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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended DECEMBER 31, 1998.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act for the transition period from _______to_______.
COMMISSION FILE NUMBER: 1-13290
THE SPORTS CLUB COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-4479735
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11100 Santa Monica Blvd., Suite 300
Los Angeles, California 90025
(Address of registrant's principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(310) 479-5200
Securities registered pursuant to Name of each exchange on
Section 12(b) of the Act: which registered
Title of each class
Common Stock $.01 par value American Stock Exchange
Securities registered pursuant to None
Section 12(g) of the Act:
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 15, 1999 was $31,548,895.
The number of shares of the Common Stock, par value $ .01 per share, outstanding
(the only class of Common Stock of the registrant outstanding) was 18,819,932 on
March 15, 1999.
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PART I
ITEM 1. BUSINESS
GENERAL
We were organized in 1994 to consolidate the ownership of several sports
and fitness clubs ("Clubs"). We currently operate thirteen Clubs, under the
"Sports Club" and "Spectrum Club" names, including The Sports Club/LA and Reebok
Sports Club/NY. Our Clubs offer a wide range of fitness and recreation options
and other amenities, and are marketed to affluent, health conscious individuals
who desire a service oriented state-of-the-art club.
Our Clubs are conveniently located in spacious, modern facilities that
typically include fitness centers, swimming pools and basketball courts. Our
premier Clubs, Sports Clubs, are designed as "urban country clubs," offering a
full range of services including private trainers, registered nutritionists,
exercise classes, and various other amenities including physical therapy, spas,
salons, activewear boutiques, restaurants, cafes, sports bars, childcare,
laundry/dry cleaning services, valet parking and executive locker rooms. Sports
Club facilities range in size from 90,000 to 140,000 square feet. We have four
Sports Clubs located in Los Angeles and Irvine, California, New York, New York
and Las Vegas, Nevada. The Spectrum Clubs are typically housed in 25,000 to
65,000 square foot facilities and offer many of the amenities listed above. We
have nine Spectrum Clubs that are all located in Southern California. Initiation
fees and monthly membership dues at Sports Clubs are higher than those at
Spectrum Clubs, and initiation fees and monthly membership dues at all Clubs are
higher than those charged by most other sports and fitness clubs, which we
believe do not provide comparable services. Income from ancillary services and
products, including private training, food and beverages and sports boutiques,
also contribute a significant portion of our revenues. Our subsidiary, The
SportsMed Company ("SportsMed"), operates physical therapy facilities in some
Clubs.
Our strategy is to expand the Sports Club franchise in major metropolitan
markets and to increase revenues and profitability at existing Clubs, through
regular increases in monthly membership dues and expanded ancillary services and
products. There are currently six Sports Clubs under development in New York
City (in Rockefeller Center and in the upper east side), Washington, D.C., San
Francisco, Boston and Houston. We expect to open these Clubs from late 1999
through 2001. We are currently developing three Spectrum Clubs in Southern
California. We will continue to investigate other sites for new Club
developments.
According to the International Health, Racquet & Sportsclub Association
("IHRSA"), the industry's leading trade organization, 20.8 million Americans
were members of more than 13,000 sports and fitness clubs in 1998. Revenues
generated by the United States sports and fitness club industry increased at a
compound annual rate of 8.6% from $5.5 billion in 1991 to $9.0 billion in 1997.
The industry has benefited from the general public's increasing awareness of the
importance of physical exercise. We target members age 35 and older who,
according to IHRSA, represent 47% of all memberships and are the fastest growing
segment of the industry.
THE SPORTS CLUBS
Sports Clubs are 90,000 to 140,000 square foot multi-purpose facilities,
which generally include the following features:
o large, fully equipped gyms with state-of-the-art fitness equipment,
including weight training and cardio-vascular equipment,
o basketball, volleyball, racquetball, squash and paddle tennis courts
and, in the case of The Sports Club/Las Vegas, indoor tennis courts,
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o aerobics/exercise rooms featuring classes throughout the day and
evening, seven days a week, including aerobics, dance, Step Reebok,
yoga and karate,
o stationary bicycles used in an aerobic class environment, and, in
the case of Reebok Sports Club/NY, climbing walls,
o swimming pools, golf practice nets and running tracks,
o men's and women's locker rooms featuring wood lockers,
o complete spa areas with steam rooms, saunas, jacuzzis and
professional massage,
o restaurants, sports bars, private dining/conference rooms, media
centers and sundecks,
o valet parking, pro shops, hair salons and childcare services,
o sports medicine and physical therapy facilities,
o personal trainers to develop and supervise members' exercise
routines,
o PTS Private Training System nutritional programs and products,
o interactive children's classes, as well as supervised age-specific
junior recreational rooms and junior programs such as gymnastics,
o instruction in racquet sports, golf and swimming,
o full-time activities directors responsible for social and media
events for members, including organizing trips, lectures and charity
events,
o full-time sports coordinators who organize sports tournaments,
leagues and classes, and
o wellness protocols such as exercise regimens designed for specific
groups of members.
We currently have four Sports Clubs in operation. The Sports Club/LA
opened in 1987 in west Los Angeles, California, near the affluent communities of
Santa Monica, Brentwood, Beverly Hills, Westwood and Century City. The Sports
Club/Irvine opened in 1990 near Newport Beach in Orange County, California.
Reebok Sports Club/NY opened in 1995 in Manhattan's upper west side, and was
developed in partnership with a subsidiary of Reebok International, Ltd.
("Reebok") and Lincoln Metrocenter Partners, L.P. (collectively with its
affiliates "Millennium"). We manage the operations of this Club and own a
controlling 60% interest in the partnership that owns this Club. Reebok and
Millennium have each retained an interest in the partnership. We acquired a club
in Henderson, Nevada and converted it to The Sports Club/Las Vegas in August
1997. The Sports Club/Las Vegas services the rapidly growing Las Vegas market
and is situated approximately three miles east of the Las Vegas airport.
THE SPECTRUM CLUBS
We currently operate Spectrum Clubs at nine locations in Southern
California. While more limited in size and offering fewer social and
recreational options than Sports Clubs, Spectrum Clubs are generally housed in
relatively large facilities containing modern equipment and offer members
personalized training and instruction.
o Spectrum Clubs typically range in size from 25,000 to 65,000 square
feet, include full coed weight training rooms, computerized
cardiovascular centers, aerobics and exercise classrooms, locker
rooms, private training, child care, juice bars and towel service.
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o Certain of the Spectrum Clubs also offer swimming pools, childcare,
pro shops, basketball courts, racquetball courts, spa facilities,
physical therapy facilities, volleyball, martial arts, dance and
children's and seniors' programs.
o We own 100% of eight of the currently operating Spectrum Clubs. We
are the sole general partner and manager and receive, as our equity
interest, 46.1% of the net income generated by the operation of the
Spectrum Club - Manhattan Beach.
THE SPORTSMED COMPANY, INC.
Our SportsMed subsidiary operates physical therapy facilities within The
Sports Club/LA, The Sports Club/Irvine, the Spectrum Club - Agoura Hills, and
the Spectrum Club - Valencia. SportsMed also operates in a stand alone facility
in Calabasas, California. The clinics are staffed by exercise physiologists,
physical therapists and nutritionists who provide services to members and
others. A physician-owned company provides medical services and pays a
management fee to SportsMed. We believe that SportsMed provides valuable
services which are complementary to the other services provided by the Clubs,
and are considering expanding the SportsMed concept to other Clubs in the
future.
DEVELOPMENT OF ADDITIONAL CLUBS
Current Sports Club Developments. The following outlines our current
development plans for Sports Clubs.
Rockefeller Center, New York. This 89,000 square foot Club is located at
the Rockefeller Center Commercial Complex in midtown Manhattan and is expected
to be opened in late 1999.
Upper East Side, New York. This 140,000 square foot Club is located in the
upper east side of Manhattan and is expected to be open in early 2000. This site
is the location of the former Vertical Club, which was closed in February for
major renovation and conversion to a Sports Club.
The demographics in the vicinity of our New York developments compare
favorably to the demographics of our existing Club in the upper west side of
Manhattan, Reebok Sports Club/NY.
Millennium Developments. We are developing Sports Clubs in Boston,
Washington, D.C. and San Francisco with Millennium, with whom we developed
Reebok Sports Club/NY. Millennium is a developer of premier multi-use projects,
and is significantly funded by Quantum Realty Fund, a member of the Quantum
Group of Funds, which are off-shore investment funds managed by Soros Fund
Management, a management firm headed by George Soros. These Clubs will be
located in projects developed by Millennium in prime, metropolitan locations
which, like Reebok Sports Club/NY, include commercial, retail, entertainment and
residential space. In addition, each of these developments is expected to
include a five star hotel. These Clubs will be in the 80,000 to 100,000 square
foot size range and will offer services typically found at our other Sports Club
sites. We expect to open these Clubs in late 2000 and 2001. We believe that such
projects offer ideal locations for Sports Clubs and intend to investigate
additional Sports Club developments with Millennium or other developers in other
major metropolitan areas.
The Sports Club/Houston. In June 1998, we acquired approximately 3.5 acres
of undeveloped land in Houston, Texas, on which we expect to develop an
approximately 85,000 square foot Sports Club.
Current Spectrum Club Developments. We have entered into leases with
respect to three Spectrum Clubs in Southern California. Each Club would be
approximately 55,000 square feet. We currently expect that these Clubs will open
in late 1999 and early 2000. In January 1999, we acquired the membership rights
of a sports and fitness club located near Thousand Oaks, California, for
$650,000. We have moved most members of this club, which closed in January 1999,
to the Spectrum Club - Thousand Oaks.
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Other Developments. We currently believe that our resources can be best
used to develop new Sports Clubs, but we may consider the acquisition and
conversion of an existing sports and fitness club to a Sports Club or Spectrum
Club or the development of additional Spectrum Clubs if a suitable opportunity
arises. We believe that, because of our established reputation and the prestige
associated with the Sports Clubs and the Spectrum Clubs, developers view our
Clubs as valuable components of multi-use developments.
Performance of Newly Developed and Acquired Clubs. Based on our
experience, a newly developed Club tends to achieve significant increases in
revenues until a mature membership level is reached. Recently opened Clubs which
have not yet achieved mature membership levels have operated at a loss or at
only a slight profit during this period as a result of fixed expenses which,
together with variable operating expenses, approximate or exceed membership fees
and other revenues. While we anticipate that these types of losses will be
incurred in the future as a normal part of our operations, we believe that our
income from newer Clubs will significantly increase as membership levels mature.
The physical layout, decor, age of equipment, staff training, marketing
programs, membership fees, ancillary services offered and other characteristics
of Clubs we acquire may vary, and, as a result, acquired Clubs may have lower
operating income than a typical Club. We generally will renovate an acquired
Club, upgrade equipment, fitness programs and exercise protocols, install
experienced employees, implement marketing and training programs, and introduce
new services and products to enhance ancillary revenues. We will also implement
membership fees consistent with other Clubs. Newly acquired Clubs undergoing
such improvements may perform at lower margins during the period of
implementation of new policies and programs.
Disposition of Spectrum Clubs. From time to time, we have disposed of
Spectrum Clubs. The Spectrum Club - Santa Monica was closed in November 1998,
upon expiration of the lease for the property, and many of its members were
moved to the Spectrum Club - Water Garden. We subleased the Spectrum Club -
Fountain Valley to another health and fitness club operator in January 1999. In
February 1999 we entered into an agreement to sell the Spectrum Club - Santa
Ana.
SALES AND MARKETING
Strategy. The Sports Clubs are marketed as "urban country clubs" offering
personalized attention and multiple amenities and services. We believe that the
image of these Clubs as leaders in the sports and fitness industry justifies
charging a premium. Our members include professionals, sports and entertainment
personalities and business people. The Spectrum Clubs emphasize personalized
service and instruction and the creation of an "urban country club" atmosphere
in which members can relax and socialize. The cost of Spectrum Club membership
(in terms of both initiation fees and monthly membership dues) is less than
membership at Sports Clubs and, within the Southern California market, we
believe the Spectrum Clubs offer as many services and are as luxurious and
aesthetically-pleasing as any other sports and fitness club with which they
compete.
Our marketing efforts at older, more seasoned Clubs emphasize maintaining
existing members, replacing members who leave with new members and increasing
ancillary revenues such as private training and retail sales. Our focus at the
newer Clubs is on attracting additional members.
Referrals, Endorsements and Advertising. Word-of-mouth referrals and
endorsements by existing members are the Clubs' most important source of new
members. In addition, all Clubs utilize targeted marketing programs which
include advertisements, promotions, public relations and community events. The
principal marketing media for the Clubs are direct mail with some use of print
advertisements. The print advertisements are supplemented by special events and
special membership programs. The Clubs host corporate parties and charity
benefits and often donate free or discounted memberships to charitable
organizations. We also conduct periodic membership drives whereby referring
members are entitled to receive special gifts and other incentives. We believe
that we will be able to continue to utilize these marketing strategies in the
promotion of new Clubs.
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Targeted Members. The largest segment of the membership base for the Clubs
consists of health-conscious individuals. We target five other groups in order
to expand membership: corporate members, "shape-over" members, medical
referrals, families, and seniors. Each of these groups requires specialized
exercise/fitness programs, and we have developed specific programs to attract
members of these groups.
Corporate Programs. We believe the corporate market is a significant
source of new members, due to the proximity of the Clubs to business centers and
the use of the Clubs to conduct business and to develop and maintain business
contacts. We target the corporate membership market primarily through the Sports
Clubs. Sports Clubs employ several Corporate Membership Directors whose
principal responsibilities are to solicit corporate memberships from businesses
operating in the vicinity of Sports Clubs. Sports Clubs offer corporate
group-discounted initiation fees depending upon the number of new members
involved. Our SportsMed subsidiary has developed several corporate wellness
programs to fit the needs of this particular market. We believe that
corporations are favorably disposed to Sports Clubs and the SportsMed programs
because of the positive impact regular exercise and overall fitness can have on
employee absenteeism, morale and productivity.
Shape-Over Programs. We believe that the image of the Clubs as
multiple-amenity facilities which offer members numerous social and
less-rigorous exercise options will help us attract prospective members who do
not currently exercise regularly. Our shape-over program is intended to attract
those people who are "out of shape" but who are interested in pursuing a regular
exercise regimen. Prospective members are given a free, introductory fitness
consultation with Club instructors, which covers nutritional and dietary
suggestions, personalized fitness programs and home exercise plans. In addition,
the Clubs have group aerobics classes that are specially designed for this
target group.
Medical Referrals. We target members from the medical referral market
through our SportsMed subsidiary by offering specific rehabilitation and
exercise protocols to complement other forms of physical therapy recommended by
a physician or medical group.
Family Programs. We believe that the children/family market has
considerable potential, as younger members grow older, marry and have children,
and seek recreational activities in which the entire family can participate. To
target the family market, we have implemented "KidFit" and "TeenFit" programs
which target children between the ages of 5 and 17 and involve both one-on-one
private training and a six-week fitness training program. The Clubs'
weight-training facilities are made available to children 13 and older at
off-peak hours, and specially-designed movement classes utilizing a variety of
fitness equipment are offered to younger children. The Clubs offer a summer
sports camp, provide individualized sports instruction and offer multiple
fitness activities such as gymnastics, martial arts and dance that are age
appropriate.
Senior Programs. We anticipate that as the current core membership group
ages, we will meet the changing fitness needs of seniors and attract additional
members from the senior population. We maintain training and exercise protocol
manuals for the senior market (which we generally define as members who are over
60 years old) which include a description of exercise and fitness programs
specifically designed for seniors. These manuals also contain discussions of the
biological, psychological and medical aspects of aging and the benefits of
regular exercise. We believe this market will expand as the "baby boomers"
mature.
EMPLOYEE TRAINING
We believe that a key component of our operating strategy is a
well-trained and knowledgeable staff. We have comprehensive training programs to
enhance the effectiveness of our personnel. All newly-hired employees are
required to attend an orientation seminar, which is led by members of our
management and a personnel instructor. Topics include member service and member
interaction skills, our history and philosophy, and safety issues. These
orientation seminars are held throughout the year.
To aid in the development and continuing education of management
employees, we offer a workshop entitled "Introduction to Management," for
newly-hired management personnel and other
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employees demonstrating management skills. The workshop is intended to educate
participants in the areas of people and time management; hiring, developing,
training and evaluating employees; sales and marketing strategies; and safety
concerns. Topics are added periodically to reflect new management techniques or
operating issues. These seminars, generally consisting of five three-hour
sessions, are held six times a year or as needed for new employees, and our
management personnel are required to attend periodically to maintain their
skills.
We provide additional seminars specifically designed for targeted employee
groups. Seminars providing specialized instruction for program directors,
private trainers, aerobics teachers and sales/marketing personnel are offered at
various times during the year, for which attendance on the part of newly-hired
personnel within the applicable employee group is mandatory. We place particular
emphasis on sales/marketing training seminars, which are given once every two
months by a personnel instructor and in which all new membership directors
complete 20 hours of participation and all other membership directors are
expected to complete four hours of participation every two months. Our fitness
instructors are trained to assist in the sales function and to implement fitness
testing and individually-tailored exercise programs. Most instructors are
college-educated. Our aerobics instructors must have at least one year of
teaching experience before they are permitted to teach at the Clubs, and are
required to participate in ongoing training and periodic re-evaluation.
MEMBERSHIP PROGRAMS
Club memberships require a one-time initiation fee plus monthly membership
dues. Unlike many other clubs, we do not offer financing for memberships.
Members electing to pay their Club dues on a monthly basis must pay by EFT, by
which each member is automatically debited each month for dues either through a
checking account or credit card. Prepaid memberships for an entire year entitle
the member to a discount equal to one month of membership dues. Approximately
70% of monthly membership dues are paid via EFT and the remaining 30% of monthly
membership dues are prepaid for twelve months. At established Clubs, the average
life of a Sports Club membership is four to five years while the average life of
a Spectrum Club membership is approximately three years.
Sports Club Memberships. Sports Clubs offer three types of memberships:
executive, health and racquet. Sports Club initiation fees and monthly
membership dues vary depending on the location of the Club. The Sports Clubs'
initiation fees range from $400 to $2,500 and monthly membership dues range from
$88 to $180. Corporate memberships are also available.
Executive Membership. Executive membership offers the greatest number of
amenities and services, including unlimited use of all facilities, racquet
sports privileges, personal locker assignments within an executive locker room,
laundry service, free valet parking and charge privileges for dining and other
Club services. Executive membership entitles a member to use all Sports Clubs.
Health Membership. Health membership is the basic membership offering
unlimited use of all facilities excluding those privileges associated with a
racquet membership; courts are available to holders of health memberships for an
additional fee.
Racquet Membership. Racquet membership is currently only offered at The
Sports Club/Irvine and The Sports Club/Las Vegas and, in addition to use of the
Club's facilities, includes the unlimited use of racquetball, squash and paddle
tennis courts at The Sports Club/Irvine, and tennis at The Sports Club/Las
Vegas.
Spectrum Club Memberships. Spectrum Clubs generally offer racquet and
health memberships. The Spectrum Club - Fullerton currently offers executive
memberships. At some Spectrum Clubs, lockers may be rented by members on a
monthly basis for an additional charge. As members of the IHRSA, Spectrum Clubs
extend guest membership privileges to out-of-town visitors who are members of
IHRSA clubs in their hometown, and Spectrum Club members may use IHRSA clubs in
cities to which they travel. Spectrum Club initiation fees are generally $325.
Monthly membership dues are generally $57 for health
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membership, $67 for racquet membership and $62 for an all club membership
allowing members unlimited use of all Spectrum Clubs.
COMPETITION
Although the sports and fitness industry is still fragmented, the industry
has experienced significant consolidation in recent years and certain of our
competitors are significantly larger and have greater financial and operating
resources than we do. In addition, a number of individual and regional operators
compete with us in our existing and targeted markets. Many of these sports and
fitness clubs attract the same types of members targeted by Spectrum Clubs and
Sports Clubs. We also compete with recreational facilities established by
governments and businesses, the YMCA and YWCA, country clubs and weight-
reducing salons, as well as products and services that can be used in the home.
As the general public becomes increasingly aware of the benefits of regular
exercise, it is anticipated that additional sports and fitness businesses will
emerge. We believe that there will continue to exist a market for our Clubs and
that our operating experience, our highly visible image, the professionalism of
our staff and our state-of-the-art equipment and exercise facilities afford us
an advantage over our competitors. However, we may be unable to maintain our
membership fees or membership levels in areas where another sports and fitness
club offers competitive facilities and services at a lower cost to members.
TRADEMARKS AND TRADENAMES
The "Sports Club" name is generally not protectable under federal or state
trademark laws. We have registered our "flying lady" logo as a stand-alone
design and in combination with "The Sports Club/LA" and "The Sports Club/Irvine"
names under federal trademark laws. We have also registered "The Sports Club/LA"
name and logo in France, Germany, the United Kingdom and Japan and we are
awaiting final trademark approval in Australia. We hold a federal trademark for
the "Spectrum Club" name.
GOVERNMENT REGULATION
Our operations and business practices are subject to regulation at the
federal, state and, in some cases, local levels. State and local consumer
protection laws and regulations govern our advertising, sales and other trade
practices.
Statutes and regulations affecting the fitness industry have been enacted
or proposed in California, New York and Nevada, the states in which we currently
operate Clubs. Many other states into which we may expand have or likely will
adopt similar legislation. Typically, these statutes and regulations prescribe
certain forms and provisions of membership contracts, afford members the right
to cancel the contract within a specified time period after signing, require an
escrow of funds received from pre-opening sales or the posting of a bond or
proof of financial responsibility, and may impose numerous limitations on the
terms of membership contracts. In addition, we are subject to numerous other
types of federal and state regulations governing the sale of memberships. These
laws and regulations are subject to varying interpretations by a number of state
and federal enforcement agencies and courts. We maintain internal review
procedures in order to comply with these requirements, and believe that our
activities are in substantial compliance with all applicable statutes, rules and
decisions.
Under so-called state "cooling-off" statutes, a member has the right to
cancel his or her membership for a period of three to 10 days (depending on the
applicable state law) and, in such event, is entitled to a refund of any down
payment. In addition, our membership contracts provide that a member may cancel
his or her membership at any time for medical reasons or upon relocation of a
certain distance from the nearest Club. The specific procedures for cancellation
in these circumstances vary due to differing state laws. In each instance, the
canceling member is entitled to a refund of prepaid amounts only. Furthermore,
where permitted by law, a cancellation fee is due to us upon cancellation and we
may offset such amount against any refunds owed.
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EMPLOYEES
At January 31, 1999, we had approximately 2,250 employees, most of whom
are employed on a part-time basis in Club operating activities such as aerobics,
private training and food and beverage services. At January 31, we employed
approximately 800 full-time employees, approximately 250 of whom were sales
personnel or supervisory personnel involved in Club operations, and
approximately 50 of whom were in general and administrative functions. We are
not a party to any collective bargaining agreement with our employees. Although
we experience high turnover of non-management personnel, we have never
experienced any labor shortages nor had any difficulty in obtaining adequate
replacements for departing employees. We consider our relations with our
employees to be good.
ITEM 2. PROPERTIES
We own The Sports Club/Irvine, The Sports Club/LA (subject to a minority
interest held by D. Michael Talla), The Sports Club/Las Vegas and the Spectrum
Clubs in Agoura Hills, Thousand Oaks, Canoga Park and Fountain Valley including
all underlying real estate. The building and real property at the Spectrum Club
- - Santa Ana and the building at the Spectrum Club - Fullerton are leased with
a purchase option from Millennium. See "Certain Relationships and Related
Transactions." We also own land in Houston, Texas on which we plan to develop a
Sports Club. All other structures in which the Clubs are located are leased.
The following table provides certain information concerning our Clubs:
<TABLE>
<CAPTION>
YEAR OPENED
("O") OR
APPROXIMATE ACQUIRED OWN OR LEASE
CLUB SQUARE FEET ("A") EXPIRATION DATE RENEWAL OPTION
- ---- ----------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
The Sports Club/LA(1)................... 100,000 1994 A Own N/A
The Sports Club/Irvine.................. 130,000 1994 A Own N/A
Reebok Sports Club/NY(2)................ 140,000 1995 O 4/17/15 Three 14-year options
The Sports Club/Las Vegas............... 136,000 1997 A Own N/A
Spectrum Club - Manhattan Beach(3)...... 65,000 1987 O 2/28/02 Three 5-year options
Spectrum Club - Water Garden............ 25,000 1993 O 6/30/08 5-year option
Spectrum Club - Agoura Hills............ 30,000 1994 A Own N/A
Spectrum Club - Howard Hughes Center.... 36,000 1994 A 9/14/08 Two 5-year options
Spectrum Club - Valencia................ 57,000 1997 O 7/1/12 Two 5-year options
Spectrum Club - Fullerton(4)............ 121,000 1997 A Building 12/31/17 Two 10-year options
Land 4/11/35 N/A
Spectrum Club - Santa Ana(5)............ 75,000 1997 A 12/31/17 Two 10-year options
Spectrum Club - Canoga Park............. 85,000 1997 A Own N/A
Spectrum Club - Thousand Oaks(6)........ 54,000 1999 O Own N/A
Spectrum Club - Fountain Valley(7)...... 42,000 1997 A Own N/A
</TABLE>
- ----------
(1) D. Michael Talla, our Chairman and CEO, has the right to 49.9% of the
first $300,000 of annual operating income from the partnership which owns
The Sports Club/LA. See "Certain Relationships and Related Transactions."
(2) We are entitled to certain priority distributions from the partnership
which owns this Club. After payment of such priority distributions, we are
entitled to 60% of all additional profits. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity
and Capital Resources."
(3) We own a 46.1% interest in the Spectrum Club - Manhattan Beach.
(4) We lease the building and land from different parties.
(5) We have entered into an agreement to sell this Club. This sale is expected
to close in the second quarter of 1999. We intend to use the sale proceeds
to acquire ownership of Millennium's interest in this Club.
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(6) We expect to enter into a sale-leaseback agreement with respect to this
Club, which is expected to close in the second quarter of 1999.
(7) We have leased this Club to another sports and fitness club operator.
The building, improvements and personal property of The Sports Club/Irvine
secure a $4.4 million note bearing interest at a fixed annual rate of 6.0%. The
note requires quarterly principal payments of $125,000 with a balloon payment of
$4.0 million due on November 1, 1999. All assets of the Spectrum Club - Agoura
Hills secure a $2.5 million note which bears interest at a fixed annual rate of
8.5%. Monthly principal and interest payments of $20,107 are required through
the note's maturity in April 2024.
All of the Clubs maintain comprehensive casualty, liability and business
interruption insurance and Clubs located in California maintain a blanket $30.0
million earthquake insurance policy. We believe that our insurance coverage is
in accordance with industry standards. There are, however, certain types of
losses which may be either uninsurable or not economically insurable, and
insurance proceeds may not adequately compensate for all economic consequences
of any loss. Should a loss occur, we could lose both our invested capital and
our anticipated profits from the affected Clubs. Any such event could have a
material adverse effect on our operations.
10
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
MKDG/Rhodes SC Partnership and Sports Club, Inc. v. Agricultural Insurance
Company (Los Angeles Superior Court). At the time of the Northridge earthquake
on January 17, 1994, Agricultural Insurance Company ("Agricultural") provided
certain excess earthquake coverage for The Sports Club/LA. Certain of our
predecessors (the "SCLA Parties") were named insureds under the policy. The
Partners assigned to MKDG/Rhodes SC Partnership ("MKDG") all of their rights to
payments under the policy and retained no interest in any amounts paid by
Agricultural. A dispute arose under the policy and MKDG filed a complaint
against Agricultural, and Agricultural filed a cross-complaint against MKDG and
the SCLA Parties, alleging intentional misrepresentation (fraud), negligent
misrepresentation, breach of contract, breach of implied covenant of good faith
and fair dealing, rescission, money had and received, declaratory judgment and
indemnity. Agricultural seeks the return of amounts paid (approximately $3.0
million) plus punitive damages and attorneys fees. A demurrer was sustained
without leave to amend as to the claims for fraud and misrepresentation.
Agricultural has appealed the decision and the parties are awaiting a decision
before further proceedings are held in the trial court. An appraisal hearing
found that the loss suffered was less than the policy proceeds but greater than
the amount paid by Agricultural to date. Agricultural contends that portions of
the appraised loss are not covered by the policy, an issue to be determined by
the trial court. We will seek to be indemnified by MKDG for all damages and
costs incurred in this action, although no assurance can be made that MKDG will
indemnify us.
OTR v. Spectrum Club Liquidation, Inc. and The Sports Club Company, Inc.
(Orange County Superior Court). OTR and Spectrum Club Liquidation, Inc. ("SCLI")
entered into a lease with respect to a proposed development site in Anaheim
Hills, California, and we guaranteed SCLI's obligations under the lease. SCLI
sought to rescind the lease, and OTR brought this action for damages against
SCLI for breach of the lease and against us on the guarantee, seeking specific
damages in excess of $1.0 million and unspecified general damages. We believe
the claim is without merit and have filed a cross-complaint seeking rescission
of the lease on the basis of fraud, mistake and negligent misrepresentation.
Other Matters. We are also involved in various claims and lawsuits
incidental to our business, including claims arising from accidents and disputes
with landlords. However, in the opinion of management, we are adequately insured
against such claims and lawsuits involving personal injuries, and any ultimate
liability arising out of any such proceedings will not have a material adverse
effect on our financial condition, cash flow or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
Our Common Stock is traded on the American Stock Exchange ("AMEX") under
the symbol "SCY". The following table sets forth the quarterly high and low sale
prices for the Common Stock for the periods indicated, as reported by the AMEX.
<TABLE>
<CAPTION>
CALENDAR QUARTER PRICE RANGE OF COMMON STOCK
---------------- ------------------------------
HIGH LOW
-------- -------
<S> <C> <C>
Year Ended December 31, 1997:
First Quarter.............................................. $5.125 $2.625
Second Quarter............................................. 5.375 4.125
Third Quarter.............................................. 8.875 5.250
Fourth Quarter ............................................ 9.500 7.750
Year Ended December 31, 1998:
First Quarter.............................................. 9.250 8.250
Second Quarter............................................. 9.250 6.750
Third Quarter.............................................. 7.500 4.750
Fourth Quarter............................................. 6.063 3.750
Year Ended December 31, 1999:
First Quarter (through March 15, 1999)..................... 5.063 3.750
</TABLE>
As of March 15, 1999 we had approximately 55 stockholders of record. The
closing price of our Common Stock as reported by the AMEX on March 15, 1999, was
$4.375.
DIVIDEND POLICY
We have never declared or paid any dividends on our Common Stock and we do
not anticipate doing so in the foreseeable future. It is our present policy to
retain earnings for use in our operations and the expansion of our business. In
addition, our ability to pay cash dividends is limited by our current financing
agreements and may be similarly limited by future financing agreements.
12
<PAGE> 13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents our summary financial and operating data for
the fiscal years ended December 31, 1994 through 1998 and have been derived from
our consolidated financial statements, which have been audited by KPMG LLP,
independent certified public accountants. The summary financial and operating
data should be read in conjunction with, and is qualified in its entirety by
reference to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the notes
thereto appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994(1) 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME DATA:
Revenues ...................................................... $ 18,846 $ 34,659 $ 36,918 $ 61,154 $ 81,923
Operating expenses:
Direct ...................................................... 10,525 21,730 22,989 43,517 56,746
Selling, general and administrative ......................... 3,166 5,486 6,052 6,607 8,556
Depreciation and amortization ............................... 1,510 2,775 2,490 3,919 5,282
-------- -------- -------- ------- --------
Total operating expenses ............................... 15,201 29,991 31,531 54,043 70,584
-------- -------- -------- ------- --------
Income from operations ................................. 3,645 4,668 5,387 7,111 11,339
Other income (expense):
Interest .................................................... (1,213) (2,600) (2,682) (3,206) (1,629)
Minority interests (29) (150) (150) (22) (150)
Equity interest in net income of unconsolidated
subsidiaries .............................................. 641 860 631 696 880
Non recurring items ......................................... --- -- (300) (2,025) (314)
-------- -------- -------- ------- --------
Total other income (expense) (601) (1,890) (2,501) (4,557) (1,213)
-------- -------- -------- ------- --------
Income before income taxes and extraordinary charge 3,044 2,778 2,886 2,554 10,126
Provision for income taxes .................................... 1,244 1,139 1,183 1,014 3,971
-------- -------- -------- ------- --------
Net income before extraordinary charge ................. 1,800 1,639 1,703 1,540 6,155
Extraordinary charge from early extinguishment of debt, net of
income tax effect of $1,331 ................................. -- -- -- -- 2,173
-------- -------- -------- ------- --------
Net income ............................................. $ 1,800 $ 1,639 $ 1,703 $ 1,540 $ 3,982
======== ======== ======== ======== ========
Net income per share:
Basic ....................................................... $ 0.23 $ 0.14 $ 0.15 $ 0.12 $ 0.21
======== ======== ======== ======== ========
Diluted ..................................................... $ 0.23 $ 0.14 $ 0.15 $ 0.12 $ 0.21
======== ======== ======== ======== ========
Net income per share before non-recurring items and
extraordinary charge: .......................................
Basic ....................................................... $ 0.23 $ 0.14 $ 0.17 $ 0.22 $ 0.35
======== ======== ======== ======== ========
Diluted ..................................................... $ 0.23 $ 0.14 $ 0.17 $ 0.22 $ 0.34
======== ======== ======== ======== ========
Weighted average number of common shares outstanding:
Basic ....................................................... 7,836 11,353 11,355 12,524 18,603
======== ======== ======== ======== ========
Diluted(2) .................................................. 7,836 11,357 11,360 12,683 18,829
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------
1994(1) 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents ..................... $ 5,042 $ 1,545 $ 4,146 $ 1,581 $ 2,233
Current assets ................................ 7,398 7,147 7,341 4,926 7,043
Property and equipment, net ................... 59,811 59,956 72,736 106,791 135,269
Total assets .................................. 81,676 83,161 95,697 131,561 163,757
Deferred membership revenue ................... 5,878 5,614 7,481 9,936 9,953
Current liabilities ........................... 11,194 11,355 14,159 26,844 26,199
Long-term debt including current installments.. 33,489 32,913 38,497 50,798 37,441
Stockholders' equity .......................... 37,823 39,492 41,202 58,477 104,539
</TABLE>
- ----------
(1) Prior to October 20, 1994, we operated through various partnerships and
corporations. Historical data for periods through October 20, 1994 have
been adjusted to reflect compensation and tax provisions as if we had
operated as a corporation during such period.
(2) Does not include up to 159,081 shares to be issued in 1999 as
consideration for the acquisition of Spectrum Clubs acquired from
Racquetball World.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto appearing elsewhere herein.
The operations of Reebok Sports Club/NY were accounted for under the equity
method of accounting until December 30, 1996, at which time we acquired a
majority interest in the Club. Following such date, we have consolidated the
operations of Reebok Sports Club/NY with our other consolidated operations. The
Spectrum Club - Manhattan Beach is accounted for under the equity method of
accounting.
In July 1997, we opened the Spectrum Club - Valencia. In August 1997, we
acquired a sports and fitness club in Henderson, Nevada which we converted to
The Sports Club/Las Vegas in a transaction accounted for as a purchase. On
December 31, 1997, we acquired four Clubs in Southern California in a
transaction accounted for as a purchase; one of these Clubs was leased to
another health and fitness operator in January 1999; the other three Clubs are
now operated as Spectrum Clubs. In November 1998 we closed the Spectrum Club -
Santa Monica. Seasonal factors have not had a significant effect on our
operating results.
RESULTS OF OPERATIONS
Fiscal 1998. Our revenues for the year ended December 31, 1998, were $81.9
million, compared to $61.2 million for 1997, an increase of $20.7 million or
33.8%. An increase of $14.6 million resulted from revenue at our new Clubs
acquired and/or opened during the last six months of 1997. Revenue growth of
$6.1 million resulted from the remaining Clubs and SportsMed.
Our direct operating expenses increased to $56.7 million for the year
ended December 31, 1998, compared to $43.5 million for 1997. The increase
resulted primarily from the Clubs acquired and/or opened during the last six
months of 1997. Direct operating expenses as a percentage of revenues decreased
to 69.3% for 1998 compared 71.2% for 1997. Operating margins continued to
improve at Reebok Sports Club/NY as membership levels at this Club continued to
mature. Lower operating margins at the recently acquired Clubs partially offset
this increase.
Selling, general and administrative expenses were $8.6 million for the
year ended December 31, 1998, compared to $6.6 million for 1997. Selling costs
increased approximately $900,000 primarily due to Clubs acquired and/or opened
during the last six months of 1997. General and administrative costs increased
by approximately $1.1 million as we added corporate overhead to support the six
new Clubs and the growth of SportsMed. Selling, general and administrative costs
decreased as a percentage of revenue from 10.8% for 1997 to 10.4% for 1998. We
believe these costs should continue to decrease as a percentage of future
revenues as we expand and achieve economies of scale. There is no assurance,
however, that said expansion or economies of scale will be achieved.
Depreciation and amortization expenses were $5.3 million for the year
ended December 31, 1998, compared to $3.9 million for 1997. The increase is
primarily due to the addition of depreciation and amortization at the Clubs
acquired and/or opened during the last six months of 1997. Interest expense was
$1.6 million for the year ended December 31, 1998, compared to $3.2 million for
1997. Interest expense decreased due to the payoff of the note secured by The
Sports Club/LA in April 1998 with the proceeds of a common stock offering.
Equity interest in net income of unconsolidated subsidiary was $880,000
for the year ended December 31, 1998, compared to $696,000 for 1997, an increase
of $184,000 or 26.4%. These amounts are associated with improved profits at the
Spectrum Club - Manhattan Beach operations.
Costs reported as non-recurring items were $314,000 for the year ended
December 31, 1998, compared to $2,025,000 for 1997. The non-recurring expense in
1998 is associated with our closing of the
14
<PAGE> 15
Spectrum Club - Santa Monica and moving its members to the Spectrum Club -
Water Garden. The non-recurring loss in 1997 was the result of a litigation
settlement.
Our net income before income taxes, non-recurring items and extraordinary
charge was $10.4 million for the year ended December 31, 1998, compared to $4.6
million for 1997. In 1998, we incurred a loss from the early extinguishment of
debt, net of applicable taxes, of $2.2 million, which was recorded as an
extraordinary charge.
Our estimated income tax rate was 38% for the years ended December 31,
1998 and 1997, resulting in net income of $4.0 million for 1998 and $1.5 million
for 1997. Basic and diluted earnings per share, before non-recurring items and
extraordinary charge, was $.35 and $.34 in 1998 and $.22 and $.22 in 1997,
respectively. Basic and diluted net income per share was $.21 in 1998 and $.12
in 1997.
Fiscal 1997. Our revenues for the year ended December 31, 1997, were $61.2
million, compared to $36.9 million for 1996, an increase of $24.3 million or
65.9%. The increase resulted from the following revenue sources: Reebok Sports
Club/NY, which was consolidated following the acquisition of a majority interest
in the Club on December 30, 1996, contributed revenues of $18.1 million; the
Spectrum Club - Valencia contributed revenues of $1.6 million; SportsMed
contributed revenues of $1.5 million; and growth at the remaining Clubs
contributed revenues of $900,000.
Our direct operating expenses increased to $43.5 million for the year
ended December 31, 1997, compared to $23.0 million for 1996. The increase
resulted primarily from the inclusion of operating expenses at Reebok Sports
Club/NY, the opening of the Spectrum Club - Valencia and the acquisition of The
Sports Club/Las Vegas. Direct operating expenses as a percentage of revenues
increased to 71.2% for 1997 compared to 62.3% for 1996 due to lower margins at
Reebok Sports Club/NY and the Spectrum Club - Valencia. Newly developed Clubs
historically operate at lower margins due to various fixed expenses such as
rent, utilities and certain payroll costs until the membership reaches a mature
level. Similarly, newly acquired Clubs may also perform at lower margins prior
to and during implementation of new policies and programs.
Selling, general and administrative expenses were $6.6 million for the
year ended December 31, 1997, compared to $6.1 million for 1996. Selling costs
increased approximately $211,000 due to the consolidation of direct selling
expenses incurred at Reebok Sports Club/NY, the opening of the Spectrum Club -
Valencia and the acquisition of The Sports Club/Las Vegas. General and
administrative costs increased by approximately $300,000 due to increases in
corporate overhead and the addition of personnel to accommodate new Clubs.
Selling, general and administrative costs decreased as a percentage of revenue
from 16.4% for 1996 to 10.8% for 1997. This percentage decrease resulted from
the consolidation of Reebok Sports Club/NY revenues. The consolidation of
revenues from Reebok Sports Club/NY did not increase general and administrative
costs because we managed the Club and accrued these costs prior to the
consolidation.
Depreciation and amortization expenses were $3.9 million for the year
ended December 31, 1997, compared to $2.5 million for 1996. The increase was due
primarily to the consolidation of Reebok Sports Club/NY, the opening of the
Spectrum Club - Valencia and the acquisition of The Sports Club/Las Vegas.
Interest expense was $3.2 million in the year ended December 31, 1997, compared
to $2.7 million for 1996. Interest expense of $340,000 at Reebok Sports Club/NY
and interest on new equipment financings was partially offset by increased
interest income due to more available cash for investment and lower principal
balances as other indebtedness matured.
Equity interest in net income of unconsolidated subsidiary was $696,000
for 1997 compared to $631,000 for 1996. These amounts are associated with the
Spectrum Club - Manhattan Beach's operations and the increase reflects our
share of the improved profitability at that Club. Equity in the operations of
Reebok Sports Club/NY was not significant for 1996.
Our net income before income taxes and non-recurring items was $4.6
million for the year ended December 31, 1997 compared to $3.2 million for 1996.
Non-recurring items for 1997 consisted of litigation
15
<PAGE> 16
settlement costs of $2.0 million relating to the closing of the Spectrum Club -
Century City in July 1995. Non-recurring items for 1996 were $300,000.
Our income tax rate was 38% for the year ended December 31, 1997, and 41%
for 1996, resulting in net income of $1.5 million for the year ended December
31, 1997, compared to net income of $1.7 million in 1996. After tax net income
before non-recurring items was $2.8 million for 1997, compared to $1.9 million
for 1996. The lower tax rate for 1997 resulted from the reduction of valuation
allowances on certain deferred income tax assets. Basic and diluted earnings per
share were $.12 and $.15 for the years ended December 31, 1997 and 1996,
respectively. Basic and diluted earnings per share excluding non-recurring
items were $.22 and $.17 for the years ended December 31, 1997 and 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1998, we generated $10.0 million of
cash from operating activities, compared to $4.5 million in fiscal 1997. At
December 31, 1998, we had a cash balance of $2.2 million available for general
corporate purposes.
During 1998, we generated $26.1 million of cash from financing activities.
In April 1998, we completed the sale of 6,500,000 shares of our common stock and
realized net proceeds of $48.7 million. A portion of these funds was used to
repay indebtedness. During 1998 we reduced our long-term debt by $13.4 million.
Cash flows used in investing activities were $35.4 million in 1998. We
invested $28.6 million in capital expenditures for both existing Clubs and new
Club developments and we repurchased $6.8 million of our common stock at an
average price of $6.14 per share. In 1999, we authorized the repurchase of an
additional $4.0 million of our common stock, $3.4 million of which has been
repurchased to date.
Transactions with Millennium. We currently own a 60% interest in the
Reebok-Sports Club/NY partnership. The Reebok-Sports Club/NY partnership makes
monthly payments of $75,000 to repay the equipment loan and $167,000 to
Millennium as rent. Available cash flows of the Reebok-Sports Club/NY
partnership are applied as follows: (1) $3.0 million per year is used to pay a
priority distribution to Millennium which is accounted for as additional rent
expense; and (2) remaining cash is distributed to us as accrued management fees,
to satisfy the $3.0 million note payable and as a priority distribution, which
at December 31, 1998 aggregated $11.0 million. After these amounts plus interest
thereon are paid, we are entitled to 60% of future cash distributions.
In December 1997, we acquired four Clubs from Racquetball World. Three of
these Clubs are now operated as Spectrum Clubs, and one Club was leased to
another health and fitness operator in January 1999. Millennium acquired
properties underlying two of the Clubs for $10.0 million and is leasing these
properties to us under a financing lease agreement which is reflected as a
capital lease obligation on our consolidated balance sheet. We have the right
until December 2000 to purchase the leased property from Millennium for a
purchase price determined pursuant to the lease (currently estimated to be
approximately $10.2 million). Millennium has the right under certain
circumstances to require us to acquire its interest in the property. See
"Certain Relationships and Related Transactions." We have entered into an
agreement to sell one of these Clubs and intend to purchase Millennium's
interest in these properties with the sale proceeds.
We are also developing three Clubs with Millennium as described below in
"New Club Development."
New Club Development. In February 1998, we signed a lease with respect to
the development of a Sports Club at Rockefeller Center in New York City. We have
begun to renovate the space and expect to commence pre-sale activities in late
1999 and to open the Club in the last quarter of 1999. We delivered a $4.0
million letter of credit to the landlord to secure our performance under the
lease agreement. Based on preliminary estimates, we expect to spend
approximately $15.7 million to complete development of this Club.
16
<PAGE> 17
In April 1998, we acquired rights to develop a Sports Club on the site of
the former Vertical Club in New York City. We issued a non-interest bearing note
for $2.7 million to the seller of the Club, and are required to pay principal in
two equal installments in April 1999 and April 2000. Based on preliminary
estimates, we expect to spend approximately $25.6 million to complete
development of this Club.
We have entered into lease agreements with Millennium with respect to the
development of Sports Clubs in San Francisco and Washington, D.C., and are
negotiating a lease with Millennium for a Sports Club in Boston. Millennium
began construction on each of these projects in 1998. Our portion of the
aggregate development costs for these Clubs is currently estimated to be
approximately $16.5 million.
In June 1998, we acquired undeveloped land in Houston, Texas, for
approximately $3.1 million, on which we intend to develop a Sports Club. Based
on preliminary estimates, we expect to spend approximately $19.3 million to
complete development of this Club.
We are developing three Spectrum Clubs on leased sites in Southern
California which are expected to open in late 1999 and early 2000. Based on
preliminary estimates, we expect to spend approximately $4.3 million to complete
development of these Clubs.
Financing Activities. We currently have a $30.0 million credit facility
which will expire May 31, 2000. In March 1999, we announced that we are
privately offering $100.0 million of senior secured notes (the "Offering"). If
the Offering is consummated, our credit facility would be reduced to $20.0
million and the maturity date would be extended to May 31, 2001. Advances under
our credit facility bear interest at a variable rate equal to LIBOR plus 2.5% or
the lender's prime rate. At December 31, 1998, the amount outstanding under our
credit facility was approximately $10.9 million which accrued interest at the
weighted-average rate of 7.75% per annum.
The net proceeds of the Offering would be used to repay approximately
$34.0 million of debt, to provide funds for future developments and for general
corporate purposes. Debt would be repaid as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
o The Sports Club/Irvine note............................... $ 4.3
o the Spectrum Club - Agoura Hills note..................... 2.5
o capital leases payable to Millennium related to Spectrum
Clubs in Fullerton and Santa Ana......................... 10.2
o outstanding borrowing under our credit facility........... 17.0
-----
$34.0
=====
</TABLE>
Future Capital Requirements. Other than as described herein and for normal
replacement of fitness equipment and remodeling of Clubs, we have no commitments
for capital expenditures. We expect to spend approximately $1.2 million during
the next 12 months to upgrade our management information systems. Equipment
financing has generally been available. We had equipment financing of $7.2
million outstanding at December 31, 1998. Amounts borrowed pursuant to equipment
financing arrangements are generally repayable in monthly installments over five
years, with effective interest rates between 8% and 10% per annum. While capital
expenditures may fluctuate from time to time, generally we expect to spend
approximately 4% of revenues on facility and equipment upgrades and
replacements. In 1998, we invested $16.7 million in capital expenditures at
existing Clubs, which included $11.7 million of major renovations at the five
Clubs we acquired in 1997. Equipping new Clubs requires expenditures above this
level.
Our long-term capital needs are to provide funds for the developments
described above, for additional development and acquisition projects and for
general corporate purposes. We estimate that the net proceeds of the Offering,
operating cash flows, and credit to be available under our credit facility and
equipment financing would be sufficient to fund our capital expenditures in
fiscal 1999 and 2000 on the projects currently under development. Acquiring and
developing additional Clubs will require additional capital. If the Offering is
not consummated, we will require additional financing to complete development of
the clubs described above. There can be no assurance that such financing will be
available. If such
17
<PAGE> 18
financing could not be obtained, we would have to delay or eliminate certain
developments, which could have a material adverse effect on us. In addition, if
certain conditions are met, the terms of the Offering and our credit facility
may permit us to incur additional indebtedness. We may also consider entering
into joint venture and partnership agreements for the purpose of developing new
Clubs, subject to the terms of the Offering and our credit facility.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires that costs of start-up activities, including
organization costs and Club openings, be expensed as incurred. SOP 98-5 is
applicable to financial statements for fiscal years beginning after December 15,
1998. Restatement of previously issued financial statements is not permitted. In
the fiscal year for which SOP 98-5 is first adopted, the application should be
reported as a cumulative effect of a change in accounting principle. We will
adopt SOP 98-5 effective January 1, 1999, and, accordingly, will record a
one-time cumulative effect of a change in accounting principle, net of related
income taxes. The amount of this charge is currently expected to be
approximately $1.0 million.
YEAR 2000 READINESS
Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data, and
thus are unable to distinguish between the year 1900 and the year 2000. This
problem is frequently referred to as the "year 2000 problem." We have initiated
a Year 2000 Project to bring all of our information technology ("IT") systems
and non-IT systems into year 2000 compliance. Utilizing internal resources, we
are in the process of defining, assessing and converting, or replacing, various
programs, hardware and instrumentation systems to make them year 2000 compliant.
Our IT systems include our computer equipment and software relating to
membership, financial accounting and sales of products and services. Non-IT
systems include our communications systems, alarm and security systems,
elevators and fitness equipment. Our Year 2000 Project focuses on three IT
component systems as well as non-IT systems.
Membership Systems. The software programs we currently use to store
membership and fee collection data and to process EFT and credit card
transactions are not year 2000 compliant. We are installing a new system which
is year 2000 compliant, which we expect to be in service at The Sports Club/LA
and several other Clubs during the fourth quarter of 1999, and to be in service
in all Clubs by the end of the first quarter of the year 2000. Because we do not
anticipate installing the new membership system in all Clubs prior to the year
2000, we are also modifying our current membership systems to be year 2000
compliant. We expect these modified systems to be operational during the third
quarter of 1999.
Financial Accounting Systems. The supplier of the installed version of our
financial accounting system has orally represented to us that the system is year
2000 compliant. In addition, we are purchasing a newer version of this system
which we expect to have in place by the end of the second quarter of 1999. This
newer version is certified in writing to be year 2000 compliant.
Other IT Systems. We are currently reviewing all other IT systems for year
2000 compliance. Our food and beverage, sports boutique sales, private training
and most other services and products systems are not year 2000 compliant, but we
expect to replace or modify these systems to be year 2000 compliant during the
third quarter of 1999.
Non-IT Systems. We have requested vendors of our non-IT systems to advise
us if such systems are year 2000 compliant where we believe such assurance to be
necessary. We have received such assurances from vendors of certain systems,
such as elevators, and we do not believe that the failure of other non-IT
systems would have a material impact on us. We believe that we will be able to
replace or modify all significant non-IT systems which are not year 2000
compliant by December 1999.
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<PAGE> 19
Expense of Year 2000 Project. We currently estimate that we will expend
approximately $2.9 million to acquire new hardware and other equipment, acquire
new membership software, upgrade our existing membership software, update our
financial accounting software and make the other modifications to our IT systems
described above. Most of these expenses would be incurred in order to upgrade
our membership and accounting systems in the ordinary course of business. Of
this amount, $800,000 has been expended to date. This expenditure will include
new hardware and other equipment and software programs. We have not determined
what amounts we will expend to replace non-IT systems, but we do not expect such
costs to be material.
Third Party Systems. We believe that the only third parties whose year
2000 problems could have a material effect on us are financial institutions that
process our EFT and credit card transactions. We believe that these institutions
have completed, or will complete prior to year 2000, modifications to their
systems to insure year 2000 compliance; however, we are unable to test third
party systems.
Risks of Year 2000 Problems. The failure to correct a material year 2000
problem could interrupt our normal business activities or operations. We believe
that failures in our membership, financial accounting and food and beverage
systems, or performance by third parties with respect to EFT and credit card
transactions, could materially and adversely affect us. While we intend to test
systems supplied by third parties, such testing may not reveal all year 2000
problems. With the exception of certain critical non-IT systems which we have
been assured are year 2000 compliant, we do not believe that a failure of other
systems would have a material impact on us. Due to the general uncertainty
inherent in the year 2000 problem, resulting in part from the uncertainty of the
year 2000 readiness of third parties and the performance of systems represented
to us by vendors to be year 2000 compliant, we are unable to determine at this
time whether year 2000 failures will have a material impact on us. Although our
Year 2000 Project is not expected to significantly reduce our level of
uncertainty about year 2000 problems, including the year 2000 readiness of third
parties, we believe that completion of the Year 2000 Project will reduce the
possibility of significant interruptions of normal operations. A contingency
plan has not yet been developed for dealing with an interruption of a critical
system. We plan to develop and implement such a plan by the fourth quarter of
1999.
The costs of our Year 2000 Project and the dates on which we believe we
will complete the various phases of our Year 2000 Project are based upon our
management's best estimates, which were derived using numerous assumptions
regarding future events, including the continued availability of certain
resources, third party remediation plans and other factors. There can be no
assurance that these estimates will prove to be accurate, and actual results
could differ materially from those currently anticipated. Specific factors that
could cause such material differences include, but are not limited to, the
availability and cost of personnel trained in year 2000 issues, the ability to
identify, assess, remediate and test all relevant computer code and imbedded
technology, performance of new systems and equipment, the reduction of
productivity pending completion of employee training, the need to remediate
problems caused by failures in year 2000 compliance by third parties, and
similar uncertainties.
FORWARD LOOKING STATEMENTS
From time to time we make "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934. Forward-looking statements include the words "may," "will,"
"estimate," "continue," "believe," "expect" or "anticipate" and other similar
words. The forward-looking statements contained in this Report are generally
located in the material set forth under the headings "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" but may be found in other locations as well.
Forward-looking statements may also be found in our quarterly and other reports
filed with the Securities and Exchange Commission and in our press releases and
other statements. These forward-looking statements generally relate to our plans
and objectives for future operations and are based upon management's reasonable
estimates of future results or trends. Although we believe that our plans and
objectives reflected in or suggested by such forward-looking statements are
reasonable, such plans or objectives may not be achieved. Actual results may
differ from projected results due to unforeseen developments including
developments relating to the following:
19
<PAGE> 20
o the availability and adequacy of our cash flow and financing facilities for
our requirements, including payment of the notes,
o our ability to attract and retain members, which depends on competition,
market acceptance of new and existing sports and fitness clubs and services,
demand for health and fitness club services generally and competitive
pricing trends in the health and fitness market,
o our ability to successfully develop new sports and fitness clubs,
o disputes or other problems arising with our development partners or
landlords,
o changes in economic, competitive, demographic and other conditions in the
geographic areas in which we operate, including business interruptions
resulting from earthquakes or other causes,
o competition,
o changes in personnel or compensation, and
o changes in statutes and regulations or legal proceedings and rulings.
o We will not update forward-looking statements even though our situation will
change in the future.
o Year 2000 uncertainties.
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report...................................................................... F-1
Consolidated Balance Sheets as of December 31, 1997 and 1998...................................... F-2
Consolidated Statements of Income for the Three-Year Period ended December 31, 1998............... F-3
Consolidated Statements of Stockholders' Equity for the Three-Year Period ended December 31, 1998 F-4
Consolidated Statements of Cash Flows for the Three-Year Period ended December 31, 1998........... F-5
Notes to Consolidated Financial Statements........................................................ F-6
</TABLE>
20
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Sports Club Company, Inc.:
We have audited the accompanying consolidated financial statements of The
Sports Club Company, Inc. and subsidiaries (the Company) as listed in the
accompanying index. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Sports
Club Company, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
LOS ANGELES, CALIFORNIA
FEBRUARY 19, 1999
F-1
<PAGE> 22
THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1998
(in thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................................... $ 1,581 $ 2,233
Accounts receivable, net of allowance for doubtful accounts of $385 and $215 in
1997 and 1998, respectively .................................................. 2,072 2,480
Inventories ..................................................................... 813 1,527
Other current assets ............................................................ 354 569
Due from affiliates ............................................................. 106 234
--------- ---------
Total current assets ...................................................... 4,926 7,043
Property and equipment, net ........................................................ 106,791 135,269
Equity interest in unconsolidated subsidiary ....................................... 862 1,295
Costs in excess of net assets acquired, less accumulated amortization of
$822 and $1,294 at December 31, 1997 and 1998, respectively ..................... 15,917 15,443
Organizational costs and other assets, net ......................................... 3,065 4,707
--------- ---------
$ 131,561 $ 163,757
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable and capitalized lease obligations ......... $ 2,975 $ 7,746
Notes payable to bank ........................................................... 5,000 --
Accounts payable ................................................................ 948 2,273
Accrued liabilities ............................................................. 7,985 6,227
Deferred membership revenues .................................................... 9,936 9,953
--------- ---------
Total current liabilities ................................................. 26,844 26,199
Notes payable and capitalized lease obligations, less current installments ......... 42,823 18,755
Notes payable to bank .............................................................. -- 10,940
Deferred lease obligations ......................................................... 2,817 2,724
Minority interest .................................................................. 600 600
--------- ---------
Total liabilities ......................................................... 73,084 59,218
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares
issued or outstanding ........................................................ -- --
Common stock, $.01 par value, 40,000,000 shares authorized;
14,382,621 and 20,896,623 shares issued and outstanding at
December 31, 1997 and 1998, respectively ..................................... 144 209
Additional paid-in capital ...................................................... 53,613 102,361
Retained earnings ............................................................... 5,674 9,656
Treasury stock, at cost, 163,976 and 1,258,691 shares at
December 31, 1997 and 1998, respectively ..................................... (954) (7,687)
--------- ---------
Total stockholders' equity ................................................ 58,477 104,539
--------- ---------
$ 131,561 $ 163,757
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 23
THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three-Year Period Ended December 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues ...................................................... $ 36,918 $ 61,154 $ 81,923
Operating expenses:
Direct ..................................................... 22,989 43,517 56,746
Selling, general and administrative ........................ 6,052 6,607 8,556
Depreciation and amortization .............................. 2,490 3,919 5,282
---------- ---------- ----------
Total operating expenses .............................. 31,531 54,043 70,584
---------- ---------- ----------
Income from operations ............................. 5,387 7,111 11,339
Other income (expense):
Interest ................................................... (2,682) (3,206) (1,629)
Minority interests ......................................... (150) (22) (150)
Equity interest in net income of unconsolidated subsidiaries 631 696 880
Non-recurring items ........................................ (300) (2,025) (314)
---------- ---------- ----------
Income before income taxes and extraordinary charge . 2,886 2,554 10,126
Provision for income taxes .................................... 1,183 1,014 3,971
---------- ---------- ----------
Net income before extraordinary charge .............. 1,703 1,540 6,155
Extraordinary charge from early extinguishment of debt,
net of income tax effect of $1,331 ........................ -- -- 2,173
---------- ---------- ----------
Net income .......................................... $ 1,703 $ 1,540 $ 3,982
========== ========== ==========
Net income per share before extraordinary charge:
Basic ...................................................... $ 0.15 $ 0.12 $ 0.33
========== ========== ==========
Diluted .................................................... $ 0.15 $ 0.12 $ 0.33
========== ========== ==========
Per share effect of extraordinary charge:
Basic ...................................................... $ -- $ -- $ (0.12)
========== ========== ==========
Diluted .................................................... $ -- $ -- $ (0.12)
========== ========== ==========
Net income per share:
Basic ...................................................... $ 0.15 $ 0.12 $ 0.21
========== ========== ==========
Diluted .................................................... $ 0.15 $ 0.12 $ 0.21
========== ========== ==========
Weighted average number of common shares outstanding:
Basic ...................................................... 11,355 12,524 18,603
========== ========== ==========
Diluted .................................................... 11,360 12,683 18,829
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 24
THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three-Year Period Ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------------------ Paid-in Retained -------------------------
Shares Amount Capital Earnings Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 .................. 11,355 $ 114 $ 36,927 $ 2,450 -- --
Net income ........................... -- -- -- 1,703 -- --
Issuance of common stock to outside
directors .......................... 3 -- 8 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 ............... 11,358 114 36,935 4,153 -- --
Net income ........................... -- -- -- 1,540 -- --
Sale of common stock ................. 2,730 27 14,973 -- -- --
Issuance of common stock in connection
with acquisition of The Sports Club/
Las Vegas .......................... 291 3 1,672 -- -- --
Treasury stock repurchased ........... -- -- -- -- 185 $ (1,034)
Reissuance of treasury stock for
employee stock plans ............... -- -- -- (19) (21) 80
Issuance of common stock to outside
directors .......................... 4 -- 33 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 ............... 14,383 $ 144 $ 53,613 $ 5,674 164 $ (954)
Net income ........................... -- -- -- 3,982 -- --
Sale of common stock net
of issuance cost of $695 ........... 6,500 65 48,639 -- -- --
Treasury stock repurchased ........... -- -- -- -- 1,107 (6,800)
Reissuance of treasury stock
for employee stock plans ........... -- -- 45 -- (12) 67
Exercise of employee stock options ... 10 -- 26 -- -- --
Issuance of common stock to
outside directors .................. 4 -- 38 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 ............... 20,897 $ 209 $ 102,361 $ 9,656 1,259 $ (7,687)
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 25
THE SPORTS CLUB COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-year Period Ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................................ $ 1,703 $ 1,540 $ 3,982
Adjustments to reconcile net income to cash provided by operating
activities:
Loss on early extinguishment of debt, net of tax ............ -- -- 2,173
Depreciation and amortization ............................... 2,490 3,919 5,282
Accrued management fees ..................................... (97) -- --
Equity interest in net income of unconsolidated subsidiaries (631) (696) (880)
Distributions from unconsolidated subsidiaries .............. 623 469 447
Stock issued as directors' fees ............................. 8 33 38
Loss on sale of Sports Connections .......................... 300 -- --
Minority interest in Reebok Sports Club/NY .................. -- (128) --
(Increase) decrease in:
Accounts receivable, net ................................. 149 (1,176) (408)
Inventories .............................................. 105 (395) (714)
Other current assets ..................................... (12) (2,187) (830)
Increase (decrease) in:
Accounts payable ......................................... (816) (493) 1,325
Accrued liabilities ...................................... 225 2,519 (315)
Deferred membership revenues ............................. (633) 1,635 17
Deferred lease obligations ............................... 211 (492) (93)
---------- ---------- ----------
Net cash provided by operating activities ................ 3,625 4,548 10,024
Cash flows from investing activities:
Capital expenditures .............................................. (2,788) (4,899) (28,623)
Business acquisitions, net of cash acquired ....................... (2,118) (10,778) --
Proceeds from sale of Sports Connections .......................... 3,569 -- --
Sale of other non-operating assets ................................ 95 -- --
Treasury stock acquired ........................................... -- (1,034) (6,800)
---------- ---------- ----------
Net cash used for investing activities ................... (1,242) (16,711) (35,423)
Cash flows from financing activities:
(Increase) decrease in due from affiliates ........................ 540 937 (128)
Exercise of employee stock options ................................ -- -- 26
Proceeds from sale of common stock ................................ -- 10,000 48,704
Proceeds from notes payable and capitalized lease obligations ..... 23,371 2,324 10,940
Repayments of notes payable and capitalized lease obligations ..... (23,693) (3,663) (33,491)
---------- ---------- ----------
Net cash provided by financing activities ................ 218 9,598 26,051
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ..... 2,601 (2,565) 652
Cash and cash equivalents at beginning of year ....................... 1,545 4,146 1,581
---------- ---------- ----------
Cash and cash equivalents at end of year ............................. $ 4,146 $ 1,581 $ 2,233
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ............................ $ 3,068 $ 3,599 $ 2,636
========== ========== ==========
Cash paid during the year for income taxes ........................ $ 590 $ 306 $ 1,881
========== ========== ==========
Capital expenditures financed ..................................... $ 153 $ 7,223 $ 5,690
========== ========== ==========
Stock issued in exchange for interest in Reebok-Sports Club/NY .... $ -- $ 5,000 $ --
========== ========== ==========
Stock issued as partial consideration for The Sports Club/Las Vegas $ -- $ 1,675 $ --
========== ========== ==========
Acquisition of land and building under capital lease .............. $ -- $ 10,000 $ --
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 26
THE SPORTS CLUB COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
1. ORGANIZATION
The Sports Club Company, Inc. (the "Company") operates sports and fitness
Clubs ("Clubs"), under the "Sports Club" and "Spectrum Club" names. Sports Clubs
have been developed as "urban country clubs" offering a full range of services
including numerous fitness and recreation options, diverse facilities and other
amenities. Spectrum Clubs are designed as smaller-scale Sports Clubs with an
extensive range of services. Both Sports Clubs and Spectrum Clubs are marketed
to affluent, health conscience individuals who desire a premier Club.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Revenue Recognition
The Company receives a one-time non-refundable initiation fee and monthly
membership dues from its members. Substantially all of the Company's members
join on a month-to-month basis and can therefore cancel their membership at any
time. Initiation fees and related direct expenses, primarily sales commissions,
are deferred and recognized, on a straight-line basis, over an estimated
membership period of between two and one half and three years. Dues that are
received in advance are recognized on a pro-rata basis over the periods in which
services are to be provided.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market using the average
cost method.
Depreciation and Amortization
Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the assets, ranging from five to seven years for
equipment and 30 to 40 years for buildings. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or the
estimated useful life of the improvements. Loan costs are amortized over the
terms of the related loans and organizational costs are amortized over five
years. Costs in excess of net assets of acquired businesses are being amortized
on a straight-line basis over forty years.
Start-up Costs
The Company will adopt Statement of Position 98-5, "Accounting for
Start-Up Costs" ("SOP 98-5") effective January 1, 1999. SOP 98-5 provides that
all costs related to the development of new fitness
F-6
<PAGE> 27
clubs, except for real estate related costs, be expensed as incurred. This is a
change from the Company's previous accounting policy, whereby many of these
costs were capitalized and charged to expense upon the Club opening. As a
result, the Company will record a one-time charge equal to the unamortized
balance of all capitalized development and start-up costs as of January 1, 1999.
This charge will be recorded as a cumulative effect of a change in accounting
principle net of the related income tax effect. The amount of this charge is
currently expected to be approximately $1.0 million.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company reviews its long-lived assets and certain identifiable
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net undiscounted operating cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. The Company has not experienced an impairment of value of any of
its long-lived or identifiable intangible assets as of December 31, 1998.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be applied to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
Earnings per Share
The Company presents Basic and Diluted earnings per share. Basic earnings
reflects only the actual weighted average shares of common stock outstanding
during the period. Diluted earnings per share includes the effects of all
dilutive options, warrants and other securities and utilizes the treasury stock
method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These affect the reporting of assets and liabilities, the
disclosure of any contingent assets and liabilities and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from these estimates.
Fair Value of Financial Instruments
The carrying amounts of financial instruments approximate fair value as of
December 31, 1998. The carrying amounts related to cash and cash equivalents,
accounts receivable, other current assets and accounts payable approximate fair
value due to the relatively short maturity of such instruments. The fair value
of long-term debt is estimated by discounting the future cash flows of each
instrument at rates currently available to the Company for similar debt
instruments of comparable maturities by the Company's bankers.
F-7
<PAGE> 28
Segment Reporting
The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") effective January 1, 1998. SFAS
131 establishes standards for public enterprises to report information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures concerning products and services,
geographic areas and major customers. Management has determined that the Company
has one principal operating segment, the operation of sports and fitness clubs.
The adoption of SFAS 131 has had no impact on the Company's financial position
or results of operations.
Computer Software Costs
The Company will adopt Statement of Position 98-1 "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1")
effective January 1, 1999. SOP 98-1 provides guidance as to appropriate
treatment of internal use software costs that is acquired or internally
developed. The adoption of SOP 98-1 may impact the Company's accounting for its
membership software system currently being implemented. The Company has not yet
determined whether the application of SOP 98-1 will have a material impact upon
the Company's financial position or results of operations.
3. ACQUISITIONS
Sports Clubs
On December 30, 1996, the Company acquired an additional 10.1% interest in
the Reebok-Sports Club/NY partnership for $2.5 million which increased the
Company's ownership in the partnership to 50.1%. This acquisition was accounted
for as a purchase and accordingly, the operations of the Club are included in
the Company's consolidated statements of income from the date of acquisition.
Prior to this acquisition, the Company's interest was recorded under the equity
method of accounting. Goodwill of approximately $3.8 million resulted from this
transaction.
On June 23, 1997, the Company completed the sale of 2,105,263 shares of
its Common Stock to Millennium Entertainment Partners L.P., (including
affiliated entities, hereafter referred to as "Millennium"). In exchange for the
newly issued shares, the Company received $5.0 million cash, Millennium's 9.9%
Partnership interest in The Reebok-Sports Club/NY Partnership, a $2.5 million
note due from the Partnership and Millennium's rights to certain accrued
management fees due from the Partnership. This transaction increased the
Company's ownership in the Partnership to 60%. The Company also signed
definitive leases with Millennium to jointly develop Sports Clubs in Washington
D.C. and San Francisco, California on properties currently under development by
Millennium. The Company has also signed a letter of intent to develop a Sports
Club in Boston, Massachusetts on property currently under development by
Millennium.
On August 1, 1997, the Company acquired a Club in Henderson, Nevada which
is now operated as The Sports Club/Las Vegas. The purchase price of
approximately $6.7 million consisted of $5.0 million in cash and 290,358 shares
of the Company's Common Stock, valued at approximately $1.7 million. The
acquisition was accounted for as a purchase. Accordingly, the operations of The
Sports Club/Las Vegas are included in the Company's statement of income from the
date of acquisition.
Spectrum Clubs
On December 31, 1997, the Company acquired four Clubs from Racquetball
World, which are now operated as Spectrum Clubs, for a total purchase price
(including the portion paid by Millennium described below) of approximately
$19.4 million. Millennium acquired properties underlying two of the Clubs for
$10.0 million and is leasing these two properties to the Company under a
financing lease agreement which is reflected as capitalized lease obligations in
the Company's consolidated balance sheet. At any time during the first three
years of the lease the Company may purchase the leased property from Millennium
for a purchase price determined pursuant to the lease, currently estimated to be
approximately
F-8
<PAGE> 29
$10.2 million. Millennium has the right to require the Company to acquire its
interest in the property upon the occurrence of certain events defined in the
lease.
A cash payment of approximately $6.0 million was made to the sellers and
their creditors and the Company assumed approximately $2.0 million of
liabilities. In addition, up to 159,081 shares of the Company's Common Stock
valued at approximately $1.4 million will be issued to certain of the selling
entities, subject to reduction if certain liabilities of the Clubs exceed
agreed-upon amounts. In a private placement completed in December 1997, the
Company sold 625,000 shares of its Common Stock to Millennium for $5.0 million
to raise funds to complete this acquisition. The acquisition was accounted for
as a purchase. Accordingly, the operations of these four Clubs are included in
the Company's statement of operations from the date of acquisition.
SportsMed
On July 1, 1997, the Company acquired the assets of SportsTherapy Systems,
Inc. ("STS"), a physical therapy and rehab clinic located in Calabasas,
California for approximately $485,000 in cash plus the assumption of various
liabilities in the amount of $187,000. STS has been merged into the Company's
SportsMed subsidiary. In addition, the Company entered into an employment
agreement with the seller of STS pursuant to which the seller is managing the
operations of SportsMed. The acquisition was accounted for as a purchase.
Accordingly, the operations of STS are included in the Company's statement of
income from the date of acquisition.
The following pro forma financial data present the Company's unaudited pro
forma statement of income for the year ended December 31, 1997, giving effect to
the Reebok-Sports Club/NY, The Sports Club/Las Vegas and the four Spectrum Club
acquisitions as if these transactions had occurred on January 1, 1997. None of
the acquisitions was considered to be significant individually or in the
aggregate under the applicable rules of the Securities and Exchange Commission.
The STS operation is not material to the consolidated statement of income, and
accordingly, its impact has been excluded from the following pro forma
presentation. The unaudited pro forma condensed statement of income does not
purport to represent what the Company's actual results of operations would have
been had such transactions in fact occurred on such date. The unaudited pro
forma condensed statement of income also does not purport to project the results
of operations of the Company for any future period.
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
(Unaudited)
(in thousands,
except per share
data)
<S> <C>
Revenues ................................................ $ 72,707
Operating expenses ...................................... 65,944
----------
Income from operations .................................. 6,763
Other expenses .......................................... 6,159
----------
Income before provision for income taxes ................ 604
Provision for income taxes .............................. 273
----------
Net income .............................................. $ 331
==========
Net income per share:
Basic ................................................. $ .02
==========
Diluted ............................................... $ .02
==========
Weighted average number of common shares outstanding:
Basic ................................................. 14,456
==========
Diluted ............................................... 14,615
==========
</TABLE>
F-9
<PAGE> 30
4. PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation,
which is summarized as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------------
1997 1998
---------- ----------
<S> <C> <C>
(in thousands)
Land ........................................... $ 18,234 $ 21,484
Building and improvements ...................... 82,405 107,000
Furniture, fixtures and equipment ............. 14,095 19,305
---------- ----------
114,734 147,789
Less accumulated depreciation and amortization.. 7,943 12,520
---------- ----------
Net property and equipment ..................... $ 106,791 $ 135,269
========== ==========
</TABLE>
Equipment under capital leases was $7,456,000 and $10,479,000 and related
accumulated amortization was $1,854,000 and 3,271,000 at December 31, 1997 and
1998, respectively.
Included in buildings and improvements at December 31, 1997 and 1998, is
$10,000,000 of buildings acquired under a capital lease in connection with the
acquisition of four Spectrum Clubs (See Note 3). No amortization was recorded
for the year ending December 31, 1997 due to the close proximity of the
acquisition to the end of the year. Accumulated amortization at December 31,
1998 was $255,000.
5. NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS
Notes payable and capitalized lease obligations are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
1997 1998
---------- ----------
<S> <C> <C>
(in thousands)
The Sports Club/LA note (a) ......................... $ 22,378 $ --
The Sports Club/Irvine note (b) ..................... 4,875 4,375
Spectrum Club - Agoura Hills note (c) .............. 2,533 2,506
Spectrum Clubs Fullerton and Santa Ana lease (d) ... 10,000 9,745
Equipment financing loans (e) ....................... 5,602 7,208
Other notes payable ................................. 410 2,667
---------- ----------
45,798 26,501
Less current installments ........................... 2,975 7,746
---------- ----------
$ 42,823 $ 18,755
========== ==========
</TABLE>
(a) The Sports Club/LA note was at a 10.63% rate of interest and required a
monthly payment of approximately $262,000 with a balloon payment of
approximately $17.5 million on April 1, 2003. In April 1998 the Company pre-paid
this note and incurred a prepayment penalty of $3.5 million. The prepayment
penalty has been recorded as an extraordinary charge on the accompanying
statement of income, recorded net of its income tax effect of $1.3 million.
(b) The Sports Club/Irvine note was issued to previous owners of this Club. The
note is secured by land, equipment, building improvements and the building of
The Sports Club/Irvine, bears interest at the rate of 6%, and requires quarterly
principal payments of $125,000 and a balloon payment of $4.0 million on November
1, 1999.
(c) The Spectrum Club - Agoura Hills note was issued by a savings and loan
association to complete the Company's acquisition of the Spectrum Club - Agoura
Hills. The note is secured by land, equipment, building improvements and the
building of the Spectrum Club - Agoura Hills. The note bears interest at the
rate of 8.5%. Monthly principal and interest payments of $20,107 are required
through the note's maturity in April 2024.
F-10
<PAGE> 31
(d) In December 1997, the Company acquired four Spectrum Clubs. Millennium
acquired properties underlying two of the Clubs for $10.0 million and is leasing
these two properties to the Company under a financing lease agreement which is
reflected as a capital lease obligation in the Company's consolidated balance
sheet.
(e) The equipment financing loans are secured by the furniture, fixtures and
equipment. The amounts are generally repayable in monthly payments over five
years with effective interest rates between 8% to 10%.
Future minimum annual principal payments at December 31, 1998, are as
follows (in thousands):
<TABLE>
<S> <C>
1999........................................... $ 7,746
2000........................................... 3,906
2001........................................... 1,819
2002........................................... 1,342
2003........................................... 849
Thereafter..................................... 10,839
--------
$ 26,501
========
</TABLE>
6. BANK CREDIT FACILITY
At December 31, 1998, the Company had a $30.0 million bank credit
facility. At that date, $10.9 million was outstanding and an additional $4.0
million was utilized in the form of a letter of credit. The loans are unsecured,
however, the Company is prohibited from pledging any of its assets except for
normal furniture, fixture and equipment financing. The agreement also requires
the Company to maintain certain Tangible Net Worth, Debt Coverage Ratios and
Senior Liabilities to Tangible Net Worth Ratio requirements. The Company was in
compliance with its covenants as of December 31, 1998. (See Note 13).
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain facilities pursuant to various operating lease
agreements. The Club facility leases are generally long-term and noncancelable
triple-net leases (requiring the Company to pay all real estate taxes, insurance
and maintenance expenses), and have an average remaining term of 35 years,
including renewal options, with the earliest expiration date of March 30, 2000.
Future minimum noncancelable operating lease payments as of December 31, 1998
are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1999...................................... $ 10,968
2000...................................... 16,870
2001...................................... 22,551
2002...................................... 22,780
2003...................................... 23,345
Thereafter................................ 313,538
--------
Total minimum lease payments......... $410,052
========
</TABLE>
Rent expense for facilities and equipment aggregated, $1,960,000,
$7,438,000 and 8,174,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
F-11
<PAGE> 32
Litigation
The Company is involved in various claims and lawsuits incidental to its
business, including claims arising from accidents and disputes with landlords.
However, in the opinion of management, the Company is adequately insured against
such claims and lawsuits involving personal injuries, and any ultimate liability
arising out of any such proceedings will not have a material adverse effect on
the financial condition, cash flow or operations of the Company.
Employment Agreements
The Company currently has employment agreements with three key executive
officers which expire in December 31, 2000. The agreements provide the
executives with a base compensation and, in the event of certain conditions, a
severance payment not to exceed three times each executive's annual
compensation.
8. INCOME PER SHARE
The following is a reconciliation of the basic and diluted income per
share computations for the years 1996, 1997 and 1998:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
(in thousands, except per share data)
Net income used for basic and
diluted income per share ........... $ 1,703 $ 1,540 $ 3,982
========== ========== ==========
Shares of Common Stock and
Common Stock equivalents:
Weighted average shares used
in basic computation .......... 11,355 12,524 18,603
Weighted stock options ......... 5 159 226
---------- ---------- ----------
Impact from dilutive shares .... 11,360 12,683 18,829
========== ========== ==========
Income per share:
Basic .............................. $ 0.15 $ 0.12 $ 0.21
========== ========== ==========
Diluted ............................ $ 0.15 $ 0.12 $ 0.21
========== ========== ==========
</TABLE>
F-12
<PAGE> 33
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
(in thousands)
Current:
Federal .............. $ 985 $ 842 $ 2,893
State ................ 280 255 839
---------- ---------- ----------
1,265 1,097 3,732
---------- ---------- ----------
Deferred:
Federal .............. (78) (78) 156
State ................ (4) (5) 83
---------- ---------- ----------
(82) (83) 239
---------- ---------- ----------
Income tax provision ...... $ 1,183 $ 1,014 $ 3,971
========== ========== ==========
Tax benefit from extraordinary charge:
Federal................................................... $ (1,021)
State..................................................... (310)
----------
Total provision from extraordinary charge...................... $ (1,331)
==========
</TABLE>
Income tax expense from net income before income taxes and extraordinary
charge differs from the statutory rate as applied to net income before income
taxes and extraordinary charge as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
(in thousands)
Computed "expected" tax expense .............. $ 981 $ 868 $ 3,443
Increase (decrease) in tax resulting from:
State taxes - net of federal benefit ...... 182 165 609
Meals and entertainment ................... 7 8 8
Goodwill amortization ..................... 65 80 80
Other ..................................... (52) (107) (169)
---------- ---------- ----------
Income tax provision ......................... $ 1,183 $ 1,014 $ 3,971
========== ========== ==========
</TABLE>
The effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------------
1997 1998
---------- ----------
<S> <C> <C>
(in thousands)
Deferred tax assets:
Deferred initiation fees ............... $ 688 $ 811
Accrued vacation ....................... 142 182
Bad debt ............................... 154 86
State taxes ............................ 44 180
---------- ----------
Gross deferred tax assets ........ 1,028 1,259
---------- ----------
Deferred tax liabilities:
Depreciation and amortization .......... (3,419) (3,889)
Other .................................. (542) (542)
---------- ----------
Gross deferred tax liabilities ... (3,961) (4,431)
---------- ----------
Net deferred tax liability ................. $ (2,933) $ (3,172)
========== ==========
</TABLE>
F-13
<PAGE> 34
10. STOCK PLANS
The Company has elected to measure the impact of its stock options under
the provisions of APB No. 25, using the intrinsic value method. Entities
electing to remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and income per share, as if the fair value based
method of accounting defined in SFAS 123 had been applied.
The Company has an employee stock option plan which is described below.
The Company applied APB No. 25 in accounting for its plan. Accordingly, no
compensation cost has been recognized. Had compensation cost for the Company's
plan been determined consistent with SFAS 123, the Company's net income and
income per share would have been reduced to the proforma amounts indicated
below:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported ..... $ 1,703 $ 1,540 $ 3,982
Pro forma ....... $ 1,533 $ 1,368 $ 3,504
Basic income per share:
As reported ..... $ .15 $ .12 $ .21
Pro forma ....... $ .14 $ .11 $ .19
</TABLE>
The fair value of all option grants for the Company's plan are estimated
on the date of grant using the Black-Scholes option-pricing model with the
weighted-average assumptions used for all fixed option grants in 1996, 1997 and
1998 respectively: dividend yield of 0%, 0% and 0%; expected volatility of
51.3%, 62.1%, and 71.4% risk-free interest rates of 7.0%, 6.5% and 6.0% and
expected economic lives of 7.0 years, 6.0 years and 5.9 years.
1,800,000 shares of Common Stock are reserved under the Company's Amended
and Restated 1994 Stock Incentive Plan (the "Plan"), which authorizes the
issuance of various stock incentives to directors, officers, employees and
consultants including options, stock appreciation rights and purchase rights.
Options allow for the purchase of Common Stock at prices determined by the
Company's Compensation Committee. Incentive stock options must be granted at a
price at least equal to the fair market value of a share of Common Stock on the
date the option is granted. Non-statutory options must have an exercise price
equal to at least 85% of the fair market value of the Company's Common Stock at
the date of grant. Options granted under the Plan may, at the election of the
Compensation Committee, become exercisable in installments. Except for the
options granted to the Chief Executive Officer which expire on the fifth
anniversary of the grant date, all options will expire on the tenth anniversary
of the grant date.
F-14
<PAGE> 35
A summary of the status of the Company's stock option plans as of December
31, 1996, 1997 and 1998 and changes during the years then ended are presented
below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
---------- ----------
<S> <C> <C>
Outstanding at January 1, 1996 ..................... 297,000 $ 5.06
Granted ............................................ 220,500 2.66
Canceled ........................................... 25,000 3.18
----------
Outstanding at December 31, 1996 ................... 492,500 3.17
==========
Options excercisable at December 31, 1996 .......... 185,505 3.28
==========
Weighted-average per share fair value of options
granted during year ended December 31, 1996 ...... 1.75
Outstanding at January 1, 1997 ..................... 492,500 3.17
Granted ............................................ 155,000 5.51
Canceled ........................................... 5,000 3.10
----------
Outstanding at December 31, 1997 ................... 642,500 3.77
==========
Options excercisable at December 31, 1997 .......... 334,512 3.23
==========
Weighted-average per share fair value of options
granted during year ended December 31, 1997 ...... 3.53
Outstanding at January 1, 1998 ..................... 642,500 3.77
Granted ............................................ 342,000 7.99
Canceled ........................................... 2,000 2.56
Exercised .......................................... 10,002 2.61
----------
Outstanding at December 31, 1998 ................... 972,498 5.25
==========
Options excercisable at December 31, 1998 .......... 462,696 3.52
==========
Weighted-average per share fair value of options
granted during year ended December 31, 1998 ...... 5.43
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Remaining
Exercise Number Contractual Options
Prices Outstanding Life (Years) Exercisable
- -------- ----------- ------------ -----------
<S> <C> <C> <C>
$8.3750 27,000 8.84 9,008
5.3750 68,000 8.50 22,672
4.3750 60,000 8.22 20,000
2.7500 55,666 7.83 36,349
2.5625 58,832 7.40 37,000
2.6875 70,000 7.17 46,667
3.0000 225,000 6.58 225,000
5.2500 66,000 6.25 66,000
8.2500 30,000 4.32 --
8.0000 302,000 9.28 --
7.0000 10,000 9.54 --
-------- --------
972,498 462,696
======== ========
</TABLE>
F-15
<PAGE> 36
Stock appreciation rights ("SAR's") may be granted in combination with
options or on a stand-alone basis. SAR's permit the holder to receive shares of
stock, cash or a combination of shares and cash based upon by the difference
between the option price and the fair market value of the Common Stock on the
date of exercise. Upon exercise of a SAR granted in combination with an option,
the related option is canceled. At December 31, 1998, no SAR's had been granted.
Rights to purchase shares of Common Stock to be offered for direct sale
under the Plan must be at a purchase price equal to not less than 85% of the
fair market value of the shares on the day preceding the date of grant. Purchase
rights are generally exercisable for a period of thirty days following the date
of grant. At December 31, 1998, no purchase rights had been granted.
In July 1994, the Company instituted its 1994 Stock Compensation Plan for
the purpose of compensating outside directors by issuing them shares of the
Company's Common Stock as part of their directors' fees. A total of 50,000
shares are reserved for issuance pursuant to this plan. A total of 16,000 shares
have been issued to outside directors under the plan.
11. RELATED PARTY TRANSACTIONS
Due from affiliates consist of advances made to unconsolidated affiliates
in the normal course of business. Such advances are payable on demand.
The Company manages the operation of its unconsolidated subsidiary, the
Spectrum Club - Manhattan Beach, of which it owns a 46.1% interest. The Company
receives a fee of $33,322 per month plus 4.5% of the Club's gross revenues for
managing this Club. The Company also manages the operations of the Reebok Sports
Club/NY and receives a fee of approximately 5.87% of the gross monthly
collections, as defined. Management fees relating to Reebok Sports Club/NY of
$779,000 for the year ended December 31, 1996 were earned and included in the
Company's income statement. Management fees of $1.1 million and $1.3 million
relating to Reebok Sports Club/NY were earned for the year ended December 31,
1997 and 1998. These amounts are eliminated from income and expense in the
presentation of the Company's 1997 and 1998 consolidated statement of income.
The Reebok Sports Club/NY pays rent to Millennium in the amount of $2.0
million per year, and the partnership agreement provides for a first priority
annual distribution of $3.0 to Millennium. All such, payments are reflected as
rent expense in the consolidated statement of income. The Company has entered
into leases with Millennium to develop Sports Clubs in San Francisco and
Washington D.C., and is currently negotiating with Millennium with respect to
the development of a Sports Club in Boston.
12. CONCENTRATION OF CREDIT RISK
The Company markets its products principally to customers in Southern
California, New York City and Las Vegas. Management performs regular evaluations
concerning the ability of its customers to satisfy their obligations and records
a provision for doubtful accounts based upon these evaluations. The Company's
credit losses for the periods presented are insignificant and have not exceeded
management's estimates.
13. SUBSEQUENT EVENTS
The Company has commenced an offering of Senior Secured Notes due in 2006.
Estimated proceeds of such offering are expected to be used to repay long-term
debt, fund new club development and for general corporate purposes. Upon
completion of the offering, the Company anticipates reducing its bank credit
facility to $20.0 million. There can be no assurance the offering will be
completed.
In 1999, the Company approved an additional $4.0 million for use in the
continuation of its plan to repurchase shares of Common Stock. At February 19,
1999, 818,000 shares have been repurchased for $3.4 million.
F-16
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following provides certain information regarding our directors and
executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
D. Michael Talla....................... 52 Chairman of the Board and Chief Executive Officer
John M. Gibbons........................ 50 President, Chief Operating Officer and Director
Nanette Pattee Francini................ 50 Executive Vice President and Director
Timothy M. O'Brien..................... 47 Chief Financial Officer and Assistant Secretary
Philip J. Swain........................ 41 Vice President Operations
Mark S. Spino.......................... 44 Vice President Development
Brian J. Collins....................... 38 Director
Rex A. Licklider....................... 55 Vice Chairman of the Board
Andrew L. Turner....................... 52 Director
Dennison T. Veru....................... 38 Director
</TABLE>
The following information summarizes the business experience during at
least the past five years of each of our directors and executive officers.
D. Michael Talla began developing sports and fitness clubs in 1977 and has
served as our Chief Executive Officer and Chairman of the Board since our
inception in 1994. He has been in the sports and fitness industry for more than
20 years and has developed or participated in the development of more than 20
sports and fitness clubs in the United States, including all Clubs developed by
The Sports Club Company. Mr. Talla holds a Bachelor of Arts Degree in Business
Administration from the University of Arizona.
John M. Gibbons was hired to serve as our Chief Financial Officer in May
1994 and became Executive Vice President in February 1995 and President and
Chief Operating Officer in July 1995. He has been one of our directors since
1995. From September 1993 until May 1994, Mr. Gibbons was a self-employed
financial and business consultant whose clients included us. From February 1990
until September 1993, Mr. Gibbons was employed as a Vice President by Com
Systems, Inc., a publicly traded long-distance telecommunications company
located in Westlake Village, California, serving as General Manager and Senior
Vice President from December 1992 to September 1993, and as Chief Financial
Officer from August 1991 through December 1992. He holds a Bachelor of Business
Administration from Notre Dame and a Masters of Business Administration from the
University of Southern California. Mr. Gibbons is a Certified Public Accountant.
Nanette Pattee Francini began developing sports and fitness clubs in 1977
and has served as our Executive Vice President and has been principally
responsible for overseeing all marketing activities since our inception in 1994.
Ms. Pattee Francini has been in the sports and fitness industry for more than 20
years and has developed or participated in the development of more than 20
sports and fitness clubs, including all the Clubs developed by The Sports Club
Company. She has been one of our Directors since 1994. Ms. Pattee Francini holds
a Bachelor of Arts Degree from the University of Arizona.
Timothy M. O'Brien was hired as our Chief Financial Officer in February
1995 and since June 1995 has also served as Assistant Secretary. From July 1993
until February 1995, he was employed as Vice President/Controller of WCT
Communications, Inc., a publicly
21
<PAGE> 38
traded long-distance telecommunications company. From May 1989 until July 1993,
Mr. O'Brien was Controller for Com Systems, Inc., a publicly traded
long-distance telecommunications company located in Westlake Village,
California. Mr. O'Brien has a Bachelor of Business Administration degree from
the University of Wisconsin-Madison and is a Certified Public Accountant.
Philip J. Swain has served as Vice President Operations since our
inception. Mr. Swain has been in the sports and fitness industry for more than
20 years and has developed or participated in the development of more than 15
sports and fitness clubs in the United States, including many of our current
Clubs.
Mark S. Spino has served as our Vice President Development since our
inception. Mr. Spino has been in the sports and fitness industry for more than
15 years and has developed or participated in the development of more than 15
sports and fitness clubs in the United States, including many of our current
Clubs. Mr. Spino holds a Bachelor of Arts and a Master of Arts degree in
physical education from the University of Southern California.
Brian J. Collins has been one of our Directors since 1997. Since December
1996 Mr. Collins has served as Vice President and Chief Financial Officer of
Millennium Partners Management LLC, an affiliate of Millennium Entertainment
Partners L.P., which is a real estate developer of mixed use urban entertainment
projects. Beginning in June 1997, he has been a principal of Millennium Partners
Management LLC. From March 1993 to November 1996, Mr. Collins was Senior Vice
President at Carol Management Corp., an owner and operator of real estate and
hotel properties. Mr. Collins holds a Bachelor of Arts Degree from Colgate
University and a Masters of Science from New York Graduate School of Business.
For so long as Millennium maintains at least a 12% interest in our equity
securities, we and certain of our stockholders have agreed with Millennium to
cause a nominee of Millennium to be appointed or elected to our Board of
Directors. Mr. Collins is currently serving as Millennium's nominee pursuant to
this agreement. See "Certain Relationships and Related Transactions."
Rex A. Licklider has been the Vice Chairman of the Board since 1994. Mr.
Licklider has been a consultant to us for strategic and financial planning since
our inception. He founded Com Systems, Inc., a publicly traded long-distance
telecommunications company, and at various times between 1975 and April 1992
served as its Chairman, President and Chief Executive Officer. Mr. Licklider is
a founder and director of Pentium Investments, Inc. and a director of Deckers
Outdoor Corporation. He also serves on the Board of Directors of The Children's
Bureau of Southern California, Los Angeles Youth Programs, Inc. and Marymount
High School in Los Angeles, California. Mr. Licklider holds a Bachelor of Arts
Degree in Business Administration from the University of Arizona and a Masters
in Business Administration from the University of California at Los Angeles.
Andrew L. Turner has been a Director since 1994. He has also been Chairman
of the Board of Directors and Chief Executive Officer of Sun Healthcare Group,
Inc., a publicly traded long-term health care services provider, since its
formation in 1989. From 1986 to 1989, Mr. Turner served as Chief Operating
Officer of Horizon Health Care Corporation, a publicly traded health care
services provider. Mr. Turner is also a director of Watson Pharmaceuticals,
Inc., a publicly traded pharmaceutical manufacturing company.
Dennison T. Veru has been a Director since 1996. Since November 1992, he
has been President of Awad & Associates, a money management division of Raymond
James Financial. From November 1990 to November 1992, Mr. Veru served as
Executive Vice President, Investments of Smith Barney, Inc., specializing in
small and medium capitalization stocks. Mr. Veru also serves as a director of
Lois USA, Inc., a publicly traded company. He is a graduate of Franklin and
Marshall College.
Directors who are not employees of The Sports Club Company receive an
annual retainer fee of $12,000, a fee of $1,000 for each Board and committee
meeting attended and reimbursement of expenses of attending Board and committee
meetings. They also receive an annual award of 1,000 shares of our common stock
pursuant to our 1994 Stock Compensation Plan, which has been increased to 2,000
shares for 1999, subject to receipt of stockholder approval of an amendment to
the 1994 Stock Compensation Plan.
22
<PAGE> 39
Our directors are divided into three classes having terms expiring at the
annual stockholders meetings in 1999 (Ms. Pattee Francini and Mr. Veru), 2000
(Messrs. Talla and Licklider) and 2001(Messrs. Turner, Gibbons and Collins), or
such later dates as their successors are elected. At each annual meeting of
stockholders, successors to the class of directors whose term expires at such
meeting will be elected to serve for three-year terms and until their successors
are elected.
Officers serve at the pleasure of the Board of Directors subject to any
rights under employment agreements.
The Board of Directors has created an Audit Committee and a Compensation
Committee. The Audit Committee, composed of Messrs. Collins, Turner and Veru, is
charged with reviewing our annual audit and meeting with our independent
auditors and reviewing our internal controls and financial management practices.
The Compensation Committee, also composed of Messrs. Collins, Turner and Veru,
recommends to the Board of Directors compensation for key employees and
administers the 1994 Stock Incentive Plan.
CERTAIN TRANSACTIONS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the officers and directors and persons who own more than ten percent of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and to furnish
us with copies of such reports. Based on our review of the copies of those
reports and written representations which we have received, we believe that all
such filings required to be made during calendar 1998 have been made, except
that as a result of administrative oversight, a report relating to a single
transaction by Andrew L. Turner was filed late.
23
<PAGE> 40
ITEM 11. EXECUTIVE COMPENSATION
The table below shows, for the last three fiscal years, the amount of
compensation earned by the Chief Executive Officer and the next five most highly
compensated executive officers (the "Named Executive Officers"). The current
salaries of such executive officers are described below under "Employment
Agreements."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SHARES ALL OTHER
-------------------------- UNDERLYING COMPENSATION
NAME & POSITION YEAR SALARY($)(a) BONUS($) OPTIONS AWARDS(#) ($)(b)
- --------------- ---- ------------ -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
D. Michael Talla.......... 1998 $ 243,000(c) $45,000 30,000 $ 3,168
Chief Executive Officer 1997 239,250(c) -- -- 3,135
And Chairman of the Board 1996 218,000(c) -- -- --
Nanette Pattee Francini... 1998 154,800 35,000 30,000 825
Executive Vice President 1997 145,100 10,000 15,000 --
And Director 1996 124,175 -- 15,000 --
John M. Gibbons........... 1998 264,108(d) 42,000 30,000 2,534
President, Chief Operating 1997 245,883(d) 25,000 -- 2,637
Officer and Director 1996 232,800(d) 25,000 225,000 2,256
Mark S. Spino............. 1998 145,000 35,000 30,000 2,775
Vice President of 1997 134,125 10,000 15,000 --
Development 1996 116,795 -- 15,000 --
Philip J. Swain........... 1998 155,000 35,000 30,000 2,063
Vice President of 1997 146,031 15,000 15,000 908
Operations 1996 131,375 -- 25,000 --
Timothy M. O'Brien........ 1998 146,300 35,000 30,000 3,168
Chief Financial Officer 1997 137,667 10,000 15,000 2,807
And Assistant Secretary 1996 122,175 5,000 20,000 1,791
</TABLE>
- ----------
(a) Includes automobile allowance.
(b) Represents value of our common stock contributed for the benefit of the
Named Executive Officer, under the 401-K Profit Sharing Plan, based upon
the December 31, 1998 closing market price of $3 15/16 per share, on the
American Stock Exchange.
(c) Mr. Talla also receives, on an annual basis, 49.9% of the first $300,000
of The Sports Club/LA's net cash flow. This amount is not included in Mr.
Talla's compensation. See "Certain Relationships and Related
Transactions."
(d) Includes an allowance for living expenses paid to Mr. Gibbons under the
terms of his employment agreement.
OPTION GRANTS, EXERCISES AND YEAR-END VALUES
The following table describes option grants to the Named Executive
Officers during the last fiscal year.
<TABLE>
<CAPTION>
% OF
TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
SHARES GRANTED ANNUAL RATES OF STOCK
UNDERLYING TO EXERCISE PRICE APPRECIATION FOR
OPTIONS EMPLOYEES PRICE EXPIRATION OPTION TERM(b)
NAME GRANTED(#)(a) FOR 1998 ($/SH) DATE 5%($) 10%($)
- ---- ------------- --------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
D. Michael Talla......... 30,000 8.77% $ 8.25 4/27/2003 $ 155,651 $ 394,451
Nanette Pattee Francini.. 30,000 8.77 8.00 4/14/2008 150,935 382,498
John M. Gibbons.......... 30,000 8.77 8.00 4/14/2008 150,935 382,498
Mark S. Spino............ 30,000 8.77 8.00 4/14/2008 150,935 382,498
Phillip J. Swain......... 30,000 8.77 8.00 4/14/2008 150,935 382,498
Timothy M. O'Brien....... 30,000 8.77 8.00 4/14/2008 150,935 382,498
</TABLE>
- ----------
24
<PAGE> 41
(a) All grants are incentive stock options granted under the terms of our 1994
Stock Incentive Plan, at an exercise price equal to or greater than 100%
of the fair market value of our common stock on the date of grant. Except
for the options granted to Mr. Talla, which expire five years from the
date of grant, these options expire ten years from the date of grant, and
all of these options vest in 33 1/3% increments on the first three
anniversaries of the grant.
(b) The dollar amounts listed below are the result of calculations at the 5%
and 10% annual rates of stock appreciation prescribed by the SEC and are
not intended to forecast possible future appreciation, if any, of our
common stock. If our common stock does not appreciate, the Named Executive
Officers will receive no benefit from the options.
UNEXERCISED STOCK OPTIONS AND FISCAL YEAR-END OPTION VALUES
None of the Named Executive Officers exercised stock options during the
last fiscal year. The following table provides information with respect to
unexercised stock options outstanding as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL UNEXERCISED OPTIONS AT FISCAL
YEAR-END(a) YEAR-END(b)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
NAME (#) (#) ($) ($)
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
D. Michael Talla........ 0 30,000 $ 0 $ 0
Nanette Pattee Francini. 15,000 45,000 12,500 6,250
John M. Gibbons......... 225,000 30,000 210,937 0
Mark S. Spino........... 15,000 45,000 12,500 6,250
Philip J. Swain......... 21,667 48,333 20,834 10,416
Timothy M. O'Brien...... 43,334 46,666 16,459 8,228
</TABLE>
- ----------
(a) All options were granted under our 1994 Stock Incentive Plan.
(b) The in-the-money options had exercise prices of less than the $3 15/16
closing price of our common stock on the American Stock Exchange on
December 31, 1998. The calculations of value assume exercise of the
options on December 31, 1998 at the price of $3 15/16 per share.
25
<PAGE> 42
EMPLOYMENT AGREEMENTS
In August 1994, we entered into employment agreements with D. Michael
Talla, as Chief Executive Officer, and Nanette Pattee Francini, as Executive
Vice President, each of which expire on December 31, 2000. Certain terms of Mr.
Talla's employment agreement were amended by the Board of Directors as of
February 27, 1995. The agreements provide for annual compensation of $200,000
payable to Mr. Talla, and $115,000 payable to Ms. Pattee Francini, subject to
upward adjustment at the discretion of the Board of Directors. In 1997, the
Compensation Committee of the Board of Directors increased Mr. Talla's annual
salary to $225,000 and in 1998 Ms. Pattee Francini's annual salary was increased
to $155,000. We may terminate either employment agreement for cause without
penalty.
The employment agreements with Mr. Talla and Ms. Pattee Francini entitle
each employee to annual performance bonuses in the discretion of the Board of
Directors. The employment agreements also include severance provisions which
entitle each executive officer to severance pay if his or her employment is
terminated by us without cause; if the employee dies or is disabled; or if the
employee terminates the agreement as a result of our material breach of our
obligations thereunder (up to six months' pay for Ms. Pattee Francini and up to
twelve months' pay for Mr. Talla). In addition, the employment agreements
provide Mr. Talla and Ms. Pattee Francini with additional severance benefits
upon termination of employment following the occurrence of any one of the
following events (each, a "Change in Control") without the approval of a
majority of the Board of Directors: (i) the consolidation or merger of us with
any other corporation or other entity; (ii) the sale or other transfer of all or
substantially all of our the assets; (iii) the approval by our stockholders of a
plan of liquidation or dissolution of us; (iv) any person becomes the beneficial
owner directly or indirectly of 25% or more of our outstanding common stock; or
(v) a change occurs in the composition of a majority of our Board of Directors
(unless approved by two-thirds of our Board of Directors). If at any time within
two years after the occurrence of any one of the foregoing events Mr. Talla's or
Ms. Pattee Francini's employment is terminated (other than for cause, incapacity
or death), or Mr. Talla or Ms. Pattee Francini elects to terminate his or her
employment for "good reason" (as that term is defined in the agreements), he or
she is entitled to receive severance compensation equal to the lesser of: (i)
the maximum amount which does not constitute a "parachute payment" as defined in
Section 28OG of the Internal Revenue Code of 1986, as amended; or (ii) an amount
equal to three times the aggregate of (A) his or her base annual salary then in
effect, (B) the car allowance, Club memberships and insurance benefits paid for
the employee during the one-year period immediately prior to termination, and
(C) bonuses accrued but unpaid through the date of termination of employment.
Under the agreements, "good reason" includes the relocation of the executive
officer's place of employment, the assignment of any duties inconsistent with
the employee's position or any other action which diminishes the employee's
position, authority or duties, which determination shall be made in good faith
by the employee. If the employment of Mr. Talla or Ms. Pattee Francini were
terminated within two years following a Change in Control as a result of the
occurrence of any of the foregoing events (assuming that neither would be
entitled to any performance bonus), the aggregate approximate amounts payable to
Mr. Talla and Ms. Pattee Francini would be $757,046 and $486,173, respectively.
Effective June 1, 1998, we entered into an employment agreement with Mr.
Gibbons which will remain in effect until terminated as described below. The
agreement provides for an annual base salary of $250,000, subject to annual
review and upward adjustment at the discretion of the Board of Directors, and
entitles Mr. Gibbons to participate in any management bonus program the Board of
Directors may implement from time to time. Additionally, Mr. Gibbons receives
$40,000 for living expenses each year, and a car allowance. The Board, in its
discretion, may also award him a bonus of up to twenty percent (20%) of his
annual gross base salary. Pursuant to the agreement, effective April 15, 1998,
the Compensation Committee of the Board of Directors granted Mr. Gibbons an
incentive stock option to purchase 30,000 shares of our common stock at an
exercise price of $8.00 per share, vesting in three equal installments on April
15 of 1999, 2000 and 2001 or earlier, upon a change of control (as defined in
the agreement).
We may terminate the agreement without cause, if Mr. Gibbons dies or
becomes disabled and may also terminate it with "cause," if Mr. Gibbons
participates in conduct materially harmful to us, is adjudged
26
<PAGE> 43
guilty of a felony, demonstrates gross inattention to his duties, breaches any
fiduciary duty to us or violates any material term of the agreement. Mr. Gibbons
may also terminate the agreement without cause at any time. If Mr. Gibbons is
terminated by us other than for "cause," he will be entitled to receive one year
of severance pay at his base salary in effect on the date of termination.
We do not have written employment agreements with Messrs. Spino, Swain and
O'Brien, who currently receive annual base salaries of $150,000, $160,000 and
$150,000, respectively.
COMPENSATION OF DIRECTORS
Non-employee directors are entitled to receive an annual fee of $12,000
and a fee of $1,000 for each meeting attended. Non-employee directors who are
members of the Audit Committee or Compensation Committee are entitled to receive
$1,000 for each meeting they attend. In addition, non-employee directors receive
1,000 shares of our Common Stock each year pursuant to the Company's 1994 Stock
Compensation Plan, which has been increased to 2,000 shares for 1999, subject to
receipt of stockholder approval of an amendment to the 1994 Stock Compensation
Plan. Messrs. Licklider, Collins, Turner and Veru currently serve on the Board
as non-employee directors. We provide Mr. Licklider with health insurance under
our group insurance plan. All directors receive reimbursement of reasonable
out-of-pocket expenses incurred in connection with meetings of the Board.
Amounts paid to directors were $37,026 during 1996, $48,783 during 1997 and
$53,320 during 1998. Under the 1994 Stock Compensation Plan an aggregate of
16,000 shares of Common Stock were issued to non-employee directors through
December 31, 1998.
COMPENSATION OF COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board ("Committee") administers the
executive compensation. Mr. Licklider was appointed Chairman on July 8, 1994,
and served continuously until August 1, 1996, when he resigned to become a paid
consultant to us. Mr. Turner has been a member of the Committee since September
13, 1994, and became its Chairman on February 27, 1995. Mr. Veru was appointed
to the Committee on February 20, 1996, and Mr. Collins was appointed on April
10, 1998. None of these individuals has ever been an officer or employee.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the shares of our common stock beneficially
owned as of March 10, 1999 by our directors and executive officers. It also
shows other individuals or entities that beneficially owned more than 5% of the
18,819,931 outstanding shares of our common stock.
<TABLE>
<CAPTION>
TOTAL AND PERCENT OF
SHARES OPTIONS SHARES HELD STOCK OUTSTANDING
NAME AND ADDRESS OWNED EXERCISABLE UNDER ------------------------
OF BENEFICIAL OWNER(a) DIRECTLY(b) WITHIN 60 DAYS(c) 401-K PLAN NUMBER PERCENT
---------------------- ----------- ----------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
D. Michael Talla................. 4,424,198 10,000 1,144 5,199,119(d) 27.63%(d)
Nanette Pattee Francini.......... 256,107 35,000 210 5,199,119(d) 27.63%(d)
Mark S. Spino.................... 227,969 35,000 705 5,199,119(d) 27.63%(d)
Philip J. Swain.................. 163,164 45,000 622 5,199,119(d) 27.63%(d)
John M. Gibbons.................. 48,500 235,000 1,712 285,212 1.52%
Timothy O'Brien.................. 2,600 63,334 865 66,799 *
The Licklider Living Trust
Dated May 2, 1986.............. 1,305,662 -- -- 1,305,662 6.94%
Andrew L. Turner................. 75,000 -- -- 75,000 *
Dennison T. Veru................. 23,000 -- -- 23,000 *
Brian J. Collins................. 33,001 -- -- 33,001 *
All Directors and Executive
Officers as a Group
(10 persons).................... 6,559,201 423,334 5,258 6,987,793 37.13%
Millennium(e).................... 4,620,963 -- -- 4,620,963 24.55%
Baron Capital Group, Inc.(f)..... 1,650,000 -- -- 1,650,000 8.77%
</TABLE>
- ----------
* Less than 1%
27
<PAGE> 44
(a) The address of all directors and executive officers is c/o The Sports Club
Company, Inc. at 11100 Santa Monica Blvd., Suite 300, Los Angeles,
California 90025.
(b) Includes shares for which the named person is considered the owner
because:
1. the named person has sole voting and investment power,
2. the spouse has voting and investment power, or
3. the shares are held by other members of the immediate family.
(c) Includes shares that can be acquired through stock option exercises
through May 9, 1999.
(d) Named persons share voting power pursuant to a voting agreement that
requires each party to vote his or her shares in the manner determined by
a majority of all holders. The agreement is effective until October 20,
2004 or until terminated by persons holding 66 2/3% of the shares of our
common stock subject to the agreement. The parties to the voting agreement
in effect each control the voting of all shares held by the parties to the
agreement and under SEC rules are deemed beneficial owners of the shares
subject to the agreement. The total number of shares of our common stock
held by the parties without giving effect to beneficial ownership
resulting from the voting agreement is:
<TABLE>
<CAPTION>
SHARES TOTAL SHARES
HELD HELD
NAMED PERSON DIRECTLY (SEE ABOVE TABLE)
------------ --------- -----------------
<S> <C> <C>
D. Michael Talla:
Individually..................................... 4,274,961
Spouse........................................... 30,953
Trusts for two minor children.................... 129,428
---------
Total................................................ 4,435,342
Nanette Pattee Francini...................................... 291,317
Mark S. Spino................................................ 263,674
Philip J. Swain.............................................. 208,786
---------
All Parties to Voting Agreement...................... 5,199,119
=========
</TABLE>
(e) The Millennium shares are held by the following affiliates:
1. Millennium Partners LLC owns 2,253,863 shares
2. Millennium Development Partners L.P. owns 970,400 shares
3. MDP Ventures I LLC owns 80,600 shares
4. MDP Ventures II LLC owns 691,100 shares
5. Millennium Entertainment Partners L.P. owns 625,000 shares
The address of all such entities is c/o Millennium Partners Management
LLC, 1995 Broadway, New York, New York, 10023.
(f) The "Number of Shares Beneficially Owned" is based on information
contained in a report on Schedule 13G filed by Baron Capital Group, Inc.
(and affiliates) with the SEC on March 4, 1999. Baron Capital Group, Inc.
is a registered investment advisor located at 767 Fifth Avenue, New York,
NY 10153.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time we have entered into transactions with our officers,
directors and stockholders. We believe that each of the following transactions
has been on terms no less favorable to us than could have been obtained from
unaffiliated third parties. All transactions between us and any of our directors
or officers are subject to the approval of the disinterested directors.
Messrs. Talla and Licklider. We have a 50.1% interest in the partnership
that owns The Sports Club/LA and Mr. Talla beneficially owns the remaining
49.9%. The partnership agreement provides that, on an annual basis, the partners
will share in the first $300,000 of the Club's net cash flow in proportion to
our percentage interests. The next $35.0 million of net cash flow will be
distributed to us. All distributions of net cash flow thereafter, if any, will
be made to the partners in proportion to their percentage interests. Under
certain circumstances, we have an option to purchase Mr. Talla's interest in the
partnership for an amount equal to four times the amount of his most recent
annual distribution from the partnership.
28
<PAGE> 45
Effective August 1996, Mr. Licklider entered into a consulting agreement
with us pursuant to which Mr. Licklider received $10,000 per month, plus
reimbursement for reasonable and necessary expenses. Effective with the
commencement of the consulting agreement, Mr. Licklider resigned from the audit
and compensation committees of the Board of Directors. Under the terms of the
agreement, Mr. Licklider provided a minimum of 60 hours of service per month
outside the normal scope of his duties as a director and advised us with respect
to strategic and financial matters. By mutual consent, the agreement was not
renewed upon its expiration on July 31, 1998.
In April 1997, RM Sports Club, Inc., a company owned by Messrs. Talla and
Licklider, entered into an agreement to purchase the Vertical Club in New York
and in connection therewith made a $1.0 million non-refundable deposit. In April
1998, RM Sports Club, Inc. transferred its rights under the purchase agreement
to us for a purchase price equal to $1.0 million.
In January 1998, Messrs. Talla and Licklider purchased a 7,000 square foot
parcel of land adjacent to property owned and used by The Sports Club/LA. In
February 1999, we acquired the property from them for $637,422, such price being
equal to the purchase price paid by Messrs. Talla and Licklider, minus rental
income received by them, plus an interest credit on their investment at an
annual rate of 6.56%. The acquired property is currently leased to a
non-affiliated third party.
In January 1999, we entered into a non-binding letter of intent with
Equity Advisory Group, pursuant to which we agreed to sell the property we own
in Thousand Oaks, California for a purchase price of $12.0 million. Under the
terms of the letter agreement, the sum of $10.0 million would be received at the
close of the sale and the remaining $2.0 million would be paid upon the
fulfillment of certain conditions by us. We would leaseback the property from
Equity Advisory Group under a long-term lease with an initial annual base rent
of $1.1 million, until such time as we receive the final $2.0 million of the
purchase price, at which time the annual rent will increase to $1.3 million. The
Thousand Oaks property consists of the Spectrum Club - Thousand Oaks,
unimproved office space and a parking area. It is anticipated that Mr. Licklider
will beneficially own approximately a 10% interest in Equity Advisory Group and
trusts for the benefit of Mr. Talla's minor children will beneficially own
approximately a 12% interest in Equity Advisory Group.
Millennium. Millennium is a partner in the Reebok-Sports Club/NY
partnership as well as the landlord of the building in which Reebok Sports
Club/NY is located. Reebok-Sports Club/NY partnership pays rent to Millennium in
the amount of $2.0 million per year, and the partnership agreement provides for
a first priority annual distribution of $3.0 million to Millennium.
In June 1997, we issued to Millennium 2,105,263 shares of our common stock
in exchange for $10.0 million, consisting of $5.0 million in cash and certain
interests of Millennium in the Reebok-Sports Club/NY partnership, including a
9.9% interest in the partnership and a $2.5 million promissory note issued by
the partnership. We also granted to Millennium certain registration and
preemptive rights regarding its shares. In addition, for so long as Millennium
maintains at least a 12% interest in our equity securities, we and certain of
our stockholders have agreed to cause a nominee of Millennium to be appointed or
elected to the Board of Directors. Pursuant to this agreement Brian J. Collins,
an officer of Millennium, is currently serving as a member of our Board of
Directors.
In December 1997, we sold 625,000 shares of common stock to Millennium for
$5.0 million, which we used to fund the cash portion of the acquisition of four
Spectrum Clubs. In addition, Millennium acquired properties underlying two of
the Clubs for $10.0 million and is leasing these properties to us under a
financing lease agreement. The lease has a term of twenty years, and provides
for an annual rent of $1.0 million for the first ten years and $1.2 million per
year thereafter. At any time during the first three years of the lease we may
purchase the leased property for a price (currently estimated to be
approximately $10.2 million at December 31, 1998) equal to $10.0 million and all
costs incurred by Millennium in connection with the acquisition of such
property, plus a 12% compound return on its total investment. Millennium has the
right to require us to acquire its interest in the property at such price if (1)
we receive private debt
29
<PAGE> 46
financing in excess of $95.0 million, (2) we receive public equity financing in
excess of $20.0 million, (3) a default (as defined in the lease) occurs or (4) a
major casualty occurs with respect to either property.
In June 1998, we acquired land from an unaffiliated third party in
Houston, Texas, for approximately $3.1 million, on which we intend to build a
Sports Club. Millennium agreed that, if we could not obtain satisfactory
financing for this development, Millennium would acquire the land and negotiate
with us to develop a Sports Club on the site. We were able to acquire the land
without assistance from Millennium, and this Agreement has expired.
We have entered into leases with Millennium relating to Sports Clubs to be
developed in San Francisco and Washington D.C. and we are negotiating the terms
of a lease for a Sports Club in Boston. The leases for the San Francisco and
Washington D.C. developments provide for base rental payments of $3.0 million
per year, for a term of 20 years, and for three 14 year renewal options. In
addition, once we have received an amount equal to a management fee of 6% of all
revenues, an amount equal to our investment in the Club plus an 11% annual
return on our investment and an additional distribution sufficient to reduce our
average base rental payment for each club to $2.75 million per year, Millennium
is entitled to receive 20% of all additional cash flows from each Club as
additional rent. The lease for the Boston development is expected to contain
similar terms, except that the base rental payment is expected to be $2.75
million per year. We expect each of the Clubs to be approximately 100,000 square
feet.
30
<PAGE> 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements filed as part of this Report are listed in Item
8 of this Report.
(2) No financial schedules have been included because they are not
applicable, not required or because required information is included
in the consolidated financial statements or notes thereto.
(3) The following exhibits are filed as part of this Report.
EXHIBIT
NUMBER EXHIBIT
- ------- -------
3.1 Restated Certificate of Incorporation of the Registrant.*
3.2 Bylaws of the Registrant.*
3.3 Amendment to Bylaws dated February 1, 1995.**
4.1 Specimen common Stock Certificate.*
4.2 Rights Agreement by and between the Registrant and American Stock
Transfer & Trust dated as of October 6, 1998.+++
4.3 First Amendment to Rights Agreement by and between the Registrant
and American Stock Transfer & Trust entered into as of February 18,
1999.++++
9.1 Voting Agreement among D. Michael Talla, Nanette Pattee Francini,
Mark S. Spino, Peter Feinstein, Philip J. Swain and FP II.*
10.1 1994 Stock Incentive Plan.*#
10.2 Form of Stock Option Agreement.*#
10.3 Form of Stock Purchase Agreement.*#
10.4 1994 Stock Compensation Plan.*#
10.5 Form of Indemnification Agreement between the Registrant and its
directors and certain officers.*
10.6 Indemnification Agreement between the Registrant and D. Michael
Talla.*
10.7 Indemnification Agreement between Registrant and Rex A. Licklider.*
10.8 Employment Agreement between Registrant and D. Michael Talla.*#
10.9 Employment Agreement between the Registrant and Nanette Pattee
Francini.*#
10.10 Promissory Note executed by Agoura Hills/Spectrum Club dated March
29, 1994 in favor of Hawthorne Savings and Loan Association.*
31
<PAGE> 48
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.11 Lease of premises for Reebok Sports Club/NY located at 160 Columbus
Avenue, New York 10023 dated June 3, 1992.*
10.12 Joint Venture Agreement for Sports Connection - ES/MB between El
Segundo-TDC, Ltd. and Continental El Segundo Corporation effective
as of January 3, 1986.*
10.13 First Amendment to Joint Venture Agreement for Sports Connection -
ES/MB dated January 3, 1986.*
10.14 Restated Agreement of Limited Partnership of El Segundo-TDC, Ltd.,
as amended.*
10.15 Management Agreement effective as of June 3, 1992, between R-SC/NY,
Ltd. And Pontius Realty, Inc.*
10.16 License Agreement between Reebok Fitness Centers, Inc. and R-SC/NY,
Ltd. Dated June 3, 1992.*
10.17 Letter Agreement regarding R-SC/NY dated June 3, 1992.*
10.18 Club Management Contract for the Spectrum Club/Manhattan Beach dated
January 3, 1986, as amended January 3, 1986 and September 17, 1987
and as assigned June 30, 1992.*
10.19 Memorandum of Agreement between Reebok Fitness Centers, Inc. and the
Company dated as of June 3, 1992.*
10.20 Seventh Amendment and Restated Agreement of Limited Partnership of
L.A./Irvine Sports Club, Ltd., a California Limited Partnership,
dated as of October 12, 1994.*
10.21 First Amendment to Seventh Amended and Restated Agreement of Limited
Partnership of L.A./Irvine Sports Club, Ltd., a California Limited
Partnership, dated as of October 12, 1994.*
10.22 Form of Option Agreement by and between D. Michael Talla, an
individual, TTO Partners, a California Limited Partnership, and
Sports Club, Ltd., a California Corporation, relating to L.A./Irvine
Sports Cub, Ltd., a California Limited Partnership.*
10.23 Amended and Restated Agreement of Limited Partnership of TTO
Partners, a California Limited Partnership, dated June 30, 1992, as
amended January 1, 1993, January 4, 1993 and February 12, 1994 and
as assigned January 1, 1993.*
10.24 First Amended and Restated Agreement of Limited Partnership of
Reebok-Sports Club/NY, Ltd. Dated as of October 12, 1994.*
10.25 Letter Agreement by and between Reebok Fitness Centers, Inc. and the
Company dated October 12, 1994.*
10.26 Amendment to First Amended and Restated Agreement of Limited
Partnership of Reebok-Sports Club/NY, Ltd. Dated as of October 12,
1994.*
10.27 Letter Agreement by and between Reebok Fitness Centers, Inc. and the
Company, which became effective on October 29, 1994.*
32
<PAGE> 49
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.28 License Agreement by and between Reebok Fitness Centers, Inc. and
the Company, which became effective on October 20, 1994.*
10.29 Promissory Note executed by L.A./Irvine Sports Clubs, Ltd. In favor
of MKDG/Rhodes SC Partnership, dated October 20, 1994.**
10.30 First Amendment to Employment Agreement between Registrant and John
M. Gibbons, dated July 14, 1995.***#
10.31 Amended and Restated Employment Agreement between Registrant and
John M. Gibbons, dated July 14, 1995.***#
10.32 401-K Profit Sharing Plan and related Group Annuity Contract No.
GA-P K522 and Group Separate Account Annuity contract No. GA-P K523,
both with Nationwide Life Insurance Company with an effective date
of February 1, 1996.****
10.33 First Amendment to Restated Employment Agreement between Registrant
and John M. Gibbons dated as of April 24, 1996.#****
10.34 Management by and between Registrant and C.I.T.E. Design Corp. dated
as of May 2, 1996.****
10.35 Letter Agreement by and between Registrant and WPI.Koll Asia Pacific
Advisors dated as of October 9, 1996.****
10.36 Termination Agreement by and among Bally Total Fitness Holding
Corporation, Bally Total Fitness Corporation, Bally's S.C.
Management, Inc., The Sports Connection Holding Company and
Registrant dated October 31, 1996.****
10.37 Agreement by and among Reebok-Sports Club/NY Ltd., Talla New York,
Inc., RFC, Inc., LMP Health Club Co., Millennium Entertainment
Partners, L.P. and Registrant dated as of December 30, 1996.****
10.38 Letter Agreement between Millennium Entertainment Partners, L.P. and
the Registrant dated as of March 13, 1997.****
10.39 Loan Agreement entered into by and among the Registrant, The
Spectrum Club Company, Inc., Pontius Realty, Inc., Sports Club, Inc.
of California, Irvine Sports Club, Inc., HealthFitness Organization
of America, Inc., L.A./Irvine Sports Cub, Ltd., Talla New York,
Inc., SCC Sports Club, Inc. and Sumitomo Bank of California dated as
of March 20, 1997.****
10.40 First Amendment to Option Agreement between D. Michael Talla and TTO
Partners dated May 27, 1997.*****
10.41 Consulting Agreement between the Registrant and Rex A. Licklider
dated August 1, 1997.#*****
10.42 First Amendment to Loan Agreement by and among the Registrant and
various of its subsidiaries and Sumitiomo Bank of California dated
August 1, 1997.*****
33
<PAGE> 50
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.43 Second Amendment to Loan Agreement by and amoung the Registrant and
various of its subsidiaries and Sumitomo Bank of California dated
August 14, 1997.*****
10.44 Settlement Agreement, Agreement for Dismissal and General Release
and Waiver by and between Century Entertainment, L.P., the
Registrant and Century City Spectrum Club, Inc. dated May 16,
1997.*****
10.45 Modification to the March 13, 1997 letter between Millennium
Entertainment Partners, L.P. and the Registrant dated June 10,
1997.*****
10.46 Asset Purchase Agreement between Green Valley Athletic Club Limited
Partnership and the Registrant dated as of May 1, 1997.*****
10.47 Agreement of Purchase and Sale of Real Property between Green Valley
Investment Company, Inc., and the Registrant dated as of May 1,
1997.*****
10.48 Agreement for Purchase and Sale of Assets by and among HFA Services,
Inc., SportsTherapy, Inc. and Larry Schwartz made as of July 1,
1997.*****
10.49 Letter Agreement between Millennium Entertainment Partners, L.P. and
the Registrant dated December 29, 1997.+
10.50 Agreement of Purchase and Sale by and among The Spectrum Club
Company, Inc., SCC I LLC and RBW/Fullerton dated as of December 31,
1997.+
10.51 Agreement of Purchase and Sale between The Spectrum Club Company,
Inc. and Norcan dated as of December 31, 1997.+
10.52 Agreement of Purchase and Sale by and among The Spectrum Club
Company, Inc., SCC I LLC, RBW/Santa Ana and RBWSA, LLC dated as of
December 31, 1997.+
10.53 Agreement of Purchase and Sale between The Spectrum Club Company,
Inc. and Racquetball World dated as of December 31, 1997.+
10.54 Agreement of Lease between SCC I LLC and the Registrant dated as of
December 31, 1997.+
10.55 Amended and Restated Loan Agreement by and among the Registrant and
various of its subsidiaries and Sumitomo Bank of California dated as
of February 2, 1998.*****
10.56 Amendment of Lease between Lincoln Metrocenter Partners, L.P. and
Reebok-Sports Club/NY Ltd. As of January 31, 1998.*****
10.57 Letter Agreement between AT&T Commercial Finance Corporation and
L.A./Irvine Sports Clubs, Ltd. Dated January 8, 1998.*****
10.58 Athletic Club Lease between Millennium Partners LLC and S.F. Sports
Club, Inc. dated as of June 22, 1997.*****
10.59 Athletic Club Lease between Millennium Partners LLC and Washington
D.C. Sports Club, Inc. dated as of June 22, 1997.*****
34
<PAGE> 51
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.61 First Amendment to Amended and Restated Loan Agreement by and among
the Registrant and various of its subsidiaries, Sumitomo Bank of
California and Comerica Bank - California dated as of February 23,
1998.*****
10.62 Underwriting Agreement by and among the Registrant and Schroder &
Co. Inc., Prudential Securities Incorporated and Sutro & Co.
Incorporated dated April 1, 1998.++
10.63 Form of Membership Agreements for The Sports Clubs and Spectrum
Clubs.
10.64 Lease Agreement between RCPI Trust and the Registrant as of February
27, 1998.
10.65 Amended and Restated Net Operating Lease among Hirschfeld Realty
Club Corporation and 328 E. 61 Corp., and Vertical Fitness and
Racquet Club, Ltd., dated March 26, 1985.
10.66 Lease Modification Agreement by and among Hirschfeld Realty
Corporation and 328 E. 61 Corp., and Vertical Fitness and Racquet
Club, Ltd., dated July 1, 1990.
10.67 Assignment and Assumption of Lease by and between Vertical Fitness
and Racquet Club, Ltd., and Bally Entertainment Corporation dated
January 8, 1996.
10.68 Assignment of Lease executed by Hilton Hotels Corporation, as
successor to tenant, and agreed to and accepted by the Registrant,
dated April 15, 1998.
10.69 Second Amendment to Amended and Restated Net Operating Lease by and
among Hirschfeld Realty Club Corporation and 328 E. 61 Corp., and
the Registrant dated April 15, 1998.
10.70 Letter Agreement among the Registrant and Rex A. Licklider and D.
Michael Talla dated March 31, 1998.
10.71 Asset Purchase Agreement between Hilton Hotels Corporation and RM
Sports Club, Inc. dated as of April 1, 1998.
10.72 Assignment and Assumption of Asset Purchase Agreement between RM
Sports Club, Inc. and the Registrant entered into as of April 1,
1998.
10.73 Note Payable issued by the Registrant to Hilton Hotels Corporation
dated April 15, 1998.
10.74 Instructions for Purchase of Real Estate in Houston, Texas dated
March 5, 1998.
10.75 Amended and Restated 1994 Stock Incentive Plan as of June 2, 1998.#
10.76 Second Amendment to Amended and Restated Loan Agreement among the
Registrant and certain of its subsidiaries, Sumitomo Bank of
California and Comerica Bank - California dated as of March 16,
1998.
10.77 Second Amended and Restated Loan Agreement among the Registrant and
certain of its subsidiaries, Sumitomo Bank of California and
Comerica Bank - California dated as of June 9, 1998.
10.78 Third Amendment to Amended and Restated Loan Agreement among the
Registrant and certain of its subsidiaries, California Bank & Trust
and Comerica Bank - California dated as of January 11, 1999.
35
<PAGE> 52
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.79 Third Amended and Restated Loan Agreement between the Registrant and
certain of its subsidiaries and Comerica Bank - California dated as
of February 1, 1999.
10.80 First Amendment to Third Amended and Restated Loan Agreement between
the Registrant and certain of its subsidiaries and Comerica Bank -
California dated as of February 1, 1999.
10.81 Employment Agreement between the Registrant and John Gibbons dated
October 16, 1998.#
10.82 Settlement Agreement and Mutual Release among the Registrant, RM
Sports Club, Inc. and Bally Total Fitness Holding Corporation made
as of December 31, 1998.
10.83 Letter Agreement between the Registrant and Millennium Partners LLC
dated as of October 27, 1998.
10.84 Participation Agreement between the Registrant and Millennium
Partners LLC, dated as of October 27, 1998.
10.85 First Amendment to Lease between RCPI Trust and the Registrant dated
October 30, 1998.
10.86 Second Amendment to Lease between RCPI Trust and the Registrant
dated March 4, 1999.
10.87 Lease between CB-1 Entertainment Partners LP and S.F. Sports Club,
Inc. dated June 1, 1997.
10.88 Lease between 2200 M Street LLC and Washington D.C. Sports Club,
Inc. dated March 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
- -------------
# Compensation agreement of plan.
* Incorporated by reference to the Registrant's Registration Statement of
Form S-1, declared effective on October 13, 1994 (SEC file No. 33-79552).
** Incorporated by reference to the Registrant's Annual Report on Form 10-K,
filed with the Securities and Exchange Commission on March 31, 1995 (SEC
file No. 1-13290).
*** Incorporated by reference to the Registrant's Annual Report on Form 10-K,
filed with the Securities and Exchange Commission on March 29, 1996 (SEC
file No. 1-13290).
**** Incorporated by reference to the Registrant's Annual Report on Form
10-K/A, filed with the Securities and Exchange Commission on October 14,
1997 (SEC file No. 1-13290).
***** Incorporated by reference to the Registrant's Annual Report on Form 10-K,
filed with the Securities and Exchange Commission on February 26, 1998
(SEC file No. 1-13290).
+ Incorporated by reference to the Registrant's Form 8-K, filed with the
Securities and Exchange Commission on January 15, 1998 (SEC file No.
1-13290).
36
<PAGE> 53
++ Incorporated by reference to the Registrant's Regristration Statement on
Form S-2, declared effective on April 1, 1998 (SEC file No. 333-46973).
+++ Incorporated by reference to the Registrant's Form 8-K, filed with the
Securities and Exchange Commission on October 6, 1998 (SEC file No.
1-13290).
++++ Incorporated by reference to the Registrant's Form 8-K, filed with the
Securities and Exchange Commission on March 15, 1999 (SEC file No.
1-13290).
(b) Reports on Form 8-K
The following reports on Form 8-K were filed from October 1, 1998 through
the date of this report.
DATE EVENT
---- -----
October 6, 1998 Announced adoption of Stockholder Rights
Agreement.
March 15, 1999 Announced amendment to Stockholder
Rights Agreement and announced private
offering of $100 million of senior
secured notes.
(c) Exhibits
Index to Exhibits
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.63 Form of Membership Agreements for The Sports Clubs and Spectrum
Clubs.
10.64 Lease Agreement between RCPI Trust and the Registrant as of February
27, 1998.
10.65 Amended and Restated Net Operating Lease among Hirschfeld Realty
Club Corporation and 328 E. 61 Corp., and Vertical Fitness and
Racquet Club, Ltd., dated March 26, 1985.
10.66 Lease Modification Agreement by and among Hirschfeld Realty
Corporation and 328 E. 61 Corp., and Vertical Fitness and Racquet
Club, Ltd., dated July 1, 1990.
10.67 Assignment and Assumption of Lease by and between Vertical Fitness
and Racquet Club, Ltd., and Bally Entertainment Corporation dated
January 8, 1996.
10.68 Assignment of Lease executed by Hilton Hotels Corporation, as
successor to tenant, and agreed to and accepted by the Registrant
dated April 15, 1998.
10.69 Second Amendment to Amended and Restated Net Operating Lease by and
among Hirschfeld Realty Club Corporation and 328 E. 61 Corp., and
the Registrant dated April 15, 1998.
10.70 Letter Agreement among the Registrant and Rex A. Licklider and D.
Michael Talla dated March 31, 1998.
10.71 Asset Purchase Agreement between Hilton Hotels Corporation and RM
Sports Club, Inc. dated as of April 1, 1998.
37
<PAGE> 54
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.72 Assignment and Assumption of Asset Purchase Agreement between RM
Sports Club, Inc. and the Registrant entered into as of April 1,
1998.
10.73 Note Payable issued by the Registrant to Hilton Hotels Corporation
dated April 15, 1998.
10.74 Instructions for Purchase of Real Estate in Houston, Texas dated
March 5, 1998.
10.75 Amended and Restated 1994 Stock Incentive Plan as of June 2, 1998.#
10.76 Second Amendment to Amended and Restated Loan Agreement among the
Registrant and certain of its subsidiaries, Sumitomo Bank of
California and Comerica Bank - California dated as of March 16,
1998.
10.77 Second Amended and Restated Loan Agreement among the Registrant and
certain of its subsidiaries, Sumitomo Bank of California and
Comerica Bank - California dated as of June 9, 1998.
10.78 Third Amendment to Amended and Restated Loan Agreement among the
Registrant and certain of its subsidiaries, California Bank & Trust
and Comerica Bank - California dated as of January 11, 1999.
10.79 Third Amended and Restated Loan Agreement between the Registrant and
certain of its subsidiaries and Comerica Bank - California dated as
of February 1, 1999.
10.80 First Amendment to Third Amended and Restated Loan Agreement between
the Registrant and certain of its subsidiaries and Comerica Bank -
California dated as of February 1, 1999.
10.81 Employment Agreement between the Registrant and John Gibbons dated
October 16, 1998.#
10.82 Settlement Agreement and Mutual Release among the Registrant, RM
Sports Club, Inc. and Bally Total Fitness Holding Corporation made
as of December 31, 1998.
10.83 Letter Agreement between the Registrant and Millennium Partners LLC
dated as of October 27, 1998.
10.84 Participation Agreement between the Registrant and Millennium
Partners LLC, dated as of October 27, 1998.
10.85 First Amendment to Lease between RCPI Trust and the Registrant dated
October 30, 1998.
10.86 Second Amendment to Lease between RCPI Trust and the Registrant
dated March 4, 1999.
10.87 Lease between CB-1 Entertainment Partners LP and S.F. Sports Club,
Inc. dated June 1, 1997.
10.88 Lease between 2200 M Street LLC and Washington D.C. Sports Club,
Inc. dated March 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
- ------------
# Compensation agreement or plan.
38
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 25th
day of March, 1999.
THE SPORTS CLUB COMPANY, INC.
/s/ D. Michael Talla
-------------------------------------
D. Michael Talla,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant, in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ D. Michael Talla Chairman of the Board March 25, 1999
- ----------------------------------- and Chief Executive Officer
D. Michael Talla
/s/ Timothy M. O'Brien Chief Financial Officer March 25, 1999
- ----------------------------------- (Principal Financial and Accounting
Timothy M. O'Brien Officer)
/s/ Rex Licklider Vice Chairman of the Board March 25, 1999
- -----------------------------------
Rex A. Licklider
/s/ John M. Gibbons President, Chief Operating Officer March 25, 1999
- ----------------------------------- and Director
John M. Gibbons
/s/ Brian J. Collins Director March 25, 1999
- -----------------------------------
Brian J. Collins
/s/ Nanette Pattee Francini Director March 25, 1999
- -----------------------------------
Nanette Pattee Francini
Director
- -----------------------------------
Andrew L. Turner
/s/ Dennison Veru Director March 25, 1999
- -----------------------------------
Dennison Veru
</TABLE>
39
<PAGE> 1
EXHIBIT 10.63
FORM OF
MEMBERSHIP AGREEMENTS
FOR SPORTS CLUBS AND
SPECTRUM CLUBS
I HAVE READ, UNDERSTAND AND RECEIVED A COMPLETE COPY OF THIS AGREEMENT, THE
RELEASE, WAIVER OF LIABILITY AND INDEMNIFICATION AGREEMENT SECTION HEREOF, AND
THE BYLAWS OF THE CLUB WHICH ARE INCORPORATED HEREIN BY REFERENCE, AND I AGREE
TO BE BOUND BY THEIR TERMS AND CONDITIONS.
Print Name:_______________________________________________________
Member's Signature_____________________________ Date:__________________________
Valencia Spectrum By:__________________________ Date:__________________________
- --------------------------------------------------------------------------------
THREE-DAY RIGHT TO CANCEL. You, the buyer, may cancel this agreement at any time
prior to midnight on the third business day (of the Club) after the date of this
agreement, excluding Sundays and holidays. To cancel this agreement, mail or
deliver your copy of this agreement and a signed and dated notice, or send a
telegram which states that you, the buyer, are cancelling this agreement, or
words of similar effect. Such notice shall be sent to Valencia Spectrum, 24525
Town Center Drive, Valencia, CA 91355.
- --------------------------------------------------------------------------------
<PAGE> 2
MEMBERSHIP VALID ONLY AT:
[LOGO] CLUB __________________________
MEMBER SIGNATURE ______________
MEMBERSHIP AGREEMENT
This Membership Agreement ("Agreement") for the type of membership indicated
below, is between The Spectrum Club ("Club") and its affiliated Clubs which
applicant may visit from time to time and utilize facilities, equipment or
services therein, pursuant to the terms of this Agreement, and the undersigned
applicant ("Applicant"). By signing this Agreement, I acknowledge that I have
received and read a copy of the Bylaws of the Club and a completed copy of this
Agreement. I agree that I will be bound by the provisions on the face of this
Agreement, the additional provisions on the reverse, the Bylaws of the Club, as
now in effect and as from time to time amended by the Club, and such rules as
may from time to time be posted at the Club, all of which are incorporated by
reference in this Agreement.
1. INITIATION FEE AND DUES. In consideration of your membership, you are paying
a non-refundable, non-transferable, one time initiation fee of $_______ and a
$_______ non-refundable annual towel fee. Your monthly dues will be $_______
subject to increase as described in Section 6. You agree to pay dues, in
advance, for the first full calendar month of your membership. Your membership
and your dues payments will begin when this Agreement is signed by the Club and
will continue unless otherwise terminated in accordance with Sections 6, 7, and
11. You have _____ have not _____ elected to prepay one year's dues in the
amount of $_______ per month times 12 months less a 1 month discount of $_______
equals $_______. At the beginning of each new year of your membership, a
non-refundable towel fee will be added to the monthly dues payment collected
through Checkfree or to the annual renewal dues.
2. MEMBERSHIP. Your membership is a contractual privilege to use the facilities
from time to time offered by the Club to members of your class of membership
during the Club's hours of operations. The Club reserves the absolute right to
initiate, change or eliminate facilities, services and programs offered from
time to time, to initiate, change or eliminate fees for existing or new
facilities, services and programs; and to change its hours of operations. Your
membership does not entitle you to any interest in the Club or its property and
confers no right to participate in the management or operation of the Club.
3. CLASS OF MEMBERSHIP. Your membership class is: _______ Individual _______ Add
On _______ Dependent _______ Corporate An individual membership is defined as a
membership for one person whether married or not. An Add On membership is
defined as a membership for one person who is the spouse or domestic partner of
an existing member (primary member) paying Individual dues rates of the Club.
The Club requires documentation of marital or domestic partnership status. A
Dependent membership is defined as a membership for one person who is the
dependent, ages 15 through 20, of and living at home with two existing Club
members. The initiation fee and dues of an Add On or Dependent member are
reduced. In the event the primary member terminates his/her membership at the
Club, or the spousal or domestic partner relationship between two members is
terminated, the Add On dues rate will revert to the prevailing Individual dues
rate for that membership type. In the event the primary member terminates
his/her membership at the Club, Dependents will revert to the prevailing Add On
dues rate for that membership type. In the event the primary member and Add On
member terminate their memberships at the Club, Dependents will revert to the
prevailing Individual dues rate for that membership type. At age 21 (upon 21st
birthday), the Dependent dues rate will revert to the prevailing Individual dues
rate for that membership type. Dues rates will be adjusted at the end of the
prepaid term of membership for annual members or the next Checkfree collection
date for monthly dues members.
A Corporate membership is defined as a membership for one person which is
purchased in a group of a minimum of five memberships at the same time and the
initiation fee and monthly dues are paid by a corporation. The Club requires
documentation of employee status. A Corporate membership may be transferred from
one designated holder to another one time per year by providing 30 days advance
written notice and upon payment of a transfer fee of $________.
4. TYPE OF MEMBERSHIP. Your membership type is:
___________________________ Health __________________________ Racquet
_______________ All Spectrum Clubs _____________________ Home Club Only Racquet
members are entitled to use and enjoy the facilities of the Club. Health members
are entitled to use and enjoy the facilities of the Club except the racquet
facilities.
All Spectrum Clubs members are entitled to use and enjoy the facilities of
existing Spectrum Clubs subject to the restrictions detailed in the above
paragraph. Home Club Only members are entitled to use and enjoy the facilities
only of the Club at which their membership was purchased ("Home Club") subject
to the restrictions detailed in the above paragraph.
5. INITIATION FEES. Except as otherwise provided in this Agreement, your
initiation fee is non-refundable. Your initiation fee is not a prepaid sum for
services; it merely entitles you to buy services by paying dues and other
applicable changes.
6. DUES AND OTHER CHARGES. Your dues, unless prepaid, must be paid through
Checkfree electronic funds transfer program each month of your membership on the
date designated by the Club. Dues for the month in which you join will be
prorated and are due in advance at the time of application along with all other
amounts then due. If the Club at its sole discretion extends charge privileges
to you, you agree to pay all the charges through Checkfree. All Club invoices of
any kind are considered due and payable upon receipt. You agree to sign and
deliver such further documents as may be necessary to set up the payment of your
dues and other charges through Checkfree. You authorize the Club to utilize
Checkfree for collection of past due balances. Any change in Checkfree account
information must be received by the 10th of the current month in order to charge
the new account and prevent charges to the old account in the following month.
The Club reserves the right to replace Checkfree with other such electronic
funds transfer programs for the collection of your dues and other charges. If
you have prepaid your dues, and if you choose to prepay again at the end of a
prepaid term of membership, your new prepaid amount will reflect a discount
equivalent to one month of your dues. The Club reserves the absolute right to
increase your dues and towel fee after the first 12 months of your membership.
If any payment of dues or other charges is not made on time, the Club may, but
is not obligated to, cancel your membership by giving you notice of such
cancellation. You shall immediately surrender your copy of this Agreement and
your membership card to the Club. The Club reserves the right to require monthly
dues members with recurring bank or credit card returns to prepay annual
membership dues as a condition of retaining Club membership. The Club may assess
late payment fees and suspend charge privileges. If the Club has to take action
to collect any amounts due from you, you agree to pay all costs of such action
including, but not limited to, attorney fees, returned check charges, and
administrative costs.
7. CANCELLATION. In the first 12 months of your membership, you can cancel your
membership by giving 30 days advance written notification to the Club, paying a
cancellation fee of $_______, surrendering your copy of this Agreement and your
membership card, and paying all unpaid dues and other charges owed the Club.
Such cancellation shall not be deemed effective until after the expiration of
the 30-day notice period, receipt of your copy of this Agreement and your
membership card, and all required payments have been made to the Club. You will
remain liable for payment of dues for periods prior to the effective
cancellation date. After the first 12 months of your membership, all the above
conditions will apply except that no cancellation fee is required by the Club.
If your membership is cancelled and at a later date you elect to rejoin the
Club, you will be required to pay the then current initiation fee and dues rate
for your class and type of membership.
If you cancel your membership in accordance with the terms of this section
during a year for which you have prepaid membership dues, the Club will refund
your prepaid dues for the membership time not used. Any such refund will not
include dues for membership time prior to the date of your cancellation or for
the notice period required by this section. Any discount given for prepayment of
dues will be treated as a forgiveness of the dues for the last month of the
period for which you prepaid dues. No refund will be given for any period of
time granted you on a non-cash basis. Any sums due from you at the time of
cancellation may be deducted from any refund due to you. Until the Club has been
notified of the cancellation of your membership in accordance with the terms of
this section, your copy of this Agreement and your membership card have been
surrendered, and all required payments have been made in accordance with the
terms of this section, dues will continue to be charged to your account thereby
reducing any refund of prepaid dues.
The Club can cancel your membership at any time for any breach of this Agreement
or for any violation of the Bylaws of the Club by giving you notice of such
cancellation. The Club can also cancel your membership at any time without cause
by giving you notice of such cancellation. If the Club cancels your membership,
you must immediately surrender your copy of this Agreement and your membership
card. You will remain liable for all unpaid dues owed and any other charges
against your account.
No refunds shall be made for membership dues except as specifically provided for
in this Agreement. Under no circumstances will refunds of dues be made
retroactively due to failure to use the Club facilities.
8. TRANSFERABILITY. Except as provided in the case of Corporate memberships,
your membership is non-transferable, non-assignable and non-voting.
2
<PAGE> 3
9. RELEASE, WAIVER OF LIABILITY AND INDEMNIFICATION AGREEMENT. You, on behalf of
yourself and any dependents, represent and agree as follows: (a) that you
understand that use of the Club's facilities, equipment, services, programs, and
premises includes an inherent risk of injury to persons and property; (b) that
you are in good physical condition and have no disabilities, diseases,
illnesses, or other conditions that could prevent you from exercising and using
the Club's facilities without injuring yourself or impairing your health, and
(c) that you have consulted a physician concerning an exercise program that will
not expose you to risk of injury or impairment to your health and that your
physician has approved your contemplated activities at the Club. You understand
that risk of injury includes, but is not limited to, injuries arising from or
relating to the use by you or your dependents or others of exercise equipment
and machines, locker rooms, spa and other wet areas and other Club facilities,
injuries arising from or relating to participation by you or others in
supervised and unsupervised activities or programs throughout the Club; injuries
and medical disorders arising from or relating to the use of the Club's
facilities such as heart attack, stroke, death, heat stress, sprains, strains,
broken bones, and torn muscles, tendons, and ligaments, among others; and
accidental injuries occurring anywhere in the Club, including lobbies, hallways,
exercise areas, locker rooms, steam rooms, pool areas, Jacuzzis, saunas, and
dressing rooms, or activities associated with the Club which are carried on
anywhere or while you are traveling to or from the Club. Accidental injuries
include those caused by you; those caused by other persons, and those of a
"slip-and-fall" nature. If you have any special exercise requirements or
limitations, you agree to disclose them to the Club before using the Club's
facilities or when seeking help in establishing or carrying on an exercise
program. You hereby agree that all exercises and use of Club facilities,
equipment and services, programs, and premises are undertaken by you at your
sole risk. By your execution hereof, you hereby waive all claims which you or
any dependent may have hereafter against the Club, and do hereby release the
Club on your behalf and on behalf of any dependents and agree to hold the Club
absolutely harmless from all claims, demands, injuries, damages, actions, suits,
or causes of action to persons or property, arising out of or in any way
connected with you or your dependent's use of the Club facilities, premises,
equipment, services or programs, including those arising out of any active or
passive negligent act or omission of the Club, except as to such which may arise
from the gross negligence or willful misconduct of the Club. You do hereby
further agree and do hereby, on behalf of yourself and any dependents, to assume
full responsibility for all risks of bodily injury, death or property damage due
to the negligent act or omission of the Club. If you agree, understand and fully
appreciate this Release, Waiver of Liability and Indemnification Agreement,
initial here ______.
10. LOSS OR THEFT OR MEMBER PROPERTY. The Club is not responsible for lost or
stolen articles. You should keep any valuables with you at all times while using
the facilities. Storage spaces or lockers do not always protect valuables.
Initial: ______.
11. DEATH OR DISABILITY. If you die or are disabled, and are therefore unable to
receive all membership services to which you have agreed, you and your estate
will be relieved from the obligation of making payment for membership services
other than those received prior to death or the onset of disability. If you have
prepaid membership dues, any dues allocable to membership services you have not
received shall be refunded to you or your representative subject to the
provisions of Section 7. In cases of disability where a retroactive request for
refund of dues is made, both the disability and date of onset must be verified
in writing by your physician. Requests for retroactive dues refunds due to
disability will not be honored for any time period in which your membership
account shows utilization of Club facilities.
12. LEAVE OF ABSENCE. The Club may, upon your request and at its sole
discretion, grant you a leave of absence if you are going to be unable to use
the Club for a period of time. Your request must (a) be in writing, (b) be
received by the membership office of the Club at least 30 days before the
requested leave is to begin, (c) set forth the period requested for the leave of
absence (minimum of two months, maximum of six months), (d) state in detail the
reason for the requested leave of absence. You must surrender your membership
card to the Club before the start of the leave of absence. You agree to pay
reduced monthly dues during the leave period at the rate set forth by the Club.
The Club will not grant the leave of absence unless you are current on all dues
and other charges against your account and you have not been on a leave of
absence at any time during the 24 months before the start of the requested leave
of absence.
During the leave of absence, you will not be entitled to use any of the
facilities, premises, services or programs of any Spectrum Club. Your membership
will be automatically reactivated by the Club at the end of the leave of absence
period granted. Your card will then be available to you and your access to the
Club restored provided you are current on all dues and other charges against
your account.
In addition to the above conditions, leaves of absence for medical reasons must
be accompanied by a physician's note detailing why and for what period of time
you will not be able to utilize the Club facilities. At the end of the requested
leave period, you must provide a physician's note stating that you are capable
of resuming a program of physician exercise.
Leaves of absence will not be granted on a retroactive basis.
13. BYLAWS. The Club reserves the absolute right to change the Club's Bylaws.
All signs posted in the Club shall be considered part of the Bylaws. Members and
their guests shall be bound by the Bylaws of the Club. Bylaws may be revised,
supplemented, or amended at the sole discretion of the Club, as deemed necessary
for the proper management of the Club. THESE BYLAWS SHALL BE CONSIDERED A PART
OF THE MEMBERSHIP AGREEMENT.
14. TIME OF ESSENCE. Time is of the essence of each provision of this Agreement.
15. NOTICE. Any notice required or permitted to be given to you shall be
considered duly given when personally delivered to you or mailed to your address
as it appears on the Membership Application or as subsequently changed by
written notice to the Club. Any notice required or permitted to be given by you
to the Club shall be considered duly given only when received in writing by the
Membership Office of the Club.
16. SEVERABILITY. If any provision or any part of any provision of this
Agreement is held unenforceable, such unenforceability shall not affect the
other provisions, or the other parts of such provisions, of this Agreement.
17. STEROIDS USE. WARNING: USE OF STEROIDS TO INCREASE STRENGTH OR GROWTH CAN
CAUSE SERIOUS HEART PROBLEMS. STEROIDS CAN KEEP TEENAGERS FROM GROWING TO THEIR
FULL HEIGHT; THEY CAN ALSO CAUSE HEART DISEASE, STROKE, AND DAMAGE LIVER
FUNCTION. MEN AND WOMEN USING STEROIDS MAY DEVELOP FERTILITY PROBLEMS,
PERSONALITY CHANGES AND ACNE. MEN CAN ALSO EXPERIENCE PREMATURE BALDING AND
DEVELOPMENT OF BREAST TISSUE. THESE HEALTH HAZARDS ARE IN ADDITION TO THE CIVIL
AND CRIMINAL PENALTIES FOR UNAUTHORIZED SALE, USE, OR EXCHANGE OF ANABOLIC
STEROIDS.
18. ENTIRE AGREEMENT AND MODIFICATION. This Agreement, when accepted by the
Club, will constitute the entire agreement between you and the Club relative to
your membership. You acknowledge that no other agreement exists between you and
the Club relative to your membership and that no representations, other than
those set forth in this Agreement, have been made to you to induce you to make
this Agreement. Your agreement with the Club can be modified only in writing,
prior to the Club's acceptance of your Agreement, by the Manager of the Club,
and can be terminated only as set forth in the Agreement. You, the undersigned,
further expressly agree that the foregoing Agreement including the Release
Waiver of Liability and Indemnification Agreement, is intended to be as broad
and inclusive as permitted by the laws of the state(s) wherein the Club
operates, that it shall apply to any period of membership or any prior or
subsequent membership period of yours and/or any dependent, and to any period
during which you and/or any dependents use Club facilities. Initial: _______.
19. TEN DAY RIGHT TO CANCEL. You the buyer, may cancel this agreement at any
time prior to midnight on the tenth business day after the Club has opened for
member usage.
Presale 1/97
<PAGE> 4
[LOGO]
MEMBERSHIP AGREEMENT
I HAVE READ, UNDERSTAND AND RECEIVED A COMPLETE COPY OF THIS AGREEMENT, THE
RELEASE, WAIVER OF LIABILITY AND INDEMNIFICATION AGREEMENT SECTION HEREOF, AND
THE BYLAWS OF THE CLUB WHICH ARE INCORPORATED HEREIN BY REFERENCE, AND I AGREE
TO BE BOUND BY THEIR TERMS AND CONDITIONS.
Print Name:_______________________________________________________
Member's Signature_____________________________ Date:__________________________
Sports Club/LA By:_____________________________ Date:__________________________
- --------------------------------------------------------------------------------
THREE-DAY RIGHT TO CANCEL. You, the buyer, may cancel this agreement at any time
prior to midnight on the third business day (of the Club) after the date of this
agreement, excluding Sundays and holidays. To cancel this agreement, mail or
deliver your copy of this agreement and a signed and dated notice, or send a
telegram which states that you, the buyer, are cancelling this agreement, or
words of similar effect. Such notice shall be sent to The Sports Club/LA, 1835
Sepulveda Blvd., Los Angeles, CA 90025.
- --------------------------------------------------------------------------------
<PAGE> 5
This Membership Agreement ("Agreement") for the type of membership indicated
below, is between The Sports Club/LA ("Club") and its affiliated Clubs which
applicant may visit from time to time and utilize facilities, equipment or
services therein, pursuant to the terms of this Agreement, and the undersigned
applicant ("Applicant"). By signing this Agreement, I acknowledge that I have
received and read a copy of the Bylaws of the Club and a completed copy of this
Agreement. I agree that I will be bound by the provisions on the face of this
Agreement, the additional provisions on the reverse, the Bylaws of the Club, as
now in effect and as from time to time amended by the Club, and such rules as
may from time to time be posted at the Club, all of which are incorporated by
reference in this Agreement.
1. INITIATION FEE AND DUES. In consideration of your membership, you are paying
a non-refundable, non-transferable, one time initiation fee of $ _____. Your
monthly dues will be $ _______ subject to increase as described in Section 7.
You agree to pay dues, in advance, for the first and last full calendar months
of your membership. Your membership and your dues payments will begin when this
Agreement is signed by the Club, and will continue unless otherwise terminated
in accordance with Sections 7, 8, and 12. You have ___ have not ___ elected to
prepay one year's dues in the amount of $ ________ per month times 12 months
less a 1 month discount of $ _________ equals $ __________.
2. MEMBERSHIP. Your membership is a contractual privilege to use the facilities
from time to time offered by the Club to members of your class of membership
during the Club's hours of operation. The Club reserves the absolute right to
initiate, change or eliminate facilities, services and programs offered from
time to time, to initiate, change or eliminate fees for existing or new
facilities, services and programs; and to change its hours of operation. Your
membership does not entitle you to any interest in the Club or its property and
confers no right to participate in the management or operation of the Club.
3. CLASS OF MEMBERSHIP. Your membership class is:
<TABLE>
<S> <C> <C> <C> <C>
_______________ Individual ________________ Add On ________________ Dependent ________________ Corporate
</TABLE>
An individual membership is defined as a membership for one person whether
married or not. An Add On membership is defined as a membership for one person
who is the spouse or domestic partner of an existing member (primary member)
paying Individual dues rates of the Club. The Club requires documentation of
marital or domestic partnership status. A Dependent membership is defined as a
membership for one person who is the dependent, age 15 through 20, of and living
at home with two existing Club members. The initiation fee and dues of an Add On
or Dependent member are reduced. In the event the primary member terminates
his/her membership at the Club or the spousal or domestic partner relationship
between two members is terminated, the Add On dues rate will revert to the
prevailing Individual dues rate for that membership type. In the event the
primary member terminates his/her membership at the Club, Dependents will revert
to the prevailing Individual dues rate for that membership type. In the event
the primary member and Add On member terminate their memberships at the Club,
Dependents will revert to the prevailing Individual dues rate for that
membership type. At age 21 (upon 21st birthday), the Dependent dues rate will
revert to the prevailing Individual dues rate for that membership type. Dues
rates will be adjusted at the end of the prepaid term of membership for annual
members or the next Checkfree collection date for monthly dues members.
A Corporate membership is defined as a membership for one person which is
purchased in a group of a minimum of five memberships at the same time and the
initiation fee and monthly dues are paid by a corporation. The Club requires
documentation of employee status. A corporate membership may be transferred from
one designated holder to another one time per year by providing 30 days advance
written notice and upon payment of a transfer fee of $______.
4. TYPE OF MEMBERSHIP. Your membership type is:
<TABLE>
<S> <C> <C>
___________________ Executive _____________________ Racquet _____________________ Health
</TABLE>
Executive members are entitled to use and enjoy the facilities and perquisites
of the Club as announced from time to time by the Club. Racquet members are
entitled to use and enjoy the facilities of the Club except the Executive
perquisites. Health members are entitled to use and enjoy the facilities of the
Club except the Executive perquisites and the racquet facilities.
5. USE OF OTHER SPORTS CLUBS. Use of other affiliates of Club, existing or
future, may be restricted or subject to additional fees.
6. INITIATION FEES. Except as otherwise provided in the applicable schedule
attached to this Agreement, your initiation fee is non-refundable. The
initiation fee is earned by the Club on the date of this Agreement and every
thirty days thereafter at the rate of $1000 minus one month dues. If you elect
to pay your initiation fees over time, it must be paid through credit card
charges or other acceptable method of payment on the 30th day following the date
that the Agreement is signed by the Club and, as applicable, each 30 days
thereafter. Your initiation fee will not be prorated. Your initiation fee is not
a prepaid sum for services; it merely entitles you to buy services by paying
dues and other applicable charges.
7. DUES AND OTHER CHARGES. Your dues, unless prepaid, must be paid through
Checkfree electronic funds transfer program on the first day of each month of
your membership. Dues for the month in which you join will be prorated and are
due in advance at the time of application along with all other amounts then due.
If the Club at its sole discretion extends charge privileges to you, you agree
to pay all the charges through Checkfree. All Club invoices of any kind are
considered due and payable upon receipt. You agree to sign and deliver such
further documents as may be necessary to set up the payment of your dues and
other charges through Checkfree. You authorize the Club to utilize Checkfree for
collection of past due balances. Any change in Checkfree account information
must be received by the 10th of the current month in order to charge the new
account and prevent charges to the old account in the following month. The Club
reserves the right to replace Checkfree with other such electronic funds
transfer programs for the collection of your dues and other charges. If you have
prepaid your dues, and if you choose to prepay again at the end of a prepaid
term of membership, your new prepaid amount will reflect a discount equivalent
to one month of your dues. The Club reserves the absolute right to increase your
dues.
If any payment of dues or other charges is not made on time, the Club may, but
is not obligated to, cancel your membership by giving you notice of such
cancellation. You shall immediately surrender your copy of this Agreement and
your membership card to the Club. The Club reserves the right to require monthly
dues members with recurring bank or credit card returns to prepay annual
membership dues as a condition of retaining Club membership. The Club may assess
late payment fees and suspend charge privileges. If the Club has to take action
to collect any amounts due from you, you agree to pay all costs of such action
including, but not limited to, attorney fees, returned check charges, and
administrative costs.
I HAVE READ, UNDERSTAND AND RECEIVED A COMPLETE COPY OF THIS AGREEMENT, THE
RELEASE, WAIVER OF LIABILITY AND INDEMNIFICATION AGREEMENT SECTION HEREOF, AND
THE BYLAWS OF THE CLUB WHICH ARE INCORPORATED HEREIN BY REFERENCE, AND I AGREE
TO BE BOUND BY THEIR TERMS AND CONDITIONS.
Print Name:_______________________________________________________
Member's Signature_____________________________ Date:__________________________
Sports Club/LA By:_____________________________ Date:__________________________
- --------------------------------------------------------------------------------
THREE-DAY RIGHT TO CANCEL. You, the buyer, may cancel this agreement at any time
prior to midnight on the third business day (of the Club) after the date of this
agreement, excluding Sundays and holidays. To cancel this agreement, mail or
deliver your copy of this agreement and a signed and dated notice, or send a
telegram which states that you, the buyer, are cancelling this agreement, or
words of similar effect. Such notice shall be sent to The Sports Club/LA, 1835
Sepulveda Blvd., Los Angeles, CA 90025.
- --------------------------------------------------------------------------------
<PAGE> 6
8. CANCELLATION. You can cancel your membership by giving 30 days advance
written notification to the Club, surrendering your copy of this Agreement and
your membership card, and paying all unpaid dues and other charges owed the
Club. Such cancellation shall not be deemed effective until after the expiration
of the 30-day notice period, receipt of your copy of this Agreement and your
membership card, and all required payments have been made to the Club. You will
remain liable for payment of dues for periods prior to the effective
cancellation date. If your membership is cancelled and at a later date you elect
to rejoin the Club, you will be required to pay the then current initiation fee
and dues rate for your class and type of membership.
If you cancel your membership in accordance with the terms of this section
during a year for which you have prepaid membership dues, the Club will refund
your prepaid dues for the membership time not used. Any such refund will not
include dues for membership time prior to the date of your cancellation or for
the notice period required by this section. Any discount given for prepayment of
dues will be treated as a forgiveness of the dues for the last month of the
period for which you prepaid dues. No refund will be given for any period of
time granted you on a non-cash basis. Any sums due from you at the time of
cancellation may be deducted from any refund due to you. Until the Club has been
notified of the cancellation of your membership in accordance with the terms of
this section, your copy of this Agreement and your membership card have been
surrendered, and all required payments have been made in accordance with the
terms of this section, dues will continue to be charged to your account thereby
reducing any refund of prepaid dues.
The Club can cancel your membership at any time for any breach of this Agreement
or for any violation of the Bylaws of the Club by giving you notice of such
cancellation. The Club can also cancel your membership at any time without cause
by giving you notice of such cancellation. If the Club cancels your membership,
you must immediately surrender your copy of this Agreement and your membership
card. You will remain liable for all unpaid dues owed and any other charges
against your account.
No refunds shall be made for membership dues except as specifically provided for
in this Agreement. Under no circumstances will refunds of dues be made
retroactively due to failure to use the Club facilities.
9. TRANSFERABILITY. Except as provided in the case of Corporate memberships,
your membership is non-transferable, non-assignable and non-voting.
10. RELEASE, WAIVER OF LIABILITY AND INDEMNIFICATION AGREEMENT. You, on behalf
of yourself and any dependents, represent and agree as follows: (a) that you
understand that use of the Club's facilities, equipment, services, programs, and
premises includes an inherent risk of injury to persons and property; (b) that
you are in good physical condition and have no disabilities, diseases,
illnesses, or other conditions that could prevent you from exercising and using
the Club's facilities without injuring yourself or impairing your health; and
(c) that you have consulted a physician concerning an exercise program that will
not expose you to risk of injury or impairment to your health and that your
physician has approved your contemplated activities at the Club. You understand
that risk of injury includes, but is not limited to, injuries arising from or
relating to the use by you or your dependents or others of exercise equipment
and machines. Locker rooms, spa and other wet areas and other club facilities;
injuries arising from or relating to participation by you or others in
supervised and unsupervised activities or programs throughout the Club; injuries
and medical disorders arising from or relating to the use of the Club's
facilities such as heart attack, stroke, death, heat stress, sprains, strains,
broken bones, and torn muscles, tendons, and ligaments, among others; and
accidental injuries occurring anywhere in the Club, including lobbies, hallways,
exercise areas, locker rooms, steam rooms, pool areas, Jacuzzis, saunas, and
dressing rooms, or activities associated with the Club which are carried on
anywhere or while you are traveling to or from the Club. Accidental injuries
include those caused by you, those caused by other persons, and those of a
"slip-and-fall" nature. If you have any special exercise requirements or
limitations, you agree to disclose them to the Club before using the Club's
facilities or when seeking help in establishing or carrying on an exercise
program. You hereby agree that all exercises and use of Club facilities,
equipment and services, programs, and premises are undertaken by you at your
sole risk. By your execution hereof, you hereby waive all claims which you or
any dependent may have hereafter against the Club, and do hereby release the
Club on your behalf and on behalf of any dependents, and agree to hold the Club
absolutely harmless from all claims, demands, injuries, damages, actions, suits,
or causes of action to persons or property, arising out of or in any way
connected with you or your dependent's use of the Club facilities, premises,
equipment, services or programs, including those arising out of any active or
passive negligent act or omission of the Club, except as to such which may arise
from the gross negligence or willful misconduct of the Club. You do hereby
further agree and do hereby, on behalf of yourself and any dependents, to assume
full responsibility for all risks of bodily injury, death or property damage due
to the negligent act or omission of the Club. If you agree, understand and fully
appreciate this Release, Waiver of Liability and Indemnification Agreement,
initial here ____________ .
11. LOSS OR THEFT OF MEMBER PROPERTY. The Club is not responsible for lost or
stolen articles. You should keep any valuables with you at all times while using
the facilities. Storage spaces or lockers do not always protect valuables.
Initial: __________ .
12. DEATH OR DISABILITY. If you die or are disabled, and are therefore unable to
receive all membership services to which you have agreed, you and your estate
will be relieved from the obligation of making payment for membership services
other than those received prior to death or the onset of disability. If you have
prepaid membership dues, any dues allocable to membership services you have not
received shall be refunded to you or your representative subject to the
provisions of Section 8. In cases of disability where a retroactive request for
refund of dues is made, both the disability and date of onset must be verified
in writing by your physician. Requests for retroactive dues refunds due to
disability will not be honored for any time period in which your membership
account shows utilization of Club facilities.
13. LEAVE OF ABSENCE. The Club may, upon your request and at its sole
discretion, grant you a leave of absence if you are going to be unable to use
the Club for a period of time. Your request must (a) be in writing, (b) be
received by the membership office of the Club at least 30 days before the
requested leave is to begin, (c) set forth the period requested for the leave of
absence (minimum of two months, maximum of six months), (d) state in detail the
reason for the requested leave of absence. You must surrender your membership
card to the Club before the start of the leave of absence. You agree to pay
reduced monthly dues during the leave period at the rate set forth by the Club.
The Club will not grant the leave of absence unless you are current on all dues
and other charges against your account, and you have not been on a leave of
absence at any time during the 24 months before the start of the requested leave
of absence.
During the leave of absence, you will not be entitled to use any of the
facilities, premises, services or programs of any Sports Club. Your membership
will be automatically reactivated by the Club at the end of the leave of absence
period granted. Your card will then be available to you and your access to the
Club restored provided you are current on all dues and other charges against
your account.
In addition to the above conditions, leaves of absence for medical reasons must
be accompanied by a physician's note detailing why and for what period of time
you will not be able to utilize the Club facilities. At the end of the requested
leave period, you must provide a physician's note stating that you are capable
of resuming a program of physical exercise.
Leaves of absence will not be granted on a retroactive basis.
14. BYLAWS. The Club reserves the absolute right to change the Club's Bylaws.
All signs posted in the Club shall be considered part of the Bylaws. Members and
their guests shall be bound by the Bylaws of the Club. Bylaws may be revised,
supplemented, or amended at the sole discretion of the Club, as deemed necessary
for the proper management of the Club. THESE BYLAWS SHALL BE CONSIDERED A PART
OF THE MEMBERSHIP AGREEMENT.
15. TIME OF ESSENCE. Time is of the essence of each provision of this Agreement.
16. NOTICE. Any notice required or permitted to be given to you shall be
considered duly given when personally delivered to you or mailed to your address
as it appears on the Membership Application or as subsequently changed by
written notice to the Club. Any notice required or permitted to be given by you
to the Club shall be considered duly given only when received in writing by the
Membership Office of the Club.
-6-
<PAGE> 7
17. SEVERABILITY. If any provision or any part of any provision of this
Agreement is held unenforceable, such unenforceability shall not affect the
other provisions, or the other parts of such provisions, of this Agreement.
18. STEROID USE: WARNING: USE OF STEROIDS TO INCREASE STRENGTH OR GROWTH CAN
CAUSE SERIOUS HEART PROBLEMS. STEROIDS CAN KEEP TEENAGERS FROM GROWING TO THEIR
FULL HEIGHT; THEY CAN ALSO CAUSE HEART DISEASE, STROKE, AND DAMAGE LIVER
FUNCTION. MEN AND WOMEN USING STEROIDS MAY DEVELOP FERTILITY PROBLEMS,
PERSONALITY CHANGES AND ACNE. MEN CAN ALSO EXPERIENCE PREMATURE BALDING AND
DEVELOPMENT OF BREAST TISSUE. THESE HEALTH HAZARDS ARE IN ADDITION TO THE CIVIL
AND CRIMINAL PENALTIES FOR UNAUTHORIZED SALE, USE, OR EXCHANGE OF ANABOLIC
STEROIDS.
19. ENTIRE AGREEMENT AND MODIFICATION. This Agreement, when accepted by the
Club, will constitute the entire agreement between you and the Club relative to
your membership. You acknowledge that no other agreement exists between you and
the Club relative to your membership and that no representations, other than
those set forth in this Agreement, have been made to you to induce you to make
this Agreement. Your agreement with the Club can be modified only in writing,
prior to the Club's acceptance of your Agreement, by the Manager of the Club,
and can be terminated only as set forth in the Agreement. You, the undersigned,
further expressly agree that the foregoing Agreement, including the Release,
Waiver of Liability and Indemnification Agreement, is intended to be as broad
and inclusive as permitted by the laws of the state(s) wherein the Club
operates, that it shall apply to any period of membership or any prior or
subsequent membership period of yours and/or any dependent, and to any period
during which you and/or any dependents use the Club facilities. Initial: ______.
10/96
-7-
<PAGE> 1
EXHIBIT 10.64
ROCKEFELLER CENTER
LEASE
FEBRUARY 27, 1998
<PAGE> 2
================================================================================
RCPI TRUST,
Landlord
and
THE SPORTS CLUB COMPANY, INC.,
Tenant
--------------------------------------
LEASE
--------------------------------------
A portion of the 1st, 2nd, 3rd and 4th Floors
630 Fifth Avenue
Rockefeller Center
New York, New York
DATED: February 27, 1998
================================================================================
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE 1 BASIC LEASE PROVISIONS..............................................1
ARTICLE 2 PREMISES; TERM; RENT................................................4
ARTICLE 3 USE AND OCCUPANCY...................................................5
ARTICLE 4 CONDITION OF THE PREMISES...........................................9
ARTICLE 5 ALTERATIONS........................................................11
ARTICLE 6 FLOOR LOAD.........................................................15
ARTICLE 7 REPAIRS............................................................15
ARTICLE 8 INCREASES IN REAL ESTATE TAXES AND
OPERATING EXPENSES.................................................17
ARTICLE 9 REQUIREMENTS OF LAW................................................25
ARTICLE 10 QUIET ENJOYMENT....................................................28
ARTICLE 11 SUBORDINATION......................................................28
ARTICLE 12 SERVICES...........................................................30
ARTICLE 13 INSURANCE, PROPERTY LOSS OR DAMAGE;
REIMBURSEMENT......................................................34
ARTICLE 14 DESTRUCTION - FIRE OR OTHER CAUSE..................................37
ARTICLE 15 EMINENT DOMAIN.....................................................40
ARTICLE 16 ASSIGNMENT AND SUBLETTING..........................................42
ARTICLE 17 ELECTRICITY........................................................51
ARTICLE 18 ACCESS TO PREMISES.................................................53
ARTICLE 19 DEFAULT............................................................54
ARTICLE 20 REMEDIES AND DAMAGES...............................................57
ARTICLE 21 LANDLORD'S RIGHT TO CURE; REIMBURSEMENT............................59
ARTICLE 22 NO REPRESENTATIONS BY LANDLORD; LANDLORD'S
APPROVAL...........................................................60
ARTICLE 23 END OF TERM........................................................61
ARTICLE 24 NO SURRENDER; NO WAIVER............................................62
ARTICLE 25 WAIVER OF TRIAL BY JURY............................................63
ARTICLE 26 ADJACENT EXCAVATION; SHORING.......................................63
ARTICLE 27 NOTICES............................................................63
ARTICLE 28 RULES AND REGULATIONS..............................................64
ARTICLE 29 PARTNERSHIP TENANT.................................................65
ARTICLE 30 VAULT SPACE........................................................66
ARTICLE 31 LANDLORD'S AGENT...................................................67
ARTICLE 32 INDEMNITY..........................................................67
ARTICLE 33 TAX STATUS OF BENEFICIAL OWNERS....................................69
ARTICLE 34 SECURITY DEPOSIT...................................................69
ARTICLE 35 MISCELLANEOUS......................................................72
ARTICLE 36 USE OF PREMISES....................................................75
ARTICLE 37 RENEWAL OPTIONS....................................................81
ARTICLE 38 SPECIAL PROVISION..................................................83
ARTICLE 39 RGTS AREA..........................................................84
</TABLE>
-i-
<PAGE> 4
EXHIBITS:
A - FLOOR PLANS
B - DEFINITIONS
C - DIAGRAM OF THE PROTECTED ZONE
D - TENANT'S WORK: RETAIL TENANT ALTERATION REQUIREMENTS
E - RULES AND REGULATIONS
F - [Intentionally Deleted]
G - [Intentionally Deleted]
H - [Intentionally Deleted]
I - FORM OF LETTER OF CREDIT
J - FORM OF LICENSE AGREEMENT
K - EXHAUST AND DUCT PLAN
-ii-
<PAGE> 5
LEASE
THIS LEASE is made as of the ____ day of February, 1998 between RCPI
TRUST, a Delaware business trust having an office c/o Tishman Speyer Properties,
L.P., 45 Rockefeller Plaza, New York, New York 10111 ("Landlord"), and THE
SPORTS CLUB COMPANY, INC., a Delaware corporation having an office at 11100
Santa Monica Boulevard, Suite 300, West Los Angeles, California 90025
("Tenant").
Landlord and Tenant hereby covenant and agree as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
PREMISES Portions of the first (1st), second (2nd), third (3rd) and
fourth (4th) floors of the Building, substantially as shown
on Exhibit A, containing in the aggregate, 88,927 rentable
square feet. The Premises include (i) 1,344 rentable square
feet located on the first floor of the Building (the "First
Floor Premises"), as shown on Exhibit A-1; (ii) 16,087
rentable square feet located on the second floor of the
Building (the "Second Floor A Premises"), as shown on
Exhibit A-2; (iii) 2,794 rentable square feet located on the
second floor of the Building (the "Second Floor B
Premises"), as shown on Exhibit A-3; (iv) 10,867 rentable
square feet located on the second floor of the Building (the
"Second Floor C Premises"), as shown on Exhibit A-4; (v)
52,886 rentable square feet located on the third floor of
the Building (the "Third Floor Premises"), as shown on
Exhibit A-5; and (vi) 4,949 rentable square feet located on
the fourth floor of the Building (the "Fourth Floor
Premises"), as shown on Exhibit A-6.
BUILDING The building, fixtures, equipment and other improvements and
appurtenances now located or hereafter erected, located or
placed upon the land known as 630 Fifth Avenue, New York,
New York.
COMMENCEMENT DATE The date of execution and delivery of this Lease by
Landlord and Tenant.
RENT COMMENCEMENT For and with respect to each of the First Floor Premises,
DATE(S) the Second Floor A Premises, the Second Floor B Premises,
the Second Floor C Premises, the Third Floor Premises and
the Fourth Floor Premises, the date which is 9 calendar
months after the date on which Landlord delivers possession
of the applicable Portion of the Premises to Tenant in
accordance with the provisions of this Lease.
EXPIRATION DATE The last day of the calendar month in which the day
preceding the 15th anniversary of the Commencement Date
occurs, or if the term of this Lease shall be extended in
accordance with the
-1-
<PAGE> 6
provisions of Section 37 of this Lease, the last day of any
renewal or extended term.
TERM The period commencing on the Commencement Date and ending on
the Expiration Date.
PERMITTED USES Provide health club services and/or sports club
services to the public, in a manner and fashion not
materially different from those provided on the date of this
Lease by the facility known as "The Reebok Sports Club"
located at 160 Columbus Avenue, New York, New York, but
never less than such other services as may be added to the
foregoing facility from time-to-time during the Term
(excepting only as permitted pursuant to the provisions of
Section 36.2(k) of this Lease), and subject to the terms and
provisions of this Lease, including Article 36 hereof and
for no other purpose or purposes.
-2-
<PAGE> 7
BASE TAX YEAR The Tax Year commencing on July 1, 1997 and ending on June
30, 1998.
BASE OPERATING The Computation Year commencing on January 1, 1997 and
YEAR ending on December 31, 1997.
TENANT'S AREA The aggregate number of rentable square feet contained
in the Portion(s) of the Premises delivered to Tenant from
time to time.
FIXED RENT For each portion of the Premises as follows: (i) at the
rate computed on the basis of $40.00 per rentable square
foot per annum, in equal monthly installments, for the
period commencing on the applicable Rent Commencement Date
and ending on the last day immediately preceding the 5th
anniversary of the Commencement Date, both dates being
inclusive, and proportionately at such rate for any partial
month during said period; (ii) at the rate computed on the
basis of $44.80 per rentable square foot per annum, in equal
monthly installments, for the period commencing on the 5th
anniversary of the Commencement Date and ending on the last
day immediately preceding the 10th anniversary of the
Commencement Date, both dates being inclusive, and
proportionately at such rate for any partial month during
said period; and (iii) at the rate computed on the basis of
$50.18 per rentable square foot per annum, in equal monthly
installments, for the period commencing on the 10th
anniversary of the Commencement Date and ending on the
Expiration Date, both dates being inclusive, and
proportionately at such rate for any partial month during
said period.
ADDITIONAL RENT All sums other than Fixed Rent payable by Tenant to
Landlord under this Lease, including Tenant's Tax Payment
and Tenant's Operating Payment (as required pursuant to
Article 8), late charges, overtime or excess service
charges, and interest and other costs related to Tenant's
failure to perform any of its obligations under this Lease.
RENT Fixed Rent and Additional Rent, collectively.
SECURITY DEPOSIT $4,000,000.00, subject to the provisions of Article 34.
LANDLORD'S AGENT Tishman Speyer Properties, L.P., or any other Person
designated by Landlord from time to time as Landlord's
Agent.
TENANT'S AGENT Colliers ABR, Inc.
LANDLORD'S $37.00 per rentable square foot of floor area in the
CONTRIBUTION Premises.
All capitalized terms used in the text of this Lease which are not
otherwise defined herein, shall have the meanings ascribed to them in this
Article 1 or in Exhibit B.
-3-
<PAGE> 8
ARTICLE 2
PREMISES; TERM; RENT
Section 2.1 LEASE OF PREMISES. Subject to the terms of this Lease,
Landlord leases the Premises to Tenant, and Tenant leases the Premises from
Landlord, for the Term, excepting and reserving to Landlord the exterior walls
of the Building and further reserving to Landlord the right to place above the
dropped ceiling and/or below the floor in the Premises (in such manner as to
reduce to a minimum the interference with Tenant's use of the Premises) utility
lines, pipes, conduits, exhausts, and the like, to serve premises other than the
Premises, and to replace and maintain and repair such utility lines, pipes,
conduits, exhausts (including the kitchen exhausts and ducts depicted in the
exhaust and duct plan attached hereto as Exhibit K), and the like in, over and
upon the Premises as may have been or may be installed by Landlord in the
Building. As used herein, the phrase "Portion(s) of the Premises" means the
First Floor Premises, the Second Floor A Premises, the Second Floor B Premises,
the Second Floor C Premises, the Third Floor Premises and/or the Fourth Floor
Premises, individually and collectively.
Section 2.2 PAYMENT OF RENT. Tenant shall pay to Landlord, without
notice or demand, and without any set-off, counterclaim, abatement or deduction
whatsoever, except as may be expressly set forth in this Lease, in lawful money
of the United States, by wire transfer of funds to Landlord's account, as
designated by Landlord, or
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by check drawn upon a bank approved by Landlord, at Landlord's office at 45
Rockefeller Plaza, New York, New York 10111, or such other place as Landlord
shall from time to time designate in writing: (i) Fixed Rent in equal monthly
installments, in advance, on the first day of each calendar month during the
Term, commencing on the applicable Rent Commencement Date, and (ii) Additional
Rent, at the times and in the manner set forth in this Lease.
Section 2.3 FIRST MONTH'S RENT. Tenant shall pay an amount equal to
$266,213.33 upon the execution and delivery of this Lease (the "Initial
Payment"). If the Rent Commencement Date for any portion of the Premises is on
the first day of a calendar month, then such payment shall be credited towards
such month's Fixed Rent payment; provided, however if pursuant to the provisions
of this Lease (including Section 3.2 hereof) the amount due on account of Fixed
Rent for said month is less than the Initial Payment, then the excess, if any,
will be credited toward the Fixed Rent payment due for the next succeeding
calendar month. If the Rent Commencement Date for any portion of the Premises is
not the first day of a calendar month, then, on the applicable Rent Commencement
Date Tenant shall pay the proportionate amount of the Fixed Rent which is
payable for the period from the applicable Rent Commencement Date through the
last day of such month, and the Initial Payment shall be credited towards the
Fixed Rent which is payable for the next succeeding calendar month; provided,
however if pursuant to the provisions of this Lease (including Section 3.2
hereof) the amount due on account of Fixed Rent for said month is less than the
Initial Payment, then the excess, if any, will be credited toward the Fixed Rent
payment due for the next succeeding calendar month.
Section 2.4 INTEREST. If Tenant shall fail to pay any installment or
other payment of Rent when due, interest shall accrue on such installment or
payment as a late charge, from the date such installment or payment became due
until the date paid, at the Interest Rate.
ARTICLE 3
USE AND OCCUPANCY
Section 3.1 (a) PERMITTED USES. Tenant shall use and occupy the Premises
for the Permitted Uses and for no other purpose or purposes. Tenant shall not
use or occupy or suffer the use or occupancy of any part of the Premises in a
manner constituting a Prohibited Use. If Tenant uses or suffers the use of the
Premises for a purpose which constitutes a Prohibited Use or violates any
Requirement, or which causes the Building to be in violation of any Requirement,
then Tenant shall promptly discontinue such use upon notice of such violation.
(b) LICENSES AND PERMITS. Tenant, at its expense, shall obtain
and at all times maintain and comply with the terms and conditions of all
licenses and permits required for the lawful conduct of the Permitted Uses in
the Premises.
Section 3.2 (a) DELIVERY OF PREMISES. Landlord shall be deemed to have
delivered possession of any Portion(s) of the Premises to Tenant upon the giving
of notice by Landlord to Tenant stating that the applicable Portion of the
Premises is vacant, in the condition required under this Lease, and available
for Tenant's occupancy. Subject to the provisions of this Lease, Landlord agrees
to deliver each Portion of the Premises to Tenant promptly after the same are
vacated by the former tenant(s) or occupant(s). At all times prior to the
delivery of any Portion of the Premises, said Portion of the Premises shall not
be considered to be a part of the Premises and Tenant shall have no rights or
obligations with respect thereto, including the right to enter said Portion of
the Premises. Upon delivery of any Portion of the Premises, said Portion of the
Premises shall automatically be and become a part of the "Premises" for all
purposes under this Lease and the number of rentable square feet contained in
said Portion of the Premises shall be added to and become a part of the
"Tenant's Area." Without limiting the foregoing, upon request by Landlord or
Tenant, from time-to-time, the parties will execute a written instrument or
instruments setting forth the Portions of the Premises delivered to Tenant as of
said date and the Fixed Rent payable in connection therewith. The failure of
either party to execute and deliver said instrument shall not affect the rights,
obligations or interests of the parties. Landlord shall not be liable for the
failure of former tenants or occupants to vacate any Portion of the Premises, or
its failure to deliver possession
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of the applicable Portion of the Premises to Tenant on any specified date, and
subject only to the provisions of the next succeeding paragraph, any such
failure shall not impair the validity of this Lease or the effectiveness thereof
with respect to those Portions of the Premises which are delivered to Tenant.
Tenant acknowledges that the Second Floor B Premises, the Second Floor C
Premises, the Third Floor Premises, and the Fourth Floor Premises, are leased to
or occupied by other tenants or occupants and that the terms of the existing
lease agreements with respect to the Second Floor B Premises, the Second Floor C
Premises and the Fourth Floor Premises presently expire on September 30, 2009,
June 27, 1999 and April 30, 2000, respectively.
(b) DELIVERY OF FIRST FLOOR PREMISES, SECOND FLOOR A PREMISES AND THIRD
FLOOR PREMISES. Landlord shall deliver the First Floor Premises, the Second
Floor A Premises and the Third Floor Premises concurrently. Landlord will
exercise commercially reasonable efforts to deliver each of the First Floor
Premises, the Second Floor A Premises and the Third Floor Premises by not later
than January 1, 1999, subject, however to Unavoidable Delays, in which event
Landlord will exercise commercially reasonable efforts to deliver each of the
First Floor Premises, the Second Floor A Premises, and the Third Floor Premises
by not later than August 1, 1999 (the "Outside Delivery Date"). If Landlord
delivers each of the First Floor Premises, the Second Floor A Premises and the
Third Floor Premises prior to the termination of this Lease by Landlord or
Tenant pursuant to and in accordance with the provisions of this Section 3.2(b),
then notwithstanding Landlord's failure to deliver any other Portions of the
Premises, this Lease shall remain in full force and effect with respect to those
Portions of the Premises which are delivered to Tenant. If notwithstanding
Landlord's reasonable efforts Landlord has not delivered each of the First Floor
Premises, the Second Floor A Premises and the Third Floor Premises by the
Outside Delivery Date, then at any time thereafter prior to delivery of said
Portions of the Premises, either Landlord or Tenant may elect, at their
respective options, by providing notice thereof to the other, to terminate this
Lease, and this Lease shall terminate on the 45th day after the giving of such
notice, unless within said 45 day period Landlord delivers the previously
undelivered Portion (or Portions) of the Premises to Tenant. If this Lease is
terminated as aforesaid, then Tenant shall surrender, in accordance with the
requirements of this Lease, possession of all Portions of the Premises
previously delivered to it, this Lease shall be of no further force and effect
after the date of termination, and neither party shall have any further
obligations to the other in connection with this Lease, subject, however to the
payment by Tenant to Landlord of all sums then due and owing or having accrued
to Landlord hereunder.
Notwithstanding the foregoing, if Landlord in its good faith discretion
determines that notwithstanding its reasonable efforts Landlord will be unable
to deliver each of the First Floor Premises, the Second Floor A Premises and the
Third Floor Premises prior to the Outside Delivery Date, then at any time after
Landlord makes such determination and prior to delivery of said Portions of the
Premises, Landlord may elect, at its option, by providing notice thereof to
Tenant, to terminate this Lease. If this Lease is terminated as aforesaid, then
Tenant shall surrender, in accordance with the requirements of this Lease,
possession of all Portions of the Premises previously delivered to it, this
Lease shall be of no further force and effect after the date of termination, and
neither party shall have any further obligations to the other in connection with
this Lease, subject, however to the payment by Tenant to Landlord of all sums
then due and owing or having accrued to Landlord hereunder.
(c) DELIVERY OF SECOND FLOOR B PREMISES, SECOND FLOOR C PREMISES AND
FOURTH FLOOR PREMISES. Landlord shall not deliver the Second Floor C Premises
unless the Second Floor B Premises are delivered concurrently therewith.
Landlord will exercise commercially reasonable efforts to deliver each of the
Second Floor B Premises, the Second Floor C Premises, and the Fourth Floor
Premises as soon as practicable after the date of this Lease. If notwithstanding
Landlord's reasonable efforts Landlord has not delivered the Second Floor B
Premises by January 1, 2001, then at any time thereafter prior to delivery of
said Portions of the Premises, Landlord may elect, at its option, by providing
notice thereof to Tenant, to terminate this Lease with respect to the Second
Floor B Premises and the Second Floor C Premises, in which event the Second
Floor B Premises and the Second Floor C Premises shall be removed from the
Premises, and this Lease shall remain in full force and effect with respect to
all other Portions of the Premises previously delivered to Tenant. If the Second
Floor B Premises and the Second Floor C Premises are removed from the Premises
as aforesaid, then Tenant shall have no further rights
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or obligations with respect thereto, and Landlord will be free to lease and deal
with the Second Floor B Premises and the Second Floor C Premises free of any
rights or claims of any Tenant Party.
Notwithstanding the foregoing, if Landlord in its good faith discretion
determines that notwithstanding its reasonable efforts Landlord will be unable
to deliver each of the Second Floor B Premises and the Second Floor C Premises
prior to January 1, 2001, then at any time after Landlord makes such
determination and prior to delivery of said Portions of the Premises, Landlord
may elect, at its option, by providing notice thereof to Tenant, to terminate
this Lease with respect to the Second Floor B Premises and the Second Floor C
Premises, in which event the Second Floor B Premises and the Second Floor C
Premises shall be removed from the Premises, and this Lease shall remain in full
force and effect with respect to all other Portions of the Premises previously
delivered to Tenant. If the Second Floor B Premises and the Second Floor C
Premises are removed from the Premises as aforesaid, then Tenant shall have no
further rights or obligations with respect thereto, and Landlord will be free to
lease and deal with the Second Floor B Premises and the Second Floor C Premises
free of any rights or claims of any Tenant Party.
The provisions of this Article are intended to constitute "an express
provision to the contrary" within the meaning of Section 223-a of the New York
Real Property Law or any successor Requirement.
Section 3.3 USE OF BUILDING NAME. Concurrently herewith, Tenant has
entered into a sublicense agreement (the "Sublicense Agreement") in the form
attached hereto as Exhibit J, pursuant to which Tenant may use the trade name
"Sports Club Rockefeller Center" in connection with the business to be conducted
by Tenant in the Premises. Except as expressly and specifically permitted
pursuant to the provisions of the Sublicense Agreement, no Tenant Party shall
use the words "Rockefeller Center", "Radio City" or "Radio City Music Hall" or
any combination or simulation thereof, or any logo or image of Rockefeller
Center, or the image of any prominent part of Rockefeller Center, for any
purpose whatsoever, including as or for any corporate, firm or trade name,
trademark or designation or description of merchandise or services; provided,
however, that the foregoing shall not prevent the use by Tenant or other
permitted occupant of the Premises, in a conventional manner and without
emphasis or display, of the words "Rockefeller Center" and/or, where applicable,
"Rockefeller Plaza," as part of Tenant's or such permitted occupant's business
address or for reference purposes in the ordinary course of its business.
Landlord agrees that if Tenant assigns this Lease in accordance with the
provisions of Article 16 of this Lease, then upon Tenant's request, Landlord
will enter into a sublicense agreement substantially in the form of the
Sublicense Agreement with said assignee. Landlord agrees that if Tenant enters
into a sublease for all or a portion of the Premises in accordance with the
provisions of Article 16 of this Lease, then upon Tenant's request, subject to
Landlord's prior approval of the proposed use of the Rockefeller Center Mark (as
defined in the Sublicense Agreement) by the subtenant, Landlord will enter into
a sublicense agreement substantially in the form of the Sublicense Agreement
with said subtenant. Neither Tenant nor any occupant of the Premises shall use
the name of the Building or the name of the entity for which the Building is
named or designated by Landlord or any part or abbreviation (including initials)
of any such name, except in a conventional manner, and without emphasis or
display, as a part of Tenant's or such permitted occupant's business address.
Section 3.4 BROADCAST RESTRICTIONS. Neither Tenant nor any Tenant Party
shall (i) conduct or permit to be conducted any Broadcast activities or video
production activities from any area of the Center, (ii) install or display any
signs, symbols or logos within the Center which are commonly identified with any
Broadcast or cable network or any Broadcast or video production activities or
(iii) use or permit the use of Protected Zone Images in any Broadcast.
"Broadcast" means the transmission of video programming, including news footage
clips, by any means, including over-the air television broadcasting, cable
television distribution and the like, and including successor distribution
technologies which are comparable to the foregoing (but "Broadcast" shall not be
deemed to include teleconferencing, private video telephone communications or
other similar means of video transmission which are not intended for public
distribution). "Protected Zone Images" means visual images of all or any part of
the area consisting of the Plaza, the Plaza Street, the Channel Gardens, the
Center skating rink and areas adjacent thereto, as shown on the diagram of the
Protected Zone attached as Exhibit C to this Lease.
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Section 3.5 EXCLUSIVE. Provided that Tenant operates its business in the
Premises in accordance with all of the terms, provisions and conditions of this
Lease, and provided that this Lease is in full force and effect, Landlord agrees
(insofar as, to the extent and for such period of time as applicable law shall
permit the same) that during the Term Landlord will not enter into any lease for
any other premises in the Center which permits the use of said premises during
the Term principally or primarily as a fitness/health club facility which is
open to the general public or with respect to which memberships are available to
the general public; provided, however, that the foregoing shall not prevent or
preclude Landlord from entering into leases which permit tenants to operate (i)
health club facilities which are not open to the general public or with respect
to which memberships are not available to the general public, (ii) health club
and/or fitness facilities which are incidental or accessory to a principal or
primary use, or (iii) spa, salon or sports medicine facilities which may or may
not be open to the general public, or with respect to which memberships may or
may not be available to the general public. In no event shall Tenant, by reason
of Landlord's breach of the foregoing covenant, have the right to terminate this
Lease or to withhold payment of Rent or other charges due hereunder or to obtain
monetary damages from Landlord. Tenant's sole remedy on account of a breach of
the foregoing covenant shall be to seek injunctive relief against Landlord
compelling Landlord to comply with the foregoing covenant.
ARTICLE 4
CONDITION OF THE PREMISES
Section 4.1 CONDITION; INITIAL CONSTRUCTION OF THE PREMISES. Tenant has
inspected the Premises and agrees (i) to accept possession of each portion of
the Premises in the "as is" condition existing on the date of delivery thereof
to Tenant, (ii) that neither Landlord nor Landlord's agents have made any
representations or warranties with respect to the Premises or the Building
except as expressly set forth herein, and (iii) Landlord has no obligation to
prepare the Premises for use and occupancy by Tenant or to perform any work,
supply any materials, incur any expense (excepting only Landlord's
Contribution), or make any alterations, additions, or improvements to the
Premises to prepare the Premises for Tenant's use and occupancy. Tenant's
occupancy of any part of the Premises shall be conclusive evidence, as against
Tenant, that Tenant has accepted possession of the Premises in their
then-current condition, and the Premises and the Building are in a good and
satisfactory condition as required by this Lease.
Promptly after delivery of possession of each Portion of the Premises to
Tenant, Tenant shall, at its own cost and expense (excepting only Landlord's
Contribution) perform or cause to be performed, any and all work necessary to
prepare such portion of the Premises for Tenant's initial occupancy thereof, in
accordance with and subject to the terms and provisions of this Lease, including
Article 5. Such work to be performed by Tenant shall include any and all work
required to cause the Premises (which shall include all means of access and
egress to, from and between the floors comprising parts of the Premises) to
comply with all conditions and Requirements imposed by Governmental Authorities
in connection with the issuance of all permits, approvals and certificates
(including certificates of occupancy) relating to the Premises; provided, that,
in connection with the calculation of the availability of egress from the
Premises if another tenant (other than Tenant) on any floor has access to any
stairway, then said stairway may only be included in the foregoing calculation
by Tenant to the extent not included by such other tenant(s) in their respective
calculations.
Section 4.2 LANDLORD'S CONTRIBUTION. (a) Landlord agrees to pay to
Tenant, toward payment of the cost of the work to be performed by Tenant in
connection with Tenant's initial occupancy of each Portion of the Premises (the
"Initial Installations"), an amount not to exceed Landlord's Contribution for
such Portion of the Premises, provided that as of the date on which Landlord is
required to make each respective payment pursuant to Section 4.2(b): (i) this
Lease is in full force and effect, and (ii) no Event of Default then exists.
Tenant shall pay all costs of the Initial Installations in excess of Landlord's
Contribution. Landlord's Contribution shall be payable solely on account of
labor directly related to the Initial Installations and materials delivered to
the Premises in connection with the Initial Installations, except that Tenant
may apply up to 5% of Landlord's Contribution to pay "soft costs" incurred in
connection with the Initial Installations, which shall be limited to the actual
architectural, consulting and
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engineering fees incurred by Tenant in connection therewith. Tenant shall not be
entitled to receive any portion of Landlord's Contribution not actually expended
by Tenant in the performance of the Initial Installations in accordance with
this Section 4.2, nor shall Tenant have any right to apply any unexpended
portion of Landlord's Contribution as a credit against Rent or any other
obligation of Tenant hereunder. Notwithstanding anything to the contrary
contained in this Section 4.2, Tenant shall not be entitled to receive any
portion of Landlord's Contribution payable with respect to any Portion of the
Premises prior to delivery to Tenant of the applicable Portion of the Premises.
(b) Landlord shall make progress payments of Landlord's Contribution to
Tenant on a monthly basis, for the work performed during the previous month,
less a retainage of 10% of each progress payment (the "Retainage"). Each of
Landlord's progress payments will be limited to an amount equal to the aggregate
amounts (reduced by the Retainage) theretofore paid by Tenant (as certified by
the chief financial officer of Tenant and by Tenant's independent, licensed
architect) to Tenant's contractors, subcontractors and material suppliers which
have not been the subject of a previous disbursement from Landlord's
Contribution for such Portion of the Premises, multiplied by a fraction, the
numerator of which is the amount of Landlord's Contribution for such Portion of
the Premises, and the denominator of which is the total contract price (or, if
there is no specified or fixed contract price for the Initial Installations for
such Portion of the Premises, then Landlord's reasonable estimate thereof) for
the performance of all of the Initial Installations for such Portion of the
Premises shown on all plans and specifications approved by Landlord, provided
that in no event shall such fraction be greater than 1. Such progress payments
shall be made no more than once each calendar month within 30 days next
following the delivery to Landlord of requisitions therefor, signed by a
financial officer of Tenant, which requisitions shall set forth the names of
each contractor, subcontractor and material supplier to whom payment is due, and
the amount thereof, and shall be accompanied by (1) with the exception of the
first requisition, copies of partial waivers of lien from all contractors,
subcontractors and material suppliers covering all work and materials which were
the subject of previous progress payments by Landlord and Tenant, (2) a written
certification from Tenant's architect that the work for which the requisition is
being made has been completed in accordance with the plans and specifications
approved by Landlord, and (3) such other documents and information as Landlord
may reasonably request. Landlord shall disburse the Retainage upon submission by
Tenant to Landlord of a requisition therefor, accompanied by all documentation
required under clauses (1), (2) and (3) above, together with (A) proof of the
satisfactory completion of all required inspections and issuance of any required
approvals, permits and sign-offs for the Initial Installations by all
Governmental Authorities having jurisdiction thereover, (B) final "as-built"
plans and specifications for the Initial Installations, and (C) the issuance of
final lien waivers by all contractors, subcontractors and material suppliers
covering all of the Initial Installations. Notwithstanding anything to the
contrary set forth in this Section 4.2, if Tenant fails to pay when due any sums
due and payable to any of Tenant's contractors, subcontractors or material
suppliers, Landlord shall have the right, but not the obligation, to pay to such
contractor, subcontractor or supplier all sums so due from Tenant, and sums so
paid by Landlord shall be deemed additional rent and shall be paid by Tenant
within 10 Business Days after Landlord delivers to Tenant an invoice therefor.
The right to receive Landlord's Contribution is for the exclusive benefit of
Tenant, and in no event shall such right be assigned to or be enforceable by or
for the benefit of any third party, including any contractor, subcontractor,
materialman, laborer, architect, engineer, attorney or any other Person.
ARTICLE 5
ALTERATIONS
Section 5.1 TENANT'S ALTERATIONS. (a) Tenant shall not make any
alterations, additions, improvements, or other physical changes in or about the
Premises, including the Initial Installations (collectively, "Alterations"),
other than decorative Alterations such as painting, wall coverings and floor
coverings (collectively, "Decorative Alterations"), without obtaining in each
instance, Landlord's prior consent, which consent may be withheld in Landlord's
sole discretion. Notwithstanding the foregoing, Landlord will not unreasonably
withhold its consent to proposed Alterations so long as such Alterations (i) are
non-structural and do not affect the Building Systems, (ii) are performed only
by Landlord's designated contractors or by contractors approved by Landlord to
perform such Alterations, (iii) affect only
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the Premises and are not visible from outside of the Premises or the Building,
(iv) do not affect the certificate of occupancy issued for the Building or the
Premises, (v) are consistent with the design, construction and equipment of the
Building and the Center, and (vi) do not adversely affect any service furnished
by Landlord in connection with the operation of the Building or the Center.
(b) PLANS AND SPECIFICATIONS. Prior to making any Alterations, Tenant,
at its expense, shall (i) submit to Landlord for its approval, detailed plans
and specifications (including layout, architectural, mechanical, electrical,
plumbing, sprinkler and structural drawings) of each proposed Alteration, other
than Decorative Alterations (said plans shall be delivered with a notice to
Landlord expressly stating that Landlord should identify all Specialty
Alterations (hereinafter defined) while reviewing said plans and
specifications), and with respect to any Alteration affecting any Building
System, Tenant shall submit proof that the Alteration has been designed by, or
reviewed and approved by, Landlord's designated engineer for the affected
Building System, (ii) obtain all permits, approvals and certificates required by
any Governmental Authorities (including a PW-1 Form, approved by applicable
Governmental Authorities, for amending the certificate of occupancy, and all
public assembly permits, and physical culture establishment permits), (iii)
furnish to Landlord duplicate original policies or certificates of workers
compensation insurance (covering all persons to be employed by Tenant, and
Tenant's contractors and subcontractors in connection with such Alteration),
comprehensive public liability (including property damage coverage) and
builder's risk insurance coverage (issued on a completed value basis) all in
such form, with such companies, for such periods and in such amounts as Landlord
may reasonably require, naming Landlord, the Indemnitees and any other parties
designated by Landlord as additional insureds, and (iv) furnish to Landlord such
other evidence of Tenant's ability to complete and to fully pay for such
Alterations (other than Decorative Alterations) as is reasonably satisfactory to
Landlord. Upon Tenant's request, Landlord shall exercise reasonable efforts to
cooperate with Tenant in obtaining any permits, approvals or certificates
required to be obtained by Tenant in connection with any permitted Alteration
(if the provisions of the applicable Requirement require that Landlord join in
such application), provided that Tenant shall reimburse Landlord for any cost,
expense or liability incurred by Landlord in connection therewith. Tenant shall
give Landlord not less than 5 Business Days' notice prior to performing any
Decorative Alteration which is not consistent with, or of the same type, design
and style as those installed as part of the Initial Installations, which notice
shall contain a description of such Decorative Alteration. Without limitation,
all Alterations (including Decorative Alterations) shall be of equal or better
quality as those installed as part of the Initial Installations.
(c) GOVERNMENTAL APPROVALS, PLANS. Upon completion of any
Alterations, Tenant, at its expense, shall promptly obtain all certificates of
final approval of such Alterations required by any Governmental Authority
(including all certificates of occupancy, public assembly permits, and physical
culture establishment permits), and shall furnish Landlord with copies thereof,
together with "as-built" plans and specifications for such Alterations (other
than Decorative Alterations) prepared on an Autocad Computer Assisted Drafting
and Design System (or such other system or medium as Landlord may accept) using
naming conventions issued by the American Institute of Architects in June, 1990
(or such other naming convention as Landlord may accept) and magnetic computer
media of such record drawings and specifications, translated into DXF format or
another format acceptable to Landlord.
(d) LANDMARKS PRESERVATION. TENANT IS HEREBY NOTIFIED THAT THE
PREMISES ARE SUBJECT TO THE JURISDICTION OF THE CITY OF NEW YORK LANDMARKS
PRESERVATION COMMISSION. IN ACCORDANCE WITH SECTIONS 25-305, 25-306, 25-309 AND
25-310 OF THE ADMINISTRATIVE CODE OF THE CITY OF NEW YORK AND THE RULES SET
FORTH IN TITLE 63 OF THE RULES OF THE CITY OF NEW YORK, ANY DEMOLITION,
CONSTRUCTION, RECONSTRUCTION, ALTERATION OR MINOR WORK AS DESCRIBED IN SUCH
SECTIONS AND SUCH RULES MAY NOT BE COMMENCED WITHIN OR AT THE PREMISES WITHOUT
THE PRIOR WRITTEN APPROVAL OF THE LANDMARKS PRESERVATION COMMISSION. TENANT IS
NOTIFIED THAT SUCH DEMOLITION, CONSTRUCTION, RECONSTRUCTION, ALTERATIONS OR
MINOR WORK INCLUDES, BUT IS NOT LIMITED TO, (A) WORK TO THE EXTERIOR OF THE
PREMISES INVOLVING WINDOWS, SIGNS, AWNINGS, FLAGPOLES, BANNERS AND STOREFRONT
ALTERATIONS AND (B) INTERIOR WORK TO THE PREMISES THAT (I) REQUIRES A PERMIT
FROM THE DEPARTMENT OF BUILDINGS OR (II) CHANGES, DESTROYS OR AFFECTS AN
INTERIOR ARCHITECTURAL FEATURE OF AN INTERIOR LANDMARK OR AN EXTERIOR
ARCHITECTURAL FEATURE OF AN IMPROVEMENT THAT IS A LANDMARK OR LOCATED ON A
LANDMARK SITE OR IN A HISTORIC DISTRICT.
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Section 5.2 MANNER AND QUALITY OF ALTERATIONS. All Alterations shall be
performed (i) in a good and first-class workmanlike manner and free from
defects, (ii) in accordance with the plans and specifications as required under
Section 5.1, and by contractors, approved by Landlord, (iii) excepting only for
Decorative Alterations, under the supervision of a licensed architect reasonably
satisfactory to Landlord, and (iv) in compliance with all Requirements, the
terms of this Lease including the Tenant Design and Work Specifications attached
hereto as Exhibit D and incorporated herein by this reference, all procedures
and regulations then prescribed by Landlord for work performed in the Building,
and the Rules and Regulations. All materials and equipment to be used in the
Premises shall be of first quality and at least equal to the applicable
standards for the Building then established by Landlord, and no such materials
or equipment shall be subject to any lien or other encumbrance.
Section 5.3 RESTORATION OF PREMISES; REMOVAL OF TENANT'S PROPERTY. All
Building Standard Installations (as hereinafter defined) shall be and remain the
property of Landlord, shall remain upon the Premises and shall not be removed by
Tenant and at the expiration or termination of the Term shall be surrendered
with the Premises as a part thereof without disturbance, molestation or injury.
All Above Building Standard Installations (as hereinafter defined) and Tenant's
Property shall be and, except as hereinafter provided, shall remain the property
of Tenant. On or prior to the Expiration Date or sooner termination of the Term,
Tenant shall, at Tenant's expense, remove all of Tenant's Property and, unless
otherwise directed in writing by Landlord: (i) close up any slab penetrations,
restore all structural steel and Building Systems previously removed by Tenant
in the Premises and (ii) remove any kitchen facilities, raised floors, internal
stairways, vaults, private lavatories, libraries, vertical transportation
systems, reinforced floor areas, supplemental air-conditioning systems or other
Alterations designated by Landlord for removal by Tenant (collectively,
"Specialty Alterations") (all Specialty Alterations shall be deemed to be "Above
Building Standard Installations" for all purposes of this Lease). Without
limiting the foregoing, if together with the submission of plans and
specifications, Tenant provides Landlord with a notice expressly stating that
Landlord should identify all Specialty Alterations while reviewing said plans
and specifications, then Landlord will designate which Alterations will
constitute Specialty Alterations in connection with its approval of the plans
and specifications. At least 30 days prior to commencing the removal of any
Specialty Alterations or the closing of any slab penetrations, Tenant shall
notify Landlord of its intention to remove such Specialty Alterations or effect
such closings, and if Landlord notifies Tenant within such 30 day period, then
Tenant shall not remove such Specialty Alterations or close such slab
penetrations. All Specialty Alterations not so removed shall become the property
of Landlord upon the Expiration Date or sooner termination of the Term. Tenant
shall repair and restore, at its sole cost and expense, in a good and
workmanlike manner, any damage to the Premises or the Building resulting from or
caused by Tenant's removal of any Alterations or Tenant's Property, or by the
closing of any slab penetrations, and if Tenant fails to do so, Tenant shall
reimburse Landlord, on demand, for Landlord's cost of repairing and restoring
such damage. Any Above Building Standard Installations or Tenant's Property not
removed on or before the Expiration Date or sooner termination of the Term shall
be deemed abandoned and Landlord may either retain the same as Landlord's
property or remove and dispose of same, and repair and restore any damage caused
thereby, at Tenant's cost and without liability to or recourse by Tenant or
anyone claiming by, through or under Tenant.
Section 5.4 MECHANIC'S LIENS. Tenant, at its expense, shall discharge
any lien or charge filed against the Premises and/or the Real Property, which
liens or charges may arise out of or result from any work claimed or determined
in good faith by Landlord to have been done by or on behalf of, or materials
claimed or determined in good faith by Landlord to have been furnished to,
Tenant, within not more than 20 days after Tenant's receipt of notice thereof,
by payment, filing the bond required by law or otherwise in accordance with law.
Section 5.5 LABOR RELATIONS. Tenant shall not employ, or permit the
employment of, any contractor or laborer, or permit any materials to be
delivered to or used in the Building, if, in Landlord's sole judgment, such
employment, delivery or use will interfere or cause any conflict or disharmony
with other contractors or laborers engaged in the construction, maintenance or
operation of the Building or the Center by Landlord, Tenant or others, or the
use and enjoyment of the Building or the Center by other tenants or occupants.
In the event of such interference, conflict or disharmony, upon Landlord's
request,
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Tenant shall cause all contractors or laborers causing such interference or
conflict to leave the Building immediately.
Section 5.6 TENANT'S COSTS. Tenant shall pay to Landlord or its
designee, within 10 days after demand, all out-of-pocket costs actually incurred
by Landlord in connection with Tenant's Alterations (including the Initial
Installations), including costs incurred in connection with (i) Landlord's
review of the Alterations (including review of requests for approval thereof),
and (ii) the provision of Building personnel during the performance of any
Alterations required by trade union policy or otherwise, to operate elevators or
otherwise to facilitate Tenant's Alterations.
Section 5.7 TENANT'S EQUIPMENT. Tenant shall not move any heavy
machinery, heavy equipment, freight, bulky matter or fixtures into or out of the
Building without Landlord's prior consent and payment to Landlord of Landlord's
reasonable charges in connection therewith. If any such machinery, equipment or
other items require special handling, Tenant agrees (i) to employ only persons
holding a Master Rigger's License to perform such work, and (ii) such work shall
be done only during hours designated by Landlord.
Section 5.8 LEGAL COMPLIANCE. The approval of plans or specifications,
or the consent by Landlord to the making of any Alterations, does not constitute
Landlord's agreement or representation that such plans, specifications or
Alterations comply with any Requirements or the certificate of occupancy issued
for the Building. Landlord shall have no liability to Tenant or any other party
in connection with Landlord's approval of plans and specifications for any
Alterations, or Landlord's consent to Tenant's performing any Alterations. If,
as the result of any Alterations made by or on behalf of Tenant, Landlord is
required to make any alterations or improvements to any part of the Building in
order to comply with any Requirements, whether or not in the Premises, Tenant
shall pay all costs and expenses incurred by Landlord in connection with such
alterations or improvements as provided in Article 21.
ARTICLE 6
FLOOR LOAD
Tenant shall not place a load upon any floor of the Premises that
exceeds 50 pounds per square foot. Landlord reserves the right to reasonably
designate the position of all heavy machinery, equipment and fixtures which
Tenant wishes to place within the Premises, and to place limitations on the
weight thereof, in accordance with the Rules and Regulations.
ARTICLE 7
REPAIRS
Section 7.1 LANDLORD'S REPAIR AND MAINTENANCE. Landlord shall operate,
maintain and, except as provided in Section 7.2 hereof, make all necessary
repairs (both structural and nonstructural) to (i) the Building Systems, (ii)
the public portions of the Building (excepting, with respect to the Premises,
glass and glass windows and doors, and the so-called store front), and (iii) the
structural elements of the Building, both exterior and interior, including the
roof, foundation and curtain wall, in conformance with standards applicable to
first-class office buildings of comparable age and quality in midtown Manhattan,
subject however to the provisions of Article 14 and Article 15.
Section 7.2 TENANT'S REPAIR AND MAINTENANCE. Tenant shall, at its
expense and in compliance with the requirements of this Lease, including Article
5, (i) keep neat and clean and in good order, condition and repair, the Premises
and every part thereof, including, the store front and the exterior and interior
portions of all doors, windows, plate glass, all plumbing and sewage facilities
within and exclusively serving the Premises, fixtures, interior walls, floors,
ceilings, signs, and all wiring, electrical systems, HVAC systems and equipment,
and similar equipment exclusively serving the Premises, and (ii) make all
nonstructural repairs to the Premises and the fixtures, equipment and
appurtenances therein as and when needed to preserve the Premises in good
working order, condition and repair, except for
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damage for which Tenant is not responsible pursuant to the provisions of Article
14 and Article 15. Tenant shall, at Tenant's expense, repaint and refurbish the
Premises and any part or portion thereof, from time to time, to assure that the
same are kept in a first-class, tenantable and attractive condition throughout
the Term. The Premises shall be kept in a clean, sanitary and safe condition, in
accordance with all applicable Requirements. The Tenant shall not permit or
commit any waste. Without limiting the foregoing, all damage to the Premises or
to any other part of the Building or the Center, or to any fixtures, equipment,
sprinkler system and/or appurtenances thereof, whether requiring structural or
nonstructural repairs, caused by or resulting from any act, omission, neglect or
improper conduct of any Tenant Party, or Alterations made by any Tenant Party,
or the moving of Tenant's fixtures, furniture or equipment, including machinery
and heavy equipment, into, within or out of the Premises, shall be repaired at
Tenant's expense. Such repairs shall be made by (A) Tenant, at Tenant's expense
if the required repairs are nonstructural in nature and do not affect any
Building System or any portion of the Building outside of the Premises, or (B)
Landlord, at Tenant's expense, if the required repairs are structural in nature,
involve replacement of exterior window glass or affect any Building System or
any portion of the Building outside of the Premises. If such repairs are made by
Landlord, Tenant shall reimburse Landlord for all costs and expenses incurred by
Landlord promptly after demand therefore. Tenant shall give Landlord prompt
notice of any defective condition of which Tenant is aware in any structural
element or any Building System located in, servicing or passing through the
Premises. All repairs made by Tenant shall be performed in a good and
first-class workmanlike manner, shall be of a quality at least equal to the
original work or construction using new construction materials, and shall be
made in accordance with this Lease, including Article 5. If Tenant fails to
proceed with due diligence to make any repairs required to be made by Tenant,
Landlord may make such repairs, and all costs and expenses incurred by Landlord
in connection therewith shall be paid by Tenant as provided in Article 21.
Section 7.3 INTERRUPTIONS DUE TO REPAIRS. Landlord reserves the right to
make all changes, alterations, additions, improvements, repairs or replacements
to the Building and/or the Center, or any parts thereof, including to the
Building Systems which provide services to Tenant, all as Landlord deems
necessary or desirable. Landlord shall use reasonable efforts to minimize
interference with Tenant's use and occupancy of the Premises during the making
of such changes, alterations, additions, improvements, repairs or replacements,
provided that Landlord shall have no obligation to employ contractors or labor
at overtime or other premium pay rates, or to incur any other overtime costs or
additional expenses whatsoever. There shall be no Rent abatement or allowance to
Tenant for a diminution of rental value, no actual or constructive eviction of
Tenant, in whole or in part, no relief from any of Tenant's other obligations
under this Lease, and no liability on the part of Landlord, by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making, or failing to make, any repairs, alterations, additions or
improvements in or to any portion of the Center, the Building or the Premises,
or in or to fixtures, appurtenances or equipment therein.
ARTICLE 8
INCREASES IN REAL ESTATE TAXES AND OPERATING EXPENSES
Section 8.1 DEFINITIONS. As used in this Article:
(a) "BASE EXPENSE FACTOR" means the quotient, expressed in
dollars and cents, of (i) the Operating Expenses payable for the Base Operating
Year, divided by (ii) the Center Operating Area for the Base Operating Year.
(b) "BASE TAX FACTOR" means the quotient, expressed in dollars
and cents, of (i) the Taxes payable for the Base Tax Year, divided by (ii) the
Center Tax Area for the Base Tax Year.
(c) "CENTER OPERATING AREA" means the number of square feet in
the rentable area of the Center which is operated and maintained by Landlord or
an Affiliate of Landlord or at the expense of Landlord or an Affiliate of
Landlord. Notwithstanding the foregoing, Landlord may elect, in its sole
discretion from time to time, to:
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(i) subtract from the Center Operating Area the number of
square feet in the rentable area of the Center operated
and maintained by Landlord or an Affiliate of Landlord
but (A) operated and maintained at the expense of any
Person other than Landlord (or an Affiliate of Landlord)
or (B) owned, as a condominium unit or otherwise, by any
Person other than Landlord;
(ii) add to the Center Operating Area to include the number
of square feet in the additional rentable area of the
Center operated and maintained by Landlord or an
Affiliate of Landlord or at the expense of Landlord or
an Affiliate of Landlord; or
(iii) limit the Center Operating Area to the number of square
feet in the rentable area of the Building.
(d) "CENTER TAX AREA" means the number of square feet in the rentable
area of the Center for which Taxes are payable by Landlord or an Affiliate of
Landlord, excluding the rentable area of the Center for which Taxes are not
payable. Notwithstanding the foregoing, Landlord may elect, in its sole
discretion from time to time, to:
(i) subtract from the Center Tax Area the number of square
feet in the rentable area of the Center for which Taxes
are not payable by Landlord or an Affiliate of Landlord;
(ii) add to the Center Tax Area to include the number of
square feet in the additional rentable area of the
Center for which Taxes are payable by Landlord or an
Affiliate of Landlord; or
(iii) limit the Center Tax Area to the number of square feet
in the rentable area of the Building.
(e) "COMPUTATION YEAR" means each calendar year in which any
part of the Term occurs and, in the case of a termination of this Lease pursuant
to Article 19, in which any part of the Term would have occurred except for such
termination.
(f) "EXPENSE FACTOR" means the quotient, expressed in dollars
and cents, of (i) the Operating Expenses payable for any Computation Year
subsequent to the Base Operating Year, divided by (ii) the Center Operating Area
for such Computation Year.
(g) "LANDLORD'S STATEMENT" means an instrument or instruments,
prepared by Landlord, containing a comparison of one or both of (i) the Base Tax
Factor and the Tax Factor for any Tax Year, and (ii) the Base Expense Factor and
the Expense Factor for any Computation Year.
(h) "OPERATING EXPENSES" means all the costs and expenses of
every kind and nature (and taxes, if any, thereon) paid or incurred by or on
behalf of Landlord and/or its Affiliates with respect to the ownership,
operation, maintenance, and repair of the Center, including, the costs incurred
for: (i) air conditioning, ventilation, and heating; (ii) interior and exterior
cleaning and rubbish removal, including supervisory fees of Landlord's Agent in
connection therewith (provided that if such services are performed by Landlord's
Agent, such costs shall not be materially in excess of those charged by outside
contractors for similar services in comparable office buildings); (iii) window
washing; (iv) elevators and escalators; (v) hand tools and other movable
equipment; (vi) porter and matron service; (vii) electricity, gas, oil, steam,
water rates, sewer rents and other utilities; (viii) association fees and dues;
(ix) protection and security services; (x) compliance with any agreement with
any Governmental Authority with respect to the maintenance of the Center or any
part thereof as a landmark; (xi) insurance premiums; (xii) supplies; (xiii)
wages, salaries, disability benefits, pensions, hospitalization, retirement
plans, severance packages and group insurance for employees of Landlord and
Landlord's Agent, up to and including the level of building managers and their
immediate supervisors; (xiv) uniforms and working clothes for such
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employees and the cleaning thereof; (xv) expenses imposed pursuant to any
collective bargaining agreement with respect to such employees; (xvi) payroll,
social security, unemployment and other similar taxes with respect to such
employees; (xvii) sales, use and similar taxes; (xviii) vault charges; (xix)
franchise and license fees; (xx) charges of independent contractors performing
work in connection with the operation, maintenance and repair of the Center;
(xxi) legal, accounting and other professional fees of Landlord and Landlord's
Agent; (xxii) installation, operation and maintenance of the Christmas tree for
the Center and related holiday decorations, events open to the public and other
promotional expenses intended to enhance the environment of the Center; (xxiii)
landscaping costs; (xxiv) management fees, or if no management fee is being
charged, an imputed management fee not in excess of the amount that would be
paid to a property manager for managing a comparable first class office building
in midtown Manhattan; (xxv) the annual depreciation or amortization, on a
straight-line basis over such period as Landlord shall reasonably determine
(with interest on the unamortized portion at the Base Rate plus 2% per annum),
of any capital costs incurred after the Base Operating Year for any equipment,
device or other improvement made or acquired which is either (A) intended as a
labor-saving measure or to effect other economies in the operation, maintenance
or repair of the Center (but only to the extent that the annual benefits
anticipated to be realized therefrom are reasonably related to the annual
amounts to be amortized), or (B) required by any Requirement. Operating Expenses
shall not include (1) Taxes, special assessments and franchise, income or any
other taxes imposed upon or measured by the income or profits of Landlord; (2)
except for depreciation and amortization specifically included in Operating
Expenses as provided above, the costs of all items which should be capitalized
in accordance with generally accepted accounting practices; (3) the costs of all
services furnished to any other tenant of the Center on a "rent inclusion" basis
which are not provided to Tenant on such basis; (4) the costs of all work or
services performed for any tenant in the Center (including Tenant) at such
tenant's cost and expense; (5) mortgage amortization and interest; (6) leasing
commissions; (7) allowances, concessions and other costs of tenant installations
and decorations incurred in connection with preparing space for any tenant in
the Center, including work letters and concessions; (8) fixed rent payable under
Superior Leases, if any; (9) wages, salaries and benefits paid to any employees
of Landlord and Landlord's Agent, above the level of the immediate supervisors
of building managers; (10) legal and accounting fees relating to (i) disputes
with tenants, prospective tenants or other occupants of the Center, (ii)
disputes with purchasers, prospective purchasers, mortgagees or prospective
mortgagees of the Center or any part thereof, (iii) negotiations of leases,
contracts of sale or mortgages, or (iv) disputes with ground lessors under
Superior Leases, if any; (11) costs which are reimbursed by insurance, warranty
or condemnation proceeds, or which are reimbursable by Tenant or other tenants
or any other Person other than pursuant to an expense escalation clause; (12)
costs in the nature of penalties or fines; (13) the costs of all services,
supplies and repairs paid to any Affiliate or subsidiary of Landlord or
Landlord's Agent materially in excess of the costs that would be payable in an
"arm's length" or unrelated situation; (14) advertising expenses in connection
with leasing of the Center; (15) the costs of installing, operating and
maintaining a specialty improvement, such as a cafeteria, lodging or private
dining facility, unless Tenant is permitted to make use of any such facility
without additional cost or on a subsidized basis consistent with other users;
(16) the costs or expenses (including fines, interest, penalties and legal fees)
arising out of Landlord's failure to timely pay Operating Expenses or Taxes;
(17) the costs incurred in connection with the removal, encapsulation or other
treatment of any Hazardous Materials classified as such and existing in the
Premises as of the date hereof and required to be removed, encapsulated or
treated under applicable Requirements in effect as of the date hereof; (18) the
costs of acquiring works of fine art (as distinguished from the works of art and
sculpture presently located at the Center and replacements, repairs and
alterations thereto) located within the Center; (19) the annual depreciation or
amortization of any capital costs incurred for any equipment, device or other
improvement made or acquired to remedy violations of any Requirements which
exist on the date hereof of which violations Landlord has received written
notice prior to the date of this Lease; and (20) charitable and political
contributions.
Landlord shall not recover under this Section 8.1 any item of cost more
than once.
(i) "TAXES" means all taxes and assessments from time to time imposed
upon the Center or any part thereof, including assessments made as a result of
the Center or any part thereof being within a business improvement district,
other than any interest or penalties imposed in connection therewith, and all
expenses, including fees and disbursements of counsel and experts, reasonably
incurred by Landlord
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in connection with any application for a reduction in the assessed valuation for
the Center or for a judicial review thereof (but in no event shall such expenses
be included in Taxes payable for the Base Tax Year). If due to a future change
in the method of taxation any franchise, income, profit or other tax shall be
levied in substitution in whole or in part for or in lieu of any tax which would
otherwise constitute a Tax, or in addition thereto, such franchise, income,
profit or other tax shall be deemed to be a Tax for the purposes of this Lease
and Tenant shall be obligated to pay its share thereof in accordance with the
provisions of this Lease.
(j) "TAX FACTOR" means the quotient, expressed in dollars and cents, of
(i) the Taxes payable for any Computation Year subsequent to the Base Tax Year,
divided by (ii) the Center Tax Area for such Computation Year.
(k) "TAX YEAR" means the 12 month period commencing July 1 of each year,
or such other 12 month period as may be duly adopted as the fiscal year for real
estate tax purposes by the City of New York.
Section 8.2 TAX PAYMENTS. (a) If the Tax Factor for any Computation Year
exceeds the Base Tax Factor, Tenant shall pay to Landlord, as Additional Rent
during each Computation Year, an amount ("Tenant's Tax Payment") equal to (i)
Tenant's Area, multiplied by (ii) the amount by which the Tax Factor for such
Computation Year exceeds the Base Tax Factor.
Landlord may furnish to Tenant, prior to the commencement of each
Computation Year, a Landlord's Statement setting forth Landlord's estimate of
Tenant's Tax Payment for such Computation Year. If Landlord furnishes an
estimate of Tenant's Tax Payment prior to the commencement of a Computation
Year, then Tenant shall pay to Landlord on the first day of each month during
such Computation Year, an amount equal to 1/12th of Landlord's estimate of
Tenant's Tax Payment for such Computation Year. If Landlord shall not furnish
any such estimate for a Computation Year prior to the commencement thereof, then
(x) until the first day of the month following the month in which such estimate
is furnished to Tenant, Tenant shall pay to Landlord on the first day of each
month an amount equal to the monthly sum payable by Tenant to Landlord under
this Section 8.2(a) for the last month of the preceding Computation Year; (y)
after such estimate is furnished to Tenant, if the payments previously made by
Tenant on account of Tenant's Tax Payment for such Computation Year were greater
or less than the installments of Tenant's Tax Payment to be made in accordance
with such estimate, then (1) if there is a deficiency, Tenant shall pay the
amount thereof to Landlord within 10 Business Days after such estimate is
furnished to Tenant, or (2) if there has been an overpayment by Tenant, then
Landlord shall credit such overpayment against subsequent installments of
payments on account of Rent due hereunder, however, if said estimate is received
by Tenant after the expiration or termination of the Term, then Landlord shall
refund such overpayment to Tenant promptly thereafter; and (z) on the first day
of the month following the month in which such estimate is furnished to Tenant
and monthly thereafter throughout such Computation Year, Tenant shall pay to
Landlord an amount equal to 1/12th of Tenant's Tax Payment shown on such
estimate. Landlord may elect, but shall no obligation to, during each
Computation Year, furnish to Tenant a revised Landlord's Statement of Landlord's
estimate of Tenant's Tax Payment for such Computation Year, and in such case,
Tenant's Tax Payment for such Computation Year shall be adjusted and any
deficiencies paid or overpayments credited, as the case may be, substantially in
the same manner as provided in the preceding sentence.
After the end of each Computation Year, Landlord shall furnish to Tenant
a Landlord's Statement of Taxes for such Computation Year, and (A) if such
Landlord's Statement shall show that the sums so paid by Tenant were less than
Tenant's Tax Payment for such Computation Year, then Tenant shall pay to
Landlord the amount of such deficiency in Tenant's Tax Payment within 10
Business Days after such Landlord's Statement is furnished to Tenant, or (B) if
such Landlord's Statement shall show that the sums so paid by Tenant were more
than Tenant's Tax Payment for such Computation Year, Landlord shall credit such
overpayment in Tenant's Tax Payment against subsequent installments of Rent
payable by Tenant, however, if said Landlord's Statement is received by Tenant
after the expiration or termination of the Term, then Landlord shall refund such
overpayment to Tenant promptly thereafter. If there shall be any increase in the
Taxes for any Computation Year, whether during or after such Computation Year,
or if
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there shall be any decrease in the Taxes for any Computation Year, Tenant's Tax
Payment for such Computation Year shall be appropriately adjusted and any
deficiencies paid or overpayments credited, as the case may be, substantially in
the same manner as provided in the preceding sentence.
(b) Tenant shall be obligated to pay Tenant's Tax Payment regardless of
whether Tenant may be exempt from the payment of taxes as the result of any
reduction, abatement, or exemption from Taxes granted or agreed to by any
Governmental Authority, or by reason of Tenant's diplomatic status or other tax
exempt status. The benefit of any discount for any early payment of Taxes shall
accrue solely to the benefit of Landlord.
(c) Tenant shall not (and hereby waives any and all rights it may now or
hereafter have to) institute or maintain any action, proceeding or application
in any court or other body having the power to fix or review assessed
valuations, for the purpose of reducing Taxes. Without limitation, the filing of
any such proceeding by Tenant without Landlord's prior consent in each instance
shall be a default hereunder.
(d) Tenant shall pay, prior to the due date thereof, all occupancy or
rent taxes now in effect or hereafter enacted and applicable to Tenant's
occupancy of the Premises, regardless of whether imposed by its terms upon
Landlord or Tenant, and if any such tax is payable by Landlord, Tenant shall
promptly reimburse the amount thereof to Landlord upon demand, as Additional
Rent. Tenant shall pay all taxes assessed or imposed upon personal property,
fixtures and equipment within the Premises prior to the due date thereof. Tenant
shall also pay all license fees and other charges which may be imposed upon the
business of Tenant conducted upon the Premises.
Section 8.3 OPERATING EXPENSE PAYMENTS. (a) If the Expense Factor for
any Computation Year exceeds the Base Expense Factor, Tenant shall pay to
Landlord, as Additional Rent during each Computation Year, an amount ("Tenant's
Operating Payment") equal to (i) Tenant's Area, multiplied by (ii) the amount by
which the Expense Factor for such Computation Year exceeds the Base Expense
Factor.
For each Computation Year, Landlord shall furnish to Tenant a statement
setting forth Landlord's good faith estimate of Tenant's Operating Payment for
such Computation Year. If Landlord furnishes an estimate of Tenant's Operating
Payment prior to the commencement of a Computation Year, then Tenant shall pay
to Landlord, on the first day of each month during such Computation Year, an
amount equal to 1/12th of Landlord's estimate of Tenant's Operating Payment for
such Computation Year. If Landlord does not furnish any such estimate for a
Computation Year until after the commencement thereof, then (A) until the first
day of the month following the month in which such estimate is furnished to
Tenant, Tenant shall pay to Landlord on the first day of each month an amount
equal to the monthly sum payable by Tenant to Landlord under this Section 8.3
(a) during the last month of the preceding Computation Year, (B) promptly after
such estimate is furnished to Tenant or together therewith, Landlord shall give
notice to Tenant stating whether the payments previously made by Tenant on
account of Tenant's Operating Payment for such Computation Year were greater or
less than the installments of Tenant's Operating Payment to be made for such
Computation Year in accordance with such estimate, and (1) if there shall be a
deficiency, Tenant shall pay the amount thereof within 10 Business Days after
receipt of such notice, or (2) if there shall have been an overpayment, Landlord
shall credit the amount thereof against subsequent installments of payments on
account of Rent due hereunder, however, if said estimate is received by Tenant
after the expiration or termination of the Term, then Landlord shall refund such
overpayment to Tenant promptly thereafter, and (C) on the first day of the month
following the month in which such estimate is furnished to Tenant, and on the
first day of each month thereafter throughout the remainder of such Computation
Year, Tenant shall pay to Landlord an amount equal to 1/12th of Tenant's
Operating Payment shown on such estimate.
(b) After the end of each Computation Year, Landlord shall furnish to
Tenant a Landlord's Statement of Tenant's Operating Payment for such Computation
Year. If Landlord's Statement shows that the sums paid by Tenant exceeded the
actual amount of Tenant's Operating Payment for such Computation Year, then
Landlord shall credit the amount of such excess against subsequent installments
of Rent due hereunder, however, if said Landlord's Statement is received by
Tenant after the expiration or
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earlier termination of the Term, then Landlord shall refund such excess to
Tenant promptly thereafter. If Landlord's Statement shows that the sums paid by
Tenant were less than Tenant's Operating Payment for such Computation Year, then
Tenant shall pay the amount of such deficiency within 10 Business Days after
Tenant's receipt of Landlord's Statement.
Section 8.4 CERTAIN ADJUSTMENTS. (a) If the Center Operating Area is
increased or decreased, from time to time, pursuant to Section 8.1(c), then from
and after the date of such increase or decrease, Operating Expenses for purposes
of this Lease shall be those Operating Expenses of the Center which are properly
allocable, in Landlord's reasonable judgment, to the space included in the
Center Operating Area, as so increased or decreased. Such allocation shall be
performed by Landlord in good faith in a manner consistent with the methods and
principles employed by Landlord in computing Operating Expenses prior to the
date of such increase or decrease. If Landlord performs such an allocation, then
Landlord shall, in its reasonable discretion, equitably adjust the calculation
of the amount of Operating Expenses for the Base Operating Year to account for
such increase or decrease.
(b) Taxes shall not include any taxes and assessments imposed upon any
portion of the Center excluded from the calculation of the Center Tax Area
pursuant to Section 8.1(d) above. If Landlord has elected to limit the Center
Tax Area to the number of square feet in the rentable area of the Building
pursuant to Section 8.1(d)(iii), then Taxes for purposes of this Lease shall be
calculated as follows: (i) if the Building is separately assessed for tax
purposes, the Taxes imposed shall be the Taxes imposed on the Building; or (ii)
if the Building is not separately assessed then Taxes shall be, as determined by
Landlord, either (x) a portion of the Taxes imposed upon the Center, determined
in the same proportion that the rentable area of the Building bears to the
aggregate rentable area in all buildings in the Center, or (y) a portion of the
Taxes imposed upon the tax lot on which the Building is located, determined in
the same proportion that the rentable area of the Building bears to the
aggregate rentable area in all buildings located on such tax lot.
(c) If the Rent Commencement Date shall be a day other than January 1 or
the Expiration Date shall be a day other than December 31, or if there is any
abatement of Fixed Rent payable under this Lease (other than any abatement under
Article 1 hereof) or any termination of this Lease (other than a termination
pursuant to Article 19), or if there is any increase or decrease in Tenant's
Area, or if there is any increase or decrease in the Center Operating Area or
the Center Tax Area, then in each such event, in applying the provisions of this
Article with respect to the Tax Year or Computation Year in which the event
occurred, appropriate adjustments shall be made to reflect the result of such
event on a basis consistent with the principles underlying the provisions of
this Article, taking into consideration (i) the portion of such Tax Year or
Computation Year, as the case may be, which shall have elapsed prior to or after
such event, (ii) the rentable area of the Premises or the Center Operating Area
or the Center Tax Area affected thereby, and (iii) the duration of such event.
(d) If during all or any part of any Computation Year (including the
Base Operating Year) Landlord is not furnishing any particular work or service
(the cost of which, if performed by Landlord, would constitute an Operating
Expense) to a rentable portion of the Center which is not then leased, then
Operating Expenses for such period shall include an amount equal to the costs
and expenses which would have been incurred by Landlord and/or its Affiliates
for such work or service during such period (as determined by Landlord in its
good faith) if the Center had been 95% leased and occupied.
(e) If during all or any part of any Computation Year (including the
Base Operating Year) Landlord is not obligated to furnish any particular work or
service (the cost of which, if performed by Landlord, would constitute an
Operating Expense) to any portion of the Center (other than to space not then
leased), then notwithstanding anything to the contrary set forth in Section
8.1(h), the amount included in Operating Expenses for such period with respect
to such work or service shall be equal to the product of (i) the Center
Operating Area multiplied by (ii) the quotient expressed in dollars and cents,
of (A) the costs and expenses actually incurred by Landlord during such period
to furnish such work or service, divided by (B) the area of the Center to which
Landlord provides such work or service. Without limiting the provisions of
Section 8.1(h), if subsequent to the Base Operating Year, Landlord commences
furnishing any particular type or category of work or service which is not
furnished in the Base Operating
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Year, the cost of which is included in Operating Expenses, then Landlord shall,
in its reasonable discretion equitably adjust the calculation of Operating
Expenses for the Base Operating Year to account for such additional type or
category of work or service.
Section 8.5 NON-WAIVER. Landlord's failure to render a Landlord's
Statement on a timely basis with respect to any Computation Year shall not
prejudice Landlord's right to thereafter render a Landlord's Statement with
respect to such Computation Year or any subsequent Computation Year, nor shall
the rendering of a Landlord's Statement prejudice Landlord's right to thereafter
render a corrected Landlord's Statement for any Computation Year.
Section 8.6 TENANT DISPUTES. Each Landlord's Statement sent to Tenant
shall be conclusively binding upon Tenant unless Tenant shall (i) within 30 days
after such statement is sent, pay to Landlord the amount set forth in such
statement, without prejudice to Tenant's right to dispute such statement, and
(ii) within 90 days after such statement is sent, send a notice to Landlord
objecting to such statement and specifying the reasons for Tenant's claim that
such statement is incorrect. In no event shall Tenant withhold payment of any
portion of amounts set forth in a Landlord's statement. Tenant covenants and
agrees that Tenant will not employ, in connection with any dispute under this
Lease, any Person who is to be compensated, in whole or in part, on a
contingency fee basis. If the parties are unable to resolve any such dispute
within 30 days following the giving of Tenant's notice of objection, either
party may refer the issues raised to an independent firm of certified public
accountants selected by Landlord and reasonably acceptable to Tenant, and the
decision of such accountants shall be conclusively binding upon Landlord and
Tenant. In connection therewith, Tenant and such accountants shall execute and
deliver to Landlord a confidentiality agreement, in form and substance
reasonably satisfactory to Landlord, whereby such parties agree not to disclose
to any third party any of the information obtained in connection with such
review, or the substance of any admissions or stipulations by any party in
connection therewith, or of any resulting reconciliation, compromise or
settlement. Tenant shall pay the fees and expenses relating to such procedure,
unless such accountants shall determine that Landlord overstated the Expense
Factor by more than 5% for such Computation Year, as finally determined, in
which case Landlord shall pay such fees and expenses.
ARTICLE 9
REQUIREMENTS OF LAW
Section 9.1 (a) TENANT'S COMPLIANCE. Tenant, at its expense, shall
comply (or cause to be complied) with all Requirements applicable to the
Premises, regardless of whether imposed by their terms upon Landlord or Tenant.
If Tenant obtains knowledge of any failure to comply with any Requirements
applicable to the Premises, Tenant shall give Landlord prompt notice thereof.
All repairs and alterations, whether ordinary or extraordinary, required to be
made to cause the Premises (which shall include all means of access and egress
to, from and between the floors comprising parts of the Premises) to comply with
any Requirements shall be made at Tenant's expense. If such repairs or
alterations are nonstructural, do not affect any Building System, and do not
involve the performance of work outside of the Premises, then they shall be made
by Tenant, in accordance with the requirements of this Lease, including Article
5. If such repairs or alterations are structural, affect any Building System, or
involve the performance of work outside the Premises, then at Landlord's option,
they shall be made by Landlord and, within 10 days after demand therefore,
Tenant shall reimburse Landlord for all costs and expenses incurred by Landlord
in connection therewith. Notwithstanding anything to the contrary contained
herein, Tenant agrees that within the Premises (which shall include all means of
access and egress to, from and between the floors comprising parts of the
Premises), it shall be responsible for compliance with the Americans With
Disabilities Act (42 U.S.C. Section 12101 et seq.) and the regulations and
Accessibility Guidelines for Buildings and Facilities issued pursuant thereto.
(b) HAZARDOUS MATERIALS. Tenant shall not (i) cause or permit
any Hazardous Materials to be brought into or onto the Center, (ii) cause or
permit the storage, handling, or use of Hazardous Materials in any manner not
permitted by any Requirements, or (iii) cause or permit the escape, disposal or
release of any Hazardous Materials within or in the vicinity of the Center.
Nothing
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herein shall be deemed to prevent Tenant's use of commercially available
cleansers which may contain Hazardous Materials; provided that (i) such
cleansers are ordinarily and customarily used in the operation of health club
facilities, and (ii) any such use is in accordance with all Requirements. Tenant
shall be responsible, at its expense, for all matters directly or indirectly
based on, or arising or resulting from, the actual or alleged presence of
Hazardous Materials in the Premises, the Building or the Center which arises out
of or results from Tenant, Tenant's use of the Premises, those acting on behalf
of Tenant or any Tenant Party. Tenant shall provide to Landlord copies of all
communications received by Tenant with respect to any Requirements relating to
Hazardous Materials, and any claims made in connection therewith. Landlord or
its agents may perform environmental inspections of the Premises at any time.
Without limitation, Tenant agrees (A) to notify Landlord immediately of any
contamination, claim of contamination, loss or damage in connection with
Hazardous Materials, (B) after consultation with and approval by Landlord, to
clean up the contamination in full compliance with applicable Requirements, and
(C) to indemnify, defend and hold Landlord harmless from and against any claims,
suits, causes of action, costs and fees, including attorneys' fees, arising out
of or resulting from any such contamination, claim of contamination, loss or
damage. No consent or approval of Landlord shall in any way be construed as
imposing upon Landlord any liability for the means, methods or manner of
removal, containment or other compliance with applicable Requirements.
(c) LANDLORD'S INSURANCE. Tenant shall not cause or permit any action or
condition that would (i) invalidate or conflict with Landlord's insurance
policies, (ii) violate applicable rules, regulations and guidelines of the Fire
Department, Fire Insurance Rating Organization or any other authority having
jurisdiction over the Center, (iii) cause an increase in the premiums for any
insurance then covering the Building over that payable with respect to
comparable first-class office buildings, or (iv) result in insurance companies
of good standing refusing to insure the Building or any property therein in
amounts and against risks as reasonably determined by Landlord. If any insurance
premiums increase as a result of Tenant's failure to comply with the provisions
of this Article, then Tenant shall promptly cure such failure and shall
reimburse Landlord for the increased insurance premiums paid by Landlord as a
result of such failure by Tenant. In any action or proceeding to which Landlord
and Tenant are parties, a schedule or "make up" of rates for the Building or the
Premises issued by the appropriate Fire Insurance Rating Organization, or other
body fixing such insurance rates, shall be conclusive evidence of the insurance
rates then applicable to the Building.
Section 9.2 FIRE ALARM SYSTEM: SPRINKLERS. Tenant shall install, and
thereafter maintain in good order and repair, a sprinkler system and fire-alarm
and life-safety system serving the Premises. Such installation and maintenance
shall be performed by Tenant in accordance with this Lease, the Rules and
Regulations and all Requirements. If the Fire Insurance Rating Organization or
any Governmental Authority or any of Landlord's insurers requires or recommends
any modifications or Alterations be made or any additional equipment be supplied
in connection with the sprinkler system or fire-alarm and life-safety system
serving the Building or the Premises by reason of Tenant's business, or the
location of the equipment, trade fixtures, or other contents of the Premises,
Landlord (to the extent such modifications or Alterations are structural, affect
any Building System or involve the performance of work outside the Premises), or
Tenant (to the extent such modifications or Alterations are nonstructural, do
not affect any Building System and do not involve the performance of work
outside the Premises) shall make such modifications or Alterations, and supply
such additional equipment, in either case at Tenant's expense.
Section 9.3 LIMITATIONS ON RENT. If at any time during the Term, the
Rent is not fully collectible by reason of any Requirement, Tenant shall take
such other steps as Landlord may request, and as may be legally permissible, to
permit Landlord to collect the maximum rents which may during the continuance of
such restriction be legally permissible (but not in excess of the Rent reserved
under this Lease). Upon the termination of such restriction during the Term,
Tenant shall pay to Landlord, in addition to the Rent for the period following
such termination, if legally permissible, the portion of Rent which would have
been paid pursuant to this Lease but for such legal restriction, less the Rent
paid by Tenant to Landlord while such restriction was in effect, together with
interest thereon at the Base Rate.
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ARTICLE 10
QUIET ENJOYMENT
Provided this Lease is in full force and effect and no Event of Default
then exists, Tenant may peaceably and quietly enjoy the Premises without
hindrance by Landlord or any Person lawfully claiming through or under Landlord,
subject to the terms and conditions of this Lease and all Superior Leases and
Mortgages.
ARTICLE 11
SUBORDINATION
Section 11.1 SUBORDINATION AND ATTORNMENT. (a) This Lease and Tenant's
rights hereunder are subject and subordinate to all Mortgages and Superior
Leases. At the request of any Mortgagee or Lessor, Tenant shall attorn to such
Mortgagee or Lessor, its successors in interest or any purchaser in a
foreclosure sale.
(b) If a Lessor or Mortgagee or any other Person shall succeed to the
rights of Landlord under this Lease, whether through possession or foreclosure
action, or the delivery of a new lease or deed, or otherwise, then at the
request of the successor landlord and upon such successor landlord's written
agreement to accept Tenant's attornment and to recognize Tenant's interest under
this Lease, Tenant shall be deemed to have attornment to and recognized such
successor landlord as Landlord under this Lease. The provisions of this Article
11 are self-operative and require no further instruments to give effect hereto;
provided, however, that Tenant shall promptly execute and deliver any instrument
that such successor landlord may reasonably request (1) evidencing such
attornment, (2) setting forth the terms and conditions of Tenant's tenancy, and
(3) containing such other terms and conditions as may be required by such
Mortgagee or Lessor, provided such terms and conditions do not increase the
Rent, materially increase Tenant's non-Rent obligations or materially and
adversely affect Tenant's rights under this Lease. Upon such attornment, this
Lease shall continue in full force and effect as a direct lease between such
successor landlord and Tenant upon all of the terms, conditions and covenants
set forth in this Lease except that such successor landlord shall not be:
(i) liable for any act or omission of Landlord (except to
the extent such act or omission is a default under this
Lease and continues beyond the date when such successor
landlord succeeds to Landlord's interest and Tenant
gives notice of such act or omission to such successor
landlord);
(ii) subject to any defense, claim, counterclaim, set-off or
offset which Tenant may have against Landlord;
(iii) bound by any prepayment of more than one month's Rent to
any prior landlord;
(iv) bound by any obligation to make any payment to Tenant
which was required to be made prior to the time such
successor landlord succeeded to Landlord's interest,
excepting only the obligation of Landlord to provide
Landlord's Contribution in accordance with the terms of
this Lease;
(v) bound by any obligation to perform any work or to make
improvements to the Premises except for (A) repairs and
maintenance required to be made by the landlord under
this Lease, and (B) repairs to the Premises as a result
of damage by fire or other casualty, or partial
condemnation, pursuant to the provisions of this Lease,
but only to the extent that such repairs can reasonably
be made from the net proceeds of any insurance or
condemnation awards actually made available to such
successor landlord; or
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(vi) bound by any modification, amendment or renewal of this
Lease made without the consent of any Lessor or
Mortgagee of which Tenant has been provided notice.
(c) Any Mortgagee may elect that this Lease shall have priority
over the Mortgage that it holds and, upon notification to Tenant by such
Mortgagee, this Lease shall be deemed to have priority over such Mortgage,
regardless of the date of this Lease. In connection with any financing of the
Real Property or the Center, or of the interest of the lessee under any Superior
Lease, Tenant shall consent to any reasonable modifications of this Lease
requested by any lender, provided such modifications do not increase the Rent,
materially increase Tenant's non-Rent obligations or materially and adversely
affect Tenant's rights under this Lease.
Section 11.2 TERMINATION BY TENANT. As long as any Superior Lease or
Mortgage shall exist, Tenant shall not seek to terminate this Lease by reason of
any act or omission of Landlord (i) until Tenant shall have given notice of such
act or omission to all Lessors and/or Mortgagees, and (ii) until a reasonable
period of time shall have elapsed following the giving of notice of such default
and the expiration of any applicable notice or grace periods (unless such act or
omission is not capable of being remedied within a reasonable period of time)
during which period such Lessors and/or Mortgagees shall have the right, but not
the obligation, to remedy such act or omission. If any Lessor or Mortgagee
elects to remedy such act or omission of Landlord, Tenant shall not seek to
terminate this Lease so long as such Lessor or Mortgagee is proceeding with
reasonable diligence to effect such remedy.
Section 11.3 FUTURE CONDOMINIUM DECLARATION. This Lease and Tenant's
rights hereunder are and will be subject and subordinate to any condominium
declaration, by-laws and other instruments (collectively, the "Declaration")
which may be recorded in order to subject the Building to a condominium form of
ownership pursuant to Article 9-13 of the New York Real Property Law or any
successor statute, provided that the Declaration does not by its terms increase
the Rent, materially increase Tenant's non-Rent obligations or materially and
adversely affect Tenant's rights under this Lease. At Landlord's request, and
subject to the foregoing proviso, Tenant will execute and deliver to Landlord an
amendment of this Lease confirming such subordination and modifying this Lease
to conform to such condominium regime.
Section 11.4 APPLICABILITY. The provisions of this Article shall (i)
inure to the benefit of Landlord, any future owner of the Real Property, any
Lessor or Mortgagee and any sublessor thereof, and (ii) apply notwithstanding
that, as a matter of law, this Lease may terminate upon the termination of any
Superior Lease or the foreclosure of any Mortgage.
Section 11.5 NON-DISTURBANCE AGREEMENTS. As a condition to Tenant's
agreement hereunder to subordinate Tenant's interest in this Lease to any
Mortgage and/or any Superior Lease, Landlord shall obtain from each Mortgagee or
Lessor an agreement, in recordable form and in the standard form customarily
employed by such Mortgagee or Lessor, pursuant to which such Mortgagee or Lessor
shall agree that if and so long as no Event of Default hereunder shall have
occurred and be continuing, the leasehold estate granted to Tenant and the
rights of Tenant pursuant to this Lease to quiet and peaceful possession of the
Premises shall not be terminated, modified, affected or disturbed by any action
which such Mortgagee may take to foreclose any such Mortgage, or which such
Lessor shall take to terminate such Superior Lease, as applicable, and that any
successor landlord shall recognize this Lease as being in full force and effect
as if it were a direct lease between such successor landlord and Tenant upon all
of the terms, covenants, conditions and options granted to Tenant under this
Lease, except as otherwise provided in Section 11.1(b) hereof (any such
agreement, a "Non-Disturbance Agreement").
ARTICLE 12
SERVICES
Section 12.1 ELEVATORS. Landlord shall make available to Tenant at least
one freight elevator serving the Premises upon Tenant's prior request, on a
non-exclusive "first come, first serve" basis with
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other Building tenants, on all Business Days from 8:00 a.m. to 12:00 noon, and
from 1:00 p.m. to 5:00 p.m.
Section 12.2 [Intentionally Deleted]
Section 12.3 CHILLED WATER. For and with respect to the Operating Hours
(as hereinafter defined), Landlord, at Tenant's request, shall provide Tenant
with 95 tons of chilled water (at 6 watts per useable square foot for lighting,
power and heat loads) for the heating, ventilation and air-conditioning ("HVAC")
system to be installed by Tenant, at Tenant's cost and expense, as part of the
Initial Installations. Tenant shall pay Landlord, as additional rent, for all
chilled water provided to Tenant in excess of 95 tons, within 10 days after
rendition of a bill therefor, an annual charge at the rate of $750.00 per ton
(the "Chilled Water Charge"). The Chilled Water Charge shall be subject to a
cost of living increase for each year after the first year included within the
Term. In that regard, on the first calendar anniversary of the Commencement Date
(such date and each ensuing anniversary thereof being referred to hereinafter as
a "Chilled Water Adjustment Date"), and on each Chilled Water Adjustment Date
thereafter during the Term, the Chilled Water Charge shall be increased above
the initial Chilled Water Charge in the same proportion as the Consumer Price
Index for all Urban Consumers (CPI-U): New York, New York-Northeastern New
Jersey Average, All Items (unadjusted) (1982-84=100), published monthly by the
U.S. Department of Labor, or if said index ceases to be published, a comparable
index reflecting changes in the cost of living and designated by Landlord (the
"Price Index") has increased, if at all, as of the Chilled Water Adjustment Date
in question above the Price Index as of the Commencement Date, and each such
increased figure shall then become the Tenant's Chilled Water Charge and shall
remain in effect until the next Chilled Water Adjustment Date. In no event shall
anything contained herein permit the Chilled Water Charge to be reduced below
the amount of the initial Chilled Water Charge specified hereinabove. Landlord
shall not be liable to Tenant for any failure or defect in the supply or
character of chilled water supplied to Tenant by reason of any Requirement, or
any act or omission of the public service company serving the Building, or for
any other reason not caused by the gross negligence or willful misconduct of
Landlord, its agents, contractors and employees. In addition to the foregoing
Chilled Water Charge, at the time of the initial hookup by Tenant of any HVAC
equipment and at the time of installation of any supplementary or auxiliary HVAC
equipment to serve the Premises, or if Tenant's requirements for chilled water
require additional connections or enlargements to existing connections to
Landlord's chilled water ducts, Tenant shall pay to Landlord a "tap-in" fee for
each connection equal to the greater of (i) $1,500.00, which rate shall be
increased on each anniversary of the Commencement Date based on the percentage
increase in the Price Index, if any, over that in effect on the immediately
preceding anniversary of the Commencement Date and (ii) the "tap-in" fee which
Landlord shall then have established as customary for the Building. All hookups
and "tap-ins" shall be performed by Landlord, on Tenant's behalf and at Tenant's
expense.
Section 12.4 OVERTIME BUILDING SERVICES. The Rent does not reflect or
include any charge to Tenant for the furnishing of any building services such as
freight elevator service or chilled water other than to the extent expressly and
specifically set forth in Sections 12.1, 12.2 and 12.3 above. Landlord shall not
be required to furnish any building services at any times ("Overtime Periods")
other than the times specifically described in this Lease for the provision of
such building services unless Tenant delivers notice to Landlord's property
management office serving the Building requesting such services, such notice to
be delivered on a Business Day at least 24 hours prior to the time at which such
services are to be provided. If Landlord furnishes elevator service, chilled
water or any other building service to the Premises during Overtime Periods,
Tenant shall pay to Landlord Landlord's then established rates for supplying
such overtime building services in the Building. Landlord shall not be obligated
to furnish any building services to the Premises other than as expressly and
specifically set forth in this Article 12.
Section 12.5 CLEANING. Tenant shall, at its cost and expense, cause the
Premises to be cleaned, substantially in accordance with the standards
established by Landlord from time-to-time. All cleaning contractors employed by
Tenant to perform cleaning services shall be subject to the prior written
approval of Landlord in each instance. In connection therewith, Tenant shall
permit Landlord or its designees (as designated by Landlord, the "Cleaning
Contractor") to perform such services, on Tenant's behalf and at Tenant's
expense, as follows: prior to entering into any contracts for cleaning services,
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Tenant shall forward to Landlord a statement setting forth the name of the
proposed cleaning contractor, the rates and other material terms and conditions
of said cleaning services contract. Landlord shall have the right, exercisable
by written notice given to Tenant within 30 days after receipt of Tenant's
notice, to elect to have the Cleaning Contractor designated by Landlord perform
such cleaning services upon the terms and conditions, and at the rates, set
forth in Tenant's notice. If Landlord timely gives notice of its exercise of
said right to Tenant, then promptly thereafter Tenant and the Cleaning
Contractor shall enter into a contract for provision of cleaning services upon
such terms. If Landlord fails to exercise such rights in a timely fashion, then
Tenant may, within 45 days thereafter, enter into a contract for cleaning
services upon the terms and conditions specified in the notice previously
delivered to Landlord.
Section 12.6 WATER AND STEAM. Landlord will install meters to measure
the water furnished to the Premises. Within 10 days after request therefore,
Tenant shall pay the cost of the installation of said meters, for all
maintenance, repairs and replacements to said meters, and from time to time,
upon receipt of bills from Landlord therefore, all costs and expenses incurred
by Landlord in furnishing water to the Premises, including Landlord's reasonable
charge for any required pumping or heating thereof and any sewer or utility tax,
fee or charge now or hereafter assessed or imposed upon the Premises or the Real
Property pursuant to any Requirement, plus an administrative charge for
Landlord's supervision and overhead equal to 3% of such costs and expenses.
Tenant shall be entitled to use and shall pay for all live steam
consumed in and upon the Premises. Landlord shall, at Tenant's cost and expense,
install meters to measure consumption of steam. Within 10 days after request
therefore, Tenant shall pay the cost of the installation of said meters and for
all maintenance, repairs and replacements to said meters. All payments for steam
shall be made either to Landlord or directly to the public utility corporation
or corporations furnishing live steam to the Building, as Landlord may from time
to time specify. If such payments are to be made to a public utility
corporation, they shall be made as and when due and payable. If such payments
are to be made to Landlord, they shall be at the rate charged to consumers by
the aforesaid public utility corporations, together with Landlord's reasonable
charge for any required pumping thereof, and any tax, fee, or charge now or
hereafter assessed, or imposed upon the Premises or the Real Property pursuant
to any Requirement, plus an administrative charge for Landlord's supervision and
overhead equal to 3% of such amounts. All such payments shall be due as
additional rent within 10 days after bills are rendered by Landlord. Landlord
shall not be liable to Tenant for any failure or defect in the supply or
character of water and/or steam supplied to Tenant by reason of any Requirement,
or any act or omission of the public service company serving the Building, or
for any other reason not caused by the gross negligence or willful misconduct of
Landlord, its agents, contractors and employees. Landlord shall maintain, repair
and replace the meter referred to above at Tenant's expense.
Section 12.7 REFUSE AND RUBBISH REMOVAL. All trash, refuse and rubbish
shall be kept in covered trash receptacles, which trash receptacles shall be
kept within the Premises at all times and in no event stored outside of the
same. In accordance with Landlord's direction, on a daily basis Tenant shall
cause all trash to be removed to a designated area of the loading dock located
at the Building. Tenant shall pay to Landlord within 10 days after request
therefor, Landlord's reasonable charges for removal of refuse and rubbish.
Tenant shall not dispose of any refuse and rubbish in the public areas of the
Center or any part thereof, and if any Tenant Party does so, Tenant shall be
liable for Landlord's reasonable charge for such removal. Tenant shall cause all
Tenant Parties to observe such additional rules and regulations regarding
rubbish removal and/or recycling as Landlord may, from time to time, reasonably
impose.
Section 12.8 LISTING IN BUILDING DIRECTORY. Landlord shall, at the
request of Tenant, maintain a listing on the Center directory in the Building
lobby of the name of Tenant.
Section 12.9 SERVICE INTERRUPTIONS. Landlord reserves the right to
suspend any building service when necessary, by reason of Unavoidable Delays,
accidents or emergencies, or for repairs, alterations or improvements which, in
Landlord's reasonable judgment, are necessary or appropriate, until such
Unavoidable Delay, accident or emergency shall cease or such repairs,
alterations or improvements are completed, and Landlord shall not be liable to
Tenant for any interruption, curtailment or failure to supply
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services. Landlord shall use reasonable efforts to restore such service, remedy
such situation and minimize interference with Tenant's business, provided that
Landlord shall have no obligation to employ contractors or labor at overtime or
other premium pay rates, or to incur any other overtime costs or additional
expenses whatsoever. The exercise of any such right or the occurrence of any
such failure by Landlord shall not (i) constitute an actual or constructive
eviction, in whole or in part, (ii) entitle Tenant to any compensation,
abatement or diminution of Rent, (iii) relieve Tenant from any of its
obligations under this Lease, or (iv) impose any liability upon Landlord by
reason of inconvenience to Tenant, or interruption of Tenant's business, or
otherwise.
Section 12.10 RENT ABATEMENT. Not withstanding anything to the contrary
contained in this Lease, if Tenant is unable to use the entire Premises for the
ordinary conduct of Tenant's business due solely to (a) an interruption of an
Essential Service (as hereinafter defined) resulting from Landlord's performance
of an improvement or repair to the Building or (b) Landlord's breach of an
obligation under this Lease to perform repairs or replacements which results in
Landlord's failure to provide an Essential Service, in each case other than as a
result of Unavoidable Delays, casualty or condemnation, and such condition
continues for a period in excess of 10 consecutive days on which pursuant to
Section 36.2(b) of this Lease Tenant is required to keep the Premises open for
business after (i) Tenant furnishes a notice to Landlord (the "Abatement
Notice") stating that Tenant's inability to use the Premises is solely due to
such condition, (ii) Tenant does not actually use or occupy any portion of the
Premises during such period, and (iii) such condition has not resulted from the
negligence or misconduct of Tenant or any Tenant Party, then Fixed Rent,
Tenant's Tax Payment and Tenant's Operating Payment shall be abated on a per
diem basis for the period commencing on the 11th day after Tenant delivers the
Abatement Notice to Landlord and ending on the earlier of (x) the date Tenant
reoccupies any portion of the Premises, and (y) the date on which such condition
is substantially remedied. "Essential Service" shall mean a service which
Landlord is obligated under this Lease to provide to Tenant which if not
provided shall (1) deny access to the Premises, (2) threaten the health or
safety of any occupants of the Premises or (3) prevent the usage of more than
25% of the Premises for the ordinary conduct of Tenant's business.
ARTICLE 13
INSURANCE, PROPERTY LOSS OR DAMAGE: REIMBURSEMENT
Section 13.1 TENANT'S INSURANCE. (a) Tenant, at its expense, shall
obtain and keep in full force and effect during the Term:
(i) a policy of commercial general liability insurance on an
occurrence basis against claims for personal injury, death and/or
property damage occurring in or about the Premises or the Center, in the
broadest and most comprehensive form then generally available from time
to time, under which Tenant is named as the insured and Landlord,
Landlord's managing agent, any Lessors, any Mortgagees and any other
parties whose names shall have been furnished by Landlord to Tenant from
time to time are named as additional insureds, which insurance shall
provide primary coverage without contribution from any other insurance
carried by or for the benefit of Landlord, Landlord's managing agent or
any Lessors or Mortgagees named as additional insureds, and Tenant
agrees to obtain blanket broad-form contractual liability coverage to
insure its indemnity obligations set forth in Article 32 hereof. The
minimum limits of liability shall be a combined single limit with
respect to each occurrence in an amount of not less than $5,000,000.00
and in an amount of not less than $10,000,000.00 in the aggregate;
provided, however, that Landlord may require Tenant to increase such
coverage, from time to time, to that amount of insurance which in
Landlord's reasonable judgment is then being customarily required by
landlords for similar health-club facilities in first-class buildings in
the City of New York. If the aggregate limit applying to the Premises is
reduced by the payment of a claim or establishment of a reserve equal to
or greater than 50% of the annual aggregate, Tenant shall immediately
arrange to have the aggregate limit restored by endorsement to the
existing policy or the purchase of an additional insurance policy
unless, in Landlord's reasonable judgment, Tenant maintains sufficient
excess liability insurance to satisfy the liability requirements of this
Lease without the reinstatement of the aggregate limit;
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(ii) insurance against loss or damage by fire, and such other
risks and hazards as are insurable under then available standard forms
of "all risk" property insurance policies with extended coverage,
insuring Tenant's Property, and all Alterations and improvements to the
Premises (including the Initial Installations) for the full insurable
value thereof or replacement cost value thereof, having a deductible
amount, if any, as reasonably determined by Landlord;
(iii) during the performance of any Alteration (including the
Initial Installations), until completion thereof, builder's risk
insurance on an "all risk" basis and on a completed value form including
a "permission to complete and occupy endorsement", for full replacement
value covering the interest of Landlord and Tenant (and their respective
contractors and subcontractors), any Mortgagee and any Lessor, in all
work incorporated in the Building and all materials and equipment in or
about the Premises;
(iv) workers' compensation insurance, in amounts and with
coverages as required by law;
(v) business interruption insurance in an amount of not less
than 12 months of the Rent payable under this Lease; and
(vi) such other insurance in such amounts as Landlord, any
Mortgagee and/or any Lessor may reasonably require from time to time.
(b) All insurance required to be carried by Tenant pursuant to the terms
of this Lease (i) shall contain a provision that (A) no act or omission of
Tenant shall affect or limit the obligation of the insurance company to pay the
amount of any loss sustained, (B) the policy shall be noncancellable and/or no
material change in coverage shall be made thereto unless Landlord, Lessors and
Mortgagees shall have received 30 days' prior notice of the same by certified
mail, return receipt requested, and (C) Tenant shall be solely responsible for
the payment of all premiums under such policies and Landlord, Lessors and
Mortgagees shall have no obligation for the payment thereof, and (ii) shall be
effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of New York, and
rated in Best's Insurance Guide, or any successor thereto (or if there be none,
an organization having a national reputation) as having a Best's Rating of "A-"
and a "Financial Size Category" of at least "IX" or if such ratings are not then
in effect, the equivalent thereof or such other financial rating as Landlord may
at any time consider appropriate.
(c) On or prior to the Commencement Date, Tenant shall deliver to
Landlord appropriate policies of insurance, including evidence of waivers of
subrogation, required to be carried by Tenant pursuant to this Article. Evidence
of each renewal or replacement of a policy shall be delivered by Tenant to
Landlord at least 10 days prior to the expiration of such policy. In lieu of the
policies of insurance required to be delivered to Landlord pursuant to this
Article 13 (collectively, the "Policies"), Tenant may deliver to Landlord a
certification or certifications from Tenant's insurance company or companies (on
the form currently designated "Accord 27", or the equivalent, rather than on the
form currently designated "Accord 25-S", or the equivalent) which shall be
binding on Tenant's insurance company, and which shall expressly provide that
such certification (i) conveys to Landlord and any other named insured and/or
additional insureds thereunder (the "Insured Parties") all the rights and
privileges afforded under the applicable Policies as primary insurance, and (ii)
contains an unconditional obligation of the insurance company to advise all
Insured Parties in writing by certified mail, return receipt requested, at least
30 days in advance of any termination of or change to the applicable Policies
that would affect the interest of any of the Insured Parties.
Section 13.2 WAIVER OF SUBROGATION. Landlord and Tenant shall each
procure an appropriate clause in or endorsement to any property insurance
covering the Premises, the Building and personal property, fixtures and
equipment located therein, wherein the insurance companies shall waive
subrogation or consent to a waiver of right of recovery, and Landlord and Tenant
agree not to make any claim against, or seek to recover from, the other, for any
loss or damage to its property or the property of
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others resulting from fire and other hazards to the extent covered by such
property insurance; provided, however, that the release, discharge, exoneration
and covenant not to sue contained herein shall be limited by and coextensive
with the terms and provisions of the waiver of subrogation or waiver of right of
recovery. If the payment of an additional premium is required for the inclusion
of, or consent to, a waiver of subrogation, each party shall advise the other,
in writing, of the amount of any such additional premiums and the other party
may pay such additional premium. If such other party shall not elect to pay such
additional premium, then notwithstanding the foregoing provisions, the first
party shall not be required to obtain such waiver of subrogation or consent to
waiver of right of recovery. Tenant acknowledges that Landlord shall not be
obligated to carry insurance on, and shall not be responsible for, (i) damage to
any Alterations or improvements to the Premises (including the Initial
Installations), (ii) Tenant's Property, and (iii) any loss suffered by Tenant
due to interruption of Tenant's business.
ARTICLE 14
DESTRUCTION - FIRE OR OTHER CAUSE
Section 14.1 RESTORATION. (a) If the Premises are damaged by fire or
other casualty, or if the Building is damaged such that Tenant is deprived of
reasonable access to the Premises, Tenant shall give prompt notice to Landlord,
and Landlord shall repair the core and shell of the Premises and all Building
Systems (or the damaged portion thereof) up to the point of connection to the
Premises, at its expense, to substantially the condition thereof prior to the
damage, subject to the provisions of this Article 14, and of any Mortgage or
Superior Lease. Landlord shall have no obligation to repair or restore, and
Tenant shall at its cost and expense, repair and replace Tenant's Property, and
any Alterations or improvements to the Premises (including the Initial
Installations), to substantially the condition prior to the damage. So long as
Tenant is not in default beyond applicable grace or notice provisions in the
payment or performance of its obligations under this Section 14.1, then until
the restoration of the core and shell of the Premises is Substantially Completed
or would have been Substantially Completed but for Tenant Delay, Fixed Rent,
Tenant's Tax Payment and Tenant's Operating Payment shall be abated or reduced
in the proportion by which the area of the part of the Premises which is not
usable (or accessible) and is not used by Tenant bears to the total area of the
Premises. Nothing set forth in this Section 14.1 shall be interpreted to limit
Landlord's right to repair or restore all or any portion of the Premises at such
time and in such manner as Landlord deems appropriate in Landlord's sole
judgment, and no such repair or restoration shall constitute a waiver by
Landlord of any of Landlord's rights set forth in this Section 14.1 or elsewhere
in this Lease.
Section 14.2 LANDLORD'S TERMINATION RIGHT. Notwithstanding anything to
the contrary contained in Section 14.1, if the Premises are totally damaged or
are rendered wholly untenantable, or if the Building is so damaged that in
Landlord's opinion, substantial alteration, demolition, or reconstruction of the
Building is required (whether or not the Premises are so damaged or rendered
untenantable), then in either of such events, Landlord may, not later than 60
days following the date of the damage, give Tenant a notice terminating this
Lease, provided that if the Premises are not damaged, Landlord may not terminate
this Lease unless Landlord similarly terminates the leases of other tenants in
the Building covering, in the aggregate, at least 50% of the rentable area of
the Building which is or was occupied immediately prior to such damage. If this
Lease is so terminated, (i) the Term shall expire upon the date set forth in
Landlord's notice (with the same effect as if such date were the Expiration
Date), which shall not be less than 30 days after such notice is given, and
Tenant shall vacate the Premises and surrender the same to Landlord no later
than the date set forth in the notice, (ii) Tenant's liability for Rent which
accrues thereafter shall cease as of the date of the damage, (iii) any prepaid
Rent for any period after the date of the damage shall be refunded by Landlord
to Tenant, and (iv) Landlord shall be entitled to collect all insurance proceeds
of policies held by Landlord or Tenant providing coverage for Alterations and
other improvements to the Premises (including the Initial Installations).
Landlord shall retain from such proceeds from Tenant's insurance an amount equal
to the unamortized portion of the sum total of amounts paid by Landlord for such
Alterations and improvements (including the Initial Installations), whether by
contribution, offset or otherwise, and the balance of such proceeds, if any,
shall be paid to Tenant, such amortization to be calculated using a
straight-line amortization schedule over the useful life
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of the Alteration or improvement determined in accordance with generally
accepted accounting principles consistently applied, with interest thereon at
the Base Rate plus 2% per annum.
Section 14.3 TENANT'S TERMINATION RIGHT. If the Premises are totally
damaged and are thereby rendered wholly untenantable, or if the Building shall
be so damaged that Tenant is deprived of reasonable access to the Premises, and
if Landlord elects to restore the core and shell of the Premises, Landlord
shall, within 60 days following the date of the damage, cause a contractor or
architect selected by Landlord to give notice (the "Restoration Notice") to
Tenant of the date by which such contractor or architect estimates the
restoration of the Premises shall be Substantially Completed. If such date, as
set forth in the Restoration Notice, is more than 18 months from the date of
such damage, then Tenant shall have the right to terminate this Lease by giving
notice (the "Termination Notice") to Landlord not later than 30 days following
Tenant's receipt of the Restoration Notice. If Tenant delivers a Termination
Notice to Landlord within said 30 day period, then this Lease shall be deemed to
have terminated as of the date of the giving of the Termination Notice, in the
manner and subject to the conditions set forth in the second sentence of Section
14.2.
Section 14.4 FINAL 24 MONTHS. Notwithstanding anything set forth to the
contrary in this Article 14, in the event that any damage rendering the Premises
wholly untenantable occurs during the final 24 months of the Term, either
Landlord or Tenant may terminate this Lease by notice to the other party within
30 days after the occurrence of such damage and this Lease shall expire on the
30th day after the date of such notice. For purposes of this Section 14.4, the
Premises shall be deemed wholly untenantable if due to such damage, Tenant shall
be precluded from using more than 50% of the floor area of the Premises for the
conduct of its business and Tenant's inability to so use the Premises is
reasonably expected to continue until at least the earlier of the (i) Expiration
Date, or (ii) the 90th day after the date when such damage occurs.
Section 14.5 WAIVER OF REAL PROPERTY LAW SECTION 227. This Article
constitutes an express agreement governing any case of damage or destruction of
the Premises or the Building by fire or other casualty, and Section 227 of the
Real Property Law of the State of New York, which provides for such contingency
in the absence of an express agreement, and any other law of like nature and
purpose now or hereafter in force, shall have no application in any such case.
Section 14.6 INABILITY TO COLLECT. Notwithstanding any of the foregoing
provisions of this Article 14, if Landlord or any Lessor or Mortgagee shall be
unable to collect all of the insurance proceeds (including rent insurance
proceeds) applicable to damage or destruction of the Premises or the Building by
reason of any action or inaction on the part of Tenant or any Tenant Party,
then, without prejudice to any other remedies which may be available against
Tenant, (i) there shall be no abatement of Rent, and (ii) Landlord shall have no
obligation to restore the core and shell of the Premises or the Building
Systems.
Section 14.7 LANDLORD'S LIABILITY. Any Building employee to whom any
property shall be entrusted by or on behalf of Tenant shall be deemed to be
acting as Tenant's agent with respect to such property and neither Landlord nor
any of the Indemnitees shall be liable for any damage to such property, or for
the loss of or damage to any property of Tenant by theft or otherwise. Neither
Landlord nor any of the other Indemnitees shall be liable for any injury or
damage to persons or property or interruption of Tenant's business resulting
from fire or other casualty, any damage caused by other tenants or persons in
the Building or by construction of any private, public or quasi-public work, or
any latent defect in the Premises or in the Building (except that Landlord shall
be required to repair the same to the extent expressly provided in Article 7).
Without limitation, Tenant agrees to use and occupy the Premises at its own
risk, and neither Landlord nor any Indemnitees shall have any responsibility or
liability for any loss of or damage to Tenant's Property or other personal
property of Tenant or those claiming by, through or under Tenant. No penalty
shall accrue for delays which may arise by reason of adjustment of insurance on
the part of Landlord or Tenant, or Unavoidable Delays, or in connection with any
repair or restoration of any portion of the Premises or of the Building or of
the Center. Landlord shall use reasonable efforts to minimize interference with
Tenant's use and occupancy of the Premises during the performance of any such
repair or restoration; provided, however, Landlord shall have no obligation to
employ contractors or
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labor at overtime or other premium pay rates or to incur any other overtime
costs or additional expenses whatsoever. Nothing in this Section 14.7 shall
affect any right of Landlord to be indemnified by Tenant pursuant to the
provisions of Article 32 for payments made to compensate for losses of third
parties.
Section 14.8 WINDOWS. If at any time any windows of the Premises are
temporarily closed, darkened or covered over by reason of repairs, maintenance,
alterations or improvements to the Building, or any of such windows are
permanently closed, darkened or covered over due to any Requirement, Landlord
shall not be liable for any damage Tenant may sustain and Tenant shall not be
entitled to any compensation or abatement of any Rent, nor shall the same
release Tenant from its obligations hereunder or constitute an actual or
constructive eviction.
Section 14.9 RESTORATION BY TENANT. Unless this Lease is terminated as
provided in this Article 14, if the Premises shall be damaged by fire or other
casualty, then Tenant shall (i) repair and restore all portions of the Premises
not required to be restored by Landlord pursuant to this Article 14 to
substantially the condition at the time of such casualty, (ii) equip the
Premises with trade fixtures, equipment and all personal property necessary or
proper for the operation of Tenant's business; and (iii) open for business in
the Premises as soon thereafter as possible.
ARTICLE 15
EMINENT DOMAIN
Section 15.1 (a) TOTAL TAKING. If all or substantially all of the
Premises, the Building or the Real Property shall be acquired or condemned for
any public or quasi-public purpose, this Lease shall terminate and the Term
shall end as of the date of the vesting of title, with the same effect as if
such date were the Expiration Date.
(b) PARTIAL TAKING. If only a part of the Premises, the Building or the
Real Property shall be acquired or condemned, this Lease and the Term shall
continue in full force and effect, provided that from and after the date of the
vesting of title, Fixed Rent, Tenant's Tax Payment and Tenant's Operating
Payment shall be modified to reflect the reduction of the Premises and/or the
Building as a result of such acquisition or condemnation.
(c) LANDLORD'S TERMINATION RIGHT. Whether or not the Premises are
affected, Landlord may give to Tenant, within 60 days following the date upon
which Landlord receives notice that all or a portion of the Building or the Real
Property has been acquired or condemned, a notice of termination of this Lease,
provided that Landlord elects to terminate leases (including this Lease)
affecting at least 50% of the rentable area of the Building (excluding any
rentable area leased by Landlord or its Affiliates).
(d) TENANT'S TERMINATION RIGHT. If the part of the Building or the Real
Property so acquired or condemned contains a substantial part of the total area
of the Premises immediately prior to such acquisition or condemnation, or if by
reason of such acquisition or condemnation, Tenant no longer has reasonable
means of access to the Premises, Tenant may terminate this Lease by notice to
Landlord given within 60 days following the date upon which Tenant received
notice of such acquisition or condemnation. If Tenant so notifies Landlord, this
Lease shall terminate and the Term shall end and expire upon the date set forth
in the notice (with the same effect as if such date were the Expiration Date),
which date shall not be more than 30 days following the giving of such notice.
If a part of the Premises shall be so acquired or condemned and this Lease and
the Term shall not be terminated in accordance with this Section 15.1, Landlord,
at Landlord's expense but without requiring Landlord to spend more than it
collects as an award, shall, subject to the provisions of any Mortgage or
Superior Lease, restore that part of the Premises not so acquired or condemned
to a self-contained rental unit substantially equivalent (with respect to
character, quality, appearance and services) to that which existed immediately
prior to such acquisition or condemnation, excluding Tenant's Property, and/or
any Alterations or improvements, including the Initial Installations.
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(e) APPORTIONMENT OF RENT. Upon any termination of this Lease pursuant
to the provisions of this Article 15, Fixed Rent, Tenant's Tax Payment and
Tenant's Operating Payment shall be apportioned as of, and shall be paid or
refunded up to and including, the date of such termination.
(f) APPLICABILITY. The provisions of Sections 15.1 and 15.2 shall not
apply to any acquisition or condemnation of all or any part of the Premises for
a period of 18 months or less.
Section 15.2 AWARDS. Upon any acquisition or condemnation of all or any
part of the Premises, the Building or the Real Property, Landlord shall receive
the entire award for any such acquisition or condemnation, and Tenant shall have
no claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term or for the Alterations or other improvements,
including the Initial Installations; and Tenant hereby assigns to Landlord all
of its right in and to such award. Without limiting the foregoing, out of the
net amount of any such award actually received by Landlord (after deducting
costs of recovery, taxes, amounts payable to lenders, reasonable attorneys fees,
and the like), if any, provided that Tenant shall have certified the amount of
Tenant's Leasehold Improvement Costs (hereinafter defined) to Landlord within 90
days after the Rent Commencement Date, Tenant shall be entitled to an amount
equal to the unamortized portion of the Tenant's Leasehold Improvement Costs.
The "Tenant's Leasehold Improvement Costs" shall mean the actual costs incurred
by Tenant in constructing the Initial Installations, but excluding costs for
moveable and trade fixtures, furniture, equipment and any other personal
property, design costs, legal fees, engineering fees and other soft costs and
also excluding the Landlord's Contribution. Such amortization shall be
calculated using a straight-line amortization schedule over the useful life of
the Alteration or Improvement determined in accordance with generally accepted
accounting principles consistently applied, with interest thereon at the Base
Rate plus 2% per annum. Nothing contained in this Article shall be deemed to
prevent Tenant from making a separate claim in any condemnation proceedings for
the then-value of any Tenant's Property included in such taking and for any
moving expenses, provided any such award is in addition to, and does not result
in a reduction of, the award made to Landlord.
Section 15.3 TEMPORARY TAKING. Notwithstanding the provisions of Section
5.1, if all or any part of the Premises is acquired or condemned for a period of
18 months or less during the Term for any public or quasi-public use or purpose,
Tenant shall give prompt notice to Landlord, and the Term shall not be reduced
or affected in any way, and Tenant shall continue to pay all Rent payable by
Tenant without reduction or abatement and to perform all its other obligations
under this Lease, except to the extent prevented from doing so by the condemning
authority. Tenant shall be entitled to receive any award or payment from the
condemning authority for such use, which award shall be received, held and
applied by Tenant as a trust fund for payment of Rent falling due, provided that
if the acquisition or condemnation is for a period extending beyond the Term,
such award shall be apportioned between Landlord and Tenant and Landlord shall
receive the portion of such award relating to the period after the Term. If the
acquisition or condemnation of all or any part of the Premises is for a period
of more than 18 months, the provisions of Sections 15.1 and 15.2 shall apply.
ARTICLE 16
ASSIGNMENT AND SUBLETTING
Section 16.1 (a) NO ASSIGNMENT OR SUBLETTING. Except as expressly set
forth herein, Tenant shall not assign, mortgage, pledge, encumber, license or
otherwise transfer this Lease, whether by operation of law or otherwise, and
shall not sublet (or underlet), or permit, or suffer the Premises or any part
thereof to be used or occupied by others, without Landlord's prior consent in
each instance. Any assignment, sublease, mortgage, pledge, encumbrance, license
or transfer in contravention of the provisions of this Article 16 shall be void.
(b) COLLECTION OF RENT. If, without Landlord's consent, this Lease is
assigned, or any part of the Premises is sublet or occupied by anyone other than
Tenant, or this Lease or the Premises or any of Tenant's Property is encumbered
(by operation of law or otherwise), Landlord may collect rent from the assignee,
subtenant or occupant and apply the net amount collected to the Rent herein
reserved. No
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such collection of rent shall be deemed to be (i) a waiver of the provisions of
this Article, (ii) an acceptance of the assignee, subtenant or occupant as
tenant, or (iii) a release of Tenant from the performance of any of the terms,
covenants and conditions to be performed by Tenant under this Lease, including
the payment of Rent.
(c) NO WAIVER. Landlord's consent to any assignment or subletting shall
not relieve Tenant from the obligation to obtain Landlord's express consent to
any further assignment or subletting. In no event shall any permitted subtenant
assign or encumber its sublease or further sublet any portion of its sublet
space, or otherwise suffer or permit any portion of the sublet space to be used
or occupied by others. The listing of any name other than that of Tenant in the
directory, or on the doors of the Premises or elsewhere, shall not vest in any
such named party any right or interest in this Lease or in the Premises, nor be
deemed to constitute Landlord's consent to any assignment or transfer of this
Lease, or to any sublease of the Premises, or to the use or occupancy thereof by
others.
Section 16.2 TENANT'S NOTICE. If Tenant desires to assign this Lease or
sublet all or any portion of the Premises, Tenant shall give notice thereof to
Landlord, which shall be accompanied by (i) with respect to an assignment of
this Lease, the date Tenant desires the assignment to be effective, and (ii)
with respect to a sublet of all or a part of the Premises, (A) the material
business terms on which Tenant would sublet such premises, and (B) a description
of the portion of the Premises to be sublet. Such notice shall be deemed an
offer from Tenant to Landlord whereby Landlord (or Landlord's designee) shall be
granted the right, at Landlord's option (1) to terminate this Lease with respect
to such space as Tenant proposes to sublease, upon the terms and conditions
hereinafter set forth, or (2) if the proposed transaction is an assignment of
this Lease or a subletting of 50% or more of the rentable square footage of the
Premises, to terminate this Lease with respect to the entire Premises. Such
option may be exercised by notice from Landlord to Tenant within 45 days after
Landlord's receipt of Tenant's notice.
Section 16.3 LANDLORD'S TERMINATION. If Landlord exercises its option to
terminate all or a portion of this Lease pursuant to Section 16.2: (i) this
Lease shall end and expire with respect to all or a portion of the Premises, as
the case may be, on the date that such assignment or sublease was to commence
(as if such date were the Expiration Date), (ii) Fixed Rent and Tenant's Tax
Payment and Tenant's Operating Payment shall be apportioned, paid or refunded as
of such date, (iii) Tenant, upon Landlord's request, shall enter into an
amendment of this Lease ratifying and confirming such total or partial
termination, and setting forth any appropriate modifications to the terms and
provisions hereof, (iv) Landlord shall be free to lease the Premises (or any
part thereof) to Tenant's prospective assignee or subtenant, and (v) if this
Lease shall terminate with respect to a portion of the Premises, Tenant shall,
at Tenant's sole cost and expense, separately demise such portion of the
Premises, and make available all utility services so as to make such portion of
the Premises a self-contained rental unit satisfactory in all respects to
Landlord and in compliance with all Requirements.
Section 16.4 CONDITIONS TO ASSIGNMENT OR SUBLETTING. (a) With respect to
each and every assignment and/or subletting authorized by Landlord under the
provisions of this Lease, it is further agreed that:
(i) the form of the proposed assignment or sublease shall be
reasonably satisfactory to Landlord and shall comply with the provisions
of this Article;
(ii) no sublease shall be for a term ending later than one day
prior to the Expiration Date of this Lease;
(iii) no sublease shall be delivered to any subtenant, and no
subtenant shall take possession of any part of the Premises, until an
executed counterpart of such sublease has been delivered to Landlord and
approved in writing by Landlord;
(iv) if an Event of Default shall occur at any time prior to the
effective date of such assignment or subletting, then Landlord's consent
thereto, if previously granted, shall be immediately deemed revoked
without further notice to Tenant, and if such assignment or
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subletting would have been permitted without Landlord's consent pursuant
to Section 16.8, such permission shall be void and without force and
effect, and in either such case, any such assignment or subletting shall
constitute a further Event of Default hereunder; and
(v) each sublease shall be subject and subordinate to this Lease
and to the matters to which this Lease is or shall be subordinate, it
being the intention of Landlord and Tenant that Tenant shall assume and
be liable to Landlord for any and all acts and omissions of all
subtenants and anyone claiming under or through any subtenants which, if
performed or omitted by Tenant, would be a default under this Lease; and
Tenant and each subtenant shall be deemed to have agreed that upon the
occurrence and during the continuation of an Event of Default hereunder,
Tenant has hereby assigned to Landlord, and Landlord may, at its option,
accept such assignment of, all right, title and interest of Tenant as
sublandlord under such sublease, together with all modifications,
extensions and renewals thereof then in effect, and such subtenant
shall, at Landlord's option, attorn to Landlord pursuant to the then
executory provisions of such sublease, except that Landlord shall not be
(A) liable for any previous act or omission of Tenant under such
sublease, (B) subject to any counterclaim, offset or defense not
expressly provided in such sublease, which theretofore accrued to such
subtenant against Tenant, (C) bound by any previous modification of such
sublease not consented to by Landlord, or by any prepayment of more than
one month's rent and additional rent under such sublease, (D) bound to
return such subtenant's security deposit, if any, except to the extent
that Landlord shall receive actual possession of such deposit and such
subtenant shall be entitled to the return of all or any portion of such
deposit under the terms of its sublease, or (E) obligated to make any
payment to or on behalf of such subtenant, or to perform any work in the
subleased space or the Building, or in any way to prepare the subleased
space for occupancy, beyond Landlord's obligations under this Lease. The
provisions of this Section 16.4(b)(v) shall be self-operative, and no
further instrument shall be required to give effect hereto, provided
that the subtenant shall execute and deliver to Landlord any instruments
Landlord may reasonably request to evidence and confirm such
subordination and attornment.
Section 16.5 NO RELEASE OF TENANT: INDEMNIFICATION OF LANDLORD.
Notwithstanding any assignment or subletting or any acceptance of Rent by
Landlord from any assignee or subtenant, Tenant shall remain fully liable for
the payment of all Rent due and for the performance of all other terms,
covenants and conditions contained in this Lease on Tenant's part to be observed
and performed, and any default under any term, covenant or condition of this
Lease by any subtenant shall be deemed a default under this Lease by Tenant.
Tenant shall indemnify, defend, protect and hold harmless Landlord from and
against any and all Losses (as defined in Section 32.1(b)) arising out of or
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any brokers or other Persons claiming a commission
or similar compensation in connection with the proposed assignment or sublease,
irrespective of whether Landlord shall give or decline to give its consent to
any proposed assignment or sublease, or if Landlord shall exercise any of its
options under this Article 16.
Section 16.6 TENANT'S FAILURE TO COMPLETE. If Landlord consents to a
proposed assignment or sublease and Tenant fails to execute and deliver to
Landlord such assignment or sublease within 90 days after the giving of such
consent, then Tenant shall again comply with all of the provisions and
conditions of Sections 16.2 and 16.4 hereof before assigning this Lease or
subletting all or part of the Premises.
Section 16.7 PROFITS. If Tenant shall enter into any assignment or
sublease permitted hereunder or consented to by Landlord, Tenant shall, within
60 days after Landlord's consent to such assignment or sublease, deliver to
Landlord a complete list of Tenant's reasonable third-party brokerage fees,
legal fees and architectural fees paid or to be paid in connection with such
transaction, together with a list of all of Tenant's Property to be transferred
to such assignee or sublessee. Tenant shall deliver to Landlord evidence of the
payment of such fees promptly after the same are paid. In consideration of such
assignment or subletting, Tenant shall pay to Landlord:
(a) In the case of an assignment, on the effective date of the
assignment, an amount equal to 50% of all sums and other consideration
paid to Tenant by the assignee for or by reason
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of such assignment (including sums paid for the sale or rental of
Tenant's Property), less (i) in the case of a sale of Tenant's Property,
the then fair market value thereof, as reasonably determined by
Landlord, (ii) the reasonable out-of-pocket costs and expenses incurred
by Tenant in connection with said assignment such as brokerage fees,
legal fees, architectural fees and advertising fees paid to unrelated
third parties, and (iii) costs approved in advance by Landlord incurred
by Tenant for Alterations made solely to prepare the Premises or
portions thereof for such assignment; or
(b) In the case of a sublease, 50% of any consideration payable
under the sublease to Tenant by the subtenant which exceeds, on a per
square foot basis, Fixed Rent and Additional Rent accruing during the
term of the sublease in respect of the subleased space (together with
any sums paid for the sale or rental of Tenant's Property), less (i) in
the case of the sale of Tenant's Property, the then fair market value
thereof, as reasonably determined by Landlord, (ii) the reasonable
out-of-pocket costs and expenses incurred by Tenant in connection with
said sublease, such as brokerage fees, legal fees, architectural fees
and advertising fees paid to unrelated third parties, (iii) costs
approved in advance by Landlord incurred by Tenant for Alterations made
solely to prepare the Premises or portion thereof for such subletting,
and (iv) if such sublease is of less than the entire Premises, the
actual cost incurred by Tenant in separately demising the subleased
space. The sums payable under this clause shall be paid by Tenant to
Landlord as and when paid by the subtenant to Tenant.
Section 16.8 (a) TRANSFERS. If Tenant is a corporation, the transfer by
one or more transfers, directly or indirectly, by operation of law or otherwise,
of a majority of the stock of Tenant shall be deemed a voluntary assignment of
this Lease; provided, however, that the provisions of this Article shall not
apply to the transfer of shares of stock of Tenant if and so long as the voting
of stock of Tenant is publicly traded on a nationally recognized stock exchange.
For purposes of this Section 16.8 the term "transfers" shall be deemed to
include the issuance of new stock or of treasury stock which results in a
majority of the stock of Tenant being held by a Person or Persons that do not
hold a majority of the stock of Tenant on the date hereof. If Tenant is a
partnership, the transfer by one or more transfers, directly or indirectly, by
operation of law or otherwise, of a majority interest in the partnership or
otherwise in violation of the provisions of Section 29.2 shall be deemed a
voluntary assignment of this Lease. If Tenant is a limited liability company,
trust, or any other legal entity (including a corporation or partnership), the
transfer by one or more transfers, directly or indirectly, of Control of such
entity, however characterized, shall be deemed a voluntary assignment of this
Lease. Notwithstanding the provisions of Section 16.1, Landlord will not
unreasonably withhold its consent to an assignment of this Lease in connection
with transactions with an entity into or with which Tenant is merged or
consolidated or to which all or substantially all of Tenant's assets are
transferred so long as: (i) such entity shall agree with Landlord to be bound by
all of the obligations of Tenant hereunder; (ii) such assignment shall not
relieve Tenant of any of its obligations hereunder; (iii) such transfer was made
for a legitimate independent business purpose and not for the purpose of
transferring this Lease, (iv) the successor to Tenant has a net worth computed
in accordance with generally accepted accounting principles at least equal to
the greater of (A) the net worth of Tenant immediately prior to such merger,
consolidation or transfer, and (B) the net worth of the original Tenant on the
date of this Lease, and (v) in Landlord's sole judgment such entity has the
business experience and good reputation necessary to conduct the business
permitted hereunder (i.e. the operation of first class health club facilities in
major urban areas), in a manner consistent with the high quality of Tenant named
herein, and is of a character which is in keeping with the standards for the
Building and the Center and the occupancy thereof. Without limitation, Landlord
and Tenant acknowledge and agree that based on the unique business operation of
the Tenant named herein, as of the date of this Lease, there are no other health
club operators that operate or conduct businesses consistent with the high
quality of the tenant named herein.
(b) APPLICABILITY. The limitations set forth in this Section 16.8 shall
apply to subtenant(s), assignee(s) and guarantor(s) of this Lease, if any, and
any transfer by any such entity in violation of this Section 16.8 shall be a
transfer in violation of Section 6.1.
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(c) MODIFICATIONS, TAKEOVER AGREEMENTS. Any modification, amendment or
extension of a sublease and/or any other agreement by which a landlord (or its
affiliate) of a building other than the Building agrees to assume or perform the
obligations of Tenant under this Lease shall be deemed a sublease for the
purposes of Section 16.1 hereof.
Section 16.9 ASSUMPTION OF OBLIGATIONS. Any assignment or transfer,
whether made with Landlord's consent or without Landlord's consent, if and to
the extent permitted hereunder, shall not be effective unless and until the
assignee executes, acknowledges and delivers to Landlord (i) an agreement in
form and substance satisfactory to Landlord whereby the assignee (A) assumes
Tenant's obligations under this Lease, and (B) agrees that, notwithstanding such
assignment or transfer, the provisions of Section 16.1 hereof shall be binding
upon it in respect of all future assignments and transfers, and (ii)
certificates or policies of insurance as required under Article 13.
Section 16.10 TENANT'S LIABILITY. The joint and several liability of
Tenant and any successors-in-interest of Tenant and the due performance of
Tenant's obligations under this Lease shall not be discharged, released or
impaired by any agreement or stipulation made by Landlord, or any grantee or
assignee of Landlord, extending the time, or modifying any of the terms and
provisions of this Lease, or by any waiver or failure of Landlord, or any
grantee or assignee of Landlord, to enforce any of the terms and provisions of
this Lease.
Section 16.11 LEASE NOT AFFIRMED OR REJECTED. If at any time after an
assignment by Tenant named herein, this Lease is not affirmed or rejected in any
proceeding of the types described in Section 19.1(h) or (i) or any similar
proceeding, or upon a termination of this Lease due to any such proceeding,
Tenant named herein, upon request of Landlord given within 30 days after such
disaffirmance, rejection or termination (and actual notice thereof to Landlord
in the event of a disaffirmance or rejection or in the event of termination
other than by act of Landlord), shall (i) pay to Landlord all Rent and other
charges due and owing by the assignee to Landlord under this Lease to and
including the date of such disaffirmance, rejection or termination, and (ii) as
"tenant," enter into a new lease of the Premises with Landlord for a term
commencing on the effective date of such disaffirmance, rejection or termination
and ending on the Expiration Date, unless sooner terminated in accordance
therewith, at the same Rent and upon the then executory terms, covenants and
conditions contained in this Lease, except that (A) the rights of Tenant named
herein under the new lease shall be subject to the possessory rights of the
assignee under this Lease and the possessory rights of any Persons claiming
through or under such assignee or by virtue of any statute or of any order of
any court, (B) such new lease shall require all defaults existing under this
Lease to be cured by Tenant named herein with due diligence, and (C) such new
lease shall require Tenant named herein to pay all Rent which, had this Lease
not been so disaffirmed, rejected or terminated, would have become due under the
provisions of this Lease after the date of such disaffirmance, rejection or
termination with respect to any period prior thereto. If Tenant named herein
defaults in its obligations to enter into such new lease for a period of 10 days
after Landlord's request, then, in addition to all other rights and remedies by
reason of default, either at law or in equity, Landlord shall have the same
rights and remedies against Tenant named herein as if it had entered into such
new lease and such new lease had thereafter been terminated as of the
commencement date thereof by reason of Tenant's default thereunder.
Section 16.12 ASSIGNMENT TO A WHOLLY-OWNED SUBSIDIARY. Notwithstanding
the foregoing provisions, Tenant may upon not less than 30 days prior notice to
Landlord, one time during the Term, assign this Lease to a wholly-owned
subsidiary of Tenant (but only for such period of time as such corporation shall
remain a wholly-owned subsidiary of Tenant, it being agreed that the subsequent
sale or transfer of stock resulting in a change of voting control, or any other
transaction(s) having the overall effect that such corporation ceases to be a
wholly-owned subsidiary of Tenant, shall be treated as if such sale or transfer
or transaction(s) were, for all purposes, an assignment of this Lease prohibited
by the provisions of Section 16.1); provided, however, and it shall be a
condition precedent of the validity of any such assignment, that (i) such
wholly-owned subsidiary first agree in writing, directly with Landlord, to be
bound by all of the obligations of Tenant hereunder, including the obligation to
pay Rent and other amounts provided for under this Lease, the covenant to use
the Premises only for the purposes specifically permitted under this Lease, and
the covenant against any further assignment, and (ii) the
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Tenant shall execute and deliver to Landlord documents satisfactory to Landlord
in its sole discretion confirming that such assignment shall not relieve Tenant
of any of its obligations hereunder, and that Tenant shall remain fully and
primarily liable for the payment of all Rent due and for the performance of all
other terms, covenants and conditions contained in this Lease on Tenant's part
to be performed and observed, and that any default under any term, covenant or
condition of this Lease by any such subsidiary shall be deemed a default by
Tenant under this Lease.
Section 16.13 PERMITTED SUBLEASES.
(a) Notwithstanding the foregoing, provided that no Event of Default has
occurred hereunder, upon not less than 30 days prior notice to Landlord, Tenant
may sublet not more than 7,000 rentable square feet of the Premises for use as a
private cafe (i.e. not open to the public and providing food and services only
to Tenant's members) (said 7,000 rentable square feet to be inclusive of all
areas used in connection with cafe operations, including all kitchen and seating
areas), provided that each and every one of the following conditions are fully
and completely satisfied: (i) said cafe shall be operated in a first-class
fashion and manner, not materially different from the cafe (not the restaurant)
operated on the date of this Lease in the Reebok Sports Club facility referred
to in Section 36.2(c); (ii) the Premises continue to be operated a first-class
health club/sports club facility in accordance with the requirements of this
Lease; (iii) the subleased portion of the Premises shall be operated and
maintained in a first-class condition, in accordance with the requirements of
this Lease and the then-standards of the Building and the Center; (iv) the
proposed subtenant has, in Landlord's reasonable judgment, sufficient financial
means to perform all of its obligations under the sublease; (v) Tenant shall,
upon demand, reimburse Landlord for all costs and expenses incurred by Landlord
in connection with such sublease, including reviewing any plans and
specifications for Alterations proposed to be made in connection therewith, and
all legal fees and expenses incurred by Landlord; (vi) the proposed sublease
shall comply with all of the requirements of this Lease, including Section 16.4
hereof, excepting only the obligations of Tenant pursuant to Section 16.7; and
(vii) notwithstanding any such sublease, Tenant shall remain fully and primarily
liable for the payment of all Rent due and for the performance of all other
terms, covenants and conditions contained in this Lease on Tenant's part to be
observed and performed, and any default under any term, covenant or condition of
this Lease by any subtenant shall be deemed a default by Tenant hereunder.
(b) Notwithstanding the foregoing, provided that no Event of Default has
occurred hereunder, upon not less than 30 days prior notice to Landlord, Tenant
may sublet not more than 4,500 rentable square feet of the Premises for use as a
private spa facility (i.e. not open to the public and providing services only to
Tenant's members), provided that each and every one of the following conditions
are fully and completely satisfied: (i) said private spa facility shall be
operated in a first-class fashion and manner not materially different from the
spa facility operated on the date of this Lease in the Reebok Sports Club
facility referred to in Section 36.2(c); (ii) the Premises continue to be
operated a first-class health club/sports club facility in accordance with the
requirements of this Lease; (iii) the subleased portion of the Premises shall be
operated and maintained in a first-class condition, in accordance with the
requirements of this Lease and the then-standards of the Building and the
Center; (iv) the proposed subtenant has, in Landlord's reasonable judgment,
sufficient financial means to perform all of its obligations under the sublease;
(v) Tenant shall, upon demand, reimburse Landlord for all costs and expenses
incurred by Landlord in connection with such sublease, including reviewing any
plans and specifications for Alterations proposed to be made in connection
therewith, and all legal fees and expenses incurred by Landlord; (vi) the
proposed sublease shall comply with all of the requirements of this Lease,
including Section 16.4 hereof, excepting only the obligations of Tenant pursuant
to Section 16.7; and (vii) notwithstanding any such sublease, Tenant shall
remain fully and primarily liable for the payment of all Rent due and for the
performance of all other terms, covenants and conditions contained in this Lease
on Tenant's part to be observed and performed, and any default under any term,
covenant or condition of this Lease by any subtenant shall be deemed a default
by Tenant hereunder.
(c) Notwithstanding the foregoing, provided that no Event of Default has
occurred hereunder, upon not less than 30 days prior notice to Landlord, Tenant
may sublet not more than 3,000 rentable square feet of the Premises for use as a
private hair salon (i.e. not open to the public and providing goods and services
only to Tenant's members), provided that each and every one of the following
conditions are
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fully and completely satisfied: (i) said private hair salon facility shall be
operated in a first-class fashion and manner not materially different from the
hair salon operated on the date of this Lease in the Reebok Sports Club facility
referred to in Section 36.2(c); (ii) the Premises continue to be operated a
first-class health club/sports club facility in accordance with the requirements
of this Lease; (iii) the subleased portion of the Premises shall be operated and
maintained in a first-class condition, in accordance with the requirements of
this Lease and the then-standards of the Building and the Center; (iv) the
proposed subtenant has, in Landlord's reasonable judgment, sufficient financial
means to perform all of its obligations under the sublease; (v) Tenant shall,
upon demand, reimburse Landlord for all costs and expenses incurred by Landlord
in connection with such sublease, including reviewing any plans and
specifications for Alterations proposed to be made in connection therewith, and
all legal fees and expenses incurred by Landlord; (vi) the proposed sublease
shall comply with all of the requirements of this Lease, including Section 16.4
hereof, excepting only the obligations of Tenant pursuant to Section 16.7; and
(vii) notwithstanding any such sublease, Tenant shall remain fully and primarily
liable for the payment of all Rent due and for the performance of all other
terms, covenants and conditions contained in this Lease on Tenant's part to be
observed and performed, and any default under any term, covenant or condition of
this Lease by any subtenant shall be deemed a default by Tenant hereunder.
(d) Notwithstanding the foregoing, provided that no Event of Default has
occurred hereunder, upon not less than 30 days prior notice to Landlord, Tenant
may sublet not more than 3,000 rentable square feet of the Premises for use as a
private sports medicine facility (i.e. not open to the public and providing
services only to Tenant's members), provided that each and every one of the
following conditions are fully and completely satisfied: (i) said private sports
medicine facility shall be operated in a first-class fashion and manner not
materially different from the sports medicine facility operated on the date of
this Lease in the Reebok Sports Club facility referred to in Section 36.2(c);
(ii) the Premises continue to be operated a first-class health club/sports club
facility in accordance with the requirements of this Lease; (iii) the subleased
portion of the Premises shall be operated and maintained in a first-class
condition, in accordance with the requirements of this Lease and the
then-standards of the Building and the Center; (iv) the proposed subtenant has,
in Landlord's reasonable judgment, sufficient financial means to perform all of
its obligations under the sublease; (v) Tenant shall, upon demand, reimburse
Landlord for all costs and expenses incurred by Landlord in connection with such
sublease, including reviewing any plans and specifications for Alterations
proposed to be made in connection therewith, and all legal fees and expenses
incurred by Landlord; (vi) the proposed sublease shall comply with all of the
requirements of this Lease, including Section 16.4 hereof, excepting only the
obligations of Tenant pursuant to Section 16.7; and (vii) notwithstanding any
such sublease, Tenant shall remain fully liable for the payment of all Rent due
and for the performance of all other terms, covenants and conditions contained
in this Lease on Tenant's part to be observed and performed, and any default
under any term, covenant or condition of this Lease by any subtenant shall be
deemed a default by Tenant hereunder.
(e) Notwithstanding the foregoing, provided that no Event of Default has
occurred hereunder, upon not less than 30 days prior notice, Tenant may sublet
not more than 2,500 rentable square feet of the Premises for use as a private
clothing boutique (i.e. not open to the public and providing goods and services
only to Tenant's members), provided that each and every one of the following
conditions are fully and completely satisfied: (i) said private clothing
boutique shall be operated in a first-class fashion and manner not materially
different from the clothing boutique operated on the date of this Lease in the
Reebok Sports Club facility referred to in Section 36.2(c); (ii) the Premises
continue to be operated a first-class health club/sports club facility in
accordance with the requirements of this Lease; (iii) the subleased portion of
the Premises shall be operated and maintained in a first-class condition, in
accordance with the requirements of this Lease and the then-standards of the
Building and the Center; (iv) the proposed subtenant has, in Landlord's
reasonable judgment, sufficient financial means to perform all of its
obligations under the sublease; (v) Tenant shall, upon demand, reimburse
Landlord for all costs and expenses incurred by Landlord in connection with such
sublease, including reviewing any plans and specifications for Alterations
proposed to be made in connection therewith, and all legal fees and expenses
incurred by Landlord; (vi) the proposed sublease shall comply with all of the
requirements of this Lease, including Section 16.4 hereof, excepting only the
obligations of Tenant pursuant to Section 16.7; and (vii) notwithstanding any
such sublease, Tenant shall remain fully and primarily liable for the payment of
all Rent due and for the performance of all other terms, covenants and
conditions contained in
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this Lease on Tenant's part to be observed and performed, and any default under
any term, covenant or condition of this Lease by any subtenant shall be deemed a
default by Tenant hereunder.
ARTICLE 17
ELECTRICITY
Section 17.1 SUBMETERED ELECTRICITY. Subject to the provisions of this
Article 17, Landlord shall redistribute or furnish electricity to or for the use
of Tenant in the Premises for the operation of Tenant's electrical systems and
equipment in the Premises, at a level sufficient to accommodate a demand load of
4 watts per usable square foot of area in the Premises (the "Permitted
Capacity"). Subject to the last sentence of this Section 17.1, Tenant shall pay
to Landlord, on demand from time to time but no more frequently than monthly,
for its consumption of electricity at the Premises, a sum equal to 103% of the
product obtained by multiplying (i) the Cost Per Kilowatt Hour, by (ii) the
actual number of kilowatt hours of electric current consumed by Tenant in such
billing period. "Cost Per Kilowatt Hour" means the total cost incurred by
Landlord to provide electricity to the Center during a particular billing
period, including energy charges, demand charges, surcharges, time-of-day
charges, fuel adjustment charges, rate adjustment charges, taxes, rebates and
any other factors used by the utility company in computing its charges to
Landlord, divided by the total kilowatt hours purchased by Landlord to provide
electricity to the Center during such period. If any tax is imposed upon
Landlord's receipts from the sale or resale of electricity to Tenant, Tenant
shall reimburse Landlord for such tax, if and to the extent permitted by law.
Landlord shall install a submeter or submeters, at Tenant's expense, to measure
Tenant's consumption of electricity in the Premises, which submeter shall be
maintained by Landlord at Tenant's expense. Where more than one submeter
measures Tenant's consumption of electricity in the Premises, the electricity
measured by each submeter shall be computed and billed separately in accordance
with the provisions set forth above. Bills for such amounts shall be rendered to
Tenant at such times as Landlord may elect. For any period during which such
submeter or submeters are not installed or are not operational in the Premises,
the monthly Fixed Rent shall be increased by an amount equal to the product of
(A) $.2083, subject to adjustment for any increases in electric rates or taxes,
and (B) the number of rentable square feet in the Premises.
Section 17.2 USE OF ELECTRICITY. Tenant shall at all times comply with
the rules and regulations of the utility company supplying electricity to the
Building. Tenant shall not use any electrical equipment which, in Landlord's
judgment, would exceed the Permitted Capacity or interfere with electrical
service to other tenants of the Building. Tenant shall not make or perform, or
permit the making or performance of, any Alterations to wiring installations or
other electrical facilities in or serving the Premises, or make any additions to
the equipment or other appliances in the Premises which utilize electrical
energy without the prior consent of Landlord, in each instance, and in
compliance with this Lease.
Section 17.3 SERVICE DISRUPTION. Landlord shall not be liable in any way
to Tenant for any failure, defect or interruption of, or change in the supply,
character and/or quantity of, electric service furnished to the Premises for any
reason except if caused solely by the gross negligence or willful misconduct of
Landlord, nor shall there be any allowance to Tenant for a diminution of rental
value, nor shall the same constitute an actual or constructive eviction of
Tenant, in whole or in part, or relieve Tenant from any of its Lease obligations
(except as expressly and specifically permitted pursuant to Section 12.10
hereof), and no liability shall arise on the part of Landlord by reason of
inconvenience, annoyance or injury to business, whether electricity is provided
by public or private utility or by any electricity generation system owned and
operated by Landlord. Landlord shall use reasonable efforts to minimize
interference with Tenant's use and occupancy of the Premises as a result of any
such failure, defect or interruption of, or change in the supply, character
and/or quantity of, electric service, provided that Landlord shall have no
obligation to employ contractors or labor at overtime or other premium pay rates
or to incur any other overtime costs or additional expenses whatsoever.
Section 17.4 DISCONTINUANCE OF SERVICE. Notwithstanding any provision to
the contrary contained in this Article 17, Landlord reserves the right to
discontinue furnishing electricity to Tenant in the Premises on not less than 30
days notice to Tenant; provided, that either (a) Landlord discontinues
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furnishing electricity to tenants (including Tenant) leasing, in the aggregate,
not less than at least 50% of the rentable area of the Building, or (b) Landlord
is required to discontinue furnishing electricity under applicable Requirements.
If Landlord exercises such right, or is compelled to discontinue furnishing
electricity to Tenant, then this Lease shall continue in full force and effect
and shall be unaffected thereby, except that from and after the effective date
of such discontinuance, Landlord shall not be obligated to furnish electricity
to Tenant hereunder. If Landlord so discontinues furnishing electricity, then
Tenant shall arrange to obtain electricity directly from any utility company or
other electricity provider serving the Premises to the extent available,
suitable and safe for such purposes. All equipment which may be required to
obtain electricity of substantially the same quantity, quality and character
shall be installed by Landlord, at the sole cost and expense of (i) Landlord, if
Landlord voluntarily discontinues such service, or (ii) Tenant, if (A) Landlord
is compelled to discontinue such service by the utility company or pursuant to
applicable Requirements, or (B) such discontinuance arises out of the acts or
omissions of Tenant. Landlord will not voluntarily discontinue furnishing
electricity to Tenant until Tenant is able to receive electricity directly from
the utility company or other company servicing the Building, unless the utility
company or other company is not prepared to furnish electricity to the Premises
on the date required as a result of Tenant's delay or negligence in arranging
for service, Tenant's refusal to provide the utility company or other company
with a deposit or other security requested by the utility company, or Tenant's
refusal to take any other action requested by the utility company or other
company. Tenant shall pay all costs and expenses for all electricity consumed on
the Premises during the Term, including all amounts payable directly to the
electricity provider pursuant to this Section 17.4.
ARTICLE 18
ACCESS TO PREMISES
Section 18.1 LANDLORD'S ACCESS. (a) Tenant shall permit Landlord,
Landlord's agents, utility companies and other service providers servicing the
Building to erect, use, maintain, repair and replace concealed ducts, pipes,
lines and conduits in and through the Premises, provided such use does not cause
the usable area of the Premises to be reduced beyond a de minimis amount.
Landlord shall promptly repair any damage to the Premises or Tenant's Property
caused by any work performed pursuant to this Article.
(b) Landlord, any Lessor or Mortgagee and any other party designated by
Landlord and their respective agents shall have the right to enter the Premises
at all reasonable times, upon reasonable notice (which notice may be oral)
except in the case of emergency, (i) to examine the Premises, (ii) to show the
Premises to prospective purchasers, Mortgagees or Lessors of the Building and
their respective agents and representatives or others, and, during the last 12
months of the Term, to prospective lessees of premises in the Center, and (iii)
to make such repairs, alterations or additions to the Premises or the Building
(A) as Landlord may deem necessary or desirable, (B) which Landlord may elect to
perform following Tenant's failure to perform, or (C) to comply with any
Requirements, and Landlord shall be allowed to take all material into the
Premises that may be required for the performance of such work without the same
constituting an actual or constructive eviction of Tenant in whole or in part
and without any abatement of Rent.
(c) All parts (except surfaces facing the interior of the Premises) of
all walls, windows and doors bounding the Premises, including exterior Building
walls, exterior core corridor walls, and doors and entrances (other than doors
and entrances solely connecting areas within the Premises), all balconies,
terraces and roofs adjacent to the Premises, all space in or adjacent to the
Premises used for shafts, stacks, risers, fan rooms, electrical and
communications closets, stairways, mail chutes, conduits and other mechanical
facilities, Building Systems and Building facilities are not part of the
Premises, and Landlord shall have the use thereof and access thereto through the
Premises for the purposes of Building operation, maintenance, alteration and
repair.
Section 18.2 ALTERATIONS TO BUILDING AND CENTER. Landlord has the right
at any time or from time-to-time, in its sole discretion, to (i) change the
name, number or designation by which the Building or Center is commonly known,
or (ii) alter the Building to change the arrangement or location of entrances or
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passageways, doors and doorways, and corridors, elevators, stairs, toilets, or
other public parts of the Building, or (iii) build, add to, subtract from,
relocate, alter, change or otherwise use the Center or any part thereof, or any
buildings, structures, or other areas or facilities therein or thereon, without
any such acts constituting an actual or constructive eviction and without
incurring any liability to Tenant, so long as such changes do not deny Tenant
reasonable access to the Premises. Landlord shall use reasonable efforts to
minimize interference with Tenant's use and occupancy of the Premises during the
making of such changes or alterations, provided that Landlord shall have no
obligation to employ contractors or labor at overtime or other premium pay rates
or to incur any other overtime costs or additional expenses whatsoever.
ARTICLE 19
DEFAULT
Section 19.1 TENANT'S DEFAULTS. Each of the following events shall be an
"Event of Default" hereunder:
(a) Tenant fails to pay when due any installment of Fixed Rent
or Additional Rent and such default continues for 5 days after
Landlord's notice of such default is given to Tenant; provided, however,
that if Tenant shall default in the timely payment of Fixed Rent or
Additional Rent 2 times in any period of 12 months, then,
notwithstanding that such defaults shall have each been cured within the
applicable period provided above, upon any further default in the timely
payment of Fixed Rent or Additional Rent, Landlord may serve a 3 days'
notice of termination upon Tenant without affording to Tenant an
opportunity to cure such further default; or
(b) Tenant defaults in observing or performing the provisions of
Section 3.1(a), and such default continues for 24 hours after notice; or
(c) if Landlord applies or retains any part of the Security
Deposit, and Tenant fails to deposit with Landlord the amount so applied
or retained by Landlord, or to provide Landlord with a replacement
Letter of Credit (as defined in Section 34.2), if applicable, within 5
days after notice by Landlord to Tenant stating the amount applied or
retained; or
(d) Tenant defaults in the observance or performance of any
other term, covenant or condition of this Lease to be observed or
performed by Tenant and such default continues for more than 15 days
after notice by Landlord to Tenant of such default; or if such default
is of such a nature that it can be remedied but cannot be completely
remedied within 15 days, Tenant fails to commence to remedy such default
within 15 days after such notice; or, with respect to any such default,
Tenant, having commenced such remedy within 15 days after such notice,
fails to diligently prosecute to completion all steps necessary to
remedy such default, or Tenant fails to complete such remedy within 90
days; or
(e) Tenant defaults in the observance or performance of any
term, covenant or condition on Tenant's part to be observed or performed
under any other lease with Landlord or Landlord's
predecessor-in-interest for space in the Center, and such default shall
continue beyond any grace period set forth in such other lease for the
remedying of such default; or
(f) Tenant's interest in this Lease shall devolve upon or pass
to any Person, whether by operation of law or otherwise, except as
expressly permitted under Article 16 hereof; or
(g) Tenant generally does not, or is unable to, or admits in
writing its inability to, pay its debts as they become due; or
(h) Tenant files a voluntary petition in bankruptcy or
insolvency, or is adjudicated a bankrupt or insolvent, or files any
petition or answer seeking any reorganization, liquidation, dissolution
or similar relief under any present or future federal bankruptcy act or
any other present
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or future applicable federal, state or other statute or law, or makes an
assignment for the benefit of creditors or seeks or consents to or
acquiesces in the appointment of any trustee, receiver, liquidator or
other similar official for Tenant or for all or any part of Tenant's
property; or
(i) if, within 60 days after the commencement of any proceeding
against Tenant, whether by the filing of a petition or otherwise,
seeking bankruptcy, insolvency, reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief
under the present or any future federal bankruptcy act or any other
present or future applicable federal, state or other statute or law,
such proceeding shall not have been dismissed, or if, within 60 days
after the appointment of any trustee, receiver, liquidator or other
similar official for Tenant, or for all or any part of Tenant's
property, without the consent or acquiescence of Tenant, such
appointment shall not have been vacated or otherwise discharged, or if
any lien, execution or attachment or other similar filing shall be made
or issued against Tenant or any of Tenant's property pursuant to which
the Premises shall be taken or occupied or attempted to be taken or
occupied by someone other than Tenant; or
(j) Excepting only those days on which Tenant is prevented from
remaining open by virtue of strike, fire, unavoidable casualty or other
event beyond the control of Tenant, but financial inability shall never
be deemed to be an event beyond Tenant's control (and Tenant agrees
promptly to advise Landlord of any such event and closing, and further
agrees to reopen as soon thereafter as possible), failure of Tenant,
after the Term commences, to be open for business to the public for more
than one day when required by this Lease to be so open in any one
calendar year, or for more than an aggregate of 3 such days during the
Term hereof, or if Tenant shall otherwise abandon or vacate the
Premises. Without limitation, the failure of Tenant to have completed
its Initial Installations and equipped the Premises and to have opened
for business on the Rent Commencement Date or the closing of the
Premises for business after Tenant has initially opened for business
therein, if such failure or closing continues for more than 3
consecutive days on which Tenant is required pursuant to applicable
provisions of this Lease to keep the Premises open for business, shall
be considered for the purposes hereof to be an abandonment of the
Premises by Tenant.
Upon the occurrence of any one or more of such Events of Default,
Landlord may, at its sole option, give to Tenant 3 days' notice of cancellation
of this Lease, in which event this Lease and the Term shall come to an end and
expire (whether or not the Term shall have commenced) upon the expiration of
such 3 day period with the same force and effect as if the date set forth in the
notice was the Expiration Date stated herein; and Tenant shall then quit and
surrender the Premises to Landlord, but Tenant shall remain liable for damages
as provided in Article 20 hereof.
Section 19.2 TENANT'S LIABILITY. If, at any time, (i) Tenant shall be
comprised of two or more Persons, (ii) Tenant's obligations under this Lease
shall have been guaranteed by any Person other than Tenant, or (iii) Tenant's
interest in this Lease shall have been assigned, the word "Tenant," as used in
Sections 19.1(g) (h) and (i), shall be deemed to mean any one or more of the
Persons primarily or secondarily liable for Tenant's obligations under this
Lease. Any monies received by Landlord from or on behalf of Tenant during the
pendency of any proceeding of the types referred to in this Article shall be
deemed paid as compensation for the use and occupancy of the Premises and the
acceptance of any such compensation by Landlord shall not be deemed an
acceptance of Rent or a waiver on the part of Landlord of any rights under this
Lease. This Lease and the obligations of Tenant to pay Rent and to perform all
of the other covenants and agreements of Tenant hereunder shall not be affected,
impaired or excused by any Unavoidable Delays, excepting only as expressly and
specifically set forth in Section 19.1(j) hereof.
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ARTICLE 20
REMEDIES AND DAMAGES
Section 20.1 (a) LANDLORD'S REMEDIES. If any Event of Default occurs,
and this Lease terminates as provided in Article 19:
(i) SURRENDER OF POSSESSION. Tenant shall quit and surrender the
Premises to Landlord, and Landlord and its agents may immediately, or at
any time after such Event of Default, re-enter the Premises or any part
thereof, without notice, either by summary proceedings, or by any other
applicable action or proceeding, or by force (to the extent permitted by
law) or otherwise in accordance with applicable legal proceedings
(without being liable to indictment, prosecution or damages therefor),
and may repossess the Premises and dispossess Tenant and any other
Persons from the Premises and remove any and all of their property and
effects from the Premises.
(ii) LANDLORD'S RELETTING. Landlord, at Landlord's option, may
relet all or any part of the Premises from time to time, either in the
name of Landlord or otherwise, to such tenant or tenants, for any term
ending before, on or after the Expiration Date, at such rental and upon
such other conditions (which may include concessions and free rent
periods) as Landlord, in its sole discretion, may determine. Landlord
shall have no obligation to and shall not be liable for refusal or
failure to relet or, in the event of any such reletting, for refusal or
failure to collect any rent due upon any such reletting; and no such
refusal or failure shall relieve Tenant of, or otherwise affect, any
liability under this Lease. Landlord, at Landlord's option, may make
such alterations, decorations and other physical changes in and to the
Premises as Landlord, in its sole discretion, considers advisable or
necessary in connection with such reletting or proposed reletting,
without relieving Tenant of any liability under this Lease or otherwise
affecting any such liability.
(b) OTHER REMEDIES. Upon the breach or threatened breach by Tenant, or
any Persons claiming through or under Tenant, of any term, covenant or condition
of this Lease, Landlord shall have the right to enjoin such breach and to invoke
any other remedy allowed by law or in equity as if re-entry, summary proceedings
and other special remedies were not provided in this Lease for such breach. The
rights to invoke the remedies set forth above are cumulative and shall not
preclude Landlord from invoking any other remedy allowed at law or in equity.
(c) TENANT'S WAIVER. Tenant, on its own behalf and on behalf of all
Persons claiming through or under Tenant, including all creditors, hereby waives
all rights which Tenant and all such Persons might otherwise have under any
Requirement (i) to the service of any notice of intention to re-enter or to
institute legal proceedings, (ii) to redeem, or to re-enter or repossess the
Premises, or (iii) to restore the operation of this Lease, after (A) Tenant
shall have been dispossessed or ejected by judgment or by warrant of any court
or judge, (B) any re-entry by Landlord, or (C) any expiration or early
termination of the term of this Lease, whether such dispossession, re-entry,
expiration or termination shall be by operation of law or pursuant to the
provisions of this Lease. The words "re-enter," "re-entry" and "re-entered" as
used in this Lease shall not be deemed to be restricted to their technical legal
meanings.
Section 20.2 (a) LANDLORD'S DAMAGES. If this Lease and the Term expires
and comes to an end as provided in Article 19, or by or under any summary
proceeding or any other action or proceeding, or if Landlord shall re-enter the
Premises as provided in Section 20.1, then, in any of such events:
(i) Tenant shall pay to Landlord all Rent payable under this
Lease by Tenant to Landlord up to the Expiration Date or to the date of
re-entry upon the Premises by Landlord, as the case may be;
(ii) Landlord shall be entitled to retain all monies, if any,
paid by Tenant to Landlord, whether as prepaid Rent, the Security
Deposit or otherwise, and to draw upon any Letter of Credit or other
security deposited by Tenant hereunder and retain the proceeds thereof,
which monies,
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to the extent not otherwise applied to amounts due and owing to
Landlord, shall be credited by Landlord against any damages payable by
Tenant to Landlord;
(iii) Tenant shall pay to Landlord, in monthly installments, on
the days specified in this Lease for payment of installments of Fixed
Rent, any Deficiency; it being understood that Landlord shall be
entitled to recover the Deficiency from Tenant each month as the same
shall arise, and no suit to collect the amount of the Deficiency for any
month shall prejudice Landlord's right to collect the Deficiency for any
subsequent month by a similar proceeding; and
(iv) whether or not Landlord shall have collected any monthly
payments on account of the Deficiency, Tenant shall pay to Landlord, on
demand, in lieu of any further payments on account of the Deficiency and
as liquidated and agreed final damages, a sum equal to the amount by
which the Rent for the period which otherwise would have constituted the
unexpired portion of the Term (assuming Additional Rent during such
period to be the same as had been payable for the year immediately
preceding such termination or re-entry, increased in each succeeding
year by 4% (on a compounded basis)) exceeds the then fair and reasonable
rental value of the Premises, for the same period (with both amounts
being discounted to present value at a rate of interest equal to 2%
below the then Base Rate) less the aggregate amounts on account of the
Deficiency theretofore collected by Landlord pursuant to the provisions
of Section 20.2(a)(iii) for the same period. If, before presentation of
proof of such liquidated damages to any court, commission or tribunal,
Landlord shall have relet the Premises or any part thereof for the
period which otherwise would have constituted the unexpired portion of
the Term or any part thereof, the amount of rent reserved upon such
reletting shall be deemed, prima facie, to be the fair and reasonable
rental value for the part or the whole of the Premises so relet during
the term of the reletting.
(b) RELETTING. If the Premises, or any part thereof, shall be relet
together with other space in the Building, the rents collected or reserved under
any such reletting and the expenses of any such reletting shall be equitably
apportioned for the purposes of this Section. Tenant shall not be entitled to
any rents collected or payable under any reletting, whether or not such rents
exceed Fixed Rent reserved in this Lease. Nothing contained in Articles 19 or 20
shall be deemed to limit or preclude the recovery by Landlord from Tenant of the
maximum amount allowed to be obtained as damages under applicable Requirements,
or of any sums or damages to which Landlord may be entitled in addition to the
damages set forth in this Section.
Section 20.3 DEFAULT INTEREST: OTHER RIGHTS OF LANDLORD. Any Rent or
damages payable under this Lease and not paid when due shall bear interest at
the Interest Rate from the due date until paid, and the interest shall be deemed
Additional Rent. If Tenant fails to pay any Additional Rent when due, Landlord,
in addition to any other right or remedy, shall have the same rights and
remedies as in the case of a default by Tenant in the payment of Fixed Rent. If
Tenant is in arrears in the payment of Rent, Tenant waives Tenant's right, if
any, to designate the items against which any payments made by Tenant are to be
credited, and Landlord may apply any payments made by Tenant to any items
Landlord sees fit, regardless of any request by Tenant. Landlord reserves the
right, without liability to Tenant and without constituting any claim of
constructive eviction, to suspend furnishing or rendering to Tenant any overtime
Building services or labor, materials or other property or services for which
Tenant is obligated to pay a separate charge under this Lease (excluding
electricity, water and HVAC), in the event that (but only for so long as) Tenant
is in arrears in paying Landlord for such items for more than 5 days after
notice from Landlord to Tenant demanding the payment of such arrears.
ARTICLE 21
LANDLORD'S RIGHT TO CURE: REIMBURSEMENT
Section 21.1 LANDLORD'S RIGHT TO CURE. If Tenant defaults in the
performance of any of its obligations under this Lease, Landlord, without
thereby waiving such default, may perform such obligation for the account and at
the expense of Tenant: (i) immediately or at any time thereafter, and without
notice,
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in the case of emergency or in case the default (A) materially interferes with
the use by any other tenant of any space in the Building, (B) materially
interferes with the efficient operation of the Building, (C) will result in a
violation of any Requirement, (D) will result in a default under any Mortgage or
Superior Lease, or (E) will result in a cancellation of any insurance policy
maintained by Landlord, and (ii) in any other case if such default continues
after more than 10 days from the date Landlord gives notice of Landlord's
intention so to perform the defaulted obligation. All costs and expenses
incurred by Landlord in connection with any such performance by it for the
account of Tenant and all costs and expenses, including reasonable counsel fees
and disbursements, incurred by Landlord in any action or proceeding (including
any summary dispossess proceeding) brought by Landlord to enforce any obligation
of Tenant under this Lease and/or right of Landlord in or to the Premises, shall
be paid by Tenant to Landlord on demand, with interest thereon at the Interest
Rate from the date incurred by Landlord. Except as expressly provided to the
contrary in this Lease, all costs and expenses which, pursuant to this Lease
(including the Rules and Regulations) are incurred by Landlord and payable to
Landlord by Tenant, and all charges, amounts and sums payable to Landlord by
Tenant for any property, material, labor, utility or other services which,
pursuant to this Lease or at the request and for the account of Tenant, are
provided, furnished or rendered by Landlord, shall become due and payable by
Tenant to Landlord in accordance with the terms of the bills rendered by
Landlord to Tenant.
Section 21.2 REIMBURSEMENT FOR TENANT'S DEFAULT. Tenant shall reimburse
Landlord, within 5 days after demand, for all expenditures made by, or damages,
costs or fines sustained or incurred by, Landlord due to any default by Tenant
under this Lease, with interest thereon at the Interest Rate, from the date such
expenditures were made, or damages, costs or fines incurred, until the date
reimbursed by Tenant.
ARTICLE 22
NO REPRESENTATIONS BY LANDLORD; LANDLORD'S APPROVAL
Section 22.1 NO REPRESENTATIONS. Except as expressly set forth herein,
Landlord and Landlord's agents have made no warranties, representations,
statements or promises with respect to (i) the rentable and usable areas of the
Premises, the Building or the Center, (ii) the amount of any current or future
Operating Expenses or Taxes, (iii) the compliance with applicable Requirements
of the Premises, the Building or the Center, or (iv) the suitability of the
Premises for any particular use or purpose. No rights, easements or licenses are
acquired by Tenant under this Lease, by implication or otherwise. Tenant is
entering into this Lease after full investigation, and is not relying upon any
statement or representation made by Landlord not embodied in this Lease.
Section 22.2 WRITTEN APPROVAL. All references in this Lease to the
consent or approval of Landlord mean the written consent or approval of
Landlord, duly executed by Landlord. All consents or approvals of Landlord may
be granted or withheld in Landlord's sole discretion unless specifically
provided to the contrary in this Lease.
Section 22.3 NO MONEY DAMAGES. Wherever in this Lease Landlord's consent
or approval is required, if Landlord refuses to grant such consent or approval,
whether or not Landlord expressly agreed that such consent or approval would not
be unreasonably withheld, Tenant shall not make, and Tenant hereby waives, any
claim for money damages (including any claim by way of set-off, counterclaim or
defense) based upon Tenant's claim or assertion that Landlord unreasonably
withheld or delayed its consent or approval. Tenant's sole remedy shall be an
action or proceeding to enforce such provision, by specific performance,
injunction or declaratory judgment. In no event shall Landlord be liable for,
and Tenant, on behalf of itself and all other Tenant Parties, hereby waives any
claim for, any indirect, consequential or punitive damages, including loss of
profits or business opportunity, arising under or in connection with this Lease.
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ARTICLE 23
END OF TERM
Section 23.1 EXPIRATION. Upon the expiration or other termination of
this Lease, Tenant shall quit and surrender the Premises to Landlord, vacant,
broom clean and in good order and condition, ordinary wear and tear and damage
for which Tenant is not responsible under the terms of this Lease excepted, and
Tenant shall remove all of Tenant's Property and Specialty Alterations as may be
required pursuant to Article 5 of this Lease.
Section 23.2 HOLDOVER RENT. Any holding over by Tenant after the
expiration of the Term shall be treated as a tenancy at sufferance, at the Rent
set forth below, and otherwise on the terms and conditions set forth in this
Lease. Landlord and Tenant recognize that the damage to Landlord resulting from
any failure by Tenant to timely surrender possession of the Premises may be
substantial, may exceed the amount of the Rent theretofore payable hereunder,
and will be impossible to accurately measure. Tenant therefore agrees that if
possession of the Premises is not surrendered to Landlord on or before the
Expiration Date or sooner termination of the Term, in addition to any other
rights or remedies Landlord may have hereunder or at law, Tenant shall:
(a) pay to Landlord for each month (or any portion thereof)
during which Tenant holds over in the Premises after the Expiration Date
or sooner termination of the Term, a sum equal to the greater of (i) 2
times the Rent payable under this Lease for the last full calendar month
of the Term, or (ii) 1.5 times the fair market rental value of the
Premises for such month (as reasonably determined by Landlord);
(b) be liable to Landlord for (i) any payment or rent concession
which Landlord may be required to make to any tenant obtained by
Landlord for all or any part of the Premises (a "New Tenant") in order
to induce such New Tenant not to terminate its lease by reason of the
holding-over by Tenant, and (ii) the loss of the benefit of the bargain
if any New Tenant shall terminate its lease by reason of the
holding-over by Tenant; and
(c) indemnify and hold harmless Landlord against all claims for
damages by any New Tenant.
No holding-over by Tenant, nor the payment to Landlord of the amounts specified
above, shall operate to extend the Term hereof. Nothing herein contained shall
be deemed to permit Tenant to retain possession of the Premises after the
Expiration Date or sooner termination of this Lease, and no acceptance by
Landlord of payments from Tenant after the Expiration Date or sooner termination
of the Term shall be deemed to be other than on account of the amount to be paid
by Tenant in accordance with the provisions of this Article.
Section 23.3 WAIVER OF STAY. Tenant expressly waives, for itself and for
any Person claiming through or under Tenant, any rights which Tenant or any such
Person may have under the provisions of Section 2201 of the New York Civil
Practice Law and Rules and of any successor law of like import then in force, in
connection with any holdover summary proceedings which Landlord may institute to
enforce the foregoing provisions of this Article.
ARTICLE 24
NO SURRENDER: NO WAIVER
Section 24.1 NO SURRENDER OR RELEASE. No act or thing done by Landlord
or Landlord's agents or employees during the Term shall be deemed an acceptance
of a surrender of the Premises.
Section 24.2 NO WAIVER. No provision of this Lease shall be deemed to
have been waived by any party unless such waiver is in writing and is signed by
the party against whom such waiver is
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asserted, and any such waiver shall be effective only for the specific purpose
and in the specific instance in which given. The failure of either party to seek
redress for violation of, or to insist upon the strict performance of, any
covenant or condition of this Lease, or any of the Rules and Regulations, shall
not be construed as a waiver or relinquishment for the future performance of
such obligations of this Lease or the Rules and Regulations, or of the right to
exercise such election but the same shall continue and remain in full force and
effect with respect to any subsequent breach, act or omission. The receipt by
Landlord of any Rent payable pursuant to this Lease or any other sums with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly Fixed Rent or Additional Rent herein stipulated shall be
deemed to be other than a payment on account of the earliest stipulated Fixed
Rent or Additional Rent, or as Landlord may elect to apply such payment, nor
shall any endorsement or acceptance of any check or other payment in the face of
a statement on such check or any letter accompanying such check or payment be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such Fixed Rent
or Additional Rent or pursue any other remedy provided in this Lease. The
existence of a right of renewal or extension of this Lease, or the exercise of
such right, shall not limit Landlord's right to terminate this Lease in
accordance with the terms hereof.
ARTICLE 25
WAIVER OF TRIAL BY JURY
Landlord and Tenant hereby waive trial by jury in any action, proceeding
or counterclaim brought by either party against the other on any matters in any
way arising out of or connected with this Lease, the relationship of Landlord
and Tenant, Tenant's use or occupancy of the Premises, or the enforcement of any
remedy under any Requirement. If Landlord commences any summary proceeding
against Tenant, Tenant will not interpose any counterclaim of any nature or
description in any such proceeding (unless failure to impose such counterclaim
would preclude Tenant from asserting in a separate action the claim which is the
subject of such counterclaim), and will not seek to consolidate such proceeding
with any other action which may have been or will be brought in any other court
by Tenant.
ARTICLE 26
ADJACENT EXCAVATION: SHORING
If an excavation shall be made, or shall be authorized to be made, upon
land adjacent to the Real Property, Tenant shall, upon notice, afford to the
Person causing or authorized to cause such excavation a license to enter upon
the Premises for the purpose of doing such work as such person shall deem
necessary to preserve the Building or any other part of the Center from injury
or damage and to support the Building or such part of the Center by proper
foundations. In connection with such license, Tenant shall have no right to
claim any damages or indemnity against Landlord, or diminution or abatement of
Rent, provided that Tenant shall continue to have access to the Premises.
ARTICLE 27
NOTICES
Except as otherwise expressly provided in this Lease, all consents,
notices, demands, requests, approvals or other communications given under this
Lease shall be in writing and shall be deemed sufficiently given or rendered if
delivered by hand (provided a signed receipt is obtained) or if sent by
registered or certified mail (return receipt requested) or by a nationally
recognized overnight delivery service making receipted deliveries, addressed as
follows:
if to Tenant, at Tenant's address set forth on the first page of
this Lease, Attention: Mr. Michael Talla, or
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if to Landlord, at Landlord's address set forth on the first
page of this Lease, Attention: Property Manager-630 Fifth Avenue, and
with copies to (A) Office of the Center, 45 Rockefeller Plaza, New York,
New York 10111, Attention: General Counsel, (B) Office of the Center, 45
Rockefeller Plaza, New York, New York 10111, Attention: Controller, (C)
Tishman Speyer Properties, L.P., 520 Madison Avenue, New York, New York
10022, Attention: General Counsel, and (D) any Mortgagee or Lessor which
shall have requested copies of notices, by notice given to Tenant in
accordance with the provisions of this Article at the address designated
by such Mortgagee or Lessor; or
to such other addressees) as either Landlord or Tenant or any Mortgagee or
Lessor may designate as its new addressees) for such purpose by notice given to
the other in accordance with the provisions of this Article. Any such consent,
notice, demand, request or other communication shall be deemed to have been
given on the date of receipted delivery or refusal to accept delivery as
provided in this Article 27, or the date delivery is first attempted but cannot
be made due to a change of address of which no notice was given.
ARTICLE 28
RULES AND REGULATIONS
Tenant and all Tenant Parties shall observe and comply with the Rules
and Regulations, as supplemented or amended from time to time, provided, that in
case of any conflict or inconsistency between the provisions of this Lease and
any of the Rules and Regulations as originally promulgated or as supplemented or
amended from time to time, the provisions of this Lease shall control. Landlord
reserves the right, from time to time, to adopt additional Rules and Regulations
and to amend the Rules and Regulations then in effect. Nothing contained in this
Lease shall impose upon Landlord any obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease against any
other Building tenant, and Landlord shall not be liable to Tenant for violation
of the Rules and Regulations by any other tenant, its employees, agents,
visitors or licensees, Landlord shall not enforce any Rule or Regulation against
Tenant in a discriminatory fashion, except where differing circumstances justify
different treatments.
ARTICLE 29
PARTNERSHIP TENANT
Section 29.1 PARTNERSHIP TENANT. If Tenant, or a permitted assignee of
this Lease pursuant to Article 16, is a partnership, or is comprised of two or
more Persons, individually or as partners of a partnership (any such partnership
and such Persons are referred to in this Article 29 as "Partnership Tenant"),
the following shall apply: (i) the liability of each of the general partners
(excluding Persons solely holding interests as limited partners), each of the
partners in a limited liability partnership or Persons comprising Partnership
Tenant (the "Partners") shall be joint and several; (ii) each of the Partners
hereby consents in advance to, and agrees to be bound by, any written instrument
which may hereafter be executed by Partnership Tenant or any of the Partners,
which shall modify, extend or discharge this Lease, in whole or in part, or
surrender all or any part of the Premises to Landlord; (iii) any bills,
statements, notices, demands, requests or other communications given or rendered
to Partnership Tenant or to any of the Partners shall be binding upon
Partnership Tenant and all of the Partners; (iv) if Partnership Tenant shall
admit new Partners, all new Partners shall, by their admission to Partnership
Tenant, be deemed to have assumed joint and several liability for the
performance of all of the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed; (v) Partnership Tenant shall give
prompt notice to Landlord of the admission of any new Partners, and upon demand
of Landlord, shall cause each new Partner to execute and deliver to Landlord an
agreement in form and substance satisfactory to Landlord, wherein each new
Partner shall assume joint and several liability for the performance of all the
terms, covenants and conditions of this Lease on Tenant's part to be observed
and performed (but neither Landlord's failure to request any such agreement nor
the failure of any new Partner to execute or deliver any such agreement to
Landlord shall vitiate the provisions of this Section
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29.1); and (vi) no change in the Partners of Partnership Tenant resulting from
the admission of a new Partner, or the death, retirement or withdrawal of a
Partner shall release Partnership Tenant or any Partner or former Partner from
their obligations under this Lease.
Section 29.2 CHANGE OF PARTNERS. If Tenant is a Partnership Tenant, (i)
the admission of new Partners, the withdrawal (in the ordinary course of
business), retirement, death, incompetency or bankruptcy of any Partner, or the
reallocation of partnership interests among the Partners shall constitute an
assignment of this Lease unless Partners holding in the aggregate not less than
80% of the partnership interests in Partnership Tenant immediately prior to such
event remain as Partners holding not less than 80% of the partnership interests
in Partnership Tenant during the 12 month period immediately following such
event (i.e., the transfer, by any of the foregoing means, of more than 20% of
the partnership interests in Partnership Tenant in any consecutive 12 month
period shall constitute an assignment of this Lease subject to the provisions of
Article 16), and (ii) the reorganization of Partnership Tenant into a
professional corporation or a limited liability partnership, or the
reorganization of Tenant from a professional corporation or a limited liability
partnership into a partnership, shall constitute an assignment of this Lease,
unless immediately following such reorganization the Partners or shareholders,
as the case may be, of Tenant shall be the same as those existing immediately
prior to such reorganization, and shall acknowledge in writing to Landlord that
they shall remain fully liable, jointly and severally, under this Lease as
provided in this Article 29. If Tenant shall become a professional corporation,
each individual shareholder, shareholder-employee, new individual shareholder
and new shareholder-employee of any professional corporation which is a
shareholder in Tenant shall have the same personal liability (if any) as such
individual or shareholder-employee would have under this Lease if Tenant were a
partnership and such individual or shareholder-employee were a Partner or
admitted as a new Partner. If any individual Partner in Tenant is or becomes a
shareholder-employee of a professional corporation, such individual shall have
the same personal liability under this Lease as such individual would have if he
and not the professional corporation were a Partner of Tenant. If Tenant shall
become a limited liability partnership, (A) each Partner therein shall continue
to have the same personal liability as such Partner had under this Lease prior
to Tenant becoming a limited liability partnership, and (B) each new partner
admitted to such limited liability partnership shall be bound by the provisions
of Section 29.1, and shall execute and deliver to Landlord the assumption
agreement required pursuant to Section 29.1(v) hereof.
ARTICLE 30
VAULT SPACE
Notwithstanding anything contained in this Lease or indicated on any
sketch, blueprint or plan, no vaults, vault space or other space outside the
boundaries of the Real Property are included in the Premises. Landlord makes no
representation as to the location of the boundaries of the Real Property. All
vaults and vault space and all other space outside the boundaries of the Real
Property which Tenant may be permitted to use or occupy are to be used or
occupied under a revocable license. If any such license shall be revoked, or if
the amount of such space shall be diminished as required by any Governmental
Authority or by any public utility company, such revocation, diminution or
requisition shall not (i) constitute an actual or constructive eviction, in
whole or in part, (ii) entitle Tenant to any abatement or diminution of Rent,
(iii) relieve Tenant from any of its obligations under this Lease, or (iv)
impose any liability upon Landlord. Any fee, tax or charge imposed by any
Governmental Authority for any such vaults, vault space or other space occupied
by Tenant shall be paid by Tenant.
ARTICLE 31
LANDLORD'S AGENT
Section 31.1 BROKERS. Landlord has retained Landlord's Agent as leasing
agent in connection with this Lease and Landlord shall be solely responsible for
any fee that may be payable to Landlord's Agent pursuant to a separate
agreement. Each of Landlord and Tenant represents and warrants to the other that
it has not dealt with any other brokers in connection with this Lease other than
Landlord's Agent
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and Tenant's Agent and that to the best of its knowledge and belief, no other
broker, finder or like entity procured or negotiated this Lease or is entitled
to any fee or commission in connection herewith. Each of Landlord and Tenant
shall indemnify, defend, protect and hold the other party harmless from and
against any and all Losses which the indemnified party may incur by reason of
any claim of or liability to any broker, finder or like agent (other than
Landlord's Agent and Tenant's Agent) arising out of any dealings claimed to have
occurred between the indemnifying party and the claimant in connection with this
Lease, or the above representation being false.
Section 31.2 AGENT. Unless Landlord shall render notice to Tenant to the
contrary, Tishman Speyer Properties, L.P. is authorized to act as Landlord's
agent in connection with the performance of this Lease, and Tenant shall direct
all correspondence and requests to, and shall be entitled to rely upon
correspondence received from, Tishman Speyer Properties, L.P., as agent for
Landlord in accordance with Article 27. Tenant acknowledges that Tishman Speyer
Properties, L.P. is acting solely as agent for Landlord in connection with the
foregoing; and neither Tishman Speyer Properties, L.P. nor any of its direct or
indirect partners, officers, shareholders, directors, employees, principals,
agents or representatives shall have any liability to Tenant in connection with
this Lease, and Tenant waives any and all claims against any and all of such
parties arising out of, or in any way connected with, this Lease, the Building
or the Center.
ARTICLE 32
INDEMNITY
Section 32.1 (a) TENANT'S INDEMNITY. Tenant shall not do or permit to be
done any act or thing upon the Premises, the Building or the Center which may
subject Landlord to any liability or responsibility for injury, damages to
persons or property or to any liability by reason of any violation of any
Requirement, and shall exercise such control over the Premises as to fully
protect the Indemnitees against any such liability. Tenant shall indemnify,
defend, protect and hold harmless each of the Indemnitees from and against any
and all Losses to which any Indemnitee may (except to the extent arising from
the gross negligence or willful misconduct of any such Indemnitee in the
operation and maintenance of the Building) be subject or suffer, whether by
reason of, or by reason of any claim for, any injury to, or death of, any person
or persons or damage to property (including any loss of use thereof) or
otherwise arising from or in connection with the use of, or from any work or
thing whatsoever done in, any part of the Premises (other than by such
Indemnitee) or by any Tenant Party in the Center, during the Term or during the
period of time, if any, prior to the commencement or following the expiration of
the Term that any Tenant Party may have been given access to any portion of the
Premises for the purpose of performing work or otherwise, or as a result of any
Tenant Party performing any such work or otherwise that subjects any Indemnitee
to any Requirement to which such Indemnitee would not otherwise be subject, or
arising from any condition of the Premises due to or resulting from any default
by Tenant in the keeping, observance or performance of any provision contained
in this Lease or from any act or negligence of any Tenant Party.
(b) LANDLORD'S INDEMNITY. Landlord shall indemnify, defend and hold
Tenant harmless from and against all losses incurred by Tenant (except insofar
as it arises out of the negligence or willful misconduct of Tenant or any Tenant
Party) arising from any accident, injury or damage whatsoever caused to any
person or the property of any person in or about the common or public areas of
the Building (specifically excluding the Premises), to the extent attributable
to the gross negligence or willful misconduct of Landlord or its agents or
employees.
(c) INDEMNITY INCLUSIONS. As used in this Lease, the term "Losses" means
any and all losses, liabilities, damages, claims, judgments, fines, suits,
demands, costs, interest and expenses of any kind or nature (including
reasonable attorneys' fees and disbursements) incurred in connection with any
claim, proceeding or judgment and the defense thereof, and including all costs
of repairing any damage to the Premises, the Building or the Center, or the
appurtenances of any of the foregoing, to which a particular indemnity and hold
harmless agreement applies.
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Section 32.2 DEFENSE AND SETTLEMENT. If any claim, action or proceeding
is made or brought against any party entitled to indemnification hereunder,
then, upon demand by the indemnified party, the indemnifying party, at its sole
cost and expense, shall resist or defend such claim, action or proceeding in the
indemnified party's name (if necessary), by attorneys approved by the
indemnified party, which approval shall not be unreasonably withheld. Attorneys
for the indemnifying party's insurer shall hereby be deemed approved for
purposes of this Section 32.2. Notwithstanding the foregoing, an indemnified
party may retain its own attorneys to participate or assist in defending any
claim, action or proceeding involving potential liability of $5,000,000 or more,
provided that the indemnifying party shall control the defense and the
indemnifying party shall pay the reasonable fees and disbursements of such
attorneys. Notwithstanding anything herein contained to the contrary, the
indemnifying party may direct the indemnified party to settle any claim, suit or
other proceeding provided that (i) such settlement shall involve no obligation
on the part of the indemnified party other
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than the payment of money, (ii) any payments to be made pursuant to such
settlement shall be paid in full exclusively by the indemnifying party at the
time such settlement is reached, (iii) such settlement shall not require the
indemnified party to admit any liability or wrongdoing, and (iv) the indemnified
party shall have received an unconditional release from the other parties to
such claim, suit or other proceeding.
ARTICLE 33
TAX STATUS OF BENEFICIAL OWNERS
Tenant recognizes and acknowledges that Landlord and/or certain
beneficial owners of Landlord may from time to time qualify as real estate
investment trusts pursuant to Sections 856 et seq. of the Code or as entities
described in Section 511(a)(2) of the Code, and that avoiding (i) the loss of
such status, (ii) the receipt of any income derived under any provision of this
Lease that does not constitute "rents from real property" (in the case of real
estate investment trusts) or that constitutes "unrelated business taxable
income" (in the case of entities described in Section 511(a)(2) of the Code),
and (iii) the imposition of penalty or similar taxes (each, an "Adverse Event")
is of material concern to Landlord and such beneficial owners and Tenant's
agreement herein contained regarding the avoidance of an Adverse Event is a
material inducement to Landlord entering into this Lease. In the event that this
Lease or any document contemplated hereby could, in the opinion of counsel to
Landlord, result in or cause an Adverse Event, Tenant agrees to cooperate with
Landlord in amending or modifying this Lease or such documents and shall at the
request of Landlord execute and deliver such documents reasonably required to
effect such amendment or modification. Any amendment or modification pursuant to
this Article 33 shall be structured so that the economic results to Landlord and
Tenant shall be substantially similar to those set forth in this Lease without
regard to such amendment or modification. Without limiting any of Landlord's
other rights under this Article 33, Landlord may waive the receipt of any amount
payable to Landlord under this Lease, and such waiver shall constitute an
amendment or modification of this Lease with respect to such payment.
ARTICLE 34
SECURITY DEPOSIT
Section 34.1 SECURITY DEPOSIT. Tenant shall deposit the Security Deposit
with Landlord upon the execution of this Lease in cash as security for the
faithful performance and observance by Tenant of the terms, covenants and
conditions of this Lease, including the surrender of possession of the Premises
to Landlord as herein provided.
Section 34.2 LETTER OF CREDIT. In lieu of a cash deposit, Tenant may
deliver the Security Deposit to Landlord in the form of a clean, irrevocable,
non-documentary and unconditional letter of credit in the amount of the Security
Deposit (the "Letter of Credit"), in the form attached hereto as Exhibit I,
issued by and drawable upon a commercial bank, trust company, national banking
association or savings and loan association with offices for banking and drawing
purposes in the City of New York (the "Issuing Bank"), which has outstanding
unsecured, uninsured and unguaranteed indebtedness, or shall have issued a
letter of credit or other credit facility that constitutes the primary security
for any outstanding indebtedness (which is otherwise uninsured and
unguaranteed), that is then rated, without regard to qualification of such
rating by symbols such as `+' or "-" or numerical notation, "Aa" or better by
Moody's Investors Service and "AA" or better by Standard & Poor's Ratings
Service (and is not on credit-watch with negative implications), and has
combined capital, surplus and undivided profits of not less than $500,000,000.
The Letter of Credit shall (i) name Landlord as beneficiary, (ii) be in the
amount of the Security Deposit, (iii) have a term of 1 year, (iv) permit
multiple drawings, (v) be fully transferable by Landlord without the payment of
any fees or charges, and (vi) otherwise be in form and content satisfactory to
Landlord; provided, however, that Landlord shall in no event be obligated to
accept a Letter of Credit for any amount less than $25,000. If upon any transfer
of the Letter of Credit, any fees or charges shall be so imposed, then such fees
or charges shall be payable solely by Tenant and the Letter of Credit shall so
specify. The Letter of Credit shall provide that it shall be deemed
automatically renewed, without amendment, for consecutive periods of 1 year each
thereafter during the Term through the date that is at least 60 days after the
Expiration Date, unless the Issuing Bank sends a notice (the "Non-Renewal
Notice") to Landlord by certified mail, return receipt requested, not less than
30 days prior to the then-
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current expiration date of the Letter of Credit, stating that the Issuing Bank
has elected not to renew the Letter of Credit. Unless Tenant delivers a
replacement Letter of Credit which satisfies the conditions of this Article 34
within 10 days after Landlord receives a Non-Renewal Notice, then at any time
after the expiration of such 10 day period Landlord shall have the right to draw
the full amount of the Letter of Credit, by sight draft on the Issuing Bank, and
shall thereafter hold or apply the cash proceeds of the Letter of Credit
pursuant to the terms of this Article 34. The Letter of Credit shall state that
drafts drawn under and in compliance with the terms of the Letter of Credit will
be duly honored upon presentation to the Issuing Bank at an office location in
New York City. The Letter of Credit shall be subject in all respects to the
Uniform Customs and Practice for Documentary Credits (1993 revision),
International Chamber of Commerce Publication No. 500.
Section 34.3 APPLICATION OF SECURITY. If Tenant defaults in the payment
or performance of any the terms, covenants or conditions of this Lease,
including the payment of Rent, Landlord may use, apply or retain the whole or
any part of the cash Security Deposit or may notify the Issuing Bank and
thereupon receive all or a portion of the Security Deposit represented by the
Letter of Credit, and use, apply, or retain the whole or any part of such
proceeds, as the case may be, to the extent required for the payment of any Rent
or any other sum as to which Tenant is in default, including (i) any sum which
Landlord may expend or may be required to expend by reason of Tenant's default,
and (ii) any damages or Deficiency to which Landlord is entitled pursuant to
this Lease or applicable Requirements, whether such damages or Deficiency
accrues
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before or after summary proceedings or other reentry by Landlord. If Landlord
uses, applies or retains any part of the Security Deposit, Tenant, upon demand,
shall deposit with Landlord the amount so applied or retained so that Landlord
shall have the full Security Deposit on hand at all times during the Term. If
Tenant shall fully and faithfully comply with all of the terms, covenants and
conditions of this Lease, the Security Deposit (or so much thereof as remains,
if any) shall be returned to Tenant after the Expiration Date and after delivery
of possession of the Premises to Landlord in the manner required by this Lease.
Tenant expressly agrees that Tenant shall have no right to apply any portion of
the Security Deposit against any of Tenant's obligations to pay Rent hereunder.
Section 34.4 TRANSFER. Upon a sale of the Building or the Real Property
or a leasing of the Building, or any financing of Landlord's interest therein,
Landlord shall have the right to transfer the Security Deposit or the Letter of
Credit, as applicable, to the vendee, lessee or lender. With respect to the
Letter of Credit, within 10 days after notice from Landlord of any such
anticipated sale, leasing or financing, Tenant, at its sole cost, shall arrange
for the transfer of the Letter of Credit to the new landlord or lender, as
designated by Landlord in the foregoing notice, or to have the Letter of Credit
reissued in the name of the new landlord or lender. From and after any such
sale, financing or leasing, Tenant shall look solely to the new landlord or
lender for the return of such Security Deposit or Letter of Credit and Landlord
shall have no further liabilities or obligations in connection therewith. The
provisions of this Section 34.4 shall apply to each and every transfer or
assignment made of the Security Deposit to a new landlord or lender. Tenant will
not assign, transfer, pledge or encumber, or attempt to assign, transfer, pledge
or encumber, the Security Deposit or Letter of Credit, and neither Landlord nor
its successors or assigns as the holders of the Security Deposit or the Letter
of Credit shall be bound by any such actual or attempted assignment or
encumbrance.
Section 34.5 REPLACEMENT LETTER OF CREDIT. For purposes hereof, the
"Letter of Credit Amount" shall be defined as follows: (i) during the period
from the Commencement Date through the 4th anniversary of the Rent Commencement
Date, the Letter of Credit Amount shall be Four Million and 00/100 Dollars
($4,000,000.00); (ii) during the period from the 4th anniversary of the Rent
Commencement Date through the last day immediately preceding the 5th anniversary
of the Rent Commencement Date, the Letter of Credit Amount shall be Three
Million and 00/100 Dollars ($3,000,000.00); and (iii) during the period from the
5th anniversary of the Rent Commencement Date through the 6th anniversary of the
Rent Commencement Date, the Letter of Credit Amount shall be Two Million and
00/100 Dollars ($2,000,000.00).
Provided that no Event of Default has occurred hereunder, commencing
with the 4th anniversary of the Rent Commencement Date, concurrent with the
expiration of any of the foregoing periods, Tenant may elect to replace the
Letter of Credit with a substitute Letter of Credit (the "Substitute Letter of
Credit"), which Substitute Letter of Credit shall be in the amount of the Letter
of Credit Amount which is applicable during the respective period, and shall in
all respects comply with the provisions of this Article 34. Such Substitute
Letter of Credit shall be delivered to Landlord on or before the date which is
30 days prior to the then-current expiration date of the Letter of Credit. Upon
delivery of the Substitute Letter of Credit by Tenant, (i) the Substitute Letter
of Credit shall be deemed to be the "Letter of Credit" for all purposes under
this Lease, and (ii) the existing Letter of Credit shall be returned by Landlord
to Tenant. In the event that Tenant fails timely to deliver to Landlord a
Substitute Letter of Credit, then Landlord may elect, at any time thereafter, to
draw down the then-outstanding Letter of Credit and to hold the proceeds thereof
in accordance with the provisions of this Article 34. To the extent that
Landlord has not previously drawn down the Letter of Credit or applied the
proceeds thereof, and provided that no Event of Default has occurred under this
Lease, then upon Tenant's request therefor, the amount of such proceeds in
excess of the then-applicable Letter of Credit Amount shall be returned to
Tenant by Landlord. To the extent that Landlord has not previously drawn upon
any Letter of Credit held by Landlord, and provided that no Event of Default has
occurred under this Lease, then after the sixth anniversary of the Rent
Commencement Date, promptly after receipt of Tenant's request therefor, the
then-outstanding Letter of Credit shall be returned to Tenant by Landlord.
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ARTICLE 35
MISCELLANEOUS
Section 35.1 DELIVERY. The submission of this document for examination
and negotiation does not constitute an offer to lease, or a reservation of, or
option for, the Premises, and this Lease shall not be binding upon Landlord or
Tenant unless and until Landlord shall have executed and delivered a fully
executed copy of this Lease to Tenant.
Section 35.2 TRANSFER OF REAL PROPERTY. Landlord's obligations under
this Lease shall not be binding upon Landlord named herein after the sale,
conveyance, assignment, transfer or lease of Landlord's interest (collectively,
a "Transfer") by Landlord (or upon any subsequent landlord after the Transfer by
such subsequent landlord) of its interest in the Building or the Real Property,
as the case may be, and in the event of any such Transfer, Landlord (and any
such subsequent landlord) shall be entirely freed and relieved of all covenants
and obligations of Landlord hereunder, and the transferee of Landlord's interest
(or that of such subsequent landlord) in the Building or the Real Property, as
the case may be, shall be deemed to have assumed all obligations under this
Lease.
Section 35.3 LIMITATION ON LIABILITY. The liability of Landlord for
Landlord's obligations under this Lease shall be limited to Landlord's interest
from time to time in the Real Property and Tenant shall not look to any other
property or assets of Landlord or the property or assets of any of the
Indemnitees in seeking either to enforce Landlord's obligations under this Lease
or to satisfy a judgment for Landlord's failure to perform such obligations; and
none of the Indemnitees shall be personally liable for the performance of
Landlord's obligations under this Lease.
Section 35.4 RENT. Notwithstanding anything to the contrary contained in
this Lease, all amounts payable by Tenant to or on behalf of Landlord under this
Lease, whether or not expressly denominated Fixed Rent, Tenant's Tax Payment,
Tenant's Operating Payment, Additional Rent or Rent, shall constitute rent for
the purposes of Section 502(b)(6) of the United States Bankruptcy Code and other
Requirements.
Section 35.5 ENTIRE AGREEMENT. This Lease (including any Schedules and
Exhibits referred to herein and all supplementary agreements provided for
herein) contains the entire agreement between the parties and all prior
negotiations and agreements are merged into this Lease. All of the Schedules and
Exhibits attached hereto are incorporated in and made a part of this Lease,
provided that, in the event of any inconsistency between the terms and
provisions of this Lease and the terms and provisions of the Schedules and
Exhibits hereto, the terms and provisions of this Lease shall control. All
Article and Section references set forth herein shall, unless the context
otherwise requires, be deemed references to the Articles and Sections of this
Lease.
Section 35.6 GOVERNING LAW. This Lease shall be governed in all respects
by the laws of the State of New York.
Section 35.7 PARTIAL UNENFORCEABILITY. If any provision of this Lease,
or its application to any Person or circumstance, shall ever be held to be
invalid or unenforceable, then in each such event the remainder of this Lease or
the application of such provision to any other Person or any other circumstance
(other than those as to which it shall be invalid or unenforceable) shall not be
thereby affected, and each provision hereof shall remain valid and enforceable
to the fullest extent permitted by law.
Section 35.8 CONSENT TO JURISDICTION. (a) Tenant agrees that all
disputes arising, directly or indirectly, out of or relating to this Lease, and
all actions to enforce this Lease, shall be dealt with and adjudicated in the
state courts of the State of New York or the federal courts for the Southern
District of New York; and for that purpose Tenant expressly and irrevocably
submits itself to the jurisdiction of such courts. Tenant agrees that so far as
is permitted under applicable law, this consent to personal jurisdiction shall
be self-operative and no further instrument or action, other than service of
process in one of the manners specified in this Lease, or as otherwise permitted
by law, shall be necessary in order to
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confer jurisdiction upon it in any such court. Tenant further agrees that
judgment against it in any such action or proceeding shall be conclusive and, to
the extent permitted by applicable law, may be enforced in any other
jurisdiction within or outside the United States of America by suit on the
judgment, a certified or exemplified copy of which shall be conclusive evidence
of the fact and of the amount of its indebtedness.
(b) To the extent that Tenant has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Tenant irrevocably waives such immunity in respect of its obligations under this
Lease.
Section 35.9 SURVIVAL. All obligations and liabilities of Landlord or
Tenant to the other which accrued before the expiration or other termination of
this Lease, and all such obligations and liabilities which by their nature or
under the circumstances can only be, or by the provisions of this Lease may be,
performed after such expiration or other termination, shall survive the
expiration or other termination of this Lease. Without limiting the generality
of the foregoing, the rights and obligations of the parties with respect to any
indemnity under this Lease, and with respect to Fixed Rent, Tenant's Tax
Payment, Tenant's Operating Payment, Additional Rent, and any other amounts
payable under this Lease, shall survive the expiration or other termination of
this Lease.
Section 35.10 ESTOPPELS. Within 7 days following request from Landlord,
any Mortgagee or any Lessor, Tenant shall deliver to Landlord a statement
executed and acknowledged by Tenant, in form satisfactory to Landlord, (i)
stating the Commencement Date, the Rent Commencement Date and the Expiration
Date, and that this Lease is then in full force and effect and has not been
modified (or if modified, setting forth all modifications), (ii) setting forth
the date to which Fixed Rent and any Additional Rent have been paid, together
with the amount of monthly Fixed Rent, Tenant's Tax Payment and Tenant's
Operating Payment then payable, (iii) stating whether or not, to the best of
Tenant's knowledge, Landlord is in default under this Lease, and, if Tenant
asserts that Landlord is in default, setting forth the specific nature of any
such defaults, (iv) stating whether Landlord has failed to complete any work
required to be performed by Landlord under this Lease, (v) stating whether there
are any sums payable to Tenant by Landlord under this Lease, (vi) stating the
amount of the Security Deposit, if any, under this Lease, (vii) stating whether
there are any subleases affecting the Premises, (viii) stating the address of
Tenant to which all notices and communications under this Lease shall be sent,
and (ix) responding to any other matters reasonably requested by Landlord, such
Mortgagee or such Lessor. Tenant acknowledges that any statement delivered
pursuant to this Section 35.10 may be relied upon by any purchaser or owner of
the Real Property or the Building, or all or any portion of Landlord's interest
in the Real Property or the Building or under any Superior Lease, or by any
Mortgagee or assignee thereof, or by any Lessor or assignee thereof.
Section 35.11 CERTAIN RULES OF INTERPRETATION. For purposes of this
Lease, whenever the words "include", "includes", or "including" are used, they
shall be deemed to be followed by the words "without limitation", and, whenever
the circumstances or the context requires, the singular shall be construed as
the plural, the masculine shall be construed as the feminine and/or the neuter
and vice versa. This Lease shall be interpreted and enforced without the aid of
any canon, custom or rule of law requiring or suggesting construction against
the party drafting or causing the drafting of the provision in question.
Section 35.12 CAPTIONS. The captions and paragraph headings in this
Lease are inserted only as a matter of convenience and for reference and in no
way define, limit or describe the scope of this Lease or the intent of any
provision hereof.
Section 35.13 PARTIES BOUND. The terms, covenants, conditions and
agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant and, except as otherwise provided in this Lease, to their
respective legal representatives, successors, and assigns. Each and every
provision of this Lease to be performed by Tenant shall be construed to be both
a covenant and a condition.
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Section 35.14 MEMORANDUM OF LEASE. This Lease shall not be recorded;
however, at Landlord's request, Landlord and Tenant shall promptly execute,
acknowledge and deliver a memorandum of this Lease in form suitable for
recording, together with such customary New York City and New York State real
property transfer tax forms and affidavits as are then required for the
recording of such memoranda, and Landlord may thereupon record such memorandum.
Upon the expiration or sooner termination of the Term, Tenant shall execute and
deliver to Landlord such customary documents and instruments, in form suitable
for recording, as Landlord shall reasonably request to evidence the termination
of such memorandum of lease.
Section 35.15 COUNTERPARTS. This Lease may be executed in duplicate
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument.
ARTICLE 36
USE OF PREMISES
Section 36.1 GENERAL STANDARDS. Tenant covenants and agrees that the
Premises during the Term shall be used and occupied by Tenant only for the
Permitted Uses and no other purpose or purposes. Without limitation, Tenant
shall conduct its business in the Premises in a first-class, reputable manner,
consistent with first-class health-club facilities operated from time to time in
the borough of Manhattan.
Section 36.2 SPECIFIC OPERATING COVENANTS. Tenant further covenants and
agrees that it will, at its sole cost and expense:
(a) Occupy and commence the operation of its business in each
Portion of the Premises as soon after the respective delivery date of that
Portion of the Premises as possible, but in no event later than the Rent
Commencement Date occurs.
(b) Excepting only on Christmas Day, New Years Day and
Thanksgiving Day, keep the Premises open for business at least during the
following (the "Operating Hours"): (i) Monday through Friday for 12 consecutive
hours, and (ii) on Saturdays and Sundays for 8 consecutive hours, but in no
event a greater number of hours than are permitted by applicable Requirements.
(c) Throughout the Term, incident to the Permitted Uses,
maintain and operate a cafe substantially similar to the cafe operation operated
on the date of this Lease located in the facility known as "The Reebok Sports
Club" located at 160 Columbus Avenue, New York, New York; provided, however,
that said cafe shall be private (i.e. not open to the public and providing food
only to Tenant's members). In addition, notwithstanding the foregoing or any
other provisions of this Lease, Tenant shall not operate, or permit the
operation of, a restaurant in the Premises.
(d) Clean the windows and doors (including, in each case, the
frames thereof) in the Premises and in the perimeter walls thereof whenever
necessary, in Landlord's reasonable judgment. Tenant will not require, permit,
suffer or allow any such window or door to be cleaned in violation of any
applicable Requirements.
(e) Keep the Premises clean; keep all toilets and locker rooms
clean and sanitary; not permit garbage or waste materials to accumulate or
become a nuisance; seal all refuse in plastic bags of adequate strength and
size; maintain all garbage dumpsters in a clean and sanitary condition; remove
all rubbish and other debris from the Premises to such location as may be
specified by Landlord from time to time and under conditions approved by
Landlord.
(f) Keep all glass in the Premises and in the perimeter walls
thereof, the frames for such glass, and any lettering and ornamentation on such
glass insured against damage (including temporary repairs) for the benefit of
Landlord for the full replacement value thereof. Such insurance shall
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be effected, at the option of Landlord, either by Tenant paying to Landlord a
proportionate share of the premium incurred by Landlord for a blanket
comprehensive glass policy for the Building or the Center, or by Tenant
furnishing Landlord with a separate policy or policies for such glass insurance,
in such form and placed with such underwriters as may be approved by Landlord.
In the event Landlord elects to obtain such insurance, then upon Tenant's
payment of its proportionate share of Landlord's blanket premium, Landlord will
furnish Tenant with a certificate of such insurance.
(g) Adequately staff the Premises with sufficient employees to
conduct its business in a first-class, reputable manner.
(h) Install blinds, curtains, shades or other window treatments
on the windows and doors of the Premises. All such blinds, curtains, shades and
window treatments (a) shall be subject to the prior written approval of Landlord
in all respects, and (b) shall be kept closed and lowered at all times.
(i) Not install or place any lettering, sign, advertisement,
decoration, or notice on the windows or doors or on the exterior of the Premises
which is not in each instance (i) approved in writing by Landlord prior to
installation, and (ii) in conformity with Landlord's standard sign and store
front program for the Building, as such program may be modified by Landlord from
time to time by notice to Tenant. Tenant shall remove from the Premises any such
items installed without Landlord's approval, and if Tenant fails to do so
promptly after notice from Landlord, Landlord may perform such work on Tenant's
behalf, and Tenant shall pay all costs and expenses incurred by Landlord in so
doing, as provided in Article 21. On or before the expiration or earlier
termination of this Lease, Tenant shall remove all lettering, signs,
advertisements, decorations, and notices from the Premises.
(j) Not install, place or permit any awning or canopy on the
perimeter walls of the Premises unless provided or approved by Landlord, and if
so provided or approved, keep each such awning clean and in good order, repair
and appearance to Landlord's reasonable satisfaction, including, whenever
necessary in Landlord's reasonable judgment, the replacement of awning coverings
with materials approved by Landlord. Where any such awning has been provided by
Landlord, Landlord will make all repairs and replacements to the framework or
mechanical parts thereof, at Tenant's expense.
(k) Within the Premises, maintain and provide exercise
equipment, fixtures, amenities, appearances, finishes and the like not
materially different from those maintained and provided on the date of this
Lease at the facility known as "The Reebok Sports Club" located at 160 Columbus
Avenue, New York, New York (excepting only a swimming pool, child care facility,
rock climbing wall, and a so-called "white table cloth" restaurant), but never
less than the exercise equipment, fixtures, amenities, appearances, finishes and
the like as may be added to the foregoing facility from time-to-time during the
Term (excepting only the foregoing facilities). Without limitation, subject to
the prior written consent of Landlord in each instance, such consent not to be
unreasonably withheld, Tenant may from time-to-time add to or remove from the
Premises such services or amenities as may be necessary, in Tenant's reasonable
judgment, to operate a first-class health club facility in the Premises of the
same or better quality as the aforementioned Reebok Sports Club. Further, from
time to time during the Term, Tenant shall redecorate the Premises and refinish,
renew or replace the fixtures, furnishings, decorations and equipment therein as
may be necessary, in Landlord's reasonable judgment, to preserve the good and
first-class appearance of the Premises.
(l) At all times during the Term, keep the lights lit which
illuminate those shop windows of the Premises on the street and mezzanine levels
facing the street during non-daylight hours.
(m) Maintain a contract to have the door and brass signage above
the exterior of the Premises polished semi-annually in a manner satisfactory to
Landlord, submit maintenance records with respect to such metal maintenance to
the Building manager on a semi-annual basis, and make such maintenance records
available for review by the Building manager upon request at all times during
the Term. If Tenant fails comply with the provisions of this Section 36.2(m)
promptly after notice from Landlord, Landlord may perform such work on Tenant's
behalf, and Tenant shall pay all costs and expenses incurred by Landlord in so
doing, as provided in Article 21.
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(n) Provide and maintain in good working order during the Term a
security system adequate to provide reasonable protection to the Premises,
including a 24-hour direct response smoke, fire and burglary alarm system. If
Tenant employs security guards at the Premises, under no circumstances shall
such security guards carry firearms of any kind. Tenant understands that
Landlord will not provide Tenant with any security guards or alarm or security
systems of any kind for nature, and will have no liability or obligation to
Tenant arising from any claims for loss, injury or damage to persons or property
in connection therewith.
(o) As soon as practicable and in any event within 24 hours
after any exterior or interior glass (including mirrors) is broken or cracked,
including any so-called "bulls eye" break in the glass, replace such glass with
glass of the same kind and quality, and repair or replace the frames for such
glass if necessary or desirable in Landlord's reasonable judgment, and if Tenant
fails to do so promptly after notice from Landlord, Landlord may perform such
work on Tenant's behalf, and Tenant shall pay all cost and expenses incurred by
Landlord in so doing, as provided in Article 21.
(p) Not conduct any clearance, "going-out-of-business", auction,
distress, fire or bankruptcy or similar sale in the Premises.
(q) Place no fixtures, furnishings, decorations or equipment
(excepting trade fixtures and athletic equipment) in the Premises at any time
during the Term, without the prior written approval of Landlord in each
instance. Tenant shall remove from the Premises any such items installed without
Landlord's approval, and if Tenant fails to do so promptly after notice from
Landlord, Landlord may perform such work on Tenant's behalf, and Tenant shall
pay all costs and expenses incurred by Landlord in so doing, as provided in
Article 21. On or before the expiration or earlier termination of this Lease in
accordance with the provisions of this Lease, Tenant shall remove all fixtures,
furnishings, decorations and equipment from the Premises.
(r) Not remove any trade fixtures from the Premises without the
prior consent of Landlord in each instance, except that Tenant may remove trade
fixtures as long as Tenant promptly installs replacement trade fixtures at least
equal in quality, value and function to those being removed.
(s) Not (i) place or maintain any merchandise or other articles
in the concourse or in any other area outside of the Premises, or on the
sidewalks, corridors or other common areas of the Center, nor (ii) receive or
ship articles of any kind outside the designated loading areas for the Premises,
nor (iii) permit the parking of vehicles so as to interfere with the use of any
driveway, corridor, footwalk, parking area or other common area of the Center.
(t) Operate the Premises in a manner consistent with its
location in a first class office building including the exercise of methods of
crowd control, security and the prevention of prospective customers congregating
in and about the Premises as may be required by Landlord. Tenant shall take all
necessary steps to prevent prospective customers from entering, using,
congregating in or causing a disturbance in the lobby area of the Building or in
and around the sidewalk area outside of the Building, and Tenant shall cause all
patrons to enter and leave the Premises through the separate exterior door
exclusively serving the Premises, and shall ensure that no lines of patrons form
outside the Premises.
(u) Cause all of its customers, agents, staff and employees, and
all Tenant Parties, to enter and exit the Premises at all times through the
separate exterior door to the Rockefeller Plaza Street, and shall not use or
permit the use of the door from the Premises to the lobby of the Building
excepting only in the event of emergencies. Tenant shall keep such customers,
agents, staff and employees, and all Tenant Parties, from loitering in the
lobbies and other areas of the Building.
(v) Not use, play or operate or permit to be used, played or
operated any sound making or sound reproducing device in the Premises, except in
such manner and under such conditions
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<PAGE> 62
so that no sound shall be heard outside of the Premises, and observe, comply
with and adopt such means and precautions as Landlord may from time to time
request in such connection.
(w) Store or stock in the Premises only such goods, wares and
merchandise as Tenant is permitted to offer for sale, at retail, in or from the
Premises.
(x) Not install or use any lighting equipment in or about the
Premises which is visible from or casts light toward the exterior of the
Premises without the prior written consent of Landlord.
(y) Take all precautions to prevent any odors from emanating
from the Premises, including the installation, as part of the Initial
Installations, of such control devices as shall be prescribed by Landlord, and
the establishment of effective control procedures, to eliminate such odors.
(z) Install and maintain automatic, non-toxic, dry chemical fire
extinguishing devices approved by the Fire Insurance Rating Organization having
jurisdiction over the Premises, and if gas is used in the Premises, suitable gas
cut-off devices (manual and automatic).
(aa) Not use the utility waste lines and plumbing for any
purpose other than for which they were constructed, and not permit any food,
waste or other foreign substances to be thrown or drawn into the pipes. Tenant
shall take all reasonable steps to prevent fat, grease, or any other greasy
substance from entering the utility waste lines and plumbing of the Premises,
including the installation, as part of the Initial Installations, and the
maintenance thereafter, of suitable grease traps in all waste lines (and Tenant
shall clear any blockage in the sewer line or lines servicing the Premises
resulting from Tenant's operations, whether or not in violation of any provision
hereof).
(bb) To the extent that there are stacks, flues and exhausts
servicing the Premises, periodically clean and otherwise maintain the same, as
and when require to minimize the risk of fire and other hazards.
(cc) Cause all of Tenant's waste, trash and rubbish to be
deposited into, and stored in, appropriate containers to be stored within the
Premises in a manner satisfactory to Landlord so that the Premises and the
Building shall be maintained in a clean and slightly condition at all times, and
cause all such waste, trash and rubbish to be regularly carted from the Premises
in a manner satisfactory to Landlord so as to prevent the accumulation of the
same, in accordance with the regulations Governmental Authorities. Tenant shall
not encumber or obstruct, or permit to be encumbered or obstructed, the portion
of the Building or of the sidewalk or street adjacent to or abutting the
Premises. Tenant agrees to use the services of Landlord's independent sanitation
contractor for removal of Tenant's rubbish and refuse from the Premises. Tenant
shall refrigerate all of its food waste and other perishable refuse, at its sole
cost and expense, and comply with all requirements of Governmental Authorities
and Landlord with respect to refrigeration of food waste and/or sorting or
recycling of rubbish and refuse. Tenant shall be required to transport its
rubbish and refuse to Landlord's loading dock in a manner determined by
Landlord, for ultimate removal by Landlord's independent sanitation contractor.
(dd) Not sell or permit the sale of, or permit the consumption
of, alcohol in the Premises or any part thereof.
Section 36.3 NAME OF BUSINESS. Tenant shall always conduct its
operations in the Premises under its present trade name, "Sports Club
Rockefeller Center" or such other trade name as may be approved, in advance, by
Landlord.
Section 36.4 BREACH BY TENANT. Tenant understands and agrees that a
breach by Tenant of any of the provisions of this Article 36 shall be deemed a
material breach of this Lease and considered an Event of Default hereunder.
Tenant acknowledges that damages resulting from any breach of the provisions of
this Article 36 are difficult, if not impossible to ascertain and concedes that,
among other remedies for such breach permitted by law or the provisions of this
Lease, Landlord shall be entitled to enjoin Tenant from any violation hereof.
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<PAGE> 63
ARTICLE 37
RENEWAL OPTIONS
Section 37.1 EXERCISE OF OPTIONS. Subject to the conditions of this
Article 37, Tenant shall have the right, at its sole option, to renew the Term
for all of the Premises for 2 renewal terms (collectively, the "Renewal Terms"
and each a "Renewal Term") of 5 years each, by providing written notice (each, a
"Renewal Notice") delivered to Landlord not less than 12 months prior to the
then-applicable Expiration Date; provided, however, that (a) Tenant shall not be
in default under any of the terms, covenants or conditions of this Lease either
on the date the Renewal Notice is given or on the Renewal Term Commencement Date
(as hereinafter defined), and (b) Tenant shall not have assigned this Lease, or
subleased more than 10% of the rentable area of the Premises (excepting only
pursuant to an assignment which Landlord has consented to in accordance with the
provisions of Section 16.8(a) of this Lease and/or a sublease (or subleases)
which Landlord has consented to under Section 16.13 of this Lease). Upon the
giving of the Renewal Notice, this Lease shall be deemed renewed for the Renewal
Term with the same force and effect as if the Renewal Term had originally been
included in the Term. The first Renewal Term shall commence on the day after the
Expiration Date (a "Renewal Term Commencement Date") and shall terminate on the
day immediately preceding the 5th anniversary of the Expiration Date. The second
Renewal Term shall commence on the date after the expiration of the first
Renewal Term and shall terminate on the 5th anniversary thereof. Tenant shall
have no further option to extend the Term of this Lease other than the 2
five-year terms herein provided. Time is of the essence with respect to the
giving of a Renewal Notice by Tenant.
Section 37.2 TERMS. All of the terms, covenants and conditions of this
Lease shall continue in full force and effect during each Renewal Term, except
that (a) the Fixed Rent for the first Renewal Term shall be payable at a rate of
112% of the Fixed Rent for the last year of the initial Term; (b) the Fixed Rent
for the second Renewal Term shall be in an amount equal to the Fair Market Value
of the Premises (determined as provided in Section 37.3); (c) after the delivery
of the second Renewal Notice, Tenant shall no further right to renew the Term;
(d) the Base Tax Year will be the Tax Year commencing on the July 1st prior to
the Renewal Term Commencement Date; and (e) the Base Operating Year will be the
Computation Year commencing on the January 1st prior to the Renewal Term
Commencement Date. Any termination, cancellation or surrender of the entire
interest of Tenant under this Lease at any time during the Term shall terminate
and extinguish any right of renewal of Tenant hereunder.
Section 37.3 DETERMINATION OF FAIR MARKET VALUE. For purposes of
determining the Fixed Rent payable during the second Renewal Term, the fair
market value of the Premises (the "Fair Market Value") shall be the fair market
annual rental value of the Premises at the commencement of the second Renewal
Term for a term equal to the second Renewal Term, as determined by Landlord
based on comparable space in the Building and in comparable buildings in the
Center, including all of Landlord's services provided for in this Lease and with
the Premises considered (a) as vacant, and (b) in "as is" condition on the
Renewal Term Commencement Date for the second Renewal Term. The calculation of
the Fair Market Value shall also be adjusted to take into account any
construction allowances, work letters, free-rent periods or other inducements as
shall then be prevalent in comparable transactions.
Section 37.4. ARBITRATION. If Tenant shall dispute Landlord's
determination of Fair Market Value pursuant to Section 37.3, Tenant shall give
notice to Landlord of such dispute within 10 days of Tenant's receipt of
Landlord's determination, and such dispute shall be determined by a single
arbitrator appointed in accordance with the American Arbitration Association
Real Estate Valuation Arbitration Proceeding Rules. The arbitrator shall be
impartial and shall have not less than 10 years' experience in the County of New
York in a calling related to the leasing of commercial space in buildings
comparable to the Building, and the fees of the arbitrator shall be shared by
Landlord and Tenant. Within 15 days following the appointment of the arbitrator,
Landlord and Tenant shall attend a hearing before the arbitrator at which each
party shall submit a report setting forth its determination of the Fair Market
Value of the Premises for the Renewal Term, together with such information on
comparable rentals and such other evidence as such party shall deem relevant.
The arbitrator shall, within 30 days following such hearing and
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<PAGE> 64
submission of evidence, render his or her decision by selection the
determination of Fair Market Value submitted by either Landlord or Tenant which,
in the judgment of the arbitrator, most nearly reflects the Fair Market Value of
the Premises for the second Renewal Term. The arbitrator shall have no power or
authority to select any Fair Market Value other than a Fair Market Value
submitted by Landlord or Tenant. Prior to the determination of the arbitrator,
Tenant shall pay Rent in the amount equal to Landlord's determination of Fair
Market Value submitted to Tenant pursuant to Section 37.3, and following the
arbitrator's final determination, the amount of any overpayment or underpayment
shall be adjusted between the parties.
Section 37.5 LEASE AMENDMENT. Notwithstanding the fact that upon
delivery of each Renewal Notice Tenant's exercise of the option to extend the
Term shall be automatic and self-executing, upon request by Landlord made on or
following the Renewal Term Commencement Date, Tenant will execute, acknowledge
and deliver to Landlord an amendment to this Lease setting forth the Renewal
Term Commencement Date, Fixed Rent for the Renewal Term, and the Renewal Term
Expiration Date. The failure of either party to execute and deliver such an
amendment shall not affect the rights or the parties under this Lease.
ARTICLE 38
SPECIAL PROVISION
Notwithstanding anything to the contrary contained herein, provided that
Tenant shall have initially opened for business in the Premises as provided in
this Lease and shall have continuously operated its business therein, without
otherwise being in default hereunder, then at any time after the 5th anniversary
of the date on which Tenant initially opens for business in the Premises, Tenant
shall have the right to cease operating its business in the Premises by
providing not less than 30 days prior notice to Landlord of its intention to do
so. In such event Tenant shall continue to perform all of its other obligations
under this Lease, including the obligation to make payments on account of Rent
hereunder. If Tenant ceases operating its business in the Premises, then at any
time thereafter while such cessation or discontinuance continues, Landlord shall
have the right to terminate this Lease by sending notice to that effect to the
Tenant, and this Lease shall terminate on the 45th day after the giving of such
notice, unless the following conditions are fully and completely satisfied: (i)
within 30 days after Landlord sends said notice to Tenant, Tenant notifies
Landlord of its intention to recommence operating its business in the Premises,
(ii) within 45 days after Landlord sends said notice, Tenant reopens its
business in the Premises and continues to operate its business therein in
accordance with the requirements of this Lease for the remainder of the Term,
and (iii) Tenant shall have no further right under this Article 38 to cease
operating its business in the Premises. In the event that the Landlord exercises
its right to terminate this Lease as set forth above, then Tenant shall
surrender possession of the Premises in accordance with the requirements of this
Lease, this Lease shall be of no further force and effect after the date of
termination, and neither party shall have any further obligations to the other
in connection with this Lease, subject, however, to the payment by Tenant to
Landlord of all sums then due and owing or having accrued to Landlord hereunder.
ARTICLE 39
RGTS AREA
Landlord may elect, at Tenant's cost and expense, to perform or cause to
be performed, any and all work necessary to provide access and egress to and
from the area on the 3rd floor of the Building which is shown on Exhibit A-5 as
RGTS (the "RGTS Area"), which work may include the following (collectively, the
"RGTS Area Access Work"): (i) modification of the existing elevator car(s) and
elevator controls as may be required to limit access to the RGTS Area; (ii)
construction of an opening in the wall of the RGTS Area in order to create
access to the existing stairway located at the western wall of the RGTS Area;
(iii) construction of a new stairway in the location of the existing bathrooms
which are adjacent to the RGTS Area, which stairway will connect the 2nd and 3rd
floors; (iv) creation of an exit passageway to the existing stairway at
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the 2nd floor stair landing; and (v) any and all other work relating to such
access and egress, including the removal and abatement of asbestos, the
relocation of mechanical systems, and the like. Tenant shall reimburse Landlord
for all costs and expenses of every kind, nature and description incurred by
Landlord in connection with the RGTS Area Access Work, including soft costs,
architectural and engineering fees and costs of tenant coordination. Tenant
shall make payments to Landlord on account thereof from time-to-time within not
more than 10 days after Landlord delivers to Tenant an invoice or invoices
therefor. Tenant shall permit Landlord and the tenants and occupants of the RGTS
Area to enter and pass through the Third Floor Premises, at all times, for the
purpose of gaining and maintaining access to and egress from the RGTS Area.
Tenant shall not obstruct or permit the obstruction of said means of access and
egress to and from the RGTS Area, including the elevator doors which open into
the Third Floor Premises.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
LANDLORD:
RCPI TRUST
By: Tishman Speyer Properties,
L.P., its Agent
By: /s/ Geoffrey P. Wharton
---------------------------------
Geoffrey P. Wharton
TENANT:
SPORTS CLUB COMPANY, INC.
By: /s/ David M. Talla
---------------------------------
Name: David M. Talla
Title: CEO
Tenant's Federal Identification
Number:
95-4479735
------------------------------------
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<PAGE> 1
EXHIBIT 10.65
VERTICAL CLUB
LEASE
MARCH 26, 1985
<PAGE> 2
AMENDED AND RESTATED NET OPERATING LEASE
AMONG
HIRSCHFELD REALTY CLUB CORPORATION AND 328 E. 61 CORP.,
Landlord
- and -
VERTICAL FITNESS AND RACQUET CLUB, LTD.,
Tenant
Premises: 330 East 61st Street and
333 East 60th Street,
New York, New York
Dated: March 26, 1985
<PAGE> 3
INDEX
<TABLE>
<CAPTION>
ARTICLE SUBJECT PAGE
------- ------- ----
<S> <C> <C>
1. Term ....................................................................................... 3
2. Rental ..................................................................................... 4
3. Use of Demised Premises; The Existing Leases ............................................... 9
4. Payment of Taxes ........................................................................... 14
5. Prorations ................................................................................. 18
6. Condition and Care of the Demised Premises; Repairs, Improvements and Alterations .......... 18
7. The 328 Easement ........................................................................... 25
8. Zoning Rights .............................................................................. 27
9. Compliance with Laws ....................................................................... 30
10. Indemnification of Landlord; Limitation of Liability ....................................... 35
11. Insurance .................................................................................. 37
12. Damage or Destruction ...................................................................... 42
13. Condemnation ............................................................................... 50
14. Removal of Tenant's Property ............................................................... 55
15. Landlord's Right to Perform Tenant's Covenants and cure Tenant's Defaults; Tenant's Right to
Perform Landlord's Covenants and Cure Landlord's Defaults ................................ 56
16. Discharge of Liens ......................................................................... 59
17. Landlord's Access to Demised Premises ...................................................... 60
18. Assignment, Subletting and Control ......................................................... 61
19. Default .................................................................................... 66
20. Quiet Enjoyment ............................................................................ 73
21. Subordination .............................................................................. 74
22. Brokerage .................................................................................. 78
23. Lease Status; Landlord's and Tenant's Certificates ......................................... 79
24. Holdover ................................................................................... 80
25. Renewal Options ............................................................................ 80
26. Surrender of Premises ...................................................................... 92
27. Signs ...................................................................................... 93
28. Waiver of Trial by Jury .................................................................... 93
29. Miscellaneous Provisions ................................................................... 94
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
EXHIBIT A-1 - Legal Description of the Main Parcel
EXHIBIT A-2 - Legal Description of the Elevator Shaft Parcel
EXHIBIT B-1 - Permitted Encumbrances for Main Parcel
EXHIBIT B-2 - Permitted Encumbrances for Elevator Shaft Parcel
EXHIBIT C - Form of Memorandum regarding terms of Lease and Restrictions on 336 Site
EXHIBIT D - Existing Leases Assignment Agreement
EXHIBIT E - Form of Existing Lease Estoppel Certificate
EXHIBIT F - Copies of Existing Leases
EXHIBIT G - Form of 328 Easement Agreement
EXHIBIT H - Form of Amended Non-Disturbance Agreement
</TABLE>
<PAGE> 5
AMENDED AND RESTATED NET OPERATING LEASE
THIS LEASE, dated as of March 26, 1985, by and among Hirschfeld Realty
Club Corporation, a New York corporation, formerly known as Vertical Club
Corporation, having an office at 336 East 61st Street, New York, New York 10021
("Hirschfeld") and 328 E. 61 Corp., a New York corporation, having an office at
336 East 61st Street, New York, New York 10021 ("328" and, together with
Hirschfeld, being hereinafter collectively referred to as "Landlord"), as
landlord, and Vertical Fitness and Racquet Club, Ltd., a New York corporation,
having an office at 330 East 61st Street, New York, New York 10021, as tenant
("Tenant").
W I T N E S S E T H:
WHEREAS, Hirschfeld and Tenant are the parties to a certain lease, dated
as of August 26, 1980, as modified by Letter Agreement, dated September 29, 1980
(said lease, as so modified, being hereinafter referred to as the "Prior
Lease"), covering a substantial portion of the Demised Premises (as hereinafter
defined);
WHEREAS, Landlord and Tenant are mutually desirous of amending the Prior
Lease and restating the same in its entirety, upon the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties hereto hereby mutually agree that the
Prior Lease is amended and restated in its entirety so that all of the terms and
provisions thereof are as contained herein as follows:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
that certain parcel of land (the "Main Parcel") being more particularly
described on Exhibit A-1 annexed hereto and made a part hereof and that certain
parcel of land (the "Elevator Shaft Parcel") being more particularly described
on Exhibit A-2 annexed hereto and made a part hereof, together with the building
(the "Building") and other structures and improvements now or hereafter erected
thereon (the "Improvements").
TOGETHER WITH:
(a) all right, title and interest, if any, of Landlord in and to any
land lying in the bed of any street, road or avenue, open or proposed, in front
of or adjoining the Main Parcel, to the center line thereof;
(b) all right, title and interest, if any, of Landlord in and to any
strips and gores of land adjacent to, abutting or used in connection with the
Main Parcel, and in and to easements, if any, inuring to the benefit of the
Demised Premises (or the fee owner thereof), the equipment located on the roof
of the Adjacent Parcel (as hereinafter defined) or otherwise as more
particularly described in the 328 Easement (as defined and being more
particularly described in Section 7.01 hereof);
(c) all appurtenances and hereditaments belonging or in any wise
appertaining to the Main Parcel; and
(d) all apparatus, fixtures, equipment and articles of personal property
now or hereafter attached to or used in connection with the operation and
maintenance of the Improvements (all of the foregoing items being hereinafter
collectively referred to as the "Demised Premises").
SUBJECT TO the Existing Leases (as hereinafter defined) and all those
certain conditions and other matters affecting the title of the Demised Premises
as set forth on Exhibits B-1 and B-2 annexed hereto and made a part hereof (the
"Permitted Encumbrances").
IT IS MUTUALLY COVENANTED AND AGREED between Landlord and Tenant as
follows:
ARTICLE 1
<PAGE> 6
TERM
1.01 TO HAVE AND TO HOLD the Demised Premises for a term that commenced
on the date set forth in the Prior Lease (the "Commencement Date") and expiring
on September 30, 2001 (such date, or such earlier date upon which the term of
this Lease shall terminate or such later date to which the term of this Lease
shall be extended, being hereinafter referred to as the "Expiration Date").
1.02 Simultaneously with the execution hereof, Landlord and Tenant shall
each duly execute and acknowledge a memorandum of lease in the form annexed
hereto as Exhibit C, and Tenant shall cause same to be duly recorded in the New
York County Office of the Register of the City of New York (the "City Register's
Office"), as affecting (i) the Demised Premises and (ii) the 336 Site (as
defined in Article 7 hereof), but only to the extent provided by Article 8
hereof with respect to the utilization of Excess Zoning Rights (as defined in
Article 8 hereof) that are appurtenant to the Demised Premises and the Adjacent
Parcel (as defined in Article 7 hereof) in connection with the construction of
the East Tower Improvements (as defined in Article 8 hereof) in such manner so
as to, among other matters, prevent any encroachment onto the Demised Premises,
or any portion thereof.
ARTICLE 2
RENTAL
2.01 Tenant agrees to pay Landlord a fixed rental ("Fixed Rent"), (a)
with respect to the period from and after the date hereof and until September
30, 1988, at the rate of Seven Hundred Ninety Two Thousand ($792,000) Dollars
per annum and (b) for each ensuing four (4) year period (i.e., October 1, 1988
until September 30, 1992, October 1, 1992 until September 30, 1996, October 1,
1996 until September 30, 2000), and for the one (1) year period from October 1,
2000 until September 30, 2001, at a rate equal to the Fixed Rent per annum that
was payable immediately prior to the commencement of such four (4) year period
or one (1) year period, as the case may be, increased by Seventy-Two Thousand
($72,000) Dollars.
The Fixed Rent shall continue to be payable in equal monthly
installments equal to one-twelfth (1/12th) of the annual rate of Fixed Rent, in
advance, on the first day of each successive calendar month during the term of
this Lease, at the office of Landlord, or such other place as Landlord may
designate in writing from time to time. Rent for any portion of a month shall be
prorated. The Fixed Rent payable by Tenant pursuant hereto shall be over and
above all other payments required to be made by Tenant as provided in this
Lease.
All Fixed Rent, additional rent (as hereinafter provided) and other sums
payable by Tenant hereunder shall be paid in lawful money of the United States
of America, which shall be legal tender for the payment of all public and
private debts at the time of payment.
If Landlord shall not have received the payment of any Rent or other sum
due it pursuant to the provisions of this Lease within fifteen (15) days after
the date on which such rent or other sum first became due (the "Due Date"), then
Tenant shall pay to Landlord, on demand as a late payment penalty or fee,
interest thereon at the Penalty Rate from the Due Date until payment of such
amount is received by Landlord. Provision in this Lease for a late payment fee
or penalty shall not be deemed to be in lieu of Landlord's rights hereinafter
provided for upon the occurrence of an Event of Default.
2.02 Tenant shall pay for all public utilities, including all charges
for electricity, water, sewerage, heat, fuel oil, gas, steam and telephone,
incurred in connection with the operation of the Demised Premises during the
term of this Lease. Tenant shall have the right, in the exercise of its sole and
absolute discretion, to enter into such new arrangements or to continue existing
arrangements in effect with respect to submetering or otherwise accounting for
and billing subtenants of any portion of the Demised Premises.
2.03 During the remaining current term of each of the Existing Leases
(as that term is defined in Article 3 hereof), Tenant shall also pay to
Landlord, as additional rent hereunder, an amount equal to any and all rental
<PAGE> 7
payments payable by the sub-tenants under the terms of each of the Existing
Leases (less the portion of any such rental payments that are attributable to
tax and/or insurance-cost escalations, pursuant to the provisions of Section 44
of the Larama Lease and Section 46 of the L.P. Lease, respectively), which
amount shall be payable by Tenant to Landlord whether or not such rents have
been actually paid by the sub-tenants under each of the Existing Leases to
Tenant. In connection with the assignment by Landlord to Tenant of all its
right, title and interest in and to the Landlord's interest under each of the
Existing Leases as referred to in Section 3.01 hereof, Landlord shall promptly
notify the tenants under each of the Existing Leases to make all rental and
other payments thereunder directly to Tenant and Tenant shall hereafter have the
absolute right to bring any action or proceeding against the tenants under
either of the Existing Leases for non-payment of rent or otherwise take any
appropriate actions to enforce the provisions thereof.
To the extent that either of the tenants under the Existing Leases is in
arrears with respect to payment of rent or other charges under its lease as of
the date hereof (or is obligated to pay charges thereunder that are attributable
to periods prior to the date hereof which are not yet due), Tenant shall remit
such amounts to Landlord on an if, as and when collected basis (in the case of
amounts in arrears at the date hereof after receipt by Tenant of current rentals
and any arrearages arising from and after the date hereof); provided, however,
that Landlord will be entitled to receive arrearages owing to Landlord on the
date hereof from the tenants under the Existing Leases (but only to the extent
not more than thirty (30) days in arrears on the date hereof) from first rentals
or other charges paid to Tenant by each of the tenants under the Existing
Leases.
From and after the expiration of the existing terms of each of the
Existing Leases and throughout the remainder of the original term of this Lease,
Tenant shall pay to Landlord, as additional rent hereunder, a fixed rental for
the spaces presently covered by each of the Existing Leases (the "Additional
Space") calculated as follows:
(1) With respect to the space covered by the Larama Lease, from and
after the expiration of the term thereof on October 31, 2000 and until the
Expiration Date of the original term of this Lease, additional rent shall be
payable hereunder for such space at a rate equal to the then fair market rental
value thereof (such fair market rental value to be determined on the basis of
(a) the use being made of such Additional Space at the date hereof or (b) the
use being made of such Additional Space immediately prior to such term
expiration, whichever yields the higher value, and considering the terms and
conditions of this Lease), which fair market rental value shall be determined by
appraisal in accordance with the provisions of Sections 25.03 and 25.04 hereof;
provided, however, that Landlord shall be responsible for and bear all costs and
expenses incurred by either party with respect to such appraisal.
(2) With respect to the space covered by the L.P. Lease, from and after
the expiration of the term thereof on June 30, 1990, additional rent shall be
payable hereunder for such space (i) for the four (4) year period from and after
July 1, 1990 and until June 30, 1994, at a rate equal to the then fair market
rental value thereof, (such fair market rental value to be determined on the
basis of (a) the use being made of such Additional Space at the date hereof or
(b) the use being made of such Additional Space immediately prior to such term
expiration, whichever yields the higher value, and considering the terms and
conditions of this Lease), which fair market rental value shall be determined by
appraisal in accordance with the provisions of Sections 25.03 and 25.04 hereof
and (ii) for each of the ensuing four (4) year period (i.e., July 1, 1994 and
until June 30, 1998), and the period from July 1, 1998 until September 30, 2001
(the Expiration Date of the original term of this Lease), at a rate equal to the
amount of additional rent payable hereunder with respect to such Additional
Space that was payable immediately prior to commencement of such period,
increased by ten (10%) percent of the annual rent payable as provided in clause
(i) above.
2.04 Except as otherwise specifically set forth herein, this Lease shall
be deemed and construed to be a "net lease" and Tenant shall pay absolutely net
throughout the term of this Lease, the Fixed Rent, additional rent and all other
amounts payable by Tenant hereunder (collectively, "Rent"), free of any charges,
assessments, impositions, expenses or deductions of any kind, and under no
circumstances or conditions, whether now existing or hereafter arising, or
whether within or beyond the present contemplation of the parties, shall
Landlord be expected or required, except as otherwise specifically provided
herein, to make any payment of any kind whatsoever or be under any other
obligation or liability hereunder, and Tenant agrees to pay all costs and
expenses of every kind and nature
<PAGE> 8
whatsoever arising from or in connection with the Demised Premises which may
arise or become due during, or with respect to, the period from and after the
date hereof and until the Expiration Date, and which, except for the execution
and delivery hereof, would have been payable by Landlord.
ARTICLE 3
USE OF DEMISED PREMISES; THE EXISTING LEASES
3.01 Subject to and in accordance with all applicable rules,
regulations, laws, zoning and other ordinances, statutes and requirements of all
governmental authorities and the Fire Insurance Rating Organization and Board of
Fire Insurance Underwriters, and any similar bodies, having jurisdiction
thereof, Tenant is hereby authorized to and shall be permitted to use the
Demised Premises for any lawful purpose, including, without limitation, as a
tennis and sport complex, health spa, office space, restaurant, night club,
cabaret, restaurant, garage and for the sale of sports and fitness equipment,
health foods, vitamins and juices; provided, however, that the use of the
Demised Premises shall at all times continue to be commensurate with, at least
comparable in quality to and harmonious with the uses made of buildings and
improvements in the vicinity of the Demised Premises. It is acknowledged by the
parties hereto that the portion of the Demised Premises (a) currently occupied
by L.P. Rent A Car, Inc. ("L.P."), a New York corporation, pursuant to the
provisions of a certain Lease, dated July 17, 1980 (the "L.P. Lease"), between
Vertical Club Corporation, as landlord, and L.P., as tenant, the landlord's
interest thereunder (together with the security deposit and accrued interest
thereon, if any, held by Landlord thereunder) having been assigned to Tenant on
even date herewith by an assignment agreement (the "Existing Leases Assignment
Agreement") in the form annexed hereto as Exhibit D, such premises comprising
certain basement space (exclusive of mechanical equipment areas) currently being
utilized as a garage operation are for the storage and rental of motor vehicles,
together with a ramp and driveway exit therefrom leading to and exiting upon
East 61st Street, New York, New York, all being more particularly described in
the L.P. Lease, and (b) currently occupied by Larama Corp. ("Larama"), a New
York corporation, pursuant to the provisions of a certain Lease, dated October
22, 1980 (the "Larama Lease" and, together with the L.P. Lease, being
collectively referred to herein as the "Existing Leases"), between Vertical Club
Corporation, as landlord, and Larama, as tenant, the landlord's interest
thereunder (together with the security deposit and accrued interest thereon, if
any, held by Landlord thereunder) having been assigned to Tenant on even date
herewith by the Existing Leases Assignment Agreement, such premises being
commonly referred to as the ground floor level of 333 East 60th Street, New
York, New York, and being more particularly described in the Larama Lease, is
currently being used as a nightclub, cabaret and for the conduct of a restaurant
business. Simultaneously with the delivery to Tenant of the Existing Leases
Assignment Agreement covering both of the Existing Leases in the manner as
aforesaid, Landlord shall use its reasonable efforts in order to cause each of
the tenants under the Existing Leases to designate Tenant as an additional named
insured on all policies of insurance maintained by each of the tenants under the
Existing Leases and to deliver certificates evidencing such coverage to Tenant.
3.02 Landlord will use its reasonable efforts in order to cause to be
delivered to Tenant, simultaneously with the execution hereof, an estoppel
certificate ("Existing Lease Estoppel Certificate") executed by each of the
tenants under the Existing Leases in the form annexed hereto as Exhibit E, with
respect to each of their respective tenancies covering portions of the Demised
Premises pursuant to the Existing Leases. Landlord hereby represents and
warrants to Tenant with respect to each of the Existing Leases that (i) same is
in full force and effect, (ii) Landlord has received no written notice of any
default thereunder which remains in effect and is not aware of any fact or facts
which would now or with the giving of notice or the passage of time, or both, be
a default under the terms thereof (other than a default by Landlord in
performing general maintenance obligations), (iii) annexed hereto as Exhibit F
are true and complete copies thereof and all amendments thereto and there are no
other agreements, written or oral, between Landlord and either of the Existing
Tenants to amend or otherwise modify either of the Existing Leases and (iv)
there are no unpaid fees, commissions or other items of compensation owing to or
claimed by any brokers with respect to either of the Existing Leases.
3.03 From and after the date hereof, Tenant, in its capacity as
successor landlord under each of the Existing Leases, shall have the sole and
absolute right to deal exclusively with each of the tenants under the Existing
Leases with respect to any and all matters concerning their respective
tenancies. Landlord acknowledges and agrees that
<PAGE> 9
Tenant is authorized, in its sole and absolute discretion, subject, however, to
the terms of the Existing Leases, to make whatever changes and alterations it
deems necessary or desirable in connection with its use of all or any portion of
the Demised Premises and the space covered by either or both of the Existing
Leases including, without limitation, the construction of a stairway connecting
the public lobby area of the Demised Premises to all lower levels thereof and
the entering into of any existing or future agreements between Tenant and either
or both of the tenants under the Existing Leases that Tenant deems appropriate
in connection with effecting the construction of such stairway; provided that
such changes and alterations do not impair the structural integrity or diminish
the value of the Demised Premises as a whole or cause any violation of any
applicable laws, ordinances or other requirements of the appropriate local
governmental authorities, and that the use of the Demised Premises and the space
affected by such changes and alterations continue to remain in compliance with
the provisions of Section 3.01 hereof.
3.04 Landlord hereby covenants and agrees to indemnify and save harmless
Tenant from and against any and all liabilities, damages, suits, claims (whether
by either of the tenants under the Existing Leases or by brokers) and demands
(other than with respect to general maintenance obligations) arising from or in
connection with any and all matters pertaining to either of the Existing Leases
(or the security deposits thereunder) with respect to the period up to and
including the date of this Lease. Tenant hereby covenants and agrees to
indemnify and save harmless Landlord from and against any and all liabilities,
damages, suits, claims (whether for brokerage fees or otherwise), and demands in
connection with either of the Existing Leases (or the security deposits
thereunder), but only to the extent any such matters arise from and after the
date hereof and result from conditions or circumstances (other than conditions
requiring the performance of general maintenance obligations) which did not
exist prior to the date hereof (i.e., the date of this Amended and Restated Net
Operating Lease).
3.05 Except as otherwise provided in Article 9 hereof with respect to
Existing Conditions (as defined in Article 9), Tenant agrees not to use or
occupy or permit the Demised Premises to be used or occupied, nor do or permit
anything to be done in or on the Demised Premises, or any part thereof, in a
manner that would in any way violate any Certificate of Occupancy in effect with
respect to the Demised Premises, make void or voidable any insurance then in
force with respect thereto, make it impossible to obtain fire or other insurance
thereon required to be furnished hereunder by Tenant, cause or be likely to
cause structural injury to any of the Improvements or constitute a public or
private nuisance or waste.
3.06 Neither any action or inaction by Landlord nor any of the
provisions contained herein shall be deemed or construed to indicate that
Landlord has granted to Tenant any right, power or permission to do any act or
to enter into any agreement that may create, give rise to, or be the foundation
for, any right, title, interest, lien, charge or other encumbrance upon the
estate of Landlord in and to the Demised Premises.
ARTICLE 4
PAYMENT OF TAXES
4.01 As used herein, the term "Taxes" shall mean all taxes, assessments,
water charges and sewer rents, rates and charges, transit taxes, charges for
public utilities, excises, levies, vault charges (if any), license and permit
fees and other governmental charges, general and special, ordinary and
extraordinary, foreseen or unforeseen, of any kind and nature whatsoever which
at any time during the term of this Lease may be assessed, levied, confirmed,
imposed upon or become a lien against the Demised Premises, or any portion
thereof, and which are assessed and are, or become, a lien during the term of
this Lease, and such franchises as may be appurtenant to the use of the Demised
Premises, this transaction or any document to which Tenant is a party in
connection with any of the foregoing matters.
4.02 As additional rent, Tenant shall pay, as the same shall become due
and payable, and before any fine, penalty, interest or other cost accrues
thereon as a result of the non-payment thereof, all Taxes which are assessed and
are, or become, a lien during the term of this Lease with respect to the Main
Parcel. Tenant shall, promptly after payment, deliver to Landlord receipts
evidencing payment of all such Taxes. Tenant may pay any Taxes in installments,
if payment may be so made, without fine or penalty. Landlord shall furnish to
Tenant bills for Taxes
<PAGE> 10
upon receipt, and no obligation of Tenant under this Section 4.02 shall arise
prior to Tenant's receipt thereof. However, Landlord shall have the right to
cause bills for Taxes to be sent by the appropriate governmental authority
directly to Tenant, in which event Landlord shall not be obligated to furnish
same to Tenant in the manner provided by the immediately preceding sentence.
"After payment of any Taxes, however, Tenant shall have the right to proceed, in
good faith, to contest such Taxes or tax liens against the Demised Premises, or
any part thereof, or the validity thereof, by appropriate legal proceedings.
4.03 At the request of Tenant, Landlord shall be required to join in any
and all actions or proceedings referred to in the preceding Section 4.02, in
which event any such action or proceeding may be taken by Tenant in the name of,
but without expense to Landlord. Tenant shall serve notice upon Landlord of
Tenant's intention to take such action or initiate such proceeding, and
Landlord's failure to join in such action or proceeding within ten (10) days
from the date of Landlord's deemed receipt of Tenant's notice in the manner
provided by Section 29.01 hereof shall thereupon constitute the immediate
authorization and appointment by Landlord of Tenant to act as Landlord's true
and lawful representative and attorney-in-fact, coupled with an interest, with
full power and authority in Landlord's name, place and stead to make, execute,
sign, acknowledge, and swear, deliver, file and record at the appropriate
governmental or other offices or with any appropriate parties, such documents as
may be reasonably required by the subject matter of such notice. In connection
therewith, Tenant shall indemnify and hold harmless Landlord from and against
any and all loss, claim, damage, cost or expense, including, without limitation,
reasonable attorneys' fees and disbursements, that Landlord may incur by reason
of any such action or proceeding or any instrument or document executed by
Landlord, or by Tenant on behalf of Landlord, pursuant to this Section 4.03. The
provisions of this Section 4.03 shall not be construed to require Tenant to pay
any Taxes that Tenant is not otherwise obligated to pay under the terms of this
Lease.
4.04 If Tenant shall at any time fail to pay Taxes when due, Landlord
shall have the right to require Tenant to enter into an escrow arrangement with
and to pay over to the Trustee (as that term is defined in Section 11.03
hereof), on a monthly basis in advance, an amount equal to one-twelfth (1/12) of
the annual Taxes. If Tenant shall thereafter promptly make payment of Taxes for
the next ensuing one (1) year period in accordance with the requirements of this
Lease, such escrow arrangement shall be terminated, subject to reinstatement if
Tenant shall subsequently fail to pay such Taxes as aforesaid. It is understood
that any amounts paid to the Trustee shall be held in trust and applied to the
payment of the Taxes in question and, while held by the Trustee, shall be
invested in the manner described in Section 11.03 hereof, and that interest
accruing thereon shall be held by the Trustee for the benefit of Tenant.
4.05 Nothing contained herein shall require Tenant to pay income taxes
assessed against Landlord, or any capital levy, corporation franchise, excess
profits, estate, succession, inheritance, transfer or New York State gains taxes
of Landlord, unless such taxes are imposed or levied or assessed as a total or
partial substitute for, or in lieu of, any other Taxes required to be paid by
Tenant pursuant to Section 4.02, in which event same shall be deemed to
constitute Taxes and shall be paid by Tenant.
ARTICLE 5
PRORATIONS
All utility costs and similar items of expense pertaining to the Demised
Premises for the year of termination of this Lease shall be prorated between
Landlord and Tenant as of the Expiration Date.
Pursuant to the terms of the Prior Lease, Tenant was responsible for the
payment of seventy-nine (79%) percent of Taxes pertaining to the Demised
Premises, and Landlord was required to pay twenty-one (21%) percent of all such
Taxes. An appropriate adjustment and proration shall be made as of the date
hereof in order to reflect the reallocation of the prospective responsibilities
of the parties hereto with respect to the payment of such Taxes (ie., Tenant
shall hereafter be responsible for 100% of Taxes attributable to the Main
Parcel) and with respect to any other amounts payable, owing or otherwise held
under each of the Existing Leases.
<PAGE> 11
ARTICLE 6
CONDITION AND CARE OF THE DEMISED PREMISES;
REPAIRS, IMPROVEMENTS AND ALTERATION
6.01 Except and to the extent otherwise expressly provided in Section
6.02, Tenant will take good care of and maintain the Demised Premises and all
roadways, sidewalks and curbs in, on, adjacent and appurtenant thereto, in good
order and repair at Tenant's sole cost and expense, and shall promptly remove
all accumulated snow, ice and debris from any and all roadways, sidewalks, and
curbs located upon or appurtenant to the Demised Premises and from any and all
other sidewalks and curbs adjacent to the Demised Premises. Tenant will make all
other necessary repairs and replacements to the Demised Premises, whether
ordinary or extraordinary, foreseen or unforeseen, structural or non-structural,
during the term of this Lease and will keep the same in good condition and
repair and will, at the expiration or sooner termination of this Lease, return
the Demised Premises to Landlord in good condition and repair, excepting
ordinary wear and tear, damage and destruction by fire or other casualty covered
by insurance and any material matters or conditions caused by or resulting from
the willful acts of Landlord, or any matters existing at the time of a
termination of this Lease by Landlord pursuant to the provisions of Section
25.05 hereof.
In connection with the foregoing, Landlord will maintain in good
condition and repair the roof of the Adjacent Parcel, and will afford Tenant
reasonable access (and immediate access in the event of a system breakdown or
other operating emergency in order to effect service or other repairs, which
repairs and other costs incurred by Tenant in connection therewith shall be at
Tenant's expense), to the air conditioning equipment, restaurant exhaust system
equipment, chilling units and other equipment servicing the Demised Premises,
now or hereafter situated on the roof of the Adjacent Parcel as well as pipes
and other suspended mechanical apparatus running across the air space over the
rear yard of the Adjacent Parcel. In connection with the foregoing, Tenant shall
be responsible for the repair of any damage caused by Tenant or its equipment to
the roof of the Adjacent Parcel and the compliance with all legal requirements
applicable to such equipment and the maintenance thereof on the roof of the
Adjacent Parcel.
6.02 Except as may otherwise be expressly agreed by Landlord and Tenant,
Landlord shall not under any circumstances be required to build any improvements
on the Demised Premises, or to make any repairs, replacements, alterations or
renewals of any nature or description to the Demised Premises or to any of the
Improvements, whether interior or exterior, ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever in connection with this Lease or to inspect or maintain the Demised
Premises in any way.
6.03 In the event of any new construction, repair, changes or
alterations by Tenant to the Demised Premises, the Rent payable under this Lease
shall not be increased, reduced or abated in any manner whatsoever.
6.04 Tenant shall have the right at any time and from time to time
during the term of this Lease, at its cost and expense, to make whatever
structural and non-structural changes and alterations with respect to the
Demised Premises (inclusive of Additional Spaces) as are reasonably required in
order to maintain and use the same in a manner that is consistent with the
requirements described in Article 3 hereof, and to otherwise continue to use all
those portions of the roof of the Adjacent Parcel presently used by Tenant and
in a manner that is consistent with its present usage and of the Demised
Premises without additional rent or other charge therefor (all of the foregoing
are hereinafter collectively called "Tenant Changes" and any of the foregoing is
called a "Tenant Change"), subject, however, in all cases to the following:
(i) Landlord shall receive prior notice of any specific Tenant
Change involving an estimated cost of more than One Hundred Thousand
($100,000) Dollars; provided, however, that such prior notice shall not
be required in the event of an emergency, but will be provided to
Landlord as soon thereafter as is reasonably possible. Such amount (the
"Base Amount") shall be proportionately increased or decreased (the
"Adjusted Amount") for each calendar year during the term of this Lease,
commencing with the Calendar Year 1986, by an amount (the "CPI
<PAGE> 12
Adjustment") computed in accordance with the percentage increase or decrease in
the Consumer Price Index for all Urban Consumers, New York and the Northeast
Region, issued and published by the Bureau of Labor Statistics of the United
States Department of Labor (1967=100) (the "CPI"); if the CPI is not available
then based upon a reasonable substitute or successor index, or, if such a
successor or substitute index is not available or may not lawfully be used for
the purposes stated herein, then based upon a reliable governmental or other
non-partisan publication, selected by Tenant, evaluating changes in the cost of
living or purchasing power of the consumer dollar, if such a publication is
available and may be lawfully used for the purposes stated herein. For the
purposes of calculating fluctuations in the CPI, the calendar year 1985 shall be
considered to be the base year (the "Base Year").
The Adjusted Amount for each calendar year during the term of
this Lease shall be determined as follows: the Base Amount shall be
increased or decreased to equal the product obtained by multiplying (a)
the Base Amount by (b) a fraction, the numerator of which is the average
monthly CPI for the calendar year immediately preceding the calendar
year in question, and the denominator of which is the average monthly
CPI for the Base Year.
(ii) No Tenant Change shall be undertaken until Tenant shall
have procured and paid for, so far as the same may be required from time
to time, all necessary permits and authorizations of all municipal
departments and governmental subdivisions having jurisdiction thereof;
and, at Tenant's expense, Landlord shall join in the application for any
such permits and authorizations whenever Tenant determines such action
to be necessary. Landlord's failure to join in such application within
ten (10) days after Landlord's deemed receipt pursuant to Section 29.01
of such application and requests Landlord to join therein, shall
thereupon constitute the immediate authorization and appointment by
Landlord of Tenant as Landlord's true and lawful representative and
attorney-in-fact, coupled with an interest, with full power and
authority in Landlord's name, place and stead to make, execute, sign,
acknowledge, and swear, deliver, file and record at the appropriate
governmental or other offices or with any appropriate parties, such
documents as may be reasonably required by the subject matter of such
notice. In connection therewith, Tenant shall indemnify and hold
harmless Landlord from and against any and all loss, claim, damage, cost
or expense, including, without limitation, reasonable attorneys' fees
and disbursements, that Landlord may incur in connection with the
application for and issuance of such permits and authorizations, any
work performed pursuant thereto and any instrument or document executed
by Landlord, or by Tenant on behalf of Landlord, pursuant to this
subdivision (ii).
(iii) Any Tenant Change involving an estimated cost of more than
One Hundred Thousand ($100,000) Dollars, as adjusted by the CPI
Adjustment, shall be conducted under the supervision of a licensed
architect or engineer selected by Tenant and shall be made in accordance
with detailed plans and specifications (the "Plans and Specifications")
and cost estimates prepared by such architect or engineer. Promptly
after request by Landlord, Tenant shall cause copies of the Plans and
Specifications to be delivered to Landlord, and upon Landlord's request
shall keep Landlord reasonably informed of the progress of any such work
performed in connection with any such Tenant Change.
(iv) Any Tenant Change shall be made promptly and in a good
workmanlike manner and in compliance with all applicable permits and
authorizations and building and zoning laws, ordinances, orders and
requirements of all federal, state and municipal governments and the
appropriate departments, commissions, boards and officers thereof; and
in accordance with the orders, rules and regulations of the Board of
Fire Insurance Underwriters and any other body hereafter exercising
similar functions having or asserting jurisdiction over the Demised
Premises.
(v) Tenant shall carry all necessary worker's compensation
insurance covering all persons employed in connection with any work
performed in connection with any Tenant Change and with respect to which
death or bodily injury claims could be asserted against Landlord,
Tenant, the Demised Premises or the Improvements, and general liability
and property damage insurance for the mutual benefit of Tenant and
Landlord with limits of not less than those required to be carried
pursuant to Article 10 hereof shall be maintained by Tenant, at Tenant's
<PAGE> 13
sole cost and expense, at all times when any work is in process in
connection with any new construction, repair, change or alteration and
shall furnish Landlord with evidence of any and all such coverage.
(vi) No Tenant Change shall impair the structural integrity or
diminish the value of any building comprising a part of the Demised
Premises. The building of additional stories onto the Demised Premises
or any part thereof or the creation of any additional floor area therein
(as that term is used in the Zoning Resolution) is specifically
prohibited under the terms of this Lease.
(vii) All Tenant Changes that become permanently affixed to the
Demised Premises shall, upon the expiration or prior termination of this
Lease and all renewal terms hereof, become the property of Landlord.
ARTICLE 7
THE 328 EASEMENT
7.01 Simultaneously with the execution hereof, 328, as the fee owner of
a certain parcel of land, together with the improvements situated thereon, and
being commonly known as 328 East 61st Street, New York, New York (the "Adjacent
Parcel"), which parcel is contiguous to the Demised Premises (the Elevator Shaft
Parcel constituting a portion thereof), has executed, acknowledged and delivered
to Tenant for recordation in the City Register's Office, an easement agreement
(the "328 Easement Agreement") in the form annexed hereto as Exhibit G and made
a part hereof, pursuant to which, among other matters, 328 has granted to
Hirschfeld, as well as to Tenant, certain easements, for so long as this Lease
shall remain in effect (which easements are collectively referred to herein as
the "328 Easement") in order to allow the continued and uninterrupted (i)
encroachment onto the portion of the Adjacent Parcel constituting the Elevator
Shaft Parcel of a certain elevator shaft structure constituting a part of the
Demised Premises, to the extent more particularly described in the 328 Easement
Agreement; (ii) access to and use of those certain fire stairs that lead down to
the rear yard of the Adjacent Parcel, fire doorway access to such stairway on
the second and third floors and at the ground level of the Demised Premises;
(iii) ingress to and egress from the rear yard of the Adjacent Parcel; and (iv)
ingress to and egress from (through the existing roof top accessway from the
Demised Premises) and use of, the roof of the Adjacent Parcel for the purpose of
operating, maintaining, installing or removing any and all air-conditioning
equipment, restaurant exhaust system equipment, chilling units and other
equipment servicing the Demised Premises and being now situated on such roof (as
well as pipes and other suspended mechanical apparatus running across the air
space over the rear yard of the Adjacent Parcel), all as more particularly
identified and described in the 328 Easement Agreement. The 328 Easement shall
run with the land and shall inure to the benefit of all future owners, tenants
and subtenants of the Main Parcel for so long as this Lease shall remain in full
force and effect. In case of any conflict between the provisions of this Section
7.01 and the provisions of the 328 Easement Agreement, the provisions of the 328
Easement Agreement shall control.
ARTICLE 8
ZONING RIGHTS
8.01 Landlord expressly retains all excess floor area and/or development
rights (collectively, the "Excess Zoning Rights") determined pursuant to the
Zoning Resolution of the City of New York, effective as of December 15, 1961, as
amended on August 17, 1977 (as so amended, or as the same may hereafter be
amended, the "Zoning Resolution") that are appurtenant to the Demised Premises
and based upon the Improvements existing thereon as of the date hereof, and
Tenant shall have no entitlement thereto. Tenant shall, upon reasonable request
by Landlord, but at no cost to Tenant, take such actions and execute such
documents as Landlord may reasonably deem necessary or desirable in order to
confirm the continued ownership and retention by Landlord of the Excess Zoning
Rights.
8.02 (a) Simultaneously with the execution and delivery of this Lease,
the parties hereto shall join in the execution (and Landlord shall have
theretofor caused all other necessary parties in interest to either join in or
duly waive their right to join in) of a Zoning Lot and Development Merger
Agreement, a Zoning Lot Description and Ownership Statement and a Declaration of
Zoning Lot Restrictions, as described in Section 12-10 of the Zoning Resolution.
Each of the foregoing documents shall be duly filed and recorded with the
appropriate local
<PAGE> 14
governmental authorities in order to validly create or ratify the continued
existence of a single zoning lot with respect to the Demised Premises and the
328 Site.
Landlord's use of the Excess Zoning Rights shall be expressly limited to
the specific purpose of erecting improvements (the "East Tower Improvements") on
that certain parcel of land, together with the improvements situated thereon,
and commonly known as 336 East 61st Street, New York, New York (the "336 Site"),
as provided by this Section 8.02. In connection with the construction of the
East Tower Improvements, Landlord expressly covenants and agrees that it shall
not be entitled to (i) erect any structure on, under, across or over the air
space over the boundary lot line on all sides of the Demised Premises, or any
portion thereof, or otherwise erect any structure on the 336 Site which
encroaches upon the Demised Premises, or any portion thereof; (ii) alter or
enlarge any structure on the 336 Site in a manner which encroaches upon the
Demised Premises, or any portion thereof; (iii) use any portion of the
improvements on the Demised Premises for "party wall" purposes; or (iv) enter
upon the Demised Premises, or any portion thereof (except to such extent as may
be reasonably required for the construction work on the 336 Site for inspection
purposes only and such limited entry shall only be permitted after the business
hours of the Demised Premises or on reasonable advance notice during business
hours, or in case of emergency, in which event prior notice will not be
required). Landlord expressly covenants and agrees that the construction of the
East Tower Improvements shall be conducted in such manner so as not to increase
any costs or expenses borne by Tenant with respect to the operation or
maintenance of the Demised Premises, impair in any way the structural support of
the Demised Premises or unreasonably interfere with the peaceable and
uninterrupted conduct of Tenant's business at the Demised Premises, (e.g.,
Landlord shall not cause the entrance to the Demised Premises or the streets in
the vicinity thereof to be unreasonably blocked by trucks, vans or other
vehicles whether in connection with the delivery of construction materials, for
parking purposes or otherwise; Landlord shall not allow any scaffolding or other
platform or structure to encroach unreasonably upon the entrance to the Demised
Premises or any portion thereof; Landlord shall take reasonable steps in order
to prevent any action on its behalf or by its agents, employees, and contractors
that might cause the falling of any dirt or debris onto the roof or any other
portion of the Demised Premises; and Landlord shall not allow any temporary or
other structures to be erected unreasonably near the entrance to the Demised
Premises). Landlord shall indemnify and save harmless Tenant from and against
any and all liability, loss, cost, claim, injury, damage or other expense of any
nature whatsoever that may be claimed or asserted against Tenant or otherwise
suffered by any member (or guests of any member) of the health club or other
facilities operated at the Demised Premises resulting from the unreasonable
interference with the use of the Demised Premises by any such parties arising
from or in connection with any construction work performed by or on behalf of
Landlord with respect to the East Tower Improvements.
ARTICLE 9
COMPLIANCE WITH LAWS
9.01 Except with respect to (a) any current or potential future
violation of the existing Certificate of Occupancy for the Building which
results solely by reason of the use and operation of the Demised Premises as a
health club on a basis substantially similar to the manner of use and operation
thereof at the date hereof (excluding, however, any such violation resulting
from alterations or physical changes heretofore or hereafter made by Tenant in
the Demised Premises) and (b) any currently existing violation of applicable
governmental laws or rules arising from the actual or purported status, prior to
the date hereof, of the Demised Premises as constituting a part of a single
zoning lot (together with the Adjacent Parcel) (collectively, "Existing
Conditions") (which matters neither Tenant nor Landlord shall in any way be
obligated to cure), Tenant shall comply with all orders, regulations, rules and
requirements of every kind and nature relating to the Demised Premises, now or
hereafter in effect, of all governmental authorities, whether they be usual or
unusual, ordinary or extraordinary, or whether they or any of them relate to any
structural changes or requirements of whatever nature, or to changes or
requirements incident to or as the result of any use or occupancy thereof or
otherwise, including all orders, rules and regulations of the national and local
boards of fire underwriters or any other body exercising similar functions. In
the event that as a result of the failure of either of the parties hereto to
effect the cure of any Existing Conditions, any governmental authority with
jurisdiction over the Demised Premises determines that the continued use of the
Demised Premises by Tenant in the furtherance of its business affairs, as
conducted at the date hereof, is unlawful or must be further restricted in any
material and adverse
<PAGE> 15
way, then Tenant shall have the right to cancel this Lease on not less than
thirty (30) days prior written notice to Landlord, and at the expiration of such
time period, this Lease and the term hereof shall cancel and terminate as if
such date was the Expiration Date of this Lease; provided, however, that
Landlord shall be entitled to elect, at any time prior to expiration of the
aforesaid thirty (30) day period, by notice to Tenant, to cure any such Existing
Conditions and, if such cure is effected prior to the expiration of said thirty
(30) day period, or if such Existing Condition is not susceptible of being cured
within such thirty (30) day period and Landlord commences to cure and diligently
prosecutes such cure to completion within a reasonable period thereafter, then
Tenant will not be entitled to so cancel this Lease. Notwithstanding the
foregoing, Landlord expressly agrees that the status of any and all Existing
Conditions with respect to the Demised Premises (and any actions that may
hereafter be taken by any govermental authority in connection therewith) shall
not constitute a basis for declaring the occurrence of an Event of Default on
the part of Tenant hereunder. In addition, Landlord covenants and agrees not to
take any action with respect to any Existing Condition that might in any way
interfere with Tenant's use of the Demised Premises without the prior written
consent and express authorization of Tenant.
Tenant shall procure, pay for and maintain all permits, licenses and
other authorizations necessary to operate the Demised Premises, except as
otherwise provided herein, and shall pay all costs and expenses incidental to
complying with the foregoing matters. So long as the actions of Tenant are not
reasonably anticipated to result in a penalty being imposed against the Demised
Premises, or any portion thereof, or any penalty or civil or criminal liability
against Landlord, or subject the Demised Premises to forfeiture, or cause the
Demised Premises to be closed on either a temporary or permanent basis, Tenant
shall have the right to contest or review any such order referred to in this
Section 9.01 by legal proceedings or in such manner as Tenant may deem advisable
and may have any such order cancelled, removed or revoked, without actual
compliance therewith. If any such actions or proceedings are instituted by
Tenant, they shall be instituted and conducted diligently and in good faith at
the expense of Tenant and without cost to Landlord, and in connection with any
such contest with respect to the validity or application, in whole or in part,
of any such legal requirements, Tenant may, subject to the conditions set forth
in the second sentence of this paragraph, postpone compliance therewith pending
the determination of such contest, but shall be required to bond or post other
equivalent security with the Trustee, to the extent of at least one hundred ten
(110%) percent of the contested amount, in order to protect the interest of
Landlord hereunder. In the event of any default by Tenant under this section (or
if any of the conditions set forth in the second sentence of this paragraph
cease to be complied with), Landlord may comply with any such order, regulation,
rule or requirement and the cost and expense of so doing may be paid by Landlord
and shall be repaid to Landlord by Tenant on demand, as additional rent due
hereunder, together with interest thereon at a rate equal to two (2%) percent
over the rate of interest that is announced from time to time by Citibank, N.A.
as its "prime" or "base" rate (such interest rate being calculated as aforesaid,
is hereinafter referred to as the "Penalty Rate"); and if Tenant shall fail
promptly so to do, Landlord shall be entitled to obtain such reimbursement and
interest from the Trustee out of the security deposited with it.
9.02 At the request of Tenant, Landlord shall be required to join in any
and all actions or proceedings referred to in the preceding Section 9.01, in
which event any such action or proceeding may be taken by Tenant in the name of,
but without expense to, Landlord. Tenant shall serve notice upon Landlord of
Tenant's intention to take such action or initiate such proceeding, and
Landlord's failure to join in such action or proceeding within ten (10) days
from the date of Landlord's deemed receipt of Tenant's notice (in the manner
provided by Section 29.01 hereof) shall thereupon constitute the immediate
authorization and appointment by Landlord of Tenant to act as Landlord's true
and lawful representative and attorney-in-fact, coupled with an interest, with
full power and authority in Landlord's name, place and stead to make, execute,
sign, acknowledge, and swear, deliver, file and record at the appropriate
governmental or other offices or with any appropriate parties, such documents as
may be reasonably required by the subject matter of such notice. In connection
therewith, Tenant shall indemnify and hold harmless Landlord from and against
any and all loss, claim, damage, cost or expense, including, without limitation,
reasonable attorneys' fees and disbursements, that Landlord may incur in
connection with any such actions or proceedings, any failure of Tenant to comply
with any such order or requirement during such contest and any instrument or
document executed by Landlord, or by Tenant on behalf of Landlord, pursuant to
this Section 9.02. Nothing contained in this Section 9.02 shall be construed as
obligating either Landlord or Tenant to take any action with respect to any of
the Existing Conditions.
<PAGE> 16
ARTICLE 10
INDEMNIFICATION OF LANDLORD;
LIMITATION OF LIABILITY
10.01 Except as otherwise provided herein, Tenant shall indemnify and
save Landlord harmless from and against, and shall reimburse Landlord for, all
liabilities, damages, fines, penalties, claims, costs, and expenses, whether
found in tort, in contract or otherwise, including reasonable attorneys' fees
and disbursements, which may be imposed upon or incurred or paid by or asserted
against Landlord as a result of (but without the fault or negligence of
Landlord) the use, misuse, occupancy, possession or unoccupancy of the Demised
Premises or negligent or tortious act by Tenant or any other person claiming by,
through or under Tenant or their respective agents, employees, licensees,
invitees or guests, any Tenant Change and anything done in, on or about the
Demised Premises or any part thereof in connection therewith, any accident,
injury, death or damage to any person or property occurring in, on or about the
Demised Premises or any portion thereof, or any failure on the part of Tenant to
perform or comply with any of the provisions contained in this Lease on its part
to be performed or complied with. Tenant shall, at its own cost and expense,
resist or defend against any and all such actions, claims and demands and shall
indemnify Landlord for all costs, expenses and liabilities Landlord may incur in
connection therewith if Tenant fails to satisfy its obligations hereunder.
10.02 Except as otherwise provided herein, Tenant shall fully and
exclusively control the Demised Premises and be responsible for the condition,
operation, repair, replacement, maintenance and management of the Demised
Premises.
10.03 If at any time during the term of this Lease Landlord shall fail
to perform any covenant or obligation on its part to be performed hereunder or
shall otherwise incur any liability to Tenant with respect to any matter
pertaining to the Demised Premises, and Tenant shall recover a money judgment
against Landlord with respect thereto, such judgment shall be satisfied only (i)
out of the proceeds of sale produced upon execution of such judgment and levy
thereon against Landlord's interest in the Demised Premises and (ii) by judicial
attachment or other legal process with respect to the rents or other income from
the Demised Premises receivable by Landlord. The provisions of this Section
10.03 are not intended to relieve Landlord from the performance of any of its
obligations hereunder, but rather to limit Landlord's liability in the case of
the recovery of a judgment against it, as aforesaid, nor shall any of the
provisions of this Section be deemed to limit or otherwise affect Tenant's right
to seek enforcement of the remedies of injunctive relief or specific
performance.
ARTICLE 11
INSURANCE
11.01 Tenant shall, throughout the term of this Lease, at its own cost
and expense (including all costs and expenses of recovery, if any), obtain and
maintain in full force and effect and in the name of Tenant, Landlord and, if so
requested by Landlord, the Fee Mortgagee, as their respective interests may
appear:
(i) insurance against loss or damage by fire or other casualty,
with all risk (including vandalism and malicious mischief) "extended
coverage" and such other risks or hazards as are customarily insured
against in the applicable locality at the time in connection with
premises of similar type to the Demised Premises, including, without
limitation, damage by lightning, hail, explosion, windstorm, tornado,
cyclone, riot, disorder or civil commotion, smoke damage, vandalism and
malicious mischief (when obtainable and if not included in "extended
coverage"). Such insurance shall be in an amount sufficient to prevent
Landlord or Tenant from becoming a co-insurer within the terms of the
applicable policies, but in no event shall such policies be in an amount
of less than ninety (90%) percent of the full replacement value of the
Demised Premises. Such insurance shall contain inflation guard and
increased cost of construction endorsements covering the Demised
Premises (including, without limitation, the structure of the Building)
and all replacements, additions and improvements
<PAGE> 17
thereof, and of all fixtures, elevators, equipment and other personal
property therein, in amounts sufficient to prevent Landlord or Tenant
from becoming a co-insurer under the terms of the applicable policies,
and in no event shall any such policy be in an amount less than ninety
(90%) percent of the full replacement cost thereof from time to time;
(ii) general liability insurance written on a so-called
"Comprehensive" General Liability Insurance Form for the mutual benefit
of Landlord, Tenant and the Fee Mortgagee, covering the Demised Premises
against claims on account of bodily injury, death and property damage
incurred upon or about the Demised Premises, inclusive of the elevators
therein, such insurance to be written with limits of not less than Ten
Million ($10,000,000) Dollars for death or injuries to one or more
persons from one occurrence, and not less than Three Million
($3,000,000) Dollars for damage to property;
(iii) adequate explosion insurance with respect to steam and
pressure boilers and similar apparatus, if any, located on the Demised
Premises;
(iv) insurance against loss or damage to the Demised Premises
resulting from water damage, if reasonably obtainable;
(v) war risk insurance as and when such insurance is obtainable
from the United States Government or any agency or instrumentality
thereof, and a state of war or national public emergency exists or
threatens, in an amount not less than the full insurable value of the
Demised Premises;
(vi) worker's compensation insurance subject to statutory limits
or better in respect of any work or other operations on or about the
Demised Premises;
(vii) business interruption insurance, in an amount sufficient
to enable Tenant to pay all rental amounts that are from time to time
due to Landlord with respect to the Demised Premises for a period of one
(1) year;
(viii) such other types of insurance with respect to the Demised
Premises and in such amounts as Landlord from time to time may
reasonably request against such other insurable hazards which at the
time in question are commonly insured against (and are obtainable for
the Demised Premises at commercially reasonable rates) in the case of
property similar to the Demised Premises; and
(ix) during the performance of any construction with respect to
any Tenant Change at a cost in excess of One Hundred Thousand ($100,000)
Dollars, subject to the CPI Adjustment, broad form builder's all-risk
insurance, as calculated on a completed value basis.
11.02 All such insurance shall:
(i) be obtained from and maintained with reputable and
financially sound insurance company(ies) authorized to issue such
insurance in the State of New York;
(ii) be reasonably satisfactory to Landlord and to the Fee
Mortgagee;
(iii) contain an agreement by the insurer that it will not
cancel or modify any such policy except after fifteen (15) days prior
written notice to Landlord and the Fee Mortgagee;
(iv) provide 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
part of the payment of such loss; and
<PAGE> 18
(v) state on the face of the policy that Landlord is not and
shall not become liable for payment of premiums thereunder.
11.03 All proceeds payable pursuant to any of the policies referred to
in this Article 11, on account of the loss involved, except any such proceeds
payable pursuant to general liability insurance coverage directly to an injured
party, as described in Section 11.01(ii) hereof, shall be payable over to a
trustee (the "Trustee"), who shall be an Institutional Lender (as defined in
Section 13.01 hereof) other than the Fee Mortgagee and appointed by Tenant (and
whose costs and expenses shall be borne by Tenant), it being agreed that such
proceeds shall be held in trust by the aforesaid Trustee for the purposes hereof
and shall be invested by the Trustee in certificates of deposit or treasury
bills, as the Trustee shall in its reasonable discretion determine, and any
interest which accrues thereon or any amounts earned as a result of such
investment shall become part of the proceeds, after subtracting therefrom an
administrative fee payable to the Trustee, as well as any costs and expenses
paid or incurred by the Trustee in connection with its investment of the
proceeds. In the case of reconstruction of the Demised Premises, such proceeds
shall be disbursed by the Trustee in the manner provided by Section 12.03
hereof.
11.04 Prior to the expiration of any such insurance policy, Tenant shall
deliver to Landlord a certificate evidencing the replacement or renewal thereof.
Tenant shall furnish Landlord and the Fee Mortgagee with duplicate original(s)
or original certificate(s), together with true copy(ies) of all such insurance
policies, including renewal and replacement policy(ies), together with written
evidence that the premiums therefor have been paid. It is understood and agreed
that said policies may be blanket policies covering other locations operated by
Tenant, its affiliates or subsidiaries, provided that such blanket policies
otherwise comply with the provisions of this Article 11, and provided further
that such policies specifically allocate coverage for the Demised Premises in
accordance with the requirements of this Article 11.
11.05 Tenant shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be furnished by Tenant
under Article 11 of this Lease, unless Landlord and any Fee Mortgagee designated
by Landlord are included as named insured, with loss payable as provided in this
Article 11. Tenant shall immediately notify Landlord whenever any such separate
insurance is taken out and shall deliver to Landlord duplicate original(s)
thereof, or original certificate(s) evidencing the same with true copies
thereof, as provided in this Lease.
ARTICLE 12
DAMAGE OR DESTRUCTION
12.01 If any portion of the Demised Premises is damaged or destroyed by
fire or other cause during the term of this Lease, Tenant shall promptly give
notice thereof to Landlord, and Tenant shall, except as otherwise provided
herein, be obligated to repair, replace and rebuild (collectively, "Repair") the
same, notwithstanding the sufficiency or availability of insurance proceeds and,
if the insurance proceeds received by Tenant with respect to any such damage or
destruction of the Demised Premises are not sufficient to Repair the Demised
Premises (or damaged portion thereof), then Tenant will be required to most the
deficiency with the Trustee and such amounts shall be disbursed for
reconstruction purposes pursuant to Section 12.02 hereof. In connection
therewith, the Demised Premises shall be restored at least to the extent of the
value, and as nearly as possible to the character and size dimensions (e.g.,
square footage) of the property involved, as it was immediately before the loss,
to the extent permissible by applicable zoning regulations. Notwithstanding the
foregoing, in the event of any such damage or destruction which affects more
than twenty five (25%) percent of the Demised Premises and which shall take
place at any time during the five (5) year period immediately preceding the
Expiration Date of this Lease, and, if Tenant shall then be in compliance with
the insurance requirements of Section 11.01 hereof and shall not have taken or
failed to take any action which results in its insurance carrier being entitled
to and in fact disclaiming liability for the loss in question, then Tenant may
elect not to commence or otherwise complete the Repair of the damaged or
destroyed portion of the Demised Premises and, in such event, Tenant's sole
obligation to Landlord will be to deliver the Demised Premises to Landlord,
together with an assignment of Tenant's right to receive any insurance proceeds
in respect of such damage or destruction to all or any portion of the Demised
Premises and any insurance proceeds
<PAGE> 19
in Tenant's possession and received in respect of the damage or destruction in
question, net of any and all sums theretofore expended by Tenant, if any, in
connection with the Repair of such condition, in which event, this Lease shall
be deemed terminated and of no further force and effect. Any Repairs performed
by Tenant in connection with this Article 12 shall be done in a first class
workmanlike manner, and in accordance with the provisions of Article 6 hereof.
12.02 Subject to the terms of the currently existing Fee Mortgage (as
defined and specifically referred to in Section 21.01 hereof), for the purpose
of paying towards the cost of such Repair, the Trustee shall, pursuant to the
terms of Section 11.03 hereof, hold in trust all insurance proceeds which may be
received by said Trustee and any amount deposited by Tenant with the Trustee
pursuant to Section 12.01, and shall disburse such proceeds and amount in the
case of Repairs or specific Tenant Changes, in the manner provided by Section
12.03 hereof.
12.03 The aforesaid insurance proceeds and any amount deposited by
Tenant with the Trustee pursuant to Section 12.01, shall be paid by the Trustee
to Tenant in payment for the proportionate amount of costs and expenses
theretofore incurred ("Proportionate Amount") that the fund from time to time
held by the Trustee bears to the estimated full cost of the Repair in question
with respect to work and materials actually incorporated in the Demised Premises
from time to time, in installments, as the making of the Repair work progresses,
upon the requisition certificates of Tenant and a licensed architect retained by
Tenant to supervise the Repair. Each such requisition certificate shall set
forth (i) a description of all work performed since the last requisition
certificate was submitted to the Trustee, (ii) an estimate of the cost of the
remaining work to be performed to complete the Repair and (iii) a statement of
the architect that such requisition is not being submitted for work that has
been previously performed and paid for from the insurance proceeds or other
amount held by the Trustee and that the work in question has been properly
performed. If any mechanic's lien is filed against the Demised Premises, Tenant
shall not be entitled to receive any further installment until such lien is
satisfied, discharged of record or otherwise bonded against collection from
against the Demised Premises. The insurance proceeds and any other amount in the
hands of the Trustee shall not be reduced below the amount specified by Tenant's
architect in the certificates furnished with each draw request as the amount
required to complete the Repairs. If the amount of such insurance proceeds and
any other amount shall be in excess of the cost of any Repairs undertaken by
Tenant, such excess shall be paid to Tenant; provided, however, that if an Event
of Default on the part of the Tenant with respect to its monetary obligations
hereunder shall have occurred and then be continuing, such excess shall first be
applied to cure such Event of Default and the remainder shall be paid to Tenant.
To the extent that any insurance proceeds or other amount held in escrow
by the Trustee shall be made available to Tenant to pay for its costs of making
such repairs, restoration, rebuilding and replacements; said payments shall be
made only under the condition that the Trustee be assured that at all times the
Demised Premises shall be free of liens or claims of liens by reason of such
work, or that any liens or claims of liens existing against the Demised Premises
shall be bonded against collection from against the Demised Premises and
provided further that the Proportionate Amount of the portion of the proceeds
and other amounts paid out at any time shall not exceed the Proportionate Amount
of the value of the actual work and materials incorporated in the repaired,
restored, rebuilt or replaced Demised Premises and the conditions described in
Article 6 are complied with. Tenant shall hold in trust all insurance proceeds
and any other amounts disbursed to Tenant by the Trustee, which proceeds and any
other amounts shall be used solely to pay for the costs of reconstruction to
effect the Repair of the Demised Premises.
Notwithstanding the foregoing, if an Event of Default on the part of
Tenant has occurred and is then continuing under this Lease, the Trustee shall
make no further payment of insurance proceeds or any other amounts to Tenant
unless and until such Event of Default has been cured, it being understood that
in the event this Lease is terminated as a result of such Event of Default prior
to commencement or completion of the Repair in question, the amount of insurance
proceeds and any other amounts then held by the Trustee which are required to
complete the Repair in question shall be paid to Landlord; provided, however,
that in no event whatsoever will any insurance proceeds attributable to any of
Tenant's Property be paid to Landlord.
<PAGE> 20
12.04 In the event of any damage to or destruction of the Demised
Premises, Tenant shall promptly notify Landlord and the Fee Mortgage and shall
make prompt proof of loss to the relevant insurance company(ies). Tenant is
hereby authorized, in the exercise of its sole and absolute discretion, to
settle or otherwise compromise and directly collect the proceeds of any and all
insurance claims on behalf of all interested parties, provided that all such
proceeds are applied to the reconstruction of the Demised Premises; provided,
however, that if such damage or destruction shall occur at any time during the
five (5) year period immediately preceding the Expiration Date of this Lease and
Tenant shall elect not to effect the Repair of the Demised Premises, as provided
in Section 12.01 hereof, then Landlord shall thereupon have the right to settle
and compromise such insurance claims and the provisions of the immediately
following paragraph shall not apply.
At the request of Tenant, Landlord shall be required to join in any and
all actions, proceedings or settlements with respect to the collection of such
proceeds, in which event any such action, proceeding or settlement may be taken
or made by Tenant in the name of, but without expense to Landlord. Tenant shall
serve notice upon Landlord of Tenant's intention to take such action, initiate
such proceeding or make such settlement,and Landlord's failure to join in such
action, proceeding or settlement within ten (10) days from the date of
Landlord's deemed receipt of Tenant's notice in the manner provided by Section
29.01 hereof shall thereupon constitute immediate authorization and appointment
by Landlord of Tenant to act as Landlord's true and lawful representative and
attorney-in-fact coupled with an interest, with full power and authority in
Landlord's name, place and stead to make, execute, sign, acknowledge, and swear,
deliver, file and record at the appropriate governmental or other offices or
with any appropriate parties, such documents as may be reasonably required by
the subject matter of such notice. In connection therewith, Tenant shall
indemnify and hold harmless Landlord from and against any and all loss, claim,
damage or expense, including, without limitation, reasonable attorneys' fees and
disbursements, that Landlord may incur in connection with any such action,
proceeding or settlement and any instrument or document executed by Landlord, or
by Tenant on behalf of Landlord, pursuant to this Section 12.04.
12.05 The provisions and requirements of Article 6 hereof shall apply
with respect to any repairing, restoring, rebuilding or replacing made pursuant
hereto; and same shall be made in accordance with the Plans and Specifications
(copies of which Tenant shall cause to be delivered to Landlord) to the extent
same is practicable.
Notwithstanding anything contained herein to the contrary, Tenant's
obligation to effect the Repair (as defined in Section 12.01) of the Demised
Premises shall be reduced and abated to the extent, if any, that the Fee
Mortgagee under the existing Fee Mortgage is permitted to and actually requires
that any insurance proceeds be paid to and retained by such Fee Mortgagee
instead of being applied in payment of the cost of such Repair. Landlord will
use its reasonable efforts to induce the Fee Mortgagee to make such proceeds
available to Tenant for purposes of making Repairs in the manner provided
herein. It is expressly agreed, however, that any refinancing of the existing
Fee Mortgage and any other Fee Mortgage hereafter placed against the Demised
Premises shall in all events expressly provide for the payment of all insurance
proceeds to Tenant for than purpose of effecting Repairs of the Demised Premises
in accordance with such reasonable procedures (which may include a requirement
that such Fee Mortgagee hold and disburse the insurance proceeds in lieu of the
Trustee) as such Fee Mortgagee shall agree to in order to effectively carry out
the provisions of this Article 12, and such procedures shall supersede those
provided for in this Article 12.
12.06 Landlord and Tenant shall each look first to any insurance in its
favor before making any claim against the other party for recovery for loss or
damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law,
Landlord and Tenant each hereby releases and waives all right of recovery
against the other or any one claiming through or under each of them by way of
subrogation or otherwise. The foregoing release and waiver shall be in force
only if both releasor's insurance policies contain a clause providing that such
a release or waiver shall not invalidate the insurance and also, only if such
clause can be obtained without additional premiums. Each party hereto shall
notify the other if it is unable to obtain from its respective insurance carrier
such a clause or if such clause is only available at additional cost.
<PAGE> 21
12.07 Tenant hereby agrees that, notwithstanding any damage or
destruction to the Demised Premises or any portion thereof as described herein,
Tenant shall not be relieved of its obligation to pay to Landlord the Rent due
hereunder for its use of the Demised Premises-(and/or its use of Additional
Space, as described below) unless and until this Lease is terminated (unless
such termination is due to the existence of an Event of Default on the part of
Tenant hereunder); provided, however, that the additional rent payable hereunder
with respect to the Additional Space (to the extent and for so long as the
existing term(s) of the L.P. and/or the Larama Leases shall remain in effect)
shall be reduced and/or abated to the extent provided by the provisions of
Article 9 of the L.P. Lease and/or Article 9 of the Larama Lease.
ARTICLE 13
CONDEMNATION
13.01 If at any time during the term of this Lease, the whole or
substantially all of the Demised Premises shall be taken or condemned (a
"Taking") for any public or quasi-public purpose by any lawful power or
authority, by the exercise of the right of condemnation or eminent domain or by
agreement between Landlord and those authorized to exercise such right, this
Lease and the term hereof shall terminate and expire on the date of such Taking
and the Rent and other sums of money and charges herein reserved and provided to
be paid by Tenant shall be apportioned and paid by Tenant to the date of such
Taking. If this Lease shall be terminated in accordance with this Section 13.01,
compensation from the award (the "Award") made in such Taking shall be
distributed in the order of priority as indicated below:
(i) First, to the Qualified Fee Mortgagee (as such capitalized
term is hereafter defined), up to the amount of the then outstanding
principal balance of the Fee Mortgage, but not more than the Qualified
Fee Mortgage Amount (as such capitalized term is hereafter defined); and
(ii) The balance of the Award shall be apportioned and
distributed between Landlord and Tenant in such manner and amount as
they may mutually agree upon or, if they fail to reach agreement with
respect thereto, then such apportionment shall be resolved by appraisal
of the respective interests of Landlord and Tenant (giving due
consideration to the distribution referred to in clause (i) above) in
accordance with the provisions of Section 25.04 hereof.
For purposes of this Article 13, a Qualified Fee Mortgagee shall be
deemed to mean an "Institutional Lender" (as hereinafter defined) that is the
holder of a Fee Mortgage, affecting the Demised Premises (but only to the extent
that the outstanding principal balance of such Fee Mortgage does not exceed
eighty (80%) percent of the fair market value of the Demised Premises on a free
and clear basis immediately prior to the condemnation in question, as determined
by appraisal in accordance with the procedures set forth in Section 25.04
hereof, such amount being referred herein as the Qualified Fee Mortgage Amount)
and which mortgage does not require the payment of installments of debt service
thereunder on an annual basis in an amount that is greater than one-hundred ten
(110%) percent of the annual Rent that is payable hereunder at the time in
question.
For purposes of this Section 13.01, an "Institutional Lender" shall be
deemed to mean the holder of a first mortgage that is a bank, savings bank,
savings and loan association, trust company, insurance company, real estate
investment trust, university, one of the foregoing acting as a trustee,
teacher's retirement or pension fund, pension or retirement fund covering
employees of a government or governmental authority or subdivision or agency or
public corporation, or other investing entity having total assets or endowment
of not less than Two Hundred Fifty Million ($250,000,000) Dollars and generally
referred to and acknowledged in the New York City real estate industry to be an
"institutional lender" or "institutional investor".
13.02 If a Taking shall occur with respect to twenty-five (25%) percent
or more of the Demised Premises, or all reasonable means of ingress and egress
to and from the Demised Premises are permanently eliminated by reason of any
such Taking, then and in any of such events, Tenant shall have the right,
exercisable by written notice delivered to Landlord within sixty (60) days after
such Taking, to terminate this Lease and upon delivery of the foregoing
<PAGE> 22
notice to Landlord, this Lease and the term hereof shall cease and the Fixed
Rent and other charges payable by Tenant hereunder shall be apportioned and paid
to the date of the Taking. If this Lease is terminated in accordance with this
Section 13.02, Tenant shall be entitled to its share of the Award determined in
accordance with the procedures set forth in Section 13.01 hereof.
13.03 If there shall be a Taking not resulting in the termination of
this Lease as aforesaid, the term hereof shall not be reduced or affected in any
way, and:
(i) Tenant shall be entitled to the percentage of the Award to
which it would be entitled under Section 13.01 hereof that is equivalent
to the percentage of the Demised Premises so taken and to a Tenant's
Improvements Award to the extent Tenant's Improvements are in fact
taken.
(ii) Tenant shall apply the portion of the Award that it
receives pursuant to the preceding clause (i) to restore, to the extent
reasonably possible, the remaining portions of the Demised Premises to
its former condition.
(iii) The Fixed Rent payable for the balance of the term of this
Lease shall be equitably and proportionately reduced from the date of
the Taking, based on the reduction, from time to time, in the square
foot floor area of the Demised Premises occasioned thereby.
(iv) Except to the extent that Tenant may be prevented from so
doing pursuant to the terms of the order of the condemning authority,
Tenant shall perform and observe all of the terms, covenants, conditions
and obligations hereof upon the part of Tenant to be performed and
observed, as though such Taking had not occurred.
13.04 In the event of any Taking, Landlord shall immediately notify
Tenant and Tenant shall have the absolute right to participate in the
condemnation proceedings, including, without limitation, any and all
negotiations or litigation with the condemning authority and Landlord shall at
all times cooperate with Tenant in connection therewith.
13.05 Nothing contained herein shall be construed to preclude Tenant
from prosecuting any additional claim directly against the condemning authority
in such condemnation proceedings for loss of business, depreciation or damage to
and/or cost of removal or the value of, stock and/or trade fixtures, furniture
and other personal property belonging to Tenant, but only provided that any
award made in respect of any such claim is not in diminu- tion of any portion of
the Award for the Main Parcel, the Elevator Shaft Parcel or the Building.
ARTICLE 14
REMOVAL OF TENANT'S PROPERTY
14.01 Except as hereinafter provided, all of Tenant's permanent
improvements or alterations to the Demised Premises (collectively, the "Tenant
Improvements") shall become the property of Landlord following the expiration of
the term of this Lease.
14.02 Tenant shall have the right, at any time during the term of this
Lease, to remove "Tenant's Property", consisting of machinery, trade equipment,
business and trade fixtures and other trade equipment placed, installed,
supplied or made by it in or on the Demised Premises, at Tenant's cost and
expense (without any contribution or reimbursement therefor by Landlord), and
which may be removed, provided that Tenant shall be liable for the cost of
repairing any damage to the Demised Premises caused as a result of Tenant's
removal of Tenant's Property. As used herein and hereinafter, the term Tenant's
Property shall not include or be deemed to include any item now or hereafter
installed in or on the Demised Premises that is an integral part thereof,
including, without limitation, heating, ventilating, and air conditioning plants
and systems, electrical and plumbing fixtures and systems, the elevators
situated on the Elevator Shaft Parcel and other like equipment and fixtures, if
any.
<PAGE> 23
ARTICLE 15
LANDLORD'S RIGHT TO PERFORM TENANT'S
COVENANTS AND CURE TENANT'S DEFAULTS;
TENANT'S RIGHT TO PERFORM LANDLORD'S
COVENANTS AND CURE LANDLORD'S DEFAULTS
15.01 If Tenant shall at any time fail to satisfy any of the monetary
charges or obligations for which Tenant is responsible hereunder in the manner
and to the extent provided herein or shall otherwise fail to bond adequately the
collection against the Demised Premises of any Tax or other monetary charges or
expenses, then Landlord, without waiving or releasing Tenant from any of its
obligations hereunder, may at its option serve a notice to Tenant providing that
if Tenant does not pay any such sum on Tenant's part to be paid as provided
herein within ten (10) days after Tenant's deemed receipt of such notice (as
provided by Section 29.01 hereof), then Landlord shall have the right but not
the obligation to pay such amount on behalf of Tenant. In the event that
Landlord gives any such notice, Landlord shall thereupon become responsible for
properly paying such sum, and Tenant agrees to reimburse Landlord upon demand
(as additional rent) for the amount of any such payments made by Landlord on
Tenant's behalf and such amounts shall constitute items of additional rent
payable hereunder and shall be paid by Tenant to Landlord on written demand,
together with interest thereon at the Penalty Rate (as that term is defined in
Section 9.01 hereof) computed from the date such funds are advanced by Landlord
until reimbursed by Tenant. If Tenant does not reimburse Landlord for any such
sums so expended by Landlord on behalf of Tenant, together with interest
thereon, within ten (10) days after Tenant's deemed receipt (in accordance with
Section 29.01 hereof) of the aforesaid written demand for payment, then an Event
of Default (as defined in Article 19 hereof) on the part of Tenant hereunder
will be deemed to have occurred. If Tenant shall at any time fail to satisfy any
of the non-monetary obligations on its part to be performed hereunder and has
not begun the process of complying with or curing any such matter, or is not
otherwise diligently pursuing such compliance or cure to completion, and if such
failure to perform on the part of Tenant causes an emergency situation to exist,
then Landlord shall thereupon have the right to enter the Demised Premises
without notice for the express limited purpose of effecting the cure of such
non-monetary obligation. In the event that Landlord takes any such action,
Landlord shall thereupon become responsible for properly performing such act
and, in the case of any repairs to the Demised Premises, or any portion thereof,
Landlord shall be obligated to cause any work to be performed in good and
workmanlike manner, in compliance with all applicable permits and authorizations
and building and zoning laws, ordinances, rules and requirements of all federal,
state, and municipal government authorities, and Tenant agrees to reimburse
Landlord upon demand (as additional rent) for the amount of any such payments
made by Landlord on Tenant's behalf and such amounts shall constitute items of
additional rent payable hereunder and shall be paid by Tenant to Landlord on
written demand, together with interest thereon at the Penalty Rate (as that term
is defined in Section 9.01 hereof) computed from the date such funds are
advanced by Landlord until reimbursed by Tenant.
15.02 If Landlord shall at any time fail to make any payment or perform
any act on its part to be made or performed hereunder beyond any applicable
grace period (including, without limitation, its obligation to pay all Taxes
with respect to the Adjacent Parcel), and Landlord has not cured such default or
has not commenced and is not diligently proceeding to cure same, then Tenant,
without waiving or releasing Landlord from any of its obligations hereunder, may
at its option and upon not less than ten (10) days prior written notice (and
without any notice in the case of an emergency), pay any sum or perform any act
on Landlord's part to be paid or performed as provided herein. Landlord agrees
to reimburse Tenant upon demand for all amounts expended by Tenant with respect
to the foregoing and all out-of-pocket expenses incurred or payments made in
connection with the foregoing, which amounts shall bear interest at the Penalty
Rate from the date of their disbursement or payment by Tenant until reimbursed
by Landlord. The amount of any payment made or expense incurred by Tenant in
connection with Landlord's failure to pay Taxes on the Adjacent Parcel shall be
set-off against any future rent or other payments due by Tenant under this
Lease.
ARTICLE 16
DISCHARGE OF LIENS
<PAGE> 24
16.01 Tenant will not create, permit to be created or otherwise allow
the continued existence of any lien, encumbrance or charge upon the Demised
Premises, or any part thereof, or the income therefrom, having any priority or
preference over this Lease or ranking on a parity with the estate, right and
interest of Landlord in the Demised Premises, or the Land, or any part thereof,
or the income therefrom. Tenant covenants and agrees to cause the prompt
discharge of record of any and all such matters and will not suffer any matter
or thing whereby the estate, right and interest of Landlord might be impaired
except as expressly provided in this Lease.
16.02 If, as a result of action or inaction by Tenant, any mechanic's,
laborer's or materialmen's lien shall at any time be filed against any part of
the Demised Premises, Tenant shall cause the same to be discharged of record
within thirty (30) days after the notice of the filing thereof by payment,
deposit, bond, order of a court of competent jurisdiction or otherwise.
16.03 All materialmen, contractors, artisans, mechanics, laborers and
any other persons who now or hereafter have contracted with Tenant for the
furnishing of any labor, services, materials, supplies or equipment with respect
to any portion of the Demised Premises at any time from the date hereof until
the end of the term of this Lease, are hereby charged with notice that they must
look exclusively to Tenant to obtain payment for the same.
ARTICLE 17
LANDLORD'S ACCESS TO DEMISED PREMISES
17.01 Landlord and its duly authorized representatives shall have the
right to enter the Demised Premises at reasonable times after business hours
(unless an emergency requires Landlord's access during business hours), upon
giving to Tenant reasonable prior written notice under the circumstances, for
the purpose of:
(i) inspecting the conditions of same, and making such repairs,
alterations, additions, or improvements thereto as may be necessary by
reason of Tenant's failure to make any repairs or perform any work
required of Tenant pursuant to the terms of this Lease. Nothing
contained herein shall imply any duty of Landlord to make any such
inspections, repairs, alterations, additions, or improvements unless
expressly otherwise provided in this Lease;
(ii) exhibiting the same (but only between the hours of 11:00
a.m. and 3:00 p.m.) to persons who may wish to purchase or mortgage the
same; and
(iii) during the one (1) year period preceding the Expiration
Date (as the same may be extended by properly exercised Renewal
Option(s)), exhibiting the same to persons who may wish to lease the
same and placing a notice of reasonable size on the Demised Premises
offering the same or any part thereof for rent.
ARTICLE 18
ASSIGNMENT, SUBLETTING AND CONTROL
18.01 If this Lease be assigned, or if the Demised Premises, or any part
thereof, be sublet or occupied by anybody other than Tenant, Landlord may, upon
the occurrence and during the continuance of an Event of Default on the part of
Tenant hereunder, collect rent from the assignee, subtenants or occupants of
Tenant, and apply the net amount collected in reduction of the rent reserved
herein, but no such assignment, subletting, occupancy or collection shall be
deemed a waiver of the requirements and restrictions hereafter set forth
regarding the subletting of the Demised Premises or the assignment of this
Lease, or the acceptance of the assignee, subtenant or occupants of Tenant, or a
release of Tenant from the further performance by Tenant of its obligations
under the provisions of this Lease.
18.02 With respect to any subletting or assignment of all or any portion
of Tenant's interest under this Lease and the leasehold estate created hereby,
the following matters, to the extent hereinafter set forth, shall be complied
with:
<PAGE> 25
(i) Any assignee shall assume, by written, recordable
instrument, the due performance of all Tenant's prospective obligations
under this Lease; provided, however, that Tenant shall not thereby be
released from liability hereunder. In connection with such assumption,
Landlord shall be required to deliver to such assignee a landlord's
estoppel certificate addressed to such party and otherwise in compliance
with the requirements of Article 23 hereof. If Landlord fails to deliver
such certificate within thirty (30) days after Tenant's (or such
assignee's) request therefor, then the same shall be deemed given and to
constitute a certification to the extent and in the manner so provided
by Article 23 hereof.
(ii) Such assignment and/or subletting shall be subject to all
the provisions, terms covenants and conditions of this Lease.
(iii) Each sublease under the provisions of this Article 18
shall provide that (a) such sublease is subject and subordinate to all
of the terms, covenants and conditions of this Lease and to all of the
rights of Landlord hereunder and shall not extend beyond the Expiration
Date of the term of this Lease and (b) in the event this Lease shall
terminate before the expiration of such sublease, the subtenant
thereunder will (but only if and to the extent that Landlord agrees not
to disturb the tenancy of such subtenant so long as such subtenant is
not in default beyond any applicable grace period with respect to the
performance of its obligations under the provisions of such sublease),
at Landlord's option, attorn to Landlord and waive any rights the
subtenant may have to terminate the sublease or to surrender possession
thereunder, as a result of the termination of this Lease.
18.03 Tenant may mortgage its leasehold interest under this Lease,
provided that same is subject and subordinate to the interest of Landlord and
the present or any future Fee Mortgagee in the Demised Premises and that same
does not violate the provisions of any loan documents supplied to Tenant
evidencing or securing such Fee Mortgage(s) of Landlord's interest in and to the
Demised Premises. Tenant agrees to execute, in recordable form, such instruments
as may be reasonably required from time to time in order to confirm such
subordination. Landlord expressly undertakes to furnish to Tenant, upon request,
copies of any Fee Mortgage affecting the Demised Premises as well as any and all
supportive documentation pertaining thereto.
18.04 The interest of Tenant hereunder may be assigned or sublet in its
entirety, or all or substantially all of the outstanding capital stock of Tenant
sold, without Landlord's prior consent, to an assignee, subtenant or purchaser,
if such person or entity will have a net worth immediately after such sale in an
amount that is equal to or greater than the lesser of the net worth of Tenant as
of (a) the date immediately preceding such transaction or (b) the date hereof.
Notwithstanding the foregoing, Tenant shall expressly have the right to effect
an assignment of its entire interest under this Lease to the then current
management of the business conducted at the Demised Premises without Landlord's
consent or complying with any requirement imposed by this Section 18.04.
Tenant shall expressly have the right, without obtaining Landlord's
consent or complying with any requirement imposed by this Section 18.04, to
cause the management of the business conducted at the Demised Premises to be
carried out under a management agreement arrangement, whereby Tenant may enter
into a management agreement with an Affiliate, (as hereinafter defined) of
itself for the management of the Demised Premises. Such Management Agreement may
provide, among other matters, for the payment of such management fees as Tenant
shall deem appropriate for the performance of management services. In connection
with the foregoing, Tenant shall expressly have the right, without obtaining
Landlord's consent or complying with any requirement imposed by this Section
18.04, to assign this Lease to a corporation substantially all of the capital
stock of which is owned by the members of the health club facility conducted at
the Demised Premises (and/or Tenant or an Affiliate of Tenant).
18.05 With Landlord's prior written consent, which consent may not be
unreasonably withheld, Tenant may assign all of its interest in the Lease, or
sublet all or any portion of the Demised Premises to any person or entity that
does not satisfy the requirements of Section 18.04 hereof. In addition, Landlord
hereby agrees to indemnify and hold harmless Tenant from and against any and all
liability, loss, cost, injury, damage or other expense whatsoever that
<PAGE> 26
Tenant may incur as a result of Landlord's failure to give its consent
hereunder, in the event that it is finally determined by a court of competent
jurisdiction that Landlord's failure to give any such consent was unreasonable.
18.06 Notwithstanding the provisions of the preceding Section 18.05,
Tenant may, without Landlord's prior written consent:
(a) assign all or sublet any portion of its interest in and to
this Lease and the Demised Premises to an Affiliate of itself;
(b) sublet any portion of the Demised Premises to any party for
the purpose of continuing to use the sublet portion for the same purpose
as such portion of the Demised Premises so sublet was used prior to such
subletting (e.g., as a restaurant/night club with respect to the space
currently occupied by Larama, as a garage with respect to the space
currently occupied by L.P., or as a restaurant with respect to the third
floor restaurant space);
(c) sublet any portion of the Demised Premises to any person or
entity for any use or operation that is related to the primary current
use of the Demised Premises (e.g., as a sports clothing and/or sports
equipment boutique, massage or physical therapy service, or aerobic
dance center);
(d) the aggregate of space within the Demised Premises to be
further sublet from and after the date hereof pursuant to subparagraphs
(b) and (c) above shall be limited to not more than thirty (30%) percent
of the Demised Premises; provided, however, that the Additional Space
presently covered by each of the Existing Leases shall be excluded for
all purposes from any and all calculations made pursuant to this Section
18.06(d) in connection with the determination of such limitation.
For purposes of this Article 18, the term "Affiliate" shall mean, with
respect to a specific entity, any natural person, or any firm, corporation,
partnership, association, trust or other entity which, directly or indirectly,
controls, or is under common control with such entity. For purposes hereof, the
term "control" shall mean the possession, directly or indirectly (and, in the
case of a corporation, of at least fifty-one (51%) percent of all classes of
voting stock of the corporation in question) of the power to direct or cause the
direction of the management and policies of any such entity, whether through the
ownership of voting securities, by contract, or otherwise.
ARTICLE 19
DEFAULT
19.01 The occurrence and continuance of any one or more of the following
events shall be deemed to constitute an "Event of Default" hereunder:
(i) Tenant shall default with respect to the payment of any Rent
payable under this Lease or any other sum when and as the same shall
become due and payable, and such default shall continue for a period of
ten (10) days after Tenant's deemed receipt of written notice from
Landlord specifying such default, which notice shall be delivered in
accordance with Section 29.01 hereof;
(ii) Tenant shall default with respect to the performance or
compliance with any of the agreements, terms, covenants or conditions on
the part of Tenant to be performed under the provisions of this Lease
(other than those referred to in the foregoing subsection 19.01(i)
hereof) for a period of thirty (30) days after Tenant's deemed receipt
of notice from Landlord specifying the items in default, which notice
shall be delivered in accordance with Section 29.01 hereof, or in the
case of any such default or condition which is susceptible of being
cured but which cannot with due diligence be cured within said thirty
(30) day period, if Tenant fails to proceed within said thirty (30) day
period to commence to cure the same and thereafter to prosecute the
curing of such default with due diligence (provided, however, that the
time period within which Tenant may cure a default susceptible of being
cured but which cannot with due diligence be cured within said thirty
(30) day period shall be extended for such period as may be necessary to
complete the same with all due diligence);
<PAGE> 27
(iii) if Tenant shall commence or institute any case, proceeding
or other action (x) seeking relief on its behalf as debtor, or to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts under any
existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
or (y) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its
property, or if Tenant shall make a general assignment for the benefit
of creditors;
(iv) if any case, proceeding or other action shall be commenced
or instituted against Tenant (x) seeking to have an order for relief
entered against it as debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with
respect to it or its debts under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (y) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all
or any substantial part of its property, which either (1) results in any
such entry of an order for relief, adjudication of bankruptcy or
insolvency or such an appointment or the issuance or entry of any other
order having a similar effect or (2) remains undismissed for a period of
one hundred twenty (120) days, or if any case, proceeding or other
action shall be commenced or instituted against Tenant seeking issuance
of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its property which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within one hundred twenty
(120) days from the entry thereof;
(v) if Tenant shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in subsections (iii) or (iv) above;
(vi) if a trustee, receiver or other custodian is appointed for
any substantial part of the assets of Tenant which appointment is not
vacated or effectively stayed within thirty (30) business days; or
(vii) if the Demised Premises shall be abandoned by Tenant or
shall become vacant during the term of this Lease.
Upon the occurrence and during the continuance of an Event of Default on
the part of Tenant, Landlord shall have the right to deliver to Tenant, in
accordance with Section 29.01 hereof, a final notice specifying the date and
time on which the Lease will be effectively terminated, which date shall not be
less than ten (10) days from the date on which Tenant shall be deemed to have
received such notice pursuant to Section 29.01 hereof, and on the date specified
in such notice this Lease shall expire with the same force and effect as though
the date so specified were the date herein originally fixed as the Expiration
Date, and all rights of Tenant under this Lease shall expire but Tenant shall
remain liable as hereafter provided.
19.02 Upon any expiration or termination of this Lease pursuant to the
provisions of Section 19.01 hereof, Tenant shall quit and peacefully surrender
the Demised Premises to Landlord and Landlord, upon, or at any time after any
such expiration or termination, may, without further notice, enter upon and
re-enter the Demised Premises and possess and repossess itself thereof, by
force, summary proceedings, ejectment or otherwise, and may dispossess Tenant
and remove Tenant and all other persons and property from the Demised Premises
and may have, hold and enjoy the Demised Premises and the right to receive all
rental income of and from the same.
Promptly after any such expiration or termination, Landlord shall be
required to use reasonable efforts in order to relet the Demised Premises, or
any part thereof, in the name of Landlord or otherwise, for such term or terms
(which may be greater or less than the period which would otherwise have
constituted the balance of the term of this Lease) and on such conditions
(which, may include concessions or free rent) as Landlord, in the exercise of
its commercially reasonable business judgment, may determine and may collect and
receive the rents therefor, which
<PAGE> 28
sums shall be applied in the discharge of any surviving monetary obligations of
Tenant to Landlord hereunder. The provisions of this paragraph shall survive any
such expiration or termination of this Lease.
No such expiration or termination of this Lease shall relieve Tenant of
Tenant's liability and obligations under this Lease, and such liability and
obligations shall survive any such expiration or termination. In the event of
any such expiration or termination, Tenant shall pay to Landlord the Rent and
all other charges required to be paid by Tenant up to the time of such
expiration or termination of this Lease. Thereafter, and until the end of what
would have been the term of this Lease in the absence of such expiration or
termination (but only if and to the extent that Landlord continues to comply
with and perform its obligations under the provisions of the immediately
preceding paragraph), Tenant shall be liable to Landlord for and shall pay to
Landlord as and for liquidated damages for Tenant's default, the equivalent of
the amount of the Rent and other charges which would be payable under this Lease
by Tenant if this Lease were still in effect, less the net proceeds of any
re-letting effected pursuant to the provisions of this subsection 19.02, after
deducting all of Landlord's reasonable expenses in connection with such
re-letting, including, without limitation, all reasonable repossession costs,
brokerage and management commissions, operating expenses, legal expenses,
reasonable attorneys' fees, alteration costs, and expenses of preparation for
such re-letting. In no event shall Tenant be entitled to receive any proceeds of
reletting if such proceeds exceed the amount owed by Tenant to Landlord
hereunder.
Tenant shall pay such liquidated damages (herein called "deficiency") to
Landlord monthly on the days on which the Fixed Rent and additional rent would
have been payable under this Lease if this Lease were still in effect and
Landlord shall be entitled to recover from Tenant each monthly deficiency as the
same shall arise.
19.03 No failure by Landlord or Tenant to insist upon the strict
performance by the other respective party of any covenant, agreement, term or
condition of this Lease or to exercise any right or remedy consequent upon a
breach thereof, and no acceptance of full or partial rent by Landlord during the
continuance of any such breach on the part of Tenant, shall constitute a waiver
of any such breach or of such covenant, agreement, term or condition. No
covenant, agreement, term or condition of this Lease to be performed or complied
with by either party and no breach thereof, shall be waived, altered or modified
except by a written instrument executed by the other party. No waiver of any
breach shall affect or alter this Lease but each and every covenant, agreement,
term and condition of this Lease shall contin- ue in full force and effect with
respect to any other then existing or subsequent breach thereof.
19.04 Tenant hereby expressly waives, to the extent permitted by law,
the service of any notice of intention to re-enter or notice to quit provided
for in any statute (other than notices expressly provided for herein), or of the
institution of legal proceedings to that end, and Tenant, for and on behalf of
itself and all persons claiming through or under Tenant, also waives any and all
right of redemption or re-entry or repossession or to restore the operation of
this Lease in case Tenant shall be dispossessed by a judgment or by warranty of
any court or judge or in the case of re-entry or repossession by Landlord or in
the case of any expiration or termination of this Lease.
19.05 It is expressly agreed that the failure of Tenant to take any
action in order to effect the cure of any Existing Conditions shall not be
considered a default by Tenant with respect to the performance of its
obligations hereunder and shall in no event whatsoever constitute the basis for
the occurrence of an Event of Default on the part of Tenant hereunder.
ARTICLE 20
QUIET ENJOYMENT
Landlord hereby represents and warrants to Tenant that it has full
right, power and authority to enter into this Lease for the term herein granted
and Landlord covenants and agrees with Tenant that upon Tenant's paying the Rent
and other charges due hereunder, and observing and performing all the terms,
covenants and conditions on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the Demised Premises, free from any
interference, molestation or acts of Landlord or any corporate or other entity
that controls, is controlled by
<PAGE> 29
or is under common control with Landlord or of anyone claiming by, through or
under Landlord or any party affiliated with Landlord, subject, nevertheless, to
the terms and conditions of this Lease.
ARTICLE 21
SUBORDINATION
21.01 This Lease is subject and subordinate only to a first priority fee
mortgage (the "Fee Mortgage") affecting Landlord's interest in the Demised
Premises being currently held by Citibank, N.A. (the "Fee Mortgagee"). Landlord
will use reasonable efforts to deliver to Tenant, simultaneously with the
execution and delivery hereof, an amended non-disturbance agreement in the form
annexed hereto as Exhibit H, duly executed and acknowledged by the Fee
Mortgagee, with respect to the estate of Tenant under this Lease.
Notwithstanding the foregoing, Landlord hereby agrees not to take any actions
that might cause the existing non-disturbance agreement heretofore executed by
the Fee Mortgagee not to continue to remain in full force and effect in the
event that the aforesaid amended non-disturbance agreement is not obtained. This
Lease will also be subject and subordinate to all renewals, modifications,
consolidations, replacements and extensions of the Fee Mortgage; provided,
however, that any successor to the Fee Mortgagee or any other holder of a
replacement shall be required to agree, in addition to those matters referred to
in Section 12.05 hereof, in a separate instrument delivered to Tenant, either to
the provisions substantially as set forth in Exhibit H annexed hereto or as
follows:
(i) that in the event of foreclosure, the holder of such
mortgage will cause the sale of the Demised Premises in any foreclosure
action to be made subject to this Lease, provided that no Event of
Default on the part of Tenant has occurred and is then continuing;
(ii) that such mortgagee or anyone acquiring the Demised
Premises through or under such mortgagee will not disturb the possession
of Tenant during the term of this Lease or any extension hereof other
than upon the occurrence and during the continuance of an Event of
Default on the part of Tenant here under; provided, however, that if an
Event of Default on the part of Tenant has occurred and shall be
continuing at the time of such foreclosure, then upon the cure of such
Event of Default prior to the entry of an order of foreclosure under
such mortgage, the non-disturbance covenant referred to herein shall be
deemed to be reinstated in all respects and the terms and provisions of
this Lease shall continue to remain in full force and effect unless and
to the extent otherwise provided herein;
(iii) that Tenant will attorn to such mortgagee (and to any
purchaser of such mortgagee's interest in and to the Demised Premises at
a foreclosure sale); provided, however, that such mortgagee or purchaser
shall not be bound by (a) any amendment to this Lease not consented to
by such mortgagee, (b) any prepayment of Rent hereunder for a period in
excess of thirty (30) days or (c) any claims or offsets against a prior
holder of the Landlord's interest hereunder; and
(iv) such mortgage shall provide (or the holders thereof, shall
separately agree) that so long as an Event of Default on the part of
Tenant has not occurred and is continuing, the proceeds of any insur-
ance coverage with respect to the Demised Premises payable by reason of
fire or other insured casualty shall first be applied in payment of the
cost of restoring the Demised Premises after such injury or taking (in
accordance with such procedures as may be reasonably approved by such
mortgagee), before any part of such proceeds shall be applied on account
of any part of such mortgage indebtedness. The lien of any mortgage
shall not cover any trade fixtures or other personal property paid for
and installed in the Demised Premises by Tenant (or any persons claiming
under Tenant) without any contribution or reimbursement therefor by
Landlord.
21.02 The aforesaid provisions shall be self-operative and no further
instrument of subordination shall be required. In the event Landlord desires
confirmation of the provisions of this Article, Tenant shall execute, promptly
and without charge therefor, any instrument, in recordable form, that Landlord
may reasonably request in order to confirm the foregoing matters. However, if
Tenant shall fail to execute any such instrument, in recordable form, within
twenty (20) days after Tenant's deemed receipt (in the manner provided by Sec-
tion 29.01 hereof) of
<PAGE> 30
Landlord's notice of request therefor, such inaction shall thereupon constitute
the immediate authorization and appointment by Tenant of Landlord to act as
Tenant's true and lawful attorney-in-fact, coupled with an interest, with full
power and authority in Tenant's name, place and stead to make, execute, sign,
acknowledge, and swear, deliver, file and record at the appropriate governmental
or other offices or with any appropriate parties, an instrument, in recordable
form, setting forth the foregoing matters. In connection therewith, Landlord
shall indemnify and hold harmless Tenant from and against any and all loss,
claim, damage, cost or expense, including, without limitation, reasonable
attorneys' fees and disbursements, that Tenant may incur as a result of any
provision specifically set forth in such subordination (and with respect to
which Tenant would not otherwise incur liability under this Lease).
21.03 Notwithstanding the foregoing, should the Fee Mortgagee or any
substitute or successor holder of a fee mortgage covering Landlord's interest in
the Demised Premises require that this Lease be prior rather than subordinate to
the Fee Mortgage or any other applicable mortgage, Tenant shall promptly upon
request therefor by Landlord or such mortgagee, and without charge therefor,
execute a document effecting and/or acknowledging such priority.
ARTICLE 22
BROKERAGE
Landlord and Tenant each represents and warrants to the other that it
has dealt with no brokers with respect to entering into this Lease and that
neither party nor its respective representatives has done any acts, had any
negotiations or conversations, or made any agreements or promises which will in
any way create or give rise to any obligation or liability for the payment of
any fee, charge, commission or other compensation to any broker or finder with
respect to this Lease. Landlord and Tenant each agrees to forever indemnify,
defend and save harmless the other of, from and against any and all claims or
suits for compensation, commission and/or otherwise which may be asserted or
made by any broker, person or entity for bringing about this Lease as a result
of any dealings by each respective party or its representatives with such other
broker, person or entity, including, without limitation, all costs, losses,
liabilities, damages and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) related thereto.
ARTICLE 23
LEASE STATUS; LANDLORD'S AND TENANT'S CERTIFICATES
Landlord and Tenant shall, each without charge at any time and from time
to time during the term of this Lease, within fifteen (15) days after receipt of
a request from the other party, certify by written instrument, duly executed,
acknowledged and delivered to the other party hereto or to any other party
specified by Landlord or Tenant, as the case may be:
(i) That this Lease is unmodified, that the same is in full
force and effect if such then be the case (or, if there has been
modification, that the same is in full force and effect, if such then be
the case, as modified and stating the modifications) and certifying that
this Lease is a true and exact copy of the Lease between the parties
hereto;
(ii) To the best of its knowledge, whether or not there are then
existing any breaches or defaults by the other party under any of the
terms of this Lease and specifying such breach or default or any setoffs
or defenses against the enforcement of any of the agreements, terms,
covenants or conditions of this Lease upon the part of the Landlord or
Tenant, as the case may be, to be performed or complied with (and, if
so, specifying the same and the steps being taken to remedy the same);
and
(iii) The dates, if any to which the rental(s) and other charges
under this Lease have been paid in advance.
If Landlord or Tenant shall at any time fail to deliver to the other any
such certification within the aforesaid time period, such failure shall be
deemed to constitute an affirmation that this Lease is unmodified, in full force
and effect
<PAGE> 31
without default on the part of Landlord or Tenant and that each of the matters
referred to in the aforesaid items (i), (ii), and (iii) shall in all respects be
true and correct without restriction or exception.
ARTICLE 24
HOLDOVER
After the expiration of the term of this Lease if not extended, or
extended term, if extended, if Tenant shall continue in possession thereafter
and Landlord shall accept the payment of Rent hereunder, such possession shall
be on a month-to-month basis upon the same terms of this Lease until terminated
at the end of a month by either party upon thirty (30) days advance written
notice to the other party.
ARTICLE 25
RENEWAL OPTIONS
25.01 Tenant shall have the option (the "First Renewal Option") to
extend the term of this Lease for an additional period ("First Renewal Term") of
ten (10) years commencing on the day immediately succeeding the Expiration Date,
and terminating on the tenth anniversary of the Expiration Date. The First
Renewal option must be exercised by written notice ("First Renewal Notice") sent
by Tenant to Landlord by certified or registered mail, return receipt requested,
not later than eighteen (18) months prior to the Expiration Date. Any
termination, cancellation or surrender of Tenant's interest in this Lease during
the original term hereof shall terminate Tenant's right to exercise the First
Renewal Option. Tenant's right to exercise the First Renewal Option shall not
apply upon the occurrence and/or during the continuance of an Event of Default
on the part of Tenant hereunder. Upon delivery of the First Renewal Notice by
Tenant in accordance with the terms hereof, this Lease shall thereupon be deemed
renewed for the First Renewal Term with the same force and effect as if the
First Renewal Term had originally been included in the term of this Lease, and
this Lease, as extended, shall be upon the same terms, covenants and conditions
as are contained herein, except that (i) the amount of Fixed Rent payable during
the First Renewal Term (with respect to the entire Demised Premises, inclusive
of the Additional Space) shall be equal to the higher of (a) the amount
determined by mutual agreement of the parties hereto at least four (4) months
prior to the commencement of the First Renewal Term or by appraisal as
hereinafter provided and (b) the amount of Fixed Rent (inclusive of rent payable
for all Additional Space) payable during the last year of the original term of
this Lease (the "Prior Fixed Rent"), and shall be payable as provided below and
(ii) the number of renewal terms shall be reduced from two (2) to one (1), which
remaining renewal term is described and defined below as the "Second Renewal
Term". In addition, any default or Event of Default that has occurred and that
shall be continuing as of the expiration of the original term of this Lease
shall continue to constitute a default or Event of Default upon the commencement
of the First Renewal Term.
If the parties hereto fail to agree upon the amount of Fixed Rent
payable during the First Renewal Term (with respect to the entire Demised
Premises, inclusive of the Additional Space) at least four (4) months prior to
the expiration of the original term of this Lease, the Fixed Rent shall be the
amount determined by appraisal in accordance with the provisions of Section
25.04 hereof to be the fair market rental value of the Demised Premises
(inclusive of the Additional Space), such fair market rental value to be
determined on the basis of (a) the use being made of the Demised Premises at the
date hereof or (b) the use being made of the Demised Premises immediately prior
to the expiration of the original term of this Lease, whichever yields the
higher value, and considering the terms and conditions of this Lease; provided,
however, that in no event shall the Fixed Rent during the First Renewal Term be
less than the Prior Fixed Rent.
The amount of Rent payable during the First Renewal Term shall
thereafter be increased after the expiration of five (5) lease years from and
after the date of the commencement of the First Renewal Term, by the CPI
Adjustment; provided, however, that for purposes of making such calculation the
Base Year shall be deemed to be the last lease year of the original term and
such adjustment shall be made with reference to the then expiring lease year
(which new Rent shall be payable on an annual basis for the remaining five (5)
lease year period until
<PAGE> 32
expiration of the First Renewal Term). In no event shall the Fixed Rent be
reduced pursuant to the provisions of this paragraph.
Upon Tenant's exercise of its option to extend the term of this Lease
for the First Renewal Term, Landlord and Tenant, upon demand by either party,
shall execute and deliver an instrument in recordable form, setting forth the
new expiration date of the term of this Lease.
25.02 If the term of this Lease shall have been duly extended for the
First Renewal Term, Tenant shall have the option (the "Second Renewal Option")
to extend the term of this Lease for an additional period ("Second Renewal Term"
and, together with the First Renewal Term, being hereinafter sometimes
collectively referred to as the "Renewal Terms") of ten (10) years commencing on
the day immediately succeeding the Expiration Date of the First Renewal Term,
and terminating on the tenth anniversary of the Expiration Date of the First
Renewal Term. The Second Renewal Option must be exercised by written notice
("Second Renewal Notice") delivered by Tenant to Landlord by certified or
registered mail, return receipt requested, not later than eighteen (18) months
prior to the Expiration Date of the First Renewal Term. Any termination,
cancellation or surrender of Tenant's interest in this Lease during the original
term (or First Renewal Term) hereof shall terminate Tenant's right to exercise
the Second Renewal Option. Tenant's right to exercise the Second Renewal Option
shall not apply upon the occurrence and/or during the continuance of an Event of
Default on the part of Tenant hereunder.
Upon delivery of the Second Renewal Notice by Tenant in accordance with
the terms hereof, this Lease shall thereupon be deemed renewed for the Second
Renewal Term with the same force and effect as if the Second Renewal Term had
originally been included in the term of this Lease, and this Lease, as extended,
shall be upon the same terms, covenants and conditions as are contained herein,
except that (i) the amount of Fixed Rent payable during the Second Renewal Term
(with respect to the entire Demised Premises, inclusive of the Additional Space)
shall be equal to the higher of (a) the amount determined by mutual agreement of
the parties hereto at least four (4) months prior to the commencement of the
Second Renewal Term or by appraisal as hereinafter provided and (b) the amount
of Fixed Rent payable during the last year of the First Renewal Term, and shall
be payable as provided below and (ii) there shall be no additional renewal
terms. In addition, any default or Event of Default that has occurred and that
shall be continuing as of the expiration of the First Renewal Term shall
continue to constitute a default or Event of Default upon the commencement of
the Second Renewal Term.
If the parties hereto fail to agree upon the amount of Fixed Rent
payable during the Second Renewal Term (with respect to the entire Demised
Premises, inclusive of the Additional Space) at least four (4) months prior to
the expiration of the First Renewal Term, the Fixed Rent shall be the amount
determined by appraisal in accordance with Section 25.04 of this Lease to be the
fair market rental value of the Demised Premises (inclusive of the Additional
Space), such fair market rental value to be determined on the basis of (a) the
use being made of the Demised Premises at the date hereof or (b) the use being
made of the Demised Premises immediately prior to the expiration of the First
Renewal Term, whichever yields the higher value, and based upon the terms and
conditions of this Lease; provided, however, that in no event shall the Fixed
Rent during the Second Renewal Term be less than the Fixed Rent payable during
the last year of the First Renewal Term.
The amount of Fixed Rent payable during the Second Renewal Term shall
thereafter be increased after the expiration of five (5) lease years from and
after the date of commencement of the Second Renewal Term, by the CPI
Adjustment; provided, however, that for purposes of making such calculation the
Base Year shall be deemed to be the final lease year of the First Renewal Term
and such adjustment shall be made with reference to the then expiring lease year
(which new Rent shall be payable on an annual basis for the remaining five (5)
lease year period until expiration of the Second Renewal Term). In no event
shall the Fixed Rent payable hereunder be reduced pursuant to the provisions of
this paragraph.
Upon Tenant's exercise of its option to extend the term of this Lease
for the Second Renewal Term, Landlord and Tenant, upon demand by either party,
shall execute and deliver to each other an instrument in recordable form,
setting forth the new expiration date of the term of this Lease.
<PAGE> 33
25.03 If the Fixed Rent applicable to the first lease year of either or
both of the Renewal Terms shall not have been determined at or prior to the
respective commencement dates thereof, then until such determination is made
Tenant shall continue to pay the Fixed Rent (inclusive of the rent for the
Additional Space) payable by Tenant immediately prior to commencement of such
Renewal Term. Upon a determination by the appraisers of the Fixed Rent
applicable to the Renewal Term in question, Tenant shall forthwith pay to
Landlord any deficit represented by the difference between the monthly
installments of Fixed Rent actually paid for such Renewal Term and the monthly
installments of Fixed Rent as so determined for the same period by the
appraisers with respect to such Renewal Term (or, if higher, the Fixed Rent,
inclusive of Rent payable for the Additional Space, during the last year of the
preceding term).
25.04 Either Landlord or Tenant may submit any question required by the
provisions hereof to be presented to binding appraisal by written notice to that
effect to the other party and shall in such notice appoint a disinterested
person of at least ten (10) years experience as a real estate appraiser, who
shall be a member of a recognized society of appraisers and shall have had
experience in appraising major commercial properties located in the City of New
York, as appraiser on its behalf. Within thirty (30) days thereafter, the other
party shall by written notice to the first party appoint a second disinterested
person possessing like qualifications as appraiser on its behalf. The two (2)
appraisers thus appointed shall then appoint a third disinterested appraiser
possessing the aforesaid qualifications. Each of the three (3) appraisers thus
appointed shall, within thirty (30) days after the appointment of the third
appraiser, submit to Landlord and Tenant a written appraisal setting forth such
appraiser's determination with respect to the question presented, provided that:
(i) if the second appraiser shall not have been appointed as
aforesaid, the first appraiser shall alone proceed to determine such
matter, and such sole appraiser shall then submit to Landlord and Tenant
a written appraisal setting forth such appraiser's determination with
respect to the question presented within thirty (30) days after the
thirty (30) day period for the appointment of the second appraiser shall
have lapsed; and
(ii) if the two (2) appraisers appointed by the parties shall be
unable to agree, within fifteen (15) days after the appointment of the
second appraiser, on the appointment of a third appraiser, they or
either of them shall give written notice of such failure to agree to
Landlord and Tenant, and, if Landlord and Tenant fail to agree upon the
selection of such third appraiser within fifteen (15) days after the
appraisers appointed by Landlord and Tenant give such notice, then
either of Landlord and Tenant, upon written notice to the other of them,
may request such appointment by the American Arbitration Association in
New York, New York (or any successor thereto), or on its failure,
refusal or inability to act, may apply for such appointment to the then
President of the Association of the Bar of the City of New York.
The final determination of the question presented shall be equal to the
numerical average of the two (2) appraised determinations which are the closest;
provided, however, that if the average of the three (3) appraised determinations
shall result in an amount which is the same as the appraised determination that
is the median of the three (3), the final determination of the question
presented shall in such case be equal to such median appraised determination;
and provided further, however, that if the second party shall not have chosen an
appraiser, the final determination of the question presented shall be equal to
the determination of the sole appraiser. The determination made as above
provided shall be conclusive upon the parties and judgment upon the same may be
entered in any court having jurisdiction thereof. Each party shall pay the fees
and expenses of the appraiser appointed by such party and one-half (1/2) of the
fees and expenses of the third appraiser and the other fees and expenses of the
appraisal properly incurred hereunder. Tenant further agrees to provide all
information, documents or data reasonably requested by any appraiser appointed
hereunder.
25.05 Notwithstanding the foregoing, at any time during the term of this
Lease but, if Tenant shall have exercised the First Renewal Option, not less
than twenty-four (24) months prior to the expiration of the First Renewal Term,
Landlord shall have the right by giving notice (the "Cancellation Notice") to
Tenant to cancel this Lease (such cancellation in no event to be effective prior
to expiration of the First Renewal Term) for the express
<PAGE> 34
limited purpose of tearing down, razing, substantially rehabilitating or
demolishing the Building and rebuilding on the site of the Building, or
integrating same with a new structure to be built on the 328 Site following the
demolition or substantial rehabilitation of the structure presently situated
thereon. The preceding provisions of this Section 25.05 shall, in all events, be
subject to Tenant's right to continue to occupy the Demised Premises throughout
the original term of this Lease and throughout the First Renewal Term in the
event that Tenant duly exercises the First Renewal Option.
This Lease and the term hereof shall cancel and terminate on the date
set forth in the Cancellation Notice as if such date was the Expiration Date of
this Lease; provided, however, that Tenant, if it shall have exercised the First
Renewal Option, may continue to remain in possession of the Demised Premises
until the later of (a) the expiration of the First Renewal Term or (b) the date
set forth for the termination of this Lease in the Cancellation Notice.
25.06 In the event that Landlord determines, subsequent to the serving
upon Tenant of the Cancellation Notice that Landlord no longer intends to raze,
tear down, demolish or substantially rehabilitate the Building in order to
rebuild on the site of the Building or integrate same with a new structure,
Landlord may withdraw such Cancellation Notice by notice delivered to Tenant in
accordance with the provisions of Section 29.01 hereof; provided, however, that
if Tenant shall have exercised the First Renewal Option and the Cancellation
Notice is withdrawn by Landlord during the last five (5) years of the First
Renewal Term, Tenant shall then have the right, at its option, to either
exercise the Second Renewal Option as provided in Section 25.02 (or, if fewer
than 18 months shall remain in the First Renewal Term, to exercise such option
within 60 days after Landlord's withdrawal of the Cancellation Notice), and
continue to remain in possession under this Lease or terminate this Lease on the
date fixed in the Cancellation Notice. If Tenant elects so to terminate this
Lease, then Tenant shall have no further liability under this Lease upon the
effective date of the termination hereof and Landlord shall indemnify and save
Tenant harmless from and against any and all liability, loss, cost, injury,
damage or other out-of-pocket expense of any nature whatsoever that Tenant may
incur or become subject to as a result of its receipt of the Cancellation
Notice, whether or not Tenant determines to surrender the Demised Premises and
terminate this Lease as a result thereof; such indemnification shall also apply
to any and all out-of-pocket costs and expenses incurred by Tenant with respect
to relocating the conduct of its business to another location in the event that
Landlord elects, after delivery to Tenant of the Cancellation Notice, not to
raze, tear down, demolish or substantially rehabilitate the Building and Tenant
nevertheless elects to terminate the Lease and surrender the Demised Premises to
Landlord as above provided.
25.07 Promptly following the termination of this Lease pursuant to the
provisions of Section 25.06, but only if Tenant shall have exercised the First
Renewal Option, Landlord must demolish or so alter the character and function of
the Demised Premises such that the same may not, except as hereinafter provided,
thereafter be utilized as a health club, unless the Cancellation Notice is
withdrawn by Landlord at least one (1) year prior to the termination date of the
Lease set forth in such Cancellation Notice and Tenant nevertheless elects to
terminate this Lease in accordance with the terms of the Cancellation Notice as
originally given to Tenant. In the event that Landlord does reopen or use the
Demised Premises as a health club or related facility (other than a health club
facility for use primarily by the residential tenants of such structure and
their guests) within twenty-four (24) months after the termination of this Lease
under the provisions of Section 25.06, Landlord shall be liable to Tenant, if
Tenant shall have exercised the First Renewal Option, for an amount equal to the
rental value of a health club facility that is substantially identical to the
Demised Premises, assuming that the lease covering such facility would have had
a remaining term of at least ten (10) years at the time of determining such
rental value. Such rental value shall be determined by appraisal in accordance
with the procedures provided by Section 25.04 hereof. The provisions of this
Section 25.07 shall survive the expiration or sooner termination or cancellation
of this Lease.
ARTICLE 26
SURRENDER OF PREMISES
At the expiration or sooner termination of the term of this Lease,
Tenant shall surrender the Demised Premises in the same condition as the same
were in upon delivery of possession thereto under this Lease, reasonable wear
and tear and damage by fire, other casualty and the elements excepted, and shall
surrender all keys for the Demised
<PAGE> 35
Premises to Landlord at the place then fixed for the payment of rent and shall
inform Landlord of all combinations on locks, safes and vaults, if any, in the
Demised Premises. Tenant shall at such time surrender all unutilized insurance
proceeds and claims therefor, and shall assign to Landlord its right to receive
any future insurance proceeds with respect to the Demised Premises. Tenant shall
remove all Tenant's Property in accordance with the provisions of Article 14
hereof, and any and all of such property not so removed shall, at Landlord's
option, become the exclusive property of Landlord or may be disposed of by
Landlord.
ARTICLE 27
SIGNS
Tenant may, during the term of this Lease, upon obtaining any and all
necessary permits from the appropriate governmental authorities, paint or erect
and maintain, at its cost and expense, signs of such dimensions and materials
relating to Tenant's business as it may deem appropriate in or about the Demised
Premises. Such signs shall, at the option of Landlord, be removed by Tenant upon
the termination of its occupancy of the Demised Premises, and Tenant shall be
liable for and shall repair any damage to the Demised Premises caused by such
removal.
ARTICLE 28
WAIVER OF TRIAL BY JURY
Landlord and Tenant each hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other upon any matters
whatsoever arising from or in connection with this Lease, Tenant's use or
occupancy of the Demised Premises, except in the case of claims of injury or
damage.
ARTICLE 29
MISCELLANEOUS PROVISIONS
29.01 Notices. All notices, demands and requests under this Lease shall
be in writing and shall be sent by United States registered or certified mail,
postage prepaid, return receipt requested, or by reputable overnight courier
service, and addressed as follows:
To Tenant: Vertical Fitness and
Racquet Club, Ltd.
c/o Health and Tennis Corporation
of America, Inc.
Suite 2810
2029 Century Park East
Los Angeles, California 90067
Attention: Mr. Tom White
with copies to: Miller & Seeger
60 East 42nd Street
New York, New York 10165
Attention: Israel G. Seeger, Esq.
Lurie, Sklar & Simon, Ltd.
180 North Michigan Avenue
Chicago, Illinois 60601
Attention: Michael L. Sklar, Esq.
Skadden, Arps; Slate, Meagher & Flom
919 Third Avenue
<PAGE> 36
New York, New York 10022
Attention: Benjamin F. Needell, Esq.
To Landlord: Hirschfeld Realty Club Corporation
336 East 61st Street
New York, New York 10021
Attention: Mr. Abraham J. Hirschfeld
-and-
328 E. 61 Corp.
336 East 61st Street
New York, New York 10021
Attention: Mr. Abraham J. Hirschfeld
with a copy to: Hirschfeld Realty
336 East 61st Street
New York, New York 10021
Attention: Mr. Elie Hirschfeld
Notice, demands and requests delivered by Tenant to either 328 or Hirschfeld (at
the addresses provided herein or such other addresses designated by such parties
pursuant to the provisions hereof), shall be deemed to have been served or given
to Landlord for all purposes under this Lease. Either party may, by notice given
to the other party, designate a new address to which notices, demands and
requests shall be sent and, thereafter, any of the foregoing shall be sent to
the address most recently designated by such party. Notices, demands and
requests which shall be served upon Landlord or Tenant (a) if sent by registered
or certified mail in the manner as aforesaid, shall be deemed to have been
served or given for all purposes under this Lease three (3) business days after
such notice, demand or request shall be sent in the manner provided herein or
(b) if sent by reputable overnight courier, shall be deemed to have been served
or given for all purposes under this Lease on the date of actual delivery or
rejection of such a properly addressed notice, demand or request.
29.02 Consents. Any consent or approval required of either of the
parties hereto under the terms of this Lease shall be deemed given if not
objected to within thirty (30) days of the delivery of the notice requesting
such consent or approval.
29.03 Entire Agreement. This Lease and the Exhibits attached hereto sets
forth the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior understandings, discussions,
negotiations and representations, if any, with respect thereto. No subsequent
amendment to this Lease shall be binding upon Landlord or Tenant unless reduced
to writing and signed by Landlord and Tenant.
29.04 Binding Effect; Successors and Assigns. Subject to the terms and
conditions of this Lease, the covenants, conditions and agreements contained in
this Lease shall be binding upon and inure to the benefit of Landlord and Tenant
and their respective legal representatives, successors and permitted assigns.
29.05 Invalidity of Particular Provisions. If any term or provision of
this Lease or the application thereof to any persons or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of this Lease or the
application of such term or provision to other persons or circumstances shall
not be affected thereby, and each term and provision of this Lease shall be
valid and be enforced to the fullest extent permitted by law.
29.06 Captions. Captions or titles of the sections, paragraphs and
subparagraphs of this Lease are inserted solely for convenience of reference and
shall not constitute a part of this Lease, nor shall they affect its meaning,
construction or effect.
<PAGE> 37
29.07 Non-Merger. The leasehold estate created by this Lease shall not
merge with the fee estate in the event that the same person or entity acquires,
owns or holds, directly or indirectly, the fee estate and the leasehold estate
in the Demised Premises.
29.08 Interpretation of Words. A masculine pronoun wherever used herein
shall be construed to include the feminine or neuter where appropriate. The
singular form wherever used herein shall be construed to include the plural
where appropriate and vice versa.
29.09 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
29.10 Further Documents. Each of the parties hereto agrees to execute,
acknowledge and deliver or cause to be delivered such other deeds, documents,
affidavits and certificates as the other party may from time to time reasonably
request in order to confirm this Agreement and the performance of the
obligations of such party under the terms hereof or to confirm the expiration or
sooner termination of the term of this Lease, in such form as shall be
reasonably satisfactory to the other respective party.
29.11 Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
29.12 Relationship of the Parties. It is the intention of the parties
hereto to create the relationship of Landlord and Tenant, and unless expressly
otherwise provided herein, nothing contained herein shall be construed to make
the parties hereto liable for any of the debts, liabilities or obligations of
the other party.
29.13 Ownership of Leased Premises. Tenant acknowledges that the Demised
Premises are the property of Landlord and that Tenant has only the right to the
possession and use thereof upon the terms, covenants and conditions set forth in
this Lease. Landlord represents claims and liabilities arising out of or
resulting from ownership of the Demised Premises subsequent to the effective
date of such sale or transfer.
IN WITNESS WEEREOF, the parties hereto have duly executed this Lease as
of the day and year first above written.
ATTEST: HIRSCHFELD REALTY CLUB
CORPORATION LANDLORD
/s/ ELIE HIRSCHFELD BY: /s/ ABRAHAM HIRSCHFELD
- ---------------------------------- ---------------------------------
(Assistant) Secretary (Vice) President
ATTEST: 328 E. 61 CORP. LANDLORD
/s/ ELIE HIRSCHFELD BY: /s/ ABRAHAM HIRSCHFELD
- ---------------------------------- ---------------------------------
(Assistant) Secretary (Vice) President
VERTICAL FITNESS AND RACQUET
CLUB, LTD., TENANT
<PAGE> 38
ATTEST:
/s/ MICHAEL SKLAR BY: /s/ ROY ZURKOWSKI
- ---------------------------------- ---------------------------------
(Assistant) Secretary (Vice) President
Consented TO BY GUARANTOR FOR
REMAINING TERM OF GUARANTY
HEALTH AND TENNIS CORPORATION
OF AMERICA, INC.
By: /s/ ROY ZURKOWSKI
- ----------------------------------
(Vice) President
<PAGE> 39
STATE OF NEW YORK )
: ss. :
COUNTY OF NEW YORK )
On the 26th day of March, 1985, before me came Abraham Hirschfeld, to me
known, who, being by me duly sworn, did depose and say that he resides at 825
Fifth Avenue, New York, New York; that he is the (Vice) President of HIRSCHFELD
REALTY CLUB CORPORATION, the corporation described in and which executed the
foregoing instrument by order of the Board of Directors of said corporation and
that he signed his name thereto by like order.
/s/ JOAN B. MOLLOY
---------------------------------
Notary Public
JOAN B. MOLLOY
Notary Public, State of New York
No 4721246
Qualified in Westchester County
Commission Expires March 30, 1986
STATE OF NEW YORK )
: ss. :
COUNTY OF NEW YORK )
On the 26th day of March, 1985, before me came Elie Hirschfeld to me known,
who, being by me duly sworn, did depose and say that he resides at 425 E. 50th
Street, New York, New York; that he is the (Assistant) Secretary of HIRSCHFELD
REALTY CLUB CORPORATION, the corporation described in and which executed the
foregoing instrument by order of the Board of Directors of said corporation and
that he signed his name thereto by like order.
/s/ JOAN B. MOLLOY
---------------------------------
Notary Public
JOAN B. MOLLOY
Notary Public, State of New York
No 4721246
Qualified in Westchester County
Commission Expires March 30, 1986
<PAGE> 40
STATE OF NEW YORK )
: ss. :
COUNTY OF NEW YORK )
On the 26th,day of March, 1985, before me came Abraham Hirschfeld to me
known, who, being by me duly sworn, did depose and say that he resides at 825
Fifth Avenue, New York, New York; that he is the (Vice) President of 328 E. 61
Corp., the corporation described in and which executed the foregoing instrument
by order of the Board of Directors of said corporation and that he signed his
name thereto by like order.
/s/ JOAN B. MOLLOY
---------------------------------
Notary Public
JOAN B. MOLLOY
Notary Public, State of New York
No 4721246
Qualified in Westchester County
Commission Expires March 30, 1986
STATE OF NEW YORK )
: ss. :
COUNTY OF NEW YORK )
On the 26th,day of March, 1985, before me came Elie Hirschfeld to me
known, who, being by me duly sworn, did depose and say that he resides at 425 E.
5th Street, New York, New York; that he is the (Assistant) Secretary of 328 E.
61 Corp., the corporation described in and which executed the foregoing
instrument by order of the Board of Directors of said corporation and that he
signed his name thereto by like order.
/s/ JOAN B. MOLLOY
---------------------------------
Notary Public
JOAN B. MOLLOY
Notary Public, State of New York
No 4721246
Qualified in Westchester County
Commission Expires March 30, 1986
<PAGE> 41
STATE OF NEW YORK )
: ss. :
COUNTY OF NEW YORK )
On the 26th,day of March, 1985, before me came Roy Zurkowski, to me
known, who, being by me duly sworn, did depose and say that he resides at 451
Goodhue Road, Bloomfield, Michigan; that he is the (Vice) President of VERTICAL
FITNESS AND RACQUET CLUB, LTD., the corporation described in and which executed
the foregoing instrument by order of the Board of Directors of said corporation
and that he signed his name thereto by like order.
/s/ JOAN B. MOLLOY
---------------------------------
Notary Public
JOAN B. MOLLOY
Notary Public, State of New York
No 4721246
Qualified in Westchester County
Commission Expires March 30, 1986
STATE OF NEW YORK )
: ss. :
COUNTY OF NEW YORK )
On the 26th,day of March, 1985, before me came Michael Sklar, to me
known, who, being by me duly sworn, did depose and say that he resides at 379
Dell Lane, Highland Park, Illinois; that he is the (Vice) President of
HIRSCHFELD REALTY CLUB CORPORATION, the corporation described in and which
executed the foregoing instrument by order of the Board of Directors of said
corporation and that he signed his name thereto by like order.
/s/ JOAN B. MOLLOY
---------------------------------
Notary Public
JOAN B. MOLLOY
Notary Public, State of New York
No 4721246
Qualified in Westchester County
Commission Expires March 30, 1986
<PAGE> 1
EXHIBIT 10.66
LEASE MODIFICATION
AGREEMENT
JULY 1, 1990
<PAGE> 2
LEASE MODIFICATION AGREEMENT
AGREEMENT made as of the 1st day of July, 1990, by and among Hirschfeld
Realty Cub Corporation, a New York corporation ("Hirschfeld") and 328 E. 61
Corp., a New York corporation ("328" and, together with Hirschfeld, being
hereinafter collectively referred to as "Landlord"), As landlord, and Vertical
Fitness and Racquet Club, Ltd., a New York corporation, as Tenant ("Tenant").
W I T N E S S E T H :
WHEREAS, Landlord and Tenant executed a certain amended and restated
lease, dated as of March 26, 1985, (the "Lease") covering the premises therein
defined ("Demised Premises"); and
WHEREAS, Landlord and tenant are mutually desirous of modifying the
Lease upon the terms and subject to the conditions set forth in this settlement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties hereto hereby mutually agree as follows:
1. The Demised Premises shall no longer include the basement floor at
328 East 61st Street; New York, New York, exclusive of mechanical equipment
areas and elevator shaft. It is the express intention of the parties that such
excluded space (the "Garage") shall be the same space which was occupied by the
former garage Tenant until June 30, 1990.
2. All references in the Lease to the garage premises and the and the
site thereof shall be deemed deleted and of no further force or affect. The
parties acknowledge that Hirschfeld shall have the sole right and responsibility
to enter into leases and/or management agreements covering the Garage and to
deal with the tenants and/or managers of the Garage, subject, however, to
Tenant's continued rights to free access to its elevators, stairs, machinery and
equipment in and through the garage, provided same does not unreasonably
interfere with the garage business.
HIRSCHFELD REALTY CLUB CORPORATION
By: /s/ Abraham Hirschfeld
---------------------------------
328 E. 61 Corp.
By: /s/ Abraham Hirschfeld
---------------------------------
VERTICAL FITNESS AND RACQUET
CLUB, LTD.
By: /s/ Michael Lucci
---------------------------------
President
<PAGE> 1
EXHIBIT 10.67
VERTICAL CLUB LEASE ASSIGNMENT
JANUARY 8, 1996
<PAGE> 2
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT OF LEASE ("Assignment") is made as of the 8th day of
January, 1996, by and between VERTICAL FITNESS AND RACQUET CLUB, LTD., a New
York corporation ("Assignor"), and BALLY ENTERTAINMENT CORPORATION, a Delaware
corporation ("Assignee").
WHEREAS, Assignor has entered into that certain lease ("Lease") dated
March 26, 1985, between Assignor, as tenant, and Vertical Club corporation, as
landlord, relating to certain property known as The Vertical Club and located at
330 East 61st Street, New York, New York 10021 (the "Leased Premises"); and
WHEREAS, as of the date hereof, Assignor is a wholly owned, indirect
subsidiary of Assignee; and
WHEREAS, Assignor desires to assign to Assignee all of Assignor's right,
title and interest in and to the Lease, and Assignee desires to assume
Assignor's right, title and interest in and to the Lease, subject to the
provisions of this Assignment and the terms of the Lease.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Assignor and Assignee hereby agree as
follows:
1. Effective as of January 8, 1996, (the "Effective Date"), Assignor
does hereby assign to Assignee all of Assignor's right, title and interest in
the Lease and Assignor's rights relative to the Leased Premises for the
remainder of the term of the Lease, pursuant to the terms of the Lease,
including, without limitation, Assignor's right, title and interest in and to
all deposits held by the landlord, if any as security for the performance by
Assignor of its obligations under the Lease.
2. Effective as of the Effective Date, Assignee hereby accepts the
foregoing assignment and, in consideration thereof, Assignee hereby covenants
and agrees that, on and after the Effective Date4, Assignee will assume,
observe, perform, fulfill and be bound by all terms, covenants, conditions and
obligations of the Lease which are to be observed, preformed and fulfilled by
the tenant thereunder, in the same manner and to the same extent as if Assignee,
instead of Assignor, were originally named therein.
3. Assignee hereby agrees to indemnify, defend and hold Assignor
harmless from and against any and all liability, loss, damage, cost and expense,
including, without limitation, reasonable attorneys' fees, which Assignor may or
shall incur under the Lease by reason of any failure or alleged failure of
Assignee to comply with or to perform any and all obligations on its part to be
performed or complied with under any of the terms and conditions contained in
the
<PAGE> 3
Lease which are to be performed on or after the Effective Date.
4. Assignor hereby agrees to indemnify, defend and hold Assignee
harmless from and against any and all liability, loss, damage, cost and expense,
including, without limitation, reasonable attorneys' fees, which Assignee may or
shall incur under the Lease by reason of any failure or alleged failure of
Assignor to comply with or to perform any and all obligations on its part to be
performed or complied with under any of the terms and conditions contained in
the Lease which were to be performed before the Effective Date.
5. The provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment
as of the date first written above.
ASSIGNOR:
VERTICAL FITNESS AND RACQUET
CLUB, LTD.
A NEW YORK CORPORATION
Sign: /s/ Barbara J. Snider By: /s/ Cary A. Gaan
----------------------------- ---------------------------------
Print Name: Barbara J. Snider Cary A. Gaan
----------------------- ---------------------------------
Its: Senior Vice President
--------------------------------
Sign: /s/ Linda B. Motz
----------------------------
Print Name: Linda B. Motz
----------------------
ASSIGNEE:
BALLY ENTERTAINMENT
CORPORATION,
A DELAWARE CORPORATION
Sign: /s/ Barbara J. Snider By: /s/ Lee S. Hillman
----------------------------- ---------------------------------
Print Name: Barbara J. Snider Lee S. Hillman
----------------------- ---------------------------------
Its: Treasurer
--------------------------------
Sign: /s/ Linda B. Motz
-----------------------------
Print Name: Linda B. Motz
-----------------------
<PAGE> 1
EXHIBIT 10.68
ASSIGNMENT OF VERTICAL CLUB LEASE
APRIL 15, 1998
<PAGE> 2
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO
NAME: The Sports Club Company, Inc.
ADDRESS: 11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Attention: Real Estate Department
- --------------------------------------------------------------------------------
ASSIGNMENT OF LEASE
KNOW ALL MEN BY THESE PRESENTS, that HILTON HOTELS CORPORATION, a Delaware
corporation having an address at 9336 Civic Center Drive, Beverly Hills,
California, hereby assigns to THE SPORTS CLUB COMPANY, a Delaware corporation
having an address at 11100 Santa Monica Boulevard, Los Angeles, California, all
right, Title and interest of Hilton Hotels Corporation in and to that certain
Amended and Restated Net Operating Lease dated as of March 26, 1985, by and
among HIRSCHFELD REALTY CLUB CORPORATION and 328 E. 61 CORP., as landlord, and
VERTICAL FITNESS AND RACQUET CLUB, LTD., as tenant; Hilton Hotels Corporation is
successor to said tenant.
Said Amended and Restated Net Operating Lease is evidenced by a
Memorandum of Lease and Restrictive Covenants dated as of March 26, 1985 and
recorded on April 16, 1985 in New York County Office of the Register of the City
of New York, at Reel 898, Page 239.
By accepting this Assignment, The Sports Club Company hereby assumes all
obligations of the tenant under said Amended and Restated Net Operating Lease.
IN WITNESS WHEREOF, Hilton Hotels Corporation has executed this
Assignment in form proper and sufficient in law to bind it, as of the 15th day
of April, 1998.
HILTON HOTELS CORPORATION,
a Delaware corporation
By: /s/ Richard P. Barrier
---------------------------------
Its: Vice President
------------------------------
AGREED TO AND ACCEPTED BY:
THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By: /s/ David M. Talla
-------------------------------------
Its: CEO
---------------------------------
<PAGE> 1
EXHIBIT 10.69
2ND AMENDMENT
TO VERTICAL CLUB LEASE
APRIL 15, 1998
<PAGE> 2
SECOND AMENDMENT TO
AMENDED AND RESTATED
NET OPERATING LEASE
This SECOND AMENDMENT TO AMENDED AND RESTATED NET OPERATING LEASE (this
"AMENDMENT") is made and entered into as of April 15, 1998, by and among
HIRSCHFELD REALTY CLUB CORPORATION and 328 E. 61 CORP. (collectively,
"LANDLORD"), and THE SPORTS CLUB COMPANY, INC., a Delaware corporation
("TENANT"), with reference to the following recitals:
RECITALS:
A. Landlord and Vertical Fitness and Racquet Club, Ltd. Entered into
that certain Amended and Restated Net Operating Lease (the "RESTATED LEASE")
dated as of March 26, 1985, as amended by that certain Lease Modification
Agreement (the "FIRST AMENDMENT") dated as of July 1, 1990 (as so amended, the
"LEASE"), wherein Tenant leased from Landlord premises commonly known as 330
East 61st Street and 333 East 60th Street, New York, New York, and more
particularly described in the Lease.
B. Concurrently herewith, Tenant is accepting an assignment of the Lease
from Hilton Hotels Corporation, which is the successor by merger to Bally
Entertainment Corporation, successor to the tenant named in the Restated Lease.
C. Landlord and Tenant desire to amend the Lease as more particularly
set forth below.
NOW THEREFORE, in consideration of the mutual covenants made herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. DEFINITIONS. All terms defined in the Lease shall have the same
meaning when used in this Amendment, unless otherwise specified.
2. REFERENCES TO LEASE. Unless the context requires otherwise, all
references to the "Lease" in the Lease shall hereafter be deemed to mean the
Lease as amended by this Amendment.
3. FIRST AMENDMENT VOID. The First Amendment is hereby nullified and
voided. As a result thereof, all space originally demised pursuant to the
Restated Lease is demised to Tenant.
<PAGE> 3
4. TERM. Section 1/01 of the Restated Lease is hereby amended to delete
"September 30, 2001" therefrom, and to substitute therefor: "December 31, 2020."
5. MEMORANDUM. Simultaneously with the execution hereof, Landlord and
Tenant shall each duly execute and acknowledge an amendment to the existing
memorandum of lease, in the form of Exhibit 1 to this Amendment (the "Memorandum
Amendment").
6. RENT.
(i) The first grammatical paragraph of Section 2.01 of the
Restated Lease is hereby deleted in its entirety, and the following is
substituted therefor:
"2.01 Tenant agrees to pay Landlord a fixed rental ("Fixed
Rent") (a) with respect to the period from and after the date
hereof and until September 30, 2000, (i) at the rate of
$1,008,000 per annum plus (ii) at the rate of an additional
$180,000 per annum for the garage plus (iii) a monthly amount
equal to the monthly base rent payable by Scores Entertainment,
Inc. ("Scores"), including any escalations thereof, under its
sublease for a portion of the Demised Premises, whether or not
such monthly subrent is actually paid by Scores to Tenant, and
(b) with respect to the period from and after October 1, 2000
and until December 31, 2000, (i) at the rate of $1,080,000 per
annum plus (ii) at the rate of an additional $180,000 per annum
for the garage plus (iii) a monthly amount equal to the monthly
base rent payable by Scores, including any escalations thereof,
under its sublease for a portion of the Demised Premises,
whether or not the such monthly subrent is actually paid by
Scores to Tenant, and (c) with respect to the period from and
after January 1, 2001 and until December 31, 2001, at the rate
of $2,800,000.00 per annum, and (d) with respect to the period
from and after January 1, 2002 and until December 31, 2002, at
the rate of $3,000,000.00 per annum, and (e) with respect to the
period from and after January 1, 2003 and until December 31,
2003, at the rate of $3,200,000.00 per annum, and (f) with
respect to the period from and after January 1, 2004 and until
December 31, 2004, at the rate of $3,400,000.00 per annum, and
(g) with respect to the period from and after January 1, 2005
and until December 31, 2005, at the rate of $3,400,000.00 per
annum, and (h) with respect to the period from and after January
1, 2006 and until December 31, 2010, at the rate of
$3,720,000.00 per annum, and (i) with respect to the period from
and after January 1, 2011 and until December 31, 2015, at the
rate of $4,072,000.00 per annum and (j) with respect to the
period from and after January 1, 2016 and until December 31,
2020, at the rate of $4,110,720.00 per annum. No rent shall be
payable for the garage from and after January 1, 2001. No rent
shall be payable with respect to the monthly base rent payable
by Scores, including any escalations thereof, under its sublease
for a portion of the Demised Premises from and after January 1,
2001."
<PAGE> 4
(ii) Section 2.03 of the Restated Lease is hereby deleted in its
entirety.
7. USE OF DEMISED PREMISES. The first sentence of Section 3.01 of
the Restated Lease is hereby deleted in its entirety, and the
following is substituted therefor:
"3.01 Subject to and in accordance with all applicable rules,
regulations, laws, zoning and other ordinances, statutes and
requirements of all governmental authorities and the Fire
Insurance Rating Organization and Board of Fire Insurance
Underwriters, and any similar bodies, having jurisdiction
thereof, Tenant is authorized to and shall be permitted to use
the Demised Premises for any lawful purpose, including, without
limitation, as a tennis and sport complex, health spa, office
space, restaurant, nightclub, cabaret, garage and for the sale
of sports and fitness equipment, health foods, vitamins and
juices; provided, however, that the use of the Demised Premises
shall at all times continue to be commensurate with, at least
comparable in quality to and harmonious with the uses made of
buildings and improvements in the vicinity of the Demises
Premises."
8. CHANGES AND ALTERATIONS. Subsection (i) of Section 6.04 of the
Restated Lease is hereby amended to delete "One Hundred Thousand ($100,000)
Dollars"; therefrom and to substitute therefor "Two Hundred Thousand ($200,000)
Dollars"; and the second sentence of Subsection (vi) of Section 6.04 of the
Restated Lease is hereby deleted in its entirety.
9. THE 328 EASEMENT. By its execution hereof, 328 E. 61 Corp.
acknowledges and agrees that the 328 Easement Agreement continues in full force
and effect for the benefit of Tenant throughout the term of the Lease as
extended hereby, and shall continue throughout the term of each duly exercised
Renewal Option. Simultaneously with the execution hereof, 328 E. 61 Corp. shall
execute, acknowledge and deliver to Tenant for recordation in the City
Register's Office an amendment to the 328 Easement Agreement acknowledging the
foregoing.
10. ZONING RIGHTS. Article 8 of the Restated Lease is hereby deleted in
its entirety, and the following is substituted therefor:
"8.01 To the full extent that they may used with respect to the
Demised Premises, Landlord hereby transfers to Tenant all excess
floor area and/or development rights (collectively, the "Excess
Zoning Rights") determined pursuant to the Zoning Resolution of
the City of New York, effective as December 15, 1961, as amended
on August 17, 1977 (as so amended, or as the same may heretofore
have been or hereafter be amended, the "Zoning Resolution") that
are appurtenant to the Demised Premises and based upon the
Improvements existing thereon as of the date hereof, and
Landlord shall have no entitlement thereto during the term of
this Lease. Landlord shall, upon reasonable request by Tenant,
but at no cost to Landlord, take such
<PAGE> 5
actions and execute such documents as Tenant may reasonably deem
necessary or desirable in order to confirm the ownership by
Tenant of the Excess Zoning Rights."
11. NON-DISTURBANCE. Landlord shall use reasonable efforts to deliver to
Tenant a non-disturbance agreement duly executed and acknowledged by the Fee
Mortgagee, and/or by any and all mortgagees of Landlord's interest in the
Demised Premises, with respect to the estate of Tenant under the Lease, in
substantially the form of Exhibit H to the Restated Lease. It shall be a
condition to Tenant's obligation pursuant hereto that it receive either all of
said non-disturbance agreements or Tenant is otherwise reasonable satisfied as
to the priority of the Lease. Landlord hereby represents and warrants that as of
the date hereof there is , and on the date of recordation of the Memorandum
Amendment there shall be, no Fee Mortgagee or any mortgagee of Landlord's
interest in the Demised Premises,
12. RENEWAL OPTIONS. Article 25 of the Restated Lease is hereby deleted
in its entirety, and the following is substituted therefor:
"25.01 Tenant shall have the option (the "First Renewal Option")
to extend the term of this Lease for an additional period (the
"First Renewal Term") of five years commencing on the day
immediately succeeding the Expiration Date and termination on
the fifth anniversary of the Expiration Date. The First Renewal
Option must be exercised by written notice (the "First Renewal
Notice") sent by Tenant to Landlord by certified or registered
mail, return receipt requested, not later than twelve months
prior to the Expiration Date. Any termination, cancellation or
surrender of Tenant's interest in this Lease during the original
term hereof shall terminate Tenant's right to exercise the First
Renewal Option, Tenant's right to exercise the First Renewal
Option shall not apply upon the occurrence and/or during the
continuance of an Event of Default on the part of Tenant
hereunder.
"Upon delivery of the First Renewal Notice by Tenant in
accordance with the terms hereof, this Lease shall thereupon be
deemed renewed for the First Renewal Term with the same force
and effect as if the First Renewal Term had originally been
included in the term of this Lease, and this Lease, as extended,
shall be upon the same terms, covenants and conditions as are
contained herein, except that the amount of the Fixed Rent
payable during the First Renewal Term shall be $4,501,792.00 per
annum.
"Upon Tenant's exercise of this option to extend the term of
this Lease for the First Renewal Term, Landlord and Tenant, upon
demand by either
<PAGE> 6
party, shall execute and deliver an instrument in recordable
form, setting forth the new expiration date of the term of this
Lease.
"25.02 If the term of this Lease shall have been duly extended for the
First Renewal Term, Tenant shall have the option (the "Second
Renewal Option") to extend the term of this Lease for an
additional period (the "Second Renewal Term," and together with
the First Renewal Term, being hereinafter sometimes collectively
referred to as the "Renewal Terms") of five years commencing on
the day immediately succeeding the Expiration Date of the First
Renewal Term, and terminating on the fifth anniversary of the
Expiration Date of the First Renewal Term. The Second Renewal
Option must be exercised by written notice (the "Second Renewal
Notice") delivered by Tenant to Landlord by certified or
registered mail, return receipt requested, not later than twelve
months prior to the Expiration Date of the First Renewal Term.
Any termination, cancellation or surrender of Tenant's interest
in this Lease during the original term (or First Renewal Term)
hereof shall terminate Tenant's right to exercise the Second
Renewal Option. Tenant's right to exercise the Second Renewal
Option shall not apply upon the occurrence and/or during the
continuance of an Event of Default on the part of Tenant
hereunder.
"Upon delivery of the Second Renewal Notice by Tenant in
accordance with the terms hereof, this Lease shall thereupon be
deemed renewed for the Second Renewal Term with the same force
and effect as if the Second Renewal Term had originally been
included in the term of this Lease, and this Lease, as extended,
shall be upon the same terms, covenants and conditions as are
contained herein, except that the amount of Fixed Rent payable
during the Second Renewal Term shall be $4,931,971.00 per annum.
"Upon Tenant's exercise of its option to extend the term of this
Lease for the Second Renewal Term, Landlord and Tenant, upon
demand by either party, shall execute and deliver to each other
an instrument in recordable form, setting forth the new
expiration date of the term of this Lease.
13. SIGNS AND PLAQUES. The following is hereby added to Article 27 of
the Restated Lease:
"Tenant shall have the right of selection of the location, design and
size of signage on the interior areas of the Demised Premises and on the
exterior areas of the Demised Premises fronting upon Sixtieth and/or Sixty-first
Streets. Landlord shall have the right of selection of the location, design and
size of signage on the exterior areas of the Demised Premises fronting upon both
or either eastern and western exterior exposures. All signage shall be subject
to local law. Tenant signage shall be approved by Landlord; Landlord signage
shall be approved by Tenant.
<PAGE> 7
Neither such approval shall be unreasonably withheld. Landlord agrees that no
eastern or western signage will depict or advertise in any fashion any competing
or exogenous health club, sports club or athletic club, or any sports or
athletic company, or any similar enterprise, or any logo thereof. Landlord and
Tenant shall each bear the cost of installation, maintenance and utilities
relating to its sign(s), shall at all times maintain them in good condition and
repair, and shall promptly repair any damage caused by their removal."
"Tenant shall cause plaques honoring Abraham Hirschfeld to be displayed
(one) near the main exterior entry and (one) in the main lobby identifying
Abraham Hirschfeld as the founder, designer and builder of the Demised
Premises."
14. NOTICES. Section 29.01 of the Restated Lease is hereby modified to delete
all addresses contained therein, and to substitute therefor the following:
To Tenant: The Sports Club Company, Inc.
11100 Santa Monica Blvd., Suite 300
Los Angeles, California 90025
Attn: Michael Talla
with copies to: Resch Polster Alpert & Berger LLP
10390 Santa Monica Blvd., 4th Floor
Los Angeles, California 90025-5058
Attn: Ronald M. Resch
To Landlord: Hirschfeld Realty Club Corporation
c/o Hirschfeld Realty, Inc.
328 East 61st Street
New York, New York 10021
Attn: Mr. Abe Hirschfeld
and to: 328 E. 61 Corp.
c/o Hirschfeld Realty, Inc.
328 East 61st Street
New York, New York 10021
Attn: Mr. Abe Hirschfeld
15. IMPROVEMENT ALLOWANCE. Landlord shall pay 50% of the hard costs of
the construction of such alterations and improvements tot he Demised Premises as
Tenant may elect to undertake as Tenant's initial improvements, provided,
however, that the aggregate cost of Landlord's share thereof shall in no event
exceed $4,000,000.00; within a reasonable time after the execution hereof Tenant
shall provide to Landlord a description of its intended scope of said initial
improvements (but Tenant shall not be precluded from modifying or expanding the
scope
<PAGE> 8
thereof). Landlord shall disburse such payments from time to time within fifteen
days after Tenant's request therefor, accompanied by conditional lien releases
with respect to all invoices to be paid from such disbursement, and
unconditional lien releases with respect to all prior disbursements (except to
the extent that such unconditional lien releases have theretofore been provided
to Landlord).
16. LANDLORD PARKING PRIVILEGES. Landlord shall retain two parking
spaces in the Garage, at no charge to Landlord, to be located as Tenant shall
from time to time designate.
17. COMPLIMENTARY MEMBERSHIPS. Throughout the term of the Lease, so long
as Tenant operates a health and/or fitness club (the "Club") open to the general
public for membership at the Demised Premises, Abraham Hirschfeld and all of his
descendants (and their spouses), but not exceeding a total of 20 persons, shall
receive nontransferable complimentary memberships at the Club, at the highest
level of membership available, including without limitation complimentary locker
usage, at no charge for monthly dues but otherwise subject to Tenant's rules and
regulations for Club membership and the general operations of the Club applied
on a non-discriminatory basis, and subject to charges for ancillary services on
the same basis that other highest-level Club members are charged therefor.
Subject to the terms and conditions of this Section 17, each of the memberships
described in this Section 17 shall remain valid so long as such membership is
kept in good standing in accordance with the rules of the Club consistently
applied. Nothing in this Section 17 shall give any recipient of a membership
described in this Section 17 any rights against Tenant if Tenant shall, from
time to time, either cease operating the Club or change the manner of its
operations, in any such instance for any reason whatsoever. All such memberships
shall automatically terminate upon (a) termination of the Lease, (b) any sale of
other transfer of the Club by Tenant in any arms'-length transaction, or (c) any
sale or other transfer of the Demised Premises by Landlord (or any sale or other
transfer of interest in the entities constituting Landlord such that Abraham
Hirschfeld or his descendants do not own a controlling interest therein).
18. MISCELLANEOUS CLUB MATTERS.
(a) In any public relations releases of Tenant's wherein the
history of "The Vertical Club" is recalled or recited, Tenant shall recognize
Abraham Hirschfeld as the founder.
(b) Tenant shall not use the name "Vertical Club" with respect
to any location other than the Demised Premises without first obtaining the
Approval of Abraham Hirschfeld; such approval shall not be unreasonably
withheld; it being agreed that the Vertical Club is recognized by many
newspapers and the media as one of the 7 wonders of the world and, therefore,
any additional "Vertical Club" may remove that dignity.
(c) After Tenant has completed its contemplated initial
improvement to the Demised Premises to be undertaken after the date hereof,
Tenant contemplates hosting a party commemorating such completion. Landlord
shall have the right to bear 50% of the cost thereof
<PAGE> 9
and thereby be a co-host of such party; if Landlord exercises such right, then
Tenant shall hold such party and shall also therein commemorate the twentieth
anniversary of the original opening of the Club.
19. BROKER. Landlord agrees to pay a brokerage commission to Invescorp
International Ltd., and to indemnify, defend and hold Tenant harmless against
and from any and all losses, damages, costs and expenses (including, but not
limited to, attorneys' fees and costs) incurred by Tenant by reason of any claim
for a broker's or finder's fee, owing to Invescorp International Ltd., but no
other. Tenant agrees to indemnify, defend and hold Landlord harmless against and
from any and all losses, damages, costs and expenses (including, but not limited
to, attorneys' fees and costs) incurred by Landlord by reason of any claim for a
broker's or finder's fee, if any, owing to The Weatherby Company, but no other.
20. COUNTERPARTS; TIME. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute but one and the same instrument. Time is of the
essence of each and every provision hereof.
21. AUTHORIZATION. Each individual and entity executing this Amendment
hereby represents and warrants that it has the capacity set forth on the
signature pages hereof with full power and authority to bind to the terms hereof
the party on whose behalf it is executing this Amendment.
22. APPLICABILITY OF LEASE. Landlord and Tenant intend to effect a
novation of the Lease hereby. As an intended consequence thereof, Tenant shall
not be responsible for any act, event, occurrence, or non-performance of any
obligation on or with respect to the Lease, occurring or accruing prior to the
date hereof, and no predecessor of Tenant's with respect to the Demised Premises
shall have any liability on or with respect to the Lease after the date hereof.
[intentionally left blank]
<PAGE> 10
IN WITNESS WHEREOF, Landlord and Tenant have caused their duly
authorized representatives to execute this Amendment as of the date first above
written.
LANDLORD: HIRSCHFELD REALTY CLUB CORPORATION,
a New York corporation,
By /s/ Abraham Hirschfeld
-----------------------------------------
Its
-------------------------------------
328 E. 61 CORP
a New York corporation,
By /s/ Abraham Hirschfeld
-----------------------------------------
Its
-------------------------------------
TENANT: THE SPORTS CLUB COMPANY, INC.
a Delaware corporation
By /s/ David M. Talla
-----------------------------------------
Its CEO
-------------------------------------
<PAGE> 1
EXHIBIT 10.70
REX & MICHAEL DEAL
RM SPORTS
MARCH 31, 1998
<PAGE> 2
THE SPORTS CLUB COMPANY, INC.
11100 SANTA MONICA BOULEVARD, SUITE 300
LOS ANGELES, CALIFORNIA 90025
March 31, 1998
Mr. Rex A. Licklider
Mr. D. Michael Talla
990 Moraga Drive
Los Angeles, California 90077
Re: PURCHASE OF HEALTH CLUB
Dear Messrs. Licklider and Talla:
This letter will confirm our agreement and understanding with respect to
the possible acquisition by The Sports Club Company, Inc. (the "COMPANY") of the
health and fitness facility described in Exhibit "A" attached hereto (the
"CLUB"), and certain related assets and properties, including, without
limitation, the assumption of certain contracts and leases (collectively, the
"CLUB ASSETS"), for a purchase price of $4,000,000 (the "PURCHASE PRICE").
1. RM Sports Club, Inc, an entity owned and controlled by each of you
("BUYER"), intends to enter into an Asset Purchase Agreement dated as of
_____________, 1998 (the "PURCHASE AGREEMENT"), substantially in the form of
Exhibit "B" attached hereto. The Company has engaged in ongoing negotiations
with those entities identified in Exhibit "C" attached hereto (the "LANDLORD")
with respect to the lease of the building in which the Club is located, the
tentative terms and conditions of which are contained in a Second Amendment to
Amended and Restated Net Lease (the "LEASE AMENDMENT"). Provided the Company and
Landlord are able to reach agreement on the terms of the Lease Amendment, that
document must be executed by the Company upon the consummation of the
transactions contemplated by the Purchase Agreement.
2. In connection with Buyer's execution and delivery of the Purchase
Agreement, you will directly, or will cause Buyer to, deposit with the "Deposit
Holder" (as defined in Section 1.5(b) of the Purchase Agreement) an additional
amount of cash which, when added to the amounts previously deposited by the
Company therewith (the "COMPANY DEPOSIT"), equals One Million Dollars
($1,000,000) (the "PURCHASE DEPOSIT").
3. Prior to or simultaneously with your depositing, or causing Buyer to
deposit, the funds necessary to bring the Purchase Deposit to $1,000,000, you
will directly, or will cause Buyer to, reimburse the Company for the full amount
of the Company Deposit, without interest.
<PAGE> 3
Mr. Rex A. Licklider
Mr. D. Michael Talla
March 31, 1998
Page 2
4. For valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Buyer hereby grants the Company, and the Company hereby
accepts, an irrevocable right and option (the "OPTION") to purchase and acquire
all of Buyer's rights under the Purchase Agreement for an amount equal to the
Purchase Deposit. The Company's right to exercise the Option shall commence on
the date hereof and shall continue for a reasonable period of time thereafter
during which the Company will conduct its normal due diligence investigation of
the Club Assets and the feasibility of developing the Club; provided that, in no
event shall the Option be exercisable after the "Outside Closing Date" (as
defined in Section 1.9(a) of the Purchase Agreement), which is currently set for
Wednesday, April 15, 1998 (the "OPTION EXERCISE PERIOD").
5. If the Company chooses to exercise the Option, it shall notify the
Buyer of such fact in writing prior to the expiration of the Option Exercise
Period and will reimburse Buyer promptly (but in no event more than three
business days after such exercise) for the full amount of the Purchase Deposit,
without interest. Buyer will assign, without recourse, to the Company all its
rights in and under the Purchase Agreement, and under all other agreements and
instruments which Buyer shall have executed in connection therewith. If the
Company exercises the Option, the Company will use its best efforts to obtain
the acknowledgement of the seller under the Purchase Agreement to release Buyer
(and each of you individually) from any further liability or obligation under
the Purchase Agreement or any other such agreements and instruments, although no
assurance can be given that the seller will agree to any such release.
6. You understand and agree that the Company has no obligation to
exercise the Option, and that it may be precluded from exercising the Option if
the disinterested directors of the Company determine not to proceed with the
development of the Club and the acquisition of the Club Assets, or if Sumitomo
Bank's consent to the Company's purchase of the Club Assets is not obtained as
may be required under the Company's loan agreement with it. If either of the
foregoing should occur, or if the Landlord refuses to agree to extend the date
by which the Lease Amendment must be executed by the Company to coincide with
the Outside Closing Date under the Purchase Agreement, then you risk losing the
full amount of the Purchase Deposit.
7. If, after completing its due diligence investigation, the Company
determines that it would not be in its best interest to purchase the Club Assets
on the terms and conditions set forth in the Purchase Agreement and therefore
elects not to exercise the Option prior to the expiration of the Option Exercise
Period, then the Company shall have no obligation or liability with respect to
the Purchase Agreement or Lease Amendment, or any of the transactions
<PAGE> 4
Mr. Rex A. Licklider
Mr. D. Michael Talla
March 31, 1998
Page 3
contemplated by either such agreement (as to which you jointly and severally
indemnify and hold the Company free and harmless from and against any and all
losses, liabilities and damages which the Company may incur or be subject to,
arising out of its decision not to proceed with its acquisition of the Club
Assets pursuant to the Purchase Agreement). If this should occur, then the
Company acknowledges that Buyer shall have the right to consummate the
transactions contemplated by the Purchase Agreement and Lease Amendment and to
explore the development or sale of the Club and Club Assets on such terms and
conditions, and with such development partners, as shall be acceptable to it;
provided that, the disinterested directors of the Company's Board of Directors
shall have approved of Buyer's right to develop and/or sell the Club and Club
Assets (whether on its own or with one or more development partners) after full
disclosure of all relevant terms related to such proposed development or sale.
If the foregoing reflects our agreement and understanding, please date
and execute this letter and the enclosed copy in the appropriate spaces,
whereupon it shall be binding on you and the Company, and our respective
successors, permitted assigns and legal representatives.
Very truly yours,
THE SPORTS CLUB COMPANY, INC.
By: /s/ John Gibbons
---------------------------------
Authorized Officer
Agreed and accepted as of the date of this letter in Los Angeles,
California.
/s/ Rex A. Licklider
---------------------------------
Rex A. Licklider
/s/ D. Michael Talla
---------------------------------
D. Michael Talla
<PAGE> 1
EXHIBIT 10.71
HILTON PURCHASE
APRIL 1, 1998
<PAGE> 2
================================================================================
ASSET PURCHASE AGREEMENT
between
HILTON HOTELS CORPORATION,
a Delaware corporation
and
RM SPORTS CLUB, INC.,
a California corporation
Dated as of April 1, 1998
================================================================================
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. PURCHASE AND SALE OF ASSETS................................................. 1
1.1 Assets to be Transferred.................................................... 1
1.2 Excluded Assets............................................................. 2
1.3 Liabilities to be Assumed................................................... 3
1.4 Liabilities Not to be Assumed............................................... 3
1.5 Purchase Price.............................................................. 4
1.6 Deliveries into Escrow...................................................... 6
1.7 Seller's Conditions to Closing.............................................. 7
1.8 Purchaser's Conditions to Closing........................................... 7
1.9 Closing..................................................................... 9
1.10 Costs....................................................................... 10
1.11 Purchase Price Allocation................................................... 11
1.12 Sales Taxes................................................................. 11
1.13 Accounting Treatment........................................................ 11
1.14 Tax Consequences............................................................ 11
1.15 Prorations.................................................................. 11
1.16 Delivery of Documents....................................................... 14
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER.................................... 14
2.1 Due Organization; Etc....................................................... 14
2.2 Manager's Estoppel Certificate.............................................. 14
2.3 Absence of Changes.......................................................... 14
2.4 Title to Assets............................................................. 15
2.5 Equipment, Etc.............................................................. 15
2.6 Foreign Person.............................................................. 15
2.7 Authority; Binding Nature of Agreements..................................... 15
2.8 Non-Contravention; Consents................................................. 16
2.9 Information................................................................. 16
SECTION 3. "AS IS"; DUE DILIGENCE COMPLETED; DISCLAIMER OF ADDITIONAL
WARRANTIES OF SELLER ....................................................... 16
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER................................. 17
4.1 Due Organization............................................................ 17
4.2 Authority; Binding Nature of Agreement...................................... 17
4.3 Non-Contravention; Consents................................................. 17
SECTION 5. INDEMNIFICATION, ETC........................................................ 18
5.1 Survival of Representations and Warranties.................................. 18
5.2 Indemnification by Seller................................................... 18
5.3 Indemnification by Purchaser................................................ 18
</TABLE>
1
<PAGE> 4
<TABLE>
<S> <C> <C>
5.4 Nonexclusivity of Indemnification Remedies.................................. 19
5.5 Defense of Third Party Claims by Seller..................................... 19
5.6 Defense of Third Party Claims by Purchaser.................................. 20
5.7 Exercise of Remedies by Indemnitees......................................... 20
SECTION 6. ADDITIONAL COVENANTS AND AGREEMENTS......................................... 21
6.1 Interim Conduct of the Business............................................. 21
6.2 Standstill by Seller........................................................ 21
6.3 Purchaser's Access.......................................................... 22
6.4 Preservation of Business and Relationships.................................. 22
6.5 No Inconsistent Action...................................................... 22
6.6 Damage or Destruction....................................................... 22
6.7 Condemnation................................................................ 23
6.8 Liquor License.............................................................. 23
6.9 [Intentionally omitted] .................................................... 23
6.10 FIRPTA Affidavit............................................................ 23
6.11 SEC Required Financial Information.......................................... 23
6.12 Investment in the Club...................................................... 23
SECTION 7. MISCELLANEOUS PROVISIONS.................................................... 24
7.1 Further Assurances.......................................................... 24
7.2 Attorneys' Fees............................................................. 24
7.3 Notices..................................................................... 24
7.4 Publicity; Confidentiality.................................................. 26
7.5 Noncompetition/Nonsolicitation.............................................. 26
7.6 Time of the Essence......................................................... 27
7.7 Headings.................................................................... 27
7.8 Counterparts................................................................ 27
7.9 Governing Law; Venue........................................................ 28
7.10 Successors and Assigns...................................................... 28
7.11 Remedies Cumulative; Specific Performance................................... 28
7.12 No Consequential Damages.................................................... 28
7.13 Waiver...................................................................... 28
7.14 Amendments.................................................................. 29
7.15 Severability................................................................ 29
7.16 Parties in Interest......................................................... 29
7.17 Entire Agreement............................................................ 29
7.18 Brokers..................................................................... 29
7.19 Construction................................................................ 29
7.20 Waiver of Jury.............................................................. 30
7.21 Authority to Sign........................................................... 30
7.22 Survival Post-Closing....................................................... 30
7.23 Facsimile Signatures........................................................ 30
</TABLE>
2
<PAGE> 5
EXHIBITS
Exhibit A: Certain Definitions
Exhibit B: Form of Assignment of Contracts
Exhibit C: Form of Assignment of Leases
Exhibit D: Form of Bill of Sale
Exhibit E: Form of Note
Exhibit F: [Intentionally omitted]
Exhibit G: [Intentionally omitted]
Exhibit H: Form of Assignment and Assumption
SCHEDULES
Schedule 1.1(e) Assumed Contracts
Schedule 1.4(a) Contracts and Leases Not to be Assumed
Schedule 1.8(a)(ii) Additional Seller Delivery Items
Schedule 1.16 Delivery of Due Diligence Documents
Schedule 2.5 Equipment Inventory
Disclosure Schedule
3
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
April 1, 1998 by and between HILTON HOTELS CORPORATION, a Delaware corporation
("Seller"), and RM SPORTS CLUB, INC., a California corporation ("Purchaser").
Certain capitalized terms used in this Agreement are defined on Exhibit A.
RECITALS
A. Seller desires to sell to Purchaser, and Purchaser desires to
purchase from the Seller, (the "Acquisition") substantially all of the assets
used or held for use by Seller in the operation of The Vertical Club located at
61st Street, New York, New York (the "Club").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, Purchaser, and Seller, intending to
be legally bound, agree as follows
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 ASSETS TO BE TRANSFERRED. Subject to the terms and conditions of
this Agreement, on the Closing Date (as hereinafter defined) Seller shall sell,
transfer, convey, assign, and deliver to Purchaser and Purchaser shall purchase
and accept all of the business, rights, claims and assets (of every kind,
nature, character and description, whether real, personal or mixed, whether
tangible or intangible, whether accrued, contingent or otherwise), of the Seller
located at the Club, other than the Excluded Assets (as hereinafter defined)
relating to the Club (collectively, the "Purchased Assets"). The Purchased
Assets shall include, but not be limited to, the following:
(a) REAL PROPERTY. All real property, appurtenances thereto,
rights in connection therewith and interests therein owned by the Seller
relating to the Club and described on Part 7 of the Disclosure Schedule (the
"Real Property"). Real Property includes, without limitation, any Real Property
Leases and any interests of Seller therein and thereto.
(b) LEASED REAL PROPERTY. All real property leases of the Seller
described on Part 7 of the Disclosure Schedule (the "Real Property Leases"), if
any.
(c) PERSONAL PROPERTY LEASES. All leases of machinery,
equipment, vehicles, furniture and other personal property leased by Seller and
described on Part 6 of the Disclosure Schedule (the "Personal Property Leases").
(d) MACHINERY AND EQUIPMENT. All machinery, equipment, vehicles,
tools, supplies, spare parts, furniture and all other personal property not
included in inventory
<PAGE> 7
(other than personal property leased pursuant to Personal Property Leases)
owned, utilized or held for use by Seller and located at the Club.
(e) CONTRACTS. Other than the Membership Agreements, all
Contracts, contractual rights, purchase orders and sales orders (the "Assumed
Contracts") of Seller that are listed on Schedule 1.1(e) and expressly assumed
by Purchaser; provided, however, that even if one or more Personal Property
Leases are listed on Schedule 1.1(e), Purchaser shall not be obligated to assume
any Personal Property Leases if and to the extent the aggregate monthly payments
under all Personal Property Leases to be so assumed would exceed $1,500. Seller
shall pay off any Personal Property Leases that otherwise would be assumed
pursuant to this Section 1.1(e) if and to the extent necessary to cause such
aggregate monthly payments not to exceed such amount. Any Contract not
specifically listed on Schedule 1.1(e), other than the Membership Agreements,
shall conclusively be deemed to be a Contract expressly not being assumed by
Purchaser even if such contract is not specifically listed on Schedule 1.4(a).
(f) MEMBERSHIP AGREEMENTS. All of the Membership Agreements,
including rights to renewals, monthly membership fees subject to Section 1.15,
receivables and other rights and obligations related thereto.
(g) RECORDS AND FILES. All membership lists (in both written and
machine readable format), records, files, invoices, customer lists, blueprints,
specifications, designs, drawings, accounting records, business records,
operating data and other data of Seller relating to the Club (including, without
limitation, all billing/accounting hardware and software relating to the Club
that are owned by, leased by or licensed to Seller if and to the extent
assignable).
(h) TELEPHONE NUMBERS. All local telephone numbers associated
with the Club that are within Seller's control to assign at Closing
(i) LICENSES; PERMITS. Except as may be expressly set forth in
Parts 10 and 11 of the Disclosure Schedule, all licenses, permits and approvals
held by Seller, including without limitation, all Governmental Authorizations.
(j) INVENTORY. All inventories of raw materials, work-in-process
and finished goods (including all such in transit) of the Seller, together with
related packaging materials (collectively the "Inventory").
(k) MANAGEMENT AGREEMENT. The Management Agreement, together
with all right, title and interest of Seller in any and all claims, demands and
causes of action that Seller may have against Manager arising out of or in
connection with the Management Agreement.
<PAGE> 8
1.2 EXCLUDED ASSETS. The provisions of Section 1.1 notwithstanding,
Seller shall not sell, transfer, assign, convey or deliver to Purchaser, and
Purchaser will not purchase or accept the following assets of Seller
(collectively the "Excluded Assets"):
(a) CONSIDERATION. The consideration delivered by Purchaser to
Seller pursuant to this Agreement.
(b) TAX CREDITS. Federal, state and local income and franchise
tax credits and tax refund claims.
(c) FRANCHISE. Seller's franchise to be a corporation, its
articles of incorporation, stock book, minute book, corporate seal, and its
books and records having exclusively to do with its organization and
capitalization.
(d) TAX RECORDS. Seller's income and franchise tax returns and
tax records. (e) MARK. The right to use the "Vertical Club" service mark.
1.3 LIABILITIES TO BE ASSUMED. Subject to the terms and conditions of
this Agreement, on the Closing Date, Purchaser shall assume and agree to perform
and discharge to the extent indicated below the following, and only the
following, specific debts, liabilities and obligations of the Seller
(collectively the "Assumed Liabilities"):
(a) MEMBERSHIP AGREEMENTS. Subject to Section 1.15, Seller's
obligation to honor and service the Membership Agreements, other than any
refunds arising under any Governmental Authorization, Legal Requirement or Order
solely as a result of the Closing, the payment of which shall be the sole
responsibility of Seller and shall be paid by Seller directly.
(b) SPECIFIED CONTRACTUAL LIABILITIES. The Specified Contractual
Liabilities.
(c) LIABILITIES UNDER LEASES, PERMITS AND LICENSES. Seller's
obligations arising from and after the Closing Date under the Real Property
Leases, any Personal Property Leases not described in Schedule 1.4(a) and any of
the permits or licenses assigned to Purchaser at the Closing.
1.4 LIABILITIES NOT TO BE ASSUMED. Except as and to the extent
specifically set forth in Section 1.3, Purchaser is not assuming any debts,
liabilities, obligations or contracts of the Seller and all such debts,
liabilities, obligations and contracts shall be and remain the responsibility of
the Seller. Notwithstanding the provisions of Section 1.3 and without limiting
the generality of the foregoing, Purchaser is not assuming and the Seller shall
not be deemed to have transferred to Purchaser the following debts, liabilities,
obligations and contracts of Seller:
<PAGE> 9
(a) CERTAIN CONTRACTS. The obligations of the Seller under and
pursuant to the Contracts set forth on Schedule 1.4(a) and any other Contracts
not specifically listed on Schedule 1.1(e).
(b) TAXES ARISING FROM TRANSACTION. Any United States, foreign,
state or other taxes applicable to, imposed upon or arising out of the sale or
transfer of the Purchased Assets to Purchaser and the other transactions
contemplated by this Agreement, including but not limited to any transfer,
sales, use, gross receipts or documentary stamp taxes.
(c) INCOME AND FRANCHISE TAXES. Any liability or obligation of
the Seller for Federal income taxes and any state or local income, profit or
franchise taxes (and any penalties or interest due on account thereof).
(d) INSURED CLAIMS. Any liability of the Seller insured against,
to the extent such liability is or will be paid by an insurer.
(e) LITIGATION MATTERS. Any liability or obligation with respect
to any suits, actions, claims or Proceedings arising out of or in any way
related to the operation of the Club prior to Closing, whether or not described
on Part 15 of the Disclosure Schedule.
(f) TRANSACTION EXPENSES. All liabilities, costs, obligations or
expenses incurred by, or on behalf of the Seller in connection with this
Agreement and the transactions contemplated herein.
(g) LIABILITY FOR BREACH. Liabilities and obligations of the
Seller for any breach or failure to perform any of the Seller's covenants and
agreements contained in, or made pursuant to, this Agreement, or, prior to the
Closing, any other Contract, whether or not assumed hereunder, including any
breach arising from assignment of such contracts hereunder without consent of
third parties, unless Purchaser accepts such assignment with Knowledge that such
consent was not obtained.
(h) LIABILITIES TO AFFILIATES. Liabilities and obligations of
the Seller to its Affiliates.
(i) VIOLATION OF LAW. Any liability or obligation with respect
to any violation of or failure to comply with any Legal Requirement or Order
arising out of or in any way related to the Club or its operations on or before
Closing.
(j) INFRINGEMENTS. Any liability to a third party under the
Seller's Proprietary Assets, if any.
<PAGE> 10
(k) SERVICE MARK LICENSE AGREEMENT. The Service Mark License
Agreement.
1.5 PURCHASE PRICE.
(a) As consideration for the sale of Purchased Assets, at
Closing Purchaser shall (i) pay to the Seller a total of $4,000,000 (the
"Purchase Price"), as adjusted by Section 1.15, and (ii) assume the Assumed
Liabilities by executing and delivering to Seller an Assignment of Contracts
(the "Contract Assignment") in substantially the form of Exhibit B, an
Assignment of Leases (the "Lease Assignment") in substantially the form of
Exhibit C and a Bill of Sale (the "Bill of Sale") in substantially the form of
Exhibit D. The Purchase Price shall be payable by Purchaser as follows:
(b) On or before the close of business on Thursday, April 2,
1998, Purchaser shall have deposited into an interest bearing escrow (the
"Escrow") established with Chicago Title Company ("Deposit Holder") the sum of
$1,000,000, in immediately available funds (such amount, together with the
interest earned thereon, being hereinafter referred to as the "Deposit"). The
Deposit shall be credited against the Purchase Price.
(c) At Closing, (i) Purchaser's promissory note in the amount of
$2,666,666 in the form attached hereto as Exhibit E (the "Note") and (ii) such
sum as may be necessary to make Purchaser's total cash deposit with Deposit
Holder equal the Purchase Price, after giving effect to any and all of
Purchaser's and Seller's credits and debits pursuant hereto, including, without
limitation, the Deposit and the face amount of the Note.
(d) [Intentionally omitted]
(e) [Intentionally omitted]
(f) Purchaser and Seller agree that all sums deposited by
Purchaser pursuant hereto shall be invested in treasury bills, certificates of
deposit, short term money market instruments or bank repurchase contracts
approved by Purchaser and Seller, in such manner as to make all such sums (and
the interest earned thereon) available on the date for Closing. Purchaser and
Seller hereby instruct Deposit Holder to so invest such sums and to return to
Purchaser, upon Closing, all sums in excess of those needed to satisfy
Purchaser's obligations hereunder to Seller. Interest earned thereon shall be
for the account of Purchaser, and Purchaser shall provide Deposit Holder with
Purchaser's taxpayer identification number for use in opening the Escrow.
(g) Any funds to be delivered hereunder shall be immediately
available federal funds wire transferred. It shall be Purchaser's responsibility
to obtain adequate wiring instructions for an escrow account of Deposit Holder.
<PAGE> 11
(h) If the Closing shall fail to occur solely because of the
breach of Purchaser under this Agreement, then Deposit Holder shall deliver the
Deposit to Seller, and Seller shall be entitled to retain the Deposit, as
liquidated damages and not as a penalty and as Seller's sole remedy; it being
agreed, for purposes of this Section 1.5(h) only, that it shall be a breach of
Purchaser under this Agreement if, without limitation, Purchaser shall not have
entered into the Assignment and Assumption with The Sports Club Company, Inc.
However, if Closing shall thereafter fail to occur for any other reason or
reasons, then Deposit Holder shall return the Deposit promptly to Purchaser upon
Purchaser's request therefor at any time after the scheduled date for Closing,
or on such sooner date as this transaction is cancelled by Purchaser and Seller.
THE PARTIES AGREE THAT THEY HAVE NEGOTIATED WITH REGARD TO THE DETERMINATION OF
DAMAGES AND HAVE CONCLUDED THAT, IF CLOSING FAILS TO OCCUR SOLELY BECAUSE OF THE
BREACH OF PURCHASER UNDER THIS AGREEMENT, WHEN ALL CONTINGENCIES TO CLOSING HAVE
OTHERWISE BEEN SATISFIED OR WAIVED, THEN IT WOULD BE IMPRACTICABLE OR EXTREMELY
DIFFICULT TO DETERMINE THE SELLER'S DAMAGES, THAT THE AMOUNT OF THE DEPOSIT IS A
REASONABLE ESTIMATE OF THE DAMAGES IN SUCH EVENT, AND THAT THE SELLER, AS ITS
SOLE REMEDY AND NOT AS A PENALTY, SHALL BE ENTITLED TO RETAIN THE DEPOSIT AS
LIQUIDATED DAMAGES. UPON PAYMENT OF SAID SUM TO SELLER, PURCHASER SHALL BE
RELEASED FROM ANY FURTHER LIABILITY TO SELLER, AND ANY ESCROW CANCELLATION FEES
AND TITLE COMPANY CHARGES SHALL BE PAID BY PURCHASER. THE PARTIES HEREBY
ACKNOWLEDGE THAT THEY ARE IN EQUAL BARGAINING POSITIONS, ARE SOPHISTICATED IN
BUSINESS MATTERS AND WERE REPRESENTED BY COUNSEL AT ALL TIMES DURING THE
NEGOTIATION OF THIS LIQUIDATED DAMAGES PROVISION.
/s/ David M. Talla /s/ Matt J. Hart
------------------------------ ---------------------------
Purchaser Seller
1.6 DELIVERIES INTO ESCROW.
(a) On or before the Closing Date, Seller, shall deposit the
following items (collectively, the "Seller Delivery Items") into the Escrow:
(i) An estoppel certificate from each of the Subtenants
whose Subleases are to be an Assumed Contract in the form last delivered by
Seller to Purchaser prior to the execution of this Agreement.
(ii) Manager's Estoppel Certificate in the form last
delivered by Seller to Purchaser prior to the execution of this Agreement.
(b) On or before the Closing Date, Purchaser shall deposit the following
items (collectively, the "Purchaser Delivery Items") into Escrow:
(i) The Purchase Price, subject to and in accordance with the
terms and conditions of Section 1.5.
<PAGE> 12
(ii) One executed original of the Note.
(c) On or before the Closing Date, Seller and Purchaser shall
deposit the following items (collectively, the "Joint Delivery Items") into the
Escrow:
(i) Four fully executed originals of the Contract
Assignment.
(ii) Four fully executed and notarized originals of the
Lease Assignment.
(iii) Four fully executed originals of the Bill of Sale.
The Seller Delivery Items, the Purchaser Delivery Items and the Joint Delivery
Items are referred to, collectively, as the "Delivery Items".
1.7 SELLER'S CONDITIONS TO CLOSING.
(a) Seller's obligations to consummate the Transactions are
conditioned upon the following, each of which shall be a condition precedent:
(i) All Purchaser Delivery Items and all Joint Delivery
Items executed by Purchaser shall have been deposited into the Escrow.
(ii) All of the representations and warranties of
Purchaser contained herein shall be true and correct in all material respects on
and as of the Closing Date as though remade and republished on and as of said
date.
(iii) Purchaser shall have performed and complied with
all of its obligations and covenants hereunder in all material respects.
(iv) The execution and delivery of this Agreement by
Purchaser, and the performance of Purchaser's covenants and obligations under
it, shall have been duly authorized by all necessary corporate action, and
Seller shall have received copies of all resolutions pertaining to that
authorization, certified by the secretary of Purchaser.
(v) Seller shall be relieved of any and all future
liability under the Master Lease upon the expiration of its primary term;
provided, however, that Seller may instead, in its sole discretion, accept a
lease guaranty of the Master Lease from an entity having a net worth at Closing,
exclusive of goodwill, in excess of $250 million in lieu of Seller being so
relieved.
<PAGE> 13
(vi) The form and substance of all certificates,
instruments, opinions, and other documents delivered to Seller under this
Agreement shall be satisfactory in all reasonable respects to Seller and its
counsel.
(vii) Purchaser and The Sports Club Company shall have
entered into the Assignment and Assumption.
(b) There is no Proceeding pending or threatened pertaining to
the Transactions or their consummation that shall have been instituted or
threatened by any Governmental Body or Person.
1.8 PURCHASER'S CONDITIONS TO CLOSING.
(a) Purchaser's obligations to consummate the Transactions are
conditioned upon the following, each of which shall be a condition precedent,
except for Section 1.8(a)(vii), which shall be a condition concurrent:
(i) All Seller Delivery Items and all Joint Delivery
Items executed by Seller shall have been deposited into the Escrow.
(ii) All items listed on Schedule 1.8(a)(ii) shall have
been delivered to Purchaser on or before Closing, except (A) if and to the
extent otherwise expressly provided in Schedule 1.8(a)(ii) and (B) the keys and
security code for the Club shall be present at the Club at Closing.
(iii) All of the representations and warranties of
Seller contained herein shall be true and correct in all material respects on
and as of the Closing Date as though republished and remade on and as of that
date; it being expressly understood and agreed, however, that changes in
representations and warranties which do not have a material adverse effect upon
the business of the Club shall in no event be a basis giving rise to a right of
Purchaser to terminate this Agreement pursuant to Section 1.8(c).
(iv) Seller shall have performed and complied with all
of its obligations and covenants hereunder in all material respects.
(v) The "Due Diligence Period" shall conclusively be
deemed to have expired upon the execution of this Agreement by Purchaser and
Seller.
(vi) There is no Proceeding pending or threatened
pertaining to the Transactions or their consummation that shall have been
instituted or threatened by any Governmental Body or Person.
(vii) No Legal Requirement or Order shall have been
enacted, entered, issued, promulgated or enforced by any Governmental Body, nor
shall any
<PAGE> 14
Proceeding have been instituted or, to the best knowledge of Seller, threatened
and remain so by any Governmental Body, at what would otherwise be the Closing
Date which would impair Purchaser's ability, following the Closing Date, to
continue to operate the Club as presently operated, except for any Legal
Requirement affecting the operation of an adult entertainment venue within a
residential neighborhood.
(b) Seller shall have the right to modify, update and supplement
all representations, warranties, exhibits and schedules attached to or delivered
in connection with this Agreement through the Closing Date (any such
modification, update or supplement, a "Modification"). Notwithstanding the
foregoing, if Seller makes any Modification and if such Modification would be
likely to have a material adverse effect upon the Club and/or its operations,
then Purchaser shall have the right to terminate this Agreement by giving a
notice to Seller terminating this Agreement within 5 days of Purchaser's receipt
of the Modification, and whether or not the Due Diligence Period has expired. If
such 5-day period would expire after the Outside Closing Date (as defined
below), then the Outside Closing Date shall be extended accordingly. In the
event of any such termination, the Deposit shall be returned promptly to
Purchaser, and the parties will have no further obligations to each other
hereunder. Purchaser's failure to give any such termination notice to Seller
within such 5-day period shall conclusively be deemed to be Purchaser's approval
of any such Modification. From the date hereof until Closing, if Barbara
Boultinghouse or Kevin Luebbers, on behalf of Seller, learns of any fact or
circumstance which causes, or has a reasonable likelihood of causing, a
representation or warranty of Seller's hereunder to be untrue or misleading, or
learns of any other fact or circumstance which materially affects the Purchased
Assets, Seller shall notify Purchaser within five days after Barbara
Boultinghouse or Kevin Luebbers learns thereof (but in no event later than
Closing).
(c) If (i) Seller shall not have been able to obtain any
required government or third party consent or approval, (ii) any material
representation or warranty of Seller shall prove to have been inaccurate or
untrue in any material respect when first made or (iii) Seller shall not have
performed, in any material respect, any of its material covenants contained in
this Agreement, and in each case by Closing, then Purchaser shall be entitled,
without limitation, (A) not to consummate, pursuant to Section 1.9(a), the
Transactions and have the Deposit Holder or Seller, as applicable, return to
Purchaser the Deposit (but without any interest thereon for such period of time,
if any, as it may have been held by Seller) less any termination fees and
expenses of Deposit Holder, or (B) to consummate the Transactions if Purchaser,
in its sole discretion, is willing to consummate the Transactions on such basis.
1.9 CLOSING.
(a) Closing shall occur, if at all, on or before Wednesday,
April 15, 1998 (the "Outside Closing Date"). If all conditions precedent set
forth in Sections 1.7 and 1.8 have not been satisfied or waived and the Closing
shall not have occurred on or before the Outside Closing Date, then either
Purchaser or Seller may unilaterally cancel this Agreement, at any time
thereafter prior to such satisfaction or waiver, by notice to the
<PAGE> 15
other, except that if the unsatisfied condition(s) is for the benefit of the
party not giving said notice, then such party shall have the right, within ten
days after its being served with said notice, to waive such unsatisfied
condition(s) and proceed to effect Closing immediately. Eleven days after the
effective date of said notice, if Closing has not been agreed to by the party
not giving said notice, as provided above, then, subject to Section 1.5(h), all
funds deposited by Purchaser, and all interest earned thereon, shall be returned
immediately to Purchaser.
(b) Consummation of the Transactions (the "Closing") will take
place at the offices of Resch Polster Alpert & Berger LLP, 10390 Santa Monica
Boulevard, Fourth Floor, Los Angeles, California 90025-5058 on the Closing Date.
(c) If Closing has not occurred in accordance with the terms and
conditions of this Agreement, then this Agreement shall automatically terminate
without any further action required, and the parties shall have no further
liability hereunder.
(d) When all conditions precedent to Closing set forth in
Sections 1.7 and 1.8 shall have been satisfied, or Deposit Holder shall have
received written instruction from the party or parties, or their respective
counsel, for whose benefit any such unsatisfied condition precedent exists
waiving the satisfaction of such conditions precedent, and when each of the
parties hereto shall have otherwise instructed Deposit Holder to proceed with
the Closing, then Deposit Holder shall take the following actions in the
following order:
(i) Insert the "Endorsed Date" (as defined therein) on
the last page of the Note.
(ii) Disburse the Purchase Price (including the
originally executed Note) to Seller in accordance with Seller's instructions.
(iii) Deliver two fully executed original copies of each
of the Contract Assignment, Lease Assignment and Bill of Sale to Seller.
(iv) Deliver two fully executed original copies of each
of the Contract Assignment and Bill of Sale, one fully executed original of the
Lease Assignment and one nonoriginal copy of the Note to Purchaser.
(v) Record the Lease Assignment and deliver conformed
copies of the duly recorded Lease Assignment to each of Seller and Purchaser.
(vi) Deliver the estoppel certificates referenced in
Sections 1.6(a)(i) and (ii) to Purchaser.
1.10 COSTS.
<PAGE> 16
(a) Seller shall pay the following:
(i) One-half of all fees and costs of Deposit Holder.
(ii) All recording fees and charges, intangible taxes
and similar costs, relating to the transfer of the Purchased Assets pursuant
hereto.
(iii) All documentary transfer taxes and fees, real
property transfer or gains taxes, governmental transfer fees and all sales, use,
and similar taxes, if any, payable in connection with the Transactions.
(iv) Cost of obtaining all reports Seller is required
hereunder or by law to deliver to Purchaser.
(v) Subject to the provisions of Section 5 (including
the indemnification and other obligations of Purchaser thereunder), Seller's own
Transaction Costs and all Transaction Costs that have been incurred or that are
in the future incurred by, on behalf of or for the benefit of, the Seller (the
"Seller Transaction Costs).
(b) Purchaser shall pay the following:
(i) Costs of obtaining the Title Policy.
(ii) Costs of obtaining any Survey.
(iii) One-half of all fees and costs of Deposit Holder.
(iv) Subject to the provisions of Section 5 (including
the indemnification and other obligations of Seller thereunder), Purchaser's own
Transaction Costs and all Transaction Costs (including all legal fees and
expenses payable to Resch Polster Alpert & Berger LLP) that have been incurred
or that are in the future incurred by, or on behalf of or for the benefit of,
Purchaser (the "Purchaser Transaction Costs").
1.11 PURCHASE PRICE ALLOCATION. The Purchase Price shall be allocated
among the Purchased Assets as follows (the "Allocation Statement"): (i) $250,000
to the equipment being purchased; (ii) $3,750,000 to the Membership Agreements
being purchased; and (iii) nothing to any of the other Purchased Assets. The
parties agree to report (on Form 8594 and otherwise) the allocation of the
Purchase Price in a manner consistent with the Allocation Statement. The
allocation prescribed by the Allocation Statement shall be conclusive and
binding upon each party for all purposes. No party shall file any tax return or
other document with, or make any statement or declaration to, any governmental
body if such document, statement or declaration is inconsistent with the
allocation prescribed by the Allocation Statement.
<PAGE> 17
1.12 SALES TAXES. The Seller shall bear and pay any sales taxes, use
taxes, transfer taxes, documentary charges, recording fees, or similar taxes,
charges, fees or expenses that are or may become payable in connection with the
sale of the Purchased Assets to Purchaser or in connection with any of the
Transactions.
1.13 ACCOUNTING TREATMENT. The parties intend that the Acquisition will
be treated as a purchase for accounting purposes.
1.14 TAX CONSEQUENCES. For federal income tax purposes, the Acquisition
is intended to constitute a taxable transaction.
1.15 PRORATIONS.
(a) Except as otherwise hereinafter provided, at and as of
Closing, Purchaser and Seller shall prorate in cash (i) real property taxes and
assessments for the Purchased Assets on the basis of the current fiscal year if
and to the extent that Seller shall be liable for real property taxes and
assessments under the Real Property Leases, (ii) rents under the Real Property
Leases, (iii) rents under any Personal Property Leases described in Schedule
1.1(e), (iv) utility and sewer charges, (v) management fees under the Management
Agreement, (vi) payments under the Assumed Contracts, (vii) operating expenses,
and (viii) other items customarily prorated in transactions of this sort. Seller
shall give Purchaser a credit at Closing in the amount of any deposits under any
Subleases that are to be Assumed Contracts.
(b) No pro ration shall be made for insurance premiums on
insurance policies of Seller (none of which Purchaser elects to accept and none
of which Seller elects to assign), for employee salaries, vacations, benefits,
bonuses, payroll taxes or other employee costs. Seller shall terminate, or cause
to be terminated, as of Closing all employees and independent contractors
working at the Club and shall pay, or cause to be paid, all employee salaries,
vacations, benefits, bonuses, payroll taxes and other employee and independent
contractor costs as of and including the Closing Date. Seller represents and
warrants to Purchaser that it has fewer than 50 employees working at the Club
who are full time employees, as full time employees are defined under the WARN
Act. Subject to the willingness of such employees and independent contractors to
be interviewed and, if asked by Purchaser, to be rehired, Purchaser shall be
permitted to interview and, at its election, rehire, from and after Closing, any
or all of such terminated employees and independent contractors and shall
provide all such rehired employees (but not any rehired independent contractors)
with health care insurance and benefits and worker's compensation insurance
generally consistent with that generally provided by Purchaser to its employees.
(c) At and as of the Closing Date, Purchaser and the Seller
shall proportionately allocate all prepaid items of income ("Prepaid Income"),
including without limitation monthly dues, Prepaid Dues, and gift certificates;
provided that there shall be no
<PAGE> 18
such proportionate allocation of up to 36,000 months of Prepaid Dues. "Prepaid
Dues" shall mean total cash consideration, whether designated as membership fees
or otherwise, paid in advance for months of membership sold at the Club;
provided, however, that if a Member is not obligated, from and after Closing, to
pay monthly dues, then all such periods of time from and after Closing for which
such Member is not obligated to pay monthly dues shall be considered when
calculating whether there may be more than 36,000 months of Prepaid Dues. Dues
payable on a monthly basis shall not constitute Prepaid Dues. There shall be no
proportionate allocation of initiation fees, if any, paid and collected in the
Ordinary Course of Business. A blended average monthly rate for the total
consideration paid in advance (whether paid in cash or "financed") for months of
membership in connection with all Prepaid Dues shall be used for purposes of
calculating the dollar value of any Prepaid Dues in excess of 36,000 months.
Payments collected by Purchaser or Seller, as applicable, from Members within 30
days following the Closing Date shall be applied (A) first to any prorated
amounts due Seller for the month in which the Closing shall have occurred, (B)
next to any prorated amounts due Purchaser for the month in which the Closing
shall have occurred, (C) next to any amounts due Purchaser for the month
following the month in which the Closing shall have occurred and (D) then to any
accounts receivable due Seller as of the Closing Date for any periods prior to
the month in which the Closing shall have occurred; provided, however, that any
payment, other than monthly dues, made by a Member after Closing shall belong to
Purchaser if such Member is not obligated to pay monthly dues after the making
of such payment. Payments from Members received by Purchaser or Seller, as
applicable, more than 30 days following the Closing Date shall be applied first
to the current period and then to past periods in reverse chronological order,
i.e. to more recent periods before less recent periods; provided, however, that
any payment, other than monthly dues, made by a Member after Closing shall
belong to Purchaser if such Member is not obligated to pay monthly dues after
the making of such payment. Any payments from Members collected by the Seller
from and after the Closing shall be held in trust for the account of Purchaser
and shall be promptly remitted to Purchaser minus any amounts owed to the Seller
as set forth in this Section 1.15(c) together with an accounting of such
payments in reasonable detail. Any payments from Members collected by Purchaser
from and after the Closing that are owed to the Seller as set forth in this
Section 1.15(c) shall be held in trust for the account of the Seller and shall
be promptly remitted to the Seller together with an accounting of such payments
in reasonable detail.
(d) For a period of ninety (90) days following the Closing,
Purchaser agrees that Purchaser shall, in accordance with Purchaser's standard
practice in conducting and operating clubs such as the Club, attempt to collect
any monthly dues under those Member Agreements assigned to and assumed by
Purchaser which are attributable to the period prior to the Closing; provided,
however, Purchaser shall have no obligation to commence any actions or
proceedings or take any further action to collect any such compensation, fees,
revenues or income due to Seller hereunder. After the Closing, Seller shall not
take any action against any party to any Membership Agreement assigned to and
assumed by Purchaser by reason of any unpaid monthly dues owed Seller
thereunder.
<PAGE> 19
(e) If real estate taxes and/or assessments, utility charges or
any other item is prorated as of Closing on any basis other than actual amounts
charged for the current period, such item or items shall be re-prorated upon
determination of such actual amounts, and the party owing funds to the other
shall promptly remit such funds to the other; provided, however, that in no
event shall Seller be liable for payment of any increase in real estate taxes if
and to the extent occasioned by any reassessment of the Real Property as a
result of the Acquisition. If either party owing funds hereunder to the other
does not remit them within 30 days after demand therefor, such funds shall
thereafter bear interest at the lesser of 10% per annum and the maximum lawful
rate. In all events, the amount of any refund or credit shall be the amount the
refund or credit would have been without giving effect to the Transactions. The
parties shall further cooperate so as to calculate such net final proration
amount within 180 days of the Closing. Any disagreement with respect to such
final calculation shall be resolved pursuant to binding arbitration before a
"Big 4" accounting firm to be designated by Purchaser or any other accounting
firm that shall be mutually agreed upon by the parties. Each party shall bear
its own cost and expenses in connection with such arbitration and one-half of
the fees and expenses of the arbitrator. Each party shall be entitled to provide
the arbitrator with such information as each party shall deem appropriate with
respect to the matters to be determined by such arbitrator.
(f) Final proration of percentage rents and similar
apportionable items which are dependent for their calculation upon the economic
performance of any Entity over a specified interval of time shall be
accomplished as follows: The parties shall await the expiration of the specified
interval to determine the gross rents, gross receipts and other economic
performance over the entire interval and then prorate the item by allocating to
Seller the product of the rents or other similar apportionable item for the
entire interval multiplied by a fraction, the numerator of which is the number
of days within the specified interval which occur before Closing and the
denominator of which is the number of days in the entire specified interval.
(g) Operating expenses which are payable (or reimbursable) by
any present Subtenant shall not be prorated hereunder (except to the extent that
Seller is due a credit for having already paid such expense). Purchaser shall
send customary statements for reimbursement of operating expenses and taxes to
said tenants after consulting with Seller with respect to appropriate amounts
due therefor, and shall remit to Seller, upon receipt, Seller's prorated share
thereof, determined as provided in subsection (f) above.
(h) If any Subtenant shall owe any sums under its respective
Sublease at Closing, then Seller shall retain its right to pursue such Subtenant
for such sums. Any sums received by Purchaser or Seller, as applicable,
following the Closing Date from any Subtenant shall be applied first to the
current period and then to past periods in reverse chronological order, i.e., to
more recent periods before less recent periods. Any such sums collected by
Seller from and after the Closing shall be held in trust for the account of
Purchaser, and Seller shall promptly remit such sums to Purchaser. Any such
<PAGE> 20
sums collected by Purchaser from and after the Closing that are owed to Seller
as set forth in this section 1.15(h) shall be held in trust for the account of
Seller, and Purchaser shall promptly remit such sums to Seller together with an
accounting of such sums in reasonable detail. Except as set forth in the next
sentence, Purchaser shall have no obligation to attempt to collect any sums due
under any Sublease assigned to and assumed by Purchaser if and to the extent
such sums are attributable to any period prior to the Closing. If Purchaser
pursues any Subtenant for any past due sums under the applicable Sublease, then
Purchaser shall do so only for all such sums that may be past due; provided,
however, that, while Purchaser may settle any past due sums relating to any
period after Closing, Purchaser shall not settle any past due sums relating to
any period prior to Closing without Seller's prior written consent.
(i) Prior to Closing, Purchaser and Seller shall prepare and
agree upon a proforma closing statement as if Closing were occurring at 12:01
a.m. on February 1, 1998 (the "Proforma Closing Statement"). Notwithstanding
anything to the contrary contained in this Agreement, the proration calculations
otherwise required by this Agreement shall, initially, be performed, at Closing,
based upon the Proforma Closing Statement. As soon as possible after Closing,
however, and in any event in accordance, without limitation, with Section
1.15(e), Purchaser and Seller shall further cooperate so as to calculate a net
final proration amount based upon actual operating results for the Club for the
period through and including the Closing Date.
1.16 DELIVERY OF DOCUMENTS. As soon as reasonably possible following
execution hereof, if Seller has not already done so, Seller shall deliver to
Purchaser for Purchaser's approval as to form and content, originals or legible
copies of the following , to the extent that they exist and are either in
Seller's possession or may reasonably be obtained by Seller (and, if any of the
following are discovered by and/or prepared by or on behalf of Seller after the
date hereof but prior to Closing, each such item shall be delivered to Purchaser
immediately):
(i) All Contracts; and
(ii) An inventory of all tangible personalty, prepared
to the best of Manager's knowledge, relating to the Club; provided, however,
that Purchaser, if it so elects, may prepare, at Purchaser's cost, such an
inventory itself, either in place of or in addition to Manager's inventory.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants, to and for the benefit of the Purchaser
Indemnitees, as follows:
2.1 DUE ORGANIZATION; ETC. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Seller is in good
<PAGE> 21
standing and qualified to do business under the laws of, and in, the States of
California and New York. Seller has all necessary power and authority:
(i) to conduct its business in the manner in which its
business is currently being conducted;
(ii) to own and use its assets in the manner in which
its assets are currently owned and used; and
(iii) to perform its obligations under all Seller
Contracts.
2.2 MANAGER'S ESTOPPEL CERTIFICATE. To Seller's Knowledge, the
representations and warranties of Manager contained in Manager's Estoppel
Certificate are true, accurate and complete in all material respects.
2.3 ABSENCE OF CHANGES. To Seller's Knowledge, there has not been any
material adverse change in the Seller's business, condition, assets,
liabilities, operations, financial performance or net income, and no event has
occurred that is likely to have a material adverse effect upon any thereof.
Seller shall immediately notify Purchaser of the material details of any such
material adverse change or such event promptly upon either Barbara Boultinghouse
or Kevin Luebbers having actual knowledge of the same. If any such material
adverse change or such event shall occur within 5 days of the otherwise
scheduled date for Closing, then the scheduled date for Closing shall be
extended until 5 Business Days from the earlier of (a) Purchaser's actual
knowledge of the material details of such material adverse change or such event
or (b) Purchaser's receipt of notice from Seller to Purchaser of the material
details of such material adverse change or such event.
2.4 TITLE TO ASSETS.
(a) Subject to Section 1.1(e), at Closing, Seller will own, and
have good and valid title to, all of the Purchased Assets, including, without
limitation, the Membership Agreements, free and clear of any Encumbrances.
(b) Subject to Section 1.1(e), all leases and licenses
pertaining to any Purchased Assets will be satisfied prior to Closing, and all
Purchased Assets shall be transferred to Purchaser free and clear of such leases
and licenses and any other Encumbrances.
2.5 EQUIPMENT, ETC.. Schedule 2.5 identifies all equipment owned or held
for use by the Seller in connection with the Club. All equipment owned or held
for use by the Seller in connection with the Club will be transferred, subject
to Section 1.2, free and clear of all Encumbrances as part of the Purchased
Assets at Closing. Neither Manager nor any third party owns any of such
equipment.
<PAGE> 22
2.6 FOREIGN PERSON. Seller is not a "foreign person" within the meaning
of Section 1445 of the U.S. Internal Revenue Code of 1986.
2.7 AUTHORITY; BINDING NATURE OF AGREEMENTS. Seller has the absolute and
unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement and the other Transactional Agreements to which
it is a party; and the execution, delivery and performance by the Seller of this
Agreement and the other Transactional Agreements have been duly authorized by
all necessary action on the part of the Seller. This Agreement constitutes the
legal, valid and binding obligation of the Seller, enforceable against the
Seller in accordance with its terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.
2.8 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
any of the Transactional Agreements, nor the consummation or performance of any
of the Transactions, will directly or indirectly (with or without notice or
lapse of time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of the Seller's articles of incorporation or bylaws or
(ii) any resolution adopted by the Seller's stockholders, board of directors or
any committee of the board of directors; or
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Seller, or any of the Purchased Assets is
subject.
(c) The Seller was not, is not or will not be required to make
any filing with or give any notice to, or to obtain any Consent from, any Person
in connection with the execution and delivery of any of the Transactional
Agreements or the consummation or performance of any of the Transactions
2.9 INFORMATION. Seller has furnished and will continue to furnish
promptly to Purchaser detailed information with respect to the Club, Purchased
Assets, Assumed Liabilities, Assumed Contracts and earnings and business
operations of Seller and the Club. To Seller's Knowledge, all information
contained in the exhibits and schedules attached to this Agreement and in the
documents furnished to Purchaser by Seller pursuant to this Agreement or
otherwise, is and shall be at the Closing, true, correct and complete. To
Seller's Knowledge, all underlying documents incorporated or referred to in such
exhibits and schedules, or in documents otherwise furnished to Purchaser by or
on behalf of Seller, are true, correct and complete copies thereof, as the same
have been or shall be amended or modified.
<PAGE> 23
SECTION 3. "AS IS"; DUE DILIGENCE COMPLETED; DISCLAIMER OF ADDITIONAL WARRANTIES
OF SELLER.
Purchaser acknowledges that Purchaser has had or will have the
opportunity to review all documents and other information made available to
Purchaser or its Representatives. In addition, Purchaser has had or will have
the opportunity to review all reports, studies, inspections, audits, appraisals,
and other similar items which Purchaser may perform or have performed in
connection with the Transactions, and Purchaser will otherwise do what it deems
necessary in order to evaluate the financial condition, status of title, zoning
and land use and the economical and operational viability of the Club. Purchaser
acknowledges further that, prior to Closing, it will complete, or have had the
opportunity to complete, physical and financial examinations relating to the
Club and will consummate the Transactions on the basis of all such examinations.
Purchaser further acknowledges to and agrees with Seller that, except for the
representations and warranties set forth in Section 2 hereof, and subject to the
terms and conditions of this Agreement, the Club shall be sold, at Closing, "AS
IS" without any warranties or representations either expressed or implied, of
any nature or type whatsoever from or on behalf of Seller.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants, to and for the benefit of the Seller
Indemnitees, as follows:
4.1 DUE ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and has all necessary power and authority:
(a) to conduct its business in the manner in which its business
is currently being conducted; and
(b) to own and use its assets in the manner in which its assets
are currently owned and used.
4.2 AUTHORITY; BINDING NATURE OF AGREEMENT.
(a) Purchaser has the absolute and unrestricted right, power and
authority to enter into and perform its obligations under this Agreement and the
other Transactional Agreements to which it is a party;
(b) The execution, delivery and performance of this Agreement
and the other Transactional Agreements by Purchaser has been, or at Closing will
have been, duly authorized by all necessary action on the part of Purchaser and
its board of directors; and
<PAGE> 24
(c) Each of this Agreement and the other Transactional
Agreements constitutes a legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors' rights, and
subject to general equity principles and to limitations on availability of
equitable relief, including specific performance.
4.3 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
any of the Transactional Agreements, nor the consummation or performance of any
of the Transactions, will directly or indirectly (with or without notice or
lapse of time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of Purchaser's certificate or articles of incorporation or
bylaws, or (ii) any resolution adopted by Purchaser's stockholders, Purchaser's
board of directors or any committee of Purchaser's board of directors;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Purchaser, or any of the assets owned or
used by the Purchaser, is subject;
(c) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of, or give any Person the right
to declare a default under, any contract to which Purchaser is a party or by
which it or any of its assets are bound.
SECTION 5. INDEMNIFICATION, ETC.
5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties made by the parties
hereto in this Agreement shall survive the Closing and shall expire on the first
anniversary of the Closing Date: provided, that if, at any time prior to the
first anniversary of the Closing Date any Indemnitee (acting in good faith)
delivers a written notice alleging the existence of a Breach of any of such
representations and warranties and asserting a claim for recovery under Section
5 based on such alleged Breach, then the claim asserted in such notice shall
survive the first anniversary of the Closing until such time as such claim is
fully and finally resolved.
(b) For purposes of this Agreement, each statement or other item
of information set forth in the Disclosure Schedule shall be deemed to be a
representation and warranty in this Agreement made by the party by whom such
schedule was delivered.
<PAGE> 25
5.2 INDEMNIFICATION BY SELLER. Seller shall hold harmless and indemnify
each of the Purchaser Indemnitees from and against, and shall compensate and
reimburse each of the Purchaser Indemnitees for, any Damages which are suffered
or incurred by any of the Purchaser Indemnitees or to which any of the Purchaser
Indemnitees may otherwise become subject at any time (regardless of whether or
not such Damages relate to any third-party claim) and which arise from, or as a
result of, or are connected with:
(a) any Breach of any representation or warranty made by Seller
in this Agreement or any of the Transactional Agreements;
(b) any Breach of any covenant or obligation of Seller;
(c) any Liability that arises from or relates to any Seller
Transaction Costs; or
(d) any Liability to which any of the Purchaser Indemnitees may
become subject and that arises from or relates to (i) any of the Purchased
Assets prior to Closing or (ii) Excluded Assets or (iii) any Liability of the
Seller not specifically assumed by Purchaser pursuant to this Agreement or (iv)
the operation of the Club through and including Closing;
(e) any Proceeding commenced relating to any Breach, Liability
or matter of the type referred to in clauses (a), (b), (c) or (d) of this
Section 5.2.
5.3 INDEMNIFICATION BY PURCHASER. Purchaser shall hold harmless and
indemnify each of the Seller Indemnitees from and against, and shall compensate
and reimburse each of the Seller Indemnitees for, any Damages which are suffered
or incurred by any of the Seller Indemnitees or to which any of the Seller
Indemnitees may otherwise become subject at any time (regardless of whether or
not such Damages relate to any third-party claim) and that arise from, or as a
result of, or are connected with:
(a) any Breach of any representation or warranty made by
Purchaser in this Agreement or any of the Transactional Agreements;
(b) any Breach of any covenant or obligation of Purchaser in
this Agreement or any of the Transactional Agreements;
(c) any Liability that arises from or relates to any Purchaser
Transaction Costs;
(d) any Liability to which any of the Seller Indemnitees may
become subject and that arises from or relates to (i) any of the Purchased
Assets subsequent to Closing or (ii) any Assumed Liability, (iii) the operation
of the Club after Closing or (iv) any
<PAGE> 26
act or omission by Purchaser with respect to the Management Agreement from and
after Closing;
(e) any Proceeding commenced relating to any Breach, Liability
or matter of the type referred to in any of clauses (a), (b) (c) or (d) of this
Section 5.3; and
(f) any Liability that arises under the WARN Act as a result of
Seller not having given any advance notice to its employees and independent
contractors working at the Club regarding their termination at Closing pursuant
to Section 1.15(b).
5.4 NONEXCLUSIVITY OF INDEMNIFICATION REMEDIES. The indemnification
remedies and other remedies provided in this Section 5 shall not be deemed to be
exclusive. Accordingly, the exercise by any Person of any of its rights under
this Section 5 shall not be deemed to be an election of remedies and shall not
be deemed to prejudice, or to constitute or operate as a waiver of, any other
right or remedy that such Person may be entitled to exercise.
5.5 DEFENSE OF THIRD PARTY CLAIMS BY SELLER. In the event of the
assertion or commencement by any Person of any claim or Proceeding with respect
to which Seller may become obligated to indemnify, hold harmless, compensate or
reimburse any Purchaser Indemnitee pursuant to this Section 5, Seller shall
defend such claim or Proceeding at its sole expense, in which case:
(a) Seller shall proceed to defend such claim or Proceeding in a
diligent manner with counsel reasonably satisfactory to Purchaser;
(b) Purchaser shall make available to Seller any non-privileged
documents and materials in the possession of Purchaser that may be necessary to
the defense of such claim or Proceeding;
(c) Seller shall endeavor to keep Purchaser informed of all
material developments and events relating to such claim or Proceeding;
(d) Purchaser shall have the right to participate, at its own
cost, in the defense of such claim or Proceeding;
(e) Purchaser shall cooperate with Seller, in a timely manner,
in the defense of such claim or Proceeding; and
(f) Seller shall have the right to settle, adjust or compromise
such claim or Proceeding with the prior written consent of Purchaser; provided,
however, that Purchaser shall not unreasonably withhold, delay or condition such
consent.
<PAGE> 27
5.6 DEFENSE OF THIRD PARTY CLAIMS BY PURCHASER. In the event of the
assertion or commencement by any Person of any claim or Proceeding with respect
to which Purchaser may become obligated to indemnify, hold harmless, compensate
or reimburse any Seller Indemnitee pursuant to this Section 5, Purchaser shall
defend such claim or Proceeding at its sole expense, in which case:
(a) Purchaser shall proceed to defend such claim or Proceeding
in a diligent manner with counsel reasonably satisfactory to Seller;
(b) Seller shall make available to Purchaser any non-privileged
documents and materials in the possession of Seller that may be necessary to the
defense of such claim or Proceeding;
(c) Purchaser shall endeavor to keep Seller informed of all
material developments and events relating to such claim or Proceeding;
(d) Seller shall have the right to participate, at its own cost,
in the defense of such claim or Proceeding;
(e) Seller shall cooperate with Purchaser, in a timely manner,
in the defense of such claim or Proceedings; and
(f) Purchaser shall have the right to settle, adjust or
compromise such claim or Proceeding with the prior written consent of Seller;
provided, however, that Purchaser shall not unreasonably withhold, delay or
condition such consent.
5.7 EXERCISE OF REMEDIES BY INDEMNITEES. Notwithstanding anything herein
to the contrary, no Indemnitee (other than Purchaser or any successor thereto or
assign thereof for the Purchaser Indemnitees or Seller or any successor thereto
or assign thereof for the Seller Indemnitees) shall be permitted to assert any
indemnification claim or exercise any other remedy under this Agreement.
SECTION 6. ADDITIONAL COVENANTS AND AGREEMENTS.
6.1 INTERIM CONDUCT OF THE BUSINESS. At all times from and after January
29, 1998 and through and including the Closing Date, Seller shall not deviate
from its ordinary and customary operation, maintenance or management of the
Purchased Assets and shall not engage in any transaction other than in the
lawful, ordinary and usual course of business as heretofore conducted. Without
limiting the foregoing, Seller shall maintain in full force and effect until the
Closing Date a policy or policies of insurance on the Purchased Assets which
provide a scope and amount of coverage which are usual and customary in Seller's
business; not make any non-ordinary wage or salary increases or severance
packages; subject to Purchaser's prior reasonable written approval, not make any
material changes in its member billing practices or rates, or enter into any
material third party
<PAGE> 28
agreements; not declare, set aside, or make any dividend or distribution; not
directly or indirectly purchase or redeem any interests in Seller; not pay any
obligation other than current liabilities, not waive or compromise any claim or
right, and not cancel, without full payment, any obligation; shall have directed
Manager, from and after November 17, 1997, to sign Members only to Membership
Contracts which provide for a term and payments of month-to-month or less; and
not take, or omit to take, any action which would cause a default under the
Master Lease. Seller shall maintain all of the Purchased Assets in good repair
through Closing, ordinary wear and tear excepted. Without limiting the
generality of the foregoing, Seller shall repair, at its sole cost and expense,
all defects in the material or workmanship thereof prior to Closing. Seller
shall remedy prior to Closing any and all violations of or any Legal Requirement
relating to all or any part of the Purchased Assets of which Seller had
Knowledge prior to Closing. Seller shall obtain promptly all government and
third party consents and approvals to the consummation of the Transactions. From
and after the date hereof until Closing, Seller shall lease or rent no space at
the Real Property (including renewal of an existing tenancy) without Purchaser's
prior approval, nor shall Seller otherwise deviate from its ordinary and
customary operation, maintenance, or management of the Purchased Assets. Seller
shall not further encumber the Purchased Assets or any part thereof, convey any
interest therein (other than to Purchaser pursuant hereto) without Purchaser's
prior consent, or accept any additional advance or funds secured or to be
secured by any existing encumbrance on any of the Purchased Assets, or permit
any encumbrance to which any part of the Purchased Assets is subject to become
in default prior to Closing. Seller shall not enter into any new service,
maintenance, supply or other contract affecting the Purchased Assets in any way
prior to Closing without Purchaser's prior approval, unless such contract is
cancelable at any time on thirty days' notice or less, without cost to
Purchaser.
6.2 STANDSTILL BY SELLER. From and after January 29, 1998 and through
and including the Closing and for so long as Purchaser shall not be in default
under this Agreement, Seller shall not directly or indirectly, solicit or
initiate discussions or engage in negotiations with, or provide any information
to, or authorize any financial advisor or other person to solicit or initiate
discussions or engage in negotiations with, or provide any such information to,
any corporation, partnership, person or other entity or group (other than
Purchaser) concerning any possible proposal regarding a sale of interests in or
a merger, consolidation, sale of assets or other similar transaction involving,
Seller or any division or asset of Seller pertaining to the Purchased Assets.
6.3 PURCHASER'S ACCESS. From January 28, 1998, through the Closing Date,
Seller shall give Purchaser and its Representatives, or cause them to be
permitted, during normal business hours and upon reasonable notice, full access
to all properties, books, files, data, contracts, leases, commitments and
records of Seller and the Club, and during this period Seller shall furnish
Purchaser with all financial and operating data and all other information as to
the business, properties and assets of Seller and the Club as Purchaser may from
time to time reasonably request; provided, however, that such access and
investigation shall not interfere with the conduct of the Club by Seller. At
Purchaser's
<PAGE> 29
reasonable request, Seller shall direct its Representatives to cooperate with
Purchaser pursuant to this Section 6.3 at no additional cost to Purchaser. In
undertaking its due diligence, Purchaser shall not disturb, to the minimum
extent reasonably possible, the operations of the Club. The exercise by
Purchaser of any of the preceding rights, or any other act of Purchaser, shall
not negate any representation, warranty or covenant of Seller or modify any of
Purchaser's rights or Seller's obligations in the event of any Breach by Seller
of any of Seller's representations, warranties or covenants of this Agreement.
Purchaser shall indemnify, defend and hold harmless Seller from and against any
and all Damages arising out of any entry within the Club by Purchaser or its
Representatives. The indemnification of Seller by Purchaser in the preceding
sentence shall survive any termination of this agreement or the Closing for a
period of 1 year from and after the date of termination or the Closing, as the
case may be.
6.4 PRESERVATION OF BUSINESS AND RELATIONSHIPS. From January 29, 1998
until the Closing, Seller shall use its commercially reasonable efforts to
preserve the Club's business and its organization intact, including without
limitation to preserve Seller's present relationships with suppliers, customers
and others having business relationships with Seller regarding the Club. Seller
shall promptly arrange for utility telephone service to be transferred to
Purchaser at Closing.
6.5 NO INCONSISTENT ACTION. Each of the parties hereto will use such
party's commercially reasonable efforts to consummate the transaction
contemplated by this Agreement and shall not take any action inconsistent with
such party's obligations hereunder or which could hinder or delay the
consummation of the transactions contemplated hereby.
6.6 DAMAGE OR DESTRUCTION. If prior to Closing the Purchased Assets
shall sustain damage caused by fire or other casualty that is insured and that
would cost One Hundred Thousand Dollars ($100,000) or more to repair or if any
uninsured loss or casualty occurs that would cost One Hundred Thousand Dollars
($100,000) or more to repair, Purchaser may elect to terminate this Agreement as
set forth in Section 1.8(b); it being agreed that the occurrence of any such
damage shall require Seller to issue a Modification to Purchaser, as set forth
in Section 1.8. If Purchaser does not so elect to terminate its obligations
under this Agreement, or if the loss or casualty would cost less than One
Hundred Thousand Dollars ($100,000) to repair, the Closing shall take place as
provided herein, and Purchaser shall receive (i) a credit for the amount of
Seller's deductible or retention and (ii) an assignment of Seller's rights to
insurance proceeds with respect to any unrepaired damage (including any rental
loss proceeds for periods after the Closing), loss or casualty in question, but
subject to the rights of existing lienholders. Subject to such rights, Purchaser
shall be entitled to settle the loss with Seller's insurers. Seller shall retain
all interest in and to the insurance proceeds that may be payable to Seller on
account of damage repaired and completed by Seller before Closing, but Seller
shall have no obligation of repair or replacement.
<PAGE> 30
6.7 CONDEMNATION. In the event that the Purchased Assets or any part
thereof becomes the subject of a condemnation proceeding other than of a minor
immaterial nature prior to Closing, Seller agrees to immediately advise
Purchaser thereof. In the event of such condemnation, Purchaser shall have the
option, pursuant to Section 1.8(b), to (1) take title in accordance with the
terms and conditions of this Agreement and negotiate with the said condemning
authority for the condemnation award and receive the benefits thereof without
affecting the Purchase Price, or (2) terminate this Agreement.
6.8 LIQUOR LICENSE. Seller shall cooperate with Purchaser (without cost
or liability to Seller) in Purchaser's obtaining a transfer of any existing
liquor license for the Club or, if such transfer shall not be possible,
obtaining a new liquor license; to Seller's Knowledge, there is no such liquor
license currently existing.
6.9 [Intentionally omitted]
6.10 FIRPTA AFFIDAVIT. At or prior to Closing, Seller shall provide to
Purchaser an affidavit signed under penalty of perjury and complying with the
requirements of U.S. Internal Revenue Code Section 1445(b)(2) and an equivalent
Form 590RE provided under the Revenue and Taxation Code of the State of
California. If Seller shall not have timely furnished to Purchaser said
affidavit, Purchaser may, at its option, either (i) adjourn the closing until
such time as Seller has complied with the conditions set forth herein, and such
adjournment shall not place Purchaser in default of its obligations hereunder,
or alternatively (ii) Purchaser may withhold from the Purchase Price and remit
to the Internal Revenue Service and the Franchise Tax Board such withholding as
may be required of Purchaser in accordance with the withholding obligations
imposed upon Purchaser pursuant to Internal Revenue Code Section 1445 and
equivalent statutes under the Revenue and Taxation Code of the State of
California. Such withholding shall not place Purchaser in default under this
Agreement, and Seller shall not be entitled to claim that such withholding shall
excuse Seller's performance under this Agreement.
6.11 SEC REQUIRED FINANCIAL INFORMATION. At Purchaser's request at any
time from and after January 28, 1998 until the date that is one (1) year after
the Closing Date, Seller shall, at Purchaser's expense, provide to Purchaser's
designated independent auditor reasonable access to the books and records of the
Purchased Assets, regarding the period for which Purchaser is required to have
audited financial statements prepared with respect to the Purchased Assets as
may be required by the Securities and Exchange Commission, but only to the
extent that such books, records and related information are in Seller's
possession or control and relate to the period during which Seller held title to
the Purchased Assets.
6.12 INVESTMENT IN THE CLUB. Within thirty (30) months after the Closing
Date, but subject to force majeure and any delay caused by any Governmental
Body, Legal Requirement, Order or Proceeding, Purchaser shall spend, or cause to
be spent, no less than ten million dollars ($10,000,000) on improvements to the
Club, inclusive of fixtures, furnishings and equipment.
<PAGE> 31
SECTION 7. MISCELLANEOUS PROVISIONS.
7.1 FURTHER ASSURANCES. Each party hereto shall execute and/or cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the Transactions. Without limiting the generality of the
foregoing, at any time and from time to time after the Closing Date, the parties
shall duly execute, acknowledge and deliver all such further assignments,
conveyances, instruments and documents, and will take such other action
consistent with the terms of this Agreement, in each case, as may be reasonably
necessary to assign, transfer and convey to Purchaser good and marketable title
to any and all of the Purchased Assets, free and clear of all Encumbrances, to
carry out the transactions contemplated by this Agreement, and to comply with
the terms hereof. No party will take or knowingly permit to be taken any action
or do or knowingly permit to be done anything in the conduct of its business, or
otherwise, which would be contrary to or in breach of any of the terms or
provisions of this Agreement, or which would cause any of the representations or
warranties contained herein to become untrue or incomplete. Each party agrees to
cause its Affiliates to comply with any obligations hereunder for which the
assistance of such Affiliate is necessary or advisable and to take any other
action which may be necessary or reasonably requested by the other party in
order to consummate the Transactions.
7.2 ATTORNEYS' FEES. If any legal action or other legal proceeding
relating to any of the Transactional Agreements or the enforcement of any
provision of any of the Transactional Agreements is brought against any party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
and expert witness fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled). Attorneys' fees incurred
in enforcing any judgment in respect of this Agreement are recoverable as a
separate item. The preceding sentence is intended to be severable from the other
provisions of this Agreement and to survive any judgment and, to the maximum
extent permitted by law, shall not be deemed merged into any such judgment.
7.3 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered or certified mail, return receipt requested, by courier or express
delivery service or by telecopier with proof of transmission and receipt) to the
address or telecopier number set forth beneath the name of such party below (or
to such other address or telecopier number as such party shall have specified in
a written notice given to the other parties hereto). In the case of any notice
given by telecopier, a confirming copy shall be sent, as soon as reasonably
possible thereafter, by another approved means specified above.
<PAGE> 32
if to Purchaser: RM Sports Club, Inc.
11100 Santa Monica Boulevard, Suite 300
Los Angeles, California 90025
Attention: Chief Executive Officer,
President and Real Estate Notices
Telephone: (310) 479-5200
Telecopier: (310) 479-4350
with a copy (not constituting notice) to:
Resch Polster Alpert & Berger LLP
10390 Santa Monica Boulevard
Fourth Floor
Los Angeles California 90025-5058
Attention: Ronald M. Resch, Esq.
Telephone: (310) 277-8300
Telecopier: (310) 552-3209
if to Seller: Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, California 90210
Attention: Chief Financial Officer
Telephone: 310/278-4321
Telecopier: 310/205-4611
with a copy (not constituting notice) to.
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, California 90210
Attention: General Counsel
Telephone: 310/278-4321
Telecopier: 310/205-4613
if to Deposit Holder: Chicago Title Company
700 South Flower Street, #920
Los Angeles, California 90017
Attention: Rose Martinez re escrow no. 7151506X43
Telephone: 213/488-4300
Telecopier: 213/488-4384
with a copy (not constituting notice) to the party
or parties not giving such notice to Deposit
Holder.
<PAGE> 33
If notice is sent by telecopier, a copy of such notice shall be concurrently
sent by one of the other means set forth in this section. Failure to do so will
not affect the validity and due delivery of such notice.
7.4 PUBLICITY; CONFIDENTIALITY. At all times before and after the
Closing Date and except as may otherwise be required by any Legal Requirement or
by the rules and regulations of the New York Stock Exchange, the American Stock
Exchange, NASDAQ or the Securities and Exchange Commission:
(a) Prior to the Closing, no press release or other publicity
concerning any of the Transactions shall be issued or otherwise disseminated by
or on behalf of the parties hereto unless mutually agreed upon by the parties in
advance. The parties shall issue a mutually approved press release promptly
following Closing. Each of the parties shall continue to keep the existence and
terms of this Agreement and the other Transactional Agreements strictly
confidential except to the extent such information is publicly available,
lawfully obtained from independent sources or as may be required by any Legal
Requirement or as may otherwise be determined by Purchaser, in good faith, to be
appropriate.
(b) Prior to the Closing, Purchaser agrees to keep confidential
and not to disclose to any third party, other than to Purchaser's actual or
potential lenders or investors or their Representatives, who in turn will agree
to hold such information confidential, any information and material obtained
from Seller or any of its Representatives or to which Purchaser has access
related to the business and assets of Seller except to the extent such
information is publicly available, previously lawfully known to Purchaser,
lawfully obtained from independent sources or as may be required by any Legal
Requirement. No such information shall be used by any such party for their own
benefit. Purchaser will promptly return, and cause all of its actual and
potential lenders, investors and each of its and their respective
Representatives promptly to return, any and all such information to Seller if
Closing does not occur, for any reason whatsoever.
(c) Prior to the Closing, Seller agrees to keep confidential and
not to disclose to any third party, other than to Seller's actual or potential
lenders or investors or their Representatives, who in turn will agree to hold
such information confidential, any information and material obtained from
Purchaser or any of their respective Representatives or to which Seller has
access related to the business and assets of Purchaser except to the extent such
information is publicly available, previously lawfully known to Seller, lawfully
obtained from independent sources or as may be required by any Legal
Requirement. No such information shall be used by any such party for their own
benefit. Seller will promptly return, and cause all of its actual and potential
lenders, investors and each of its and their respective Representatives promptly
to return, any and all such information to Purchaser if Closing does not occur,
for any reason whatsoever.
7.5 NONCOMPETITION/NONSOLICITATION.
<PAGE> 34
(a) Seller agrees that, after the Closing, Purchaser shall be
entitled to the goodwill and going concern value of the Club and to protect and
preserve the same to the maximum extent permitted by law. Seller also
acknowledges that its management contributions to the Club have been uniquely
valuable and that Seller has proprietary information that would be competitively
unfair to make available to any competitor of the Club. For these and other
reasons, and as an inducement to Purchaser to enter into this Agreement, for a
period of 3 years from and after the Closing Date neither Seller nor any Entity
in which Seller shall be the real party in interest shall own or manage any
health or fitness or other similar facility located within Manhattan. It shall
not, however, be a breach of this Section 7.5(a) if Seller, or any Entity in
which Seller shall be the real party in interest shall own or manage any health
or fitness or other similar facility of less than 20,000 square feet located
within any hotel as an ancillary service for guests of such hotel.
(b) In addition, to protect Purchaser against any efforts by
Seller to cause employees and/or independent contractors of the Club to
terminate their employment, Seller agrees that for a period of 5 years from and
after the Closing Date, neither Seller nor any Entity in which Seller shall be
the real party in interest shall, directly or indirectly, (i) induce any
employee or independent contractor of the Club to leave the Club or to accept
any other employment or position or (ii) assist any other Entity in hiring such
person.
(c) Seller recognizes and agrees that a breach by Seller, or any
Entity in which Seller shall be the real party in interest, of any of the
covenants set forth in this Section 7.5 could cause irreparable harm to
Purchaser, that Purchaser's remedies at law in the event of such breach would be
inadequate, and that, accordingly, in the event of such breach a restraining
order or injunction or both may be issued against Seller or any such Entity, in
addition to any other rights and remedies which are available to Purchaser. If
this section is more restrictive than permitted by the Legal Requirements of any
jurisdiction in which Purchaser seeks enforcement hereof, then this Section 7.5
shall be limited to the extent required to permit enforcement thereunder. In
particular, the parties intend that the covenants contained in the preceding
portions of this Section 7.5 shall be construed as a series of separate
covenants, one for each county and city within the radius described above.
Except for geographic coverage, each such separate covenant shall be deemed
identical in terms. If, in any judicial proceeding, a court shall refuse to
enforce any of these separate covenants deemed included in this paragraph, then
such unenforceable covenant shall be deemed eliminated from these provisions for
the purpose of those proceedings to the extent necessary to permit the remaining
separate covenants to be enforced.
(d) No consideration shall be allocated to the covenants set
forth in this Section 7.5.
7.6 TIME OF THE ESSENCE. In connection with consummation of the
Acquisition and the Transactions, the parties agree that time is of the essence;
provided, however, that if any period or time set forth in this Agreement ends
or occurs on a day
<PAGE> 35
which is not a Business Day, then such period or time shall instead end on the
next immediately following Business Day.
7.7 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
7.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
7.9 GOVERNING LAW; VENUE. This Agreement shall be construed in
accordance with, and governed in all respects by the internal laws of the State
of California (without giving effect to principles of conflicts of laws). The
exclusive venue for any dispute arising out of this letter shall be in either
the federal or state courts located within Los Angeles County, California. Each
party waives the defense of forum non conveniens or any similar doctrine.
Service of process may be made in accordance with the applicable local rules.
7.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Seller and its successors and assigns (if any); and Purchaser and its successors
and assigns (if any). This Agreement shall inure to the benefit of: Seller;
Purchaser; and the respective successors and assigns (if any) of the foregoing.
Purchaser may only assign all of its rights under this Agreement (including its
indemnification rights under Section 5.2, and not any part thereof, and then
only if (a) the proposed assignee is The Sports Club Company, Inc., and (b)
Seller is provided with a written assignment and assumption agreement, in the
form attached hereto as Exhibit H (the "Assignment and Assumption"), executed by
Purchaser and such assignee and pursuant to which such assignee assumes all of
Purchaser's rights, duties and obligations under the Transactional Agreements.
Any such permitted assignment and assumption shall relieve Purchaser of all of
its duties and obligations under the Transactional Agreement.
7.11 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies
of the parties hereto shall be cumulative (and not alternative). Seller agrees
that in the event of any Breach or threatened Breach by Seller of any covenant,
obligation or other provision set forth in this Agreement, Purchaser shall be
entitled (in addition to any other remedy that may be available to it) to (i) a
decree or order of specific performance or mandamus to enforce the observance
and performance of such covenant, obligation or other provision, and (ii) an
injunction restraining such Breach or threatened Breach.
7.12 NO CONSEQUENTIAL DAMAGES. Notwithstanding anything to the contrary
that may be contained elsewhere in this Agreement, no party (or its Affiliates)
shall, in any event, be liable to any other party (or its Affiliates) for any
consequential damages including,
<PAGE> 36
but not limited to, loss of revenue or income, cost of capital, or loss of
business reputation or opportunity relating to the breach or alleged breach of
this Agreement.
7.13 WAIVER.
(a) Except as expressly set forth herein, no failure on the part
of any Person to exercise any power, right, privilege or remedy under this
Agreement, and no delay on the part of any Person in exercising any power,
right, privilege or remedy under this Agreement, shall operate as a waiver of
such power, right, privilege or remedy; and no single or partial exercise of any
such power, right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or remedy.
(b) Except as expressly set forth herein, no Person shall be
deemed to have waived any claim arising out of this Agreement, or any power,
right, privilege or remedy under this Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of such Person: and any such
waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
7.14 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Purchaser and Seller.
7.15 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
7.16 PARTIES IN INTEREST. Except for the provisions of Section 5 hereof,
none of the provisions of this Agreement is intended to provide any rights or
remedies to any Person other than the parties hereto and their respective
successors and assigns (if any).
7.17 ENTIRE AGREEMENT. The Transactional Agreements set forth the entire
understanding of the parties relating to the subject matter thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter thereof.
7.18 BROKERS. Purchaser and Seller each represents and warrants to the
other that the representing party has not been represented by or dealt with any
broker in connection with the Acquisition. Purchaser and Seller each agrees to
indemnify, defend and hold the other harmless from any Damages arising out of or
in connection with any claim for
<PAGE> 37
any brokerage commission, finder's fee, acquisition fee or like payment asserted
against the indemnified party by virtue of any action taken or allegedly taken
by the indemnifying party in connection with the Acquisition.
7.19 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections", "Exhibits" and "Schedules" are intended to refer to
Sections of this Agreement and Exhibits and Schedules to this Agreement, all of
which Exhibits and Schedules are hereby incorporated herein by this reference as
if set forth fully herein.
7.20 WAIVER OF JURY. With respect to any dispute arising under or in
connection with this Agreement or any related agreement, as to which no party
invokes the right to arbitration hereinabove provided, or as to which legal
action nevertheless occurs, each party hereby irrevocably waives all rights it
may have to a jury trial, and each party agrees that it will not seek to
consolidate any such action in which a jury trial has been waived with any other
action in which a jury trial cannot be or has not been waived. THIS WAIVER IS
KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY PURCHASER AND SELLER AND EACH
ACKNOWLEDGES THAT NEITHER THE OTHER PARTY NOR ANY PERSON ACTING ON BEHALF OF THE
OTHER PARTY HAS MADE ANY REPRESENTATION OF FACT TO INDUCE THIS WAIVER OF TRIAL
BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. PURCHASER AND SELLER EACH
FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO
BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS
WAIVER, BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT
HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. PURCHASER AND
SELLER EACH FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING
AND RAMIFICATIONS OF THIS WAIVER PROVISION.
<PAGE> 38
7.21 AUTHORITY TO SIGN. Each of the individuals executing this Agreement
on behalf of Purchaser and Seller, respectively, represents that he is duly and
validly authorized to do so.
7.22 SURVIVAL POST-CLOSING. Any provisions of this Agreement, or any
other Transactional Agreement, which require observance, performance or
enforcement after Closing shall survive Closing and shall continue to be binding
on the parties hereto, subject to and in accordance with the other terms and
conditions of this Agreement and the other Transactional Agreements.
7.23 FACSIMILE SIGNATURES. Purchaser and Seller each (i) has agreed to
permit the use, from time to time and where appropriate, of telecopied
signatures in order to expedite the transaction contemplated by this Agreement,
(ii) intends to be bound by its respective telecopied signature, (iii) is aware
that the other party will rely on the telecopied signature, and (iv)
acknowledges such reliance and waives any defenses to the enforcement of the
documents and notices effecting the transaction contemplated by this Agreement
based on the fact that a signature or notice was sent by telecopy.
The parties hereto have caused this Asset Purchase Agreement to be
executed and delivered as of the date first written above.
SELLER: Hilton Hotels Corporation,
A Delaware corporation
By: /s/ Matt J. Hart
---------------------------------
Its: SVP & CFO
---------------------------------
PURCHASER: RM SPORTS CLUB, INC.
a California corporation
By: /s/ David M. Talla
---------------------------------
Its: CEO
---------------------------------
<PAGE> 39
The undersigned hereby executes this Agreement to evidence its agreement
to act as Escrow Holder in accordance with the terms of this Agreement.
AGREED AND ACCEPTED:
Escrow Holder:
CHICAGO TITLE COMPANY
By /s/ Ron May
-----------------------------------
Its Senior Loan Officer
---------------------------------
<PAGE> 40
Exhibit A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
1. ACQUISITION. "Acquisition" shall have the meaning specified in
Recital A of the Agreement.
2. ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving the sale or other disposition of all or any portion of the
Club's business or assets (other than in the Ordinary Course of Business).
3. ACT. "Act" shall have the meaning set forth in Section 2.19(a) of the
Agreement.
4. AFFILIATE. "Affiliate" shall mean and include any Entity, directly or
indirectly, controlling Seller, controlled by Seller or under common control
with Seller; it being agreed that, for these purposes, "control" shall mean the
ability to direct Seller, whether by reason of the ownership of equity interests
in Seller, by contract or otherwise.
5. ASSIGNMENT AND ASSUMPTION. "Assignment and Assumption" shall have the
meaning set forth in Section 7.10.
6. ASSUMED CONTRACTS. Assumed Contracts shall have the meaning set forth
in Section l.l(e).
7. ASSUMED LIABILITIES. Assumed Liabilities shall have the meaning set
forth in Section 1.3.
8. BILL OF SALE. "Bill of Sale" shall have the meaning set forth in
Section 1.5(a) of the Agreement.
9. BREACH. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been any
inaccuracy in or breach of, or any failure to comply with or perform such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach or failure.
10. BUSINESS DAY. "Business Day" shall mean any day other than Saturday,
Sunday or any other day which is a legal holiday under the laws of either the
State of California or, if different, the state where the Club is located.
11. CLOSING. "Closing" shall have the meaning specified in Section
1.9(b) of the Agreement.
12. CLOSING DATE. "Closing Date" shall mean the date on which the
Closing shall occur.
13. CLUB. "Club" shall have the meaning specified in Recital A of the
Agreement.
14. CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
__________ __________
Initials PAGE 1 Initials
<PAGE> 41
15. CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
16. CONTRACT. "Contract" shall mean any written agreement, contract,
understanding, arrangement instrument, note, guaranty, indemnity,
representation, warranty, deed, assignment, power of attorney, certificate,
purchase order, work order, insurance policy, benefit plan, commitment covenant,
assurance or undertaking of any nature that relate to the Purchased Assets.
17. CONTRACT ASSIGNMENT. "Contract Assignment" shall have the meaning
set forth in Section 1.5(a) of the Agreement.
18. DAMAGES. "Damages" shall mean any loss, damage, injury, Liability,
claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including
any reasonable legal fee, expert fee, accounting fee or advisory fee), charge,
reasonable cost (including any reasonable cost of investigation) or reasonable
expense of any nature.
19. DELIVERY ITEMS. "Delivery Items" shall have the meaning set forth in
Section 1.6 of the Agreement.
20. DEPOSIT. "Deposit" shall have the meaning set forth in Section
1.5(b) of the Agreement.
21. DEPOSIT HOLDER. "Deposit Holder" shall have the meaning set forth in
Section 1.5(b) of the Agreement.
22. DUE DILIGENCE PERIOD. "Due Diligence Period" shall have the meaning
set forth in Section 1.8(a)(vi) of the Agreement.
23. ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge,
hypothecation, charge, mortgage, security interest, encumbrance, claim, right of
possession, lease, tenancy, license, Order, option, right of first refusal,
imperfection of title, or Tax; provided that Encumbrance shall not include
publicly recorded Encumbrances (i) that are not liens or (ii) that do not
restrict or affect the intended use of the Purchased Assets. Encumbrance shall
further not include any Taxes that are not yet due and payable if such Taxes are
to be prorated between Purchaser and Seller. Encumbrance shall further not
include any matter disclosed in the Disclosure Schedule and expressly approved
in writing by Purchaser as not constituting an Encumbrance or any Permitted
Exception.
24. ENTITY. "Entity" shall mean any corporation (including any
non-profit corporation), general partnership, limited partnership, limited
liability company, joint venture, estate, trust, cooperative, foundation,
society, political party, union, company (including any limited liability
company or joint stock company), firm or other enterprise, association,
organization or entity.
25. ESCROW. "Escrow" shall have the meaning set forth in Section 1.5(b)
of the Agreement.
26. EXCLUDED ASSETS. "Excluded Assets" shall have the meaning set forth
in Section 1.2 of the Agreement.
__________ __________
Initials PAGE 2 Initials
<PAGE> 42
27. EXCLUDED CONTRACT. "Excluded Contract" shall mean any Seller
Contract, other than the Membership Agreements, that:
(a) Seller has entered into in the Ordinary Course of Business;
(b) has a term of less than 30 days or may be terminated by the
Seller (without penalty) 30 days after the delivery of a termination notice by
the Seller; and
(c) does not contemplate or involve the payment of cash or other
consideration in an amount or having a value in excess of $10,000.
28. GAAP. "GAAP" shall mean generally accepted accounting principles,
applied on a basis consistent with the basis on which the applicable financial
statements were prepared.
29. GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any:
(a) permit, license, certificate, franchise, concession,
approval, consent, ratification, permission, clearance, confirmation,
endorsement, waiver, certification, designation, rating, registration,
qualification or authorization issuable or otherwise made available by or under
the authority of any Governmental Body or pursuant to any Legal Requirement; or
(b) right under any Contract with any Governmental Body.
30. GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal);
(d) multi-national organization or body; or
(e) individual, Entity or body exercising, or entitled to
exercise, any executive, legislative, judicial, administrative, regulatory,
police, military or taxing authority or power of any nature.
31. INDEMNITEES. "Indemnitees" shall as the context may indicate
sometimes refer to either the Purchaser Indemnitees or the Seller Indemnitees,
or both.
32. INVENTORY. "Inventory" shall have the meaning set forth in Section
1.1(j) of the Agreement.
33. LEASES. "Leases" shall have the meaning set forth in Section 2.7(a)
of the Agreement.
__________ __________
Initials PAGE 3 Initials
<PAGE> 43
34. LEASE ASSIGNMENT. "Lease Assignment" shall have the meaning set
forth in Section 1.5(a) of the Agreement.
35. LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state
local, municipal, foreign or other law, statute, legislation, constitution, law
resolution, ordinance, code edict, decree, proclamation, treaty, convention,
rule, regulation, ruling, directive, pronouncement, requirement, specification,
determination, decision, opinion or interpretation issued enacted adopted,
passed, approved, promulgated, made, implemented or otherwise put into effect by
or under the authority of any Governmental Body.
36. LIABILITY. "Liability" shall mean any debt, obligation, duty or
liability of any nature (whether known or unknown and whether absolute, accrued,
contingent or otherwise), regardless of whether such debt, obligation, duty or
liability would be required to be disclosed on a balance sheet prepared in
accordance with GAAP and regardless of whether such debt obligation, duty or
liability is immediately due and payable.
37. MANAGEMENT AGREEMENT. "Management Agreement" shall mean that certain
Management Agreement, dated January 9, 1996, by and between Manager and Bally
Entertainment Corporation, as owner. Seller is the successor to Bally
Entertainment Corporation under the Management Agreement.
38. MANAGER. "Manager" shall mean Bally Total Fitness Holding
Corporation (f/k/a Bally's Health & Tennis Corporation), a Delaware corporation.
39. MANAGER'S ESTOPPEL CERTIFICATE. "Manager's Estoppel Certificate"
shall mean an estoppel certificate executed by Manager.
40. MASTER LANDLORD. "Master Landlord" shall mean Hirschfeld Realty Club
Corporation and 328 East 61 Corp.
41. MASTER LEASE. "Master Lease" shall mean, collectively, the following
three documents: (i) that certain Amended and Restated Net Operating Lease,
dated March 26, 1985, among, on the one hand, Master Landlord, as Landlord, and,
on the other hand, Vertical Fitness and Racquet Club, Ltd., as Tenant, (ii) that
certain Lease Modification Agreement dated July 1, 1990, among, on the one hand,
Master Landlord and, on the other hand, Vertical Fitness and Racquet Club, Ltd.,
and (iii) that certain Assignment and Assumption of Lease, dated January 8,
1996, between Vertical Fitness and Racquet Club, Ltd. and Bally Entertainment
Corporation, in each instance, regarding the premises occupied by the Club.
Seller is the successor tenant to Bally Entertainment Corporation under the
Master Lease by merger with Bally Entertainment Corporation.
42. MEMBER. "Member" shall mean an individual who as of the Closing Date
is a member in good standing of the Club under the terms of a valid Membership
Agreement.
43. MEMBERSHIP AGREEMENT. "Membership Agreement" shall mean any written
agreement between a Member and, or on behalf of, the Seller pursuant to which
such Member is entitled to use of the facilities and services of the Seller at
the Club.
44. MODIFICATION. "Modification" shall have the meaning set forth in
Section 1.8(b) of the Agreement.
__________ __________
Initials PAGE 4 Initials
<PAGE> 44
45. NOTE. "Note" shall have the meaning set forth in Section 1.5(c).
46. ORDER. "Order" shall mean any:
(a) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence, subpoena,
writ or award issued, made, entered, rendered or otherwise put into effect by or
under the authority of any court, administrative agency or other Governmental
Body or any arbitrator or arbitration panel; or
(b) Contract with any Governmental Body that is or has been
entered into in connection with any Proceeding.
47. ORDINARY COURSE OF BUSINESS. An action taken by or on behalf of the
Seller shall not be deemed to have been taken in the "Ordinary Course of
Business" unless
(a) such action is generally consistent with the Seller's past
practices and is taken in the ordinary course of the Seller's normal day-to-day
operations; and
(b) such action is not required to be authorized by the Seller's
stockholders, the Seller's board of directors or any committee of the Seller's
board of directors and does not require any other separate or special
authorization of any nature.
48. OUTSIDE CLOSING DATE. "Outside Closing Date" shall have the meaning
set forth in Section 1.9(a) of the Agreement.
49. PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
50. PERSONAL PROPERTY LEASES. "Personal Property Leases" shall have the
meaning set forth in Section 1.1(c) of the Agreement.
51. PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), prosecution, contest, hearing, inquiry,
inquest, audit, examination or investigation brought, conducted or heard by or
before, or that otherwise involves, any Governmental Body, judge, arbitrator or
arbitration panel.
52. PURCHASE PRICE. "Purchase Price" shall have the meaning set forth in
Section 1.5(a) of the Agreement.
53. PURCHASED ASSETS. "Purchased Assets" shall have the meaning set
forth in Section 1.1 of the Agreement.
54. PURCHASER. "Purchaser" shall mean RM Sports Club, Inc., a California
corporation.
55. PURCHASER DELIVERY ITEMS. "Purchaser Delivery Items" shall have the
meaning set forth in Section 1.6(b) of the Agreement.
__________ __________
Initials PAGE 5 Initials
<PAGE> 45
56. PURCHASER INDEMNITEES. "Purchaser Indemnitees" shall mean the
following Persons:
(a) Purchaser;
(b) Purchaser's current and future Affiliates and its and their
respective shareholders, officers, directors and employees;
(c) the respective Representatives of the Persons referred to in
clauses (a) and (b) above; and
(d) the respective successors and permitted assigns of the
Persons referred to in clauses (a), (b), and (c) above.
57. PURCHASER TRANSACTION COSTS. "Purchaser Transaction Costs" shall
have the meaning specified in Section 1.10(b)(iii) of the Agreement.
58. REAL PROPERTY. "Real Property" shall have the meaning specified in
Section 1.1(a) of the Agreement.
59. REAL PROPERTY LEASES. "Real Property Leases" shall have the meaning
set forth in Section 1.1(b).
60. REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives. Seller
and all other Related Parties shall be deemed to be "Representatives" of Seller.
61. SELLER. "Seller" shall mean Hilton Hotels Corporation, a Delaware
corporation.
62. SELLER CONTRACT. "Seller Contract" shall mean any Contract:
(a) to which the Seller is a party;
(b) by which the Seller or any of its assets is bound or under
which the Seller has any obligation; or
(c) under which the Seller has any right or interest.
63. SELLER DELIVERY ITEMS. "Seller Delivery Items" shall have the
meaning set forth in Section 1.6(b) of the Agreement.
64. SELLER INDEMNITIES. "Seller Indemnities" shall mean the following
Persons:
(a) Seller;
(b) Seller's current and future Affiliates and its and their
respective shareholders, officers, directors and employees;
__________ __________
Initials PAGE 6 Initials
<PAGE> 46
(c) the respective Representatives of the Persons referred to in
clauses (a) and (b) above; and
(d) the respective successors and permitted assigns of the
Persons referred to in clauses (a), (b) and (c) above.
65. SELLER'S KNOWLEDGE. "Seller's Knowledge" shall mean the actual
knowledge of either Kevin Luebbers or Barbara Boultinghouse.
66. SELLER TRANSACTION COSTS. "Seller Transaction Costs" shall have the
meaning specified in Section 1.10(a)(vi) of the Agreement.
67. SERVICE MARK LICENSE AGREEMENT. "Service Mark License Agreement"
shall mean that certain Service Mark License Agreement, dated January 9, 1996,
between Manager and Bally Entertainment Corporation.
68. SPECIFIED CONTRACTUAL LIABILITIES. "Specified Contractual
Liabilities" shall mean the obligations of the Seller under the Assumed
Contracts, but only to the extent such obligations (a) arise after the Closing
Date, (b) do not arise from or relate to any breach by, or on behalf of, the
Seller of any provision of any of such contracts, (c) do not arise from or
relate to any event, circumstance or condition occurring or existing on or prior
to the Closing Date that, with notice or lapse of time, would constitute or
result in a breach of, any of such contracts, and (d) are ascertainable (in
nature and amount) solely by reference to the express terms of such contracts;
provided, however that notwithstanding anything contained herein or in the
Agreement, the "Specified Contractual Liabilities" shall not include and
Purchaser shall not be required to assume or to perform or discharge, except if
and to the extent the same shall have been prorated as part of the Closing in
favor of Purchaser or except as may otherwise be expressly provided in the
Agreement:
(i) any Liability with respect to any accounts payable
or any short-term or long-term indebtedness of the Seller;
(ii) any Liability of the Seller arising from or
relating to any action taken by the Seller, or any failure on the part of the
Seller to take any action, at any time prior to, on or after the Closing Date;
(iii) any Liability of the Seller arising from or
relating to (x) any services performed or provided by the Seller, or (y) any
claim, Order or Proceeding against the Seller;
(iv) any Liability of the Seller for the payment of any
Tax;
(v) any Liability of the Seller to any employee or
former employee of the Seller (whether for salaries, wages, severance pay,
vacation pay, benefits or other compensation);
(vi) any Liability under any Contact, if (x) an accurate
and complete copy, in all material respects, of such Contract and all amendments
thereto insofar as it and they pertain to such liability shall not have been
furnished to Purchaser by the Seller prior to the Closing Date or (y) any
Consent required to be obtained from any Person with respect to the assignment
or delegation to
__________ __________
Initials PAGE 7 Initials
<PAGE> 47
Purchaser of any rights or obligations under such Contract shall not have been
obtained prior to the Closing Date;
(vii) any obligation of the Seller to indemnify or
defend any other Person against or in connection with any infringement claim or
similar claim;
(viii) any Liability that is inconsistent with or that
constitutes an inaccuracy in, or that arises or exists by virtue of any Breach
of, any covenant or obligation of the Seller; or
(ix) any other Liability that is not specifically
included in the Specified Contractual Liabilities or otherwise is not expressly
assumed by Purchaser in the Agreement.
69. SUBLEASE. "Sublease" shall mean any sublease, license agreement,
concession agreement or other agreement, written or oral, pursuant to which any
Person, other than a Member, has any right to occupy or use any portion of the
Club for any purpose whatsoever.
70. SUBTENANT. "Subtenant" shall mean any party having the right to use
or occupy any portion of the Club under any Sublease.
71. TAX. "Tax" shall mean any tax (including any income tax, franchise
tax, capital gains tax, estimated tax, gross receipts tax, value-added tax,
surtax, excise tax, ad valorem tax transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), (a) imposed,
assessed or collected by or under the authority of any Governmental Body, or (b)
payable pursuant to any tax-sharing agreement or similar Contract.
72. TITLE COMPANY. "Title Company" shall mean Chicago Title Company.
73. TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean:
(a) the Agreement;
(b) the Contract Assignment;
(c) the Lease Assignment;
(d) the Bill of Sale;
(e) the Note; and
(f) the Assignment and Assumption.
74. TRANSACTION COSTS. "Transaction Costs" shall mean all fees, costs
and expenses (including all legal, auditing, accounting and investment banking
expenses) that have been incurred or that are in the future incurred by, on
behalf of or for the benefit of any party hereto in connection with:
__________ __________
Initials PAGE 8 Initials
<PAGE> 48
(a) the negotiation, preparation and review of any letter of
intent or similar document relating to any of the Transactions;
(b) the investigation and review conducted by the Purchaser and
its Representatives with respect to the Seller's business;
(c) the negotiation, preparation and review of this Agreement
(including the Disclosure Schedule), the other Transactional Agreements and all
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with the Transactions;
(d) the preparation and submission of any filing or notice
required to be made or given in connection with any of the Transactions, and the
obtaining of any Consent required to be obtained in connection with any of the
Transactions; and
(e) the consummation and performance of the Transactions.
75. TRANSACTIONS. "Transactions" shall mean (a) the execution and
delivery of the respective Transactional Agreements, and (b) all of the
transactions contemplated by the respective Transactional Agreements, including:
(a) the Acquisition in accordance with the Agreement; and
(b) the performance by Seller and Purchaser of their respective
obligations under the Transactional Agreements and the exercise by the Seller
and Purchaser of their respective rights under the Transactional Agreements.
76. WARN ACT. "WARN Act" shall mean the Workers Adjustment and
Retraining Notification Act, 29 U.S.C. 2201, as amended and all rules,
regulations, directives and orders promulgated thereunder.
__________ __________
Initials PAGE 9 Initials
<PAGE> 1
EXHIBIT 10.72
ASSIGNMENT AND ASSUMPTION
OF ASSET PURCHASE AGREEMENT
APRIL 1, 1998
<PAGE> 2
ASSIGNMENT AND ASSUMPTION OF ASSET PURCHASE AGREEMENT
This Assignment and Assumption of Asset Purchase Agreement (the
"ASSIGNMENT") is made and entered into as of April 1, 1998, by and between RM
Sports Club, Inc., a California corporation ("ASSIGNOR"), and The Sports Club
Company, Inc., a Delaware corporation ("ASSIGNEE"), with regard to the following
facts and circumstances:
A. Assignor is the "Purchaser" under that certain Asset Purchase
Agreement dated as of April 1, 1998 (the "PURCHASE AGREEMENT") between Assignor
and Hilton Hotels Corporation, a Delaware corporation ("SELLER"), whereby
Assignor agreed to purchase from Seller and Seller agreed to sell to Assignor
the assets described in the Agreement and used or held for use by Seller in the
operation of The Vertical Club located at 61st Street, New York, New York.
B. Pursuant to Paragraph 7.10 (Successors and Assigns) of the Purchase
Agreement, Assignor has the right to assign its rights in the Purchase Agreement
to Assignee, without the consent of Seller.
C. The consummation of the acquisition contemplated by the Purchase
Agreement will not cause Assignee to become bankrupt or to be subject to any
creditor's rights action.
D. Assignor and Assignee now desire to provide for the assignment of all
of Assignor's right, title and interest in and to the Purchase Agreement to
Assignee, and the assumption by Assignee of all of the obligations of Assignor,
as Purchaser, under the Agreement, upon the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Assignor and Assignee hereby agree as follows:
1. As of the date of the Agreement, Assignor hereby sells, grants,
assigns, conveys and transfers to Assignee all of Assignor's right, title and
interest, as Purchaser, in and to the Agreement, and Assignee hereby accepts
such assignment from Assignor and assumes the performance of all of the terms,
covenants and obligations imposed on Assignor, as Purchaser, under the
Agreement.
2. Assignee shall reimburse Assignor for any cash deposit (together with
the interest earned thereon) made by Assignor under the Purchase Agreement and
held by the escrow holder named therein.
3. Assignor and Assignee hereby acknowledge and agree that, as of the
date of the Purchase Agreement, Assignor shall be released from all obligations
and liabilities under the Purchase Agreement, except as expressly provided
therein, and Assignee shall be obligated to Seller under all of the terms of the
Purchase Agreement.
4. Assignee hereby agrees to indemnify, defend and hold Assignor
harmless from and against any and all losses, liabilities, damages, claims,
costs and expenses (including actual attorneys' fees and costs, and court costs)
arising out of or in connection with the Agreement (except to the extent that
Assignor has an interest in Assignee, if any, and then as limited by such
interest).
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<PAGE> 3
5. Assignor and Assignee each hereby agree to execute such other
documents and perform such other actions as may be reasonably necessary or
desireable to effectuate the intent of this Assignment.
6. This Assignment shall be binding upon and shall inure to the benefit
of the heirs, executors, administrators, successors and assigns of the parties
hereto.
7. This Assignment shall be governed by and construed in accordance with
the laws of the State of California.
8. If any term or provision of this Assignment is illegal or invalid for
any reason whatsoever, such illegality or invalidity shall not affect the
validity of the remainder of this Assignment.
9. This Assignment may be executed in multiple counterparts, each of
which shall be deemed an original and all of which shall constitute one and the
same Assignment.
IN WITNESS WHEREOF, Assignor and Assignee executed this Assignment as of
the date first set forth above.
"ASSIGNOR:" RM SPORTS CLUB, INC.,
a California corporation
By: /s/ Michael Talla
-------------------------------------
Its: CEO
--------------------------------
"ASSIGNEE:" THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By: /s/ John Gibbons
-------------------------------------
Its: President
--------------------------------
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Initials Initials
<PAGE> 1
EXHIBIT 10.73
HILTON NOTE
APRIL 15, 1998
<PAGE> 2
$2,666,666 Los Angeles, California April 15, 1998
FOR VALUE RECEIVED, The Sports Club Company, Inc., a Delaware
corporation ("Maker"), promises to pay on or before the Due date (as defined
below) to Hilton Hotels Corporation ("Noteholder") at 9336 Civic Center Drive,
Beverly Hills, California 90210, or such other location as Noteholder may
designate, the sum of $2,666,666, without any interest thereon, in accordance
with the terms and conditions hereinafter set forth. The "Endorsed Date" of this
Note, as that term is used herein, shall be the date on which Closing, as
defined in that certain Asset Purchase Agreement, dated as of April 1, 1998,
between Noteholder and The Sports Club Company, Inc. (the "Purchase Agreement"),
shall occur.
1. PAYMENT OF PRINCIPLE AND INTEREST.
1.1 On the first anniversary of the Endorsed Date, Maker shall pay
Noteholder principal in the sum of $1,333,333.
1.2 On the second anniversary of the Endorsed Date (the "Due Date"),
Maker shall pay Noteholder principal in the sum of $1,333,333.
1.3 Principal and interest, if any, shall be payable in lawful money of
the United States. Payments hereon shall be credited first to accrued and unpaid
interest hereon, if any, and the balance to principal.
1.4 Upon failure of Maker to perform or to pay, in full, any monetary
obligation of Maker under this Note within ten days after notice and demand
therefor, then at the option of Noteholder, upon demand, the principal balance
of this Note shall become immediately due and payable in full.
1.5 Should any sum due under this Note not be paid when due, said
past-due sum shall thereafter bear simple interest at the rate of 10% per annum.
2. PREPAYMENT.
2.1 Notwithstanding any other provision in this Note, Maker shall have
the right at any time or from time to time to prepay any or all of the unpaid
principal balance of this Note, without penalty. If Maker prepays any portion of
the unpaid principal balance of this Note, the balance of each installment of
principal remaining to be paid after such prepayment will be reduced by a 0.833%
(1/2 of 10%) monthly discount factor. For example, if the Endorsed Date were to
be March 31, 1998 and the entire note were to be prepaid on October 1, 1998, the
principal balance would be reduced by $237,405, from $2,666,666 to $2,429,261,
calculated as follows: (i) $63,492 for the March 31,1999 payment =
($1,333,333-($1,333,333/(1 + (.0083 x 6)) plus (ii) $173,913 for the March 31,
2000 payment = ($1,333,333 -($1,333,333/(1 + (.0083 x 18)).
- -------- --------
Initials Initials
<PAGE> 3
2.2 Upon payment in full of the unpaid principal balance of this Note,
this Note shall be canceled, and Noteholder shall mark this Note as "PAID IN
FULL" and return this Note, as so marked, to the undersigned.
3. MISCELLANEOUS PROVISIONS.
3.1 NOTICES. All acknowledgments, notices, approvals, requests,
responses, waivers and demands of any kind, which either party hereto may be
required, or may desire, to serve upon the other party under the terms of, or in
connection with, this Note or the Purchase Money Encumbrance, shall be given by
personal delivery or by mailing a copy thereof, postage prepaid, by certified or
registered mail, addressed as follows:
TO NOTEHOLDER: 9366 Civic Center Drive
Beverly Hills, California 90210
Attention: Chief Financial Officer and General Counsel
TO MAKER: 11000 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Attention: Real Estate Department
WITH A COPY TO: Resch Polster Alpert Berger LLP
10390 Santa Monica Boulevard
Suite 400
Los Angeles, California 90025
Attention: Ronald M. Resch
Notice shall be deemed given on the date of personal delivery or
the second business day following the date of mailing. The above addresses or
persons may be changed from time to time by notice served, as hereinabove
provided by the party desiring a change, to the other party.
3.2 ATTORNEYS' FEES. In the event that legal action is taken by Maker or
Noteholder in connection with this Note, or any related document or matter, the
losing party in such legal action, in addition to such other damages as such
losing party may e required to pay, shall pay reasonable attorneys' fees to the
prevailing party.
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions and covenants contained herein shall inure to and be
binding upon the successors, transferees, heirs and assigns of the parties
hereto.
3.4 DEFAULT. Maker shall not be deemed to be in default of any of its
obligations hereunder until the expiration of ten days after receipt of notice
of default from Noteholder, and shall only be deemed to be in default thereafter
if the subject default has not been cured within said ten-day period, or, if
such default is a nonmonetary default and cannot be cured within such period, if
Maker has not begun such cure within such period or thereafter ceases to
diligently pursue its completion.
3.5 WAIVERS. Subject to paragraph 3.4, Maker and all endorsers hereof ,
if any, severally waive diligence and the right to plead any statute of
limitations, presentment, grace, protest and demand, and also notice of protest,
demand, dishonor and nonpayment of this Note, and notice of intention to
accelerate the
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maturity date, and any and all moratorium, appraisement, exemption and homestead
rights now provided or which may hereafter be provided by any federal or state
statute both as to itself personally and as to all of its property, whether real
or personal, against the enforcement and collection of the obligations evidenced
by this Note and any and all extensions, renewals and modifications hereof.
3.6 SECTION HEADINGS. The headings of the sections of this Note are
inserted solely for convenience, and are not intended to govern, limit or aid in
the construction of any term or provision hereof.
3.7 CHOICE OF LAW. This Note shall be governed by the laws of the State
of California.
MAKER: THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By: /s/ John M. Gibbons
--------------------------------------
Its: President
---------------------------------
The undersigned Noteholder hereby acknowledges its agreement to the
terms and conditions hereinabove set forth.
NOTEHOLDER: Hilton Hotels Corporation,
a Delaware corporation
By /s/ Matt J. Hart
--------------------------------------
Its EVP, CFO
-----------------------------
The Endorsed Date is April 15 , 1998
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<PAGE> 1
EXHIBIT 10.74
HOUSTON ASSET PURCHASE
AGREEMENT
MARCH 5, 1998
<PAGE> 2
INSTRUCTIONS FOR PURCHASE OF REAL ESTATE
(Non-Residential)
American Industrial Real Estate Association
February 3, 1998
(Date for Reference Purposes)
1. BUYER.
1.1 THE SPORTS CLUB COMPANY, INC. (the "Buyer") hereby offers to purchase the
real property, hereinafter described, from the owner thereof (the "Seller")
(collectively, the "Parties" or individually, a "Party"), through an escrow (the
"Escrow") to close on June 24, 1998 (the "Expected Closing Date") to be held by
Texas State Title Company (the "Escrow Holder") whose address is
________________________________________________________________________________
Phone No. _________________ Facsimile No. _______________ upon the terms and
conditions set forth in this agreement (the "Agreement"). Buyer shall have the
right to assign Buyer's rights hereunder, but any such assignment shall not
relieve Buyer of Buyer's obligations herein unless the Seller expressly releases
Buyer.
1.2 The term "Date of Agreement as used herein shall be the date when by
execution and delivery (as defined in paragraph 20.2) of this document or a
subsequent counter-offer thereto, Buyer and Seller have reached agreement in
writing whereby Seller agrees to sell, and Buyer agrees to purchase the Property
upon terms accepted by both Parties.
2. PROPERTY.
2.1 The real property (the "Property") that is the subject of this offer
consists of (insert a brief physical description) 3.5 acres of land improved
with a retail nursery building and parking lot is located in the City of
Houston, County of Harris, State of Texas, is commonly known by the street
address of McQue Street and U.S. Route 59 and Interstate 610 and is legally
described as: to be finished in escrow.
2.2 If the legal description of the Property is not complete or is
inaccurate, this Agreement shall not be invalid and the legal description shall
be completed or corrected to meet the requirements of Texas State Title Company
(the "Title Company"), which Title Company shall issue the title policy
hereinafter described.
2.3 The Property includes, at no additional cost to Buyer, the permanent
improvements thereon, including those items which the law of the state in which
the Property is located provides is part of the Property, as well as the
following items, if any, owned by Seller and presently located in the Property:
electrical distribution systems (power panels, buss ducting, conduits,
disconnects, lighting fixtures), telephone distribution systems (lines, jacks
and connections), space heaters, air conditioning equipment, air lines, fire
sprinkler systems, security systems, carpets, window coverings, wall coverings,
and n/a (collectively, the "Improvements").
3. PURCHASE PRICE.
3.1 The purchase price (the "Purchase Price") to be paid by Buyer to Seller
for the Property shall be $3,050,000 payable as follows:
<TABLE>
<S> <C>
(a) Cash down payment, including the Deposit as defined in paragraph 4.3
(or if an all cash transaction, the Purchase Price): $ 250,000
----------
Total Purchase Price: $3,050,000
==========
</TABLE>
3.2 If an Existing Deed of Trust permits the beneficiary thereof to require
payment of a transfer fee as a condition to the transfer of the Property subject
to such Existing Deed of Trust, Buyer agrees to pay transfer fees and costs of
up to one and one-half percent (1 1/2%) of the unpaid principal balance of the
applicable Existing Note.
4. DEPOSITS.
4.1 Buyer will deliver funds the sum of $250,000.00 payable to Texas State
Title Company immediately upon mutual execution of this agreement, to be (check
applicable box) [ ] forthwith deposited in the payees' trust account [ ] held
uncashed until the Date of Agreement. When cashed, the check shall be deposited
into the payee's trust account to be applied toward the Purchase Price of the
Property at the Closing, as defined in paragraph 8.3. Should Buyer and Seller
not enter into an agreement for purchase and sale, Buyer's check or funds shall,
upon request by Buyer, be promptly returned to Buyer.
4.2 Subject to the satisfaction of all contingencies specified herein, Buyer
shall deposit with Escrow Holder the additional sum of $ none to be applied to
the Purchase Price at the Closing.
4.3 The funds deposited with Escrow Holder by or on behalf of Buyer under
paragraphs 4.1 and 4.2 above (collectively the "Deposit"), shall be deposited by
Escrow Holder in such State or Federally chartered bank as Buyer may select and
in such interest-bearing account or accounts as Escrow Holder or Broker(s) deem
appropriate and consistent with the timing requirements of this transaction. The
interest therefrom shall accrue to the benefit of Buyer, who hereby acknowledges
that there may be penalties or interest forfeitures if the applicable instrument
is redeemed prior to its specified maturity.
Buyer's Federal Tax Identification Number is 95-3519027
7. REAL ESTATE BROKERS.
7.1 The following real estate broker(s) (collectively, the "Brokers") and
brokerage relationships exist in this transaction and are consented to by the
parties (check applicable boxes):
[X] Riverstone Realty Advisors, L.L.P. represents the Seller exclusively
("SELLER'S BROKER")
[X] The Weatherby Co . represents Buyer exclusively ("BUYER'S BROKER"); or
[ ] represents both Seller and Buyer ("DUAL AGENCY"). (Also see Paragraph 26.)
(the "Broker(s)"), all such named Broker(s) being the procuring cause(s) of this
Agreement. See paragraph 26 for Disclosures Regarding the Nature of a Real
Estate Agency Relationship. Buyer shall use the services of Buyer's Broker
exclusively in connection with any and all negotiations and offers with respect
to the property described in paragraph 2.1 for a period of one year from the
date above.
7.2 Buyer and Seller each represent and warrant to the other that he/she/it
has had no dealings with any person, firm, broker or finder in connection with
the negotiation of this Agreement and/or the consummation of the purchase and
sale contemplated herein, other than the Broker(s) named in paragraph 7.1, and
no broker or other person, firm or entity, other than said Broker(s) is/are
entitled to any commission or finder's fee in connection with this transaction
as the result of any dealings or acts of such Party. Buyer and Seller do each
hereby agree to indemnify, defend, protect and hold the other harmless from and
against any costs, expenses or liability for compensation, commission or charges
which may be claimed by any broker, finder or other similar party, other than
said named Broker(s) by reason of any dealings or act of the Indemnifying Party.
8. ESCROW AND CLOSING.
8.1 Upon acceptance hereof by Seller, this Agreement, including any
counter-offers incorporated herein by the Parties, shall constitute not only the
agreement of purchase and sale between Buyer and Seller, but also instructions
to Escrow Holder for the consummation of the Agreement through the Escrow.
Escrow Holder shall not prepare any further escrow instructions restating or
amending this Agreement unless specifically so instructed by the Parties of a
Broker herein.
8.2 Escrow Holder is hereby authorized and instructed to conduct the Escrow
in accordance with this Agreement, applicable law, custom and practice of the
community in which Escrow Holder is located, including any reporting
requirements of the Internal Revenue Code. In the event of a conflict between
the law of the state where the Property is located and the law of the state
where the Escrow Holder is located, the law of the state where the Property is
located shall prevail.
8.3 Subject to satisfaction of the contingencies herein described, Escrow
Holder shall close this escrow (the "Closing") by recording the grant deed and
other documents required to be recorded and by disbursing the funds and
documents in accordance with this Agreement.
8.4 If this transaction is terminated for non-satisfaction and non-waiver of
a Buyer's Contingency, as defined in paragraph 9.4, then neither of the Parties
shall thereafter have any liability to the other under this Agreement, except to
the extent of the breach of any affirmative covenant or warranty in this
Agreement that may have been involved. In the event of such termination, Buyer
shall be promptly refunded all funds deposited by or on behalf of Buyer with a
Broker, Escrow Holder or Seller, less only Title Company and Escrow Holder
cancellation fees and costs, all of which shall be Buyer's obligation.
8.5 The Closing shall occur on the Expected Closing Date, or as soon
thereafter as the escrow is in condition for Closing; provided, however, that if
the Closing does not occur by the Expected Closing Date and the Expected Closing
Date is not extended by mutual instructions of the Parties, a Party hereto not
then in default under this Agreement may notify the other Party, Escrow Holder,
and Broker(s), in writing that, unless the Closing occurs within five (5)
business days following said notice, the Escrow and this Agreement shall be
deemed terminated without further notice or instructions.
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8.6 Should the Closing not occur during said five (5) day period, this
Agreement and Escrow shall be deemed terminated and Escrow Holder shall
forthwith return all monies and documents, less only Escrow Holder's reasonable
fees and expenses, to the Party who deposited them. Such Party shall indemnify
and hold Escrow Holder harmless in connection with such return. However, no
refunds or documents shall be returned to a party claimed by written notice to
Escrow Holder to be in default under this Agreement.
8.7 Except as otherwise provided herein, the termination of Escrow and this
Agreement and/or the return of deposited funds or documents shall not relieve or
release either Buyer or Seller from any obligation to pay Escrow Holder's fees
and costs or constitute a waiver, release or discharge of any breach or default
that has occurred in the performance of the obligations, agreements, covenants
or warranties contained herein.
8.8 If this Agreement terminates for any reason other than Seller's breach or
default, then at Seller's request, and as a condition to the return of Buyer's
deposit, Buyer shall within five (5) days after written request deliver to
Seller, at no charge, copies of all surveys, engineering studies, soil reports,
maps, master plans, feasibility studies and other similar items prepared by or
for Buyer that pertain to the Property.
9. CONTINGENCIES TO CLOSING.
9.1 The Closing of this transaction is contingent upon the satisfaction or
waiver of the following contingencies:
(a) Disclosure. Buyer's receipt and written approval, within ten (10)
days after delivery to Buyer, of a completed Property Information Sheet (the
"Property Information Sheet"), concerning the Property, duly executed by or on
behalf of Seller in the current form or equivalent to that published by the
American Industrial Real Estate Association (the "A.I.R."). Seller shall provide
Buyer with the Property Information Sheet within ten (10) days following the
Date of Agreement. See also paragraph 2.5 for possible additional disclosure and
contingency regarding a "Commercial Property Earthquake Weakness Disclosure
Report."
(b) Physical Inspection. Buyer's written approval, within ten (10) days
following the later of the Date of Agreement or receipt by Buyer of the Property
Information Sheet, of an inspection by Buyer, at Buyer's expense, of the
physical aspects of the Property.
(c) Hazardous Substance Conditions Report. Buyer's written approval,
within One (1) day following the later of the Date of Agreement or receipt by
Buyer of the Property Information Sheet, of a Hazardous Substance Conditions
Report concerning the Property and relevant adjoining properties. Such report
will be obtained at Buyer's direction and expense. A "Hazardous Substance" for
purposes of this Agreement is defined as any substance whose nature and/or
quantity of existence, use, manufacture, disposal or effect, render it subject
to Federal, state or local regulation, Investigation, remediation or removal as
potentially injurious to public health or welfare. A "Hazardous Substance
Condition" for purposes of this Agreement is defined as the existence on, under
or relevantly adjacent to the Property of a Hazardous Substance that would
require remediation and/or removal under applicable Federal, state or local law.
(d) Soil Inspection. Buyer's written approval, within One (1) day; after
the later of the Date of Agreement or receipt by Buyer of the Property
Information Sheet, of a soil test report concerning the Property. Said report
shall be obtained at Buyer's direction and expense. Seller shall promptly
provide to Buyer copies of any existing soils reports that Seller may have.
(e) Governmental Approvals. Buyer's receipt, within fifteen (15) days of
the Date of Agreement, of all approvals and permits from governmental agencies
or departments which have or may have jurisdiction over the Property which Buyer
deems necessary or desirable in connection with its intended use of the
Property, including, but not limited to, permits and approvals required with
respect to zoning, planning, building and safety, fire, police, handicapped
access, transportation and environmental matters. Buyer's failure to deliver to
Escrow Holder and Seller written notice terminating this Agreement prior to the
expiration of said fifteen (15) day period as a result of Buyer's failure to
obtain such approvals and permits shall be conclusively deemed to be Buyer's
waiver of this condition to Buyer's obligations under this Agreement.
(f) Condition of Title. Buyer's written approval of a current preliminary
title report concerning the Property (the "PTR") issued by the Title Company, as
well as all documents (the"Underlying Documents") referred to in the PTR, and
the issuance by the Title Company of the title policy described in 10.1. Seller
shall cause the PTR and all Underlying Documents to be delivered to Buyer
promptly after the Date of Agreement. Buyer's approval is to be given within ten
(10) days after receipt of said PTR and legible copies of all Underlying
Documents. The disapproval by Buyer of any monetary encumbrance, which by the
terms of this Agreement is not to remain against the Property after the Closing,
shall not be considered a failure of this condition, as Seller shall have the
obligation, at Seller's expense, to satisfy and remove such disapproved monetary
encumbrance at or before the Closing.
(g) Survey. Buyer's written approval, within One (1) day; after receipt
of the PTR and Underlying Documents, of an ALTA title supplement based upon a
survey prepared to American Land Title Association (the "ALTA") standards for an
owner's policy by a licensed surveyor, showing the legal description and
boundary lines of the Property, any easements of record, and any improvements,
poles, structures and things located within ten (10) feet either side of the
Property boundary lines. The survey shall be prepared at Buyer's direction and
expense. If Buyer has obtained a survey and approved the ALTA title supplement,
Buyer may elect within the period allowed for Buyer's approval of a survey to
have an ALTA extended coverage owner's form of title policy, in which event
Buyer shall pay any additional premium attributable thereto.
(h) Existing Leases and Tenancy Statements. Buyer's written approval,
within ten (10) days after receipt of legible copies of all leases, subleases or
rental arrangements (collectively the "Existing Leases") affecting the Property,
and a statement (the "Tenancy Statement") in the latest form or equivalent to
that published by the A.I.R., executed by Seller and each tenant and subtenant
of the Property. Seller shall use its best efforts to provide Buyer with said
Existing Leases and Tenancy Statements promptly after the Date of Agreement.
(i) Other Agreements. Buyer's written approval, within ten (10) days
after receipt, of a copy of any other agreements ("Other Agreements") known to
Seller that will affect the Property beyond the Closing. Seller shall cause said
copies to be delivered to Buyer promptly after the Date of Agreement.
(j) Financing. If paragraph 5 hereof dealing with a financing contingency
has not been stricken, the satisfaction or waiver of such New Loan contingency.
(k) Existing Notes. If paragraph 3.1(c) has not been stricken, Buyer's
written approval, within ten (10) days after receipt, of conformed and legible
copies of the Existing Notes, Existing Deeds of Trust and related agreements
(collectively the "Loan Documents") to which the Property will remain subject
after the Closing, including a beneficiary statement (the "Beneficiary
Statement") executed by the holders of the Existing Notes confirming: (1) the
amount of the unpaid principal balance, the current interest rate, and the date
to which interest is paid, and (2) the nature and amount of any impounds held by
the beneficiary in connection with said loan. Seller shall use its best efforts
to provide Buyer with said Loan Documents and Beneficiary Statement promptly
after the Date of Agreement. Buyer's obligation to close is further conditioned
upon Buyer's being able to purchase the Property without acceleration or change
in the terms of any Existing Notes or charges to Buyer except as otherwise
provided in this Agreement or approved by Buyer, provided, however, Buyer shall
pay the transfer fee referred to in paragraph 3.2 hereof.
(l) Destruction, Damage or Loss. There shall not have occurred prior to
the Closing, a destruction of, or damage or loss to, the Property or any portion
thereof, from any cause whatsoever, which would cost more than $10,000.00 to
repair or cure. If the cost of repair or cure is $10,000.00 or less, Seller
shall repair or cure the loss prior to the Closing. Buyer shall have the option,
within ten (10) days after receipt of written notice of a loss costing more than
$10,000.00 to repair or cure, to either terminate this transaction or to
purchase the Property notwithstanding such loss, but without deduction or offset
against the Purchase Price. If the cost to repair or cure is more than
$10,000.00, and Buyer does not elect to terminate this transaction, Buyer shall
be entitled to any insurance proceeds applicable to such loss. Unless otherwise
notified in writing by either Party or Broker, Escrow Holder shall assume no
destruction, damage or loss costing more than $10,000.00 to repair or cure has
occurred prior to Closing.
(m) Material Change. No Material Change, as hereinafter defined, shall
have occurred with respect to the Property that has not been approved in writing
by Buyer. For purposes of this Agreement, a "Material Change" shall be a change
in the status of the use, occupancy, tenants, or condition of the Property as
reasonably expected by the Buyer, that occurs after the date of this offer and
prior to the Closing. Buyer shall have ten (10) days following receipt of
written notice from any source of any such Material Change within which to
approve or disapprove same. Unless otherwise notified in writing by either Party
or Broker, Escrow Holder shall assume that no Material Change has occurred prior
to the Closing.
(n) Seller Performance. The delivery of all documents and the due
performance by Seller of each and every undertaking and agreement to be
performed by Seller under this Agreement.
(o) Breach of Warranty. That each representation and warranty of Seller
herein be true and correct as of the Closing. Escrow Holder shall assume that
this condition has been satisfied unless notified to the contrary in writing by
Buyer or Broker(s) prior to the Closing.
(p) Broker's Fee. Payment at the Closing of such Broker's Fee as is
specified in this Agreement or later written instructions to Escrow Holder
executed by Seller and Broker(s). It is agreed by Buyer, Seller and Escrow
Holder that Broker(s) is/are a third party beneficiary of this Agreement insofar
as the Broker's fee is concerned, and that no change shall be made by Buyer.
Seller or Escrow Holder with respect to the time of payment, amount of payment,
or the conditions to payment of the Broker's fee specified in this Agreement,
without the written consent of Broker(s).
9.2 All of the contingencies specified in sub-paragraphs (a) through (o) of
paragraph 9.1 are for the benefit of, and may be waived by, Buyer, and may be
elsewhere herein referred to as "Buyer Contingencies."
9.3 If Buyer shall fail, within the applicable time specified, to approve or
disapprove in writing to Escrow Holder, Seller and the other Party's Broker, any
item, matter or document subject to Buyer's approval under the terms of this
Agreement, it shall be conclusively presumed that Buyer has approved such item,
matter or document. Buyer's conditional approval shall constitute a disapproval,
unless provision is made by the Seller within the time specified therefor by the
Buyer in the conditional approval or by this Agreement, whichever is later, for
the satisfaction of the condition imposed by the Buyer.
9.4 If any Buyer's Contingency is not satisfied or if Buyer disapproves any
matter subject to its approval within the time period applicable thereto
("Disapproved Item"), Seller shall have the right within ten (10) days following
the expiration of the time period applicable to such Buyer Contingency or
receipt of notice of Buyer's disapproval, as the case may be, to elect to cure
such Disapproved Item prior to the Expected Closing Date ("Seller's Election").
Seller's failure to give to Buyer within said ten (10) day period, written
notice of Seller's commitment to cure such Disapproved Item on or before the
Expected Closing Date shall be conclusively presumed to be Seller's Election not
to cure such Disapproved Item. If Seller elects, either by written notice or
failure to give written notice, not to cure a Disapproved Item, Buyer shall have
the election, within ten (10) days after Seller's Election to either accept
title to the Property subject to that Disapproved Item, or to terminate this
transaction. Buyer's failure to elect termination by written notice to Seller
within said ten (10) days period shall constitute Buyer's election to accept
title to the Property subject to that Disapproved Item without deduction or
offset. Unless expressly provided otherwise herein, Seller's right to cure shall
not apply to Hazardous Substance Conditions referenced in paragraph 9.1(c) or to
the Financing Contingency set forth in paragraph 5. Unless the parties mutually
instruct otherwise, if the time periods for the satisfaction of contingencies or
for Seller's and Buyer's said Elections would expire on a date after the
Expected Closing Date, the Expected Closing Date shall be deemed extended to
coincide with the expiration of three (3) business days following the expiration
of: (a) the applicable contingency period(s), (b) the period within which the
Seller may elect to cure the Disapproved Item, or (c) if Seller elects not to
cure, the period within which Buyer may elect to terminate this transaction,
whichever is later.
9.5 Buyer understands and agrees that until such time as all Buyer's
Contingencies have been satisfied or waived, Seller and/or its agents may
solicit, entertain and/or accept back-up offers to purchase the subject Property
in the event the transaction covered by this Agreement is not consummated.
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9.6 As defined in subparagraph 9.1(c), Buyer and Seller acknowledge that
extensive local, state and Federal legislation establish broad liability upon
owners and/or users of real property for the investigation and remediation of a
Hazardous Substance Condition. The determination of the existence of a Hazardous
Substance Condition and the evaluation of the impact of such a condition are
highly technical and beyond the expertise of Broker(s). Buyer and Seller
acknowledge that they have been advised by Broker(s) to consult their own
technical and legal experts with respect to the possible Hazardous Substance
Condition aspects of this Property or adjoining properties, and Buyer and Seller
are not relying upon any investigation by or statement of Broker(s) with respect
thereto. Buyer and Seller hereby assume all responsibility for the impact of
such Hazardous Substance Conditions upon their respective interests herein.
10. DOCUMENTS REQUIRED AT CLOSING:
10.1 Escrow Holder shall cause to be issued to Buyer a standard coverage (or
ALTA extended, if so elected under paragraph 9.1(f)) owner's form policy of
title insurance effective as of the Closing, issued by the Title Company in the
full amount of the Purchase Price, insuring title to the Property vested in
Buyer, subject only to the exceptions approved by Buyer. In the event there is a
Purchase Money Deed of Trust in this transaction, the policy of title insurance
shall be a joint protection policy insuring both Buyer and Seller.
"IMPORTANT: IN A PURCHASE OR EXCHANGE OF REAL PROPERTY, IT MAY BE ADVISABLE
TO OBTAIN TITLE INSURANCE IN CONNECTION WITH THE CLOSE OF ESCROW SINCE THERE MAY
BE PRIOR RECORDED LIENS AND ENCUMBRANCES WHICH AFFECT YOUR INTEREST IN THE
PROPERTY BEING ACQUIRED. A NEW POLICY OF TITLE INSURANCE SHOULD BE OBTAINED IN
ORDER TO ENSURE YOUR INTEREST IN THE PROPERTY THAT YOU ARE ACQUIRING."
10.2 Seller shall deliver or cause to be delivered to Escrow Holder in time
for delivery to Buyer at the Closing, an original ink signed:
(a) Grant deed (or equivalent), duly executed and in recordable form,
conveying fee title to the Property to Buyer.
(b) If paragraph 3.1(c) has not been stricken, the Beneficiary Statements
concerning Existing Note(s).
(c) if applicable, the Existing Leases and Other Agreements together with
duly executed assignments thereof by Seller and Buyer. The assignment of
Existing Leases shall be on the most recent Assignment and Assumption of
Lessor's interest in Lease form published by the A.I.R. or its equivalent.
(d) If applicable, the Tenancy Statements executed by Seller and the
Tenant(s) of the Property.
(e) An affidavit executed by Seller to the effect that Seller is not a
"foreign person" within the meaning of Internal Revenue Code Section 1445 or
successor statutes. If Seller does not provide such affidavit in form reasonably
satisfactory to Buyer at least three (3) business days prior to the Closing,
Escrow Holder shall at the Closing deduct from Seller's proceeds and remit to
Internal Revenue Service such sum as is required by applicable Federal law with
respect to purchases from foreign sellers.
10.3 Buyer shall deliver or cause to be delivered to Seller through escrow:
(a) The cash portion of the Purchase Price and such additional sums as
are required of Buyer under this Agreement for prorations, expenses and
adjustments. The balance of the cash portion of the Purchase Price, including
Buyer's escrow charges and other cash charges, if any, shall be deposited by
Buyer with Escrow Holder, by cashier's check drawn upon a local major banking
institution, federal funds wire transfer, or any other method acceptable to
Escrow Holder as immediately collectable funds, no later than 11:00 o'clock A.M.
on the business day prior to the Expected Closing Date.
(b) If a Purchase Money Note and Purchase Money Deed of Trust are called
for by this Agreement, the duly executed originals of those documents, the
Purchase Money Deed of Trust being in recordable form, together with evidence of
fire insurance on the improvements in the amount of the full replacement cost
naming Seller as a mortgage loss payee, and a real estate tax service contract
(at Buyer's expense), assuring Seller of notice of the status of payment of real
property taxes during the life of the Purchase Money Note.
(c) The assumption portion of the Assignment and Assumption of Lessor's
Interest in Lease form specified in paragraph 10.2(c), above, duly executed by
Buyer with respect to the obligations of the Lessor accruing after the Closing
as to each Existing Lease.
(d) Assumptions duly executed by Buyer of the obligations of Seller that
accrue after Closing under any Other Agreements.
(e) If applicable, a written assumption duly executed by Buyer of the
loan documents with respect to Existing Notes.
11. PRORATIONS, EXPENSES AND ADJUSTMENTS.
11.1 Taxes. Real property taxes payable by the owner of the Property shall be
prorated through Escrow as of the date of the Closing, based upon the latest tax
bill available. The Parties agree to prorate as of the Closing any taxes
assessed against the Property by supplement bill levied by reason of events
occurring prior to the Closing. Payment shall be made promptly in cash upon
receipt of a copy of any such supplement bill of the amount necessary to
accomplish such proration. Seller shall pay and discharge in full at or before
the Closing the unpaid balance of any special assessment bonds, necessary to
accomplish such proration. Seller shall pay and discharge in full at or before
the Closing the unpaid balance of any special assessment bonds.
11.2 Insurance. If Buyer elects to take an assignment of the existing
casualty and/or liability insurance that is maintained by Seller, the current
premium therefor shall be prorated through Escrow as of the date of Closing.
11.3 Rentals, Interest and Expenses. Collected rentals, interest on Existing
Notes, utilities and operating expenses shall be prorated as of the date of
Closing. The Parties agree to promptly adjust between themselves outside of
Escrow any rents received after the Closing.
11.4 Security Deposit. Security Deposits held by Seller shall be given to
Buyer by a credit to the cash required of Buyer at the Closing.
11.5 Post Closing Matters. Any item to be prorated that is not determined or
determinable at the Closing shall be promptly adjusted by the Parties by
appropriate cash payment outside of the Escrow when the amount due is
determined.
11.6 Escrow Costs and Fees. Buyer and Seller shall each pay one-half of the
Escrow Holder's charges and Seller shall pay the usual recording fees and any
required documentary transfer taxes. Seller shall pay the premium for a standard
coverage owner's or joint protection policy of title insurance.
12. REPRESENTATION AND WARRANTIES OF SELLER AND DISCLAIMER.
12.1 Seller's warranties and representations shall survive the Closing and
delivery of the deed, and, unless otherwise noted herein, are true, material and
relied upon by Buyer and Broker(s) in all respects, both as of the Date of
Agreement, and as of the date of Closing. Seller hereby make the following
warranties and representations to Buyer and Broker(s):
(a) Authority of Seller. Seller is the owner of the Property and/or has
the full right, power and authority to sell, convey and transfer the Property to
Buyer as provided herein, and to perform Seller's obligations hereunder.
(b) Maintenance During Escrow and Equipment Condition At Closing. EXCEPT
as otherwise provided in paragraph 9.1(i) hereof dealing with destruction,
damage or loss, Seller shall maintain the Property until the Closing in its
present condition, ordinary wear and tear excepted. The heating, ventilating,
air conditioning, plumbing, elevators, loading doors and electrical systems
shall be in good operating order and condition at the time of Closing.
(c) Hazardous Substances/Storage Tanks. Seller has no knowledge, except
as otherwise disclosed to Buyer in writing, of the existence or prior existence
on the Property of any Hazardous Substance (as defined in paragraph 9.1(c)), nor
of the existence or prior existence of any above or below ground storage tank or
tanks.
(d) Compliance. Seller has no knowledge of any aspect or condition of the
Property which violates applicable laws, rules, regulations, codes, or
covenants, conditions or restrictions, or of improvements or alterations made to
the Property without a permit where one was required, or of any unfulfilled
order or directive of any applicable governmental agency or casualty insurance
company that any work of investigation, remediation, repair, maintenance or
improvement is to be performed on the Property.
(e) Changes in Agreements. Prior to the Closing, Seller will not violate
or modify, orally or in writing, any Existing Lease or Other Agreement, or
create any new leases or other agreements affecting the Property, without
Buyer's written approval, which approval will not be unreasonably withheld.
(f) Possessory Rights. Seller has no knowledge that anyone will, at the
Closing, have any right to possession of the Property, except as disclosed by
this Agreement or otherwise in writing to Buyer.
(g) Mechanics' Liens. There are no unsatisfied mechanic's or
materialman's lien rights concerning the Property.
(h) Actions, Suits or Proceedings. Seller has no knowledge of any
actions, suits or proceedings pending or threatened before any commission,
board, bureau, agency, instrumentally, arbitrator(s) court or tribunal that
would affect the Property or the right to occupy or utilize same.
(i) Notice of Changes. Seller will promptly notify Buyer and Broker(s) in
writing of any Material Change (as defined in paragraph 9.1(m)) affecting the
Property that becomes known to Seller prior to the Closing.
(j) No Tenant Bankruptcy Proceedings. Seller has no notice or knowledge
that any tenant of the Property is the subject of a bankruptcy or insolvency
proceeding.
(k) No Seller Bankruptcy Proceedings. Seller is not the subject of a
bankruptcy, insolvency or probate proceeding.
12.2 Buyer hereby acknowledges that, except as otherwise stated in this
Agreement, Buyer is purchasing the Property in its existing condition and will,
by the time called for herein, make or have waived all inspections of the
Property Buyer believes are necessary to protect its own interest in, and its
contemplated use of, the Property. The Parties acknowledge that, except as
otherwise stated in this Agreement, no representations, inducements, promises,
agreements, assurances, oral or written, concerning the Property, or any aspect
of the Occupational Safety and Health Act, hazardous substance laws, or any
other act, ordinance or law, have been made by either Party or Broker, or relied
upon by either Party hereto.
13. POSSESSION.
13.1 Possession of the Property shall be given to Buyer at the Closing
subject to the rights of tenants under Existing Leases.
14. BUYER'S ENTRY.
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14.1 At any time during the Escrow period, Buyer, and its agents and
representatives, shall have the right at reasonable times and subject to rights
of tenants under Existing Leases, to enter upon the Property for the purpose of
making inspections and tests specified in this Agreement. Following any such
entry or work, unless otherwise directed in writing by Seller, Buyer shall
return the Property to the condition it was in prior to such entry or work,
including the recompaction or removal of any disrupted soil or material as
Seller may reasonably direct. All such inspections and tests and any other work
conducted or materials furnished with respect to the Property by or for Buyer
shall be paid for by Buyer as and when due and Buyer shall indemnify, defend,
protect and hold harmless Seller and the Property of and from any and all
claims, liabilities, demands, losses, costs, expenses (including reasonable
attorney's fees), damages or recoveries, including those for injury to person or
property, arising out of or relating to any such work or materials or the acts
or omissions of Buyer, its agents or employees in connection therewith.
15. FURTHER DOCUMENTS AND ASSURANCES.
15.1 Buyer and Seller shall each, diligently and in good faith, undertake all
actions and procedures reasonably required to place the Escrow in condition for
Closing as and when required by this Agreement. Buyer and Seller agree to
provide all further information, and to execute and deliver all further
documents and instruments, reasonably required by Escrow Holder or the Title
Company.
16. ATTORNEYS' FEES.
16.1 In the event of any litigation or arbitration between the Buyer, Seller,
and Broker(s), or any of them, concerning this transaction, the prevailing party
shall be entitled to reasonable attorney's fees and costs. The attorneys' fee
award shall not be computed in accordance with any court fee schedule, but shall
be such as to fully reimburse all attorneys' fees reasonably incurred in good
faith.
17. PRIOR AGREEMENTS/AMENDMENTS.
17.1 The contract in effect as of the Date of Agreement supersedes any and
all prior agreements between Seller and Buyer regarding the Property.
17.2 Amendments to this Agreement are effective only if made in writing and
executed by Buyer and Seller.
18. BROKER'S RIGHTS.
18.1 If this sale shall not be consummated due to the default of either the
Buyer or Seller, the defaulting party shall be liable to and shall pay to
Broker(s) the commission that Broker(s) would have received had the sale been
consummated. This obligation of Buyer, if Buyer is the defaulting party, is in
addition to any obligation with respect to liquidated damages.
18.2 Upon the Closing. Broker(s) is/are authorized to publicize the facts of
this transaction.
19. NOTICES.
19.1 Whenever any Party hereto, Escrow Holder or Broker(s) herein shall
desire to give or serve any notice, demand, request, approval or other
communication, each such communication shall be in writing and shall be
delivered personally, by messenger or by mail, postage prepaid, addressed as set
forth adjacent to that party's or Broker's signature on this Agreement or by
telecopy with receipt confirmed by telephone. Service of any such communication
shall be deemed made on the date of actual receipt at such address.
19.2 Any Party or Broker hereto may from time to time, by notice in writing
served upon the other Party as aforesaid, designate a different address to
which, or a different person or additional persons to whom, all communications
are thereafter to be made.
20. DURATION OF OFFER.
20.1 If this offer shall not be accepted by Seller on or before 5:00 p.m.
according to the time standard applicable to the city of Los Angeles, CA on the
date of February 20, 1998, it shall be deemed automatically revoked.
20.2 The acceptance of this offer, or of any subsequent counter-offer hereto,
that creates an agreement between the Parties as described in paragraph 1.2,
shall be deemed made upon delivery to the other Party or either Broker herein of
a duly executed writing unconditionally accepting the last outstanding offer or
counter-offer.
21. LIQUIDATED DAMAGES. (This Liquidated Damages paragraph is applicable only if
initialled by both parties.)
21.1 THE PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE OR EXTREMELY DIFFICULT
TO FIX, PRIOR TO SIGNING THIS AGREEMENT, THE ACTUAL DAMAGES WHICH WOULD BE
SUFFERED BY SELLER IF BUYER FAILS TO PERFORM ITS OBLIGATIONS UNDER THIS
AGREEMENT. THEREFORE, IF, AFTER THE SATISFACTION OR WAIVER OF ALL CONTINGENCIES
PROVIDED FOR THE BUYER'S BENEFIT, BUYER BREACHES THIS AGREEMENT, SELLER SHALL BE
ENTITLED TO LIQUIDATED DAMAGES IN THE AMOUNT OF $250,000 PLUS INTEREST, IF ANY,
ACCRUED THEREON. UPON PAYMENT OF SAID SUM TO SELLER, BUYER SHALL BE RELEASED
FROM ANY FURTHER LIABILITY TO SELLER, AND ANY ESCROW CANCELLATION FEES AND TITLE
COMPANY CHARGES SHALL BE PAID BY SELLER.
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BUYER INITIALS SELLER INITIALS
22. ARBITRATION OF DISPUTES. (This Arbitration of Disputes paragraph is
applicable only if initiated by both parties and is subject to paragraph 23,
below.)
22.1 ANY CONTROVERSY AS TO WHETHER SELLER IS ENTITLED TO THE LIQUIDATED
DAMAGES AND/OR BUYER IS ENTITLED TO THE RETURN OF DEPOSIT MONEY, SHALL BE
DETERMINED BY BINDING ARBITRATION BY, AND UNDER THE COMMERCIAL RULES (the
"COMMERCIAL RULES") OF, THE AMERICAN ARBITRATION ASSOCIATION. HEARINGS ON SUCH
ARBITRATION SHALL BE HELD IN THE COUNTY WHERE THE PROPERTY IS LOCATED. ANY SUCH
CONTROVERSY SHALL BE ARBITRATED BY THREE (3) ARBITRATORS WHO SHALL BE IMPARTIAL
REAL ESTATE BROKERS WITH AT LEAST FIVE (5) FULL TIME YEARS OF EXPERIENCE IN THE
AREA WHERE THE PROPERTY IS LOCATED, IN THE TYPE OF REAL ESTATE THAT IS THE
SUBJECT OF THIS AGREEMENT AND SHALL BE APPOINTED UNDER THE COMMERCIAL RULES. THE
ARBITRATORS SHALL HEAR AND DETERMINE SAID CONTROVERSY IN ACCORDANCE WITH
APPLICABLE LAW AND THE INTENTION OF THE PARTIES AS EXPRESSED IN THIS AGREEMENT,
AS THE SAME MAY HAVE BEEN DULY MODIFIED IN WRITING BY THE PARTIES PRIOR TO THE
ARBITRATION. UPON THE EVIDENCE PRODUCED AT AN ARBITRATION HEARING SCHEDULED AT
THE REQUEST OF EITHER PARTY, SUCH PRE-ARBITRATION DISCOVERY SHALL BE PERMITTED
AS IS AUTHORIZED UNDER THE COMMERCIAL RULES OR STATE LAW APPLICABLE TO
ARBITRATION PROCEEDINGS. THE AWARD SHALL BE EXECUTED AT LEAST TWO (2) OF THE
THREE (3) ARBITRATORS, BE RENDERED WITHIN PARTY THIRTY (30) DAYS AFTER THE
CONCLUSION OF THE HEARING, AND MAY INCLUDE ATTORNEYS' FEES AND COSTS TO THE
PREVAILING PARTY PER PARAGRAPH 16 HEREOF. JUDGMENT MAY BE ENTERED ON THE AWARD
IN ANY COURT OF COMPETENT JURISDICTION NOTWITHSTANDING THE FAILURE OF A PARTY
DULY NOTIFIED OF THE ARBITRATION HEARING TO APPEAR THEREAT.
22.2 BUYER'S RESORT TO OR PARTICIPATION IN SUCH ARBITRATION PROCEEDINGS SHALL
NOT BAR SUIT IN A COURT OF COMPETENT JURISDICTION BY THE BUYER FOR DAMAGES
AND/OR SPECIFIC PERFORMANCE UNLESS AND UNTIL THE ARBITRATION RESULTS IN AN AWARD
TO THE SELLER OF LIQUIDATION DAMAGES, IN WHICH EVENT SUCH AWARD SHALL ACT AS A
BAR AGAINST ANY ACTION BY BUYER FOR DAMAGES AND/OR SPECIFIC PERFORMANCE.
22.3 NOTICE: BY INITIALLING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
COURT OR JURY TRIAL. BY INITIALLING IN THE SPACE BELOW YOU ARE GIVING UP YOUR
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY
INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION. YOU MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO
THIS ARBITRATION PROVISION IS VOLUNTARY.
XXX
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WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
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BUYER INITIALS SELLER INITIALS
23. APPLICABLE LAW.
23.1 This Agreement shall be governed by, and paragraph 22.3 amended to refer
to, the laws of the state in which the Property is located.
24. TIME OF ESSENCE.
24.1 Time is of the essence of this Agreement.
25. COUNTERPARTS.
25.1 This Agreement may be executed by Buyer and Seller in counterparts, each
of which shall be deemed an original, and all of which together shall constitute
one and the same instrument. Escrow Holder, after verifying that the
counterparts are identical except for the signatures, is authorized and
instructed to combine the signed signature pages on one of the counterparts,
which shall then constitute the Agreement.
26. DISCLOSURES REGARDING THE NATURE OF A REAL ESTATE AGENCY RELATIONSHIP.
26.1 The Parties and Broker(s) agree that their relationship(s) shall be
governed by the principles set forth in California Civil Code, Section 2375, as
summarized in the following paragraph 26.2.
26.2 When entering into a discussion with a real estate agent regarding a
real estate transaction, a Buyer or Seller should from the outset understand
what type of agency relationship or representation it has with the agent in the
transaction. Buyer and Seller acknowledge being advised by the Broker(s) in this
transaction, as follows:
(a) Seller's Agent. A Seller's agent under a listing agreement with the
Seller acts as the agent for the Seller only. A Seller's agent or subagent has
the following affirmative obligations: (1) To the Seller. A fiduciary duty of
utmost care, integrity, honesty, and loyalty in dealings with the Seller. (2) To
the Buyer and the Seller: a. Diligent exercise of reasonable skill and care in
performance of the agent's duties. b. A duty of honest and fair dealing and good
faith. c. a duty to disclose all facts known to the agent materially affecting
the value or desirability of the property that are not known to, or within the
diligent attention and observation of, the Parties. An agent is not obligated to
reveal to either Party any confidential information obtained from the other
Party which does not involve the affirmative duties set forth above.
(b) Buyer's Agent. A selling agent can, with a Buyer's consent, agree to
act as agent for the Buyer only. In these situations, the agent is not the
Seller's agent, even if by agreement the agent may receive compensation for
services rendered, either in full or in part from the Seller. An agent acting
only for a Buyer has the following affirmative obligations. (1) To the Buyer: A
fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with
the Buyer. (2) To the Buyer and the Seller: a. diligent exercise of reasonable
skill and care in performance of the agent's duties. b. A duty of honest and
fair dealing and good faith. c. A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the Parties. An
agent is not obligated to reveal to either Party any confidential information
obtained from the other party which does not involve the affirmative duties set
forth above.
(c) Agent Representing Both Seller and Buyer. A real estate agent, either
acting directly or through one ore more associate licenses, can legally be the
agent of both the Seller and the Buyer in a transaction, but only with the
knowledge and consent of both the Seller and the Buyer. (1) In a dual agency
situation, the agent has the following affirmative obligations to both the
Seller and the Buyer: a. A fiduciary duly of utmost care, integrity, honesty and
loyalty in the dealings with either Seller or the Buyer. b. Other duties to the
Seller and the Buyer as stated above in their respective sections (a) or (b) of
this paragraph 26.2. (2) In representing both Seller and Buyer, the agent may
not without the express permission of the respective Party, disclose to the
other Party that the Seller will accept a price less than the listing price or
that the Buyer will pay a price greater than the price offered. (3) The above
duties of the agent in a real estate transaction do not relieve a Seller or
Buyer from the responsibility to protect their own interests. Buyer and Seller
should carefully read all agreements to assure that they adequately express
their understanding of the transaction. A real estate agent is a person
qualified to advise about real estate. If legal or tax advise is desired,
consult a competent professional.
(d) Further Disclosures. Throughout this transaction Buyer and Seller may
receive more than one disclosure, depending upon the number of agents assisting
in the transaction. Buyer and Seller should each read its contents each time it
is presented, considering the relationship between them and the real estate
agent in this transaction and that disclosure.
26.3 Confidential Information: Buyer and Seller agree to identify to
Broker(s) as "Confidential" any communication or information given Broker(s)
that is considered by such Party to be confidential.
27. ADDITIONAL PROVISIONS:
Additional provisions of this offer, if any, are as follows or are attached
hereto by an addendum consisting of paragraphs ______ through ______. (It will
be presumed no other provisions are included unless specified here.)
SEE ADDENDUM
- -------- --------
Initials Initials
<PAGE> 7
BUYER AND SELLER HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN AND ARE NOW ADVISED BY
THE BROKER(S) TO CONSULT AND RETAIN THEIR OWN EXPERTS TO ADVISE AND REPRESENT
THEM CONCERNING THE LEGAL AND INCOME TAX EFFECTS OF THIS AGREEMENT, AS WELL AS
THE CONDITION AND/OR LEGALITY OF THE PROPERTY, THE IMPROVEMENTS AND EQUIPMENT
THEREIN, THE SOIL THEREOF, THE CONDITION OF TITLE THERETO, THE SURVEY THEREOF,
THE ENVIRONMENTAL ASPECTS THEREOF, THE INTENDED AND/OR PERMITTED USAGE THEREOF,
THE EXISTENCE AND NATURE OF TENANCIES THEREIN, THE OUTSTANDING OTHER AGREEMENTS,
IF ANY, WITH RESPECT THERETO, AND THE EXISTING OR CONTEMPLATED FINANCING
THEREOF, AND THAT THE BROKER(S) IS/ARE NOT TO BE RESPONSIBLE FOR PURSUING THE
INVESTIGATION OF ANY SUCH MATTERS UNLESS EXPRESSLY OTHERWISE AGREED TO IN
WRITING BY BROKER(S) AND BUYER OR SELLER.
THIS FORM IS NOT FOR USE IN CONNECTION
WITH THE SALE OF RESIDENTIAL PROPERTY.
IF THIS AGREEMENT HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS AGREEMENT OR THE
TRANSACTION INVOLVED HEREIN. THE UNDERSIGNED BUYER OFFERS AND AGREES TO BUY THE
PROPERTY ON THE TERMS AND CONDITIONS STATED AND ACKNOWLEDGES RECEIPT OF A COPY
HEREOF.
BROKER: BUYER:
The Weatherby Co. THE SPORTS CLUB COMPANY, INC.
- ---------------------------------------- ------------------------------------
By /s/ W. J. Weatherby Date 3/5/98 By /s/ Mark Spino Date 3/5/98
- ---------------------------------------- ------------------------------------
Name Printed: W. J. Weatherby Name Printed: Mark Spino
- ---------------------------------------- ------------------------------------
Title: Owner Title: Vice President
- ---------------------------------------- ------------------------------------
11100 Santa Monica Blvd., No. 300 11100 Santa Monica Blvd., No. 300
- ---------------------------------------- ------------------------------------
Address Address
Los Angeles, CA 90025 Los Angeles, CA 90025
- ---------------------------------------- ------------------------------------
(310) 479-5200 (310) 479-8879 (310) 470-5200 (310) 479-8879
- ---------------------------------------- ------------------------------------
Telephone Facsimile No. Telephone Facsimile No.
28. ACCEPTANCE.
28.1 Seller accepts the foregoing offer to purchase the Property and hereby
agrees to sell the Property to Buyer on the terms and conditions therein
specified.
28.2 Seller acknowledges that Broker(s) has/have been related to locate a
Buyer and is/are the procuring cause of the purchase and sale of the Property
set forth in this Agreement. In consideration of real estate brokerage service
rendered by Broker(s). Seller agrees to pay Broker(s) a real estate brokerage
fee in a sum equal to ____% of the Purchase Price (the "Broker(s) Fee") divided
equally in such shares as said Broker(s) shall direct in writing. As is provided
in paragraph 9.1(p), this Agreement shall serve as an irrevocable instruction to
Escrow Holder to pay such brokerage fee to Broker(s) out of the proceeds
accruing to the account of Seller at the Closing.
28.3 Seller acknowledges receipt of a copy hereof and authorizes the
Broker(s) to deliver a signed copy to Buyer.
NOTE: A PROPERTY INFORMATION SHEET IS REQUIRED TO BE DELIVERED TO BUYER BY
SELLER UNDER THIS AGREEMENT.
BROKER: SELLER RIVERSTONE REALTY ADVISORS,
LLC
/s/ Peter Appel
- ---------------------------------------- ------------------------------------
By Date By /s/ Peter Appel Date
Name Printed: Name Printed: Peter Appel
- ---------------------------------------- ------------------------------------
Title: Title: Manager
- ---------------------------------------- ------------------------------------
343 West Manhattan Avenue
- ---------------------------------------- ------------------------------------
Address Address
Santa Fe, New Mexico 87501
(505) 988-2700 (505) 988-2793
- ---------------------------------------- ------------------------------------
Telephone Facsimile No. Telephone Facsimile No.
THESE FORMS ARE OFTEN MODIFIED TO MEET CHANGING REQUIREMENTS OF LAW AND NEEDS OF
THE INDUSTRY. ALWAYS WRITE OR CALL TO MAKE SURE YOU ARE UTILIZING THE MOST
CURRENT FORM: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 SOUTH FLOWER
STREET, SUITE 600, LOS ANGELES, CA 90017. (213) 687-8777.
(C) COPYRIGHT 1989-BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION. ALL RIGHTS
RESERVED. NO PART OF THESE WORKS MAY BE REPRODUCED IN ANY FORM WITHOUT
PERMISSION IN WRITING.
FORM 729-R-3-1/94
<PAGE> 1
EXHIBIT 10.75
AMENDMENT TO SOP
JUNE 2, 1998
<PAGE> 2
THE SPORTS CLUB COMPANY, INC.
1994 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED JUNE 2, 1998)
ARTICLE 1
GENERAL PURPOSE OF PLAN
The name of this plan is The Sports Club Company, Inc. 1994 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to enable The Sports
Club Company, Inc. (the "Company") and any Parent or any Subsidiary to obtain
and retain the services of the types of employees, consultants, officers and
directors who will contribute to the Company's long range success and to provide
incentives which are linked directly to increases in share value which will
inure to the benefit of all shareholders of the Company.
ARTICLE 2
DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below:
"Administrator" shall have the meaning as set forth in Article 3.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto.
"Committee" means a committee of at least two Directors appointed by the
Board to administer the Plan.
"Company" means The Sports Club Company, Inc., a corporation organized
under the laws of the State of Delaware (or any successor corporation).
"Date of Grant" means the date on which the Administrator adopts a
resolution expressly granting a Right to a Participant.
"Director" means a member of the Board.
"Disability" means permanent and total disability as defined by the
Administrator.
"Eligible Person" means an employee or officer or any consultant or
Director of the Company, any Parent or any Subsidiary, other than the
Administrator.
"Fair Market Value" per share at any date shall mean (i) if the Stock is
listed on an exchange or exchanges, or admitted for trading in the Nasdaq
National Market ("National Market"), the last reported sales price per share on
the last business day prior to such date on the principal exchange on which it
is traded, or on the National Market, as applicable, or if no sale was made on
such day on such principal exchange or on the National Market, as applicable,
the last reported sales price per share on the most recent day prior to such
date on which a sale was reported on such exchange or the National Market, as
applicable; or (ii) if the Common Stock is not then traded on an exchange or in
the National Market, the average of the closing bid and asked prices per share
for the Common Stock in the over-the-counter market as quoted on NASDAQ on the
day prior to such date; or (iii) if the Common Stock is not listed on an
exchange or quoted on NASDAQ, an amount determined in good faith by the
Administrator.
<PAGE> 3
"Grantee" means an Eligible Participant who is granted a SAR pursuant to
the Plan.
"Incentive Stock Option" means a Stock Option intended to qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
"Non-Statutory Option" means a Stock Option not intended to qualify as
an Incentive Stock Option.
"Offeree" means an Eligible Participant who is granted a Purchase Right
pursuant to the Plan.
"Optionee" means an Eligible Participant who is granted a Stock Option
pursuant to the Plan.
"Parent" means any present or future corporation which would be a
"parent corporation" as that term is defined in Section 424 of the Code.
"Participant" means any Eligible Person selected by the Administrator,
pursuant to the Administrator's authority in Article 3, to receive grants of
Rights.
"Plan" means The Sports Club Company, Inc. 1994 Stock Incentive Plan, as
the same may be amended or supplemented from time to time.
"Purchase Right" means the right to purchase Stock granted pursuant to
Article 8.
"Rights" means Stock Options, Purchase Rights and SARs.
"Retirement" means retirement from active employment with the Company or
any Parent or Subsidiary as defined by the Administrator.
"SAR" means a stock appreciation right granted alone or in tandem with a
Stock Option pursuant to Article 7.
"Special Terminating Event" with respect to a Participant shall mean the
death, Disability or Retirement of that Participant.
"Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Stock Option" means any option to purchase shares of Stock granted
pursuant to Article 6; and, with respect to SARs, also includes options to
purchase shares of Stock granted pursuant to Other Plans.
"Subsidiary" means any present or future corporation which would be a
"subsidiary corporation" as that term is defined in Section 424 of the Code.
"Ten Percent Shareholder" means a person who on the Date of Grant owns,
either directly or through attribution as provided in Section 424(d) of the
Code, Stock possessing more than 10% of the total combined voting power of all
classes of stock of his or her employer corporation or of any Parent or
Subsidiary.
<PAGE> 4
ARTICLE 3
ADMINISTRATION
SECTION 3.1 THE ADMINISTRATOR.
(a) Administrator. The Plan shall be administered by either (i) the
Board; or (ii) the Committee (the group that administers the Plan is referred to
as the "Administrator").
(b) Powers in General. The Administrator shall have the power and
authority to grant to Eligible Persons, pursuant to the terms of the Plan: (i)
Stock Options; (ii) SARs; (iii) Purchase Rights; or (iv) any combination of the
foregoing.
(c) Specific Powers. In particular, the Administrator shall have the
authority: (i) to construe and interpret the Plan and apply its provisions; (ii)
to promulgate, amend and rescind rules and regulations relating to the
administration of the Plan; (iii) to authorize any person to execute, on behalf
of the Company, any instrument required to carry out the purposes of the Plan;
(iv) to determine, subject to the limitations set forth in Article 7, when
Rights are to be granted under the Plan; (v) from time to time to select,
subject to the limitations set forth in this Plan, those Eligible Participants
to whom Rights shall be granted; (vi) to determine the number of shares of Stock
to be made subject to each Right; (vii) to prescribe the terms and conditions of
each Stock Option, including, without limitation, the exercise price and medium
of payment, to determine whether the Stock Option is to be an Incentive Stock
Option or a Non-Statutory Option and to specify the provisions of the Stock
Option agreement relating to such Stock Option; (viii) to prescribe the terms
and conditions of each SAR, including, without limitation, to determine whether
such SAR is to be granted alone or in tandem with Stock Options during the term
of the Related SAR Option and to specify the provisions of the SAR agreement
relating to such SAR including, without limitation, vesting provisions; (ix) to
prescribe the terms and conditions of each Purchase Right, including, without
limitation, the purchase price and medium of payment, vesting provisions and
repurchase provisions, and to specify the provisions of the Stock purchase
agreement relating to such sale; (x) to amend any outstanding Rights for the
purpose of modifying the purchase price, exercise price or Initial Valuations
(as defined in Article 7), as the case may be, thereunder or otherwise, subject
to applicable legal restrictions and to the consent of the other party to such
agreement; (xi) to determine when a consultant's relationship with the Company
is sufficient to constitute employment with the Company for purposes of the
Plan; (xii) to determine the duration and purpose of leaves of absences which
may be granted to a Participant without constituting termination of their
employment for purposes of the Plan; and (xiii) to make any and all other
determinations which it determines to be necessary or advisable for
administration of the Plan.
(d) Decisions Final. All decisions made by the Administrator pursuant to
the provisions of the Plan shall be final and binding on the Company and the
Participants.
(e) The Committee. The Board may, in its sole and absolute discretion,
from time to time delegate any or all of its duties and authority with respect
to the Plan to a Committee of not less than two Directors to be appointed by and
to serve at the pleasure of the Board. Once appointed, the Committee shall
continue to serve until otherwise directed by the Board. From time to time, the
Board may increase or decrease (to not less than two members) the size of the
Committee, add additional members to, remove members (with or without cause)
from, appoint new members in substitution therefor, and fill vacancies, however
caused, in the Committee. The Committee shall act pursuant to a vote of the
majority of its members or, in the case of a Committee comprised of two
Directors, the unanimous vote of its members, whether present or not, or by the
written consent of the majority of its members or, in the case of a Committee
comprised of two Directors, the unanimous vote of its members, and minutes shall
be kept of all of its meetings and copies thereof shall be provided to the
Board. Subject to the limitations prescribed by the Plan and the Board, the
Committee may establish and follow such rules and regulations for the conduct of
its business as it may determine to be advisable.
<PAGE> 5
ARTICLE 4
STOCK SUBJECT TO PLAN
SECTION 4.1 STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Article 10, the total number of
shares of Stock reserved and available for issuance under the Plan shall be
1,800,000 shares. The total number of shares of Stock with respect to which SARs
granted with relating to Related SAR Options may be granted shall be equal to
1,800,000 shares. Solely for purposes of determining the number of shares of
Stock reserved and available for issuance under the Plan, each SAR granted
without relation to a Stock Option shall be treated as a Stock Option. Shares
reserved hereunder may consist, in whole or in part, of authorized and unissued
shares or treasury shares.
SECTION 4.2 UNEXERCISED RIGHTS.
To the extent that any Rights expire or are otherwise terminated without
being exercised, the shares underlying such Rights (and shares related thereto)
shall again be available for issuance in connection with future Rights under the
Plan. Shares acquired by the Company upon exercise of Rights pursuant to Section
6.2(e) or Section 8.2(c) or Section 12.3 shall not increase the shares available
for issuance under the Plan.
ARTICLE 5
ELIGIBILITY
Officers, employees, consultants and Directors of the Company, any
Parent or any Subsidiary, other than the Administrator, who are responsible for
or contribute to the management, growth or profitability of the business of the
Company, any Parent or any Subsidiary shall be eligible to be granted Rights
hereunder subject to limitations set forth in this Plan. The Participants under
the Plan shall be selected from time to time by the Administrator, in its sole
discretion, from among those Eligible Persons.
ARTICLE 6
STOCK OPTIONS
SECTION 6.1 GENERAL.
Stock Options may be granted alone or in addition to other Rights
granted under the Plan. Any Stock Option granted under the Plan shall be in such
form as the Administrator may from time to time approve, and the provisions of
Stock Option grants need not be the same with respect to each Optionee or each
Stock Option granted. Stock Options granted under the Plan may be either
Incentive Stock Options or Non-Statutory Options.
SECTION 6.2 TERMS AND CONDITIONS OF STOCK OPTIONS.
Each Stock Option granted pursuant to the Plan shall be evidenced by a
written option agreement between the Company and the Optionee, which agreement
shall comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Stock Option agreement shall state the number
of shares of Stock to which the Stock Option relates.
(b) Type of Option. Each Stock Option agreement shall identify the
portion (if any) of the Stock Option which constitutes an Incentive Stock
Option.
<PAGE> 6
(c) Exercise Price. Each Stock Option agreement shall state the price at
which shares subject to the Stock Option may be purchased (the "Exercise
Price"), which shall with respect to Incentive Stock Options be not less than
one hundred percent (100%) of the Fair Market Value of the shares of Stock on
the Date of Grant; provided, however, that in the case of an Incentive Stock
Option granted to a Ten Percent Shareholder, the Exercise Price shall not be
less than one hundred ten percent (110%) of such Fair Market Value. With respect
to Non-Statutory Options, the Exercise Price shall not be less than eighty-five
percent (85%) of the Fair Market Value of the shares of Stock on the Date of
Grant of the Non-Statutory Option.
(d) Value of Shares. The Fair Market Value of the shares of Stock
(determined as of the Date of Grant) with respect to which Incentive Stock
Options are exercisable by an Optionee under this Plan and all other incentive
option plans of the Company and any Parent or Subsidiary shall not, in the
aggregate, exceed $100,000 in any calendar year.
(e) Medium and Time of Payment. The Exercise Price shall be paid in
full, at the time of exercise, in cash or cash equivalents or, with the approval
of the Administrator, in shares of Stock which have been held by the Optionee
for a period of at least six calendar months preceding the date of surrender and
which have a Fair Market Value equal to the Exercise Price, or in a combination
of cash and such shares, and may be effected in whole or in part (i) with monies
received from the Company at the time of exercise as a compensatory cash
payment; or (ii) to the extent that the Exercise Price exceeds the par value of
the shares so purchased, with monies borrowed from the Company in accordance
with Section 12.5.
(f) Term and Exercise of Stock Options. Stock Options shall be
exercisable over the exercise period at the times the Administrator may
determine, as reflected in the related Stock Option agreements. The exercise
period of any Stock Option shall be determined by the Administrator, but shall
not exceed ten years from the Date of Grant of the Stock Option. In the case of
an Incentive Stock Option granted to a Ten Percent Shareholder, the exercise
period shall be determined by the Administrator, but shall not exceed five years
from the Date of Grant of the Stock Option. The exercise period shall be subject
to earlier termination as provided in Sections 12.6 and 12.7. A Stock Option may
be exercised, as to any or all full shares of Stock as to which the Stock Option
has become exercisable, by giving written notice of such exercise to the
Company.
(g) Employee's or Engagement Agreement. Each person receiving a Stock
Option under the Plan shall agree to remain in the employ of, and/or to render
services pursuant to his or her engagement with, the Company, any Subsidiary or
any Parent, as the Administrator may from time to time direct, for a period of
one year from the Date of Grant, but such agreement shall not obligate the
Company, any Subsidiary or any Parent to continue to employ or maintain the
engagement of the Optionee for any period whatsoever. The sole remedy of the
Company for breach of this employment or engagement term by the Optionee shall
be cancellation of the Stock Option granted to the Optionee.
ARTICLE 7
STOCK APPRECIATION RIGHTS
SECTION 7.1 GENERAL.
The Administrator shall have the authority to grant SARs in tandem with
Stock Options granted under this Plan (the "Related SAR Option") with respect to
all or some of the shares of Stock covered by the Related SAR Option. SARs
granted in tandem with Related SAR Options may be granted either at the time of
grant of the Related SAR Option or at any time thereafter during the term of the
Related SAR Option. The Administrator shall also have the authority to grant
SARs without relation to any Stock Option granted under this Plan. Each SAR
shall be granted on such terms and conditions not inconsistent with the Plan as
the Administrator may determine. The
<PAGE> 7
provisions of the various SAR awards need not be the same with respect to each
Grantee or with respect to any SARs granted to the same Grantee.
SECTION 7.2 TERMS AND CONDITIONS OF SARS.
Each SAR granted pursuant to the Plan shall be evidenced by a written
SAR agreement between the Company and the Grantee, which agreement shall comply
with and be subject to the following terms and conditions:
(a) Number of SARs. Each SAR agreement shall state the number of SARs
granted pursuant to the agreement.
(b) Initial Valuations. Each SAR agreement shall provide that each SAR
granted in tandem with a Related Stock Option is valued at the Exercise Price of
the Related SAR Option and that each SAR granted without relation to a Stock
Option is valued at the Fair Market Value of a share of Stock on the Date of
Grant (the "Initial Valuation").
(c) Term and Exercise of SARs.
(i) Each SAR granted otherwise than in tandem with a Stock
Option shall be exercisable as determined by the Administrator, but in
no event after 10 years from the date of Grant. Each other SAR shall be
exercisable only if, and to the extent that, the Related SAR Option is
exercisable and has not yet terminated or expired, and in the case of a
SAR granted in respect of an Incentive Stock Option, only when the Fair
Market Value per share of the Stock exceeds the Exercise Price of the
Related SAR Option; and upon the exercise of a SAR, the Related SAR
Option shall cease to be exercisable to the extent of the shares of
Stock with respect to which such SAR is exercised, and shall be
considered to have been exercised to that extent for purposes of
determining the number of shares available for the grant of further
Rights pursuant to the Plan. Upon the exercise or termination of a
Related SAR Option, the SAR granted in tandem with such Related SAR
Option shall terminate to the extent of the shares of Stock with respect
to which the Related SAR Option was exercised or terminated.
(ii) To exercise a SAR granted in tandem with a Related SAR
Option, the Grantee shall (A) give written notice thereof to the Company
specifying the number of shares of Stock with respect to which the SAR
is being exercised and the percentage of the total amount that the
Grantee is entitled to receive which the Grantee elects to receive in
cash or shares of Stock with respect to the exercise of the SAR; and (B)
if requested by the Administrator, deliver the Related SAR Option
agreement to the Secretary of the Company, who shall endorse thereon a
notation of such exercise and return the Related SAR Option agreement to
the Grantee. To exercise a SAR granted without relation to a Stock
Option, the Grantee shall give written notice thereof to the Company
specifying the number of shares of Stock with respect to which the SAR
is being exercised and the percentage of the total amount that the
Grantee is entitled to receive which the Grantee elects to receive in
cash or shares of Stock with respect to the exercise of the SAR. The
date of exercise of a SAR which is validly exercised shall be deemed to
be the date on which there shall have been delivered to the Company the
appropriate aforesaid instruments.
(iii) Upon the exercise of a SAR, the holder thereof shall be
entitled at the holder's election to receive either:
(A) a number of shares of Stock equal to the quotient
computed by dividing the Spread (as defined in Section
7.2(c)(iv)) by the Fair Market Value per share of Stock on
the date of exercise of the SAR; provided, however, that in
lieu of fractional shares, the Company shall pay in cash or
cash equivalent an amount equal to the same fraction of the
Fair Market Value per share of Stock on the date of exercise
of the SAR; or
<PAGE> 8
(B) an amount of money payable in cash or cash equivalent
equal to the Spread; or
(C) a combination of an amount payable in cash or cash
equivalent and a number of shares calculated as provided in
Section 7.2(c)(iii)(A) (after reducing the Spread by such
dollar amount); plus any amounts payable in lieu of any
fractional shares as provided above.
(iv) The term "Spread" as used in Section 7.2(c) shall mean an
amount equal to the product computed by multiplying (A) the excess of
(x) the Fair Market Value per share of Stock on the date the SAR is
exercised, over either (y) in the case of an SAR granted in tandem with
a Related SAR Option, the Exercise Price per share of the Related SAR
Option, or (z) in the case of an SAR not granted in tandem with a Stock
Option, the Initial Valuation of the SAR; by (B) the number of shares
with respect to which such SAR is being exercised.
(v) Notwithstanding the provisions of Section 7.2(c)(iii), the
Administrator shall have sole discretion to consent to or disapprove a
Participant's election to receive an amount of money payable in cash or
cash equivalent in whole or in part ("Cash Election") upon the exercise
of a SAR. Such consent or disapproval may be given at any time after the
election to which it relates. If the Administrator shall disapprove a
Cash Election the exercise of the SAR with respect to which the Cash
Election was made shall be of no effect, but without prejudice to the
right of the holder to exercise such SAR in the future in accordance
with its terms.
(vi) Notwithstanding the foregoing, in the case of a SAR granted
in tandem with an Incentive Stock Option, the holder may not receive an
amount in excess of such amount as will enable the Stock Option to
qualify as an Incentive Stock Option.
(d) Securities Laws. The Company intends that this Section 7.2 shall
comply with the requirements of Rule 16b-3 and any future rules promulgated in
substitution therefor (the "Rule") under the Exchange Act, during the term of
the Plan. Should any provision of Section 7.2 not be necessary to comply with
the requirements of the Rule or should any additional provisions be necessary
for Section 7.2 to comply with the requirements of the Rule, the Board may amend
the Plan to add to or modify the provisions of the Plan accordingly.
(e) Limitation on Amounts Payable. Notwithstanding Section 7.2(c)(iii),
the Administrator may place a limitation on the amount payable in cash, Stock or
both upon exercise of a SAR. Any such limitation must be determined as of the
Date of Grant, and noted on the instrument evidencing the Participant's SAR
granted hereunder.
ARTICLE 8
PURCHASE RIGHTS
SECTION 8.1 GENERAL.
Purchase Rights may be granted alone or in addition to other Rights
under the Plan. Each sale of Stock under this Article 8 shall be evidenced by a
Stock purchase agreement between the Offeree and the Company in the form from
time to time adopted by the Administrator and containing such terms and
conditions which the Administrator deems appropriate; provided, that such terms
and conditions are not inconsistent with the Plan. The provisions of the various
Stock purchase agreements entered into under the Plan need not be identical.
<PAGE> 9
SECTION 8.2 TERMS AND CONDITIONS OF PURCHASE RIGHTS.
Each Purchase Right granted pursuant to the Plan shall be evidenced by a
written Stock purchase agreement between the Company and the Offeree, which
agreement shall comply with and be subject to the following terms and
conditions:
<PAGE> 10
(a) Number of Shares. Each Stock purchase agreement shall state the
number of shares of Stock which may be purchased pursuant to such agreement.
(b) Purchase Price. Each Stock purchase agreement shall state the price
at which the Stock subject to such purchase agreement may be purchased (the
"Purchase Price"); provided, however, that the Purchase Price shall not be less
than 85% of the Fair Market Value of the Stock on the Date of Grant.
(c) Medium and Time of Payment. The Purchase Price shall be paid in
full, at the time of exercise, in cash or cash equivalent or, with the approval
of the Administrator, in shares of Stock which have been held by the Optionee
for a period of at least six calendar months preceding the date of surrender and
which have a Fair Market Value equal to the Purchase Price or in a combination
of cash or cash equivalent and such shares, and may be effected in whole or in
part (i) with monies received from the Company at the time of exercise as a
compensatory cash payment; or (ii) to the extent the purchase price exceeds the
par value of the shares so purchased, with monies borrowed from the Company in
accordance with Section 12.5 of the Plan.
ARTICLE 9
[INTENTIONALLY OMITTED]
ARTICLE 10
ADJUSTMENTS
SECTION 10.1 EFFECT OF CERTAIN CHANGES.
(a) Stock Dividends, Splits, Etc.. If there is any change in the number
of outstanding shares of Stock through the declaration of Stock dividends or
through a recapitalization resulting in Stock splits, or combinations or
exchanges of the outstanding shares, (i) the number of shares of Stock available
for Rights, (ii) the number of shares covered by outstanding Rights, (iii) the
Exercise Price or Purchase Price of any Stock Option or Purchases Right and (iv)
the Initial Valuations of SARs, in effect prior to such change shall be
proportionately adjusted by the Administrator to reflect any increase or
decrease in the number of issued shares of Stock; provided, however, that any
fractional shares resulting from the adjustment shall be eliminated.
(b) Liquidating Event. In the event of the proposed dissolution or
liquidation of the Company, or in the event of any corporate separation or
division, including, but not limited to, a split-up, split-off or spin-off
(each, a "liquidating event"), the Administrator may provide that the holder of
any Right then exercisable shall have the right to exercise such Right (at the
price provided in the Rights agreement) subsequent to the liquidating event, and
for the balance of its term, solely for the kind and amount of shares of Stock
and other securities, property, cash or any combination thereof receivable upon
such liquidating event by a holder of the number of shares of Stock for or with
respect to which such Right might have been exercised immediately prior to such
liquidating event; or the Administrator may provide, in the alternative, that
each Right granted under the Plan shall terminate as of a date to be fixed by
the Board; provided, however, that not less than 30 days written notice of the
date so fixed shall be given to each Rights holder and if such notice is given,
each Rights holder shall have the right, during the period of 30 days preceding
such termination, to exercise the Right as to all or any part of the shares of
Stock covered thereby, without regard to any installment or vesting provisions
in his or her Rights agreement, on the condition, however, that the liquidating
event actually occurs; and if the liquidating event actually occurs, such
exercise shall be deemed effective (and, if applicable, the Rights holder shall
be deemed a shareholder with respect to the Rights exercised immediately
preceding the occurrence of the liquidating event, or the date of record for
shareholders entitled to share in such liquidating event, if a record date is
set).
<PAGE> 11
(c) Merger or Consolidation. Each outstanding Right shall terminate upon
a merger or consolidation in which the Company is not the surviving corporation,
provided that (A) each Rights holder to whom no Rights have been tendered by the
surviving corporation pursuant to the terms of item (B) immediately below shall
have the right exercisable during a ten-day period ending on the fifth day prior
to such merger or consolidation in which the Company is not the surviving
corporation, to exercise his or her Rights in whole or in part, without regard
to any installment provisions under his or her Rights agreement on the
condition, however, that the merger or consolidation is actually effected; and
if the merger or consolidation is actually effected, such exercise shall be
deemed effective (and, if applicable, the Participant shall be deemed a
shareholder with respect to the Rights exercised) immediately preceding the
effective time of such merger or consolidation (on the date of record for
shareholders entitled to share in the securities or property distributed in such
merger or consolidation, if a record date is set); and (B) in its sole and
absolute discretion, the surviving corporation may, but shall not be obligated
to, tender to any Rights holder Rights with respect to the surviving
corporation, and such new Rights shall contain such terms and provisions as
shall substantially preserve the rights and benefits of any Rights then
outstanding under this Plan.
(d) Where Company Survives. Section 10.1(c) shall not apply to a merger
or consolidation in which the Company is the surviving corporation, unless
shares of Stock are converted into or exchanged for securities other than
publicly-traded common stock, cash (excluding cash in payment for actual shares)
or any other thing of value. Notwithstanding the preceding sentence, in case of
any consolidation or merger of another corporation into the Company in which the
Company is the surviving corporation and in which there is a reclassification or
change (including a change to the right to receive an amount of money payable by
cash or cash equivalent or other property) of the shares of Stock (other than a
change in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares into two or
more classes or series of shares), the Administrator may provide that the holder
of each Right then exercisable shall have the right to exercise such Right
solely for the kind and amount of shares of Stock and other securities
(including those of any new direct or indirect Parent of the Company), property,
cash or any combination thereof receivable upon such reclassification change,
consolidation or merger by the holder of the number of shares of Stock for which
such Right might have been exercised.
(e) Surviving Corporation Defined. The determination as to which party
to a merger or consolidation is the "surviving corporation" shall be made on the
basis of the relative equity interests of the shareholders in the corporation
existing after the merger or consolidation, as follows: if following any merger
or consolidation the holders of outstanding voting securities of the Company
immediately prior to the merger or consolidation own equity securities
possessing more than fifty percent (50%) of the voting power of the corporation
existing following the merger or consolidation, then for purposes of this Plan,
the Company shall be the surviving corporation. In all other cases, the Company
shall not be the surviving corporation. In making the determination of ownership
by the shareholders of a corporation immediately after the merger or
consolidation, of equity securities pursuant to this Section 10.1(e), equity
securities which the shareholders owned immediately before the merger or
consolidation as shareholders of another party to the transaction shall be
disregarded. Further, for purposes of this Section 10(e) only, outstanding
voting securities of a corporation shall be calculated by assuming the
conversion of all equity securities convertible (immediately or at some future
time) into shares entitled to vote.
(f) Par Value Changes. In the event of a change in the Stock of the
Company as presently constituted which is limited to a change of all of its
authorized shares with par value, into the same number of shares without par
value, or a change in the par value, the shares resulting from any such change
shall be "Stock" within the meaning of the Plan.
(g) Decision of Administration Final. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Administrator, whose determination in that respect shall be
final, binding and conclusive; provided that each Incentive Stock Option granted
pursuant to the Plan shall not be adjusted in a manner that causes such Stock
Option to fail to continue to qualify as an Incentive Stock Option.
<PAGE> 12
(h) No Other Rights. Except as hereinbefore expressly provided in this
Article 10, no Rights holder shall have any rights by reason of any subdivision
or consolidation of shares of Stock or the payment of any dividend or any other
increase or decrease in the number of shares of Stock of any class or by reason
of any liquidating event, merger, or consolidation of assets or stock of another
corporation, or any other issue by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class; and except as
provided in this Article 10, none of the foregoing events shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Stock subject to Rights. The grant of a Right pursuant to the Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structures or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or part of its business or assets.
(i) No Rights as Shareholder. Except as specifically provided in this
Article 10, a Rights holder or a transferee of a Right shall have no rights as a
shareholder with respect to any shares covered by the Rights until the date of
the issuance of a Stock certificate to him or her for such shares, and no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions of other rights for which
the record date is prior to the date such Stock certificate is issued, except as
provided in Section 10.1(b) or 10.1(c).
ARTICLE 11
AMENDMENT AND TERMINATION
The Board may, at any time, amend, alter or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which would impair the
rights of a Participant under any Right theretofore granted without such
Participant's consent. Stockholder approval for amendments to the Plan shall be
obtained in such a manner and to such degree as required to comply with all
applicable laws and regulations.
The Administrator may amend the terms of any Right theretofore granted,
prospectively or retroactively, but, subject to Article 3, no such amendment
shall impair the rights of any Participant under any Right theretofore granted
without such Participant's consent.
ARTICLE 12
GENERAL PROVISIONS
SECTION 12.1 GENERAL RESTRICTIONS.
(a) No View to Distribute. The Administrator may require each person
purchasing shares of Stock pursuant to the Plan to represent to and agree with
the Company in writing that such person is acquiring the shares without a view
to distribution thereof. The certificates for such shares may include any legend
which the Administrator deems appropriate to reflect any restrictions on
transfer.
(b) Legends. All certificates for shares of Stock delivered under the
Plan shall be subject to such stop transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed and any applicable federal or state securities
laws, and the Administrator may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
<PAGE> 13
SECTION 12.2 OTHER COMPENSATION ARRANGEMENTS.
Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
SECTION 12.3 WITHHOLDING TAXES.
(a) Withholding Required. Each Participant shall, no later than the date
as of which the value of a Right first becomes includable in the gross income of
the Participant for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
federal, state or local taxes of any kind required by law to be withheld with
respect to the Right or its exercise. The obligations of the Company under the
Plan shall be conditioned upon such payment or arrangements and the Participant
shall, to the extent permitted by law, have the right to request that the
Company deduct any such taxes from any payment of any kind otherwise due to the
Participant.
(b) Withholding Right. The Administrator may, in its discretion, grant a
Rights holder the right (a "Withholding Right") to elect to make such payment by
irrevocably requiring the Company to withhold from shares issuable upon exercise
of the Right that number of full shares of Common Stock having a Fair Market
Value on the Tax Date (as defined below) equal to the amount (or portion of the
amount) required to be withheld. The Withholding Right may be granted with
respect to all or any portion of the Right.
(c) Exercise of Withholding Right. To exercise a Withholding Right, the
Rights holder must follow the election procedures set forth below, together with
such additional procedures and conditions as may be set forth in the related
Rights agreement or otherwise adopted by the Administrator:
(i) The Rights holder must deliver to the Company his or her
written notice of election (the "Election") to have the Withholding
Right apply to all (or a designated portion) of his or her Right.
(ii) The Election must be delivered to the Company not less than
20 days before the date of exercise of the Right to which it relates;
(iii) unless disapproved by the Administrator as provided in
Subsection (iv) below, the Election once made will be irrevocable; and
(iv) no Election is valid unless the Administrator consents to
the Election; the Administrator has the right and power, in its sole
discretion, with or without cause or reason therefor, to consent to the
Election, to refuse to consent to the Election, or to disapprove the
Election; and if the Administrator has not consented to the Election on
or prior to the date that the amount of tax to be withheld is, under
applicable federal income tax laws, fixed and determined by the Company
(the "Tax Date"), the Election will be deemed approved.
(d) Effect. If the Administrator consents to an Election of a Rights
Holder's Withholding Right, then upon the exercise of the Right (or any portion
thereof) to which the Withholding Right relates, the Company will withhold from
the shares otherwise issuable that number of full shares of Stock having an
actual Fair Market Value equal to the amount (or portion of the amount, as
applicable) required to be withheld under applicable federal and/or state income
tax laws as a result of the exercise.
SECTION 12.4 INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as
Directors or members of the Committee, and to the extent allowed by applicable
law, the Administrators shall be indemnified by the Company
<PAGE> 14
against the reasonable expenses, including attorney's fees, actually incurred in
connection with any action, suit or proceeding or in connection with any appeal
therein, to which they or any one of them may be party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted under the Plan, and against all amounts paid by them in settlement
thereof (provided that the settlement has been approved by the Company, which
approval shall not be unreasonably withheld) or paid by them in satisfaction of
a judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Administrator did not act in good faith and in a manner which such person
reasonably believed to be in the best interests of the Company, and in the case
of a criminal proceeding, had no reason to believe that the conduct complained
of was unlawful; provided, however, that within 60 days after institution of any
such action, suit or proceeding, such Administrator shall, in writing, offer the
Company the opportunity at its own expense to handle and defend such action,
suit or proceeding.
SECTION 12.5 LOANS.
The Company may make loans to Optionees and Offerees as the
Administrator, in its discretion, may determine in connection with the exercise
of outstanding Stock Options and Purchase Rights granted under the Plan. Such
loans shall (i) be evidenced by promissory notes entered into by the holders in
favor of the Company; (ii) be subject to the terms and conditions set forth in
this Section 12.5 and such other terms and conditions, not inconsistent with the
Plan, as the Administrator shall determine; and (iii) bear interest, if any, at
such rate as the Administrator shall determine. In no event may the principal
amount of any such loan exceed the Exercise Price or the Purchase Price less the
par value of the shares of Stock covered by the Stock Option or Purchase Right,
or portion thereof, exercised by the Optionee or Offeree. The initial term of
the loan, the schedule of payments of principal and interest under the loan, the
extent to which the loan is to be with or without recourse against the holder
with respect to principal and applicable interest and the conditions upon which
the loan will become payable in the event of the holder's termination of
employment shall be determined by the Administrator; provided, however, that the
term of the loan, including extensions, shall not exceed 10 years. Unless the
Administrator determines otherwise, when a loan shall have been made, shares of
Stock having a Fair Market Value at least equal to the principal amount of the
loan shall be pledged by the holder to the Company as security for payment of
the unpaid balance of the loan and such pledge shall be evidenced by a pledge
agreement, the terms of which shall be determined by the Administrator, in its
discretion; provided, however, that each loan shall comply with all applicable
laws, regulations and rules of the Board of Governors of the Federal Reserve
System and any other governmental agency having jurisdiction.
SECTION 12.6 TERMINATION OF EMPLOYMENT.
Except as provided in this Section 12.6, no Right may be exercised
unless the Rights Holder is then a Director of the Company, or in the employ of
the Company or any Parent or Subsidiary, or rendering services as a consultant
to the Company or any Parent or Subsidiary, and unless he or she has remained
continuously so employed since the Date of Grant. If the employment or services
of a Rights holder shall terminate (other than by reason of a Special
Terminating Event), all Rights previously granted to the Rights holder which are
exercisable at the time of such termination may be exercised for the period
ending ninety days after such termination, unless otherwise provided in the
Rights agreement; provided, however, that no Right may be exercised following
the date of its expiration. Nothing in the Plan or in any Right granted pursuant
to the Plan shall confer upon an employee any right to continue in the employ of
the Company or any Parent or Subsidiary or interfere in any way with the right
of the Company or any Parent or Subsidiary to terminate such employment at any
time.
SECTION 12.7 SPECIAL TERMINATING EVENTS.
If a Special Terminating Event occurs, all Rights theretofore granted to
such Rights holder may, unless earlier terminated in accordance with their
terms, be exercised by the Rights holder or by his or her estate or by a person
who acquired the right to exercise such Right by bequest or inheritance or
otherwise by reason of the death or Disability of the Rights holder, at any time
within one year after the date of the Special Terminating Event.
<PAGE> 15
Notwithstanding the foregoing, an Incentive Stock Option and any SAR
granted in relation to an Incentive Stock Option shall only be exercisable at
any time within three months after the date of Retirement or termination of
employment of an Optionee.
SECTION 12.8 NON-TRANSFERABILITY OF RIGHTS.
Unless otherwise approved by the Administrator, Rights granted under the
Plan shall not be transferable otherwise than by will or by the laws of descent
and distribution or pursuant to a qualified domestic relations order (as defined
in the Code), and Rights may be exercised, during the lifetime of the Rights
holder, only by the Rights holder or by his or her guardian or legal
representative.
SECTION 12.9 REGULATORY MATTERS.
Each Rights agreement shall provide that no shares shall be purchased or
sold thereunder unless and until (A) any then applicable requirements of state
or federal laws and regulatory agencies shall have been fully complied with to
the satisfaction of the Company and its counsel, and (B) is required to do so by
the Company, the Optionee or Offeree shall have executed and delivered to the
Company a letter of investment intent in such form and containing such
provisions as the Board or Committee may require.
SECTION 12.10 RECAPITALIZATIONS.
Each Stock Option and Purchase Right Agreement shall contain provisions
required to reflect the provisions of Article 10.
SECTION 12.11 DELIVERY.
Upon exercise of a Right granted under this Plan, the Company shall
issue Stock or pay any amounts due within a reasonable period of time
thereafter. Subject to any statutory obligations the Company may otherwise have,
for purposes of this Plan, thirty days shall be considered a reasonable period
of time.
SECTION 12.12 OTHER PROVISIONS.
The Rights agreements authorized under the Plan may contain such other
provisions not inconsistent with this Plan, including, without limitation,
restrictions upon the exercise of the Rights, as the Administrator may deem
advisable.
<PAGE> 16
ARTICLE 13
EFFECTIVE DATE OF PLAN
The Plan shall become effective on the date on which the Plan is adopted
by the Board and approved by its shareholders. Any Right granted before the
approval of the Plan by the Company's shareholders shall be expressly
conditioned upon, and shall not be exercisable until, such approval is obtained.
ARTICLE 14
TERM OF PLAN
No Right shall be granted pursuant to the Plan on or after January 1,
2002, but Rights theretofore granted may extend beyond that date.
<PAGE> 1
EXHIBIT 10.76
3/16/98 BANK LOAN
<PAGE> 2
SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this
"Amendment"), dated as of March 16, 1998, is entered into by and among THE
SPORTS CLUB COMPANY, INC., a Delaware corporation, and certain of its
subsidiaries identified in the signature pages to this Amendment (collectively,
"Borrowers"), SUMITOMO BANK OF CALIFORNIA, a California banking corporation
("Sumitomo"), COMERICA BANK -CALIFORNIA, a California banking corporation
("Comerica", and collectively with Sumitomo, "Banks"), and Sumitomo in its
capacity as agent for Banks (in such capacity, "Agent"), in light of the
following facts:
RECITALS
A. Pursuant to that certain Amended and Restated Loan Agreement, dated
as of February 2, 1998 and as amended by a First Amendment to Amended and
Restated Loan Agreement dated as of February 23, 1998 (collectively, the "Loan
Agreement"), Banks are providing Borrowers with certain credit facilities.
B. Borrowers, Banks and Agent wish to amend the Loan Agreement to, among
other things, provide for the deferment of the termination of the Commitment and
prepayment of the Obligations.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers, the Banks and the Agent hereby agree as follows:
1. Defined Terms. All initially capitalized terms set forth without
definition in this Amendment (including, without limitation, in the recitals
hereto) shall have the respective meanings assigned thereto in the Loan
Agreement.
2. Amendments to Definitions. Section 1.1 of the Loan Agreement is
hereby amended such that the definition set forth below shall read in full as
follows:
"Line B Availability" means, as of each date of determination, the Line
B Commitment minus the aggregate amount of all Line B Loans made by the Banks
(including any Outstanding Standby Letters of Credit, not to exceed the Maximum
Standby Letter of Credit Amount), less any amount by which Borrowers have failed
to comply with the Liquidity Requirement and less any permanent reductions
pursuant to Section 2.2(a).
2. Standby Letters of Credit.
(a) Section 2.6(a) of the Loan Agreement is amended and restated
to read as follows:
<PAGE> 3
"(a) Subject to the terms and conditions hereof, at any time and
from time to time from the Closing Date to the earlier of 60 days
from the Effective Date or June 29, 1998, the Issuing Bank shall
issue such Standby Letters of Credit as a Responsible Official of
a Borrower on behalf of the Borrowers may request by a Request
for Standby Letter of Credit' provided that, upon giving effect
to such Standby Letter of Credit, (i) the Total Outstanding shall
not exceed $15,000,000, (ii) the issuance of the Standby Letter
of Credit shall not result in an amount which exceeds the Line B
Availability and (iii) the Outstanding Standby Letters of Credit
shall not exceed the Maximum Standby Letter of Credit Amount. If
any Standby Letter of Credit is canceled or otherwise expires or
terminates without I it being drawn upon, such cancellation,
expiration or termination shall not effect a permanent reduction
of the Line B Availability pursuant to Section 2.2(a) by the
amount of such Standby Letter of Credit, but instead such amount
may be reborrowed. Unless the Requisite Banks otherwise consent
in writing, the term of any Standby Letter of Credit shall not
exceed the earlier of 60 days from the Effective Date or June 30,
1998. If, as of the immediately preceding date, or upon any
earlier termination or acceleration of the Commitment and any
Loans thereunder, there exist any Outstanding Standby Letters of
Credit, Borrowers shall provide to Agent a standby letter of
credit issued by a bank satisfactory to the Requisite Banks, in
form and substance satisfactory to the Requisite Banks, in favor
of the Banks in a face amount equal to Outstanding Standby
Letters of Credit on that date, or shall make other provisions
satisfactory to the Requisite Banks for the collateralization or
settlement of such Outstanding Standby Letters of Credit. No
Standby Letter of Credit shall be issued except in the ordinary
course of business of Borrowers or their Subsidiaries. Unless
otherwise agreed to by the Requisite Banks, the face amount of
any Standby Letter of Credit shall not be less than $250,000."
4. Equity or Debt Offering. Section 3.1 (f) of the Loan Agreement is
amended and restated to read as follows:
"(f) In addition to all other payments hereunder, all
Obligations, including payment of all indebtedness owing under
the Notes, shall be fully due and payable upon the consummation
of SCC, Inc.'s $50,000,000 proposed securities offering or other
equity or debt offering in any amount by or for the benefit of
any of the Borrowers, and the Commitment shall terminate;
provided, however that if (i) the proposed $50,000,000 equity
offering is consummated on or before April 30, 1998 and (ii)
within 5 days thereafter, Borrower shall have complied with the
conditions precedent to this Second Amendment, Banks will defer
the acceleration of all Obligations pursuant to this Section
3.1(f) for a period of 60 days following the consummation of such
offering but in any event not later than June 30,1998.
Consummation of the $50,000,000 equity offering shall mean SCC,
Inc.'s successfully concluding the sale of a sufficient number of
shares of common stock to raise, after deduction for normal
expenses, not less than $40 million with such proceeds
irrevocable delivered to SCC, Inc.
<PAGE> 4
5. Indebtedness, Guaranties and Liens. Section 6.9(c) of the Loan
Agreement is amended and restated to read as follows:
"(c) Indebtedness and Liens securing obligations incurred in
connection with the financing or re-financing of any real property
assets of Borrowers or Non-Borrower Affiliates, to the extent such
financing has been approved by the Requisite Banks, or (ii)
incurred in connection with SCC Inc.'s $50,000,000 proposed
securities offering or other equity or debt offering in any amount
by or for the benefit of any of the Borrowers, to the extent
approved by the Requisite Banks."
6. Conditions Precedent. The effectiveness of Section 4 of this
Amendment ("Effective Date") is subject to the prior satisfaction of each of the
following conditions:
(a) all obligations owing by any Borrower to AT&T Commercial
shall have been fully paid, all collateral for such AT&T obligations
shall have been released, all security interests, Liens or Guaranties in
favor of AT&T shall have been terminated and the Special Deposit Account
Agreement and Subordination Agreement shall have been terminated.
7. Representations and Warranties. Each representation and warranty made
by the Borrowers in Article 4 of the Loan Agreement is true and correct on and
as of the date hereof as though made as of the date hereof, except to the extent
such representations and warranties relate solely to an earlier date.
8. Full Force and Effect. Each of the Loan Documents is hereby amended
such that all references to the Loan Agreement contained in any of such
documents shall be deemed to be made with respect to the Loan Agreement as
amended by this Amendment. Except as amended hereby, the Loan Agreement and the
other Loan Documents shall remain unaltered and in full force and effect.
9. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall constitute an original and all of which, taken
together, shall constitute but one and the same instrument.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment by
their respective duly authorized officers as of the date first above written.
The "Borrowers"
THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
THE SPECTRUM CLUB COMPANY, INC.,
a California corporation
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
PONTIUS REALTY, INC.,
a New York corporation
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
SPORTS CLUB, INC. OF CALIFORNIA,
a California corporation
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
<PAGE> 6
IRVINE SPORTS CLUB, INC.,
a California corporation
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
THE SPORTSMED COMPANY, INC.,
a California corporation
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
L.A./IRVINE SPORTS CLUB,LTD.,
a California limited partnership
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
TALLA NEW YORK, INC.
a New York corporation
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
SCC SPORTS CLUB, INC.,
a Texas corporation
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
<PAGE> 7
GREEN VALLEY SPECTRUM CLUB, INC.,
a Nevada corporation
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
SPECTRUM CLUB/ANAHEIM HILLS, INC.,
a California corporation
By /s/ Timothy O'Brien
------------------------------------
Timothy O'Brien
Chief Financial Officer
The "Agent"
SUMITOMO BANK OF CALIFORNIA,
a California banking corporation
By /s/ Noel R. Ryan, Jr.
------------------------------------
Noel R. Ryan, Jr.
Senior Vice President
The "Banks"
SUMITOMO BANK OF CALIFORNIA,
a California banking corporation
By /s/ Noel R. Ryan, Jr.
------------------------------------
Noel R. Ryan, Jr.
Senior Vice President
<PAGE> 8
COMERICA BANK - CALIFORNIA,
A California banking corporation
By /s/ Joseph Yurosek
------------------------------------
Joseph Yurosek
Vice President
Address:
Comerica Bank - California
301 E. Ocean Boulevard, Suite 1800
Long Beach, California 90802
Attn: Joseph Yurosek, Vice President
Telecopier: (562) 595-8251
Telephone: (562) 590-2530
<PAGE> 1
EXHIBIT 10.77
6/9/98 BANK LOAN
<PAGE> 2
================================================================================
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of June 9, 1998
between
THE SPORTS CLUB COMPANY, INC.,
and various of its subsidiaries,
as Borrowers,
and
SUMITOMO BANK OF CALIFORNIA,
COMERICA BANK-CALIFORNIA,
and such other financial institutions
as may become a lending party hereto
as Banks
and
SUMITOMO BANK OF CALIFORNIA,
as Agent
================================================================================
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS................................................1
1.1 Defined Terms................................................................1
1.2 Use of Defined Terms........................................................12
1.3 Accounting Terms............................................................12
1.4 Exhibits and Schedules......................................................12
ARTICLE 2 LOANS AND LETTERS OF CREDIT....................................................13
2.1 General Provisions Regarding Loans and Borrowing Procedures.................13
2.2 Intentionally Omitted.......................................................14
2.3 Prime Rate Loans............................................................14
2.4 Eurodollar Loans............................................................14
2.5 Redesignation of Loans......................................................14
2.6 Standby Letters of Credit...................................................15
2.7 Agent's Right to Assume Funds Available for Advances........................18
ARTICLE 3 PAYMENTS AND FEES..............................................................19
3.1 Principal and Interest......................................................19
3.2 Commitment Fee..............................................................20
3.3 Eurodollar Fees and Costs...................................................20
3.4 Letter of Credit Fees.......................................................22
3.5 Agent Fee...................................................................22
3.6 Late Payments/Default Rate..................................................22
3.7 Computation of Interest and Fees............................................23
3.8 Non-Banking Days............................................................23
3.9 Manner and Treatment of Payments............................................23
3.10 Funding Sources.............................................................23
3.11 Failure to Charge Not Subsequent Waiver.....................................24
3.12 Agent's Right to Assume Payments Will be Made by Borrowers..................24
3.13 Survivability...............................................................24
3.14 Unused Line Fee.............................................................24
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.................................................25
4.1 Existence and Qualification; Power; Compliance With Laws....................25
4.2 Authority; Compliance With Other Agreements and Instruments and
Government Regulations....................................................26
4.3 No Governmental Approvals Required..........................................27
4.4 Subsidiaries................................................................27
4.5 Financial Statements........................................................28
4.6 No Other Liabilities; No Material Adverse Changes...........................28
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
4.7 Intangible Assets...........................................................28
4.8 Filing of Financing Statements..............................................28
4.9 Public Utility Holding Company Act..........................................28
4.10 Litigation..................................................................29
4.11 Binding Obligations.........................................................29
4.12 No Default..................................................................29
4.13 ERISA.......................................................................29
4.14 Regulations T, U and X; Investment Company Act..............................30
4.15 Disclosure..................................................................30
4.16 Tax Liability...............................................................30
4.17 Projections.................................................................30
4.18 Fiscal Year.................................................................30
4.19 Employee Matters............................................................30
ARTICLE 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS)......31
5.1 Payment of Taxes and Other Potential Charges................................31
5.2 Preservation of Existence...................................................31
5.3 Maintenance of Properties...................................................31
5.4 Maintenance of Insurance....................................................31
5.5 Compliance With Laws........................................................32
5.6 Additional Borrowers........................................................32
5.7 Inspection Rights...........................................................32
5.8 Keeping of Records and Books of Account.....................................33
5.9 Compliance With Agreements, Duties and Obligations..........................33
5.10 Use of Proceeds.............................................................33
ARTICLE 6 NEGATIVE COVENANTS.............................................................34
6.1 Disposition of Property.....................................................34
6.2 Transactions with Borrowers and Non-Borrower Affiliates.....................34
6.3 Mergers, Acquisitions and New Club Developments.............................34
6.4 Profitability...............................................................37
6.5 Redemption, Dividends and Distributions; Payments to Partners...............37
6.6 ERISA.......................................................................38
6.7 Change in Nature of Business/Management.....................................38
6.8 Intentionally Omitted.......................................................38
6.9 Indebtedness, Guaranties and Liens..........................................39
6.10 Transactions with Affiliates................................................40
6.11 Change in Fiscal Year.......................................................40
6.12 Capital Expenditures and Purchase Money Transactions........................40
6.13 Tangible Net Worth..........................................................41
6.14 Ratio of Total Unsubordinated Liabilities to Tangible Net Worth.............41
6.15 Debt Service Coverage Ratio.................................................41
6.16 Intentionally Omitted.......................................................41
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
6.17 Loans to Officers...........................................................41
6.18 Deposit Accounts............................................................41
6.19 Ratio of Funded Debt to EBITDA..............................................41
ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS.........................................43
7.1 Financial and Business Information..........................................43
7.2 Compliance Certificates.....................................................45
7.3 Revisions or Updates to Schedules...........................................46
ARTICLE 8 CONDITIONS.....................................................................47
8.1 Initial Loans, Etc..........................................................47
8.2 Any Loan....................................................................48
ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT...........................50
9.1 Events of Default...........................................................50
9.2 Remedies Upon Event of Default..............................................52
ARTICLE 10 THE AGENT.....................................................................54
10.1 Appointment and Authorization...............................................54
10.2 Agent and Affiliates........................................................54
10.3 Proportionate Interest of the Banks in any Collateral.......................54
10.4 Banks' Credit Decisions.....................................................54
10.5 Action by Agent.............................................................55
10.6 Liability of Agent..........................................................55
10.7 Indemnification.............................................................56
10.8 Successor Agent.............................................................57
ARTICLE 11 MISCELLANEOUS.................................................................58
11.1 Intentionally Omitted.......................................................58
11.2 Cumulative Remedies; No Waiver..............................................58
11.3 Amendments; Consents........................................................58
11.4 Costs, Expenses and Taxes...................................................59
11.5 Nature of Banks' Obligations................................................59
11.6 Survival of Representations and Warranties..................................59
11.7 Notices.....................................................................60
11.8 Execution of Loan Documents.................................................60
11.9 Sharing of Setoffs..........................................................60
11.10 Binding Effect; Assignment.................................................61
11.11 Assignment of Deposits.....................................................61
11.12 Participation of Loan......................................................61
11.13 Indemnity by Borrowers.....................................................61
11.14 Nonliability of Banks......................................................62
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
11.15 No Third Parties Benefited.................................................63
11.16 Further Assurances.........................................................63
11.17 Integration................................................................63
11.18 Governing Law..............................................................63
11.19 Severability of Provisions.................................................63
11.20 Headings...................................................................63
11.21 Time of the Essence........................................................63
11.22 Securities Representation..................................................64
11.23 Joint Borrower Provisions..................................................64
11.24 Waiver of Jury Trial.......................................................69
</TABLE>
<PAGE> 7
Exhibits
A Global Collateral Documents Amendment
B Note
C Request for Standby Letter of Credit
D Request for Loan
E Request for Redesignation of Loans
F Vertical Club Materials
G Houston Sports Club Materials
Schedules
4.2 Necessary Consents
4.4 Subsidiaries
4.6 Material Contingent Liabilities
4.8 Governmental Agencies With Which Financing Statements Need be Filed
and/or Recorded
4.10 Litigation
4.13 Plans Subject to ERISA
4.17 Projections
5.2 Preservation of Existence
5.6 Additional Borrowers
6.3(c) Existing New Club Development Projects
6.9 Indebtedness, Guaranties and Liens
6.10 Transactions with Affiliates
6.17 Loans to Officers
<PAGE> 8
SECOND AMENDED AND RESTATED LOAN AGREEMENT
Dated as of June 9, 1998
WHEREAS, The Sports Club Company, Inc., The Spectrum Club Company,
Inc., Pontius Realty, Inc., Sports Club, Inc. of California, Irvine Sports Club,
Inc., The SportsMed Company, Inc., formerly HealthFitness Organization of
America, Inc., L.A./Irvine Sports Clubs, Ltd., Talla New York, Inc., SCC Sports
Club, Inc., Spectrum Club/Anaheim Hills, Inc. and Green Valley Spectrum Club,
Inc. are parties to that certain Amended and Restated Loan Agreement dated as of
February 2, 1998 as amended by a First Amendment dated as of February 23, 1998
and a Second Amendment dated as of March 16, 1998 (collectively, the "Original
Loan Agreement") with Sumitomo Bank of California and Comerica Bank - California
as lenders and Agent (as defined below) as the agent for such lenders; and
WHEREAS, Borrowers (as defined below), Sumitomo Bank of
California, Comerica Bank -California and Agent have agreed to amend and restate
the Original Loan Agreement to provide for, among other things, an increase in
the amount and an extension of the term of the credit facilities, a reduction in
the interest rates applicable to the credit facilities, and certain
modifications to the financial covenants; and
WHEREAS, Borrowers, Agent and Banks (as defined below) do hereby
enter into this Second Amended and Restated Loan Agreement in place and stead of
the Original Loan Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the meanings set forth respectively after each:
"Acquisition" means any transaction, or any series of related
transactions, by which any Borrower and/or any of its Subsidiaries
directly or indirectly acquires control of any going business or all or
substantially all of the assets of any firm, partnership, joint venture,
limited liability company, corporation (or division thereof) operating as
a health and fitness facility, whether through purchase of assets, merger
or otherwise, (control meaning possession, directly or indirectly, of the
power to direct or cause the direction of management or policies of such
entities); provided that, in any event, the term "Acquisition" shall
include any acquisition in which any Borrower and/or any Subsidiaries
thereof controls a majority in ordinary voting power of the securities of
a corporation operating as a health and fitness facility which have
ordinary voting power for the election of directors or other governing
body of a corporation (other than securities having such power only by
reason of the happening of a contingency), or control 50% or more
ownership interest in any partnership, limited liability company or joint
venture operating as a health and fitness facility.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (and
its correlative meanings, "controlled by" and "under common control
with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise), provided that, in any event, any Person that
owns, directly or indirectly, 50% or more of the securities having
ordinary voting power for the election of directors or other governing
body of a corporation (other than securities having such power only by
reason of the happening of a contingency), or 50% or more of the
partnership or other ownership interests of any other Person (other than
as a limited partner of such other Person), will be deemed to control
such corporation or other Person.
<PAGE> 9
"Agent" means Sumitomo Bank of California, a California state
bank, when acting in its capacity as agent under any of the Loan
Documents, and any successor agent.
"Agent's Office" means the office designated by Agent as its
address for purposes of notice under this Agreement.
"Agreement" means this Second Amended and Restated Loan Agreement,
either as originally executed or as it may from time to time be
supplemented, modified, amended, restated or extended.
"Applicable Pricing Level" means, for any Eurodollar Period, the
pricing level set forth below opposite the ratio of Funded Debt to
EBITDA, which Agent shall determine quarterly upon, and with effect from
and after the date of, Agent's receipt of the quarterly compliance
certificates required by Section 7.2 of this Agreement:
<TABLE>
<CAPTION>
Ratio of Funded Debt
Pricing Level to EBITDA
------------- --------------------------------------
<S> <C>
I Less than 2.50 to 1.0
II Equal to or greater than 2.50
to 1.00 but less than 3.25 to 1.00
III Equal to or greater than 3.25 to 1.00.
</TABLE>
"Bank" or "Banks" means individually or collectively Sumitomo Bank
of California, Comerica Bank - California and any one or more banks or
other financial institutions which become lending parties to this
Agreement in accordance with the terms hereof.
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday on which all of the Banks are open for business at their
respective addresses for notice designated as provided herein.
"Borrower or Borrowers" means, individually or collectively, The
Sports Club Company, Inc., The Spectrum Club Company, Inc., Pontius
Realty, Inc., Sports Club, Inc. of California, Irvine Sports Club, Inc.,
The SportsMed Company, Inc., L.A./Irvine Sports Clubs, Ltd., Talla New
York, Inc., SCC Sports Club, Inc., Green Valley Spectrum Club, Inc.,
Spectrum Club Anaheim and any subsequent Person who becomes a Borrower
pursuant to the terms hereof.
"Capital Expenditure" means any expenditure (including any
capitalized lease expenditure) that is considered a capital expenditure
under generally accepted accounting principles, consistently applied,
including, without limitation, any amount that is required to be treated
as a capitalized asset pursuant to Financial Accounting Standards Board
Statement No. 13.
"Cash" means, when used in connection with any Person, all
monetary and non-monetary items belonging to such Person that are treated
as cash in accordance with generally accepted accounting principles,
consistently applied.
"Cash Equivalents" means, when used in connection with any Person,
such Person's Investments in:
(a) Government Securities due within one year after the
date of the making of the Investment;
(b) certificates of deposit issued by, bank deposits in,
bankers' acceptances of, and repurchase agreements covering,
Government Securities executed by, any bank doing business in
and incorporated under the Laws of the United States of America
or any state thereof and
<PAGE> 10
having on the date of such Investment combined capital, surplus
and undivided profits of at least $100,000,000, in each case due
within one year after the date of the making of the Investment;
and/or
(c) readily marketable commercial paper of corporations
doing business in and incorporated under the Laws of the United
States of America or any state thereof given on the date of such
Investment the highest credit rating by NCO/Moody's Commercial
Paper Division of Moody's Investors Service, Inc. or Standard &
Poor's Corporation, in each case due within six months after the
date of the making of the Investment.
"Certificate of a Responsible Official" means a certificate signed
by a Responsible Official of the Person providing the certificate.
"Closing Date" means the Banking Day on which the consummation of
all of the transactions contemplated in Section 8.1 occurs.
"Club" means a health and fitness facility operated by any
Borrower.
"Collateral" means, collectively, all Property on or in which the
Agent or any Bank has a Lien pursuant to this Agreement or any other Loan
Document.
"Commitment" means, collectively, the respective lending
commitments hereunder of Sumitomo Bank of California and Comerica Bank -
California, as such commitments may be reduced or offset under this
Agreement. The respective percentage obligations of each Bank with
respect to the Commitment are as follows:
<TABLE>
<CAPTION>
Bank Amount Percentage
---- ------ ----------
<S> <C> <C>
Sumitomo Bank of California $15,000,000 50%
Comerica Bank - California $15,000,000 50%
</TABLE>
"Default" means any Event of Default and/or any event that, with
the giving of notice or passage of time or both, would be an Event of
Default.
"Default Rate" means the rate of interest per annum otherwise
provided under this Agreement plus two percent (2%).
"Designated Deposit Account" means deposit account no. 01800220570
to be maintained by Borrowers with Agent at Agent's Office, or such other
deposit account as from time to time designated by Borrowers by written
notification to Agent and approved by Agent.
"Designated Eurodollar Market" means, with respect to any
Eurodollar Loan, the London Eurodollar Market, or such other Eurodollar
Market as may from time to time be designated by Agent.
"dollars" or "$" means United States dollars.
"EBITDA" means, for any fiscal period, for Borrowers, their
Subsidiaries, Sports Connection-ES/MB, to the extent of Borrowers'
interest therein, and, on a pro forma basis, any entity acquired by any
of the Borrowers or any of the Subsidiaries, adjusted for verifiable cost
savings acceptable to Banks: (a) the consolidated net income before
extraordinary items of such Persons for that period, determined in
accordance with generally accepted accounting principles, consistently
applied, plus (b) consolidated interest expense for that period, plus (c)
income tax expense for that fiscal period, plus (d) depreciation expense
for that fiscal period plus (e) amortization expense for that fiscal
period.
<PAGE> 11
"ERISA" means the Employee Retirement Income Security Act of 1974,
and any regulations issued pursuant thereto, as amended or replaced and
as in effect from time to time.
"Eurodollar Banking Day" means any Banking Day on which dealings
in dollar deposits are conducted by and between banks in the Designated
Eurodollar Market.
"Eurodollar Lending Office" means as to each Bank, its office or
branch so designated by written notice to Borrowers and Agent as its
Eurodollar Lending Office. If no Eurodollar Lending Office separately is
designated by a Bank, its Eurodollar Lending Office shall be its office
as designated for purposes of notice hereunder.
"Eurodollar Loan" means a Loan made hereunder and designated or
redesignated as a Eurodollar Loan in accordance with Article 2.
"Eurodollar Market" means a regular established market located
outside the United States of America by and among banks for Eurodollar
Obligations.
"Eurodollar Obligations" means eurocurrency liabilities, as
defined in Regulation D.
"Eurodollar Period" means, as to each Eurodollar Loan, the period
commencing on the date specified by Borrowers pursuant to Sections 2.1(b)
or 2.5(c) and ending 30, 60 or 90 days thereafter, as specified by
Borrowers in the applicable Request for Loan or Request for Redesignation
of Loans, provided that:
(a) The first day of any Eurodollar Period shall be a
Eurodollar Banking Day;
(b) Any Eurodollar Period that would otherwise end on a
day that is not a Eurodollar Banking Day shall be extended to
the next succeeding Eurodollar Banking Day unless such
Eurodollar Banking Day falls in another calendar month, in which
case such Eurodollar Period shall end on the next preceding
Eurodollar Banking Day; and
(c) No Eurodollar Period shall extend beyond the
Maturity Date.
"Eurodollar Rate" means, with respect to any Eurodollar Loan, (a)
the LIBOR Rate offered for deposits as of about 10:00 a.m., Los Angeles
time, two (2) Eurodollar Banking Days before the first day of the
applicable Eurodollar Period in an aggregate amount approximately equal
to the amount of such Eurodollar Loan and for a period of time comparable
to the number of days in the applicable Eurodollar Period divided by (b)
1.00 minus the Reserve Percentage. The determination of the Eurodollar
Rate by Agent shall be conclusive in the absence of manifest error.
"Eurodollar Rate Spread" means, for each Eurodollar Period, the
applicable additional component of interest, expressed as a percentage
per annum, set forth below opposite the Applicable Pricing Level, to be
added to the Eurodollar Rate in determining the applicable rate of
interest for Eurodollar Loans:
<TABLE>
<CAPTION>
Applicable Pricing Eurodollar Rate
Level Spread
------------------ ---------------
<S> <C>
I 1.50%
II 1.75%
III 2.00%
</TABLE>
<PAGE> 12
"Event of Default" shall have the meaning provided in Section 9.1.
"Funded Debt" means all liabilities of Borrowers and their
Subsidiaries for borrowed money, including capitalized leases.
"Global Collateral Documents Amendment" means that certain Global
Collateral Documents Amendment, of even date herewith, by and among
Agent, SCC, Inc., Sports Club, Inc. of California and the Parties to the
Pledge Agreement (Partnership), substantially in the form of Exhibit A
hereto.
"Government Securities" means readily marketable direct
obligations of the United States of America or obligations fully
guarantied by the United States of America.
"Governmental Agency" means (a) any international, foreign,
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, authority,
board, bureau, commission, department, instrumentality or public body,
(c) any court, administrative tribunal or public utility, or (d) any
arbitration tribunal or other non-governmental authority to whose
jurisdiction a Person has consented.
"Investment" means, when used in connection with any Person, any
investment by or of that Person, whether by means of purchase or other
acquisition of stock or other securities or by means of loan, advance,
capital contribution, guaranty or other debt or equity participation or
interest in any other Person, or otherwise, and includes, without
limitation, any partnership and joint venture interests of such Person.
"Issuing Bank" means, with respect to any Standby Letter of
Credit, Sumitomo Bank of California or any other Bank designated by
Borrowers (with the consent of the Requisite Banks) which issued that
Standby Letter of Credit.
"Laws" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, regulations, ordinances, codes
and administrative or judicial precedents.
"LIBOR Rate" means the interest (rounded upward to the nearest
1/16th of one percent) as determined by the British Bankers Association
and disseminated daily as an average of the rate at which certain major
banks would offer U.S. dollar deposits for the applicable Eurodollar
Period to other major banks in the London inter-bank market.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
security interest, encumbrance, lien or charge of any kind, whether
voluntarily incurred or arising by operation of Law or otherwise,
affecting any Property, including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and/or the filing of or agreement to give
any financing statement under the Uniform Commercial Code or comparable
Laws of any jurisdiction.
"Loan" or "Loans" means the advances to be made by Banks to
Borrowers pursuant to this Agreement. Each individual Loan shall consist
of advances made by Banks pursuant to Article 2, including advances made
as new advances, and also including advances made by converting or
redesignating existing advances in accordance with the provisions of
Article 2. In connection with each Loan, the amount of such Loan by each
Bank shall be determined according to that Bank's percentage share of the
Commitment.
"Loan Documents" means, collectively, this Agreement, the Global
Collateral Documents Amendment, the Notes, the Pledge Agreements, the
Pledge Agreement (Partnership), the Standby Letters of Credit, any
assignments, any financing statements and any other certificates,
documents or agreements of any type of nature heretofore or hereafter
executed or delivered by Borrowers and/or any one or more of their
Subsidiaries or Affiliates to Agent or to Banks in any way relating to or
in furtherance of this
<PAGE> 13
Agreement, in each case either as originally executed or as the same may
from time to time be supplemented, modified, amended, restated or
extended.
"Maturity Date" means May 31, 2000, subject to the option of
Banks, in their sole and absolute discretion, following the written
request of Borrowers, to be received by Agent no later than sixty (60)
days prior to each anniversary of the date of this Agreement, and subject
to such terms and conditions as Bank may require, to extend the Maturity
Date for an additional period of one year.
"Maximum Loan Amount" means, as of any date of determination
thereof, the amount of the Commitment.
"Maximum Standby Letter of Credit Amount" means $8,000,000.
"Multiemployer Plan" means any employee benefit plan of the type
described in Section 4001(a)(3) of ERISA.
"New Club Development" means the establishment de novo of a new
health and fitness facility, or any other investment in a health and
fitness facility that does not constitute an Acquisition, by one or more
existing or future Borrowers and/or Subsidiaries.
"Non-Borrower Affiliate" means any Affiliate of a Borrower, now
existing or hereafter acquired, that is not a Borrower hereunder.
"Note" means any of the promissory notes executed by Borrowers in
favor of Banks evidencing the Loans made by Banks or any of them under
the Commitment, substantially in the form of Exhibit B hereto, either as
originally executed or as the same may from time to time be supplemented,
modified, amended, renewed, extended or refinanced.
"Obligations" means all present and/or future obligations of every
kind or nature of Borrowers or any Party at any time and/or from time to
time owed to Agent or Banks or any one or more of them, under any one or
more of the Loan Documents, whether due or to become due, matured or
unmatured, liquidated or unliquidated, or contingent or noncontingent,
including obligations of performance as well as obligations of payment,
and including interest that accrues prior to or after the commencement of
any bankruptcy or insolvency proceeding by or against any Borrower or any
Party.
"Opinion of Counsel" means the favorable written legal opinion of
Kinsella, Boesch, Fujikawa and Towle, as counsel to Borrowers and their
Subsidiaries, in a form acceptable to Agent, together with copies of all
factual certificates and legal opinions upon which such counsel has
relied.
"Outstanding Standby Letters of Credit " means, as of any date of
determination thereof, the aggregate face amount of all Standby Letters
of Credit outstanding on such date, not to exceed the Maximum Standby
Letter of Credit Amount.
"Party" means any Person (including Borrowers and/or any
Subsidiaries or Affiliates of Borrowers), other than Agent and Banks,
which now or hereafter is a party to any of the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereof established under ERISA.
"Person" means any entity, whether an individual, trustee,
corporation, general partnership, limited partnership, limited liability
company, joint stock company, trust, unincorporated organization, bank,
business association, firm, joint venture, Governmental Agency, or
otherwise.
<PAGE> 14
"Plan" means any employee benefit plan subject to ERISA and
maintained by Borrowers and/or any Subsidiary thereof or to which
Borrowers and/or any Subsidiary thereof are required to contribute on
behalf of their employees.
"Pledge Agreement" means the Pledge Agreement, dated as of
February 2, 1998, executed by SCC, Inc. and Sports Club, Inc. of
California in favor of Agent for the ratable benefit of Banks, as amended
by the Global Documents Amendment and as such document may from time to
time hereafter be supplemented, modified, amended, restated or extended.
"Pledge Agreement (Partnership)" means the Pledge Agreement
(Partnership), dated as of February 2, 1998 executed by certain Borrowers
identified therein as the "Grantors" in favor of Agent for the ratable
benefit of Banks, as amended by the Global Documents Amendment and as
such document may from time to time hereafter be supplemented, modified,
amended, restated or extended.
"Prime Rate" means the floating commercial loan rate of Sumitomo
Bank of California, announced from time to time as its "prime rate",
which interest rate may not necessarily be the lowest interest rate at
which Sumitomo Bank of California is willing to extend credit facilities.
"Prime Rate Loan" means a Loan designated or redesignated as a
Prime Rate Loan in accordance with Article 2, or converted to a Prime
Rate Loan in accordance with Section 3.3(a).
"Prime Rate Spread" means the additional component of interest,
expressed as a percentage per annum, to be added to the Prime Rate in
determining the applicable rate of interest for Prime Rate Loans. As of
the date of this Agreement, the Prime Rate Spread is zero percent (0%)
per annum.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Qualified Stock Repurchase" means the common stock repurchase
program instituted in April, 1998; provided that the aggregate amount
expended in repurchasing common stock of SCC, Inc. shall not exceed
$3,750,000.
"Regulations T, U and X " means Regulation T,U and X as at any
time amended, of the Board of Governors of the Federal Reserve System, or
any other regulation in substance substituted therefor.
"Request for Standby Letter of Credit" means a written request for
the issuance of a Standby Letter of Credit substantially in the form of
Exhibit "C", signed by a Responsible Official of a Borrower on behalf of
the Borrowers and properly completed to provide all information required
to be included therein.
"Request for Loan" means a written request for a Loan
substantially in the form of Exhibit "D", signed by a Responsible
Official of a Borrower on behalf of the Borrowers and properly completed
to provide all information required to be included therein.
"Request for Redesignation of Loans" means a written request for
redesignation of Loans substantially in the form of Exhibit "E", signed
by a Responsible Official of a Borrower on behalf of the Borrowers and
properly completed to provide all information required to be included
therein.
"Requisite Banks" means, at any time, Banks holding at least 70%
of the aggregate unpaid amount of the Loans outstanding, or, if no Loans
then are outstanding, Banks having at least 70% of the aggregate
Commitment then in effect.
"Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member banks
of the Federal Reserve System for eurocurrency liabilities, as defined in
Regulation D, rounded upward to the nearest 1/100th of one percent. The
percentage will
<PAGE> 15
be expressed as a decimal, and will include, without limitation,
marginal, emergency, supplemental, special, and other reserve
percentages.
"Responsible Official" means:
(a) When used with reference to any Person, other than an
individual, any corporate officer of such Person, general partner
of such Person, corporate officer of a corporate general partner
of such Person, or corporate officer of a corporate general
partner of a partnership that is a general partner of such Person,
or any other responsible official thereof duly acting on behalf
thereof; and
(b) When used with reference to a Person who is an
individual, such Person.
Except as otherwise specifically provided herein, any requirement that
any document or certificate be signed or executed by any Person requires
that such document or certificate be signed or executed by a Responsible
Official of such Person, and that the Responsible Official signing or
executing such document or certificate on behalf of such Person shall be
authorized to do so by all necessary corporate, partnership and/or other
action.
"Right of Others" means, as to any Property in which a Person has
an interest, any legal or equitable claim, right, title or other interest
(other than a Lien) in or with respect to that Property held by any other
Person, and any option or right held by any other Person to acquire any
such claim, right, title or other interest, including any option or right
to acquire a Lien.
"SCC, Inc." means The Sports Club Company, Inc., a Delaware
corporation.
"Special Eurodollar Circumstance" means the application or
adoption of any Law or interpretation, or any change therein or thereof,
or any change in the interpretation or administration thereof by any
Governmental Agency, central bank or comparable authority charged with
the interpretation or administration thereof, or compliance by any Bank
or its Eurodollar Lending Office with any request or directive (whether
or not having the force of Law) of any such Governmental Agency, central
bank or comparable authority, or the existence or occurrence of
circumstances affecting the Designated Eurodollar Market generally, in
each case, that is beyond the reasonable control of such Bank.
"Standby Letter of Credit" means any standby letter of credit
issued by the Issuing Bank pursuant to Section 2.6, in the standard form
for standby letters of credit of the Issuing Bank, either as originally
issued or as the same may from time to time be supplemented, modified,
amended, renewed or extended.
"Subsidiary" means, as of any date of determination thereof and
with respect to any Person, any corporation, limited liability company,
partnership or joint venture, whether now existing or hereafter organized
or acquired: (a) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors or
other governing body (other than securities having such power only by
reason of the happening of a contingency) are at the time owned by such
Person and/or one or more Subsidiaries of such Person, or (b) in the case
of a partnership, joint venture or limited liability company, of which
such Person or a Subsidiary of such Person is a general partner or joint
venturer or of which a majority of the partnership or other ownership
interests are at the time owned by such Person and/or one or more of its
Subsidiaries.
"Tangible Net Worth" means, as of any date of determination
thereof, the consolidated net worth of Borrowers, excluding goodwill,
patents, trademarks, trade names, organization expenses, capitalized
acquisition expenses, deferred tax assets and money due from any
Affiliate, officers, directors or shareholders of Borrowers or their
Subsidiaries, determined in accordance with generally accepted accounting
principles, consistently applied.
<PAGE> 16
"The Sports Club/Irvine" means the athletic club owned by Irvine
Sports Club, Inc. located at 1980 Main Street, Irvine, California.
"The Sports Club/LA" means the athletic club owned by L.A./Irvine
Sports Clubs, Ltd. located at 1835 Sepulveda Boulevard, West Los Angeles,
California.
"to the best knowledge of" means, when modifying a representation,
warranty or other statement of any Person, that the fact or situation
described therein is known by the Person (or, in the case of a Person
other than a natural Person, known by a Responsible Official of that
Person) making the representation, warranty or other statement, or with
the exercise of reasonable due diligence under the circumstances (in
accordance with the standard of what a reasonable Person in similar
circumstances would have done) should have been known by the Person (or,
in the case of a Person other than a natural Person, should have been
known by a Responsible Official of that Person).
"Total Unsubordinated Liabilities" means, as of any date of
determination thereof, the sum of (a) all liabilities that should be
reflected as a liability in a consolidated balance sheet of Borrowers and
its Subsidiaries on such date prepared in accordance with generally
accepted accounting principles, consistently applied, minus (b)
subordinated debt as to which a subordination agreement acceptable to
Agent has been executed and all deferred membership revenues, plus (c)
the aggregate face amount of all outstanding Standby Letters of Credit
and other letters of credit issued at the request of Borrowers; provided,
however, that any amount described in clause (c) shall be added only to
the extent that the Standby Letter of Credit or other letter of credit
covers liabilities that would not be reflected in a consolidated balance
sheet of Borrowers and its Subsidiaries on such date.
"Total Outstanding" means, as of any date of determination
thereof, the sum of (a) all outstanding Loans evidenced by the Notes on
that date and (b) Outstanding Standby Letters of Credit.
"type", when used with respect to any Loan, means the designation
of whether such Loan is a Prime Rate Loan or a Eurodollar Loan.
1.2 Use of Defined Terms. Any defined term used in the plural
shall refer to all members of the relevant class, and any defined term used in
the singular shall refer to any one or more of the members of the relevant
class.
1.3 Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed in conformity with, and all
financial data required to be submitted by this Agreement shall be prepared in
conformity with, generally accepted accounting principles applied on a
consistent basis, as in effect on the date hereof, except as otherwise
specifically prescribed herein.
1.4 Exhibits and Schedules. All exhibits and schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference.
<PAGE> 17
ARTICLE 2
LOANS AND LETTERS OF CREDIT
2.1 General Provisions Regarding Loans and Borrowing Procedures.
(a) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time prior to the Maturity Date,
each Bank shall, pro rata according to that Bank's percentage of the then
Commitment, make Loans to Borrowers in such amounts as Borrowers may
request that do not exceed in the aggregate at any one time outstanding
the amount of the Commitment; provided that, Banks shall not be obligated
to make a Loan if, after giving effect to such Loan, the Total
Outstanding would exceed $30,000,000. Except as may otherwise be payable
on an earlier date as provided in Section 3.1, all Obligations of
Borrowers hereunder shall be due and payable on the Maturity Date.
Subject to the limitations set forth herein and in Section 3.1(e),
Borrowers may borrow, repay and reborrow under the Commitment without
premium or penalty.
(b) Except as otherwise provided in Section 2.5(c), each
Loan shall be made pursuant to a written Request for Loan. Not later than
11:00 a.m., Los Angeles time, at least two (2) Banking Days prior to the
date that a proposed Loan is to be made (unless greater notice is
required by Section 2.4), Agent shall have received, at Agent's Office, a
properly completed Request for Loan specifying the requested (1) date of
such Loan, (2) type of Loan, (3) amount of such Loan, and (4) in the case
of a Eurodollar Loan, specifying the Eurodollar Period. Agent may, in its
sole and absolute discretion, permit any Request for Loan to be made by
telephone or telecopier by a Responsible Official of a Borrower on behalf
of Borrowers, in which case such Borrower shall confirm same by mailing
or faxing a written Request for Loan to Agent within 48 hours following
the Loan. If Borrowers fail to make a written Request for Loan, Borrowers
hereby waive the right to dispute the amount, interest rate or term of
any such Loan made upon such telephone request.
(c) Promptly following receipt of a Request for Loan, Agent
shall notify each Bank by telephone, telecopier or Telex of the date and
type of the Loan, the applicable Eurodollar Period (in the case of a
Eurodollar Loan), and that Bank's pro rata portion of the Loan. Not later
than 11:00 a.m., Los Angeles time, on the date specified for any Loan,
each Bank shall make its portion of the Loan in immediately available
funds available to Agent at Agent's Office. Upon fulfillment of the
applicable conditions set forth in Article 8, all Loans shall be credited
in immediately available funds to Borrowers' Designated Deposit Account,
or to such other deposit account of Borrowers with Agent as Borrowers may
specify in writing to Agent.
(d) Unless the Requisite Banks otherwise consent, the
aggregate amount of each Eurodollar Loan shall be in an integral multiple
of $250,000, and the aggregate amount of each Prime Rate Loan shall be in
an integral multiple of $100,000 or the balance of the Commitment.
(e) The Loans made by each Bank shall be evidenced by that
Bank's Note.
(f) A Request for Loan shall be irrevocable upon receipt by
Agent.
2.2 Intentionally Omitted.
2.3 Prime Rate Loans. All Loans shall constitute Prime Rate Loans
unless properly designated or redesignated as Eurodollar Loans pursuant to
Sections 2.4 or 2.5.
2.4 Eurodollar Loans.
(a) Subject to the terms and conditions set forth in this
Agreement, Borrowers may, from time to time, designate all or any portion
of the Loans to be Eurodollar Loans.
<PAGE> 18
(b) Each request by Borrowers for a Eurodollar Loan shall
be made pursuant to a Request for Loan received by Agent, at Agent's
Office, not later than 12:00 noon, Los Angeles time, at least three (3)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period.
(c) At or about 10:00 a.m., Los Angeles time, two (2)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period, Agent shall determine the applicable Eurodollar Rate (which
determination shall be conclusive in the absence of manifest error) and
promptly shall give notice of the same to Borrowers and the Banks by
telephone or telecopier.
(d) Upon fulfillment of the applicable conditions set forth
in Article 8, a Eurodollar Loan shall become effective on the first day
of the applicable Eurodollar Period.
(e) Unless the Requisite Banks otherwise consent, no more
than six (6) Eurodollar Loans, in the aggregate, shall be outstanding at
any one time.
(f) Nothing contained herein shall require any Bank to fund
any Eurodollar Loan in the Designated Eurodollar Market.
2.5 Redesignation of Loans.
(a) Subject to Section 8.2, if any Eurodollar Loan is not
repaid or renewed on the last day of the applicable Eurodollar Period,
such Eurodollar Loan automatically shall be redesignated as a Prime Rate
Loan on such date.
(b) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time from the Closing Date until
the thirty-third day preceding the Maturity Date, Borrowers may request
that all or a portion of outstanding Prime Rate Loans be redesignated as
a Eurodollar Loan or that a maturing Eurodollar Loan be redesignated as a
new Eurodollar Loan, provided that no Loan redesignated as a Eurodollar
Loan shall have a Eurodollar Period expiring after the Maturity Date.
(c) Each redesignation of all or a portion of outstanding
Prime Rate Loans or to renew a maturing Eurodollar Loan as a Eurodollar
Loan shall be made pursuant to a written Request for Redesignation of
Loans. Not later than 12:00 noon, Los Angeles time, at least three (3)
Eurodollar Banking Days prior to the first day of the applicable
Eurodollar Period, Agent shall have received, at Agent's Office, a
properly completed Request for Redesignation of Loans specifying the
requested (1) date of redesignation and (2) amount of Loans to be
redesignated as a Eurodollar Loan, and (3) the applicable Eurodollar
Period. Agent may, in its sole and absolute discretion, permit a Request
for Redesignation of Loans to be made by telephone by a Responsible
Official of a Borrower on behalf of the Borrowers, in which case such
Borrower shall confirm same by mailing or faxing a written Request for
Redesignation of Loans to Agent within 48 hours following the date of
redesignation. If Borrowers fail to make a written Request for
Redesignation of Loans, Borrowers hereby waive the right to dispute the
amount, interest rate or term of any such Eurodollar Loan.
(d) Unless the Requisite Banks otherwise consent, the
amount of such Loans to be redesignated as a Eurodollar Loan shall be an
integral multiple of $250,000.
(e) With respect to any redesignation of a Loan as a
Eurodollar Loan, at or about 10:00 a.m., Los Angeles time, three (3)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period, Agent shall determine the applicable Eurodollar Rate (which
determination shall be conclusive in the absence of manifest error) and
promptly shall give notice of the same to Borrowers and the Banks by
telephone or telecopier.
<PAGE> 19
(f) Upon fulfillment of the applicable conditions set forth
in Article 8, the redesignation of all or a portion of outstanding Loans
as a Eurodollar Loan shall become effective on the first day of the
applicable Eurodollar Period.
(g) Nothing contained herein shall require any Bank to fund
any Eurodollar Loan resulting from redesignation of all or a portion of
any of its Prime Rate Loans, in the Designated Eurodollar Market.
(h) A request for Redesignation of Loans shall be
irrevocable upon receipt by Agent.
2.6 Standby Letters of Credit.
(a) Subject to the terms and conditions hereof, at any time
and from time to time from the Closing Date through the Banking Day
immediately preceding May 31, 2000 or other applicable Maturity Date, the
Issuing Bank shall issue such Standby Letters of Credit as a Responsible
Official of a Borrower on behalf of Borrowers may request by a Request
for Standby Letter of Credit; provided that, upon giving effect to such
Standby Letter of Credit, (i) Total Outstanding shall not exceed
$30,000,000 and (ii) Outstanding Standby Letters of Credit shall not
exceed the Maximum Standby Letter of Credit Amount. Unless the Requisite
Banks otherwise consent in writing, the term of any Standby Letter of
Credit shall not exceed the Maturity Date. If on the Maturity Date, there
exist any Outstanding Standby Letters of Credit, Borrowers shall provide
to Agent a standby letter of credit issued by a bank satisfactory to the
Requisite Banks, in form and substance satisfactory to the Requisite
Banks, in favor of Banks in a face amount equal to the Outstanding
Standby Letters of Credit on that date, or shall make other provisions
satisfactory to the Requisite Banks for the collateralization or
settlement of such Outstanding Standby Letters of Credit. No Standby
Letter of Credit shall be issued except in the ordinary course of
business of Borrowers or their Subsidiaries. Unless otherwise agreed to
by the Requisite Banks, the face amount of any Standby Letter of Credit
shall not be less than $250,000.
(b) Each Request for Standby Letter of Credit shall be
submitted to the Issuing Bank not later than 11:00 a.m., Los Angeles
time, at least five (5) Banking Days prior to the date upon which the
requested Standby Letter of Credit is to be issued and Borrowers shall
execute such documents and agreements relating to such Standby Letter of
Credit as the Issuing Bank may reasonably require. Upon issuance of a
Standby Letter of Credit, the Issuing Bank promptly shall notify Agent
and Banks of the amount and terms thereof. The Issuing Bank shall notify
Agent and Banks within ten (10) days after the end of each month of all
payments, reimbursements, expirations, negotiations, transfers and other
activity during that month with respect to outstanding Standby Letters of
Credit.
(c) Upon the issuance of a Standby Letter of Credit, each
Bank shall be deemed to have purchased a pro rata participation therein
from the Issuing Bank in a amount equal to that Bank's pro rata share,
according to its percentage of the Commitment, of the face amount of the
Standby Letter of Credit. Without limiting the scope and nature of each
Bank's participation in any Standby Letter of Credit, to the extent that
the Issuing Bank has not been reimbursed by Borrowers for any payment
required to be made by the Issuing Bank under any Standby Letter of
Credit, each Bank shall, pro rata according to its participation,
reimburse the Issuing Bank promptly upon demand for the amount of such
payment. The obligation of each Bank to so reimburse the Issuing Bank
shall be absolute and unconditional and shall not be affected by the
occurrence of any Event of Default or any other occurrence or event. Any
such reimbursement shall not relieve or otherwise impair the obligation
of Borrowers to reimburse the Issuing Bank for the amount of any payment
made by the Issuing Bank under any Standby Letter of Credit together with
interest as hereinafter provided.
(d) Borrowers agree to pay to the Issuing Bank, at its
Office designated as the address for notices pursuant to this Agreement,
or at such other payment location as the Issuing Bank shall have
specified in writing to Borrowers, with respect to each Standby Letter of
Credit, within one (1) Banking Day after demand therefor, a principal
amount equal to any payment made by the
<PAGE> 20
Issuing Bank under that Standby Letter of Credit, together with interest
on such amount from the date of any payment made by the Issuing Bank
through the date of payment by Borrowers at the rate provided for in
Section 3.6. The principal amount of any such payment made by Borrowers
to the Issuing Bank shall be used to reimburse the Issuing Bank for the
payment made by it under the Standby Letter of Credit. Each Bank that has
reimbursed the Issuing Bank pursuant to Section 2.6(c) for its pro rata
share of any payment made by the Issuing Bank under a Standby Letter of
Credit thereupon shall acquire a pro rata participation, to the extent of
such reimbursement, in the claim of the Issuing Bank against Borrowers
under this Section 2.6(d).
(e) At all times prior to the Maturity Date, if Borrowers
fail to make any payment required by Section 2.6(d), Agent may, but is
not required to, without notice to or the consent of Borrowers, make
Loans under the Commitment in an aggregate amount equal to the amount
paid by the Issuing Bank on the relevant Standby Letter of Credit,
whether or not the same would cause the Commitment to exceed $30,000,000,
and, for this purpose, the conditions precedent set forth in Article 8
and the amount limitations set forth in Section 2.1(d) shall not apply.
The proceeds of such Loans shall be retained by the Issuing Bank to
reimburse it for the payment made by it under the Standby Letter of
Credit.
(f) The issuance of any supplement, modification,
amendment, renewal or extension to or of any Standby Letter of Credit
shall be treated in all respects the same as the issuance of a new
Standby Letter of Credit.
(g) The obligation of Borrowers to pay to the Issuing Bank
the amount of any payment made by the Issuing Bank under any Standby
Letter of Credit shall be absolute, unconditional and irrevocable.
Without limiting the foregoing, such obligation of Borrowers shall not be
affected by any of the following circumstances absent the Issuing Bank's
gross negligence or willful misconduct:
(i) any lack of validity or enforceability of the
Standby Letter of Credit, this Agreement, or any other agreement
or instrument relating thereto;
(ii) any amendment or waiver of or any consent to
departure from the Standby Letter of Credit, this Agreement, or
any other agreement or instrument relating thereto;
(iii) the existence of any claim, setoff, defense or
other rights which Borrowers may have at any time against any
Bank, any beneficiary of the Standby Letter of Credit (or any
Persons or entities for whom any such beneficiary may be acting)
or any other Person, whether in connection with the Standby
Letter of Credit, this Agreement or any other agreement or
instrument relating thereto, or any unrelated transactions;
(iv) any demand, statement or any other document
presented under the Standby Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect
whatsoever;
(v) payment by the Issuing Bank under the Standby
Letter of Credit against presentation of a draft or any
accompanying document which does not strictly comply with the
terms of the Standby Letter of Credit;
(vi) the solvency (or insolvency) or financial
responsibility (or lack thereof) of any party issuing any
documents in connection with a Standby Letter of Credit;
(vii) any error in the transmission of any message
relating to a Standby Letter of Credit, or any delay or
interruption in any such message not caused by the Issuing Bank;
and/or
<PAGE> 21
(viii) any error, neglect or default of any
correspondent of the Issuing Bank in connection with a Standby
Letter of Credit.
2.7 Agent's Right to Assume Funds Available for Advances. Unless
Agent shall have been notified by any Bank at least two hours prior to the
funding by Agent of any Loan that such Bank does not intend to make available to
Agent such Bank's portion of the total amount of such Loan, Agent may assume
that such Bank has made such amount available to Agent on the date of the Loan
and Agent may, in reliance upon such assumption, make available to Borrowers a
corresponding amount. If such corresponding amount is not in fact made available
to Agent by such Bank, Agent shall be entitled to recover such corresponding
amount on demand from such Bank, which demand shall be made in a reasonably
prompt manner. If such Bank does not pay such corresponding amount forthwith
upon Agent's demand therefor, Agent promptly shall notify Borrowers and
Borrowers shall pay such corresponding amount to Agent. Agent also shall be
entitled to recover from such Bank or Borrowers, as the case may be, interest on
such corresponding amount in respect of each day from the date such
corresponding amount was made available by Agent to Borrowers to the date such
corresponding amount is recovered by Agent, at a rate per annum equal to the
actual cost to Agent of funding such amount as notified by Agent to such Bank or
Borrowers, as the case may be. Nothing herein shall be deemed to relieve any
Bank from its obligation to fulfill its share of the Commitment or to prejudice
any rights which the Agent or Borrowers may have against any Bank as a result of
any default by such Bank hereunder.
<PAGE> 22
ARTICLE 3
PAYMENTS AND FEES
3.1 Principal and Interest.
(a) Interest shall be payable on the outstanding daily
unpaid principal amount of each Loan from the date thereof until payment
in full is made and shall accrue and be payable at the rates set forth
herein both before and after default and before and after maturity and
judgment, with overdue amounts to bear interest at the rate set forth in
Section 3.6, to the fullest extent permitted by applicable Law. Upon any
partial prepayment or redesignation of outstanding Prime Rate Loans to
Eurodollar Loans, interest accrued through the date of such prepayment or
redesignation shall be payable on the next following interest payment
date occurring pursuant to Section 3.1(b). Upon any partial prepayment or
payment in full or redesignation or conversion of any Eurodollar Loan or
upon any payment or redesignation in full of all outstanding Prime Rate
Loans, interest accrued through the date of such prepayment, payment,
redesignation or conversion shall be payable on such date.
(b) Interest accrued on each Prime Rate Loan shall be
payable on the first day of each month, commencing with the first such
date to occur after the Closing Date. Agent shall use its best efforts to
notify Borrowers of the amount of interest so payable prior to each
interest payment date, but failure of Agent to do so shall not excuse
payment of such interest when payable. Except as otherwise provided in
Section 3.6, the unpaid principal amount of any Prime Rate Loan shall
bear interest at a fluctuating rate per annum equal to the Prime Rate
plus the applicable Prime Rate Spread. Each change in the interest rate
shall take effect simultaneously with the corresponding change in the
Prime Rate and/or the Prime Rate Spread. Each change in the Prime Rate
shall be effective as of 12:01 a.m. on the Banking Day on which the
change in the Prime Rate is announced, unless otherwise specified in such
announcement, in which case the change shall be effective as so
specified.
(c) Interest accrued on each Eurodollar Loan shall be
payable on the first day of each month, commencing with the first such
date to occur after the Closing Date, and on the maturity date of that
Eurodollar Loan. Agent shall use its best efforts to notify Borrowers of
the amount of interest so payable prior to each interest payment date,
but failure of Agent to do so shall not excuse payment of such interest
when payable. Except as otherwise provided in Section 3.6, the unpaid
principal amount of any Eurodollar Loan shall bear interest at a rate per
annum equal to the Eurodollar Rate for that Eurodollar Loan plus the
Eurodollar Rate Spread.
(d) If not sooner paid, the principal indebtedness under
this Agreement shall be payable as follows:
(i) subject to the right to renew or convert a
Eurodollar Rate Loan to a Prime Rate Loan, the principal amount of
each Loan shall immediately be payable in Cash on the Maturity
Date or, in the case of a Eurodollar Loan, on the last day of the
Eurodollar Period for such Loan; and
(ii) the principal indebtedness evidenced by the
Notes shall be payable in Cash within two (2) Banking Days in the
amount by which the aggregate outstanding amount of Loans at any
time exceeds the Commitment. The outstanding principal
indebtedness evidenced by the Notes shall, in any event, be
payable on the Maturity Date.
(e) The Notes, or any of them, may, at any time and from
time to time, be paid or prepaid in whole or in part without premium or
penalty, except that (i) any partial prepayment shall be an integral
multiple of $100,000, (ii) Agent shall have received notice, by telephone
or telecopier, of any prepayment prior to 12:00 noon on the Banking Day
of such prepayment (unless greater notice is otherwise required by this
Agreement), which notice shall identify the date and amount of the
prepayment and the Loan(s) being prepaid, (iii) each prepayment of
principal, except for partial prepayments of Prime Rate Loans, shall be
accompanied by payment of interest accrued through the date
<PAGE> 23
of payment on the amount of principal paid, (iv) except as required by
subsections (d)(ii) above, no Eurodollar Loan may be paid or prepaid in
whole or in part prior to the last day of the applicable Eurodollar
Period without the prior consent of the Requisite Banks, and,
notwithstanding such required prepayment or such consent, any payment or
prepayment of all or any part of Eurodollar Loan on a day other than the
last day of the applicable Eurodollar Period shall be made on a
Eurodollar Banking Day, as applicable, shall be preceded by at least four
(4) Eurodollar Banking Days' written notice to Agent of the date and
amount of such payment or prepayment, and shall be subject to Section
3.3(c).
(f) In addition to all other payments hereunder, Borrower
shall make mandatory reductions of the outstanding Loans upon the receipt
of, and in an amount equal to one hundred percent (100%) of, proceeds in
excess of $20,000,000 from either (i) the financing or re-financing of
any real property assets of Borrowers or Non-Borrower Affiliates to the
extent such proceeds exceed the existing debt associated with the
respective real property or (ii) a debt or equity offering; provided,
however, that the terms and conditions of such financing or re-financing
or debt or equity offering, including the amount and form of the proceeds
thereof shall be acceptable to Agent and Requisite Banks.
3.2 Commitment Fee. On the Closing Date, Borrowers shall pay to
Banks a commitment fee equal to .125% of the Commitment. Such commitment fee
shall be fully earned on the Closing Date.
3.3 Eurodollar Fees and Costs.
(a) If, after the date hereof, the existence or occurrence
of any Special Eurodollar Circumstance shall, in the reasonable
discretion of any Bank, make it unlawful, impossible or impracticable for
such Bank or its Eurodollar Lending Office to make or maintain any
Eurodollar Loan, or materially restrict the authority of such Bank to
purchase or sell, or to take deposits of, dollars in the Designated
Eurodollar Market, or to determine or charge interest rates based upon
the Eurodollar Rate, then such Bank will notify Agent and such Bank's
obligation to make Eurodollar Loans shall be suspended for the duration
of such illegality, impossibility or impracticability and Agent forthwith
shall give notice thereof to the other Banks and Borrowers. Upon receipt
of such notice, the outstanding principal amount of such Bank's
Eurodollar Loans, together with accrued interest thereon, automatically
shall be converted to Prime Rate Loans on either (1) the last day of the
Eurodollar Period(s) applicable to such Eurodollar Loans if such Bank may
lawfully continue to maintain and fund such Eurodollar Loans to such
day(s) or (2) immediately if such Bank may not lawfully continue to fund
and maintain such Eurodollar Loans to such day(s), provided that in such
event the conversion shall not be subject to payment of a prepayment fee
under Section 3.3(c). In the event that such Bank is unable, for the
reasons set forth above, to make, maintain or fund any Eurodollar Loan,
such Bank shall fund such amount as a Prime Rate Loan, and such amount
shall be treated in all respects as a Prime Rate Loan.
(b) If, with respect to any proposed Eurodollar Loan:
(1) Agent reasonably determines that, by reason of
Special Eurodollar Circumstances, deposits in dollars (in the
applicable amounts) are not being offered to each of the Banks in
the Designated Eurodollar Market for the applicable Eurodollar
Period; or
(2) the Requisite Banks advise Agent that the
Eurodollar Rate as determined by the Banks (i) does not represent
the effective pricing to the Banks for deposits in dollars in the
Designated Eurodollar Market in the relevant amount for the
applicable Eurodollar Period, or (ii) will not adequately and
fairly reflect the cost to such Banks of making the applicable
Eurodollar Loans;
then Agent forthwith shall give notice thereof to Borrowers and the
Banks, whereupon until Agent notifies Borrowers that the circumstances
giving rise to such suspension no longer exist, and the obligation of the
Banks to make any future Eurodollar Loans shall be suspended.
<PAGE> 24
(c) Upon payment or prepayment of any Eurodollar Loan, or
conversion of a Eurodollar Loan to a Prime Rate Loan (other than as the
result of a conversion required under Section 3.3(a)), on a day other
than the last day in the applicable Eurodollar Period (whether
voluntarily, involuntarily, by reason of acceleration, or otherwise),
Borrowers shall pay to the Banks an amount equal to the accrued interest
on the amount prepaid plus a prepayment fee equal to the amount (if any)
by which: (1) the additional interest which would have been payable on
the amount prepaid had it not been paid until the last day of the
Eurodollar Period, exceeds (2) the interest which would have been
recoverable by placing the amount prepaid on deposit in the Eurodollar
market for a period starting on the date on which it was prepaid and
ending on the last day of the Eurodollar Period for such portion, plus
all reasonable out-of-pocket expenses incurred by Banks and reasonably
attributable to such payment or prepayment; provided that no prepayment
fee shall be payable (and no credit or rebate shall be required) if the
product of the foregoing formula is not positive. Each Bank's
determination of the amount of any prepayment fee payable under this
Section 3.3(c) shall be conclusive in the absence of manifest error.
(d) Borrowers hereby indemnify each Bank against, and agree
to hold each Bank harmless from and reimburse each Bank on demand for,
all reasonable costs, expenses, claims, penalties, liabilities, losses,
legal fees and damages (including, without limitation, any interest paid
by any Bank for deposits in dollars in the Designated Eurodollar Market
and any loss sustained by any Bank in connection with the reemployment of
funds) incurred or sustained by such Bank, as reasonably determined by
such Bank, as a result of any failure of Borrowers to borrow on the date
or in the amount specified in any Request for Loan or Request for
Redesignation of Loans; provided that such Bank shall not be entitled to
indemnification for any loss caused by its own gross negligence or
willful misconduct. The determination of such amount by each Bank shall
be conclusive in the absence of manifest error.
(e) Any Bank requesting any payment from Borrowers under
this Section 3.3, shall, at the request of Borrowers, provide reasonable
detail to Borrowers regarding the manner in which the amount of any such
payment has been determined.
3.4 Letter of Credit Fees. Borrowers shall pay to the Issuing Bank
a letter of credit fee of 1.5% of the face amount of the Standby Letter of
Credit for the term of each Standby Letter of Credit issued under Section 2.6,
payable at the time of issuance. Each Standby Letter of Credit fee is earned
upon issuance of each Standby Letter of Credit and is nonrefundable. The Issuing
Bank promptly shall make available to Agent in immediately available funds, and
Agent promptly shall make available to Banks in immediately available funds, pro
rata according to their percentages of the Commitment, the portion of each
Standby Letter of Credit fee which is for the account of Banks as aforesaid.
3.5 Agent Fee. From time to time hereafter, Borrowers shall pay
fees to Agent as agreed between Borrowers and Agent in a separate agreement.
3.6 Late Payments/Default Rate.
(a) Should any installment of principal or interest or any
fee or cost or other amount payable under any Loan Document to Agent or
any Bank not be paid when due, such installment shall thereafter bear
interest at a fluctuating interest rate per annum at all times equal to
two percent (2.0%) above the then prevailing applicable Prime Rate based
interest rate for all Loans made hereunder, to the fullest extent
permitted by applicable Law. Accrued and unpaid interest on past due
amounts (including, without limitation, interest on past due interest)
shall be compounded monthly, on the last day of each calendar month, to
the fullest extent permitted by applicable Law and payable on the first
day of the following month.
(b) Upon the occurrence and during the continuance of any
other Event of Default, at the option of the Requisite Banks, Borrowers
shall pay interest on the outstanding principal and interest at the
Default Rate. This shall not constitute a waiver of any Event of Default.
<PAGE> 25
3.7 Computation of Interest and Fees. All computations of interest
and fees under any Loan Document that relate to any Prime Rate Loan or any
Eurodollar Loan shall be calculated on the basis of a year of 360 days and the
actual number of days elapsed.
3.8 Non-Banking Days. If any payment to be made by Borrowers or
any other Party under any Loan Document shall come due on a day other than a
Banking Day (and a Eurodollar Banking Day, in the case of a Eurodollar Loan),
payment shall be made on the next succeeding Banking Day (and, in the case of a
Eurodollar Loan, the next succeeding Eurodollar Banking Day that is also a
Banking Day) and the extension of time shall be reflected in computing interest.
3.9 Manner and Treatment of Payments.
(a) Borrowers agree that interest and principal payments
and any fees will be deducted automatically on the due date from the
Designated Deposit Account, or any other accounts of Borrowers held by
Agent which contain sufficient funds. Such debits shall occur on the
dates the payments become due. If the due date does not fall on a Banking
Day, Agent will cause such debits to be made on the first Banking Day
following the due date. Borrowers shall maintain sufficient funds in the
Designated Deposit Account on the dates Agent enters debits authorized by
this Agreement. If there are insufficient funds in the Designated Deposit
Account or the other accounts of Borrowers on the date Agent enters any
debit authorized by this Agreement, Borrowers shall immediately, after
notice from Agent, pay such shortfall to Agent. The amount of all
payments received by Agent for the account of each Bank shall be
immediately paid by Agent to the applicable Bank in immediately available
funds. All payments shall be made in lawful money of the United States of
America.
(b) Each Bank shall use its best efforts to keep a record
of Loans made by it and payments received by it with respect to each Note
and such record shall be presumptive evidence of the amounts owing.
(c) Each payment or prepayment on account of any Loan shall
be made and applied pro rata according to the outstanding Loans made by
each Bank.
(d) Each payment of any amount payable by Borrowers and/or
any other Party under this Agreement and/or any other Loan Document shall
be made free and clear of, and without reduction by reason of, any taxes,
assessments or other charges imposed by any Governmental Agency, central
bank or comparable authority.
3.10 Funding Sources. Nothing in this Agreement shall be deemed to
obligate Agent or any Bank to obtain the funds for any Loan in any particular
place or manner or to constitute a representation by Agent or any Bank that it
has obtained or will obtain the funds for any Loan in any particular place or
manner.
3.11 Failure to Charge Not Subsequent Waiver. Any decision by
Agent or any Bank not to require payment of any interest (including default
interest), fee, cost or other amount payable under any Loan Document on any
occasion shall in no way limit or be deemed a waiver of Agent's or such Bank's
right to require full payment of any interest (including default interest), fee,
cost or other amount payable under any Loan Document on any other or subsequent
occasion.
3.12 Agent's Right to Assume Payments Will be Made by Borrowers.
Unless Agent shall have been notified by Borrowers prior to the date on which
any payment to be made by Borrowers hereunder is due that Borrowers do not
intend to remit such payment, Agent may, in its discretion, assume that
Borrowers will make such payment when so due and Agent may, in its discretion
and in reliance upon such assumption, make available to each Bank on such
payment date an amount equal to such Bank's share of such assumed payment. If
Borrowers do not in fact make such payment to Agent, each Bank shall forthwith
on demand repay to Agent the amount of such assumed payment made available to
such Bank, together with interest thereon in respect of each day from and
including the date such amount was made available by Agent to such Bank to the
date such amount
<PAGE> 26
is repaid to Agent at a rate per annum equal to the actual cost to Agent of
funding such amount as notified by Agent to such Bank.
3.13 Survivability. All of Borrowers' obligations under this
Article 3 shall survive for one year following the date on which all Loans
hereunder are fully paid.
3.14 Unused Line Fee. On the last day of each calendar quarter,
commencing with the first such date to occur after the Closing Date, Borrower
shall pay to Banks a fee of .25% per annum based on the difference between the
Commitment and an amount equal to the weighted average Total Outstanding during
the previous quarterly period or portion thereof.
<PAGE> 27
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to Agent and each Bank, as of the
Closing Date, that:
4.1 Existence and Qualification; Power; Compliance With Laws.
(a) SCC, Inc. is a corporation duly formed, validly existing and
in good standing under the Laws of Delaware. The chief executive offices
of SCC, Inc. are in Los Angeles, California.
(b) The Spectrum Club Company, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its
chief executive offices are in Los Angeles, California.
(c) Pontius Realty, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(d) Sports Club, Inc. of California is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its
chief executive offices are in Los Angeles, California.
(e) Irvine Sports Club, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(f) The SportsMed Company, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its
chief executive offices are in Los Angeles, California.
(g) SCC Sports Club, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of Texas. Its chief
executive offices are in Los Angeles, California.
(h) L.A./Irvine Sports Clubs, Ltd. is a limited partnership duly
formed, validly existing and in good standing under the Laws of
California. Its chief executive offices are in Los Angeles, California.
(i) Talla New York, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of New York. Its chief
executive offices are in Los Angeles, California.
(j) Green Valley Spectrum Club, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of Nevada. Its chief
executive offices are in Los Angeles, California.
(k) Spectrum Club/Anaheim is a corporation duly formed, validly
existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
Each Borrower is duly qualified or registered to transact business and is in
good standing in each other jurisdiction in which the conduct of its business or
the ownership or leasing of its Properties makes such qualification or
registration necessary, except where the failure so to qualify or register and
to be in good standing would not have a material adverse effect on the business,
operations or condition (financial or otherwise) of such Borrower and its
Subsidiaries, taken as a whole. Each Borrower has all requisite power and
authority to conduct its business, to own and lease its Properties and to
execute, deliver and perform all of its Obligations under the Loan Documents.
All outstanding shares of capital stock of each Borrower, as applicable, are
duly authorized, validly issued, fully paid, non-assessable and issued in
compliance with all applicable state and federal securities and other Laws. Each
Borrower is in compliance with all Laws and other legal requirements applicable
to its business, has obtained all authorizations, consents, approvals, orders,
licenses and permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing from, any
Governmental Agency that are necessary for the transaction of its business,
except where the failure so to comply, file, register, qualify or obtain
exemptions would not have a material adverse effect on the business, operations
or condition (financial or otherwise) of such Borrower and its Subsidiaries,
taken as a whole.
<PAGE> 28
4.2 Authority; Compliance With Other Agreements and Instruments
and Government Regulations. The execution, delivery and performance by each
Borrower and its Subsidiaries of the Loan Documents to which it is a Party have
been duly authorized by all necessary action, and do not and will not:
(a) Except as set forth in Schedule 4.2, require any
consent or approval not heretofore obtained of any partner, director,
stockholder, security holder or creditor;
(b) Violate or conflict with any provision of such Party's
partnership agreement, certificate of limited partnership, charter,
articles of incorporation or bylaws, or amendments thereto, as
applicable;
(c) Result in or require the creation or imposition of any
Lien or Right of Others (other than as provided under the Loan Documents)
upon or with respect to any Property now owned or leased or hereafter
acquired by such Party;
(d) Violate any provision of any Law (including, without
limitation, Regulations T, U and/or X of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award presently in effect and having applicability to
such Party; or
(e) Result in a breach of or constitute a default under, or
cause or permit the acceleration of any obligation owed under, any
indenture or loan or credit agreement or any other material agreement,
lease or instrument to which such Party is a party or by which such Party
or any of its Property is bound or affected;
and no Borrower nor any Subsidiary thereof is in default under any Law,
order, writ, judgment, injunction, decree, determination or award, or any
indenture, agreement, lease or instrument described in this Section
4.2(e), in any respect that is materially adverse to the interests of
Agent or any Bank or that would have any material adverse effect on the
business, operations or condition (financial or otherwise) of Borrowers
and their Subsidiaries, taken as a whole.
4.3 No Governmental Approvals Required. No authorization, consent,
approval, order, license or permit from, or filing, registration or
qualification with, or exemption from any of the foregoing from, any
Governmental Agency is or will be required to authorize or permit under
applicable Law the execution, delivery and performance by any Borrower or any
Subsidiary thereof of the Loan Documents to which it is a Party.
4.4 Subsidiaries.
(a) Except as described in Schedule 4.4, Borrowers do not
own any capital stock, partnership interest, joint venture interest or
other equity interest in any Person. Unless otherwise indicated in
Schedule 4.4 all of the outstanding shares of capital stock or
partnership or joint venture interests of each Borrower are owned of
record and beneficially by Borrowers and all securities and interests so
owned are duly authorized, validly issued, fully paid, non-assessable and
issued in compliance with all applicable state and federal securities and
other Laws, and are free and clear of all Liens and Rights of Others.
(b) Each Subsidiary identified in Schedule 5.2 as an
"Inactive Subsidiary" has (i) aggregate collections or distributions of
cash from its operations of less than $50,000 and (ii) no tangible or
intangible real or personal property assets having an aggregate fair
market value in excess of $50,000.
(c) Each Subsidiary of each Borrower is a legal entity of
the form described for that Subsidiary in Schedule 4.4, duly formed,
validly existing and in good standing under the Laws of its jurisdiction
of formation, is duly qualified or registered to transact business and is
in good standing in each other jurisdiction in which the conduct of its
business or the ownership or leasing of its Properties makes such
qualification or registration necessary, except where the failure so to
qualify or register and to be in good standing does not have a material
adverse effect on the business, operations or condition
<PAGE> 29
(financial or otherwise) of the Borrowers and their Subsidiaries, taken
as a whole, and has all requisite legal power and authority to conduct
its business and to own and lease its Properties and to execute, deliver
and perform all of its Obligations under the Loan Documents.
(d) Each Subsidiary of each Borrower is in compliance with
all Laws and other legal requirements applicable to its business, has
obtained all authorizations, consents, approvals, orders, licenses and
permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing
from, any Governmental Agency that are necessary for the transaction of
its business, except where the failure to so comply, file, register,
qualify or obtain exemptions would not have a material adverse effect on
the business, operations or condition (financial or otherwise) of the
Borrowers and their Subsidiaries, taken as a whole.
4.5 Financial Statements. Borrowers have furnished to Agent and
Banks (a) the audited consolidated balance sheet of Borrowers and their
Subsidiaries as at December 31, 1997, and audited consolidated income statement
and cash flow statement of Borrowers and their Subsidiaries for their fiscal
year then ended, and (b) the unaudited consolidated balance sheets of Borrowers
and their Subsidiaries as at March 31, 1998, and unaudited consolidated income
statements, cash flow statements of Borrowers and their Subsidiaries and
unaudited individual Club operating statements for such month and for the
portion of their fiscal year ended with such month. Such financial statements
fairly present the financial condition, results of operations and cash flow of
Borrowers and their Subsidiaries as at such dates and for such periods, in
conformity with generally accepted accounting principles, consistently applied,
provided that the balance sheets and statements referred to in (b) above are
subject to normal year-end audit adjustments.
4.6 No Other Liabilities; No Material Adverse Changes. Except as
set forth in Schedule 4.6 hereto, Borrowers and their Subsidiaries do not have
any material liability or material contingent liability not reflected or
disclosed in the financial statements or notes thereto described in Section 4.5.
There has been no material adverse change in the business, operations or
condition (financial or otherwise) of Borrowers and their Subsidiaries, taken as
a whole, since the date of the financial statements described in Section 4.5(b).
4.7 Intangible Assets. Borrowers and their Subsidiaries own, or
possess the unrestricted right to use, all trademarks, trade names, copyrights,
patents, patent rights, licenses and deferred tax assets that are used in the
conduct of their businesses as now operated, and no such intangible asset, to
the best knowledge of Borrowers, conflicts with the valid trademark, trade name,
copyright, patent, patent right or deferred tax asset of any other Person to the
extent that such conflict would have a material adverse effect on the business,
operations or condition (financial or otherwise) of Borrowers and their
Subsidiaries, taken as a whole.
4.8 Filing of Financing Statements. Upon the filing and/or
recording of financing statements describing the Collateral with the
Governmental Agencies listed in Schedule 4.8, and except for the requirement
that continuation statements periodically be filed and/or recorded with respect
thereto, and upon the taking of possession of the stock certificates of any and
all Borrowers, other than SCC, Inc., all necessary steps will have been taken to
fully perfect and to maintain fully perfected the Liens of Agent and Banks on
the Collateral, to the fullest extent that such Liens may be perfected pursuant
to Article 9 of the Uniform Commercial Code.
4.9 Public Utility Holding Company Act. No Borrower or any
Subsidiary thereof is a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.10 Litigation. Except for (a) the matters set forth in Schedule
4.10, (b) any matter fully covered as to subject matter and amount (subject to
applicable deductibles and retentions) by insurance for which the insurance
carrier has not asserted lack of subject matter coverage or reserved its right
to do so, or (c) any matter, or series of related matters, involving a
threatened claim against Borrowers of less than $100,000, there are no actions,
suits or proceedings pending or, to the best knowledge of Borrowers, threatened
against or affecting Borrowers or any of its Subsidiaries or any Property of any
of them in any court of Law or before any Governmental Agency.
<PAGE> 30
4.11 Binding Obligations. Each of the Loan Documents to which any
Borrower or any Subsidiary thereof is a Party will, when executed and delivered
by such Party, constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms.
4.12 No Default. No event has occurred and is continuing that is a
Default.
4.13 ERISA.
(a) Except as disclosed in Schedule 4.13, there are no
Plans.
(b) With respect to each Plan:
(3 such Plan complies in all material respects with
ERISA and any other applicable Law;
(4 such Plan has not incurred any material
"accumulated funding deficiency", as that term is defined in
Section 302 of ERISA;
(5 no "reportable event" (as defined in Section 4043
of ERISA) has occurred that could result in the termination or
disqualification of such Plan; and
(6 no Borrower nor any Subsidiary thereof has
engaged in any "prohibited transaction" (as defined in Section
4975 of the Internal Revenue Code of 1954, as amended).
(c) no Borrower nor any Subsidiary thereof is or has been a
party to any Multi employer Plan.
(c) Borrowers and their Subsidiaries are in compliance with
each covenant contained in Section 6.6.
4.14 Regulations T, U and X; Investment Company Act. No Borrower
nor any of its Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" or "margin security" within the meanings of
Regulations T, U or X, respectively, of the Board of Governors of the Federal
Reserve System. If requested by Agent or any Bank, Borrowers will furnish or
will cause their Subsidiaries, as requested, to furnish Agent or any Bank with a
statement or statements in conformity with the requirements of Federal Reserve
Form U-1 referred to in Regulation U of said Board of Governors. No part of the
proceeds of any Loan hereunder will be used to purchase or carry any such
"margin security" or "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any such "margin security" or "margin stock"
in violation of Regulations T, U or X of said Board of Governors. No Borrower
nor any of its Subsidiaries is or is required to be registered under the
Investment Company Act of 1940.
4.15 Disclosure. No written statement made by Borrowers or any
Subsidiary thereof to Agent or any Bank in connection with this Agreement, or in
connection with any Loan, or in connection with the issuance of any Standby
Letter of Credit, contains any untrue statement of a material fact or omits a
material fact necessary to make the statement made not misleading. To the best
knowledge of Borrowers, there is no fact which Borrowers have not disclosed to
Agent and Banks in writing which materially and adversely affects nor, so far as
Borrowers can now foresee, is reasonably likely to prove to affect materially
and adversely the business, operations, Properties, prospects, profits or
condition (financial or otherwise) of Borrowers and their Subsidiaries, taken as
a whole, or the ability of Borrowers and their Subsidiaries to perform their
Obligations under the Loan Documents.
<PAGE> 31
4.16 Tax Liability. Borrowers and their Subsidiaries have filed
all income tax returns which are required to be filed, and have paid, or made
provision for the payment of, all taxes which have become due pursuant to said
returns or pursuant to any assessment received by any Borrower or any Subsidiary
thereof, except such taxes, if any, as are being contested in good faith and as
to which adequate reserves have been provided.
4.17 Projections. The financial projections set forth in Schedule
4.17 are based on facts known to Borrowers and on assumptions that are
reasonable and consistent with such facts. To the best knowledge of Borrowers,
except as may be disclosed on Schedule 4.17, no material fact or assumption is
omitted as a basis for such projections, and such projections are reasonably
based on such facts and assumptions. Nothing in this Section 4.17 shall be
construed as a representation that such projections in fact will be achieved.
4.18 Fiscal Year. Borrowers and their Subsidiaries each operate on
a fiscal year corresponding to the calendar year and ending on December 31, the
fiscal months of which correspond to the calendar months of the calendar year.
4.19 Employee Matters. There is no strike, work stoppage or labor
dispute with any union or group of employees pending or overtly threatened
involving Borrowers or any of their Subsidiaries. Since June 1996, there has
been no increase in the salary, bonus or other compensation arrangements of the
employees of Borrowers and their Subsidiaries other than normal increases in the
ordinary course of business.
<PAGE> 32
ARTICLE 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
So long as any Loan or any other indebtedness owing in connection
therewith remains unpaid hereunder or any portion of the Commitment remains
outstanding, Borrowers shall, and shall cause each of its Subsidiaries to,
unless the Requisite Banks otherwise consent in writing:
5.1 Payment of Taxes and Other Potential Charges. Pay and
discharge promptly all taxes, assessments and governmental charges or levies
imposed upon any of them, upon their respective Property or any part thereof,
upon their respective income or profits or any part thereof or upon any right or
interest of Agent or any Bank under any Loan Document, except that Borrowers and
their Subsidiaries shall not be required to pay or cause to be paid (a) any
income or gross receipts tax generally applicable to banks or (b) any tax,
assessment, charge or levy that is not yet past due, or is being contested in
good faith by appropriate proceedings, so long as the relevant entity has
established and maintains adequate reserves for the payment of the same and by
reason of such nonpayment and contest no material item or portion of Property of
Borrowers and their Subsidiaries, taken as a whole, is in jeopardy of being
seized, levied upon or forfeited.
5.2 Preservation of Existence. Preserve and maintain their
respective existences, except for mergers permitted in Section 6.3 of this
Agreement. Preserve and maintain all material licenses, rights, franchises and
privileges in the jurisdiction of their formation and all authorizations,
consents, approvals, orders, licenses, permits, or exemptions from, or
registrations with, any Governmental Agency that are necessary for the
transaction of their respective business. Qualify and remain qualified to
transact business in each jurisdiction in which such qualification is necessary
in view of their respective business, except any Subsidiaries listed in Schedule
5.2 that are inactive or have immaterial assets. With respect to any
Subsidiaries listed in Schedule 5.2 that are inactive or have immaterial assets,
Borrowers shall immediately give Agent and Banks written notice of any change in
such entities' respective existences or statuses of qualification.
5.3 Maintenance of Properties. Maintain, preserve and protect all
of their respective Properties and equipment in good order and condition,
subject to replacement wear and tear in the ordinary course of business, and not
permit any waste of their respective Properties, except that the failure to
maintain, preserve and protect a particular item of Property or equipment that
is not of significant value, either intrinsically or to the operations of
Borrowers and their Subsidiaries, taken as a whole, shall not constitute a
violation of this covenant.
5.4 Maintenance of Insurance. Maintain liability and casualty
insurance with responsible insurance companies acceptable to the Requisite Banks
in such amounts and against such risks as is usually carried by responsible
companies engaged in similar businesses and owning similar Properties in the
general areas in which Borrowers and their Subsidiaries operate; and, as
requested by the Agent, cause Agent and Banks to be designated as additional
insured and loss payees with respect to such insurance, and obtain the written
agreement of such insurers that such insurance shall not be canceled or
terminated, nor shall the coverage or terms or exclusions thereof be materially
modified, without at least thirty (30) days prior written notice to Agent.
5.5 Compliance With Laws. Comply with the requirements of all
applicable Laws and orders of any Governmental Agency, noncompliance with which
could materially adversely affect the business, operations or condition
(financial or otherwise) of Borrowers and their Subsidiaries, taken as a whole,
except that Borrowers and their Subsidiaries need not comply with a requirement
then being contested by any of them in good faith by appropriate proceedings so
long as no interest of Agent or any Bank would be materially impaired thereby.
5.6 Additional Borrowers. In the event (i) the aggregate amount of
all advances to, investments in or commitments to any Non-Borrower Affiliate by
Borrowers, after the date hereof, exceeds at any time $200,000, in addition to
the amounts set forth for the Non-Borrower Affiliates in Schedule 5.6, but
excluding accrued management fees owing to Borrowers from such Non-Borrower
Affiliates, (ii) any Non-Borrower Affiliate identified in Schedule 5.2 ceases to
meet the criteria for an "Inactive Subsidiary" set forth in Section
<PAGE> 33
4.4(b) of this Agreement, (iii) any Borrower becomes a majority shareholder or a
general partner of any Non-Borrower Affiliate now or hereafter existing, or (iv)
any Borrower or Borrowers, taken as a whole, obtain a majority of the
partnership or other ownership interests of any Non-Borrower Affiliate,
Borrowers shall cause such Non-Borrower Affiliate to become a Borrower hereunder
or enter into such other agreement or arrangement with Banks concerning such
Non-Borrower Affiliate as may be acceptable to the Requisite Banks in its sole
discretion. In order to add a Non-Borrower Affiliate as a Borrower hereunder,
the Borrowers shall deliver to Agent and Banks (a) the agreement of such
Non-Borrower Affiliate to be added as a Borrower hereunder and to be bound by
the terms hereof, (b) the agreement of the owners of all capital stock or other
ownership interests, as applicable, of such new Borrower to become a party to
the Pledge Agreement, (c) the certificates and other documents required to be
delivered pursuant to the terms of the Pledge Agreement, and (d) such other
documents as the Requisite Banks may reasonably require. Schedule 5.6 attached
hereto sets forth as of the date hereof the amount of all advances to,
investments in or commitments to any Non-Borrower Affiliate by Borrowers, the
percentage ownership of each Borrower in any Non-Borrower Affiliate, and
Borrowers which are general partners of any Non-Borrower Affiliate.
5.7 Inspection Rights. Upon reasonable notice by Agent or any Bank
to Borrowers, at any time during regular business hours and as reasonably
requested, permit Agent or any Bank, or any employee, agent or representative
thereof, to examine, audit and make copies and abstracts from the records and
books of account and to visit and inspect the Properties of Borrowers and their
Subsidiaries and to discuss the affairs, finances and accounts of Borrowers and
their Subsidiaries with any of their officers and key employees, customers or
vendors, and, upon request, furnish promptly to Agent or any Bank true copies of
all financial information and internal management reports made available to the
senior management of Borrowers or any of their Subsidiaries. If any of
Borrowers' Property, books or records are in the possession of a third party,
Borrowers, upon not less than three (3) days' advance notice, hereby authorize
such third party to permit Agent or Banks to have access to perform inspections
or audits and to respond to Agent's or a Bank's request for information
concerning such Property, books or records. If an Event of Default has occurred
and is continuing, no advance notice of any audits and inspections shall be
required.
5.8 Keeping of Records and Books of Account. Keep adequate records
and books of account reflecting all financial transactions in conformity with
generally accepted accounting principles, consistently applied, and in material
conformity with all applicable requirements of any Governmental Agency having
regulatory jurisdiction over Borrowers or any of their Subsidiaries.
5.9 Compliance With Agreements, Duties and Obligations. Promptly
and fully comply with all their respective agreements, duties and obligations
under the Loan Documents, and with material terms of any other material
agreements, indentures, leases and/or instruments to which any one or more of
them is a party, whether such other agreements, indentures, leases and/or
instruments are with Agent and any Bank or another Person.
5.10 Use of Proceeds. Use the proceeds of the Loans for the
following purposes only: (i) for working capital purposes; (ii) for Capital
Expenditures; (iii) for Standby Letters of Credit; (iv) to fund non-hostile
Acquisitions; and (v) to fund New Club Developments.
<PAGE> 34
ARTICLE 6
NEGATIVE COVENANTS
So long as any Loan or other indebtedness owing in connection
therewith remains unpaid hereunder or any portion of the Commitment remains
outstanding, Borrowers shall not (and shall cause each of their Subsidiaries to
not) unless the Requisite Banks otherwise consent in writing:
6.1 Disposition of Property. Sell, assign, exchange, transfer,
lease or otherwise dispose of, or contract to sell, assign, exchange, transfer,
lease or otherwise dispose of, any of their respective Properties, whether now
owned or hereafter acquired, and whether to an Affiliate or otherwise, except
(a) Properties sold, assigned, exchanged, transferred, leased or otherwise
disposed of in the ordinary course of business, and (b) as permitted under
Section 6.3.
6.2 Transactions with Borrowers and Non-Borrower Affiliates.
Advance funds to, guarantee obligations of, or make any other investments in or
commitments or make distributions to any Non-Borrower Affiliate unless (a) such
Non-Borrower Affiliate is made a Borrower under this Agreement or some other
arrangement acceptable to the Requisite Banks in their sole discretion is made
in accordance with Section 5.6, or (b) the aggregate amount of all advances to,
guaranties of, investments in and commitments to all Non-Borrower Affiliates
does not exceed $200,000, in addition to the amounts set forth for the
Non-Borrower Affiliates in Schedule 5.6, but excluding accrued management fees
owing to Borrowers from such Non-Borrower Affiliates, Borrowers shall provide
Agent and Banks a monthly report detailing such transactions, such report to be
in a form as is acceptable to Agent and Requisite Banks. The Borrowers shall
have the right, with the consent of the Requisite Banks, not to be unreasonably
withheld but subject to such terms and conditions as the Requisite Banks may
require, to add any Non-Borrower Affiliate as a Borrower hereunder.
6.3 Mergers, Acquisitions and New Club Developments.
(a) Merge, consolidate or amalgamate with or into any Person, except mergers,
consolidations or amalgamations of a Subsidiary of a Borrower into a
Borrower (with such Borrower as the surviving entity) prior notice of the
details of which shall have been given to Agent and Banks, or mergers,
consolidations or amalgamations in connection with an Acquisition or New
Club Development permitted pursuant to Section 6.3(b) or 6.3(c).
(b) Make any Acquisition or enter into any agreement to make any Acquisition,
provided that the consent of the Requisite Banks shall not be required in
connection with any Acquisition satisfying the following conditions: (i)
such Acquisition requires payment of an amount of less than either (A)
$10,000,000 of total consideration in connection with such Acquisition
alone or (B) $15,000,000 of total consideration when such Acquisition is
combined with all other Acquisitions made by Borrowers during the twelve
months prior to such Acquisition, excluding Borrowers' investment in the
Vertical Club and Borrowers' investment in any Acquisition previously
approved by the Requisite Banks, (ii) such Acquisition is not for a sum
greater than seven and one-half times the EBITDA of the acquired entity,
with adjustments acceptable to Banks for identifiable savings which will
occur as a result of such Acquisition, or (iii) such Acquisition is not
of an entity engaged in a business different from that of Borrowers. In
connection with an Acquisition meeting the above requirements, the
Borrowers may enter into a partnership or a corporate or other joint
venture with one or more unaffiliated Persons.
(c) Pursue any New Club Development, provided that the consent of the
Requisite Banks shall not be required for a New Club Development
satisfying the following conditions: (i) such New Club Development is
projected to generate positive EBITDA for the twelve-month period
commencing on the first anniversary following completion of such New Club
Development; and (ii) Borrowers do not expend more than $5,000,000 on
such New Club Development alone or more than $10,000,000 when the
expenditures for such New Club Development are combined with all other
New Club Development expenditures during the twelve months prior to the
commencement of such New Club Development, exclusive of expenditures in
connection with existing development projects already approved by Banks,
including those development projects described on Schedule 6.3(c).
<PAGE> 35
(d) In any event, no more than three mergers, Acquisitions or New Club
Developments in the "pre sale phase of development" shall be pursued at
any given time. "Pre sale phase of development" shall mean the period
during which memberships in the new Clubs are offered for sale prior to
the date the Club opens for business.
(e) Prior to any Acquisition, Borrowers shall deliver to Agent and Banks (i)
an executive summary of the Acquisition in form and substance acceptable
to Agent and Banks, (ii) a multi-year financial forecast, including
assumptions, (iii) a pro forma financial statement giving effect to the
proposed Acquisition, (iv) a pro forma compliance certificate executed by
a Responsible Official of a Borrower certifying that giving effect to the
proposed Acquisition, Borrowers shall be in compliance with the terms of
this Section 6.3 and all other terms and financial covenants set forth in
this Agreement, (v) a schedule of sources and uses of funds, and (vi)
such other details about such Acquisition as Agent or any Bank may
reasonably request. Prior approval by the Requisite Banks shall be
required for every Acquisition other than those permitted under Section
6.3(b) above.
(f) Prior to any New Club Development, Borrowers shall deliver to Agent and
Banks (i) an executive summary detailing the development project,
demographic and site analysis, cost estimates and financing sources, (ii)
a multi-year financial forecast, including assumptions, demonstrating
positive projected EBITDA for the twelve-month period commencing on the
first anniversary following completion of such New Club Development,
(iii) a pro forma compliance certificate executed by a Responsible
Officer of a Borrower certifying that giving effect to the proposed
development, Borrowers shall be in compliance with the terms of this
Section 6.3 and all other terms and financial covenants set forth in this
Agreement, and (iv) such other details about such development as Agent or
any Bank may reasonably request. Prior approval by the Requisite Banks
shall be required for every New Club Development other than those
permitted under Section 6.3(c) above.
(g) Banks acknowledge prior receipt of a request from Borrowers for funding
an amount not to exceed $10,000,000 in connection with the purchase of
land and a building by The Spectrum Club Company, Inc. and its
development as a new Spectrum Club in Thousand Oaks, California (the
"Thousand Oaks Club"). Funding for the Thousand Oaks Club New Club
Development has been approved subject to the following:
(i) the occurrence of no material adverse change with
respect to Borrowers or the proposed Acquisition and no Default having
occurred prior to such funding or which would occur as a result of such
funding; and
(ii) such other evidence of full compliance with all other
terms and conditions of this Agreement as Agent or any Bank shall
reasonably request both before and after such Acquisition.
(h) Concurrent with the execution and delivery of this Agreement, Banks
acknowledge receipt of a request from Borrowers to permit Borrowers to
make a net investment not to exceed $24,000,000 for the Acquisition and
development of the Vertical Club in New York City. In connection with
such request, Borrowers have provided Banks with the information package
attached hereto as Exhibit F (the "Vertical Club Materials"). Banks have
approved Borrowers' Acquisition and development of the Vertical Club
subject to the following:
(i) the occurrence of no material adverse change with
respect to Borrowers or the proposed Acquisition and development from the
information reflected in the Vertical Club Materials, and no Default
having occurred prior to such funding or which would occur as a result of
such funding;
(ii) Borrowers' adherence to the budgets and time lines
provided in the Vertical Club Materials, as such budgets and time lines
may be refined in the quarterly project development status reports
delivered by Borrowers to Agent pursuant to Section 7.1(n) hereof, with
material modifications approved by Banks; and
<PAGE> 36
(iii) such other evidence of full compliance with all other
terms and conditions of this Agreement as Agent or any Bank shall
reasonably request both before and after such Acquisition.
(i) Concurrent with the execution and delivery of this Agreement, Banks
acknowledge receipt of a request from Borrowers to permit Borrowers to
make a net investment not to exceed $20,800,00 for a New Club Development
of a Sports Club in Houston (the "Houston Sports Club"). In connection
with such request, Borrowers have provided Banks with the information
package attached hereto as Exhibit G (the "Houston Sports Club
Materials"). Banks have approved Borrowers' development of the Houston
Sports Club subject to the following:
(A) the occurrence of no material change with respect to
Borrowers or the proposed development from the information reflected in
the Houston Sports Club Materials, and no default having occurred prior
to such funding or which would occur as a result of such funding;
(B) Borrowers' adherence to the budgets and time lines
provided in the Houston Sports Club Materials, as such budgets and time
lines may be refined in the quarterly project development status reports
delivered by Borrower to Agent pursuant to Section 7.1(n) hereof, with
material modifications approved by Banks; and
(C) such other evidence of full compliance with all other
terms and conditions of this Agreement as Agent or any Bank shall
reasonably request both before and after such development.
(j) Notwithstanding the right of Borrowers' pursuant to Section 6.3(b) and
(c) above to make certain Acquisitions or pursue certain New Club
Developments without obtaining the prior consent of the Requisite Banks,
Borrowers shall notify Agent of, or submit to Agent a formal request for
approval of, as applicable, any and all intended Acquisitions or New Club
Developments prior to entering into a definitive purchase agreement, in
the case of any intended Acquisition, or, in the case of any intended New
Club Development, upon the earlier of (i) the approval of such New Club
Development by the Board of Directors of the applicable Borrower or (ii)
the applicable Borrower's execution of any contract or expenditure of any
money which would financially obligate such Borrower to proceed with such
New Club Development.
6.4 Profitability. Fail to maintain on a combined basis a positive
net income after taxes and extraordinary items on a quarterly basis except as a
result of Borrowers' payment of the prepayment penalty in connection with the
prepayment of their financing obligations to AT&T Commercial Finance
Corporation.
6.5 Redemption, Dividends and Distributions; Payments to Partners.
Redeem or repurchase stock or partnership interests, declare or pay any
dividends or make any other distribution, whether of capital, income or
otherwise, and whether in Cash or other Property, except that, subject to
applicable statutory restrictions and provided no Event of Default exists or
would exist after such action, (a) any Borrower or Subsidiary of a Borrower may,
subject to Section 6.2, declare and pay dividends or make distributions directly
or indirectly to another Borrower, (b) SCC, Inc. may make a Qualified Stock
Repurchase, (c) Borrowers and Subsidiaries may, subject to Section 6.2, pay
partner distributions as required under the partnership agreements as currently
in effect as of the date hereof, or with such amendments as are approved in
writing by the Requisite Banks, of L.A./Irvine Sports Clubs, Ltd., El Segundo
TDC, Ltd., Sports Connection-ES/MB and Reebok-Sports Club/NY or any other entity
approved in writing by the Requisite Banks pursuant to Section 5.6 of this
Agreement, (d) Borrowers and Subsidiaries may declare or make operating
distributions or declare or pay dividends or make distributions in connection
with the purchase of partnership interests in L.A./Irvine Sports Clubs, Ltd., El
Segundo TDC, Ltd., Sports Connection-ES/MB and/or Reebok-Sports Club/NY or any
other entity approved in writing by the Requisite Banks pursuant to Sections 5.6
and 6.2 of this Agreement, and (e) The SportsMed Company, Inc. and/or HFA
Services, Inc. shall have the right to repurchase securities pursuant to the
terms of the Shareholders Agreements previously entered into by HFA Services,
Inc., copies of which Shareholders Agreements have been delivered to Banks, as
such Shareholders Agreements are currently in effect as of the date hereof, or
with such amendments as are approved in writing by the Requisite Banks, provided
that
<PAGE> 37
The SportsMed Company, Inc. and/or HFA Services, Inc. shall not expend more than
$750,000 in the aggregate during the term of this Agreement in connection with
such repurchases of securities.
6.6 ERISA.
(a) At any time, maintain, or be or become obligated to
contribute on behalf of its employees to, any Plan, other than those
Plans disclosed in Schedule 4.13.
(b) At any time, permit any Plan to:
(7 engage in any "prohibited transaction", as such
term is defined in Section 4975 of the Internal Revenue Code of
1954, as amended;
(8 incur any material "accumulated funding
deficiency", as that term is defined in Section 302 of ERISA; or
(9 terminate in a manner which could result in
liability of Borrowers or any Subsidiary thereof to the Plan or to
the PBGC or the imposition of a Lien on the Property of Borrowers
or any Subsidiary thereof pursuant to Section 4068 of ERISA.
(c) At any time, assume any obligation to contribute to any
Multiemployer Plan, nor shall Borrowers or any Subsidiary thereof acquire
any Person or assets of any Person which has, or has had at any time from
and after January 2, 1974, an obligation to contribute to any
Multiemployer Plan.
(d) Fail immediately to notify Agent and Banks of the
occurrence of any "reportable event" (as defined in Section 4043 of
ERISA) or of any "prohibited transaction" (as defined in Section 4975 of
the Internal Revenue Code of 1954, as amended) with respect to any Plan
or any trust created thereunder. Upon request by Agent or any Bank,
Borrowers promptly shall furnish to Agent and Banks copies of any reports
or other documents filed by Borrowers or any Subsidiary thereof with the
United States Secretary of Labor, the PBGC and/or the Internal Revenue
Service, with respect to any Plan.
(e) At any time, permit any Plan to fail to comply with
ERISA or other applicable Law in any material respect.
6.7 Change in Nature of Business/Management. Make any material
change in the nature of the business of Borrowers and their Subsidiaries, as
conducted and presently proposed to be conducted, or remove or allow removal of
D. Michael Talla, John Gibbons or Timothy O'Brien from any management position
presently held by him, unless evidence of satisfactory progress to procure a
replacement acceptable to the Requisite Banks is delivered to Agent and Banks
within 30 days thereafter.
6.8 Intentionally Omitted.
6.9 Indebtedness, Guaranties and Liens. Create, incur, assume or
suffer to exist any Lien of any nature upon or with respect to any of their
respective Properties, whether now owned or hereafter acquired; create, incur or
assume any indebtedness for borrowed money or in connection with the purchase of
Property or any liability to the issuer of any letter of credit; guaranty or
otherwise become responsible (including, but not limited to, any agreement to
purchase any obligations, stock, Property, goods or services or to supply or
advance any funds, Property, goods or services) for the indebtedness or
obligations of any other Person; or incur any lease obligation that is required
to be capitalized under generally accepted accounting principles, except:
(a) Indebtedness and Liens securing obligations incurred in
the ordinary course of business and incurred in connection with purchase
money transactions including real estate or equipment or fixture
purchases, provided that the amount of such transactions involving
purchases of new equipment for existing Clubs (i.e., other than in
connection with Acquisitions or New Club
<PAGE> 38
Developments, as permitted by Section 6.12) shall not exceed an aggregate
amount of $1,500,000 principal (or the equivalent thereof) in any one
fiscal year;
(b) Intentionally omitted;
(c) Intentionally omitted;
(d) Liens securing the claims or demands of materialmen,
mechanics, and other like Persons not yet delinquent or being contested
in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(e) Indebtedness, liabilities, guaranties or Liens in favor
of Agent and Banks under this Agreement, the Notes and the other Loan
Documents;
(f) Indebtedness and Liens listed on Schedule 6.9 or
Indebtedness and Liens arising out of the extension or refinancing of the
obligations of Borrowers described on Schedule 6.9, provided that such
obligations are not increased and are not secured by any additional
property;
(g) Guaranties arising from endorsement, in the ordinary
course of collection, of negotiable instruments;
(h) Indebtedness and Liens for taxes and assessments or
other government charges or levies if not yet due and payable or, if due
and payable, which are being contested in good faith by appropriate
proceedings and for which appropriate reserves are maintained;
(i) Liens under workers' compensation, unemployment
insurance, social security, or similar legislation, if they are being
contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained; and
(j) Trade credit for goods and services provided to the
Borrowers and the Subsidiaries in the ordinary course of business.
6.10 Transactions with Affiliates. Enter into any transaction of
any kind with any Affiliate of Borrowers other than (a) transactions between or
among Borrowers and their Subsidiaries so long as, as a result of such
transactions, the aggregate amount advanced to, invested in or committed to any
Non-Borrower Affiliate on or after January 1, 1997, does not exceed $200,000,
(b) arms-length transactions with Affiliates which are permitted with
non-Affiliates pursuant to Sections 6.1, 6.3, 6.5, and (c) those transactions
listed in Schedules 6.10 and 6.17.
6.11 Change in Fiscal Year. Change its fiscal year, or the fiscal
months thereof.
6.12 Capital Expenditures and Purchase Money Transactions. Make or
incur obligations for Capital Expenditures in the aggregate for Borrowers and
their Subsidiaries in excess of $10,000,000 during the Borrowers' 1998 fiscal
year or, in any subsequent fiscal year, in excess of five percent (5.0%) of
Borrowers' net revenues derived from operation of the Clubs for such fiscal year
before restatements for acquisitions accounted for using the pooling method of
accounting. For the purpose of determining compliance by Borrowers and their
Subsidiaries with the foregoing covenant, the following Capital Expenditures and
indebtedness and Liens securing obligations incurred in connection with purchase
money equipment financings ("Purchase Money Indebtedness and Liens") shall be
excluded:
(i) Capital Expenditures made and Purchase Money
Indebtedness and Liens incurred in connection with, and no later than one
year following the consummation of, an Acquisition for which the consent
of Banks is not required pursuant to Section 6.3(b), so long as the
aggregate amount of such Capital Expenditures and Purchase Money
Indebtedness and Liens and of all other
<PAGE> 39
expenditures relating to such Acquisition do not exceed the respective
limits on total consideration for such Acquisition set forth in Section
6.3(b);
(ii) Capital Expenditures made and Purchase Money
Indebtedness and Liens incurred in connection with, and no later than one
year following the consummation of, an Acquisition for which the consent
of Banks is required pursuant to Section 6.3(b), so long as the aggregate
amount of such Capital Expenditures and Purchase Money Indebtedness and
Liens and of all other expenditures relating to such Acquisition do not
exceed the total consideration limit imposed for such Acquisition by
Banks in issuing their approval of such Acquisition;
(iii) Capital Expenditures made and Purchase Money
Indebtedness and Liens incurred in connection with, and no later than 90
days following the opening of the related new Club, a New Club
Development for which the consent of Banks is not required pursuant to
Section 6.3(c), so long as the aggregate amount of such Capital
Expenditures and Purchase Money Indebtedness and Liens and of all other
expenditures relating to such New Club Development do not exceed the
respective limits on total consideration for such New Club Development
set forth in Section 6.3(c); and
(iv) Capital Expenditures made and Purchase Money
Indebtedness and Liens incurred in connection with, and no later than 90
days following the opening of the related new Club, a New Club
Development for which the consent of Banks is required pursuant to
Section 6.3(c), so long as the aggregate amount of such Capital
Expenditures and Purchase Money Indebtedness and Liens and of all other
expenditures relating to such New Club Development do not exceed the
total consideration limit imposed by Banks in issuing their approval of
such New Club Development.
6.13 Tangible Net Worth. Permit Tangible Net Worth, as of the last
day of any fiscal quarter of Borrowers and their Subsidiaries ending during any
period specified below, to be less than $77,000,000 plus 80% of Borrowers'
cumulative net income after December 31, 1997 not reduced by net losses and
increased by one hundred percent (100%) of funds generated from any equity
offering occurring after May 31, 1998.
6.14 Ratio of Total Unsubordinated Liabilities to Tangible Net
Worth. Permit the ratio of Total Unsubordinated Liabilities to Tangible Net
Worth, as of the last day of any fiscal quarter of Borrowers and their
Subsidiaries to be greater than 1.25:1.00.
6.15 Debt Service Coverage Ratio. For Borrowers and their
Subsidiaries, permit the ratio of (i) EBITDA to (ii) interest expense on all
indebtedness plus the current portion of long term debt of Borrowers to be less
than 2.00:1.00, with such ratio to be calculated at the end of each fiscal
quarter (x) on a cumulative annualized basis for each fiscal quarter beginning
with the second quarter of Borrowers' and their Subsidiaries' 1998 fiscal year
and continuing through and including the fourth quarter of Borrowers' and their
Subsidiaries' 1998 fiscal year, and (y) on a rolling four-quarter basis for each
fiscal quarter ending after the fourth quarter of Borrowers' and their
Subsidiaries 1998 fiscal year. For the purpose of calculation only, the
$4,000,000 balloon payment due November 1999 under the Sports Club/Irvine note
shall be excluded.
6.16 Intentionally Omitted.
6.17 Loans to Officers. Make any loans, advances or other
extensions of credit to any of Borrowers' executives, officers, directors,
shareholders or employees (or any relatives of any of the foregoing) in an
aggregate amount exceeding $200,000, other than those set forth on Schedule
6.17.
6.18 Deposit Accounts. Establish any deposit accounts in the name
of any Borrower or any Subsidiary without prior notice to Agent.
6.19 Ratio of Funded Debt to EBITDA. Permit the ratio of (i)
Funded Debt to (ii) EBITDA, as of the last day of the fiscal quarter of
Borrowers and their Subsidiaries, calculated at the end of each such quarter on
a rolling four (4) quarter basis, to be greater than 3.75:1.00.
<PAGE> 40
ARTICLE 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 Financial and Business Information. So long as any Loan
remains unpaid, or any other Obligation remains unpaid or unperformed, or any
portion of the Commitment remains outstanding, Borrowers shall, in addition to
complying with the requirements of Section 8.3 of this Agreement, and unless the
Requisite Banks otherwise consent in writing, deliver to Agent, at Borrowers'
sole expense:
(a) As soon as practicable, and in any event within 30 days
after the end of each fiscal month of Borrowers, (i) consolidated balance
sheets of Borrowers and their Subsidiaries as at the end of such month,
setting forth in comparative form the corresponding figures as at the end
of the corresponding month of their preceding fiscal year, (ii) Club
operating statements of each Club as at the end of such month, (iii)
consolidated income statements of Borrowers and their Subsidiaries for
such month and for the portion of their fiscal year ended with such
month, setting forth in comparative form the corresponding figures for
the corresponding periods of their preceding fiscal year and (iv)
consolidated cash flow statements of Borrowers and their Subsidiaries for
the portion of their fiscal year ended with such month, setting forth in
comparative form the corresponding figures for the corresponding periods
of their preceding fiscal year, all in reasonable detail. The preceding
financial statements shall be certified by a Responsible Official of a
Borrower as fairly presenting the financial condition, results of
operations and cash flow of Borrowers and their Subsidiaries in
accordance with generally accepted accounting principles, consistently
applied, as at such date and for such periods, subject only to normal
year-end audit adjustments.
(b) As soon as practicable, and in any event within 45 days
after the end of each quarter of Borrowers (including the last quarter of
each fiscal year, provided that with respect to such last quarter the
financial statements required hereby may be in preliminary form, prior to
year-end audit adjustments), (i) consolidated balance sheets of Borrowers
and their Subsidiaries as at the end of such quarter, setting forth in
comparative form the corresponding figures as at the end of the
corresponding quarter of their preceding fiscal year, (ii) consolidated
income statements of Borrowers and their Subsidiaries for such quarter
and for the portion of their fiscal year ended with such quarter, setting
forth in comparative form the corresponding figures for the corresponding
periods of their preceding fiscal year and (iii) consolidated cash flow
statements of Borrowers and their Subsidiaries for the portion of their
fiscal year ended with such quarter, setting forth in comparative form
the corresponding figures for the corresponding periods of their
preceding fiscal year, all in reasonable detail.
The preceding financial statements shall be certified by a Responsible
Official of a Borrower as fairly presenting the financial condition,
results of operations and cash flow of Borrowers and their Subsidiaries
in accordance with generally accepted accounting principles, consistently
applied, as at such date and for such periods, subject only to normal
year-end audit adjustments.
(c) As soon as practicable, and in any event within 90 days
after the close of each fiscal year of Borrowers, (i) consolidated
balance sheets of Borrowers and their Subsidiaries as at the end of such
fiscal year, setting forth in comparative form the corresponding figures
as at the end of their preceding fiscal year, and (ii) consolidated
income statements and cash flow statements of Borrowers and their
Subsidiaries for such fiscal year, setting forth in comparative form the
corresponding figures for their previous fiscal year, all in reasonable
detail. Such balance sheets and statements shall be prepared in
accordance with generally accepted accounting principles, consistently
applied, and such consolidated balance sheet and consolidated statements
shall be accompanied by a report and unqualified opinion of independent
public accountants of recognized standing selected by Borrowers and
reasonably satisfactory to the Requisite Banks, which report and opinion
shall be prepared in accordance with generally accepted auditing
principles as at such date, and shall be subject only to such
qualifications and exceptions as are acceptable to the Requisite Banks in
the exercise of their reasonable discretion.
(d) As soon as practicable, and in any event within 30 days
after the end of each month of Borrowers, a Certificate of a Responsible
Official of a Borrower setting forth a schedule of
<PAGE> 41
Capital Expenditures made by Borrowers and/or their Subsidiaries during
such month, and during their fiscal year to date, separately for each
Club.
(e) As soon as practicable, and in any event within 30 days
after the start of each fiscal year of Borrowers, a monthly budget for
the then started fiscal year including, without limiting the generality
of the foregoing, monthly projected consolidated balance sheets, income
statements and cash flow statements of Borrowers and their Subsidiaries
and individual Club operating statements, all in reasonable detail.
(f) Within 30 days following the end of each month, a
membership information report for each Club and in the aggregate in the
form now prepared by Borrowers on a monthly basis, reflecting no less
than the immediately preceding consecutive six months, and reflecting the
number of members, the number of new memberships sold and the gross
reduction in number of memberships, and supplemented by such additional
information as Agent may request.
(g) Within 30 days after the close of each fiscal year of
Borrowers, Borrowers' budget of capital expenditures for capital
improvements, replacements and other related purposes for the following
fiscal year.
(h) Within the earlier of 5 days after (i) the same are
filed with the Securities and Exchange Commission ("SEC") or (ii) the
same are required to be filed with the SEC, subject to allowable SEC
extensions, copies of each annual report, proxy or financial statement or
other report or communication sent to the shareholders of Borrowers, and
copies of all annual, regular, periodic and special reports and
registration statements which Borrowers may file or be required to file
with the Securities and Exchange Commission or any similar or
corresponding Governmental Agency or with any securities exchange.
(i) Within 5 days after receipt of copies of all
correspondence and notices received by Borrowers from the Internal
Revenue Service ("IRS") relating to any adverse action or determination
by the IRS in respect of any Borrower's tax status under the Internal
Revenue Code.
(j) Immediately upon becoming aware of the existence of any
condition or event which constitutes a Default, a written notice
specifying the nature and period of existence thereof and what action
Borrowers or their Subsidiaries are taking or propose to take with
respect thereto.
(k) Promptly upon request by Agent or the Requisite Banks,
copies of any detailed audit reports submitted to Borrowers or any of
their Subsidiaries by independent accountants in connection with the
accounts or books of Borrowers or any of their Subsidiaries, or any audit
of any of them.
(l) Promptly after request by Agent or the Requisite Banks,
copies of any report or other document filed by Borrowers or any of their
Subsidiaries with any Governmental Agency.
(m) Promptly upon becoming aware that any Person asserts a
claim against Borrowers or any of their Subsidiaries in excess of
$500,000 and that such Person has given notice or taken any other action
with respect to a claimed default or event of default, a written notice
specifying the notice given or action taken by such Person and the nature
of the claimed default or event of default and what action Borrowers or
their Subsidiaries are taking or propose to take with respect thereto.
(n) As soon as practicable, and in any event within 45 days
after the end of each fiscal quarter of Borrowers, a project development
status report in form and substance acceptable to Agent and Banks, which
shall include, at a minimum, a timetable for architectural and
construction design, permitting, construction milestones, as may be
available, as well as an estimated date for completion. Such report also
shall include the budget as originally approved by the Board of Directors
<PAGE> 42
of the applicable Borrower or Subsidiary and by Banks, as well as any
material modifications that have been approved by Banks or which may
require such approval.
(o) Such other data and information as from time to time
may be reasonably requested by Agent or the Requisite Banks.
7.2 Compliance Certificates. So long as any Loan remains unpaid,
or any other Obligation remains unpaid or unperformed, or any portion of the
Commitment remains outstanding, Borrowers shall, unless the Requisite Banks
otherwise consent in writing, deliver to Agent, at Borrowers' sole expense, not
later than 45 days after the end of each fiscal quarter of Borrower, a
Certificate of a Responsible Official of a Borrower (a) setting forth
computations showing, in detail satisfactory to the Requisite Banks, whether
Borrowers and their Subsidiaries were in compliance with their obligations
pursuant to Sections 6.11 through 6.16, inclusive; (b) setting forth
computations showing, in detail satisfactory to the Requisite Banks, the
Applicable Pricing Level; (c) stating that a review of the activities of
Borrowers and their Subsidiaries during such fiscal period has been made under
supervision of the certifying Responsible Official with a view to determining
whether during such fiscal period Borrowers and their Subsidiaries performed and
observed all their respective Obligations under the Loan Documents, and either
(i) stating that, to the best knowledge of the certifying Responsible Official,
during such fiscal period, Borrowers and their Subsidiaries performed and
observed each covenant and condition of the Loan Documents applicable to them,
or (ii) if Borrowers and their Subsidiaries have not performed and observed such
covenants and conditions, specifying all such Defaults and their nature and
status; and (d) stating that the Properties of Borrowers and their Subsidiaries
are being maintained and are in reasonable working order and condition, ordinary
replacement wear and tear excepted.
7.3 Revisions or Updates to Schedules. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect, upon request by
Agent, Borrowers promptly shall provide to Agent such revisions or updates to
such Schedule(s) as may be necessary or appropriate to update or correct such
Schedule(s); provided that no such revisions or updates to any Schedule(s) shall
be deemed to have amended, modified or superseded such Schedule(s) as originally
attached hereto, or to have cured any breach of warranty or representation
resulting from the inaccuracy or incompleteness of any such Schedule(s), unless
and until the Requisite Banks, in their sole and absolute discretion, shall have
accepted in writing such revisions or updates to such Schedule(s).
<PAGE> 43
ARTICLE 8
CONDITIONS
8.1 Initial Loans, Etc. The obligation of each Bank to make the
initial Loans and to issue the initial Standby Letter of Credit, each are
subject to the following conditions precedent (in addition to any applicable
conditions precedent set forth elsewhere in this Article 8), each of which shall
be satisfied prior to or concurrently with the making of the initial Loans and
the issuance of the initial Standby Letter of Credit (unless Banks, in their
sole and absolute discretion, shall agree otherwise):
(a) Agent shall have received all of the following, each of
which shall be originals unless otherwise specified, each properly
executed by a Responsible Official of each party thereto, each dated as
of the Closing Date and each in form and substance satisfactory to Agent
and its legal counsel (unless otherwise specified or, in the case of the
date of any of the following, unless Agent otherwise agrees or directs):
(10) six executed counterparts of this Agreement;
(11) the Notes executed by Borrowers payable to the
order of Banks;
(12) with respect to each Borrower and any and each
Subsidiary thereof, such documentation as Agent may require to
establish the due organization, valid existence and good standing
of such Borrower and each such Subsidiary, its qualification to
engage in business in each jurisdiction in which it is engaged in
business or required to be so qualified, its authority to execute,
deliver and perform any Loan Documents to which it is a Party, and
the identity, authority and capacity of each Responsible Official
thereof authorized to act on its behalf, including, without
limitation, certified copies of articles of incorporation and
amendments thereto, bylaws and amendments thereto, partnership
agreements, certificates of limited partnerships, certificates of
good standing and/or qualification to engage in business,
certificates of corporate resolutions, incumbency certificates,
Certificates of Responsible Officials, and the like;
(13) such Loan Documents as Agent or Requisite Banks
may require pledging Property of Borrowers and/or any of their
Subsidiaries, together with such related financing statements or
other documents as Agent or Requisite Banks may request to
perfect, effect, facilitate, consent to, give notice of or
otherwise evidence any Liens created thereby;
(14) the Global Collateral Documents Amendment;
(15) the Opinion of Counsel;
(16) a Certificate of a Responsible Official of
Borrowers certifying that the conditions specified in Sections
8.1(c) and 8.1(d) have been satisfied;
(17) evidence that all Liens or Rights of Others on
or in the Property of Borrowers and/or their Subsidiaries (other
than such Liens and Rights of Others as are permitted by Section
6.8) have been terminated or discharged; and
(18) such other certificates, documents, consents or
opinions as Agent or Requisite Banks reasonably may require.
(b) Duly executed financing statements with respect to the
Collateral shall have been filed and/or recorded with such Governmental
Agencies, and in such jurisdictions and locales, as Agent or Requisite
Banks may specify.
<PAGE> 44
(c) The representations and warranties of Borrowers
contained in Article 4 shall be true and correct as of the date made or
reaffirmed.
(d) Borrowers and their Subsidiaries and any other Parties
shall be in compliance with all the terms and provisions of the Loan
Documents, and no Default shall have occurred and be continuing.
(e) The fees referred to in Sections 3.2 and 3.5 have been
paid to Banks and/or Agent, as applicable.
8.2 Any Loan. In addition to any applicable conditions precedent
set forth elsewhere in this Article 8, the obligation of Banks to make any Loan,
to redesignate any Loan, and issue any Standby Letter of Credit are subject to
the following conditions precedent:
(a) except (i) for representations and warranties which
speak as of a particular date or are no longer true and correct as a
result of a change which is permitted by this Agreement or (ii) as
disclosed by Borrowers and approved in writing by the Requisite Banks,
the representations and warranties contained in Article 4 shall be true
and correct on and as of the date of the Loan or redesignation or
issuance or creation, as the case may be, as though made on and as of
that date;
(b) except for (i) the matters set forth in Schedule 4.10,
(ii) any matter fully covered as to subject matter and amount (subject to
applicable deductibles and retentions) by insurance for which the
insurance carrier has not asserted lack of subject matter coverage or
reserved its right to do so, or (iii) any matter, or series of related
matters, involving a claim against Borrowers of less than $100,000, there
shall be no actions, suits or proceedings pending against or affecting
Borrowers or any of their Subsidiaries or any Property of any of them in
any court of Law or before any Governmental Agency which might reasonably
be expected to have a material adverse effect on the business, operations
or condition (financial or otherwise) of Borrowers and their
Subsidiaries, taken as a whole;
(c) no material adverse change shall have occurred in the
business, operations or condition (financial or otherwise) of Borrowers
and their Subsidiaries, taken as a whole, since the Closing Date;
(d) no Default shall have occurred and be continuing;
(e) Agent shall have timely received a properly completed
Request for Loan, Request for Redesignation of Loans or Request for
Standby Letter of Credit, as the case may be, in compliance with all
applicable provisions of Article 2; and Agent shall have received, dated
as of the date of the Loan or redesignation or issuance or creation, as
the case may be, a Certificate of a Responsible Official of a Borrower to
the effect that all of the above conditions have been satisfied, with any
changes or exceptions thereto being described in a schedule attached to
such certificate and with such changes or exceptions being subject to the
approval of the Requisite Banks; and
(f) Agent shall have received, in form and substance
satisfactory to the Requisite Banks such other certificates, documents or
consents as the Requisite Banks reasonably may require.
<PAGE> 45
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
9.1 Events of Default. The existence or occurrence of any one or
more of the following events, whatever the reason therefor, shall constitute an
Event of Default:
(a) Borrowers fail to pay any installment of principal or
interest on any indebtedness on any of the Notes or any portion thereof,
or to reimburse Agent or any Bank for any payment made under any Standby
Letter of Credit, or to pay any fee or any other amount due Agent or any
Bank under any Loan Document, within five (5) Banking Days following the
giving of notice by Agent or Requisite Banks of such Default; or
(b) Any failure to comply with Section 7.1(j); or
(c) Borrowers, any of their Subsidiaries or any other Party
fails to perform or observe any other term, covenant or agreement
contained in any Loan Document, including, but not limited to, those set
forth in Articles 6 and 7 of this Agreement, on its part to be performed
or observed within fifteen (15) days after the giving of written notice
by Agent or Borrowers otherwise becoming aware of such Default; or
(d) Any representation or warranty made in any Loan
Document or in any certificate, agreement, instrument or other document
made or delivered by any Party pursuant to or in connection with any Loan
Document proves to have been incorrect when made in any respect that is
materially adverse to the interests of Agent or Banks; or
(e) Borrowers or any of their Subsidiaries (i) fail to pay
the principal, or any principal installment, of any present or future
indebtedness for borrowed money of $200,000 or more or in connection with
the purchase or lease of Property, or any guaranty of present or future
indebtedness for borrowed money of $200,000 or more or issued in
connection with the purchase or lease of Property, on its part to be
paid, when due (or within any stated grace period), whether at the stated
maturity, upon acceleration, by reason of required prepayment or
otherwise or (ii) fails to perform or observe any other term, covenant or
agreement on its part to be performed or observed in connection with any
present or future indebtedness for borrowed money of $200,000 or more or
in connection with the purchase or lease of Property, or of any guaranty
of present or future indebtedness of $200,000 or more for borrowed money
or issued in connection with the purchase or lease of Property, if as a
result of such failure any holder or holders thereof (or an agent or
trustee on its or their behalf) has the right to declare such
indebtedness due before the date on which it otherwise would become due,
or has commenced judicial or nonjudicial action to collect such
indebtedness or to foreclose or otherwise realize upon security held
therefor, or has taken or is taking such other actions as might
materially adversely affect the Collateral, the interests of any Bank
under the Loan Documents or the ability of Borrowers or their
Subsidiaries to pay and perform their Obligations under the Loan
Documents; or
(f) Any Loan Document, at any time after its execution and
delivery and for any reason other than the agreement of the Requisite
Banks or satisfaction in full of all the Obligations, ceases to be in
full force and effect or is declared by a court of competent jurisdiction
to be null and void, invalid or unenforceable in any respect which, in
the reasonable opinion of the Requisite Banks, is materially adverse to
the interests of the Banks; or any Party thereto denies that it has any
or further liability or obligation under any Loan Document, or purports
to revoke, terminate or rescind same; or
(g) A final judgment against any Borrower or any of its
Subsidiaries is entered for the payment of money in excess of $500,000
and such judgment remains unsatisfied without procurement of a stay of
execution for more than thirty (30) calendar days after the date of entry
of judgment; or
<PAGE> 46
(h) Any Borrower or any of Subsidiary thereof, is the
subject of an order for relief in a bankruptcy case, or is unable or
admits in writing its inability to pay its debts as they mature, or makes
an assignment for the benefit of creditors; or applies for or consents to
the appointment of any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer for it or for all or any
part of its Property; or any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer is appointed without the
application or consent of that Person and the appointment continues
undischarged or unstayed for thirty (30) calendar days; or institutes or
consents to any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, custodianship, conservatorship,
liquidation, rehabilitation or similar case or proceedings relating to it
or to all or any part of its Property under the Laws of any jurisdiction;
or any similar case or proceeding is instituted without the consent of
that Person and continues undismissed or unstayed for thirty (30)
calendar days; or any judgment, writ, warrant of attachment or execution
or similar process is issued or levied against all or any material part
of the Property of any such Person and is not released, vacated or fully
bonded within thirty (30) calendar days after its issue or levy; or
(i) Except as otherwise expressly permitted by any Loan
Document or agreed to by the Requisite Banks, any Lien on any Collateral
created by any Loan Document, at any time after the execution and
delivery of that Loan Document and for any reason other than satisfaction
in full of all Obligations, ceases or fails to constitute a valid,
perfected and subsisting first priority Lien on the Collateral purported
to be covered thereby (unless such cessation or failure is the fault of
Agent or the Banks to timely file continuation statements); or
(j) Any Borrower or any Subsidiary thereof is dissolved or
liquidated or all or substantially all of the assets of any Borrower or
any Subsidiary thereof are sold or otherwise transferred in violation of
the provisions of this Agreement without the written consent of the
Requisite Banks.
9.2 Remedies Upon Event of Default. Without limiting any other
rights or remedies of Agent or Banks provided for elsewhere in this Agreement,
or the Loan Documents, or by applicable Law, or in equity or otherwise:
(a) Upon the occurrence of any Event of Default other than
an Event of Default described in Section 9.1(f):
(1) the Commitment to make Loans and all other
obligations of the Agent or the Banks and all rights of Borrowers
and any other Parties under the Loan Documents shall terminate
without notice to or demand upon Borrowers, which are expressly
waived by Borrowers, except that the Requisite Banks may waive the
Event of Default or, without waiving, determine, upon terms and
conditions satisfactory to Banks, to make further Loans, which
waiver or determination shall apply equally to, and shall be
binding upon, all of the Banks; and
(2) the Requisite Banks may request the Agent to,
and the Agent thereupon shall declare all or any part of the
unpaid principal of all Notes, all interest accrued and unpaid
thereon and all other amounts payable under the Loan Documents to
be forthwith due and payable, whereupon the same shall become and
be forthwith due and payable, without protest, presentment, notice
of dishonor, demand or further notice of any kind, all of which
are expressly waived by Borrowers.
(b) Upon the occurrence of any Event of Default described
in Section 9.1(f):
(1) the Commitment to make Loans and all other
obligations of Agent or any Bank and all rights of Borrowers and
any other Parties under the Loan Documents shall terminate without
notice to or demand upon Borrowers, which are expressly waived by
Borrowers, except that all of the Banks may waive the Event of
Default or, without waiving, determine, in their sole discretion,
to make further Loans; and
<PAGE> 47
(2) the unpaid principal of all Notes, all interest
accrued and unpaid thereon and all other amounts payable under the
Loan Documents shall be forthwith due and payable, without
protest, presentment, notice of dishonor, demand or further notice
of any kind, all of which are expressly waived by Borrowers.
(c) Upon the occurrence of any Event of Default, Agent and
Banks or any of them, without notice to or demand upon Borrowers, which
are expressly waived by Borrowers, except as required by California
Commercial Code Section 9504 or any modification or replacement statute
thereof, or by the terms of this Agreement, may proceed (but only with
the consent of the Requisite Banks) to protect, exercise and enforce its
rights and remedies under the Loan Documents against Borrowers and such
other rights and remedies as are provided by Law or equity.
(d) The order and manner in which the Banks' rights and
remedies are to be exercised shall be determined by the Requisite Banks
in their sole discretion, and all payments received by Agent and the
Banks shall be applied first to the costs and expenses (including outside
attorneys' fees and disbursements) of Agent, acting as Agent and of Banks
pro rata and thereafter to the Obligations owed to Banks, pro rata, under
the Agreement. For the purpose of computing Borrowers' Obligations under
the Loan Documents, payments shall be applied, first, to the costs and
expenses of Agent and Banks, as set forth above, second, to the payment
of accrued and unpaid interest due under any Loan Documents to and
including the date of such application, third, to the payment of all
unpaid principal amounts due under any Loan Documents (including, for the
purposes hereof, principal due under the Notes and reimbursement due for
payments made under Letters of Credit), and fourth, to the payment of all
other amounts (including fees) then owing to Agent and Banks under the
Loan Documents. No application of payments will cure any Event of
Default, or prevent acceleration, or continued acceleration, of amounts
payable under the Loan Documents, or prevent the exercise, or continued
exercise, of rights or remedies of Banks hereunder or thereunder or at
Law or in equity.
(e) Upon the occurrence of any event that would be an Event
of Default under Section 9.1(g) with the passage of time, Agent and Banks
may take such action as the Requisite Banks deem necessary to protect the
interests of Banks under the Loan Documents.
<PAGE> 48
ARTICLE 10
THE AGENT
10.1 Appointment and Authorization. Each Bank hereby irrevocably
appoints and authorizes Agent to take such action as agent on its behalf and to
exercise such powers under the Loan Documents as are delegated to Agent by the
terms thereof or are reasonably incidental, as determined by Agent, thereto.
This appointment and authorization is intended solely for the purpose of
facilitating the servicing of the Loans and does not constitute appointment of
Agent as trustee for any Bank or as representative of any Bank for any other
purpose and, except as specifically set forth in the Loan Documents to the
contrary, Agent shall take such action and exercise such powers only in an
administrative and ministerial capacity.
10.2 Agent and Affiliates. Sumitomo Bank of California (and each
successor Agent) has the same rights and powers under the Loan Documents as any
other Bank and may exercise the same as though it was not the Agent, and the
term "Bank" or "Banks" includes Sumitomo Bank of California in its individual
capacity. Sumitomo Bank of California (and each successor Agent) and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with Borrowers, any Subsidiary thereof,
or any Affiliate of Borrowers or any Subsidiary thereof, as if it was not the
Agent and without any duty to account therefor to Banks. Sumitomo Bank of
California (and each successor Agent) need not account to any other Bank for any
monies received by it for reimbursement of its costs and expenses as Agent
hereunder, or for any monies received by it in its capacity as a Bank hereunder.
10.3 Proportionate Interest of the Banks in any Collateral. Agent,
on behalf of all the Banks, shall hold in accordance with the Loan Documents all
items of Collateral or interests therein received or held by Agent. Subject to
Agent's and the Banks' rights to reimbursement for their costs and expenses
hereunder (including attorneys' fees and disbursements and other professional
services) and subject to the application of payments in accordance with Section
9.2(d), each Bank shall have an interest in any Collateral or interests therein
in the same proportions that the aggregate Obligations owed such Bank under the
Loan Documents bear to the aggregate Obligations owed under the Loan Documents
to all the Banks, without priority or preference among the Banks.
10.4 Banks' Credit Decisions. Each Bank agrees that it has,
independently and without reliance upon Agent, any other Bank or the directors,
officers, agents, employees or attorneys of Agent or of any other Bank, and
instead in reliance upon information supplied to it by or on behalf of Borrowers
and upon such other information as it has deemed appropriate, made its own
independent credit analysis and decision to enter into this Agreement. Each Bank
also agrees that it shall, independently and without reliance upon Agent, any
other Bank or the directors, officers, agents, employees or attorneys of Agent
or of any other Bank, continue to make its own independent credit analyses and
decisions in acting or not acting under the Loan Documents.
10.5 Action by Agent.
(a) Agent may assume that no Default has occurred and is
continuing, unless Agent has actual knowledge of the Default, has received
notice from Borrowers stating the nature of the Default, or has received
notice from a Bank stating the nature of the Default and that such Bank
considers the Default to have occurred and to be continuing.
(b) Agent has only those obligations under the Loan
Documents as are expressly set forth therein.
(c) Except for any obligation expressly set forth in the
Loan Documents and as long as Agent may assume that no Event of Default
has occurred and is continuing, Agent may, but shall not be required to
exercise its discretion to act or not act, except that Agent shall be
required to act or not act upon the instructions of the Requisite Banks
(or of all the Banks, to the extent required by Section 11.3) and those
instructions shall be binding upon Agent and all Banks, provided that
Agent shall not be required to act or not act if to do so would be
contrary to any Loan Document or to applicable Law.
<PAGE> 49
(d) If Agent may not assume that no Event of Default has
occurred and is continuing, Agent shall give notice thereof to Banks and
shall act or not act upon the instructions of the Requisite Banks (or of
all the Banks, to the extent required by Section 11.3), provided that
Agent shall not be required to act or not act if to do so would be
contrary to any Loan Document or to applicable Law, and except that if the
Requisite Banks (or all Banks, if required under Section 11.3) fail, for
five (5) Banking Days after the receipt of notice from Agent, to instruct
Agent, then Agent, in its discretion, may act or not act as it deems
advisable for the protection of the interests of Banks.
(e) Agent shall have no liability to any Bank for acting,
or not acting, as instructed by the Requisite Banks (or all the Banks, if
required under Section 11.3), notwithstanding any other provision hereof.
10.6 Liability of Agent. Neither Agent nor any of its directors,
officers, agents, employees or attorneys shall be liable for any action taken or
not taken by them under or in connection with the Loan Documents, except for
their own gross negligence or willful misconduct. Without limitation on the
foregoing, Agent and its directors, officers, agents, employees and attorneys:
(a) May treat the payee of any Note as the holder thereof
until Agent receives notice of the assignment or transfer thereof, in form
satisfactory to Agent, signed by the payee, and may treat each Bank as the
owner of that Bank's interest in the Obligations for all purposes of this
Agreement until Agent receives notice of the assignment or transfer
thereof, in form satisfactory to Agent, signed by that Bank.
(b) May consult with legal counsel (including in-house
legal counsel), accountants (including in-house accountants) and other
professionals or experts selected by it, or with legal counsel,
accountants or other professionals or experts for Borrowers and/or their
Subsidiaries or Banks, and shall not be liable for any action taken or not
taken by it in good faith in accordance with the advice of such legal
counsel, accountants or other professionals or experts.
(c) Shall not be responsible to any Bank for any statement,
warranty or representation made in any of the Loan Documents or in any
notice, certificate, report, request or other statement (written or oral)
given or made in connection with any of the Loan Documents.
(d) Except to the extent expressly set forth in the Loan
Documents, shall have no duty to ask or inquire as to the performance or
observance by Borrowers or their Subsidiaries of any of the terms,
conditions or covenants of any of the Loan Documents or to inspect any
Collateral or the Property, books or records of Borrowers or their
Subsidiaries.
(e) Will not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness, effectiveness,
sufficiency or value of any Loan Document, any other instrument or writing
furnished pursuant thereto or in connection therewith, or any Collateral.
(f) Will not incur any liability by acting or not acting in
reliance upon any Loan Document, notice, consent, certificate, statement,
request or other instrument or writing believed by it to be genuine and
signed or sent by the proper party or parties.
(g) Will not incur any liability for any arithmetical error
in computing any amount paid or payable by the Borrowers or any Subsidiary
or Affiliate thereof or paid or payable to or received or receivable from
any Bank under any Loan Document, including, without limitation,
principal, interest, commitment fees, advances and other amounts; provided
that, promptly upon discovery of such an error in computation, the Agent,
the Banks and (to the extent applicable) Borrowers and/or their
Subsidiaries or Affiliates shall make such adjustments as are necessary to
correct such error and to restore the parties to the position that they
would have occupied had the error not occurred.
<PAGE> 50
10.7 Indemnification. Each Bank shall, ratably in accordance with
its percentage of the total Commitment, indemnify and hold Agent and its
directors, officers, agents, employees and attorneys harmless against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
(including, without limitation, attorneys' fees and disbursements) that may be
imposed on, incurred by or asserted against it or them in any way relating to or
arising out of the Loan Documents (other than losses incurred by reason of the
failure of Borrowers to pay the indebtedness represented by the Notes and the
Standby Letters of Credit) or any action taken or not taken by it as Agent
thereunder, except such as result from its own gross negligence or willful
misconduct. Without limitation on the foregoing, each Bank shall reimburse Agent
upon demand for that Bank's ratable share of any cost or expense incurred by
Agent in connection with the negotiation, preparation, execution, delivery
amendment, waiver, restructuring, reorganization (including a bankruptcy
reorganization), enforcement or attempted enforcement of the Loan Documents, to
the extent that Borrowers or any other Party are required by Section 11.4 to pay
that cost or expense but fails to do so upon demand.
10.8 Successor Agent. Agent may resign as such at any time by
written notice to Borrowers and the Banks, to be effective upon a successor's
acceptance of appointment as Agent. The Requisite Banks at any time may remove
Agent by written notice to that effect to be effective on such date as the
Requisite Banks designate. In either event: (a) The Requisite Banks shall
appoint a successor Agent, who must be from among Banks, provided that any
resigning Agent shall be entitled to appoint a successor Agent from among Banks,
subject to acceptance of appointment by that successor Agent, if the Requisite
Banks have not appointed a successor Agent within thirty (30) days after the
date the resigning Agent gave notice of resignation; (b) Upon a successor's
acceptance of appointment as Agent, the successor will thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
resigning Agent or the removed Agent; and (c) Upon the effectiveness of any
resignation or removal, the resigning Agent or the removed Agent thereupon will
be discharged from its duties and obligations thereafter arising under the Loan
Documents other than obligations arising as a result of any action or inaction
of the resigning Agent or the removed Agent prior to the effectiveness of such
resignation or removal.
<PAGE> 51
ARTICLE 11
MISCELLANEOUS
11.1 Intentionally Omitted.
11.2 Cumulative Remedies; No Waiver. The rights, powers,
privileges and remedies of Agent and Banks provided herein or in any Note or
other Loan Document are cumulative and not exclusive of any right, power,
privilege or remedy provided by Law or equity. No failure or delay on the part
of Agent or any Bank in exercising any right, power, privilege or remedy may be,
or may be deemed to be, a waiver thereof; nor may any single or partial exercise
of any right, power, privilege or remedy preclude any other or further exercise
of the same or any other right, power, privilege or remedy. The terms and
conditions of Article 8 hereof are inserted for the sole benefit of Agent and
Banks and Agent (acting with the consent of the Requisite Banks) or the
Requisite Banks may waive them in whole or in part, with or without terms or
conditions, in respect of any Loan or Standby Letter of Credit, without
prejudicing Agent's or any Bank's rights to assert them in whole or in part in
respect of any other Loan or Standby Letter of Credit.
11.3 Amendments; Consents. No amendment, modification, supplement,
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by the Borrowers or any other Party therefrom, may in any event be
effective unless in writing signed by Agent with approval of the Requisite Banks
(and, in the case of amendments, modifications or supplements of or to any Loan
Document to which any Borrower is a Party, the approval in writing of such
Borrower), and then only in the specific instance and for the specific purpose
given; and, without the approval in writing of all Banks, no amendment,
modification, supplement, termination, waiver or consent may be effective:
(a) To amend or modify the principal of, or the amount of
principal, principal prepayments or the rate of interest payable on, any
Note, or the amount of the Commitment or of any commitment fee payable
to any Bank, or any other fee or amount payable to any Bank under the
Loan Documents or to allow any material release of Collateral;
(b) To postpone any date fixed for any payment of principal
of, prepayment of principal of or any installment of interest on, any
Note, or the facility fee, or any installment of any commitment fee, or
any reimbursement obligation due under any Standby Letter of Credit, or
to extend the term of the Commitment;
(c) To amend or modify the provisions of (1) the
definitions of "Commitment", "Maximum Standby Letter of Credit Amount",
"Maximum Loan Amount", Requisite Banks or "Total Outstanding"; (2)
Articles 8 or 9; or (3) this Section 11.3; or
(d) To amend or modify any other definition or provision of
this Agreement that expressly requires the consent or approval of the
Requisite Banks or some other number of Banks.
Any amendment, modification, supplement, termination, waiver or consent pursuant
to this Section 10.2 shall apply equally to and shall be binding upon, Agent and
all Banks.
11.4 Costs, Expenses and Taxes. Borrowers shall pay on demand the
reasonable costs and expenses, including attorneys' fees, of Agent and Banks in
connection with the negotiation, preparation, execution and delivery of the Loan
Documents, and of Agent and Banks in connection with the amendment, waiver,
refinancing, restructuring, reorganization (including a bankruptcy
reorganization) and enforcement or attempted enforcement of the Loan Documents,
and any matter related thereto, including, without limitation, filing fees,
recording fees, title insurance fees, appraisal fees, search fees, audit costs
incurred by Agent or Banks during the continuance of or in connection with the
occurrence of an Event of Default and other out-of-pocket expenses and the
reasonable fees and out-of-pocket expenses of any legal counsel, independent
public accountants and other outside experts retained by Agent or any Banks, and
including, without limitation, any costs, expenses or fees incurred or suffered
by Agent or any Banks in connection with or during the course of
<PAGE> 52
any bankruptcy or insolvency proceedings of any Borrower or any Subsidiary
thereof. Borrowers shall pay any and all documentary and other taxes (other than
income or gross receipts taxes generally applicable to banks) and all costs,
expenses, fees and charges payable or determined to be payable in connection
with the filing or recording of this Agreement, any other Loan Document or any
other instrument or writing to be delivered hereunder or thereunder, or in
connection with any transaction pursuant hereto or thereto, and shall reimburse,
hold harmless and indemnify Agent and Banks from and against any and all loss,
liability or legal or other expense with respect to or resulting from any delay
in paying or failure to pay any tax, cost, expense, fee or charge or that any of
them may suffer or incur by reason of the failure of any Party to perform any of
its Obligations. Any amount payable to Agent or any Bank under this Section 11.4
shall bear interest from the fifth Banking Day following the date of demand for
payment at the rate provided for in Section 3.6.
11.5 Nature of Banks' Obligations. The obligations of Banks
hereunder are several and not joint or joint and several. Nothing contained in
this Agreement or any other Loan Document and no action taken by the Agent or
Banks or any of them pursuant hereto or thereto may, or may be deemed to, make
Banks a partnership, an association, a joint venture or other entity, either
among themselves or with Borrowers or any Affiliate of Borrowers. Each Bank's
obligation to make any Loan pursuant hereto is several and not joint or joint
and several, and is conditioned upon the performance by all other Banks of their
obligations to make Loans. A default by any Bank will not increase the
percentage of the Commitment attributable to any other Bank. Any Bank not in
default may, if it desires, assume in such proportion as the nondefaulting Banks
agree the obligations of any Bank in default, but is not obligated to do so.
11.6 Survival of Representations and Warranties. All
representations and warranties contained herein or in any other Loan Document,
or in any certificate or other writing delivered by or on behalf of any one or
more of the Parties to any Loan Document, will survive the making and repayment
of the Loans hereunder and the execution and delivery of the Notes, and have
been or will be relied upon by Agent and each Bank, notwithstanding any
investigation made by Agent or any Bank or on their behalf.
11.7 Notices. Except as otherwise expressly provided in the Loan
Documents: (a) All notices, requests, demands, directions and other
communications provided for hereunder or under any other Loan Document must be
in writing and must be mailed, telecopied or personally delivered to the
appropriate party at the address set forth on the signature pages of this
Agreement or other applicable Loan Document or, as to any party to any Loan
Document, at any other address as may be designated by it in a written notice
sent to all other parties to such Loan Document in accordance with this Section
11.7; and (b) Any notice, request, demand, direction or other communication
given by telecopier must be confirmed within 48 hours by letter mailed or
delivered to the appropriate party at its respective address. Except as
otherwise expressly provided in any Loan Document, if any notice, request,
demand, direction or other communication required or permitted by any Loan
Document is given by mail it will be effective on the earlier of receipt or the
third calendar day after deposit in the United States mail with first class or
airmail postage prepaid; if given by telecopier, upon electronic confirmation of
receipt, and if given after 4:30 p.m., effective on the next business day; or if
given by personal delivery when delivered.
11.8 Execution of Loan Documents. Unless Agent otherwise specifies
with respect to any Loan Document, this Agreement and any other Loan Document
may be executed in any number of counterparts and any party hereto or thereto
may execute any counterpart, each of which when executed and delivered will be
deemed to be an original and all of which counterparts of this Agreement or any
other Loan Document, as the case may be, when taken together will be deemed to
be but one and the same instrument. The execution of this Agreement or any other
Loan Document by any party hereto or thereto will not become effective until
counterparts hereof or thereof, as the case may be, have been executed by all
the parties hereto or thereto.
11.9 Sharing of Setoffs. Each Bank severally agrees that if it,
through the exercise of any right of setoff, banker's lien or counterclaim
against Borrowers, or otherwise receives payment of the Obligations held by it
that is ratably more than any other Bank, through any means, receives in payment
of the Obligations held by that Bank, then: (a) The Bank exercising the right of
setoff, banker's lien or counterclaim or otherwise receiving such payment shall
purchase, and shall be deemed to have simultaneously purchased, from the other
Bank a participation in the Obligations held by the other Bank and shall pay to
the other Bank a purchase price in
<PAGE> 53
an amount so that the share of the Obligations held by each Bank after the
exercise of the right of setoff, banker's lien or counterclaim or receipt of
payment shall be in the same proportion that existed prior to the exercise of
the right of setoff, banker's lien or counterclaim or receipt of payment; and
(b) Such other adjustments and purchases of participations shall be made from
time to time as shall be equitable to ensure that all of the Banks share any
payment obtained in respect of the Obligations ratably in accordance with each
Bank's share of the Obligations immediately prior to, and without taking into
account, the payment; provided that, if all or any portion of a disproportionate
payment obtained as a result of the exercise of the right of setoff, banker's
lien, counterclaim or otherwise is thereafter recovered from the purchasing Bank
by Borrowers or any Person claiming through or succeeding to the rights of
Borrowers, the purchase of a participation shall be rescinded and the purchase
price thereof shall be restored to the extent of the recovery, but without
interest. Each Bank that purchases a participation in the Obligations pursuant
to this Section 11.9 shall from and after the purchase have the right to give
all notices, requests, demands, directions and other communications under this
Agreement with respect to the portion of the Obligations purchased to the same
extent as though the purchasing Bank were the owner of the Obligations
purchased. Each Borrower expressly consents to the foregoing arrangements and
agrees that any Bank holding a participation in an Obligation so purchased may
exercise any and all rights of setoff, banker's lien or counterclaim with
respect to the participation as fully as if the Bank were the original owner of
the Obligation purchased; provided, however, that each Bank agrees that it shall
not exercise any right of setoff, banker's lien or counterclaim without first
obtaining the consent of the Requisite Banks.
11.10 Binding Effect; Assignment. This Agreement and the other
Loan Documents shall be binding upon and shall inure to the benefit of the
parties hereto and thereto and their respective successors and assigns, except
that Borrowers and/or their Affiliates may not assign their rights hereunder or
thereunder or any interest herein or therein without the prior written consent
of all the Banks. Banks reserve the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or in any interest in, such
Bank's rights and obligations under the Loan Documents, except that no Bank
shall have the right to sell, assign, pledge or transfer any participation in
its rights hereunder or any interest herein (other than to a Federal Reserve
Bank for 90 days or less or to any Affiliate of such Bank) without the consent
of the Agent and Requisite Banks.
11.11 Assignment of Deposits. As security for the prompt payment
and performance of all Obligations, Borrowers hereby assigns to Agent and Banks
a security interest in all their right, title, and interest in and to any and
all deposit accounts now or hereafter maintained with Agent or any Bank and the
proceeds thereof.
11.12 Participation of Loan. Banks shall have the right to
participate, sell or assign interests in the Loans with financial institutions
on such terms and conditions as may be acceptable to Agent and Requisite Banks.
11.13 Indemnity by Borrowers. Borrowers agree to indemnify, save
and hold harmless Agent and Banks and their directors, officers, agents,
attorneys and employees (collectively the "Indemnitees") from and against: (a)
Any and all claims, demands, actions or causes of action that are asserted
against any Indemnitee by any Person (other than Agent or a Bank) if the claim,
demand, action or cause of action directly or indirectly relates to a claim,
demand, action or cause of action that such Person has or asserts against
Borrowers, any Affiliate of Borrowers or any officer, director or shareholder of
Borrowers and arises out of or relates to the relationship between Borrowers and
Banks under any of the Loan Documents or the transactions contemplated thereby;
and (b) Any and all liabilities, losses, costs or expenses (including attorneys'
fees and disbursements and other professional services) that any Indemnitee
suffers or incurs as a result of the assertion of any foregoing claim, demand,
action or cause of action; provided that no Indemnitee shall be entitled to
indemnification for any loss caused by its own gross negligence or willful
misconduct. Each Indemnitee is authorized to employ counsel of its own choosing
in enforcing its rights hereunder and in defending against any claim, demand,
action or cause of action covered by this Section 11.13; provided that each
Indemnitee shall endeavor, in connection with any matter covered by this Section
11.13 which also involves other Indemnitees, to use reasonable efforts to avoid
unnecessary duplication of effort by counsel for all Indemnitees. Any obligation
or liability of Borrowers to any Indemnitee under this Section 11.13 shall be
and hereby is covered and secured by the Loan Documents and the Collateral, and
shall survive the expiration or termination of this Agreement and the repayment
of all Loans and the payment and performance of all other Obligations owed to
Agent and/or Banks.
<PAGE> 54
11.14 Nonliability of Banks. Borrowers acknowledge and agree that:
(a) Any inspections of Collateral made by or through Agent
or any Bank are for purposes of administration of the Loan only and
Borrowers are not entitled to rely upon the same;
(b) By accepting or approving anything required to be
observed, performed, fulfilled or given to Agent or the Banks pursuant
to the Loan Documents, including any certificate, financial statement,
insurance policy or other document, neither Agent nor any Bank shall be
deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not
constitute a warranty or representation to anyone with respect thereto
by Agent or Banks;
(c) The relationship between Borrowers and Agent and Banks
is, and shall at all times remain, solely that of borrower and lenders;
neither Agent nor any Bank shall under any circumstance be construed to
be partners or joint venturers of Borrowers or its Affiliates; neither
Agent nor any Bank shall under any circumstance be deemed to be in a
relationship of confidence or trust or a fiduciary relationship with
Borrowers or their Affiliates, or to owe any fiduciary duty to Borrowers
or their Affiliates; neither Agent nor any Bank shall undertake or
assume any responsibility or duty to Borrowers or their Affiliates to
select, review, inspect, supervise, pass judgment upon or inform
Borrowers or their Affiliates of any matter in connection with their
Property, any Collateral held by Agent or any Bank or the operations of
Borrowers or their Affiliates; Borrowers and their Affiliates shall rely
entirely upon their own judgment with respect to such matters; and any
review, inspection, supervision, exercise of judgment or supply of
information undertaken or assumed by Agent or Banks in connection with
such matters is solely for the protection of Agent and Banks and no
Borrower or any other Person is entitled to rely thereon; and
(d) Agent and Banks shall not be responsible or liable to
any Person for any loss, damage, liability or claim of any kind relating
to injury or death to Persons or damage to Property caused by the
actions, inaction or negligence of Borrowers and/or their Affiliates and
Borrowers hereby indemnify and hold Bank harmless from any such loss,
damage, liability or claim.
11.15 No Third Parties Benefited. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
Borrowers and Agent and Banks in connection with the Loans, and is made for the
sole protection of Borrowers and Agent and Banks, and their successors and
assigns. Except as provided in Section 11.13, no other Person shall have any
rights of any nature hereunder or by reason hereof.
11.16 Further Assurances. Borrowers and their Subsidiaries shall,
at their expense and without expense to Agent or any Bank, do, execute and
deliver such further acts and documents as Agent or any Bank from time to time
reasonably require for the assuring and confirming unto Agent and Banks of the
rights hereby created or intended now or hereafter so to be, or for carrying out
the intention or facilitating the performance of the terms of any Loan Document,
or for assuring the validity, perfection, priority or enforceability of any Lien
under any Loan Document.
11.17 Integration. This Agreement, together with the other Loan
Documents, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof. In the event of any conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
rights or remedies in favor of Agent or Banks in any other Loan Document shall
not be deemed a conflict with this Agreement. Each Loan Document was drafted
with the joint participation of the respective parties thereto and shall be
construed neither against nor in favor of any party, but rather in accordance
with the fair meaning thereof.
<PAGE> 55
11.18 Governing Law. Except to the extent otherwise provided
therein, each Loan Document shall be governed by, and construed and enforced in
accordance with, the local Laws of California; provided that the local Laws of
California shall not apply with respect to any foreclosure of real Property
Collateral located outside California, and in no event shall California Code of
Civil Procedure Sections 726 and/or 580a and/or 580b and/or 580d apply to any
such foreclosure outside of California or to the right of Agent and Banks to
obtain a deficiency judgment for all Obligations remaining due following such
foreclosure.
11.19 Severability of Provisions. Any provision in any Loan
Document that is held to be inoperative, unenforceable or invalid as to any
party or in any jurisdiction shall, as to that party or jurisdiction, be
inoperative, unenforceable or invalid without affecting the remaining provisions
or the operation, enforceability or validity of that provision as to any other
party or in any other jurisdiction, and to this end the provisions of all Loan
Documents are declared to be severable.
11.20 Headings. Article and Section headings in this Agreement and
the other Loan Documents are included for convenience of reference only and are
not part of this Agreement or the other Loan Documents for any other purpose.
11.21 Time of the Essence. Time is of the essence of the Loan
Documents.
11.22 Securities Representation. Each Bank hereby represents that
any disposition by it of all or any part of its rights under the Loan Documents
shall not violate Section 5 of the Securities Act of 1933 to the extent, if any,
applicable.
11.23 Joint Borrower Provisions Borrowers acknowledge and agree
that Borrowers shall be jointly and severally liable for all obligations arising
under this Agreement, any/or Loan Documents. In furtherance thereof, Borrowers
acknowledge and agree as follows:
(a) In lieu of maintaining accounts in the name of each of
the Persons comprising Borrower (for purposes of this Section, each such
Person being referred to as a "Borrowing Entity"), Agent shall maintain
a single designated deposit account for Borrowers. Any advance made by
Bank hereunder shall be made jointly and severally to all Borrowing
Entities. Any payments received by any Bank likewise shall be credited
to all Borrowing Entities. While it is anticipated that SCC, Inc. will
make Requests for Loans or for Standby Letters of Credit, Requests for
Loans or for Standby Letters of Credit may be made by any Borrowing
Entity and Agent and any Bank, in its discretion, is authorized to honor
and rely upon any such Request or any instructions received from any
Responsible Official of any Borrowing Entity. It is expressly agreed and
understood by each Borrowing Entity that Agent and each Bank shall have
no responsibility to inquire into the appointment, allocation or
disposition of any Loans made to Borrowers. All Loans are to be made for
the collective account of Borrowers. For the purpose of implementing the
joint borrower provisions of the Loan Documents, including without
limitation the giving and receiving of notices and other communications,
the making of Requests for Loans or Requests for Standby Letters of
Credit, the execution and delivery of certificates and the receiving and
allocating of disbursements from Bank, Borrowers hereby irrevocably
appoint each other as the agent and attorney-in-fact for all purposes of
the Loan Documents.
(b) It is understood and agreed that the handling of this
credit facility on a joint borrowing basis as set forth in this
Agreement is solely as an accommodation to Borrowers and at the request
of Borrowers, and that Agent and Banks shall incur no liability to
Borrowers or any Borrowing Entity as a result thereof. To induce Agent
and Banks to do so, and in consideration thereof, each Borrowing Entity
hereby agrees to indemnify Agent and Banks and hold Agent and Banks
harmless from and against any and all liabilities, expenses, losses,
damages and/or claims of damage or injury asserted against Agent and
Banks by Borrowers or by any other Person arising from or incurred by
reason of Agent's or any Bank's handling of the financing arrangement of
Borrowers as herein provided, reliance by Agent and Banks on any
requests or instructions from any Borrowing Entity, or any other action
taken by Agent and Banks.
<PAGE> 56
(c) Each of the Borrowers represents and warrants to Agent
and Banks that the request for joint handling of the Loans was made
jointly by the Borrowing Entities and that the Borrowing Entities are
engaged in an integrated operation that requires financing on a basis
permitting the availability of credit from time to time to each of the
Borrowing Entities as required for the continued successful operation of
each of them and their integrated operations. Each Borrowing Entity
expects to derive benefit, directly or indirectly, from such
availability because the successful operation of the Borrower is
dependent on the continued successful performance of the functions of
the integrated group.
(d) Each Borrower acknowledges that the liens and security
interests created or granted herein and by the other Loan Documents will
or may secure obligations of persons or entities other than itself and,
in full recognition of that fact, each Borrower consents and agrees that
any action by Agent or any Bank with respect to the following shall not
affect the enforceability or security hereof or of any other Loan
Document:
(1) supplement, modify, amend, extend, renew,
accelerate, or otherwise change the time for payment or the terms
of the obligations of the other Borrowers or any part thereof,
including any increase or decrease of the rate(s) of interest
thereon;
(2) supplement, modify, amend or waive, or enter
into or give any agreement, approval or consent with respect to,
the obligations of the other Borrowers or any part thereof or any
of the Loan Documents or any additional security or guaranties, or
any condition, covenant, default, remedy, right, representation or
term thereof or thereunder;
(3) accept new or additional instruments, documents
or agreements in exchange for or relative to any of the Loan
Documents or the obligations of Borrowers or any part thereof;
(4) accept partial payments on the obligations of
Borrowers;
(5) receive and hold additional security or
guaranties for the obligations of Borrowers or any part thereof;
(6) release, reconvey, terminate, waive, abandon,
subordinate, exchange, substitute, transfer and enforce any
security or guaranties, and apply any security and direct the
order or manner of sale thereof as Agent or Banks in their sole
and absolute discretion may determine;
(7) release any person or entity or any guarantor
from any personal liability with respect to the obligations of
Borrowers or any part thereof;
(8) settle, release on terms satisfactory to Agent
or Banks or by operation of applicable laws or otherwise liquidate
or enforce any obligations of Borrowers and any security or
guaranty therefor in any manner, consent to the transfer of any
security and bid and purchase at any sale; and
(9) consent to the merger, change or any other
restructuring or termination of the corporate existence of
Borrowers or any other person, and correspondingly restructure the
obligations of Borrowers, and any such merger, change,
restructuring or termination shall not affect the liability of
Borrowers or the continuing existence of any lien or security
interest hereunder, under any other Loan Document to which any
Borrower is a party or the enforceability hereof or thereof with
respect to all or any part of the obligations of Borrowers.
<PAGE> 57
Upon the occurrence of and during the continuance of any
Event of Default, Agent and Banks may enforce this Agreement and the
other Loan Documents independently as to each Borrower and independently
of any other remedy or security Agent or Banks at any time may have or
hold in connection with the obligations of Borrowers, and it shall not
be necessary for Agent or Banks to marshal assets in favor of any of the
Borrowers or any other person or entity or to proceed upon or against
and/or exhaust any other security or remedy before proceeding to enforce
this Agreement and the other Loan Documents. Each of the Borrowers
expressly waives any right to require Agent or Banks to marshal assets
in favor of any Borrower or any other person or entity or to proceed
against any other person or entity or any Collateral provided by any
other person, and agrees that Agent or Banks may proceed against any
persons or entities and/or Collateral in such order as it shall
determine in its sole and absolute discretion. Agent or Banks may file a
separate action or actions against any Borrower, whether action is
brought or prosecuted with respect to any other security or against any
other person, or whether any other person or entity is joined in any
such action or actions. Each of the Borrowers agrees that Agent or Banks
and each of the Borrowers and any other person or entity may deal with
each other in connection with the obligations of Borrowers or otherwise,
or alter any contracts or agreements now or hereafter existing between
any of them, in any manner whatsoever, all without in any way altering
or affecting the security of this Agreement or the other Loan Documents.
The rights of Agent and Banks hereunder and under the other Loan
Documents shall be reinstated and revived, and the enforceability of
this Agreement and the other Loan Documents shall continue, with respect
to any amount at any time paid on account of the obligations of
Borrowers which thereafter shall be required to be restored or returned
by Agent and Bank upon bankruptcy, insolvency or reorganization of any
Borrower or any other person, or otherwise, all as though such amount
had not been paid. The enforceability of this Agreement and the other
Loan Documents at all times shall remain effective even though the
obligations of Borrowers, including any part thereof or any other
security or guaranty therefor, may be or hereafter may become invalid or
otherwise unenforceable as against any of the Borrowers or any other
person or entity and whether or not any of the Borrowers or any other
person or entity shall have any personal liability with respect thereto.
Each of the Borrowers expressly waives any and all defenses now or
hereafter arising or asserted by reason of (a) any disability or other
defense of any of the other Borrowers or any other person or entity with
respect to the obligations of Borrowers, (b) the unenforceability or
invalidity of any security or guaranty for the obligations of Borrowers
or the lack of perfection or continuing perfection or failure of
priority of any security for the obligations of Borrowers, (c) the
cessation for any cause whatsoever of the liability of any other
Borrower or any other person or entity (other than by reason of the full
payment and performance of all obligations of Borrowers), (d) any
failure of Agent or any Bank to marshal assets in favor of any of the
Borrowers or any other person, (e) any failure of Agent or any Bank to
give notice of sale or other disposition to any of the other Borrowers
or any other person or entity or any defect in any notice that may be
given in connection with any sale or disposition, (f) any failure of
Agent or any Bank to comply in any non-material respect with applicable
laws in connection with the sale or other disposition of any Collateral
or other security for any obligation of Borrowers, (g) any act or
omission of Agent or any Bank or others that directly or indirectly
results in or aids the discharge or release of any Borrower or any other
person or entity or the obligations of Borrowers or any other security
or guaranty therefor by operation of law or otherwise, (h) any law which
provides that the obligation of a surety or guarantor must neither be
larger in amount nor in other respects more burdensome than that of the
principal or which reduces a surety's or guarantor's obligation in
proportion to the principal obligation, (i) any failure of Agent or any
Bank to file or enforce a claim in any bankruptcy or other proceeding
with respect to any person, (j) the election by Agent or any Bank, in
any bankruptcy proceeding of any person, of the application or
non-application of Section 1111(b)(2) of the United States Bankruptcy
Code, (k) any extension of credit or the grant of any lien under Section
364 of the United States Bankruptcy Code, (l) any use of cash collateral
under Section 363 of the United States Bankruptcy Code, (m) any
agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any person, (n) the avoidance
of any lien or security interest in favor of Agent or any Bank for any
reason, or (o) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, liquidation or dissolution proceeding commenced by
or against any person, including any discharge of, or bar or stay
against collecting, all or any of the obligations of Borrowers (or any
interest thereon) in or as a result of any such proceeding.
<PAGE> 58
(e) Each of the Borrowers represents and warrants to Agent
and Banks that such Borrower has established adequate means of obtaining
from the other Borrowers, on a continuing basis, financial and other
information pertaining to the businesses, operations and condition
(financial and otherwise) of the other Borrowers and their respective
properties, and each of the Borrowers now is and hereafter will be
completely familiar with the businesses, operations and condition
(financial and otherwise) of the other Borrowers and their respective
properties. Each of the Borrowers hereby expressly waives and
relinquishes any duty on the part of Agent or any Bank to disclose to
such Borrower any matter, fact or thing related to the businesses,
operations or condition (financial or otherwise) of any other Borrower
or such other Borrower's properties, whether now known or hereafter
known by Agent or any Bank during the life of this Agreement. With
respect to any of the obligations of Borrowers, Agent and Banks need not
inquire into the powers of any of the Borrowers or the officers or
employees acting or purporting to act on its behalf.
(f) Notwithstanding anything to the contrary elsewhere
contained herein or in any other Loan Document to which any Borrower is
a party, each of the Borrowers hereby waives with respect to each other
Borrower and its respective successors and assigns (including any
surety) and any other party any and all rights at law or in equity, to
subrogation, to reimbursement, to exoneration, to contribution, to
setoff or to any other rights that could accrue to a surety against a
principal, to a guarantor against a maker or obligor, to an
accommodation party against the party accommodated, or to a holder or
transferee against a maker and which each of the Borrowers may have or
hereafter acquire against any other Borrower or any other party in
connection with or as a result of any Borrower's execution, delivery
and/or performance of this Agreement or any other Loan Document to which
any such Borrower is a party until the Obligations hereunder are paid in
full. Each of the Borrowers agrees that it shall not have or assert any
such rights against any other Borrower or any such Borrower's successors
and assigns or any other person or entity (including any surety), either
directly or as an attempted setoff to any action commenced against such
Borrower by the other such Borrower (as borrower or in any other
capacity) or any other person until the obligations hereunder are paid
in full. Each of the Borrowers hereby acknowledges and agrees that this
waiver is intended to benefit Agent and Banks and shall not limit or
otherwise affect any of the Borrowers' liability hereunder, under any
other Loan Document to which any Borrower is a party, or the
enforceability hereof or thereof.
<PAGE> 59
(g) Each of the Borrowers warrants and agrees that each of
the waivers and consents set forth herein is made with full knowledge of
its significance and consequences, with the understanding that events
giving rise to any defense waived may diminish, destroy or otherwise
adversely affect rights which each of the Borrowers otherwise may have
against the other Borrowers, Agent or any Bank, or others, or against
any Collateral. If any of the waivers or consents herein are determined
to be contrary to any applicable law or public policy, such waivers and
consents shall be effective to the maximum extent permitted by law.
11.24 Waiver of Jury Trial. The parties to this Agreement
acknowledge that jury trials often entail additional expenses and delays not
occasioned by nonjury trials. The parties to this Agreement further agree and
stipulate that a fair trial may be had before a state or federal judge by means
of a bench trial without a jury. In view of the foregoing, and as a specifically
negotiated provision of this Agreement, each party to this Agreement hereby
expressly waives any right to trial by jury of any claim, demand, action or
cause of action (1) arising under this Agreement or any other instrument,
document or agreement executed or delivered in connection herewith, or (2) in
any way connected with or related or incidental to the dealings of the parties
hereto or any of them with respect to this Agreement or any other instrument,
document or agreement executed or delivered in connection herewith, or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether sounding in contract or tort or otherwise; and
each party hereby agrees and consents that any such claim, demand, action or
cause of action shall be decided by court trial without a jury, and that any
party to this Agreement may file an original counterpart or a copy of this
section with any court as written evidence of the consent of the parties hereto
to the waiver of their right to trial by jury.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
BORROWERS:
THE SPORTS CLUB COMPANY, INC. THE SPECTRUM CLUB COMPANY, INC.,
a Delaware corporation a California corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
PONTIUS REALTY, INC., L.A./IRVINE SPORTS CLUB, LTD.,
a California corporation a California limited partnership
By: /s/ Timothy O'Brien By: Sports Club, Inc. of California
------------------------------- general partner
Timothy O'Brien
By: /s/ Timothy O'Brien
-----------------------------
Its: Chief Financial Officer
<PAGE> 60
SPORTS CLUB, INC. OF CALIFORNIA, TALLA NEW YORK, INC.,
a California corporation a New York corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
IRVINE SPORTS CLUB, INC., GREEN VALLEY SPECTRUM CLUB, INC.,
a California corporation a New York corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
THE SPORTSMED COMPANY, INC., SPECTRUM CLUB ANAHEIM,
a California corporation a California corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
SCC SPORTS CLUB, INC.,
a Texas corporation
By: /s/ Timothy O'Brien
Timothy O'Brien
Its: Chief Financial Officer
Borrowers' Address:
c/o The Sports Club Company, Inc.
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Telephone: (310) 479-5200
Facsimile: (310) 479-5740
<PAGE> 61
AGENT:
SUMITOMO BANK OF CALIFORNIA,
a California banking corporation
By: /s/ Noel Ryan
--------------------------------------
Noel Ryan
Senior Vice President
Address:
Sumitomo Bank of California
611 West Sixth Street, Suite 3900
Los Angeles, California 90017
Attn: Noel Ryan, Senior Vice President
Telecopier: (213) 622-1385
Telephone: (213) 362-5700
BANKS:
SUMITOMO BANK OF CALIFORNIA,
a California banking corporation
By: /s/ Noel Ryan
--------------------------------------
Noel Ryan
Senior Vice President
Address:
Sumitomo Bank of California
611 West Sixth Street, Suite 3900
Los Angeles, California 90017
Attn: Noel Ryan, Senior Vice President
Telecopier: (213) 622-1385
Telephone: (213) 362-5700
<PAGE> 62
COMERICA BANK - CALIFORNIA
a California banking corporation
By: /s/ Joseph Yurosek
--------------------------------------
Joseph Yurosek
Vice President
Address:
Comerica Bank-California
301 E. Ocean Boulevard, Suite 1800
Long Beach, California 90802
Attn: Joseph Yurosek, Vice President
Telecopier: (562) 595-8251
Telephone: (562) 590-2530
<PAGE> 1
EXHIBIT 10.78
1/11/99 BANK LOAN
<PAGE> 2
THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this
"Amendment"), dated as of January 11, 1999, is entered into by and among THE
SPORTS CLUB COMPANY, INC., a Delaware corporation, and certain of its
subsidiaries identified in the signature pages to this Amendment (collectively,
"Borrowers"), CALIFORNIA BANK & TRUST, a California banking corporation ("CB&T)
as successor to Sumitomo Bank of California, COMERICA BANK - CALIFORNIA, a
California banking corporation ("Comerica", and collectively with CB&T,
"Banks"), and CB&T in its capacity as agent for Banks (in such capacity,
"Agent"), in light of the following facts:
RECITALS
A. Pursuant to that certain Amended and Restated Loan Agreement,
dated as of February 2, 1998 and as amended by a First Amendment
to Amended and Restated Loan Agreement dated as of February 23,
1998, a Second Amendment to Amended and Restated Loan Agreement
dated as of March 16, 1998, and a letter agreement executed by
Agent and Borrowers dated August 12, 1998 (collectively, the
"Loan Agreement"), Banks are providing Borrowers with certain
credit facilities.
B. Borrowers, Banks and Agent wish to amend the Loan Agreement to,
among other things, permit Borrowers to repurchase common stock
of the Borrowers.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers, the Banks and the Agent hereby agree as follows:
1. Defined Terms. All initially capitalized terms set forth without
definition in the Amendment (including, without limitation, in
the recitals hereto) shall have the respective meanings assigned
thereto in the Loan Agreement.
2. Amendment to Definitions. Section 1.1 of the Loan Agreement is
hereby amended as follows:
A. The definition set forth below is eliminated and replaced in
its entirety to read in full as follows:
<PAGE> 3
"Qualified Stock Repurchase" means the common stock repurchase program
instituted in April 1998; provided that the aggregate amount expended in
repurchasing common stock of SCC, Inc. shall not exceed $7,800,000 until
completion of the Thousand Oaks Sale/Leaseback, after which time the
aggregate amount expended shall not exceed $10,800,000."
B. The following definition is hereby added to Section 1.1 to
read in full as follows:
"Thousand Oaks Sale/Leaseback" means the consummation of the sale of
certain real property assets and improvements at the Thousand Oaks Site
to Equity Advisory Group, and the subsequent reduction of the
outstanding balance of loans extended by Banks under the Agreement to no
more than Three Million Dollars ($3,000,000).
3. Representations and Warranties. Each representation and warranty
made by the Borrowers in Article 4 of the Loan Agreement is true
and correct on and as of the date hereof as though made as of
the date hereof, except to the extent such representations and
warranties relate solely to an earlier date.
4. Full Force and Effect. Each of the Loan Documents is hereby
amended such that all references to the Loan Agreement contained
in any of such documents shall be deemed to be made with respect
to the Loan Agreement as amended by this Amendment. Except as
amended hereby, the Loan Agreement and the other Loan Documents
shall remain unaltered and in full force and effect.
5. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall constitute an original and all
of which, taken together, shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment by
their respective duly authorized officers as of the date first above written.
The "Borrowers"
THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
<PAGE> 4
THE SPECTRUM CLUB COMPANY, INC.,
a California corporation
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
PONTIUS REALTY, INC.,
a New York corporation
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
SPORTS CLUB, INC. OF CALIFORNIA,
A California corporation
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
IRVINE SPORTS CLUB, INC.,
a California corporation
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
THE SPORTSMED COMPANY, INC.
a California corporation
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
<PAGE> 5
L.A./IRVINE SPORTS CLUB, LTD.
a California corporation
By: Sports Club, Inc. of California,
General Partner
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
<PAGE> 6
TALLA NEW YORK, INC.
a New York corporation
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
SCC SPORTS CLUB, INC.
a Texas corporation
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
GREEN VALLEY SPECTRUM CLUB, INC.,
a California corporation
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
SPECTRUM CLUB/ANAHEIM HILLS, INC.,
a California corporation
By: /s/ Timothy O'Brien
------------------------------------------
Timothy O'Brien, Chief Financial Officer
The "Agent"
CALIFORNIA BANK & TRUST
a California banking corporation and successor
to Sumitomo Bank of California
By: /s/ David W. Shaw
------------------------------------------
David W. Shaw, Vice President
<PAGE> 7
The "Banks"
CALIFORNIA BANK & TRUST,
A California banking corporation and
successor to Sumitomo Bank of California
By: /s/ David W. Shaw
------------------------------------------
David W. Shaw, Vice President
COMERICA BANK - CALIFORNIA,
a California banking corporation
By: /s/ Joseph Yurosek
------------------------------------------
Joseph Yurosek, Vice President
<PAGE> 1
EXHIBIT 10.79
2/1/99 BANK LOAN
<PAGE> 2
================================================================================
THIRD AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of February 1, 1999
between
THE SPORTS CLUB COMPANY, INC.,
and various of its subsidiaries,
as Borrowers,
and
COMERICA BANK-CALIFORNIA
and such other financial institutions
as may become a lending party hereto
as Banks
and
COMERICA BANK-CALIFORNIA,
as Agent
================================================================================
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS......................................... 2
1.1 Defined Terms............................................................ 2
1.2 Use of Defined Terms..................................................... 15
1.3 Accounting Terms......................................................... 15
1.4 Exhibits and Schedules................................................... 15
ARTICLE 2 LOANS AND LETTERS OF CREDIT.............................................. 15
2.1 General Provisions Regarding Loans and Borrowing Procedures.............. 15
2.2 Intentionally Omitted.................................................... 16
2.3 Prime Rate Loans......................................................... 17
2.4 Eurodollar Loans......................................................... 17
2.5 Redesignation of Loans................................................... 17
2.6 Standby Letters of Credit................................................ 19
2.7 Agent's Right to Assume Funds Available for Advances..................... 22
ARTICLE 3 PAYMENTS AND FEES........................................................ 22
3.1 Principal and Interest................................................... 22
3.2 Commitment Fee........................................................... 25
3.3 Eurodollar Fees and Costs................................................ 25
3.4 Letter of Credit Fees.................................................... 27
3.5 Agent Fee................................................................ 27
3.6 Late Payments/Default Rate............................................... 27
3.7 Computation of Interest and Fees......................................... 28
3.8 Non-Banking Days......................................................... 28
3.9 Manner and Treatment of Payments......................................... 28
3.10 Funding Sources.......................................................... 29
3.11 Failure to Charge Not Subsequent Waiver.................................. 29
3.12 Agent's Right to Assume Payments Will be Made by Borrowers............... 29
3.13 Survivability............................................................ 29
3.14 Unused Line Fee.......................................................... 29
ARTICLE 4 REPRESENTATIONS AND WARRANTIES........................................... 30
4.1 Existence and Qualification; Power; Compliance With Laws................. 30
4.2 Authority; Compliance With Other Agreements and Instruments and
Government Regulations............................................... 31
4.3 No Governmental Approvals Required....................................... 32
4.4 Subsidiaries............................................................. 32
4.5 Financial Statements..................................................... 33
4.6 No Other Liabilities; No Material Adverse Changes........................ 34
4.7 Intangible Assets........................................................ 34
</TABLE>
1
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.8 Filing of Financing Statements........................................... 34
4.9 Public Utility Holding Company Act....................................... 34
4.10 Litigation............................................................... 35
4.11 Binding Obligations...................................................... 35
4.12 No Default............................................................... 35
4.13 ERISA.................................................................... 35
4.14 Regulations T, U and X; Investment Company Act........................... 36
4.15 Disclosure............................................................... 36
4.16 Tax Liability............................................................ 36
4.17 Projections.............................................................. 36
4.18 Fiscal Year.............................................................. 37
4.19 Employee Matters......................................................... 37
ARTICLE 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING
REQUIREMENTS)....................................................... 37
5.1 Payment of Taxes and Other Potential Charges............................. 37
5.2 Preservation of Existence................................................ 37
5.3 Maintenance of Properties................................................ 38
5.4 Maintenance of Insurance................................................. 38
5.5 Compliance With Laws..................................................... 38
5.6 Additional Borrowers..................................................... 38
5.7 Inspection Rights........................................................ 39
5.8 Keeping of Records and Books of Account.................................. 40
5.9 Compliance With Agreements, Duties and Obligations....................... 40
5.10 Use of Proceeds.......................................................... 40
ARTICLE 6 NEGATIVE COVENANTS....................................................... 40
6.1 Disposition of Property.................................................. 40
6.2 Transactions with Borrowers and Non-Borrower Affiliates.................. 40
6.3 Mergers, Acquisitions and New Club Developments.......................... 41
6.4 Profitability............................................................ 45
6.5 Redemption, Dividends and Distributions; Payments to Partners............ 45
6.6 ERISA.................................................................... 45
6.7 Change in Nature of Business/Management.................................. 46
6.8 Real Property Leases..................................................... 47
6.9 Indebtedness, Guaranties and Liens....................................... 47
6.10 Transactions with Affiliates............................................. 48
6.11 Change in Fiscal Year.................................................... 48
6.12 Capital Expenditures and Purchase Money Transactions..................... 48
6.13 Tangible Net Worth....................................................... 49
6.14 Ratio of Total Unsubordinated Liabilities to Tangible Net Worth.......... 50
6.15 Debt Service Coverage Ratio.............................................. 50
6.16 Intentionally Omitted.................................................... 50
6.17 Loans to Officers........................................................ 50
6.18 Deposit Accounts......................................................... 50
6.19 Ratio of Funded Debt to EBITDA........................................... 50
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS................................... 50
7.1 Financial and Business Information....................................... 50
7.2 Compliance Certificates.................................................. 54
7.3 Revisions or Updates to Schedules........................................ 55
7.4 New Club Development Project Reports..................................... 55
ARTICLE 8 CONDITIONS............................................................... 56
8.1 Initial Loans, Etc....................................................... 56
8.2 Any Loan................................................................. 57
ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT..................... 59
9.1 Events of Default........................................................ 59
9.2 Remedies Upon Event of Default........................................... 61
ARTICLE 10 THE AGENT................................................................ 63
10.1 Appointment and Authorization............................................ 63
10.2 Agent and Affiliates..................................................... 63
10.3 Proportionate Interest of the Banks in any Collateral.................... 64
10.4 Banks' Credit Decisions.................................................. 64
10.5 Action by Agent.......................................................... 64
10.6 Liability of Agent....................................................... 65
10.7 Indemnification.......................................................... 66
10.8 Successor Agent.......................................................... 67
ARTICLE 11 MISCELLANEOUS............................................................ 67
11.1 Intentionally Omitted.................................................... 67
11.2 Cumulative Remedies; No Waiver........................................... 67
11.3 Amendments; Consents..................................................... 68
11.4 Costs, Expenses and Taxes................................................ 68
11.5 Nature of Banks' Obligations............................................. 69
11.6 Survival of Representations and Warranties............................... 70
11.7 Notices.................................................................. 70
11.8 Execution of Loan Documents.............................................. 70
11.9 Sharing of Setoffs....................................................... 70
11.10 Binding Effect; Assignment............................................... 71
11.11 Assignment of Deposits................................................... 72
11.12 Participation of Loan.................................................... 72
11.13 Indemnity by Borrowers................................................... 72
11.14 Nonliability of Banks.................................................... 73
11.15 No Third Parties Benefited............................................... 74
11.16 Further Assurances....................................................... 74
11.17 Integration.............................................................. 74
11.18 Governing Law............................................................ 74
11.19 Severability of Provisions............................................... 74
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
11.20 Headings................................................................. 75
11.21 Time of the Essence...................................................... 75
11.22 Securities Representation................................................ 75
11.23 Joint Borrower Provisions................................................ 75
11.24 Waiver of Jury Trial..................................................... 81
</TABLE>
THIRD AMENDED AND RESTATED LOAN AGREEMENT
4
<PAGE> 7
Dated as of February 1, 1999
WHEREAS, The Sports Club Company, Inc., The Spectrum Club Company, Inc.,
Pontius Realty, Inc., Sports Club, Inc. of California, Irvine Sports Club, Inc.,
The SportsMed Company, Inc., formerly HealthFitness Organization of America,
Inc., L.A./Irvine Sports Clubs, Ltd., Talla New York, Inc., SCC Sports Club,
Inc., Spectrum Club/Anaheim Hills, Inc. and Green Valley Spectrum Club, Inc. are
parties to that certain Amended and Restated Loan Agreement dated as of February
2, 1998 as amended by a First Amendment dated as of February 23, 1998, a Second
Amendment dated as of March 16, 1998, a Second Amended and Restated Loan
Agreement dated as of June 9, 1998, and a Third Amendment to Amended and
Restated Loan Agreement dated as of January __, 1999 with Sumitomo Bank of
California and Comerica Bank-California as lenders and Sumitomo Bank of
California as the agent ("Predecessor Agent") for such lenders, and to that
certain letter agreement with Predecessor Agent dated August 12, 1998
(collectively, the "Original Loan Agreement"); and
WHEREAS, pursuant to that certain Assignment and Acceptance Agreement
dated as of February 1, 1999 by and between California Bank & Trust, a
California banking corporation, as successor to Sumitomo Bank of California, and
Comerica Bank-California, California Bank & Trust assigned to Comerica
Bank-California, and Comerica Bank-California accepted, all of the rights of
California Bank & Trust under the Original Loan Agreement, including but not
limited to under the Loan Documents and in the Loans;
WHEREAS, pursuant to Section 10.8 of the Original Loan Agreement,
Predecessor Agent has resigned as agent for the Banks (as defined below) and the
Agent (as defined below) has accepted the appointment as successor to the
Predecessor Agent as agent for the Banks under this Third Amended and Restated
Loan Agreement;
WHEREAS, Borrowers, Comerica Bank-California and Agent have agreed to
amend and restate the Original Loan Agreement to provide for, among other
things, certain modifications to the financial and reporting covenants; and
WHEREAS, Borrowers, Agent and Banks do hereby enter into this Third
Amended and Restated Loan Agreement in place and stead of the Original Loan
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto covenant and agree as follows:
ARTICLE 1
5
<PAGE> 8
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the meanings set forth respectively after each:
"Acquisition" means any transaction, or any series of related
transactions, by which any Borrower and/or any of its Subsidiaries directly or
indirectly acquires control of any going business or all or substantially all of
the assets of any firm, partnership, joint venture, limited liability company,
corporation (or division thereof) operating as a health and fitness facility,
whether through purchase of assets, merger or otherwise, (control meaning
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies of such entities); provided that, in any
event, the term "Acquisition" shall include any acquisition in which any
Borrower and/or any Subsidiaries thereof controls a majority in ordinary voting
power of the securities of a corporation operating as a health and fitness
facility which have ordinary voting power for the election of directors or other
governing body of a corporation (other than securities having such power only by
reason of the happening of a contingency), or control 50% or more ownership
interest in any partnership, limited liability company or joint venture
operating as a health and fitness facility.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (and its
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), provided
that, in any event, any Person that owns, directly or indirectly, 50% or more of
the securities having ordinary voting power for the election of directors or
other governing body of a corporation (other than securities having such power
only by reason of the happening of a contingency), or 50% or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person), will be deemed to control such
corporation or other Person.
"Agent" means Comerica Bank - California, a California state
bank, when acting in its capacity as agent under any of the Loan Documents, and
any successor agent.
"Agent's Office" means the office designated by Agent as its
address for purposes of notice under this Agreement.
"Agreement" means this Third Amended and Restated Loan Agreement,
either as originally executed or as it may from time to time be supplemented,
modified, amended, restated or extended.
6
<PAGE> 9
"Applicable Pricing Level" means, for any Eurodollar Period, the
pricing level set forth below opposite the ratio of Funded Debt to EBITDA, which
Agent shall determine quarterly upon, and with effect from and after the date
of, Agent's receipt of the quarterly compliance certificates required by Section
7.2 of this Agreement:
<TABLE>
<CAPTION>
Ratio of Funded Debt
Pricing Level to EBITDA
------------- ---------
<S> <C>
I Less than 2.50 to 1.0
II Equal to or greater than 2.50 to
1.00 but less than 3.25 to 1.00
III Equal to or greater than 3.25 to
1.00.
</TABLE>
"Bank" or "Banks" means individually or collectively Comerica
Bank - California and any one or more banks or other financial institutions
which become lending parties to this Agreement in accordance with the terms
hereof.
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday on which all of the Banks are open for business at their respective
addresses for notice designated as provided herein.
"Borrower or Borrowers" means, individually or collectively, The
Sports Club Company, Inc., The Spectrum Club Company, Inc., Pontius Realty,
Inc., Sports Club, Inc. of California, Irvine Sports Club, Inc., The SportsMed
Company, Inc., L.A./Irvine Sports Clubs, Ltd., Talla New York, Inc., SCC Sports
Club, Inc., Green Valley Spectrum Club, Inc., Spectrum Club Anaheim and any
subsequent Person who becomes a Borrower pursuant to the terms hereof.
"Capital Expenditure" means any expenditure (including any
capitalized lease expenditure) that is considered a capital expenditure under
generally accepted accounting principles, consistently applied, including,
without limitation, any amount that is required to be treated as a capitalized
asset pursuant to Financial Accounting Standards Board Statement No. 13.
"Cash" means, when used in connection with any Person, all
monetary and non-monetary items belonging to such Person that are treated as
cash in accordance with generally accepted accounting principles, consistently
applied.
"Cash Equivalents" means, when used in connection with any
Person, such Person's Investments in:
7
<PAGE> 10
(a) Government Securities due within one year after the
date of the making of the Investment;
(b) certificates of deposit issued by, bank deposits in,
bankers' acceptances of, and repurchase agreements covering, Government
Securities executed by, any bank doing business in and incorporated under the
Laws of the United States of America or any state thereof and having on the date
of such Investment combined capital, surplus and undivided profits of at least
$100,000,000, in each case due within one year after the date of the making of
the Investment; and/or
(c) readily marketable commercial paper of corporations
doing business in and incorporated under the Laws of the United States of
America or any state thereof given on the date of such Investment the highest
credit rating by NCO/Moody's Commercial Paper Division of Moody's Investors
Service, Inc. or Standard & Poor's Corporation, in each case due within six
months after the date of the making of the Investment.
"Certificate of a Responsible Official" means a certificate
signed by a Responsible Official of the Person providing the certificate.
"Closing Date" means the Banking Day on which the consummation of
all of the transactions contemplated in Section 8.1 occurs.
"Club" means a health and fitness facility operated by any
Borrower.
"Collateral" means, collectively, all Property on or in which the
Agent or any Bank has a Lien pursuant to this Agreement or any other Loan
Document.
"Commitment" means, collectively, the lending commitment
hereunder of Comerica Bank - California, as such commitment may be reduced or
offset under this Agreement. The percentage obligations of each Bank with
respect to the Commitment are as follows:
<TABLE>
<CAPTION>
Bank Amount Percentage
---- ------ ----------
<S> <C> <C>
Comerica Bank - California $30,000,000 100%
</TABLE>
"Default" means any Event of Default and/or any event that, with
the giving of notice or passage of time or both, would be an Event of Default.
"Default Rate" means the rate of interest per annum otherwise
provided under this Agreement plus two percent (2%).
8
<PAGE> 11
"Designated Deposit Account" means deposit account no.
01800220570 to be maintained by Borrowers with Agent at Agent's Office, or such
other deposit account as from time to time designated by Borrowers by written
notification to Agent and approved by Agent.
"Designated Eurodollar Market" means, with respect to any
Eurodollar Loan, the London Eurodollar Market, or such other Eurodollar Market
as may from time to time be designated by Agent.
"dollars" or "$" means United States dollars.
"EBITDA" means, for any fiscal period, for Borrowers, their
Subsidiaries, Sports Connection-ES/MB, to the extent of Borrowers' interest
therein, and, on a pro forma basis, any entity acquired by any of the Borrowers
or any of the Subsidiaries, adjusted for verifiable cost savings acceptable to
Banks: (a) the consolidated net income before extraordinary items of such
Persons for that period, determined in accordance with generally accepted
accounting principles, consistently applied, plus (b) consolidated interest
expense for that period, plus (c) income tax expense for that fiscal period,
plus (d) depreciation expense for that fiscal period plus (e) amortization
expense for that fiscal period.
"ERISA" means the Employee Retirement Income Security Act of
1974, and any regulations issued pursuant thereto, as amended or replaced and as
in effect from time to time.
"Eurodollar Banking Day" means any Banking Day on which dealings
in dollar deposits are conducted by and between banks in the Designated
Eurodollar Market.
"Eurodollar Lending Office" means as to each Bank, its office or
branch so designated by written notice to Borrowers and Agent as its Eurodollar
Lending Office. If no Eurodollar Lending Office separately is designated by a
Bank, its Eurodollar Lending Office shall be its office as designated for
purposes of notice hereunder.
"Eurodollar Loan" means a Loan made hereunder and designated or
redesignated as a Eurodollar Loan in accordance with Article 2.
"Eurodollar Market" means a regular established market located
outside the United States of America by and among banks for Eurodollar
Obligations.
"Eurodollar Obligations" means eurocurrency liabilities, as
defined in Regulation D.
"Eurodollar Period" means, as to each Eurodollar Loan, the period
commencing on the date specified by Borrowers pursuant to Sections 2.1(b) or
2.5(c) and ending 30, 60 or 90 days
9
<PAGE> 12
thereafter, as specified by Borrowers in the applicable Request for Loan or
Request for Redesignation of Loans, provided that:
(a) The first day of any Eurodollar Period shall be a
Eurodollar Banking Day;
(b) Any Eurodollar Period that would otherwise end on a
day that is not a Eurodollar Banking Day shall be extended to the next
succeeding Eurodollar Banking Day unless such Eurodollar Banking Day falls in
another calendar month, in which case such Eurodollar Period shall end on the
next preceding Eurodollar Banking Day; and
(c) No Eurodollar Period shall extend beyond the Maturity
Date.
"Eurodollar Rate" means, with respect to any Eurodollar Loan, (a)
the LIBOR Rate offered for deposits as of about 10:00 a.m., Los Angeles time,
two (2) Eurodollar Banking Days before the first day of the applicable
Eurodollar Period in an aggregate amount approximately equal to the amount of
such Eurodollar Loan and for a period of time comparable to the number of days
in the applicable Eurodollar Period divided by (b) 1.00 minus the Reserve
Percentage. The determination of the Eurodollar Rate by Agent shall be
conclusive in the absence of manifest error.
"Eurodollar Rate Spread" means, for each Eurodollar Period, the
applicable additional component of interest, expressed as a percentage per
annum, set forth below opposite the Applicable Pricing Level, to be added to the
Eurodollar Rate in determining the applicable rate of interest for Eurodollar
Loans:
<TABLE>
<CAPTION>
Applicable Pricing Eurodollar Rate
Level Spread
----- ------
<S> <C>
I 1.50%
II 1.75%
III 2.00%
</TABLE>
"Event of Default" shall have the meaning provided in Section
9.1.
"Existing Real Property Liens" shall have the meaning provided in
Section 7.2.
"Funded Debt" means all liabilities of Borrowers and their
Subsidiaries for borrowed money, including capitalized leases.
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"Global Collateral Documents Amendment" means that certain Global
Collateral Documents Amendment, of even date herewith, by and among Agent, SCC,
Inc., Sports Club, Inc. of California and the Parties to the Pledge Agreement
(Partnership), substantially in the form of Exhibit A hereto.
"Government Securities" means readily marketable direct
obligations of the United States of America or obligations fully guarantied by
the United States of America.
"Governmental Agency" means (a) any international, foreign,
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, authority, board,
bureau, commission, department, instrumentality or public body, (c) any court,
administrative tribunal or public utility, or (d) any arbitration tribunal or
other non-governmental authority to whose jurisdiction a Person has consented.
"Investment" means, when used in connection with any Person, any
investment by or of that Person, whether by means of purchase or other
acquisition of stock or other securities or by means of loan, advance, capital
contribution, guaranty or other debt or equity participation or interest in any
other Person, or otherwise, and includes, without limitation, any partnership
and joint venture interests of such Person.
"Issuing Bank" means, with respect to any Standby Letter of
Credit, Comerica Bank - California or any other Bank designated by Borrowers
(with the consent of the Requisite Banks) which issued that Standby Letter of
Credit.
"Laws" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial precedents.
"LIBOR Rate" means the interest (rounded upward to the nearest
1/16th of one percent) as determined by the British Bankers Association and
disseminated daily as an average of the rate at which certain major banks would
offer U.S. dollar deposits for the applicable Eurodollar Period to other major
banks in the London inter-bank market.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
security interest, encumbrance, lien or charge of any kind, whether voluntarily
incurred or arising by operation of Law or otherwise, affecting any Property,
including any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof, and/or the
filing of or agreement to give any financing statement under the Uniform
Commercial Code or comparable Laws of any jurisdiction.
"Loan" or "Loans" means the advances to be made by Banks to
Borrowers pursuant to this Agreement. Each individual Loan shall consist of
advances made by Banks pursuant to
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<PAGE> 14
Article 2, including advances made as new advances, and also including advances
made by converting or redesignating existing advances in accordance with the
provisions of Article 2. In connection with each Loan, the amount of such Loan
by each Bank shall be determined according to that Bank's percentage share of
the Commitment.
"Loan Documents" means, collectively, this Agreement, the Global
Collateral Documents Amendment, the Notes, the Pledge Agreements, the Pledge
Agreement (Partnership), the Standby Letters of Credit, any assignments, any
financing statements and any other certificates, documents or agreements of any
type of nature heretofore or hereafter executed or delivered by Borrowers and/or
any one or more of their Subsidiaries or Affiliates to Agent or to Banks in any
way relating to or in furtherance of this Agreement, in each case either as
originally executed or as the same may from time to time be supplemented,
modified, amended, restated or extended.
"Maturity Date" means May 31, 2000, subject to the option of
Banks, in their sole and absolute discretion, following the written request of
Borrowers, to be received by Agent no later than sixty (60) days prior to each
anniversary of the date of this Agreement, and subject to such terms and
conditions as Bank may require, to extend the Maturity Date for an additional
period of one year.
"Maximum Loan Amount" means, as of any date of determination
thereof, the amount of the Commitment.
"Maximum Standby Letter of Credit Amount" means $8,000,000.
"Multiemployer Plan" means any employee benefit plan of the type
described in Section 4001(a)(3) of ERISA.
"New Club Development" means the establishment de novo of a new
health and fitness facility, or any other investment in a health and fitness
facility that does not constitute an Acquisition, by one or more existing or
future Borrowers and/or Subsidiaries.
"Non-Borrower Affiliate" means any Affiliate of a Borrower, now
existing or hereafter acquired, that is not a Borrower hereunder.
"Note" means any of the promissory notes executed by Borrowers in
favor of Banks evidencing the Loans made by Banks or any of them under the
Commitment, substantially in the form of Exhibit B hereto, either as originally
executed or as the same may from time to time be supplemented, modified,
amended, renewed, extended or refinanced.
"Obligations" means all present and/or future obligations of
every kind or nature of Borrowers or any Party at any time and/or from time to
time owed to Agent or Banks or any one or
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<PAGE> 15
more of them, under any one or more of the Loan Documents, whether due or to
become due, matured or unmatured, liquidated or unliquidated, or contingent or
noncontingent, including obligations of performance as well as obligations of
payment, and including interest that accrues prior to or after the commencement
of any bankruptcy or insolvency proceeding by or against any Borrower or any
Party.
"Opinion of Counsel" means the favorable written legal opinion of
Kinsella, Boesch, Fujikawa and Towle, as counsel to Borrowers and their
Subsidiaries, in a form acceptable to Agent, together with copies of all factual
certificates and legal opinions upon which such counsel has relied.
"Outstanding Standby Letters of Credit" means, as of any date of
determination thereof, the aggregate face amount of all Standby Letters of
Credit outstanding on such date, not to exceed the Maximum Standby Letter of
Credit Amount.
"Party" means any Person (including Borrowers and/or any
Subsidiaries or Affiliates of Borrowers), other than Agent and Banks, which now
or hereafter is a party to any of the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereof established under ERISA.
"Person" means any entity, whether an individual, trustee,
corporation, general partnership, limited partnership, limited liability
company, joint stock company, trust, unincorporated organization, bank, business
association, firm, joint venture, Governmental Agency, or otherwise.
"Plan" means any employee benefit plan subject to ERISA and
maintained by Borrowers and/or any Subsidiary thereof or to which Borrowers
and/or any Subsidiary thereof are required to contribute on behalf of their
employees.
"Pledge Agreement" means the Pledge Agreement, dated as of
February 2, 1998, executed by SCC, Inc. and Sports Club, Inc. of California in
favor of Agent for the ratable benefit of Banks, as amended by the Global
Documents Amendment and as such document may from time to time hereafter be
supplemented, modified, amended, restated or extended.
"Pledge Agreement (Partnership)" means the Pledge Agreement
(Partnership), dated as of February 2, 1998 executed by certain Borrowers
identified therein as the "Grantors" in favor of Agent for the ratable benefit
of Banks, as amended by the Global Documents Amendment and as such document may
from time to time hereafter be supplemented, modified, amended, restated or
extended.
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<PAGE> 16
"Prime Rate" means the floating commercial loan rate of Comerica
Bank - California, announced from time to time as its "base rate", which
interest rate may not necessarily be the lowest interest rate at which Comerica
Bank -California is willing to extend credit facilities.
"Prime Rate Loan" means a Loan designated or redesignated as a
Prime Rate Loan in accordance with Article 2, or converted to a Prime Rate Loan
in accordance with Section 3.3(a).
"Prime Rate Spread" means the additional component of interest,
expressed as a percentage per annum, to be added to the Prime Rate in
determining the applicable rate of interest for Prime Rate Loans. As of the date
of this Agreement, the Prime Rate Spread is zero percent (0%) per annum.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Qualified Stock Repurchase" means the common stock repurchase
program instituted in April, 1998; provided that the aggregate amount expended
in repurchasing common stock of SCC, Inc. shall not exceed $7,800,000 until
completion of the Thousand Oaks Sale/Leaseback, after which time the aggregate
amount expended shall not exceed $10,800,000."
"Regulations T, U and X " means Regulation T,U and X as at any
time amended, of the Board of Governors of the Federal Reserve System, or any
other regulation in substance substituted therefor.
"Request for Standby Letter of Credit" means a written request
for the issuance of a Standby Letter of Credit substantially in the form of
Exhibit "C", signed by a Responsible Official of a Borrower on behalf of the
Borrowers and properly completed to provide all information required to be
included therein.
"Request for Loan" means a written request for a Loan
substantially in the form of Exhibit "D", signed by a Responsible Official of a
Borrower on behalf of the Borrowers and properly completed to provide all
information required to be included therein.
"Request for Redesignation of Loans" means a written request for
redesignation of Loans substantially in the form of Exhibit "E", signed by a
Responsible Official of a Borrower on behalf of the Borrowers and properly
completed to provide all information required to be included therein.
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<PAGE> 17
"Requisite Banks" means, at any time, Banks holding at least 70%
of the aggregate unpaid amount of the Loans outstanding, or, if no Loans then
are outstanding, Banks having at least 70% of the aggregate Commitment then in
effect.
"Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member banks of the
Federal Reserve System for eurocurrency liabilities, as defined in Regulation D,
rounded upward to the nearest 1/100th of one percent. The percentage will be
expressed as a decimal, and will include, without limitation, marginal,
emergency, supplemental, special, and other reserve percentages.
"Responsible Official" means:
(a) When used with reference to any Person, other than an
individual, any corporate officer of such Person, general partner of such
Person, corporate officer of a corporate general partner of such Person, or
corporate officer of a corporate general partner of a partnership that is a
general partner of such Person, or any other responsible official thereof duly
acting on behalf thereof; and
(b) When used with reference to a Person who is an
individual, such Person.
Except as otherwise specifically provided herein, any requirement that
any document or certificate be signed or executed by any Person requires that
such document or certificate be signed or executed by a Responsible Official of
such Person, and that the Responsible Official signing or executing such
document or certificate on behalf of such Person shall be authorized to do so by
all necessary corporate, partnership and/or other action.
"Right of Others" means, as to any Property in which a Person has
an interest, any legal or equitable claim, right, title or other interest (other
than a Lien) in or with respect to that Property held by any other Person, and
any option or right held by any other Person to acquire any such claim, right,
title or other interest, including any option or right to acquire a Lien.
"SCC, Inc." means The Sports Club Company, Inc., a Delaware
corporation.
"Special Eurodollar Circumstance" means the application or
adoption of any Law or interpretation, or any change therein or thereof, or any
change in the interpretation or administration thereof by any Governmental
Agency, central bank or comparable authority charged with the interpretation or
administration thereof, or compliance by any Bank or its Eurodollar Lending
Office with any request or directive (whether or not having the force of Law) of
any such Governmental Agency, central bank or comparable authority, or the
existence or occurrence of
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<PAGE> 18
circumstances affecting the Designated Eurodollar Market generally, in each
case, that is beyond the reasonable control of such Bank.
"Standby Letter of Credit" means any standby letter of credit
issued by the Issuing Bank pursuant to Section 2.6, in the standard form for
standby letters of credit of the Issuing Bank, either as originally issued or as
the same may from time to time be supplemented, modified, amended, renewed or
extended.
"Subsidiary" means, as of any date of determination thereof and
with respect to any Person, any corporation, limited liability company,
partnership or joint venture, whether now existing or hereafter organized or
acquired: (a) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors or other
governing body (other than securities having such power only by reason of the
happening of a contingency) are at the time owned by such Person and/or one or
more Subsidiaries of such Person, or (b) in the case of a partnership, joint
venture or limited liability company, of which such Person or a Subsidiary of
such Person is a general partner or joint venturer or of which a majority of the
partnership or other ownership interests are at the time owned by such Person
and/or one or more of its Subsidiaries.
"Tangible Net Worth" means, as of any date of determination
thereof, the consolidated net worth of Borrowers, excluding goodwill, patents,
trademarks, trade names, organization expenses, capitalized acquisition
expenses, deferred tax assets and money due from any Affiliate, officers,
directors or shareholders of Borrowers or their Subsidiaries, determined in
accordance with generally accepted accounting principles, consistently applied.
"The Sports Club/Irvine" means the athletic club owned by Irvine
Sports Club, Inc. located at 1980 Main Street, Irvine, California.
"The Sports Club/LA" means the athletic club owned by L.A./Irvine
Sports Clubs, Ltd. located at 1835 Sepulveda Boulevard, West Los Angeles,
California.
"Thousand Oaks Sale/Leaseback" means the consummation of the sale
of certain real property assets and improvements at the Thousand Oaks Site to
Equity Advisory Group, and the subsequent reduction of the outstanding balance
of Loans extended by Banks under this Agreement.
"to the best knowledge of" means, when modifying a
representation, warranty or other statement of any Person, that the fact or
situation described therein is known by the Person (or, in the case of a Person
other than a natural Person, known by a Responsible Official of that Person)
making the representation, warranty or other statement, or with the exercise of
reasonable due diligence under the circumstances (in accordance with the
standard of what a reasonable Person in similar circumstances would have done)
should have been known by the Person (or, in the case of a
16
<PAGE> 19
Person other than a natural Person, should have been known by a Responsible
Official of that Person).
"Total Unsubordinated Liabilities" means, as of any date of
determination thereof, the sum of (a) all liabilities that should be reflected
as a liability in a consolidated balance sheet of Borrowers and its Subsidiaries
on such date prepared in accordance with generally accepted accounting
principles, consistently applied, minus (b) subordinated debt as to which a
subordination agreement acceptable to Agent has been executed and all deferred
membership revenues, plus (c) the aggregate face amount of all outstanding
Standby Letters of Credit and other letters of credit issued at the request of
Borrowers; provided, however, that any amount described in clause (c) shall be
added only to the extent that the Standby Letter of Credit or other letter of
credit covers liabilities that would not be reflected in a consolidated balance
sheet of Borrowers and its Subsidiaries on such date.
"Total Outstanding" means, as of any date of determination
thereof, the sum of (a) all outstanding Loans evidenced by the Notes on that
date and (b) Outstanding Standby Letters of Credit.
"type", when used with respect to any Loan, means the designation
of whether such Loan is a Prime Rate Loan or a Eurodollar Loan.
1.2 Use of Defined Terms. Any defined term used in the plural shall
refer to all members of the relevant class, and any defined term used in the
singular shall refer to any one or more of the members of the relevant class.
1.3 Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be construed in conformity with, and all financial data
required to be submitted by this Agreement shall be prepared in conformity with,
generally accepted accounting principles applied on a consistent basis, as in
effect on the date hereof, except as otherwise specifically prescribed herein.
1.4 Exhibits and Schedules. All exhibits and schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference.
ARTICLE 2
LOANS AND LETTERS OF CREDIT
2.1 General Provisions Regarding Loans and Borrowing Procedures.
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(a) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time prior to the Maturity Date, each
Bank shall, pro rata according to that Bank's percentage of the then Commitment,
make Loans to Borrowers in such amounts as Borrowers may request that do not
exceed in the aggregate at any one time outstanding the amount of the
Commitment; provided that, Banks shall not be obligated to make a Loan if, after
giving effect to such Loan, the Total Outstanding would exceed $30,000,000.
Except as may otherwise be payable on an earlier date as provided in Section
3.1, all Obligations of Borrowers hereunder shall be due and payable on the
Maturity Date. Subject to the limitations set forth herein and in Section
3.1(e), Borrowers may borrow, repay and reborrow under the Commitment without
premium or penalty.
(b) Except as otherwise provided in Section 2.5(c), each Loan
shall be made pursuant to a written Request for Loan. Not later than 11:00 a.m.,
Los Angeles time, at least two (2) Banking Days prior to the date that a
proposed Loan is to be made (unless greater notice is required by Section 2.4),
Agent shall have received, at Agent's Office, a properly completed Request for
Loan specifying the requested (1) date of such Loan, (2) type of Loan, (3)
amount of such Loan, and (4) in the case of a Eurodollar Loan, specifying the
Eurodollar Period. Agent may, in its sole and absolute discretion, permit any
Request for Loan to be made by telephone or telecopier by a Responsible Official
of a Borrower on behalf of Borrowers, in which case such Borrower shall confirm
same by mailing or faxing a written Request for Loan to Agent within 48 hours
following the Loan. If Borrowers fail to make a written Request for Loan,
Borrowers hereby waive the right to dispute the amount, interest rate or term of
any such Loan made upon such telephone request.
(c) Promptly following receipt of a Request for Loan, Agent
shall notify each Bank by telephone, telecopier or Telex of the date and type of
the Loan, the applicable Eurodollar Period (in the case of a Eurodollar Loan),
and that Bank's pro rata portion of the Loan. Not later than 11:00 a.m., Los
Angeles time, on the date specified for any Loan, each Bank shall make its
portion of the Loan in immediately available funds available to Agent at Agent's
Office. Upon fulfillment of the applicable conditions set forth in Article 8,
all Loans shall be credited in immediately available funds to Borrowers'
Designated Deposit Account, or to such other deposit account of Borrowers with
Agent as Borrowers may specify in writing to Agent.
(d) Unless the Requisite Banks otherwise consent, the
aggregate amount of each Eurodollar Loan shall be in an integral multiple of
$250,000, and the aggregate amount of each Prime Rate Loan shall be in an
integral multiple of $100,000 or the balance of the Commitment.
(e) The Loans made by each Bank shall be evidenced by that Bank's
Note.
(f) A Request for Loan shall be irrevocable upon receipt by
Agent.
2.2 Intentionally Omitted.
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<PAGE> 21
2.3 Prime Rate Loans. All Loans shall constitute Prime Rate Loans unless
properly designated or redesignated as Eurodollar Loans pursuant to Sections 2.4
or 2.5.
2.4 Eurodollar Loans.
(a) Subject to the terms and conditions set forth in this
Agreement, Borrowers may, from time to time, designate all or any portion of the
Loans to be Eurodollar Loans.
(b) Each request by Borrowers for a Eurodollar Loan shall be
made pursuant to a Request for Loan received by Agent, at Agent's Office, not
later than 12:00 noon, Los Angeles time, at least three (3) Eurodollar Banking
Days before the first day of the applicable Eurodollar Period.
(c) At or about 10:00 a.m., Los Angeles time, two (2)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period, Agent shall determine the applicable Eurodollar Rate (which
determination shall be conclusive in the absence of manifest error) and promptly
shall give notice of the same to Borrowers and the Banks by telephone or
telecopier.
(d) Upon fulfillment of the applicable conditions set forth in
Article 8, a Eurodollar Loan shall become effective on the first day of the
applicable Eurodollar Period.
(e) Unless the Requisite Banks otherwise consent, no more than
six (6) Eurodollar Loans, in the aggregate, shall be outstanding at any one
time.
(f) Nothing contained herein shall require any Bank to fund
any Eurodollar Loan in the Designated Eurodollar Market.
2.5 Redesignation of Loans.
(a) Subject to Section 8.2, if any Eurodollar Loan is not
repaid or renewed on the last day of the applicable Eurodollar Period, such
Eurodollar Loan automatically shall be redesignated as a Prime Rate Loan on such
date.
(b) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time from the Closing Date until the
thirty-third day preceding the Maturity Date, Borrowers may request that all or
a portion of outstanding Prime Rate Loans be redesignated as a Eurodollar Loan
or that a maturing Eurodollar Loan be redesignated as a new Eurodollar Loan,
provided that no Loan redesignated as a Eurodollar Loan shall have a Eurodollar
Period expiring after the Maturity Date.
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<PAGE> 22
(c) Each redesignation of all or a portion of outstanding
Prime Rate Loans or to renew a maturing Eurodollar Loan as a Eurodollar Loan
shall be made pursuant to a written Request for Redesignation of Loans. Not
later than 12:00 noon, Los Angeles time, at least three (3) Eurodollar Banking
Days prior to the first day of the applicable Eurodollar Period, Agent shall
have received, at Agent's Office, a properly completed Request for Redesignation
of Loans specifying the requested (1) date of redesignation and (2) amount of
Loans to be redesignated as a Eurodollar Loan, and (3) the applicable Eurodollar
Period. Agent may, in its sole and absolute discretion, permit a Request for
Redesignation of Loans to be made by telephone by a Responsible Official of a
Borrower on behalf of the Borrowers, in which case such Borrower shall confirm
same by mailing or faxing a written Request for Redesignation of Loans to Agent
within 48 hours following the date of redesignation. If Borrowers fail to make a
written Request for Redesignation of Loans, Borrowers hereby waive the right to
dispute the amount, interest rate or term of any such Eurodollar Loan.
(d) Unless the Requisite Banks otherwise consent, the amount
of such Loans to be redesignated as a Eurodollar Loan shall be an integral
multiple of $250,000.
(e) With respect to any redesignation of a Loan as a
Eurodollar Loan, at or about 10:00 a.m., Los Angeles time, three (3) Eurodollar
Banking Days before the first day of the applicable Eurodollar Period, Agent
shall determine the applicable Eurodollar Rate (which determination shall be
conclusive in the absence of manifest error) and promptly shall give notice of
the same to Borrowers and the Banks by telephone or telecopier.
(f) Upon fulfillment of the applicable conditions set forth in
Article 8, the redesignation of all or a portion of outstanding Loans as a
Eurodollar Loan shall become effective on the first day of the applicable
Eurodollar Period.
(g) Nothing contained herein shall require any Bank to fund
any Eurodollar Loan resulting from redesignation of all or a portion of any of
its Prime Rate Loans, in the Designated Eurodollar Market.
(h) A request for Redesignation of Loans shall be irrevocable
upon receipt by Agent.
2.6 Standby Letters of Credit.
(a) Subject to the terms and conditions hereof, at any time
and from time to time from the Closing Date through the Banking Day immediately
preceding May 31, 2000 or other applicable Maturity Date, the Issuing Bank shall
issue such Standby Letters of Credit as a Responsible Official of a Borrower on
behalf of Borrowers may request by a Request for Standby Letter of Credit;
provided that, upon giving effect to such Standby Letter of Credit, (i) Total
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<PAGE> 23
Outstanding shall not exceed $30,000,000 and (ii) Outstanding Standby Letters of
Credit shall not exceed the Maximum Standby Letter of Credit Amount. Unless the
Requisite Banks otherwise consent in writing, the term of any Standby Letter of
Credit shall not exceed the Maturity Date. If on the Maturity Date, there exist
any Outstanding Standby Letters of Credit, Borrowers shall provide to Agent a
standby letter of credit issued by a bank satisfactory to the Requisite Banks,
in form and substance satisfactory to the Requisite Banks, in favor of Banks in
a face amount equal to the Outstanding Standby Letters of Credit on that date,
or shall make other provisions satisfactory to the Requisite Banks for the
collateralization or settlement of such Outstanding Standby Letters of Credit.
No Standby Letter of Credit shall be issued except in the ordinary course of
business of Borrowers or their Subsidiaries. Unless otherwise agreed to by the
Requisite Banks, the face amount of any Standby Letter of Credit shall not be
less than $250,000.
(b) Each Request for Standby Letter of Credit shall be
submitted to the Issuing Bank not later than 11:00 a.m., Los Angeles time, at
least five (5) Banking Days prior to the date upon which the requested Standby
Letter of Credit is to be issued and Borrowers shall execute such documents and
agreements relating to such Standby Letter of Credit as the Issuing Bank may
reasonably require. Upon issuance of a Standby Letter of Credit, the Issuing
Bank promptly shall notify Agent and Banks of the amount and terms thereof. The
Issuing Bank shall notify Agent and Banks within ten (10) days after the end of
each month of all payments, reimbursements, expirations, negotiations, transfers
and other activity during that month with respect to outstanding Standby Letters
of Credit.
(c) Upon the issuance of a Standby Letter of Credit, each Bank
shall be deemed to have purchased a pro rata participation therein from the
Issuing Bank in a amount equal to that Bank's pro rata share, according to its
percentage of the Commitment, of the face amount of the Standby Letter of
Credit. Without limiting the scope and nature of each Bank's participation in
any Standby Letter of Credit, to the extent that the Issuing Bank has not been
reimbursed by Borrowers for any payment required to be made by the Issuing Bank
under any Standby Letter of Credit, each Bank shall, pro rata according to its
participation, reimburse the Issuing Bank promptly upon demand for the amount of
such payment. The obligation of each Bank to so reimburse the Issuing Bank shall
be absolute and unconditional and shall not be affected by the occurrence of any
Event of Default or any other occurrence or event. Any such reimbursement shall
not relieve or otherwise impair the obligation of Borrowers to reimburse the
Issuing Bank for the amount of any payment made by the Issuing Bank under any
Standby Letter of Credit together with interest as hereinafter provided.
(d) Borrowers agree to pay to the Issuing Bank, at its Office
designated as the address for notices pursuant to this Agreement, or at such
other payment location as the Issuing Bank shall have specified in writing to
Borrowers, with respect to each Standby Letter of Credit, within one (1) Banking
Day after demand therefor, a principal amount equal to any payment made by the
Issuing Bank under that Standby Letter of Credit, together with interest on such
amount from
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<PAGE> 24
the date of any payment made by the Issuing Bank through the date of payment by
Borrowers at the rate provided for in Section 3.6. The principal amount of any
such payment made by Borrowers to the Issuing Bank shall be used to reimburse
the Issuing Bank for the payment made by it under the Standby Letter of Credit.
Each Bank that has reimbursed the Issuing Bank pursuant to Section 2.6(c) for
its pro rata share of any payment made by the Issuing Bank under a Standby
Letter of Credit thereupon shall acquire a pro rata participation, to the extent
of such reimbursement, in the claim of the Issuing Bank against Borrowers under
this Section 2.6(d).
(e) At all times prior to the Maturity Date, if Borrowers fail
to make any payment required by Section 2.6(d), Agent may, but is not required
to, without notice to or the consent of Borrowers, make Loans under the
Commitment in an aggregate amount equal to the amount paid by the Issuing Bank
on the relevant Standby Letter of Credit, whether or not the same would cause
the Commitment to exceed $30,000,000, and, for this purpose, the conditions
precedent set forth in Article 8 and the amount limitations set forth in Section
2.1(d) shall not apply. The proceeds of such Loans shall be retained by the
Issuing Bank to reimburse it for the payment made by it under the Standby Letter
of Credit.
(f) The issuance of any supplement, modification, amendment,
renewal or extension to or of any Standby Letter of Credit shall be treated in
all respects the same as the issuance of a new Standby Letter of Credit.
(g) The obligation of Borrowers to pay to the Issuing Bank the
amount of any payment made by the Issuing Bank under any Standby Letter of
Credit shall be absolute, unconditional and irrevocable. Without limiting the
foregoing, such obligation of Borrowers shall not be affected by any of the
following circumstances absent the Issuing Bank's gross negligence or willful
misconduct:
(i) any lack of validity or enforceability of the Standby
Letter of Credit, this Agreement, or any other agreement or instrument relating
thereto;
(ii) any amendment or waiver of or any consent to
departure from the Standby Letter of Credit, this Agreement, or any other
agreement or instrument relating thereto;
(iii) the existence of any claim, setoff, defense or other
rights which Borrowers may have at any time against any Bank, any beneficiary of
the Standby Letter of Credit (or any Persons or entities for whom any such
beneficiary may be acting) or any other Person, whether in connection with the
Standby Letter of Credit, this Agreement or any other agreement or instrument
relating thereto, or any unrelated transactions;
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(iv) any demand, statement or any other document presented
under the Standby Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect whatsoever;
(v) payment by the Issuing Bank under the Standby Letter
of Credit against presentation of a draft or any accompanying document which
does not strictly comply with the terms of the Standby Letter of Credit;
(vi) the solvency (or insolvency) or financial
responsibility (or lack thereof) of any party issuing any documents in
connection with a Standby Letter of Credit;
(vii) any error in the transmission of any message
relating to a Standby Letter of Credit, or any delay or interruption in any such
message not caused by the Issuing Bank; and/or
(viii) any error, neglect or default of any correspondent
of the Issuing Bank in connection with a Standby Letter of Credit.
2.7 Agent's Right to Assume Funds Available for Advances. Unless Agent
shall have been notified by any Bank at least two hours prior to the funding by
Agent of any Loan that such Bank does not intend to make available to Agent such
Bank's portion of the total amount of such Loan, Agent may assume that such Bank
has made such amount available to Agent on the date of the Loan and Agent may,
in reliance upon such assumption, make available to Borrowers a corresponding
amount. If such corresponding amount is not in fact made available to Agent by
such Bank, Agent shall be entitled to recover such corresponding amount on
demand from such Bank, which demand shall be made in a reasonably prompt manner.
If such Bank does not pay such corresponding amount forthwith upon Agent's
demand therefor, Agent promptly shall notify Borrowers and Borrowers shall pay
such corresponding amount to Agent. Agent also shall be entitled to recover from
such Bank or Borrowers, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was made
available by Agent to Borrowers to the date such corresponding amount is
recovered by Agent, at a rate per annum equal to the actual cost to Agent of
funding such amount as notified by Agent to such Bank or Borrowers, as the case
may be. Nothing herein shall be deemed to relieve any Bank from its obligation
to fulfill its share of the Commitment or to prejudice any rights which the
Agent or Borrowers may have against any Bank as a result of any default by such
Bank hereunder.
ARTICLE 3
PAYMENTS AND FEES
3.1 Principal and Interest.
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(a) Interest shall be payable on the outstanding daily unpaid
principal amount of each Loan from the date thereof until payment in full is
made and shall accrue and be payable at the rates set forth herein both before
and after default and before and after maturity and judgment, with overdue
amounts to bear interest at the rate set forth in Section 3.6, to the fullest
extent permitted by applicable Law. Upon any partial prepayment or redesignation
of outstanding Prime Rate Loans to Eurodollar Loans, interest accrued through
the date of such prepayment or redesignation shall be payable on the next
following interest payment date occurring pursuant to Section 3.1(b). Upon any
partial prepayment or payment in full or redesignation or conversion of any
Eurodollar Loan or upon any payment or redesignation in full of all outstanding
Prime Rate Loans, interest accrued through the date of such prepayment, payment,
redesignation or conversion shall be payable on such date.
(b) Interest accrued on each Prime Rate Loan shall be payable
on the first day of each month, commencing with the first such date to occur
after the Closing Date. Agent shall use its best efforts to notify Borrowers of
the amount of interest so payable prior to each interest payment date, but
failure of Agent to do so shall not excuse payment of such interest when
payable. Except as otherwise provided in Section 3.6, the unpaid principal
amount of any Prime Rate Loan shall bear interest at a fluctuating rate per
annum equal to the Prime Rate plus the applicable Prime Rate Spread. Each change
in the interest rate shall take effect simultaneously with the corresponding
change in the Prime Rate and/or the Prime Rate Spread. Each change in the Prime
Rate shall be effective as of 12:01 a.m. on the Banking Day on which the change
in the Prime Rate is announced, unless otherwise specified in such announcement,
in which case the change shall be effective as so specified.
(c) Interest accrued on each Eurodollar Loan shall be payable
on the first day of each month, commencing with the first such date to occur
after the Closing Date, and on the maturity date of that Eurodollar Loan. Agent
shall use its best efforts to notify Borrowers of the amount of interest so
payable prior to each interest payment date, but failure of Agent to do so shall
not excuse payment of such interest when payable. Except as otherwise provided
in Section 3.6, the unpaid principal amount of any Eurodollar Loan shall bear
interest at a rate per annum equal to the Eurodollar Rate for that Eurodollar
Loan plus the Eurodollar Rate Spread.
(d) If not sooner paid, the principal indebtedness under this
Agreement shall be payable as follows:
(i) subject to the right to renew or convert a Eurodollar
Rate Loan to a Prime Rate Loan, the principal amount of each Loan shall
immediately be payable in Cash on the Maturity Date or, in the case of a
Eurodollar Loan, on the last day of the Eurodollar Period for such Loan; and
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(ii) the principal indebtedness evidenced by the Notes
shall be payable in Cash within two (2) Banking Days in the amount by which the
aggregate outstanding amount of Loans at any time exceeds the Commitment. The
outstanding principal indebtedness evidenced by the Notes shall, in any event,
be payable on the Maturity Date.
(e) The Notes, or any of them, may, at any time and from time
to time, be paid or prepaid in whole or in part without premium or penalty,
except that (i) any partial prepayment shall be an integral multiple of
$100,000, (ii) Agent shall have received notice, by telephone or telecopier, of
any prepayment prior to 12:00 noon on the Banking Day of such prepayment (unless
greater notice is otherwise required by this Agreement), which notice shall
identify the date and amount of the prepayment and the Loan(s) being prepaid,
(iii) each prepayment of principal, except for partial prepayments of Prime Rate
Loans, shall be accompanied by payment of interest accrued through the date of
payment on the amount of principal paid, (iv) except as required by subsections
(d)(ii) above, no Eurodollar Loan may be paid or prepaid in whole or in part
prior to the last day of the applicable Eurodollar Period without the prior
consent of the Requisite Banks, and, notwithstanding such required prepayment or
such consent, any payment or prepayment of all or any part of Eurodollar Loan on
a day other than the last day of the applicable Eurodollar Period shall be made
on a Eurodollar Banking Day, as applicable, shall be preceded by at least four
(4) Eurodollar Banking Days' written notice to Agent of the date and amount of
such payment or prepayment, and shall be subject to Section 3.3(c).
(f) In addition to all other payments hereunder, Borrower
shall make mandatory reductions of the outstanding Loans upon the receipt of,
and in an amount equal to one hundred percent (100%) of, proceeds in excess of
$20,000,000 from either (i) the financing or re-financing of any real property
assets of Borrowers or Non-Borrower Affiliates to the extent such proceeds
exceed the existing debt associated with the respective real property or (ii) a
debt or equity offering; provided, however, that the terms and conditions of
such financing or re-financing or debt or equity offering, including the amount
and form of the proceeds thereof shall be acceptable to Agent and Requisite
Banks.
3.2 Commitment Fee. On the Closing Date, Borrowers shall pay to Banks a
commitment fee equal to .125% of the Commitment. Such commitment fee shall be
fully earned on the Closing Date.
3.3 Eurodollar Fees and Costs.
(a) If, after the date hereof, the existence or occurrence of
any Special Eurodollar Circumstance shall, in the reasonable discretion of any
Bank, make it unlawful, impossible or impracticable for such Bank or its
Eurodollar Lending Office to make or maintain any Eurodollar Loan, or materially
restrict the authority of such Bank to purchase or sell, or to take deposits of,
dollars in the Designated Eurodollar Market, or to determine or charge interest
rates
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based upon the Eurodollar Rate, then such Bank will notify Agent and such Bank's
obligation to make Eurodollar Loans shall be suspended for the duration of such
illegality, impossibility or impracticability and Agent forthwith shall give
notice thereof to the other Banks and Borrowers. Upon receipt of such notice,
the outstanding principal amount of such Bank's Eurodollar Loans, together with
accrued interest thereon, automatically shall be converted to Prime Rate Loans
on either (1) the last day of the Eurodollar Period(s) applicable to such
Eurodollar Loans if such Bank may lawfully continue to maintain and fund such
Eurodollar Loans to such day(s) or (2) immediately if such Bank may not lawfully
continue to fund and maintain such Eurodollar Loans to such day(s), provided
that in such event the conversion shall not be subject to payment of a
prepayment fee under Section 3.3(c). In the event that such Bank is unable, for
the reasons set forth above, to make, maintain or fund any Eurodollar Loan, such
Bank shall fund such amount as a Prime Rate Loan, and such amount shall be
treated in all respects as a Prime Rate Loan.
(b) If, with respect to any proposed Eurodollar Loan:
(1) Agent reasonably determines that, by reason of Special
Eurodollar Circumstances, deposits in dollars (in the applicable amounts) are
not being offered to each of the Banks in the Designated Eurodollar Market for
the applicable Eurodollar Period; or
(2) the Requisite Banks advise Agent that the Eurodollar
Rate as determined by the Banks (i) does not represent the effective pricing to
the Banks for deposits in dollars in the Designated Eurodollar Market in the
relevant amount for the applicable Eurodollar Period, or (ii) will not
adequately and fairly reflect the cost to such Banks of making the applicable
Eurodollar Loans;
then Agent forthwith shall give notice thereof to Borrowers and the
Banks, whereupon until Agent notifies Borrowers that the circumstances giving
rise to such suspension no longer exist, and the obligation of the Banks to make
any future Eurodollar Loans shall be suspended.
(c) Upon payment or prepayment of any Eurodollar Loan, or
conversion of a Eurodollar Loan to a Prime Rate Loan (other than as the result
of a conversion required under Section 3.3(a)), on a day other than the last day
in the applicable Eurodollar Period (whether voluntarily, involuntarily, by
reason of acceleration, or otherwise), Borrowers shall pay to the Banks an
amount equal to the accrued interest on the amount prepaid plus a prepayment fee
equal to the amount (if any) by which: (1) the additional interest which would
have been payable on the amount prepaid had it not been paid until the last day
of the Eurodollar Period, exceeds (2) the interest which would have been
recoverable by placing the amount prepaid on deposit in the Eurodollar market
for a period starting on the date on which it was prepaid and ending on the last
day of the Eurodollar Period for such portion, plus all reasonable out-of-pocket
expenses incurred by Banks and reasonably attributable to such payment or
prepayment; provided that no prepayment fee shall be payable (and no credit or
rebate shall be required) if the product of the foregoing formula is not
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positive. Each Bank's determination of the amount of any prepayment fee payable
under this Section 3.3(c) shall be conclusive in the absence of manifest error.
(d) Borrowers hereby indemnify each Bank against, and agree to
hold each Bank harmless from and reimburse each Bank on demand for, all
reasonable costs, expenses, claims, penalties, liabilities, losses, legal fees
and damages (including, without limitation, any interest paid by any Bank for
deposits in dollars in the Designated Eurodollar Market and any loss sustained
by any Bank in connection with the reemployment of funds) incurred or sustained
by such Bank, as reasonably determined by such Bank, as a result of any failure
of Borrowers to borrow on the date or in the amount specified in any Request for
Loan or Request for Redesignation of Loans; provided that such Bank shall not be
entitled to indemnification for any loss caused by its own gross negligence or
willful misconduct. The determination of such amount by each Bank shall be
conclusive in the absence of manifest error.
(e) Any Bank requesting any payment from Borrowers under this
Section 3.3, shall, at the request of Borrowers, provide reasonable detail to
Borrowers regarding the manner in which the amount of any such payment has been
determined.
3.4 Letter of Credit Fees. Borrowers shall pay to the Issuing Bank a
letter of credit fee of 1.5% of the face amount of the Standby Letter of Credit
for the term of each Standby Letter of Credit issued under Section 2.6, payable
at the time of issuance. Each Standby Letter of Credit fee is earned upon
issuance of each Standby Letter of Credit and is nonrefundable. The Issuing Bank
promptly shall make available to Agent in immediately available funds, and Agent
promptly shall make available to Banks in immediately available funds, pro rata
according to their percentages of the Commitment, the portion of each Standby
Letter of Credit fee which is for the account of Banks as aforesaid.
3.5 Agent Fee. From time to time hereafter, Borrowers shall pay fees to
Agent as agreed between Borrowers and Agent in a separate agreement.
3.6 Late Payments/Default Rate.
(a) Should any installment of principal or interest or any fee
or cost or other amount payable under any Loan Document to Agent or any Bank not
be paid when due, such installment shall thereafter bear interest at a
fluctuating interest rate per annum at all times equal to two percent (2.0%)
above the then prevailing applicable Prime Rate based interest rate for all
Loans made hereunder, to the fullest extent permitted by applicable Law. Accrued
and unpaid interest on past due amounts (including, without limitation, interest
on past due interest) shall be compounded monthly, on the last day of each
calendar month, to the fullest extent permitted by applicable Law and payable on
the first day of the following month.
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(b) Upon the occurrence and during the continuance of any
other Event of Default, at the option of the Requisite Banks, Borrowers shall
pay interest on the outstanding principal and interest at the Default Rate. This
shall not constitute a waiver of any Event of Default.
3.7 Computation of Interest and Fees. All computations of interest and
fees under any Loan Document that relate to any Prime Rate Loan or any
Eurodollar Loan shall be calculated on the basis of a year of 360 days and the
actual number of days elapsed.
3.8 Non-Banking Days. If any payment to be made by Borrowers or any
other Party under any Loan Document shall come due on a day other than a Banking
Day (and a Eurodollar Banking Day, in the case of a Eurodollar Loan), payment
shall be made on the next succeeding Banking Day (and, in the case of a
Eurodollar Loan, the next succeeding Eurodollar Banking Day that is also a
Banking Day) and the extension of time shall be reflected in computing interest.
3.9 Manner and Treatment of Payments.
(a) Borrowers agree that interest and principal payments and
any fees will be deducted automatically on the due date from the Designated
Deposit Account, or any other accounts of Borrowers held by Agent which contain
sufficient funds. Such debits shall occur on the dates the payments become due.
If the due date does not fall on a Banking Day, Agent will cause such debits to
be made on the first Banking Day following the due date. Borrowers shall
maintain sufficient funds in the Designated Deposit Account on the dates Agent
enters debits authorized by this Agreement. If there are insufficient funds in
the Designated Deposit Account or the other accounts of Borrowers on the date
Agent enters any debit authorized by this Agreement, Borrowers shall
immediately, after notice from Agent, pay such shortfall to Agent. The amount of
all payments received by Agent for the account of each Bank shall be immediately
paid by Agent to the applicable Bank in immediately available funds. All
payments shall be made in lawful money of the United States of America.
(b) Each Bank shall use its best efforts to keep a record of
Loans made by it and payments received by it with respect to each Note and such
record shall be presumptive evidence of the amounts owing.
(c) Each payment or prepayment on account of any Loan shall be
made and applied pro rata according to the outstanding Loans made by each Bank.
(d) Each payment of any amount payable by Borrowers and/or any
other Party under this Agreement and/or any other Loan Document shall be made
free and clear of, and without reduction by reason of, any taxes, assessments or
other charges imposed by any Governmental Agency, central bank or comparable
authority.
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3.10 Funding Sources. Nothing in this Agreement shall be deemed to
obligate Agent or any Bank to obtain the funds for any Loan in any particular
place or manner or to constitute a representation by Agent or any Bank that it
has obtained or will obtain the funds for any Loan in any particular place or
manner.
3.11 Failure to Charge Not Subsequent Waiver. Any decision by Agent or
any Bank not to require payment of any interest (including default interest),
fee, cost or other amount payable under any Loan Document on any occasion shall
in no way limit or be deemed a waiver of Agent's or such Bank's right to require
full payment of any interest (including default interest), fee, cost or other
amount payable under any Loan Document on any other or subsequent occasion.
3.12 Agent's Right to Assume Payments Will be Made by Borrowers. Unless
Agent shall have been notified by Borrowers prior to the date on which any
payment to be made by Borrowers hereunder is due that Borrowers do not intend to
remit such payment, Agent may, in its discretion, assume that Borrowers will
make such payment when so due and Agent may, in its discretion and in reliance
upon such assumption, make available to each Bank on such payment date an amount
equal to such Bank's share of such assumed payment. If Borrowers do not in fact
make such payment to Agent, each Bank shall forthwith on demand repay to Agent
the amount of such assumed payment made available to such Bank, together with
interest thereon in respect of each day from and including the date such amount
was made available by Agent to such Bank to the date such amount is repaid to
Agent at a rate per annum equal to the actual cost to Agent of funding such
amount as notified by Agent to such Bank.
3.13 Survivability. All of Borrowers' obligations under this Article 3
shall survive for one year following the date on which all Loans hereunder are
fully paid.
3.14 Unused Line Fee. On the last day of each calendar quarter,
commencing with the first such date to occur after the Closing Date, Borrower
shall pay to Banks a fee of .25% per annum based on the difference between the
Commitment and an amount equal to the weighted average Total Outstanding during
the previous quarterly period or portion thereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to Agent and each Bank, as of the
Closing Date, that:
4.1 Existence and Qualification; Power; Compliance With Laws.
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(a) SCC, Inc. is a corporation duly formed, validly existing and
in good standing under the Laws of Delaware. The chief executive offices of SCC,
Inc. are in Los Angeles, California.
(b) The Spectrum Club Company, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(c) Pontius Realty, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of California. Its chief executive
offices are in Los Angeles, California.
(d) Sports Club, Inc. of California is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(e) Irvine Sports Club, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(f) The SportsMed Company, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(g) SCC Sports Club, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of Texas. Its chief executive
offices are in Los Angeles, California.
(h) L.A./Irvine Sports Clubs, Ltd. is a limited partnership duly
formed, validly existing and in good standing under the Laws of California. Its
chief executive offices are in Los Angeles, California.
(i) Talla New York, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of New York. Its chief executive
offices are in Los Angeles, California.
(j) Green Valley Spectrum Club, Inc. is a corporation duly
formed, validly existing and in good standing under the Laws of Nevada. Its
chief executive offices are in Los Angeles, California.
(k) Spectrum Club/Anaheim is a corporation duly formed, validly
existing and in good standing under the Laws of California. Its chief executive
offices are in Los Angeles, California.
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Each Borrower is duly qualified or registered to transact business and is in
good standing in each other jurisdiction in which the conduct of its business or
the ownership or leasing of its Properties makes such qualification or
registration necessary, except where the failure so to qualify or register and
to be in good standing would not have a material adverse effect on the business,
operations or condition (financial or otherwise) of such Borrower and its
Subsidiaries, taken as a whole. Each Borrower has all requisite power and
authority to conduct its business, to own and lease its Properties and to
execute, deliver and perform all of its Obligations under the Loan Documents.
All outstanding shares of capital stock of each Borrower, as applicable, are
duly authorized, validly issued, fully paid, non-assessable and issued in
compliance with all applicable state and federal securities and other Laws. Each
Borrower is in compliance with all Laws and other legal requirements applicable
to its business, has obtained all authorizations, consents, approvals, orders,
licenses and permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing from, any
Governmental Agency that are necessary for the transaction of its business,
except where the failure so to comply, file, register, qualify or obtain
exemptions would not have a material adverse effect on the business, operations
or condition (financial or otherwise) of such Borrower and its Subsidiaries,
taken as a whole.
4.2 Authority; Compliance With Other Agreements and Instruments and
Government Regulations. The execution, delivery and performance by each Borrower
and its Subsidiaries of the Loan Documents to which it is a Party have been duly
authorized by all necessary action, and do not and will not:
(a) Except as set forth in Schedule 4.2, require any consent or
approval not heretofore obtained of any partner, director, stockholder, security
holder or creditor;
(b) Violate or conflict with any provision of such Party's
partnership agreement, certificate of limited partnership, charter, articles of
incorporation or bylaws, or amendments thereto, as applicable;
(c) Result in or require the creation or imposition of any Lien
or Right of Others (other than as provided under the Loan Documents) upon or
with respect to any Property now owned or leased or hereafter acquired by such
Party;
(d) Violate any provision of any Law (including, without
limitation, Regulations T, U and/or X of the Board of Governors of the Federal
Reserve System), order, writ, judgment, injunction, decree, determination or
award presently in effect and having applicability to such Party; or
(e) Result in a breach of or constitute a default under, or cause
or permit the acceleration of any obligation owed under, any indenture or loan
or credit agreement or any other
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material agreement, lease or instrument to which such Party is a party or by
which such Party or any of its Property is bound or affected;
and no Borrower nor any Subsidiary thereof is in default under any Law, order,
writ, judgment, injunction, decree, determination or award, or any indenture,
agreement, lease or instrument described in this Section 4.2(e), in any respect
that is materially adverse to the interests of Agent or any Bank or that would
have any material adverse effect on the business, operations or condition
(financial or otherwise) of Borrowers and their Subsidiaries, taken as a whole.
4.3 No Governmental Approvals Required. No authorization, consent,
approval, order, license or permit from, or filing, registration or
qualification with, or exemption from any of the foregoing from, any
Governmental Agency is or will be required to authorize or permit under
applicable Law the execution, delivery and performance by any Borrower or any
Subsidiary thereof of the Loan Documents to which it is a Party.
4.4 Subsidiaries.
(a) Except as described in Schedule 4.4, Borrowers do not own any
capital stock, partnership interest, joint venture interest or other equity
interest in any Person. Unless otherwise indicated in Schedule 4.4 all of the
outstanding shares of capital stock or partnership or joint venture interests of
each Borrower are owned of record and beneficially by Borrowers and all
securities and interests so owned are duly authorized, validly issued, fully
paid, non-assessable and issued in compliance with all applicable state and
federal securities and other Laws, and are free and clear of all Liens and
Rights of Others.
(b) Each Subsidiary identified in Schedule 5.2 as an "Inactive
Subsidiary" has (i) aggregate collections or distributions of cash from its
operations of less than $50,000 and (ii) no tangible or intangible real or
personal property assets having an aggregate fair market value in excess of
$50,000.
(c) Each Subsidiary of each Borrower is a legal entity of the
form described for that Subsidiary in Schedule 4.4, duly formed, validly
existing and in good standing under the Laws of its jurisdiction of formation,
is duly qualified or registered to transact business and is in good standing in
each other jurisdiction in which the conduct of its business or the ownership or
leasing of its Properties makes such qualification or registration necessary,
except where the failure so to qualify or register and to be in good standing
does not have a material adverse effect on the business, operations or condition
(financial or otherwise) of the Borrowers and their Subsidiaries, taken as a
whole, and has all requisite legal power and authority to conduct its business
and to own and lease its Properties and to execute, deliver and perform all of
its Obligations under the Loan Documents.
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(d) Each Subsidiary of each Borrower is in compliance with all
Laws and other legal requirements applicable to its business, has obtained all
authorizations, consents, approvals, orders, licenses and permits from, and has
accomplished all filings, registrations and qualifications with, or obtained
exemptions from any of the foregoing from, any Governmental Agency that are
necessary for the transaction of its business, except where the failure to so
comply, file, register, qualify or obtain exemptions would not have a material
adverse effect on the business, operations or condition (financial or otherwise)
of the Borrowers and their Subsidiaries, taken as a whole.
4.5 Financial Statements. Borrowers have furnished to Agent and Banks
(a) the audited consolidated balance sheet of Borrowers and their Subsidiaries
as at December 31, 1997, and audited consolidated income statement and cash flow
statement of Borrowers and their Subsidiaries for their fiscal year then ended,
and (b) the unaudited consolidated balance sheets of Borrowers and their
Subsidiaries as at September 30, 1998, and unaudited consolidated income
statements, cash flow statements of Borrowers and their Subsidiaries and
unaudited individual Club operating statements for such month and for the
portion of their fiscal year ended with such month. Such financial statements
fairly present the financial condition, results of operations and cash flow of
Borrowers and their Subsidiaries as at such dates and for such periods, in
conformity with generally accepted accounting principles, consistently applied,
provided that the balance sheets and statements referred to in (b) above are
subject to normal year-end audit adjustments.
4.6 No Other Liabilities; No Material Adverse Changes. Except as set
forth in Schedule 4.6 hereto, Borrowers and their Subsidiaries do not have any
material liability or material contingent liability not reflected or disclosed
in the financial statements or notes thereto described in Section 4.5. There has
been no material adverse change in the business, operations or condition
(financial or otherwise) of Borrowers and their Subsidiaries, taken as a whole,
since the date of the financial statements described in Section 4.5(b).
4.7 Intangible Assets. Borrowers and their Subsidiaries own, or possess
the unrestricted right to use, all trademarks, trade names, copyrights, patents,
patent rights, licenses and deferred tax assets that are used in the conduct of
their businesses as now operated, and no such intangible asset, to the best
knowledge of Borrowers, conflicts with the valid trademark, trade name,
copyright, patent, patent right or deferred tax asset of any other Person to the
extent that such conflict would have a material adverse effect on the business,
operations or condition (financial or otherwise) of Borrowers and their
Subsidiaries, taken as a whole.
4.8 Filing of Financing Statements. Upon the filing and/or recording of
financing statements describing the Collateral with the Governmental Agencies
listed in Schedule 4.8, and except for the requirement that continuation
statements periodically be filed and/or recorded with respect thereto, and upon
the taking of possession of the stock certificates of any and all Borrowers,
other than SCC, Inc., all necessary steps will have been taken to fully perfect
and to maintain fully
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perfected the Liens of Agent and Banks on the Collateral, to the fullest extent
that such Liens may be perfected pursuant to Article 9 of the Uniform Commercial
Code.
4.9 Public Utility Holding Company Act. No Borrower or any Subsidiary
thereof is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
4.10 Litigation. Except for (a) the matters set forth in Schedule 4.10,
(b) any matter fully covered as to subject matter and amount (subject to
applicable deductibles and retentions) by insurance for which the insurance
carrier has not asserted lack of subject matter coverage or reserved its right
to do so, or (c) any matter, or series of related matters, involving a
threatened claim against Borrowers of less than $100,000, there are no actions,
suits or proceedings pending or, to the best knowledge of Borrowers, threatened
against or affecting Borrowers or any of its Subsidiaries or any Property of any
of them in any court of Law or before any Governmental Agency.
4.11 Binding Obligations. Each of the Loan Documents to which any
Borrower or any Subsidiary thereof is a Party will, when executed and delivered
by such Party, constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms.
4.12 No Default. No event has occurred and is continuing that is a
Default.
4.13 ERISA.
(a) Except as disclosed in Schedule 4.13, there are no Plans.
(b) With respect to each Plan:
(1) such Plan complies in all material respects with ERISA
and any other applicable Law;
(2) such Plan has not incurred any material "accumulated
funding deficiency", as that term is defined in Section 302 of ERISA;
(3) no "reportable event" (as defined in Section 4043 of
ERISA) has occurred that could result in the termination or disqualification of
such Plan; and
(4) no Borrower nor any Subsidiary thereof has engaged in
any "prohibited transaction" (as defined in Section 4975 of the Internal Revenue
Code of 1954, as amended).
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(c) no Borrower nor any Subsidiary thereof is or has been a party
to any Multi employer Plan.
(d) Borrowers and their Subsidiaries are in compliance with each
covenant contained in Section 6.6.
4.14 Regulations T, U and X; Investment Company Act. No Borrower nor any
of its Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" or "margin security" within the meanings of
Regulations T, U or X, respectively, of the Board of Governors of the Federal
Reserve System. If requested by Agent or any Bank, Borrowers will furnish or
will cause their Subsidiaries, as requested, to furnish Agent or any Bank with a
statement or statements in conformity with the requirements of Federal Reserve
Form U-1 referred to in Regulation U of said Board of Governors. No part of the
proceeds of any Loan hereunder will be used to purchase or carry any such
"margin security" or "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any such "margin security" or "margin stock"
in violation of Regulations T, U or X of said Board of Governors. No Borrower
nor any of its Subsidiaries is or is required to be registered under the
Investment Company Act of 1940.
4.15 Disclosure. No written statement made by Borrowers or any
Subsidiary thereof to Agent or any Bank in connection with this Agreement, or in
connection with any Loan, or in connection with the issuance of any Standby
Letter of Credit, contains any untrue statement of a material fact or omits a
material fact necessary to make the statement made not misleading. To the best
knowledge of Borrowers, there is no fact which Borrowers have not disclosed to
Agent and Banks in writing which materially and adversely affects nor, so far as
Borrowers can now foresee, is reasonably likely to prove to affect materially
and adversely the business, operations, Properties, prospects, profits or
condition (financial or otherwise) of Borrowers and their Subsidiaries, taken as
a whole, or the ability of Borrowers and their Subsidiaries to perform their
Obligations under the Loan Documents.
4.16 Tax Liability. Borrowers and their Subsidiaries have filed all
income tax returns which are required to be filed, and have paid, or made
provision for the payment of, all taxes which have become due pursuant to said
returns or pursuant to any assessment received by any Borrower or any Subsidiary
thereof, except such taxes, if any, as are being contested in good faith and as
to which adequate reserves have been provided.
4.17 Projections. The financial projections set forth in Schedule 4.17
are based on facts known to Borrowers and on assumptions that are reasonable and
consistent with such facts. To the best knowledge of Borrowers, except as may be
disclosed on Schedule 4.17, no material fact or assumption is omitted as a basis
for such projections, and such projections are reasonably based on
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such facts and assumptions. Nothing in this Section 4.17 shall be construed as a
representation that such projections in fact will be achieved.
4.18 Fiscal Year. Borrowers and their Subsidiaries each operate on a
fiscal year corresponding to the calendar year and ending on December 31, the
fiscal months of which correspond to the calendar months of the calendar year.
4.19 Employee Matters. There is no strike, work stoppage or labor
dispute with any union or group of employees pending or overtly threatened
involving Borrowers or any of their Subsidiaries. Since June 1996, there has
been no increase in the salary, bonus or other compensation arrangements of the
employees of Borrowers and their Subsidiaries other than normal increases in the
ordinary course of business.
ARTICLE 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
So long as any Loan or any other indebtedness owing in connection
therewith remains unpaid hereunder or any portion of the Commitment remains
outstanding, Borrowers shall, and shall cause each of its Subsidiaries to,
unless the Requisite Banks otherwise consent in writing:
5.1 Payment of Taxes and Other Potential Charges. Pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon
any of them, upon their respective Property or any part thereof, upon their
respective income or profits or any part thereof or upon any right or interest
of Agent or any Bank under any Loan Document, except that Borrowers and their
Subsidiaries shall not be required to pay or cause to be paid (a) any income or
gross receipts tax generally applicable to banks or (b) any tax, assessment,
charge or levy that is not yet past due, or is being contested in good faith by
appropriate proceedings, so long as the relevant entity has established and
maintains adequate reserves for the payment of the same and by reason of such
nonpayment and contest no material item or portion of Property of Borrowers and
their Subsidiaries, taken as a whole, is in jeopardy of being seized, levied
upon or forfeited.
5.2 Preservation of Existence. Preserve and maintain their respective
existences, except for mergers permitted in Section 6.3 of this Agreement.
Preserve and maintain all material licenses, rights, franchises and privileges
in the jurisdiction of their formation and all authorizations, consents,
approvals, orders, licenses, permits, or exemptions from, or registrations with,
any Governmental Agency that are necessary for the transaction of their
respective business. Qualify and remain qualified to transact business in each
jurisdiction in which such qualification is necessary in view of their
respective business, except any Subsidiaries listed in Schedule 5.2 that are
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inactive or have immaterial assets. With respect to any Subsidiaries listed in
Schedule 5.2 that are inactive or have immaterial assets, Borrowers shall
immediately give Agent and Banks written notice of any change in such entities'
respective existences or statuses of qualification.
5.3 Maintenance of Properties. Maintain, preserve and protect all of
their respective Properties and equipment in good order and condition, subject
to replacement wear and tear in the ordinary course of business, and not permit
any waste of their respective Properties, except that the failure to maintain,
preserve and protect a particular item of Property or equipment that is not of
significant value, either intrinsically or to the operations of Borrowers and
their Subsidiaries, taken as a whole, shall not constitute a violation of this
covenant.
5.4 Maintenance of Insurance. Maintain liability and casualty insurance
with responsible insurance companies acceptable to the Requisite Banks in such
amounts and against such risks as is usually carried by responsible companies
engaged in similar businesses and owning similar Properties in the general areas
in which Borrowers and their Subsidiaries operate; and, as requested by the
Agent, cause Agent and Banks to be designated as additional insured and loss
payees with respect to such insurance, and obtain the written agreement of such
insurers that such insurance shall not be canceled or terminated, nor shall the
coverage or terms or exclusions thereof be materially modified, without at least
thirty (30) days prior written notice to Agent.
5.5 Compliance With Laws. Comply with the requirements of all applicable
Laws and orders of any Governmental Agency, noncompliance with which could
materially adversely affect the business, operations or condition (financial or
otherwise) of Borrowers and their Subsidiaries, taken as a whole, except that
Borrowers and their Subsidiaries need not comply with a requirement then being
contested by any of them in good faith by appropriate proceedings so long as no
interest of Agent or any Bank would be materially impaired thereby.
5.6 Additional Borrowers. In the event (i) the aggregate amount of all
advances to, investments in or commitments to any Non-Borrower Affiliate by
Borrowers, after the date hereof, exceeds at any time $200,000, in addition to
the amounts set forth for the Non-Borrower Affiliates in Schedule 5.6, but
excluding accrued management fees owing to Borrowers from such Non-Borrower
Affiliates, (ii) any Non-Borrower Affiliate identified in Schedule 5.2 ceases to
meet the criteria for an "Inactive Subsidiary" set forth in Section 4.4(b) of
this Agreement, (iii) any Borrower becomes a majority shareholder or a general
partner of any Non-Borrower Affiliate now or hereafter existing, or (iv) any
Borrower or Borrowers, taken as a whole, obtain a majority of the partnership or
other ownership interests of any Non-Borrower Affiliate, Borrowers shall cause
such Non-Borrower Affiliate to become a Borrower hereunder or enter into such
other agreement or arrangement with Banks concerning such Non-Borrower Affiliate
as may be acceptable to the Requisite Banks in its sole discretion. In order to
add a Non-Borrower Affiliate as a Borrower hereunder, the Borrowers shall
deliver to Agent and Banks (a) the agreement of such Non-Borrower Affiliate to
be added as a Borrower hereunder and to be bound by the terms hereof, (b) the
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agreement of the owners of all capital stock or other ownership interests, as
applicable, of such new Borrower to become a party to the Pledge Agreement, (c)
the certificates and other documents required to be delivered pursuant to the
terms of the Pledge Agreement, and (d) such other documents as the Requisite
Banks may reasonably require. Schedule 5.6 attached hereto sets forth as of the
date hereof the amount of all advances to, investments in or commitments to any
Non-Borrower Affiliate by Borrowers, the percentage ownership of each Borrower
in any Non-Borrower Affiliate, and Borrowers which are general partners of any
Non-Borrower Affiliate.
5.7 Inspection Rights. Upon reasonable notice by Agent or any Bank to
Borrowers, at any time during regular business hours and as reasonably
requested, permit Agent or any Bank, or any employee, agent or representative
thereof, to examine, audit and make copies and abstracts from the records and
books of account and to visit and inspect the Properties of Borrowers and their
Subsidiaries and to discuss the affairs, finances and accounts of Borrowers and
their Subsidiaries with any of their officers and key employees, customers or
vendors, and, upon request, furnish promptly to Agent or any Bank true copies of
all financial information and internal management reports made available to the
senior management of Borrowers or any of their Subsidiaries. If any of
Borrowers' Property, books or records are in the possession of a third party,
Borrowers, upon not less than three (3) days' advance notice, hereby authorize
such third party to permit Agent or Banks to have access to perform inspections
or audits and to respond to Agent's or a Bank's request for information
concerning such Property, books or records. If an Event of Default has occurred
and is continuing, no advance notice of any audits and inspections shall be
required.
5.8 Keeping of Records and Books of Account. Keep adequate records and
books of account reflecting all financial transactions in conformity with
generally accepted accounting principles, consistently applied, and in material
conformity with all applicable requirements of any Governmental Agency having
regulatory jurisdiction over Borrowers or any of their Subsidiaries.
5.9 Compliance With Agreements, Duties and Obligations. Promptly and
fully comply with all their respective agreements, duties and obligations under
the Loan Documents, and with material terms of any other material agreements,
indentures, leases and/or instruments to which any one or more of them is a
party, whether such other agreements, indentures, leases and/or instruments are
with Agent and any Bank or another Person.
5.10 Use of Proceeds. Use the proceeds of the Loans for the following
purposes only: (i) for working capital purposes; (ii) for Capital Expenditures;
(iii) for Standby Letters of Credit; (iv) to fund non-hostile Acquisitions; and
(v) to fund New Club Developments.
ARTICLE 6
NEGATIVE COVENANTS
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So long as any Loan or other indebtedness owing in connection therewith
remains unpaid hereunder or any portion of the Commitment remains outstanding,
Borrowers shall not (and shall cause each of their Subsidiaries to not) unless
the Requisite Banks otherwise consent in writing:
6.1 Disposition of Property. Sell, assign, exchange, transfer, lease or
otherwise dispose of, or contract to sell, assign, exchange, transfer, lease or
otherwise dispose of, any of their respective Properties, whether now owned or
hereafter acquired, and whether to an Affiliate or otherwise, except (a)
Properties sold, assigned, exchanged, transferred, leased or otherwise disposed
of in the ordinary course of business, and (b) as permitted under Section 6.3.
6.2 Transactions with Borrowers and Non-Borrower Affiliates. Advance
funds to, guarantee obligations of, or make any other investments in or
commitments or make distributions to any Non-Borrower Affiliate unless (a) such
Non-Borrower Affiliate is made a Borrower under this Agreement or some other
arrangement acceptable to the Requisite Banks in their sole discretion is made
in accordance with Section 5.6, or (b) the aggregate amount of all advances to,
guaranties of, investments in and commitments to all Non-Borrower Affiliates
does not exceed $200,000, in addition to the amounts set forth for the
Non-Borrower Affiliates in Schedule 5.6, but excluding accrued management fees
owing to Borrowers from such Non-Borrower Affiliates, Borrowers shall provide
Agent and Banks a monthly report detailing such transactions, such report to be
in a form as is acceptable to Agent and Requisite Banks. The Borrowers shall
have the right, with the consent of the Requisite Banks, not to be unreasonably
withheld but subject to such terms and conditions as the Requisite Banks may
require, to add any Non-Borrower Affiliate as a Borrower hereunder.
6.3 Mergers, Acquisitions and New Club Developments.
(a) Merge, consolidate or amalgamate with or into any Person,
except mergers, consolidations or amalgamations of a Subsidiary of a Borrower
into a Borrower (with such Borrower as the surviving entity) prior notice of the
details of which shall have been given to Agent and Banks, or mergers,
consolidations or amalgamations in connection with an Acquisition or New Club
Development permitted pursuant to Section 6.3(b) or 6.3(c).
(b) Make any Acquisition or enter into any agreement to make
any Acquisition, provided that the consent of the Requisite Banks shall not be
required in connection with any Acquisition satisfying the following conditions:
(i) such Acquisition requires payment of an amount of less than either (A)
$10,000,000 of total consideration in connection with such Acquisition alone or
(B) $15,000,000 of total consideration when such Acquisition is combined with
all other Acquisitions made by Borrowers during the twelve months prior to such
Acquisition, excluding Borrowers' investment in the Vertical Club and Borrowers'
investment in any Acquisition previously approved by the Requisite Banks, (ii)
such Acquisition is not for a sum greater than seven and one-half times the
EBITDA of the acquired entity, with adjustments acceptable to Banks for
identifiable savings which will occur as a result of such Acquisition, or (iii)
such Acquisition is
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not of an entity engaged in a business different from that of Borrowers. In
connection with an Acquisition meeting the above requirements, the Borrowers may
enter into a partnership or a corporate or other joint venture with one or more
unaffiliated Persons.
(c) Pursue any New Club Development, provided that the consent
of the Requisite Banks shall not be required for a New Club Development
satisfying the following conditions: (i) such New Club Development is projected
to generate positive EBITDA for the twelve-month period commencing on the first
anniversary following completion of such New Club Development; and (ii)
Borrowers do not expend more than $5,000,000 on such New Club Development alone
or more than $10,000,000 when the expenditures for such New Club Development are
combined with all other New Club Development expenditures during the twelve
months prior to the commencement of such New Club Development, exclusive of
expenditures in connection with existing development projects already approved
by Banks, including those development projects described on Schedule 6.3(c).
(d) In any event, no more than three mergers, Acquisitions or
New Club Developments in the "pre sale phase of development" shall be pursued at
any given time. "Pre sale phase of development" shall mean the period during
which memberships in the new Clubs are offered for sale prior to the date the
Club opens for business.
(e) Prior to any Acquisition, Borrowers shall deliver to Agent
and Banks (i) an executive summary of the Acquisition in form and substance
acceptable to Agent and Banks, (ii) a multi-year financial forecast, including
assumptions, (iii) a pro forma financial statement giving effect to the proposed
Acquisition, (iv) a pro forma compliance certificate executed by a Responsible
Official of a Borrower certifying that giving effect to the proposed
Acquisition, Borrowers shall be in compliance with the terms of this Section 6.3
and all other terms and financial covenants set forth in this Agreement, (v) a
schedule of sources and uses of funds, and (vi) such other details about such
Acquisition as Agent or any Bank may reasonably request. Prior approval by the
Requisite Banks shall be required for every Acquisition other than those
permitted under Section 6.3(b) above.
(f) Prior to any New Club Development, Borrowers shall deliver
to Agent and Banks (i) an executive summary detailing the development project,
demographic and site analysis, cost estimates and financing sources, (ii) a
multi-year financial forecast, including assumptions, demonstrating positive
projected EBITDA for the twelve-month period commencing on the first anniversary
following completion of such New Club Development, (iii) a pro forma compliance
certificate executed by a Responsible Officer of a Borrower certifying that
giving effect to the proposed development, Borrowers shall be in compliance with
the terms of this Section 6.3 and all other terms and financial covenants set
forth in this Agreement, and (iv) such other details about such development as
Agent or any Bank may reasonably request. Prior approval by the Requisite
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Banks shall be required for every New Club Development other than those
permitted under Section 6.3(c) above.
(g) Banks acknowledge prior receipt of a request from
Borrowers for funding an amount not to exceed $10,000,000 in connection with the
purchase of land and a building by The Spectrum Club Company, Inc. and its
development as a new Spectrum Club in Thousand Oaks, California (the "Thousand
Oaks Club"). Funding for the Thousand Oaks Club New Club Development has been
approved subject to the following:
(i) the occurrence of no material adverse change with
respect to Borrowers or the proposed Acquisition and no Default having occurred
prior to such funding or which would occur as a result of such funding; and
(ii) such other evidence of full compliance with all other
terms and conditions of this Agreement as Agent or any Bank shall reasonably
request both before and after such Acquisition.
(h) Concurrent with the execution and delivery of this
Agreement, Banks acknowledge receipt of a request from Borrowers to permit
Borrowers to make a net investment not to exceed $24,000,000 for the Acquisition
and development of the Vertical Club in New York City. In connection with such
request, Borrowers have provided Banks with the information package attached
hereto as Exhibit F (the "Vertical Club Materials"). Banks have approved
Borrowers' Acquisition and development of the Vertical Club subject to the
following:
(i) the occurrence of no material adverse change with
respect to Borrowers or the proposed Acquisition and development from the
information reflected in the Vertical Club Materials, and no Default having
occurred prior to such funding or which would occur as a result of such funding;
(ii) Borrowers' adherence to the budgets and time lines
provided in the Vertical Club Materials, as such budgets and time lines may be
refined in the quarterly project development status reports delivered by
Borrowers to Agent pursuant to Section 7.1(n) hereof, with material
modifications approved by Banks; and
(iii) such other evidence of full compliance with all
other terms and conditions of this Agreement as Agent or any Bank shall
reasonably request both before and after such Acquisition.
(i) Concurrent with the execution and delivery of this
Agreement, Banks acknowledge receipt of a request from Borrowers to permit
Borrowers to make a net investment not to exceed $20,800,00 for a New Club
Development of a Sports Club in Houston (the "Houston
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Sports Club"). In connection with such request, Borrowers have provided Banks
with the information package attached hereto as Exhibit G (the "Houston Sports
Club Materials"). Banks have approved Borrowers' development of the Houston
Sports Club subject to the following:
(A) the occurrence of no material change with respect to
Borrowers or the proposed development from the information reflected in the
Houston Sports Club Materials, and no default having occurred prior to such
funding or which would occur as a result of such funding;
(B) Borrowers' adherence to the budgets and time lines
provided in the Houston Sports Club Materials, as such budgets and time lines
may be refined in the quarterly project development status reports delivered by
Borrower to Agent pursuant to Section 7.1(n) hereof, with material modifications
approved by Banks; and
(C) such other evidence of full compliance with all other
terms and conditions of this Agreement as Agent or any Bank shall reasonably
request both before and after such development.
(j) Notwithstanding the right of Borrowers' pursuant to
Section 6.3(b) and (c) above to make certain Acquisitions or pursue certain New
Club Developments without obtaining the prior consent of the Requisite Banks,
Borrowers shall notify Agent of, or submit to Agent a formal request for
approval of, as applicable, any and all intended Acquisitions or New Club
Developments prior to entering into a definitive purchase agreement, in the case
of any intended Acquisition, or, in the case of any intended New Club
Development, upon the earlier of (i) the approval of such New Club Development
by the Board of Directors of the applicable Borrower or (ii) the applicable
Borrower's execution of any contract or expenditure of any money which would
financially obligate such Borrower to proceed with such New Club Development.
6.4 Profitability. Fail to maintain on a combined basis a positive net
income after taxes and extraordinary items on a quarterly basis except as a
result of Borrowers' payment of the prepayment penalty in connection with the
prepayment of their financing obligations to AT&T Commercial Finance
Corporation.
6.5 Redemption, Dividends and Distributions; Payments to Partners.
Redeem or repurchase stock or partnership interests, declare or pay any
dividends or make any other distribution, whether of capital, income or
otherwise, and whether in Cash or other Property, except that, subject to
applicable statutory restrictions and provided no Event of Default exists or
would exist after such action, (a) any Borrower or Subsidiary of a Borrower may,
subject to Section 6.2, declare and pay dividends or make distributions directly
or indirectly to another Borrower, (b) SCC, Inc. may make a Qualified Stock
Repurchase, (c) Borrowers and Subsidiaries may, subject to Section 6.2, pay
partner distributions as required under the partnership agreements as currently
in effect as of the date hereof, or with such amendments as are approved in
writing by the Requisite Banks, of
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L.A./Irvine Sports Clubs, Ltd., El Segundo TDC, Ltd., Sports Connection-ES/MB
and Reebok-Sports Club/NY or any other entity approved in writing by the
Requisite Banks pursuant to Section 5.6 of this Agreement, (d) Borrowers and
Subsidiaries may declare or make operating distributions or declare or pay
dividends or make distributions in connection with the purchase of partnership
interests in L.A./Irvine Sports Clubs, Ltd., El Segundo TDC, Ltd., Sports
Connection-ES/MB and/or Reebok-Sports Club/NY or any other entity approved in
writing by the Requisite Banks pursuant to Sections 5.6 and 6.2 of this
Agreement, and (e) The SportsMed Company, Inc. and/or HFA Services, Inc. shall
have the right to repurchase securities pursuant to the terms of the
Shareholders Agreements previously entered into by HFA Services, Inc., copies of
which Shareholders Agreements have been delivered to Banks, as such Shareholders
Agreements are currently in effect as of the date hereof, or with such
amendments as are approved in writing by the Requisite Banks, provided that The
SportsMed Company, Inc. and/or HFA Services, Inc. shall not expend more than
$750,000 in the aggregate during the term of this Agreement in connection with
such repurchases of securities.
6.6 ERISA.
(a) At any time, maintain, or be or become obligated to
contribute on behalf of its employees to, any Plan, other than those Plans
disclosed in Schedule 4.13.
(b) At any time, permit any Plan to:
(1) engage in any "prohibited transaction", as such term
is defined in Section 4975 of the Internal Revenue Code of 1954, as amended;
(2) incur any material "accumulated funding deficiency",
as that term is defined in Section 302 of ERISA; or
(3) terminate in a manner which could result in liability
of Borrowers or any Subsidiary thereof to the Plan or to the PBGC or the
imposition of a Lien on the Property of Borrowers or any Subsidiary thereof
pursuant to Section 4068 of ERISA.
(c) At any time, assume any obligation to contribute to any
Multiemployer Plan, nor shall Borrowers or any Subsidiary thereof acquire any
Person or assets of any Person which has, or has had at any time from and after
January 2, 1974, an obligation to contribute to any Multiemployer Plan.
(d) Fail immediately to notify Agent and Banks of the
occurrence of any "reportable event" (as defined in Section 4043 of ERISA) or of
any "prohibited transaction" (as defined in Section 4975 of the Internal Revenue
Code of 1954, as amended) with respect to any Plan or any trust created
thereunder. Upon request by Agent or any Bank, Borrowers promptly shall
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furnish to Agent and Banks copies of any reports or other documents filed by
Borrowers or any Subsidiary thereof with the United States Secretary of Labor,
the PBGC and/or the Internal Revenue Service, with respect to any Plan.
(e) At any time, permit any Plan to fail to comply with ERISA or
other applicable Law in any material respect.
6.7 Change in Nature of Business/Management. Make any material change in
the nature of the business of Borrowers and their Subsidiaries, as conducted and
presently proposed to be conducted, or remove or allow removal of D. Michael
Talla, John Gibbons or Timothy O'Brien from any management position presently
held by him, unless evidence of satisfactory progress to procure a replacement
acceptable to the Requisite Banks is delivered to Agent and Banks within 30 days
thereafter.
6.8 Real Property Leases. Enter into one or more real property lease
agreements (exclusive of any real property lease agreements in connection with a
New Club Development or an Acquisition previously approved by the Requisite
Banks) requiring lease payments by Borrowers or any of them in excess of
$1,500,000 per annum or enter into one or more real property lease agreements on
or after the date of this Agreement which, when taken together with real
property lease agreements entered into prior to the date of this Agreement, will
cause the aggregate amount of lease payments to be made by Borrowers to exceed
$14,000,000 in calendar 1999 or $20,200,000 in calendar 2000.
6.9 Indebtedness, Guaranties and Liens. Create, incur, assume or suffer
to exist any Lien of any nature upon or with respect to any of their respective
Properties, whether now owned or hereafter acquired; create, incur or assume any
indebtedness for borrowed money or in connection with the purchase of Property
or any liability to the issuer of any letter of credit; guaranty or otherwise
become responsible (including, but not limited to, any agreement to purchase any
obligations, stock, Property, goods or services or to supply or advance any
funds, Property, goods or services) for the indebtedness or obligations of any
other Person; or incur any lease obligation that is required to be capitalized
under generally accepted accounting principles, except:
(a) Indebtedness and Liens securing obligations incurred in
the ordinary course of business and incurred in connection with purchase money
transactions including real estate or equipment or fixture purchases, provided
that the amount of such transactions involving purchases of new equipment for
existing Clubs (i.e., other than in connection with Acquisitions or New Club
Developments, as permitted by Section 6.12) shall not exceed an aggregate amount
of $1,500,000 principal (or the equivalent thereof) in any one fiscal year;
(b) Intentionally omitted;
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(c) Intentionally omitted;
(d) Liens securing the claims or demands of materialmen,
mechanics, and other like Persons not yet delinquent or being contested in good
faith by appropriate proceedings and for which appropriate reserves are
maintained;
(e) Indebtedness, liabilities, guaranties or Liens in favor of
Agent and Banks under this Agreement, the Notes and the other Loan Documents;
(f) Indebtedness and Liens listed on Schedule 6.9 or
Indebtedness and Liens arising out of the extension or refinancing of the
obligations of Borrowers described on Schedule 6.9, provided that such
obligations are not increased and are not secured by any additional property;
(g) Guaranties arising from endorsement, in the ordinary course
of collection, of negotiable instruments;
(h) Indebtedness and Liens for taxes and assessments or other
government charges or levies if not yet due and payable or, if due and payable,
which are being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(i) Liens under workers' compensation, unemployment insurance,
social security, or similar legislation, if they are being contested in good
faith by appropriate proceedings and for which appropriate reserves are
maintained; and
(j) Trade credit for goods and services provided to the
Borrowers and the Subsidiaries in the ordinary course of business.
6.10 Transactions with Affiliates. Enter into any transaction of any
kind with any Affiliate of Borrowers other than (a) transactions between or
among Borrowers and their Subsidiaries so long as, as a result of such
transactions, the aggregate amount advanced to, invested in or committed to any
Non-Borrower Affiliate on or after January 1, 1997, does not exceed $200,000,
(b) arms-length transactions with Affiliates which are permitted with
non-Affiliates pursuant to Sections 6.1, 6.3, 6.5, and (c) those transactions
listed in Schedules 6.10 and 6.17.
6.11 Change in Fiscal Year. Change its fiscal year, or the fiscal months
thereof.
6.12 Capital Expenditures and Purchase Money Transactions. Make or incur
obligations for Capital Expenditures in the aggregate for Borrowers and their
Subsidiaries in any fiscal year in excess of five percent (5.0%) of Borrowers'
net revenues derived from operation of the Clubs for such fiscal year before
restatements for acquisitions accounted for using the pooling method of
accounting. For the purpose of determining compliance by Borrowers and their
Subsidiaries with
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the foregoing covenant, the following Capital Expenditures and indebtedness and
Liens securing obligations incurred in connection with purchase money equipment
financings ("Purchase Money Indebtedness and Liens") shall be excluded:
(i) Capital Expenditures made and Purchase Money Indebtedness
and Liens incurred in connection with, and no later than one year following the
consummation of, an Acquisition for which the consent of Banks is not required
pursuant to Section 6.3(b), so long as the aggregate amount of such Capital
Expenditures and Purchase Money Indebtedness and Liens and of all other
expenditures relating to such Acquisition do not exceed the respective limits on
total consideration for such Acquisition set forth in Section 6.3(b);
(ii) Capital Expenditures made and Purchase Money Indebtedness
and Liens incurred in connection with, and no later than one year following the
consummation of, an Acquisition for which the consent of Banks is required
pursuant to Section 6.3(b), so long as the aggregate amount of such Capital
Expenditures and Purchase Money Indebtedness and Liens and of all other
expenditures relating to such Acquisition do not exceed the total consideration
limit imposed for such Acquisition by Banks in issuing their approval of such
Acquisition;
(iii) Capital Expenditures made and Purchase Money Indebtedness
and Liens incurred in connection with, and no later than 90 days following the
opening of the related new Club, a New Club Development for which the consent of
Banks is not required pursuant to Section 6.3(c), so long as the aggregate
amount of such Capital Expenditures and Purchase Money Indebtedness and Liens
and of all other expenditures relating to such New Club Development do not
exceed the respective limits on total consideration for such New Club
Development set forth in Section 6.3(c); and
(iv) Capital Expenditures made and Purchase Money Indebtedness
and Liens incurred in connection with, and no later than 90 days following the
opening of the related new Club, a New Club Development for which the consent of
Banks is required pursuant to Section 6.3(c), so long as the aggregate amount of
such Capital Expenditures and Purchase Money Indebtedness and Liens and of all
other expenditures relating to such New Club Development do not exceed the total
consideration limit imposed by Banks in issuing their approval of such New Club
Development.
6.13 Tangible Net Worth. Permit Tangible Net Worth, as of the last day
of any fiscal quarter of Borrowers and their Subsidiaries ending during any
period specified below, to be less than $77,000,000 plus 80% of Borrowers'
cumulative net income after December 31, 1997 not reduced by net losses and
increased by one hundred percent (100%) of funds generated from any equity
offering occurring after May 31, 1998.
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6.14 Ratio of Total Unsubordinated Liabilities to Tangible Net Worth.
Permit the ratio of Total Unsubordinated Liabilities to Tangible Net Worth, as
of the last day of any fiscal quarter of Borrowers and their Subsidiaries to be
greater than 1.25:1.00.
6.15 Debt Service Coverage Ratio. For Borrowers and their Subsidiaries,
permit the ratio of (i) EBITDA to (ii) interest expense on all indebtedness plus
the current portion of long term debt of Borrowers to be less than 2.00:1.00,
with such ratio to be calculated at the end of each fiscal quarter (x) on a
cumulative annualized basis for each fiscal quarter beginning with the second
quarter of Borrowers' and their Subsidiaries' 1998 fiscal year and continuing
through and including the fourth quarter of Borrowers' and their Subsidiaries'
1998 fiscal year, and (y) on a rolling four-quarter basis for each fiscal
quarter ending after the fourth quarter of Borrowers' and their Subsidiaries
1998 fiscal year. For the purpose of calculation only, the $4,000,000 balloon
payment due November 1999 under the Sports Club/Irvine note shall be excluded.
6.16 Intentionally Omitted.
6.17 Loans to Officers. Make any loans, advances or other extensions of
credit to any of Borrowers' executives, officers, directors, shareholders or
employees (or any relatives of any of the foregoing) in an aggregate amount
exceeding $200,000, other than those set forth on Schedule 6.17.
6.18 Deposit Accounts. Establish any deposit accounts in the name of any
Borrower or any Subsidiary without prior notice to Agent.
6.19 Ratio of Funded Debt to EBITDA. Permit the ratio of (i) Funded Debt
to (ii) EBITDA, as of the last day of the fiscal quarter of Borrowers and their
Subsidiaries, calculated at the end of each such quarter on a rolling four (4)
quarter basis, to be greater than 3.75:1.00.
ARTICLE 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 Financial and Business Information. So long as any Loan remains
unpaid, or any other Obligation remains unpaid or unperformed, or any portion of
the Commitment remains outstanding, Borrowers shall, in addition to complying
with the requirements of Section 8.3 of this Agreement, and unless the Requisite
Banks otherwise consent in writing, deliver to Agent, at Borrowers' sole
expense:
(a) As soon as practicable, and in any event within 30 days
after the end of each fiscal month of Borrowers, (i) consolidated balance sheets
of Borrowers and their Subsidiaries as at the end of such month, setting forth
in comparative form the corresponding figures as at the end of the corresponding
month of their preceding fiscal year, (ii) Club operating statements of each
Club
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as at the end of such month, (iii) consolidated income statements of Borrowers
and their Subsidiaries for such month and for the portion of their fiscal year
ended with such month, setting forth in comparative form the corresponding
figures for the corresponding periods of their preceding fiscal year and (iv)
consolidated cash flow statements of Borrowers and their Subsidiaries for the
portion of their fiscal year ended with such month, setting forth in comparative
form the corresponding figures for the corresponding periods of their preceding
fiscal year, all in reasonable detail. The preceding financial statements shall
be certified by a Responsible Official of a Borrower as fairly presenting the
financial condition, results of operations and cash flow of Borrowers and their
Subsidiaries in accordance with generally accepted accounting principles,
consistently applied, as at such date and for such periods, subject only to
normal year-end audit adjustments.
(b) As soon as practicable, and in any event within 45 days
after the end of each quarter of Borrowers (including the last quarter of each
fiscal year, provided that with respect to such last quarter the financial
statements required hereby may be in preliminary form, prior to year-end audit
adjustments), (i) consolidated balance sheets of Borrowers and their
Subsidiaries as at the end of such quarter, setting forth in comparative form
the corresponding figures as at the end of the corresponding quarter of their
preceding fiscal year, (ii) consolidated income statements of Borrowers and
their Subsidiaries for such quarter and for the portion of their fiscal year
ended with such quarter, setting forth in comparative form the corresponding
figures for the corresponding periods of their preceding fiscal year and (iii)
consolidated cash flow statements of Borrowers and their Subsidiaries for the
portion of their fiscal year ended with such quarter, setting forth in
comparative form the corresponding figures for the corresponding periods of
their preceding fiscal year, all in reasonable detail.
The preceding financial statements shall be certified by a Responsible
Official of a Borrower as fairly presenting the financial condition, results of
operations and cash flow of Borrowers and their Subsidiaries in accordance with
generally accepted accounting principles, consistently applied, as at such date
and for such periods, subject only to normal year-end audit adjustments.
(c) As soon as practicable, and in any event within 90 days
after the close of each fiscal year of Borrowers, (i) consolidated balance
sheets of Borrowers and their Subsidiaries as at the end of such fiscal year,
setting forth in comparative form the corresponding figures as at the end of
their preceding fiscal year, and (ii) consolidated income statements and cash
flow statements of Borrowers and their Subsidiaries for such fiscal year,
setting forth in comparative form the corresponding figures for their previous
fiscal year, all in reasonable detail. Such balance sheets and statements shall
be prepared in accordance with generally accepted accounting principles,
consistently applied, and such consolidated balance sheet and consolidated
statements shall be accompanied by a report and unqualified opinion of
independent public accountants of recognized standing selected by Borrowers and
reasonably satisfactory to the Requisite Banks, which report and opinion shall
be prepared in accordance with generally accepted auditing principles as at such
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date, and shall be subject only to such qualifications and exceptions as are
acceptable to the Requisite Banks in the exercise of their reasonable
discretion.
(d) As soon as practicable, and in any event within 30 days
after the end of each month of Borrowers, a Certificate of a Responsible
Official of a Borrower setting forth a schedule of Capital Expenditures made by
Borrowers and/or their Subsidiaries during such month, and during their fiscal
year to date, separately for each Club.
(e) As soon as practicable, and in any event within 30 days
after the start of each fiscal year of Borrowers, a monthly budget for the then
started fiscal year including, without limiting the generality of the foregoing,
monthly projected consolidated balance sheets, income statements and cash flow
statements of Borrowers and their Subsidiaries and individual Club operating
statements, all in reasonable detail.
(f) Within 30 days following the end of each month, a
membership information report for each Club and in the aggregate in the form now
prepared by Borrowers on a monthly basis, reflecting no less than the
immediately preceding consecutive six months, and reflecting the number of
members, the number of new memberships sold and the gross reduction in number of
memberships, and supplemented by such additional information as Agent may
request.
(g) Within 30 days after the close of each fiscal year of
Borrowers, Borrowers' budget of capital expenditures for capital improvements,
replacements and other related purposes for the following fiscal year.
(h) Within the earlier of 5 days after (i) the same are filed
with the Securities and Exchange Commission ("SEC") or (ii) the same are
required to be filed with the SEC, subject to allowable SEC extensions, copies
of each annual report, proxy or financial statement or other report or
communication sent to the shareholders of Borrowers, and copies of all annual,
regular, periodic and special reports and registration statements which
Borrowers may file or be required to file with the Securities and Exchange
Commission or any similar or corresponding Governmental Agency or with any
securities exchange.
(i) Within 5 days after receipt of copies of all correspondence
and notices received by Borrowers from the Internal Revenue Service ("IRS")
relating to any adverse action or determination by the IRS in respect of any
Borrower's tax status under the Internal Revenue Code.
(j) Immediately upon becoming aware of the existence of any
condition or event which constitutes a Default, a written notice specifying the
nature and period of existence thereof and what action Borrowers or their
Subsidiaries are taking or propose to take with respect thereto.
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(k) Promptly upon request by Agent or the Requisite Banks,
copies of any detailed audit reports submitted to Borrowers or any of their
Subsidiaries by independent accountants in connection with the accounts or books
of Borrowers or any of their Subsidiaries, or any audit of any of them.
(l) Promptly after request by Agent or the Requisite Banks,
copies of any report or other document filed by Borrowers or any of their
Subsidiaries with any Governmental Agency.
(m) Promptly upon becoming aware that any Person asserts a
claim against Borrowers or any of their Subsidiaries in excess of $500,000 and
that such Person has given notice or taken any other action with respect to a
claimed default or event of default, a written notice specifying the notice
given or action taken by such Person and the nature of the claimed default or
event of default and what action Borrowers or their Subsidiaries are taking or
propose to take with respect thereto.
(n) As soon as practicable, and in any event within 45 days
after the end of each fiscal quarter of Borrowers, a project development status
report in form and substance acceptable to Agent and Banks, which shall include,
at a minimum, a timetable for architectural and construction design, permitting,
construction milestones, as may be available, as well as an estimated date for
completion. Such report also shall include the budget as originally approved by
the Board of Directors of the applicable Borrower or Subsidiary and by Banks, as
well as any material modifications that have been approved by Banks or which may
require such approval.
(o) Such other data and information as from time to time may
be reasonably requested by Agent or the Requisite Banks.
7.2 Compliance Certificates. So long as any Loan remains unpaid, or any
other Obligation remains unpaid or unperformed, or any portion of the Commitment
remains outstanding, Borrowers shall, unless the Requisite Banks otherwise
consent in writing, deliver to Agent, at Borrowers' sole expense, not later than
45 days after the end of each fiscal quarter of Borrower, a Certificate of a
Responsible Official of a Borrower (a) setting forth computations showing, in
detail satisfactory to the Requisite Banks, whether Borrowers and their
Subsidiaries were in compliance with their obligations pursuant to Sections 6.11
through 6.16, inclusive; (b) setting forth computations showing, in detail
satisfactory to the Requisite Banks, the Applicable Pricing Level; (c) stating
that a review of the activities of Borrowers and their Subsidiaries during such
fiscal period has been made under supervision of the certifying Responsible
Official with a view to determining whether during such fiscal period Borrowers
and their Subsidiaries performed and observed all their respective Obligations
under the Loan Documents, and either (i) stating that, to the best knowledge of
the certifying Responsible Official, during such fiscal period, Borrowers and
their Subsidiaries performed and observed each covenant and condition of the
Loan Documents applicable to them, or (ii) if Borrowers and their Subsidiaries
have not performed and observed such covenants and
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conditions, specifying all such Defaults and their nature and status; (d)
stating that the Properties of Borrowers and their Subsidiaries are being
maintained and are in reasonable working order and condition, ordinary
replacement wear and tear excepted; and (e) stating that (i) the real property
assets of Borrowers are free and clear of all Liens other than the respective
Liens of the MKDG/Rhodes SC Partnership on the land, improvements and building
of the Sports Club/Irvine and of Hawthorne Savings on the land, improvements and
building of the Sports Club/Agoura Hills (the "Existing Real Property Liens"),
(ii) there has been no increase in the amount of any indebtedness or liability
secured by each Existing Real Property Lien during such fiscal quarter, (iii) no
real property assets of Borrowers have been sold, assigned, exchanged,
transferred, leased or otherwise conveyed or disposed of to any Person, and (iv)
no Borrower has entered into any agreement to do any of the foregoing.
7.3 Revisions or Updates to Schedules. Should any of the information or
disclosures provided on any of the Schedules originally attached hereto become
outdated or incorrect in any material respect, upon request by Agent, Borrowers
promptly shall provide to Agent such revisions or updates to such Schedule(s) as
may be necessary or appropriate to update or correct such Schedule(s); provided
that no such revisions or updates to any Schedule(s) shall be deemed to have
amended, modified or superseded such Schedule(s) as originally attached hereto,
or to have cured any breach of warranty or representation resulting from the
inaccuracy or incompleteness of any such Schedule(s), unless and until the
Requisite Banks, in their sole and absolute discretion, shall have accepted in
writing such revisions or updates to such Schedule(s).
7.4 New Club Development Project Reports. So long as any Loan
remains unpaid, or any other Obligation remains unpaid or unperformed, or any
portion of the Commitment remains outstanding, Borrowers shall, unless the
Requisite Banks otherwise consent in writing, deliver to Agent, at Borrower's
sole expense, not later than 10 days after the end of each calendar month, a
Certificate of a Responsible Official of a Borrower, in form and substance
satisfactory to Agent, setting forth the name of each New Development Project
and the aggregate amount of funds expended in connection with each such New
Development Project to and including the last day of such calendar month.
ARTICLE 8
CONDITIONS
8.1 Initial Loans, Etc. The obligation of each Bank to make the initial
Loans and to issue the initial Standby Letter of Credit, each are subject to the
following conditions precedent (in addition to any applicable conditions
precedent set forth elsewhere in this Article 8), each of which shall be
satisfied prior to or concurrently with the making of the initial Loans and the
issuance of the initial Standby Letter of Credit (unless Banks, in their sole
and absolute discretion, shall agree otherwise):
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(a) Agent shall have received all of the following, each of which
shall be originals unless otherwise specified, each properly executed by
a Responsible Official of each party thereto, each dated as of the
Closing Date and each in form and substance satisfactory to Agent and
its legal counsel (unless otherwise specified or, in the case of the
date of any of the following, unless Agent otherwise agrees or directs):
(1) six executed counterparts of this Agreement;
(2) the Notes executed by Borrowers payable to the order
of Banks;
(3) with respect to each Borrower and any and each
Subsidiary thereof, such documentation as Agent may require to
establish the due organization, valid existence and good standing
of such Borrower and each such Subsidiary, its qualification to
engage in business in each jurisdiction in which it is engaged in
business or required to be so qualified, its authority to
execute, deliver and perform any Loan Documents to which it is a
Party, and the identity, authority and capacity of each
Responsible Official thereof authorized to act on its behalf,
including, without limitation, certified copies of articles of
incorporation and amendments thereto, bylaws and amendments
thereto, partnership agreements, certificates of limited
partnerships, certificates of good standing and/or qualification
to engage in business, certificates of corporate resolutions,
incumbency certificates, Certificates of Responsible Officials,
and the like;
(4) such Loan Documents as Agent or Requisite Banks may
require pledging Property of Borrowers and/or any of their
Subsidiaries, together with such related financing statements or
other documents as Agent or Requisite Banks may request to
perfect, effect, facilitate, consent to, give notice of or
otherwise evidence any Liens created thereby;
(5) the Global Collateral Documents Amendment;
(6) the Opinion of Counsel;
(7) a Certificate of a Responsible Official of Borrowers
certifying that the conditions specified in Sections 8.1(c) and
8.1(d) have been satisfied;
(8) evidence that all Liens or Rights of Others on or in
the Property of Borrowers and/or their Subsidiaries (other than
such Liens and Rights of Others as are permitted by Section 6.8)
have been terminated or discharged; and
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(9) such other certificates, documents, consents or
opinions as Agent or Requisite Banks reasonably may require.
(b) Duly executed financing statements with respect to the
Collateral shall have been filed and/or recorded with such Governmental
Agencies, and in such jurisdictions and locales, as Agent or Requisite
Banks may specify.
(c) The representations and warranties of Borrowers contained in
Article 4 shall be true and correct as of the date made or reaffirmed.
(d) Borrowers and their Subsidiaries and any other Parties shall
be in compliance with all the terms and provisions of the Loan
Documents, and no Default shall have occurred and be continuing.
(e) The fees referred to in Sections 3.2 and 3.5 have been paid
to Banks and/or Agent, as applicable.
8.2 Any Loan. In addition to any applicable conditions precedent set
forth elsewhere in this Article 8, the obligation of Banks to make any Loan, to
redesignate any Loan, and issue any Standby Letter of Credit are subject to the
following conditions precedent:
(a) except (i) for representations and warranties which speak as
of a particular date or are no longer true and correct as a result of a
change which is permitted by this Agreement or (ii) as disclosed by
Borrowers and approved in writing by the Requisite Banks, the
representations and warranties contained in Article 4 shall be true and
correct on and as of the date of the Loan or redesignation or issuance
or creation, as the case may be, as though made on and as of that date;
(b) except for (i) the matters set forth in Schedule 4.10, (ii)
any matter fully covered as to subject matter and amount (subject to
applicable deductibles and retentions) by insurance for which the
insurance carrier has not asserted lack of subject matter coverage or
reserved its right to do so, or (iii) any matter, or series of related
matters, involving a claim against Borrowers of less than $100,000,
there shall be no actions, suits or proceedings pending against or
affecting Borrowers or any of their Subsidiaries or any Property of any
of them in any court of Law or before any Governmental Agency which
might reasonably be expected to have a material adverse effect on the
business, operations or condition (financial or otherwise) of Borrowers
and their Subsidiaries, taken as a whole;
(c) no material adverse change shall have occurred in the
business, operations or condition (financial or otherwise) of Borrowers
and their Subsidiaries, taken as a whole, since the Closing Date;
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(d) no Default shall have occurred and be continuing;
(e) Agent shall have timely received a properly completed Request
for Loan, Request for Redesignation of Loans or Request for Standby
Letter of Credit, as the case may be, in compliance with all applicable
provisions of Article 2; and Agent shall have received, dated as of the
date of the Loan or redesignation or issuance or creation, as the case
may be, a Certificate of a Responsible Official of a Borrower to the
effect that all of the above conditions have been satisfied, with any
changes or exceptions thereto being described in a schedule attached to
such certificate and with such changes or exceptions being subject to
the approval of the Requisite Banks; and
(f) Agent shall have received, in form and substance satisfactory
to the Requisite Banks such other certificates, documents or consents as
the Requisite Banks reasonably may require.
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
9.1 Events of Default. The existence or occurrence of any one or more of
the following events, whatever the reason therefor, shall constitute an Event of
Default:
(a) Borrowers fail to pay any installment of principal or
interest on any indebtedness on any of the Notes or any portion thereof,
or to reimburse Agent or any Bank for any payment made under any Standby
Letter of Credit, or to pay any fee or any other amount due Agent or any
Bank under any Loan Document, within five (5) Banking Days following the
giving of notice by Agent or Requisite Banks of such Default; or
(b) Any failure to comply with Section 7.1(j); or
(c) Borrowers, any of their Subsidiaries or any other Party fails
to perform or observe any other term, covenant or agreement contained in
any Loan Document, including, but not limited to, those set forth in
Articles 6 and 7 of this Agreement, on its part to be performed or
observed within fifteen (15) days after the giving of written notice by
Agent or Borrowers otherwise becoming aware of such Default; or
(d) Any representation or warranty made in any Loan Document or
in any certificate, agreement, instrument or other document made or
delivered by any Party pursuant to or in connection with any Loan
Document proves to have been incorrect when made in any respect that is
materially adverse to the interests of Agent or Banks; or
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(e) Borrowers or any of their Subsidiaries (i) fail to pay the
principal, or any principal installment, of any present or future
indebtedness for borrowed money of $200,000 or more or in connection
with the purchase or lease of Property, or any guaranty of present or
future indebtedness for borrowed money of $200,000 or more or issued in
connection with the purchase or lease of Property, on its part to be
paid, when due (or within any stated grace period), whether at the
stated maturity, upon acceleration, by reason of required prepayment or
otherwise or (ii) fails to perform or observe any other term, covenant
or agreement on its part to be performed or observed in connection with
any present or future indebtedness for borrowed money of $200,000 or
more or in connection with the purchase or lease of Property, or of any
guaranty of present or future indebtedness of $200,000 or more for
borrowed money or issued in connection with the purchase or lease of
Property, if as a result of such failure any holder or holders thereof
(or an agent or trustee on its or their behalf) has the right to declare
such indebtedness due before the date on which it otherwise would become
due, or has commenced judicial or nonjudicial action to collect such
indebtedness or to foreclose or otherwise realize upon security held
therefor, or has taken or is taking such other actions as might
materially adversely affect the Collateral, the interests of any Bank
under the Loan Documents or the ability of Borrowers or their
Subsidiaries to pay and perform their Obligations under the Loan
Documents; or
(f) Any Loan Document, at any time after its execution and
delivery and for any reason other than the agreement of the Requisite
Banks or satisfaction in full of all the Obligations, ceases to be in
full force and effect or is declared by a court of competent
jurisdiction to be null and void, invalid or unenforceable in any
respect which, in the reasonable opinion of the Requisite Banks, is
materially adverse to the interests of the Banks; or any Party thereto
denies that it has any or further liability or obligation under any Loan
Document, or purports to revoke, terminate or rescind same; or
(g) A final judgment against any Borrower or any of its
Subsidiaries is entered for the payment of money in excess of $500,000
and such judgment remains unsatisfied without procurement of a stay of
execution for more than thirty (30) calendar days after the date of
entry of judgment; or
(h) Any Borrower or any of Subsidiary thereof, is the subject of
an order for relief in a bankruptcy case, or is unable or admits in
writing its inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors; or applies for or consents to
the appointment of any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer for it or for all or any
part of its Property; or any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer is appointed without the
application or consent of that Person and the appointment continues
undischarged or unstayed for thirty (30) calendar days; or institutes or
consents to any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, custodianship,
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conservatorship, liquidation, rehabilitation or similar case or
proceedings relating to it or to all or any part of its Property under
the Laws of any jurisdiction; or any similar case or proceeding is
instituted without the consent of that Person and continues undismissed
or unstayed for thirty (30) calendar days; or any judgment, writ,
warrant of attachment or execution or similar process is issued or
levied against all or any material part of the Property of any such
Person and is not released, vacated or fully bonded within thirty (30)
calendar days after its issue or levy; or
(i) Except as otherwise expressly permitted by any Loan Document
or agreed to by the Requisite Banks, any Lien on any Collateral created
by any Loan Document, at any time after the execution and delivery of
that Loan Document and for any reason other than satisfaction in full of
all Obligations, ceases or fails to constitute a valid, perfected and
subsisting first priority Lien on the Collateral purported to be covered
thereby (unless such cessation or failure is the fault of Agent or the
Banks to timely file continuation statements); or
(j) Any Borrower or any Subsidiary thereof is dissolved or
liquidated or all or substantially all of the assets of any Borrower or
any Subsidiary thereof are sold or otherwise transferred in violation of
the provisions of this Agreement without the written consent of the
Requisite Banks.
9.2 Remedies Upon Event of Default. Without limiting any other rights or
remedies of Agent or Banks provided for elsewhere in this Agreement, or the Loan
Documents, or by applicable Law, or in equity or otherwise:
(a) Upon the occurrence of any Event of Default other than an
Event of Default described in Section 9.1(f):
(1) the Commitment to make Loans and all other obligations
of the Agent or the Banks and all rights of Borrowers and any
other Parties under the Loan Documents shall terminate without
notice to or demand upon Borrowers, which are expressly waived by
Borrowers, except that the Requisite Banks may waive the Event of
Default or, without waiving, determine, upon terms and conditions
satisfactory to Banks, to make further Loans, which waiver or
determination shall apply equally to, and shall be binding upon,
all of the Banks; and
(2) the Requisite Banks may request the Agent to, and the
Agent thereupon shall declare all or any part of the unpaid
principal of all Notes, all interest accrued and unpaid thereon
and all other amounts payable under the Loan Documents to be
forthwith due and payable, whereupon the same shall become and
be forthwith due and payable, without protest, presentment,
notice of dishonor,
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demand or further notice of any kind, all of which are expressly
waived by Borrowers.
(b) Upon the occurrence of any Event of Default described in
Section 9.1(f):
(1) the Commitment to make Loans and all other obligations
of Agent or any Bank and all rights of Borrowers and any other
Parties under the Loan Documents shall terminate without notice
to or demand upon Borrowers, which are expressly waived by
Borrowers, except that all of the Banks may waive the Event of
Default or, without waiving, determine, in their sole discretion,
to make further Loans; and
(2) the unpaid principal of all Notes, all interest
accrued and unpaid thereon and all other amounts payable under
the Loan Documents shall be forthwith due and payable, without
protest, presentment, notice of dishonor, demand or further
notice of any kind, all of which are expressly waived by
Borrowers.
(c) Upon the occurrence of any Event of Default, Agent and Banks
or any of them, without notice to or demand upon Borrowers, which are
expressly waived by Borrowers, except as required by California
Commercial Code Section 9504 or any modification or replacement statute
thereof, or by the terms of this Agreement, may proceed (but only with
the consent of the Requisite Banks) to protect, exercise and enforce its
rights and remedies under the Loan Documents against Borrowers and such
other rights and remedies as are provided by Law or equity.
(d) The order and manner in which the Banks' rights and remedies
are to be exercised shall be determined by the Requisite Banks in their
sole discretion, and all payments received by Agent and the Banks shall
be applied first to the costs and expenses (including outside attorneys'
fees and disbursements) of Agent, acting as Agent and of Banks pro rata
and thereafter to the Obligations owed to Banks, pro rata, under the
Agreement. For the purpose of computing Borrowers' Obligations under the
Loan Documents, payments shall be applied, first, to the costs and
expenses of Agent and Banks, as set forth above, second, to the payment
of accrued and unpaid interest due under any Loan Documents to and
including the date of such application, third, to the payment of all
unpaid principal amounts due under any Loan Documents (including, for
the purposes hereof, principal due under the Notes and reimbursement due
for payments made under Letters of Credit), and fourth, to the payment
of all other amounts (including fees) then owing to Agent and Banks
under the Loan Documents. No application of payments will cure any Event
of Default, or prevent acceleration, or continued acceleration, of
amounts payable under the Loan Documents, or prevent the exercise, or
continued exercise, of rights or remedies of Banks hereunder or
thereunder or at Law or in equity.
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(e) Upon the occurrence of any event that would be an Event of
Default under Section 9.1(g) with the passage of time, Agent and Banks
may take such action as the Requisite Banks deem necessary to protect
the interests of Banks under the Loan Documents.
ARTICLE 10
THE AGENT
10.1 Appointment and Authorization. Each Bank hereby irrevocably
appoints and authorizes Agent to take such action as agent on its behalf and to
exercise such powers under the Loan Documents as are delegated to Agent by the
terms thereof or are reasonably incidental, as determined by Agent, thereto.
This appointment and authorization is intended solely for the purpose of
facilitating the servicing of the Loans and does not constitute appointment of
Agent as trustee for any Bank or as representative of any Bank for any other
purpose and, except as specifically set forth in the Loan Documents to the
contrary, Agent shall take such action and exercise such powers only in an
administrative and ministerial capacity.
10.2 Agent and Affiliates. Comerica Bank - California (and each
successor Agent) has the same rights and powers under the Loan Documents as any
other Bank and may exercise the same as though it was not the Agent, and the
term "Bank" or "Banks" includes Comerica Bank - California in its individual
capacity. Comerica Bank - California (and each successor Agent) and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with Borrowers, any Subsidiary thereof,
or any Affiliate of Borrowers or any Subsidiary thereof, as if it was not the
Agent and without any duty to account therefor to Banks. Comerica Bank
- -California (and each successor Agent) need not account to any other Bank for
any monies received by it for reimbursement of its costs and expenses as Agent
hereunder, or for any monies received by it in its capacity as a Bank hereunder.
10.3 Proportionate Interest of the Banks in any Collateral. Agent, on
behalf of all the Banks, shall hold in accordance with the Loan Documents all
items of Collateral or interests therein received or held by Agent. Subject to
Agent's and the Banks' rights to reimbursement for their costs and expenses
hereunder (including attorneys' fees and disbursements and other professional
services) and subject to the application of payments in accordance with Section
9.2(d), each Bank shall have an interest in any Collateral or interests therein
in the same proportions that the aggregate Obligations owed such Bank under the
Loan Documents bear to the aggregate Obligations owed under the Loan Documents
to all the Banks, without priority or preference among the Banks.
10.4 Banks' Credit Decisions. Each Bank agrees that it has,
independently and without reliance upon Agent, any other Bank or the directors,
officers, agents, employees or attorneys of
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Agent or of any other Bank, and instead in reliance upon information supplied to
it by or on behalf of Borrowers and upon such other information as it has deemed
appropriate, made its own independent credit analysis and decision to enter into
this Agreement. Each Bank also agrees that it shall, independently and without
reliance upon Agent, any other Bank or the directors, officers, agents,
employees or attorneys of Agent or of any other Bank, continue to make its own
independent credit analyses and decisions in acting or not acting under the Loan
Documents.
10.5 Action by Agent.
(a) Agent may assume that no Default has occurred and is
continuing, unless Agent has actual knowledge of the Default, has
received notice from Borrowers stating the nature of the Default, or has
received notice from a Bank stating the nature of the Default and that
such Bank considers the Default to have occurred and to be continuing.
(b) Agent has only those obligations under the Loan Documents as
are expressly set forth therein.
(c) Except for any obligation expressly set forth in the Loan
Documents and as long as Agent may assume that no Event of Default has
occurred and is continuing, Agent may, but shall not be required to
exercise its discretion to act or not act, except that Agent shall be
required to act or not act upon the instructions of the Requisite Banks
(or of all the Banks, to the extent required by Section 11.3) and those
instructions shall be binding upon Agent and all Banks, provided that
Agent shall not be required to act or not act if to do so would be
contrary to any Loan Document or to applicable Law.
(d) If Agent may not assume that no Event of Default has occurred
and is continuing, Agent shall give notice thereof to Banks and shall
act or not act upon the instructions of the Requisite Banks (or of all
the Banks, to the extent required by Section 11.3), provided that Agent
shall not be required to act or not act if to do so would be contrary to
any Loan Document or to applicable Law, and except that if the Requisite
Banks (or all Banks, if required under Section 11.3) fail, for five (5)
Banking Days after the receipt of notice from Agent, to instruct Agent,
then Agent, in its discretion, may act or not act as it deems advisable
for the protection of the interests of Banks.
(e) Agent shall have no liability to any Bank for acting, or not
acting, as instructed by the Requisite Banks (or all the Banks, if
required under Section 11.3), notwithstanding any other provision
hereof.
10.6 Liability of Agent. Neither Agent nor any of its directors,
officers, agents, employees or attorneys shall be liable for any action taken or
not taken by them under or in connection with the
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Loan Documents, except for their own gross negligence or willful misconduct.
Without limitation on the foregoing, Agent and its directors, officers, agents,
employees and attorneys:
(a) May treat the payee of any Note as the holder thereof until
Agent receives notice of the assignment or transfer thereof, in form
satisfactory to Agent, signed by the payee, and may treat each Bank as
the owner of that Bank's interest in the Obligations for all purposes of
this Agreement until Agent receives notice of the assignment or transfer
thereof, in form satisfactory to Agent, signed by that Bank.
(b) May consult with legal counsel (including in-house legal
counsel), accountants (including in-house accountants) and other
professionals or experts selected by it, or with legal counsel,
accountants or other professionals or experts for Borrowers and/or their
Subsidiaries or Banks, and shall not be liable for any action taken or
not taken by it in good faith in accordance with the advice of such
legal counsel, accountants or other professionals or experts.
(c) Shall not be responsible to any Bank for any statement,
warranty or representation made in any of the Loan Documents or in any
notice, certificate, report, request or other statement (written or
oral) given or made in connection with any of the Loan Documents.
(d) Except to the extent expressly set forth in the Loan
Documents, shall have no duty to ask or inquire as to the performance or
observance by Borrowers or their Subsidiaries of any of the terms,
conditions or covenants of any of the Loan Documents or to inspect any
Collateral or the Property, books or records of Borrowers or their
Subsidiaries.
(e) Will not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, effectiveness,
sufficiency or value of any Loan Document, any other instrument or
writing furnished pursuant thereto or in connection therewith, or any
Collateral.
(f) Will not incur any liability by acting or not acting in
reliance upon any Loan Document, notice, consent, certificate,
statement, request or other instrument or writing believed by it to be
genuine and signed or sent by the proper party or parties.
(g) Will not incur any liability for any arithmetical error in
computing any amount paid or payable by the Borrowers or any Subsidiary
or Affiliate thereof or paid or payable to or received or receivable
from any Bank under any Loan Document, including, without limitation,
principal, interest, commitment fees, advances and other amounts;
provided that, promptly upon discovery of such an error in computation,
the Agent, the
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Banks and (to the extent applicable) Borrowers and/or their Subsidiaries
or Affiliates shall make such adjustments as are necessary to correct
such error and to restore the parties to the position that they would
have occupied had the error not occurred.
10.7 Indemnification. Each Bank shall, ratably in accordance with its
percentage of the total Commitment, indemnify and hold Agent and its directors,
officers, agents, employees and attorneys harmless against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including,
without limitation, attorneys' fees and disbursements) that may be imposed on,
incurred by or asserted against it or them in any way relating to or arising out
of the Loan Documents (other than losses incurred by reason of the failure of
Borrowers to pay the indebtedness represented by the Notes and the Standby
Letters of Credit) or any action taken or not taken by it as Agent thereunder,
except such as result from its own gross negligence or willful misconduct.
Without limitation on the foregoing, each Bank shall reimburse Agent upon demand
for that Bank's ratable share of any cost or expense incurred by Agent in
connection with the negotiation, preparation, execution, delivery amendment,
waiver, restructuring, reorganization (including a bankruptcy reorganization),
enforcement or attempted enforcement of the Loan Documents, to the extent that
Borrowers or any other Party are required by Section 11.4 to pay that cost or
expense but fails to do so upon demand.
10.8 Successor Agent. Agent may resign as such at any time by written
notice to Borrowers and the Banks, to be effective upon a successor's acceptance
of appointment as Agent. The Requisite Banks at any time may remove Agent by
written notice to that effect to be effective on such date as the Requisite
Banks designate. In either event: (a) The Requisite Banks shall appoint a
successor Agent, who must be from among Banks, provided that any resigning Agent
shall be entitled to appoint a successor Agent from among Banks, subject to
acceptance of appointment by that successor Agent, if the Requisite Banks have
not appointed a successor Agent within thirty (30) days after the date the
resigning Agent gave notice of resignation; (b) Upon a successor's acceptance of
appointment as Agent, the successor will thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the resigning Agent or the
removed Agent; and (c) Upon the effectiveness of any resignation or removal, the
resigning Agent or the removed Agent thereupon will be discharged from its
duties and obligations thereafter arising under the Loan Documents other than
obligations arising as a result of any action or inaction of the resigning Agent
or the removed Agent prior to the effectiveness of such resignation or removal.
ARTICLE 11
MISCELLANEOUS
11.1 Intentionally Omitted.
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11.2 Cumulative Remedies; No Waiver. The rights, powers, privileges and
remedies of Agent and Banks provided herein or in any Note or other Loan
Document are cumulative and not exclusive of any right, power, privilege or
remedy provided by Law or equity. No failure or delay on the part of Agent or
any Bank in exercising any right, power, privilege or remedy may be, or may be
deemed to be, a waiver thereof; nor may any single or partial exercise of any
right, power, privilege or remedy preclude any other or further exercise of the
same or any other right, power, privilege or remedy. The terms and conditions of
Article 8 hereof are inserted for the sole benefit of Agent and Banks and Agent
(acting with the consent of the Requisite Banks) or the Requisite Banks may
waive them in whole or in part, with or without terms or conditions, in respect
of any Loan or Standby Letter of Credit, without prejudicing Agent's or any
Bank's rights to assert them in whole or in part in respect of any other Loan or
Standby Letter of Credit.
11.3 Amendments; Consents. No amendment, modification, supplement,
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by the Borrowers or any other Party therefrom, may in any event be
effective unless in writing signed by Agent with approval of the Requisite Banks
(and, in the case of amendments, modifications or supplements of or to any Loan
Document to which any Borrower is a Party, the approval in writing of such
Borrower), and then only in the specific instance and for the specific purpose
given; and, without the approval in writing of all Banks, no amendment,
modification, supplement, termination, waiver or consent may be effective:
(a) To amend or modify the principal of, or the amount of
principal, principal prepayments or the rate of interest payable on, any
Note, or the amount of the Commitment or of any commitment fee payable
to any Bank, or any other fee or amount payable to any Bank under the
Loan Documents or to allow any material release of Collateral;
(b) To postpone any date fixed for any payment of principal of,
prepayment of principal of or any installment of interest on, any Note,
or the facility fee, or any installment of any commitment fee, or any
reimbursement obligation due under any Standby Letter of Credit, or to
extend the term of the Commitment;
(c) To amend or modify the provisions of (1) the definitions of
"Commitment", "Maximum Standby Letter of Credit Amount", "Maximum Loan
Amount", Requisite Banks or "Total Outstanding"; (2) Articles 8 or 9; or
(3) this Section 11.3; or
(d) To amend or modify any other definition or provision of this
Agreement that expressly requires the consent or approval of the
Requisite Banks or some other number of Banks.
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Any amendment, modification, supplement, termination, waiver or consent pursuant
to this Section 10.2 shall apply equally to and shall be binding upon, Agent and
all Banks.
11.4 Costs, Expenses and Taxes. Borrowers shall pay on demand the
reasonable costs and expenses, including attorneys' fees, of Agent and Banks in
connection with the negotiation, preparation, execution and delivery of the Loan
Documents, and of Agent and Banks in connection with the amendment, waiver,
refinancing, restructuring, reorganization (including a bankruptcy
reorganization) and enforcement or attempted enforcement of the Loan Documents,
and any matter related thereto, including, without limitation, filing fees,
recording fees, title insurance fees, appraisal fees, search fees, audit costs
incurred by Agent or Banks during the continuance of or in connection with the
occurrence of an Event of Default and other out-of-pocket expenses and the
reasonable fees and out-of-pocket expenses of any legal counsel, independent
public accountants and other outside experts retained by Agent or any Banks, and
including, without limitation, any costs, expenses or fees incurred or suffered
by Agent or any Banks in connection with or during the course of any bankruptcy
or insolvency proceedings of any Borrower or any Subsidiary thereof. Borrowers
shall pay any and all documentary and other taxes (other than income or gross
receipts taxes generally applicable to banks) and all costs, expenses, fees and
charges payable or determined to be payable in connection with the filing or
recording of this Agreement, any other Loan Document or any other instrument or
writing to be delivered hereunder or thereunder, or in connection with any
transaction pursuant hereto or thereto, and shall reimburse, hold harmless and
indemnify Agent and Banks from and against any and all loss, liability or legal
or other expense with respect to or resulting from any delay in paying or
failure to pay any tax, cost, expense, fee or charge or that any of them may
suffer or incur by reason of the failure of any Party to perform any of its
Obligations. Any amount payable to Agent or any Bank under this Section 11.4
shall bear interest from the fifth Banking Day following the date of demand for
payment at the rate provided for in Section 3.6.
11.5 Nature of Banks' Obligations. The obligations of Banks hereunder
are several and not joint or joint and several. Nothing contained in this
Agreement or any other Loan Document and no action taken by the Agent or Banks
or any of them pursuant hereto or thereto may, or may be deemed to, make Banks a
partnership, an association, a joint venture or other entity, either among
themselves or with Borrowers or any Affiliate of Borrowers. Each Bank's
obligation to make any Loan pursuant hereto is several and not joint or joint
and several, and is conditioned upon the performance by all other Banks of their
obligations to make Loans. A default by any Bank will not increase the
percentage of the Commitment attributable to any other Bank. Any Bank not in
default may, if it desires, assume in such proportion as the nondefaulting Banks
agree the obligations of any Bank in default, but is not obligated to do so.
11.6 Survival of Representations and Warranties. All representations and
warranties contained herein or in any other Loan Document, or in any certificate
or other writing delivered by or on behalf of any one or more of the Parties to
any Loan Document, will survive the making and
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repayment of the Loans hereunder and the execution and delivery of the Notes,
and have been or will be relied upon by Agent and each Bank, notwithstanding any
investigation made by Agent or any Bank or on their behalf.
11.7 Notices. Except as otherwise expressly provided in the Loan
Documents: (a) All notices, requests, demands, directions and other
communications provided for hereunder or under any other Loan Document must be
in writing and must be mailed, telecopied or personally delivered to the
appropriate party at the address set forth on the signature pages of this
Agreement or other applicable Loan Document or, as to any party to any Loan
Document, at any other address as may be designated by it in a written notice
sent to all other parties to such Loan Document in accordance with this Section
11.7; and (b) Any notice, request, demand, direction or other communication
given by telecopier must be confirmed within 48 hours by letter mailed or
delivered to the appropriate party at its respective address. Except as
otherwise expressly provided in any Loan Document, if any notice, request,
demand, direction or other communication required or permitted by any Loan
Document is given by mail it will be effective on the earlier of receipt or the
third calendar day after deposit in the United States mail with first class or
airmail postage prepaid; if given by telecopier, upon electronic confirmation of
receipt, and if given after 4:30 p.m., effective on the next business day; or if
given by personal delivery when delivered.
11.8 Execution of Loan Documents. Unless Agent otherwise specifies with
respect to any Loan Document, this Agreement and any other Loan Document may be
executed in any number of counterparts and any party hereto or thereto may
execute any counterpart, each of which when executed and delivered will be
deemed to be an original and all of which counterparts of this Agreement or any
other Loan Document, as the case may be, when taken together will be deemed to
be but one and the same instrument. The execution of this Agreement or any other
Loan Document by any party hereto or thereto will not become effective until
counterparts hereof or thereof, as the case may be, have been executed by all
the parties hereto or thereto.
11.9 Sharing of Setoffs. Each Bank severally agrees that if it, through
the exercise of any right of setoff, banker's lien or counterclaim against
Borrowers, or otherwise receives payment of the Obligations held by it that is
ratably more than any other Bank, through any means, receives in payment of the
Obligations held by that Bank, then: (a) The Bank exercising the right of
setoff, banker's lien or counterclaim or otherwise receiving such payment shall
purchase, and shall be deemed to have simultaneously purchased, from the other
Bank a participation in the Obligations held by the other Bank and shall pay to
the other Bank a purchase price in an amount so that the share of the
Obligations held by each Bank after the exercise of the right of setoff,
banker's lien or counterclaim or receipt of payment shall be in the same
proportion that existed prior to the exercise of the right of setoff, banker's
lien or counterclaim or receipt of payment; and (b) Such other adjustments and
purchases of participations shall be made from time to time as shall be
equitable to ensure that all of the Banks share any payment obtained in respect
of the Obligations ratably in accordance with each Bank's share of the
Obligations immediately prior to, and without taking into
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account, the payment; provided that, if all or any portion of a disproportionate
payment obtained as a result of the exercise of the right of setoff, banker's
lien, counterclaim or otherwise is thereafter recovered from the purchasing Bank
by Borrowers or any Person claiming through or succeeding to the rights of
Borrowers, the purchase of a participation shall be rescinded and the purchase
price thereof shall be restored to the extent of the recovery, but without
interest. Each Bank that purchases a participation in the Obligations pursuant
to this Section 11.9 shall from and after the purchase have the right to give
all notices, requests, demands, directions and other communications under this
Agreement with respect to the portion of the Obligations purchased to the same
extent as though the purchasing Bank were the owner of the Obligations
purchased. Each Borrower expressly consents to the foregoing arrangements and
agrees that any Bank holding a participation in an Obligation so purchased may
exercise any and all rights of setoff, banker's lien or counterclaim with
respect to the participation as fully as if the Bank were the original owner of
the Obligation purchased; provided, however, that each Bank agrees that it shall
not exercise any right of setoff, banker's lien or counterclaim without first
obtaining the consent of the Requisite Banks.
11.10 Binding Effect; Assignment. This Agreement and the other Loan
Documents shall be binding upon and shall inure to the benefit of the parties
hereto and thereto and their respective successors and assigns, except that
Borrowers and/or their Affiliates may not assign their rights hereunder or
thereunder or any interest herein or therein without the prior written consent
of all the Banks. Banks reserve the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or in any interest in, such
Bank's rights and obligations under the Loan Documents, except that no Bank
shall have the right to sell, assign, pledge or transfer any participation in
its rights hereunder or any interest herein (other than to a Federal Reserve
Bank for 90 days or less or to any Affiliate of such Bank) without the consent
of the Agent and Requisite Banks.
11.11 Assignment of Deposits. As security for the prompt payment and
performance of all Obligations, Borrowers hereby assigns to Agent and Banks a
security interest in all their right, title, and interest in and to any and all
deposit accounts now or hereafter maintained with California Bank & Trust,
Sumitomo Bank of California, Agent or any Bank and the proceeds thereof.
11.12 Participation of Loan. Banks shall have the right to participate,
sell or assign interests in the Loans with financial institutions on such terms
and conditions as may be acceptable to Agent and Requisite Banks.
11.13 Indemnity by Borrowers. Borrowers agree to indemnify, save and
hold harmless Agent and Banks and their directors, officers, agents, attorneys
and employees (collectively the "Indemnitees") from and against: (a) Any and all
claims, demands, actions or causes of action that are asserted against any
Indemnitee by any Person (other than Agent or a Bank) if the claim, demand,
action or cause of action directly or indirectly relates to a claim, demand,
action or cause of action that such Person has or asserts against Borrowers, any
Affiliate of Borrowers or any officer, director or shareholder of Borrowers and
arises out of or relates to the relationship between
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Borrowers and Banks under any of the Loan Documents or the transactions
contemplated thereby; and (b) Any and all liabilities, losses, costs or expenses
(including attorneys' fees and disbursements and other professional services)
that any Indemnitee suffers or incurs as a result of the assertion of any
foregoing claim, demand, action or cause of action; provided that no Indemnitee
shall be entitled to indemnification for any loss caused by its own gross
negligence or willful misconduct. Each Indemnitee is authorized to employ
counsel of its own choosing in enforcing its rights hereunder and in defending
against any claim, demand, action or cause of action covered by this Section
11.13; provided that each Indemnitee shall endeavor, in connection with any
matter covered by this Section 11.13 which also involves other Indemnitees, to
use reasonable efforts to avoid unnecessary duplication of effort by counsel for
all Indemnitees. Any obligation or liability of Borrowers to any Indemnitee
under this Section 11.13 shall be and hereby is covered and secured by the Loan
Documents and the Collateral, and shall survive the expiration or termination of
this Agreement and the repayment of all Loans and the payment and performance of
all other Obligations owed to Agent and/or Banks.
11.14 Nonliability of Banks. Borrowers acknowledge and agree that:
(a) Any inspections of Collateral made by or through Agent or any
Bank are for purposes of administration of the Loan only and Borrowers
are not entitled to rely upon the same;
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to Agent or the Banks pursuant to the Loan
Documents, including any certificate, financial statement, insurance
policy or other document, neither Agent nor any Bank shall be deemed to
have warranted or represented the sufficiency, legality, effectiveness
or legal effect of the same, or of any term, provision or condition
thereof, and such acceptance or approval thereof shall not constitute a
warranty or representation to anyone with respect thereto by Agent or
Banks;
(c) The relationship between Borrowers and Agent and Banks is,
and shall at all times remain, solely that of borrower and lenders;
neither Agent nor any Bank shall under any circumstance be construed to
be partners or joint venturers of Borrowers or its Affiliates; neither
Agent nor any Bank shall under any circumstance be deemed to be in a
relationship of confidence or trust or a fiduciary relationship with
Borrowers or their Affiliates, or to owe any fiduciary duty to Borrowers
or their Affiliates; neither Agent nor any Bank shall undertake or
assume any responsibility or duty to Borrowers or their Affiliates to
select, review, inspect, supervise, pass judgment upon or inform
Borrowers or their Affiliates of any matter in connection with their
Property, any Collateral held by Agent or any Bank or the operations of
Borrowers or their Affiliates; Borrowers and their Affiliates shall rely
entirely upon their own judgment with respect to such matters; and any
review, inspection, supervision, exercise of judgment or supply of
information undertaken or
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assumed by Agent or Banks in connection with such matters is solely for
the protection of Agent and Banks and no Borrower or any other Person is
entitled to rely thereon; and
(d) Agent and Banks shall not be responsible or liable to any
Person for any loss, damage, liability or claim of any kind relating to
injury or death to Persons or damage to Property caused by the actions,
inaction or negligence of Borrowers and/or their Affiliates and
Borrowers hereby indemnify and hold Bank harmless from any such loss,
damage, liability or claim.
11.15 No Third Parties Benefited. This Agreement is made for the purpose
of defining and setting forth certain obligations, rights and duties of
Borrowers and Agent and Banks in connection with the Loans, and is made for the
sole protection of Borrowers and Agent and Banks, and their successors and
assigns. Except as provided in Section 11.13, no other Person shall have any
rights of any nature hereunder or by reason hereof.
11.16 Further Assurances. Borrowers and their Subsidiaries shall, at
their expense and without expense to Agent or any Bank, do, execute and deliver
such further acts and documents as Agent or any Bank from time to time
reasonably require for the assuring and confirming unto Agent and Banks of the
rights hereby created or intended now or hereafter so to be, or for carrying out
the intention or facilitating the performance of the terms of any Loan Document,
or for assuring the validity, perfection, priority or enforceability of any Lien
under any Loan Document.
11.17 Integration. This Agreement, together with the other Loan
Documents, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof. In the event of any conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
rights or remedies in favor of Agent or Banks in any other Loan Document shall
not be deemed a conflict with this Agreement. Each Loan Document was drafted
with the joint participation of the respective parties thereto and shall be
construed neither against nor in favor of any party, but rather in accordance
with the fair meaning thereof.
11.18 Governing Law. Except to the extent otherwise provided therein,
each Loan Document shall be governed by, and construed and enforced in
accordance with, the local Laws of California; provided that the local Laws of
California shall not apply with respect to any foreclosure of real Property
Collateral located outside California, and in no event shall California Code of
Civil Procedure Sections 726 and/or 580a and/or 580b and/or 580d apply to any
such foreclosure outside of California or to the right of Agent and Banks to
obtain a deficiency judgment for all Obligations remaining due following such
foreclosure.
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11.19 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable or invalid as to any party or in
any jurisdiction shall, as to that party or jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining provisions or the
operation, enforceability or validity of that provision as to any other party or
in any other jurisdiction, and to this end the provisions of all Loan Documents
are declared to be severable.
11.20 Headings. Article and Section headings in this Agreement and the
other Loan Documents are included for convenience of reference only and are not
part of this Agreement or the other Loan Documents for any other purpose.
11.21 Time of the Essence. Time is of the essence of the Loan Documents.
11.22 Securities Representation. Each Bank hereby represents that any
disposition by it of all or any part of its rights under the Loan Documents
shall not violate Section 5 of the Securities Act of 1933 to the extent, if any,
applicable.
11.23 Joint Borrower Provisions Borrowers acknowledge and agree that
Borrowers shall be jointly and severally liable for all obligations arising
under this Agreement, any/or Loan Documents. In furtherance thereof, Borrowers
acknowledge and agree as follows:
(a) In lieu of maintaining accounts in the name of each of the
Persons comprising Borrower (for purposes of this Section, each such
Person being referred to as a "Borrowing Entity"), Agent shall maintain
a single designated deposit account for Borrowers. Any advance made by
Bank hereunder shall be made jointly and severally to all Borrowing
Entities. Any payments received by any Bank likewise shall be credited
to all Borrowing Entities. While it is anticipated that SCC, Inc. will
make Requests for Loans or for Standby Letters of Credit, Requests for
Loans or for Standby Letters of Credit may be made by any Borrowing
Entity and Agent and any Bank, in its discretion, is authorized to honor
and rely upon any such Request or any instructions received from any
Responsible Official of any Borrowing Entity. It is expressly agreed and
understood by each Borrowing Entity that Agent and each Bank shall have
no responsibility to inquire into the appointment, allocation or
disposition of any Loans made to Borrowers. All Loans are to be made for
the collective account of Borrowers. For the purpose of implementing the
joint borrower provisions of the Loan Documents, including without
limitation the giving and receiving of notices and other communications,
the making of Requests for Loans or Requests for Standby Letters of
Credit, the execution and delivery of certificates and the receiving and
allocating of disbursements from Bank, Borrowers hereby irrevocably
appoint each other as the agent and attorney-in-fact for all purposes of
the Loan Documents.
(b) It is understood and agreed that the handling of this
credit facility on a joint borrowing basis as set forth in this
Agreement is solely as an accommodation to Borrowers
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and at the request of Borrowers, and that Agent and Banks shall incur no
liability to Borrowers or any Borrowing Entity as a result thereof. To
induce Agent and Banks to do so, and in consideration thereof, each
Borrowing Entity hereby agrees to indemnify Agent and Banks and hold
Agent and Banks harmless from and against any and all liabilities,
expenses, losses, damages and/or claims of damage or injury asserted
against Agent and Banks by Borrowers or by any other Person arising from
or incurred by reason of Agent's or any Bank's handling of the financing
arrangement of Borrowers as herein provided, reliance by Agent and Banks
on any requests or instructions from any Borrowing Entity, or any other
action taken by Agent and Banks.
(c) Each of the Borrowers represents and warrants to Agent and
Banks that the request for joint handling of the Loans was made jointly
by the Borrowing Entities and that the Borrowing Entities are engaged in
an integrated operation that requires financing on a basis permitting
the availability of credit from time to time to each of the Borrowing
Entities as required for the continued successful operation of each of
them and their integrated operations. Each Borrowing Entity expects to
derive benefit, directly or indirectly, from such availability because
the successful operation of the Borrower is dependent on the continued
successful performance of the functions of the integrated group.
(d) Each Borrower acknowledges that the liens and security
interests created or granted herein and by the other Loan Documents will
or may secure obligations of persons or entities other than itself and,
in full recognition of that fact, each Borrower consents and agrees that
any action by Agent or any Bank with respect to the following shall not
affect the enforceability or security hereof or of any other Loan
Document:
(1) supplement, modify, amend, extend, renew, accelerate,
or otherwise change the time for payment or the terms of the
obligations of the other Borrowers or any part thereof, including
any increase or decrease of the rate(s) of interest thereon;
(2) supplement, modify, amend or waive, or enter into or
give any agreement, approval or consent with respect to, the
obligations of the other Borrowers or any part thereof or any of
the Loan Documents or any additional security or guaranties, or
any condition, covenant, default, remedy, right, representation
or term thereof or thereunder;
(3) accept new or additional instruments, documents or
agreements in exchange for or relative to any of the Loan
Documents or the obligations of Borrowers or any part thereof;
(4) accept partial payments on the obligations of
Borrowers;
69
<PAGE> 72
(5) receive and hold additional security or guaranties for
the obligations of Borrowers or any part thereof;
(6) release, reconvey, terminate, waive, abandon,
subordinate, exchange, substitute, transfer and enforce any
security or guaranties, and apply any security and direct the
order or manner of sale thereof as Agent or Banks in their sole
and absolute discretion may determine;
(7) release any person or entity or any guarantor from any
personal liability with respect to the obligations of Borrowers
or any part thereof;
(8) settle, release on terms satisfactory to Agent or
Banks or by operation of applicable laws or otherwise liquidate
or enforce any obligations of Borrowers and any security or
guaranty therefor in any manner, consent to the transfer of any
security and bid and purchase at any sale; and
(9) consent to the merger, change or any other
restructuring or termination of the corporate existence of
Borrowers or any other person, and correspondingly restructure
the obligations of Borrowers, and any such merger, change,
restructuring or termination shall not affect the liability of
Borrowers or the continuing existence of any lien or security
interest hereunder, under any other Loan Document to which any
Borrower is a party or the enforceability hereof or thereof with
respect to all or any part of the obligations of Borrowers.
Upon the occurrence of and during the continuance of any
Event of Default, Agent and Banks may enforce this Agreement and the
other Loan Documents independently as to each Borrower and independently
of any other remedy or security Agent or Banks at any time may have or
hold in connection with the obligations of Borrowers, and it shall not
be necessary for Agent or Banks to marshal assets in favor of any of the
Borrowers or any other person or entity or to proceed upon or against
and/or exhaust any other security or remedy before proceeding to enforce
this Agreement and the other Loan Documents. Each of the Borrowers
expressly waives any right to require Agent or Banks to marshal assets
in favor of any Borrower or any other person or entity or to proceed
against any other person or entity or any Collateral provided by any
other person, and agrees that Agent or Banks may proceed against any
persons or entities and/or Collateral in such order as it shall
determine in its sole and absolute discretion. Agent or Banks may file a
separate action or actions against any Borrower, whether action is
brought or prosecuted with respect to any other security or against any
other person, or whether any other person or entity is joined in any
such action or actions. Each of the Borrowers agrees that Agent or Banks
and each of the Borrowers and any other person or entity may deal with
each other in connection with the
70
<PAGE> 73
obligations of Borrowers or otherwise, or alter any contracts or
agreements now or hereafter existing between any of them, in any manner
whatsoever, all without in any way altering or affecting the security of
this Agreement or the other Loan Documents. The rights of Agent and
Banks hereunder and under the other Loan Documents shall be reinstated
and revived, and the enforceability of this Agreement and the other Loan
Documents shall continue, with respect to any amount at any time paid on
account of the obligations of Borrowers which thereafter shall be
required to be restored or returned by Agent and Bank upon bankruptcy,
insolvency or reorganization of any Borrower or any other person, or
otherwise, all as though such amount had not been paid. The
enforceability of this Agreement and the other Loan Documents at all
times shall remain effective even though the obligations of Borrowers,
including any part thereof or any other security or guaranty therefor,
may be or hereafter may become invalid or otherwise unenforceable as
against any of the Borrowers or any other person or entity and whether
or not any of the Borrowers or any other person or entity shall have any
personal liability with respect thereto. Each of the Borrowers expressly
waives any and all defenses now or hereafter arising or asserted by
reason of (a) any disability or other defense of any of the other
Borrowers or any other person or entity with respect to the obligations
of Borrowers, (b) the unenforceability or invalidity of any security or
guaranty for the obligations of Borrowers or the lack of perfection or
continuing perfection or failure of priority of any security for the
obligations of Borrowers, (c) the cessation for any cause whatsoever of
the liability of any other Borrower or any other person or entity (other
than by reason of the full payment and performance of all obligations of
Borrowers), (d) any failure of Agent or any Bank to marshal assets in
favor of any of the Borrowers or any other person, (e) any failure of
Agent or any Bank to give notice of sale or other disposition to any of
the other Borrowers or any other person or entity or any defect in any
notice that may be given in connection with any sale or disposition, (f)
any failure of Agent or any Bank to comply in any non-material respect
with applicable laws in connection with the sale or other disposition of
any Collateral or other security for any obligation of Borrowers, (g)
any act or omission of Agent or any Bank or others that directly or
indirectly results in or aids the discharge or release of any Borrower
or any other person or entity or the obligations of Borrowers or any
other security or guaranty therefor by operation of law or otherwise,
(h) any law which provides that the obligation of a surety or guarantor
must neither be larger in amount nor in other respects more burdensome
than that of the principal or which reduces a surety's or guarantor's
obligation in proportion to the principal obligation, (i) any failure of
Agent or any Bank to file or enforce a claim in any bankruptcy or other
proceeding with respect to any person, (j) the election by Agent or any
Bank, in any bankruptcy proceeding of any person, of the application or
non-application of Section 1111(b)(2) of the United States Bankruptcy
Code, (k) any extension of credit or the grant of any lien under Section
364 of the United States Bankruptcy Code, (l) any use of cash collateral
under Section 363 of the United States Bankruptcy Code, (m) any
agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any person, (n) the avoidance
of any lien or security interest in favor of Agent
71
<PAGE> 74
or any Bank for any reason, or (o) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, liquidation or
dissolution proceeding commenced by or against any person, including any
discharge of, or bar or stay against collecting, all or any of the
obligations of Borrowers (or any interest thereon) in or as a result of
any such proceeding.
(e) Each of the Borrowers represents and warrants to Agent and
Banks that such Borrower has established adequate means of obtaining
from the other Borrowers, on a continuing basis, financial and other
information pertaining to the businesses, operations and condition
(financial and otherwise) of the other Borrowers and their respective
properties, and each of the Borrowers now is and hereafter will be
completely familiar with the businesses, operations and condition
(financial and otherwise) of the other Borrowers and their respective
properties. Each of the Borrowers hereby expressly waives and
relinquishes any duty on the part of Agent or any Bank to disclose to
such Borrower any matter, fact or thing related to the businesses,
operations or condition (financial or otherwise) of any other Borrower
or such other Borrower's properties, whether now known or hereafter
known by Agent or any Bank during the life of this Agreement. With
respect to any of the obligations of Borrowers, Agent and Banks need not
inquire into the powers of any of the Borrowers or the officers or
employees acting or purporting to act on its behalf.
(f) Notwithstanding anything to the contrary elsewhere contained
herein or in any other Loan Document to which any Borrower is a party,
each of the Borrowers hereby waives with respect to each other Borrower
and its respective successors and assigns (including any surety) and any
other party any and all rights at law or in equity, to subrogation, to
reimbursement, to exoneration, to contribution, to setoff or to any
other rights that could accrue to a surety against a principal, to a
guarantor against a maker or obligor, to an accommodation party against
the party accommodated, or to a holder or transferee against a maker and
which each of the Borrowers may have or hereafter acquire against any
other Borrower or any other party in connection with or as a result of
any Borrower's execution, delivery and/or performance of this Agreement
or any other Loan Document to which any such Borrower is a party until
the Obligations hereunder are paid in full. Each of the Borrowers agrees
that it shall not have or assert any such rights against any other
Borrower or any such Borrower's successors and assigns or any other
person or entity (including any surety), either directly or as an
attempted setoff to any action commenced against such Borrower by the
other such Borrower (as borrower or in any other capacity) or any other
person until the obligations hereunder are paid in full. Each of the
Borrowers hereby acknowledges and agrees that this waiver is intended to
benefit Agent and Banks and shall not limit or otherwise affect any of
the Borrowers' liability hereunder, under any other Loan Document to
which any Borrower is a party, or the enforceability hereof or thereof.
(g) Each of the Borrowers warrants and agrees that each of the
waivers and consents set forth herein is made with full knowledge of its
significance and consequences,
72
<PAGE> 75
with the understanding that events giving rise to any defense waived may
diminish, destroy or otherwise adversely affect rights which each of the
Borrowers otherwise may have against the other Borrowers, Agent or any
Bank, or others, or against any Collateral. If any of the waivers or
consents herein are determined to be contrary to any applicable law or
public policy, such waivers and consents shall be effective to the
maximum extent permitted by law.
11.24 Waiver of Jury Trial. The parties to this Agreement acknowledge
that jury trials often entail additional expenses and delays not occasioned by
nonjury trials. The parties to this Agreement further agree and stipulate that a
fair trial may be had before a state or federal judge by means of a bench trial
without a jury. In view of the foregoing, and as a specifically negotiated
provision of this Agreement, each party to this Agreement hereby expressly
waives any right to trial by jury of any claim, demand, action or cause of
action (1) arising under this Agreement or any other instrument, document or
agreement executed or delivered in connection herewith, or (2) in any way
connected with or related or incidental to the dealings of the parties hereto or
any of them with respect to this Agreement or any other instrument, document or
agreement executed or delivered in connection herewith, or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether sounding in contract or tort or otherwise; and each party
hereby agrees and consents that any such claim, demand, action or cause of
action shall be decided by court trial without a jury, and that any party to
this Agreement may file an original counterpart or a copy of this section with
any court as written evidence of the consent of the parties hereto to the waiver
of their right to trial by jury.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BORROWERS:
73
<PAGE> 76
THE SPORTS CLUB COMPANY, INC. THE SPECTRUM CLUB COMPANY, INC.,
a Delaware corporation a California corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
----------------------------- -----------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
PONTIUS REALTY, INC., L.A./IRVINE SPORTS CLUB, LTD.,
a California corporation a California limited partnership
By: /s/ Timothy O'Brien By: Sports Club, Inc. of California
----------------------------- general partner
Timothy O'Brien
By: /s/ Timothy O'Brien
---------------------------
Its: Chief Financial Officer
74
<PAGE> 77
SPORTS CLUB, INC. OF CALIFORNIA, TALLA NEW YORK, INC.,
a California corporation a New York corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
----------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
IRVINE SPORTS CLUB, INC., GREEN VALLEY SPECTRUM CLUB, INC.,
a California corporation a New York corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
----------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
THE SPORTSMED COMPANY, INC., SPECTRUM CLUB ANAHEIM,
a California corporation a California corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
----------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
SCC SPORTS CLUB, INC.,
a Texas corporation
By: /s/ Timothy O'Brien
-----------------------------
Timothy O'Brien
Its: Chief Financial Officer
Borrowers' Address:
c/o The Sports Club Company, Inc.
75
<PAGE> 78
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Telephone: (310) 479-5200
Facsimile: (310) 479-5740
AGENT:
COMERICA BANK - CALIFORNIA
a California banking corporation
By: /s/ Joseph Yurosek
-----------------------------
Joseph Yurosek
Vice President
Address:
Comerica Bank-California
301 E. Ocean Boulevard, Suite 1800
Long Beach, California 90802
Attn: Joseph Yurosek, Vice President
Telecopier: (562) 595-8251
Telephone: (562) 590-2530
76
<PAGE> 79
BANKS:
COMERICA BANK - CALIFORNIA
a California banking corporation
By: /s/ Joseph Yurosek
-----------------------------
Joseph Yurosek
Vice President
Address:
Comerica Bank-California
301 E. Ocean Boulevard, Suite 1800
Long Beach, California 90802
Attn: Joseph Yurosek, Vice President
Telecopier: (562) 595-8251
Telephone: (562) 590-2530
77
<PAGE> 1
EXHIBIT 10.80
BANK LOAN - 2/1/99
1ST AMENDMENT
<PAGE> 2
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED LOAN AGREEMENT
This FIRST AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AGREEMENT
(this "Amendment"), dated as of February 1, 1999, is entered into by and among
The Sports Club Company, Inc., The Spectrum Club Company, Inc., Pontius Realty,
Inc., Sports Club, Inc. of California, Irvine Sports Club, Inc., the SportsMed
Company, Inc., formerly HealthFitness Organization of America, Inc., L.A./Irvine
Sports clubs, Ltd., Talla New York, Inc., SCC Sports Club, Inc., Spectrum
Club/Anaheim Hills, Inc. and Green valley Spectrum club, Inc. (collectively, the
"Borrowers"), Comerica Bank-California ("Comerica") and Comerica Bank-California
as Agent under, and as defined in, that certain Third Amended and Restated Loan
Agreement dated as of February 1, 1999 among the Borrowers, Comerica, and the
Agent (the "Loan Agreement"). Capitalized terms used but not otherwise defined
in this Amendment shall have the meanings provided in the Loan Agreement.
RECITAL
The Borrowers have requested that the Loan Agreement, as in
effect on the date of this Amendment, be amended in the respect set forth below,
and Comerica and the Agent have agreed so to amend the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements set forth below, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
Section 1. Amendment. The Loan Agreement shall be amended to delete the
definition of "Qualified Stock Repurchase" currently set forth therein in its
entirety and to replace it with the following definition:
"Qualified Stock Repurchase" means the common stock repurchase
program instituted in April, 1998; provided that the aggregate
amount expended in repurchasing common stock of SCC, Inc. shall
not exceed $10,800,000."
Section 2. Effectiveness. This Amendment shall become effective
immediately upon its execution by each of the parties hereto, with retroactive
effect to February 1, 1999.
Section 3. The Borrowers' Representations and Warranties. In order to
induce Comerica and the Agent to enter into this Amendment and to amend the Loan
Agreement in the manner
<PAGE> 3
provided in this Amendment, the Borrowers represent and warrant to Comerica and
the Agent as follows:
(a) Corporate Power and Authority. Each Borrower has all necessary
corporate power and authority to execute, deliver and enter into this Amendment
and to carry out the transactions contemplated by, and perform its obligations
under, the Loan Agreement, as amended by this Amendment (the "Amended
Agreement"). The execution, delivery and performance by each of the Borrowers of
the Amended Agreement have been duly authorized by all necessary corporate
action on its part. This Amendment has been duly and validly executed and
delivered by each of the Borrowers and constitutes its legal, valid and binding
obligation, enforceable against each of the Borrowers in accordance with its
terms.
(b) Authorization of Agreements. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action of each of the Borrowers, and this Amendment
has been duly executed and delivered by each of the Borrowers.
(c) Enforceability. The Amended Agreement constitutes the legal, valid
and binding obligations of each of the Borrowers, enforceable against it in
accordance with its terms except as may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights in general.
(d) No Breach. Neither the execution and delivery of this Amendment nor
the performance by each of the Borrowers of the Amended Agreement will conflict
with or result in a breach of , or require any consent under, the constitutional
documents of any Borrower, or any applicable governmental rule or any agreement
or instrument to which any Borrower is a party or by which it or any of its
property is bound or to which it is subject, or constitute a default under, or
result in the acceleration or mandatory prepayment of, any indebtedness
evidenced by or termination of any such agreement or instrument, or result in
the creation or imposition of any lien upon any property of any Borrower
pursuant to the terms of any such agreement or instrument.
(e) Existing Representations and Warranties. Each representation and
warranty made by the Borrowers in the Loan Agreement is true and correct on and
as of the date of this Amendment as though made on the date hereof, except to
the extent that such representations and warranties relate solely to an earlier
date.
Section 4. Miscellaneous.
2
<PAGE> 4
(a) Reference to and Effect on the Loan Agreement and Loan Documents.
(i) Except as specifically amended by this Amendment, the Loan
Agreement and the other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.
(ii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of the Agent
or Comerica under, the Loan Agreement or any of the other Loan Documents.
(iii) Upon the condition precedent set forth in Section 2 of
this Amendment being satisfied, this Amendment shall be construed as one with
the Loan Agreement, and the Loan Agreement shall, where the context requires, be
read and construed throughout so as to incorporate this Amendment.
(b) Execution in Counterparts; Effectiveness. This Amendment may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument, and any of the parties to this Amendment
may execute this Amendment by signing any such counterpart.
(c) Headings. Section and subsection headings in this Amendment are
included for convenience of reference only and shall not constitute a part of
this Amendment for any other purpose or be given any substantive effect.
(d) Governing Law. This Amendment shall be governed by, and construed in
accordance with, the law of the state of California.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
COMERICA BANK - CALIFORNIA
a California banking corporation
By: /s/ Joseph Yurosek
-----------------------------------
Joseph Yurosek
Its: Vice President
3
<PAGE> 5
COMERICA BANK - CALIFORNIA
a California banking corporation, as Agent
By: /s/ Joseph Yurosek
-------------------------------------------
Joseph Yurosek
Its: Vice President
4
<PAGE> 6
BORROWERS:
<TABLE>
<CAPTION>
THE SPORTS CLUB COMPANY, INC., THE SPECTRUM CLUB COMPANY, INC.,
a Delaware corporation a California corporation
<S> <C>
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
--------------------------------------- -------------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
PONTIUS REALTY, INC., L.A./IRVINE SPORTS CLUB, LTD.,
a California corporation a California limited partnership
By: /s/ Timothy O'Brien
-------------------------------------
By: /s/ Timothy O'Brien Timothy O'Brien
---------------------------------------
Timothy O'Brien
Its: Chief Financial Officer By: /s/ Timothy O'Brien
-------------------------------------
Timothy O'Brien
Its: Chief Financial Officer
SPORTS CLUB, INC. OF CALIFORNIA, TALLA NEW YORK, INC.,
a California corporation a New York corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
--------------------------------------- -------------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
IRVINE SPORTS CLUB, INC., GREEN VALLEY SPECTRUM CLUB, INC.,
a California corporation a Nevada corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
--------------------------------------- ------------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
THE SPORTSMED COMPANY, INC., SPECTRUM CLUB/ANAHEIM HILLS, INC.,
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
a California corporation a California corporation
<S> <C>
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
--------------------------------------- ------------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
SCC SPORTS CLUB, INC.,
a Texas corporation
By: /s/ Timothy O'Brien
---------------------------------------
Timothy O'Brien
Its: Chief Financial Officer
</TABLE>
6
<PAGE> 1
EXHIBIT 10.81
GIBBONS EMPLOYMENT
OCTOBER 16, 1998
<PAGE> 2
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
this 16th day of October 1998, by and between THE SPORTS CLUB COMPANY, INC., a
Delaware corporation (the "Company"), and JOHN M. GIBBONS ("Executive").
1. EFFECTIVE DATE.
This Agreement, and all the terms and provisions hereof, shall be deemed
effective as of June 1, 1998 (the "Effective Date").
2. ENGAGEMENT AND DUTIES.
(a) Subject to the terms and conditions set forth in this
Agreement, as of the Effective Date, the Company shall engage and employ
Executive as an officer of the Company, with the title and designation of
President and Chief Operating Officer of the Company, and Executive hereby
accepts such engagement and employment.
(b) During the term of this Agreement, Executive shall report to
the Chief Executive Officer of the Company. Executive's duties and
responsibilities during the term of this Agreement shall be those which are
normally and customarily vested in the office of President of a corporation,
subject to the supervision, direction and control of the Chief Executive Officer
and the Board of Directors of the Company (the "Board"). During the term of this
Agreement, Executive shall serve, without additional compensation (unless
otherwise agreed between the Company and the Executive) in such other offices or
capacities (whether for the Company or any subsidiary thereof) to which
Executive may be elected by the Board (or by the Board of Directors of any such
subsidiary), or as a member of the Board, if so elected by the shareholders of
the Company or of any such subsidiary. During the term of this Agreement, the
Company may also utilize Executive in any other work or activity in furtherance
of the Company's business in which his talents may be applied in a manner
commensurate with his position, training, skills and abilities, and Executive
shall observe and abide by the Certificate of Incorporation, Bylaws, rules and
regulations established from time to time by the Company or the Board applicable
to its employees.
(c) Subject to the terms and provisions of this Agreement, it is
the intent of the parties hereto that Executive shall serve as a member of the
Board of Directors of the Company; to serve in such capacity upon his election
by the Board and at the pleasure of the shareholders until such time as his
successor has been duly elected and qualified.
(d) During the term of this Agreement, Executive shall devote his
primary business time, energies, skills, effort and attention to his duties
hereunder, and will not, without the prior written consent of the Company, which
consent will not be unreasonably withheld,
<PAGE> 3
render any material services to any other business activity. Executive will use
his best efforts and abilities faithfully and diligently to promote the
Company's business interests.
(e) Except for routine travel incident to the business of the
Company, Executive shall perform his duties and obligations under this Agreement
principally from an office provided by the Company at its principal corporate
offices presently located at 11100 Santa Monica Boulevard, or such other
location in the greater Los Angeles metropolitan area as the Board may from time
to time determine; provided that, Executive may, from time to time, perform such
duties from his home office in Santa Barbara, California. The Company shall
provide and maintain, or cause to be provided and maintained, such private
office, secretarial assistance and other facilities, equipment and supplies as
it deems reasonable necessary for Executive's performance of his duties
hereunder.
3. TERM OF EMPLOYMENT. Executive's employment pursuant to this
Agreement shall commence on the date set forth above and shall terminate on the
earliest to occur of the following:
(a) upon the death of Executive;
(b) upon delivery to Executive of written notice of termination
by the Company if Executive shall suffer a physical or mental disability which
renders Executive, in the reasonable judgment of the Board, unable to perform
his duties and obligations under this Agreement for 90 days during any 12-month
period;
(c) upon delivery to Executive of written notice of termination
by the Company with or without cause. For purposes of this Agreement,
termination "with cause" shall mean a determination based in fact made by the
Board of Directors of the Company or the Chief Executive Officer that (i)
Executive has engaged or otherwise participated in any misconduct that is
materially injurious or harmful to the Company; (ii) Executive has been adjudged
guilty of a felony (or has entered a plea of nolo contendere to any criminal
charge which is classified as a felony under either state or federal law); or
(iii) Executive has demonstrated a gross inattention to his duties, breached any
fiduciary duty he may owe as an officer of the Company or has breached and/or
violated a material term or provision of this Agreement after having had thirty
(30) days' prior written notice from the Company describing such violation or
breach and demanding that the same be cured or corrected and such cure or
correction has not occurred within such thirty (30) day period;
(d) upon delivery to the Company of written notice of
termination by the Executive.
4. COMPENSATION; EXECUTIVE BENEFIT PLANS.
2
<PAGE> 4
(a) Commencing as of the Effective date, the Company shall pay
to Executive a base salary at an annual rate of Two Hundred Fifty Thousand
Dollars ($250,000.00) during the Term pursuant to this Agreement. The base
salary shall be payable in monthly or other periodic installments throughout the
year in the same manner and at the same times that the Company pays its other
executive officers. Executive's annual base salary shall be subject to review on
each anniversary of this Agreement, and may, in the sole and absolute discretion
of the Board, be increased at that time.
(b) At the sole discretion of the Board Executive may be paid a
bonus of up to twenty percent (20%) of Executive's annual gross base salary
("Bonus"). In addition to the base salary and Bonus to be paid to Executive
hereunder, Executive shall be entitled to participate in any management bonus
plans that the Board may elect to implement, in its sole discretion, at any time
and from time to time. If any such plans are implemented, Executive's
participation therein shall be subject to the terms and conditions thereof,
together with any other terms and conditions that the Board (or any Committee of
the Board which shall have been empowered to administer and oversee any such
plan) may impose upon Executive in connection therewith.
(c) Executive shall be entitled each year to vacation for a
period of three weeks, during which time all amounts to which he is entitled
hereunder shall be paid in full.
(d) The Company shall reimburse Executive for all reasonable
costs and expenses, including but not limited to, travel, entertainment, meals
and lodging, which Executive incurs in connection with the performance of his
duties and obligations under this Agreement in a manner consistent with the
Company's practices and policies theretofore adopted or approved by the Board
for executive officers. In addition, the parties hereto specifically recognize
that by reason of his position Executive is expected to join or continue his
membership in certain clubs or other organizations. The Executive shall be
reimbursed for all such expenses, including dues actually incurred, in an amount
not to exceed $4,500.
(e) The Company may deduct from any compensation payable to
Executive hereunder the minimum amounts sufficient to cover applicable federal,
state and/or local income tax withholding, old-age and survivors' and other
social security payments, state disability and other insurance premiums and
payments.
(f) If, at any time Executive's employment with the Company is
terminated other than pursuant to Section 3(d) hereof or for cause pursuant to
Section 3(c) hereof, then for a period of twelve months following such
termination date the Company shall continue to pay to Executive the annual base
salary being paid to Executive during the year in which such termination shall
occur.
5. EXECUTIVE BENEFIT PLANS. During the Term, commencing as of the
Effective Date, Executive shall be eligible to participate in all operative
employee benefit and welfare plans and programs of the Company then in effect
from time to time and in respect of which all executive officers of the Company
generally are entitled to participate ("Company
3
<PAGE> 5
Executive Benefit Plans"), including, to the extent then in effect, group life,
medical, disability and other insurance plans; provided, however, that nothing
contained in this Section 5 shall, in any manner whatsoever, directly or
indirectly, require or obligate the Company to adopt or implement, or to
prevent, preclude or otherwise prohibit the Company from amending, modifying,
curtailing, discontinuing or otherwise terminating, any Company Executive
Benefit Plan at any time (whether during or after the term hereof). Executive
acknowledges and agrees that the Company shall have the option, but not the
obligation, to obtain key man life insurance with respect to Executive.
6. TEMPORARY LIVING EXPENSES. EXECUTIVE SHALL BE ENTITLED TO RECEIVE,
FOR LIVING EXPENSES, THE SUM OF FORTY THOUSAND DOLLARS ($40,000) EACH YEAR OF
THE CONTRACT. EACH SUCH FORTY THOUSAND DOLLAR ($40,000) SUM IS PAYABLE IN EQUAL
MONTHLY OR OTHER PERIODIC INSTALLMENTS THROUGHOUT THE YEAR IN THE SAME MANNER
AND AT THE SAME TIMES THAT THE COMPANY PAYS EXECUTIVE HIS BASE SALARY.
7. OTHER BENEFITS. During the Term, commencing as of the Effective Date,
Executive shall be entitled to an automobile allowance equal to $650.00 per
month and a cellular phone paid for by the Company.
8. STOCK OPTIONS. Effective April 15, 1998, the Company granted to
Executive an option (the "Option") to purchase up to 30,000 shares of the
Company's Common Stock, par value $0.01 per share (the "Option Shares"), under
the Company's 1994 Stock Option Incentive Plan, pursuant to a Stock Option
Agreement in the form attached hereto as Exhibit "A" (the "Stock Option
Agreement"). The exercise price per share for the Option Shares shall be set in
the Stock Option Agreement at $8.00 per share. The Option shall vest in three
equal installments on April 15, 1999, April 15, 2000 and April 15, 2001,
respectively. The vesting of the Option shall accelerate and the Option shall
become fully vested upon a Change in Control (as defined below).
9. CHANGE OF CONTROL. For purposes of this Agreement, a "Change of
Control" of the Company shall be deemed to have occurred if:
(a) there shall have been consummated any consolidation or
merger of the Company in which the Company is not the surviving entity, except
for a transaction the principal purpose of which is to change the State of the
Company's incorporation;
(b) there shall have been consummated any sale, lease, exchange
or other transfer, whether in a single or a series of related transactions, of
all or substantially all the assets of the Company; or
(c) there shall have been consummated any reverse merger or any
other such transaction in which fifty percent (50%) or more of the Company's
outstanding voting stock is transferred to holders different from those who held
the stock immediately prior to such merger.
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<PAGE> 6
10. CONFIDENTIALITY AND TRADE SECRETS. Executive shall not, at any time
during the Term and for a period of five (5) years thereafter, exploit, use for
any purpose not specifically related to Executive's employment by the Company
pursuant to the terms of this Agreement or disclose, directly or indirectly, to
any person (except as required by law after first notifying the Company and
giving it an opportunity to object) any confidential information, including,
without limitation, price lists, pricing information, marketing plans or
strategies, customer lists, customer names, non-public financial information,
trade secrets, know-how, unprinted or printed data, and related intangible
property developed during or prior to the term of this Agreement, belonging to,
used by, or developed by or for the benefit of the Company (collectively, "Trade
Secrets"); provided, however, that any such information that may be obtained by
a reasonably diligent businessman from readily available and public sources of
information shall not be deemed to be Trade Secrets under this Agreement, unless
such information was first published in breach of this Agreement or any other
confidentiality agreement entered into between Executive and the Company.
11. RETURN OF CORPORATE PROPERTY AND TRADE SECRETS. Upon any termination
of this Agreement, Executive shall turn over to the Company all property,
writings or documents then in his possession or under his control, belonging to
or relating to the affairs of the Company or comprising or relating to Trade
Secrets.
12. DISCOVERIES AND INVENTIONS. If Executive, while employed by the
Company, makes, either solely or jointly with others, any discovery, improvement
or invention which would pertain or relate in any way to the business, services,
products, publications or processes of the Company or its subsidiaries, such
discovery, improvement or invention (whether or not susceptible of patent,
copyright or trademark protection) shall be and remain the exclusive property of
the Company. Executive shall execute and deliver to the Company, without further
compensation, any and all documents which the Company deems necessary or
appropriate to prepare or prosecute applications for patents, copyrights or
trademarks upon such discovery, improvement or invention; to enable the Company
to acquire Executive's entire right, title and interest in and to such
discovery, improvement or invention (including any patents, copyrights or
trademarks therefor); and other wise more fully and perfectly to evidence the
Company's ownership thereof. This Section 12 shall not apply to any discovery,
improvement or invention (a) for which no equipment, supplies, facility or Trade
Secrets of the Company were used, or (b) which was developed after the date
hereof entirely on Executive's own time and (i) does not relate to the business
of the Company or to its actual or demonstrably anticipated research or
development, or (ii) does not result from any work performed by Executive for
the Company.
13. INJUNCTIVE RELIEF. Executive hereby recognizes, acknowledges and
agrees that in the event of any breach by Executive of any of his covenants,
agreements, duties or obligations hereunder, the Company would suffer great and
irreparable harm, injury and damage, the Company would encounter extreme
difficulty in attempting to prove the actual
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<PAGE> 7
amount of damages suffered by the Company as a result of such breach, and the
Company would not be reasonably or adequately compensated by an award of damages
in any action at law. Executive therefore acknowledges and agrees that, in
addition to any other remedy the Company may have at law, in equity, by statute
or otherwise, in the event of any breach by Executive of any of his covenants,
agreements, duties or obligations hereunder, the Company shall be entitled to
seek and receive temporary, preliminary and permanent injunctive and other
equitable relief from any court of competent jurisdiction to enforce any of the
rights of the Company, or any of the covenants, agreements, duties or
obligations of Executive hereunder, and/or otherwise to prevent the violation of
any of the terms or provisions hereof, all without the necessity of proving the
amount of any actual damage to the Company or any affiliate thereof resulting
therefrom; provided, however, that nothing contained in this Section 13 shall be
deemed or construed in any manner whatsoever as a waiver by the Company of any
of the rights which the Company may have against Executive at law, in equity, by
statute or otherwise arising out of, in connection with or resulting from the
breach by Executive of any of his covenants, agreements, duties or obligations
hereunder.
14. INDEMNIFICATION AGREEMENT; INSURANCE. In connection with
Executive's employment, Executive and the Company have previously entered into
an Indemnification Agreement (the "Indemnification") pursuant to which the
Company will indemnify Executive to the fullest extent permitted by applicable
law, subject to the terms and conditions of the Indemnification. In addition,
the Company has purchased and will maintain in full force and effect during the
term hereof a policy of officers' and directors' insurance, under which all
officers and directors of the Company (including Executive) will be insured
against liability for certain acts and omissions, subject to the terms and
conditions thereof; provided that, nothing contained in this Section 14 shall
preclude or limit the Company's ability to terminate such insurance coverage at
any time if it, in the good faith determination of the Board, determines that
the cost of maintaining such insurance in effect is prohibitive.
15. MISCELLANEOUS.
(a) Notices. All notices, requests and other communications
required or permitted hereunder (collectively, "Notices") shall be in writing,
and shall be delivered by personal service, facsimile transmission or by United
States first class, registered or certified mail (return receipt requested),
postage prepaid, duly addressed to the party to be notified at the applicable
address set forth below:
If to Company:
The Sports Club Company
11100 Santa Monica Boulevard
Suite 300
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<PAGE> 8
Los Angeles, California 90025
If to Executive:
John M. Gibbons
1455 E. Mountain Drive
Montecito, California 93108
Any Notice shall be deemed duly given when received by the addressee thereof,
provided that any Notice sent by first-class registered or certified mail shall
be deemed to have been duly given three days from date of deposit in the United
States mails, unless sooner received. Either party may from time to time change
its address for further Notices hereunder by giving notice to the other party in
the manner prescribed in this Section 15(a).
(b) Entire Agreement. This Agreement (together with the
Indemnification and Stock Option Agreement) contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter hereof, and supersedes any and all prior contemporaneous written and oral
discussions, negotiations, commitments and understandings related to the subject
matter of this Agreement. No representations, oral or otherwise, express or
implied, other than those contained in this Agreement have been relied upon by
any party to this Agreement.
(c) Governing Law.This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
without regard to conflicts of law principles thereof.
(d) Captions. The various captions of this Agreement are for
reference only and shall not be considered or referred to in resolving questions
of interpretation of this Agreement.
(e) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
(f) Business Day. If the last day permissible for delivery of
any Notice under any provision of this Agreement, or for the performance of any
obligation under this Agreement, shall be other than a business day, such last
day for such Notice or performance shall be extended to the next following
business day (provided, however, under no circumstances shall this provision be
construed to extend the term of this Agreement).
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
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<PAGE> 9
<TABLE>
<CAPTION>
Company: Executive:
<S> <C>
THE SPORTS CLUB COMPANY, INC.
By: /s/ D. Michael Talla /s/ John M. Gibbons
--------------------------------------- ----------------------------------
D. Michael Talla John M.Gibbons
Chief Executive Officer
</TABLE>
8
<PAGE> 1
EXHIBIT 10.82
BALLY'S SETTLEMENT
DECEMBER 31, 1998
<PAGE> 2
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE ("Agreement") is
made as of this 31ST day of December, 1998 (the "Execution Date"), by and
between The Sports Club Company, Inc. ("Sports Club") and RM Sports Club, Inc.
(collectively, "Defendants"), on the one hand, and Bally Total Fitness Holding
Corporation ("Bally"), on the other hand, and provides as follows:
WHEREAS, there exists a certain management agreement, dated
January 9, 1996 (the "Management Agreement"), between Bally and Bally
Entertainment Corporation ("Bally Entertainment") relating to the Vertical Club,
a health and fitness center located at 330 East 61st Street, New York, New York
(the "Club"); and
WHEREAS, Bally Entertainment assigned the Management Agreement
to Hilton Hotels Corporation ("Hilton"), in connection with Hilton's acquisition
of the Club in June 1996; and
WHEREAS, Hilton purportedly assigned the Management Agreement to
Sports Club on April 15, 1998, pursuant to an asset purchase agreement, dated
April 1, 1998 (the "Asset Purchase Agreement"), by which Sports Club purchased
substantially all of the assets of the Club from Hilton; and
WHEREAS, Bally commenced an action against Defendants in the
Supreme Court of the State of New York, County of New York, Index No. 602003/98,
seeking declaratory relief under the Management Agreement, injunctive relief
under the Management Agreement, and an award of damages for breach of the
Management Agreement (the "Action"); and
WHEREAS, on May 11, 1998, Justice Barry A. Cozier issued a
preliminary injunction in the Action (the "Injunction"); and
WHEREAS, Sports Club filed counterclaims in the Action seeking
declaratory relief under the Management Agreement, an award of damages for
breach of the Management Agreement and an accounting; and
<PAGE> 3
WHEREAS, Bally asserted that Defendants owe Bally certain sums
in connection with the operation of the Club; and
WHEREAS, Defendants and Bally intend by this Agreement to settle
and resolve any and all disputes between them relating to the Management
Agreement, the Club or any of the facts referred to in the pleadings filed in
the Action (collectively, the "Disputes");
NOW, THEREFORE, in consideration of the mutual promises set
forth in this Agreement and the rights and obligations created herein, the
sufficiency of which are hereby acknowledged, and in settlement of the Disputes,
the parties hereto agree as follows:
1. Payment. Simultaneously herewith, Sports Club shall pay to
Bally the sum of $ 1,379,727.00 by wire transfer pursuant to the wire
instructions delivered to Sports Club simultaneously herewith. Additionally,
simultaneously herewith, Sports Club shall pay to Jaffe and Asher the sum of
$5,000 by wire transfer pursuant to the wire instructions delivered to Sports
Club simultaneously herewith, in full satisfaction of any claims of Jaffe and
Asher or Bally against Defendants for legal services rendered in connection with
the "Scores" or "TCS" matters.
2. Termination of the Management Agreement. Except for the
indemnification provision of paragraph 12 of the Management Agreement (to wit:
the second two full paragraphs only of paragraph 12) which shall remain in full
force and effect and shall survive the execution of this Agreement, the
Management Agreement is hereby terminated as of the Execution Date and is of no
further force or effect. Sports Club agrees to be responsible to Bally for the
obligations of Owner (as such term is defined in the Management Agreement) under
paragraph 12 of the Management Agreement. Notwithstanding the foregoing, Sports
Club
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<PAGE> 4
shall have no responsibility under paragraph 12 of the Management Agreement
to indemnify Bally in connection with any claim of a Bally Member (as such term
is defined in paragraph 4 below) that the Sports Club breached that Bally
Member's Reciprocal Rights (as such term is defined in paragraph 4 below).
3. Vertical Club Name. Bally (which, for the purposes of this
paragraph 3 only, will include Bally, its affiliates, subsidiaries and other
entities owned or controlled by Bally) will permit Sports Club to continue
using, on a non-exclusive basis, the name "Vertical Club" solely in connection
with the Club until the first to occur of: (i) Sports Club's commencement of
substantial renovation or refurbishing of the Club; (ii) the closing of the Club
by Sports Club for renovation, refurbishing or any other purpose; or (iii) June
1, 1999. Bally makes no representation or warranty to Sports Club of any kind or
nature concerning the name Vertical Club or concerning the right of Sports Club
vis a vis any third parties to use such name. Specifically, without limiting the
generality of the foregoing, Bally makes no representation of warranty (i) that
it has any proprietary or other interest in the name Vertical Club; (ii) that
Bally or any third party is limited in any way in the use of the name Vertical
Club, or (iii) that Sports Club is free to use the name Vertical Club.
Accordingly, Sports Club acknowledges and agrees that it shall have no claim
against Bally in the event that Sports Club is prevented from using the Vertical
Club name or is the subject of legal action concerning its future use of same.
4. Cessation of Reciprocity Rights. Pursuant to paragraph 5 of
the Management Agreement and prior practice between Bally and Sports Club (or
their predecessors in interest), members of health and fitness centers managed
by Bally (for the purposes of this
3
<PAGE> 5
paragraph 4, "Bally Members") have been granted rights of access to use the Club
pursuant to certain reciprocal membership programs, and members of the Club (for
the purposes of this paragraph 4, "Club Members") have been granted rights of
access to use health and fitness centers managed by Bally pursuant to certain
reciprocal membership programs (such rights of access are referred to herein as
"Reciprocal Rights"). Commencing with the Execution Date , all Reciprocal Rights
shall cease. Accordingly, Bally shall not be obligated to honor any Reciprocal
Rights claimed by Club Members, and Sports Club shall not be obligated to honor
any Reciprocal Rights claimed by Bally Members. However, (a) Bally agrees to
indemnify, defend and hold Sports Club Releasees, as that term is defined in
paragraph 19 of this Agreement, harmless from any claims, causes of action,
controversies, disputes, liabilities, costs and expenses of whatsoever nature
(including reasonable legal fees), whether in law or equity, incurred by or
asserted against any Sports Club Releasees by any Bally Members due to Sports
Club's cessation of such Bally Members' Reciprocal Rights; and (b) Sports Club
agrees to indemnify, defend and hold Bally Releasees, as that term is defined in
paragraph 20 of this Agreement, harmless from any claims, causes of action,
controversies, disputes, liabilities, costs and expenses of whatsoever nature
(including reasonable legal fees), whether in law or equity, incurred by or
asserted against Bally Releasees by any Club Members due to Bally's cessation of
such Club Members' Reciprocal Rights.
5. Accounts Payable. Within four (4) business days following the
Execution Date, Bally shall deliver to Sports Club for payment by Sports Club
all unpaid invoices relating to the Club ("Unpaid Invoices") which were in the
possession of Bally as of the Execution Date.
4
<PAGE> 6
If Bally receives or comes into possession of any additional Unpaid Invoices
following the Execution Date, it shall use reasonable efforts to deliver same to
Sports Club within 15 days for payment by Sports Club. As of the Execution Date,
Bally shall not pay and shall not be responsible to pay, any of the Unpaid
Invoices or any other disbursements of the Club of any kind or nature.
6. Employees. Annexed hereto as Exhibit A is a list of all
employees working at the Club for whom Bally has performed payroll functions
(the "Club Employees"). Sports Club acknowledges and agrees that the Club
Employees have during the course of their employment at the Club always been
employees of the Owner of the Club (as such term is defined in the Management
Agreement) and have never been employees of Bally. Bally will continue to
provide all payroll functions for Club Employees through the Execution Date,
including issuance of W-2s through the Execution Date. Commencing with the
Execution Date, Bally shall no longer be responsible for and shall cease all
payroll functions with respect to the Club Employees, and Sports Club shall be
solely responsible for all payroll functions with respect to all Club Employees
from the Execution Date, forward, including issuance of W-2s for the period
following the Execution Date. In the event that Sports Club terminates the
employment of any Club Employee on or after the Execution Date, Sports Club
shall (i) be solely responsible for complying with all federal, state and local
laws, rules and regulations relating to terminated employees generally,
including but not limited to, the requirements of COBRA and (ii) indemnify and
hold harmless Bally from any and all claims, causes of action,
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<PAGE> 7
controversies, disputes, liabilities, costs and expenses of whatsoever nature,
including reasonable legal fees, whether in law or in equity, incurred by or
asserted against Bally, arising out of the Club Employees' employment prior to
the Execution Date and arising out of the termination of such employment on or
after the Execution Date, for including but not limited to, unemployment
compensation, severance, discrimination, wrongful termination or otherwise.
Bally represents that as of the Execution Date it is unaware of any claims that
would be subject to the indemnification provisions of this paragraph 6.
Notwithstanding the foregoing, if any of the claims which are subject to the
indemnification provisions of this paragraph 6 are covered by a policy(ies) of
insurance which provide(s) for a legal defense of such claim, Bally shall accept
such defense, if any, as provided by the insurance company. However, Sports Club
shall be liable for any liability, cost or expense indemnified under this
paragraph 6 to the extent that any applicable insurance coverage is insufficient
to pay such liability, cost or expense or to the extent that insurance coverage
or legal defense is denied or limited in any way, or for any reason.
7. Records and Documents. As of the Execution Date, except as otherwise
indicated below, the Defendants hereby acknowledge that they are satisfied with
Bally's prior delivery of documents and there shall be no further obligation of
Bally with respect to further document production:
(1) a copy of all membership agreements for the Club sold
from April 15 , 1998 through the Execution Date which
will be delivered to the Sports Club by January 31,
1999;
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<PAGE> 8
(2) Within four (4) business days following the Execution
Date, Bally will provide Sports Club with the membership
information relating to Club Members existing on the
Execution Date as contained in Bally's computer database
in computer readable format reasonably consistent with
that as previously supplied on an earlier occasion by
Bally to Sports Club;
(3) a copy of the monthly operating statements for the Club
relating solely to the services provided by Bally in
December 1998 for the period from December 1, 1998
through December 31, 1998 which will be delivered to the
Sports Club by January 31, 1999; and
(4) a copy of the monthly balance sheet for the Club
relating solely to the services provided by Bally in
December 1998 as of December 31, 1998 which will be
delivered to the Sports Club by January 31, 1999.
8. Future Membership Receipts. On or before February 1, 1999,
Sports Club will advise all Club Members to forward all future membership fee
payments to Sports Club.
7
<PAGE> 9
For the period commencing with the Execution Date, any monies received by Bally
(notwithstanding the notice given pursuant to the foregoing sentence) from any
source including, but not limited to, direct payment from Club Members, credit
card receipts or otherwise, representing membership fee payments for Club
Members ("Future Receipts"), shall be deposited in a reserve account established
pursuant to paragraph 9 below and disbursed in accordance with the terms of said
paragraph 9. However, Bally shall have no obligation or responsibility to
solicit payments from Club Members or in any way take action to collect Future
Receipts other than to deposit into the reserve account such Future Receipts as
they are received by Bally.
9. Reserve Account; Post-Execution Accounting. As provided above
in paragraph 8, all Future Receipts received by Bally will be deposited in a
Bally bank account (the "Reserve Account"), which shall not be required to be
segregated from other Bally funds. On February 1, 1999, Bally shall provide to
Sports Club an accounting relating solely to the services provided by Bally in
December 1998 for the period from December 1, 1998 through December 31, 1998
including the Future Receipts collected in December 1998 as is agreed in
paragraphs 7 (iii) and (iv) and 8 (the "Post-Execution Accounting"). The
Post-Execution Accounting shall include a credit to Sports Club in the amount of
$76,403.82 representing November and December 1998 rent from Scores
Entertainment, Inc. which was heretofore delivered to Jaffe and Asher, as
attorneys for Bally. The Post-Execution Accounting shall set forth the amount
due to be paid by Sports Club to Bally or Bally to the Sports Club, as the case
may be, relating to the
8
<PAGE> 10
period December 1, 1998 through December 31, 1998 as determined by Bally in
accordance with the provisions of the Management Agreement (the "December
Payment").
On or before February 1, 1999, Bally shall pay to itself out of
the Reserve Account (i) the amount of the December Payment as set forth in the
Post-Execution Accounting, plus (ii) any charge-backs, "NSF" debits and other
amounts representing funds previously received by Bally as membership fees for
the Club which are required, for any reason, to be returned or disgorged by
Bally or the Club (collectively, "Charge-backs") for the period through December
31, 1998. The Reserve Account less (a) the payment to Bally for items (i) and
(ii) above; (b) the sum of $25,000 (to be continued to be held in the Reserve
Account pursuant to paragraph 10 below to secure future payments of the
Charge-backs and Fees [as hereinafter defined]); and (c) Future Receipts
collected during the month of January 1999 shall be remitted to Sports Club
within ten (10) days after the Post-Execution Accounting. In the event that
there are insufficient funds in the Reserve Account to (a) make the payment to
Bally for items (i) and (ii) above; (b) to maintain the Reserve Account balance
at $25,000.00 pursuant to paragraph 10 below and (c) to continue to hold the
Future Receipts collected during the month of January 1999, Sports Club shall
deliver to Bally, within ten (10) days after the Post-Execution Accounting, the
amount of such deficiency, to be deposited in the Reserve Account and disbursed
in accordance with this Agreement.
10. Post December 31, 1999 Receipts and Charge-Backs and
Accountings. Pursuant to paragraph 9 above, the balance in the Reserve Account
after January 31, 1999 will be $25,000.00 plus the Future Receipts collected
during the month of January 1999. Any Future
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<PAGE> 11
Receipts collected after January 31, 1999 shall be deposited in the Reserve
Account as well. Bally will be entitled to a fee equal to 15% of the gross
amount of any Future Receipts (the "Fee") deposited from January 1, 1999 for so
long as Bally continues to receive any Future Receipts.
On March 1, 1999 and each first day of each consecutive month
thereafter Bally shall be entitled to pay itself out of the Reserve Account (a)
its Fee for the Future Receipts received by Bally two (2) months prior thereto
(e.g., on March 1, 1999, Bally will pay itself the Fee for the Future Receipts
collected during January 1999) and (b) all Charge-backs not previously taken.
If, on the first day of any such month, the Reserve Account after the payment of
(a) and (b) hereof is more than $25,000 plus the Future Receipts of the prior
month, Bally shall remit to the Sports Club, within ten (10) days of the first
day of each month, the amount of such excess. If, on the first day of any such
month, the balance in the Reserve Account after the payment of (a) and (b)
hereof is less than $25,000, plus the Future Receipts of the prior month, Sports
Club shall remit to Bally, within ten (10) days after demand, the amount of such
deficiency, which upon receipt by Bally will be deposited in the Reserve
Account.
Five (5) months after the closing of the Club by Sports Club,
Bally shall deduct from the Reserve Account any then remaining Fees and
Charge-backs, and the balance of the Reserve Account shall within ten (10) days
be remitted by Bally to Sports Club. Nonetheless, the Sports Club shall have a
continuing obligation to reimburse Bally within ten (10) days of demand by Bally
for any past or present Charge-backs and Fees not previously taken.
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<PAGE> 12
11. Arbitration. Any claim or dispute between the parties
arising out of the provisions of paragraphs 8, 9 and 10 of this Agreement shall
be determined by arbitration in New York, New York in accordance with the
Commercial Arbitration Rules of the American Arbitration Association before a
single arbitrator. The losing party in the arbitration proceeding as determined
by the arbitrator shall be responsible to pay the costs and expenses, including
reasonable legal fees, of the prevailing party, in an amount determined by the
arbitrator. The decision or award of the arbitrator shall be final and binding
upon the parties. Any arbitral award may be confirmed and/or entered as a
judgment or credit in any court of competent jurisdiction in New York, New York.
12. Indemnification Against Hilton Claims. In the event that
Hilton (or any assignee or successor of Hilton) asserts any claim, action, cause
of action, controversy or dispute under the Management Agreement against Bally
("Hilton Claim"), Sports Club shall (i) provide a defense to any such Hilton
Claim, by retaining experienced, reputable counsel satisfactory to Bally to
defend against such Hilton Claim, at the sole expense of Sports Club; and (ii)
shall indemnify Bally and hold Bally harmless from and against (a) any expense
which Bally may reasonably incur arising out of or relating to such Hilton Claim
or the defense thereof and (b) any judgment entered against Bally arising out of
such Hilton Claim. Before retaining counsel with respect to any Hilton Claim,
Sports Club shall notify Bally in writing of its choice of counsel and Bally
shall have five (5) business days to object in writing to such choice. If Bally
objects to such choice of counsel, the parties shall attempt to agree on counsel
mutually satisfactory to them, and if no agreement is reached within three (3)
business days, counsel shall be the New
11
<PAGE> 13
York City law firm of Rogers & Wells (or if Rogers & Wells at that time has a
conflict), another law firm of similar size and reputation. Notwithstanding the
foregoing, Bally shall have the right, but not the obligation, to retain
separate counsel to participate in the defense of any such Hilton Claim, at the
expense of Bally.
13. Computer System and Personal Property. Bally shall not
remove the computer hardware and software systems except for the AS400 and
related hardware and software (the "Computer System") presently at the Club.
Bally acknowledges that these computer hardware and software systems (except for
the AS400 and related hardware and software) are the exclusive property of
Sports Club. Bally represents, warrants and acknowledges that it does not claim
any interest, of whatsoever nature, in any of the furniture, fixtures,
equipment, machinery or other personal property (except for the "credit card
terminal and printer" which may be removed by Bally prior to the Execution Date)
at the Club (collectively "Personal Property"). Defendants acknowledge at the
time of the execution of this Agreement that they have inspected the Computer
System and Personal Property at the Club and same are in the premises of the
Club and accepted "as is." Notwithstanding the foregoing, Bally shall not remove
the AS400 and related hardware and software from the Club until it provides to
Sports Club the information required by paragraph 7(ii) hereof. Sports Club will
cooperate with Bally in permitting the removal of the AS400 and related hardware
and software.
14. No Further Authority as Manager. As of the Execution Date,
Bally will not act as manager of the Club or represent itself to any third party
as being the future manager of the Club.
12
<PAGE> 14
15. Non-disclosure. Bally and Defendants shall each keep the
terms and conditions of this Agreement and the Management Agreement confidential
and not disclose same to any third parties (except that the parties may disclose
the terms and conditions of this Agreement and the Management Agreement to their
attorneys and accountants who shall be advised of the terms of this
Non-disclosure provision), unless such disclosure is required by applicable law,
judicial process or order of a court of competent jurisdiction.
16. Discontinuance. Concurrently with the execution of this
Agreement, (a) Bally and Defendants shall have their counsel of record in the
Action execute and file a Stipulation of Discontinuance in the form of Exhibit B
hereto, dismissing with prejudice all claims filed by Bally in that action and
all counterclaims against Bally filed by Sports Club in that action, (b) Bally
and Defendants shall execute and file a Stipulation and Order vacating the
Injunction and Bally agrees to have its counsel take any and all additional
steps necessary to vacate the Injunction, and (c) the Appeal of the Action shall
be withdrawn with prejudice.
17. Third Party Rights. Nothing contained herein shall be deemed
a waiver, limitation or release of any right of any party to this Agreement as
against Hilton or any other third party.
18. Severability. If any provision of this Agreement shall for
any reason be determined to be unenforceable in any respect, such
unenforceability shall not affect any other provision set forth herein, and this
Agreement shall be construed as if such unenforceable provision had not been
contained herein.
13
<PAGE> 15
19. Release by Bally. Except for the terms and conditions of
this Agreement, Bally for itself, its successors and assigns, and the officers,
directors, trustees, agents, representatives, shareholders, bondholders,
attorneys and employees of Bally and of any company, partnership or other legal
entity which is or has been owned by Bally in whole or in part, along with all
affiliates, subsidiaries, predecessors, officers, directors, employees, or
shareholders thereof, and all persons claiming by, through or under any of the
foregoing (collectively, "Bally Releasors"), hereby release and discharge
Defendants, their current and former related entities, their current and
former affiliates and subsidiaries, their predecessors, successors and assigns,
and the current and former officers, directors, trustees, agents,
representatives, shareholders, partners, bondholders, attorneys, insurers and
employees thereof (collectively, "Sports Club Releasees"), from all actions,
claims, counterclaims, causes of action, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, covenants, contracts, controversies,
agreements, promises, damages, detriments, executions, claims, and demands
whatsoever, in law or equity, known or unknown, which the Bally Releasors ever
had, now have or hereafter can, shall or may, have for, upon, or by reason of
any matter, cause or thing whatsoever from the beginning of the world to the
date of this Agreement but arising solely out of or in connection with the
Disputes.
20. Release by Defendants. Except for the terms and conditions
of this Agreement, Defendants for themselves, their successors and assigns, and
the officers, directors, trustees, agents, representatives, shareholders,
bondholders, attorneys and employees of Defendants and of any company,
partnership or other legal entity which is or has been owned by
14
<PAGE> 16
Defendants in whole or in part, along with all affiliates, subsidiaries,
predecessors, officers, directors, employees, or shareholders thereof, and all
persons claiming by, through or under any of the foregoing (collectively,
"Sports Club Releasors"), hereby release and discharge Bally, its current and
former related entities, its current and former affiliates and subsidiaries,
its predecessors, successors and assigns, and the current and former officers,
directors, trustees, agents, representatives, shareholders, partners,
bondholders, attorneys, insurers and employees thereof (collectively, "Bally
Releasees"), from all actions, claims, counterclaims, causes of action, suits,
debts, dues, sums of money, accounts, reckonings, bonds, bills, covenants,
contracts, controversies, agreements, promises, damages, detriments, executions,
claims, and demands whatsoever, in law or equity, known or unknown, which the
Sports Club Releasors ever had, now have or hereafter can, shall or may, have
for, upon, or by reason of any matter, cause or thing whatsoever from the
beginning of the world to the date of this Agreement but arising solely out of
or in connection with the Disputes.
21. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
22. Jurisdiction. Except for those claims required to be
arbitrated pursuant to paragraph 11 hereof, the parties consent to the
jurisdiction of the courts of the State of New York with respect to any claim,
cause of action, controversy or dispute arising out of or relating to this
Agreement, the Management Agreement or the Club.
23. Review by Counsel. The parties represent and warrant that
(a) their review and execution of this Agreement has been in consultation with
their attorneys, and that they
15
<PAGE> 17
understand their rights, obligations and undertakings under this Agreement; (b)
they are entering into this Agreement knowingly and voluntarily, and (c) they
hereby waive any and all defenses to enforcement of this Agreement based on an
alleged lack of such knowledge or free will.
24. Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matters hereof, and is
based solely on the representations and warranties, covenants and agreements
contained herein, and not on the basis of any other representation, warranty,
covenant, agreement, promise, statement, arrangement or understanding, written
or oral, not expressly set forth herein. This Agreement may not be amended or
modified except in writing signed by all the parties and expressly stating that
it is intended to amend this Agreement.
25. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
26. Notices. Any notice sent under this Agreement shall be sent
simultaneously be facsimile and by overnight courier (and shall be effective
when so sent) as follows:
If to Bally: Cary A. Gaan, Esq.
Bally Total Fitness Holding Corp.
8700 W. Bryn Mawr Avenue
Chicago, Illinois 60631
773/399-0126 (facsimile)
with a copy to: Sanford S. Asher, Esq.
Jaffe & Asher
52 Vanderbilt Avenue
New York, New York 10017
(212) 687-9639 (facsimile)
16
<PAGE> 18
If to Sports Club: The Sports Club Company, Inc.
11100 Santa Monica Blvd.
Suite 300
West Los Angeles, CA 90025
(310) 479-4350 (facsimile)
with a copy to: Robert Ward, Esq.
Mayer Brown & Platt
1675 Broadway
New York, NY 10019
(212) 262-1910 (facsimile)
27. Power and Authority. The persons signing this Agreement
represent and warrant that they each have the power and authority to execute and
deliver this Agreement as the binding obligation of the parties for whom they
are signing.
28. Facsimile Binding. The execution of this Agreement and the
transmission thereof by facsimile shall be binding on the party signing and
transmitting same by facsimile fully and to the same extent as if a counterpart
of this Agreement bearing such party's original signature had been delivered.
Without limiting the binding nature of counterparts of this Agreement
transmitted by facsimile, each party who so transmits his signature by
facsimile, shall deliver an additional counterpart bearing his original
signature, within seven (7) days thereafter.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
THE SPORTS CLUB COMPANY, INC.
By: /s/ D. Michael Talla
---------------------------------
Name: D. Michael Talla
Title: CEO
RM SPORTS CLUB, INC.
By: /s/ D. Michael Talla
---------------------------------
Name: D. Michael Talla
Title: CEO
17
<PAGE> 19
BALLY TOTAL FITNESS HOLDING
CORPORATION
By: /s/ William G. Farelli
---------------------------------
Name: William G. Farelli
Title: EVP
18
<PAGE> 20
Bally Wire Instructions
for $1,379,727 wire:
LaSalle National Bank
ABA Number: 071000505
For the Account of: Bally Total Fitness Corporation
Account No. 5800020108
<PAGE> 1
EXHIBIT 10.83
10/27/98 LETTER AGREEMENT
<PAGE> 2
THE SPORTS CLUB COMPANY, INC.
11100 SANTA MONICA BOULEVARD, SUITE 300
Los Angeles, California 90025
October 27, 1998
Millennium Partners LLC
1995 Broadway, 3rd Floor
New York, New York 10023-5882
Re: Option on Future Clubs
Gentlemen:
Concurrently with the execution of this letter agreement, an affiliate
of yours and an affiliate of ours are entering into a lease for a health club in
a large mixed use project in San Francisco (the "SF Project"). You plan, either
yourself or through an affiliate, to develop a number of future large mixed use
projects in major metropolitan areas, including Washington, DC, Boston, Miami,
Toronto and Atlanta (such five cities, initially, the "Cities"). As part of the
consideration for the San Francisco health club lease, you, Millennium Partners
LLC ("Millennium"), hereby grant to us, The Sports Club Company, Inc.
("SCC"), the following option.
1. If Millennium or an affiliate of Millennium proceeds with any large
mixed use project in any of the Cities (it being understood that any SCC option
to lease as described in this letter agreement shall apply to only one (1)
project per City) and if each of the following conditions precedent are then
satisfied:
(i) neither SCC nor any affiliate of SCC then remains in monetary
default or in material default under any lease or other material written
agreement (including, without limitation that certain participation agreement
between Millennium and SCC dated as of the date hereof) with Millennium or any
affiliate of Millennium after expiration of any applicable notice and cure
period without such default having been cured,
(ii) SCC or an affiliate of SCC is then operating at least one first
class health club,
(iii) SCC is not then in bankruptcy,
<PAGE> 3
(iv) SCC then has a net worth of not less than $30 million, as supported
by documentation reasonably acceptable to Millennium, and
(v) Millennium or its affiliate is going to have a health club of at
least 50,000 square feet in such project, then SCC shall have the option to
elect to have an affiliate of SCC enter into a lease for a health club in such
project on substantially the same terms and conditions (i.e., the same lease,
work letter, guaranty and participation agreement) (collectively, "Project
Documents") as apply to the health club lease in the San Francisco Project,
except for the following:
A. Subject to any adjustment required pursuant to clauses B, D
and E below, the annual rent for any health club in Miami, Toronto or Atlanta or
any other City pursuant to paragraph 2 below shall be $2.5 million rather than
$3 million; it being understood that, notwithstanding anything to the contrary
contained in this letter agreement, the annual rent for any health club in
Washington, D.C. or Boston shall be $3 million and shall not be subject to any
such adjustment.
B. Except for the Washington, D.C. and Boston clubs whose size
has been communicated to SCC, if any health club as to which SCC exercises its
option contains less than 100,000 rentable square feet as mutually determined by
SCC and Millennium prior to the execution of the Project Documents with respect
thereto (except to a de minimis degree, the parties hereby agreeing that a
difference from 100,000 rentable square feet of up to 2,000 rentable square feet
shall be de minimis and that any such difference in excess of 2,000 rentable
square feet shall not be de minimis) (a "Typical Health Club"), then the amount
of annual rent and tenant improvement allowance for such health club shall be
equitably adjusted to reflect such lesser square footage.
C. The applicable landlord shall use reasonable efforts to
reasonably accommodate the applicable tenant's reasonable parking needs for the
health club in question upon commercially reasonable terms, it being understood
that the foregoing shall not be deemed a representation that such reasonable
efforts of the applicable landlord shall satisfy the parking needs of the
applicable tenant.
D. Except for the initial Washington, D.C. and Boston leases, if
any lease is to be entered into pursuant to this letter agreement after the
third anniversary of the execution of the San Francisco lease, then a percentage
of the annual rent under such lease (after being adjusted pursuant to clause B
above if and to the extent applicable) shall be further adjusted prior to the
execution thereof, from what it would otherwise have been absent such further
adjustment, by the percentage change in the applicable index of construction
costs for such City from what such index was on the date of execution of the San
Francisco lease to what such index was on the date of execution of such lease.
The percentage of the annual rent so adjusted shall be the percentage equivalent
of the fraction whose numerator is the "hard"
<PAGE> 4
construction costs for such health club and whose denominator is all costs
(including, without limitation, "hard" construction costs, "soft" construction
costs, financing costs and land costs) for such health club. Such fraction, and
the components thereof, shall be certified to SCC by the chief financial officer
of Millennium, subject to SCC's right to review the components, and backup
documentation, for the same.
E. If (i) SCC were to enter into five leases for health clubs
pursuant to its option before the third anniversary of the execution of the San
Francisco lease and (ii) all five of such health clubs were either Typical
Health Clubs or leases in Washington, D.C. or Boston for health clubs whose size
is consistent with what was communicated to SCC and accepted by SCC as of the
date hereof (an "Approved Health Club"), then it is the intention of the parties
that the aggregate average rent pursuant to all five of such leases plus the San
Francisco lease would be $2.75 million. The parties further recognize that such
average annual rent may not be arrived at, from time to time, if the stated
annual rent, before any adjustment pursuant to clauses B or D, for each health
club in a City other than Washington, D.C. or Boston was fixed at $2.5 million,
pursuant to clause A. Accordingly, the parties hereby agree that, before any
adjustment pursuant to clauses B or D is made to the annual rent under any lease
for a health club for any City other than Washington, D.C. or Boston, the annual
rent under such lease shall first be adjusted so that the average annual rent
under such lease, any other leases then already entered into pursuant to SCC's
option and the San Francisco Lease shall be $2.75 million. Once any such
adjustment has been made, then the stated annual rent under such lease shall
further be adjusted, if and as may be required, first pursuant to clause B and
then pursuant to clause D. All such adjustments, if any, to such a lease shall
be made prior to execution of such lease.
While the layout of any health club in any particular City will vary, the level
of landlord work will be substantially the same as in the San Francisco health
club, subject to equitable adjustment as aforesaid if the health club in
question is not a Typical Health Club.
2. SCC recognizes that neither Millennium nor any affiliate of
Millennium is under any obligation to actually proceed with any large mixed use
project in any of the Cities, whether or not SCC exercises its option or fails
to exercise its option with respect to any project in any City. (Millennium
shall keep SCC reasonably apprised of the status and progress of any project as
to which SCC has exercised its option and shall promptly notify SCC if and when
Millennium may decide not to proceed with such project.) If Millennium or an
affiliate of Millennium, in its sole discretion, shall elect not to proceed with
such a project in Washington, DC or in Boston, then SCC shall continue to have
the option set forth in this letter agreement for each of the remaining Cities
but no other cities. If, however, Millennium or an affiliate of Millennium, in
its sole discretion, shall not have given SCC the notice referenced in paragraph
3 of its intention to develop such a project in any one or more of Miami,
Toronto or Atlanta by October 1, 2000, then the definition of the "Cities" shall
be expanded, on a one-for-one basis, to
<PAGE> 5
include any additional major metropolitan cities in which Millennium or an
affiliate of Millennium may proceed with such a project. (Thus, if Millennium or
an affiliate of Millennium elects not to proceed with any one of Miami, Toronto
or Atlanta, then the next city in which Millennium or an affiliate of Millennium
shall proceed that would not otherwise have been a City shall be a City; if
Millennium or an affiliate of Millennium elects not to proceed with any two of
Miami, Toronto or Atlanta, then the next two additional cities in which
Millennium or an affiliate of Millennium shall proceed that would not otherwise
have been Cities shall be Cities; and if Millennium or an affiliate of
Millennium does not proceed with all three of Miami, Toronto and Atlanta, then
the next three additional cities in which Millennium or an affiliate of
Millennium shall proceed that would not otherwise have been Cities shall be
Cities.) The definition of "Cities" shall further be expanded to include any
such additional major metropolitan cities if and to the extent necessary,
pursuant to paragraph 5, to give SCC an option on up to a total of 5 projects.
3. SCC shall exercise its option with respect each City, if at all and
in its sole discretion, as follows. Millennium shall give written notice to SCC,
in accordance with the notice provisions of the San Francisco lease, of its
intention to develop a large mixed use project in a City as soon as reasonably
possible following Millennium's good faith determination to proceed with such
project. Such notice shall include the location of such project, Millennium's
then intent regarding the tenant mix and design of such project, Millennium's
estimated ground breaking date for such project and the approximate size of the
health club Millennium then intends to have in such project. SCC shall exercise
its option with respect to such project, if at all and in its sole discretion,
by giving written notice to Millennium, again in accordance with the notice
provisions of the San Francisco lease, not later than the business day first
occurring at least 30 days after the date of SCC's actual receipt of
Millennium's notice (time being of the essence in this regard). Millennium shall
use its good faith efforts to keep SCC generally apprised of the status of its
efforts to develop any large mixed use project in any City, or potential City,
prior to Millennium's actually giving any such notice to SCC. From and after
Millennium's giving any such notice to SCC and until the expiration of the
period of time in which SCC has to respond to such notice, Millennium shall
cooperate with SCC's reasonable requests for information regarding the subject
project. Subject to paragraph 5, SCC's failure timely to respond to any such
notice from Millennium shall conclusively be deemed SCC's election not to enter
into a lease for a health club in such project. Millennium and SCC shall use
their respective good faith efforts diligently to finalize and execute Project
Documents for any project as to which SCC has timely exercised its option, as
aforesaid.
4. Subject to paragraph 5, if SCC (i) fails timely to exercise its
option with respect to any particular project, as aforesaid, or (ii) fails,
after having timely exercised any such option, to use its good faith efforts to
finalize and execute, or have its applicable affiliate finalize and execute, the
Project Documents with respect to such project, then, in each such event, SCC
shall be deemed to have waived and relinquished its right to lease space at the
applicable project,
<PAGE> 6
and Millennium shall at any and all times thereafter be entitled to lease all
or any portion of such space to others at such rental and upon such terms as
Millennium, at its sole discretion, may desire. Notwithstanding the foregoing,
however, if Millennium, within 5 years after SCC is deemed to have waived its
original option with respect thereto pursuant to this paragraph 4, other than
pursuant to clause (ii) of this paragraph 4, either shall have an offer to lease
or shall propose to lease, without yet having any actual offer to lease, any of
such space for a health club upon economic terms and conditions (for example and
without limitation, rental, term, free rent, construction allowance and
escalations) which are less than 95% on an aggregate basis of those terms and
conditions under the applicable Project Documents, then subject to the
provisions in clauses (i) through (v) of paragraph 1 of this letter agreement
(a) SCC's option for such project shall be reinstated on the new economic terms
and conditions and (b) Millennium shall be required promptly to issue a new
notice (including such new economic terms and conditions) to SCC for such
project except that SCC's time within which to elect to exercise its option with
respect to such project shall be 15 business days, rather than 30 business days.
If SCC is deemed to have waived such reinstated option, other than pursuant to
clause (ii) of this paragraph 4, then Millennium shall have a period of 180 days
from the date of such deemed waiver to lease such space on such terms and
conditions (or terms and conditions less advantageous to the proposed tenant)
that SCC is deemed to have waived. SCC's option shall, however, again be
reinstated, subject to the provisions of this paragraph 4 and in clauses (i)
through (v) of paragraph 1 hereof, either after such 180 day period if no lease
has yet been entered into for such space or if Millennium proposes during such
180 day period to lease such space on terms and conditions more advantageous to
the tenant than those that SCC declined; provided, however, that such 180 day
period shall be extended for up to an additional consecutive 90 days if and for
so long as Millennium shall be actively engaged in good faith negotiations with
a potential tenant at the expiration of such 180 day period and shall thereafter
continue to engage in such good faith negotiations with such potential tenant.
Once Millennium has entered into a permitted lease for such space, however, SCC
shall have no further option regarding the same; it being agreed that Millennium
shall provide SCC with a copy of any such lease promptly following execution of
any such lease.
6. The parties intend for SCC's option set forth in this letter
agreement to apply to up to a total of 5 projects, one such project in each of a
total of up to 5 major metropolitan cities; provided, however, that if (i)
Millennium's notice regarding any project references Millennium's intent to have
a health club in such project that shall be smaller than a Typical Health Club
or an Approved Health Club with respect to a health club located in Washington,
D.C. or Boston, as applicable, and (ii) SCC elects, in its sole discretion, not
to exercise its option as to such project, then such project shall not count
toward the up to 5 projects that are to be the subject of SCC's option.
Alternatively, if SCC elects, in its sole discretion, to exercise its option as
to any project having a health club smaller than the health club in the San
Francisco Project, then such project shall count towards the up to 5 projects
that are to be the subject of SCC's option. If SCC elects, in its sole
discretion, to exercise its option as to any project and if
<PAGE> 7
Millennium nonetheless determines, in its sole discretion, not to proceed
with such project, then such project shall not count towards the up to 5
projects that are to be the subject of SCC's option. In no event, however, shall
SCC have the right to lease space pursuant to its option (a) in more than 5
major metropolitan cities, in the aggregate, (b) in Chicago, Los Angeles or New
York City and (c) in any project, other than in the initial Cities or in any
subsequent City required to be offered to SCC pursuant to this letter agreement,
on which Millennium has commenced construction prior to October 1, 2000.
6. Although SCC's option set forth in this letter agreement does not
apply to any project in Chicago, Los Angeles or New York City, Millennium and
SCC nonetheless desire for SCC to have a right of first offer with respect to
any health club of at least 50,000 square feet that Millennium shall propose to
have in any such project. The terms and conditions for such right of first offer
shall be identical, in all respects, to the terms and conditions for SCC's
option set forth above, as if such Chicago, Los Angeles and New York were
Cities, except as otherwise set forth in this paragraph 6. Millennium's notice
to SCC regarding any project in Chicago, Los Angeles and New York City shall
include, in addition to those matters referenced in paragraph 3 hereof, what
Millennium believes to be the fair market rent for such health club. If SCC
fails to exercise its right of first offer with respect to such project or fails
to finalize and execute Project Documents for such project as provided herein,
then SCC shall be deemed to have waived its right of first offer with respect to
such project, and Millennium shall at any and all times thereafter be entitled
to lease all or any portion of such space to others at such rental and upon such
terms as Millennium, at its sole discretion, may desire but subject to the
provisions of paragraph 4. For these purposes, paragraph 4 shall be interpreted
without reference to paragraph 5, and Millennium shall be required to re-offer
such space to SCC if Millennium proposes to lease, whether or not Millennium yet
has any actual offer to lease, any of such space for a health club upon new
economic terms and conditions which are less than 100% on an aggregate basis of
those terms and conditions that SCC shall be deemed to have waived. The
calculation of whether such new terms and conditions are less than such 100%
threshold shall be made on the basis of the net economic effect to Millennium of
the terms and conditions SCC waived as compared to the new terms and conditions
after taking into account any brokerage commission payable by Millennium for a
third party lease on such new terms and conditions as compared to no brokerage
commission being payable by Millennium in connection with a lease to SCC or its
affiliate on the terms and conditions that were waived by SCC. Whether or not
SCC exercises its option as to any City shall have no effect on its right of
first offer as to Chicago, Los Angeles and New York City, and whether or not SCC
exercises its right of first offer as to Chicago, Los Angeles or New York City
shall have no effect on its option as to the Cities.
7. This letter agreement shall expire on the earlier to occur of (i)
five leases (other than the San Francisco lease) having been signed pursuant
hereto, (ii) the fifth anniversary of the date of execution of the lease for the
San Francisco health club, (iii) any lease with Millennium or an affiliate of
Millennium for a health club either in a City or in San Francisco no
<PAGE> 8
longer being in full force and effect as a result of a default thereunder by
SCC or an affiliate of SCC not having been cured after the expiration of any
applicable notice and cure period or (iv) SCC or an affiliate of SCC no longer
operating at least one first class health club.
8. The option and right of first offer set forth herein are personal to
SCC and may only be assigned or transferred by SCC to an affiliate of SCC.
Sincerely,
THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By: /s/ John Gibbons
-----------------------------------
Its: President
Acknowledge and agreed to as
of the date first set forth above:
MILLENNIUM PARTNERS LLC,
a New York limited liability company
By: Millennium Partners Management LLC,
a New York limited liability company,
its managing member
By: Millennium Manager I, Inc.
a New York corporation,
its manager
By: /s/ Philip Lovett
--------------------------------
Its:
--------------------------------
<PAGE> 1
EXHIBIT 10.84
PARTICIPATION AGREEMENT
OCTOBER 27, 1998
<PAGE> 2
===============================================================================
PARTICIPATION AGREEMENT
BETWEEN
MILLENNIUM PARTNERS LLC,
AND
THE SPORTS CLUB COMPANY.
DATED AS OF OCTOBER 27, 1998
===============================================================================
<PAGE> 3
PARTICIPATION AGREEMENT (this "AGREEMENT") made as of the _____
day of October 1998, between MILLENNIUM PARTNERS LLC, a New York limited
liability company, having an office c/o Millennium Partners, 1995 Broadway, 3rd
Floor, New York, New York 10023 ("MILLENNIUM") and THE SPORTS CLUB COMPANY, a
Delaware corporation, having an office at 11100 Santa Monica Boulevard, Suite
300, Los Angeles, California 90025 ("SCC").
WITNESSETH:
WHEREAS, Millennium and SCC have entered into that certain Option
on Future Clubs agreement dated as of the date hereof (the "OPTION AGREEMENT")
whereby SCC has the option to elect to have a related entity of SCC enter into a
lease for an Athletic Club in up to five (5) Projects (as such terms are
hereinafter defined);
WHEREAS, Millennium has or will have, directly and indirectly, a
majority of the interests of certain entities (each a "MILLENNIUM ENTITY" and
collectively, the "MILLENNIUM ENTITIES") which hold or which will hold both fee
and leasehold title to certain real property located in San Francisco,
California, Boston, Massachusetts, Washington, D.C., Atlanta, Georgia, Miami,
Florida and Toronto, Canada, and other locations upon each of which Millennium
intends to cause the construction of a mixed-use development (for purposes of
this Agreement each such real property exclusive of real property located in New
York, New York, Chicago, Illinois and Los Angeles, California is hereinafter
referred to as a "PROJECT" and collectively, the "Projects");
WHEREAS, Millennium intends to have a first-class coed athletic
club (with respect to each Project, an "ATHLETIC CLUB" and with respect to the
Projects, collectively the "ATHLETIC CLUBS") operated by an operator with
first-class expertise, reputation and experience in each Project;
WHEREAS, Millennium desires to cause a Millennium Entity to
demise and let to a related entity of SCC subject to and in accordance with the
Option Agreement (with respect to each Project, an "SCC ENTITY" and with respect
to the Projects, collectively the "SCC ENTITIES") and SCC desires to cause a
related entity of SCC to lease from Millennium Entity subject to and in
accordance with the Option Agreement and an agreement of lease (with respect to
a Project, an "AGREEMENT OF LEASE" and with respect to the Projects,
collectively the "AGREEMENTS OF LEASE") certain space (individually and
collectively the "LEASED PREMISES") in a Project for the operation of an
Athletic Club; and
WHEREAS, in order to induce Millennium to cause a Millennium
Entity to enter into an Agreement of Lease with an SCC Entity, SCC has agreed to
pay, or cause to be paid, to Millennium with respect to each Leased Premises,
not to exceed six (6) in the aggregate, an amount equal to twenty percent (20%)
of the Adjusted Net Distributable Cash (as hereinafter defined) derived
therefrom by the applicable SCC Entity or any Affiliate (as hereinafter defined)
thereof (to the extent derived by any such Affiliate from the same applicable
Leased Premises (exclusive of any management fee payable on account of such
Leased Premises)) or any successor or assign of such SCC Entity or Affiliate.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
<PAGE> 4
ARTICLE 1
EFFECTIVE DATE OF AGREEMENT
Section 1.1 This Agreement and all of the terms and conditions hereof
shall be effective as of the date hereof (the "EFFECTIVE DATE") and shall end
(the "EXPIRATION DATE") on the date on which the last Agreement of Lease shall
expire or be canceled or terminated pursuant to any of the terms and conditions
therein or pursuant to law.
ARTICLE 2
DEFINITIONS
Section 2.1 For purposes of this Agreement, each of the following terms
shall have the meaning given such term in this Section 2.1 or in the Section of
this Agreement indicated:
(a) "NET DISTRIBUTABLE CASH" shall mean "EBITDA" for the
applicable SCC Entity and any Affiliate (as hereinafter defined) thereof
(to the extent derived by any such Affiliate from the same applicable
Leased Premises (exclusive of any management fee payable on account of
such Leased Premises)) and any successor or assign of such SCC Entity
and/or Affiliate from a Leased Premises determined in accordance with
United States generally accepted accounting principles consistently
applied from period to period ("GAAP"), for the period for which Net
Distributable Cash is being determined.
(b) "ADJUSTED NET DISTRIBUTABLE CASH" shall mean an amount equal
to the Net Distributable Cash derived by the applicable SCC Entity or
any Affiliate thereof (to the extent derived by any such Affiliate from
the same applicable Leased Premises (exclusive of any management fee
payable by any such Affiliate to the applicable SCC Entity)) or any
successor or assign of such SCC Entity or Affiliate from a Leased
Premises for a Lease Year minus the sum of (i) a reasonable and
customary portion of such Net Distributable Cash (including, without
limitation, unearned initiation fees, prepaid dues and prepaid services)
for reasonably anticipated expenditures required to maintain and operate
an Athletic Club in such Leased Premises ("RESERVES") plus (ii) the
Management Fee with respect to such Leased Premises for such Lease Year
plus (iii) the Percentage Equity Return Payment with respect to such
Leased Premises for such Lease Year plus (iv) the aggregate amount of
Percentage Equity Return Payments for prior Lease Years which have not
been paid to the applicable SCC Entity, together with interest thereon
at the Prime Rate (as hereinafter defined) from the date payable to the
applicable SCC Entity until the date paid to the applicable SCC Entity.
(c) "LEASE YEAR" shall mean each successive twelve (12) month
period during the term (the "TERM") of an Agreement of Lease commencing
on January 1 and ending December 31 (or such other twelve (12) month
period as shall be reasonably designated by the applicable Millennium
Entity), provided that the first Lease Year shall begin upon the
commencement date of an Agreement of Lease and end on December 31 of the
calendar year in which such commencement date occurs, and the last Lease
Year shall end on the last day of the term of such Agreement of Lease or
the last day of the last exercised lease extension thereunder.
(d) "MANAGEMENT FEE" shall mean an amount equal to six percent
(6%) of Gross Cash Receipts with respect to a Leased Premises for a
Lease Year.
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(e) "GROSS CASH RECEIPTS" shall mean all revenue and income of
any nature derived by the applicable SCC Entity or any Affiliate thereof
(to the extent derived by any such Affiliate from the same applicable
Leased Premises (exclusive of any management fee payable on account of
such Leased Premises)) or any successor or assign of such SCC Entity or
Affiliate from a Leased Premises or from the use or operation thereof,
including, without limitation, proceeds from business interruption
insurance, governmental allowances and awards and other forms of
payments or awards from any source whatsoever, which is properly
attributable to a Lease Year, determined in accordance with GAAP.
(f) "PERCENTAGE EQUITY RETURN PAYMENT" shall mean an amount equal
to an eleven percent (11%) per annum cumulative, compounding return on
the aggregate Outstanding Capital Investment with respect to a Leased
Premises.
(g) "CAPITAL INVESTMENT" shall mean the aggregate hard and soft
costs and expenses actually incurred by the applicable SCC Entity in the
development of a Leased Premises and in the ordinary course of business
in maintaining and operating an Athletic Club in a Leased Premises from
time to time during the term of an Agreement of Lease (but only to the
extent such costs and expenses are not included in the calculation of
Net Distributable Cash) exclusive of (i) any and all debt service not
directly associated with the financing of the acquisition and/or
construction of any assets of the applicable SCC Entity, including,
without limitation, the work performed by the applicable SCC Entity to
prepare a Leased Premises for use and occupancy (collectively, the
"IMPROVEMENTS") and athletic equipment, machines, furniture and other
personal property used in a Leased Premises (collectively, the "TRADE
FIXTURES) and (ii) any contributions or payments made by Millennium or
any Millennium Entity to a SCC Entity on account of any work or
installations made in a Leased Premises (collectively, the ALLOWANCE").
(g) "OUTSTANDING CAPITAL INVESTMENT" shall mean an amount equal
to the Capital Investment with respect to a Leased Premises which has
not, as of such date, been recouped by SCC or the applicable SCC Entity.
SCC shall, or shall cause each SCC Entity, to apply any and all Adjusted
Net Distributable Cash with respect to a Leased Premises against the
Capital Investment with respect thereto in accordance with customary
accounting practices consistently applied.
(h) "PERSON" shall mean any individual, corporation, partnership,
joint venture, limited liability company, limited liability partnership,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof or any other
form of business or legal association or entity.
(i) "AFFILIATE" shall mean a Person which shall (i) Control (as
hereinafter defined), (ii) be under the Control of, or (iii) be under
common Control with the Person in question, and "CONTROL" or "CONTROL"
shall mean ownership of fifty percent (50%) or more of the outstanding
voting stock of a corporation or other majority equity and control
interest if not a corporation and the possession of power to direct or
cause the direction of the management and policy of such corporation or
other entity, whether through the ownership of voting securities, by
statute or according to the provisions of a contract.
ARTICLE 3
NDC RENT
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Section 3.1 (a) Subject to the terms and conditions of this Article 3
and provided Millennium shall not be in default of any of Millennium's monetary
obligations under this Agreement after the expiration of any applicable notice,
grace and/or cure periods (a "MILLENNIUM EVENT OF DEFAULT"), SCC shall pay, or
shall cause to be paid, to Millennium in the manner hereinafter provided, twenty
percent (20%) of the amount, calculated on an aggregate basis for all Leased
Premises and calculated based on the assumption that all of the Leased Premises
constitute a single business operation, equal to (i) the aggregate amount of
Adjusted Net Distributable Cash for each Lease Year or partial Lease Year
derived from all of the then Leased Premises minus (ii) the aggregate amount of
Outstanding Capital Investment as of the day of the period for which Adjusted
Net Distributable Cash was determined for such Lease Year or partial Lease Year
with respect to all such Leased Premises (the "NDC RENT"); provided, however,
that notwithstanding anything to the contrary contained herein, in the event of
a Millennium Event of Default, SCC shall pay, or cause to be paid, to Millennium
the portion of NDC Rent which exceeds the amount of the Millennium Event of
Default and in the event SCC shall not pay, or shall not have caused to be paid,
to Millennium all or any portion of NDC Rent as a result of a Millennium Event
of Default, SCC shall pay, or cause to be paid, any such unpaid NDC Rent to
Millennium promptly following the date on which any such Millennium Event of
Default is cured or it has been determined in accordance with Article 5 hereof
that no Millennium Event of Default exists. NDC Rent shall be payable on a
quarterly basis (as estimated by SCC, or an SCC Entity, as applicable, in good
faith based on SCC's, or an SCC Entity's, as applicable, books and records)
contemporaneously with the delivery of a Quarterly Statement (as hereinafter
defined).
(b) (i) On or before the thirtieth (30th) day following the
expiration of each quarterly period during the term of each Agreement of
Lease, SCC shall deliver, or cause to be delivered, to Millennium a
quarterly statement (each a "QUARTERLY STATEMENT") signed and certified
by the chief financial officer of SCC, if SCC is a corporation, by a
managing member, if SCC is a limited liability company, or by the chief
financial officer of a corporate general partner of SCC, if SCC is a
partnership (such person, the "FINANCIAL OFFICER"), to be true and
correct to the best knowledge of the Financial Officer disclosing the
Adjusted Net Distributable Cash for the preceding quarterly period and
an itemization of the EBITDA, the Management Fee, the Percentage Equity
Return Payment and the Outstanding Capital Investment for such period
which were used to compute the Adjusted Net Distributable Cash.
(ii) SCC shall submit, or cause to be submitted, to
Millennium, on or before the ninetieth (90th) day following the
end of each Lease Year (including, without limitation, the last
Lease Year or partial Lease Year during the term of each
Agreement of Lease, as to which SCC's obligation to pay NDC Rent
shall survive the Expiration Date or sooner termination of this
Agreement) an auditor's report (each, a "NDC STATEMENT"), which
shall (1) be prepared, at SCC's sole cost and expense, by a
so-called "Big 6" accounting firm ("SCC'S ACCOUNTING FIRM") and
(2) disclose the Adjusted Net Distributable Cash for such Lease
Year. Each NDC Statement shall disclose the Adjusted Net
Distributable Cash for such Lease Year or fraction of a Lease
Year and an itemization of the EBITDA, the Management Fee, the
Percentage Equity Return Payment and the Outstanding Capital
Investment for such period which were used to compute the
Adjusted Net Distributable Cash. Subject to Millennium's right
to dispute such NDC Statement pursuant to Article 4 hereof, if
such NDC Statement shall show that the amounts, if any, paid to
Millennium under Section 3.1(a) hereof exceed the amount
actually due under such NDC Statement for such Lease Year, then
Millennium shall credit SCC, or the applicable SCC Entity, the
amount of such overpayment (together with interest thereon at
the Prime Rate from the date such overpayment was paid to
Millennium to the date such overpayment is credited or refunded,
as applicable, as provided in this Section 3.1(b)(ii) if the
actual amount of NDC Rent actually received by Millennium under
Section 3.1(a) hereof was more than ten percent (10%) higher
than the actual amount due and payable to Millennium pursuant to
Section 3.1(a) hereof) against the next accruing installment(s)
of NDC Rent and if the amount of the credit exceeds the amount
of the
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subsequent installment(s) of NDC Rent due under this Agreement,
the excess, together with the aforementioned interest, shall be
refunded to SCC, or the applicable SCC Entity, within thirty
(30) days of the receipt of such NDC Statement. If such NDC
Statement shall show that the amounts, if any, paid to
Millennium under Section 3.1(a) hereof are less than the amount
actually due under the NDC Statement for such Lease Year, then
SCC shall pay, or cause to be paid, the underpayment to
Millennium contemporaneously with the delivery of such NDC
Statement to Millennium, together with interest thereon from the
date such payment was due to the date such payment is paid at
the prime, base or reference rate of The Chase Manhattan Bank of
New York, or its successors, from time to time, charged to its
most favored customers on commercial loans having a 90-day
duration plus two percent (2%) (the "PRIME RATE") if the actual
amount of NDC Rent payable to Millennium under Section 3.1(a)
hereof was more than ten percent (10%) higher than the amount
paid to Millennium. The acceptance by Millennium of such NDC
Statement, or payments of NDC Rent with respect thereto, shall
be without prejudice and shall in no event constitute a waiver
of Millennium's right to claim a deficiency in the payment of
NDC Rent or to audit SCC's or any SCC Entity's books and records
(as hereafter set forth) for a period of twenty-four (24) months
from the date of receipt of such NDC Statement. If Millennium
does not notify SCC in writing of any dispute as to any NDC
Statement within such twenty-four (24) month period, then
Millennium shall waive its right to dispute such NDC Statement.
Section 3.2 (a) Provided that (i) SCC shall not then be in default of
any of SCC's monetary obligations under this Agreement after the expiration of
any applicable notice, grace and/or cure periods and (ii) the SCC Entities shall
not then be in default of any of their respective monetary obligations under
this Agreement and the Agreements of Lease after the expiration of any
applicable notice, grace and/or cure periods (collectively, an "SCC EVENT OF
DEFAULT"), then, in such event, if and to the extent the aggregate amount of
fixed annual rent actually paid by SCC or the SCC Entities in accordance with
the Agreements of Lease for a Lease Year (but without regard to any adjustment
that was made to any fixed annual rent to take into account any change in the
applicable index for "hard" construction costs applicable to the corresponding
Leased Premises) exceeds the Average Leased Premises Rent (as hereinafter
defined), the amount of any such excess (the "EXCESS AVERAGE RENT"), together
with interest at the Prime Rate on the amount of any outstanding Excess Average
Rent, from time to time, which exceeds any existing Outstanding Capital
Investment, from time to time, shall be credited against the installment(s) of
NDC Rent payable by SCC and the SCC Entities to Millennium for such Lease Year
in accordance with this Agreement, it being agreed that Excess Average Rent
shall not be treated as rent by the parties. Notwithstanding anything to the
contrary contained in this Section 3.2, in the event of an SCC Event of Default,
the portion of any Excess Average Rent which exceeds the amount of the SCC Event
of Default shall be credited against the installment(s) of NDC Rent as described
in the immediately preceding sentence and in the event all or any portion of
Excess Average Rent is not credited against the installment(s) of NDC Rent as
described in the immediately preceding sentence as a result of an SCC Event of
Default, any such non-credited Excess Average Rent shall be so credited promptly
following the date on which any such SCC Event of Default is cured or it has
been determined in accordance with Article 5 hereof that no SCC Event of Default
exists.
(b) For purposes of this Agreement, Average Leased Premises Rent
shall mean at any time, the product of $27.50 times the total number of rentable
square feet for all Leased Premises in existence at such time; provided,
however, that, for this purpose only, any Leased Premises in San Francisco,
California, Boston, Massachusetts and Washington, D.C. shall be deemed to
constitute exactly 100,000 rentable square feet, but such deemed size shall not
have any precedential value as to how the rentable square footage of any other
Leased Premises shall be calculated.
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Section 3.3 The application of the formulas described in Sections 3.1(a)
and 3.2 hereof is illustrated in the examples set forth in Schedule A attached
hereto (which examples are used for illustration purposes only and are not
intended to limit or expand any rights, liabilities or obligations of SCC
hereunder).
ARTICLE 4
BOOKS AND RECORDS
Section 4.1 (a) (i) In the event SCC or an SCC Entity fails to maintain
such books of account or other records as required hereunder adequate for
Millennium to perform an audit of the accuracy of the NDC Statement ("REQUIRED
RECORDS") as provided herein for the first Lease Year, then, in such event, the
Adjusted Net Distributable Cash for such Lease Year shall be the amount which,
in the opinion of SCC's Accounting Firm, reflects a fair and accurate estimate
of the Adjusted Net Distributable Cash for such first Lease Year, subject to
Millennium's right to dispute such estimate pursuant to this Article 4.
(ii) SCC shall cause each SCC Entity to prepare and keep
in each such SCC Entity's main accounting office in the United
States of America for a period of not less than twenty-four (24)
months following the end of each Lease Year (plus any additional
time during which an audit or dispute with respect to the
Adjusted Net Distributable Cash for such period is pending),
true, complete and accurate books of account and records of the
EBITDA, the Management Fee, the Percentage Equity Return Payment,
the Capital Investment and the Outstanding Capital Investment
from which the Adjusted Net Distributable Cash can be determined.
(iii) Millennium shall have the right, at any time and
from time to time for a period of twenty-four (24) months
following the submission of each NDC Statement to Millennium
(which period shall be extended for any additional time during
which an audit with respect thereto is pending), upon reasonable
written notice, to cause a so-called "Big 6" accounting firm to
perform on behalf of Millennium a complete audit to be made in
accordance with standard auditing practices of all Required
Records pertaining to the Adjusted Net Distributable Cash and of
any one or more NDC Statements, and in connection with such
audit, to examine the books of account and records (including,
without limitation, all supporting data and any other records
from which the Adjusted Net Distributable Cash may be tested or
determined) of the Adjusted Net Distributable Cash disclosed in
any statement given to Millennium; and as to SCC's and each SCC
Entity's books of account and records, SCC shall make and shall
cause each SCC Entity to make all such books of account and
records with respect to the Adjusted Net Distributable Cash
available for such examination in the United States of America at
the office where the same are regularly maintained. Millennium
and Millennium's accounting firm shall have the right, at
Millennium's sole cost and expense, to copy and duplicate such
information as Millennium may require and use SCC's and each SCC
Entity's duplicating machines in connection therewith. SCC shall
cooperate, and cause each SCC Entity to cooperate, with
Millennium and Millennium's accounting firm in connection with
any such audit and shall furnish to Millennium and Millennium's
accounting firm within ten (10) days after written demand
representations signed and certified by the Financial Officer of
SCC and/or SCC Entity to be true and correct as may be necessary
for the issuance of an audit opinion by Millennium's accounting
firm with respect to Adjusted Net Distributable Cash for any
Lease Year. Millennium shall promptly provide SCC with a copy of
any such audit.
(iv) If any such audit discloses that, with respect to the
period for which Millennium conducted such audit, SCC and/or an
SCC Entity paid less NDC Rent than SCC and/or an SCC
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Entity was obligated to pay in accordance with the terms and
conditions of this Agreement, then SCC shall pay, or cause to be
paid, Millennium the amount of such underpayment (with interest
thereon at the Prime Rate from the date such payment was due to
the date such payment is paid) within thirty (30) days after
demand therefor and, if the audit discloses that a NDC Statement
was inaccurate and the actual amount of NDC Rent payable to
Millennium was more than five percent (5%) higher than the
amount paid, or caused to be paid, by SCC as a result of any
such inaccuracy and/or if the audit discloses that a Quarterly
Statement was inaccurate and the actual amount of NDC Rent
payable to Millennium was more than ten percent (10%) higher
than the amount paid, or caused to be paid, by SCC as a result
of any such inaccuracy, then SCC shall, in addition to such
additional NDC Rent plus interest, pay, or cause to be paid, to
Millennium the reasonable actual out-of-pocket cost of such
audit and examination incurred by Millennium (not to exceed
$7,500.00 in each instance) within thirty (30) days after demand
therefor. If any such audit discloses that, with respect to the
period for which Millennium conducted such audit, SCC and/or a
SCC Entity paid more NDC Rent than SCC and/or a SCC Entity was
obligated to pay in accordance with the terms and conditions of
this Agreement, then Millennium shall credit the amount of such
overpayment (with interest thereon at the Prime Rate from the
date such overpayment was paid to Millennium to the date such
overpayment is credited or refunded, as applicable, as provided
in this Section 4.1(a)(iv)) against the next accruing
installment(s) of NDC Rent and if the amount of the credit
exceeds the amount of the subsequent installment(s) of NDC Rent
due under this Agreement, the excess shall be refunded to SCC,
or the applicable SCC Entity, within thirty (30) days after any
such audit by Millennium. If any audit shall be commenced by
Millennium or if there shall arise a dispute concerning the
Adjusted Net Distributable Cash, then, and in any such event,
the books of account and records required to be maintained shall
be preserved and retained until such audit has been completed or
there has been a final resolution or final determination of such
dispute or any related litigation.
(b) If SCC shall fail to prepare and deliver, or shall fail to
cause to be prepared and delivered, any NDC Statement, Millennium shall
have the right, in addition to any other rights or remedies Millennium
may have hereunder, to audit the Required Records, and to prepare the
statement or statements which SCC has failed to prepare and deliver, or
which SCC has failed to cause to be prepared and delivered. Such audit
shall be made and such statement(s) shall be prepared by an independent
certified public accountant selected by Millennium. Subject to SCC's
arbitration rights under Article 5 hereof, the statement(s) prepared by
Millennium shall be conclusive and binding upon SCC, and SCC shall pay,
or cause to be paid, within fifteen (15) days after rendition of a bill,
all expenses incurred in the preparation of such statement(s) and all
sums, if any, as may be shown by such audit to be due as NDC Rent,
together with interest thereon at the Prime Rate from the date such
payment was due hereunder.
(c) If a dispute arises with respect to the determination of the
Adjusted Net Distributable Cash, or NDC Rent payable hereunder which
dispute is not resolved within thirty (30) days after the date that NDC
Rent is due hereunder, either party may by notice to the other submit
the dispute to arbitration pursuant to Article 5 hereof. Pending the
determination of such dispute, SCC shall pay, or cause to be paid, all
amounts not in dispute in accordance with Section 3.1(a) hereof. If such
arbitration shall mandate that additional amounts are due Millennium,
then SCC shall pay, or cause to be paid, to Millennium such amount with
interest thereon at the Prime Rate from the date such payment was due
hereunder.
(d) Millennium shall at all times maintain the confidentiality of
the Quarterly Statements and the NDC Statements, except to the extent
reasonably necessary to (i) comply with applicable laws, regulations,
court or administrative orders, or to prosecute or defend any claim or
suit by litigation or otherwise under this Agreement or any Agreement of
Lease, and (ii) provided that the recipients of such information agree
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in writing to hold same in confidence (1) carry out the obligations set
forth in this Agreement or any Agreement of Lease or documents
evidencing and/or securing any ground leases or underlying leases which
may now exist or hereafter be executed affecting any or all of the
Leased Premises, any lien of any mortgage or deed of trust which may now
exist or hereafter be executed in any amount for which any or all of the
Leased Premises is specified as security, and any condominium documents
and any private covenants, conditions or restrictions or reciprocal
easements which may now or hereafter be recorded encumbering any or all
of the Projects, (2) obtain legal, financial and/or tax advice from
Millennium's attorneys, accountants and financial advisors, (3)
negotiate or complete a transaction with a lender to Millennium or any
Millennium Entity secured by Millennium's and/or any Millennium Entity's
interest in any or all of the Projects, any or all of the buildings
situated on Projects or any or all of the Agreements of Lease
(including, without limitation, a pledge of rents payable thereunder) or
purchaser of any or all of the buildings situated on Projects or any or
all of the Projects or (4) negotiate or complete a public or private
syndication or similar offering with respect to any or all of the
Agreements of Lease, Millennium or any or all of the Millennium
Entities, the interests of any of the members of Millennium or any or
all of the Millennium Entities, any or all of the Projects and/or any or
all of the buildings situated on any or all of the Projects.
ARTICLE 5
ARBITRATION
Section 5.1 In each case specified in this Agreement in which resort to
arbitration shall be required, such arbitration (unless otherwise specifically
provided in other Sections of this Agreement) shall be in New York City with
respect to the first, third, fifth and each subsequent odd arbitration entered
into in connection with this Agreement and in Los Angeles, California with
respect to the second, fourth, sixth and each subsequent even arbitration
entered into in connection with this Agreement in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and the provisions of
this Agreement, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
Section 5.2 Either party may request arbitration of any matter in
dispute wherein arbitration is expressly provided in this Agreement as the
appropriate remedy. The party requesting arbitration shall do so by giving
written notice to that effect to the other party, specifying in such notice the
nature of the dispute and the name and address of the person designated to act
as an arbitrator on its behalf. Within fifteen (15) days after the service of
such notice, the other party shall give notice to the first party specifying the
name and address of the person designated to act as an arbitrator on its behalf.
If the second party fails to notify the first party of the appointment of its
arbitrator, as aforesaid, within the time above specified, then the appointment
of the second arbitrator shall be made in the same manner as hereinafter
provided for the appointment of a third arbitrator in a case where the two
arbitrators appointed hereunder and the parties are unable to agree upon such
appointment. The two arbitrators so chosen shall meet within ten (10) days after
the second arbitrator is appointed and if, within thirty (30) days after the
second arbitrator is appointed, the two arbitrators shall not agree upon the
question in dispute, they shall together appoint a third arbitrator. In the
event of their being unable to agree upon such appointment within thirty (30)
days after the appointment of the second arbitrator, the third arbitrator shall
be selected by the parties themselves if they can agree thereon within a further
period of fifteen (15) days. If the parties do not so agree, then either party,
on behalf of both and on notice to the other, may request such appointment by
the American Arbitration Association (or any organization successor thereto) in
accordance with its rules then prevailing or if the American Arbitration
Association (or such successor organization) shall fail to appoint said third
arbitrator within fifteen (15) days after such request is made, then either
party may apply, on notice to the other, to the Supreme Court in the County of
New York or in the County of Los Angeles, as applicable (or any other court
having jurisdiction and exercising functions
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similar to those now exercised by such court) for the appointment of such third
arbitrator. Such third arbitrator chosen or appointed pursuant to this Section
shall be a disinterested person and each arbitrator chosen or appointed shall
have at least ten (10) years' experience in the County of New York or in the
County of Los Angeles, as applicable, in a calling connected with the dispute.
Section 5.3 The arbitrators shall have the right to retain and consult
experts and competent authorities skilled in the matters under arbitration. The
arbitrators shall render their award, upon the concurrence of at least two (2)
of their number, within sixty (60) days after the appointment of the third
arbitrator. Such award shall be in writing and shall be final and conclusive on
the parties and counterpart copies thereof shall be delivered to each of the
parties. In rendering such decision and award, the arbitrators shall not add to,
subtract from or otherwise modify the provisions of this Agreement. Judgment may
be had on the decision and award of the arbitrators so rendered, in any court of
competent jurisdiction.
Section 5.4 If for any reason whatsoever the written decision and award
of the arbitrators shall not be rendered within sixty (60) days after the
appointment of the third arbitrator, then at any time thereafter before such
decision and award shall have been rendered either party may apply to the
Supreme Court of the State of New York or to the Supreme Court of the State of
California, as applicable, or to any other court having jurisdiction and
exercising the functions similar to those now exercised by such court, by
action, proceeding or otherwise (but not by a new arbitration proceeding) as may
be proper to determine the question in dispute consistently with the provisions
of this Agreement.
Section 5.5 Each party shall pay the fees and expenses of the one of the
two original arbitrators appointed by or for such party, as well as the
attorneys' fees, witness fees and similar expenses incurred by such party, and
the fees and expenses of the third arbitrator and all other expenses of the
arbitration shall be borne by the parties equally. Notwithstanding the
foregoing, if a majority of the arbitrators determine that the position of
either party was taken wilfully and is without merit or the consent of either
party was unreasonably withheld or delayed, the arbitrators may require such
party to bear all the expenses of the arbitration as well as the prevailing
party's witness fees, attorney fees and similar expenses.
Section 5.6 In the case of any arbitration hereunder, the arbitrators
shall be instructed and will give effect to the intent of this Agreement.
ARTICLE 6
BILLS AND NOTICES
Section 6.1 Except as otherwise expressly provided in this Agreement,
any bills, statements, consents, notices, demands, requests or other
communications given or required to be given under this Agreement shall be in
writing and shall be deemed sufficiently given or rendered (a) if delivered by
hand (against a signed receipt) or (b) if sent by registered or certified mail
(return receipt requested) or (c) overnight courier (e.g., Federal Express) or
(d) facsimile transmission (with confirmed answer back) addressed:
(i) if to Millennium at Millennium's address set forth in this
Agreement, Attention: Chief Financial Officer with a copy to Battle Fowler LLP,
75 East 55th Street, New York, New York 10022, Attention: Eric R. Landau, Esq.;
and
(ii) if to SCC at SCC's address set forth in this Agreement,
Attention: Chief Financial Officer with copies to SCC Sports Club, Inc.,
11100 Santa Monica Boulevard, Suite 300, Los Angeles, California
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90025, Attention: Real Estate Department and Resch Polster Alpert &
Berger LLP, 10390 Santa Monica Boulevard, Fourth Floor, Los Angeles,
California 90025, Attention: Ronald M. Resch, Esq.; or
to such other or additional address(es) as Millennium or SCC may designate as
its new address(es) for such purpose by notice given to the other in accordance
with the provisions of this Article 6. Any such bill, statement, consent,
notice, demand, request or other communication shall be deemed to have been
rendered or given on the date when it shall have been had delivered provided
receipt or refusal is acknowledged or seven (7) days from when it shall have
been mailed or on the next business day if sent by overnight courier, or on the
day of receipt if sent by facsimile transmission with confirmed answer back, as
provided in this Article. Any notice, demand or request sent by facsimile
transmission shall be promptly (within one (1) business day) followed by such
notice, demand or request being sent or delivered, as the case may be, as
provided in (a), (b) or (c) in this Section. Any notice, demand or request sent
by Millennium to SCC may be sent by Millennium's attorneys and any notice,
demand or request sent by SCC to Millennium may be sent by SCC's attorneys.
ARTICLE 7
MISCELLANEOUS
Section 7.1 If SCC shall fail to pay, or shall fail to cause to be paid,
NDC Rent within seven (7) days after same shall be due hereunder, SCC shall pay
to Millennium, in addition to such NDC Rent then due and payable, interest
thereon at an amount based upon the Prime Rate (i.e., the Prime Rate applied to
the amount due), for the period from the date on which the NDC Rent payment was
due until the date of payment thereof in full. Notwithstanding the foregoing, on
the first occasion in any calendar year on which any such amount would be due
and payable by SCC hereunder, SCC shall not be obligated to pay any such amount
unless Millennium shall have first given SCC notice that NDC Rent is past due
and SCC shall have failed to pay such sum within seven (7) days after receipt of
such notice.
Section 7.2 If any default shall occur and be continuing, Millennium may
enforce its rights by suit in equity, by action at law, or by any other
appropriate proceedings, whether for damages, specific performance (to the
extent permitted by law) of any covenant or agreement contained in this
Agreement or in the aid of the exercise of any power granted in this Agreement.
Section 7.3 No right or remedy conferred upon or reserved to Millennium
under this Agreement is intended to be exclusive of any other right or remedy,
and every right and remedy shall be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing under applicable
law. Every right and remedy given by this Agreement or by applicable law to
Millennium may be exercised from time to time and as often as may be deemed
expedient by Millennium.
Section 7.4 If any legal action or proceeding is brought against
Millennium or SCC by the other with respect to this Agreement, then the
non-prevailing party shall pay the prevailing party's attorneys' fees and
disbursements arising out of or incurred in connection with such action or
proceeding.
Section 7.5 No failure or delay on the part of a party to this Agreement
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power preclude any
other or further exercise thereof or the exercise of any other right or power
hereunder. No modification or waiver of any provision of this Agreement and no
consent to any departure by any party to this Agreement therefrom shall be
effective unless the same shall be in writing and signed by the party against
whom such modification, waiver or consent is being sought to be enforced
against, and then such modification, waiver or
-10-
<PAGE> 13
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on any party to this Agreement in any case
shall, of itself, entitle such party to any other or further notice or demand in
similar or other circumstances.
Section 7.6 This Agreement may only be modified, amended, changed,
discharged or terminated by an agreement in writing signed by all of the parties
hereto.
Section 7.7 Each of the parties to this Agreement (and the undersigned
representatives of such parties, if any) has the full power, authority and legal
right to execute this Agreement and to keep and observe all of the terms,
covenants and provisions of this Agreement on such parties' respective parts to
be performed or observed.
Section 7.8 If any term, covenant or provision of this Agreement shall
be held to be invalid, illegal or unenforceable in any respect, this Agreement
shall be construed without such term, covenant or provision.
Section 7.9 This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Section 7.10 This Agreement sets forth the entire agreement and
understanding of the parties hereto with respect to the specific matters agreed
to herein and the parties hereto acknowledge that no oral or other agreements,
understandings, representations or warranties exist with respect to this
Agreement or with respect to the obligations of the parties hereto under this
Agreement, except those specifically set forth in this Agreement.
Section 7.11 THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THIS
AGREEMENT.
Section 7.12 This Agreement is, and shall be deemed to be, a contract
entered into under and pursuant to the laws of the State of New York and shall
be in all respects governed, construed, applied and enforced in accordance with
the laws of the State of New York. No defense given or allowed by the laws of
any other state or country shall be interposed in any action or proceeding
hereon unless such defense is also given or allowed by the laws of the State of
New York.
Section 7.13 The parties hereto agree to submit to personal jurisdiction
in the State of New York or California in any action or proceeding arising out
of this Agreement and, in furtherance of such agreement, the parties hereto
hereby agree and consent that without limiting other methods of obtaining
jurisdiction, personal jurisdiction over any of the parties hereto in any such
action or proceeding may be obtained within or without the jurisdiction of any
court located in the City of New York or the City of Los Angeles and that any
process or notice of motion or other application to any such court in connection
with any such action or proceeding may be served upon the parties hereto by
registered or certified mail or by personal service at the last known address of
the parties hereto, whether such address be within or without the jurisdiction
of any such court.
Section 7.14 This Agreement may be executed in one or more counterparts
by some or all of the parties hereto, each of which counterparts shall be an
original and all of which together shall constitute a single agreement.
Section 7.15 This Agreement may be executed in any number of duplicate
originals and each such duplicate original shall be deemed to constitute but one
and the same instrument.
-11-
<PAGE> 14
Section 7.16 Notwithstanding anything to the contrary set forth herein,
but subject to the provisions set forth in the Option Agreement, neither
Millennium nor any Millennium Entity shall have any obligation or liability to
SCC or any SCC Entity with respect to any Project unless and until an Agreement
of Lease with respect thereto has been unconditionally executed and delivered by
all parties thereto.
-12-
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MILLENNIUM PARTNERS LLC
By: Millennium Partners Management LLC, a New York
limited liability company, its managing member
By: Millennium Manager I, Inc., a New York
corporation, its manager
By: /s/ Brian Collins
--------------------------------
Name: Brian Collins
Title:
THE SPORTS CLUB COMPANY
By: /s/ John M. Gibbons
--------------------
Name: John M. Gibbons
Title: President
-13-
<PAGE> 16
Schedule A
[attached hereto]
<PAGE> 1
EXHIBIT 10.85
FIRST AMENDMENT TO LEASE BETWEEN RCPI TRUST AND THE REGISTRANT
OCTOBER 30, 1998
<PAGE> 2
FIRST AMENDMENT TO LEASE
This FIRST AMENDMENT TO LEASE, dated as of October 30, 1998 (this
"Amendment"), between RCPI TRUST, a Delaware Business trust having an office c/o
Tishman Speyer Properties, L.P., 45 Rockefeller Plaza, New York, New York 10111
("Landlord"), and The Sports Club Company, Inc., a Delaware corporation having
an office at 11100 Santa Monica Boulevard, Suite 300, West Los Angeles,
California 90025 ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that certain Lease, dated
February 27, 1998 (the "Original Lease"), covering portions of the first,
second, third, and fourth floors of the building located at 630 Fifth Avenue,
New York, New York; and
WHEREAS, Landlord and Tenant desire to modify the Original Lease as
hereinafter set forth to provide for the substitution of a new floor plan for
the Third Floor Premises and otherwise as provided herein (the Original Lease,
as modified by this Amendment, the "Lease").
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant agree as
follows:
1. Capitalized Terms. All capitalized terms used herein and not
otherwise defined in this Amendment shall have the meanings ascribed to them in
the Original Lease.
2. Modification. (a) Effective as of the date hereof, the Original Lease
shall be amended by deleting the floor plan for the Third Floor Premises
attached to the Original Lease as Exhibit A-5 and substituting therefor the
floor plan attached to this Amendment as Exhibit A.
(b) Tenant hereby agrees that Landlord, at Landlord's option, may modify
the Second Floor C Premises to accommodate a means of egress for the adjacent
tenant along Column Line J between Column Line 5.8 and Column Line 3 (as such
columns are designated on First Floor and Second Floor Construction Plan, dated
October 12, 1998, prepared by Cannon).
3. Delivery of Premises. Notwithstanding anything to the contrary
provided in the Lease. Landlord and Tenant hereby agree that Landlord shall have
delivered and Tenant shall have accepted possession of the First Floor Premises,
the Second Floor A Premises and the Third Floor Premises on November 1, 1998.
Accordingly, the Rent Commencement Date with respect to the First Floor
Premises, the Second Floor A Premises and the Third Floor Premises shall be
August 1, 1999 for all purposes of the Lease.
<PAGE> 3
4. No Modification. Except as set forth herein, nothing contained in
this Amendment shall be deemed to amend or modify in any respect the terms,
provisions, or conditions of the Original Lease and such terms, provisions, and
conditions shall remain in full force and effect as modified hereby.
5. Construction. If there is any inconsistency between the terms of this
Amendment and the terms of the Original Lease, the terms of this Amendment shall
be controlling and prevail.
6. Entire Agreement. This Amendment contains the sole and entire
understanding and agreement of the parties with respect to its entire subject
matter and all prior negotiations, discussions, representations, agreements and
understandings heretofore had among the parties with respect thereto are merged
herein.
7. Counterparts. This Amendment may be executed in duplicate
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument. Facsimile
execution of this Amendment shall be deemed to be an original for all purposes.
8. Representations and Warranties. Tenant hereby represents and warrants
to Landlord that, as of the date hereof, (i) the Original Lease is in full force
and effect and has not been modified except pursuant to this Amendment; (ii) to
the best of Tenant's knowledge, there are no defaults existing under the Lease'
(iii) to the best of Tenant's knowledge there exist no valid abatements, causes
of action, counterclaims, disputes, defenses, offsets, credits, deductions, or
claims against the enforcement of any of the terms and conditions of the Lease;
and (iv) this Amendment has been duly authorized, executed and delivered by
Tenant and constitutes the legal, valid and binding obligation of Tenant.
9. Miscellaneous. (a) This Amendment shall be governed by the laws of
the State of New York without giving effect to conflict of laws principles
thereof.
(b) This Amendment shall be binding upon and inure to the benefit of
Landlord and Tenant and their successors and permitted assigns.
(c) The captions, headings, and titles in this Amendment are solely for
convenience of reference and shall not affect its interpretation.
(d) This Amendment shall not be binding upon Landlord or Tenant unless
and until Landlord shall have delivered a fully executed counterpart of this
Amendment to Tenant.
<PAGE> 4
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the day and year first above written.
LANDLORD:
RCPI TRUST
By: Tishman Speyer Properties, L.P.,
its Agent
By: /s/ Peter Fair
-------------------------------------
Peter Fair
TENANT:
THE SPORTS CLUB COMPANY, INC.
By: /s/ Mark Spino
-------------------------------------
Name: Mark Spino
Title: Vice President
<PAGE> 5
EXHIBIT A
THIRD FLOOR PREMISES
The floor plan which follows is intended solely to identify the general location
of the Third Floor Premises, and should not be used for any other purpose. All
areas, dimensions and locations are approximate, and any physical conditions
indicated may not exist as shown.
<PAGE> 1
EXHIBIT 10.86
SECOND AMENDMENT TO LEASE BETWEEN RCPI TRUST AND THE REGISTRANT
MARCH 4, 1999
<PAGE> 2
SECOND AMENDMENT TO LEASE
This SECOND AMENDMENT TO LEASE, dated as of March 4, 1999 (this
"Amendment"), between RCPI TRUST, a Delaware business trust having an office c/o
Tishman Speyer Properties, L.P., 45 Rockefeller Plaza, New York, New York 10111
("Landlord"), and THE SPORTS CLUB COMPANY, INC., a Delaware corporation having
an office at 11100 Santa Monica Boulevard, Suite 300, West Los Angeles,
California 90025 ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that certain Lease, dated as
of February 27, 1998, as amended by First Amendment to Lease, dated as of
October 30, 1998 (as amended, the "Original Lease"), covering portions of the
first, second, third, and fourth floors of the building located at 630 Fifth
Avenue, New York, New York; and
WHEREAS, Landlord and Tenant desire to modify the Original Lease as
hereinafter set forth to provide for the surrender of the Fourth Floor Premises
(the Original Lease, as modified by this Amendment, the "Lease").
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant agree as
follows:
1. Capitalized Terms. All capitalized terms used herein and not
otherwise defined in this Amendment shall have the meanings ascribed to them in
the Original Lease.
2. Modification. Effective as of the date of this Amendment, the Lease
with respect to the Fourth Floor Premises shall end and expire and Tenant's
estate and interest in the Fourth Floor Premises shall terminate and be wholly
extinguished with the same force and effect as if such date was initially set
forth in the Lease as the Expiration Date, and Landlord shall be entitled to
lease the Fourth Floor Premises to any person or entity, or take any other
action with respect thereto, free from any claim of Tenant or any person or
entity claiming through Tenant. Effective as of the date of this Amendment, the
term "Premises" as used in the Lease shall no longer include the Fourth Floor
Premises and Landlord and Tenant shall have no further obligations under the
Lease with respect to the Fourth Floor Premises. Landlord and Tenant hereby
acknowledge that the Fourth Floor premises have never been delivered to Tenant.
Tenant represents and warrants that it has not assigned, pledged or encumbered
the Lease or sublet the Fourth Floor Premises or done or suffered any other
action as a result of which the Lease or the Fourth Floor Premises might be
subject to any lien or encumbrance.
<PAGE> 3
3. No Modification. Except as set forth herein, nothing contained in
this Amendment shall be deemed to amend or modify in any respect the terms,
provisions, or conditions of the Original Lease and such terms, provisions, and
conditions shall remain in full force and effect as modified hereby.
4. Construction. If there is any inconsistency between the terms of this
Amendment and the terms of the Original Lease, the terms of this Amendment shall
be controlling and prevail.
5. Entire Agreement. This Amendment contains the sole and entire
understanding and agreement of the parties with respect to its entire subject
matter and all prior negotiations, discussions, representations, agreements and
understandings heretofore had among the parties with respect thereto are merged
herein.
6. Counterparts. This Amendment may be executed in duplicate
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument. Facsimile
execution of this Amendment shall be deemed to be an original for all purposes.
7. Representations and Warranties. Tenant hereby represents and warrants
to Landlord that, as of the date hereof, (i) the Original Lease is in full force
and effect and has not been modified except pursuant to this Amendment; (ii) to
the best of Tenant's knowledge, there are no defaults existing under the Lease;
(iii) to the best of Tenant's knowledge there exist no valid abatements, causes
of action, counterclaims, disputes, defenses, offsets, credits, deductions, or
claims against the enforcement of any of the terms and conditions of the Lease;
and (iv) this Amendment has been duly authorized, executed and delivered by
Tenant and constitutes the legal, valid and binding obligation of Tenant.
8. Miscellaneous. (a) This Amendment shall be governed by the laws of
the State of New York without giving effect to conflict of laws principles
thereof.
(b) This Amendment shall be binding upon and inure to the benefit of
Landlord and Tenant and their successors and permitted assigns.
(c) The captions, headings, and titles in this Amendment are solely for
convenience of reference and shall not affect its interpretation.
<PAGE> 4
(d) This Amendment shall not be binding upon Landlord or Tenant unless
and until Landlord shall have delivered a fully executed counterpart of this
Amendment to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the day and year first above written.
LANDLORD:
RCPI TRUST
By: Tishman Speyer Properties, L.P.,
its Agent
By: /s/ Geoffrey P. Wharton
-------------------------------------
Geoffrey P. Wharton
TENANT:
THE SPORTS CLUB COMPANY, INC.
By: /s/ David M. Talla
-------------------------------------
Name: David M. Talla
Title: CEO
<PAGE> 1
EXHIBIT 10.87
SAN FRANCISCO LEASE
<PAGE> 2
ATHLETIC CLUB LEASE
San Francisco, California
LANDLORD: CB-1 ENTERTAINMENT PARTNERS LP
TENANT: S.F. SPORTS CLUB, INC.
DATE: As of June 1, 1997
<PAGE> 3
INDEX OF MAJOR DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
AAA 16
Abatement Notice 56
Actual Statement 17
Additional Rent 10
Affiliate 9
Agency 52
Agency Requirements 53
All-risk 33
Allowance 1
Annual Base Rent 10
Antennae 58
Assignment Date 44
Assignment Notice 44
Building 1
Building Improvements 1
CC&R 19
Claims 32
Club 1
Commencement Date 3
Common Area Expenses 11
Common Areas 2
Condominium Association 19
Condominium Documents 19
Control 45
CPI 51
Cure Period 56
DDA 52
Deadline Date 57
Default 42
Depository 39
Development 1
Fair Market Parking Rate 51
Financial Officer 38
First-class 19
Floor Area 2
Force Majeure 57
Four Seasons Standard 22
Hazardous Materials 20
Hotel 9
Hotel Management Agreement 9
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
Improvements 1
In-Lieu Tax 26
Initial Annual Base Rent Amount 10
Initial Term 3
Jobs Program 53
Landlord 1
Landlord Delay 5
Landlord Offer 38
Landlord's Contribution 1
Landlord's First Substantial Completion Estimate Notice 6
Landlord's Insurance 35
Landlord's Second Substantial Completion Estimate Notice 6
Lease 1
Lease Year 6
Marriott Bill 8
Marriott Hotel 8
Marriott Hotel Guests 8
Minimum Landlord's Work 4
Monthly Base Rent 11
Mortgagee Non-Disturbance Agreement 47
New York Athletic Club Lease 15
Non-Disturbance Agreement 46
Noticed Lender 55
Operating Expenses 12
Option 7
Option Date 7
Option Period 7
Other Primary Hotel Operator 22
Partial Taking 41
Person 45
Premises 1
Primary Hotel 8
Primary Hotel Bill 9
Primary Hotel Guests 8
Prime Rate 43
Property 2
Real property taxes 26
Receipts Tax 26
Rent 10
Requirements 52
Scheduled Completion Date 3
Secured Lender 40
Senior Interest Holders 46
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
Senior Interests 46
Signage Approval Factors 55
Substantial Taking 41
Substantially Complete 3
Tax Year 24
Taxes 24
Temporary Closures 42
Tenant 1
Tenant Acceptance Notice 38
Tenant Delay 4
Tenant Installation 58
Tenant Revision 5
Tenant Termination Costs 38
Tenant's Insurance Share 40
Tenant's Share 15
Tenant's Work 3
Term 7
Termination Notice 56
Total Taking 41
Trade Fixtures 2
Unexpired Lease Term 38
Uninsured Contribution Amount 37
Work Letter 1
</TABLE>
iii
<PAGE> 6
ATHLETIC CLUB LEASE
San Francisco, California
THIS LEASE (the "LEASE") is made as of the 1st day of June, 1997, by and
between CB-1 ENTERTAINMENT PARTNERS LP, a California limited partnership
("LANDLORD") and S.F. SPORTS CLUB, INC., a Delaware corporation ("TENANT").
1. Premises and Common Areas.
Premises. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the space (the "PREMISES") in a building (the "BUILDING") to be
constructed on that certain parcel of real property, in which the
Improvements (as defined herein) are to be constructed, more
particularly described in Exhibit A attached hereto and made a part
hereof. This Lease is subject to all matters of record affecting the
Property (as defined herein) and all matters that would be revealed by
an accurate survey of the Property. The Premises shall constitute part
of a development (the "DEVELOPMENT") as shown on the site plan attached
hereto as Exhibit B and made a part hereof. The Premises are designated
on the non-hatched portion of Exhibit B, with all depictions thereon
being subject to normal construction variances and tolerances, and as
otherwise provided in this Lease. Landlord, at its sole cost, shall, in
accordance with the work letter agreement attached hereto as Exhibit C
and made a part hereof (the "WORK LETTER"), perform Landlord's Work (as
defined therein) and as part of Landlord's Work, shall cause the utility
connections specified in the Work Letter to be available in the
locations specified in the Work Letter.
Construction of Premises. Tenant shall cause the Premises to be improved with
improvements (the "IMPROVEMENTS") in accordance with the Work Letter
(defined as the "BUILDING IMPROVEMENTS" in the Work Letter) and, subject
to Force Majeure (as defined herein), to the extent provided herein and
within the time(s) set forth in the Work Letter. The Improvements are to
be used as a first-class athletic club facility (the "CLUB") more
particularly described in Article 8 hereof. The design of the
Improvements shall be subject to Landlord's approval, as provided in the
Work Letter. In accordance with the terms of the Work Letter, Landlord
shall provide Tenant with a contribution in an amount not to exceed Nine
Million Five Hundred Thousand and 00/100 Dollars ($9,500,000.00) (the
"LANDLORD'S CONTRIBUTION" and/or the "ALLOWANCE"). Tenant shall equip
the Club with all required Trade Fixtures (as defined herein) as may be
necessary to operate the Club in accordance with Section 8.1 hereof.
Title to the Improvements and all alterations and additions thereto and
replacements thereof (other than Trade Fixtures) thereafter constructed
or installed on the Premises shall be and remain in Landlord. All Trade
Fixtures, however, shall remain Tenant's property, subject to permitted
customary third (3rd) party financing subject to and in accordance with
Section 46 hereof, upon the expiration or earlier termination of this
Lease; provided, however, Tenant shall not have the right to remove any
Trade Fixtures until Tenant shall cure any Default (as defined herein)
or, at the termination of the term hereof as a result of any such
Default, until Tenant complies with its payment obligations set forth
herein. "TRADE FIXTURES" means
<PAGE> 7
Tenant's athletic equipment and machines and all of Tenant's furniture
and other personal property not affixed to the Premises in such a manner
as to do material damage upon their removal. The Premises and the
Improvements are sometimes hereinafter collectively referred to as the
"PROPERTY."
Common Areas. Tenant shall have the non-exclusive right to use the Common Areas
(as defined herein), in common with other tenants and/or occupants of
the Development, subject to the Condominium Documents (as defined
herein), the CC&R (as defined herein) and any other nondiscriminatory
rules and regulations that Landlord and/or the Condominium Association
(as defined herein), as applicable, shall adopt for the Development so
long as such CC&R and rules and regulations do not (i) materially
interfere with Tenant's ability to conduct normal business operations;
(ii) materially increase Tenant's obligations under this Lease, or (iii)
materially decrease Tenant's rights under this Lease. "COMMON AREAS"
means all common areas and facilities of the Development that are now or
hereafter made available for the non-exclusive and general use,
convenience and benefit of Tenant and/or Tenant's customers, employees,
agents and invitees, including common monuments and signs;
transportation facilities areas including bus stops, taxi-limousine
stands, and bicycle parking areas; trash enclosures; landscaped areas;
areas designated as pedestrian walkways or pedestrian bridges; and
parking areas.
Control of Common Areas. Provided Landlord does not unreasonably interfere with,
hinder or obstruct Tenant's use of the Premises or Tenant's ability to
conduct business from the Premises, and does not otherwise materially
diminish any of Tenant's rights pursuant to this Lease, Landlord
reserves, the right from time to time:
To make changes to the Common Areas, or their design, including
changes in the location, size, shape and number of driveways, entrances,
parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas and walkways. Landlord shall keep Tenant
apprised as to any proposed change to the Common Areas or their design;
and
To close temporarily any portions of the Common Areas for
maintenance purposes so long as reasonable access to the Premises
remains available, including reasonable access from the parking areas of
the Building to the Premises.
Landlord agrees that rerouting of pedestrian walkways within the Common
Areas and/or rerouting of vehicles within the Common Areas shall not be
done in a manner which would materially hinder or obstruct Tenant's
ability to conduct business from the Premises.
Definition of Floor Area. The term "FLOOR AREA" as used in this Lease shall mean
the rentable square footage of the Premises (or, where applicable, of
other premises located or proposed in or outside the Development),
measured from the exterior surface of building walls (and from
extensions thereof, in the case of openings), and from the exterior
surface
-2-
<PAGE> 8
of any demising partitions. At such time as the Improvements have been
constructed, Landlord shall deliver to Tenant a notice which sets forth
the Floor Area of the Premises together with reasonable documentation
evidencing Landlord's determination of the Floor Area of the Premises.
Tenant shall have ten (10) days following the receipt of Landlord's
notice of the determination of the Floor Area in which to deliver to
Landlord a notice objecting to such determination. In the event Tenant
does not so deliver such objection notice, then, in such event,
Landlord's calculation shall be deemed accepted by Tenant and
incorporated herein by this reference. In the event that Tenant delivers
such a notice to Landlord, Landlord and Tenant shall have thirty (30)
days in which to work together to calculate the Floor Area of the
Premises. In the event Landlord and Tenant cannot so agree, then, until
agreement is reached, either party may submit such dispute to
arbitration in accordance with the rules of the San Francisco,
California chapter of the AAA (as defined herein) and the party deemed
less correct in such dispute shall pay the other party's costs of such
arbitration. Except as expressly provided to the contrary in this
Section 1.5, the procedure for arbitration shall be governed by the
proceedings set forth in Section 7.3 hereof. Landlord and Tenant
acknowledge that the projected Floor Area of the Premises shall be
approximately 94,774 square feet.
2. Term.
-3-
<PAGE> 9
Commencement. This Lease constitutes a binding agreement and the obligations of
Landlord and Tenant hereunder shall be effective upon execution and
delivery of this Lease by both Landlord and Tenant. However, the initial
term ("INITIAL Term") of this Lease shall commence upon the date (the
"COMMENCEMENT DATE") which is the earlier of (i) the date upon which
Tenant commences normal business operations from the Premises (it being
understood that the use of the Development as described in Section 2.2
hereof shall not be deemed to constitute normal business operations from
the Premises by Tenant) and (ii) the date (a) which is the later of (A)
six (6) months after Landlord shall "Substantially Complete" (as defined
herein) the Minimum Landlord's Work (as defined herein) and (B) twelve
(12) months after the installation of the concrete decks on floors
2,3,4, and 5 of the Premises (the "SCHEDULED COMPLETION DATE"), the
Scheduled Completion Date being extended by any period that Tenant using
reasonable diligence shall have been unable to (aa) substantially
complete the Improvements in accordance with the Work Letter
(collectively, "TENANT'S WORK") by the Scheduled Completion Date due to
Landlord Delays (as defined herein) and/or (bb) to conduct normal
business operations in the Premises as a result of the non-completion of
Landlord's Work by the Scheduled Completion Date (subject to extension
due to Tenant Delays (as defined herein)) and (b) on which the Premises
are reasonably accessible (1) from the parking areas of the Building and
the parking areas of the Building are reasonably accessible and usable
for parking purposes and (2) by pedestrians from the Common Areas.
"SUBSTANTIALLY COMPLETE" means (as certified by Landlord's architect)
complete subject to the completion of minor punch-list type items or
other minor components of Landlord's Work or the Minimum Landlord's
Work, as applicable, the performance of which will not materially
interfere with Tenant's Work to ready the Premises for Tenant's use and
occupancy thereof. Landlord shall diligently proceed to complete said
punch list items. "MINIMUM LANDLORD'S Work" means Landlord's Work as
describe in the Work Letter exclusive of base building systems,
mechanical systems and operational elevators. If Landlord shall be
delayed in substantially completing Landlord's Work, the Minimum
Landlord's Work and/or the Common Areas and such delay shall be caused
by or shall arise out of or in connection with any of the following
(each a "TENANT DELAY"):
Tenant's direction that Landlord delay in proceeding
with any segment or part of Landlord's Work, the Minimum
Landlord's Work and/or the Common Areas (except under
circumstances where the basis for such direction is the fact
that Landlord must rectify an error in Landlord's Work, the
Minimum Landlord's Work and/or the Common Areas that is not
otherwise attributable to Tenant); or
the performance of work by any person, or entity
employed or hired by Tenant or on behalf of Tenant that actually
delays Landlord in the completion of Landlord's Work, the
Minimum Landlord's Work and/or the Common Areas, provided that
if Landlord shall be aware of any such delay, Landlord shall
immediately notify Tenant thereof and Tenant fails to remedy any
such delay by the end of the second (2nd) day following receipt
of Landlord's notice of any such delay; or
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any acts or omissions of Tenant, or of any Affiliate (as
defined herein) of Tenant, provided that if Landlord shall be
aware of any such delay, Landlord shall immediately notify
Tenant thereof and Tenant fails to remedy any such delay by the
end of the second (2nd) day following receipt of Landlord's
notice of any such delay; or
Tenant's unreasonable delay or refusal in making changes
to the Work Letter reasonably requested by Landlord; or
any breach of any of the terms of this Lease by Tenant
that delays Landlord in substantially completing Landlord's
Work, the Minimum Landlord's Work and/or the Common Areas,
provided that if Landlord shall be aware of any such delay,
Landlord shall immediately notify Tenant thereof and Tenant
fails to remedy any such delay by the end of the second (2nd)
day following receipt of Landlord's notice of any such delay; or
any unreasonable failure on Tenant's part to-cooperate
with Landlord in connection with Landlord's performance of
Landlord's Work, the Minimum Landlord's Work and/or the Common
Areas;
then notwithstanding anything in this Lease to the contrary, Landlord's
Work and/or the Minimum Landlord's Work shall be deemed to be
Substantially Complete as of the date that substantial completion would
have occurred but for such delay and the Common Areas shall be deemed to
be accessible and reasonably usable as of the date that the Common Areas
would have been accessible and reasonably usable but for such delay, as
applicable.
If Tenant desires a change in the Work Letter or Tenant requests for any
materials, finishes or installation not originally contemplated by this
Lease or contained in the Work Letter, Tenant shall submit to Landlord
the proposed change or request (herein called a "TENANT REVISION"). A
Tenant Revision shall be subject to Landlord's approval, which approval
shall not be unreasonably withheld or delayed, and, if so approved,
Landlord shall cause to be prepared and shall submit to Tenant for its
approval or disapproval, an estimate of the delays in performance of
Landlord's Work resulting from Tenant's request for a Tenant Revision
and an estimate of the incremental increased cost to Landlord to
complete Landlord's Work as a result of such Tenant Revision, as
reasonably determined by Landlord. Tenant shall approve or disapprove
the estimate within five (5) days after receipt of such estimate. In the
event Tenant shall approve any such estimate, any delays resulting from
a Tenant Revision shall be deemed a Tenant Delay and Tenant shall be
solely responsible for any increased cost to complete Landlord's Work
resulting from a Tenant Revision and all such costs shall be paid by
Tenant to Landlord within thirty (30) days after rendition of a bill
therefor. If Tenant shall fail to respond within such five (5) day
period, then a Tenant Revision shall be deemed withdrawn.
Notwithstanding
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Tenant's approval or disapproval of Landlord's estimate with respect to
a Tenant Revision, Tenant shall be responsible for all professional fees
associated with Landlord's review of a Tenant Revision and the
preparation of Landlord's estimate(s) and revised construction documents
in connection therewith.
For all purposes hereof, "LANDLORD DELAY" means the delay in the
Substantial Completion of Tenant's Work to be the extent caused by or
arising out of or in connection with any of the following:
(i) Landlord's direction that Tenant delay in proceeding
with any segment or part of Tenant's Work (except under
circumstances where the basis for such direction is the fact
that Tenant must rectify an error in Tenant's Work that is not
otherwise attributable to Landlord); or
(ii) the performance of work by any person, or entity
employed or hired by Landlord or on behalf of Landlord that
actually delays Tenant in the completion of Tenant's Work,
provided that if Tenant shall be aware of any such delay, Tenant
shall immediately notify Landlord thereof and Landlord fails to
remedy any such delay by the end of the second (2nd) day
following receipt of Tenant's notice of any such delay; or
(iii) any acts or omissions of Landlord or of any
Affiliate of Landlord, (except in connection with the exercise
of any of Landlord's rights expressly set forth in this Lease
and/or the Work Letter) provided that if Tenant shall be aware
of any such delay, Tenant shall immediately notify Landlord
thereof and Landlord fails to remedy any such delay by the end
of the second (2nd) day following receipt of Tenant's notice of
any such delay; or
(iv) any breach of any of the terms of this Lease by
Landlord, including, without limitation, the funding of the
Allowance subject to and in accordance with the terms and
conditions of this Lease, that delays Tenant in substantially
completing Tenant's Work provided that if Tenant shall be aware
of any such delay, Tenant shall immediately notify Landlord
thereof and Landlord fails to remedy any such delay by the end
of the second (2nd) day following receipt of Tenant's notice of
any such delay; or
(v) the non-completion of Landlord's Work as of the date
on which the concrete decks are installed on floors 2,3,4 and 5
of the Premises and Tenant commences the performance of Tenant's
Work if and to the extent any such delay would not have occurred
had Landlord's Work been Substantially Completed as of such date
and Tenant has endeavored, in good faith, to use good
construction practice, but at no additional cost to Tenant, to
complete Tenant's Work as expeditiously as reasonably possible
under the circumstances and notwithstanding such non-completion
of Landlord's Work as of the date on which the concrete
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decks are installed on floors 2, 3, 4 and 5 of the Premises,
provided that if Tenant shall be aware of any such delay, Tenant
shall immediately notify Landlord thereof.
With limiting any provisions of this Lease, any dispute between the
parties as to whether a Tenant Delay or Landlord Delay has occurred or
the amount of such delay shall be subject to arbitration pursuant to
Section 7.3 hereof.
The parties shall execute an acknowledgment that Landlord's Work and/or
the Minimum Landlord's Work has been completed (or deemed to be
completed) and that the Common Areas are accessible and reasonably
usable (or deemed to be accessible and reasonably usable) and that the
Commencement Date has occurred, as soon as reasonably practicable
thereafter. Neither Landlord's failure to request, nor Tenant's failure
to execute, such agreement shall affect the Commencement Date. Landlord
shall provide Tenant (i) notice not less than one hundred twenty (120)
days prior to the date that Landlord anticipates Landlord shall
Substantially Complete Landlord's Work ("LANDLORD'S FIRST SUBSTANTIAL
COMPLETION ESTIMATE NOTICE") and (ii) a second notice to Tenant
("LANDLORD'S SECOND SUBSTANTIAL COMPLETION ESTIMATE NOTICE") not less
than thirty (30) days prior to the date that Landlord anticipates
Landlord shall Substantially Complete Landlord's Work, in each case
without taking into account any acceleration of the date Landlord's Work
shall be deemed to have been Substantially Complete as a result of one
or more Tenant Delays. The Initial Term shall terminate on the twentieth
(20th) anniversary of the Commencement Date. Reference in this Lease to
"LEASE YEAR" shall mean each successive twelve (12) month period during
the Term (as defined herein) commencing on January 1 and ending December
31 (or such other twelve (12) month period as shall be reasonably
designated by Landlord), provided that the first Lease Year shall begin
upon the Commencement Date and end on December 31 of the calendar year
in which the Commencement Date occurs, and the last Lease Year shall end
on the last day of the Initial Term or the last day of the last
exercised Option Period (as defined herein) hereunder. "TERM" as used
herein shall mean the Initial Term and all validly exercised Option
Periods.
Access Prior to Commencement Date. Until the earlier of (i) the Commencement
Date and (ii) the date on which a termination notice is served by either
Landlord or Tenant pursuant to Section 54 hereof, and subject to all
applicable laws and ordinances, Tenant shall be entitled to maintain an
office either within the Development or at a location suitable therefor
reasonably acceptable to Landlord and Tenant, or, at Landlord's
election, on the surface parking area (if any) adjacent to said
Development, all at no cost to Tenant for Monthly Base Rent, Common Area
Expenses or real property taxes (as such terms are defined herein), for
its pre-opening and construction period activity. Tenant shall be
entitled to hang a banner or other signage in the Development, subject
to compliance with applicable laws, regulations, permits, approvals,
ordinances, the Condominium Documents (if applicable) and the CC&R and
subject to Landlord's prior approval of all Signage Approval Factors (as
defined herein). Such office shall be deemed to constitute
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a part of the Premises for all purposes (including, without limitation,
Article 19 hereof (Indemnification) and Article 20 hereof (Insurance)
and Tenant's obligation to pay for utilities), but Tenant shall not be
required to pay Monthly Base Rent, Common Area Expenses or real property
taxes with respect thereto. If Landlord makes available the surface
parking area for the purpose of such temporary office, it shall be
Tenant's obligation, at its sole cost, to provide a trailer for Tenant's
use on such parking area and to pay all costs and expenses and bear all
liabilities associated therewith.
3. Options to Extend.
Landlord hereby grants to Tenant three (3) successive options (each an
"OPTION" and collectively, the "OPTIONS") to extend the term of this Lease, each
for a one hundred sixty-eight (168) month period (each an "OPTION PERIOD" and,
collectively, the "OPTION PERIODS"), upon the same terms and conditions as those
set forth in this Lease for the Initial Term (except that no options to extend
other than the Options are granted). In order to exercise an Option, Tenant must
give notice to Landlord of its intention to exercise the applicable Option on or
before the date (the "OPTION DATE") which is six (6) months prior to the end of
the Initial Term or the previous Option Period, as applicable; provided,
however, that it shall be a condition precedent to the exercise of each Option
that Tenant shall not be in Default as of the respective Option Date. Tenant's
election not to exercise an Option, or the passage of an Option Date without
exercise of the subject Option, shall thereby terminate the subsequent Option or
Options. The Options are personal to Tenant and may not be assigned except in
connection with a permitted assignment of Tenant's interest in this Lease.
Landlord shall deliver to Tenant a notice reminding Tenant of Tenant's right to
exercise an Option not more than six (6) months and not less than thirty (30)
days prior to the date Tenant may first exercise an Option, provided that in no
event shall Landlord's failure to deliver such notice impose any liability on
Landlord's part; however if Landlord fails to deliver such notice the time for
Tenant's exercise of an Option shall be extended, if necessary, to the date
which is thirty (30) days from the date of delivery of such notice from
Landlord.
4. Membership.
Tenant agrees to provide both daily passes and membership on the
following terms and conditions set forth in this Article 4. In addition, all
Club daily passes and memberships shall be subject to the nondiscriminatory
rules and regulations promulgated by Tenant for use of the Club.
Marriott Hotel Guests. Tenant shall permit room guests of the existing
adjoining convention hotel, currently being operated as a Marriott Hotel
(such hotel, the "MARRIOTT HOTEL" and such room guests of such hotel,
the "MARRIOTT HOTEL GUESTS") to have access to the Club to use the
facilities therein at such times as the Club is open for business in
consideration for daily fee payments equal to seventy-five percent (75%)
of the otherwise applicable daily rate of guests of the Club members;
provided, however, Tenant shall only be obligated to permit up to one
hundred (100) Marriott Hotel Guests daily. The operator of
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the Marriott Hotel shall be responsible for billing and collecting
payment from the Marriott Hotel Guests directly, and shall make all
payments to Tenant on a monthly basis. Tenant shall issue the operator
of the Marriott Hotel a bill ("MARRIOTT BILL") payable on the tenth
(10th) day of each calendar month, with such Marriott Bill to be based
on the actual number of daily passes Tenant provided to the Marriott
Hotel Guests for the previous calendar month. If the operator of the
Marriott Hotel does not pay in full the Marriott Bill within thirty (30)
days from its receipt of the Marriott Bill, then, in such event , Tenant
may deliver a termination notice to the operator of the Marriott Hotel
terminating the right of the Marriott Hotel and Marriott Hotel Guests to
use the Club until payment in full of all amounts due. Such termination
notice shall be delivered by Tenant and be effective five (5) days
following delivery of such notice to the operator of the Marriott Hotel.
In the event the Marriot Hotel shall fail to perform any of the terms
and conditions contained in this Section 4.1 on its part to be
performed, Landlord shall be under no obligation or liability whatsoever
to Tenant; provided, however, that until such time as Tenant and the
Marriot Hotel shall have entered into an agreement with respect to this
Section 4.1 (a copy of which Tenant shall promptly deliver to Landlord),
Landlord shall reasonably cooperate with Tenant in seeking to obtain the
performance of the Marriott Hotel with respect to such applicable terms
and conditions of this Section 4.1.
Other Hotel Guests. Tenant shall permit room guests of the to-be constructed
hotel in the Development, currently contemplated to be operated as a
Four Seasons Hotel (such hotel (which, for purposes of this Lease, shall
include any extended stay facilities operated in connection therewith or
otherwise by Landlord, the operator thereof or a successor or assign of
either), the "PRIMARY HOTEL", and such room guests of such hotel
(including such extended stay component), the "PRIMARY HOTEL GUESTS") to
have access to the Club to use the facilities therein at such times as
the Club is open for business in consideration for a reasonable daily
fee payment. Tenant hereby agrees and covenants that in no event shall
the daily fee charged to the Primary Hotel Guests exceed the daily fee
charged to Marriot Hotel Guests. The operator of the Primary Hotel shall
be responsible for billing and collecting payment from the Primary Hotel
Guests directly, and shall make all payments to Tenant on a monthly
basis. Tenant shall issue the operator of the Primary Hotel a bill
("PRIMARY HOTEL BILL") payable on the tenth (10th) day of each calendar
month, with such Primary Hotel Bill to be based on the actual number of
daily passes Tenant provided to the Primary Hotel Guests for the
previous calendar month. If the operator of the Primary Hotel does not
pay in full the Primary Hotel Bill within thirty (30) days from its
receipt of the Primary Hotel Bill, then, in such event , Tenant may
deliver a termination notice to the operator of the Primary Hotel
terminating the right of the Primary Hotel and Primary Hotel Guests to
use the Club until payment in full of all amounts due. Such termination
notice shall be delivered by Tenant and be effective five (5) days
following delivery of such notice to the operator of the Primary Hotel.
In the event the Primary Hotel shall fail to perform any of the terms
and conditions contained in this Section 4.2 on its part to be
performed, Landlord shall be under no obligation or liability whatsoever
to Tenant; provided, however, that until such time as Tenant and the
Primary Hotel shall have entered into an agreement with respect to this
Section 4.2 (a
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copy of which Tenant shall promptly deliver to Landlord), (a) Landlord
shall reasonably cooperate with Tenant in seeking to obtain the
performance of the Primary Hotel with respect to such applicable terms
and conditions of this Section 4.2 and (b) so long as Landlord or an
Affiliate (as defined herein) of Landlord is the owner of the Primary
Hotel, Landlord shall pay to Tenant the portion(s) of any Primary Hotel
Bill which the operator of the Primary Hotel does not pay to Tenant in
full in accordance with this Section 4.2 within thirty (30) days after
Landlord's receipt of the applicable Primary Hotel Bill and a statement
describing in reasonable detail the portion(s) thereof which remain due.
For purposes of this Section 4.2, "AFFILIATE" shall mean a Person (as
defined herein) which shall (i) control (as defined herein), (ii) be
under the control of, or (iii) be under common control with the Person
in question.
0.1 Performance by Marriott Hotel and Primary Hotel. If the Marriott Hotel
and/or the Primary Hotel (collectively and generically, the "HOTEL")
shall default in any of their respective obligations under Section 4.1
or 4.2 hereof, or there shall exist a bona fide dispute with the Hotel
under Section 4.1 or 4.2 hereof and Tenant notifies Landlord in writing
that Tenant has previously notified the Hotel of such dispute and that
such default or notice has been disregarded or not reasonably
satisfactorily acted upon, then upon Tenant's written request and
provided Tenant is not in default under this Lease, Landlord shall use
reasonable efforts to enforce Landlord's rights under the applicable
hotel management agreement with the Hotel (collectively and generically,
the "HOTEL MANAGEMENT AGREEMENT") for Tenant's benefit, including,
without limitation, giving notices, claims and demands to and on the
Hotel. Tenant shall reimburse Landlord for all costs incurred in
connection with the enforcement of such rights. Notwithstanding the
foregoing, Landlord shall have no obligation to commence any action at
law or in equity to obtain any relief sought by Tenant by reason of the
Hotel's breach of the Hotel's obligations under Section 4.1 or 4.2
hereof. If, after written request from Tenant, Landlord shall fail or
refuse to take appropriate action for the enforcement of Landlord's
rights against the Hotel with respect to Section 4.1 or 4.2 hereof,
Tenant shall have the right to take such action in Tenant's own name,
and for such purpose and only to such extent, all of the rights of
Landlord under the applicable Hotel Management Agreement are hereby
conferred upon and conditionally assigned to Tenant and Tenant hereby is
subrogated to such rights to the extent that the same shall apply to
Section 4.1 or 4.2 hereof; provided, however, that (a) Tenant shall only
have such rights if Tenant shall not be in default under this Lease and
(b) Landlord shall have the right to require Tenant to discontinue such
action if in the reasonable opinion of Landlord such action may cause a
default, cancellation, forfeiture or termination of the Hotel Management
Agreement or any Senior Interest. If any such action against the Hotel
in Tenant's name shall be barred by reason of lack of privity,
non-assignability or otherwise, Tenant may take such action in
Landlord's name provided Tenant has obtained the prior written consent
of Landlord, and that copies of all papers and notices of all
proceedings shall be promptly given to Landlord so that Landlord may be
kept fully informed in respect thereof.
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0.2 Residential Occupants. Tenant agrees that all applications for
membership in the Club submitted by the residential occupants and their
families at the Development shall be automatically and promptly accepted
provided that each such individual shall observe the rules and
regulations reasonably promulgated by Tenant from time to time with
respect to the use of the Club which rules and regulations shall be
consistent with the rules and regulations customarily promulgated by
operators of first-class coed athletic clubs and shall not be enforced
in a discriminatory manner.
0.3 Other Occupants. Subject to availability, Tenant agrees that all
applications for membership in the Club submitted by employees or
principals of any of the tenants in the Development shall be
automatically and promptly accepted provided that each such individual
shall observe the rules and regulations reasonably promulgated by Tenant
from time to time with respect to the use of the Club which rules and
regulations shall be consistent with the rules and regulations
customarily promulgated by operators of first-class coed athletic clubs
and shall not be enforced in a discriminatory manner.
5. Rent.
Rent shall be calculated and payable as follows:
Annual Base Rent. During the Initial Term Tenant agrees to pay Landlord annual
base rent for the Premises (the "ANNUAL BASE RENT") at the rate of Three
Million and 00/100 Dollars ($3,000,000.00) per annum (the "INITIAL
ANNUAL BASE RENT AMOUNT"). In addition to Annual Base Rent, Tenant
agrees to pay as "ADDITIONAL RENT" (sometimes referred to as "ADDITIONAL
RENT") all other charges payable by Tenant pursuant to the terms of this
Lease. Annual Base Rent together with all such additional rent is
collectively referred to herein as "RENT". Tenant shall pay Annual Base
Rent and, except as provided otherwise herein, Additional Rent, in equal
monthly installments on the first day of each month (each such equal
monthly installment of Annual Base Rent is referred to herein as
"MONTHLY BASE RENT"). If for any reason the Initial Term (or any Option
Period) commences or ends on a day other than the first day of a
calendar month (other than a termination resulting from a Default), then
Rent for the first month and for the last month of the Term shall be
prorated in the proportion that the number of days during the first and
last months of the Term bears to the actual number of days in such
months. All Rent shall be paid to Landlord, without prior demand or
notice, in lawful money of the United States of America, at such place
as Landlord may from time to time reasonably designate in writing and
shall be due and payable on the first day of each month. Rent shall be
paid to Landlord on the date due without notice or demand, and without
abatement, deduction or set-off except as otherwise expressly set forth
in this Lease. No payment by Tenant or receipt by Landlord of a lesser
amount than the Annual Base Rent or Additional Rent, nor shall any
endorsement or statement on any check or in any letter accompanying any
check or payment, as Annual Base Rent or Additional Rent, be deemed an
accord and satisfaction, and Landlord may accept such check or payment
without prejudice to
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Landlord's right to recover the balance of such Annual Base Rent and
Additional Rent or pursue any other remedy provided in this Lease or by
law.
Cost Abatement
Provided that Tenant shall not then be in default of any of
Tenant's obligations under this Lease (following notice thereof), Tenant shall
be entitled to an aggregate credit of $1,000,000 to be applied against (i) the
monthly installments of Common Area Expenses or Operating Expenses (as
hereinafter defined), as applicable, payable by Tenant in accordance with
Section 7 hereof, (ii) the installments of Taxes (as hereinafter defined)
payable in accordance with Section 12 hereof and (iii) the sums payable by
Tenant in accordance with Section 36 hereof for use of parking spaces located at
the Development.
6. Club Name.
Tenant shall be entitled to operate the Club under the name "The Sports
Club/San Francisco," although Tenant has no obligation to use such name. Tenant
shall not use the name "Millennium" or the name of the Primary Hotel in the
operating name of the Club.
7. Common Area Expenses/Operating Expenses.
Definition. Commencing upon the Commencement Date, Tenant shall pay, in addition
to Monthly Base Rent, all assessments and charges which are assessed
against or incurred in connection with the Premises and/or the Common
Areas, all assessments and charges which are assessed against or
incurred in connection with the CC&R which are reasonably allocable to
the Premises and/or the Common Areas and all charges assessed with
respect to the Premises by the Condominium Association (collectively,
"COMMON AREA EXPENSES"). If at any time during the Term the Premises
shall not be subject to a condominium form of ownership, then in lieu of
paying charges assessed by the Condominium Association, Tenant shall pay
to Landlord Tenant's Share (as defined herein) of Operating Expenses (as
defined herein). "OPERATING EXPENSES" shall mean all costs incurred by
Landlord (except as hereafter defined) in connection with the operation
of the Development for each successive twelve (12) month period (as
designated by Landlord) occurring in whole or in part during the Term
(and any renewals). Tenant hereby acknowledges that Operating Expenses
shall include the following costs (by way of illustration, but not
limitation): real property taxes and assessments and any taxes or
assessments hereafter imposed in lieu thereof with respect to the
Building, including the Common Areas; water and sewer charges; dues and
fees paid to civic organizations and associations in which Landlord is a
member in the jurisdiction in which the Building is located, provided
that it is then customary for landlords of similar buildings to be
members of such organizations and associations and to charge tenants any
such dues and fees by means of operating expenses or otherwise;
accounting fees; legal fees; management fees with respect to the
Development, (not in excess of four percent (4%) of the total revenue
derived by Landlord from Landlord's operation of the Development and
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not in excess of the management fees which are included as an operating
expense or otherwise in the other leases for commercial space in the
Building between Landlord and other commercial tenants of the Building);
utilities; janitorial services; parking patrol; labor; utilities
surcharges or any other costs levied, assessed or imposed by, or at the
direction of, or resulting from, statutes or regulations or
interpretations thereof, promulgated by any federal, state, regional,
municipal or local government authority in connection with the use or
occupancy of the Building, including the Common Areas; the cost in
excess of net insurance and condemnation proceeds of any capital
improvements (amortized over such period as Landlord shall determine
together with interest at the rate actually incurred by Landlord from a
third party lender on the unamortized balance) made to the Building,
including the Common Areas, but only if incurred by Landlord (i) to
comply with any governmental law, rule or regulation which may become
effective after the date of this Lease or any CC&R (other than in
connection with the initial construction of the Development by Landlord
(exclusive of Tenant's Work and/or any Tenant Revision)), or (ii) where
the present value of the projected costs of the improvement (including,
original purchase cost, installation and subsequent repairs and
replacements) is less than the present value of the amount reasonably
anticipated to be saved with respect to the applicable component(s) of
Operating Expense(s) or Common Area Expense(s), as applicable, payable
by Tenant subject to and in accordance with this Article 7 as the result
of such capital improvement over the remainder of the Initial Term or an
exercised Option Period, as applicable; supplies; materials; equipment;
tools; payroll expenses; rental of personal property used in the
maintenance and other upkeep of the Building (to the extent related to
the Premises and/or the Common Areas (e.g., those service facilities
and/or areas of the Building which are used to provide Building services
to the Premises and/or the Common Areas or used in connection with the
operation and maintenance of the Premises and/or the Common Areas)),
including the Common Areas; costs and expenses of gardening, landscaping
and irrigation; maintenance of signs; personal property taxes levied on
or attributable to personal property used in connection with the
Building (to the extent related to the Premises and/or the Common Areas
(e.g., those service facilities and/or areas of the Building which are
used to provide Building services to the Premises and/or the Common
Areas or used in connection with the operation and maintenance of the
Premises and/or the Common Areas)), including the Common Areas;
reasonable audit or verification fees in connection with this Article 7;
and costs and expenses (whether or not capitalized) of repairs,
resurfacing, maintenance, painting, lighting, cleaning, steam cleaning,
refuse removal, parking patrol, sweeping, sealcoating, restriping and
similar items to the extent includable in Operating Expenses or Common
Area Expenses, as applicable, subject to and in accordance with this
Article 7. Operating Expenses and Common Area Expenses, as applicable,
shall not include: depreciation of any kind, including on any buildings
or parking structures located within the Development or on any
equipment; construction costs incurred in improving or modifying space
for new tenants of the Development or renovating space vacated by any
tenant; any costs which are reimbursable by (i) tenants of the
Development (other than through their payment of Operating Expenses
and/or Common Area Expenses, as applicable), (ii) other third parties,
or (iii) proceeds of insurance; Landlord's executive
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salaries; real estate brokers' commissions; or principal or interest on
any indebtedness (except as specifically permitted above).
Exclusions. In addition to the exclusions from Operating Expenses and Common
Area Expenses set forth in Section 7.1 hereof, Operating Expenses and
Common Area Expenses shall not include the following:
the cost of capital expenditures except for those specifically
described in Section 7;
costs incurred with respect to goods or services (including
utilities, capital improvements, maintenance and repair) supplied to the
Common Areas to the extent that such goods or services are designed for
the exclusive or primary use or benefit of another tenant or tenants
(provided that if such goods or services are for the primary use or
benefit of another tenant or tenants, the cost thereof shall be included
in Operating Expenses and Common Area Expenses, as applicable, to the
extent it is fair and equitable to do so);
costs incurred to the extent that such costs are reimbursed by
insurance;
any ground lease or master lease payments;
legal fees incurred by Landlord in connection with (1) the
preparation, negotiation and enforcement of leases, subleases and lease
renewals, (2) the purchase or transfer or disposition of all or any part
of the Development or any interest therein and (3) any financing or
refinancing with respect to the Development;
all leasing costs with respect to the Development, including
hard and soft costs of tenant improvements and preparation of any
premises, tenant concessions, advertising costs and brokerage
commissions;
costs of purchasing or installing artwork or signage (it being
agreed that the cost of any such signage that identifies the Development
may be included within Common Area Expenses and Operating Expenses, as
applicable);
costs of any rental or lease of equipment or capital items that
if purchased (whether outright or financed) would otherwise be excluded
from Operating Expenses or Common Area Expenses, as applicable;
costs paid to Affiliates of Landlord in excess of market rates;
fines, penalties, late payment charges, and interest thereon,
and other amounts imposed in lieu thereof, the payment of which is
attributable to Landlord's failure to act in a commercially reasonable
manner;
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costs to the extent arising from or relating to the negligence
or willful misconduct of Landlord or Landlord's agents, principals,
employees, licensees or Affiliates;
Landlord's general overhead and general administrative expenses;
costs for repair or maintenance covered by warranties or service
contracts (however, the costs of the warranties or service contracts
shall be includable in Common Area Expenses and Operating Expenses, as
applicable);
expenditures required by Landlord's failure to comply with laws,
regulations or orders, which are required to be complied with by
Landlord under this Lease (except to the extent expressly permitted in
Section 7.1 hereof);
costs to repair latent or patent defects with respect to the
Development or Landlord's Work;
costs incurred due to the violation by Landlord or any other
occupant of the Development of the terms or conditions of any lease;
costs arising from or relating to the presence of Hazardous
Materials (as defined herein) in or about the Development;
any costs associated with the initial construction of the
Development and failure by Landlord to construct the Development in
accordance with applicable legal requirements as of the date Landlord
shall Substantially Complete Landlord's Work (exclusive of any such
costs arising out of Tenant's Work and/or any Tenant Revision);
insurance premiums, but only if and to the extent Landlord is
reimbursed for the cost thereof by Landlord's insurers;
bad debt expenses resulting from Landlord's negligence or
improper acts;
costs of charitable or political contributions and fees and dues
paid to trade associations (other than as provided in Section 7.1
hereof);
any cost payable by Tenant pursuant to other Sections of this
Lease; and
any Operating Expenses or Common Area Expenses, as applicable,
reasonably allocable to any parking structure located within the
Development.
Building Insurance. Except for Landlord's cost of the all-risk property
insurance for the Improvements, as addressed in Section 20.4 hereof, if
Landlord's cost of obtaining Landlord's Insurance (as defined herein)
for the Property and/or the Building and the
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operations thereof exceeds the cost of obtaining such insurance for the
first twelve (12) months following the Commencement Date, Tenant shall
pay to Landlord, in a manner similar to this Section 7.3 within thirty
(30) days after being billed therefore, an amount equal to Tenant's
Share of such increased cost.
"TENANT'S SHARE" shall mean a percentage equal to the quotient obtained
by dividing the Floor Area of the Premises (subject to Section 7.6
hereof) by the total number of square feet of Floor Area in the other
tenantable portions of the Development as of the date of the Actual
Statement (as defined herein) for the applicable Lease Year. Landlord
and Tenant acknowledge that at this time it is not possible to determine
the equitable allocation of all components of Operating Expenses or
Common Area Expenses, as applicable. Accordingly, Landlord shall use
commercially reasonable efforts from time to time to equitably adjust
Tenant's Share of some or all of the components of Operating Expenses to
a percentage other than that which would be arrived at by the
methodology hereinbefore described for the determination of Tenant's
Share, so as to ensure that Tenant will pay Tenant's equitable share of
Operating Expenses and if and to the extent applicable and the same
shall not result in an increase in the payment of Common Area Expenses
or Operating Expenses, as applicable, by Tenant in accordance with this
Article 7, that the methodology employed by Landlord to determine
Tenant's equitable share of Operating Expenses is substantially
consistent with the methodology employed in connection with that certain
lease between an Affiliate of Landlord, as landlord and an Affiliate of
Tenant, as tenant, for certain space in New York, New York (the "NEW
YORK ATHLETIC CLUB LEASE") for calendar years 1996 and 1997 or to
equitably adjust some or all of the components of Common Area Expenses,
so as to ensure that Tenant will pay Common Area Expenses in accordance
with the methodology hereinbefore described in Section 7.1 hereof and,
if and to the extent applicable and the same shall not result in an
increase in the payment of Common Area Expenses or Operating Expenses,
as applicable, by Tenant in accordance with this Article 7, the
methodology employed in connection with the New York Athletic Club Lease
for calendar years 1996 and 1997 (it being agreed and acknowledged that
in each instance in which the methodology employed in connection with
this Lease shall contradict or be inconsistent with the aforementioned
methodology employed in connection with the New York Athletic Club
Lease, such aforementioned methodology employed in connection with the
New York Athletic Club Lease shall prevail and govern if and to the
extent applicable and such employment shall not result in an increase in
the payment of Common Area Expenses or Operating Expenses, as
applicable, by Tenant in accordance with this Article 7.) In the event
Tenant shall dispute Landlord's determination as to the equitable
allocation of any component of Operating Expenses or Common Area
Expenses, as applicable, and if Landlord and Tenant shall have been
unable to resolve such dispute, within thirty (30) days following the
date that Tenant shall have notified Landlord of such dispute, then,
provided that Tenant shall pay all such amounts as billed by Landlord on
or before the due dates for payment, Tenant may submit such dispute to
binding arbitration in accordance with the following provisions hereof
within ten (10) days next following the
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giving of any notice by Tenant to Landlord stating that it wishes such
dispute to be determined by arbitration. Landlord and Tenant shall each
give notice to the other setting forth the name and address of an
arbitrator designated by the party giving such notice within ten (10)
days after Landlord's receipt of Tenant's arbitration notice. If either
party shall fall to give notice of such designation within said ten (10)
days, then the arbitrator to be chosen by such party shall be chosen in
the same manner as hereinafter provided for the appointment of the third
arbitrator in the case where the two arbitrators chosen hereunder are
unable to agree upon such appointment. The two arbitrators shall
designate a third arbitrator. If the two arbitrators shall fail to agree
upon the designation of a third arbitrator within ten (10) days after
the designation of the second arbitrator, then either party may apply to
the American Arbitration Association or any successor organization
thereto ("AAA") for the designation of such arbitrator; provided,
however, nothing contained herein shall be construed to require
submission of any dispute to the AAA. All arbitrators shall be persons
who shall have had at least ten (10) years experience in the business of
operating or managing commercial real estate in San Francisco,
California and shall not be affiliated with either Landlord or Tenant.
The three arbitrators shall conduct such hearings as they deem
appropriate, making their determination in writing and giving notice to
Landlord and Tenant of their determination within ten (10) days, if at
all possible, after the designation of the third arbitrator; the
concurrence of any two of said arbitrators shall be binding upon
Landlord and Tenant. Any award of the arbitrators shall be limited to
the determination as to whether Landlord made an equitable allocation of
the component(s) of Operating Expenses or Common Area Expenses, as
applicable which are the subject of such dispute. If it is determined
that Landlord has not equitably allocated a component(s) of Operating
Expenses or Common Area Expenses, as applicable, then the arbitrators
shall determine the equitable allocation thereof. The determination in
any arbitration held pursuant to this Section 7.3 shall be final and
binding upon Landlord and Tenant. Each party shall pay its own counsel
fees and expenses, if any, in connection with any arbitration under this
Section 7.3, and each party shall pay the fees and expenses of the one
of the two (2) original arbitrators appointed by or for such party and
the fees and expenses of the third arbitrator shall be shared by the
parties equally; it being agreed that if it shall be determined in the
arbitration that Landlord has not equitably allocated a component(s) of
Operating Expenses or Common Area Expenses, as applicable, and as a
result thereof Tenant shall have made an overpayment of Operating
Expenses or Common Area Expenses, as applicable, by more than five
percent (5%), then, Landlord shall pay the reasonable actual
out-of-pocket cost of the arbitration proceeding incurred by Tenant not
to exceed $7,500.00, and the amount of any such overpayment shall be
credited against the next installment (or installments if the credit
exceeds the amount of the next installment) of Monthly Base Rent due
under this Lease and if the amount of the credit exceeds the amount of
the subsequent installment(s) of Monthly Base Rent due under this Lease,
the excess shall be refunded to Tenant within thirty (30) days after the
aforementioned arbitration determination with interest thereon at the
Prime Rate (as defined herein) from the date of such overpayment.
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Statements. As soon as possible after the beginning of the Initial Term,
Landlord shall give to Tenant a statement estimating the Common Area
Expenses or Operating Expenses, as applicable for the first Lease Year.
Thereafter, Landlord shall give Tenant, prior to the expiration of each
Lease Year, a statement estimating the Common Area Expenses or Operating
Expenses, as applicable for the following Lease Year. The estimated
Common Area Expenses or Operating Expenses, as applicable, shall be the
applicable estimated amounts described in this Section 7. The estimated
Common Area Expenses or Operating Expenses, as applicable, shall be
divided into twelve (12) equal monthly installments (or, as to the first
and last Lease Year, divided by the number of calendar months in such
Lease Year), and Tenant shall pay to Landlord Tenant's monthly
installment of such Common Area Expenses or Operating Expenses, as
applicable, on the first day of each month during the Term as additional
rent. If, in any Lease Year, the actual Common Area Expenses or
Operating Expenses, as applicable, are less than the estimated payments
made by Tenant for such Lease Year, as evidenced in Landlord's statement
(the "ACTUAL STATEMENT") of actual Common Area Expenses or Operating
Expenses, as applicable, for such Lease Year (which Landlord shall
deliver to Tenant within ninety (90) days after the expiration of each
Lease Year), then any overpayment made by Tenant on the monthly
installment basis shall be credited towards the next monthly
installment(s) falling due and the estimated monthly installments of
Common Area Expenses or Operating Expenses, as applicable, shall be
adjusted to reflect such lower amounts. Similarly, if, in any Lease
Year, the actual Common Area Expenses or Operating Expenses, as
applicable, are greater than the estimated payments made by Tenant for
such Lease Year as evidenced in the Actual Statement for such Lease
Year, then Tenant shall pay the amount of such difference to Landlord
within thirty (30) days after invoice; provided, however, that if the
amount due exceeds 1/2 of Monthly Base Rent then in effect, Tenant may
pay such amount in thirty (30) day installments with each installment in
the amount of the lesser of the remainder due or 1/2 of the Monthly Base
Rent then in effect. Notwithstanding that the Term may have terminated
or expired and Tenant has vacated the Premises, when the final
determination is made of the actual Common Area Expenses or Operating
Expenses, as applicable, for the last Lease Year, Tenant shall
immediately pay to Landlord any increase due over the estimated Common
Area Expenses or Operating Expenses, as applicable, paid by Tenant and,
conversely, any overpayment made in the event actual Common Area
Expenses or Operating Expenses, as applicable, decrease, shall be
rebated by Landlord to Tenant within thirty (30) days after such
determination. The foregoing provision shall survive the expiration or
earlier termination of this Lease.
Audit. Upon prior notice, but not more frequently than once each Lease Year,
Tenant shall have the right to examine Landlord's books and records with
regard to Common Area Expenses or Operating Expenses, as applicable,
during normal business hours. If Tenant disputes the amount of Common
Area Expenses or Operating Expenses, as applicable, set forth in any
Actual Statement delivered by Landlord or otherwise paid by Tenant,
Tenant must notify Landlord of such dispute in writing within three (3)
months following Tenant's receipt of the Actual Statement. Tenant's
failure to notify Landlord of a dispute
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<PAGE> 24
within said three (3) month period shall be deemed Tenant's acceptance
and approval of the accuracy of the Actual Statement. Provided Tenant
has timely given the required dispute notice and has paid the amounts
claimed to be due under the Actual Statement (including the disputed
amount), Tenant shall have the right, to be exercised, if at all, not
later than three (3) months after the date Tenant gave the dispute
notice, to cause Landlord's books and records with respect to the
relevant Lease Year to be audited by a certified public accountant, or
by another Tenant representative mutually acceptable to Landlord and
Tenant. The amounts payable under Section 7.4 hereof by Landlord to
Tenant or by Tenant to Landlord, as the case may, be shall be
appropriately adjusted on the basis of such audit. If such audit
discloses a liability for further refund by Landlord to Tenant in excess
of five percent ( 5%) of the Common Area Expense payments or Operating
Expense payments, as applicable, previously made by Tenant for such
Lease Year, Landlord shall pay for the reasonable cost of the audit not
to exceed $7,500.00; otherwise, Tenant shall pay for the cost of the
audit. Notwithstanding the foregoing, if any audit conducted by Tenant
discloses that Landlord over-reported Common Area Expenses or Operating
Expenses by more than five percent (5%) for the period covered by the
audit, then Tenant shall be entitled to audit Common Area Expenses or
Operating Expenses, as applicable, for all preceding years as to which
records are available. Landlord shall be obligated to maintain said
records for sixty (60) months (but for no such longer period of time)
after the end of each Lease Year except if a dispute with respect
thereto is then pending under Section 7.3 hereof.
Notwithstanding anything to the contrary contained herein, if in any Lease Year
during which Tenant shall be paying Operating Expenses the total Floor
Area of buildings in the Development which are tenantable is not fully
occupied, then the Operating Expenses for such Lease Year shall be
deemed to be an amount that would be incurred if such total Floor Area
were occupied for such Lease Year, but in no event shall Tenant be
required to pay more than ninety-five percent (95%) of the actual
Operating Expenses.
8. Use.
Permitted Use. The Premises shall be used exclusively for a first-class coed
athletic club operated by an operator with first-class expertise,
reputation and experience, and Tenant shall not use or permit the
Premises to be used for any other purpose, or by an operator other than
Tenant or an Affiliate of Tenant, without the prior consent of Landlord.
As used herein, "FIRST-CLASS" shall mean comparable to other athletic
clubs with comparable facilities operated by Tenant or Tenant's
Affiliates as of the date hereof. As a part of the athletic club
operated from the Premises, Tenant shall be entitled to use portions of
the Premises for uses complementary to an athletic club (but only in
support of Tenant's primary operation as an athletic club), such as a
pro shop, child care facility, delicatessen, so long as the type and
quality of such complementary uses are consistent with the services
offered in other first-class athletic clubs; provided, however, no food
or beverages (other than primarily for consumption at the Premises)
shall be sold from the Premises. Any complementary uses may be achieved
through a license, which license
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shall (i) be subject to all terms and conditions of this Lease but shall
not otherwise require Landlord's prior approval and (ii) other than with
respect to the complimentary uses in the Reebok Sports Club/New York as
of the date hereof, not conflict with an exclusive use granted by
Landlord to any then current tenant or any future tenant or occupant of
the Development of which Landlord has advised Tenant.
Compliance with Laws.
Tenant shall not use or occupy the Premises in violation of (a)
law or the certificate of occupancy issued for the Improvements or the
Building, (b) any condominium declaration, offering plan, by-laws, house
rules, and other requirements, instruments or declarations (collectively
the "CONDOMINIUM DOCUMENTS") now or hereafter ratified by any
condominium association or equivalent (the "CONDOMINIUM ASSOCIATION")
having jurisdiction over the Premises, (c) any private covenants,
conditions or restrictions or reciprocal easement agreements
(collectively, the "CC&R") which may now or hereafter be recorded
encumbering the Development or (d) any liquor license issued with
respect to the Club, and shall, upon notice from Landlord, discontinue
any use of the Premises which is in violation of law or of said
certificate of occupancy, or is a violation of the Condominium
Documents, the CC&R or said liquor license. Notwithstanding the
foregoing, after the date hereof Landlord shall not amend or modify any
existing CC&R or create new CC&R's or Condominium Documents which
materially adversely affect any of Tenant's rights hereunder or
materially increase its obligations hereunder.
Tenant shall comply with any law or directive of any
governmental authority having jurisdiction which by reason of the nature
of Tenant's particular use or occupancy shall impose any duty upon
Tenant or Landlord with respect to the Premises or with respect to the
use or occupancy thereof.
Tenant shall not do or permit to be done anything which will
increase the cost of (unless Tenant pays such increased cost) or which
will invalidate any fire, extended coverage or any other insurance
policy covering the Improvements and/or property located therein or the
Building. In the event Tenant does or permits anything to be done which
increases the cost of any insurance maintained by Landlord hereunder,
Tenant shall promptly, upon demand, as Landlord's sole remedy for such
increase (but without limiting any other remedies that may be available
to Landlord if the cause of such increase is otherwise violative of any
provisions of this Lease), reimburse Landlord for such increase. Tenant
shall not do or permit anything to be done in or about the Premises
which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Development, or use or allow the Premises to
be used for any unlawful purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises; Landlord, however,
acknowledges that certain noise and vibration are incident to Tenant's
use of the Premises, and that to the extent the same shall not exceed
noise levels generated by other athletic clubs in similar types of
buildings and shall not otherwise
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<PAGE> 26
exceed the legally permissible decibel levels, the same shall not
constitute a nuisance for the purposes hereof.
Tenant shall not commit or suffer to be committed any waste in
or upon the Premises.
Tenant shall be responsible for obtaining, at Tenant's sole cost
and expense, all required licenses and/or permits authorizing the use of
the Premises for an athletic and social club and Tenant's cooking
operations with respect to the Club subject to and in accordance with
this Lease.
Hazardous Materials.
Tenant shall not use or permit any hazardous, toxic or
radioactive materials ("HAZARDOUS MATERIALS")to be brought upon, kept or
used in or about the Premises, the Improvements or any portion of the
Development by Tenant, its agents, employees or contractors, unless such
Hazardous Materials are necessary or useful to and customarily used in
Tenant's business and will be used, kept and stored in a manner that
complies with all laws regulating any such Hazardous Materials. In
addition, Tenant shall be entitled to use general office supplies,
normal janitorial supplies, supplies used in maintaining its equipment
and swimming pool supplies in a manner that complies with all laws
regulating their use. If Tenant breaches the covenants and obligations
set forth herein or, if the presence of Hazardous Materials on, in or
about the Premises, the Improvements or any other portion of the
Development caused or permitted by Tenant, its agents, employees or
contractors results in contamination of the Premises, the Improvements
or any other portion of the Development, then Tenant shall indemnify,
defend and hold Landlord and the owner(s) and operator(s) of the Common
Areas free and harmless from and against any and all claims, judgments,
damages, penalties, fines, costs, liabilities and losses (including
diminution in the value of the Premises and/or the Common Areas, damages
for the loss or restriction on use of rentable or useable space or of
any amenity of the Premises, the Improvements or any other portion of
the Development, and sums paid in settlement of claims, attorneys' fees,
consultants' fees and expert fees) which arise during or after the Term
as a result of such contamination. This indemnification by Tenant of
Landlord and the owner(s) and operator(s) of the Common Areas, includes
any and all costs incurred in connection with any investigation of site
conditions or any clean up, remedial, removal or restoration work
required by any federal, state or local governmental agency or political
subdivision because of the presence of such Hazardous Materials in, on
or about the Premises, the Improvements or any portion of the
Development, including the soil or ground water on or under the
Development. The provisions of this Section 8.3(i) shall survive the
expiration or earlier termination of this Lease.
Landlord shall not cause or permit any Hazardous Materials to be
brought upon, kept or used in or about the Premises or any other portion
of the Development by
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Landlord, its agents, employees or contractors unless such Hazardous
Materials are used, kept and stored in a manner that complies with all
laws regulating such Hazardous Materials. If Landlord breaches the
covenants and obligations set forth herein or if contamination of the
Premises or any other portion of the Development by Hazardous Materials
otherwise occurs which is caused by Landlord or its agents, then
Landlord shall indemnify, defend and hold Tenant free and harmless from
and against any and all claims, judgments, damages (but not
consequential damages), penalties, fines, costs and liabilities and
losses (including any diminution in the value of the Club, and sums paid
in settlement of claims, attorneys' fees, consultants' fees and expert
fees) which arise during or after the Term as a result of such
contamination. This indemnification by Landlord of Tenant includes any
and all costs incurred in connection with any investigation of site
conditions or any clean up, remedial, removal or restoration work
required by any federal, state or local governmental agency or political
subdivision because of the presence of such Hazardous Materials in or
about the Premises. The provisions of this Section 8.3(ii) shall survive
the expiration or earlier termination of this Lease.
Restrictions.
So long as this Lease remains in full force and effect and
Tenant is operating a Club and facilities related to the operation of such Club
in at least seventy-five percent (75%) of the Premises subject to Temporary
Closures (as defined herein), Landlord hereby agrees that neither Landlord, nor
any individual(s), firm or corporation controlled by, controlling or under
common control with Landlord shall lease to, sublease to, consent to an
assignment or sublease to, operate, own or become financially interested in, (a)
any other Club within the Development, provided that an athletic club may be
operated within the Primary Hotel not to exceed 840 square feet of Floor Area in
the aggregate, or (b) any tenant or occupant of the Development which provides
spa services or operates a beauty salon within the Development provided Tenant
is providing spa services in the Premises and/or operating a beauty salon in the
Premises subject to and in accordance with this Lease and subject to Temporary
Closures (after a reasonable period of time after the Commencement Date to
prepare the Premises for same) and if the operator of the Primary Hotel is the
Four Seasons or an Affiliate thereof, in a manner consistent with the typical
standard of operation with respect thereto of the Four Seasons in the United
States as of the date hereof (the "FOUR SEASONS STANDARD") or otherwise in a
manner consistent with the typical standard of operation with respect thereto of
the then operator of the Primary Hotel in the United States (the "OTHER PRIMARY
HOTEL OPERATOR"); provided, however, that with respect to the standard of
operation of an Other Primary Hotel Operator any such standard of operation
shall not increase (except to a de minimis extent) the cost and expense to
Tenant (which will not be recouped by Tenant) to provide spa services in the
Premises and/or operate a beauty salon in the Premises beyond that which Tenant
would have incurred in connection with the Four Seasons Standard and Tenant
shall not be required to remodel and/or reformat the portions of the Premises
providing spa services and/or being operated as a beauty salon as a direct
result of the conversion from the Four Seasons Standard to the standard of
operation of an Other Primary Hotel Operator.
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9. Notices.
All notices, consents, approvals, determinations and other
communications required or permitted to be given hereunder must be in writing
and may be given only by personal delivery, overnight delivery, facsimile
transmission or by mail, and if given by mail shall be deemed sufficiently given
only if sent by registered or certified mail, return receipt requested, to the
following address of the party to receive such notice. Notices shall be deemed
received if sent in compliance with the aforesaid requirements, upon actual
receipt for notices given by personal delivery or facsimile and upon the earlier
of actual receipt or three (3) business days after deposit of any notice in the
United States mail if sent by registered or certified mail.
If to Landlord: c/o Millennium Partners
1995 Broadway, 3rd Floor
New York, New York 10023
Attention: Chief Financial Officer
Fax: (212) 579-0662
With a copy to: Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Eric R. Landau, Esq.
Fax: (212) 856-7805
If to Tenant: SCC Sports Club, Inc.
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Attention: Real Estate Dept.
Fax: (310) 479-8879
With a copy to: Resch Polster Alpert & Berger LLP
10390 Santa Monica Boulevard
Fourth Floor
Los Angeles, California 90025
Attention: Ronald M. Resch, Esq.
Fax: (310) 552-3209
Either party may specify a different address for notice purposes by
written notice to the other pursuant to this Article 9.
10. Brokers.
Landlord and Tenant each warrant to the other that such party has not had any
dealings with any real estate broker or agent in connection with the negotiation
of this Lease, and that such party knows of no real estate broker or agent who
is or might be entitled to a commission in
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<PAGE> 29
connection with this Lease. If Landlord or Tenant has dealt with any person or
real estate broker or agent with respect to the transaction contemplated by this
Lease, the party so dealing with such person or broker or agent shall be solely
responsible for the payment of any fee due such person or broker or agent and
such party shall hold the other free and harmless from and against any liability
in respect thereto, including attorneys' fees and costs.
11. Holding Over.
If Tenant holds over after the expiration or earlier termination of this
Lease without the express consent of Landlord, Tenant shall become a tenant at
sufferance only, at a rental rate equal to one hundred twenty-five percent
(125%) of the Monthly Base Rent in effect upon the date of such expiration or
earlier termination (prorated on a daily basis), plus one hundred percent (100%)
of the other elements of Rent, and otherwise subject to the terms, covenants and
conditions herein specified, so far as applicable. Acceptance by Landlord of
Rent after such expiration or earlier termination shall not result in a renewal
of this Lease. The foregoing provisions of this Article 11 are in addition to
and do not affect Landlord's right of re-entry or any rights of Landlord
hereunder or as otherwise provided by law.
12. Taxes.
Payment. Commencing upon the Commencement Date, Tenant shall be liable for and
shall pay to Landlord, as additional rent and in the manner hereinafter
provided, all (i) real property taxes, (ii) personal property taxes,
(iii) general and special assessments, (iv) water and sewer taxes,
bonds, assessments and related charges, (v) excises, levies, license and
permit fees and (vi) all other governmental charges, general and
special, ordinary and extraordinary, of any kind and nature whatsoever,
which at any time during or applicable to the Term may be assessed,
levied, confirmed, imposed upon, or become due and payable out of or in
respect of, or become a lien on the Premises, the Improvements or any
portion thereof (collectively "TAXES"). Tenant's payment of Taxes shall
be payable by Tenant in the same number of installments as taxes are due
from Landlord to the applicable taxing authorities and shall be due from
Tenant to Landlord thirty (30) days prior to the date such taxes, or
installments thereof, are due from Landlord to the taxing authorities.
If during the Term, Taxes are required to be paid to the taxing
authorities in full or in monthly, quarterly or other installments, on
any other date or dates than as presently required, then, the Taxes
shall be correspondingly accelerated or revised so that same are due
thirty (30) days before the date such Taxes, or installments thereof,
are due from Landlord to the taxing authorities. Notwithstanding the
foregoing, if Landlord is obligated to make monthly escrows of Taxes to
any Senior Interest Holder and as a result thereof, Landlord requires
all tenants of the Building under leases with Landlord to make escrows
of Taxes, then in lieu of the manner of payment referred to above, on
the first day of the month following the furnishing to Tenant of a
statement of Taxes, Tenant shall pay to Landlord a sum equal to 1/12th
of the payment of Taxes shown thereon to be due for such fiscal year for
real estate tax purposes adopted by the applicable taxing authority then
imposing taxes (the "TAX YEAR") multiplied by the number of months of
the Term
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then elapsed since the commencement of such Tax Year. Tenant shall
continue to pay to Landlord a sum equal to 1/12th of the payment of
Taxes shown on such statement on the first day of each succeeding month
until the first day of the month following the month in which Landlord
shall deliver to Tenant a new statement of Taxes. If the escrows of
Taxes required to be made by Landlord with any Senior Interest Holder
are required to be made other than monthly, then the obligations of
Tenant referred to in the immediately preceding two (2) sentences shall
be appropriately modified so that Tenant shall make the payment of Taxes
to Landlord in the same number of installations as Landlord is required
to make to such Senior Interest Holder. In the event the escrows of
Taxes required to be made by Landlord with any Senior Interest Holder
are held in an interest bearing account, then Tenant's payment of Taxes
shall be reduced by Tenant's Share of the actual interest received by
Landlord in connection therewith. If Landlord shall not furnish to
Tenant a statement of Taxes prior to the commencement of such Tax Year,
then Tenant shall continue to make monthly installment payments based
upon the previous Tax Year's statement of Taxes until Landlord shall
furnish a new statement of Taxes with respect to the then current Tax
Year. If Landlord furnishes a statement of Taxes for a Tax Year
subsequent to the commencement thereof, promptly after the statement of
Taxes is furnished to Tenant, Landlord shall give notice to Tenant
stating whether the amount previously paid by Tenant to Landlord for the
current Tax Year was greater or less than the installments of Tenant's
payment of Taxes for the current Tax Year, and (1) if there shall be a
deficiency, Tenant shall pay the amount thereof within thirty (30) days
after demand therefor, or (2) if there shall have been an overpayment,
such excess shall be refunded to Tenant within thirty (30) days of the
rendition of the aforementioned statement to Tenant. If there shall be
any increase or decrease in Taxes for any Tax Year, whether during or
after such Tax Year, then Landlord shall furnish a revised statement of
Taxes for such Tax Year, and Tenant's payment of Taxes for such Tax Year
shall be adjusted and paid or credited, as the case may be,
substantially in the same manner as provided in the preceding sentence.
If the Tax Year established by the applicable taxing authority shall be
changed, any Taxes for the Tax Year prior to such change which are
included within the new Tax Year and which were the subject of a prior
statement of Taxes shall be apportioned for the purpose of calculating
Tenant's payment of Taxes payable with respect to such new Tax Year.
If a separate real property tax bill is not issued for the Premises at
any time during the Term, but Landlord receives a tax bill for a larger
parcel of real property including the Premises, Landlord shall bill
Tenant for a pro rata share of such taxes. Landlord shall provide Tenant
with an invoice therefor together with a detailed explanation of any
proration, which proration shall be made on the basis of Tenant's Share
of the ratio between Floor Area of the Premises and the total square
feet of the Floor Area of the other tenantable portions of the taxed
unit of which the Premises form part. If Landlord shall receive any
bills, assessments or other official notices regarding any such taxes or
other charges, it shall promptly forward the same to Tenant, but an
inadvertent failure (or failures) to do so shall not be deemed a breach
hereof. All such taxes, assessments, charges and the like billed
directly to Tenant or passed on to Tenant by Landlord and paid
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by Tenant pursuant to the provisions of this Section 12.1 shall be
excluded from Common Area Expenses or Operating Expenses, as applicable.
All taxes becoming a lien upon the Premises or any portion thereof
during the first and last Tax Year shall be prorated between Landlord
and Tenant to the first and last day of the Term, respectively. Upon
Tenant's request in writing, Landlord shall furnish to Tenant proof
reasonably satisfactory to Tenant of payment of the matters referred to
in this Article. If the Premises are separately assessed for real
property taxes, Tenant shall have the right, following notice to
Landlord, to protest, contest or object to the amount or validity of any
such taxes, impositions or assessments; provided, however, that this
right to contest shall not be deemed or construed to relieve, modify or
extend Tenant's obligation to pay any such tax, imposition or assessment
before delinquency thereof unless Tenant has provided a bond or other
security satisfactory to Landlord. Tenant shall indemnify and defend
Landlord and save Landlord harmless from all costs, liabilities and
expenses incurred in connection with such proceedings.
Trade Fixtures. Tenant shall be liable for and shall pay, before delinquency,
all taxes levied against Trade Fixtures.
Protest.Tenant shall have the right, at its sole cost, to request Landlord, by
notice to Landlord given not less than ten (10) days before the last
date for filing any necessary protest or petition or taking any other
necessary action, to initiate and prosecute any proceeding for the
purpose of reducing the assessed valuation of the Premises for tax
purposes. In the event that Tenant in good faith shall request Landlord,
pursuant to the preceding sentence, to initiate and prosecute any
proceeding, Landlord shall, subject to the requirements imposed by any
mortgage of Landlord's interests in the Development, at Tenant's sole
expense, take all steps reasonably necessary to commence such proceeding
and thereafter shall diligently prosecute the same to completion. Any
actual out-of-pocket costs, including reasonable attorneys' fees,
incurred by Landlord in connection with any such proceeding brought at
Tenant's request shall be payable upon demand, as Additional Rent, by
Tenant to Landlord. Any refund of moneys received by Landlord resulting
from such proceeding attributable to the Premises and relating to real
property taxes which may have been paid by Tenant shall be refunded by
Landlord to Tenant, together with all accrued interest which is awarded
thereon and received by Landlord; provided that if any such refund shall
be made with respect to Landlord's property other than the Premises,
then Tenant's right to the same shall be limited to its pro rata portion
thereof, after payment or credit first (to the extent such monies are
received by Landlord from the taxing authority), to Tenant for
Landlord's costs previously paid by Tenant to Landlord as above provided
and second (after all costs incurred by Landlord have been recovered),
for any other actual out-of-pocket costs, including reasonable
attorneys' fees, incurred by Tenant in connection with any such
proceeding. Tenant's rights to refunds under this Section 12.3, if any,
shall survive the expiration of this Lease.
Definition. As used in this Article 12, the term "REAL PROPERTY TAXES" shall
include any form of assessment, license fee, license tax, business
license fee, commercial rental tax, levy,
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charge, tax or similar imposition, imposed by any authority having the
direct power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other
improvement or special assessment district thereof, as against any legal
or equitable interest of Landlord in the Premises, including, but not
limited to, the following: any tax on Landlord's ""right" to rent or
"right" to other income from the Premises or as against Landlord's
business of leasing the Premises; any assessment, tax, fee, levy or
charge in substitution, partially or totally, of any assessment, tax,
fee, levy or charge previously included, within the definition of real
property taxes ("IN-LIEU TAX"); any assessment, tax, fee, levy or charge
allocable to or measured by the area of the Premises or the rent payable
hereunder ("RECEIPTS TAX"), including any gross income tax or excise tax
levied by the state, city or federal government, or any political
subdivision thereof, with respect to the receipt of such rent, or upon
or with respect to the possessing, leasing, operating, managing,
maintaining, altering, repairing, using or occupying by Tenant of the
Premises or any portion thereof; any assessment, tax, fee, levy or
charge upon this transaction or upon any document to which Tenant is a
transferring party creating or transferring an interest or an estate in
the Premises; any assessment, fee, levy or charge by any governmental
agency related to any transportation plan, fund or system instituted
within the geographic area of which the Premises are a part; and
reasonable legal and other professional fees, costs and disbursements
incurred in connection with proceedings to reasonably contest, determine
or reduce real property taxes. Notwithstanding any provision of this
Article 12 expressed or implied to the contrary, Tenant shall not be
required to pay any documentary transfer taxes or recording taxes
incurred by Landlord or Landlord's federal or state income, franchise,
inheritance or estate taxes or any local income, franchise, inheritance
or estate taxes, or other taxes in lieu thereof, except for any In-Lieu
Tax or any Receipts Tax.
13. Condition of Premises.
Landlord's Work. Landlord hereby agrees to cause to be completed those acts
and/or improvements described as the Landlord's Work in the Work Letter
within the time(s) set forth therein, subject to Force Majeure or any
Tenant Delay. Landlord hereby agrees that all work to be performed by
Landlord pursuant to the Work Letter shall be constructed by Landlord or
Landlord's contractor in a good and workmanlike first-class manner and
in full compliance with all governmental regulations, ordinances and
laws existing at the time of construction. Landlord agrees to abide by
its obligations, if any, under the CC&R. By taking possession of the
Premises upon completion of the Landlord's Work and for commencement of
the construction of the Improvements, Tenant shall be deemed to have:
(i) acknowledged that Landlord's Work is substantially complete and is
accepted "as is" and "with all faults"; (ii) accepted the Premises as
suitable for the purposes for which the Premises are leased; and (iii)
acknowledged that the Premises are in a good and satisfactory condition,
except as otherwise expressly provided in the Work Letter. Landlord
hereby disclaims, and Tenant hereby waives to the full extent permitted
by law, any implied warranty that the Premises are suitable for Tenant's
intended commercial purpose, and any and all other implied warranties
(whether arising by virtue of statute,
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case law or otherwise). The foregoing provisions shall not be construed
to relieve Landlord from its obligations which are expressly set forth
in this Lease.
Design Changes. In order to provide Landlord with the necessary flexibility in
the planning and organizing of the Building, Tenant agrees that the
design of the Building (including the location of the demising walls for
the Premises) and elements of Landlord's Work shall be subject to such
changes as Landlord shall deem to be necessary or beneficial to the
Building or its tenants; provided, however, that the resulting Premises
shall be substantially equivalent for Tenant's purposes as prior to such
changes.
14. Alterations.
Landlord's Approval. From and after the later of (i) the Commencement Date, or
(ii) completion of the Improvements, Tenant, without obtaining
Landlord's prior consent, may only make alterations, additions or
improvements in or to the Premises which (a) are nonstructural in
nature, and (b) do not affect the exterior of the Premises or other
exterior portions of the Improvements (but only to the extent generally
visible from the Common Areas). All alterations, additions and
improvements other than those described in clauses (a) and (b) hereof
shall require Landlord's prior written consent. Before proceeding with
any alteration, addition or improvement which requires Landlord's prior
written consent hereunder, Tenant shall submit to Landlord plans and
specifications, including any applicable mechanical, electrical and
plumbing drawings, for the work to be done, which plans and
specifications shall require Landlord's approval. If Landlord shall
disapprove of any of Tenant's plans and specifications, Tenant shall be
advised of the reasons for such disapproval.
Requirements. Tenant agrees to provide Landlord with notice of all alterations,
additions or improvements Tenant intends to make to the Premises whether
or not they require Landlord's prior consent as provided above. Tenant
shall cause Tenant's contractor to obtain on behalf of Tenant and at
Tenant's sole cost and expense all necessary governmental permits and
certificates for the commencement and prosecution of any alteration,
addition or improvement and for final approval thereof upon completion.
All such work shall be done at such times and in such manner as Landlord
may from time to time designate. Tenant covenants and agrees that all
work done by Tenant shall be performed in full compliance with the
Condominium Documents, the CC&R, in full compliance with all laws,
rules, orders, ordinances, regulations and requirements of all
governmental agencies, offices, and boards having jurisdiction, and in
full compliance with the rules, regulations and requirements of any
insurance rating bureau having jurisdiction of the Premises or the
Building. Before commencing any work, Tenant shall give Landlord at
least ten (10) days notice of the proposed commencement of such work in
order to provide Landlord with an opportunity to post notices of
nonresponsibility. Tenant further covenants and agrees that any
mechanic's lien recorded against the Premises or the Building for work
claimed to have been done for, or materials claimed to have been
furnished to Tenant, will be discharged by Tenant, by bond or otherwise,
as
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provided in Article 16 hereof. All alterations, additions or
improvements upon the Premises made by either party, including all
wallcovering, built-in cabinetry, paneling and the like, shall, at
Landlord's option, upon the expiration or earlier termination of this
Lease become the property of Landlord, and shall, at such time, remain
upon, and be surrendered by Tenant with the Premises, as a part thereof.
Removal. All articles of personal property and movable furniture, including
Trade Fixtures and any other of Tenant's furniture and equipment which
are installed by Tenant at its expense in the Premises shall be and
remain the property of Tenant and may be removed by Tenant at any time
during the Term provided Tenant repairs any damage caused by such
removal. If Tenant shall fail to remove all of its effects from the
Premises upon the expiration or earlier termination of this Lease, for
any cause whatsoever, Landlord may, at it option, remove the same in any
manner that Landlord shall choose, and store said effects without
liability to Tenant for loss thereof so long as Landlord exercises
reasonable care in doing so. In such event, Tenant agrees to pay
Landlord upon demand any and all reasonable expenses actually paid to
third parties incurred in such removal, including court costs and
attorneys' fees and storage charges on such effects for any length of
time that the same shall be in Landlord's possession. Landlord may, at
its option, upon at least ten (10) business days' prior notice to Tenant
of the date, time and place of the sale of such effects, or any of the
same, sell any such affects at a private sale and without legal process,
for such price as Landlord may obtain and apply the proceeds of such
sale to any amounts due under this Lease from Tenant to Landlord and to
the expense incident to the removal and sale of said effects. Any rights
of Landlord under this Section 14.3 shall be subject to the rights of
lienholders with a security interest in Tenant's personal property
pursuant to Section 1.2 hereof.
16. Repairs.
Tenant's Obligations. Except as otherwise hereinafter provided, Tenant, at
Tenant's sole cost and expense, shall (i) keep, maintain (including
necessary replacements) and preserve the Property and every portion
thereof, all equipment, facilities and amenities used in connection
therewith and all items located on or about the Property, including
elevators servicing the Premises, plumbing, mechanical systems, floors
and utility systems (including HVAC system) and all portions thereof in
first-class condition and repair, (ii) when and if needed, at Tenant's
sole cost and expense (subject to the damage and destruction provisions
herein), make all repairs to the Property and every portion thereof
including the interior walls but excluding the structural columns
described in Section 15.2 hereof, (iii) repaint the interior and the
exterior of the Improvements as necessary, (iv) replace all broken
window glass, and (v) repair all facilities except for the structural
elements described in Section 15.2 hereof. Tenant's obligation to keep,
maintain, preserve and repair the Premises shall specifically extend to
the cleanup and removal of all Hazardous Materials to the extent
required by Tenant in Article 8 hereof. Tenant shall, upon the
expiration or earlier termination of the Term, surrender the Property to
Landlord in its condition as of the commencement of Tenant's operation
of the Club for member
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use, usual and ordinary wear and tear and any alterations, additions and
improvements permitted under this Lease excepted, and except as
otherwise provided in Articles 21 and 22 hereof. Landlord shall have no
obligation to alter, remodel, improve, repair, decorate or paint the
Property or any part thereof, except as provided in Section 15.2 hereof
and except for cleanup and removal of Hazardous Materials to the extent
required in Article 8 hereof. The parties hereto affirm that Landlord
has made no representations to Tenant respecting the condition of the
Property except as specifically set forth in Article 13 hereof. In
addition, the parties hereto affirm that Landlord shall have absolutely
no obligation to keep, maintain or repair any portion of the interior of
the Premises except as herein expressly provided. Landlord shall be
responsible for repairs to the Property caused by the negligence or
willful misconduct of Landlord or its employees, agents, or contractors.
Notwithstanding the foregoing, to the extent that insurance carried by
Landlord or Tenant provides coverage for the cost of any maintenance or
repair or replacement which is Tenant's obligation pursuant hereto,
Tenant shall be entitled to all benefits of such insurance.
Landlord's Obligations. Subject to the last sentence of this Section 15.2,
Landlord shall (subject to reimbursement therefor pursuant to Section 7
hereof) keep, maintain and repair, or cause to be kept, maintained and
repaired, the Building (exclusive of the Property) and the Common Areas
in a first-class manner and be responsible for the repair and
maintenance of the structural elements of the Development except to the
extent that the necessity for any repair or maintenance shall be
attributable to alterations performed by or through Tenant or by the
negligence or willful misconduct of Tenant or its employees, agents,
contractors, licensees or invitees. Notwithstanding the foregoing,
Landlord shall (without being subject to reimbursement therefor pursuant
to Section 7 hereof) repair all defects in Landlord's construction of
the Club (if and to the extent expressly provided in the Work Letter)
and Common Areas. Landlord shall grant easements and/or grant rights of
way to the extent necessary for utility companies to bring those
services identified in the Work Letter to the Premises.
16. Liens.
Except with respect to a security agreement, financing statement,
financing lien or other instrument securing the financing of Trade Fixtures and
Tenant's other furniture, fixtures, equipment and improvements approved by
Landlord, Tenant shall not permit to be recorded against the Premises or any
portion of the Development or against Tenant's leasehold interest in the
Premises, any mechanics', materialmen's or other liens, including any state,
federal or local Hazardous Material clean-up liens for which Tenant is
responsible under Article 8 hereof. Landlord shall have the right at all
reasonable times to post and keep posted on the Premises any notices which it
deems necessary for protection from such liens. If any such lien is recorded,
and is not discharged by Tenant by bond or otherwise within thirty (30) days
after the recording thereof, Landlord may, without waiving its rights and
remedies based on such breach of Tenant and without releasing Tenant from any of
its obligations, cause such liens to be released by any means it shall deem
proper, including payment in satisfaction of the claim giving rise to such
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lien. Tenant shall pay to Landlord on demand, upon notice by Landlord, any sums
incurred by Landlord to remove such liens, together with Landlord's reasonable
attorneys' fees and other expenses incurred by Landlord in connection with
obtaining such release and interest on such sums at the lesser of (i) the rate
of twelve percent (12%) per annum and (ii) the highest rate then legally
permissible from the date of such payment by Landlord. Tenant expressly reserves
the right to contest the validity of any such liens and to post bonds suitable
to cause the release of any such liens so long as (a) prior to any such contest
(and no later than thirty (30) days after such lien has been filed) Tenant at
its sole expense provides to Landlord a bond indemnifying against such lien that
complies with all applicable laws, and (b) Tenant contests such lien diligently
and in good faith; provided, however, the foregoing right of Tenant to contest
any such lien shall not impair or otherwise affect Tenant's indemnification and
other obligations with respect to such lien.
17. Entry by Landlord.
During normal business hours upon giving at least one (1) business day's
prior notice to Tenant (except in the case of emergencies, in which case no
notice shall be necessary), Landlord reserves and shall at any and all
reasonable times have the right to enter the Premises and the Improvements to
(i) inspect the same, (ii) show the Premises and the Improvements to prospective
lenders or purchasers (and prospective tenants during the last twelve (12)
months of the Term), (iii) post notices of nonresponsibility, and (iv) alter,
improve or repair the Common Areas or any other portion of the Development, all
without being deemed guilty of any eviction of Tenant or breach of quiet
enjoyment and without abatement or reduction of rent. Landlord shall provide
Tenant with the opportunity to escort Landlord with regard to any entry pursuant
hereto (except in case of an emergency). Landlord shall indemnify Tenant and
hold Tenant harmless from and against any and all claims, damages, losses or
costs (excluding consequential damages) actually incurred by Tenant as a result
of Landlord's entry upon the Premises pursuant to this Article 17 to the extent
not covered by insurance carried by Tenant or required to be carried by Tenant
hereunder. Landlord may, in order to carry out such purposes, erect scaffolding
and other necessary structures if reasonably required by the character of the
work to be performed, provided that to the extent within Landlord's reasonable
control, the business of Tenant shall be interfered with as little as is
reasonably practicable (it being agreed that Landlord shall not be required to
employ overtime or premium labor). It is understood and agreed that no provision
of this Lease shall be construed as obligating Landlord to perform any repairs,
alterations or decorations except as otherwise expressly agreed herein by
Landlord.
18. Utilities and Services.
From and after Substantial Completion of Landlord's Work, Tenant agrees to pay
all charges for utilities and services used by it in the Premises,
including, but not limited to, gas, electricity, telephone, sanitary
sewer, storm drainage, water, and trash collection. Landlord shall
supply hot water for heat as described in the Work Letter to such
distribution facilities designated in the Design Development Plans (as
defined in the Work Letter). Tenant shall maintain in good working order
and make all necessary
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repairs and replacements to such distribution facilities to the extent
the same are located within or exclusively service the Premises, at
Tenant's own cost and expense. Such hot water shall be supplied to the
Premises at such times and periods as Tenant shall reasonably require
for conducting its business at the Premises in the manner contemplated
by this Lease and the Work Letter (not to exceed eighteen (18) hours per
day). Landlord shall supply (or cause to be supplied) chilled water to
the Premises as described in the Work Letter at such hours (not to
exceed eighteen (18) hours per day) as Tenant may designate. Within
thirty (30) days following demand therefor, Tenant shall pay to
Landlord, as Additional Rent, Landlord's then established charges which
shall not exceed one hundred percent (100%) of Landlord's out-of-pocket
costs for the quantities of such hot water and chilled water (except as
otherwise specifically provided in the Work Letter) as Tenant may
consume, as shown on the meter(s) installed by Landlord (but maintained
by Tenant). Subject to Landlord's obligation to make utility easements
and rights of way available pursuant to the provisions of Section 15.2
hereof and to bring utility lines to the Premises pursuant to Section
1.1 hereof, Landlord shall not be liable for damages or otherwise for
any failure or interruption of any utility or other service furnished to
the Premises, unless such failure shall be due to the negligence or
willful misconduct of Landlord, its agents, licensees or employees and
is not covered by rent abatement and business interruption insurance
carried or required to be carried by Tenant. Subject to Landlord's
obligation to make utility easements and rights of way available
pursuant to the provisions of Section 15.2 hereof and to bring utility
lines to the Premises pursuant to Section 1.1 hereof, Landlord does not
warrant that any of the utilities and services mentioned herein will be
free from interruptions caused by repair, renewals, improvements,
alterations, strikes, lockouts, accidents, inability of Landlord to
obtain fuel or supplies, or any other cause or causes beyond the
reasonable control of Landlord. Any such interruption of service shall
never be deemed an eviction or disturbance of Tenant's use and
possession of the Premises, or any part thereof, or give Tenant any
right to terminate this Lease.
Tenant agrees that it will not install any equipment which will exceed or
overload the capacity of any utility facilities, and that if any
equipment installed by Tenant shall require additional utility
facilities in excess of those specified in the Work Letter, the same
shall be installed at Tenant's expense in accordance with plans and
specifications to be approved in writing by Landlord in accordance with
the standards set forth in Article 14 hereof.
19. Indemnification.
Tenant's Indemnity. Notwithstanding (i) the limits of Tenant's insurance
specified in Section 20.1 hereof and (ii) whether Tenant's insurance
shall be in full force and effect, Tenant shall indemnify, defend and
hold Landlord and the Condominium Association (if applicable) harmless
from all costs, expenses, penalties, claims, demands and liabilities
("CLAIMS") arising from Tenant's use of the Property or the conduct of
its business or from any activity, work, or thing done by Tenant in or
about the Premises. Tenant shall further indemnify, defend and hold
Landlord and the Condominium Association (if
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applicable) harmless from all Claims arising from any Default, or
arising from any act, neglect, fault or omission of Tenant or of its
agents, employees or licensees in the Premises, or arising from any act,
neglect, fault or omission of Tenant's invitees in the Premises, and
from and against all costs, attorneys' fees, expenses and liabilities
incurred in connection with such Claim or any action or proceeding
brought thereon, but this indemnity shall not extend to Claims to the
extent resulting from negligent acts or omissions or willful misconduct
of Landlord or the Condominium Association, as applicable, their
respective employees, agents, licensees or invitees, to consequential or
punitive damages or to Claims that are as applicable covered by property
insurance carried by Landlord or the Condominium Association or required
to be carried by Landlord hereunder. In case any action or proceeding
shall be brought against Landlord and/or the Condominium Association, as
applicable, by reason of any such Claim, Tenant, upon notice from
Landlord and/or the Condominium Association, as applicable, shall defend
the same at Tenant's expense by counsel approved by Landlord and/or the
Condominium Association, as applicable. Tenant, as a material part of
the consideration to Landlord, hereby assumes all risk of damage to
property or injury to persons in, upon or about the Property from any
cause whatsoever, except that for which Landlord may be liable pursuant
to the indemnity contained in Section 19.2 hereof.
Landlord's Indemnity. Landlord shall indemnify, defend and hold Tenant harmless
from any and all Claims arising from any activity, work, or thing done
by Landlord in or about the Development (exclusive of the Premises).
Landlord shall further indemnify, defend and hold Tenant harmless from
all Claims arising from any breach or default in the performance of any
obligation to be performed by Landlord under the terms of this Lease or
arising from any act, neglect, fault or omission of Landlord or of its
licensees, invitees, agents or employees within the Development
(exclusive of the Premises) (provided, however, it is agreed that
tenants or other occupants of the Development and their respective
licensees, invitees, agents or employees shall not be deemed to be
Landlord's licensees, invitees, agents or employees) and from and
against all costs, attorneys' fees, expenses and liabilities incurred in
connection with such Claims or any action or proceeding brought thereon,
but this indemnity shall not extend to Claims to the extent resulting
from the negligent acts or omissions or willful misconduct of Tenant,
its employees, agents or licensees, to consequential or punitive damages
or to Claims that are covered by property insurance carried by Tenant or
required to be carried by Tenant hereunder. In case any action or
proceeding shall be brought against Tenant by reason of any such Claims,
Landlord, upon notice from Tenant, shall defend the same at Landlord's
expense by counsel approved by Tenant; it being agreed that Battle
Fowler LLP and/or counsel designated by Landlord's insurer are
acceptable to Tenant for such purpose.
No Release of Insurers. Tenant's and Landlord's indemnification obligations
under Sections 19.1 and 19.2 hereof are not intended to and shall not
relieve any insurance carrier of its obligations under policies carried
by Landlord or Tenant, and such indemnification obligations shall
survive the expiration or earlier termination of this Lease.
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20. Insurance.
Tenant's Insurance. Tenant shall, during the Term and any other period of
occupancy of the Premises, at its sole cost and expense, keep in full
force and effect the following insurance:
Property. Standard form property insurance insuring against the
perils of fire, extended coverage, vandalism, malicious mischief,
special extended coverage ("ALL-RISK") and sprinkler leakage, covering
all property owned by Tenant, for which Tenant is legally liable or that
was installed solely at Tenant's expense, and which is located on the
Premises, including interior improvements, furniture, fittings,
installations, Trade Fixtures, equipment, facilities and any other
personal property and any alterations, additions and improvements
constructed by Tenant pursuant to Section 14.1 hereof (but excluding any
property required to be insured by Landlord under Section 20.4 hereof),
in an amount not less than the full replacement cost thereof. All
proceeds from the insurance required under this Section 20.1(i) shall be
used for the repair, restoration or replacement of the damaged or
destroyed property unless this Lease terminates pursuant to Section 21
hereof, in which event the provisions of Section 20.3 hereof shall
control.
Liability. Comprehensive General Liability Insurance insuring
Tenant against any liability arising out of the lease, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be in the amount of not less than $5,000,000.00 Combined
Single Limit for injury to, or death of, one or more persons in an
occurrence, and for damage to tangible property (including loss of use)
in an occurrence. Any such coverage requirement may be satisfied by an
umbrella policy. Such policies shall insure the hazards of premises and
operations, independent contractors, contractual liability (covering the
indemnity contained in Section 19 hereof) and shall (a) name Landlord,
the Condominium Association (if applicable) and any mortgagee of
Landlord as additional insureds, (b) contain a cross liability
provision, and (c) contain a provision that "the insurance provided
Tenant hereunder shall be primary and noncontributing with any other
insurance available to Landlord or the Condominium Association," so long
as such provision may be available.
Workers' Compensation. Workers' Compensation and Employer's
Liability insurance (as required by state law).
Rental Interruption. Twelve (12) months rent abatement and
business interruption insurance which shall cover Tenant's monetary
obligations under this Lease and any direct or indirect loss of earnings
attributable to perils insured against under extended coverage all-risk
property insurance; provided, however, that Tenant shall be entitled to
self-insure such risk.
Liquor. Liquor liability insurance coverage with commercially
reasonable coverage limits, but in no event less than $5,000,000.00 per
occurrence, naming
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Landlord, the Condominium Association and any mortgagee of Landlord as
additional insureds. Any such coverage requirement may be satisfied by
an umbrella policy.
Requirements. All policies required of Tenant shall be written by an insurer
satisfactory to Landlord. Prior to the date Tenant enters the Premises,
but in no event later than sixty (60) days after the execution of this
Lease, Tenant shall deliver to Landlord copies of policies or
certificates evidencing the existence of the amounts and forms of
coverage required (or, in the event of self-insuring as permitted in
Section 20.1(iv) hereof only, evidence of the net worth of Tenant or a
Person providing a guaranty of this Lease to Landlord of not less than
$10,000,000). No such policy shall be cancelable or reducible in
coverage except after thirty (30) days' prior written notice to
Landlord. Tenant shall, within thirty (30) days prior to the expiration
of any such policies, furnish Landlord with renewals, certificates of
insurance, or "binders" thereof, and, if Tenant fails to do so within
ten (10) days following notice of such failure, then, upon an additional
notice to Tenant, Landlord may order such insurance and charge the cost
thereof to Tenant as Additional Rent. If Landlord obtains any insurance
that is the responsibility of Tenant under this Article 20, Landlord
shall deliver to Tenant a statement setting forth the cost of any such
insurance and showing in reasonable detail the manner in which it has
been computed, and, if obtainable, a certificate of insurance naming
Tenant as the insured or as an additional insured. Tenant's obligation
to carry insurance provided for in this Article 20 may be satisfied by
inclusion within the coverage of any blanket policy or policies of
insurance carried or maintained by Tenant, provided that the coverage
required herein will not be reduced or diminished by reason of the use
of such blanket policies of insurance.
Proceeds Upon Termination. In the event of damage to or destruction of the
Improvements resulting in termination of this Lease pursuant to Article
21 hereof, (i) Landlord shall be entitled to all proceeds of the
insurance required to be maintained under Section 20.4 hereof (subject
to Landlord's obligation to cause such proceeds to be disbursed for the
purposes of restoration, as herein provided) and (ii) Tenant shall
immediately pay to Landlord all of its property insurance proceeds, if
any, plus any deductible amount (subject to the limitation described
below) relating to the Improvements and all other items of property
which would have become Landlord's property upon expiration or earlier
termination of this Lease absent such damage or destruction (but not
relating to Trade Fixtures or Tenant's other equipment, furniture or
personal property). Notwithstanding the foregoing, Tenant shall not be
required to pay any such deductible amounts to Landlord unless Landlord
can reasonably demonstrate that Landlord has entered into a new lease
with a non-Affiliate of Landlord for an athletic club in the Premises
for a lease term of not less than ten (10) years within twelve (12)
months after the termination of this Lease.
Landlord's Insurance. Landlord may, but shall not be obligated to, take out and
carry any form or forms of insurance ("LANDLORD'S INSURANCE") as it may
reasonably determine advisable, or as may be required by Landlord's
mortgagee; provided, however, that
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Landlord shall be required to carry (i) Comprehensive General Liability
Insurance in amounts not less than those required of Tenant pursuant to
Section 20.1 hereof and (ii) insurance against any peril insurable under
an all-risk property insurance policy covering the Improvements,
exclusive of any item insured by Tenant pursuant to Section 20.1(i)
hereof, in an amount which is one hundred percent (100%) of the full
replacement cost of the Improvements. Landlord's obligation to carry the
all-risk property insurance provided for in this Section 20.4 may be
satisfied by inclusion of the Improvements within the coverage of any
blanket policy or policies of insurance carried or maintained by
Landlord, provided that the coverage required herein will not be reduced
or diminished by reason of the use of such blanket policies of
insurance. Tenant shall reimburse Landlord, as Additional Rent payable
in equal monthly installments, the cost of the all-risk property
insurance for the Improvements required by this Section 20.4 commencing
within thirty (30) days following demand therefor, and the premiums for
such insurance will not be included in the Insurance Escalation (as
defined herein). In the event such all-risk property insurance covers
improvements other than the Improvements, Tenant's pro rata share will
be that proportion that the Floor Area of the Improvements bears to the
total Floor Area of all improvements covered by such policy.
Insurance Escalation. Except for Landlord's cost of the all-risk property
insurance for the Improvements, as addressed in Section 20.4 hereof, if
Landlord's cost of obtaining Landlord's Insurance for the Property
and/or the Building and the operations thereof exceeds the cost of
obtaining such insurance for the first twelve (12) months following the
Commencement Date, Tenant shall pay to Landlord, as Additional Rent,
within thirty (30) days, after being billed therefore, an amount equal
to Tenant's Share of such increased cost.
Compliance. Landlord and Tenant shall promptly comply with all reasonable
requirements of the insurance authority or of any insurer now or
hereafter relating to the Premises.
Waiver of Subrogation. All policies of all-risk, fire, extended coverage or
similar property insurance which either party obtains or is required to
maintain in connection with the Development, and the insurance required
to be obtained by Tenant pursuant to the provisions of Section 20.1 (iv)
hereof, and, if obtainable, all liability policies, shall include or
shall be deemed to include a clause or endorsement denying the insurer
any rights of subrogation against the other party. Landlord and Tenant
waive all rights of recovery against the other for injury or loss due to
hazards covered by insurance containing or deemed to contain such a
waiver of subrogation clause or endorsement to the extent of the injury
or loss covered thereby.
21. Damage or Destruction.
(i) Tenant's Reconstruction. In the event the Improvements shall be damaged
by fire or other perils and this Lease shall not be terminated as
hereafter provided, Tenant, at its sole cost and expense, shall within a
period of thirty (30) days thereafter, commence repair,
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reconstruction and restoration of the Improvements to their condition
existing immediately prior to such damage and prosecute the same
diligently to completion in compliance with all applicable laws, and
this Lease shall continue in full force and effect unless this Lease is
terminated as hereinafter provided. Any such repair, reconstruction and
restoration shall be performed strictly in accordance with the
provisions of Article 14 hereof and Tenant shall be entitled to apply
the insurance proceeds to the repair, reconstruction and restoration in
the manner provided in Section 21.2 hereof. If at any time Tenant shall
fail to prosecute such work of repair or rebuilding with diligence, then
Landlord may give to Tenant notice of such failure and if such failure
continues for twenty (20) days thereafter, then Landlord, in addition to
all other rights which it may have, may, at Tenant's sole cost and
expense, enter upon the Premises, provide labor and/or materials, cause
the performance of any contract and/or take such other action as it may
deem advisable to prosecute such work. For this purpose, any contracts
made by Tenant for purposes of accomplishing repair, reconstruction and
restoration of the Improvements shall be in a form assignable to
Landlord and shall be subject to Landlord's approval. Landlord shall be
entitled to reimbursement for its costs and expenses in performing such
work from any insurance proceeds and any other moneys held by the
Depository (as defined herein) for application to the cost of such work
in accordance with Section 21.2 hereof. All costs and expenses incurred
by Landlord in carrying out such work for which it is not reimbursed by
the Depository shall be paid by Tenant upon demand, which demand may be
made by Landlord periodically as such costs and expenses are incurred,
in addition to any damages to which Landlord may be entitled hereunder.
(ii) Uninsured Casualty. In the event the Improvements shall be
damaged by peril which is not covered by insurance required to be
maintained hereunder (or which is otherwise maintained), and if a duly
qualified contractor certifies, in good faith and fair dealing, that the
amount required to repair such damage exceeds the Uninsured Contribution
Amount (as defined herein), Tenant shall have the option to terminate
this Lease upon giving notice to Landlord of its exercise of such
termination option within sixty (60) days after such damage or
destruction. Upon such termination of this Lease, the parties shall be
released without further obligations to the other coincident with the
surrender of possession of the Premises to Landlord, except for items
which theretofore accrued and are then unpaid and any obligations
specified in this Lease which are to survive the termination of this
Lease. Notwithstanding the foregoing, in the event that Tenant exercises
its option to terminate this Lease pursuant to the provisions of this
Section 21.1 (ii), Landlord shall have the option, exercisable within
thirty (30) days after Landlord's receipt of Tenant's termination
notice, to notify Tenant that Landlord elects to fund the amount
required to repair such damage and destruction in excess of the
Uninsured Contribution Amount (as defined herein), in which case such
repair, reconstruction and restoration shall be performed pursuant to
the procedures set forth in this Section 21.1(ii), except that Tenant
shall contribute the Uninsured Contribution Amount and Landlord shall
fund any additional amounts necessary to accomplish such repair,
reconstruction and restoration. The "UNINSURED CONTRIBUTION AMOUNT"
shall be
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Five Hundred Thousand ($500,000.00) Dollars if the casualty occurs
during the first (180) calendar months of the Initial Term, which amount
shall be reduced at the beginning of the one hundred ninety third
(193rd) calendar month of the Initial Term, and every twelve (12) months
thereafter, by One Hundred Thousand ($100,000.00) Dollars, until (but
not including) the beginning of the last twelve (12) months of the
Initial Term. The One Hundred Thousand ($100,000.00) Dollars Uninsured
Contribution Amount in effect for the last twelve (12) months of the
Initial Term shall remain throughout any Option Periods.
(iii) Landlord Termination. In the event that any portion of the
Development (including the Building) shall be damaged to such an extent
that Landlord, the Condominium Association or any of Landlord's lenders
shall elect not to restore same, then Landlord shall have the right to
terminate this Lease within ninety (90) days following the date of the
damage or destruction or, if applicable, within a reasonable time after
Landlord shall have been notified of the Condominium Association's or
lender's decision not to restore. Upon such termination of this Lease,
the parties shall be released without further obligations to the other
coincident with the surrender of possession of the Premises to Landlord,
except for items which theretofore accrued and are then unpaid and any
obligations specified in this Lease which are to survive the termination
of this Lease. Subject to the rights of Landlord's lenders and/or the
Condominium Association, Landlord shall not elect to terminate this
Lease unless a material portion of the Development (i.e., more than
twenty five percent (25%)) shall have been damaged. Landlord agrees that
if (1) this Lease is terminated by Landlord pursuant to this Section
21.1(iii) and Landlord thereafter reconstructs, restores or repairs the
Building or the Premises, (2) at the time of such casualty Tenant is
then operating a Club (including support facilities) within at least
seventy-five percent (75%) of the Premises, (3) at the time of such
casualty no monetary Default (as defined herein) and/or material Default
shall have occurred and be continuing under this Lease, (4) at the time
of such casualty, the Unexpired Lease Term (as defined herein) is at
least five (5) years or Tenant exercises an Option for an Option Period,
regardless of whether Tenant then would otherwise have the right to
exercise same, by delivering written notice to Landlord simultaneously
with the delivery to Landlord of the Tenant Acceptance Notice (as
defined herein) subject to and in accordance with this Section
21.1(iii), (5) within one-hundred eighty (180) days following the
termination of this Lease pursuant to this Section 21.1 (iii), Tenant
shall deliver to Landlord a statement signed and certified by the chief
financial officer of Tenant, if Tenant is a corporation, by a managing
member, if Tenant is a limited liability company, or by the chief
financial officer of a corporate general partner of Tenant, if Tenant is
a partnership (such person, the "FINANCIAL OFFICER"), to be true and
correct disclosing in reasonable detail the aggregate amount of costs
and expenses actually incurred by Tenant as the result of the cessation
of Tenant's business operations in the Premises and such termination of
this Lease (e.g., including, without limitation, the unrecouped costs
and expenses actually incurred by Tenant in connection with the
development of a Club in the Premises and reimbursement to Tenant's Club
members of membership fees) which are not covered by insurance
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maintained by Tenant or otherwise reimbursed to Tenant (collectively,
the "TENANT TERMINATION COSTS") and (6) at the time of the Landlord
Offer (as defined herein), Tenant or an Affiliate of Tenant is then
operating a first-class coed athletic club, Landlord shall not operate a
Club in the Premises or offer to lease or accept any offer to lease the
Premises to any party within a period of five (5) years after such
termination of this Lease unless Landlord shall have first offered in
writing (the "LANDLORD OFFER") to lease the Premises to Tenant on the
terms and conditions of this Lease (including, without limitation, any
unexercised Option Periods) for a term equal to the unexpired portion of
the term of this Lease as of such termination date (the "UNEXPIRED LEASE
TERM") calculated as if this Lease had not been terminated and Tenant
shall not have accepted such offer by notice to Landlord within thirty
(30) days after such offer is given to Tenant (the "TENANT ACCEPTANCE
NOTICE"). Notwithstanding the foregoing, in the event that Tenant
exercises its option to lease the Premises pursuant to this Section 21.1
(iii), Landlord shall have the option, exercisable within thirty (30)
days after Landlord's receipt of the Tenant Acceptance Notice, to
nullify the Tenant Acceptance Notice by delivering to Tenant written
notice and paying to Tenant the Tenant Termination Costs. Upon Tenant's
receipt of such nullification notice and the payment of the Tenant
Termination Costs, the Tenant Acceptance Notice shall be deemed null and
void and of no force and effect and Tenant shall be deemed to have
waived and relinquished its right to lease the Premises and Landlord
shall at any and all times thereafter be entitled to lease all or any
portion of the Premises to others at such rental and upon such terms and
conditions as Landlord in its sole discretion may desire.
Depository. The "DEPOSITORY" shall be a bank or trust company authorized to do
business in the State of California, with a net worth of at least
$10,000,000.00 selected by Tenant and approved by Landlord; provided,
however, that if (i) Tenant does not make such a selection within ten
(10) business days after notice and demand by Landlord, then Landlord
may select the Depository and (ii) if Landlord has a lender whose loan
is secured by the Property, then anyone, excluding Landlord or any
Affiliate of Landlord, designated by such lender shall be the
Depository. Subject to Section 21.5 hereof, all property insurance
moneys recovered on account of damage or destruction to the Improvements
shall be applied to the payment of the cost of repairing and replacing
the Improvements. If net available insurance moneys shall be
insufficient to pay the entire cost of such work, then Tenant shall bear
the cost thereof in excess of the net available insurance moneys. Except
for work which is reasonably expected to cost less than $100,000.00
(with respect to which Landlord shall hold the proceeds), the Depository
shall hold insurance proceeds with respect to the Improvements and shall
disburse said proceeds during the course of the work of repair,
reconstruction and restoration in accordance with the provisions set
forth below unless the Depository is Landlord's lender or a designee of
such lender, in which event the provisions of the loan documentation
shall control. The Depository shall not be required to make
disbursements more often than at thirty (30) day intervals. Landlord,
Tenant and the Depository shall reasonably, promptly and in good faith
prepare and execute reasonable and appropriate instructions for
disbursement of the proceeds which shall include a procedure for receipt
of
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certificates, plans, notices, lien releases and applications for
payment. Notwithstanding anything to the contrary contained herein,
disbursement of such insurance proceeds shall in all events (i) be
subject to such requirements as may be imposed by the Condominium
Association and/or any mortgagee of Landlord and (ii) include a
procedure for a retainage of ten percent (10%) of the cost of the work
from each draw disbursed in connection with such restoration until at
least thirty (30) days after the completion of all work. If, after all
of said work shall be completed in accordance with the terms of this
Lease and all governmental approvals and permits required have been
obtained, there are funds held by the Depository for application to the
cost of such work in excess of the amounts withdrawn, then such funds
(after first applying such funds to the costs and expenses of the
Depository) shall be delivered to Tenant; provided, however, that if the
funds held by the Depository are a result of any insurance carried by
Landlord or Section 21.5 hereof, such funds shall be delivered to
Landlord. The Depository may retain free of trust its reasonable fees
and expenses for acting as such. In the event there are not sufficient
funds held by the Depository to pay its fees and expenses, Landlord and
Tenant shall share equally the fees and expenses of the Depository.
No Termination or Rental Abatement. No destruction of or damage to the
Property or any part thereof, whether such destruction or damage be
partial or total or whether such destruction or damage shall have been
covered by insurance or not, shall entitle or permit Tenant to surrender
or terminate this Lease (except as provided in Section 21.1(ii) hereof)
or relieve Tenant from liability to pay in full the rents and other sums
and charges payable by Tenant hereunder (except as provided in Section
21.4 hereof), or from any of its obligations under this Lease. Tenant
hereby waives any rights now or hereafter conferred upon it by statute
or other law to surrender this Lease or to quit or surrender the
Property or any part thereof, or to receive any suspension, diminution,
abatement or reduction of the rent or other sums and charges payable by
Tenant hereunder on account of any such destruction or damage, except as
otherwise expressly provided in this Lease.
Limited Rental Abatement. Notwithstanding anything to the contrary contained
herein, in the event that the Improvements shall be damaged by peril
which is not covered by insurance required to be maintained hereunder
(or which is otherwise maintained), then, to the extent not covered by
the rent abatement insurance or business interruption insurance required
to be carried by Tenant pursuant to Section 20.1 (iv) hereof (whether by
self insuring or otherwise), Tenant shall be entitled to abate its
obligations to pay Monthly Base Rent and, as applicable, Common Area
Expenses or Operating Expenses, for the period from the date of such
peril until the earlier of (i) the date upon which Tenant opens for
operation of its business, or (ii) the date which is twelve (12) months
after the date of such peril, provided that such twelve (12) month
period shall be reduced to the extent that Tenant does not diligently
seek to repair the damage caused as a result of such peril and/or
re-open the Premises for the operation of its business. From and after
the expiration of such rental abatement, Tenant's obligation to pay
Monthly Base Rent and, as applicable, Common Area Expenses or Operating
Expenses shall once again commence.
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Lender's Prior Rights to Insurance Proceeds. Notwithstanding anything to the
contrary herein, Tenant acknowledges that the rights of any lender
holding a mortgage or deed of trust against the Premises ("SECURED
LENDER") to any insurance proceeds applicable to the Improvements,
except for Tenant's Insurance Share (as defined herein), shall be
superior to the rights of Landlord and Tenant to such proceeds.
"TENANT'S INSURANCE SHARE" is equal to Tenant's "pro rata share" (as
determined in accordance with Section 22.1 hereof) of the insurance
proceeds payable for the damaged Improvements. Landlord agrees to use
commercially reasonable efforts to cause the Secured Lender to make the
insurance proceeds in which the Secured Lender has a prior interest
available to Tenant for reconstruction as contemplated in this Lease.
If, within two hundred seventy (270) days following a casualty, a
Secured Lender has not made such proceeds available for reconstruction,
then at Tenant's election this Lease shall terminate as of said 270th
day, unless Landlord gives notice to Tenant on or before said 270th day
that Landlord is willing to provide the sums necessary for
reconstruction in excess of any deductibles and Tenant's Insurance
Share, in which case this Lease shall not terminate and Landlord shall
deposit such sums with the Depository and Tenant shall reconstruct the
Premises in accordance with the provisions of this Article 21 hereof.
The disbursement of any insurance proceeds applicable to the
Improvements shall be subject to the control of the Secured Lender
notwithstanding anything to the contrary in Section 21.2 hereof.
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22. Eminent Domain.
Permanent Taking. In case all of the Property (a "TOTAL TAKING"), or such part
thereof as shall substantially interfere with Tenant's use and occupancy
thereof to the extent Tenant cannot operate the Club (a "SUBSTANTIAL
TAKING"), shall be taken for any public or quasi-public purpose by any
lawful power or authority by exercise of the right of appropriation,
condemnation or eminent domain, or sold to prevent, or in lieu of, such
taking, this Lease shall automatically terminate effective as of the
date possession is required to be surrendered to said authority. In the
event the amount of property or the type of estate taken shall not
substantially interfere with the conduct of Tenant's business (a
"PARTIAL TAKING"), Tenant shall restore the Property to substantially
its same condition prior to such Partial Taking and a fair and equitable
allowance shall be made to Tenant for the rent corresponding to the time
during which, and to the part of the Property of which, Tenant shall be
so deprived on account of such taking. Tenant shall not assert any claim
against Landlord for any compensation because of such taking. In the
event of a Total Taking, Substantial Taking or Partial Taking, any award
shall belong to and be paid to Landlord subject to the rights of any
mortgagee of Landlord's interest in the Premises or the beneficiary of
any deed of trust which constitutes an encumbrance thereon, except that
Tenant shall be entitled to any portion of such award related to (i)
Trade Fixtures or Tenant's other equipment and/or personal property
which is taken, (ii) Tenant's moving expenses and loss of goodwill,
(iii) Tenant's "pro-rata share" of the straight-line (on a 20-year
basis) unamortized costs of the Improvements taken, and (iv) in the case
of a Partial Taking only, the amount required to restore the Property to
substantially its same condition prior to such Partial Taking which
shall be held by the Depository for Landlord and shall be disbursed to
Tenant for the purposes of such restoration upon the same terms and
conditions as if they were insurance proceeds under Article 21 hereof.
For the purposes of this Section 22.1, "pro-rata share" shall be
determined by the proportion that the cost paid by Tenant for the taken
Improvements bears to the total of those costs paid therefor by Landlord
and Tenant. Nothing contained in this Section 22.1 shall be deemed to
give Landlord any interest in any award made to Tenant for the taking of
Trade Fixtures or Tenant's other personal property, fixtures and
goodwill and for relocation expenses. Landlord agrees not to interfere
with Tenant's right to participate in any condemnation proceedings. The
provisions of this Section 22.1 shall survive the termination of this
Lease.
Temporary Taking. In the event of taking of the Property or any part thereof for
temporary use, (i) this Lease shall be and remain unaffected thereby and
rent shall not abate, and (ii) Tenant shall be entitled to receive for
itself such portion or portions of any award made for such use with
respect to the period of the taking which is within the Term provided
that if such taking shall remain in force at the expiration or earlier
termination of this Lease, Tenant shall then pay to Landlord a sum equal
to the reasonable cost of performing Tenant's obligations under Article
15 hereof with respect to the surrender of the Property and upon such
payment shall be excused from such obligations. For purpose
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of this Section 22.2, a temporary taking shall be defined as a taking
for a period of ninety (90) days or less.
Waiver. Landlord and Tenant each hereby waive any statutory rights of
termination which may arise by reason of a taking.
23. Defaults and Remedies.
Defaults. The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant ("DEFAULT"):
The vacation or abandonment of the Premises by Tenant or failure
to continuously operate the Club in accordance with Article 8 hereof
where Tenant has failed to cure such vacation, abandonment or failure to
operate within thirty (30) days following notice from Landlord to Tenant
of the need for such cure (the parties agree, however, that cessation of
operations of business from the Premises from time to time for the
purpose of remodeling the Premises or making alterations, additions or
improvements to the Property (collectively "TEMPORARY CLOSURES") shall
not be considered vacation or abandonment of the Premises provided and
on condition that; Tenant shall use commercially reasonable efforts to
complete any and all such work, from time to time, in an expeditious and
non-disruptive manner.
The failure by Tenant to make any payment of Rent or any other
payment required to be made by Tenant hereunder (including the Work
Letter), where such failure shall continue for a period of ten (10)
business days following notice from Landlord to Tenant that such payment
is due; provided, however, Tenant shall be entitled to such notice and
opportunity to cure on only two (2) occasions during any Lease Year;
The failure by Tenant to observe or perform any of the covenants
or provisions of this Lease (including the Work Letter) to be observed
or performed by Tenant, other than as specified in Sections 23.1(i) or
(ii) hereof, where such failure shall continue for a period of thirty
(30) days after notice thereof from Landlord to Tenant. If the nature of
the Default is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in Default
if Tenant shall commence such cure within said thirty-day period and
thereafter diligently prosecutes such cure to completion, which
completion shall occur not later than one hundred twenty (120) days from
the date of such notice from Landlord;
(a) The making by Tenant of any general assignment for the
benefit of creditors; (b) the filing by or against Tenant of a petition
to have Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy unless, in the case of
a petition filed against Tenant, the same is dismissed within one
hundred twenty (120) days; (c) the appointment of a trustee or receiver
to take possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this
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Lease, where possession is not restored to Tenant within one hundred
twenty (120) days; or (d) the attachment, execution or other judicial
seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where such seizure is not
discharged within 120 days; or
The failure by Tenant to open for business to the general public
within twelve (12) months following Substantial Completion of the
Premises, subject to Force Majeure, within thirty (30) days following
notice from Landlord to Tenant of the need for such cure.
Any notice provided for in this Section 23.1 shall be in
addition to, and not in lieu of, any statutorily required notice regarding
unlawful detainer actions.
Remedies. In the event of any Default, in addition to any other remedies
available to Landlord at law or in equity, Landlord shall have the
immediate option to terminate this Lease and all rights of Tenant
hereunder. In the event that Landlord shall elect to so terminate this
Lease then Landlord may recover from Tenant:
the worth at the time of award of any unpaid Rent which had been
earned at the time of such termination; plus
the worth at the time of award of the amount by which the unpaid
Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
the worth at the time of award of the amount by which the unpaid
Monthly Base Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided.
As used in Section 23.2(i) and (ii) hereof, the "worth at the
time of award" is computed by allowing interest at the prime, base or reference
rate of The Chase Manhattan Bank of New York, or its successors, from time to
time, charged to its most favored customers on commercial loans having a 90-day
duration (the "PRIME RATE") plus two percent (2%). As used in Section 23.2(iii)
hereof, the "worth at the time of award" is computed by discounting such amount
by the Prime Rate at the time of award. Notwithstanding anything to the contrary
contained in this Lease, neither Landlord nor Tenant shall be liable for
consequential or punitive damages which may be suffered by the other as a result
of a default by Landlord or default by Tenant under this Lease.
Re-entry. In the event of any Default, Landlord shall also have the right,
without terminating this Lease, to re-enter the Premises and remove all
persons and property from the Premises; such property may be removed and
stored in a public warehouse or elsewhere at the cost of and for the
account of Tenant. No re-entry or taking possession of the Premises by
Landlord pursuant to this Section 23.3 shall be construed as an election
to
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terminate this Lease unless a notice of such intention is given to
Tenant or unless the termination thereof is decreed by a court of
competent jurisdiction.
Cumulative Rights. Except as otherwise expressly provided in this Lease, all
rights, options and remedies of Landlord contained in this Lease shall
be construed and held to be cumulative, and no one of them shall be
exclusive of the others, and Landlord shall have the right to pursue any
one or all of such remedies or any other remedy or relief which may be
provided by law, whether or not stated in this Lease. No waiver of any
Default shall be implied from any acceptance by Landlord of any rent or
other payments due hereunder or any omission by Landlord to take any
action on account of such Default if such Default persists or is
repeated, and no express waiver shall affect Defaults other than as
specified in said waiver.
24. Assignment and Subletting.
Landlord's Consent. Except as otherwise expressly provided in the last sentence
of Section 8.1 hereof and in Section 24.3 hereof, Tenant shall not,
either voluntarily or by operation of law, assign, sublet, pledge,
encumber, hypothecate or otherwise transfer this Lease, without the
prior consent of Landlord, which consent may be granted or withheld in
Landlord's sole and absolute discretion. Without limiting the foregoing,
it shall be a condition to Landlord's consent hereunder that the
assignee execute, acknowledge and deliver to Landlord an agreement
whereby such assignee agrees to be bound by all of the covenants and
agreements in this Lease which Tenant has agreed to keep, observe or
perform.
Notice. Subject to the provisions of Article 46 hereof, in the event Tenant
desires to assign, sublet, pledge, encumber, hypothecate or otherwise
transfer this Lease, then at least thirty (30) days prior to the date
when Tenant desires the transaction to be effective (the "ASSIGNMENT
DATE"), Tenant shall give Landlord a notice (the "ASSIGNMENT NOTICE"),
which shall set forth the name, address and business of the proposed
assignee or sublessee, information (including references) concerning the
character, ownership, and financial condition of the proposed assignee
or sublessee, the Assignment Date, and any ownership or commercial
relationship between Tenant and the proposed assignee or sublessee. If
Landlord requests additional detail within ten (10) days after Tenant's
initial submission, the Assignment Notice shall not be deemed to have
been received until Landlord receives such additional detail, and
without otherwise limiting the provisions of Section 24.1 hereof,
Landlord may withhold consent to any assignment or sublease until such
information is provided to it.
Ownership Transfers. Except as otherwise expressly provided in this Section
24.3, any dissolution, merger, consolidation, or other reorganization of
the corporation which constitutes Tenant, or the sale or other transfer
of fifty percent (50%) or more of the corporate stock of the
corporation, or the sale of fifty percent (50%) or more of the value of
the assets of the corporation, shall be deemed an assignment prohibited
by this Article
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24 unless Landlord's prior written consent is obtained, which consent
shall not be unreasonably withheld or delayed provided and on condition
that: (i) the principal purpose for such assignment is not the
circumventing of the restrictions and limitations contained in this
Article 24; (ii) Tenant shall notify Landlord, in writing, of any such
proposed assignment not less than twenty (20) days prior to the date on
which Tenant proposes to assign its interest in this Lease; (iii) the
assignee shall be reputable and shall have in the reasonable judgment of
Landlord, sufficient financial worth to perform the obligations of
Tenant under this Lease (after consideration of the then net worth of
each Person providing a guaranty or surety of this Lease to Landlord) as
evidenced by the submission to Landlord of financial and other
information regarding the proposed assignee, including, without
limitation, its business experience, a current financial statement and
such other information as Landlord may reasonably request; (iv) Tenant
shall within ten (10) days after an assignment is executed deliver to
Landlord a copy of such assignment; (v) such assignee shall execute,
acknowledge and deliver to Landlord an agreement, in form and substance
reasonably satisfactory to Landlord, whereby such assignee shall assume
the obligations and performance of this Lease and agree to be personally
bound by and upon all of the terms and conditions of this Lease on the
part of Tenant to be performed or observed; (vi) each Person providing a
guaranty or surety of this Lease to Landlord shall deliver an agreement
in form and substance reasonably satisfactory to Landlord reaffirming
such Person's obligations and liabilities under its respective
agreement, guaranty or surety to Landlord and that such agreement,
guaranty or surety remains binding and enforceable against such Person
in accordance with its terms; (vii) the assignee shall use and occupy
the Premises only for the purposes set forth in this Lease, and for no
other purposes, in compliance with the terms and conditions of this
Lease; (viii) neither such assignment nor the acceptance of rent by
Landlord from such assignee shall, in any way, release, relieve or in
any manner affect the liability of Tenant under this Lease, it being the
agreement and understanding of the parties that assignor shall be and
remain liable under all of the terms and conditions of this Lease; and
(ix) neither such assignment nor the acceptance of rent by Landlord from
such assignee shall, in any way, release, relieve or in any manner
affect the liability of any Person providing a guaranty or surety of
this Lease to Landlord.
Notwithstanding anything to the contrary contained herein, the transfer
of shares of Tenant (if Tenant is a corporation) for purposes of this Section 24
shall not include the sale of shares by persons other than those deemed
"insiders" within the meaning of the Securities Exchange Act of 1934, as
amended, which sale is effected through the "over-the-counter market" or through
any recognized stock exchange.
The term "PERSON" as used in this Lease shall mean any individual,
corporation, partnership, joint venture, limited liability company, limited
liability partnership, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof or any
other form of business or legal association or entity, and the term "CONTROL" as
used in this Section 24.3 shall mean the direction of the management and
policies of a person or entity, whether through the ownership of voting
securities, by contract or by law.
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No Release. Any sale, assignment, subletting, hypothecation or transfer of
this Lease that is not in compliance with the provisions of this Article
24 shall, at Landlord's option, be void. The consent by Landlord to any
assignment or sublease shall not be construed as relieving Tenant or any
assignee of this Lease from any liability or obligation hereunder
whether or not then accrued. This Article 24 shall be fully applicable
to all further sales, hypothecations, transfers, assignments and
sublettings of any portion of the Premises by any successor or assignee
of Tenant.
25. Subordination.
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and at the election of
Landlord or any mortgagee with a lien on the Premises or the Development, or any
portion thereof or any ground lessor with respect to the Premises, this Lease
shall be subject and subordinate at all times to: (i) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises, (ii) the lien of any mortgage or deed of trust which may now exist or
hereafter be executed in any amount for which the Premises is specified as
security, and (iii) the Condominium Documents (as same may now or hereafter
exist) and (iv) any CC&R (as may now or hereafter exist) that do not materially
increase Tenant's obligations hereunder nor materially decrease Tenant's rights
hereunder nor materially interfere with the conduct of Tenant's normal business
operations (all of the foregoing, collectively the "SENIOR INTERESTS" and the
holders of the Senior Interests shall be referred to as "SENIOR INTEREST
HOLDERS"). Notwithstanding the foregoing, Landlord shall have the right to
subordinate or cause to be subordinated any such ground leases or underlying
leases or any such liens to this Lease. In the event that any ground lease or
underlying lease terminates for any reason or any mortgage or deed of trust is
foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant
shall, notwithstanding any subordination, attorn to and become the tenant of the
successor in interest to Landlord. Tenant covenants and agrees to execute and
deliver within fifteen (15) business days after demand by Landlord and in the
form requested by Landlord, any additional documents evidencing the
subordination of this Lease with respect to any such ground leases or underlying
leases, the lien of any such mortgage or deed of trust, the Condominium
Documents or the CC&R, and, effective upon a failure to do so, Tenant hereby
irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver
and record any such document in the name and on behalf of Tenant. In
consideration of, and as a condition precedent to, Tenant's agreement to be
bound by the subordination provisions of this Article 25, Landlord shall provide
to Tenant for Tenant's execution, a commercially reasonable subordination,
attornment and nondisturbance agreement ("NON-DISTURBANCE AGREEMENT"), in
recordable form, that in any event shall not provide for any material increase
in Tenant's obligations nor any material decrease in Tenant's rights under this
Lease and shall be executed by all future ground lessors, mortgage holders and
deed of trust beneficiaries of any of Landlord's interest in the Premises
desiring to subordinate this Lease to the ground lease, mortgage or deed of
trust, as applicable. In the event Landlord fails to obtain any Non-Disturbance
Agreement, then, as to the mortgage, deed of trust or ground lease which would
have been the subject thereof, this Article 25 shall be void and of no force or
effect.
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Landlord shall deliver contemporaneously with the execution of this
Lease by Landlord the form of non-disturbance agreement annexed hereto as
Exhibit H from Fleet Bank, National Association (the "MORTGAGEE NON-DISTURBANCE
AGREEMENT") and such Mortgagee Non-Disturbance shall be deemed to satisfy the
requirements described in this Article 25. Tenant agrees to execute the
Mortgagee Non-Disturbance Agreement, provided the agreement conforms
substantially to the agreement attached hereto as Exhibit H.
26. Estoppel Certificate.
Delivery. Within fifteen (15) business days following any request which Landlord
or Tenant may make from time to time, the other party shall execute and
deliver to the requesting party a statement certifying: (i) the
Commencement Date; (ii) the fact that this Lease is unmodified and in
full force and effect (or, if there has been modification hereto, that
this Lease is in full force and effect, and stating the date and nature
of such modification); (iii) the date to which the rental and other sums
payable under this Lease have been paid; (iv) that to the best of the
certifying party's knowledge, there is no current default under this
Lease by either Landlord or Tenant except as specified in the statement;
and (v) such other matters reasonably requested by the requesting party.
Landlord and Tenant intend that any statement delivered pursuant to this
Section 26.1 may be relied upon by any mortgagee, beneficiary, purchaser
or prospective purchaser of the Premises, the Club or any interest in
either, and said statement shall so state.
Failure to Deliver. Landlord's or Tenant's failure to deliver any statement
required pursuant to Section 26.1 hereof within such time shall be
conclusive upon such failing party (i) that this Lease is in full force
and effect, without modification except as may be reasonably represented
in good faith by Landlord or Tenant, (ii) that there is no uncured
default in Landlord's or Tenant's performance, and (iii) that not more
than one month's rental has been paid in advance.
Financial Statements. Within thirty (30) days after Landlord's written request,
Tenant shall furnish to Landlord (i) no more often than once per
calendar-quarter, the most current existing audited financial statements
of Tenant (which shall, at a minimum, include a balance sheet and income
statement), and (ii) if at any time Tenant is not a publicly-traded
entity or an Affiliate thereof which files consolidated financial
statements, such other information relating to Tenant's financial
condition as may be reasonably required by Landlord. Landlord shall at
all times maintain the confidentiality of the aforementioned financial
statements which are not available to the general public, except to the
extent reasonably necessary to (a) comply with applicable laws,
regulations, court or administrative orders, or to prosecute or defend
any claim or suit by litigation or otherwise under this Lease and (b)
provided that the recipients of such information agree in writing to
hold the same in confidence, (1) carry out the obligations set forth in
this Lease or documents evidencing and/or securing any Senior Interest,
(2) obtain legal, financial and/or tax advice from Landlord's attorneys,
accountants and financial advisors,
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(3) negotiate or complete a transaction with a lender to Landlord
secured by Landlord's interest in the Development, the Building or this
Lease (including, without limitation, a pledge of rents payable
hereunder) or purchaser of the Building or the Development or (4)
negotiate or complete a public or private syndication or similar
offering with respect to this Lease, Landlord, the interests of any of
the members of Landlord, the Development and/or the Building.
27. Construction.
This Lease is to be governed by and construed in accordance with the
internal laws of the State of California. Whenever the context so requires
herein, the neuter gender shall include the masculine and feminine, and the
singular number shall include the plural, and vice versa. This Lease shall be
construed as having been drafted by both parties, jointly, and not in favor of
or against one party or the other. When used herein, the terms "including,"
"include," "including, without limitation," and similar terms shall be construed
as prefacing examples, components or illustrations rather than exhaustive
definitions, unless a contrary intent is specifically stated, such as "including
and expressly limited to," or in similarly unambiguous terms.
28. Successors and Assigns.
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
29. Surrender of Premises.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation hereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies. Upon the expiration or earlier termination of this Lease, Tenant
shall surrender the Premises and, subject to the provisions of Article 14
hereof, all alterations and additions thereto, in good order, repair and
condition, reasonable wear and tear excepted.
30. Attorneys' Fees.
If Landlord should bring suit for possession of the Premises, or if
Landlord or Tenant should bring suit for the recovery of any sum due under this
Lease or because of the breach of any provisions of this Lease, or for any other
relief against the other hereunder, or in the event of any other litigation
between the parties with respect to this Lease, including any action for
declaratory relief filed by Landlord or Tenant, then the prevailing party shall
be entitled to an award of all costs and expenses, including reasonable
attorneys' fees, in addition to all other relief awarded.
31. Performance by Landlord.
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If Tenant shall fail to pay any sum of money owed hereunder, or if
Tenant shall fail to perform any other act on its part to be performed
hereunder, and (except in the event of an emergency) such failure shall continue
beyond the cure periods set forth in Section 23. 1 hereof, Landlord may, without
waiving or releasing Tenant from the obligations of Tenant, but shall not be
obligated to, make any such payment or perform any such other act to be made or
performed by Tenant. All sums so paid by Landlord and all necessary incidental
costs together with interest thereon at the rate of twelve percent (12%) per
annum, from the date of such payment by Landlord, shall be payable to Landlord
upon demand as Additional Rent.
32. Late Charge and Interest.
Tenant acknowledges that the late payment by Tenant to Landlord of any
sums due under this Lease will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult and
impractical to fix. Such costs include processing and accounting charges, and
late charges that may be imposed on Landlord by the terms of any encumbrance or
note secured by any encumbrance covering the Premises. Therefore, if any
installment of Monthly Base Rent or any other sum of money due hereunder is not
timely paid by Tenant and such failure continues for ten (10) days after notice
thereof from Landlord, Tenant shall pay to Landlord, as Additional Rent, the sum
of four percent (4%) of the overdue amount as a late charge; provided, however,
Tenant shall be entitled to such ten (10) day notice and opportunity to cure on
only two (2) occasions during any twelve (12) month period. To the extent
permitted by applicable law, such overdue amount shall also bear interest
commencing upon the due date, as Additional Rent, at the lesser of the maximum
rate than permitted by law and twelve percent (12%) per annum. Landlord's
acceptance of any late charge or interest shall not constitute a waiver of
Tenant's default with respect to the overdue amount or prevent Landlord from
exercising any of the other rights and remedies available to Landlord under this
Lease or any law now or hereafter in effect. Notwithstanding anything to the
contrary contained herein, in no event shall Tenant be required to pay any
amounts that would be characterized as interest under applicable law in excess
of the amounts that could be lawfully charged, collected and received by
Landlord under applicable law. Landlord and Tenant intend to comply with all
usury laws with respect to this Lease.
33. Mortgagee Protection.
In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgage given by Landlord covering the Premises whose address shall have been
furnished to Tenant, and shall offer such beneficiary or mortgagee the same
opportunity to cure Landlord's default as provided to Landlord under Article 49
hereof plus an additional period of sixty (60) days. In addition, in those
instances which reasonably require such beneficiary or mortgagee to be in
possession of, or have title to, the Development (or any portion thereof) to
cure any such default, the time herein allowed to such beneficiary or mortgagee
to cure such default shall be deemed extended to include the period of time
reasonably necessary to obtain such possession or title with due diligence, and
in those
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instances in which such beneficiary or mortgagee is prohibited by any process or
injunction issued by any court or by reason of any action by any court having
jurisdiction of any bankruptcy or insolvency proceeding involving Landlord from
commencing or prosecuting foreclosure or other appropriate proceedings in the
nature thereof, the time herein allowed such beneficiary or mortgagee to
prosecute such foreclosure or other proceeding shall be extended for the period
of such prohibition.
34. Definition of Landlord.
The term "Landlord," as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners, at the time in question, of Landlord's
interest under this Lease. In the event of any transfer, assignment or other
conveyance or transfer of such title, Landlord herein named (and in case of any
subsequent transfer or conveyance, the then grantor) shall (in absence of a
writing hereafter described) be automatically freed and relieved from and after
the date of such transfer, assignment or conveyance of all liability with
respect to the performance of any covenants or obligations on the part of
Landlord contained in this Lease thereafter to be performed, and in absence of
any writing to the contrary, the transferee shall be deemed to have assumed
same. Landlord may transfer its interest in the Premises or this Lease without
the consent of Tenant and such transfer or subsequent transfer shall not be
deemed a violation on Landlord's part of any of the terms or conditions of this
Lease.
35. Waiver.
A waiver of any breach of any term, covenant or condition herein
contained shall not be deemed to be a waiver of any subsequent breach of the
same or any other term, covenant or condition herein contained, nor shall any
custom or practice which may grow up between the parties in the administration
of the terms hereof be deemed a waiver of or in any way affect the right of
Landlord or Tenant to insist upon the performance by Tenant or Landlord,
respectively, in strict accordance with said terms. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent. No acceptance by Landlord of a lesser sum than the Monthly Base Rent and
Additional Rent then due shall be deemed to be other than on account of the
earliest installment of such rent, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such installment
or other amount or pursue any other remedy provided in this Lease.
36. Parking.
So long as this Lease remains in full force and effect and Tenant is
operating a Club and facilities related to the operation of such Club in at
least seventy-five percent (75%) of the Premises, Landlord shall make up to one
hundred fifty (150) parking spaces available on a non-
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exclusive basis, with such spaces to be located at the Development or on
adjacent property, in Landlord's discretion, for daily use between 6:00 a.m. (or
such earlier time that the parking garage shall open) and 6:00 p.m. (or such
later time that the parking garage shall close), by Tenant and Tenant's members.
Landlord shall charge Tenant an amount equal to either (i) seventy-five percent
(75%) of the then market rate for such spaces, with the market rate for such
spaces to be based on the market rate for similarly located parking spaces in
the vicinity of the Building (as reasonably determined by Landlord) or (ii) one
hundred fifty dollars ($150) per month per space, at Tenant's option, which
option shall apply to all such parking spaces and shall be made within fifteen
(15) days after request by Landlord and shall be irrevocable. If Tenant elects
option (ii) in the preceding sentence, the one hundred fifty dollars ($150) per
month per space shall be increased each Lease Year by the CPI Increase (as
defined herein); provided, however, that notwithstanding the foregoing, the
maximum CPI Increase for any Lease Year shall be four percent (4%).
In addition to the foregoing, Tenant and Tenant's members may use in
connection with the Club the parking spaces located at the Development which are
designated as general public parking spaces if and to the extent available on a
"first come, first come" basis. The foregoing shall not be deemed to be a
representation that the aforementioned general public parking spaces shall be
available for use by Tenant and Tenant's members. Landlord shall charge Tenant
an amount equal to the then market rate for such spaces, with the market rate
for such spaces to be based on the market rate for similarly located parking
spaces in the vicinity of the Building (as reasonably determined by Landlord).
Tenant has advised Landlord that Tenant requires an additional 200
parking spaces on a non-exclusive basis in connection with the operation of the
Club and so long as this Lease remains in full force effect and Tenant is
operating a Club and facilities related to the operation of such Club in at
least seventy-five percent (75%) of the Premises, Landlord shall use
commercially reasonable efforts to secure such additional parking spaces on
adjacent property or on properties in the general vicinity of the Building. The
foregoing shall not be deemed to be a representation that such additional
parking spaces shall be available for use by Tenant and Tenant's members. In the
event Landlord shall obtain any or all of such additional parking spaces,
Landlord shall charge Tenant an amount equal to the market rate in effect for
such spaces, from time to time, (the "FAIR MARKET PARKING RATE"); provided,
however, that with respect to any such parking spaces which are located in a
property controlled by Landlord or an Affiliate of Landlord, Landlord shall
charge Tenant an amount equal to ninety percent (90%) of the Fair Market Parking
Rate for such spaces; and provided, further, that if Landlord shall charge any
other occupant of the Development a rate for any such spaces, whether or not in
a property controlled by Landlord or an Affiliate of Landlord, from time to
time, that shall be less than the rate charged Tenant for such spaces, then the
rate to Tenant shall be equitably adjusted in light of such difference.
The term "CPI" shall mean the Consumer Price Index for all Urban
Consumers published by the Bureau of Labor Statistics of the United States
Department of Labor for San Francisco - Oakland - San Jose, CA. All Items
(1982-84=100), or a successor or substitute index reasonably
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selected by Landlord appropriately adjusted to reflect a constant base year. In
the event that the CPI ceases to use 1982-84=100 as the basis of calculation, or
if a substantial change is made in the terms or number of items contained in the
CPI, then the CPI shall be adjusted to the figure that would have been arrived
at had the manner of computing the CPI not been altered. In the event such CPI
(or a successor or substitute index) is no longer published, a reliable
governmental or other non-partisan publication evaluating the information
theretofore used in determining the CPI shall be used. No adjustments or
recomputations, retroactive or otherwise, shall be made due to a revision which
may later be made in the first published figure of the CPI for any month.
Whenever any provision hereof provides that an amount shall be adjusted by the
CPI Increase, then such amount shall be multiplied by a fraction, the numerator
of which shall be the CPI for the calendar month immediately preceding the Lease
Year for which the amount is to be determined and the denominator of which shall
be the CPI for the calendar month during which the Commencement Date has
occurred.
37. CC&R.
Tenant shall faithfully observe and comply with the Condominium
Documents, and all reasonable and nondiscriminatory rules and regulations
Landlord shall adopt for the Development (as the same may be changed from time
to time) and the CC&R. Landlord shall not be responsible to Tenant for the
violation or nonperformance by any other tenant or occupant of the Development
of the Condominium Documents (if applicable), any of said rules and regulations
or the CC&R. Landlord agrees that future amendments to the CC&R and any such
rules and regulations shall not materially interfere with or interrupt Tenant's
ability to operate a first-class Club in accordance with the terms and
provisions of this Lease and shall not materially increase Tenant's obligations
hereunder nor materially decrease Tenant's rights hereunder, nor be enforced as
to Tenant discriminatorily.
38. Headings.
The Article and Section headings of this Lease are not a part of this
Lease and shall have no effect upon the construction or interpretation of any
part hereof.
39. Examination of Lease.
Submission of this instrument for examination or signature by Landlord
or Tenant does not constitute a reservation of or option for lease, and it is
not effective as a lease or otherwise until execution by and delivery to both
Landlord and Tenant.
40. Agency Requirements.
Landlord has submitted to the Redevelopment Agency of the City and
County of San Francisco (the "AGENCY") in accordance with that certain
Disposition and Development Agreement dated as of July 1,1997, as amended,
between the Agency and Landlord (the "DDA"), (i) the Equal Opportunity Program
(Attachment No. 13 of the DDA) attached hereto as
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Exhibit D and (ii) that certain Jobs Memorandum of Understanding between the
Agency and Landlord attached hereto as Exhibit E (collectively, the
"REQUIREMENTS"). In addition, the DDA requires Landlord to undertake a certain
jobs program with respect to the Development as more particularly described in
Exhibit F attached hereto (the "JOBS PROGRAM," the Jobs Program and the
Requirements are collectively hereinafter referred to as the "AGENCY
REQUIREMENTS"). Tenant covenants and agrees to observe and perform all of the
terms, covenants, conditions, provisions and agreements in the Agency
Requirements (exclusive of item (2) of Section 3 of the DDA) in connection with
the performance of all of Tenant's obligations hereunder, including, without
limitation, the operation of the Premises, and further covenants and agrees not
to do or suffer or permit anything to be done which would result in a breach
under the Agency Requirements.
41. Prior Agreement; Amendments.
This Lease, together with the addenda and exhibits attached hereto,
contains all of the agreements of the parties hereto with respect to any matter
covered or mentioned in this Lease, and no prior agreement or understanding
pertaining to any such matter shall be effective for any purpose. No provision
of this Lease may be amended or added to except by an agreement in writing
signed by the parties hereto or their respective successors in interest (subject
to the consent requirement in Article 24 hereof). The parties acknowledge that
all prior agreements, representations and negotiations are deemed superseded by
this Lease to the extent they are not incorporated herein.
42. Severability.
Any provision of this Lease which shall prove to be invalid, void or
illegal in no way affects, impairs or invalidates any other provision hereof,
and such other provisions shall remain in full force and effect.
43. Limitation on Liability.
It is expressly understood and agreed that any money judgment against
Landlord resulting from any default or other claim arising under this Lease
shall be satisfied only out of Landlord's interest in (i) the Premises, if the
Premises shall then be subject to a condominium form of ownership or (ii) the
Development, if the Premises shall not then be subject to a condominium form of
ownership. No other real, personal or mixed property of Landlord, wherever
situated, shall be subject to levy on any such judgment obtained against
Landlord. If Landlord's interest in the Premises or Development, as applicable,
is insufficient for the payment of such judgment, Tenant shall not institute any
further action, suit, claim or demand, in law or in equity, against Landlord for
or on the account of such deficiency. Tenant hereby waives, to the fullest
extent waivable under law, any right to satisfy said money judgment against
Landlord except from Landlord's interest in the Development or Premises, as
applicable, and except as otherwise provided above.
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44. Riders.
Clauses, plats, exhibits, addenda and riders, if any, affixed to this
Lease are a part hereof.
45. Modification for Lender.
If, in connection with obtaining construction, interim or permanent
financing for the Premises or the Development, or any part thereof, or consent
of Landlord's existing or potential lenders to the terms of the transactions
contemplated pursuant to this Lease, a lender shall request reasonable
modifications in this Lease as a condition to such financing or the granting of
its consent, Tenant will not unreasonably withhold, delay or defer its consent
thereto, provided that such modifications do not materially increase the
obligations of Tenant hereunder, materially decrease Tenant's rights hereunder
or materially adversely affect the leasehold interest hereby created. If, in
connection with obtaining financing for Tenant's Trade Fixtures subject to and
in accordance with Section 1.2 hereof, tenant's lender shall request reasonable
modifications to this Lease, Landlord agrees to make reasonable nonmaterial
modifications to this Lease and further agrees not to unreasonably withhold,
delay or defer its consent with respect to such modifications provided such
modifications do not decrease the monetary obligations of Tenant hereunder or
materially affect Landlord's rights hereunder; provided, however, that Landlord
shall have no obligation to agree to any such modifications unless such
modifications are approved by the Senior Interest Holders.
46. Security Agreements/Leasehold Mortgages.
Tenant covenants and agrees that Tenant shall not encumber or place or permit
to be placed any mortgages or other encumbrances on the leasehold
interest granted hereunder and that no security agreement, whether by
way of conditional bill of sale, chattel mortgage or instrument of
similar import, shall be placed upon any improvement made by Tenant
which is affixed to the realty.
In the event that any of the machinery, fixtures, furniture and equipment
installed by Tenant in the Premises are purchased or acquired by Tenant
subject to a chattel mortgage, conditional sale agreement or other title
retention or security agreement, Tenant undertakes and agrees that no
such chattel mortgage, conditional sale agreement or other title
retention or security agreement or Uniform Commercial Code ("UCC")
filing statement shall be permitted to be filed as a lien against the
Building and real property of which the Premises form a part and to
cause to be inserted in any of the above described title retention,
chattel mortgage, security agreements, conditional sale agreement or UCC
filing statement the following provision:
"NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THIS CHATTEL
MORTGAGE, CONDITIONAL SALE AGREEMENT, TITLE RETENTION AGREEMENT,
SECURITY AGREEMENT OR UCC FILING STATEMENT SHALL NOT CREATE OR BE
FILED AS A LIEN AGAINST THE LAND, BUILDING AND
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<PAGE> 61
IMPROVEMENTS COMPRISING THE REAL PROPERTY IN WHICH THE GOODS,
MACHINERY, EQUIPMENT, APPLIANCES OR OTHER PERSONAL PROPERTY
COVERED HEREBY ARE TO BE LOCATED OR INSTALLED."
In addition to any other rights that Landlord may have by reason of
Tenant's failure to comply herewith, if any such leasehold mortgage or
other encumbrance, lien or UCC filing statement, based on an agreement
as above described, is filed as an encumbrance, as applicable, against
the Building or improvements of which the Premises form a part, the
Premises and/or any interest thereon, Tenant shall, within thirty (30)
days following written notice thereof from Landlord, cause such
leasehold mortgage or other encumbrance, lien or filing statement to be
removed or discharged at Tenant's own cost and expense, and Tenant's
failure to do so shall constitute a breach of a material provision of
this Lease.
47. Authorizations.
Each individual executing this Lease on behalf of Landlord or Tenant
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of Landlord or Tenant, respectively, in accordance with the
provisions of duly adopted corporate resolutions, and that this Lease has been
duly and properly executed and delivered by Landlord or Tenant, respectively.
48. Signage.
Tenant agrees that any and all exterior building signs on the Premises
shall be subject to the approval of Landlord (and if applicable the Condominium
Association) with respect to the graphics, materials, color, design, lettering,
language, lighting, specifications and exact location ("SIGNAGE APPROVAL
FACTORS"). All signage shall be of a size not in excess of that permitted by
applicable law and shall otherwise comply with applicable laws, regulations,
permits, approvals, ordinances, the Condominium Documents and CC&R; provided,
however, that no change in the CC&R shall require Tenant to modify its original
(or, if theretofore modified, its then-existing,) exterior signs. At the
expiration or earlier termination of this Lease, Tenant shall, at Tenant's sole
cost and expense, cause all such signage to be removed from the exterior of the
Improvements and shall cause the exterior of the Improvements to be restored to
the condition existing prior to the placement of such signage. If Tenant fails
to remove such signs and restore the exterior of the Improvements by the
expiration or earlier termination of this Lease, then Landlord may perform such
work, and all costs and expenses incurred by Landlord in so performing shall be
reimbursed by Tenant to Landlord within ten (10) days after Tenant's receipt of
an invoice therefor. In addition to the foregoing, at all times Tenant shall be
entitled to erect and maintain, as needed in Tenant's judgment but subject to
Landlord's approval, throughout the Development, appropriate directional signage
with respect to Tenant's parking.
49. Default by Landlord.
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<PAGE> 62
Landlord shall not be in default hereunder unless Landlord fails to
perform the obligations required of Landlord within a reasonable time, but in no
event later than thirty (30) days after notice by Tenant to Landlord and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address have been furnished in writing to Tenant ("NOTICED Lender"),
specifying wherein Landlord has failed to perform such obligation; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion (the "CURE PERIOD"). In
addition, the Noticed Lender shall be entitled to such additional period of time
to cure any such default as is set forth in Section 33 hereof. Notwithstanding
anything in this Lease to the contrary, if access to the Premises is unavailable
as a result of any blockage occurring in the Common Areas that is caused by
Landlord or its agents, Tenant shall have the right to give Landlord and any
Noticed Lender notice of such events (an "ABATEMENT NOTICE"). If the blockage in
the Common Areas which denies access to the Premises has not been repaired
within the Cure Period or such additional period of time for the Noticed Lender
to cure any such default as is set forth in Section 33 hereof (not to exceed
thirty (30) days after the Cure Period), Tenant's obligations to pay Monthly
Base Rent and Common Area Expenses (or if applicable, Operating Expenses) shall
be abated for the period after the Abatement Notice until the cure of the
condition giving rise to such notice for the entire amount of Monthly Base Rent
and Common Area Expenses (or if applicable, Operating Expenses), provided (i)
the condition giving rise to such abatement right is a denial of access to the
Premises due to a blockage of the Common Areas that is caused by Landlord or its
agents and (ii) Tenant is actually unable to and actually does not use any of
the Premises for the conduct of its business. In the event that for a period of
ninety (90) consecutive days following the Abatement Notice, the condition
giving rise to such notice has not been cured and Tenant has not conducted its
business from the Premises during such ninety ( 90) day period, Tenant shall
have the right to deliver an additional notice (a "TERMINATION NOTICE") to
Landlord and the Noticed Lender specifying that such item has not been cured
within such period and if such condition is not then cured within thirty (30)
business days after the Termination Notice, Tenant may terminate this Lease by
giving notice thereof to Landlord and the Noticed Lender prior to the date upon
which such condition is cured. The foregoing rights and remedies are in addition
to all other rights and remedies available to Tenant at law or in equity. Except
as provided in this Article 49, Tenant shall not have the right to terminate
this Lease as a result of Landlord's default hereunder. Landlord's liability
hereunder in the event of a default shall be limited as set forth in Article 43
hereof. Notwithstanding anything to the contrary contained herein, if the
blockage occurring in the Common Areas is the result of a fire or other casualty
or a taking in eminent domain, then this Article 49 shall be inapplicable and
Articles 21 and 22 hereof shall govern the rights of the parties.
50. Reasonable Consents.
Except for any matter which has a material impact on the exterior
appearance of the Improvements or except as otherwise provided herein, any time
the consent, approval, determination, designation, or other discretionary
judgment is required of Landlord or Tenant
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<PAGE> 63
under this Lease, such consent, approval, determination, designation, or other
discretionary judgment shall not be unreasonably delayed, withheld, conditioned,
exercised or decided, notwithstanding the presence in some instances of words to
that effect and their absence in other instances.
51. No Recording.
It is expressly agreed that Tenant may not and shall not record this
Lease or any memorandum hereof, except as otherwise expressly provided in this
Lease. Tenant and Landlord 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. Upon the expiration or sooner termination of
this Lease, Tenant covenants that it will, at the request of Landlord, execute,
acknowledge and deliver an instrument canceling any memorandum of lease which is
recorded and all other documentation to record same.
52. Force Majeure.
The occurrence of any of the following events shall be referred to
herein as "FORCE MAJEURE" and shall excuse such obligations of Landlord or
Tenant as are thereby rendered impossible or reasonably impracticable for so
long as such event continues: strikes; lockouts; labor disputes; acts of God;
inability to obtain labor, materials or reasonable substitutes therefor;
governmental restrictions, regulations or controls; judicial orders; enemy or
hostile governmental action; civil commotion; fire or other casualty; and other
causes beyond the reasonable control of the party obligated to perform
(excluding financial inability). Notwithstanding the foregoing, the occurrence
of such events shall not excuse Tenant's obligations to pay Monthly Base Rent,
Common Area Expenses or any other sums hereunder (but may delay the commencement
of such obligations to the limited extent expressly provided for in Section 2.1
hereof) or excuse such obligations as this Lease may otherwise impose on the
party to obey, remedy or avoid such event.
53. Guaranty.
Currently with the execution hereof by Tenant and as a condition to the
effectiveness of this Lease, Tenant shall cause The Sports Club Company to
execute and deliver to Landlord a guaranty of this Lease in the form and
substance set forth in Exhibit G attached hereto which is acceptable to
Landlord.
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<PAGE> 64
54. Condition Precedent.
Landlord and Tenant shall each have the right to terminate this Lease on
thirty (30) days' written notice to the other party (without penalty) if
Landlord shall not have closed upon additional financing for the construction of
the Improvements and other portions of the Development (all such approvals and
terms to be acceptable to Landlord in its sole and absolute discretion) not
later than December 31, 1998 ("DEADLINE DATE"). In the event that Tenant shall
serve a termination notice pursuant to this Article 54 and Landlord shall secure
the necessary financing within the aforesaid thirty (30) day period or Landlord
shall fund the Improvements and construction without the required financing (it
being expressly agreed that Landlord shall have no obligation whatsoever to do
so), then Tenant's termination notice shall be of no force and effect. In the
event Landlord or Tenant shall terminate this Lease, as aforesaid, neither party
shall have any further rights or obligations hereunder.
55. Communication Equipment and Antenna.
In the event Landlord shall make a communications antenna or satellite
dish located on the roof of the Building (generically, the "ANTENNA") available
for the non-exclusive and general use of the tenants and occupants of the
Building, then, in such event, Tenant may use the antenna in connection with the
conduct of Tenant's normal business operations in the Premises provided and on
condition that: (a) Tenant's use of the antenna shall be subject to Landlord's
reasonable approval, (b) Tenant shall pay to Landlord the monthly Building
charge for the use of the antenna as established by Landlord from time to time
within thirty (30) days after receipt of an invoice with respect thereto, (c)
Tenant shall, at its sole cost and expense, install all necessary lines, risers,
conduits and cables from the antenna to the Premises required for Tenant's use
thereof (collectively, the "TENANT INSTALLATION"), (d) the Tenant Installation
is performed in accordance with all legal requirements and in compliance with
the terms and conditions of this Lease; (e) Tenant shall indemnify and hold
Landlord harmless from any liability, cost or expense (including reasonable
attorneys' fees and disbursements) connected with or arising from the Tenant
Installation of any nature whatsoever, unless such liability, cost or expense
results solely from the acts or omissions of Landlord, or its agents, servants
or employees; (f) Tenant shall promptly repair any damage caused to the roof of
the Building or any other portion of the Building by reason of the Tenant
Installation including, without limitation, any repairs, restorations,
maintenance, renewals or replacement of the roof of the Building necessitated by
or in any way caused by or relating to the Tenant Installation; and (g) Tenant
shall remove the Tenant Installation and repair any resulting damage to the
Building and restore the portion of the roof of the Building and the Building
affected by the Tenant Installation to the condition which existed prior to the
Tenant Installation, reasonable wear and tear and damage by casualty excepted,
all at or prior to the expiration of the term of this Lease, at Tenant's sole
cost and expense.
The antenna is for the sole use of Tenant in the conduct of Tenant's
business and for no other purpose or by any other parties. Tenant shall not
resell in any form the use, or rights to the use, of the antenna including the
granting of any license or other rights. The rights granted in this Article 55
are given in connection with, and as part of the rights created under, this
Lease
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<PAGE> 65
and are not separately transferable or assignable other than in connection with
an assignment or subletting permitted by this Lease.
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<PAGE> 66
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
LANDLORD: CB-1 ENTERTAINMENT PARTNERS LP,
a California limited partnership
By: CB-1 Office Partners LP, a California limited
partnership, its general partner
By: Millennium/WDG Office Partners LLC,
a California limited liability company,
its general partner
By: Millennium Partners LLC,
a New York limited liability company,
its managing member
By: Millennium Partners Management LLC,
a New York limited liability company,
its managing member
By: Millennium Manger I, Inc.,
a New York corporation,
its managing member
By: /s/ Brian Collins
-------------------------------
Name: Brian Collins
Title: Vice President
TENANT: S.F. SPORTS CLUB, INC.
By: /s/ John M. Gibbons
---------------------------------------------------------------
Name: John M. Gibbons
Title: President
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<PAGE> 1
EXHIBIT 10.88
WASHINGTON D.C. LEASE
<PAGE> 2
ATHLETIC CLUB LEASE
2200 M Street
Washington, D.C.
LANDLORD: 2200 M STREET LLC
TENANT: WASHINGTON D.C. SPORTS CLUB, INC.
DATE: As of March ___, 1999
<PAGE> 3
INDEX OF MAJOR DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
AAA 16
Abatement Notice 57
Actual Statement 17
Additional Rent 10
Affiliate 9
All-risk 33
Allowance 1
Annual Base Rent 10
Antennae 59
Assignment Date 46
Assignment Notice 46
Athletic Club Agreement 9
Athletic Club Fee 8
Building 1
Building Improvements 1
CC&R 19
Claims 32
Club 1
Commencement Date 3
Common Area Expenses 11
Common Areas 2
Condominium Association 19
Condominium Documents 19
Control 47
CPI 53
Cure Period 57
Deadline Date 59
Default 42
Depository 39
Development 1
Financial Officer 38
First-class 19
Floor Area 3
Force Majeure 58
Hazardous Materials 20
Hotel Management Agreement 9
Improvements 1
In-Lieu Tax 26
</TABLE>
-i-
<PAGE> 4
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
Initial Annual Base Rent Amount 10
Initial Mortgagee
Non-Disturbance Agreement 48
Initial Term 3
Land 1
Landlord 1
Landlord Delay 5
Landlord Offer 38
Landlord's Contribution 1
Landlord's First Substantial
Completion Estimate Notice 6
Landlord's Insurance 35
Landlord's Second Substantial
Completion Estimate Notice 7
Lease 1
Lease Year 7
Minimum Landlord's Work 4
Monthly Base Rent 10
New York Athletic Club Lease 15
Non-Disturbance Agreement 48
Noticed Lender 57
Operating Expenses 11
Option 7
Option Date 7
Option Period 7
Option Periods 7
Options 7
Other Primary Hotel Operator 22
Partial Taking 41
Person 47
Premises 1
Primary Hotel 8
Primary Hotel Bill 8
Primary Hotel Guests 8
Prime Rate 43
Property 2
real property taxes 26
Receipts Tax 26
Rent 10
Ritz Carlton Standard 22
Scheduled Completion Date 3
Secured Lender 40
Senior Interest Holders 48
Senior Interests 48
Signage Approval Factors 56
Similar Premises 34
Substantial Taking 41
</TABLE>
-ii-
<PAGE> 5
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
Substantially Complete 4
Tax Year 24
Taxes 24
Temporary Closures 42
Tenant 1
Tenant Acceptance Notice 38
Tenant Delay 4
Tenant Installation 59
Tenant Revision 5
Tenant Termination Costs 38
Tenant's Insurance Share 40
Tenant's Share 15
Tenant's Work 3
Term 7
Termination Notice 57
Total Taking 41
Trade Fixtures 2
Unexpired Lease Term 38
Uninsured Contribution Amount 37
Work Letter 1
</TABLE>
iii
<PAGE> 6
ATHLETIC CLUB LEASE
2200 M Street
Washington, D.C.
THIS LEASE (this "LEASE") is made as of the ___ day of March, 1999, by
and between 2200 M STREET LLC, a Delaware limited liability company ("LANDLORD")
and WASHINGTON D.C. SPORTS CLUB, INC., a Delaware corporation ("TENANT").
1. Premises and Common Areas.
Premises. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the space (the "PREMISES") in a building (the "BUILDING") to be
constructed on that certain parcel of real property, in which the
Improvements (as defined herein) are to be constructed, more
particularly described in Exhibit A attached hereto and made a part
hereof (the "LAND") and to constitute part of a development (the
"DEVELOPMENT") to be located on the Land. This Lease is subject to all
matters of record affecting the Property (as defined herein) and all
matters that would be revealed by an accurate survey of the Property.
The Premises are designated on the non-hatched portions of the floor
plans attached hereto as Exhibit B and made a part hereof, with all
depictions thereon being subject to normal construction variances and
tolerances, and as otherwise provided in this Lease. Landlord, at its
sole cost, shall, in accordance with the work letter agreement attached
hereto as Exhibit C and made a part hereof (the "WORK LETTER"), perform
Landlord's Work (as defined therein) and as part of Landlord's Work,
shall cause the utility connections specified in the Work Letter to be
available in the locations specified in the Work Letter.
Construction of Premises.
Tenant shall cause the Premises to be improved with improvements (the
"IMPROVEMENTS") in accordance with the Work Letter (defined as the
"BUILDING IMPROVEMENTS" in the Work Letter) and, subject to Force
Majeure (as defined herein), to the extent provided herein and within
the time(s) set forth in the Work Letter. The Improvements are to be
used as a first-class athletic club facility (the "CLUB") more
particularly described in Article 8 hereof. The design of the
Improvements shall be subject to Landlord's approval, as provided in the
Work Letter. In accordance with the terms of the Work Letter, Landlord
shall provide Tenant with a contribution in an amount not to exceed Nine
Million Five Hundred Thousand and 00/100 Dollars ($9,500,000.00) (the
"LANDLORD'S CONTRIBUTION" and/or the "ALLOWANCE"). Tenant shall equip
the Club with all required Trade Fixtures (as defined herein) as may be
necessary to operate the Club in accordance with Section 8.1 hereof.
Title to the Improvements and all alterations and additions thereto and
replacements thereof (other than Trade Fixtures) thereafter constructed
or installed on the Premises shall be and remain in Landlord. All Trade
Fixtures, however, shall remain Tenant's property, subject to permitted
customary third (3rd) party financing subject to and in accordance with
Section 46 hereof, upon the expiration or earlier termination of this
Lease; provided, however, Tenant shall not have
<PAGE> 7
the right to remove any Trade Fixtures until Tenant shall cure any
Default (as defined herein) or, at the termination of the term hereof as
a result of any such Default, until Tenant complies with its payment
obligations set forth herein. "TRADE FIXTURES" means Tenant's athletic
equipment and machines and all of Tenant's furniture and other personal
property not affixed to the Premises in such a manner as to do material
damage upon their removal. The Premises and the Improvements are
sometimes hereinafter collectively referred to as the "PROPERTY."
As a condition to the effectiveness of this Lease, Landlord shall
cause Millennium Partners LLC to execute and deliver to Tenant a
guaranty with respect to the Allowance in the form and substance set
forth in Exhibit F attached hereto.
Common Areas. Tenant shall have the non-exclusive right to use the Common Areas
(as defined herein), in common with other tenants and/or occupants of
the Development, subject to the Condominium Documents (as defined
herein), the CC&R (as defined herein) and any other nondiscriminatory
rules and regulations that Landlord and/or the Condominium Association
(as defined herein), as applicable, shall adopt for the Development so
long as such CC&R and rules and regulations do not (i) materially
interfere with Tenant's ability to conduct normal business operations;
(ii) materially increase Tenant's obligations under this Lease, or (iii)
materially decrease Tenant's rights under this Lease. "COMMON AREAS"
means all common areas and facilities of the Development that are now or
hereafter made available for the non-exclusive and general use,
convenience and benefit of Tenant and/or Tenant's customers, employees,
agents and invitees, including common monuments and signs;
transportation facilities areas including bus stops, taxi-limousine
stands, and bicycle parking areas; trash enclosures; landscaped areas;
areas designated as pedestrian walkways or pedestrian bridges; and
parking areas.
Control of Common Areas. Provided Landlord does not unreasonably interfere with,
hinder or obstruct Tenant's use of the Premises or Tenant's ability to
conduct business from the Premises, and does not otherwise materially
diminish any of Tenant's rights pursuant to this Lease, Landlord
reserves, the right from time to time:
To make changes to the Common Areas, or their design, including
changes in the location, size, shape and number of driveways, entrances,
parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas and walkways. Landlord shall keep Tenant
apprised as to any proposed change to the Common Areas or their design;
and
To close temporarily any portions of the Common Areas for
maintenance purposes so long as reasonable access to the Premises
remains available, including reasonable access from the parking areas of
the Building to the Premises.
Landlord agrees that rerouting of pedestrian walkways within the Common
Areas and/or rerouting of vehicles within the Common Areas shall not be
done in a manner which
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<PAGE> 8
would materially hinder or obstruct Tenant's ability to conduct business
from the Premises.
Definition of Floor Area. The term "FLOOR AREA" as used in this Lease shall mean
the rentable square footage of the Premises (or, where applicable, of
other premises located or proposed in or outside the Development),
measured from the exterior surface of building walls (and from
extensions thereof, in the case of openings), and from the exterior
surface of any demising partitions. At such time as the Improvements
have been constructed, Landlord shall deliver to Tenant a notice which
sets forth the Floor Area of the Premises together with reasonable
documentation evidencing Landlord's determination of the Floor Area of
the Premises. Tenant shall have ten (10) days following the receipt of
Landlord's notice of the determination of the Floor Area in which to
deliver to Landlord a notice objecting to such determination. In the
event Tenant does not so deliver such objection notice, then, in such
event, Landlord's calculation shall be deemed accepted by Tenant and
incorporated herein by this reference. In the event that Tenant delivers
such a notice to Landlord, Landlord and Tenant shall have thirty (30)
days in which to work together to calculate the Floor Area of the
Premises. In the event Landlord and Tenant cannot so agree, then, until
agreement is reached, either party may submit such dispute to
arbitration in accordance with the Commercial Arbitration Rules of the
District of Columbia chapter of the AAA (as defined herein) and the
party deemed less correct in such dispute shall pay the other party's
costs of such arbitration. Except as expressly provided to the contrary
in this Section 1.5, the procedure for arbitration shall be governed by
the proceedings set forth in Section 7.3 hereof. Landlord and Tenant
acknowledge that the projected Floor Area of the Premises shall be
approximately 100,000 square feet.
2. Term.
-3-
<PAGE> 9
Commencement. This Lease constitutes a binding agreement and the obligations of
Landlord and Tenant hereunder shall be effective upon execution and
delivery of this Lease by both Landlord and Tenant. However, the initial
term ("INITIAL Term") of this Lease shall commence upon the date (the
"COMMENCEMENT DATE") which is the earlier of (i) the date upon which
Tenant commences normal business operations from the Premises (it being
understood that the use of the Development as described in Section 2.2
hereof shall not be deemed to constitute normal business operations from
the Premises by Tenant) and (ii) the date (a) which is the later of (1)
six (6) months after Landlord shall "Substantially Complete" (as defined
herein) the Minimum Landlord's Work (as defined herein) and (2) twelve
(12) months after the installation of the concrete deck for the fourth
(4th) floor of the Building (the "SCHEDULED COMPLETION DATE"), the
Scheduled Completion Date being extended by any period that Tenant using
reasonable diligence shall have been unable (aa) to substantially
complete the Improvements in accordance with the Work Letter
(collectively, "TENANT'S WORK") by the Scheduled Completion Date due to
Landlord Delays (as defined herein) and/or (bb) to conduct normal
business operations in the Premises as a result of the non-completion of
Landlord's Work by the Scheduled Completion Date (subject to extension
due to Tenant Delays (as defined herein)) and (b) on which the Premises
are reasonably accessible (A) from the parking areas of the Building and
the parking areas of the Building are reasonably accessible and usable
for parking purposes and (B) by pedestrians from the Common Areas.
"SUBSTANTIALLY COMPLETE" means (as certified by Landlord's architect)
complete subject to the completion of minor punch-list type items or
other minor components of Landlord's Work or the Minimum Landlord's
Work, as applicable, the performance of which will not materially
interfere with Tenant's Work to ready the Premises for Tenant's use and
occupancy thereof. Landlord shall diligently proceed to complete said
punch list items. "MINIMUM LANDLORD'S Work" means Landlord's Work as
describe in the Work Letter exclusive of base building systems,
mechanical systems and operational elevators. If Landlord shall be
delayed in substantially completing Landlord's Work, the Minimum
Landlord's Work and/or the Common Areas and such delay shall be caused
by or shall arise out of or in connection with any of the following
(each a "TENANT DELAY"):
(1) Tenant's direction that Landlord delay in proceeding
with any segment or part of Landlord's Work, the Minimum
Landlord's Work and/or the Common Areas (except under
circumstances where the basis for such direction is the fact
that Landlord must rectify an error in Landlord's Work, the
Minimum Landlord's Work and/or the Common Areas that is not
otherwise attributable to Tenant); or
(2) the performance of work by any person, or entity
employed or hired by Tenant or on behalf of Tenant that actually
delays Landlord in the completion of Landlord's Work, the
Minimum Landlord's Work and/or the Common Areas, provided that
if Landlord shall be aware of any such delay, Landlord shall
immediately notify Tenant thereof and Tenant fails to remedy any
-4-
<PAGE> 10
such delay by the end of the second (2nd) day following receipt
of Landlord's notice of any such delay; or
(3) any acts or omissions of Tenant, or of any Affiliate
(as defined herein) of Tenant that actually delays Landlord in
the completion of Landlord's Work, provided that if Landlord
shall be aware of any such delay, Landlord shall immediately
notify Tenant thereof and Tenant fails to remedy any such delay
by the end of the second (2nd) day following receipt of
Landlord's notice of any such delay; or
(4) Tenant's unreasonable delay or refusal in making
changes to the Work Letter reasonably requested by Landlord; or
(5) any breach of any of the terms of this Lease by
Tenant that actually delays Landlord in substantially completing
Landlord's Work, the Minimum Landlord's Work and/or the Common
Areas, provided that if Landlord shall be aware of any such
delay, Landlord shall immediately notify Tenant thereof and
Tenant fails to remedy any such delay by the end of the second
(2nd) day following receipt of Landlord's notice of any such
delay; or
(6) any unreasonable failure on Tenant's part to
cooperate with Landlord in connection with Landlord's
performance of Landlord's Work, the Minimum Landlord's Work
and/or the Common Areas;
then notwithstanding anything in this Lease to the contrary, Landlord's
Work and/or the Minimum Landlord's Work shall be deemed to be
Substantially Complete as of the date that substantial completion would
have occurred but for such delay and the Common Areas shall be deemed to
be accessible and reasonably usable as of the date that the Common Areas
would have been accessible and reasonably usable but for such delay, as
applicable.
If Tenant desires a change in the Work Letter or Tenant requests for any
materials, finishes or installation not originally contemplated by this
Lease or contained in the Work Letter, Tenant shall submit to Landlord
the proposed change or request (herein called a "TENANT REVISION"). A
Tenant Revision shall be subject to Landlord's approval, which approval
shall not be unreasonably withheld or delayed, and, if so approved,
Landlord shall cause to be prepared and shall submit to Tenant for its
approval or disapproval, an estimate of the delays in performance of
Landlord's Work resulting from Tenant's request for a Tenant Revision
and an estimate of the incremental increased cost to Landlord to
complete Landlord's Work as a result of such Tenant Revision, as
reasonably determined by Landlord. Tenant shall approve or disapprove
the estimate within five (5) days after receipt of such estimate. In the
event Tenant shall approve any such estimate, any delays resulting from
a Tenant Revision shall be deemed a Tenant Delay and Tenant shall be
solely responsible for any increased cost to complete Landlord's Work
resulting from a
-5-
<PAGE> 11
Tenant Revision and all such costs shall be paid by Tenant to Landlord
within thirty (30) days after rendition of a bill therefor. If Tenant
shall fail to respond within such five (5) day period, then a Tenant
Revision shall be deemed withdrawn. Notwithstanding Tenant's approval or
disapproval of Landlord's estimate with respect to a Tenant Revision,
Tenant shall be responsible for all professional fees associated with
Landlord's review of a Tenant Revision and the preparation of Landlord's
estimate(s) and revised construction documents in connection therewith.
For all purposes hereof, "LANDLORD DELAY" means the delay in the
Substantial Completion of Tenant's Work to be the extent caused by or
arising out of or in connection with any of the following:
(i) Landlord's direction that Tenant delay in proceeding
with any segment or part of Tenant's Work (except under
circumstances where the basis for such direction is the fact that
Tenant must rectify an error in Tenant's Work that is not
otherwise attributable to Landlord); or
(ii) the performance of work by any person, or entity
employed or hired by Landlord or on behalf of Landlord that
actually delays Tenant in the completion of Tenant's Work,
provided that if Tenant shall be aware of any such delay, Tenant
shall immediately notify Landlord thereof and Landlord fails to
remedy any such delay by the end of the second (2nd) day
following receipt of Tenant's notice of any such delay; or
(iii) any acts or omissions of Landlord or of any
Affiliate of Landlord that actually delay Tenant in the
completion of Tenant's Work (except in connection with the
exercise of any of Landlord's rights expressly set forth in this
Lease and/or the Work Letter), provided that if Tenant shall be
aware of any such delay, Tenant shall immediately notify Landlord
thereof and Landlord fails to remedy any such delay by the end of
the second (2nd) day following receipt of Tenant's notice of any
such delay; or
(iv) any breach of any of the terms of this Lease by
Landlord, including, without limitation, the funding of the
Allowance subject to and in accordance with the terms and
conditions of this Lease, that actually delays Tenant in
substantially completing Tenant's Work provided that if Tenant
shall be aware of any such delay, Tenant shall immediately notify
Landlord thereof and Landlord fails to remedy any such delay by
the end of the second (2nd) day following receipt of Tenant's
notice of any such delay; or
(v) the non-completion of Landlord's Work as of the date
on which the concrete deck for the fourth (4th) floor of the
Building is installed and Tenant commences the performance of
Tenant's Work if and to the extent any such delay would not have
occurred had Landlord's Work been Substantially Completed as
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of such date and Tenant has endeavored, in good faith, to use
good construction practice, but at no additional cost to Tenant,
to complete Tenant's Work as expeditiously as reasonably
possible under the circumstances and notwithstanding such
non-completion of Landlord's Work as of the date on which the
concrete deck for the fourth (4th) floor of the Building is
installed, provided that if Tenant shall be aware of any such
delay, Tenant shall immediately notify Landlord thereof.
Without limiting any provisions of this Lease, any dispute between the
parties as to whether a Tenant Delay or Landlord Delay has occurred or
the amount of such delay shall be subject to arbitration pursuant to
Section 7.3 hereof.
The parties shall execute an acknowledgment that Landlord's Work and/or
the Minimum Landlord's Work has been completed (or deemed to be
completed) and that the Common Areas are accessible and reasonably
usable (or deemed to be accessible and reasonably usable) and that the
Commencement Date has occurred, as soon as reasonably practicable
thereafter. Neither Landlord's failure to request, nor Tenant's failure
to execute, such agreement shall affect the Commencement Date. Landlord
shall provide Tenant (i) notice not less than one hundred twenty (120)
days prior to the date that Landlord anticipates Landlord shall
Substantially Complete Landlord's Work ("LANDLORD'S FIRST SUBSTANTIAL
COMPLETION ESTIMATE NOTICE") and (ii) a second notice to Tenant
("LANDLORD'S SECOND SUBSTANTIAL COMPLETION ESTIMATE NOTICE") not less
than thirty (30) days prior to the date that Landlord anticipates
Landlord shall Substantially Complete Landlord's Work, in each case
without taking into account any acceleration of the date Landlord's Work
shall be deemed to have been Substantially Complete as a result of one
or more Tenant Delays. The Initial Term shall terminate on the twentieth
(20th) anniversary of the Commencement Date. Reference in this Lease to
"LEASE YEAR" shall mean each successive twelve (12) month period during
the Term (as defined herein) commencing on January 1 and ending December
31 (or such other twelve (12) month period as shall be reasonably
designated by Landlord), provided that the first Lease Year shall begin
upon the Commencement Date and end on December 31 of the calendar year
in which the Commencement Date occurs, and the last Lease Year shall end
on the last day of the Initial Term or the last day of the last
exercised Option Period (as defined herein) hereunder. "TERM" as used
herein shall mean the Initial Term and all validly exercised Option
Periods.
Access Prior to Commencement Date. Until the earlier of (i) the Commencement
Date and (ii) the date on which a termination notice is served by either
Landlord or Tenant pursuant to Section 54 hereof, and subject to all
applicable laws and ordinances, Tenant shall be entitled to maintain an
office either within the Development or at a location suitable therefor
reasonably acceptable to Landlord and Tenant, or, at Landlord's
election, on the surface parking area (if any) adjacent to said
Development, all at no cost to Tenant for Monthly Base Rent, Common Area
Expenses or real property taxes (as such terms are defined herein), for
its pre-opening and construction period activity. Tenant shall be
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entitled to hang a banner or other signage in the Development, subject
to compliance with applicable laws, regulations, permits, approvals,
ordinances, the Condominium Documents (if applicable) and the CC&R and
subject to Landlord's prior approval of all Signage Approval Factors (as
defined herein). Such office shall be deemed to constitute a part of the
Premises for all purposes (including, without limitation, Article 19
hereof (Indemnification) and Article 20 hereof (Insurance) and Tenant's
obligation to pay for utilities), but Tenant shall not be required to
pay Monthly Base Rent, Common Area Expenses or real property taxes with
respect thereto. If Landlord makes available the surface parking area
for the purpose of such temporary office, it shall be Tenant's
obligation, at its sole cost, to provide a trailer for Tenant's use on
such parking area and to pay all costs and expenses and bear all
liabilities associated therewith.
3. Options to Extend.
Landlord hereby grants to Tenant three (3) successive options (each an
"OPTION" and collectively, the "OPTIONS") to extend the term of this Lease, each
for a one hundred sixty-eight (168) month period (each an "OPTION PERIOD" and,
collectively, the "OPTION PERIODS"), upon the same terms and conditions as those
set forth in this Lease for the Initial Term (except that no options to extend
other than the Options are granted). In order to exercise an Option, Tenant must
give notice to Landlord of its intention to exercise the applicable Option on or
before the date (the "OPTION DATE") which is six (6) months prior to the end of
the Initial Term or the previous Option Period, as applicable; provided,
however, that it shall be a condition precedent to the exercise of each Option
that Tenant shall not be in Default as of the respective Option Date. Tenant's
election not to exercise an Option, or the passage of an Option Date without
exercise of the subject Option, shall thereby terminate the subsequent Option or
Options. The Options are personal to Tenant and may not be assigned except in
connection with a permitted assignment of Tenant's interest in this Lease.
Landlord shall deliver to Tenant a notice reminding Tenant of Tenant's right to
exercise an Option not more than six (6) months and not less than thirty (30)
days prior to the date Tenant may first exercise an Option, provided that in no
event shall Landlord's failure to deliver such notice impose any liability on
Landlord's part; however if Landlord fails to deliver such notice the time for
Tenant's exercise of an Option shall be extended, if necessary, to the date
which is thirty (30) days from the date of delivery of such notice from
Landlord.
4. Membership.
Tenant agrees to provide both daily passes and membership on the
following terms and conditions set forth in this Article 4. In addition, all
Club daily passes and memberships shall be subject to the nondiscriminatory
rules and regulations promulgated by Tenant for use of the Club.
Hotel Guests. Tenant shall permit room guests of the to-be constructed hotel
in the Development, currently contemplated to be operated as a Ritz
Carlton Hotel (such hotel (which, for purposes of this Lease, shall
include any extended stay or time share facilities
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operated in connection therewith or otherwise by Landlord, the operator
thereof or a successor or assign of either), the "PRIMARY HOTEL", and
such room guests of such hotel (including such extended stay component),
the "PRIMARY HOTEL GUESTS") to have access to the Club to use the
facilities therein at such times as the Club is open for business in
consideration for a daily fee payment not to exceed seventy-five percent
(75%) of the then applicable daily fee payment for room guests of other
hotels (other than the Primary Hotel) to have access to the Club to use
the facilities therein or a monthly fee payment pursuant to a separate
written agreement between the owner of the Primary Hotel and Tenant (the
"ATHLETIC CLUB Fee"), a copy of which Tenant shall promptly deliver to
Landlord. The operator of the Primary Hotel shall pay the Athletic Club
Fee to Tenant on a monthly basis as provided in this Section 4.1. Tenant
shall issue the operator of the Primary Hotel a bill for each monthly
Athletic Club Fee ("PRIMARY HOTEL BILL") payable on the later to occur
of the tenth (10th) day of each calendar month and the tenth (10th) day
following the receipt of the Primary Hotel Bill by the Primary Hotel. If
the operator of the Primary Hotel does not pay in full the Primary Hotel
Bill within thirty (30) days from its receipt of the Primary Hotel Bill,
then, in such event, Tenant may deliver a termination notice to the
operator of the Primary Hotel terminating the right of the Primary Hotel
and Primary Hotel Guests to use the Club until payment in full of all
amounts due. Such termination notice shall be delivered by Tenant and be
effective five (5) days following delivery of such notice to the
operator of the Primary Hotel. In the event the Primary Hotel shall fail
to perform any of the terms and conditions contained in this Section 4.1
on its part to be performed, Landlord shall be under no obligation or
liability whatsoever to Tenant; provided, however, that until such time
as Tenant and the Primary Hotel shall have entered into an agreement
with respect to this Section 4.1 (the "ATHLETIC CLUB AGREEMENT"), a copy
of which Tenant shall promptly deliver to Landlord, (a) Landlord shall
reasonably cooperate with Tenant in seeking to obtain the performance of
the Primary Hotel with respect to such applicable terms and conditions
of this Section 4.1 and (b) so long as Landlord or an Affiliate (as
defined herein) of Landlord is the owner of the Primary Hotel, Landlord
shall pay to Tenant the portion(s) of any Primary Hotel Bill which the
operator of the Primary Hotel does not pay to Tenant in full in
accordance with this Section 4.1 within thirty (30) days after
Landlord's receipt of the applicable Primary Hotel Bill and a statement
describing in reasonable detail the portion(s) thereof which remain due.
Without limiting any provisions of this Lease, any dispute between
Landlord and Tenant as to any Primary Hotel Bill shall be subject to
arbitration pursuant to Section 7.3 hereof. For purposes of this Section
4.1, "AFFILIATE" shall mean a Person (as defined herein) which shall (1)
control (as defined herein), (2) be under the control of, or (3) be
under common control with the Person in question.
0.4 Performance by Primary Hotel. If the Primary Hotel shall default in any
of the Primary Hotel's obligations under Section 4.1 hereof, or there
shall exist a bona fide dispute with the Primary Hotel under Section 4.1
hereof and Tenant notifies Landlord in writing that Tenant has
previously notified the Primary Hotel of such dispute and that such
default or notice has been disregarded or not reasonably satisfactorily
acted upon, then upon Tenant's request and provided Tenant is not in
default under this Lease, Landlord shall
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use reasonable efforts to enforce Landlord's rights under the hotel
management agreement with the Primary Hotel (the "HOTEL MANAGEMENT
AGREEMENT") for Tenant's benefit, including, without limitation, giving
notices, claims and demands to and on the Primary Hotel. Tenant shall
reimburse Landlord for all costs incurred in connection with the
enforcement of such rights. Notwithstanding the foregoing, Landlord
shall have no obligation to commence any action at law or in equity to
obtain any relief sought by Tenant by reason of the Primary Hotel's
breach of the Primary Hotel's obligations under Section 4.1 hereof. If,
after request from Tenant, Landlord shall fail or refuse to take
appropriate action for the enforcement of Landlord's rights against the
Primary Hotel with respect to Section 4.1 hereof, Tenant shall have the
right to take such action in Tenant's own name, and for such purpose and
only to such extent, all of the rights of Landlord under the Hotel
Management Agreement are hereby conferred upon and conditionally
assigned to Tenant and Tenant hereby is subrogated to such rights to the
extent that the same shall apply to Section 4.1 hereof; provided,
however, that (i) Tenant shall only have such rights if Tenant shall not
be in default under this Lease and (ii) Landlord shall have the right to
require Tenant to discontinue such action if in the reasonable opinion
of Landlord such action may cause a default, cancellation, forfeiture or
termination of the Hotel Management Agreement or any Senior Interest. If
any such action against the Primary Hotel in Tenant's name shall be
barred by reason of lack of privity, non-assignability or otherwise,
Tenant may take such action in Landlord's name provided Tenant has
obtained the prior consent of Landlord, and that copies of all papers
and notices of all proceedings shall be promptly given to Landlord so
that Landlord may be kept fully informed in respect thereof.
0.5 Residential Occupants. Tenant agrees that all applications for
membership in the Club submitted by the residential occupants and their
families at the Development shall be automatically and promptly accepted
provided that each such individual shall observe the rules and
regulations reasonably promulgated by Tenant from time to time with
respect to the use of the Club which rules and regulations shall be
consistent with the rules and regulations customarily promulgated by
operators of first-class coed athletic clubs and shall not be enforced
in a discriminatory manner.
0.6 Other Occupants. Subject to availability, Tenant agrees that all
applications for membership in the Club submitted by employees or
principals of any of the tenants in the Development shall be
automatically and promptly accepted provided that each such individual
shall observe the rules and regulations reasonably promulgated by Tenant
from time to time with respect to the use of the Club which rules and
regulations shall be consistent with the rules and regulations
customarily promulgated by operators of first-class coed athletic clubs
and shall not be enforced in a discriminatory manner.
5. Rent.
Rent shall be calculated and payable as follows:
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Annual Base Rent. During the Initial Term Tenant agrees to pay Landlord annual
base rent for the Premises (the "ANNUAL BASE Rent") at the rate of Three
Million and 00/100 Dollars ($3,000,000.00) per annum (the "INITIAL
ANNUAL BASE RENT Amount"). In addition to Annual Base Rent, Tenant
agrees to pay as "ADDITIONAL RENT" (sometimes referred to as "ADDITIONAL
RENT") all other charges payable by Tenant pursuant to the terms of this
Lease. Annual Base Rent together with all such additional rent is
collectively referred to herein as "RENT". Tenant shall pay Annual Base
Rent and, except as provided otherwise herein, Additional Rent, in equal
monthly installments on the first day of each month (each such equal
monthly installment of Annual Base Rent is referred to herein as
"MONTHLY BASE RENT"). If for any reason the Initial Term (or any Option
Period) commences or ends on a day other than the first day of a
calendar month (other than a termination resulting from a Default), then
Rent for the first month and for the last month of the Term shall be
prorated in the proportion that the number of days during the first and
last months of the Term bears to the actual number of days in such
months. All Rent shall be paid to Landlord, without prior demand or
notice, in lawful money of the United States of America, at such place
as Landlord may from time to time reasonably designate in writing and
shall be due and payable on the first day of each month. Rent shall be
paid to Landlord on the date due without notice or demand, and without
abatement, deduction or set-off except as otherwise expressly set forth
in this Lease. No payment by Tenant or receipt by Landlord of a lesser
amount than the Annual Base Rent or Additional Rent, nor shall any
endorsement or statement on any check or in any letter accompanying any
check or payment, as Annual Base Rent or Additional Rent, be deemed an
accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such
Annual Base Rent and Additional Rent or pursue any other remedy provided
in this Lease or by law.
6. Club Name.
Tenant shall be entitled to operate the Club under the name "The Sports
Club/Washington, D.C.," although Tenant has no obligation to use such name.
Tenant shall not use the name "Millennium" or the name of the Primary Hotel in
the operating name of the Club. If Tenant shall not operate the Club under the
operating name "The Sports Club/Washington, D.C." or under an operating name
which incorporates the phrase "Sports Club/LA" in conjunction with a geographic
designation with respect to the city in which the Club is located or such other
operating name to which a substantial number of then existing comparable
athletic club facilities operated by Tenant and affiliates of Tenant are being
operated under, the operating name of the Club shall be subject to the prior
approval of Landlord, which approval shall not be unreasonably withheld or
delayed.
7. Common Area Expenses/Operating Expenses.
Definition. Commencing upon the Commencement Date, Tenant shall pay, in addition
to Monthly Base Rent, all assessments and charges which are assessed
against or incurred in connection with the Premises and/or the Common
Areas, all assessments and charges
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which are assessed against or incurred in connection with the CC&R which
are reasonably allocable to the Premises and/or the Common Areas and all
charges assessed with respect to the Premises by the Condominium
Association (collectively, "COMMON AREA EXPENSES"). If at any time
during the Term the Premises shall not be subject to a condominium form
of ownership, then in lieu of paying charges assessed by the Condominium
Association, Tenant shall pay to Landlord Tenant's Share (as defined
herein) of Operating Expenses (as defined herein). "OPERATING EXPENSES"
shall mean all costs incurred by Landlord (except as hereafter defined)
in connection with the operation of the Development for each successive
twelve (12) month period (as designated by Landlord) occurring in whole
or in part during the Term (and any renewals). Tenant hereby
acknowledges that Operating Expenses shall include the following costs
(by way of illustration, but not limitation): real property taxes and
assessments and any taxes or assessments hereafter imposed in lieu
thereof with respect to the Building, including the Common Areas; water
and sewer charges; dues and fees paid to civic organizations and
associations in which Landlord is a member in the jurisdiction in which
the Building is located, provided that it is then customary for
landlords of similar buildings to be members of such organizations and
associations and to charge tenants any such dues and fees by means of
operating expenses or otherwise; accounting fees; legal fees; management
fees with respect to the Development, (not in excess of four percent
(4%) of the total revenue derived by Landlord from Landlord's operation
of the Development and not in excess of the management fees which are
included as an operating expense or otherwise in the other leases for
commercial space in the Building between Landlord and other commercial
tenants of the Building); utilities; janitorial services; parking
patrol; labor; utilities surcharges or any other costs levied, assessed
or imposed by, or at the direction of, or resulting from, statutes or
regulations or interpretations thereof, promulgated by any federal,
state, regional, municipal or local government authority in connection
with the use or occupancy of the Building, including the Common Areas;
the cost in excess of net insurance and condemnation proceeds of any
capital improvements (amortized over such period as Landlord shall
determine together with interest at the rate actually incurred by
Landlord from a third party lender on the unamortized balance) made to
the Building, including the Common Areas, but only if incurred by
Landlord (i) to comply with any governmental law, rule or regulation
which may become effective after the date of this Lease or any CC&R
(other than in connection with the initial construction of the
Development by Landlord (exclusive of Tenant's Work and/or any Tenant
Revision)), or (ii) where the present value of the projected costs of
the improvement (including, original purchase cost, installation and
subsequent repairs and replacements) is less than the present value of
the amount reasonably anticipated to be saved with respect to the
applicable component(s) of Operating Expense(s) or Common Area
Expense(s), as applicable, payable by Tenant subject to and in
accordance with this Article 7 as the result of such capital improvement
over the remainder of the Initial Term or an exercised Option Period, as
applicable; supplies; materials; equipment; tools; payroll expenses;
rental of personal property used in the maintenance and other upkeep of
the Building (to the extent related to the Premises and/or the Common
Areas (e.g., those service facilities and/or areas of the Building which
are used to provide Building services
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<PAGE> 18
to the Premises and/or the Common Areas or used in connection with the
operation and maintenance of the Premises and/or the Common Areas)),
including the Common Areas; costs and expenses of gardening, landscaping
and irrigation; maintenance of signs; personal property taxes levied on
or attributable to personal property used in connection with the
Building (to the extent related to the Premises and/or the Common Areas
(e.g., those service facilities and/or areas of the Building which are
used to provide Building services to the Premises and/or the Common
Areas or used in connection with the operation and maintenance of the
Premises and/or the Common Areas)), including the Common Areas;
reasonable audit or verification fees in connection with this Article 7;
and costs and expenses (whether or not capitalized) of repairs,
resurfacing, maintenance, painting, lighting, cleaning, steam cleaning,
refuse removal, parking patrol, sweeping, sealcoating, restriping and
similar items to the extent includable in Operating Expenses or Common
Area Expenses, as applicable, subject to and in accordance with this
Article 7. Operating Expenses and Common Area Expenses, as applicable,
shall not include: depreciation of any kind, including on any buildings
or parking structures located within the Development or on any
equipment; construction costs incurred in improving or modifying space
for new tenants of the Development or renovating space vacated by any
tenant; any costs which are reimbursable by (i) tenants of the
Development (other than through their payment of Operating Expenses
and/or Common Area Expenses, as applicable), (ii) other third parties,
or (iii) proceeds of insurance; Landlord's executive salaries; real
estate brokers' commissions; or principal or interest on any
indebtedness (except as specifically permitted above).
Exclusions. In addition to the exclusions from Operating Expenses and Common
Area Expenses set forth in Section 7.1 hereof, Operating Expenses and
Common Area Expenses shall not include the following:
the cost of capital expenditures except for those specifically
described in Section 7;
costs incurred with respect to goods or services (including
utilities, capital improvements, maintenance and repair) supplied to the
Common Areas to the extent that such goods or services are designed for
the exclusive or primary use or benefit of another tenant or tenants
(provided that if such goods or services are for the primary use or
benefit of another tenant or tenants, the cost thereof shall be included
in Operating Expenses and Common Area Expenses, as applicable, to the
extent it is fair and equitable to do so);
costs incurred to the extent that such costs are reimbursed by
insurance;
any ground lease or master lease payments;
legal fees incurred by Landlord in connection with (1) the
preparation, negotiation and enforcement of leases, subleases and lease
renewals, (2) the purchase or transfer or
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disposition of all or any part of the Development or any interest
therein and (3) any financing or refinancing with respect to the
Development;
all leasing costs with respect to the Development, including hard
and soft costs of tenant improvements and preparation of any premises,
tenant concessions, advertising costs and brokerage commissions;
costs of purchasing or installing artwork or signage (it being
agreed that the cost of any such signage that identifies the Development
may be included within Common Area Expenses and Operating Expenses, as
applicable);
costs of any rental or lease of equipment or capital items that
if purchased (whether outright or financed) would otherwise be excluded
from Operating Expenses or Common Area Expenses, as applicable;
costs paid to Affiliates of Landlord in excess of market rates;
fines, penalties, late payment charges, and interest thereon, and
other amounts imposed in lieu thereof, the payment of which is
attributable to Landlord's failure to act in a commercially reasonable
manner;
costs to the extent arising from or relating to the negligence or
willful misconduct of Landlord or Landlord's agents, principals,
employees, licensees or Affiliates;
Landlord's general overhead and general administrative expenses;
costs for repair or maintenance covered by warranties or service
contracts (however, the costs of the warranties or service contracts
shall be includable in Common Area Expenses and Operating Expenses, as
applicable);
expenditures required by Landlord's failure to comply with laws,
regulations or orders, which are required to be complied with by
Landlord under this Lease (except to the extent expressly permitted in
Section 7.1 hereof);
costs to repair latent or patent defects with respect to the
Development or Landlord's Work;
costs incurred due to the violation by Landlord or any other
occupant of the Development of the terms or conditions of any lease;
costs arising from or relating to the presence of Hazardous
Materials (as defined herein) in or about the Development;
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any costs associated with the initial construction of the
Development and failure by Landlord to construct the Development in
accordance with applicable legal requirements as of the date Landlord
shall Substantially Complete Landlord's Work (exclusive of any such
costs arising out of Tenant's Work and/or any Tenant Revision);
insurance premiums, but only if and to the extent Landlord is
reimbursed for the cost thereof by Landlord's insurers;
bad debt expenses resulting from Landlord's negligence or
improper acts;
costs of charitable or political contributions and fees and dues
paid to trade associations (other than as provided in Section 7.1
hereof);
any cost payable by Tenant pursuant to other Sections of this
Lease; and
any Operating Expenses or Common Area Expenses, as applicable,
reasonably allocable to any parking structure located within the
Development.
Building Insurance. Except for Landlord's cost of the all-risk property
insurance for the Improvements, as addressed in Section 20.4 hereof, if
Landlord's cost of obtaining Landlord's Insurance (as defined herein)
for the Property and/or the Building and the operations thereof exceeds
the cost of obtaining such insurance for the first twelve (12) months
following the Commencement Date, Tenant shall pay to Landlord, in a
manner similar to this Section 7.3 within thirty (30) days after being
billed therefore, an amount equal to Tenant's Share of such increased
cost.
"TENANT'S SHARE" shall mean a percentage equal to the quotient obtained
by dividing the Floor Area of the Premises (subject to Section 7.6
hereof) by the total number of square feet of Floor Area in the other
tenantable portions of the Development as of the date of the Actual
Statement (as defined herein) for the applicable Lease Year. Landlord
and Tenant acknowledge that at this time it is not possible to determine
the equitable allocation of all components of Operating Expenses or
Common Area Expenses, as applicable. Accordingly, Landlord shall use
commercially reasonable efforts from time to time (i) to equitably
adjust Tenant's Share of some or all of the components of Operating
Expenses to a percentage other than that which would be arrived at by
the methodology hereinbefore described for the determination of Tenant's
Share, so as to ensure that (a) Tenant will pay Tenant's equitable share
of Operating Expenses and (b) if and to the extent applicable and the
same shall not result in an increase in the payment of Common Area
Expenses or Operating Expenses, as applicable, by Tenant in accordance
with this Article 7, the methodology employed by Landlord to determine
Tenant's equitable share of Operating Expenses is substantially
consistent with the methodology employed in connection with that certain
lease between an Affiliate of Landlord, as landlord and an Affiliate of
Tenant, as tenant, for certain space in New York, New York (the "NEW
YORK ATHLETIC CLUB LEASE") for calendar years 1996 and 1997 or (ii) to
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equitably adjust some or all of the components of Common Area Expenses,
so as to ensure that Tenant will pay Common Area Expenses in accordance
with the methodology hereinbefore described in Section 7.1 hereof and,
if and to the extent applicable and the same shall not result in an
increase in the payment of Common Area Expenses or Operating Expenses,
as applicable, by Tenant in accordance with this Article 7, the
methodology employed in connection with the New York Athletic Club Lease
for calendar years 1996 and 1997 (it being agreed and acknowledged that
in each instance in which the methodology employed in connection with
this Lease shall contradict or be inconsistent with the aforementioned
methodology employed in connection with the New York Athletic Club
Lease, such aforementioned methodology employed in connection with the
New York Athletic Club Lease shall prevail and govern if and to the
extent applicable and such employment shall not result in an increase in
the payment of Common Area Expenses or Operating Expenses, as
applicable, by Tenant in accordance with this Article 7.) In the event
Tenant shall dispute Landlord's determination as to the equitable
allocation of any component of Operating Expenses or Common Area
Expenses, as applicable, and if Landlord and Tenant shall have been
unable to resolve such dispute, within thirty (30) days following the
date that Tenant shall have notified Landlord of such dispute, then,
provided that Tenant shall pay all such amounts as billed by Landlord on
or before the due dates for payment, Tenant may submit such dispute to
binding arbitration in accordance with the Commercial Arbitration Rules
of the AAA and the following provisions hereof within ten (10) days next
following the giving of any notice by Tenant to Landlord stating that it
wishes such dispute to be determined by arbitration. Landlord and Tenant
shall each give notice to the other setting forth the name and address
of an arbitrator designated by the party giving such notice within ten
(10) days after Landlord's receipt of Tenant's arbitration notice. If
either party shall fail to give notice of such designation within said
ten (10) days, then the arbitrator to be chosen by such party shall be
chosen in the same manner as hereinafter provided for the appointment of
the third arbitrator in the case where the two arbitrators chosen
hereunder are unable to agree upon such appointment. The two arbitrators
shall designate a third arbitrator. If the two arbitrators shall fail to
agree upon the designation of a third arbitrator within ten (10) days
after the designation of the second arbitrator, then either party may
apply to the American Arbitration Association or any successor
organization thereto ("AAA") for the designation of such arbitrator;
provided, however, nothing contained herein shall be construed to
require submission of any dispute to the AAA. All arbitrators shall be
persons who shall have had at least ten (10) years experience in the
business of operating or managing commercial real estate in Washington,
D.C. and shall not be affiliated with either Landlord or Tenant. The
three arbitrators shall conduct such hearings as they deem appropriate
in accordance with the Commercial Arbitration Rules of the AAA, making
their determination in writing and giving notice to Landlord and Tenant
of their determination within ten (10) days, if at all possible, after
the designation of the third arbitrator; the concurrence of any two of
said arbitrators shall be binding upon Landlord and Tenant. Any award of
the arbitrators shall be limited to the determination as to whether
Landlord made an equitable allocation of the component(s) of Operating
Expenses or Common Area Expenses, as applicable which are the subject of
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such dispute. If it is determined that Landlord has not equitably
allocated a component(s) of Operating Expenses or Common Area Expenses,
as applicable, then the arbitrators shall determine the equitable
allocation thereof. The determination in any arbitration held pursuant
to this Section 7.3 shall be final and binding upon Landlord and Tenant.
Each party shall pay its own counsel fees and expenses, if any, in
connection with any arbitration under this Section 7.3, and each party
shall pay the fees and expenses of the one of the two (2) original
arbitrators appointed by or for such party and the fees and expenses of
the third arbitrator shall be shared by the parties equally; it being
agreed that (1) if it shall be determined in the arbitration that
Landlord has not equitably allocated a component(s) of Operating
Expenses or Common Area Expenses, as applicable, and as a result thereof
Tenant shall have made an overpayment of Operating Expenses or Common
Area Expenses, as applicable, by more than five percent (5%), then,
Landlord shall pay the reasonable actual out-of-pocket cost of the
arbitration proceeding incurred by Tenant not to exceed $7,500.00, and
the amount of any such overpayment shall be credited against the next
installment (or installments if the credit exceeds the amount of the
next installment) of Monthly Base Rent due under this Lease and if the
amount of the credit exceeds the amount of the subsequent installment(s)
of Monthly Base Rent due under this Lease, the excess shall be refunded
to Tenant within thirty (30) days after the aforementioned arbitration
determination with interest thereon at the Prime Rate (as defined
herein) from the date of such overpayment, and (2) if it shall be
determined in the arbitration that Landlord has equitably allocated the
components of Operating Expenses or Common Area Expenses, as applicable,
then, Tenant shall pay the reasonable actual out-of-pocket cost of the
arbitration proceeding incurred by Landlord not to exceed $7,500.00 and
if it shall be determined in the arbitration that Tenant shall have made
an underpayment of Operating Expenses or Common Area Expenses, as
applicable, Tenant shall pay to Landlord the amount of any such
underpayment within thirty (30) days after the aforementioned
arbitration determination with interest thereon at the Prime Rate from
the date of such underpayment.
Statements. As soon as possible after the beginning of the Initial Term,
Landlord shall give to Tenant a statement estimating the Common Area
Expenses or Operating Expenses, as applicable for the first Lease Year.
Thereafter, Landlord shall give Tenant, prior to the expiration of each
Lease Year, a statement estimating the Common Area Expenses or Operating
Expenses, as applicable for the following Lease Year. The estimated
Common Area Expenses or Operating Expenses, as applicable, shall be the
applicable estimated amounts described in this Section 7. The estimated
Common Area Expenses or Operating Expenses, as applicable, shall be
divided into twelve (12) equal monthly installments (or, as to the first
and last Lease Year, divided by the number of calendar months in such
Lease Year), and Tenant shall pay to Landlord Tenant's monthly
installment of such Common Area Expenses or Operating Expenses, as
applicable, on the first day of each month during the Term as additional
rent. If, in any Lease Year, the actual Common Area Expenses or
Operating Expenses, as applicable, are less than the estimated payments
made by Tenant for such Lease Year, as evidenced in Landlord's statement
(the "ACTUAL STATEMENT") of actual Common Area Expenses or Operating
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Expenses, as applicable, for such Lease Year (which Landlord shall
deliver to Tenant within ninety (90) days after the expiration of each
Lease Year), then any overpayment made by Tenant on the monthly
installment basis shall be credited towards the next monthly
installment(s) falling due and the estimated monthly installments of
Common Area Expenses or Operating Expenses, as applicable, shall be
adjusted to reflect such lower amounts. Similarly, if, in any Lease
Year, the actual Common Area Expenses or Operating Expenses, as
applicable, are greater than the estimated payments made by Tenant for
such Lease Year as evidenced in the Actual Statement for such Lease
Year, then Tenant shall pay the amount of such difference to Landlord
within thirty (30) days after invoice; provided, however, that if the
amount due exceeds 1/2 of Monthly Base Rent then in effect, Tenant may
pay such amount in thirty (30) day installments with each installment in
the amount of the lesser of the remainder due or 1/2 of the Monthly Base
Rent then in effect. Notwithstanding that the Term may have terminated
or expired and Tenant has vacated the Premises, when the final
determination is made of the actual Common Area Expenses or Operating
Expenses, as applicable, for the last Lease Year, Tenant shall
immediately pay to Landlord any increase due over the estimated Common
Area Expenses or Operating Expenses, as applicable, paid by Tenant and,
conversely, any overpayment made in the event actual Common Area
Expenses or Operating Expenses, as applicable, decrease, shall be
rebated by Landlord to Tenant within thirty (30) days after such
determination. The foregoing provision shall survive the expiration or
earlier termination of this Lease.
Audit. Upon prior notice, but not more frequently than once each Lease Year,
Tenant shall have the right to examine Landlord's books and records with
regard to Common Area Expenses or Operating Expenses, as applicable,
during normal business hours. If Tenant disputes the amount of Common
Area Expenses or Operating Expenses, as applicable, set forth in any
Actual Statement delivered by Landlord or otherwise paid by Tenant,
Tenant must notify Landlord of such dispute in writing within three (3)
months following Tenant's receipt of the Actual Statement. Tenant's
failure to notify Landlord of a dispute within said three (3) month
period shall be deemed Tenant's acceptance and approval of the accuracy
of the Actual Statement. Provided Tenant has timely given the required
dispute notice and has paid the amounts claimed to be due under the
Actual Statement (including the disputed amount), Tenant shall have the
right, to be exercised, if at all, not later than three (3) months after
the date Tenant gave the dispute notice, to cause Landlord's books and
records with respect to the relevant Lease Year to be audited by a
certified public accountant, or by another Tenant representative
mutually acceptable to Landlord and Tenant. The amounts payable under
Section 7.4 hereof by Landlord to Tenant or by Tenant to Landlord, as
the case may, be shall be appropriately adjusted on the basis of such
audit. If such audit discloses a liability for further refund by
Landlord to Tenant in excess of five percent ( 5%) of the Common Area
Expense payments or Operating Expense payments, as applicable,
previously made by Tenant for such Lease Year, Landlord shall pay for
the reasonable cost of the audit not to exceed $7,500.00; otherwise,
Tenant shall pay for the cost of the audit. Notwithstanding the
foregoing, if any audit conducted by Tenant discloses that Landlord
over-reported Common Area
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<PAGE> 24
Expenses or Operating Expenses by more than five percent (5%) for the
period covered by the audit, then Tenant shall be entitled to audit
Common Area Expenses or Operating Expenses, as applicable, for all
preceding years as to which records are available. Landlord shall be
obligated to maintain said records for sixty (60) months (but for no
such longer period of time) after the end of each Lease Year except if a
dispute with respect thereto is then pending under Section 7.3 hereof.
Notwithstanding anything to the contrary contained herein, if in any Lease Year
during which Tenant shall be paying Operating Expenses the total Floor
Area of buildings in the Development which are tenantable is not fully
occupied, then the Operating Expenses for such Lease Year shall be
deemed to be an amount that would be incurred if such total Floor Area
were occupied for such Lease Year, but in no event shall Tenant be
required to pay more than ninety-five percent (95%) of the actual
Operating Expenses.
Cost Abatement
Provided that Tenant shall not then be in default of any of
Tenant's obligations under this Lease (following notice thereof), Tenant shall
be entitled to an aggregate credit of $1,000,000 to be applied against (i) the
monthly installments of Common Area Expenses or Operating Expenses, as
applicable, payable by Tenant in accordance with this Section 7, (ii) the
installments of Taxes (as hereinafter defined) payable in accordance with
Section 12 hereof and (iii) the sums payable by Tenant in accordance with
Section 36 hereof for use of parking spaces located at the Development.
8. Use.
Permitted Use. The Premises shall be used exclusively for a first-class coed
athletic club operated by an operator with first-class expertise,
reputation and experience, and Tenant shall not use or permit the
Premises to be used for any other purpose, or by an operator other than
Tenant or an Affiliate of Tenant, without the prior consent of Landlord,
which may be withheld in the sole and absolute discretion of Landlord.
As used herein, "FIRST-CLASS" shall mean comparable to other athletic
clubs with comparable facilities operated by Tenant or Tenant's
Affiliates as of the date hereof. As a part of the athletic club
operated from the Premises, Tenant shall be entitled to use portions of
the Premises for uses complementary to an athletic club (but only in
support of Tenant's primary operation as an athletic club), such as a
pro shop, child care facility, delicatessen, so long as the type and
quality of such complementary uses are consistent with the services
offered in other first-class athletic clubs; provided, however, no food
or beverages (other than primarily for consumption at the Premises)
shall be sold from the Premises. Any complementary uses may be achieved
through a license, which license shall (i) be subject to all terms and
conditions of this Lease but shall not otherwise require Landlord's
prior approval and (ii) other than with respect to the complimentary
uses in the Reebok Sports Club/New York as of the date hereof, not
conflict with an exclusive use granted by
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<PAGE> 25
Landlord to any then current tenant or any future tenant or occupant of
the Development of which Landlord has advised Tenant.
Compliance with Laws.
Tenant shall not use or occupy the Premises in violation of (a)
law or the certificate of occupancy issued for the Improvements or the
Building, (b) any condominium declaration, offering plan, by-laws, house
rules, and other requirements, instruments or declarations (collectively
the "CONDOMINIUM DOCUMENTS") now or hereafter ratified by any
condominium association or equivalent (the "CONDOMINIUM ASSOCIATION")
having jurisdiction over the Premises, (c) any private covenants,
conditions or restrictions or reciprocal easement agreements
(collectively, the "CC&R") which may now or hereafter be recorded
encumbering the Development or (d) any liquor license issued with
respect to the Club, and shall, upon notice from Landlord, discontinue
any use of the Premises which is in violation of law or of said
certificate of occupancy, or is a violation of the Condominium
Documents, the CC&R or said liquor license. Notwithstanding the
foregoing, after the date hereof Landlord shall not amend or modify any
existing CC&R or create new CC&R's or Condominium Documents which
materially adversely affect any of Tenant's rights hereunder or
materially increase its obligations hereunder.
Tenant shall comply with any law or directive of any governmental
authority having jurisdiction which by reason of the nature of Tenant's
particular use or occupancy shall impose any duty upon Tenant or
Landlord with respect to the Premises or with respect to the use or
occupancy thereof.
Tenant shall not do or permit to be done anything which will
increase the cost of (unless Tenant pays such increased cost) or which
will invalidate any fire, extended coverage or any other insurance
policy covering the Improvements and/or property located therein or the
Building. In the event Tenant does or permits anything to be done which
increases the cost of any insurance maintained by Landlord hereunder,
Tenant shall promptly, upon demand, as Landlord's sole remedy for such
increase (but without limiting any other remedies that may be available
to Landlord if the cause of such increase is otherwise violative of any
provisions of this Lease), reimburse Landlord for such increase. Tenant
shall not do or permit anything to be done in or about the Premises
which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Development, or use or allow the Premises to
be used for any unlawful purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises; Landlord, however,
acknowledges that certain noise and vibration are incident to Tenant's
use of the Premises, and that to the extent the same shall not exceed
noise levels generated by other athletic clubs in similar types of
buildings and shall not otherwise exceed the legally permissible decibel
levels, the same shall not constitute a nuisance for the purposes
hereof.
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<PAGE> 26
Tenant shall not commit or suffer to be committed any waste in
or upon the Premises.
Tenant shall be responsible for obtaining, at Tenant's sole cost
and expense, all required licenses and/or permits authorizing the use of
the Premises for an athletic club and Tenant's cooking operations with
respect to the Club subject to and in accordance with this Lease and any
other are being conducted in the Premises, as permitted under this
Lease.
Hazardous Materials.
Tenant shall not use or permit any hazardous, toxic or
radioactive materials ("HAZARDOUS MATERIALS")to be brought upon, kept or
used in or about the Premises, the Improvements or any portion of the
Development by Tenant, its agents, employees or contractors, unless such
Hazardous Materials are necessary or useful to and customarily used in
Tenant's business and will be used, kept and stored in a manner that
complies with all laws regulating any such Hazardous Materials. In
addition, Tenant shall be entitled to use general office supplies,
normal janitorial supplies, supplies used in maintaining its equipment
and swimming pool supplies in a manner that complies with all laws
regulating their use. If Tenant breaches the covenants and obligations
set forth herein or, if the presence of Hazardous Materials on, in or
about the Premises, the Improvements or any other portion of the
Development caused or permitted by Tenant, its agents, employees or
contractors results in contamination of the Premises, the Improvements
or any other portion of the Development, then Tenant shall indemnify,
defend and hold Landlord and the owner(s) and operator(s) of the Common
Areas free and harmless from and against any and all claims, judgments,
damages, penalties, fines, costs, liabilities and losses (including
diminution in the value of the Premises and/or the Common Areas, damages
for the loss or restriction on use of rentable or useable space or of
any amenity of the Premises, the Improvements or any other portion of
the Development, and sums paid in settlement of claims, attorneys' fees
and costs, consultants' fees and expert fees) which arise during or
after the Term as a result of such contamination. This indemnification
by Tenant of Landlord and the owner(s) and operator(s) of the Common
Areas, includes any and all costs incurred in connection with any
investigation of site conditions or any clean up, remedial, removal or
restoration work required by any federal, state or local governmental
agency or political subdivision because of the presence of such
Hazardous Materials in, on or about the Premises, the Improvements or
any portion of the Development, including the soil or ground water on or
under the Development. The provisions of this Section 8.3(i) shall
survive the expiration or earlier termination of this Lease.
Landlord shall not cause or permit any Hazardous Materials to be
brought upon, kept or used in or about the Premises or any other portion
of the Development by Landlord, its agents, employees or contractors
unless such Hazardous Materials are used, kept and stored in a manner
that complies with all laws regulating such Hazardous
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<PAGE> 27
Materials. If Landlord breaches the covenants and obligations set forth
herein or if contamination of the Premises or any other portion of the
Development by Hazardous Materials otherwise occurs which is caused by
Landlord or its agents, then Landlord shall indemnify, defend and hold
Tenant free and harmless from and against any and all claims, judgments,
damages (but not consequential damages), penalties, fines, costs and
liabilities and losses (including any diminution in the value of the
Club, and sums paid in settlement of claims, attorneys' fees and costs,
consultants' fees and expert fees) which arise during or after the Term
as a result of such contamination. This indemnification by Landlord of
Tenant includes any and all costs incurred in connection with any
investigation of site conditions or any clean up, remedial, removal or
restoration work required by any federal, state or local governmental
agency or political subdivision because of the presence of such
Hazardous Materials in or about the Premises. The provisions of this
Section 8.3(ii) shall survive the expiration or earlier termination of
this Lease.
Restrictions.
So long as this Lease remains in full force and effect and Tenant
is operating a Club and facilities related to the operation of such Club in at
least seventy-five percent (75%) of the Premises subject to Temporary Closures
(as defined herein), Landlord hereby agrees that neither Landlord, nor any
individual(s), firm or corporation controlled by, controlling or under common
control with Landlord shall lease to, sublease to, consent to an assignment or
sublease to, operate, own or become financially interested in, (i) any other
Club within the Development, provided that an athletic club may be operated
within the Primary Hotel not to exceed 840 square feet of Floor Area in the
aggregate, or (ii) any tenant or occupant of the Development which provides spa
services or operates a beauty salon within the Development provided Tenant is
providing spa services in the Premises and/or operating a beauty salon in the
Premises (a) subject to and in accordance with this Lease and subject to
Temporary Closures (after a reasonable period of time after the Commencement
Date to prepare the Premises for same) and (b) if the operator of the Primary
Hotel is the Ritz Carlton or an Affiliate thereof, in a manner consistent with
the typical standard of operation with respect thereto of the Ritz Carlton in
the United States as of the date hereof (the "RITZ CARLTON STANDARD") or
otherwise in a manner consistent with the typical standard of operation with
respect thereto of the then operator of the Primary Hotel in the United States
(the "OTHER PRIMARY HOTEL OPERATOR"); provided, however, that with respect to
the standard of operation of an Other Primary Hotel Operator any such standard
of operation shall not increase (except to a de minimis extent) the cost and
expense to Tenant (which will not be recouped by Tenant) to provide spa services
in the Premises and/or operate a beauty salon in the Premises beyond that which
Tenant would have incurred in connection with the Ritz Carlton Standard and
Tenant shall not be required to remodel and/or reformat the portions of the
Premises providing spa services and/or being operated as a beauty salon as a
direct result of the conversion from the Ritz Carlton Standard to the standard
of operation of an Other Primary Hotel Operator.
9. Notices.
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All notices, requests, consents, approvals, determinations and other
communications required or permitted to be given hereunder must be in writing
and may be given only by personal delivery, overnight delivery, facsimile
transmission or by mail, and if given by mail shall be deemed sufficiently given
only if sent by registered or certified mail, return receipt requested, to the
following address of the party to receive such notice. Notices shall be deemed
received if sent in compliance with the aforesaid requirements, upon actual
receipt for notices given by personal delivery or facsimile and upon the earlier
of actual receipt or three (3) business days after deposit of any notice in the
United States mail if sent by registered or certified mail.
If to Landlord: c/o Millennium Partners
1995 Broadway, 3rd Floor
New York, New York 10023
Attention: Chief Financial Officer
Fax: (212) 579-0662
With a copy to: Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Eric R. Landau, Esq.
Fax: (212) 856-7805
If to Tenant: Washington D.C. Sports Club, Inc.
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Attention: Real Estate Dept.
Fax: (310) 479-8879
With a copy to: Resch Polster Alpert & Berger LLP
10390 Santa Monica Boulevard
Fourth Floor
Los Angeles, California 90025
Attention: Ronald M. Resch, Esq.
Fax: (310) 552-3209
Either party may specify a different address for notice purposes by
notice to the other pursuant to this Article 9.
10. Brokers.
Landlord and Tenant each warrant to the other that such party has not had any
dealings with any real estate broker or agent in connection with the negotiation
of this Lease, and that such party knows of no real estate broker or agent who
is or might be entitled to a commission in
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connection with this Lease. If Landlord or Tenant has dealt with any person or
real estate broker or agent with respect to the transaction contemplated by this
Lease, the party so dealing with such person or broker or agent shall be solely
responsible for the payment of any fee due such person or broker or agent and
such party shall hold the other free and harmless from and against any liability
in respect thereto, including attorneys' fees and costs.
11. Holding Over.
If Tenant holds over after the expiration or earlier termination of this
Lease without the express consent of Landlord, Tenant shall become a tenant at
sufferance only, at a rental rate equal to one hundred twenty-five percent
(125%) of the Monthly Base Rent in effect upon the date of such expiration or
earlier termination (prorated on a daily basis), plus one hundred percent (100%)
of the other elements of Rent, and otherwise subject to the terms, covenants and
conditions herein specified, so far as applicable. Acceptance by Landlord of
Rent after such expiration or earlier termination shall not result in a renewal
of this Lease. The foregoing provisions of this Article 11 are in addition to
and do not affect Landlord's right of re-entry or any rights of Landlord
hereunder or as otherwise provided by law.
12. Taxes.
Payment. Commencing upon the Commencement Date, Tenant shall be liable for and
shall pay to Landlord, as additional rent and in the manner hereinafter
provided, all (i) real property taxes, (ii) personal property taxes,
(iii) general and special assessments, (iv) water and sewer taxes,
bonds, assessments and related charges, (v) excises, levies, license and
permit fees and (vi) all other governmental charges, general and
special, ordinary and extraordinary, of any kind and nature whatsoever,
which at any time during or applicable to the Term may be assessed,
levied, confirmed, imposed upon, or become due and payable out of or in
respect of, or become a lien on the Premises, the Improvements or any
portion thereof (collectively "TAXES"). Tenant's payment of Taxes shall
be payable by Tenant in the same number of installments as taxes are due
from Landlord to the applicable taxing authorities and shall be due from
Tenant to Landlord thirty (30) days prior to the date such taxes, or
installments thereof, are due from Landlord to the taxing authorities.
If during the Term, Taxes are required to be paid to the taxing
authorities in full or in monthly, quarterly or other installments, on
any other date or dates than as presently required, then, the Taxes
shall be correspondingly accelerated or revised so that same are due
thirty (30) days before the date such Taxes, or installments thereof,
are due from Landlord to the taxing authorities. Notwithstanding the
foregoing, if Landlord is obligated to make monthly escrows of Taxes to
any Senior Interest Holder and as a result thereof, Landlord requires
all tenants of the Building under leases with Landlord to make escrows
of Taxes, then in lieu of the manner of payment referred to above, on
the first day of the month following the furnishing to Tenant of a
statement of Taxes, Tenant shall pay to Landlord a sum equal to 1/12th
of the payment of Taxes shown thereon to be due for such fiscal year for
real estate tax purposes adopted by the applicable taxing authority then
imposing taxes (the "TAX YEAR") multiplied by the number of months of
the Term
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then elapsed since the commencement of such Tax Year. Tenant shall
continue to pay to Landlord a sum equal to 1/12th of the payment of
Taxes shown on such statement on the first day of each succeeding month
until the first day of the month following the month in which Landlord
shall deliver to Tenant a new statement of Taxes. If the escrows of
Taxes required to be made by Landlord with any Senior Interest Holder
are required to be made other than monthly, then the obligations of
Tenant referred to in the immediately preceding two (2) sentences shall
be appropriately modified so that Tenant shall make the payment of Taxes
to Landlord in the same number of installations as Landlord is required
to make to such Senior Interest Holder. In the event the escrows of
Taxes required to be made by Landlord with any Senior Interest Holder
are held in an interest bearing account, then Tenant's payment of Taxes
shall be reduced by Tenant's Share of the actual interest received by
Landlord in connection therewith. If Landlord shall not furnish to
Tenant a statement of Taxes prior to the commencement of such Tax Year,
then Tenant shall continue to make monthly installment payments based
upon the previous Tax Year's statement of Taxes until Landlord shall
furnish a new statement of Taxes with respect to the then current Tax
Year. If Landlord furnishes a statement of Taxes for a Tax Year
subsequent to the commencement thereof, promptly after the statement of
Taxes is furnished to Tenant, Landlord shall give notice to Tenant
stating whether the amount previously paid by Tenant to Landlord for the
current Tax Year was greater or less than the installments of Tenant's
payment of Taxes for the current Tax Year, and (1) if there shall be a
deficiency, Tenant shall pay the amount thereof within thirty (30) days
after demand therefor, or (2) if there shall have been an overpayment,
such excess shall be refunded to Tenant within thirty (30) days of the
rendition of the aforementioned statement to Tenant. If there shall be
any increase or decrease in Taxes for any Tax Year, whether during or
after such Tax Year, then Landlord shall furnish a revised statement of
Taxes for such Tax Year, and Tenant's payment of Taxes for such Tax Year
shall be adjusted and paid or credited, as the case may be,
substantially in the same manner as provided in the preceding sentence.
If the Tax Year established by the applicable taxing authority shall be
changed, any Taxes for the Tax Year prior to such change which are
included within the new Tax Year and which were the subject of a prior
statement of Taxes shall be apportioned for the purpose of calculating
Tenant's payment of Taxes payable with respect to such new Tax Year.
If a separate real property tax bill is not issued for the
Premises at any time during the Term, but Landlord receives a tax bill
for a larger parcel of real property including the Premises, Landlord
shall bill Tenant for a pro rata share of such taxes. Landlord shall
provide Tenant with an invoice therefor together with a detailed
explanation of any proration, which proration shall be made on the basis
of Tenant's Share of the ratio between Floor Area of the Premises and
the total square feet of the Floor Area of the other tenantable portions
of the taxed unit of which the Premises form part. If Landlord shall
receive any bills, assessments or other official notices regarding any
such taxes or other charges, it shall promptly forward the same to
Tenant, but an inadvertent failure (or failures) to do so shall not be
deemed a breach hereof. All such taxes, assessments, charges and the
like billed directly to Tenant or passed on to Tenant by Landlord and
paid
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<PAGE> 31
by Tenant pursuant to the provisions of this Section 12.1 shall be
excluded from Common Area Expenses or Operating Expenses, as applicable.
All taxes becoming a lien upon the Premises or any portion thereof
during the first and last Tax Year shall be prorated between Landlord
and Tenant to the first and last day of the Term, respectively. Upon
Tenant's request, Landlord shall furnish to Tenant proof reasonably
satisfactory to Tenant of payment of the matters referred to in this
Article. If the Premises are separately assessed for real property
taxes, Tenant shall have the right, following notice to Landlord, to
protest, contest or object to the amount or validity of any such taxes,
impositions or assessments; provided, however, that this right to
contest shall not be deemed or construed to relieve, modify or extend
Tenant's obligation to pay any such tax, imposition or assessment before
delinquency thereof unless Tenant has provided a bond or other security
satisfactory to Landlord. Tenant shall indemnify and defend Landlord and
save Landlord harmless from all costs, liabilities and expenses incurred
in connection with such proceedings.
Trade Fixtures. Tenant shall be liable for and shall pay, before delinquency,
all taxes levied against Trade Fixtures.
Protest. Tenant shall have the right, at its sole cost, to request Landlord, by
notice to Landlord given not less than ten (10) days before the last
date for filing any necessary protest or petition or taking any other
necessary action, to initiate and prosecute any proceeding for the
purpose of reducing the assessed valuation of the Premises for tax
purposes. In the event that Tenant in good faith shall request Landlord,
pursuant to the preceding sentence, to initiate and prosecute any
proceeding, Landlord shall, subject to the requirements imposed by any
mortgage of Landlord's interests in the Development, at Tenant's sole
expense, take all steps reasonably necessary to commence such proceeding
and thereafter shall diligently prosecute the same to completion. Any
actual out-of-pocket costs, including reasonable attorneys' fees and
costs, incurred by Landlord in connection with any such proceeding
brought at Tenant's request shall be payable upon demand, as Additional
Rent, by Tenant to Landlord. Any refund of moneys received by Landlord
resulting from such proceeding attributable to the Premises and relating
to real property taxes which may have been paid by Tenant shall be
refunded by Landlord to Tenant, together with all accrued interest which
is awarded thereon and received by Landlord; provided that if any such
refund shall be made with respect to Landlord's property other than the
Premises, then Tenant's right to the same shall be limited to its pro
rata portion thereof, after payment or credit first (to the extent such
monies are received by Landlord from the taxing authority), to Tenant
for Landlord's costs previously paid by Tenant to Landlord as above
provided and second (after all costs incurred by Landlord have been
recovered), for any other actual out-of-pocket costs, including
reasonable attorneys' fees and costs, incurred by Tenant in connection
with any such proceeding. Tenant's rights to refunds under this Section
12.3, if any, shall survive the expiration of this Lease.
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Definition. As used in this Article 12, the term "REAL PROPERTY TAXES" shall
include any form of assessment, license fee, license tax, business
license fee, commercial rental tax, levy, charge, tax or similar
imposition, imposed by any authority having the direct power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement or special
assessment district thereof, as against any legal or equitable interest
of Landlord in the Premises, including, but not limited to, the
following: any tax on Landlord's "right" to rent or "right" to other
income from the Premises or as against Landlord's business of leasing
the Premises; any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge
previously included, within the definition of real property taxes
("IN-LIEU TAX"); any assessment, tax, fee, levy or charge allocable to
or measured by the area of the Premises or the rent payable hereunder
("RECEIPTS TAX"), including any gross income tax or excise tax levied by
the state, city or federal government, or any political subdivision
thereof, with respect to the receipt of such rent, or upon or with
respect to the possessing, leasing, operating, managing, maintaining,
altering, repairing, using or occupying by Tenant of the Premises or any
portion thereof; any assessment, tax, fee, levy or charge upon this
transaction or upon any document to which Tenant is a transferring party
creating or transferring an interest or an estate in the Premises; any
assessment, fee, levy or charge by any governmental agency related to
any transportation plan, fund or system instituted within the geographic
area of which the Premises are a part; and reasonable legal and other
professional fees, costs and disbursements incurred in connection with
proceedings to reasonably contest, determine or reduce real property
taxes. Notwithstanding any provision of this Article 12 expressed or
implied to the contrary, Tenant shall not be required to pay any
documentary transfer taxes or recording taxes incurred by Landlord or
Landlord's federal or state income, franchise, inheritance or estate
taxes or any local income, franchise, inheritance or estate taxes, or
other taxes in lieu thereof, except for any In-Lieu Tax or any Receipts
Tax.
13. Condition of Premises.
Landlord's Work. Landlord hereby agrees to cause to be completed those acts
and/or improvements described as the Landlord's Work in the Work Letter
within the time(s) set forth therein, subject to Force Majeure or any
Tenant Delay. Landlord hereby agrees that all work to be performed by
Landlord pursuant to the Work Letter shall be constructed by Landlord or
Landlord's contractor in a good and workmanlike first-class manner and
in full compliance with all governmental regulations, ordinances and
laws existing at the time of construction. Landlord agrees to abide by
its obligations, if any, under the CC&R. By taking possession of the
Premises upon completion of the Landlord's Work and for commencement of
the construction of the Improvements, Tenant shall be deemed to have:
(i) acknowledged that Landlord's Work is substantially complete and is
accepted "as is" and "with all faults"; (ii) accepted the Premises as
suitable for the purposes for which the Premises are leased; and (iii)
acknowledged that the Premises are in a good and satisfactory condition,
except as otherwise expressly provided in the Work Letter. Landlord
hereby disclaims, and Tenant hereby waives to the full extent permitted
by law,
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any implied warranty that the Premises are suitable for Tenant's
intended commercial purpose, and any and all other implied warranties
(whether arising by virtue of statute, case law or otherwise). The
foregoing provisions shall not be construed to relieve Landlord from its
obligations which are expressly set forth in this Lease.
Design Changes. In order to provide Landlord with the necessary flexibility in
the planning and organizing of the Building, Tenant agrees that the
design of the Building (including the location of the demising walls for
the Premises) and elements of Landlord's Work shall be subject to such
changes as Landlord shall deem to be necessary or beneficial to the
Building or its tenants; provided, however, that the resulting Premises
shall be substantially equivalent for Tenant's purposes as prior to such
changes.
14. Alterations.
Landlord's Approval. From and after the later of (i) the Commencement Date, or
(ii) completion of the Improvements, Tenant, without obtaining
Landlord's prior consent, may only make alterations, additions or
improvements in or to the Premises which (a) are nonstructural in
nature, and (b) do not affect the exterior of the Premises or other
exterior portions of the Improvements (but only to the extent generally
visible from the Common Areas). All alterations, additions and
improvements other than those described in clauses (a) and (b) hereof
shall require Landlord's prior consent. Before proceeding with any
alteration, addition or improvement which requires Landlord's prior
consent hereunder, Tenant shall submit to Landlord plans and
specifications, including any applicable mechanical, electrical and
plumbing drawings, for the work to be done, which plans and
specifications shall require Landlord's approval. If Landlord shall
disapprove of any of Tenant's plans and specifications, Tenant shall be
advised of the reasons for such disapproval.
Requirements. Tenant agrees to provide Landlord with notice of all alterations,
additions or improvements Tenant intends to make to the Premises whether
or not they require Landlord's prior consent as provided above. Tenant
shall cause Tenant's contractor to obtain on behalf of Tenant and at
Tenant's sole cost and expense all necessary governmental permits and
certificates for the commencement and prosecution of any alteration,
addition or improvement and for final approval thereof upon completion.
All such work shall be done at such times and in such manner as Landlord
may from time to time designate. Tenant covenants and agrees that all
work done by Tenant shall be performed in full compliance with the
Condominium Documents, the CC&R, in full compliance with all laws,
rules, orders, ordinances, regulations and requirements of all
governmental agencies, offices, and boards having jurisdiction, and in
full compliance with the rules, regulations and requirements of any
insurance rating bureau having jurisdiction of the Premises or the
Building. Before commencing any work, Tenant shall give Landlord at
least ten (10) days notice of the proposed commencement of such work in
order to provide Landlord with an opportunity to post notices of
nonresponsibility. Tenant further covenants and agrees that any
mechanic's lien recorded against the Premises or the Building for work
claimed to have been done for, or materials claimed to
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have been furnished to Tenant, will be discharged by Tenant, by bond or
otherwise, as provided in Article 16 hereof. All alterations, additions
or improvements upon the Premises made by either party, including all
wallcovering, built-in cabinetry, paneling and the like, shall, at
Landlord's option, upon the expiration or earlier termination of this
Lease become the property of Landlord, and shall, at such time, remain
upon, and be surrendered by Tenant with the Premises, as a part thereof.
Removal. All articles of personal property and movable furniture, including
Trade Fixtures and any other of Tenant's furniture and equipment which
are installed by Tenant at its expense in the Premises shall be and
remain the property of Tenant and may be removed by Tenant at any time
during the Term provided Tenant repairs any damage caused by such
removal. If Tenant shall fail to remove all of its effects from the
Premises upon the expiration or earlier termination of this Lease, for
any cause whatsoever, Landlord may, at it option, remove the same in any
manner that Landlord shall choose, and store said effects without
liability to Tenant for loss thereof so long as Landlord exercises
reasonable care in doing so. In such event, Tenant agrees to pay
Landlord upon demand any and all reasonable expenses actually paid to
third parties incurred in such removal, including court costs and
attorneys' fees and costs and storage charges on such effects for any
length of time that the same shall be in Landlord's possession. Landlord
may, at its option, upon at least ten (10) business days' prior notice
to Tenant of the date, time and place of the sale of such effects, or
any of the same, sell any such affects at a private sale and without
legal process, for such price as Landlord may obtain and apply the
proceeds of such sale to any amounts due under this Lease from Tenant to
Landlord and to the expense incident to the removal and sale of said
effects. Any rights of Landlord under this Section 14.3 shall be subject
to the rights of lienholders with a security interest in Tenant's
personal property pursuant to Section 1.2 hereof.
15. Repairs.
Tenant's Obligations. Except as otherwise hereinafter provided, Tenant, at
Tenant's sole cost and expense, shall (i) keep, maintain (including
necessary replacements) and preserve the Property and every portion
thereof, all equipment, facilities and amenities used in connection
therewith and all items located on or about the Property, including
elevators servicing the Premises, plumbing, mechanical systems, floors
and utility systems (including HVAC system) and all portions thereof in
first-class condition and repair, (ii) when and if needed, at Tenant's
sole cost and expense (subject to the damage and destruction provisions
herein), make all repairs to the Property and every portion thereof
including the interior walls but excluding the structural columns
described in Section 15.2 hereof, (iii) repaint the interior and the
exterior of the Improvements as necessary, (iv) replace all broken
window glass, and (v) repair all facilities except for the structural
elements described in Section 15.2 hereof. Tenant's obligation to keep,
maintain, preserve and repair the Premises shall specifically extend to
the cleanup and removal of all Hazardous Materials to the extent
required by Tenant in Article 8 hereof. Tenant shall, upon the
expiration or earlier termination of the Term, surrender the Property to
Landlord
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in its condition as of the commencement of Tenant's operation of the
Club for member use, usual and ordinary wear and tear and any
alterations, additions and improvements permitted under this Lease
excepted, and except as otherwise provided in Articles 21 and 22 hereof.
Landlord shall have no obligation to alter, remodel, improve, repair,
decorate or paint the Property or any part thereof, except as provided
in Section 15.2 hereof and except for cleanup and removal of Hazardous
Materials to the extent required in Article 8 hereof. The parties hereto
affirm that Landlord has made no representations to Tenant respecting
the condition of the Property except as specifically set forth in
Article 13 hereof. In addition, the parties hereto affirm that Landlord
shall have absolutely no obligation to keep, maintain or repair any
portion of the interior of the Premises except as herein expressly
provided. Landlord shall be responsible for repairs to the Property
caused by the negligence or willful misconduct of Landlord or its
employees, agents, or contractors. Notwithstanding the foregoing, to the
extent that insurance carried by Landlord or Tenant provides coverage
for the cost of any maintenance or repair or replacement which is
Tenant's obligation pursuant hereto, Tenant shall be entitled to all
benefits of such insurance.
Landlord's Obligations. Landlord shall (subject to reimbursement therefor
pursuant to Section 7 hereof) keep, maintain and repair, or cause to be
kept, maintained and repaired, the Building (exclusive of the Property)
and the Common Areas in a first-class manner and be responsible for the
repair and maintenance of the structural elements of the Development
except to the extent that the necessity for any repair or maintenance
shall be attributable to alterations performed by or through Tenant or
by the negligence or willful misconduct of Tenant or its employees,
agents, contractors, licensees or invitees. Notwithstanding the
foregoing, Landlord shall (without being subject to reimbursement
therefor pursuant to Section 7 hereof) repair all defects in Landlord's
construction of the Club (if and to the extent expressly provided in the
Work Letter) and Common Areas. Landlord shall grant easements and/or
grant rights of way to the extent necessary for utility companies to
bring those services identified in the Work Letter to the Premises.
16. Liens.
Except with respect to a security agreement, financing statement,
financing lien or other instrument securing the financing of Trade Fixtures and
Tenant's other furniture, fixtures, equipment and improvements approved by
Landlord, Tenant shall not permit to be recorded against the Premises or any
portion of the Development or against Tenant's leasehold interest in the
Premises, any mechanics', materialmen's or other liens, including any state,
federal or local Hazardous Material clean-up liens for which Tenant is
responsible under Article 8 hereof. Landlord shall have the right at all
reasonable times to post and keep posted on the Premises any notices which it
deems necessary for protection from such liens. If any such lien is recorded,
and is not discharged by Tenant by bond or otherwise within thirty (30) days
after the recording thereof, Landlord may, without waiving its rights and
remedies based on such breach of Tenant and without releasing Tenant from any of
its obligations, cause such liens to be released by any means it shall deem
proper, including payment in satisfaction of the claim giving rise to such
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lien. Tenant shall pay to Landlord on demand, upon notice by Landlord, any sums
incurred by Landlord to remove such liens, together with Landlord's reasonable
attorneys' fees and costs and other expenses incurred by Landlord in connection
with obtaining such release and interest on such sums at the lesser of (i) the
rate of twelve percent (12%) per annum and (ii) the highest rate then legally
permissible from the date of such payment by Landlord. Tenant expressly reserves
the right to contest the validity of any such liens and to post bonds suitable
to cause the release of any such liens so long as (a) prior to any such contest
(and no later than thirty (30) days after such lien has been filed) Tenant at
its sole expense provides to Landlord a bond indemnifying against such lien that
complies with all applicable laws, and (b) Tenant contests such lien diligently
and in good faith; provided, however, the foregoing right of Tenant to contest
any such lien shall not impair or otherwise affect Tenant's indemnification and
other obligations with respect to such lien.
17. Entry by Landlord.
During normal business hours upon giving at least one (1) business day's
prior notice to Tenant (except in the case of emergencies, in which case no
notice shall be necessary), Landlord reserves and shall at any and all
reasonable times have the right to enter the Premises and the Improvements to
(i) inspect the same, (ii) show the Premises and the Improvements to prospective
lenders or purchasers (and prospective tenants during the last twelve (12)
months of the Term), (iii) post notices of nonresponsibility, and (iv) alter,
improve or repair the Common Areas or any other portion of the Development, all
without being deemed guilty of any eviction of Tenant or breach of quiet
enjoyment and without abatement or reduction of rent. Landlord shall provide
Tenant with the opportunity to escort Landlord with regard to any entry pursuant
hereto (except in case of an emergency). Landlord shall indemnify Tenant and
hold Tenant harmless from and against any and all claims, damages, losses or
costs (excluding consequential damages) actually incurred by Tenant as a result
of Landlord's entry upon the Premises pursuant to this Article 17 to the extent
not covered by insurance carried by Tenant or required to be carried by Tenant
hereunder. Landlord may, in order to carry out such purposes, erect scaffolding
and other necessary structures if reasonably required by the character of the
work to be performed, provided that to the extent within Landlord's reasonable
control, the business of Tenant shall be interfered with as little as is
reasonably practicable (it being agreed that Landlord shall not be required to
employ overtime or premium labor). It is understood and agreed that no provision
of this Lease shall be construed as obligating Landlord to perform any repairs,
alterations or decorations except as otherwise expressly agreed herein by
Landlord.
18. Utilities and Services.
From and after Substantial Completion of Landlord's Work, Tenant agrees to pay
all charges for utilities and services used by it in the Premises,
including, but not limited to, gas, electricity, telephone, sanitary
sewer, storm drainage, water, and trash collection. Landlord shall
supply hot water for heat as described in the Work Letter to such
distribution facilities designated in the Design Development Plans (as
defined in the Work Letter). Tenant shall maintain in good working order
and make all necessary
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repairs and replacements to such distribution facilities to the extent
the same are located within or exclusively service the Premises, at
Tenant's own cost and expense. Such hot water shall be supplied to the
Premises at such times and periods as Tenant shall reasonably require
for conducting its business at the Premises in the manner contemplated
by this Lease and the Work Letter (not to exceed eighteen (18) hours per
day). Landlord shall supply (or cause to be supplied) condenser water to
the Premises as described in the Work Letter at such hours (not to
exceed eighteen (18) hours per day) as Tenant may designate. Within
thirty (30) days following demand therefor, Tenant shall pay to
Landlord, as Additional Rent, Landlord's then established charges which
shall not exceed one hundred percent (100%) of Landlord's out-of-pocket
costs for the quantities of such hot water and condenser water (except
as otherwise specifically provided in the Work Letter) as Tenant may
consume, as shown on the meter(s) installed by Landlord (but maintained
by Tenant). Subject to Landlord's obligation to make utility easements
and rights of way available pursuant to the provisions of Section 15.2
hereof and to bring utility lines to the Premises pursuant to Section
1.1 hereof, Landlord shall not be liable for damages or otherwise for
any failure or interruption of any utility or other service furnished to
the Premises, unless such failure shall be due to the negligence or
willful misconduct of Landlord, its agents, licensees or employees and
is not covered by rent abatement and business interruption insurance
carried or required to be carried by Tenant. Subject to Landlord's
obligation to make utility easements and rights of way available
pursuant to the provisions of Section 15.2 hereof and to bring utility
lines to the Premises pursuant to Section 1.1 hereof, Landlord does not
warrant that any of the utilities and services mentioned herein will be
free from interruptions caused by repair, renewals, improvements,
alterations, strikes, lockouts, accidents, inability of Landlord to
obtain fuel or supplies, or any other cause or causes beyond the
reasonable control of Landlord. Any such interruption of service shall
never be deemed an eviction or disturbance of Tenant's use and
possession of the Premises, or any part thereof, or give Tenant any
right to terminate this Lease.
Tenant agrees that it will not install any equipment which will exceed or
overload the capacity of any utility facilities, and that if any
equipment installed by Tenant shall require additional utility
facilities in excess of those specified in the Work Letter, the same
shall be installed at Tenant's expense in accordance with plans and
specifications to be approved in writing by Landlord in accordance with
the standards set forth in Article 14 hereof.
19. Indemnification.
Tenant's Indemnity. Notwithstanding (i) the limits of Tenant's insurance
specified in Section 20.1 hereof and (ii) whether Tenant's insurance
shall be in full force and effect, Tenant shall indemnify, defend and
hold Landlord and the Condominium Association (if applicable) harmless
from all costs, expenses, penalties, claims, demands and liabilities
("CLAIMS") arising from Tenant's use of the Property or the conduct of
its business or from any activity, work, or thing done by Tenant in or
about the Premises. Tenant shall further indemnify, defend and hold
Landlord and the Condominium Association (if
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applicable) harmless from all Claims arising from any Default, or
arising from any act, neglect, fault or omission of Tenant or of its
agents, employees or licensees in the Premises, or arising from any act,
neglect, fault or omission of Tenant's invitees in the Premises, and
from and against all costs, attorneys' fees and costs, expenses and
liabilities incurred in connection with such Claim or any action or
proceeding brought thereon, but this indemnity shall not extend to
Claims to the extent resulting from negligent acts or omissions or
willful misconduct of Landlord or the Condominium Association, as
applicable, their respective employees, agents, licensees or invitees,
to consequential or punitive damages or to Claims that are as applicable
covered by property insurance carried by Landlord or the Condominium
Association or required to be carried by Landlord hereunder. In case any
action or proceeding shall be brought against Landlord and/or the
Condominium Association, as applicable, by reason of any such Claim,
Tenant, upon notice from Landlord and/or the Condominium Association, as
applicable, shall defend the same at Tenant's expense by counsel
approved by Landlord and/or the Condominium Association, as applicable.
Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property or injury to persons in, upon or
about the Property from any cause whatsoever, except that for which
Landlord may be liable pursuant to the indemnity contained in Section
19.2 hereof.
Landlord's Indemnity. Landlord shall indemnify, defend and hold Tenant harmless
from any and all Claims arising from any activity, work, or thing done
by Landlord in or about the Development (exclusive of the Premises).
Landlord shall further indemnify, defend and hold Tenant harmless from
all Claims arising from any breach or default in the performance of any
obligation to be performed by Landlord under the terms of this Lease or
arising from any act, neglect, fault or omission of Landlord or of its
licensees, invitees, agents or employees within the Development
(exclusive of the Premises) (provided, however, it is agreed that
tenants or other occupants of the Development and their respective
licensees, invitees, agents or employees shall not be deemed to be
Landlord's licensees, invitees, agents or employees) and from and
against all costs, attorneys' fees and costs, expenses and liabilities
incurred in connection with such Claims or any action or proceeding
brought thereon, but this indemnity shall not extend to Claims to the
extent resulting from the negligent acts or omissions or willful
misconduct of Tenant, its employees, agents or licensees, to
consequential or punitive damages or to Claims that are covered by
property insurance carried by Tenant or required to be carried by Tenant
hereunder. In case any action or proceeding shall be brought against
Tenant by reason of any such Claims, Landlord, upon notice from Tenant,
shall defend the same at Landlord's expense by counsel approved by
Tenant; it being agreed that Battle Fowler LLP and/or counsel designated
by Landlord's insurer are acceptable to Tenant for such purpose.
No Release of Insurers. Tenant's and Landlord's indemnification obligations
under Sections 19.1 and 19.2 hereof are not intended to and shall not
relieve any insurance carrier of its obligations under policies carried
by Landlord or Tenant, and such indemnification obligations shall
survive the expiration or earlier termination of this Lease.
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20. Insurance.
Tenant's Insurance. Tenant shall, during the Term and any other period of
occupancy of the Premises, at its sole cost and expense, keep in full
force and effect the following insurance:
Property. Standard form property insurance insuring against the
perils of fire, extended coverage, vandalism, malicious mischief,
special extended coverage ("ALL-RISK") and sprinkler leakage, covering
all property owned by Tenant, for which Tenant is legally liable or that
was installed solely at Tenant's expense, and which is located on the
Premises, including interior improvements, furniture, fittings,
installations, Trade Fixtures, equipment, facilities and any other
personal property and any alterations, additions and improvements
constructed by Tenant pursuant to Section 14.1 hereof (but excluding any
property required to be insured by Landlord under Section 20.4 hereof),
in an amount not less than the full replacement cost thereof. All
proceeds from the insurance required under this Section 20.1(i) shall be
used for the repair, restoration or replacement of the damaged or
destroyed property unless this Lease terminates pursuant to Section 21
hereof, in which event the provisions of Section 20.3 hereof shall
control.
Liability. Comprehensive General Liability Insurance insuring
Tenant against any liability arising out of the lease, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be in the amount of not less than $5,000,000.00 Combined
Single Limit for injury to, or death of, one or more persons in an
occurrence, and for damage to tangible property (including loss of use)
in an occurrence. Any such coverage requirement may be satisfied by an
umbrella policy. Such policies shall insure the hazards of premises and
operations, independent contractors, contractual liability (covering the
indemnity contained in Section 19 hereof) and shall (a) name Landlord,
the Condominium Association (if applicable) and any mortgagee of
Landlord as additional insureds, (b) contain a cross liability
provision, and (c) contain a provision that "the insurance provided
Tenant hereunder shall be primary and noncontributing with any other
insurance available to Landlord or the Condominium Association," so long
as such provision may be available. The limit of insurance required
pursuant to this Section 20.1(ii) shall be subject to review by Landlord
and, to the extent that the amount of such insurance is less than the
limits normally and customarily maintained with respect to Similar
Premises (as hereinafter defined), Landlord, from time to time, may
require Tenant to increase, or cause to be increased, such limit (but
Landlord shall not require such increases more frequently than once
every ten (10) years). Any dispute as to the reasonableness of any such
increase in the insurance limit which Landlord shall purport to require
of Tenant under this Section, from time to time, shall be submitted to
arbitration pursuant to Section 7.3 hereof; provided, however, that
Tenant shall maintain insurance for the disputed policy limit during the
pendency of any such arbitration proceeding. As used herein, the term
"SIMILAR PREMISES" shall mean the first-class mixed-use buildings being
located in Washington, D.C., or other first-class mixed-use buildings or
premises having business operations of a nature and character
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substantially similar to the nature and character of the business
operations being conducted at the Premises, and being located in
Washington, D.C.
Workers' Compensation. Workers' Compensation and Employer's
Liability insurance (as required by state law).
Rental Interruption. Twelve (12) months rent abatement and
business interruption insurance which shall cover Tenant's monetary
obligations under this Lease and any direct or indirect loss of earnings
attributable to perils insured against under extended coverage all-risk
property insurance; provided, however, that Tenant shall be entitled to
self-insure such risk.
Liquor. Liquor liability insurance coverage with commercially
reasonable coverage limits, but in no event less than $5,000,000.00 per
occurrence, naming Landlord, the Condominium Association and any
mortgagee of Landlord as additional insureds. Any such coverage
requirement may be satisfied by an umbrella policy.
Requirements. All policies required of Tenant shall be written by an insurer
satisfactory to Landlord. Such policies shall name Landlord and the
Senior Interest Holders (as hereinafter defined) of which Tenant has
notice as additional insureds. Prior to the date Tenant enters the
Premises, but in no event later than sixty (60) days after the execution
of this Lease, Tenant shall deliver to Landlord copies of policies or
certificates evidencing the existence of the amounts and forms of
coverage required (or, in the event of self-insuring as permitted in
Section 20.1(iv) hereof only, evidence of the net worth of Tenant or a
Person providing a guaranty of this Lease to Landlord of not less than
$10,000,000). No such policy shall be cancelable or reducible in
coverage except after thirty (30) days' prior written notice to
Landlord. Tenant shall, within thirty (30) days prior to the expiration
of any such policies, furnish Landlord with renewals, certificates of
insurance, or "binders" thereof, and, if Tenant fails to do so within
ten (10) days following notice of such failure, then, upon an additional
notice to Tenant, Landlord may order such insurance and charge the cost
thereof to Tenant as Additional Rent. If Landlord obtains any insurance
that is the responsibility of Tenant under this Article 20, Landlord
shall deliver to Tenant a statement setting forth the cost of any such
insurance and showing in reasonable detail the manner in which it has
been computed, and, if obtainable, a certificate of insurance naming
Tenant as the insured or as an additional insured. Tenant's obligation
to carry insurance provided for in this Article 20 may be satisfied by
inclusion within the coverage of any blanket policy or policies of
insurance carried or maintained by Tenant, provided that the coverage
required herein will not be reduced or diminished by reason of the use
of such blanket policies of insurance.
Proceeds Upon Termination. In the event of damage to or destruction of the
Improvements resulting in termination of this Lease pursuant to Article
21 hereof, (i) Landlord shall be entitled to all proceeds of the
insurance required to be maintained under Section 20.4 hereof (subject
to Landlord's obligation to cause such proceeds to be disbursed for the
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purposes of restoration, as herein provided) and (ii) Tenant shall
immediately pay to Landlord all of its property insurance proceeds, if
any, plus any deductible amount (subject to the limitation described
below) relating to the Improvements and all other items of property
which would have become Landlord's property upon expiration or earlier
termination of this Lease absent such damage or destruction (but not
relating to Trade Fixtures or Tenant's other equipment, furniture or
personal property). Notwithstanding the foregoing, Tenant shall not be
required to pay any such deductible amounts to Landlord unless Landlord
can reasonably demonstrate that Landlord has entered into a new lease
with a non-Affiliate of Landlord for an athletic club in the Premises
for a lease term of not less than ten (10) years within twelve (12)
months after the termination of this Lease.
Landlord's Insurance. Landlord may, but shall not be obligated to, take out and
carry any form or forms of insurance ("LANDLORD'S INSURANCE") as it may
reasonably determine advisable, or as may be required by Landlord's
mortgagee; provided, however, that Landlord shall be required to carry
(i) Comprehensive General Liability Insurance in amounts not less than
those required of Tenant pursuant to Section 20.1 hereof and (ii)
insurance against any peril insurable under an all-risk property
insurance policy covering the Improvements, exclusive of any item
insured by Tenant pursuant to Section 20.1(i) hereof, in an amount which
is one hundred percent (100%) of the full replacement cost of the
Improvements. Landlord's obligation to carry the all-risk property
insurance provided for in this Section 20.4 may be satisfied by
inclusion of the Improvements within the coverage of any blanket policy
or policies of insurance carried or maintained by Landlord, provided
that the coverage required herein will not be reduced or diminished by
reason of the use of such blanket policies of insurance. Tenant shall
reimburse Landlord, as Additional Rent payable in equal monthly
installments, the cost of the all-risk property insurance for the
Improvements required by this Section 20.4 commencing within thirty (30)
days following demand therefor, and the premiums for such insurance will
not be included in the Insurance Escalation (as defined herein). In the
event such all-risk property insurance covers improvements other than
the Improvements, Tenant's pro rata share will be that proportion that
the Floor Area of the Improvements bears to the total Floor Area of all
improvements covered by such policy.
Insurance Escalation. Except for Landlord's cost of the all-risk property
insurance for the Improvements, as addressed in Section 20.4 hereof, if
Landlord's cost of obtaining Landlord's Insurance for the Property
and/or the Building and the operations thereof exceeds the cost of
obtaining such insurance for the first twelve (12) months following the
Commencement Date, Tenant shall pay to Landlord, as Additional Rent,
within thirty (30) days, after being billed therefore, an amount equal
to Tenant's Share of such increased cost.
Compliance. Landlord and Tenant shall promptly comply with all reasonable
requirements of the insurance authority or of any insurer now or
hereafter relating to the Premises.
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Waiver of Subrogation. All policies of all-risk, fire, extended coverage or
similar property insurance which either party obtains or is required to
maintain in connection with the Development, and the insurance required
to be obtained by Tenant pursuant to the provisions of Section 20.1 (iv)
hereof, and, if obtainable, all liability policies, shall include or
shall be deemed to include a clause or endorsement denying the insurer
any rights of subrogation against the other party. Landlord and Tenant
waive all rights of recovery against the other for injury or loss due to
hazards covered by insurance containing or deemed to contain such a
waiver of subrogation clause or endorsement to the extent of the injury
or loss covered thereby.
21. Damage or Destruction.
(i) Tenant's Reconstruction. In the event the Improvements shall be damaged by
fire or other perils and this Lease shall not be terminated as hereafter
provided, Tenant, at its sole cost and expense, shall within a period of
thirty (30) days thereafter, commence repair, reconstruction and
restoration of the Improvements to their condition existing immediately
prior to such damage and prosecute the same diligently to completion in
compliance with all applicable laws, and this Lease shall continue in
full force and effect unless this Lease is terminated as hereinafter
provided. Any such repair, reconstruction and restoration shall be
performed strictly in accordance with the provisions of Article 14
hereof and Tenant shall be entitled to apply the insurance proceeds to
the repair, reconstruction and restoration in the manner provided in
Section 21.2 hereof. If at any time Tenant shall fail to prosecute such
work of repair or rebuilding with diligence, then Landlord may give to
Tenant notice of such failure and if such failure continues for twenty
(20) days thereafter, then Landlord, in addition to all other rights
which it may have, may, at Tenant's sole cost and expense, enter upon
the Premises, provide labor and/or materials, cause the performance of
any contract and/or take such other action as it may deem advisable to
prosecute such work. For this purpose, any contracts made by Tenant for
purposes of accomplishing repair, reconstruction and restoration of the
Improvements shall be in a form assignable to Landlord and shall be
subject to Landlord's approval. Landlord shall be entitled to
reimbursement for its costs and expenses in performing such work from
any insurance proceeds and any other moneys held by the Depository (as
defined herein) for application to the cost of such work in accordance
with Section 21.2 hereof. All costs and expenses incurred by Landlord in
carrying out such work for which it is not reimbursed by the Depository
shall be paid by Tenant upon demand, which demand may be made by
Landlord periodically as such costs and expenses are incurred, in
addition to any damages to which Landlord may be entitled hereunder.
(ii) Uninsured Casualty. In the event the Improvements shall be
damaged by peril which is not covered by insurance required to be
maintained hereunder (or which is otherwise maintained, if to a greater
standard), and if a duly qualified contractor certifies, in good faith
and fair dealing, that the amount required to repair such damage exceeds
the Uninsured Contribution Amount (as defined herein), Tenant shall have
the option to
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terminate this Lease upon giving notice to Landlord of its exercise of
such termination option within sixty (60) days after such damage or
destruction. Upon such termination of this Lease, the parties shall be
released without further obligations to the other coincident with the
surrender of possession of the Premises to Landlord, except for items
which theretofore accrued and are then unpaid and any obligations
specified in this Lease which are to survive the termination of this
Lease. Notwithstanding the foregoing, in the event that Tenant exercises
its option to terminate this Lease pursuant to the provisions of this
Section 21.1 (ii), Landlord shall have the option, exercisable within
thirty (30) days after Landlord's receipt of Tenant's termination
notice, to notify Tenant that Landlord elects to fund the amount
required to repair such damage and destruction in excess of the
Uninsured Contribution Amount (as defined herein), in which case such
repair, reconstruction and restoration shall be performed pursuant to
the procedures set forth in this Section 21.1(ii), except that Tenant
shall contribute the Uninsured Contribution Amount and Landlord shall
fund any additional amounts necessary to accomplish such repair,
reconstruction and restoration. The "UNINSURED CONTRIBUTION AMOUNT"
shall be Five Hundred Thousand ($500,000.00) Dollars if the casualty
occurs during the first (180) calendar months of the Initial Term, which
amount shall be reduced at the beginning of the one hundred ninety third
(193rd) calendar month of the Initial Term, and every twelve (12) months
thereafter, by One Hundred Thousand ($100,000.00) Dollars, until (but
not including) the beginning of the last twelve (12) months of the
Initial Term. The One Hundred Thousand ($100,000.00) Dollars Uninsured
Contribution Amount in effect for the last twelve (12) months of the
Initial Term shall remain throughout any Option Periods.
(iii) Landlord Termination. In the event that any portion of the
Development (including the Building) shall be damaged to such an extent
that Landlord, the Condominium Association or any of Landlord's lenders
shall elect not to restore same, then Landlord shall have the right to
terminate this Lease within ninety (90) days following the date of the
damage or destruction or, if applicable, within a reasonable time after
Landlord shall have been notified of the Condominium Association's or
lender's decision not to restore. Upon such termination of this Lease,
the parties shall be released without further obligations to the other
coincident with the surrender of possession of the Premises to Landlord,
except for items which theretofore accrued and are then unpaid and any
obligations specified in this Lease which are to survive the termination
of this Lease. Subject to the rights of Landlord's lenders and/or the
Condominium Association, Landlord shall not elect to terminate this
Lease unless a material portion of the Development (i.e., more than
twenty five percent (25%)) shall have been damaged. Landlord agrees that
if (1) this Lease is terminated by Landlord pursuant to this Section
21.1(iii) and Landlord thereafter reconstructs, restores or repairs the
Building or the Premises, (2) at the time of such casualty Tenant is
then operating a Club (including support facilities) within at least
seventy-five percent (75%) of the Premises, (3) at the time of such
casualty no monetary Default (as defined herein) and/or material Default
shall have occurred and be continuing under this Lease, (4) at the time
of such casualty, the Unexpired Lease Term (as defined herein) is at
least five (5) years or Tenant
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exercises an Option for an Option Period, regardless of whether Tenant
then would otherwise have the right to exercise same, by delivering
notice to Landlord simultaneously with the delivery to Landlord of the
Tenant Acceptance Notice (as defined herein) subject to and in
accordance with this Section 21.1(iii), (5) within one-hundred eighty
(180) days following the termination of this Lease pursuant to this
Section 21.1 (iii), Tenant shall deliver to Landlord a statement signed
and certified by the chief financial officer of Tenant, if Tenant is a
corporation, by a managing member, if Tenant is a limited liability
company, or by the chief financial officer of a corporate general
partner of Tenant, if Tenant is a partnership (such person, the
"FINANCIAL OFFICER"), to be true and correct disclosing in reasonable
detail the aggregate amount of costs and expenses actually incurred by
Tenant as the result of the cessation of Tenant's business operations in
the Premises and such termination of this Lease (e.g., including,
without limitation, the unrecouped costs and expenses actually incurred
by Tenant in connection with the development of a Club in the Premises
and reimbursement to Tenant's Club members of membership fees) which are
not covered by insurance maintained by Tenant or otherwise reimbursed to
Tenant (collectively, the "TENANT TERMINATION COSTS") and (6) at the
time of the Landlord Offer (as defined herein), Tenant or an Affiliate
of Tenant is then operating a first-class coed athletic club, Landlord
shall not operate a Club in the Premises or offer to lease or accept any
offer to lease the Premises to any party within a period of five (5)
years after such termination of this Lease unless Landlord shall have
first offered in writing (the "LANDLORD OFFER") to lease the Premises to
Tenant on the terms and conditions of this Lease (including, without
limitation, any unexercised Option Periods) for a term equal to the
unexpired portion of the term of this Lease as of such termination date
(the "UNEXPIRED LEASE TERM") calculated as if this Lease had not been
terminated and Tenant shall not have accepted such offer by notice to
Landlord within thirty (30) days after such offer is given to Tenant
(the "TENANT ACCEPTANCE NOTICE"). Notwithstanding the foregoing, in the
event that Tenant exercises its option to lease the Premises pursuant to
this Section 21.1 (iii), Landlord shall have the option, exercisable
within thirty (30) days after Landlord's receipt of the Tenant
Acceptance Notice, to nullify the Tenant Acceptance Notice by delivering
to Tenant notice and paying to Tenant the Tenant Termination Costs. Upon
Tenant's receipt of such nullification notice and the payment of the
Tenant Termination Costs, the Tenant Acceptance Notice shall be deemed
null and void and of no force and effect and Tenant shall be deemed to
have waived and relinquished its right to lease the Premises and
Landlord shall at any and all times thereafter be entitled to lease all
or any portion of the Premises to others at such rental and upon such
terms and conditions as Landlord in its sole discretion may desire.
Depository. The "DEPOSITORY" shall be a bank or trust company authorized to do
business in the District of Columbia, with a net worth of at least
$10,000,000.00 selected by Tenant and approved by Landlord; provided,
however, that if (i) Tenant does not make such a selection within ten
(10) business days after notice and demand by Landlord, then Landlord
may select the Depository and (ii) if Landlord has a lender whose loan
is secured by the Property, then anyone, excluding Landlord or any
Affiliate of Landlord,
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designated by such lender shall be the Depository. Subject to Section
21.5 hereof, all property insurance moneys recovered on account of
damage or destruction to the Improvements shall be applied to the
payment of the cost of repairing and replacing the Improvements. If net
available insurance moneys shall be insufficient to pay the entire cost
of such work, then Tenant shall bear the cost thereof in excess of the
net available insurance moneys. Except for work which is reasonably
expected to cost less than $100,000.00 (with respect to which Landlord
shall hold the proceeds), the Depository shall hold insurance proceeds
with respect to the Improvements and shall disburse said proceeds during
the course of the work of repair, reconstruction and restoration in
accordance with the provisions set forth below unless the Depository is
Landlord's lender or a designee of such lender, in which event the
provisions of the loan documentation shall control. The Depository shall
not be required to make disbursements more often than at thirty (30) day
intervals. Landlord, Tenant and the Depository shall reasonably,
promptly and in good faith prepare and execute reasonable and
appropriate instructions for disbursement of the proceeds which shall
include a procedure for receipt of certificates, plans, notices, lien
releases and applications for payment. Notwithstanding anything to the
contrary contained herein, disbursement of such insurance proceeds shall
in all events (i) be subject to such requirements as may be imposed by
the Condominium Association and/or any mortgagee of Landlord and (ii)
include a procedure for a retainage of ten percent (10%) of the cost of
the work from each draw disbursed in connection with such restoration
until at least thirty (30) days after the completion of all work. If,
after all of said work shall be completed in accordance with the terms
of this Lease and all governmental approvals and permits required have
been obtained, there are funds held by the Depository for application to
the cost of such work in excess of the amounts withdrawn, then such
funds (after first applying such funds to the costs and expenses of the
Depository) shall be delivered to Tenant; provided, however, that if the
funds held by the Depository are a result of any insurance carried by
Landlord or Section 21.5 hereof, such funds shall be delivered to
Landlord. The Depository may retain free of trust its reasonable fees
and expenses for acting as such. In the event there are not sufficient
funds held by the Depository to pay its fees and expenses, Landlord and
Tenant shall share equally the fees and expenses of the Depository.
No Termination or Rental Abatement. No destruction of or damage to the
Property or any part thereof, whether such destruction or damage be
partial or total or whether such destruction or damage shall have been
covered by insurance or not, shall entitle or permit Tenant to surrender
or terminate this Lease (except as provided in Section 21.1(ii) hereof)
or relieve Tenant from liability to pay in full the rents and other sums
and charges payable by Tenant hereunder (except as provided in Section
21.4 hereof), or from any of its obligations under this Lease. Tenant
hereby waives any rights now or hereafter conferred upon it by statute
or other law to surrender this Lease or to quit or surrender the
Property or any part thereof, or to receive any suspension, diminution,
abatement or reduction of the rent or other sums and charges payable by
Tenant hereunder on account of any such destruction or damage, except as
otherwise expressly provided in this Lease.
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Limited Rental Abatement. Notwithstanding anything to the contrary contained
herein, in the event that the Improvements shall be damaged by peril
which is not covered by insurance required to be maintained hereunder
(or which is otherwise maintained), then, to the extent not covered by
the rent abatement insurance or business interruption insurance required
to be carried by Tenant pursuant to Section 20.1 (iv) hereof (whether by
self insuring or otherwise), Tenant shall be entitled to abate its
obligations to pay Monthly Base Rent and, as applicable, Common Area
Expenses or Operating Expenses, for the period from the date of such
peril until the earlier of (i) the date upon which Tenant opens for
operation of its business, or (ii) the date which is twelve (12) months
after the date of such peril, provided that such twelve (12) month
period shall be reduced to the extent that Tenant does not diligently
seek to repair the damage caused as a result of such peril and/or
re-open the Premises for the operation of its business. From and after
the expiration of such rental abatement, Tenant's obligation to pay
Monthly Base Rent and, as applicable, Common Area Expenses or Operating
Expenses shall once again commence.
Lender's Prior Rights to Insurance Proceeds. Notwithstanding anything to the
contrary herein, Tenant acknowledges that the rights of any lender
holding a mortgage or deed of trust against the Premises ("SECURED
LENDER") to any insurance proceeds applicable to the Improvements,
except for Tenant's Insurance Share (as defined herein), shall be
superior to the rights of Landlord and Tenant to such proceeds.
"TENANT'S INSURANCE SHARE" is equal to Tenant's "pro rata share" (as
determined in accordance with Section 22.1 hereof) of the insurance
proceeds payable for the damaged Improvements. Landlord agrees to use
commercially reasonable efforts to cause the Secured Lender to make the
insurance proceeds in which the Secured Lender has a prior interest
available to Tenant for reconstruction as contemplated in this Lease.
If, within two hundred seventy (270) days following a casualty, a
Secured Lender has not made such proceeds available for reconstruction,
then at Tenant's election this Lease shall terminate as of said 270th
day, unless Landlord gives notice to Tenant on or before said 270th day
that Landlord is willing to provide the sums necessary for
reconstruction in excess of any deductibles and Tenant's Insurance
Share, in which case this Lease shall not terminate and Landlord shall
deposit such sums with the Depository and Tenant shall reconstruct the
Premises in accordance with the provisions of this Article 21 hereof.
The disbursement of any insurance proceeds applicable to the
Improvements shall be subject to the control of the Secured Lender
notwithstanding anything to the contrary in Section 21.2 hereof.
22. Eminent Domain.
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Permanent Taking. In case all of the Property (a "TOTAL TAKING"), or such part
thereof as shall substantially interfere with Tenant's use and occupancy
thereof to the extent Tenant cannot operate the Club (a "SUBSTANTIAL
TAKING"), shall be taken for any public or quasi-public purpose by any
lawful power or authority by exercise of the right of appropriation,
condemnation or eminent domain, or sold to prevent, or in lieu of, such
taking, this Lease shall automatically terminate effective as of the
date possession is required to be surrendered to said authority. In the
event the amount of property or the type of estate taken shall not
substantially interfere with the conduct of Tenant's business (a
"PARTIAL TAKING"), Tenant shall restore the Property to substantially
its same condition prior to such Partial Taking and a fair and equitable
allowance shall be made to Tenant for the rent corresponding to the time
during which, and to the part of the Property of which, Tenant shall be
so deprived on account of such taking. Tenant shall not assert any claim
against Landlord for any compensation because of such taking. In the
event of a Total Taking, Substantial Taking or Partial Taking, any award
shall belong to and be paid to Landlord subject to the rights of any
mortgagee of Landlord's interest in the Premises or the beneficiary of
any deed of trust which constitutes an encumbrance thereon, except that
Tenant shall be entitled to any portion of such award related to (i)
Trade Fixtures or Tenant's other equipment and/or personal property
which is taken, (ii) Tenant's moving expenses and loss of goodwill,
(iii) Tenant's "pro-rata share" of the straight-line (on a 20-year
basis) unamortized costs of the Improvements taken, and (iv) in the case
of a Partial Taking only, the amount required to restore the Property to
substantially its same condition prior to such Partial Taking which
shall be held by the Depository for Landlord and shall be disbursed to
Tenant for the purposes of such restoration upon the same terms and
conditions as if they were insurance proceeds under Article 21 hereof.
For the purposes of this Section 22.1, "pro-rata share" shall be
determined by the proportion that the cost paid by Tenant for the taken
Improvements bears to the total of those costs paid therefor by Landlord
and Tenant. Nothing contained in this Section 22.1 shall be deemed to
give Landlord any interest in any award made to Tenant for the taking of
Trade Fixtures or Tenant's other personal property, fixtures and
goodwill and for relocation expenses. Landlord agrees not to interfere
with Tenant's right to participate in any condemnation proceedings. The
provisions of this Section 22.1 shall survive the termination of this
Lease.
Temporary Taking. In the event of taking of the Property or any part thereof for
temporary use, (i) this Lease shall be and remain unaffected thereby and
rent shall not abate, and (ii) Tenant shall be entitled to receive for
itself such portion or portions of any award made for such use with
respect to the period of the taking which is within the Term provided
that if such taking shall remain in force at the expiration or earlier
termination of this Lease, Tenant shall then pay to Landlord a sum equal
to the reasonable cost of performing Tenant's obligations under Article
15 hereof with respect to the surrender of the Property and upon such
payment shall be excused from such obligations. For purpose of this
Section 22.2, a temporary taking shall be defined as a taking for a
period of ninety (90) days or less.
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Waiver. Landlord and Tenant each hereby waive any statutory rights of
termination which may arise by reason of a taking.
23. Defaults and Remedies.
Defaults. The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant ("DEFAULT"):
The vacation or abandonment of the Premises by Tenant or failure
to continuously operate the Club in accordance with Article 8 hereof
where Tenant has failed to cure such vacation, abandonment or failure to
operate within thirty (30) days following notice from Landlord to Tenant
of the need for such cure (the parties agree, however, that cessation of
operations of business from the Premises from time to time for the
purpose of remodeling the Premises or making alterations, additions or
improvements to the Property (collectively "TEMPORARY CLOSURES") shall
not be considered vacation or abandonment of the Premises provided and
on condition that; Tenant shall use commercially reasonable efforts to
complete any and all such work, from time to time, in an expeditious and
non-disruptive manner).
The failure by Tenant to make any payment of Rent or any other
payment required to be made by Tenant hereunder (including the Work
Letter), where such failure shall continue for a period of ten (10)
business days following notice from Landlord to Tenant that such payment
is due; provided, however, Tenant shall be entitled to such notice and
opportunity to cure on only two (2) occasions during any Lease Year;
The failure by Tenant to observe or perform any of the covenants
or provisions of this Lease (including the Work Letter) to be observed
or performed by Tenant, other than as specified in Sections 23.1(i) or
(ii) hereof, where such failure shall continue for a period of thirty
(30) days after notice thereof from Landlord to Tenant. If the nature of
the Default is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in Default
if Tenant shall commence such cure within said thirty-day period and
thereafter diligently prosecutes such cure to completion, which
completion shall occur not later than one hundred twenty (120) days from
the date of such notice from Landlord;
(a) The making by Tenant of any general assignment for the
benefit of creditors; (b) the filing by or against Tenant of a petition
to have Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy unless, in the case of
a petition filed against Tenant, the same is dismissed within one
hundred twenty (120) days; (c) the appointment of a trustee or receiver
to take possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where possession is
not restored to Tenant within one hundred twenty (120) days; or (d) the
attachment, execution or other judicial seizure of substantially all of
Tenant's
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assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged within 120 days; or
The failure by Tenant to open for business to the general public
within twelve (12) months following Substantial Completion of the
Premises, subject to Force Majeure, within thirty (30) days following
notice from Landlord to Tenant of the need for such cure.
Any notice provided for in this Section 23.1 shall be in addition
to, and not in lieu of, any statutorily required notice regarding unlawful
detainer actions.
In the event that this Lease is terminated by notice as provided
for in Section 23.1(iv) hereof and Tenant shall thereafter seek protection under
the Federal Bankruptcy Laws or any state equivalent, then Tenant if a
debtor-in-possession agrees to consent to any application by Landlord to
terminate the automatic stay provisions of the Federal Bankruptcy Code on the
grounds that there is no equity in this Lease as a result of the pre-petition
termination notice.
Remedies. In the event of any Default, in addition to any other remedies
available to Landlord at law or in equity, Landlord shall have the
immediate option to terminate this Lease and all rights of Tenant
hereunder. In the event that Landlord shall elect to so terminate this
Lease then Landlord may recover from Tenant:
the worth at the time of award of any unpaid Rent which had been
earned at the time of such termination; plus
the worth at the time of award of the amount by which the unpaid
Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
the worth at the time of award of the amount by which the unpaid
Monthly Base Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided.
As used in Section 23.2(i) and (ii) hereof, the "worth at the
time of award" is computed by allowing interest at the prime, base or reference
rate of The Chase Manhattan Bank of New York, or its successors, from time to
time, charged to its most favored customers on commercial loans having a 90-day
duration (the "PRIME RATE") plus two percent (2%). As used in Section 23.2(iii)
hereof, the "worth at the time of award" is computed by discounting such amount
by the Prime Rate at the time of award. Notwithstanding anything to the contrary
contained in this Lease, neither Landlord nor Tenant shall be liable for
consequential or punitive damages which may be suffered by the other as a result
of a default by Landlord or default by Tenant under this Lease.
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Re-entry. In the event of any Default, Landlord shall also have the right,
without demand or notice, without terminating this Lease, to re-enter
the Premises and remove all persons and property from the Premises,
either by summary proceedings or by action at law, without being deemed
guilty of trespass and without prejudice to any remedies for nonpayment
or late payment of any Rent or breach of any covenant. Such property may
be removed and stored in a public warehouse or elsewhere at the cost of
and for the account of Tenant. If Landlord elects to re-enter the
Premises, Landlord may terminate this Lease, or from time to time,
without terminating this Lease, may relet all or any part of the
Premises as agent for Tenant for such term or terms and at such rental
and upon such other terms and conditions as Landlord may deem advisable,
with the right to make alterations and repairs to the Premises as
Landlord, in Landlord's reasonable judgment, considers advisable and
necessary for the purpose of reletting the Premises. No re-entry or
taking possession of the Premises by Landlord pursuant to this Section
23.3 shall be construed as an election to terminate this Lease unless
notice of such intention is given to Tenant or unless the termination
thereof is decreed by a court of competent jurisdiction.
If Landlord terminates this Lease or re-enters the Premises
pursuant to this Article 23, Tenant shall remain liable (in addition to accrued
liabilities) for: (i) any unpaid Rent due at the time of termination, plus
interest thereon from the due date at the Prime Rate; provided, however, that if
such interest is limited by law to a lesser amount, Landlord shall be entitled
to the maximum amount of interest permitted by law, (ii) subject to clause (v)
of this paragraph, Rent until the date this Lease would have expired had such
termination not occurred; (iii) any and all reasonable expenses (including all
reasonable attorneys' fees, costs and brokerage fees) incurred by Landlord in
re-entering and repossessing the Premises, in making good any Default by Tenant,
in protecting and preserving the Premises by use of watchmen and caretakers and
in reletting the Premises (subject to the provisions of the immediately
preceding paragraph and provided that Tenant shall not be liable for any
expenses incurred by Landlord with respect to alterations which are not
consistent with the use of the Premises as an athletic club and/or a use(s)
complimentary to an athletic club); and (iv) any other amount reasonably
necessary to compensate Landlord for any other detriment actually caused
Landlord by Tenant's failure to perform its obligations under this Lease, less
(v) the net proceeds received by Landlord from any reletting prior to the date
this Lease would have expired if it had not been terminated. Tenant agrees to
pay to Landlord the amount so owned above for each month during the Term, at the
beginning of each such month. Any suit brought by Landlord to enforce collection
of such amount for any one month shall not prejudice Landlord's right to enforce
the collection of any such amount for any subsequent month. In addition to the
foregoing, and without regard to whether this Lease has been terminated, Tenant
shall pay to Landlord all costs incurred by Landlord, including reasonable legal
fees and costs, with respect to any lawsuit or action instituted or taken by
Landlord to enforce the provisions of this Lease. Tenant's liability shall
survive the institution of summary proceedings and the issuance of a warrant or
writ thereunder.
If Landlord terminates this Lease, Landlord shall have the right
at any time, at its sole option, to require Tenant to pay to Landlord on demand,
as liquidated and agreed final damages in lieu of Tenant's liability hereunder:
(i) the then present cash value of the Rent, and
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all other sums which would have been payable under this Lease from the date of
such demand to the date when this Lease would have expired if it had not been
terminated, minus (ii) the fair market value of the Premises for the same
period; provided, however, that if such damages are limited by law to a lesser
amount, Landlord shall be entitled to prove as liquidated damages the maximum
amount permitted by law.
Landlord shall use commercially reasonable efforts to relet the
Premises in the event this Lease is terminated pursuant to the provisions of
this Article 23.
Tenant, on its own behalf and on behalf of all persons claiming
through Tenant, including, but not limited to, all creditors, does hereby waive
any and all rights and privileges, so far as is permitted by law, which Tenant
and all such persons might otherwise have under any present or future law: (i)
to redeem the Premises; (ii) to reenter or repossess the Premises; (iii) to
restore the operation of this Lease, with respect to any dispossession of Tenant
by judgment, warrant or writ of any court or judge, or any re-entry by Landlord,
any expiration or termination of this Lease, whether such dispossession,
re-entry, expiration or termination of this Lease shall be by operation of law
or pursuant to the provisions of this Lease; or (iv) to the service of any
notice of intention to re-enter or notice to quit which may otherwise be
required to be given. The words "disposition," "re-enter", and "re-elected" as
used in this Lease shall not be deemed to be restricted to their technical
meanings.
In the event of any breach or threatened breach by Tenant or any
persons claiming through Tenant of any of the provisions contained in this
Lease, Landlord shall be entitled to enjoin such breach or threatened breach and
shall have the right to invoke any right or remedy allowed at law, in equity, or
otherwise.
Cumulative Rights. Except as otherwise expressly provided in this Lease, all
rights, options and remedies of Landlord contained in this Lease shall
be construed and held to be cumulative, and no one of them shall be
exclusive of the others, and Landlord shall have the right to pursue any
one or all of such remedies or any other remedy or relief which may be
provided by law, whether or not stated in this Lease. No waiver of any
Default shall be implied from any acceptance by Landlord of any rent or
other payments due hereunder or any omission by Landlord to take any
action on account of such Default if such Default persists or is
repeated, and no express waiver shall affect Defaults other than as
specified in said waiver.
Waiver of Trial by Jury. Tenant hereby waives all right to trial by jury in any
claim, action, proceeding or counterclaim by Landlord against Tenant on
any matters arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, and/or Tenant's use or occupancy of
the Premises.
24. Assignment and Subletting.
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Landlord's Consent. Except as otherwise expressly provided in the last sentence
of Section 8.1 hereof and in Section 24.3 hereof, Tenant shall not,
either voluntarily or by operation of law, assign, sublet, pledge,
encumber, hypothecate or otherwise transfer this Lease, without the
prior consent of Landlord, which consent may be granted or withheld in
Landlord's sole and absolute discretion. Without limiting the foregoing,
it shall be a condition to Landlord's consent hereunder that the
assignee execute, acknowledge and deliver to Landlord an agreement
whereby such assignee agrees to be bound by all of the covenants and
agreements in this Lease which Tenant has agreed to keep, observe or
perform.
Notice. Subject to the provisions of Article 46 hereof, in the event Tenant
desires to assign, sublet, pledge, encumber, hypothecate or otherwise
transfer this Lease, then at least thirty (30) days prior to the date
when Tenant desires the transaction to be effective (the "ASSIGNMENT
DATE"), Tenant shall give Landlord a notice (the "ASSIGNMENT NOTICE"),
which shall set forth the name, address and business of the proposed
assignee or sublessee, information (including references) concerning the
character, ownership, and financial condition of the proposed assignee
or sublessee, the Assignment Date, and any ownership or commercial
relationship between Tenant and the proposed assignee or sublessee. If
Landlord requests additional detail within ten (10) days after Tenant's
initial submission, the Assignment Notice shall not be deemed to have
been received until Landlord receives such additional detail, and
without otherwise limiting the provisions of Section 24.1 hereof,
Landlord may withhold consent to any assignment or sublease until such
information is provided to it.
Ownership Transfers. Except as otherwise expressly provided in this Section
24.3, any dissolution, merger, consolidation, or other reorganization of
the corporation which constitutes Tenant, or the sale or other transfer
of fifty percent (50%) or more of the corporate stock of the
corporation, or the sale of fifty percent (50%) or more of the value of
the assets of the corporation, shall be deemed an assignment prohibited
by this Article 24 unless Landlord's prior consent is obtained, which
consent shall not be unreasonably withheld or delayed provided and on
condition that: (i) the principal purpose for such assignment is not the
circumventing of the restrictions and limitations contained in this
Article 24; (ii) Tenant shall notify Landlord, in writing, of any such
proposed assignment not less than twenty (20) days prior to the date on
which Tenant proposes to assign its interest in this Lease; (iii) the
assignee shall be reputable and shall have in the reasonable judgment of
Landlord, sufficient financial worth to perform the obligations of
Tenant under this Lease (after consideration of the then net worth of
each Person providing a guaranty or surety of this Lease to Landlord) as
evidenced by the submission to Landlord of financial and other
information regarding the proposed assignee, including, without
limitation, its business experience, a current financial statement and
such other information as Landlord may reasonably request; (iv) Tenant
shall within ten (10) days after an assignment is executed deliver to
Landlord a copy of such assignment; (v) such assignee shall execute,
acknowledge and deliver to Landlord an agreement, in form and substance
reasonably satisfactory to Landlord, whereby such assignee shall assume
the
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obligations and performance of this Lease and agree to be personally
bound by and upon all of the terms and conditions of this Lease on the
part of Tenant to be performed or observed; (vi) each Person providing a
guaranty or surety of this Lease to Landlord shall deliver an agreement
in form and substance reasonably satisfactory to Landlord reaffirming
such Person's obligations and liabilities under its respective
agreement, guaranty or surety to Landlord and that such agreement,
guaranty or surety remains binding and enforceable against such Person
in accordance with its terms; (vii) the assignee shall use and occupy
the Premises only for the purposes set forth in this Lease, and for no
other purposes, in compliance with the terms and conditions of this
Lease; (viii) neither such assignment nor the acceptance of rent by
Landlord from such assignee shall, in any way, release, relieve or in
any manner affect the liability of Tenant under this Lease, it being the
agreement and understanding of the parties that assignor shall be and
remain liable under all of the terms and conditions of this Lease; and
(ix) neither such assignment nor the acceptance of rent by Landlord from
such assignee shall, in any way, release, relieve or in any manner
affect the liability of any Person providing a guaranty or surety of
this Lease to Landlord.
Notwithstanding anything to the contrary contained herein, the transfer
of shares of Tenant (if Tenant is a corporation) for purposes of this Section 24
shall not include the sale of shares by persons other than those deemed
"insiders" within the meaning of the Securities Exchange Act of 1934, as
amended, which sale is effected through the "over-the-counter market" or through
any recognized stock exchange.
The term "PERSON" as used in this Lease shall mean any individual,
corporation, partnership, joint venture, limited liability company, limited
liability partnership, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof or any
other form of business or legal association or entity, and the term "CONTROL" as
used in this Section 24.3 shall mean the direction of the management and
policies of a person or entity, whether through the ownership of voting
securities, by contract or by law.
No Release. Any sale, assignment, subletting, hypothecation or transfer of
this Lease that is not in compliance with the provisions of this Article
24 shall, at Landlord's option, be void. The consent by Landlord to any
assignment or sublease shall not be construed as relieving Tenant or any
assignee of this Lease from any liability or obligation hereunder
whether or not then accrued. This Article 24 shall be fully applicable
to all further sales, hypothecations, transfers, assignments and
sublettings of any portion of the Premises by any successor or assignee
of Tenant.
25. Subordination.
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, and at the election of Landlord or any
mortgagee with a lien on the Premises or the Development, or any portion thereof
or any ground lessor with respect to the Premises, this Lease shall be subject
and subordinate at all times to: (i) all ground
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leases or underlying leases which may now exist or hereafter be executed
affecting the Premises, (ii) the lien of any mortgage or deed of trust which may
now exist or hereafter be executed in any amount for which the Premises is
specified as security, and (iii) the Condominium Documents (as same may now or
hereafter exist) and (iv) any CC&R (as may now or hereafter exist) that do not
materially increase Tenant's obligations hereunder nor materially decrease
Tenant's rights hereunder nor materially interfere with the conduct of Tenant's
normal business operations (all of the foregoing, collectively the "SENIOR
INTERESTS" and the holders of the Senior Interests shall be referred to as
"SENIOR INTEREST HOLDERS"). Notwithstanding the foregoing, Landlord shall have
the right to subordinate or cause to be subordinated any such ground leases or
underlying leases or any such liens to this Lease. In the event that any ground
lease or underlying lease terminates for any reason or any mortgage or deed of
trust is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, attorn to and become
the tenant of the successor in interest to Landlord. Tenant covenants and agrees
to execute and deliver within fifteen (15) business days after demand by
Landlord and in the form requested by Landlord, any additional documents
evidencing the subordination of this Lease with respect to any such ground
leases or underlying leases, the lien of any such mortgage or deed of trust, the
Condominium Documents or the CC&R, and, effective upon a failure to do so,
Tenant hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to
execute, deliver and record any such document in the name and on behalf of
Tenant. In consideration of, and as a condition precedent to, Tenant's agreement
to be bound by the subordination provisions of this Article 25, Landlord shall
provide to Tenant for Tenant's execution, a commercially reasonable
subordination, attornment and nondisturbance agreement ("NON-DISTURBANCE
AGREEMENT"), in recordable form, that in any event shall not provide for any
material increase in Tenant's obligations nor any material decrease in Tenant's
rights under this Lease and shall be executed by all future ground lessors,
mortgage holders and deed of trust beneficiaries of any of Landlord's interest
in the Premises desiring to subordinate this Lease to the ground lease, mortgage
or deed of trust, as applicable. In the event Landlord fails to obtain any
Non-Disturbance Agreement, then, as to the mortgage, deed of trust or ground
lease which would have been the subject thereof, this Article 25 shall be void
and of no force or effect.
As a condition to the effectiveness of this Lease, for the benefit of
Tenant Landlord shall deliver to Tenant a non-disturbance agreement in form and
substance identical to the specimen annexed hereto as Exhibit D from Fleet Bank,
National Association (the "INITIAL MORTGAGEE NON-DISTURBANCE AGREEMENT") and
such Initial Mortgagee Non-Disturbance Agreement shall be deemed to satisfy the
requirements described in this Article 25. Tenant agrees to execute the Initial
Mortgagee Non-Disturbance Agreement, provided the agreement conforms to the
agreement attached hereto as Exhibit D.
26. Estoppel Certificate.
Delivery. Within fifteen (15) business days following any request which Landlord
or Tenant may make from time to time, the other party shall execute and
deliver to the requesting party a statement certifying: (i) the
Commencement Date; (ii) the fact that this Lease is unmodified and in
full force and effect (or, if there has been modification hereto, that
this
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Lease is in full force and effect, and stating the date and nature of
such modification); (iii) the date to which the rental and other sums
payable under this Lease have been paid; (iv) that to the best of the
certifying party's knowledge, there is no current default under this
Lease by either Landlord or Tenant except as specified in the statement;
and (v) such other matters reasonably requested by the requesting party.
Landlord and Tenant intend that any statement delivered pursuant to this
Section 26.1 may be relied upon by any mortgagee, beneficiary, purchaser
or prospective purchaser of the Premises, the Club or any interest in
either, and said statement shall so state.
Failure to Deliver. Landlord's or Tenant's failure to deliver any statement
required pursuant to Section 26.1 hereof within such time shall be
conclusive upon such failing party (i) that this Lease is in full force
and effect, without modification except as may be reasonably represented
in good faith by Landlord or Tenant, (ii) that there is no uncured
default in Landlord's or Tenant's performance, and (iii) that not more
than one month's rental has been paid in advance.
Financial Statements. Within thirty (30) days after Landlord's request, Tenant
shall furnish to Landlord (i) no more often than once per
calendar-quarter, the most current existing audited financial statements
of Tenant (which shall, at a minimum, include a balance sheet and income
statement), and (ii) if at any time Tenant is not a publicly-traded
entity or an Affiliate thereof which files consolidated financial
statements, such other information relating to Tenant's financial
condition as may be reasonably required by Landlord. Landlord shall at
all times maintain the confidentiality of the aforementioned financial
statements which are not available to the general public, except to the
extent reasonably necessary to (a) comply with applicable laws,
regulations, court or administrative orders, or to prosecute or defend
any claim or suit by litigation or otherwise under this Lease and (b)
provided that the recipients of such information agree in writing to
hold the same in confidence, (1) carry out the obligations set forth in
this Lease or documents evidencing and/or securing any Senior Interest,
(2) obtain legal, financial and/or tax advice from Landlord's attorneys,
accountants and financial advisors, (3) negotiate or complete a
transaction with a lender to Landlord secured by Landlord's interest in
the Development, the Building or this Lease (including, without
limitation, a pledge of rents payable hereunder) or purchaser of the
Building or the Development or (4) negotiate or complete a public or
private syndication or similar offering with respect to this Lease,
Landlord, the interests of any of the members of Landlord, the
Development and/or the Building.
27. Construction.
This Lease is to be governed by and construed in accordance with the
laws of the District of Columbia (excluding choice of law provisions). Whenever
the context so requires herein, the neuter gender shall include the masculine
and feminine, and the singular number shall include the plural, and vice versa.
This Lease shall be construed as having been drafted by both parties, jointly,
and not in favor of or against one party or the other. When used herein, the
terms
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"including," "include," "including, without limitation," and similar terms shall
be construed as prefacing examples, components or illustrations rather than
exhaustive definitions, unless a contrary intent is specifically stated, such as
"including and expressly limited to," or in similarly unambiguous terms.
28. Successors and Assigns.
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
29. Surrender of Premises.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation hereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies. Upon the expiration or earlier termination of this Lease, Tenant
shall surrender the Premises and, subject to the provisions of Article 14
hereof, all alterations and additions thereto, in good order, repair and
condition, reasonable wear and tear excepted.
30. Attorneys' Fees and Costs.
If Landlord should bring suit for possession of the Premises, or if
Landlord or Tenant should bring suit for the recovery of any sum due under this
Lease or because of the breach of any provisions of this Lease, or for any other
relief against the other hereunder, or in the event of any other litigation
between the parties with respect to this Lease, including any action for
declaratory relief filed by Landlord or Tenant, then the prevailing party shall
be entitled to an award of all costs and expenses, including reasonable
attorneys' fees and costs, in addition to all other relief awarded.
31. Performance by Landlord.
If Tenant shall fail to pay any sum of money owed hereunder, or if
Tenant shall fail to perform any other act on its part to be performed
hereunder, and (except in the event of an emergency) such failure shall continue
beyond the cure periods set forth in Section 23. 1 hereof, Landlord may, without
waiving or releasing Tenant from the obligations of Tenant, but shall not be
obligated to, make any such payment or perform any such other act to be made or
performed by Tenant. All sums so paid by Landlord and all necessary incidental
costs together with interest thereon at the rate of twelve percent (12%) per
annum, from the date of such payment by Landlord, shall be payable to Landlord
upon demand as Additional Rent.
32. Late Charge and Interest.
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Tenant acknowledges that the late payment by Tenant to Landlord of any
sums due under this Lease will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult and
impractical to fix. Such costs include processing and accounting charges, and
late charges that may be imposed on Landlord by the terms of any encumbrance or
note secured by any encumbrance covering the Premises. Therefore, if any
installment of Monthly Base Rent or any other sum of money due hereunder is not
timely paid by Tenant and such failure continues for ten (10) days after notice
thereof from Landlord, Tenant shall pay to Landlord, as Additional Rent, the sum
of four percent (4%) of the overdue amount as a late charge; provided, however,
Tenant shall be entitled to such ten (10) day notice and opportunity to cure on
only two (2) occasions during any twelve (12) month period. To the extent
permitted by applicable law, such overdue amount shall also bear interest
commencing upon the due date, as Additional Rent, at the lesser of the maximum
rate than permitted by law and twelve percent (12%) per annum. Landlord's
acceptance of any late charge or interest shall not constitute a waiver of
Tenant's default with respect to the overdue amount or prevent Landlord from
exercising any of the other rights and remedies available to Landlord under this
Lease or any law now or hereafter in effect. Notwithstanding anything to the
contrary contained herein, in no event shall Tenant be required to pay any
amounts that would be characterized as interest under applicable law in excess
of the amounts that could be lawfully charged, collected and received by
Landlord under applicable law. Landlord and Tenant intend to comply with all
usury laws with respect to this Lease.
33. Mortgagee Protection.
In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgage given by Landlord covering the Premises whose address shall have been
furnished to Tenant, and shall offer such beneficiary or mortgagee the same
opportunity to cure Landlord's default as provided to Landlord under Article 49
hereof plus an additional period of sixty (60) days. In addition, in those
instances which reasonably require such beneficiary or mortgagee to be in
possession of, or have title to, the Development (or any portion thereof) to
cure any such default, the time herein allowed to such beneficiary or mortgagee
to cure such default shall be deemed extended to include the period of time
reasonably necessary to obtain such possession or title with due diligence, and
in those instances in which such beneficiary or mortgagee is prohibited by any
process or injunction issued by any court or by reason of any action by any
court having jurisdiction of any bankruptcy or insolvency proceeding involving
Landlord from commencing or prosecuting foreclosure or other appropriate
proceedings in the nature thereof, the time herein allowed such beneficiary or
mortgagee to prosecute such foreclosure or other proceeding shall be extended
for the period of such prohibition.
34. Definition of Landlord.
The term "Landlord," as used in this Lease, so far as covenants or obligations
on the part of Landlord are concerned, shall be limited to mean and include only
the owner or owners, at the time in question, of Landlord's interest under this
Lease. In the event of any transfer, assignment
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or other conveyance or transfer of such title, Landlord herein named (and in
case of any subsequent transfer or conveyance, the then grantor) shall (in
absence of a writing hereafter described) be automatically freed and relieved
from and after the date of such transfer, assignment or conveyance of all
liability with respect to the performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter to be performed, and in
absence of any writing to the contrary, the transferee shall be deemed to have
assumed same. Landlord may transfer its interest in the Premises or this Lease
without the consent of Tenant and such transfer or subsequent transfer shall not
be deemed a violation on Landlord's part of any of the terms or conditions of
this Lease.
35. Waiver.
A waiver of any breach of any term, covenant or condition herein
contained shall not be deemed to be a waiver of any subsequent breach of the
same or any other term, covenant or condition herein contained, nor shall any
custom or practice which may grow up between the parties in the administration
of the terms hereof be deemed a waiver of or in any way affect the right of
Landlord or Tenant to insist upon the performance by Tenant or Landlord,
respectively, in strict accordance with said terms. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent. No acceptance by Landlord of a lesser sum than the Monthly Base Rent and
Additional Rent then due shall be deemed to be other than on account of the
earliest installment of such rent, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such installment
or other amount or pursue any other remedy provided in this Lease.
36. Parking.
So long as this Lease remains in full force and effect and Tenant is
operating a Club and facilities related to the operation of such Club in at
least seventy-five percent (75%) of the Premises, Landlord shall make up to 150
parking spaces (individually, a "PARKING SPACE" and collectively, the PARKING
SPACES") available on a non-exclusive basis, with such Parking Spaces to be
located at the Development, in Landlord's discretion, for daily use during such
times as the Club is open for business, by Tenant and Tenant's members subject
to the terms and provisions of this Article 36. Tenant shall pay to Landlord, as
Additional Rent, within fifteen (15) days after Tenant's receipt of any bill or
statement therefor, an amount equal to $150 per calendar month per Parking
Space, such $150 being subject to increase every five (5) Lease Years during the
Term by the CPI Increase (as defined herein); provided, however, that
notwithstanding the foregoing, each such CPI Increase shall not exceed twelve
percent (12%) (the "PARKING CHARGE").
Provided Tenant is not in default beyond the expiration of applicable
notice or cure periods under any of the terms, provisions and conditions of this
Lease, Tenant shall have the
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option to use up to an additional 200 parking spaces subject to and in
accordance with the terms and provisions of this paragraph, with such parking
spaces to be located at the Development, in Landlord's discretion, by giving
irrevocable written notice (the "ADDITIONAL PARKING SPACE NOTICE") to Landlord
not later than six (6) months after the date upon which Tenant commences normal
business operations from the Premises with the general public. If Tenant gives
the Additional Parking Space Notice to Landlord pursuant to the immediately
preceding sentence, then, subject to the terms and provisions of this Article
36, (i) so long as this Lease remains in full force and effect and Tenant is
operating a Club and facilities related to the operation of such Club in at
least seventy-five percent (75%) of the Premises, Landlord shall make the number
of parking spaces indicated in the Additional Parking Space Notice (not to
exceed 200 parking spaces in the aggregate) available on a non-exclusive basis
for daily use during such times as the Club is open for business, by Tenant and
Tenant's members and (ii) Tenant shall pay to Landlord, as Additional Rent in
accordance with the immediately preceding paragraph, the Parking Charge with
respect to each such additional parking space.
In addition to the foregoing, Tenant and Tenant's members may use in
connection with the Club the parking spaces located at the Development which are
designated as general public parking spaces if and to the extent available on a
"first come, first serve" basis. The foregoing shall not be deemed to be a
representation that the aforementioned general public parking spaces shall be
available for use by Tenant and Tenant's members. Landlord shall charge Tenant
an amount equal to the then market rate for such spaces, with the market rate
for such spaces to be based on the market rate for similarly located parking
spaces in the vicinity of the Building (as reasonably determined by Landlord).
If and to the extent any of the aforementioned parking spaces are valet
or attendant parking for the general public, Landlord shall provide any such
valet or attendant parking to Tenant's members at the rate of $1.75 per vehicle
(such $1.75 being in addition to the Parking Charge with respect to any such
parking spaces and being subject to increase each Lease Year by the CPI
Increase). Notwithstanding anything to the contrary contained herein, if the
delivery times in any calendar month of the vehicles of Tenant's members parked
in any such valet or attendant parking spaces exceed four (4) minutes more than
80% of the time during any such calendar month, then, Tenant, without
limitation, shall have the right, but not the obligation, to cease the use of,
and Landlord shall cease to have the obligation to furnish, any or all of such
valet or attendant parking spaces by giving prior written notice, together with
documentation reasonably evidencing such delivery times, to Landlord within
fifteen (15) days after the end of such calendar month. If Tenant shall deliver
such notice and documentation, then the right of Tenant to use, and the
obligation of Landlord to furnish, the number of valet or attendant parking
spaces set forth in such notice to Landlord shall end as of the last day of the
calendar month in which Landlord shall receive such notice and documentation, it
being understood and agreed that notwithstanding the foregoing the terms and
provisions of this Lease shall continue in full force and effect in accordance
with their terms.
The term "CPI" shall mean the Consumer Price Index for all Urban
Consumers published by the Bureau of Labor Statistics of the United States
Department of Labor for Washington, D.C.
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- - MD - VA, All Items (1982-84=100), or a successor or substitute index
reasonably selected by Landlord appropriately adjusted to reflect a constant
base year. In the event that the CPI ceases to use 1982-84=100 as the basis of
calculation, or if a substantial change is made in the terms or number of items
contained in the CPI, then the CPI shall be adjusted to the figure that would
have been arrived at had the manner of computing the CPI not been altered. In
the event such CPI (or a successor or substitute index) is no longer published,
a reliable governmental or other non-partisan publication evaluating the
information theretofore used in determining the CPI shall be used. No
adjustments or recomputations, retroactive or otherwise, shall be made due to a
revision which may later be made in the first published figure of the CPI for
any month. Whenever any provision hereof provides that an amount shall be
adjusted by the CPI Increase, then such amount shall be multiplied by a
fraction, the numerator of which shall be the CPI for the calendar month
immediately preceding the Lease Year for which the amount is to be determined
and the denominator of which shall be the CPI for the calendar month during
which the Commencement Date has occurred.
37. CC&R.
Tenant shall faithfully observe and comply with the Condominium
Documents, and all reasonable and nondiscriminatory rules and regulations
Landlord shall adopt for the Development (as the same may be changed from time
to time) and the CC&R. Landlord shall not be responsible to Tenant for the
violation or nonperformance by any other tenant or occupant of the Development
of the Condominium Documents (if applicable), any of said rules and regulations
or the CC&R. Landlord agrees that future amendments to the CC&R and any such
rules and regulations shall not materially interfere with or interrupt Tenant's
ability to operate a first-class Club in accordance with the terms and
provisions of this Lease and shall not materially increase Tenant's obligations
hereunder nor materially decrease Tenant's rights hereunder, nor be enforced as
to Tenant discriminatorily.
38. Headings.
The Article and Section headings of this Lease are not a part of this
Lease and shall have no effect upon the construction or interpretation of any
part hereof.
39. Examination of Lease.
Submission of this instrument for examination or signature by Landlord
or Tenant does not constitute a reservation of or option for lease, and it is
not effective as a lease or otherwise until execution by and delivery to both
Landlord and Tenant.
40. Intentionally Omitted.
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41. Prior Agreement; Amendments.
This Lease, together with the addenda and exhibits attached hereto,
contains all of the agreements of the parties hereto with respect to any matter
covered or mentioned in this Lease, and no prior agreement or understanding
pertaining to any such matter shall be effective for any purpose. No provision
of this Lease may be amended or added to except by an agreement in writing
signed by the parties hereto or their respective successors in interest (subject
to the consent requirement in Article 24 hereof). The parties acknowledge that
all prior agreements, representations and negotiations are deemed superseded by
this Lease to the extent they are not incorporated herein.
42. Severability.
Any provision of this Lease which shall prove to be invalid, void or
illegal in no way affects, impairs or invalidates any other provision hereof,
and such other provisions shall remain in full force and effect.
43. Limitation on Liability.
It is expressly understood and agreed that any money judgment against
Landlord resulting from any default or other claim arising under this Lease
shall be satisfied only out of Landlord's interest in (i) the Premises, if the
Premises shall then be subject to a condominium form of ownership or (ii) the
Development, if the Premises shall not then be subject to a condominium form of
ownership. No other real, personal or mixed property of Landlord, wherever
situated, shall be subject to levy on any such judgment obtained against
Landlord. If Landlord's interest in the Premises or Development, as applicable,
is insufficient for the payment of such judgment, Tenant shall not institute any
further action, suit, claim or demand, in law or in equity, against Landlord for
or on the account of such deficiency. Tenant hereby waives, to the fullest
extent waivable under law, any right to satisfy said money judgment against
Landlord except from Landlord's interest in the Development or Premises, as
applicable, and except as otherwise provided above.
44. Riders.
Clauses, plats, exhibits, addenda and riders, if any, affixed to this
Lease are a part hereof.
45. Modification for Lender.
If, in connection with obtaining construction, interim or permanent
financing for the Premises or the Development, or any part thereof, or consent
of Landlord's existing or potential lenders to the terms of the transactions
contemplated pursuant to this Lease, a lender shall request reasonable
modifications in this Lease as a condition to such financing or the granting of
its consent, Tenant will not unreasonably withhold, delay or defer its consent
thereto, provided that such modifications do not materially increase the
obligations of Tenant hereunder,
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<PAGE> 62
materially decrease Tenant's rights hereunder or materially adversely affect the
leasehold interest hereby created. If, in connection with obtaining financing
for Tenant's Trade Fixtures subject to and in accordance with Section 1.2
hereof, tenant's lender shall request reasonable modifications to this Lease,
Landlord agrees to make reasonable nonmaterial modifications to this Lease and
further agrees not to unreasonably withhold, delay or defer its consent with
respect to such modifications provided such modifications do not decrease the
monetary obligations of Tenant hereunder or materially affect Landlord's rights
hereunder; provided, however, that Landlord shall have no obligation to agree to
any such modifications unless such modifications are approved by the Senior
Interest Holders.
46. Security Agreements/Leasehold Mortgages.
Tenant covenants and agrees that Tenant shall not encumber or
place or permit to be placed any mortgages or other encumbrances on the
leasehold interest granted hereunder and that no security agreement,
whether by way of conditional bill of sale, chattel mortgage or
instrument of similar import, shall be placed upon any improvement made
by Tenant which is affixed to the realty.
In the event that any of the machinery, fixtures, furniture and
equipment installed by Tenant in the Premises are purchased or acquired
by Tenant subject to a chattel mortgage, conditional sale agreement or
other title retention or security agreement, Tenant undertakes and
agrees that no such chattel mortgage, conditional sale agreement or
other title retention or security agreement or Uniform Commercial Code
("UCC") filing statement shall be permitted to be filed as a lien
against the Building and real property of which the Premises form a part
and to cause to be inserted in any of the above described title
retention, chattel mortgage, security agreements, conditional sale
agreement or UCC filing statement the following provision:
"NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THIS CHATTEL
MORTGAGE, CONDITIONAL SALE AGREEMENT, TITLE RETENTION AGREEMENT,
SECURITY AGREEMENT OR UCC FILING STATEMENT SHALL NOT CREATE OR BE
FILED AS A LIEN AGAINST THE LAND, BUILDING AND IMPROVEMENTS
COMPRISING THE REAL PROPERTY IN WHICH THE GOODS, MACHINERY,
EQUIPMENT, APPLIANCES OR OTHER PERSONAL PROPERTY COVERED HEREBY
ARE TO BE LOCATED OR INSTALLED."
In addition to any other rights that Landlord may have by reason
of Tenant's failure to comply herewith, if any such leasehold mortgage
or other encumbrance, lien or UCC filing statement, based on an
agreement as above described, is filed as an encumbrance, as applicable,
against the Building or improvements of which the Premises form a part,
the Premises and/or any interest thereon, Tenant shall, within thirty
(30) days following notice thereof from Landlord, cause such leasehold
mortgage or other encumbrance, lien or filing statement to be removed or
discharged at Tenant's own cost
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<PAGE> 63
and expense, and Tenant's failure to do so shall constitute a breach of
a material provision of this Lease.
47. Authorizations.
Each individual executing this Lease on behalf of Landlord or Tenant
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of Landlord or Tenant, respectively, in accordance with the
provisions of duly adopted corporate resolutions, and that this Lease has been
duly and properly executed and delivered by Landlord or Tenant, respectively.
48. Signage.
Tenant agrees that any and all exterior building signs on the Premises
shall be subject to the approval of Landlord (and if applicable the Condominium
Association) with respect to the graphics, materials, color, design, lettering,
language, lighting, specifications and exact location ("SIGNAGE APPROVAL
FACTORS"). All signage shall be of a size not in excess of that permitted by
applicable law and shall otherwise comply with applicable laws, regulations,
permits, approvals, ordinances, the Condominium Documents and CC&R; provided,
however, that no change in the CC&R shall require Tenant to modify its original
(or, if theretofore modified, its then-existing,) exterior signs. At the
expiration or earlier termination of this Lease, Tenant shall, at Tenant's sole
cost and expense, cause all such signage to be removed from the exterior of the
Improvements and shall cause the exterior of the Improvements to be restored to
the condition existing prior to the placement of such signage. If Tenant fails
to remove such signs and restore the exterior of the Improvements by the
expiration or earlier termination of this Lease, then Landlord may perform such
work, and all costs and expenses incurred by Landlord in so performing shall be
reimbursed by Tenant to Landlord within ten (10) days after Tenant's receipt of
an invoice therefor. In addition to the foregoing, at all times Tenant shall be
entitled to erect and maintain, as needed in Tenant's judgment but subject to
Landlord's approval, throughout the Development, appropriate directional signage
with respect to Tenant's parking.
49. Default by Landlord.
Landlord shall not be in default hereunder unless Landlord fails to
perform the obligations required of Landlord within a reasonable time, but in no
event later than thirty (30) days after notice by Tenant to Landlord and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address have been furnished in writing to Tenant ("NOTICED Lender"),
specifying wherein Landlord has failed to perform such obligation; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion (the "CURE PERIOD"). In
addition, the Noticed Lender shall be entitled to such additional period of time
to cure any such default as is set forth in Section 33 hereof. Notwithstanding
anything in this Lease to the contrary, if access to the Premises is unavailable
as
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<PAGE> 64
a result of any blockage occurring in the Common Areas that is caused by
Landlord or its agents, Tenant shall have the right to give Landlord and any
Noticed Lender notice of such events (an "ABATEMENT NOTICE"). If the blockage in
the Common Areas which denies access to the Premises has not been repaired
within the Cure Period or such additional period of time for the Noticed Lender
to cure any such default as is set forth in Section 33 hereof (not to exceed
thirty (30) days after the Cure Period), Tenant's obligations to pay Monthly
Base Rent and Common Area Expenses (or if applicable, Operating Expenses) shall
be abated for the period after the Abatement Notice until the cure of the
condition giving rise to such notice for the entire amount of Monthly Base Rent
and Common Area Expenses (or if applicable, Operating Expenses), provided (i)
the condition giving rise to such abatement right is a denial of access to the
Premises due to a blockage of the Common Areas that is caused by Landlord or its
agents and (ii) Tenant is actually unable to and actually does not use any of
the Premises for the conduct of its business. In the event that for a period of
ninety (90) consecutive days following the Abatement Notice, the condition
giving rise to such notice has not been cured and Tenant has not conducted its
business from the Premises during such ninety (90) day period, Tenant shall have
the right to deliver an additional notice (a "TERMINATION NOTICE") to Landlord
and the Noticed Lender specifying that such item has not been cured within such
period and if such condition is not then cured within thirty (30) business days
after the Termination Notice, Tenant may terminate this Lease by giving notice
thereof to Landlord and the Noticed Lender prior to the date upon which such
condition is cured. The foregoing rights and remedies are in addition to all
other rights and remedies available to Tenant at law or in equity. Except as
provided in this Article 49, Tenant shall not have the right to terminate this
Lease as a result of Landlord's default hereunder. Landlord's liability
hereunder in the event of a default shall be limited as set forth in Article 43
hereof. Notwithstanding anything to the contrary contained herein, if the
blockage occurring in the Common Areas is the result of a fire or other casualty
or a taking in eminent domain, then this Article 49 shall be inapplicable and
Articles 21 and 22 hereof shall govern the rights of the parties.
50. Reasonable Consents.
Except for any matter which has a material impact on the exterior
appearance of the Improvements or except as otherwise provided herein, any time
the consent, approval, determination, designation, or other discretionary
judgment is required of Landlord or Tenant under this Lease, such consent,
approval, determination, designation, or other discretionary judgment shall not
be unreasonably delayed, withheld, conditioned, exercised or decided,
notwithstanding the presence in some instances of words to that effect and their
absence in other instances.
51. No Recording.
It is expressly agreed that Tenant may not and shall not record this
Lease or any memorandum hereof, except as otherwise expressly provided in this
Lease. Tenant and Landlord 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
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<PAGE> 65
modify or to change any of the provisions of this Lease. Upon the expiration or
sooner termination of this Lease, Tenant covenants that it will, at the request
of Landlord, execute, acknowledge and deliver an instrument canceling any
memorandum of lease which is recorded and all other documentation to record
same.
52. Force Majeure.
The occurrence of any of the following events shall be referred to
herein as "FORCE MAJEURE" and shall excuse such obligations of Landlord or
Tenant as are thereby rendered impossible or reasonably impracticable for so
long as such event continues: strikes; lockouts; labor disputes; acts of God;
inability to obtain labor, materials or reasonable substitutes therefor;
governmental restrictions, regulations or controls; judicial orders; enemy or
hostile governmental action; civil commotion; fire or other casualty; and other
causes beyond the reasonable control of the party obligated to perform
(excluding financial inability). Notwithstanding the foregoing, the occurrence
of such events shall not excuse Tenant's obligations to pay Monthly Base Rent,
Common Area Expenses or any other sums hereunder (but may delay the commencement
of such obligations to the limited extent expressly provided for in Section 2.1
hereof) or excuse such obligations as this Lease may otherwise impose on the
party to obey, remedy or avoid such event.
53. Guaranty.
Currently with the execution hereof by Tenant and as a condition to the
effectiveness of this Lease, Tenant shall cause The Sports Club Company to
execute and deliver to Landlord a guaranty of this Lease in the form and
substance set forth in Exhibit E attached hereto which is acceptable to
Landlord.
54. Condition Precedent.
Landlord and Tenant shall each have the right to terminate this Lease on
thirty (30) days notice to the other party (without penalty) if Landlord shall
not have closed upon financing for the construction of the portions of the
Development to be performed by Landlord (all such approvals and terms with
respect thereto to be acceptable to Landlord in its sole and absolute
discretion) not later than March 31, 1999 ("DEADLINE DATE"). In the event that
Tenant shall serve a termination notice pursuant to this Article 54 and Landlord
shall secure the necessary financing within the aforesaid thirty (30) day period
or Landlord shall fund such construction without the required financing (it
being expressly agreed that Landlord shall have no obligation whatsoever to do
so), then Tenant's termination notice shall be of no force and effect. In the
event Landlord or Tenant shall terminate this Lease, as aforesaid, neither party
shall have any further rights or obligations hereunder.
55. Communication Equipment and Antenna.
In the event Landlord shall make a communications antenna or satellite dish
located on the roof of the Building (generically, the "ANTENNA")
available for the non-exclusive and general
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<PAGE> 66
use of the tenants and occupants of the Building, then, in such event,
Tenant may use the antenna in connection with the conduct of Tenant's
normal business operations in the Premises provided and on condition
that: (a) Tenant's use of the antenna shall be subject to Landlord's
reasonable approval, (b) Tenant shall pay to Landlord the monthly
Building charge for the use of the antenna as established by Landlord
from time to time within thirty (30) days after receipt of an invoice
with respect thereto, (c) Tenant shall, at its sole cost and expense,
install all necessary lines, risers, conduits and cables from the
antenna to the Premises required for Tenant's use thereof (collectively,
the "TENANT INSTALLATION"), (d) the Tenant Installation is performed in
accordance with all legal requirements and in compliance with the terms
and conditions of this Lease; (e) Tenant shall indemnify and hold
Landlord harmless from any liability, cost or expense (including
reasonable attorneys' fees and costs and disbursements) connected with
or arising from the Tenant Installation of any nature whatsoever, unless
such liability, cost or expense results solely from the acts or
omissions of Landlord, or its agents, servants or employees; (f) Tenant
shall promptly repair any damage caused to the roof of the Building or
any other portion of the Building by reason of the Tenant Installation
including, without limitation, any repairs, restorations, maintenance,
renewals or replacement of the roof of the Building necessitated by or
in any way caused by or relating to the Tenant Installation; and (g)
Tenant shall remove the Tenant Installation and repair any resulting
damage to the Building and restore the portion of the roof of the
Building and the Building affected by the Tenant Installation to the
condition which existed prior to the Tenant Installation, reasonable
wear and tear and damage by casualty excepted, all at or prior to the
expiration of the term of this Lease, at Tenant's sole cost and expense.
The antenna is for the sole use of Tenant in the conduct of Tenant's business
and for no other purpose or by any other parties. Tenant shall not
resell in any form the use, or rights to the use, of the antenna
including the granting of any license or other rights. The rights
granted in this Article 55 are given in connection with, and as part of
the rights created under, this Lease and are not separately transferable
or assignable other than in connection with an assignment or subletting
permitted by this Lease.
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<PAGE> 67
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
LANDLORD: 2200 M STREET LLC
By: Millennium Partners LLC, its manager
By: Millennium Partners Management LLC,
its manager
By: Millennium Manager I, Inc.,
its manager
By: /s/ Brian Collins
-------------------------------
Name: Brian Collins
Title: Vice President
TENANT: WASHINGTON D.C. SPORTS CLUB, INC.
By: /s/ John M. Gibbons
-------------------------------
Name: John M. Gibbons
Title: President
-62-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<PAGE> 2
THE SPORTS CLUB COMPANY, INC.
(A DELAWARE CORPORATION)
SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY FORM STATE OWNER OWNERSHIP
- ---------- ---- ----- ----- ---------
<S> <C> <C> <C> <C>
TVE, Inc. (Inactive) Corporation California The Sports Club Company, Inc. 100.00%
Century City Spectrum, Inc. Corporation California The Sports Club Company, Inc. 100.00%
The Sports Connection Holding Company Corporation California The Sports Club Company, Inc. 100.00%
The Spectrum Club Company, Inc. Corporation California The Sports Club Company, Inc. 100.00%
Sports Club, Inc. of California Corporation California The Sports Club Company, Inc. 100.00%
Pontius Realty, Inc. Corporation California The Sports Club Company, Inc. 100.00%
Irvine Sports Club, Inc. Corporation California The Sports Club Company, Inc. 100.00%
The SportsMed Company, Inc. Corporation California The Sports Club Company, Inc. 100.00%
SCC Sports Club, Inc. (Inactive) Corporation Texas The Sports Club Company, Inc. 100.00%
L.A./Irvine Sports Clubs, Ltd. Partnership California Sports Club, Inc. of California 50.10%
Talla New York, Inc. Corporation New York Sports Club, Inc. of California 100.00%
Reebok-Sports Club/NY Partnership New York Talla New York, Inc. 60.00%
El Segundo-TDC, Ltd. Partnership California The Spectrum Club Company, Inc. 17.19%
Pontius Realty, Inc. 0.75%
Sports Club, Inc. of California 9.89%
The Sports Club Company, Inc. 9.89%
Sports Connection ES/MB Partnership California The Spectrum Club Company, Inc. 43.73%
El Segundo-TDC, Ltd. 6.27%
Green Valley Spectrum Club, Inc. Corporation Nevada The Sports Club Company, Inc. 100.00%
SF Sports Club, Inc. Corporation Delaware The Sports Club Company, Inc. 100.00%
Washington D.C. Sports Club, Inc. Corporation Delaware The Sports Club Company, Inc. 100.00%
HFA Services, Inc. Corporation Delaware The SportsMed Company, Inc. 100.00%
Sepulveda Realty and Development Co. Inc. Corporation California The Sports Club Company, Inc. 100.00%
Spectrum Club Anaheim Corporation California The Sports Club Company, Inc. 100.00%
Spectrum Liquidating Corp. Corporation California The Sports Club Company, Inc. 100.00%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Sports Club Company, Inc.
We consent to incorporation by reference in the Registration Statement (No.
333-26421) on Form S-8 and the Registration Statement (No. 333-38459) on Form
S-3 of The Sports Club Company, Inc. of our report dated February 19, 1999,
relating to the balance sheets of The Sports Club Company, Inc. as of December
31, 1997 and 1998, and the related statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998, which report appears in the December 31, 1998 annual report
on Form 10-K of The Sports Club Company, Inc.
KPMG LLP
Los Angeles, California
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,233
<SECURITIES> 0
<RECEIVABLES> 2,695
<ALLOWANCES> 215
<INVENTORY> 1,527
<CURRENT-ASSETS> 7,043
<PP&E> 147,789
<DEPRECIATION> 12,520
<TOTAL-ASSETS> 163,757
<CURRENT-LIABILITIES> 26,199
<BONDS> 0
0
0
<COMMON> 209
<OTHER-SE> 104,330
<TOTAL-LIABILITY-AND-EQUITY> 163,757
<SALES> 81,923
<TOTAL-REVENUES> 81,923
<CGS> 56,746
<TOTAL-COSTS> 56,746
<OTHER-EXPENSES> 13,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,629
<INCOME-PRETAX> 10,126
<INCOME-TAX> 3,971
<INCOME-CONTINUING> 6,155
<DISCONTINUED> 0
<EXTRAORDINARY> 2,173
<CHANGES> 0
<NET-INCOME> 3,982
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
