarily or by operation of law. Seller has previously
disclosed to Buyer any and all pending matters comprising the Litigation Rights
and has made, or will after the date of this Agreement make, available to Buyer
and its counsel all relevant files and documents with respect to each matter
included within the Litigation Rights. Provided Buyer elects to continue to
prosecute any matters included in the Litigation Rights, Seller shall cause its
legal counsel to cooperate with Buyer's counsel in connection with Buyer's
counsel's assumption of control over the prosecution of any such matters
(including the preparation and filing of all necessary papers with the
applicable courts to substitute in Buyer's counsel in place of Seller's
counsel). Seller shall continue to exercise control over the prosecution of any
matters included within the Litigation Rights which are not assumed by Buyer
hereunder.
6.13. INVENTORY. The Inventory is of a quality which makes it usable,
merchantable and/or saleable, as applicable, at regular prices in the ordinary
course of business.
6.14. MEMBERS; MEMBERSHIP AGREEMENTS.
6.14.1. FORM OF MEMBERSHIP AGREEMENT. Attached as Exhibit "F" is
the form (or forms) of Membership Agreement used by Seller to govern the
memberships of its Members ("MEMBERSHIPS").
6.14.2. INFORMATION REGARDING MEMBERSHIPS. Schedule 6.14(a) sets
forth, as of a recent date, in the aggregate, (a) monthly Club dues under all
Membership Agreements, (b) the amount of prepaid Club dues, (c) the number of
renewable Memberships and the terms thereof, and (d) those Memberships issued on
a promotional or non-fee basis (the "FACILITIES SCHEDULE"). Schedule 6.14(b)
sets forth an accurate and complete listing, as of a recent date, of (i) the
name and address of each current member of the Club, (ii) each member's monthly
Club fee and any amounts due and owing under his/her Membership Agreement as of
the date of the Facilities Schedule (indicating, in each case, the aging of any
amounts due and owing for more than thirty (30) days), (iii) the amount of the
Member's prepaid Club dues, if any, and (iv) the number of months of service
covered by each such prepayment.
6.14.3. COMPLIANCE WITH LAW. Except as otherwise set forth in
Schedule 6.14(a), the terms and provisions of each Membership Agreement comply
with the provisions of Section 1812.80 et seq. of the California Civil Code, as
amended (the "CIVIL CODE"). If and to the extent that Buyer shall be required to
give any refund to any member after the Closing as a result of the failure of
such member's Membership Agreement to comply with the provisions of Section
1812.80 et seq. of the Civil Code, then Seller shall pay to Buyer, promptly upon
demand, the amount of such refund if it relates to (a) any prepaid or deferred
payment under a Membership Agreement made prior to the Closing Date, or (b) any
initiation fee, or portion thereof, paid by such member to Seller prior to the
Closing Date. Neither the Club nor Buyer is
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required to notify any member of any right to a refund as a result of the
transactions contemplated by this Agreement.
6.15. INSURANCE. There are no outstanding or unsatisfied requirements or
recommendations imposed or made by any of Seller's current insurance companies
with respect to current policies covering any of the Transferred Assets, or by
any governmental authority requiring or recommending, with respect to any of the
Transferred Assets, that any repairs or other work be done on or with respect
to, or requiring or recommending any equipment or facilities be installed on or
in connection with, any of the Transferred Assets. Seller has carried worker's
compensation and comprehensive general liability insurance, respectively, in
such amounts and having such policy exclusions and conditions, as Seller deemed
reasonable and consistent with standard industry practice, and all such policies
of insurance are in full force and effect as of the date hereof (and will remain
in full force and effect through the Closing Date). Schedule 6.15 sets forth a
correct and complete description of (a) all currently effective insurance
policies and fidelity and surety bonds, if any, covering the Transferred Assets,
and (b) for the five-year period ending on the date hereof, (i) all accidents,
casualties or damage occurring on or about the Club's premises or otherwise
relating to the Transferred Assets or the Health/Fitness Business or the
catering business of Seller, and (ii) claims for damages, contribution or
indemnification and settlements (including pending settlement negotiations)
relating thereto. Except as set forth on Schedule 6.15, there are no disputes
with underwriters of any such policies or bonds, and all premiums due and
payable thereon have been paid. Seller and the Transferred Assets are in
compliance with all conditions contained in such policies or bonds, except for
non-compliance which, individually or in the aggregate, would not have a
material adverse effect on the Transferred Assets.
6.16. AGREEMENTS, ARRANGEMENTS, ETC.
6.16.1. NO OTHER CONTRACTS. Except for the Partnership
Agreement, Membership Agreements and Contracts listed on Schedule 1.1.1(f), the
Real and Personal Property Leases, those agreements and contracts included
within or relating to the Excluded Assets or Retained Obligations and those
agreements and contracts which are immaterial to Seller's Health/Fitness
Business, Seller is not a party to, nor is it or any of the Transferred Assets
bound by, any lease, license, employment agreement, sales/supplier or
distribution agreement, sales representative or broker agreement, joint venture
or partnership agreement, indemnification or guarantor agreement, loan or credit
agreement, security or pledge agreement, advertising or public relations
agreement, non-competition agreement or purchase order or commitment. Correct
and complete originals of all Membership Agreements and Contracts will be
delivered to Buyer at or prior to the Closing.
6.16.2. EFFECTIVENESS OF CONTRACTS. To the best knowledge of the
General Partner, each Membership Agreement, Contract, Real Property Lease and
Personal Property Lease included in the Transferred Assets is valid, in full
force and effect and enforceable in all material respects by Seller in
accordance with its terms, except (a) to the extent that its enforceability may
be limited by applicable insolvency, bankruptcy or similar laws affecting the
enforcement of creditors' rights generally, (b) to the extent that
enforceability may be limited by California courts with
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respect to any "unconscionable" provisions contained therein, and (c) that
certain of the covenants contained therein may not be specifically enforceable
and courts may award money damages rather than specific performance of
contractual provisions involving matters other than the payment of money.
6.16.3. NO DEFAULTS. Except as otherwise set forth on Schedule
6.16.3, Seller has fulfilled, or has taken all action reasonably necessary to
enable it to fulfill when due, all of its obligations under each Membership
Agreement, Contract, Real Property Lease and Personal Property Lease, except
where the failure to do so would not, individually or in the aggregate, have a
material adverse effect on the Transferred Assets. Furthermore, there has not
occurred any default by or on the part of Seller, or any event which, with the
giving of notice or the lapse of time (or both), would constitute a default, nor
to the knowledge of Seller has there occurred any default by others or any event
which, with giving of notice or the lapse of time (or both), will become a
default under any of the Membership Agreements, Contracts, Real Property Leases
or Personal Property Leases, except defaults, if any, which have not resulted
and will not result in any material loss to or liability of Seller or any of its
successors or assigns. Seller is not in arrears in any material respect with
respect to the performance or satisfaction of the terms or conditions to be
performed or satisfied by it under any Membership Agreement, Contract, Real
Property Lease or Personal Property Lease, and, to the best of the General
Partner's knowledge, no waiver or indulgence has been granted by any of the
parties thereto.
6.16.4. CONTRACTS ASSIGNABLE. Except as otherwise set forth on
Schedule 6.16.4, each of the Membership Agreements, Contracts, Real Property
Leases and Personal Property Leases included in the Transferred Assets is
assignable by Seller to Buyer without the consent of the other party (or
parties) thereto, except for such of the Membership Agreements, Contracts and
Personal Property Leases which in the aggregate do not constitute a material
portion of the Transferred Assets. To the extent the consent of any party to a
Membership Agreement, Contract, Real Property Lease or Personal Property Lease
is required, then Seller shall provide Buyer with true and correct copies of all
such consents at the Closing.
6.17. PERMITS, LICENSES, AND PROPRIETARY RIGHTS.
6.17.1. LICENSES. Other than the Licenses and except as
disclosed in Schedule 6.17.1, there are no permits, licenses, orders or
approvals of governmental or administrative authorities or other persons
required to permit Seller to carry on the Health/Fitness Business as currently
conducted, and all Licenses are in full force and effect, may be transferred and
assigned to Buyer on the Closing Date without the consent or approval of any
other person or entity and will remain valid and in effect in connection with
Buyer's use and operation of the Transferred Assets from and after the Closing.
6.17.2. PROPRIETARY RIGHTS. Other than the Proprietary Rights,
there is no proprietary right or asset which Seller requires or upon which it
relies in operating its Health/Fitness Business. Except as set forth in Schedule
6.17.2, Seller has not (i) infringed, and is not now infringing, upon any
patent, trademark, copyright, trade name or trade secret belonging to
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any other person or entity and has not and is not now engaging in any form of
unfair competition, and (ii) received any written notice of any infringement or
misappropriation of any Proprietary Right owned or used by any other person or
entity.
6.18. COMPLIANCE WITH APPLICABLE LAWS. The conduct by Seller of its
Health/Fitness Business does not violate or infringe any law, statute,
ordinance, regulation or executive order (including, without limitation, Section
1812.80 et seq. of the Civil Code, the Occupational Safety and Health Act, the
National Environmental Policy Act and the Foreign Corrupt Practices Act, as
amended, and the respective regulations thereunder) currently in effect, except
in each case for violations or infringements which do not and will not,
individually or in the aggregate, have a material adverse effect on the
Transferred Assets or Buyer's operation thereof from and after the Closing Date.
Seller is not in default under any governmental or administrative License issued
to it or under any governmental or administrative order or demand directed to
it, or with respect to any order, writ, injunction or decree of any court which,
in any case, materially adversely affects the Transferred Assets.
6.19. LITIGATION. Except as set forth on Schedule 6.19, there is no
claim, action, suit, grievance, arbitration, investigation, proceeding or
hearing (or notice of hearing) pending or, to the best of the General Partner's
knowledge, threatened, before any court or governmental municipal or
administrative authority or private arbitration tribunal against or relating to
or affecting Seller, the General Partner or any of the Transferred Assets,
including without limitation, proceedings for or involving tenant evictions,
collections, condemnations, eminent domain, alleged building code, zoning or
environmental violations, or personal injuries or property damage alleged to
have occurred on the Real Property or by reason of the construction of any
improvements thereon or the use and operation of the Real Property or any
present plan or study by any governmental authority, agency or employee thereof
which in any way challenges, affects or would challenge or affect the continued
authorization of the ownership, construction, use and operation of the Real
Property, or the transactions contemplated by this Agreement. Nor are any facts
known to the General Partner which he believes could reasonably give rise to any
such claim, action, suit, proceeding, arbitration, investigation or hearing and
which may have an adverse effect upon the business of the Club, the value of the
Transferred Assets or the transactions contemplated by this Agreement. Seller
has not waived any statute of limitations or other affirmative defense with
respect to any of the Assumed Obligations. There is no continuing order,
injunction or decree of any court, arbitrator or governmental or administrative
authority to which Seller or the General Partner is a party, or, to the best
knowledge of the General Partner, to which Seller or the General Partner is
subject. Neither Seller nor the General Partner, nor any current officer,
director, partner or employee of Seller or any Seller Affiliate, has been
permanently or temporarily enjoined or barred by order, judgment or decree of
any court, tribunal, agency or self-regulatory body from engaging in or
continuing any conduct or practice in connection with the Health/Fitness
Business.
6.20. REAL PROPERTY. Seller does not own any real property or possess
any interest in real property, except for the Real Property and the leaseholds
created under the Real Property Leases identified in Schedule 1.1.1(a). Said
Schedule 1.1.1(a) contains an accurate and complete description of the monthly
rental rate under each such Real Property Lease, the termination date
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thereof, and extension periods thereunder. Except for the members and guests, no
person has any right to occupy any part of the Club, except for those
subtenants, if any, identified in Schedule 1.1.1(a) (which, with respect to each
such sublease, identifies the monthly rental rate payable thereunder, the
termination date thereof, extension periods, if any, thereunder and the use
thereunder by the subtenant). The Club enjoys peaceful and undisturbed
possession of the premises covered by each Real Property Lease, which premises
are supplied with utilities and other services reasonably necessary for the
operation thereof. Except as otherwise disclosed in Schedule 1.1.1(a), (a) all
such Real Property 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 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 tenant (as the case may be) or any other
party to terminate any such Real Property Lease or sublease, and (d) the real
property, any improvements thereon and the uses thereof that are the subject of
such Real Property Leases or subleases conform with all applicable ordinances,
regulations and building, zoning and other applicable laws. There has been no
substantial damage to any portion of the Real Property caused by fire or other
casualty which has not been fully and completely repaired or restored. Seller
has not received written notice of any proposed action or proceeding by any
governmental agency, body or other authority 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 proposed
action or 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. Schedule 1.1.1(a) also describes the amount of
all deposits (including security and utilities deposits) under the Real Property
Leases and subleases paid by or to Seller with respect to its Health/Fitness
Business.
6.21. NO INTEREST IN COMPETITORS, ETC. Set forth on Schedule 6.21 is a
list describing the extent to which Seller, the General Partner or any Seller
Affiliate, directly or indirectly, owns more than a five percent (5%) interest
in or controls, or is an employee, officer, director or partner of or
participant in (but only to the extent such participation exceeds 5%) or
consultant to, any privately-held or -owned corporation, partnership, limited
partnership, joint venture, association or other entity which is a competitor,
supplier or customer of Seller or any Seller Affiliate, or has any type of
business or professional relationship with Seller or such Seller Affiliate
(except that the 5% ownership interest referred to in this SECTION 6.21 shall
not exceed one percent (1%) to the extent any such corporation, partnership,
limited partnership, joint venture, association or other entity is
publicly-held).
6.22. BOOKS AND RECORDS. The books of account and other financial and
corporate records of the Club (including, without limitation, the Business
Records and the Club Financial Statements) are in all material respects
complete, correct and up to date, and fairly present the corporate status,
financial condition and results of operations of Seller at the dates and for the
periods for which such information was given (and such Business Records were
maintained).
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6.23. EMPLOYEE BENEFIT PLANS, ETC.
6.23.1. ERISA
(a) As used herein:
(i) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
(ii) "ERISA AFFILIATE" means any person that for
purposes of Title IV of ERISA is a member of Seller's controlled group,
or under common control with Seller, within the meaning of Section 414
of the Internal Revenue Code of 1986, as amended.
(b) Neither Seller, nor any ERISA Affiliate of Seller, has at
any time adopted, maintained, contributed to, or agreed to contribute to any
single-employer or multi-employer pension plan which is a "defined benefit plan"
as defined in Section 3(35) of ERISA.
(c) Seller does not have any "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA which is now in effect, except for
any such Plan listed on Schedule 6.23.2.
6.23.2. OTHER SELLER PLANS.
(a) All "employee welfare benefit plans" (within the meaning of
Section 3(1) of ERISA) maintained by any Partnership (or to which any
Partnership contributes) are described in Schedule 6.23.2 ("PLANS"). Seller has
no other employee welfare benefit plans.
(b) Seller has no obligations with respect to any health,
accident, medical or severance pay arrangements owing to retired or terminated
employees.
(c) Seller has received a determination letter from the Internal
Revenue Service which provides that Seller's 401(k) Plan is qualified under the
terms of Sections 401(a) and 401(k) of the Code, and neither Seller nor the
General Partner is aware of any condition or circumstance which may adversely
affect such qualification. Seller's 401(k) Plan is in compliance with the actual
deferral percentage ("ADP") and, if applicable, the average contribution
percentage ("ACP") requirements of Sections 401(k) and 401(m) of the Code,
respectively. Seller has contributed to such 401(k) Plan the amount of all
salary deferrals regarding compensation payable to participating employees prior
to the date of this Agreement, and, as of the Closing Date, Seller shall have
contributed all such amounts and shall have made all required employer matching
contributions through said Date. Prior to the date hereof, there have been no
uncorrected "prohibited transactions" within the meaning of Sections 406 through
408 of ERISA or Section 4975 of the Code.
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6.23.3. LIST OF EMPLOYEES. Schedule 6.23.3 includes a correct
and complete list of the names of all employees of Seller (which distinguishes
between full-time and part-time employees) and the aggregate compensation
(including bonuses, executive incentive compensation and commissions, if any)
paid to or accrued for the benefit of such employees during calendar year 1996
and through the date hereof, to the extent such employees were still employed by
Seller as of such date; said Schedule 6.23.3 also identifies those of such
employees (identified by an asterisk (*)) to whom Buyer intends to offer
employment on and after the Closing Date.
6.24. LABOR MATTERS. Seller is in material compliance with all Federal
and state laws regarding employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice. There is no unfair labor practice complaint against Seller
pending or threatened before the National Labor Relations Board ("NLRB") or any
state or local agency, and there is no labor strike, dispute, work stoppage or
slowdown, lockout, grievance, controversy or other labor problem pending or, to
the best of Seller's and the General Partner's knowledge, threatened against or
affecting Seller, nor to the best of the General Partner's knowledge does any
basis therefor exist. Seller is not a party to, nor bound by, any union,
collective bargaining or other labor agreement covering all or any portion of
its employees, nor has any group or organization of Seller's employees made any
demand for recognition or certification upon either Seller, the NLRB or any
state or local agency; and no representation proceedings are pending or
threatened against Seller before the NLRB or any such other state or local
agency. There has been no "mass layoff" or "plant closing" within the meaning of
the Worker Adjustment and Retraining Notification Act, 29 U.S.C. SECTION 2101 et
seq., involving Seller within the two (2)-year period prior to the date hereof,
nor will any "plant closing" or "mass layoff" occur as a result of Seller's
termination of its employees pursuant to SECTION 4.2.2 hereof.
6.25. SUFFICIENCY OF ASSETS. The Transferred Assets, taken in the
aggregate, are sufficient, and constitute all of the property (other than the
Excluded Assets) and rights necessary, for the continuation of the
Health/Fitness Business from and after the Closing Date on a basis consistent
with its operations as exist on and as of the date hereof.
6.26. ENVIRONMENTAL MATTERS. For all periods prior to the Closing Date,
Seller's operations have been conducted in compliance with all "Environmental
Laws" (as hereinafter defined), including, without limitation, those regulating
the use, handling, storage, disposal, emission and transportation of "Hazardous
Materials" (as hereinafter defined). Seller has not received, within five years
prior to the Closing Date, any notice from any Federal, state or local
governmental agency or body ("GOVERNMENTAL ENTITY") that Seller or the Real
Property on which the Club operates is or was in violation of any Environmental
Law or is being investigated as a result of an alleged or potential violation of
any Environmental Law. Seller does not currently own, lease or operate any real
property (including the Real Property) at which Hazardous Materials are present
in violation of any Environmental Law or in quantities or at levels that require
investigation, removal or remediation under any Environmental Law, nor, to the
best knowledge of the General Partner, are Hazardous Materials present in
quantities or at levels that require investigation, removal or remediation under
any Environmental Law at any real property formerly
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owned, leased or operated by Seller. There are no Liens as the result of the
operation of any Environmental Laws held by any Governmental Entity or other
person with respect to any real property currently owned, leased or operated by
Seller (including the Real Property). There are no underground storage tanks or
aboveground storage tanks containing Hazardous Materials at or under any real
property currently owned, leased or operated by Seller (including the Real
Property), and Seller's use, handling, storage, disposal, emission and
transportation of Hazardous Materials, if applicable, is in compliance with all
Environmental Laws. As used herein, "ENVIRONMENTAL LAWS" shall mean all
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises and similar items of
all Governmental Entities and all applicable judicial, administrative and
regulatory decrees, judgments and orders relating to Hazardous Materials or the
protection of the environment or human health and safety in effect as of the
Closing Date, including, without limitation: (i) all requirements, including,
without limitation, those pertaining to notification, warning, reporting,
licensing, permitting, investigation, removal and remediation of Hazardous
Materials; and (ii) the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C.SECTION 9601 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. SECTION 6901 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. SECTION 1801 et seq.), the Clean Air Act (42
U.S.C. SECTION 7401 et seq.), the Occupational Safety and Health Act (29
U.S.C.SECTION 651 et seq.), the Porter-Cologne Water Quality Control Act
(California Water Code SECTION 3000 et seq.), the California Hazardous Waste
Control Law (Division 20, Chapter 6.5 of the California Health and Safety Code,
SECTION 2100 et seq.), the Safe Drinking Water and Toxic Enforcement Act of 1986
(Division 20, Chapter 6.6 of the California Health and Safety Code, SECTION
25249.5 et seq.), the Carpenter-Presley-Tanner Hazardous Substance Account Act
(California Health & Safety Codes SECTION 25300 et seq.), the Hazardous
Materials Release Response Plans and Inventory (Division 20, Chapter 6.95 of the
California Health and Safety Code, SECTION 25500 et seq.), and all similar
Federal, state, local and municipal laws in effect as of the Closing Date. As
used herein, "HAZARDOUS MATERIALS" shall mean (A) any and all asbestos,
gasoline, diesel fuel, petroleum, petroleum hydrocarbons, petroleum by-products,
polychlorinated biphenyls, trichlorethylene, ureaformaldehyde and radon gas; (B)
any substance the presence of which requires removal or remediation under any
Environmental Law; (C) any substance which is toxic, infectious, radioactive,
carcinogenic or mutagenic; (D) any materials, waste, chemicals and substances
defined, listed, characterized or referred to as "hazardous substances",
"hazardous waste", "infectious waste", "medical waste", "extremely hazardous
waste", "hazardous materials", "toxic chemicals", "toxic substances", "toxic
waste", "toxic materials", "contaminants", "pollutants", "carcinogens",
"reproductive toxicants" or any variant or similar designations; and (E) any
other substance which is regulated under any Environmental Laws, provided such
substance is present in the action levels, concentrations or quantity thresholds
specified herein.
6.27. SECURITIES LAW MATTERS. [Intentionally Omitted]
6.28. PAST DUE OBLIGATIONS. Except as otherwise set forth on Schedule
6.28, no Closing Date Liabilities or Assumed Obligations have given rise, or
shall give rise within five days after the Closing Date (except to the extent
such Closing Date Liabilities will have been paid or
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satisfied by Seller prior to the Closing so as to relieve Buyer of all liability
therefor), to any additional liability to Buyer on account of their being past
due.
6.29. EFFECT OF TRANSACTION. Seller is not, and will not become as a
result of the completion of the transaction contemplated by this Agreement,
"insolvent", as that term is defined in Section 3439.02 of the Civil Code;
Seller is not entering into the purchase transaction with Buyer with the intent
to hinder, delay or defraud any of its creditors; and upon completion of the
purchase transaction on the Closing Date, (a) the value of that portion of the
Acquisition Shares to be owned by it and the Excluded Assets will not be
unreasonably small in relation to Seller's remaining business operations, and
(b) Seller will not incur any debts which it will not be able to pay as they
become due.
6.30. SALES TAX, TAX DEPOSITS, ETC. Seller is required by applicable
Federal, state or local law to hold a resale permit, given the nature of its
past and current business operations, and such resale permit is in full force
and effect as of the date hereof. All Federal, state and local partnership tax
returns, and all taxes, interests, penalties and other amounts due and owing
thereunder, have been timely filed and paid, as the case may be, for all periods
up to and including the Closing Date; and all withholding, payroll and other
taxes which are required by applicable law to have been paid or deposited with a
financial institution have been so paid and deposited, as applicable, for all
periods up to and including the Closing Date. Seller has no liability for any
taxes, or any interest or penalties in respect thereof, of any nature that may
be assessed against Buyer or become a Lien against any of the Transferred
Assets.
6.31. OTHER INFORMATION. None of the information furnished by Seller or
any of its representatives to Buyer or any of its representatives in connection
with the transactions contemplated hereby, which is contained in this Agreement
(including the Schedules and Exhibits) or any Ancillary Document or any
certificate or instrument delivered or to be delivered by or on behalf of Seller
in connection with the transactions contemplated hereby, contains any untrue
statement of a fact or omits a material fact necessary to make the information
contained herein or therein, under the circumstances in which such statements
were made (or omitted), not materially misleading. Further, neither the General
Partner nor any other employee of Seller knows of any current fact, state of
affairs or circumstance relating to the Health/Fitness Business which might
result in a material adverse change in the condition (financial or otherwise),
properties, assets, liabilities, business or results of operations of the Club
other than such as are fairly and fully disclosed in the Club Financial
Statements.
6.32. KNOWLEDGE OF THE SELLER. As to each representation and warranty
made by Seller under this Section 6, any fact or information known to the
General Partner or to Neal Swerdlow ("SWERDLOW"), or notice received by the
General Partner or Swerdlow, shall be imputed to Seller as if such fact or
information were known to Seller or such notice had been received by Seller.
Additionally, any information known to either Okada or Heuler shall be deemed
known by the "General Partner" for purposes of this Agreement.
6.33. TITLE; RIGHTS. Seller is the sole owner of the Real Property, free
and clear of any
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Liens, except for the Permitted Exceptions. Seller has not committed or
obligated itself in any manner whatsoever to sell, lease or encumber the Real
Property or any interest therein to any party, other than under the Real
Property Leases identified on Schedule 1.1.1(a). No rights of first refusal
regarding the Real Property exist under the organizational documents of Seller
or under any agreement by which Seller may be bound or affected.
6.34. GOVERNMENTAL APPROVALS; NOTICES. Except as set forth on Schedule
6.34, the improvements on the Real Property and Seller's use of the Real
Property fully comply in all material respects with all zoning, building,
health, traffic, environmental, flood control, fire safety, handicap and other
applicable laws, regulations, ordinances and rulings of all local, state and
federal authorities and any other governmental entity having jurisdiction over
the Real Property. Except as set forth in such Schedule 6.34, all requisite
certificates of occupancy, licenses, permits, authorizations and other approvals
have been duly obtained and are in full force and effect. To Seller's actual
knowledge, there are no petitions, actions, hearings, planned or contemplated,
relating to or affecting the zoning or use of the Real Property or any
contiguous property. Seller has received no notice, written or otherwise, of any
pending, threatened or proposed governmental action with respect to any public
or utility improvements, improvement moratorium, assessments for public
improvements, nor has Seller received any such notice with respect to any other
actions which might have a material adverse effect upon the Real Property or
Buyer's ability to utilize same after the Closing in the manner Seller is
currently utilizing the Real Property. Seller is not aware of and has not
received any written or other notices from any insurance companies, governmental
agencies or from any other parties of any conditions, defects or inadequacies
with respect to the Real Property (including health hazards or dangers, nuisance
or waste, which, if not corrected, would result in termination of insurance
coverage or increase its costs) or from governmental agencies or any other
parties with respect to any violations of building codes and/or zoning
ordinances or other governmental laws, regulations or orders with respect to the
Real Property, pending or threatened condemnation proceedings with respect to
the Real Property, or any proceedings which could or would cause the change,
redefinition or other modification of the zoning classification, or of any
building or environmental code requirements applicable to the Real Property or
any part thereof, or any property adjacent to the Real Property. Seller shall
immediately notify Buyer of any violations or conditions of which Seller
receives notice (whether written or oral).
6.35. MAINTENANCE. The Real Property, including all systems and
components contained in the improvements forming a part thereof, have been, and
will be through the Closing Date, maintained by Seller in substantially the same
condition as they exist on the date hereof, normal wear and tear excepted.
6.36. NON-ENCROACHMENT. To the best of Seller's knowledge, Seller's
operation of the Real Property and any improvements thereon do not violate, and
the Real Property (including said improvements) do not encroach upon or
otherwise violate, the rights of any adjacent properties or any third parties.
In addition, no improvement on any adjacent property or belonging to any third
party, and no action by any third party, encroaches upon Seller's exclusive
rights to use and occupy the Real Property and improvements.
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6.37. NO ADVERSE CONDITION. To Seller's knowledge, the Real Property is
not subject to any material adverse geologic problem or soil condition and, over
the past five years, the Real Property has not experienced any material damage
from earthquakes, floods, earth subsidence or other similar occurrence of any
nature which has not been substantially restored, repaired or corrected. Since
the Cut-Off Date, there has been no material adverse event or changes affecting
the Real Property, or any part or portion thereof.
6.38. CONTRACTS. Except as set forth on Schedule 6.38, as of the
Closing, Buyer will have no obligations whatsoever under any management,
service, sales, marketing, leasing or other agency agreements, supply or
maintenance contracts, licenses or permits, equipment or other leases, franchise
arrangements, brokerage contracts, representations, warranties and guaranties of
architects, contractors and suppliers and others and similar agreements
affecting the Real Property, or any portion thereof.
6.39. COLLECTIVE BARGAINING AGREEMENTS AND BENEFIT PLANS. No collective
bargaining agreements between Seller and any labor organization apply to the
operation and/or management of the Real Property.
6.40. BANKRUPTCY, ETC. No bankruptcy, insolvency, rearrangement or
similar action involving the Real Property, whether voluntary or involuntary, is
pending or threatened, and Seller has never:
6.40.1. filed a voluntary petition in bankruptcy;
6.40.2. been adjudicated a bankrupt or insolvent or filed a
petition or action seeking any reorganization, arrangement, recapitalization,
readjustment, liquidation, dissolution or similar relief under any Federal
bankruptcy act or any other laws;
6.40.3. sought or acquiesced in the appointment of any trustee,
receiver or liquidator of all or any substantial part of its or his properties,
the Real Property, personal property or any portion thereof, or
6.40.4. made an assignment for the benefit of creditors or
admitted in writing its or his inability to pay its or his debts generally as
the same become due.
Seller is not anticipating or contemplating any of the actions
set forth in Sections 6.40.1 through 6.40.4, inclusive, hereof.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to and agrees with Seller as
follows:
7.1. ORGANIZATION, ETC. SCC is a corporation duly organized, validly
existing and in
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good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby, and
to own or lease and operate its properties and to carry on its business as it is
presently being conducted.
7.2. AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement and the Ancillary Documents by Buyer, and the consummation of
the transactions contemplated hereby and thereby, will have been duly and
validly authorized by SCC's Board of Directors on and as of the Closing Date. On
the Closing Date, this Agreement (a) will have been, and the Ancillary Documents
will be, duly and validly authorized, executed and delivered by Buyer, and (b)
constitutes a valid and binding obligation of Buyer, enforceable against it in
accordance with its terms, except (i) that such enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally, (ii) to the extent that enforceability may be
limited by California courts with respect to any "unconscionable" provisions
contained therein, and (iii) that certain of the covenants contained herein may
not be specifically enforceable and courts may award money damages rather than
specific performance of contractual provisions involving matters other than the
payment of money.
7.3. EFFECT OF AGREEMENT, ETC. The execution, delivery and performance
of this Agreement by Buyer and consummation by Buyer of the transactions
contemplated hereby, will not, with or without the giving of notice or the lapse
of time, or both, (a) violate any provision of law, statute, rule, regulation or
executive order to which Buyer is subject; (b) violate any judgment, order, writ
or decree of any court applicable to Buyer; or (c) result in the breach of or
conflict with any term, covenant, condition or provision of Buyer's charter
documents, as amended, or any commitment, contract or other agreement or
instrument to which Buyer is a party or by which any of its properties or assets
may be bound.
7.4. ISSUANCE OF SHARES. [Intentionally Omitted]
7.5. LITIGATION. There are no actions, suits, proceedings or
governmental investigations or inquiries pending or, to the best knowledge of
Buyer, threatened against Buyer, which, in the reasonable judgment of Buyer,
would prevent the consummation of the transactions contemplated hereby.
7.6. NOTICES AND CONSENTS, ETC. No notice to, consent, authorization or
approval of, or exemption by, any other person (including, without limitation,
any Governmental Entity), other than notice, consents or approvals which Buyer
shall have obtained as of the Closing Date, is required in connection with the
execution, delivery and performance by Buyer of this Agreement or any of the
instruments or agreements herein referred to (including any Ancillary
Documents), or the taking of any action by Buyer herein contemplated.
7.7. FINANCIAL STATEMENTS. [Intentionally Omitted]
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7.8. ACCESS TO INFORMATION. Seller has not refused to provide Buyer with
any information Buyer has requested. Buyer is familiar with, and its
representatives have been given full access to, all information concerning the
business and financial condition, properties, operations and prospects of Seller
that Buyer has deemed relevant for purposes of proceeding with the transactions
contemplated by this Agreement. Anything herein to the contrary notwithstanding,
the acknowledgements of Buyer reflected in this Section 7.8 shall not restrict
or in any way limit Buyer's rights and remedies in the event any of the
representations or warranties of Seller or the General Partner contained in this
Agreement are incorrect or inaccurate in any material respect.
7.9. OTHER INFORMATION. The information furnished by SCC or any of its
representatives to Seller or any of its representatives in connection with the
transactions contemplated hereby, which is contained in this Agreement
(including any Exhibits), any Ancillary Document or any certificate, instrument
delivered or to be delivered by or on behalf of Buyer in connection with the
transactions contemplated hereby, does not contain any untrue statement of a
fact or omit to state a material fact necessary to make the information
contained herein or therein, taken as a whole, not materially misleading under
the circumstances in which such statements have been made (or omitted).
SECTION 8. COVENANTS
8.1. PRE-CLOSING COVENANTS. From and after the date hereof up to (and
including) the Closing Date, Seller shall (a) conduct its Health/Fitness
Business only in the ordinary course of business, consistent with past
practices; (b) not sell, transfer or convey, or grant any Lien on or with
respect to, any Transferred Assets; (c) not purchase or acquire, or make any
commitment to purchase or acquire, any assets or properties which would
constitute Transferred Assets without the prior consent of Buyer; (d) not make
any changes in its Membership billing practices or rates or afford any existing
or prospective member any discounts, deferrals or other concessions under any
Membership Agreement or otherwise; (e) not make any capital expenditures without
Buyer's prior approval; (f) not take any action, or fail or refuse to take any
action, which would increase any of the liabilities or obligations included in
the Assumed Obligations other than in the ordinary course of business; and (g)
not take, permit to be taken or refrain from taking, any action or decision
which would cause any of Seller's representations and warranties set forth in
SECTION 6 (including, without limitation, SECTION 6.10) to be untrue or
inaccurate on and as of the Closing Date (as if made on and as of such Date).
8.2. NO OTHER NEGOTIATIONS. From and after the date hereof up through
the earlier of (a) the Closing Date, or (b) the date that Seller and Buyer shall
agree in writing to terminate all negotiations with respect to the transactions
contemplated by this Agreement, and provided Buyer shall not be in breach of any
material term or provision hereof, neither Seller, the General Partner nor any
Seller Affiliate shall, directly or indirectly, solicit, initiate or otherwise
engage in any negotiations or discussions with, or provide any information to,
any other person or entity concerning the purchase of all or substantially all
the properties and assets of Seller, regardless of the form or structure of any
such transaction.
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8.3. ACCESS. From the date hereof through the Closing Date, Seller shall
afford 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 Seller and the
General Partner (including, without limitation, all Business Records, Club
Financial Statements, Membership Agreements and Contracts) to the extent
relevant to the Transferred Assets or the operation of Seller's Health/Fitness
Business, and during this period, Seller shall furnish Buyer with all financial,
operating and other information and data as to the Transferred Assets as Buyer
may reasonably request. At Buyer's request, Seller shall direct its
representatives and employees to cooperate with Buyer and its representatives
pursuant to this SECTION 8.3 at no additional cost to Buyer. In undertaking its
due diligence hereunder, Buyer shall not disturb, to the extent reasonably
possible, the operations of Seller and will communicate with only those
employees of Seller whom Seller shall have identified for such purpose. The
exercise by Buyer of any of the preceding rights, or any other act of Buyer,
shall not negate, modify or otherwise affect any representation, warranty or
covenant of Seller or the General Partner or modify any of Buyer's rights or
Seller's or the General Partner's obligations in the event of any breach of any
of such representations, warranties or covenants under this Agreement.
8.4. PRESERVATION OF BUSINESS AND RELATIONSHIPS. From the date hereof
until the Closing, Seller shall use its best efforts to preserve its business
and organization intact, including, without limitation, to preserve the Club's
present relationships with suppliers, customers, members, patrons and others
having business relationships with it. Seller shall promptly arrange for utility
and telephone service to be transferred to Buyer at Closing. Each of the parties
hereto will use their best efforts to consummate the transactions 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.
8.5. CONFIDENTIALITY. Neither Buyer nor Seller, nor any of their
respective officers, directors, partners, employees or other representatives,
shall directly or indirectly disclose to any other person or entity (including,
without limitation, any members, patrons or partners of any Club) the fact that
Buyer and Seller have entered into this Agreement, the identity of Buyer as the
potential acquiring party and/or any of the terms or provisions of this
Agreement, except (a) to such party's financing sources, professional advisors
and employees who are involved in the negotiation of the transactions
contemplated by this Agreement; (b) to the extent necessary to obtain the
consent of the requisite number of limited partners in Seller to authorize
Seller's entering into this Agreement; and (c) to the extent disclosed in
Buyer's press releases or other public announcements or required by law or
judicial process. To the extent Seller discloses any such information to any of
its employees or partners as permitted by this SECTION 8.5, Seller will take all
reasonable precautions necessary to insure the continued confidentiality of such
information (including, with respect to disclosures to its employees, requiring
that they execute confidentiality letters in form and substance reasonably
acceptable to Buyer and its legal counsel).
8.6. PUBLICITY. Both Buyer and Seller acknowledge that SCC is a
publicly-held corporation whose securities are listed on the American Stock
Exchange ("AMEX") and is therefore subject to various rules and regulations of
both the Securities and Exchange Commission
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and AMEX regarding the timing and content of public disclosures regarding its
business operations. While SCC will provide Seller with copies of all proposed
press releases or other public disclosures concerning its proposed purchase of
the Transferred Assets and will consider in good faith any suggested changes or
revisions thereto communicated in writing by Seller, SCC shall have the right to
finalize and disseminate all such press releases or other public disclosures
which SCC's counsel deems necessary to comply with any such applicable rules and
regulations. Prior to the Closing, Seller shall not issue any press release or
otherwise make any public announcement or disclosure regarding SCC's proposed
purchase of the Transferred Assets without the prior written consent of SCC,
which consent may not be unreasonably withheld or delayed.
8.7. RIGHT OF FIRST REFUSAL. If Buyer's purchase of the Transferred
Assets is not consummated for any reason other than Buyer's breach, then, for
the one (1)-year period following the date on which Buyer or Seller abandons the
transactions contemplated hereby (as confirmed in writing by Buyer or Seller, as
applicable), Buyer shall have a right of first refusal with respect to any bona
fide offer to purchase the Health/Fitness Business and/or related assets of
Seller (regardless of the form of transaction) (the "OFFER"). Following Seller's
receipt of an Offer (but in no event more than five (5) business days after
receipt), Seller will forward a copy thereof to Buyer, and, for a period of
thirty (30) days thereafter (the "OPTION PERIOD"), Buyer will have the right,
but not the obligation, to elect to purchase Seller's business and/or assets at
the price and terms set forth in the Offer. If any of the consideration payable
by the offeror consists of non-cash property, Buyer shall have the right to pay
the fair market value of such non-cash property in cash or securities. If Buyer
and Seller are unable to agree on the fair market value of such consideration
within five (5) days following Buyer's receipt of the Offer, then the parties
shall submit their respective valuations of such consideration to a
mutually-acceptable investment banking firm to calculate such fair market value,
and the decision of such firm shall be conclusive and binding. If the investment
banking firm is unable to complete its fair market value calculations within ten
(10) days following the commencement of its engagement, then the Option Period
shall be extended for a reasonable period of time thereafter (but in no event
more than that number of days which shall equal the number of days it shall have
taken the investment banking firm to complete its calculations). The fees and
expenses of the investment banking firm engaged pursuant to this SECTION 8.7
shall be borne equally by Seller and Buyer. The consummation of Buyer's purchase
of Seller's Health/Fitness Business and/or related assets in accordance with
this SECTION 8.7 shall occur, if at all, within the later of forty-five (45)
days following expiration of the Option Period or the closing date set forth in
the Offer (the "PURCHASE PERIOD"). If Buyer fails or otherwise elects not to
exercise such right within the Option Period, Seller may consummate the sale
transaction with the offeror on the terms and conditions set forth in the Offer.
If any of such terms or conditions change in a manner more favorable to the
offeror, or if the transaction is not consummated with such offeror within the
Purchase Period, then Buyer's right of first refusal shall once again be
effective with respect to any such modified terms/conditions or to that (or any
subsequent) Offer, as applicable. Further, if the Offer only contemplates the
purchase of a portion of Seller's Health/Fitness Business or other related
assets, then Buyer's rights under this SECTION 8.7 shall continue in effect
(during such one-year period) with respect to any and all subsequent offers for
the balance of Seller's assets and properties comprising Seller's Health/Fitness
Business.
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8.8. APPROVAL OF LIMITED PARTNERS. Seller represents and warrants that
it has obtained the approval of the requisite number of limited partners to the
transactions contemplated by this Agreement, as prescribed by applicable
provisions of the Partnership Agreement.
8.9. PERMITS. By no later than the Closing, Seller shall furnish to
Buyer all building permits, certificates of occupancy and other governmental
approvals confirming that each of the improvements with respect to the Real
Property has been completed in compliance with, and that the Real Property is
being operated in compliance with, all applicable laws and regulations. At such
time, Seller shall also provide Buyer with all surveys and geological,
environmental and soil and engineering studies and reports prepared within five
years prior to the date hereof with respect to the Real Property, together with
a complete set of "as-built" plans with respect to the improvements located on
or affixed to the Real Property.
8.10. DOCUMENTS. At the Closing, Seller shall deliver all books and
records and other documents relating to the ownership and operation of the Real
Property, as well as all keys with respect to the Club.
8.11. SURVEY. Prior to the Closing, Buyer shall obtain and cause to be
furnished to the Title Company in connection with the Title Company's issuance
of the Title Insurance pursuant to SECTION 4.1 and SECTION 5.2.2 surveys for the
Real Property prepared by registered public surveyors. Such surveys shall be
certified as in accordance with the minimum standard detail requirements of
ALTA/ASCM land title surveys and shall be reasonably acceptable to of the Title
Company.
8.12. PRELIMINARY TITLE REPORT. Prior to the execution of this
Agreement, Seller has caused to be furnished to Buyer, at Buyer's expense, a
Preliminary Title Report (the "PTR") dated as of December 3, 1997, from Chicago
Title Company with respect to the Real Property, together with copies of all
documents pertaining to all exceptions, including, but not limited to,
covenants, conditions, restrictions, reservations, easements, rights-of-way of
record, liens and other matters of record. Buyer hereby approves the exceptions
identified therein.
8.13. LIENS. Seller agrees to keep the Real Property free from any Liens
through the date of Closing, other than Permitted Exceptions and to indemnify
and save Buyer harmless from any such Liens and all attorneys' fees and other
costs and expenses incurred by reason any Liens, other than Permitted
Exceptions, which relate back to Seller's ownership or operation of the Real
Property.
8.14. POST-CLOSING COVENANTS. Notwithstanding the consummation of the
transactions contemplated by this Agreement on the Closing Date, Buyer and
Seller shall observe, satisfy and perform the following duties and obligations:
8.14.1. SELLER'S FURTHER ASSURANCES. After the Closing
hereunder, Seller shall, at the request of Buyer, execute, acknowledge and
deliver to Buyer, without further consideration, all such further assignments,
conveyances, endorsements, deeds, powers of attorney,
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consents, instruments and other documents (together with the instruments
referred to in SECTION 1.2, collectively, the "ANCILLARY DOCUMENTS") and take
such other action as Buyer may reasonably request (a) to transfer to and vest in
Buyer, and protect Buyer's right, title and interest in and to, all of the
Transferred Assets and (b) otherwise to consummate the transactions contemplated
by this Agreement.
8.14.2. NON-COMPETITION.
(a) Each of Seller, the General Partner and each of
the individuals listed in SCHEDULE 8.14.2 (individually, an "OBLIGOR") agrees
for itself and for each Seller Affiliate that, for a period of three (3) years
from and after the Closing Date, neither it nor any of its agents or
representatives shall, directly or indirectly, and whether as a principal, agent
or otherwise, or alone or in association with any other person (including any
other Seller Affiliate) (a "COMPETING ENTITY"), carry on, be engaged or take
part in, consult or advise, or own, share in the earnings of, or invest in the
stock, bonds or other securities of, any entity (other than Buyer) which is
engaged in the business of owning or operating a health/fitness facility or
business within a twenty (20)-mile radius of the Club or any Other Club (a
"COMPETING ACTIVITY").
(b) If a court of competent jurisdiction deems the
length or geographic scope of the separate non-competition covenants described
in this SECTION 8.14.2(A) to be unreasonably long or broad, as the case may be,
such that either (or both) such covenants is therefore deemed wholly or
partially unenforceable, the parties intend that the affected non-competition
covenant be modified by the court to reflect the maximum time period and the
broadest geographic scope that such court deems permissible under the
circumstances, and that such modified non-competition covenant be enforced to
the fullest extent permitted by said court. In such event, this Agreement shall
be deemed amended to accommodate the court's modification of said
non-competition covenant in accordance with this SECTION 8.14.2(b).
(c) Notwithstanding the foregoing, no Obligor shall be
deemed to be in violation of the terms of this SECTION 8.14.2 by reason of such
Obligor's investing in stocks, bonds or other securities of any Competing Entity
engaged in a Competing Activity (but without otherwise participating in such
business), if (i) such stock, bonds or other securities are listed on any
national or regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934, as amended, and (ii) such
investment does not exceed, in the case of any class of the capital stock of any
one issuer, one percent (1%) of the issued and outstanding shares, or, in the
case of bonds or other securities, five percent (5%) of the aggregate principal
amount thereof issued and outstanding.
(d) Notwithstanding the provisions of SECTION 12.16
hereof, Seller acknowledges that the allocation of that portion of the Purchase
Price reflected in Schedule 12.16 to the non-competition covenant contained in
this SECTION 8.14.2 is not intended by any party to define or limit any claims
for damages that Buyer may have in the event of the breach of this SECTION
8.14.2 by any Obligor, or Buyer's need for or right to equitable remedies to
enforce the terms of this SECTION 8.14.2.
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(e) The parties hereto acknowledge that the breach, or
threatened breach, by any Obligor of any of the terms of this SECTION 8.14.2
would cause Buyer irreparable harm and injury that could not be compensated by
an award of monetary damages. Accordingly, in the event of any breach or
threatened breach, Buyer shall be entitled to equitable relief (including,
without limitation, specific performance, temporary restraining orders and
preliminary or permanent injunction) in addition to all other rights and
remedies provided hereunder.
8.14.3. EMPLOYEE BENEFIT PLANS
(a) Following the Closing, Seller shall retain as
Retained Obligations, and be solely obligated to satisfy and discharge in a
prompt and timely fashion, all obligations and liabilities (including, without
limitation, (i) all liabilities for all contributions required to have been made
to all plans as described in SECTION 6.23.2(c), and for all claims incurred,
whether or not reported, on or before the Closing Date under all Plans, and (ii)
all liabilities or obligations for unpaid compensation, disability, retirement,
severance insurance including under COBRA or medical or life benefits) to
employees or former employees of Seller which shall exist or have accrued as of
the Closing Date.
(b) Seller shall indemnify, hold harmless and defend
Buyer and its shareholders, officers, directors, members, employees and
representatives, and their respective successors and assigns, from and against
any and all claims, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees and disbursements of counsel) incurred by
Buyer or such persons, arising from or in connection with any liabilities or
obligations of Seller under SECTION 8.14.3(a).
8.14.4. BOOKS, RECORDS, ETC. For a period of five (5) years from
and after the Closing Date, Buyer and Seller each shall retain, and shall, at
the request of the other or the other's representatives, make available to the
other, all of the original books and records of the Seller existing on the
Closing Date, possession of which such party is entitled to under this
Agreement, at a location in the Southern California area specified in a written
notice to the other delivered within 10 days after the Closing Date (or at any
other location in the United States to which Buyer or Seller, as the case may
be, has removed such books and records after notice to the other party), for the
inspection and copying thereof (which inspection and copying to be at the sole
cost and expense of the inspecting party).
SECTION 9. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE
The obligation of Buyer to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the satisfaction of each
of the conditions set forth in this SECTION 9, unless waived by Buyer:
9.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES, PERFORMANCE OF
COVENANTS AND RELATED CERTIFICATE. The representations and warranties of Seller
set forth in SECTION 6 shall be
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true and correct in all material respects as of the Closing Date as though made
on and as of such date; Seller shall have performed all obligations and complied
with all covenants required to be performed or to be complied with by it under
this Agreement on or prior to the Closing Date; and Seller shall have delivered
to Buyer a certificate to such effect, dated the Closing Date, signed by the
General Partner or other person duly authorized to act on its behalf.
9.2. NO PENDING OR THREATENED LEGAL ACTION. No order, injunction, decree
or other action or legal, administrative, arbitration or other proceeding by any
person or investigation by any governmental entity shall be pending or
threatened, which challenges, imposes or threatens to impose a material
limitation on the execution, delivery or performance of this Agreement, or the
consummation of any of the transactions contemplated hereby.
9.3. APPROVALS, NOTICES, CONSENTS, ETC. Seller shall have obtained, and
Buyer shall have received true and correct copies of, all notices, approvals and
consents which are required to enable Seller to transfer good and marketable
title to the Transferred Assets to Buyer, free and clear of any and all Liens,
and each approval and/or consent shall be in full force and effect and be
reasonably satisfactory in form and substance to Buyer and its counsel.
9.4. LIMITED PARTNER APPROVAL. The approval of the requisite number of
limited partners of Seller to the transactions contemplated hereby (as described
in SECTION 8.8 hereof) shall not have been revoked, rescinded or repealed, and
shall be in full force and effect as of the Closing Date.
9.5. SECRETARY'S CERTIFICATE. Buyer shall have received an accurate
certificate, dated the Closing Date, of the General Partner of Seller with
respect to (a) the approval of the requisite number or percentage of limited
partners of Seller to the transactions contemplated by this Agreement as
prescribed by applicable provisions of the Partnership Agreement; (b) the
resolutions adopted by the General Partner and such limited partners approving
this Agreement and the transactions contemplated hereby; and (c) the incumbency
and specimen signature of the General Partner and each other person executing
this Agreement and any other agreement or Ancillary Document being (or to be)
executed by each such Partnership, and a certification by another person as to
the incumbency and specimen signature of said General Partner or other person.
9.6. GOOD STANDING CERTIFICATES, ETC. Buyer shall have received (a) a
certificate of the Office of the Secretary of State of the State of California,
dated within five (5) days before the Closing Date, certifying that the records
of the State of California regarding Seller reflect neither a certificate of
dissolution, a court order declaring dissolution, a merger or consolidation
which terminated its existence, nor suspension of its powers, rights and
privileges, and that in accordance with the records of the State of California,
Seller is authorized to exercise all of its powers, rights and privileges in the
State of California, and (b) a telegram or other document from one or more
appropriate officials of such State, or an affidavit of counsel with respect to
telephone conversations with such officials, dated within five days before the
Closing Date, to the same effect.
9.7. CLEARANCE CERTIFICATES. To the extent issued by such offices, Buyer
shall have
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received certificates from the Franchise Tax Board and the Employment
Development Department confirming the absence of any and all taxes, penalties,
interest and/or other amounts due and owing by Seller to such governmental
agency (or agencies) with respect to its operations prior to the Closing Date.
Further, Buyer shall have received a certificate or other written confirmation
from ADP or other financial institution or data payroll service dated as of the
day immediately prior to the Closing Date to the effect that all withholding and
payroll tax deposits required to have been made by Seller prior to the Closing
Date have been timely made.
9.8. RELEASE OF SECURITY INTERESTS. Buyer shall have received true and
correct copies of all releases of all security interests in the Transferred
Assets which may have existed prior to the Closing Date (including, without
limitation, security interests held by any lender or other third party) and
completed UCC release or termination statements or reconveyances of deeds of
trust or releases of any mortgages suitable for filing with the appropriate
governmental agencies to terminate and release all previously-filed UCC-1
financing statements, deeds of trust or mortgages on or with respect to any
Transferred Assets.
9.9. RENEGOTIATION OF INDEBTEDNESS. Seller shall have entered into
binding agreements with certain of its creditors in the form of Exhibit "C" such
that the aggregate amount of Closing Date Liabilities as of the Closing Date
shall not exceed the Withheld Amount, and the terms and conditions applicable to
the assumption and satisfaction of all Assumed Obligations shall be acceptable
to Buyer in its sole discretion.
9.10. NO MATERIAL ADVERSE CHANGES. Between the Cut-Off Date and the
Closing Date, there shall not have occurred any material adverse change in or
with respect to any of the Transferred Assets or the Health/Fitness Business
which will continue or extend beyond the Closing Date (whether or not any such
material adverse change is covered by insurance).
9.11. EXECUTION AND DELIVERY OF OTHER AGREEMENT AND INSTRUMENTS. Buyer
and Seller shall have executed and delivered all requested Ancillary Documents,
and all other agreements, instruments and other contracts which are required to
enable Buyer to purchase and acquire the Transferred Assets in accordance with
the terms and provisions of this Agreement or which Buyer otherwise requires to
be executed in connection with the consummation of the transactions contemplated
hereby.
9.12. ENVIRONMENTAL AUDIT. Buyer shall have received and approved a
Phase I environmental analysis as of a recent date relating to the Real
Property.
9.13. APPROVAL OF SCHEDULES. Buyer shall have approved the form and
content of all Schedules which are required to be prepared or otherwise provided
by Seller but which were not attached to this Agreement as of the date hereof.
9.14. POWERS OF ATTORNEY. Buyer shall have received duly executed and
acknowledged powers of attorney, reasonably satisfactory in form and substance
to Buyer and its counsel, giving Buyer or its designee the authority to act on
behalf of Seller and in its name, place and stead with
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respect to all of the Transferred Assets and Assumed Obligations, to the extent
permitted by law. Buyer shall indemnify and hold Seller harmless from any
liability of Seller which results from any acts of Buyer taken under such powers
of attorneys in violation of this Agreement.
9.15. APPROVAL OF BOARD OF DIRECTORS. Buyer's Board of Directors shall
have approved of Buyer's executing and delivering this Agreement and purchasing
the Transferred Assets in accordance with the terms hereof.
9.16. CONSUMMATION OF OTHER TRANSACTIONS. All conditions precedent and
other contingencies of Buyer described or referred to in the Canoga Park and the
Other Purchase Agreements shall have been satisfied or waived by Buyer, and
Buyer's purchase and acquisition of the "Transferred Assets" (as described and
defined in the Canoga Park and the Other Purchase Agreements, the "OTHER
TRANSFERRED ASSETS") shall be consummated in accordance with the terms of the
applicable Other Purchase Agreements simultaneously with the closing of the
transactions contemplated by this Agreement on the Closing Date.
9.17. SERVICES AGREEMENT. Buyer will have entered into an agreement with
California Recreational Services ("CRS") under which CRS shall provide specific
data processing and Membership accounting services for Buyer's benefit, upon
terms and conditions acceptable to Buyer and CRS.
9.18. OPINION OF SELLER'S COUNSEL. Seller's counsel shall have furnished
Buyer with its opinion on certain matters relating to the transactions
contemplated hereby in form acceptable to Buyer and its counsel.
SECTION 10. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE
The obligations of Seller to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the satisfaction of each
of the conditions set forth in this SECTION 10, unless waived by Seller.
10.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES OF BUYER, PERFORMANCE
OF COVENANTS, AND RELATED CERTIFICATE. The representations and warranties of
Buyer set forth in SECTION 7 shall be true and correct in all material respects
as of the Closing Date as though made on and as of such date; Buyer shall have
performed all obligations and complied with all covenants required to be
performed or to be complied with by Buyer under this Agreement on or prior to
the Closing Date; and Buyer shall have delivered to Seller a certificate to such
effect, dated the Closing Date, signed by an officer duly authorized to act on
its behalf.
10.2. NO PENDING OR THREATENED LEGAL ACTION. No order, injunction,
decree or other action or legal, administrative, arbitration or other proceeding
by any person or investigation by any governmental entity shall be pending or
threatened, which challenges, imposes or threatens to impose a material
limitation on the execution, delivery or performance of this Agreement, or the
consummation of any of the transactions contemplated hereby.
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<PAGE> 37
10.3. SECRETARY'S CERTIFICATE. Seller shall have received an accurate
certificate of the Secretary of Buyer, dated the Closing Date, with respect to
(a) the resolutions adopted by the Board of Directors of Buyer approving this
Agreement and the transactions contemplated hereby; and (b) the incumbency and
specimen signature of each officer of Buyer executing this Agreement and any
other agreement or Ancillary Document to be executed by Buyer, and certification
by another officer of Buyer as to the incumbency and specimen signature of said
signing officer(s).
10.4. ASSUMPTION OF LIABILITIES. Buyer shall have executed and
delivered, and Seller shall have received copies of, Assignment and Assumption
Agreements, under which Buyer has agreed to satisfy and perform all Assumed
Obligations in accordance with the terms thereof.
10.5. EXECUTION AND DELIVERY OF OTHER AGREEMENTS. Buyer and Seller shall
have executed and delivered all other agreements, instruments and contracts
which are required to enable Seller to carry out the terms and provisions of
this Agreement.
10.6. APPROVAL OF LIMITED PARTNERS. The General Partner of Seller shall
have obtained the approval or consent of the requisite number of limited
partners required to approve the sale of the Transferred Assets in accordance
with applicable provisions of its Partnership Agreement, and said approval or
consent shall be in full force and effect as of the Closing Date.
10.7. CONSUMMATION OF OTHER TRANSACTIONS. All conditions precedent and
other contingencies of Seller described or referred to in the Canoga Park and
the Other Purchase Agreements shall have been satisfied or waived by Seller, and
Seller's conveyance of the Other Transferred Assets shall be consummated in
accordance with the terms of the applicable Canoga Park and Other Purchase
Agreements simultaneously with the closing of the transactions contemplated by
this Agreement on the Closing Date.
10.8. OPINION OF BUYER'S COUNSEL. Buyer's counsel shall have furnished
Seller with its opinion on certain matters relating to the transactions
contemplated hereby in form acceptable to Seller and its counsel.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1. SURVIVAL. The representations and warranties set forth in this
Agreement, any Exhibit or Schedule, the Ancillary Documents and any certificate
or instrument delivered in connection herewith shall survive the execution and
delivery of this Agreement and any investigation made by any party hereto at any
time thereafter.
11.2. INDEMNIFICATION BY SELLER. Seller acknowledges and agrees with
Buyer that, regardless of any investigation made at any time by or on behalf of
Buyer or any information Buyer may have and, regardless of the Closing
hereunder, Seller shall indemnify Buyer and its respective directors, officers,
shareholders, members, employees and representatives, and their respective
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<PAGE> 38
successors and assigns (individually, a "BUYER INDEMNIFIED PARTY"), and hold
each Buyer Indemnified Party harmless from, against and in respect of any and
all costs, losses, claims, causes of action, demands, liabilities, fines,
penalties, damages and/or expenses (including interest which may be imposed in
connection therewith and court costs and reasonable fees and disbursements of
counsel) incurred by any of them in connection with:
11.2.1. PRE-CLOSING DATE MATTERS All liabilities of or claims
against any Buyer Indemnified Party of any nature, whether accrued, absolute,
contingent or otherwise, arising out of or relating to the Transferred Assets or
the Health/Fitness Business and attributable to any state of facts existing or
any event occurring on or before the Closing Date (whether known or unknown to
Seller or Buyer), to the extent not included in the Assumed Obligations or in
excess of amounts shown to constitute Closing Date Liabilities in Schedule 3.2.1
or otherwise specified in this Agreement to be the obligation of Buyer,
regardless of when such claim or liability is asserted against the applicable
Buyer Indemnified Party, and all liabilities of or claims against any Buyer
Indemnified Party or Seller of any nature, whether accrued, absolute, contingent
or otherwise, relating to the Excluded Assets or the Retained Obligations and
attributable to any state of facts existing or any event occurring either before
or after the Closing Date (whether known or unknown to Seller or Buyer)
regardless of when such claim or liability is asserted against the applicable
Buyer Indemnified Party;
11.2.2. LIABILITY CLAIMS all personal injury or other liability
claims which relate to any products sold, services provided, any state of facts
existing or any event occurring on or before the Closing Date;
11.2.3. BREACH OF THIS AGREEMENT any breach of any of the
representations, warranties, covenants or agreements made by the General Partner
or Seller in this Agreement, any Exhibit or Schedule, any Ancillary Document or
any certificate of instrument delivered in connection herewith;
11.2.4. TAXES, ETC. any taxes of any kind whatsoever, or
expenses, interest or penalties relating thereto, which arise out of or result
from the transactions contemplated by this Agreement other than state and/or
local sales or use taxes;
11.2.5. NON-ASSUMED OBLIGATIONS any attempt (whether or not
successful) by any person to cause or require a Buyer Indemnified Party to pay
or discharge any debt, obligation, liability or commitment of Seller, the
General Partner or Seller Affiliate which is not included in the Assumed
Obligations or the existence of which would constitute a breach of any
representation, warranty, covenant or agreement of Seller or the General Partner
notwithstanding the Closing; or
11.2.6. OTHER INCIDENTAL MATTERS any action, suit, proceeding,
compromise, settlement, assessment or judgment arising out of or incidental to
any of the matters indemnified against in this SECTION 11.2; provided, however,
that Seller shall not be obligated to indemnify a Buyer Indemnified Party and
hold it harmless under this SECTION 11.2 with respect to any settlement of a
claim to which Seller has not consented, if such consent has not been
unreasonably withheld or
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delayed.
If, by reason of the claim of any third party relating to any of
the matters subject to indemnification under this SECTION 11.2, a lien,
attachment, garnishment or execution is placed upon any of the property or
assets of any Buyer Indemnified Party, Seller shall also furnish an indemnity
bond satisfactory to Buyer to obtain the prompt release of such lien,
attachment, garnishment or execution.
11.3. INDEMNIFICATION BY BUYER. Buyer hereby covenants and agrees with
Seller that, regardless of any investigation made at any time by or on behalf of
Seller or any information it may have and, regardless of the Closing hereunder,
Buyer shall indemnify Seller, the General Partner, and all directors, officers,
employees, partners, representatives and their respective successors and assigns
(individually a "SELLER INDEMNIFIED PARTY"), and hold each Seller Indemnified
Party harmless from, against and in respect of any and all costs, losses,
claims, causes of action, demands, liabilities, fines, penalties, damages and/or
expenses (including interest which may be imposed in connection therewith and
court costs and reasonable attorneys' fees and disbursements of counsel)
incurred by any of them in connection with:
11.3.1. POST-CLOSING DATE MATTERS all liabilities of or claims
against any Seller Indemnified Party of any nature, whether accrued, absolute,
contingent or otherwise, (x) with respect to the Assumed Obligations, or (y)
attributable or relating to the operation by Buyer of the Transferred Assets
from and after the Closing Date, except if such liability results from or arises
in connection with the breach of any of the representations, warranties,
covenants or agreements made by the General Partner or Seller in this Agreement,
any Schedule or Exhibit, any Ancillary Document or any certificate or instrument
delivered in connection herewith;
11.3.2. BREACH OF TERMS OF THIS AGREEMENT any breach of any of
the representations, warranties, covenants or agreements made by Buyer in this
Agreement, any Exhibit or Schedule, any Ancillary Document or any certificate or
instrument delivered in connection herewith;
11.3.3. ASSUMED OBLIGATIONS any attempt (whether or not
successful) by any person to cause or require a Seller Indemnified Party to pay
or discharge any debt, obligation, liability or commitment which is included in
the Assumed Obligations, notwithstanding the Closing; or
11.3.4. OTHER INCIDENTAL MATTERS any action, suit, proceeding,
compromise, settlement, assessment or judgment arising out of or incidental to
any of the matters indemnified against in this SECTION 11.3; provided, however,
that Buyer shall not be obligated to indemnify a Seller Indemnified Party under
this SECTION 11.3 with respect to any settlement of a claim to which the Buyer
has not consented, if such consent has not been unreasonably withheld or
delayed.
If, by reason of the claim of any third party relating to any of
the matters subject to indemnification under this SECTION 11.3, a lien,
attachment, garnishment or execution is placed
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<PAGE> 40
upon any of the property or assets of any Seller Indemnified Party, Buyer shall
also furnish an indemnity bond satisfactory to Seller to obtain the prompt
release of such lien, attachment, garnishment or execution.
11.4. RIGHT TO DEFEND, ETC. If the facts giving rise to any such
indemnification shall involve any actual claim or demand by any third party
against a Buyer Indemnified Party or a Seller Indemnified Party (referred to
hereinafter as an "INDEMNIFIED PARTY"), the indemnifying parties shall be
entitled to notice of and entitled (without prejudice to the right of any
Indemnified Party to participate at its own expense through counsel of its own
choosing) to defend or prosecute such claim at their expense and through counsel
of their own choosing if they give written notice of their intention to do so no
later than the time by which the interests of the Indemnified Party would be
materially prejudiced as a result of its failure to have received such notice;
provided, however, that if the defendants in any action shall include both the
indemnifying parties and an Indemnified Party, and the Indemnified Party shall
have reasonably concluded that counsel selected by the indemnifying parties has
a conflict of interest because of the availability of different or additional
defenses to the Indemnified Party, the Indemnified Party shall have the right to
select separate counsel to participate in the defense of such action on its
behalf, at the expense of the indemnifying party (or parties). The Indemnified
Party shall cooperate fully in the defense of such claim and shall make
available to the indemnifying parties pertinent information under its control
relating thereto, but shall be entitled to be reimbursed, as provided in this
SECTION 11, for all costs and expenses incurred by it in connection therewith.
11.5. SUBROGATION. If the Indemnified Party receives payment or other
indemnification from the indemnifying party hereunder, the indemnifying party
shall be subrogated to the extent of such payment or indemnification to all
rights in respect of the subject matter of such claim to which the Indemnified
Party may be entitled, to institute appropriate action for the recovery thereof,
and the Indemnified Party shall reasonably assist and cooperate with the
indemnifying party at no expense to the Indemnified Party in enforcing such
rights.
SECTION 12. MISCELLANEOUS
12.1. EXPENSES, ETC. Buyer and Seller shall pay their own respective
expenses and the fees and expenses of their respective counsel in connection
with this Agreement.
12.2. SPECIFIC PERFORMANCE. Anything herein to the contrary
notwithstanding, Seller and Buyer acknowledge that the Transferred Assets are
unique and that Seller and Buyer will have no adequate remedy at law if the
other party (or parties) shall fail to perform any of its obligations hereunder.
In such event, Buyer or Seller, as the case may be, shall have the right, in
addition to any other rights it may have hereunder or under applicable law, to
equitable remedies (including, without limitation, specific performance,
temporary restraining orders and preliminary and permanent injunctions).
12.3. NO WAIVER; CUMULATIVE REMEDIES. No action taken pursuant to this
Agreement, including any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by
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<PAGE> 41
the party taking such action of compliance with any representation, warranty,
covenant or agreement contained herein and/or in any Ancillary Document or other
document. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach, whether of the same or any different term. No right or remedy which any
party hereto may possess or elect to exercise shall be exclusive of any other
right or remedy, all of which shall be cumulative and in addition to all such
rights and remedies.
12.4. BINDING EFFECT, BENEFITS. This Agreement shall be binding on and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but this Agreement may not be assigned by any party
hereto without the prior written consent of the other. Notwithstanding the
foregoing, no consent shall be necessary for Buyer to assign this Agreement to
any person, corporation or other entity that controls, is controlled by or is
under common control with Buyer (an "Affiliate"); provided, that (i) Buyer shall
remain directly and primarily liable for the performance of its obligations
hereunder, and (ii) any such Affiliate to which Buyer assigns this Agreement
shall agree to observe and be bound by all the terms and provisions hereof.
Except as otherwise set forth herein, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto and
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
12.5. NOTICES. All notices, requests, demands and other communications
which are required or permitted under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person or upon receipt
when transmitted by telecopy, messenger or air courier, or seventy two (72)
hours after deposit in the U.S. Mails, mailed by certified or registered first
class mail, postage prepaid, return receipt requested, and duly addressed to the
party to whom the same is so given or made:
If to the Partnership, to:
Racquetball World, a California Limited Partnership
c/o Sequoia Athletic Club & Racquetball World
7530 Orangethorpe Avenue
Buena Park, California 90621
Attention: Dr. G. Barton Heuler,
General Partner
Telecopier No.: (714) 523-5490
With a copy to:
Edward T. Swanson, Esq.
Swanson & Meepos LLC
1875 Century Park East
Suite 800
Los Angeles, California 90067
Telecopier No.: (310) 282-0325
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<PAGE> 42
If to The Spectrum Club Company, Inc., to:
11100 Santa Monica Blvd., Suite 300
West Los Angeles, California 90025
Attention: John Gibbons, President
Telecopier No.: (310) 479-5740
With a copy to:
Ronald K. Fujikawa, Esq.
Kinsella, Boesch, Fujikawa & Towle
1901 Avenue of the Stars, 7th Floor
Los Angeles, California 90067
Telecopier No.: (310)284-6018
Any party may change its address or facsimile number for purposes of this
SECTION 12.5 by giving notice to the others in accordance with the terms hereof.
12.6. ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto, which are incorporated herein by this reference) and the
Ancillary Documents constitute the entire agreement and understanding among the
parties with respect to the subject matter hereof and supersede all prior
agreements, representations, warranties, statements, promises and
understandings, whether written or oral, with respect to such subject matter. No
party hereto shall be bound by or charged with any written or oral agreements,
representations, warranties, statements, promises or understandings not
specifically set forth in this Agreement, any Exhibit, Schedule or Ancillary
Document.
12.7. HEADINGS; CERTAIN TERMS. The section and other headings contained
in this Agreement are for reference purposes only and shall not be deemed to be
a part of this Agreement or to affect the meaning or interpretation of this
Agreement or any term or provision hereof. As used in this Agreement, the term
"including" means "including, but not limited to" unless otherwise specified;
the word "or" means "and/or," and the word "person" means and refers to any
individual, corporation, trust, partnership, joint venture, government or
governmental authority, or any other entity.
12.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same instrument.
12.9. GOVERNING LAW. This Agreement shall be governed by, and construed
(as to both validity and performance) and enforced in accordance with, the laws
of the State of California applicable to contracts executed and to be wholly
performed therein.
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12.10. SEVERABILITY; CONSTRUCTION. If any term or provision of this
Agreement shall to any extent be invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby, and each other term and provision of
the Agreement shall be valid and enforced to the fullest extent permitted by
law. Both Seller and Buyer have participated in the negotiation and drafting of
this Agreement. Accordingly, each of Seller and Buyer waives any statutory
provision, judicial decision or other rule of law to the effect that contractual
ambiguities are to be construed against the party who shall have drafted the
provision in question.
12.11. NO BROKERS. Except as otherwise set forth in Schedule 12.11 or in
the Real Property Purchase Agreement, each of Buyer and Seller represents and
warrants that it has not engaged any person to act as a broker or finder in
connection with the execution of this Agreement, and that no person is entitled
to any fee or compensation as a result of the consummation of the transactions
contemplated hereby.
12.12. JURISDICTION; WAIVER OF JURY TRIAL. Except as provided in
Sections 4.2.3 and 11.6, the parties hereto (a) hereby irrevocably submit to the
jurisdiction of any court of the State of California or any federal court
sitting in the State of California for the purposes of any suit, action or other
proceeding arising out of this Agreement or any Ancillary Document, or any of
the transactions contemplated hereby, which is brought by or against any of the
parties hereto, and (b) hereby irrevocably agree that all claims in respect of
any such suit, action or proceeding may be heard and determined in any such
court. In connection with any dispute arising under or in connection with this
Agreement, any Ancillary Document or any other agreement or instrument, 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 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.
12.13. AMENDMENTS. This Agreement may not be amended or modified except
by an instrument or instruments in writing signed by the party or parties
against whom enforcement of any such amendment or modification is sought.
12.14. DISCLOSURE. Any disclosure by either party hereto pursuant to any
specific provision of this Agreement shall be deemed a disclosure for all other
purposes of this Agreement.
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<PAGE> 44
12.15. SECTION REFERENCES. All references contained in this Agreement to
any section number and to any Exhibit or Schedule are references to sections of,
or Exhibits or Schedules attached to, this Agreement, unless otherwise
specifically stated.
12.16. ALLOCATION OF PURCHASE PRICE FOR TAX PURPOSES. After the Closing
the parties will jointly agree as to the allocation of the Purchase Price and
shall file the forms required by Section 1060 of the Code in accordance
therewith.
12.17. USE OF TERMS. In this Agreement, the terms "Club" and "Seller"
are used to distinguish the legal entity (Seller) from the health/fitness
facility operated by it (the Club). However, such usage is not intended to, and
shall not, limit or reduce the legal duties and obligations of Seller (if "Club"
is used in its stead), nor shall it be deemed to exonerate or eliminate the
liability or obligation of a Club (if "Seller" is used in its stead).
43
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have signed this Agreement, or
have caused this Agreement to be signed in their respective names by an officer
thereunder duly authorized, on the date first above written.
THE SPECTRUM CLUB COMPANY, INC.
By: /s/ JOHN M.GIBBONS
------------------------------------
John M. Gibbons,
President
RACQUETBALL WORLD,
a California Limited Partnership
By: /s/ DR. G. BARTON HEULER
------------------------------------
Dr. G. Barton Heuler,
General Partner
By: /s/ JOHN T. OKADA
------------------------------------
John T. Okada,
General Partner
44
<PAGE> 46
<TABLE>
<CAPTION>
LIST OF SCHEDULES
<S> <C>
Schedule 1.1.1(a) List of Real Property Leases
Schedule 1.1.1(b) List of Personal Property Leases
Schedule 1.1.1(c) Real Property Owned by Seller
Schedule 1.1.1(d) Personal Property Owned by Seller
Schedule 1.1.1(f) Contracts
Schedule 1.1.1(j) Proprietary Rights
Schedule 3.2.1 Closing Date Liabilities
Schedule 3.3.1 Debts, Obligations, Liabilities of Seller
Schedule 6.6 Restrictions; Burdensome Agreements
Schedule 6.7 Notices and Consents
Schedule 6.10 Absence of Certain Changes or Events
Schedule 6.11 Title; Liens/Encumbrances
Schedule 6.14(a) Facilities Schedule
Schedule 6.14(b) Information Regarding Memberships
Schedule 6.15 Insurance Policies/Bonds
Schedule 6.16.3 Defaults
Schedule 6.16.4 Contracts Not Assignable
Schedule 6.17.1 Licenses
Schedule 6.17.2 Proprietary Rights
Schedule 6.19 Litigation
Schedule 6.21 Interest in Competitors
Schedule 6.23.2 Employee Benefit Plans
Schedule 6.23.3 List of All Employees of Seller
Schedule 6.28 Past Due Obligations
Schedule 6.34 Governmental Approvals; Notices
Schedule 6.38 Contracts
Schedule 8.14.2 Non-Competition
Schedule 12.11 No Brokers
</TABLE>
45
<PAGE> 47
<TABLE>
<CAPTION>
LIST OF EXHIBITS (FOUNTAIN VALLEY)
<S> <C>
Exhibit A-1 Form Grant Deed
Exhibit A-2 Form Bill of Sale
Exhibit B [Intentionally Omitted] Registration Rights re: Acquisition
Shares
Exhibit C Renegotiated Debt Agreements
Exhibit D-1 Assignment and Assumption of Subleases
Exhibit D-2 Assignment and Assumption Agreement
Exhibit E Partnership Agreement of Limited Partnership
Exhibit F Form Membership Agreement
</TABLE>
46
<PAGE> 1
EXHIBIT 6
AGREEMENT OF LEASE, dated as of the 31st day of December,
1997, by and between SCC I LLC, a Delaware limited liability company, having
offices at c/o Millennium Partners I, Inc., 1995 Broadway, 3rd Floor, New York,
New York 10023 ("LANDLORD"), and THE SPORTS CLUB COMPANY, INC., a Delaware
corporation, having offices at 1100 Santa Monica Boulevard, Suite 300, Los
Angeles, California 90025 ("TENANT").
W I T N E S S E T H:
WHEREAS, Landlord possesses a fee estate in and to certain
land (the "SANTA ANA LAND") more particularly described in Exhibit A-1 annexed
hereto and Landlord possesses a leasehold estate in and to certain land (the
"FULLERTON LAND"; the Santa Ana Land and Fullerton Land, collectively, the
"LAND") more particularly described in Exhibit A-2 annexed hereto;
WHEREAS, present on the Land are certain improvements as
described in Exhibit B annexed hereto (the "IMPROVEMENTS");
WHEREAS, Landlord desires to demise and let to Tenant and
Tenant desires to lease from Landlord, the Improvements and Land (collectively,
the "PREMISES"), upon and subject to the terms and provisions of this Lease;
WHEREAS, ALL CAPITALIZED TERMS NOT OTHERWISE DEFINED IN THE
OTHER ARTICLES OF THIS LEASE SHALL HAVE THE MEANINGS GIVEN SUCH TERMS IN ARTICLE
37 OF THIS LEASE.
NOW, THEREFORE, for good and valuable consideration, the
receipt and legal sufficiency of which is hereby acknowledged, the parties
hereto, for themselves, their heirs, distributees, executors, administrators,
legal representatives, trustees, successors and assigns, hereby covenant and
agree as follows:
ARTICLE 1
PREMISES, TERM
<PAGE> 2
1.1. Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord, the Premises for the rents hereinafter reserved and upon and
subject to the terms of this Lease, reserving however to Landlord the rights,
interests and estates reserved to Landlord by the provisions of this Lease or by
operation of law. The term of this Lease (the "TERM") shall commence (the
"COMMENCEMENT DATE") on the date hereof. The Term shall terminate on December
31st next following the twentieth (20th) anniversary of the Commencement Date
(the "EXPIRATION DATE"), or until such sooner date this Lease shall terminate as
hereinafter provided, subject to Tenant's right to extend the Term in accordance
with Article 35 of this Lease.
ARTICLE 2
RENT
2.1. Tenant shall pay to Landlord at the times and in the
manner set forth in this Lease Base Rent as set forth in Article 3 hereof, Base
Rent and Additional Rent as set forth in Section 3.2 hereof. Base Rent and
Additional Rent are hereinafter sometimes collectively referred to as the "RENT"
or "RENTS".
2.2. If Tenant shall fail to pay when due any installment of
Rent for a period of (i) three (3) days, with respect to Base Rent or (ii) ten
(10) days after Landlord's delivery of notice thereof to Tenant, with respect to
Additional Rent, after such installment or payment, as the case may be, shall
have become due, Tenant shall pay interest thereon at the Default Interest Rate,
from the date when such installment or payment, as the case may be, shall have
become due to the date of the payment thereof, and such interest thereon shall
be deemed Additional Rent. The imposition and/or payment of such interest shall
be in addition to all other rights and remedies available to Landlord in case of
nonpayment of Rent.
2.3. If any of the Rent payable under the terms and provisions
of this Lease shall be or become uncollectible, reduced or required to be
refunded because of any Legal Requirement, Tenant shall enter into such
agreement(s) and take such other steps as Landlord may request and as may be
legally permissible to permit Landlord to collect the maximum Rents which from
time to time during the continuance of such legal rent restriction may be
legally permissible (but not in excess of the amounts reserved therefor under
this Lease). Upon the termination of such legal rent restrictions, the Rents
shall become and thereafter be payable in accordance with the amounts reserved
herein for the periods following such termination and Tenant shall pay to
Landlord immediately following the termination of such legal rent restrictions,
to the maximum extent legally permissible, an amount equal to the Rents which
would have been paid pursuant to this Lease but for such legal rent restriction
less the Rents paid by Tenant during the period that such legal rent restriction
was in effect.
2.4. The parties hereby agree (i) that Section 467 of the
Internal Revenue Code is not operative to this Lease and (ii) to report rental
income and rental deductions without any recharacterization pursuant to such
Section.
2
<PAGE> 3
ARTICLE 3
BASE RENT AND ADDITIONAL RENT
3.1. Tenant shall pay to Landlord Base Rent ("BASE RENT") in
the amount of (a) $1,000,000 per annum for the period commencing on the
Commencement Date and ending on December 31, 2007, and (b) $1,200,000 per annum
for the period commencing on January 1, 2008 and ending on the Expiration Date.
3.2. Tenant agrees to pay to Landlord, Base Rent and
Additional Rent in immediately available lawful money of the United States of
America, in equal monthly installments in advance of the first day of each
calendar month during the term as required hereunder at the offices of Landlord
or such other place in the United States of America as Landlord may designate,
without any setoff or deduction whatsoever. Should the obligation to pay Base
Rent commence on any day other than on the first day of a month, then the Base
Rent for such month shall be prorated on a per diem basis. All sums other than
Base Rent payable by Tenant hereunder to, or for the account of, or for the
benefit of, Landlord shall be deemed "ADDITIONAL RENT" (any default in the
payment of which Landlord shall have the same remedies as for a default in the
case of the failure to pay Base Rent), and shall be payable on demand, unless
other payment dates are herein provided.
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ARTICLE 4
ADDITIONAL RENT
4.1. From and after the Commencement Date, Tenant shall pay,
as Additional Rent, all amounts payable by Landlord or Tenant on account of real
estate taxes, assessments and any other charges ("TAXES") in respect of the Land
and/or the Premises. Tenant shall pay all such Taxes as and when due, and shall
exhibit, and deliver to Landlord, photostatic copies of the receipted bills or
other evidence satisfactory to Landlord showing such payment promptly after such
receipts shall have been received by Tenant, but in any event prior to the
Delinquency Date (as hereinafter defined). If the bills, statements, invoices or
other demands for payment (collectively, "STATEMENTS") for Taxes due and payable
by Tenant hereunder are delivered to Landlord rather than Tenant, Landlord shall
deliver any such Statement to Tenant promptly upon receipt by Landlord, but in
any event not less than ten (10) days, or such shorter period of time if such
Statement is not received by Landlord within ten (10) days prior to the date on
which Taxes relating to such Statement become delinquent (the "DELINQUENCY
DATE"). Notwithstanding anything in this Article 4 otherwise provided, if such
Statements are delivered by the taxing authority to Landlord (and not also to
Tenant) and not forwarded by Landlord to Tenant as provided in the immediately
preceding sentence, then Tenant's obligation to pay Taxes hereunder shall not
arise until such Statements are delivered to Tenant. Landlord and Tenant shall
cooperate to cause the taxing authority imposing Taxes to deliver such
Statements directly to Tenant during the Term of this Lease. Tenant's obligation
to pay Taxes shall include the payment of any fines, fees, penalties or other
amounts imposed by the taxing authority for the late or non payment of Taxes to
the extent that same were not imposed solely upon Tenant's failure to timely pay
Taxes resulting solely from, Landlord's failure to timely deliver to Tenant any
Statements as hereinabove provided.
ARTICLE 5
ACCEPTANCE OCCUPANCY OF THE PREMISES
5.1. Tenant acknowledges that Tenant is accepting the Land and
the Premises in its "AS IS, WHERE IS, WITH ALL FAULTS" condition on the date
hereof and Landlord will not be required to perform any work in or to the
Premises as a condition to Tenant's occupancy. Furthermore, Tenant acknowledges
and agrees that Tenant, Tenant's legal counsel, agents and representatives have
each inspected the Land and the Premises and have commissioned, reviewed and
conducted detailed reports (including, without limitation, recent title
commitments, environmental reports and engineering reports, leases, covenants,
tenancies, mechanic lien laws and the Fullerton Ground Lease) and analysis of
the condition of both the Land and Premises, and Tenant hereby accepts all
conditions currently existing or which may in the future exist regarding zoning,
the physical condition of the Improvements, uses, title and environmental
matters.
ARTICLE 6
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NET LEASE
6.1. Tenant acknowledges and agrees that it is intended that
this Lease is a net lease that is completely carefree to Landlord,
UTILITIES AND SERVICES
6.2. Landlord shall have no responsibility to make available
to the Premises electricity, water, gas, sewer service or any utility or service
whatsoever required by Tenant during the Term connection with the use, operation
or occupancy of the Premises. Tenant shall make all arrangements for and pay for
the consumption of all utilities and services furnished to or used in connection
with the Premises, including, without limitation, heating, ventilating and
air-conditioning, electricity, water, sewer, gas, telephone, security,
janitorial services and waste removal. Tenant hereby expressly waives any and
all claims against Landlord for compensation, damages, payments or offset based
upon or with respect to any and all loss or damage now or hereafter sustained by
Tenant by reason of any failure by Landlord or any other party to furnish,
supply or provide any service or utility furnished or supplied to or used by
Tenant or any other party in connection with the use, occupancy, maintenance, or
operation of the Premises or any part thereof.
ARTICLE 7
USE
7.1. Subject to the Senior Interest, Tenant shall use the
Premises only for such uses, and in such manner of use, as is expressly
permitted by Legal Requirements (the "PERMITTED USE").
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ARTICLE 8
NON-LIABILITY, INDEMNITY
8.1. From and after the date hereof, Tenant shall protect,
indemnify, defend and hold harmless Landlord, its directors, shareholders,
members, managers, officers, partners, agents, contractors, servants, licensees,
employees or invitees (collectively, "LANDLORD INDEMNIFIED PARTIES") from and
against any and all claims, losses, liabilities, damages, costs and expenses
including, without limitation, reasonable attorneys' fees and disbursements
(collectively, "CLAIMS") arising from (i) the use, conduct or maintenance of the
Premises or any business therein or any work or thing whatsoever done, or any
condition created in or about the Premises during the Term, (ii) any negligent
or otherwise wrongful act or omission of Tenant or any of its agents,
contractors, servants, licensees, employees or invitees, (iii) any failure of
Tenant to perform or comply with any or all of the provisions of this Lease;
provided, however, Tenant's foregoing indemnification shall not extend to any
claims to the extent caused by the fraud, gross negligence or willful misconduct
of Landlord, its agents, contractors, servants, licensees, employees or
invitees, unless such acts are covered under insurance required to be maintained
by Tenant hereunder, it being agreed that from and after the date hereof,
Landlord shall protect, indemnify, defend and hold harmless Tenant, its
directors, shareholders, members, managers, officers, partners, agents,
contractors, servants, licensees, employers or invitees for claims with respect
to the Premises arising as a result of Landlord's fraud, gross negligence or
willful misconduct, or the fraud, negligence or wilful misconduct by Landlord's
agents who enter upon the Premises at Landlord's direction. In case any action
or proceeding is brought against Landlord or any other Landlord Indemnified
Parties by reason of any Claims, Tenant, upon notice from Landlord, shall defend
such action or proceeding by counsel chosen by Tenant, who shall be reasonably
satisfactory to Landlord. Tenant or its counsel shall keep Landlord fully
apprised at all times of the status of such defense and shall not settle same
without the written consent of Landlord, unless such settlement has no impact
publicly, privately or economically on Landlord Indemnified Parties as part of
any such settlement.
8.2. From and after the date hereof, Tenant shall protect,
indemnify, defend and hold harmless Landlord Indemnified Parties, which arise
out of or relate in any way to any use, handling, production, transportation,
disposal or storage of any Hazardous Materials in or on the Land and/or the
Improvements at any time during the Term and the surrender of the Premises by
Tenant, whether by Tenant or any other person directly or indirectly arising out
of the use, generation, storage or disposal of Hazardous Materials by Tenant or
any person on or about the Land and/or the Improvements including, without
limitation, Hazardous Materials in, on, under or about the Land as of the date
hereof and the costs of any required or necessary repair, cleanup, or
detoxification of the Land and/or the Premises and the preparation of any
closure or other required plans; provided, however, Tenant shall not indemnify
Landlord for Landlord's intentional acts which create additional liability for
Tenant hereunder. All such Claims shall constitute Additional Rent owing from
Tenant to Landlord hereunder and shall be due and payable from time to time
immediately upon Landlord's request, as incurred. Tenant
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understands and agrees that its liability to the Landlord Indemnified Parties
shall arise upon the discovery of any such Hazardous Materials on, under or
about the Land and/or the Premises, and not upon the realization or claim of
loss or damage. The indemnity provided in this Section 9.2 shall survive the
Expiration Date or sooner termination of this Lease.
ARTICLE 9
ALTERATIONS AND INSTALLATIONS
9.1. (a) Tenant shall not make any repairs, alterations,
installations, additions or improvements in or to the Premises (collectively or
individually, "TENANT'S CHANGES") without first obtaining the written consent of
one or more Senior Interest Holders, if, and to the extent, required under the
documents evidencing the Senior Interests (all other such Tenant Changes,
"CONSENT REQUIRED CHANGES"), provided, however, Tenant shall have received
copies of all such Senior Interests .
(b) Tenant shall simultaneously deliver any such documents to
Senior Interest Holder and Landlord with respect to any Tenant's Changes for
which the consent of, or notice to any Senior Interest Holder is required.
Tenant shall pay all costs and expenses relating to any Tenant's Changes and
shall cause same to be performed and completed in accordance with the terms,
covenants, conditions, provisions and agreements of this Lease.
(c) Consent Required Changes shall be effected in a good and
workerlike manner in accordance with plans and specifications first approved in
writing by such Senior Interest Holder. Tenant shall reimburse Landlord promptly
upon demand for any costs and expenses actually and reasonably incurred by
Landlord in connection with Landlord's and any Senior Interest Holder's review
of such Tenant's plans and specifications.
(d) Upon receipt of any Senior Interest Holder's objections to
any Consent Required Changes, Tenant shall promptly submit revised plans and
specifications addressing such Senior Interest Holder's objections. This process
of revision and review shall continue until a full and complete set of plans and
specifications for any subsequent Consent Required Changes are approved by any
such Senior Interest Holders.
9.2. Prior to commencement of Tenant's Changes, Tenant shall
obtain and deliver to Landlord the following:
(a) all required permits and authorizations of governmental
agencies having jurisdiction;
(b) worker's compensation insurance covering all persons
employed for such work;
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(c) reasonable comprehensive general liability and property
damage insurance naming Landlord, its designees and Tenant as insureds, with
coverage of at least $5,000,000 single limit; and
(d) any other insurance which Landlord may reasonably request.
9.3. All Tenant's Changes shall be performed in accordance
with the following provisions:
(a) All work shall be done in a good and workerlike manner;
(b) All Tenant's Changes shall be effected and maintained in
compliance with Legal Requirements;
(c) Tenant shall keep the Premises and the Land free and clear
of all liens for any work or material furnished claimed to have been furnished
to Tenant or to the Premises on Tenant's behalf;
(d) Tenant's Changes shall be subject to inspection by
representatives of Landlord, and such representatives shall be permitted access
and the opportunity to inspect same (during the progress thereof and following
completion) at all reasonable times, but this provision shall not in any way
whatsoever (i) create any obligation on Landlord to conduct such an inspection
or (ii) any warranty on Landlord's part that any Tenant's Changes have in fact
been completed within the requirements of this Section 10.3;
(e) In connection with Tenant's Changes, Landlord shall not be
liable for any labor or materials furnished or to be furnished to Tenant upon
credit, and no mechanic's or other lien for any such labor or materials shall
attach to or affect the reversion or other estate or interest of Landlord in and
to the Premises. Landlord may elect to record and post notices of
non-responsibility in connection with Tenant's Changes; and
(f) Promptly following completion of any Tenant's Changes,
Tenant, at Tenant's expense, shall obtain (to the extent required by Legal
Requirements) certificates of final approval of such Tenant's Changes and lien
waivers with respect thereto and shall furnish Landlord with copies thereof,
together with the "as-built" plans and specifications for such Tenant's Changes.
9.4. Any mechanic's lien filed against the Premises or the
Land for work claimed to have been done for or materials claimed to have been
furnished to Tenant shall be discharged by Tenant at its expense within thirty
(30) days after Tenant receives notice of such filing, by payment, filing of the
bond required by law or otherwise, and Tenant shall provide satisfactory proof
of such discharge to Landlord. In default thereof, Landlord may discharge any
such mechanic's lien, by bond or payment, or otherwise, and the cost thereof
shall be paid by Tenant to Landlord upon demand as Additional Rent. Notice is
hereby given that Landlord
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shall not be liable for any labor or materials furnished or to be furnished to
Tenant upon credit, and that no mechanic's or other lien for any such labor or
materials shall attach to or affect the reversion or other estate or interest of
Landlord in Improvements and to the Land or the Premises.
9.5. In the event any notice of violation of any Legal
Requirement is placed against the Premises arising out of or relating to any
Tenant's Changes, it shall be cured by Tenant as soon as reasonably possible
using diligent efforts to effect such cure, but in no event later than the first
day that Landlord, Tenant, or the Premises would be subject to lien, fine,
penalty or forfeiture/foreclosure as a result of such violation after Tenant has
actual knowledge of such violation. In default thereof, Landlord reserves the
right to cure the same by whatever action may be necessary including, without
limitation, the removal of all or any part of the Tenant's Change involved, and
the cost thereof shall be paid by Tenant to Landlord upon demand.
9.6. All alterations, installations, additions and
improvements made and installed by Landlord, if any, shall be the property of
Landlord and shall remain upon and be surrendered with the Premises as a part
thereof at the end of the term of this Lease.
9.7. Subject to the provisions of Section 10.8 hereof, all
Tenant's Changes upon or in the Premises which are of a permanent nature and
which cannot be removed without material damage to the Premises shall become and
be the property of Landlord, and shall remain upon and be surrendered with the
Premises as a part thereof at the end of the term of this Lease.
9.8. Notwithstanding anything to the contrary contained above,
where furnished solely by or at the expense of Tenant, all furniture,
furnishings and trade fixtures, and any other movable property ("TENANT'S
PERSONAL PROPERTY") shall remain the property of Tenant and, provided no Event
of Default exists hereunder, Tenant may at its option remove all or any part
thereof at any time prior to the expiration of the term of this Lease and Tenant
shall repair and restore in a good and workerlike manner to good condition any
damage to the Premises caused by any such removal. In case Tenant shall decide
not to remove any part of Tenant's Personal Property, Tenant shall notify
Landlord in writing not less than three (3) months, nor more than six (6)
months, prior to the expiration of the term of this Lease, specifying the items
of property which it has decided not to remove. If, within sixty (60) days after
the service of such notice, Landlord shall request Tenant to remove any of
Tenant's Personal Property, then Tenant shall, at its expense, remove the same
in accordance with such request. As to such Tenant's Personal Property which
Landlord does not request Tenant to remove, the same shall be, if left by
Tenant, deemed abandoned by Tenant and thereupon the same shall become the
property of Landlord.
9.9. If any removal of Tenant's Personal Property is requested
by Landlord as provided above and such Tenant's Property is not removed on or
prior to the Expiration Date, Landlord shall have the right, subject to any
Legal Requirements, to remove Tenant's
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Personal Property and to dispose of the same without accountability to Tenant
and at the sole cost and expense of Tenant. In case of any damage to the
Premises resulting from the removal of Tenant's Personal Property, except to the
extent any such damage results solely from Landlord's failure to exercise
reasonable care in connection with any such removal, Tenant shall reimburse
Landlord for Landlord's cost in repairing such material damage. Tenant's
obligation to make such payment shall survive the Expiration Date.
9.10. No approval by Landlord of any Tenant's Changes shall be
deemed (x) an agreement by Landlord that such Tenant's Changes comply with Legal
Requirements, insurance requirements or the certificate of occupancy for the
Premises or (y) a waiver by Landlord of compliance by Tenant with any of the
terms and conditions set forth in this Lease.
ARTICLE 10
MAINTENANCE AND REPAIR
10.1. (a) Tenant agrees that, at its sole cost and expense, it
will keep and maintain the Premises in first class condition and in good repair
and appearance during the continuance of this Lease, and will with reasonable
promptness make all foreseen and unforeseen, and ordinary and extraordinary
changes, repairs and replacements including, without limitation, capital
improvements, of every kind and nature which may be required to be made upon or
in connection with the Premises or any part thereof in order to keep and
maintain the same in such condition, repair and appearance. All replacements and
repairs made by Tenant shall be paid for in full by Tenant and be free and clear
of liens and encumbrances.
(b) Landlord shall not be required to maintain, repair
or rebuild, or to make any alterations, replacements or restorations of any
nature or description to the Premises or any part thereof, whether ordinary or
extraordinary, structural or nonstructural, foreseen or unforeseen, or to
maintain the Premises or any part thereof in any way, and Tenant hereby
expressly waives any right to make repairs at the expense of Landlord which may
be provided for in California Civil Code Sections 1941 and 1942 or any similar
statute or law which may hereafter be enacted.
ARTICLE 11
REQUIREMENTS OF LAW
11.1. Tenant, at its own cost and expense, shall comply with
all Legal Requirements with respect to the Premises and the use and occupation
thereof. Tenant shall give prompt notice to Landlord of any notice it receives
of any violation of Legal Requirements. Tenant acknowledges and agrees that
Tenant shall be responsible for compliance with all Legal Requirements relating
to handicapped person's access to the Premises and within the Premises
including, without limitation, compliance with ADA.
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11.2. Tenant, at its own cost and expense, in its name and/or
(whenever necessary and, in such event, with Landlord's prior written approval)
Landlord's name, may contest, in any manner permitted by any Legal Requirement
(including appeals to a court, or governmental department or authority having
jurisdiction in the matter), the validity or the enforcement of any Legal
Requirement with which Tenant is required to comply pursuant to this Lease, and
may defer compliance therewith provided that:
(a) such noncompliance shall not subject Landlord or any
Senior Interest Holder to criminal prosecution or subject the Land and/or
Improvements to lien or sale or adversely affect the financeability or
insurability of the Improvements;
(b) such noncompliance shall not be in violation of any Senior
Interest; and
(c) Tenant shall promptly and diligently prosecute such
contest and keep Landlord advised at all times as to the status of such contest.
Landlord, without liability to it and at Tenant's expense
(including, without limitation, the payment of reasonable attorneys' fees and
disbursements incurred by Landlord), shall cooperate with Tenant and execute any
documents or pleadings required for such purpose, provided that Landlord shall
reasonably be satisfied that the facts set forth in any such documents or
pleadings are accurate. Tenant shall indemnify and hold harmless Landlord from
any loss, cost, damage, expense, fine, penalty or other fee (including, without
limitation, reasonable attorneys' fees and disbursements) incurred or suffered
by Landlord as a result of Tenant's contest as permitted under this Section
12.2.
11.3. Notwithstanding anything to the contrary contained
herein, it is agreed and acknowledged that if any change in Legal Requirements
occurs and such change materially and adversely affects Tenant's use of the
Premises and (i) no Event of Default shall have occurred and be continuing
hereunder, (ii) the estimated restoration cost to same shall be in excess of 25%
of the then fair market value of the Premises (excluding the value of the Land)
(a "MAJOR LEGAL REQUIREMENT") (iii) such Major Legal Requirement occurs during
the last year of the Term hereof (taking into account any exercised Extension
Terms), then Tenant shall thereupon have the option of canceling and terminating
this Lease by written notice ("TERMINATION NOTICE") delivered to Landlord within
thirty (30) days after Tenant receives notice (actual or constructive of such
change in Legal Requirements). If Tenant elects to cancel and terminate this
Lease in accordance with the foregoing option, then Tenant shall not be
obligated to restore, rebuild or repair the Improvements, Rent shall be
apportioned as of the date of the Termination Notice and (the "LEGAL REQUIREMENT
TERMINATION DATE"), subject to the terms and provisions of this Lease, the (a)
insurance proceeds payable to Tenant as a result of such damage or destruction
of the Improvements (excluding business interruption insurance) shall be paid to
Landlord and any Senior Interest Holders, as their respective interests may
appear and (b) on the date Tenant delivers the Termination Notice to Landlord
pursuant to this Section, Tenant shall pay to Landlord a sum equal to the
Prepayment Premium plus a sum
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("FUTURE RENT") which at the time of such termination of this Lease represents
the then value (using a discount rate equal to the sum of (x) the then current
rate of interest paid on United States Treasury Obligations selected by Landlord
with a maturity comparable to the Expiration Date plus (y) 150 basis points
(1.5%)) of the aggregate of the Rent (excluding the cost of any such Major Legal
Requirement) payable hereunder which would have been payable by Tenant for the
period commencing on the Legal Requirement Termination Date and ending on the
Expiration Date (taking into account only exercised Extension Terms).
ARTICLE 12
ASSIGNMENT AND SUBSUBLETTING
12.1. Tenant shall not (a) assign or otherwise transfer this
Lease or the term and estate hereby granted, (b) sublet (or subsublet as the
case may be) the Premises or any part thereof or allow the same to be sublet,
except that, Tenant may sublet (or subsublet as the case may be) less than 20%
of the space within the Improvements to be used or occupied by others without
Landlord's prior consent for any Permitted Use or (c) mortgage, pledge or
encumber this Lease or the Premises or any part thereof in any manner by reason
of any act or omission on the part of Tenant, except as otherwise expressly
provided in this Article 13 or with the prior written consent of Landlord, which
consent may be withheld in its sole and absolute discretion.
12.2. (a) Subject to the exceptions set forth in subsection
13.2(b) below, for purposes of this Article 13, (i) the transfer of a majority
of the issued and outstanding capital stock of any corporate tenant, or of a
corporate subtenant, or the transfer of a majority of the total interest in any
partnership tenant or subtenant, however accomplished, whether in a single
transaction or in a series of related or unrelated transactions, or the creation
of new stock by which an aggregate of fifty (50%) percent or more of Tenant's
stock shall be vested in a party or parties who are nonstockholders as of the
date hereof, shall be deemed an assignment of this Lease, or of such Lease, as
the case may be, except that the transfer of the outstanding capital stock of
any corporate tenant, or subtenant, shall be deemed not to include the sale of
such stock by persons or parties through the "over-the-counter market" or
through any recognized stock exchange, other than those deemed "INSIDERS" within
the meaning of the Securities Exchange Act of 1934, as amended, (ii) a takeover
agreement shall be deemed a transfer of this Lease, (iii) any person or legal
representative of Tenant to whom Tenant's interest under this Lease passes by
operation of law, or otherwise, shall be bound by the provisions of this Article
13, and (iv) a material modification, material amendment or extension of the
term of a Lease shall be deemed a subsublease subject to the provisions of this
Article 13.
(b) Notwithstanding anything to the contrary set forth above,
Tenant may, subject to the terms and conditions hereinafter set forth, without
the consent of, but upon not less than thirty (30) days prior notice to,
Landlord, assign its interest in this Lease or subsublet all or a portion of the
Premises (i) to any partnership, corporation or other entity which is a
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successor to Tenant by either merger or consolidation, (ii) to a purchaser of
all or substantially all of Tenant's assets, or (iii) to any partnership,
corporation or other entity which shall (A) control, (B) be under the control
of, or (C) be under common control with, Tenant (the term "CONTROL" as used
herein shall be deemed to mean ownership of more than fifty (50%) percent of the
outstanding voting stock of a corporation, or other majority equity and
controlling interest if Tenant is not a corporation) provided in each of the
aforementioned events each such entity has a liquid net worth equal to the
product obtained by multiplying five (5) times an amount equal to the sum of the
annual Base Rent plus all Additional Rent due or to become due in respect of the
Calendar Year in which such assignment occurs ("MINIMUM NET WORTH") (any such
entity referred to in clause (iii) above being a "RELATED ENTITY"). Each of the
entities referred to in clauses (i) through (iii) above shall be a "PERMITTED
ASSIGNEE".
(c) Any assignment or subletting (or subsubletting as the case
may be) described in subsection 13.2(b) may only be made upon the condition that
(i) the principal purpose of such assignment or sublease (or subsublease as the
case may be) is not the acquisition of Tenant's interest in this Lease (except
if such assignment or sublease (or subsublease as the case may be) is made to a
Related Entity and is made for a valid intracorporate business purpose and is
not made to circumvent the provisions of this Article 13) and (ii) any such
assignee or tenant (or subsubtenant as the case may be) shall continue to use
the Premises for the conduct of a business in full compliance with the terms,
covenants and conditions of this Lease. Tenant shall within two (2) days after
an assignment or sublease (or subsublease as the case may be) is executed, as
the case may be, deliver to Landlord a copy of such assignment or sublease (or
subsublease as the case may be). No subsubletting or assignment made pursuant to
subsection 13.2(b) shall release Tenant from its obligations under this Lease.
12.3. Tenant covenants that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions of this Lease, and
notwithstanding the acceptance of Rent by Landlord from an assignee or
transferee or any other party, Tenant shall remain fully and primarily liable
for the payment of the Rent due and to become due under this Lease and for the
performance of all of the covenants, agreements, terms, provisions and
conditions of this Lease on the part of Tenant to be performed or observed.
12.4. The liability of Tenant for the due performance by
Tenant of the obligations on its part to be performed under this Lease shall not
be discharged, released or impaired in any respect by an agreement or
stipulation made by Landlord or any grantee or assignee of Landlord, by way of
mortgage or otherwise, extending the time of or modifying any of the obligations
contained in this Lease, or by any waiver or failure of Landlord to enforce any
of the obligations on Tenant's part to be performed under this Lease, and Tenant
shall continue to be liable hereunder. If any such agreement or modification
operates to increase the obligations of a tenant under this Lease, the liability
under this Section 13.4 of the Tenant named in this Lease or any of its
successors in interest (unless such party shall have expressly consented in
writing to such agreement or modification), shall continue as if such
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agreement or modification had not been made. To charge Tenant named in this
Lease and its successors in interest, no demand or notice of any default shall
be required in connection with any default under this Lease; Tenant and each of
its successors in interest hereby expressly waives any such demand or notice.
12.5. Notwithstanding any sublease (or subsublease as the case
may be) or assignment, the named Tenant herein shall remain fully and primarily
liable for the payment of Base Rent and Additional Rent, and for all other
obligations of this Lease on the part of Tenant to be performed or observed. In
the event that Tenant defaults in the payment of any Rent, Landlord is
authorized to collect any rents due or accruing from any subsubtenant or other
occupant of the Premises and to apply the net amounts collected to the Rent
reserved herein, and the receipt of any such amounts by Landlord from subtenant
(or subsubtenant as the case may be), or other occupant of any part of the
Premises, shall not be deemed or construed as releasing Tenant from Tenant's
obligations hereunder or the acceptance of that party as a direct tenant.
12.6. In each subletting (or subsubletting as the case may be)
permitted by this Article 13, Tenant shall include, or cause to be included, in
the sublease (or subsublease as the case may be) a provision prohibiting the
assignment of the sublease (or subsublease as the case may be) or subletting (or
subsubletting as the case may be) thereunder. If such sublease (or subsublease
as the case may be) is assigned or further subsublet except in case of a further
sublease (or subsublease as the case may be) or assignment of sublease (or
subsublease as the case may be) under subsection 13.2(b) where Landlord's prior
consent is not required, Tenant shall immediately terminate such sublease (or
subsublease as the case may be), or arrange for the termination thereof, and
proceed expeditiously to have the occupant thereunder dispossessed.
12.7. Any person or legal representative of Tenant to whom
Tenant's interest under this Lease passes by operation of law, or otherwise,
shall be bound by the provisions of this Article 13.
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ARTICLE 13
MORTGAGES OF TENANT'S INTEREST
13.1. (a) Subject to the limitations of this Section, Tenant
shall have the right to mortgage and pledge its interest in and to this Lease
after the Commencement Date provided and on condition that (i) Tenant has
obtained the consent of Landlord and Senior Interest Holders if, and to the
extent, required pursuant to the documents evidencing the Senior Interests, as
the case may be and (ii) any such mortgage or pledge shall be given to an
Authorized Institution ("AUTHORIZED HOLDER"). Any such mortgage or pledge shall
be subject and subordinate to the rights of Landlord hereunder and to the lien
and priority of the Senior Interest Holders and Tenant and the holder of any
mortgage or pledge of Tenant's Interest in this Lease shall execute and deliver
such documentation as Landlord and the Senior Interests Holders shall reasonably
require evidencing such subordination and the provisions of this Article 14.
Landlord shall not be obligated to recognize a holder of any such mortgage or
pledge, nor shall any such holder be entitled to any of the rights granted to an
Authorized Holder in this Section 14, unless such holder shall be an Authorized
Institution.
(b) No Authorized Holder of a mortgage on this Lease shall
have the rights or benefits mentioned in this Article 14, nor shall the
provisions of said Article be binding upon Landlord, unless and until an
executed counterpart of such leasehold mortgage or a copy certified by the
holder of the mortgage or by the recording officer to be true, shall have been
delivered to Landlord, together with a certified copy of all other ancillary or
security documents evidencing, securing or otherwise related to such leasehold
financing ("LEASEHOLD FINANCING DOCUMENTS").
(c) Tenant and/or the Authorized Holder of such mortgage shall
send to Landlord an executed counterpart of any amendment, modification or
extension of such leasehold mortgage or any other Leasehold Financing Documents
promptly after the same is executed, it being expressly understood and agreed
that Tenant shall have obtained the consent of the Senior Interest Holders with
respect to any such amendment, modification or extension, if, and to the extent,
required pursuant to the documents evidencing the Senior Interests, as the case
may be.
(d) If, in connection with the financing of the Land, the
Improvements or the interest of the Tenant under this Lease, or if in connection
with the entering into of a ground or underlying lease, any lending institution
or Tenant shall request reasonable modifications of this Lease that do not
increase Landlord's monetary terms under this Lease, or diminish the rights, or
increase the other obligations of Landlord under this Lease by more than a de
minimis amount, Landlord shall consent to such modifications.
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13.2. If Tenant shall mortgage this Lease in compliance with
the provisions of this Article 14, then so long as any such mortgage shall
remain unsatisfied of record, the following provisions shall apply:
(a) Landlord, upon serving upon Tenant any notice of default
pursuant to the provisions of Article 18 hereof shall also serve a copy of such
notice upon the Authorized Holder of such mortgage, at the address provided for
in subsection (e) of this Section, and as to such Authorized Holder only, no
notice by Landlord to Tenant hereunder shall be deemed to have been duly given
unless and until a copy thereof has been so served.
(b) Any Authorized Holder of such mortgage, in case Tenant
shall be in default hereunder, shall, within the period set forth herein to cure
such default and otherwise as herein provided, have the right to remedy such
default, or cause the same to be remedied, and Landlord shall accept such
performance by or at the instance of such Authorized Holder as if the same had
been made by Tenant.
(c) Anything herein contained to the contrary notwithstanding,
upon the occurrence of an Event of Default, other than an Event of Default which
can be cured by payment of money and/or without taking possession of the
Premises, Landlord shall take no action to effect a termination of this Lease
without first giving to the Authorized Holder of such mortgage written notice
thereof and a reasonable time thereafter within which either to obtain
possession of the mortgaged property (including possession by a receiver) or to
institute, prosecute and complete foreclosure proceedings or otherwise acquire
Tenant's interest under this Lease with diligence; provided, however, that such
Authorized Holder shall promptly deliver to Landlord a valid, legal and binding
written undertaking by such Authorized Holder to cure such default and to
indemnify, defend and hold harmless Landlord Indemnified Parties susceptible of
being cured from and against all Claims actually or allegedly arising from or in
connection with such Event of Default and Landlord's forbearing from terminating
this Lease as aforesaid; provided, further, however, that:
(i) such forbearance shall not subject Landlord to criminal
prosecution or subject all or any portion of the Improvements to lien
or sale (without limiting the application of the above Landlord shall
be deemed subject to prosecution for a crime if Landlord, or its
managing agent, if any, or any officer, director, partner, shareholder,
member, manager or employee of Landlord or its managing agent as an
individual, is charged with a crime of any kind or degree whatsoever,
whether by summons or otherwise);
(ii) such forbearance shall not be in violation or result in
a violation of, or default under, any Senior Interest or Legal
Requirement
(iii) such Authorized Holder shall promptly, diligently and
continuously prosecute the cure of such Event of Default; and
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(iv) such Authorized Holder upon obtaining possession or
acquiring Tenant's interest under this Lease shall be required promptly
to cure all defaults then susceptible of being cured; provided,
however, that: (A) such Authorized Holder shall not be obligated to
continue such possession or to continue such foreclosure proceedings
after such defaults shall have been cured; (B) nothing herein contained
shall preclude Landlord, subject to the provisions of this Article 14,
from exercising any rights or remedies under this Lease with respect to
the occurrence of any other Event of Default during the pendency of
such foreclosure; proceedings; (C) such Authorized Holder shall agree
with Landlord in writing to comply during the period of such
forbearance with such of the terms, conditions and covenants of this
Lease as are susceptible of being complied with by such Authorized
Holder. Any default by Tenant not susceptible of being cured by such
Authorized Holder shall be deemed to have been waived by Landlord upon
completion of such foreclosure proceedings or upon such acquisition of
Tenant's interest in this Lease by such Authorized Holder, except that
any of such Events of Default which are reasonably susceptible of being
cured after such completion and/or acquisition shall then be cured with
reasonable diligence. It is understood and agreed that such Authorized
Holder, or its designee, or any purchaser in foreclosure proceedings
(including, without limitation, a corporation formed by such Authorized
Holder) may become the legal owner and Authorized Holder of this Lease
through such foreclosure proceedings or by assignment of this Lease in
lieu of foreclosure; provided, however, that such legal owner and
Authorized Holder shall within a reasonable period of time after
acquiring possession, not to exceed thirty (30) days in the aggregate,
assign the leasehold interest created by this Lease to an entity which
is a Permitted Assignee under Article 13 hereof.
(d) In the event of the termination of this Lease prior to the
expiration of the Term, whether by summary proceedings to dispossess, service of
notice to terminate, or otherwise, due to an Event of Default as referred to in
Article 18 hereof, Landlord shall serve upon an Authorized Holder of such
mortgage written notice that this Lease has been terminated together with a
statement of any and all sums which would at that time be due under this Lease
but for such termination, and of all other Events of Default, if any, under this
Lease then known to Landlord. Such holder shall thereupon have the option to
obtain a new lease in accordance with and upon the following terms and
conditions:
Upon the written request of the holder of such mortgage, within thirty
(30) days after service of such notice that this Lease has been
terminated, Landlord shall enter into a new lease of the Premises with
such holder, or its designee, as follows:
Such new lease shall be entered into at the cost (including,
without limitation, reasonable attorneys' fees, disbursements
and expenses and any real estate transfer or transfer gains
taxes
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imposed, primarily or secondarily, on Landlord, or any Senior
Interest Holder by reason of such termination and/or the
granting of such new lease) of the tenant thereunder, shall be
effective as of the date of termination of this Lease, and
shall be for the remainder of the Term and at the Rent and
upon all the agreements, terms, covenants and conditions
contained in this Lease, including any applicable rights of
renewal. Such new lease shall require the tenant to perform
any unfulfilled obligation of Tenant under this Lease which is
susceptible of being performed by such tenant including,
without limitation, curing any default which can be cured by
the payment of a liquidated sum of money. Such new lease shall
provide that there shall be no liability on the part of
Landlord for any holdover by Tenant. Upon the execution of
such new lease, the tenant named therein shall pay any and all
sums which would at the time of the execution thereof be due
under this Lease but for such termination and shall pay all
expenses including, without limitation, (i) reasonable
attorneys' fees, court costs and disbursements and expenses
and any real estate transfer or transfer gains taxes imposed,
primarily or secondarily, on Landlord, or any Senior Interest
Holder by reason of such termination and/or the granting of
such new lease and (ii) any
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costs and expenses incurred by Landlord in connection with
such defaults and termination, the recovery of possession of
the Premises, and the preparation, execution and delivery of
such new lease.
(e) Any notice or other communication which Landlord shall
desire or be required to give to or serve upon any Authorized Holder of a
mortgage on this Lease shall be in writing and shall be served by certified
mail, return receipt requested, addressed to such Authorized Holder at its
address as set forth in such mortgage, or in the last assignment thereof
delivered to Landlord pursuant to Section 22.1 hereof or at such other address
as shall be designated by such Authorized Holder by notice in writing given to
Landlord by certified mail.
(f) Any notice or other communication which any Authorized
Holder of a mortgage on this Lease shall desire or is required to give to or
serve upon Landlord shall be deemed to have been duly given or served on the
date of first attempted delivery if sent by certified mail addressed to Landlord
at Landlord's addresses as shall be designated by Landlord by notice in writing
given to such Authorized Holder by certified mail, return receipt requested, and
shall be deemed given the date of first attempted delivery.
(g) To the extent not otherwise provided for in this Section
14.2, each such notice and communication provided for under this Section 14.2
shall be governed by Section 22.1 hereof.
13.3. (a) If any Authorized Holder of a leasehold mortgage of
this Lease or its designee shall acquire title to Tenant's interest in this
Lease, by foreclosure of a mortgage thereon or by assignment in lieu of
foreclosure or by an assignment from a nominee or wholly-owned subsidiary
corporation of such mortgagee or its designee, or under a new lease pursuant to
this Article 14, such mortgagee may assign such lease, and notwithstanding
anything contained in Article 13 hereof, shall thereupon be released from all
liability for the performance or observance of the covenants and conditions in
such lease contained on Tenant's part to be performed and observed from and
after the date of such assignment, provided and on condition that (i) the
assignee from such mortgagee shall have assumed such lease in accordance with
subsection 13.5(a)(iv)(C) hereof and shall have complied with subsection 13.5(a)
hereof and (ii) such assignee has a net worth computed in accordance with
generally accepted accounting principles consistently applied at least equal to
the Minimum Net Worth, and has delivered evidence reasonably satisfactory to
Landlord that such net worth criteria has been satisfied.
(b) If any leasehold mortgagee is released from liability by
virtue of the provisions of clauses (i) and (ii) of subsection 14.3(a) hereof,
no exercise of any extension
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right by the then holder of the leasehold estate under this Lease or any new
lease shall be effective unless at the time of such exercise such holder has a
net worth at least equal to the Minimum Net Worth, and has delivered evidence
reasonably satisfactory to Landlord that such net worth criteria has been
satisfied.
ARTICLE 14
INSURANCE
14.1. Insurance. (1) Tenant will at all times maintain
insurance on the Premises of the following character:
(a insurance against loss or damage by fire, lightning,
windstorm, hail, explosion, aircraft, smoke, vandalism, malicious
mischief, vehicle damage and other risks from time to time included
under "extended coverage" policies and such other risks as are or shall
customarily be insured against with respect to property that is similar
to the Premises, in amounts sufficient to prevent Landlord or Tenant
from becoming a co-insurer of any loss under the applicable policies,
but in any event in amounts not less than the full insurable value of
the Premises (the term "full insurable value", as used herein, means
"actual replacement value", less foundations, footings and excavations,
but which may include provisions for deductibles or uninsured loss not
to exceed $10,000 per occurrence);
(b general public liability insurance against claims for
bodily injury, death or property damage occurring on, in or about the
Premises (and if applicable law, regulation or ordinance creates
liability for a property owner for injuries occurring on adjoining
streets, sidewalks and passageways, such insurance shall cover the
adjoining streets, sidewalks and passageways), such insurance to afford
protection to Landlord of not less than a combined single limit
coverage of $10,000,000 per occurrence;
(c workmen's compensation insurance covering all persons
employed in connection with any work done on or about the Premises in
connection with which claims for death or bodily injury could be
asserted against Landlord, Tenant or the Premises; and
(d such other insurance on the Premises as Landlord and the
Senior Interest Holder may from time to time reasonably require to
protect Landlord, Tenant and/or the Premises in such amounts and
against such other insurable hazards which at the time are commonly
obtained in the case of property similar to the Premises, and similarly
located.
Such insurance shall be written by companies of recognized financial standing
having a Best rating of A VII or better reasonably acceptable to Landlord, which
are authorized to do an insurance business in the State of California and such
insurance shall be in a form reasonably
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acceptable to Landlord and shall name as the insured parties thereunder
Landlord, the Senior Interest Holder, and Tenant, as their interests may appear.
Tenant may, at its option, provide for the foregoing insurance coverage by the
use of a "blanket" policy covering Tenant's interest in other properties in
addition to the Premises, provided that the Premises are separately described
and scheduled in said "blanket" policy and certificates of coverage thereunder
with respect to, and listing, the Leased Premises are delivered as provided in
subparagraph (c), below. Landlord shall not be required to prosecute any claim
against any insurer or to contest any settlement proposed by any insurer;
provided, however, that Tenant may, at its sole cost and expense, prosecute any
such claim or contest any such settlement, and in such event Tenant may bring
any such prosecution or contest in the name of Landlord, Tenant or both and
Landlord will join therein at Tenant's written request upon the receipt by
Landlord of an indemnity from Tenant against any and all costs, liabilities and
expenses in connection with such prosecution or contest.
14.2. Every such insurance policy referred to herein shall,
provided that Landlord has notified Tenant as to the identity of the mortgagee,
bear a first mortgagee endorsement in favor of the mortgagee and any replacement
mortgagee and any proceeds with respect to loss or damage to the Premises under
any such policy shall be made payable to the mortgagee and any replacement
mortgagee in the manner provided in paragraph 12. Every such policy shall
contain, to the extent obtainable, an agreement by the insurer that it will not
cancel such policy except after thirty (30) days' prior written notice to
Landlord and to the mortgagee, that such policy shall not be invalidated if any
insured thereunder shall waive in writing, prior to any loss, any or all rights
of recovery against any other party for losses covered by such policy and that
any loss otherwise payable thereunder shall be payable notwithstanding any act
or negligence of Landlord or Tenant which might, absent such agreement, result
in a forfeiture of all or a part of such insurance payment and notwithstanding
any foreclosure or other action or proceeding taken pursuant to any provision of
the mortgage by a mortgagee upon the happening of an event of default, as
defined therein.
14.3. Tenant shall deliver to Landlord promptly after the
execution and delivery of this Lease the original or duplicate policies or
certificates of the insurers evidencing all the insurance which is then required
to be maintained by Tenant hereunder, and Tenant shall, prior to the expiration
of any such insurance, but not more than thirty (30) days prior thereto, deliver
other original or duplicate policies or certificates of insurers evidencing the
renewal of such insurance. Should Tenant fail to effect, maintain or renew any
insurance provided for in this paragraph 15, or to pay the premium therefor, or
to deliver to Landlord any of such policies or certificates, then and in any of
said events Landlord, at its option, but without obligation so to do, may with
reasonable notice to Tenant procure such insurance, and any sums expended by it
to procure any such insurance shall be Additional Rent hereunder and shall be
repaid by Tenant within five (5) days after receipt of bills therefor from
Landlord.
14.4. Tenant shall not obtain or carry separate insurance
concurrent in form or contributing in the event of loss with that required in
this paragraph 15 to be furnished by Tenant unless Landlord is included therein
as a named insured, with loss payable as provided
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in this Lease. Tenant shall immediately notify Landlord whenever any such
separate insurance is obtained and shall deliver the policy or policies or
certificates evidencing the same. So long as Tenant maintains the insurance
required in this paragraph 15, Landlord shall not obtain or carry separate
insurance on the Leased Premises concurrent in form or contributing in the event
of loss with that required in this paragraph 15.
14.5. Any proceeds received by Landlord under the insurance
policies referred to in clauses (i) and (iv) of paragraph 15.1(a) shall be held
in trust by Landlord or held by any such Senior Interest Holder until disposed
of in accordance with paragraph 15.
ARTICLE 15
DAMAGE OR DESTRUCTION
15.1. In case of any damage to or destruction of the
Improvements or any part thereof, Tenant will promptly, but not more than ten
(10) days after the occurrence of any such damage or destruction, give written
notice thereof to Landlord describing with as much specificity as is reasonable
the nature and extent of such damage or destruction.
15.2. If the Improvements are partially or totally damaged or
destroyed, (a) Tenant shall have no right to terminate this Lease and this Lease
shall not be terminated by reason of such casualty and (b) Tenant's obligation
to pay Rent hereunder shall not abate.
15.3. In the event of any damage to or destruction of all or
any portion of the Improvements, Tenant covenants that, within a reasonable
period of time, Tenant shall commence and diligently and continuously pursue and
complete the restoration of the Improvements ("RESTORATION") to the condition it
was in prior to such damage or destruction, to the extent possible in accordance
with then applicable laws, subject to Force Majeure. All Restoration performed
by Tenant shall be in accordance with the procedures set forth herein relating
to Tenant's Changes.
15.4. Notwithstanding anything to the contrary contained
herein including, without limitation, Article 14 and this Article 16 hereof, it
is agreed and acknowledged that if any casualty occurs to the Premises and (i)
the estimated restoration cost to same shall be in excess of 25% of the then
fair market value of the Premises (excluding the value of the Land) (a "Major
Casualty") and (ii) such Major Casualty occurs during the last year of the Term
hereof, then Tenant shall thereupon have the option of canceling and terminating
this Lease by a Termination Notice given to Landlord within thirty (30) days
after such damage or destruction. If Tenant elects to cancel and terminate this
Lease in accordance with the foregoing option, Tenant shall be under not duty to
restore, rebuild or repair the Improvements, the Rent shall be apportioned as of
the date of the destruction and, subject to the terms and provisions of this
Lease, the (a) insurance proceeds payable to Tenant as a result of such damage
or destruction of the Improvements (excluding business interruption insurance)
shall be paid to Landlord and the Senior Interest Holder, as their interests may
appear and (b
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on the date Tenant delivers the Termination Notice to Landlord pursuant to this
Section, Tenant shall pay to Landlord an amount equal to Future Rent which at
the time of such termination of this Lease represents the then value (using a
discount rate equal to the sum of (x) the then current rate of interest paid on
United States Treasury Obligations selected by Landlord with a maturity
comparable to the Expiration Date and (y) 150 basis points (1.5%)) of the
aggregate of the Rent payable hereunder which would have been payable by Tenant
for the period commencing with such earlier termination of this Lease and ending
with the Expiration Date, had this Lease not so terminated by Tenant pursuant to
this Section 16.4.
ARTICLE 16
CONDEMNATION
16.1. Subject to the provisions of this Section 17, Tenant
hereby irrevocably assigns to Landlord any award or payment to which it may be
or become entitled by reason of any taking of the Premises or any part thereof,
in or by condemnation or other eminent domain proceedings pursuant to any laws,
general or special, or by reason of the temporary requisition of the use or
occupancy of the Premises or any part thereof, by any governmental authority,
civil or military, whether the same shall be paid or payable in respect of
Tenant's leasehold interest hereunder or otherwise. Landlord shall be entitled
to participate fully in any such proceedings and Landlord's expenses shall be
paid to it out of the award. The award, net of such expenses, is hereinafter
called the "NET AWARD".
16.2. If during any term of this Lease the Premises shall be
permanently taken in their entirety in or by condemnation or other eminent
domain proceedings pursuant to any law, general or special, then this Lease
shall terminate upon the date Tenant shall be deprived of possession of the
Premises on account of such taking, without further obligation, except with
respect to obligations and liabilities of Tenant under this Lease, actual or
contingent, which have arisen with respect to the Premises prior to such date.
16.3. If during any term of this Lease any substantial portion
of the Premises shall be taken in or by condemnation or other eminent domain
proceedings pursuant to any law, general or special, which is sufficient to
render the remaining portion of the Premises unsuitable for Tenant's continued
use or occupancy even after restoration, then Tenant may, within sixty (60) days
after such taking, give notice to Landlord of its intention to terminate this
Lease not less than one hundred twenty (120) days after delivery of such notice.
No such termination shall release Tenant from any obligations and liabilities of
Tenant under this Lease, actual or contingent, which have arisen with respect to
the Premises prior to the date of such termination.
If Landlord shall dispute Tenant's determination that the
remaining portion of the Premises is unsuitable for Tenant's continued use or
occupancy even after restoration, Landlord shall so notify Tenant within thirty
(30) days after receipt of Tenant's notice to such
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effect, and the dispute between the parties shall be resolved by arbitration
pursuant to Article 36, below.
If this Lease shall terminate pursuant to Section 17.2 above,
or this Section 17.3, then the entire award shall be retained by Landlord as its
sole property.
16.4. If (a) a portion of the Premises shall be taken during
any term of this Lease in or by condemnation or other eminent domain proceedings
pursuant to any law, general or special, which taking is not sufficient to
authorize Tenant to give notice of its intention to terminate this Lease as
provided in Section 17.3 above, or (b) the use or occupancy of the Premises or
any part thereof shall be temporarily requisitioned by any governmental
authority, civil or military, then this Lease shall continue in full force and
effect without abatement of any Base Rent, Additional Rent or other sums payable
by Tenant hereunder notwithstanding such taking or requisition, and Tenant
shall, promptly after any such taking or requisition and at its sole cost and
expense, repair any damage caused by any such taking or requisition in
conformity with the requirements of Section 16 so that after the completion of
such repairs the Premises shall be, as nearly as possible, in a condition as
good as and having a value as great as the condition and value thereof
immediately prior to such taking or requisition.
In the event of any such taking from time to time after the
commencement of any such repairing but not more often than once in any period of
thirty (30) calendar days, Tenant may by notice request that Landlord pay to
Tenant out of the Net Award an amount sufficient to reimburse Tenant for the
unreimbursed cost and expense of such repairing and, upon receipt by Landlord of
a certificate, dated currently and signed by an officer of Tenant setting forth
in reasonable detail the aggregate amount of such costs and expenses actually
incurred for the account of Tenant, and Tenant shall state therein that no event
of default has happened and is continuing hereunder, then Landlord shall pay to
Tenant out of the Net Award the amount so certified, less the amount of all
previous reimbursements made on account of such repairs. If the cost of any
repairs required to be made by Tenant pursuant to this Section 17.4 shall exceed
the Net Award, the deficiency shall be paid by Tenant. If there is a balance of
the Net Award remaining after final payment for such work of repair and in
excess of related administrative and legal fees, and the fair market value of
any land taken which constituted a portion of the Premises (which amount shall
be paid to Landlord), then such balance shall be retained by or paid to
Landlord. In the event of any temporary requisition, Tenant shall be entitled to
receive the entire Net Award payable by reason of such temporary requisition,
less any portion of the Net Award which may be determined to be payable to
Landlord on account of that period of such temporary requisition which extends
past the time Tenant is entitled to occupy the Premises.
ARTICLE 17
CREDITOR'S RIGHTS/EVENTS OF DEFAULT
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17.1. This Lease and the term and estate hereby granted by
this Lease are subject to the limitation that if (a) Tenant makes an assignment
of the property of Tenant for the benefit of creditors, or (b) Tenant files a
voluntary petition under any bankruptcy or insolvency law (either, a "CREDITOR'S
LAW"), or (c) an involuntary petition alleging an act of bankruptcy or
insolvency is filed against Tenant under a Creditor's Law, or (d) a petition is
filed by or against Tenant under the reorganization provisions of any Creditor's
Law, or (e) a petition is filed by Tenant under the arrangement provisions of
any Creditor's Law, or (f) a permanent receiver of Tenant of or for the property
of Tenant is appointed, then, in any of the aforementioned events Landlord may,
(i) if the event occurs with the consent or acquiescence of Tenant, at any time
after Landlord becomes aware or receives notice of the occurrence of any such
event, or (ii) if such event occurs without Tenant's consent or acquiescence, at
any time after the event continues for ninety (90) days, give Tenant a notice of
intention to end the term of this Lease at the expiration of five (5) days from
the date of service of Landlord's notice of intention, and upon expiration of
said five (5) day period, this Lease and the term and estate hereby granted,
whether or not the term shall theretofore have commenced, shall terminate with
the same effect as if that day were the Expiration Date, but Tenant shall remain
liable for damages as provided in Article 20 hereof.
17.2. If any of the following events (an "EVENT OF DEFAULT")
occurs, then Landlord may give to Tenant a notice of intention to end the term
of this Lease on the fifth (5th) day after the date of the service of such
notice of intention, and upon the expiration of said five (5) day period this
Lease and the term and estate hereby granted, whether or not the term shall
theretofore have commenced, shall terminate with the same effect as if that day
was the Expiration Date of this Lease, but Tenant shall remain liable for
damages as provided in Article 20 hereof:
(a if Tenant shall default in the payment of (i) any Base Rent
with such default continuing for three (3) days or (ii) Additional Rent, with
such default continuing for ten (10) days after notice of such non-payment or
incomplete payment, or
(b if Tenant shall, whether by action or inaction, be in
default of any of its obligations under this Lease, and such default shall
continue and not be remedied as soon as practicable and in any event within
thirty (30) days after Landlord shall have given to Tenant a notice specifying
the same, or, in the case of a default which cannot with due diligence be cured
within a period of thirty (30) days and the continuance of which for the period
required for cure will not (i) subject Landlord or any Senior Interest Holder to
prosecution for a crime or any other fine or charge, (ii) subject the Premises
or any part thereof or Land, or any part thereof, to being condemned or vacated,
(iii) subject the Improvements or Land, or any part thereof, to any lien or
encumbrance, or (iv) result in the termination of any Senior Interest. The
foregoing extended cure periods are subject to the following further conditions:
Tenant shall (A) within the aforementioned thirty (30) day period advise
Landlord of Tenant's intention to take all steps necessary to remedy such
default, (B) duly commence within said thirty (30) day period, and thereafter
diligently prosecute to completion all steps necessary to remedy the default and
(C) complete such remedy within a reasonable time after the date of
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said notice to Landlord, provided that in no event shall such thirty (30) day
period be extended beyond the point which would (1) subject Landlord or any
Senior Interest Holder to prosecution for a crime or any other fine or charge,
(2) subject the Premises or any part thereof or Land, or any part thereof, to
being condemned or vacated, or (3) subject the Premises or Land, or any part
hereof, to any lien or encumbrance, or
(c if any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired balance of the
term of this Lease would, by operation of law or otherwise, devolve upon or pass
to any person, firm or corporation other than Tenant, except as expressly
permitted by Article 13 hereof, or
(d if Tenant shall, whether by action or inaction, cause a
default under any Senior Interest (including, without limitation, the Fullerton
Lease), and such default shall continue for five (5) days after notice of such
default, or
(e Tenant shall not acquire the Landlord's Interest in and to
the Premises and Land in accordance with the terms as set forth in Article 40
hereof within sixty (60) days after Landlord shall deliver a Put Option Notice.
17.3. (a) If Tenant shall have assigned its interest in this
Lease, and this Lease shall thereafter be disaffirmed or rejected in any
proceeding under the United States Bankruptcy Code ("BANKRUPTCY CODE") or under
the provisions of any Federal, state or foreign law of like import, or in the
event of termination of this Lease by reason of any such proceeding, the
assignee or any of its predecessors in interest under this Lease, upon request
of Landlord given within ninety (90) days after such disaffirmance or rejection
shall (i) pay to Landlord all Rent then due and payable to Landlord under this
Lease to and including the date of such disaffirmance or rejection and (ii)
enter into a new lease as Tenant with Landlord of the Premises for a term
commencing on the effective date of such disaffirmance or rejection and ending
on the Expiration Date, unless sooner terminated as in such lease provided, at
the same Rent and upon the then executory terms, covenants and conditions as are
contained in this Lease, except that (A) the rights of the Tenant under the new
lease, shall be subject to any possessory rights of the assignee in question
under this Lease and any rights of persons claiming through or under such
assignee, (B) such new lease shall require all defaults existing under this
Lease to be cured by the Tenant with reasonable diligence, and (C) such new
lease shall require the Tenant to pay all Additional Rent which, had this Lease
not been disaffirmed or rejected, would have become due after the effective date
of such disaffirmance or rejection with respect to any prior period. If the
Tenant shall fail or refuse to enter into the new lease within ten (10) days
after Landlord's request to do so, then in addition to all other rights and
remedies by reason of such default, under this Lease, at law or in equity,
Landlord shall have the same rights and remedies against the Tenant as if the
Tenant had entered into such new lease and such new lease had thereafter been
terminated at the beginning of its term by reason of the default of the Tenant
thereunder.
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(b If, pursuant to the Bankruptcy Code, Tenant is permitted to
assign this Lease in disregard of the restrictions contained in Article 13
hereof (or if this Lease shall be assumed by a trustee), then the trustee or
assignee shall cure any default under this Lease and shall provide adequate
assurance of future performance by the trustee or assignee including (i) the
source of payment of rent and performance of other obligations under this Lease,
for which adequate assurance shall mean the deposit of cash security with
Landlord in an amount equal to the sum of one (1) year's Base Rent then reserved
hereunder plus an amount equal to all Additional Rent, payable during the
calendar year preceding the year in which such assignment is intended to become
effective, which deposit shall be held by Landlord, without interest, for the
balance of the term as security for the full and faithful performance of all of
the obligations under this Lease on the part of Tenant yet to be performed, and
that any such assignee of this Lease shall have a net worth exclusive of good
will, computed in accordance with generally accepted accounting principles,
equal to at least the Combined Net Worth and (ii) that the use of the Premises
shall in no way diminish the reputation of the Premises or the Improvements as a
first-class retail Improvements or impose any additional burden upon the
Premises or increase the services to be provided by, or payments to be made by,
Landlord. If all defaults are not cured and such adequate assurance is not
provided within sixty (60) days after there has been an order for relief under
the Bankruptcy Code, then this Lease shall be deemed rejected, Tenant or any
other person in possession shall vacate the Premises, and Landlord shall be
entitled to retain any rent or security deposit previously received from Tenant
and shall have no further liability to Tenant or any person claiming through
Tenant or any trustee. If Tenant receives or is to receive any valuable
consideration for such an assignment of this Lease, such consideration, after
deducting therefrom (i) the brokerage commission, if any, and other expenses
reasonably incurred by Tenant for such assignment and (ii) any portion of such
consideration reasonably designated by the assignee as paid for the purchase of
Tenant's property in the Premises, shall be and become the sole exclusive
property of Landlord and shall be paid over to Landlord directly by such
assignee.
(c If Tenant's trustee, Tenant or Tenant as
debtor-in-possession assumes this Lease and proposes to assign the same
(pursuant to Title 11 U.S.C. ss. 365, as the same may be amended) to any person,
including, without limitation, any individual, partnership or corporate entity,
who shall have made a bona fide offer to accept an assignment of this Lease on
terms acceptable to the trustee, Tenant or Tenant as debtor-in-possession, then
notice of such proposed assignment shall be given to Landlord by the trustee,
Tenant or Tenant as debtor-in-possession, setting forth (i) the name and address
of such person, (ii) all of the terms and conditions of such offer, and (iii)
the adequate assurance to be provided Landlord to assure such person's future
performance under this Lease, including, without limitation, the assurances
referred to in Title 11 U.S.C. ss. 365(b)(3) (as the same may be amended).
Following delivery of the aforementioned notice to Landlord, the trustee, Tenant
or Tenant as debtor-in-possession shall make application to a court of competent
jurisdiction for authority and approval to enter into any such assignment and
assumption, and Landlord shall thereupon have the prior right and option, to be
exercised by notice to the trustee, Tenant or Tenant as debtor-in-possession,
given at any time prior to the effective date of such proposed assignment, to
accept an assignment of this Lease upon the same terms and conditions and for
the same consideration, if any, as the bona fide offer made by such person, less
any brokerage
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commissions which may be payable out of the consideration to be paid by such
person for the assignment of this Lease.
ARTICLE 18
RE-ENTRY BY LANDLORD, INJUNCTION
18.1. If this Lease shall be terminated by Landlord as
provided in Article 18 hereof, Landlord or Landlord's agents and employees may
immediately or at any time thereafter re-enter the Premises, or any part
thereof, either by summary dispossess proceedings or by any suitable action or
proceeding at law, without being liable to indictment, prosecution or damages
therefrom, to the end that Landlord may have, hold and enjoy the Premises again
as and of its first estate and interest therein. The terms "RE-ENTER" and
"RE-ENTRY", as herein used, are not restricted to its technical legal meaning.
In the event of any termination of this Lease under the provisions of Article 18
hereof or if Landlord shall re-enter the Premises under the provisions of this
Article or in the event of the termination of this Lease, or of re-entry, by or
under any summary dispossess or other proceedings or action or any provision of
law by reason of default hereunder on the part of Tenant, Tenant shall thereupon
pay to Landlord the Base Rent and Additional Rent payable by Tenant to Landlord
up to the time of such termination of this Lease, or of such recovery of
possession of the Premises by Landlord, as the case may be, and shall also pay
the Landlord damages as provided in Article 20 hereof.
18.2. In the event of a breach or threatened breach by Tenant
of any of its obligations under this Lease, Landlord shall also have the right
of injunction. The special remedies to which Landlord may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies or means
of redress to which Landlord may lawfully be entitled at any time and Landlord
may invoke any remedy allowed at law or in equity as if specific remedies were
not provided for herein.
18.3. If this Lease shall terminate under the provisions of
Article 18 hereof, or if Landlord shall re-enter the Premises under the
provisions of this Article 19, or in the event of the termination of this Lease,
or of re-entry, by or under any summary dispossess or other proceeding or action
or any provision of law by reason of default hereunder on the part of Tenant,
Landlord shall be entitled to retain all moneys, if any, paid by Tenant to
Landlord, whether as advance rent, security or otherwise, but such moneys shall
be credited by Landlord against any Rent due from Tenant at the time of such
termination or re-entry or, at Landlord's option against any damages payable by
Tenant under Article 20 hereof or pursuant to law.
18.4. Tenant hereby expressly waives, for itself and on behalf
of any person claiming through or under it, including creditors of all kinds,
any and all rights of redemption granted by or under any present or future laws
in the event of Tenant being evicted or dispossessed for any cause, or in the
event of Landlord obtaining possession of the Premises, by reason of the
violation by Tenant of any of the covenants and conditions of this Lease or
otherwise. Tenant also waives the provisions of any law relating to notice or
delay in levy of
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execution in case of an eviction or dispossess of Tenant for non-payment of rent
or of any other law of like import now or hereafter in effect.
ARTICLE 19
DAMAGES
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19.1. Should Landlord elect to re-enter, as herein provided,
or should it take possession pursuant to legal proceedings or pursuant to any
notice provided for by law, it may either terminate this Lease or it may from
time to time, without terminating this Lease, make such alterations and repairs
as may be necessary in order to relet the Premises, and relet the Premises (or
any one of them) or any part thereof for such term or terms (which may be for a
term extending beyond the term of this Lease) and at such rental or rentals and
upon such other terms and conditions as Landlord in its sole discretion may deem
advisable. Upon each such reletting all rentals and other sums received by
Landlord from such reletting shall be applied, first, to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord; second, to
the payment of any costs and expenses of such reletting, including reasonable
brokerage fees and attorneys' fees and of costs of such alterations and repairs;
third, to the payment of Rent and other charges due and unpaid hereunder; and
the residue, if any, shall be held by Landlord and applied in payment of future
Rent as the same may become due and payable hereunder. If such Rent and other
sums received from such reletting during any month are less than that to be paid
during that month by Tenant hereunder, Tenant shall pay such deficiency to
Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall in
no event be entitled to any rent collected or payable upon any reletting,
whether or not such rent shall exceed the Rent due in this Lease. No such
re-enter or taking possession of the Premises by Landlord shall constitute an
election on its part to terminate this Lease unless a written notice of such
intention is given to Tenant or unless the termination thereof is decreed by a
Court of competent jurisdiction. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
for such previous breach. Should Landlord at any time terminate this Lease for
any breach, in addition to any other remedies it may have, it may recover from
Tenant all damages incurred by Landlord by reason of Tenant's default, including
(i) the worth at the time of the award of the unpaid Rent and other charges
which Landlord had earned at the time of the termination; (ii) the worth at the
time of the award of the amount by which the unpaid Rent and other charges which
Landlord would have earned after termination until the time of the award exceeds
the amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Rent and other charges which Tenant would have paid for the balance of
the Term of this Lease after the time of award exceeds the amount of such rental
loss that Tenant proves Landlord could have reasonably avoided; (iv) any other
amount necessary to compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform its obligations under this Lease or which would
be likely to result therefrom, including, but not limited to, any costs or
expenses Landlord incurs in maintaining or preserving the Premises after such
Event of Default, the cost of recovering possession of the Premises, expenses of
reletting, including, without limitation, necessary renovation or alteration of
the Premises, Landlord's reasonable attorneys' fees incurred in connection
therewith, and any real estate commission paid or payable in connection with the
reletting of the Premises by Landlord; and (v) any Prepayment Premium incurred
in connection with such Event of Default or as a result thereof. As used herein,
the "worth at the time of the award" is computed by allowing interest on unpaid
amounts at the Default Interest Rate per annum, or such lesser amount as may
then be the maximum lawful rate. If Tenant has abandoned the Premises, Landlord
shall have the option of (i) retaking possession of the
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Premises, terminating this Lease and recovering from Tenant the amount specified
in this Section 20.1 or (ii) Landlord may elect not to terminate this Lease and
to proceed under the foregoing provisions of this Section 20.1. In determining
the rent which would be payable by Tenant hereunder subsequent to an Event of
Default, the annual Rent for each year of the expired Term of this Lease shall
be equal to the annual Rent payable hereunder during the balance of the Term,
including, without limitation, Base Rent and Additional Rent.
20.2. In addition to the foregoing, if the Fullerton Lease is
terminated as result of an Event of Default by Tenant, then in such event,
Tenant shall pay to Landlord all actual damages incurred by Landlord in
connection with any such termination.
20.3. Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the term of this Lease would have expired if
it had not been so terminated under the provisions of Article 18 hereof, or
under any provision of law, or had Landlord not re-entered the Premises. Nothing
herein contained shall be construed to limit or preclude recovery by Landlord
against Tenant of any sums or damages to which, in addition to the damages
particularly provided above, Landlord may lawfully be entitled by reason of any
default hereunder on the part of Tenant. Nothing herein contained shall be
construed to limit or prejudice the right of Landlord to prove for and obtain as
liquidated damages by reason of the termination of this Lease or re-entry of the
Premises for the default of Tenant under this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, such damages are to be proved, whether or
not such amount is greater, equal to, or less than any of the sums referred to
in Section 20.1 hereof.
ARTICLE 20
INTENTIONALLY OMITTED
ARTICLE 21
NOTICES
21.1. Any notice to be given under this Lease shall be in
writing and shall be sent by certified mail, return receipt requested, or by
nationally-recognized overnight courier, with acknowledgment receipt, addressed
to (a) Landlord at its address herein stated on page 1, Attention: Christopher
M. Jeffries and (b) Tenant (i) at its address herein stated on page 1,
Attention: John Gibbons, President. No notice shall be effective unless given to
all of the parties listed hereinabove. Each party shall have the right to
designate, by notice in writing, any other address to which such party's notice
is to be sent. Any notice to be given by either
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party may be given by the attorneys for such party. Any notice shall be deemed
given upon the date of first attempted delivery.
21.2. (a All performance (including cure) dates expire at 5:00
o'clock p.m. (Los Angeles time) on the applicable performance or cure date.
(b A performance date which falls on a Saturday,
Sunday or holiday on which courts in the County of Orange shall be closed is
automatically extended to the next business day with interest, if applicable, at
the Interest Rate, or Default Interest Rate, as the case may be.
ARTICLE 22
QUIET ENJOYMENT
22.1. Landlord covenants that Tenant, on paying the Rents and
performing all the terms, covenants, conditions, provisions and agreements
aforesaid, shall and may peacefully and quietly have, hold and enjoy the
Premises for the term aforesaid, free from any interference or hindrance by
Landlord.
ARTICLE 23
BROKER(S)
23.1. Each of Landlord and Tenant represents to the other that
such party has had no dealings, either direct or indirect, with any other real
estate agent or broker in connection with this transaction. Landlord and Tenant
each agrees to indemnify, defend and hold the other party harmless from any
loss, liability and expense incurred by such indemnified party as a result of
any claim made against such indemnified party which is based upon a breach of
said representation by the indemnifying party. The indemnification obligations
hereunder shall survive the Expiration Date or sooner termination of this Lease.
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ARTICLE 24
SUBORDINATION; NON-DISTURBANCE
24.1. This Lease and all rights of Tenant under it are
subordinate to and shall be subject to (a) any present and future ground or
underlying leases which may now or hereafter affect all or any portion of the
Premises and (b) any mortgages which may now or hereafter affect such leases or
all or any portion of the Premises, and to all renewals, modifications,
replacements, consolidations and extensions thereof (all of the foregoing,
collectively, the "SENIOR INTERESTS," and holders of Senior Interests shall be
referred to as "SENIOR INTEREST HOLDERS"), provided that, with respect to each
existing Senior Interest, Landlord shall obtain from the Senior Interest Holder
to which this Lease is now subordinated, a non-disturbance agreement
substantially in the form of the subordination, non-disturbance and attornment
agreement then used by such Senior Interest Holder for commercial loans. The
provisions of this Section 25.1 shall be self operative and no further
instrument of subordination shall be required.
24.2. Any Senior Interest Holder who succeeds to the rights of
Landlord under this Lease, whether through exercise of remedies or by operation
of law, is hereinafter called a "SUCCESSOR LANDLORD." Upon the Successor
Landlord's succession to the rights of Landlord under this Lease, Tenant shall
attorn to and recognize the Successor Landlord as Tenant's Landlord under this
Lease and shall promptly execute and deliver any instrument that such Successor
Landlord may reasonably request to evidence the attornment. Upon attornment,
this Lease shall continue in full force and effect and as a direct Lease between
the Successor Landlord and Tenant on the same terms and conditions and with the
same options, if any, then remaining. The foregoing provisions of this Section
25.2 shall inure to the benefit of such Successor Landlord, shall be
self-operative and no further instrument shall be required to give effect to
said provisions. Tenant, however, upon demand of any such Successor Landlord
agrees to execute, from time to time, instruments in confirmation of the
foregoing provisions of this Section 25.2, satisfactory to any such Successor
Landlord acknowledging such attornment and setting forth the terms and
conditions of its tenancy.
24.3. Anything herein contained to the contrary
notwithstanding, under no circumstances shall a Successor Landlord whether or
not it shall have succeeded to the interests of Landlord, under this Lease, be
(a) liable for any act, omission or default of any prior
landlord; or
(b) subject to any offsets, claims or defenses which Tenant
might have against any prior landlord; or
(c) bound by any Base Rent or Additional Rent which Tenant
might have paid to any prior landlord for more than one (1) month in advance; or
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(d) bound by any modification, amendment or abridgment of this
Lease, or any cancellation or surrender of the same, made without its prior
written approval; provided, however, Successor Landlord shall be subject to the
terms of Article 39 hereof.
24.4. Tenant shall pay no rent under this Lease more than
thirty (30) days in advance of its due date, if so restricted by any existing or
future ground or underlying lease or mortgage to which this Lease is
subordinated or by an assignment of this Lease to a Senior Interest Holder, and
Tenant shall not seek to terminate this Lease by reason of any act or omission
of Landlord until Tenant has given written notice of such act or omission to
each Senior Interest Holder whose name and address has been furnished to Tenant,
and until thirty (30) days after Tenant shall have given such Senior Interest
Holder such notice, or in the case of a default which cannot with due diligence
be cured within a period of thirty (30) days, such reasonable period of time
necessary to remedy such default so long as the Senior Interest Holder duly
commences and thereafter diligently prosecutes to completion all steps necessary
to remedy the default and complete such remedy within a reasonable period of
time following the giving of such notices, during which time any Senior Interest
Holder shall have the right, but shall not be obligated, to remedy such act or
omission.
24.5. If, in connection with the financing of the Land, the
Improvements or the interest of the Tenant under any ground or underlying lease,
or if in connection with the entering into of a ground or underlying lease, any
lending institution or Landlord shall request reasonable modifications of this
Lease that do not increase Tenant's monetary obligations under this Lease, or
diminish the rights, or increase the other obligations of Tenant under this
Lease by more than a de minimis amount, Tenant shall consent to such
modifications.
ARTICLE 25
NO WAIVERS
25.1. Failure by either party in any instance to insist upon
the strict performance of any one or more of the obligations of the other party
under this Lease, or to exercise any election herein contained or acceptance of
payment of any kind with knowledge of a default by the other party, shall in no
manner be or be deemed to be a waiver by such party of any defaults or breaches
hereunder or of any of its rights and remedies by reason of such defaults or
breaches, or a waiver or relinquishment for the future of the requirement of
strict performance of any and all of the defaulting party's obligations
hereunder. Further, no payment by Tenant or receipt by Landlord of a lesser
amount than the correct amount of Base Rent and/or Additional Rent due hereunder
shall be deemed to be other than a payment on account, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment be
deemed to effect or evidence an accord and satisfaction, and Landlord may accept
any checks or payments as made without prejudice to Landlord's right to recover
the balance or pursue any other remedy in this Lease or otherwise provided at
law or in equity.
ARTICLE 26
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LIMITATIONS ON TENANT'S REMEDIES
26.1. With respect to any provision of this Lease which
specifically requires that Landlord shall not unreasonably withhold or
unreasonably delay its consent or approval, Tenant in no event shall be entitled
to make, nor shall Tenant make, any claim, and Tenant hereby waives any claim,
for any sum of money whatsoever as damages, costs, expenses, attorneys' fees or
disbursements, whether affirmatively or by way of setoff, counterclaim or
defense, based upon any claim or assertion by Tenant that Landlord has
unreasonably withheld or unreasonably delayed such consent or approval. Tenant's
sole remedy for claimed unreasonable withholding or unreasonable delaying by
Landlord of its consent or approval shall be an action or proceeding brought and
prosecuted solely at Tenant's own cost and expense to enforce such provision,
for specific performance, injunction or declaratory judgment. Notwithstanding
the foregoing, Tenant shall be entitled to money damages only with respect to a
claim that Landlord has unreasonably withheld or delayed its consent if it is
expressly determined in an action or proceeding (as opposed to an arbitration,
which the parties agree cannot result in an award for damages) that Landlord has
wilfully or arbitrarily withheld its consent in bad faith and without any good
faith business justification.
ARTICLE 27
INTENTIONALLY OMITTED
ARTICLE 28
CERTIFICATE OF TENANT AND LANDLORD
28.1. Each party will, at any time and from time to time, as
requested by the other party, upon not less than ten (10) days' prior written
notice, execute and deliver to the other a statement certifying that this Lease
is unmodified and in full force and effect (or if there have been modifications,
that this Lease is in full force and effect as modified and stating the
modifications), certifying the dates to which the Base Rent and the Additional
Rent have been paid, and stating whether, to the best knowledge of the signer,
the other party is in default in performance of any of its obligations under
this Lease, and, if so, specifying each such default, it being intended that any
such statement delivered pursuant hereto may be relied upon by others with whom
the party requesting such certificate may be dealing. It is agreed to that a
party shall certify to such other information as the requesting party may
reasonably require.
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ARTICLE 29
LEGAL PROCEEDINGS; WAIVER OF JURY TRIAL
29.1. Landlord and Tenant do hereby waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Premises, and/or any other claims (except claims for
personal injury or property damage), and any emergency statutory or any other
statutory remedy. It is further mutually agreed that in the event Landlord
commences any summary proceeding for nonpayment of rent, Tenant will not
interpose and does hereby waive the right to interpose any counterclaim of
whatever nature or description in any such proceeding, except as permitted by
law.
ARTICLE 30
SURRENDER OF PREMISES
30.1. Upon the expiration or other termination of the term of
this Lease, Tenant shall quit and surrender to Landlord the Premises and Tenant
shall, in all events, remove all of Tenant's Personal Property as herein
provided. Tenant's obligation to observe or perform this covenant shall survive
the expiration or other termination of the term of this Lease.
30.2. If Tenant fails to surrender possession of the Premises
upon the expiration or other termination of the term of this Lease, Landlord may
elect by notice to Tenant, to treat Tenant as a holdover and, in all events,
Tenant shall be obligated to pay in addition to all Additional Rent payable
hereunder, minimum rent at a rate per diem equal to the greater of (a) one
hundred twenty-five (125%) percent of the Base Rent payable immediately
preceding the Expiration Date or sooner termination of the term of this Lease,
or (b) one hundred twenty-five percent (125%) of the fair market rental value
for the Premises during the holdover period. Notwithstanding such election by
Landlord, if the Premises are not surrendered upon the expiration or other
termination of the term of this Lease, then Tenant shall indemnify and hold
harmless Landlord against and from any loss, costs, liability or expenses
(including attorneys' fees) resulting therefrom, including any claims made by
any succeeding Tenant founded upon such delay; provided, however, (i) Landlord
shall have the right to seek to recover from Tenant any consequential or
punitive damages occasioned by such holding over by Tenant and (ii) Landlord
shall have no duty to mitigate any such damages incurred in connection with
Tenant's failure to surrender possession of the Premises pursuant to this Lease.
30.3. If Tenant shall vacate the Premises at any time during
the last month of the term of this Lease, then Landlord may after five (5) days
prior written notice to Tenant enter and alter, renovate and redecorate the
Premises, without elimination, diminution or abatement of rent, or incurring
liability to Tenant for any compensation, and such acts by
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Landlord shall have no effect upon this Lease, except Tenant shall have no
further obligation to maintain and repair the Premises after the date Landlord
enters the Premises pursuant to this Section.
ARTICLE 31
INABILITY TO PERFORM
31.1. If, by reason of Force Majeure, a party is unable to
perform or is delayed in performing any of its obligations under this Lease
including, without limitation, any Rent due and owing from Tenant hereunder, or
is unable to supply or is delayed in supplying any service which it is obligated
to supply, then such party shall have no liability in connection with that
inability and this Lease and the other party's obligation to perform all of such
other party's obligations under this Lease shall in no way be affected, impaired
or excused. Notwithstanding the foregoing, "Force Majeure" shall not apply to
any failure to timely pay monies due under this Lease including, without
limitation, Rent due and owing from Tenant hereunder, nor shall the failure to
receive or obtain financing be an excuse for failing to perform obligations
hereunder.
ARTICLE 32
NAME OF IMPROVEMENTS
32.1. Tenant named herein shall have the right to name the
Improvements during the Term, and to erect any signs permitted by Legal
Requirements.
ARTICLE 33
MEMORANDUM
33.1. Concurrently with the execution and delivery of this
Lease, Landlord and Tenant shall execute and deliver a statutory form of
memorandum of this Lease for the purpose of recording, but said memorandum of
this Lease shall not in any circumstances be deemed to modify or to change any
of the provisions of this Lease. Neither Landlord nor Tenant shall record this
Lease. Any recording costs associated with the memorandum of this Lease shall be
borne by Tenant. Within fifteen (15) days after written notice by Landlord upon
the expiration of the term of this Lease or sooner termination of this Lease,
Tenant covenants and agrees to execute, in recordable form, such documents as
may be required to cancel/terminate the memorandum of this Lease.
ARTICLE 34
EXTENSIONS OF TERM
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34.1. Tenant shall have the option (each, an "EXTENSION
OPTION") to renew the Term of this Lease for the entire Premises for two (2)
additional, successive periods of ten (10) years each (collectively, the
"EXTENSION TERMS," and each individually, an "EXTENSION TERM") on all the same
terms and conditions as provided in this Lease, provided that:
(a) an Extension Option shall be exercised as set forth in
Section 35.2 below;
(b) Base Rent for each Extension Term shall be the amounts set
forth in Section 35.3 below;
(c) Tenant shall not be in default under this Lease as of the
time of (i) the giving of the applicable Extension Notice (as defined in Section
35.2 below) and (ii) the commencement date of the applicable Extension Term;
(d) with respect to the second Extension Term, Tenant shall
have exercised the first Extension Option;
(e) Tenant shall have no further right to extend the Term
beyond the last day of the second Extension Term; and
(f) the second Extension Term with respect to the Fullerton
Land shall expire on April 11, 2035, unless the term of the Fullerton Lease is
extended beyond such date.
34.2. Tenant may exercise an Extension Option by giving notice
of its election to extend the Term of this Lease (an "EXTENSION NOTICE") at
least twelve (12) months prior to the expiration of the initial Term of this
Lease with respect to the first Extension Term, or, with respect to the second
Extension Term, at least twelve (12) months prior to the expiration of the first
Extension Term. Landlord shall endeavor to deliver notice of Tenant's Extension
Option prior to the expiration of each Extension Option, but failure to do so by
Landlord shall not relieve Tenant from meeting the time requirements and
otherwise fulfilling Tenant's obligations set forth herein. If Tenant does not
deliver an Extension Notice with respect to such immediately succeeding
Extension Term on or before the date which is twelve (12) months prior to the
Expiration Date or the last day of the first Extension Term, as the case may be,
TIME BEING OF THE ESSENCE WITH RESPECT TO TENANT'S OBLIGATION TO DELIVER SUCH
EXTENSION NOTICE PRIOR TO SUCH DATE, THEN THIS ARTICLE 35 SHALL HAVE NO FURTHER
FORCE OR EFFECT AND SHALL BE DEEMED DELETED FROM THIS LEASE WITH RESPECT TO ANY
UNEXERCISED EXTENSION TERMS. Notwithstanding the foregoing, in the event that
Tenant fails to pay the rent due under the Fullerton Lease during the initial
Term such that the City of Fullerton (as lessor under the Fullerton Lease) shall
require an extension of the guaranty of the Fullerton Lease rental payments by
Tenant or an affiliate thereof (or its successors or assigns) beyond the initial
Term, then in such event, Tenant shall be deemed to have elected the Extension
Option for the first Extension Term and if the City of Fullerton requires at the
time of the
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second Extension Option a further guaranty of the rental payments under the
Fullerton Lease, Tenant shall be deemed to have made an election for the second
Extension Term for the duration of the City of Fullerton Lease.
34.3. The Base Rent for the Premises during any Extension Term
shall be equal to the then fair market rent for comparable space in Orange
County as of the commencement of the Extension Term, as Landlord and Tenant
shall agree. The fair market rent shall be the rent charge for space of
comparable size and condition under the same terms, conditions and obligations
contained in this Lease, for a ten (10) year term, subject to Tenant's remaining
right to extend the Term (if any), to a tenant having a net worth substantially
similar to Tenant's, assuming that Landlord has had a reasonable time to locate
a substitute tenant and neither Landlord nor such tenant is under any compulsion
to rent, and taking into consideration any relevant facts and considerations in
the market place at the time of the extension of the Term. Notwithstanding the
foregoing, the Base Rent payable by Tenant for the first Extension Term shall be
a minimum of $1,400,000 per annum and shall be a maximum of $1,800,000 per
annum. The Base Rent payable by Tenant for the second Extension Term, shall be
minimum of $1,600,000 per annum and a maximum of $2,200,000 per annum.
34.4. If Landlord and Tenant cannot agree as to such fair
market rent within six (6) months prior to the end of the Initial Term of this
Lease or six (6) months prior to the end of the first Extension Term, as the
case may be, then the fair market rent shall be determined as follows:
(a) Landlord and Tenant shall each, within ten (10) days of
the beginning of such six (6) month period, select an appraiser to determine
such fair market rent for the Premises. Each Appraiser shall:
(i) be a professional designated member of the
American Society of Real Estate Counselors or the American Institute of
Real Estate Appraisers (holding designations of CRE or MAI
respectively) or be a professionally designated member of the then
preeminent successor organization and holding the senior professional
designation awarded by the organization;
(ii) have a minimum of ten (10) years of commercial
experience in (A) the leasing of retail space in Orange County,
California or (B) the appraisal of retail Improvements in Orange
County, California (the "APPRAISERS"); and
(iii) have generally recognized current competence in
the valuation of such property, who would qualify as an expert witness
over objection to give opinion testimony addressed to the issue which
is the subject of the appraisal.
(b) All appraisals under this Article 35 shall be made in
accordance with sound, customary and usual appraisal practices utilized at the
time of any such appraisals, consistently applied; provided, however, in
determining fair market rent for the Premises, the Appraisers shall not assign
any value to any improvements to the Premises made at Tenant's
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expense which will not remain in the Premises or to the good will created by
Tenant or Tenant's name.
(c) The Appraisers shall have the right to consult experts and
competent authorities with respect to factual information or evidence pertaining
to the determination of fair market rent, but any such consultation shall be
made in the presence of the parties, with full right on their part to
cross-examine. In addition, each party shall have the right to submit relevant
information and documentation to the Appraiser, so long as not less than five
(5) days prior to doing so, such party notifies the other party and supplies
copies of such information and documentation intended to be delivered to the
Appraisers in order to allow such other party to prepare and concurrently submit
any relevant counter information or documentation to the Appraiser.
(d) If either party fails to appoint an Appraiser within ten
(10) days after written notice of its failure to appoint any such Appraiser
pursuant to this Section 35.4, then, in such event, the party which has
appointed an Appraiser pursuant to this Section 35.4 may, on notice to the
other, request appointment of the other party's Appraiser by the Los Angeles,
California office of the AAA in accordance with its rules then prevailing or if
the AAA shall fail to appoint said Appraiser within fifteen (15) days after such
request is made, then such party may apply, on notice to the other, to the Chief
Judge of the Superior Court in the County of Orange (or any other court have
jurisdiction and exercising functions similar to those now exercised by said
Court) for the appointment of such Appraiser.
(e) If the Appraisers are unable to agree as to the fair
market rent within thirty (30) days after the date of the appointment of the
last of such Appraisers, then the Appraisers shall, within five (5) days of the
end of the thirty (30) day period, mutually select a third appraiser (the
"ARBITRATOR") who has the same qualifications as the Appraisers. Each Appraiser
shall submit to the Arbitrator and the other party its determination of the fair
market rent of the Premises including reasonable documentation supporting such
determination, and the Arbitrator shall within thirty (30) days of its
appointment decide which Appraiser has most accurately determined the fair
market rent, which decision shall be final and binding on both Landlord and
Tenant. The Arbitrator shall be permitted to question each of the Appraisers
regarding their respective appraisal, but only in the presence of the Appraiser
appointed by the other party.
(f) Notwithstanding anything to the contrary contained in this
Article 35, if the parties come to an agreement with respect to the fair market
rent prior to the rendition by the Appraisers or the Arbitrator of any decision
to be made by them hereunder, such agreement between the parties shall be
binding and conclusive and terminate the appraisal procedure hereunder.
(g) Landlord and Tenant shall each pay their own Appraiser's
fees and costs, and shall each pay one-half (1/2) of the Arbitrator's fees and
costs.
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34.5. If this Lease is renewed for any Extension Term, then
Landlord or Tenant can request the other party hereto to execute an instrument
in form for recording setting forth the exercise of Tenant's right to extend the
Term and the last day of the applicable Extension Term.
34.6. If Tenant exercises its right to extend the Term for an
Extension Term pursuant to this Article 35, the definition of the word "TERM"
with respect to any period thereafter for all applicable purposes under this
Lease shall include the Extension Term.
ARTICLE 35
FULLERTON LEASE
35.1. Subject to Section 36.2 below, Landlord covenants and
agrees that it will not do or cause to be done or suffer or permit any act or
thing to be done which may or could cause the Fullerton Lease or the rights of
Landlord thereunder to be canceled, terminated or forfeited.
35.2. Subject to the provisions of Article 36.3 hereof, this
Lease shall be expressly subject and subordinate to all of the terms, covenants,
conditions, provisions and agreements contained in the Fullerton Lease, except
such terms, covenants, conditions, provisions and agreements as are specifically
inconsistent with the provisions hereof or are set forth in Section 36.3 hereof
(the "EXCLUDED PROVISIONS"). All express provisions of this Lease shall govern
in all circumstances unless use of the Premises or any action or inaction taken
in accordance with said provisions may be the basis of a default under the
Fullerton Lease, in which case the inconsistency shall be resolved in favor of
the provisions of the Fullerton Lease. A true copy of the Fullerton Lease has
been delivered to, and reviewed by, Tenant.
35.3. The following provisions of the Fullerton Lease are
hereby excluded from this Lease: Article VI, Section 9.01, Article X and Section
12.01.
35.4. Except for any Excluded Provisions, Tenant covenants and
agrees to observe and perform all of the terms, covenants, conditions,
provisions and agreements to be performed by Landlord, as lessee pursuant to the
Fullerton Lease, and further covenants and agrees not to do or suffer or permit
anything to be done which would result in a default under or cause the Fullerton
Lease to be terminated. All of the terms, covenants, conditions, provisions and
agreements of the Fullerton Lease, excepting any Excluded Provisions, are hereby
incorporated herein with the same force and effect as if herein set forth in
full and wherever the term "LESSEE" occurs in the Fullerton Lease, the same
shall be deemed to refer to Tenant and wherever the term "LESSOR" occurs in the
Fullerton Lease, the same shall be deemed to refer to Landlord, it being
understood and agreed that the foregoing shall not be deemed to confer upon
Tenant any rights afforded to Landlord under the Fullerton Lease to cancel,
terminate, surrender, modify or amend the Fullerton Lease, or to waive, settle,
compromise or otherwise adversely affect Landlord's rights thereunder; provided,
however, Tenant shall be entitled, during the Term of this Lease, to have all
the rights and benefits
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afforded to Landlord under the Fullerton Lease, except those contained in the
Excluded Provisions. Notwithstanding the foregoing, all grace periods specified
in the Fullerton Lease for performance by Landlord of its obligations to the
City of Fullerton under the Fullerton Lease shall, for purposes of determining
compliance by Tenant with the provisions hereof, be each reduced by five (5)
days.
ARTICLE 36
DEFINITIONS
36.1. For the purposes of this Lease each of the following
terms shall have the meaning given such term in this Article or in the Section
or subsection of this Lease indicated:
1. "ADA" shall mean Title III of the Americans with
Disabilities Act of 1990, together with any amendments thereof or supplementary
laws thereto.
2. "ADDITIONAL RENT" shall have the meaning provided in
Section 3.2.
3. "APPRAISERS" shall have the meaning provided in subsection
35.4(a)(ii).
4. "ARBITRATOR" shall have the meaning provided in subsection
35.4(e).
5. "AUTHORIZED HOLDER" shall have the meaning provided in
subsection 14.1(a).
6. "AUTHORIZED INSTITUTION" shall mean a (i) bank, savings and
loan institution, trust or insurance company, real estate investment trust, a
pension, welfare or retirement fund, an eleemosynary institution or any
combination of the foregoing, acting for its own account or as a trustee, with a
net worth of at least $100,000,000 or (ii) governmental or quasi-governmental
instrumentality.
7. "BANKRUPTCY CODE" shall have the meaning provided in
subsection 18.3(a).
8. "BASE RENT" shall have the meaning provided in subsection
3.1(a).
9. "BROKERS" shall have the meaning provided in Section 24.1.
10. "CLAIMS" shall have the meaning provided in Section 9.1.
11. "COMMENCEMENT DATE" shall have the meaning provided in
Section 1.1.
12. "CONSENT REQUIRED CHANGES" shall have the meaning provided
in subsection 10.1(a).
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13. "CONTROL" shall have the meaning provided in subsection
13.2(b).
14. "CREDITOR'S LAW" shall have the meaning provided in
Section 23.1.
15. "DEFAULT INTEREST RATE" shall mean a rate per annum equal
to the lesser of (a) two (2%) percent above the Prime Rate, and (b) the maximum
applicable legal rate, if any.
16. "DELINQUENCY DATE" shall have the meaning provided in
Section 4.1.
17. "EVENT OF DEFAULT" shall have the meaning provided in
Section 18.2.
18. "EXPIRATION DATE" shall have the meaning provided in
Section 1.1.
19. "EXTENSION NOTICE" shall have the meaning provided in
Section 35.2.
20. "EXTENSION OPTION" shall have the meaning provided in
Section 35.1.
21. "EXTENSION TERM" shall have the meaning provided in
Section 35.1.
22. "FORCE MAJEURE" shall mean events which result in delays
in a party's performance of its obligations hereunder due to causes beyond such
party's control, including, but not restricted to, acts of God, the public enemy
acts of the government, acts of the other party, fires, floods, strikes, freight
embargoes and unusually severe weather.
23. "FULLERTON LEASE" shall mean that certain Ground Lease
dated April 11, 1980, as amended, with the City of Fullerton as lessor and
Landlord (by an assignment dated the date hereof) as lessee.
24. "FUTURE RENT" shall have the meaning provided in Section
12.3.
25. "IMPROVEMENTS" shall have the meaning provided in the
Recitals of this Lease.
26. "INSIDERS" shall have the meaning provided in subsection
13.2(a).
27. "INTEREST RATE" shall mean a rate per annum equal to the
lesser of (a) two (2%) percent above the Prime Rate, and (b) the maximum
applicable legal rate, if any.
28. "LAND" shall have the meaning provided in the Recitals of
this Lease.
29. "LANDLORD" shall have the meaning provided in the Recitals
of this Lease.
30. "LANDLORD INDEMNIFIED PARTIES" shall have the meaning
provided in Section 14.1.
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31. "LEASEHOLD FINANCING DOCUMENTS" shall have the meaning
provided in subsection 19(b).
32. "LEGAL REQUIREMENTS" shall mean laws, statutes and
ordinances (including Improvements codes and zoning regulations, and ordinances)
and the orders, rules, and regulations, directives and requirements of all
federal, state, county and city departments, bureaus, boards, agencies, offices,
commissions and other subdivisions thereof, or of any official thereof, or of
any other governmental public or quasi-public authority, whether now or
hereafter in force, which may be applicable to the Land or Improvements or the
Premises or any part thereof, or the sidewalks, curbs or area adjacent thereto
and all requirements, obligations and conditions of all instruments of record on
the date of this Lease.
33. "MINIMUM NET WORTH" shall have the meaning provided in
subsection 13.2(b).
34. "PERMITTED ASSIGNEE" shall have the meaning provided in
subsection 13.2(b).
35. "PERSON" shall mean any individual, general partnership,
limited partnership, corporation, joint venture, trust, business trust, limited
liability company, cooperative or association or any other recognized business
entity, and the heirs, executors, administrators, legal representatives,
successors and assigns of such Person as the context may require.
36. "PREMISES" shall have the meaning provided in the Recitals
of this Lease.
37. "PREPAYMENT PREMIUM" shall mean an amount equal to the
amount due to all Senior Interest Holders as a result of a prepayment of all
Senior Interests providing financing secured, in whole or in part, by Landlord's
interest in the Premises and/or this Lease, together with all fees, costs,
charges and expenses incurred by Landlord in connection with satisfaction of
such Senior Interests.
38. "PRIME RATE" shall mean a rate per annum equal to the
commercial lending rate announced from time to time by The Chase Manhattan Bank
(New York, New York), or its successor, as its prime rate for ninety (90) day
unsecured loans.
39. "RELATED ENTITY" shall have the meaning provided in
subsection 13.2(b).
40. "RENT" or "RENTS" shall have the meaning provided in
Section 2.1.
41. "RULES OF CONSTRUCTION" are as follows:
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(a) The words "INCLUDE" and "INCLUDING" and similar
terms shall be construed as if followed by the phrase "WITHOUT
BEING LIMITED TO."
(b) All references to numbered Articles or Sections
are references to the Articles and Sections of this Lease
unless otherwise expressly designated in context.
(c) Unless other payment dates are provided in this
Lease, all payments of any kind to be made by Tenant to
Landlord under this Lease other than Base Rent (which shall be
payable without notice or invoice), including reimbursements
by Tenant to Landlord of costs incurred by Landlord, shall be
payable by Tenant to Landlord upon receipt by Tenant of
Landlord's bill therefor.
(d) The terms "PROVISIONS," "TERMS," "CONDITIONS,"
"COVENANTS," "REQUIREMENTS," "OBLIGATIONS" and other words of
similar import shall be deemed to include all of those terms,
where the context so permits.
(e) The term "THIS LEASE" shall be deemed to include
all of the provisions of this Lease.
(f) In any instance in which consent or approval by
Landlord is required under this Lease, it shall be deemed to
be preceded by the word "PRIOR."
(g) The terms "FAILURE," "VIOLATION," "DEFAULT,"
"BREACH" and words of similar import shall be deemed to
include all of those terms where the context so permits.
(h) The terms "COSTS," "EXPENSES," "OBLIGATIONS,"
"LIABILITIES" and words of similar import shall be deemed to
include all of those terms where the context so permits.
(i) The use of the singular or the plural shall be
deemed to include the plural and the singular, as the case may
be, where the context so permits.
(j) The use of the conjunctive shall be deemed to
include any, both or all of the terms which are joined, where
the context so permits.
42. "SEC" shall have the meaning provided in Section 38.19.
43. "SENIOR INTEREST HOLDERS" shall have the meaning provided
in Section 25.1.
44. "SENIOR INTERESTS" shall have the meaning provided in
Section 25.1.
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45. "SUCCESSOR LANDLORD" shall have the meaning provided in
Section 25.2.
46. "TAXES" shall have the meaning provided in Section 4.1.
47. "TENANT" shall have the meaning provided in the Recitals
of this Lease.
48. "TENANT'S CHANGES" shall have the meaning provided in
subsection 10.1(a).
49. "TENANT'S PERSONAL PROPERTY" shall have the meaning
provided in Section 10.8.
50. "TERM" shall have the meaning provided in Section 1.1.
51. "TERMINATION NOTICE" shall have the meaning provided in
Section 16.4.
52. "UNTENANTABLE" shall mean that the Premises, or a portion
thereof, cannot be occupied by Tenant in a commercially reasonable manner for
the conduct of its business.
ARTICLE 37
MISCELLANEOUS
37.1. Irrespective of the place of execution or performance,
this Lease shall be governed by and construed in accordance with the laws of the
State of California without regard to principles of conflicts of laws.
37.2. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted.
37.3. Except as otherwise expressly provided in this Lease,
each covenant, agreement, obligation or other provision of this Lease on
Tenant's part to be performed shall be deemed and construed as a separate and
independent covenant of Tenant, not dependent on any other provision of this
Lease.
37.4. All terms and words used in this Lease, regardless of
the number or gender (including the neuter form) in which they are used, shall
be deemed to include any other number and any other gender (including the neuter
form) as the context may require.
37.5. Except as expressly provided herein, time shall be of
the essence with respect to the exercise of any option granted under this Lease.
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37.6. Except as otherwise provided herein, whenever payment of
interest is required by the terms hereof it shall be at the Interest Rate.
37.7. In the event that Tenant is in arrears in payment of
Rent hereunder, Tenant waives Tenant's right, if any, to designate the items
against which any payments made by Tenant are to be credited, and Tenant agrees
that Landlord may apply any payments made by Tenant to any items it sees fit,
irrespective of and notwithstanding any designation or request by Tenant as to
the items against which any such payments shall be credited.
37.8. The covenants, agreements, conditions and provisions of
this Lease shall be binding upon and inure to the benefit of Landlord, Tenant
and their respective heirs, distributees, executors, administrators, successors
and assigns, except that no assignment or subsubletting in violation of the
provisions of Article 18 hereof shall operate to vest any rights in any
successor assignee or subtenant (or subsubtenant as the case may be).
37.9. Landlord and Tenant agree that it is their intention to
create only the relationship of landlord and tenant (and optioner and optionee,
as and only to the extent provided in Articles 39 and 40 hereof), and no
provision of this Lease, or act of either party under this Lease, shall ever be
construed as creating the relationship of principal and agent, or a partnership,
or a joint venture or other form of enterprise between the parties.
37.10. All prior negotiations and agreements relating to this
Lease and the Premises are merged into this Lease. This Lease may not be
amended, modified or terminated, in whole or in part, nor may any of the
provisions be waived, except by a written instrument executed by the party
against whom enforcement of such amendment, modification, termination or waiver
is sought.
37.11. Each person executing this Lease hereby represents and
warrants that he or she is a duly authorized representative of Landlord or
Tenant, as the case may be, and has full authority to execute and deliver this
Lease.
37.12. This Lease shall have no binding force and effect and
shall not confer any rights or impose any obligations upon either party unless
and until both parties have executed it and Landlord shall have and delivered to
Tenant an executed copy of such consent. Under no circumstances shall the
submission of this Lease in draft form by or to either party be deemed to
constitute an offer for the subleasing of the Premises.
37.13. This Lease may be executed in several counterparts each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
37.14. This Lease and all the obligations of Tenant to pay
Base Rent and Additional Rent and perform all of its other covenants and
agreements hereunder shall in no way be affected, impaired, delayed or excused
because Landlord is unable to fulfill any of its
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obligations hereunder, either explicit or implicit, if Landlord is prevented or
delayed from so doing by reason of Force Majeure.
37.15. Each and every right and remedy of Landlord under this
Lease shall be cumulative and in addition to every other right and remedy herein
contained or now or hereafter existing at law or in equity, by statute or
otherwise.
37.16. The captions are inserted only as a matter of
convenience and for reference, and in no way define, limit or describe the scope
of this Lease nor the intent of any provision hereof.
37.17. If no standard for approval is provided herein, if
either party hereto reserves the right to consent or approve the actions of the
other party, such consent or approval shall not be unreasonably withheld or
delayed, it being understood and agreed that if any action of the Tenant
requires the approval of any other Senior Interest Holder, then, in such event,
Landlord's approval shall be deemed withheld if the approval of any such other
Senior Interest Holder is withheld.
37.18. Tenant shall deliver, or cause to be delivered, to
Landlord (a) fiscal year-end audited financial statements and/or the Securities
and Exchange Commission ("SEC") 10K annual report for Tenant promptly after the
same is filed with the SEC (and in no event later than one hundred fifty (150)
days after the end of such fiscal year) and (b) the SEC 10Q quarterly report for
Tenant (and its parent companies, if applicable) promptly after the same is
filed with the SEC (and in no event later than sixty (60) days after the end of
such quarter), provided, however, that if a Tenant ceases to be a publicly
traded corporation, Tenant shall deliver, or cause to be delivered, to Landlord
financial statements prepared and reviewed by a so-called "Big 6" accounting
firm approved by Landlord, which approval shall not be unreasonably withheld,
containing substantially the same information as required in such 10K and 10Q
reports within said one hundred fifty (150) and sixty (60) days periods, as
applicable.
37.19. Tenant covenants by and for itself, its heirs,
executors, administrators and assigns, and all persons claiming under or through
it, and this Lease is made and accepted upon and subject to the following
conditions: That there shall be no discrimination against or segregation of any
person or group of persons on account of age, ancestry or national origin,
color, creed, disability, gender, marital status, race, religion or sexual
orientation in the leasing, subleasing, transferring, use, occupancy, tenure or
enjoyment of the Premises nor shall Tenant, or any person claiming under or
through Tenant establish or permit any such practice or practices of
discrimination or segregation with reference to the selection, location, number,
use or occupancy, of tenants, Tenants, subtenants (or subsubtenants as the case
may be), subtenants or vendees in the Premises.
ARTICLE 38
PURCHASE OPTION
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38.1. At any time during the three (3) year period commencing
on the Commencement Date and ending on the third (3rd) anniversary thereof (the
"PURCHASE OPTION PERIOD"), Tenant shall have the right (the "PURCHASE OPTION")
to elect to purchase Landlord's fee and leasehold interests in the Premises for
a purchase price equal to an amount that would enable Landlord to receive a
return of its initial $10,000,000 investment, plus all other sums advanced
hereunder or any transaction costs in connection with Landlord's investment in
the Land and Improvements (including all acquisition costs) less the net amount
of insurance proceeds and condemnation awards, plus a twelve percent (12%)
cumulatively compounded (compounded annually) return on all such investments and
costs advanced by Landlord (all such investments and costs, together with such
compounded returns, the "PURCHASE PRICE"). If Tenant wishes to exercise such
right, Tenant shall deliver to Landlord written notice (a "PURCHASE NOTICE")
prior to the last day of the Purchase Option Period electing to exercise such
Purchase Option in accordance with this Article 39; provided, however, Tenant
shall not have the right to deliver a Purchase Notice if an Event and a Default
shall be continuing hereunder. Notwithstanding the foregoing, following the
expiration of the Purchase Option Period, Tenant shall be permitted to exercise
the Purchase Option, provided, however, that in addition to the Purchase Price,
Tenant shall pay to Landlord in addition to the Purchase Price, the Prepayment
Premium.
38.2. Any notice by which Tenant shall elect to purchase
Landlord's interest in the Premises shall specify a closing date, which shall be
a business day not less than sixty (60) days nor more than ninety (90) days
after the date of such notice and as to which time shall be of the essence as to
Tenant's obligation to close the transaction contemplated hereunder. Any such
conveyance shall be (i) with respect to the Fullerton Premises, by assignment
and assumption of Lease in form required by Landlord , the City of Fullerton and
any other Senior Interests and (ii) with respect to the Santa Ana Premises by
grant deed, without covenant, and shall be subject to all exceptions to title
then affecting the Premises except for monetary financing liens placed upon
Landlord's interest in the Premises. The conveyance shall be completely "AS IS,
WHERE IS, WITH ALL FAULTS," and Landlord shall make no representation or
warranty in connection with such conveyance (including, for purposes of this
clause, that it is the understanding of the parties that Tenant, and not
Landlord, shall deliver any Title Affidavit required by Tenant's title insurance
company. If Landlord shall timely tender to Tenant such a deed, and if Tenant
shall thereupon fail to accept such deed and pay the Purchase Price to Landlord
(together with any accrued Rent payable with respect to any period prior to the
date of closing), then (a) the Base Rent otherwise payable hereunder shall be
increased to be one-hundred fifty percent (150%) of the then current Base Rent.
38.3. Tenant shall be responsible for any transfer taxes (as
well as for any title charges or other miscellaneous closing expenses) payable
in connection with any conveyance by Lessor to Lessee pursuant to this Article
39.
38.4. Upon conveyance by Landlord to Tenant pursuant to this
Article 39, Tenant shall accept the Premises in its then "as is" condition, and
Landlord shall not be
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deemed to have made any representation or warranty, or to have assumed any
ongoing responsibility of any kind whatsoever, in connection with any such
conveyance.
38.5. Upon any conveyance by Landlord to Tenant pursuant to
this Article 39, this Lease shall not terminate, but (a) Tenant shall succeed to
all rights and obligations of Landlord arising under this Lease from and after
the date of such conveyance and (b) as between Landlord and Tenant, the Rent
shall be apportioned as of the date of such conveyance.
39.6 Subject to the last sentence of Section 39.1, if Tenant
shall not have delivered to Landlord a Purchase Notice on or prior to the last
day of the Purchaser Option Period, then this Article 39 shall no longer be of
any further force or effect and shall be deemed deleted from this Lease and
Tenant shall not have any right to exercise the Purchase Option.
ARTICLE 39
PUT OPTION
39.1. Landlord shall have the unqualified right to sell,
transfer and/or assign to Tenant all of its rights, title and interest under
this Lease and in the Land and the Premises demised hereby (the "PUT OPTION")
during the period (the "PUT OPTION PERIOD") beginning on the date Landlord first
receives actual notice of any of the following events and ending on the date
which is sixty (60) days thereafter: (a) Tenant or any affiliate of Tenant
receives private debt financing in excess of $95,000,000 (a "PRIVATE DEBT
FINANCING"); (b) Tenant or any affiliate of Tenant enters into a private or
public equity financing in excess of $20,000,000; (c) an Event of Default occurs
hereunder; (d) a Major Casualty occurs with respect to either the Santa Ana Land
and the Improvements thereon or the Fullerton Land and the Improvements thereon,
or (e) Tenant elects to terminate this Lease pursuant to Section 17.3 hereof.
39.2. Notwithstanding the foregoing, in the event that (i)
Tenant elects to deliver notice (a "PRIVATE FINANCING NOTICE") to Landlord that
Tenant intends to proceed with a Private Debt Financing and (ii) such Private
Financing Notice is delivered not later than twenty-one (21) days prior to
closing on such Private Debt Financing, then, in such event (x) the "Put Option
Period" for purposes of such Private Debt Financing shall be the twenty-one (21)
day period following delivery of such Private Financing Notice, (y) Landlord
shall have the right to deliver a Put Option Notice during such period and (z)
if Landlord does not so deliver a Put Option Notice during such period then
Landlord shall not have the right to deliver a Put Option Notice following the
closing of such Private Debt Financing; provided, however, if Tenant has not
closed on such Private Debt Financing which was the subject of such Private
Financing Notice within ninety (90) days after delivery of such Private
Financing Notice, then (A) if Tenant intends to continue with such Private Debt
Financing, then Tenant shall deliver to Landlord another Private Financing
Notice regardless of whether Landlord delivered a Put Option Notice, (B) if
Tenant does not so deliver another Private Financing
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Notice then the provisions of 40.1 (a) and 40.3 shall be applicable to such
Private Debt Financing and (C) the provisions of Section 40.1 and 40.3 shall be
applicable to any other Private Debt Financing, subject to the provisions of
this Section 40.2 if Tenant complies with the terms hereof.
39.3. If at any time Landlord shall elect to exercise the Put
Option during any Put Option Period, then Landlord shall deliver written notice
to Tenant (a "PUT OPTION NOTICE") declaring that Landlord has exercised the Put
Option, in which event Tenant shall be obligated to acquire Landlord's interest
("LANDLORD'S INTEREST") in the Land and Premises for an amount equal to the
Purchase Price plus the Prepayment Premium, with the same force and effect as if
Tenant delivered a Purchase Notice under Article 39 hereof, except that (i)
Section 39.6 shall not be applicable and (ii) failure to pay the Purchase Price
to Landlord as required hereunder, within sixty (60) days after Landlord
delivers a Put Option Notice shall be an Event of Default hereunder; provided,
however, Tenant shall not be obligated to pay the Prepayment Premium if (x) the
event giving rise to the Put Option is set forth in Sections 40.1(a) or 40.1(b)
and (y) such event occurs during the Purchase Option Period.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement of Lease as of the day and year first above written.
LANDLORD:
SCC I LLC, a Delaware limited
liability company
By: /s/ Brian Collins
-------------------------------
Name: Brian Collins
Title: Authorized Officer
TENANT:
THE SPORTS CLUB COMPANY, INC.
a Delaware corporation
By: /s/ John Gibbons
- - --------------------------------- -------------------------------
Federal Identification Number Name: John Gibbons
Title:President
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