UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 28, 2005
THE SPORTS CLUB COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-13290 95-4479735
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
11100 Santa Monica Boulevard, Suite 300, Los Angeles, California 90025
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(310) 479-5200
Not Applicable
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (See General Instructions A-2 below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13 e-4(c))
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Item 1.01 Entry into a Material Definitive Agreement
On October 28, 2005, The Sports Club Company, Inc. signed a definitive
asset purchase agreement to sell six of its nine sports and fitness Clubs to an
affiliate of Millennium Entertainment Partners ("Millennium") for $65.0 million,
subject to post closing adjustments. Millennium is currently a principal
stockholder in the Company. The Clubs to be sold include the Company's three
facilities located in New York City and single Clubs in each of Boston,
Massachusetts, Washington D.C. and San Francisco, California. In addition, the
management agreement covering the Club in Miami, Florida will be assigned to
Millennium. Because Millennium is a principal shareholder, the Board received an
opinion from an investment banker that the consideration to be received by the
Company for the sold assets was fair from a financial point of view. Following
the sale, the Company will continue to own and operate its three Southern
California Clubs: The Sports Club/LA - Los Angeles, The Sports Club/LA - Beverly
Hills and The Sports Club/LA - Orange County. The Company has thirty days in
which to elect to keep The Sports Club/LA - New York at Rockefeller Center that
would result in a substantial upward adjustment of the sales price.
The Company will receive approximately $57.2 million in cash from the
sale and will receive a note from Millennium for the remaining $7.8 million. The
note will be secured by a pledge of the Company's Series B and Series C
Preferred Stock owned by Millennium and will be guaranteed by an affiliate of
Millennium. Simultaneously with the consummation of the asset sale, the Company
intends to finance The Sports Club/LA - Los Angeles. The proceeds from the asset
sale and refinancing will be used to retire the Company's $100.0 million Senior
Secured Notes that are due in March 2006. The closing of the transactions is
anticipated to occur on or before December 31, 2005, however, because the
Company does not have a commitment for the refinance of The Sports Club/LA and
the closing of the Asset Purchase Agreement is subject to a number of
conditions, there can be no assurance that these transactions will be
consummated.
Item 8.01 Other Events
The Sports Club Company, Inc. is now trading under the stock symbol
SCYL.PK. The change became effective October 28, 2005 to coincide with the
Company's move from the American Stock Exchange to the OTC Pink Sheets.
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Item 9.01 Financial Statements and Exhibits
(b) Pro forma financial information
Any required pro forma financial information required pursuant to article
11 of Regulation S-X shall be filed by amendment not later than 71 calendar
days after the date of filing this for 8-K.
(c) Exhibits
99.1 Press Release dated October 31, 2005
99.2 Asset Purchase Agreement by and among The Sports Club Company, Inc.,
various Subsidiaries of The Sports Club Company, Inc. and Millennium
Development Partners VIII LLC, dated as of October 28, 2005.
99.3 Form of Transitional Services Agreement
99.4 Form of Operating Standards Agreement
99.5 Form of Retained Asset License Agreement
99.6 Form of Promissory Note
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Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Dated: November 3, 2005 THE SPORTS CLUB COMPANY, INC.
By: /s/ Timothy M. O'Brien
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Timothy M. O'Brien
Chief Financial Officer
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EXHIBIT 99.1
NEWS RELEASE
For Immediate Release CONTACT: Rex Licklider
Chief Executive Officer
The Sports Club Company, Inc.
(310) 479-5200
THE SPORTS CLUB COMPANY, INC.
ANNOUNCES SIGNAGE OF ASSET PURCHASE AGREEMENT
LOS ANGELES, CA (October 31, 2005) - The Sports Club Company, Inc. (Stock
Symbol: SCYL.PK) today announced that it has signed a definitive asset purchase
agreement to sell six of its nine sports and fitness Clubs to an affiliate of
Millennium Entertainment Partners ("Millennium") for $65.0 million, subject to
post closing adjustments. Millennium is currently a principal stockholder in the
Company. The Clubs to be sold include the Company's three facilities located in
New York City and single Clubs in each of Boston, Massachusetts, Washington D.C.
and San Francisco, California. In addition, the management agreement covering
the Club in Miami, Florida will be assigned to Millennium. Because Millennium is
a principal shareholder, the Board received an opinion from an investment banker
that the consideration to be received by the Company for the sold assets was
fair from a financial point of view. Following the sale, the Company will
continue to own and operate its three Southern California Clubs: The Sports
Club/LA - Los Angeles, The Sports Club/LA - Beverly Hills and The Sports Club/LA
- - Orange County. The Company has thirty days in which to elect to keep The
Sports Club/LA - New York at Rockefeller Center that would result in a
substantial upward adjustment of the sales price.
The Company will receive approximately $57.2 million in cash from the sale and
will receive a note from Millennium for the remaining $7.8 million. The note
will be secured by a pledge of the Company's Series B and Series C Preferred
Stock owned by Millennium and will be guaranteed by an affiliate of Millennium.
Simultaneously with the consummation of the asset sale, the Company intends to
finance The Sports Club/LA - Los Angeles. The proceeds from the asset sale and
refinancing will be used to retire the Company's $100.0 million Senior Secured
Notes that are due in March 2006. The closing of the transactions is anticipated
to occur on or before December 31,2005, however, because the Company does not
have a commitment for the refinance of The Sports Club/LA and the closing of the
Asset Purchase Agreement is subject to a number of conditions, there can be no
assurance that these transactions will be consummated.
All statements in this press release other than statements of historical fact
are forward looking statements within the meaning of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. These
statements are based on management's current expectations and beliefs and are
subject to a number of factors and uncertainties that could cause actual results
to differ materially from those described in this press release. The forward
looking statements speak only as of the date of this press release, and the
Company expressly disclaims any obligations to release publicly any update or
revision to any forward looking statement contained herein if there are changes
in the Company's expectations or if any events, conditions or circumstances on
which any such forward looking statement is based.
The Sports Club Company, based in Los Angeles, California owns and operates
luxury sports and fitness complexes nationwide under the brand name "The Sports
Club/LA."
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EXHIBIT 99.2
ASSET PURCHASE AGREEMENT
by and among
THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation, and
the Subsidiaries of The Sports Club Company, Inc.
listed on Exhibit A attached hereto,
as the Sellers
and
MILLENNIUM DEVELOPMENT PARTNERS VIII LLC,
a Delaware limited liability company,
as the Buyer
Dated as of October 28, 2005
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ASSET PURCHASE AGREEMENT
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ASSET PURCHASE AGREEMENT, dated as of October 28, 2005 (this "Agreement"), by
and among THE SPORTS CLUB COMPANY, INC., a Delaware corporation ("SCC"); the
subsidiaries of SCC listed on Exhibit A attached hereto (each a "Subsidiary,"
and collectively with SCC, the "Sellers"); and MILLENNIUM DEVELOPMENT PARTNERS
VIII LLC, a Delaware limited liability company (the "Buyer").
RECITALS
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The Sellers wish to sell and transfer all of their assets constituting the
Acquired Business to the Buyer, and the Buyer wishes to purchase and acquire the
Acquired Business as it is currently conducted by the Sellers.
AGREEMENT
---------
In consideration of the foregoing and the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
DEFINITIONS
Certain Defined Terms. For purposes of this Agreement:
"Acquired Business" means the business of owning the assets of and operating the
Acquired Clubs and all other activities which are conducted by the Sellers at
the Acquired Clubs.
"Acquired Clubs" means the seven (7) sports and fitness
facilities of the Sellers listed on Exhibit B attached hereto; provided,
however, that if the Sellers exercise the option to retain the Rock Center Club
pursuant to Section 2.6(b), Acquired Clubs shall not include the Rock Center
Club.
"Acquired Business Records" means all Business Records located at any of the
Acquired Clubs, and those Business Records or portions thereof that are
primarily related to, or reasonably necessary for the operation of, the Acquired
Business but are not located at any of the Acquired Clubs.
"Action" means any claim, action, suit, inquiry, proceeding, audit or
investigation by or before any Governmental Authority, or any other arbitration,
mediation or similar proceeding.
"Affiliate" means, with respect to any
specified Person, any other Person directly or indirectly controlling,
controlled by or under common control with, such specified Person; provided that
neither the Buyer, Christopher M. Jeffries nor any Affiliate of either of the
foregoing shall be considered an Affiliate of any of the Sellers for purposes of
this Agreement.
"Ancillary Agreements" means the Bill of Sale, the Buyer
Guaranty, the Operating Standards Agreement, the Transition Services Agreement,
the Retained Asset License Agreement, the Website Services Agreement, the
Stockholders Agreement, the Amendment to Investors' Rights Agreement, the
Promissory Note, the Pledge Agreement, the Miami Assignment, the Assignment of
Leases, the Assignment of Partnership Interest, the Escrow Agreement and all
other agreements, documents and instruments required to be delivered by any
party pursuant to this Agreement, and any other agreements, documents or
instruments entered into at or prior to Closing in connection with this
Agreement or the transactions contemplated hereby.
"Benefit Arrangement" means any employment, consulting, severance or other
similar Contract, arrangement or policy and each plan, arrangement (written or
oral), program, agreement or commitment providing for insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, life, health, disability or accident benefits (including any
"voluntary employees' beneficiary association" as defined in Section 501(c)(9)
of the Code providing for the same or other benefits) or for deferred
compensation, profit-sharing bonuses, stock options, stock appreciation rights,
stock purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits that (i) is not a Welfare Plan, Pension Plan
or Multiemployer Plan, (ii) is entered into, maintained, contributed to or
required to be contributed to, as the case may be, by any of the Sellers or any
of its ERISA Affiliates or under which any of the Sellers or any of its ERISA
Affiliates has or may incur any liability or obligation and (iii) covers or has
covered any present or former employees, directors or consultants of any of the
Sellers or any of its ERISA Affiliates (with respect to their relationship with
such entities).
"Boston Club" has the meaning set forth on Exhibit B hereto.
"Boston Club HVAC Problem" means the problems affecting the operation of the
HVAC system located at the Boston Club.
"Business Day" means any day that is not
a Saturday, a Sunday or other day on which banks are required or authorized by
Law to be closed in New York City.
"Business Employee" means any current or former employee of any of the Sellers
who is or was employed, and performed a majority of such employee's services, at
an Acquired Club and, to the extent not included in the foregoing, employees of
any of the Sellers working in the corporate offices located in New York City.
"Business Records" means all books, records, ledgers and files or other similar
information of any of the Sellers (in any form or medium) related to, used, held
for use or useful in connection with the Acquired Business or the Retained
Business, including all client lists, membership lists, vendor lists,
correspondence, mailing lists, revenue records, invoices, purchasing materials
and records, advertising and promotional materials, brochures, standard forms of
documents, manuals of operations or business procedures, training and operations
manuals and records, photographs, blueprints, specifications, designs, drawings,
research files and materials, data books, media materials and plates, accounting
records, litigation files, whether hard copy or electronic and whether owned,
leased or licensed by any of the Sellers and all organization documents and
minute and stock record books and the corporate seal of each Seller.
"Buyer Guarantor" means MDP Ventures II LLC, a Delaware limited liability
company, or any assignee thereof pursuant to Section 5.13.
"Buyer Guaranty"means the Guaranty, dated as of the Closing Date, made by the
Buyer Guarantor in favor of SCC, in the form of Exhibit C attached hereto, as
such Guaranty may be amended or assigned from time to time pursuant to Section
5.13.
"Buyer Material Adverse Effect" means any event, change, circumstance, effect
or state of facts that is or would reasonably be likely to be materially adverse
to the ability of the Buyer to perform its obligations under this Agreement or
the Ancillary Agreements or to consummate the transactions contemplated hereby
or thereby, including as a consequence of any material impediment, interference
or delay.
"Buyer's Territory" means (i) all of the United States located East of the
Mississippi River; provided that Buyer's Territory shall not include Cook
County, Illinois if (A) during the first year following the date hereof, a
Seller pursues construction of a Chicago Club, (B) by the first anniversary of
the date hereof, a Seller commences construction of a Chicago Club, (C) after
construction commences, a Seller continuously pursues with reasonable diligence
the completion and opening of a Chicago Club, and (D) following the opening of a
Chicago Club, a Chicago Club remains generally open to its members (subject to
closure for fire, condemnation or similar events so long as such Seller
continues to pursue the operation of a Chicago Club), and (ii) the following
counties located in the State of California: San Francisco, Marin, San Mateo,
Alameda, Contra Costa and Solano.
"California's Mass Layoff Law" means the notice obligations of employers arising
under California Labor Code Sections 1400-1408 inclusive, as amended.
"Capitated Arrangements" means any arrangement between any of the Sellers and
any other Person which provides that such Person shall purchase a nominal number
of memberships in exchange for a grant of membership rights to certain
individuals affiliated with such Person, any other similar arrangement and all
other arrangements incident thereto, including barter arrangements and other
mutual obligations between such Seller and such Person.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act.
"Chicago Club" means a Sports Club/LA-branded sports and fitness club located at
10 Michigan Avenue, Chicago, Illinois or any other club in Cook County,
Illinois, that replaces such club or opens prior to or contemporaneously with
the closure of such club.
"Code" means the Internal Revenue Code of 1986, as amended from time to time (or
any corresponding provisions of succeeding law).
"Contract" means any contract, agreement, lease, arrangement or understanding,
whether written or oral and whether express or implied, excluding Permits.
"Control", including the terms "controlling", "controlled by" and "under common
control with", means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, as trustee or executor, as
general partner or managing member, by Contract or otherwise, including the
ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Copyrights" means registered and unregistered copyrights and applications for
registration.
"East Side Required Repairs" means the repairs or other physical work with
respect to the East Side Club listed on Exhibit D attached hereto.
"East Side Club" has the meaning set forth on Exhibit B hereto.
"East Side Lease" means the Amended and Restated Net Operating Lease dated March
26, 1985 among Hirschfeld Realty Club Corporation and 328 E. 61 Corp.
(collectively, the "Original Named Landlord") and Vertical Fitness and Racquet
Club (the "Original Tenant"), as amended by that certain Lease Modification
Agreement dated as of July 1, 1990, as further amended by that certain Second
Amendment to Amended and Restated Net Operating Lease dated as of April 15, 1998
by and among the Original Named Landlord and SCC (as successor to Hilton Hotels
Corporation, which was the successor by merger to Bally Entertainment
Corporation, which in turn was the successor to the Original Tenant), and as
further amended by that certain letter agreement dated July 9, 2003 between
Vertical Projects, LLC (successor to Vertical Club Corporation (f/k/a Hirschfeld
Realty Corporation and 328 E. 61 Corp.) by virtue of Bargain and Sale Deed dated
November 8, 2002) and SCC.
"East Side Water Issue" means the current problem of water present in the
basement of the East Side Club.
"Employee Plans" means all Benefit Arrangements, Multiemployer Plans, Pension
Plans and Welfare Plans.
"Encumbrance" means any charge, claim, limitation, condition, equitable
interest, mortgage, lien, option, pledge, security interest, easement,
encroachment, right of first refusal, adverse claim or restriction of any kind,
including any restriction on or transfer or other assignment, as security or
otherwise, of or relating to use, quiet enjoyment, voting, transfer, receipt of
income or exercise of any other attribute of ownership.
"Environmental Laws" means any Laws of any Governmental Authority relating to
(i) releases or threatened releases of Hazardous Substances or materials
containing Hazardous Substances; (ii) the manufacture, handling, transport, use,
treatment, storage or disposal of Hazardous Substances or materials containing
Hazardous Substances; or (iii) pollution or protection of the environment,
health, safety or natural resources.
"Environmental Permits" means all Permits under any Environmental Law.
"ERISA Affiliate" means any Person that is (or at any relevant time was) a
member of a "controlled group of corporations" with or under "common control"
with any of the Sellers as defined in Section 414(b) or (c) of the Code or that
is otherwise (or at any relevant time was) required to be treated, together with
any of the Sellers, or as the case may be, as a single employer under Sections
414(m) or (o) of the Code.
"Escrow Agent" means First Republic Bank, 111 Pine Street, Suite 400, San
Francisco, California, 94222.
"Escrow Agreement" means the escrow agreement dated as of the date hereof, by
and among the Escrow Agent, SCC and the Buyer.
"GAAP" means United States generally accepted accounting principles and
practices as in effect on the date hereof.
"Governmental Authority" means any United States or non-United States federal,
national, supranational, state, provincial, local or similar government,
governmental, regulatory or administrative authority, branch, agency or
commission or any court, tribunal, or arbitral or judicial body (including any
grand jury).
"Hazardous Substances" means (i) those substances defined in or regulated under
the Hazardous Materials Transportation Act, CERCLA, the Clean Water Act, the
Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide,
Fungicide, and Rodenticide Act and the Clean Air Act, and their state
counterparts, as each may be amended from time to time, and all regulations
thereunder; (ii) petroleum and petroleum products, including crude oil and any
fractions thereof; (iii) natural gas, synthetic gas, and any mixtures thereof;
(iv) polychlorinated biphenyls, asbestos and radon; (v) any other pollutant or
contaminant; and (vi) any substance, material or waste regulated by any
Governmental Authority pursuant to any Environmental Law.
"Immediate Family", with respect to any specified Person, means such Person's
spouse, parents, children and siblings, including adoptive relationships and
relationships through marriage, or any other relative of such Person that shares
such Person's home.
"Intellectual Property" means all intellectual property rights arising from or
associated with the following, whether protected, created or arising under the
laws of the United States or any other jurisdiction: (i) Marks, (ii) Patents,
(iii) Copyrights, (iv) Trade Secrets, and (v) moral rights, publicity rights,
database rights and other proprietary or intellectual property rights of any
kind or nature that do not comprise or are not protected by Marks, Patents,
Copyrights or Trade Secrets.
"Inventory" means all rights in the products and services, sold or leased, of
the Acquired Business including (i) all inventory, raw and packing materials,
work-in-progress, finished goods, supplies, parts, transit check passes and
similar items located at, or in transit to, any of the Acquired Clubs, (ii) all
inventory, raw and packing materials, work-in-progress, finished goods,
supplies, parts, transit check passes and similar items not located at, or in
transit to, any of the Acquired Clubs but recorded on the Closing Balance Sheet,
(iii) all forms which are specific to any of the Acquired Clubs, whether or not
located at any of the Acquired Clubs, and (iv) all "Reebok" branded uniforms,
supplies and other items and merchandise, whether or not located at any of the
Acquired Clubs.
"Key Business Employees" means the general managers and assistant general
managers of each Acquired Club, Jeanne McGuire, Smaiyra Million and Mary
Laudati.
"Knowledge", with respect to a party, means the knowledge of any executive
officer or director of such party and such knowledge as would be imputed to such
persons upon due inquiry; provided that the "Knowledge of the Sellers" shall
mean the knowledge of any of the executive officers or directors of each Seller;
and provided, further, that the knowledge of Christopher M. Jeffries, who is a
member of SCC's Board of Directors, shall not constitute Knowledge attributable
to SCC or any other Seller.
"Law" means any statute, law, ordinance, regulation, rule, code, executive
order, injunction, judgment, decree or order of any Governmental Authority.
"Leased Real Property" or "Leased Real Properties" means all real property
leased, subleased or licensed to any of the Sellers which cover, demise or
relate to the premises used or held for use in connection with the Acquired
Clubs, together with all structures, facilities, fixtures, systems, improvements
and items of property now or hereafter located thereon, or currently affixed,
attached or appurtenant thereto, and all easements, rights (including
development rights and rights of reentry), interests (including leasehold
interests) and appurtenances relating to the foregoing, and specifically
including, without limitation, the Millennium Properties and all of the property
demised under the East Side Lease (whether or not used in connection with the
East Side Club) and, if the SCC does not exercise the Rock Center Option, the
Rock Center Lease.
"Marks" means trade names, trademarks and service marks (registered and
unregistered), domain names and other Internet addresses or identifiers, trade
dress and similar rights and applications (including intent to use applications)
to register any of the foregoing. "MARS" means SCC's Membership Accounting
Revenue System.
"Massachusetts Property Tax Issue" means any liability for underpayment of State
of Massachusetts property taxes arising out of the operation of the Boston Club
through and including the Closing Date.
"Membership Agreements" means all of the membership agreements relating to
members at any of the Acquired Clubs or which otherwise relate to the Acquired
Business, including rights to renewals, monthly membership fees, receivables and
other rights and obligations thereunder. For purposes of this Agreement,
membership agreements relating to "bicoastal" memberships (i) for which the
"home club" is listed as an Acquired Club in the MARS database as of December
31, 2004; or (ii) which are originated in any Acquired Club after December 31,
2004 but prior to the Closing Date, will be deemed Membership Agreements.
"Miami Club" has the meaning set forth on Exhibit B hereto.
"Millennium Clubs" means the Boston Club, the Washington Club, the San Francisco
Club, the Miami Club and the Reebok Club.
"Millennium Landlords" means New Commonwealth Commercial Holding Co LLC, CB-1
Entertainment Partners LP, FSM Spa LLC, Lincoln Square Commercial Holding Co LLC
and Millennium CAF II LLC, in its capacity as trustee of the Millennium
Washington Commercial Trust, a trust formed under the laws of the District of
Columbia.
"Millennium Properties" means the Leased Real Property comprising, or forming a
part of, the Millennium Clubs.
"Multiemployer Plan" means any "multiemployer plan", as defined in Section
4001(a)(3) of ERISA, that any of the Sellers or any of its ERISA Affiliates
maintains, administers, contributes to or is required to contribute to, or,
within six years prior to the Closing Date, maintained, administered,
contributed to or was required to contribute to, or under which any of the
Sellers or any of its ERISA Affiliates has or may incur any liability or
obligation.
"New York Sales Tax Issue" means any liability for underpayment of State of New
York sales taxes arising out of the operation of the East Side Club and, if the
Rock Center Option is not exercised, the Rock Center Club prior to the Closing
Date.
"Patents" means patents and patent applications.
"Pension Plan" means any "employee pension benefit plan" as defined in Section
3(2) of ERISA (other than a Multiemployer Plan) that any of the Sellers or any
of its ERISA Affiliates maintains, administers, contributes to or is required to
contribute to, or, within the six years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or under which
any such entity has or may incur any liability or obligation.
"Permits" means all permits, licenses, franchises, approvals, certificates,
consents, waivers, concessions, exemptions, orders, registrations, notices or
other authorizations issued to, or required to be obtained or maintained by, any
of the Sellers by a Governmental Authority with respect to the conduct or
operation of the Acquired Business as currently conducted or the ownership or
use of the Purchased Assets, and all pending applications therefor and
amendments, modifications and renewals thereof.
"Person" means an individual, corporation, partnership, limited liability
company, limited liability partnership, syndicate, person, trust, association,
organization or other entity, including any Governmental Authority, and
including any successor, by merger or otherwise, of any of the foregoing.
"Personal Property" means all machinery, equipment (including exercise and
fitness equipment), furniture, furnishings, rolling stock, tools, office
supplies, vehicles, computer hardware, photocopiers and fax machines, spare
parts, billing/accounting hardware, and all other tangible personal property not
included in Inventory that is located at any Acquired Club or used or held for
use at any Acquired Club (including any such Personal Property temporarily
stored or located other than at an Acquired Club but which is normally used or
usable at such Acquired Club), whether owned or leased by any of the Sellers.
"Preferred Stock" shall mean SCC's outstanding shares of Series B Convertible
Preferred Stock, par value $.01 per share, Series C Convertible Preferred Stock,
par value $.01 per share, Series D Convertible Preferred Stock, par value $.01
per share, and Series E Preferred Stock, par value $.01 per share.
"Prepaid Items" means all credits, prepaid expenses, advance payments, security
deposits, escrows and other prepaid items of any of the Sellers arising from or
related to the Acquired Business.
"Public Stockholders" means all holders of SCC's authorized and issued common
stock, par value $.01 per share, other than the Buyer, D. Michael Talla, Kayne
Anderson Capital Advisors, L.P., Rex A. Licklider and their respective Related
Parties.
"Receivables" means all receivables (including accounts receivable, loans
receivable and advances) arising from or related to the Acquired Business,
including all receivables arising in respect of: (i) all assets recorded or
reflected on the Acquired Club Balance Sheets (including assets such as
Contracts to which no value was attributed); (ii) all assets acquired by the
Sellers since the date of the Acquired Club Balance Sheets which, had they been
held by the Sellers on such date, would have been recorded or reflected on the
Acquired Club Balance Sheets (including assets such as Contracts to which no
value would have been attributed); and (iii) all assets that would be recorded
or reflected on a balance sheet of the Acquired Business as of the Closing Date
prepared in accordance with GAAP, together with any unpaid financing charges
accrued on any of the foregoing.
"Reebok Club" has the meaning set forth on Exhibit B hereto.
"Reebok Club Management Agreement" means the management agreement dated as of
June 3, 1992, between Pontius Realty, Inc. ("Pontius"), one of the Sellers, and
RSC/NY with respect to the Reebok Club, as amended as of the date of this
Areement.
"Reebok Club Track Required Repairs" means the repairs to the running
track located at the Reebok Club.
"Related Party", with respect to any specified
Person, means: (i) any Affiliate of such specified Person, or any director,
executive officer, general partner or managing member of such Affiliate; (ii)
any Person who serves or within the past five years has served as a director,
executive officer, partner, member or in a similar capacity of such specified
Person; (iii) any Immediate Family member of a Person described in clause (ii);
or (iv) any other Person who holds, individually or together with any Affiliate
of such other Person and any member(s) of such Person's Immediate Family, more
than five percent (5%) of the outstanding voting equity or ownership interests
of such specified Person; provided that for purposes of this Agreement, none of
the Sellers and their Affiliates on the one hand, nor the Buyer and its
Affiliates on the other hand, shall be deemed to be Related Parties of the
other.
"Retained Business" means the business of owning the assets of and
operating the Retained Clubs and all other activities which are conducted by the
Sellers at the Retained Clubs.
"Retained Clubs" means the sports and fitness facilities of the Sellers located
in Beverly Hills, California, West Los Angeles, California and Irvine,
California; provided, however, that if the Sellers exercise the option to retain
the Rock Center Club pursuant to Section 2.6(b), Retained Clubs shall also
include the Rock Center Club.
"Return" means any return, declaration, report, statement, information statement
and other document required to be filed with respect to Taxes.
"Rights" means all claims, causes of action, rights of recovery and rights of
set-off of any of the Sellers against any Person arising out of or relating to
the Acquired Business, the Purchased Assets or the Assumed Liabilities,
including: (i) all rights under any Seller Contract, including all rights to
receive payment for products sold and services rendered thereunder, to receive
goods and services thereunder, to assert claims and to take other rightful
actions in respect of breaches, defaults and other violations thereof; (ii) all
rights under all guarantees, warranties, indemnities and insurance policies;
(iii) all rights of the lessees against the landlords under the leases of the
Leased Real Property; and (iv) profit participation rights of any of the
Sellers.
"Rock Center Club" has the meaning set forth on Exhibit B hereto.
"Rock Center Lease" means the Lease dated February 27, 1998, between RCPI Trust,
as landlord ("RCPI"), and SCC, as tenant, as amended by that certain First
Amendment to Lease, dated as of October 30, 1998, between RCPI Trust and SCC, as
amended by that certain Second Amendment to Lease, dated as of March 4, 1999,
between RCPI and SCC, as assigned and assumed pursuant to that certain
Assignment and Assumption of Lease, dated as of March __, 1999, between SCC, as
assignor, and Pontius Realty, Inc., as assignee, and as amended by that certain
Third Amendment to Lease, dated as of September 28, 1999, between RCPI and
Pontius Realty, Inc., successor in interest to SCC.
"RSC/NY" means Reebok Sports Club/NY Ltd., a New York limited partnership.
"SCC Common Stock" means SCC's common stock, par value $.01 per share.
"Scores Lease" means the Lease dated as of May 4, 2001, between SCC, as
landlord, and Club at 60th St., Inc., as tenant, as amended by that certain
First Amendment to Lease dated as of March 1, 2002, as the same may have been or
may hereafter be amended or modified.
"San Francisco Club" has the meaning set forth on Exhibit B hereto.
"Seller Contract" means any Contract arising from or related to the Acquired
Business or the Purchased Assets to which any of the Sellers is a party, under
which such Seller may have any rights or by which such Seller, the Acquired
Business or any of the Purchased Assets may be bound, including (i) all
Contracts that in their entirety relate to the operation or conduct of the
Acquired Business, including Membership Agreements, Seller Leases and all leases
of Leased Real Property, (ii) that portion of any other Contract to the extent
it relates to the operation or conduct of the Acquired Business, and all bids,
quotations and proposals therefor, (iii) the Miami Management Agreement, (iv)
the Management Agreement relating to the Devonshire Club in Boston,
Massachusetts, and (v) the Reebok Club Management Agreement.
"Seller Intellectual Property" means all Intellectual Property owned (in whole
or in part) by or licensed to any of the Sellers and used or held for use in
connection with the Acquired Business or the Retained Business.
"Seller Leases" means all leases, subleases and licenses of Leased Real
Property, Personal Property or any intangible property used or held for use in
the Acquired Business or in connection with the Leased Real Property and/or
Personal Property to be conveyed to the Buyer hereunder, other than Seller
Intellectual Property, in connection with which any of the Sellers is a lessor,
sublessor or licensor.
"Seller Material Adverse Effect" means any event, change, circumstance, effect
or state of facts that is or would reasonably be likely to be materially adverse
to (a) the business, operations, assets, financial condition, results of
operations, liabilities or prospects of the Acquired Business, taken as a whole,
or (b) the ability of any of the Sellers to perform its obligations under this
Agreement or the Ancillary Agreements or to consummate the transactions
contemplated hereby or thereby, including as a consequence of any material
impediment, interference or delay; provided that the following events shall not
be deemed to constitute or be taken into account in determining whether there
has occurred a Seller Material Adverse Effect: (i) any event, change,
circumstance, effect or state of facts (A) relating to (1) the United States or
global economy or United States or global securities markets in general or (2)
the health and fitness industry in general, and not specifically relating to any
Seller, or (B) arising primarily out of or resulting primarily from the
announcement or pendency of the proposed acquisition of the Acquired Business by
the Buyer, (ii) any adverse change, in and of itself, in the price of the SCC
Common Stock or SCC's failure, in and of itself, to meet its financial
projections or the financial projections of any analysts, (iii) the effect, in
and of itself, on the San Francisco Club resulting from the resignation of
Business Employees of the Acquired Club located in San Francisco, California
following the delivery of the notice (the form of which shall have been approved
by the Buyer) required by California's Mass Layoff Law, (iv) the delisting from
trading on the American Stock Exchange of the SCC Common Stock; and (v) the
institution by any Public Stockholder of an action against any Seller or SCC's
Board of Directors relating to the transactions contemplated by this Agreement.
"Seller Partnership Interest" means the forty percent (40%) general partnership
interest and the twenty percent (20%) Class A limited partnership interest of
Talla NY, Inc. in RSC/NY and any other interest of any of the Sellers in any
entity that has a direct or indirect ownership interest in the Reebok Club.
"Sellers' Territory" means (i) all of the United States located West of the
Mississippi River except for the following counties located in the State of
California: San Francisco, Marin, San Mateo, Alameda, Contra Costa and Solano;
(ii) any location outside the United States; and (iii) Cook County, Illinois if
(A) during the first year following the date hereof, a Seller pursues
construction of a Chicago Club, (B) by the first anniversary of the date hereof,
a Seller commences construction of a Chicago Club, (C) after construction
commences, a Seller continuously pursue with reasonable diligence the completion
and opening of a Chicago Club, and (D) following the opening of a Chicago Club,
a Chicago Club remains generally open to its members (subject to closure for
fire, condemnation or similar events so long such Seller continues to pursue the
operation of a Chicago Club).
"Subsidiary" or "Subsidiaries" of any Person means any other Person controlled
by such Person, directly or indirectly, through one or more intermediaries.
"Taxes" means: (a) all federal, state, local, foreign and other net income,
gross income, gross receipts, gains, sales, use, ad valorem, transfer,
franchise, profits, registration, license, lease, service, withholding, payroll,
employment, unemployment, excise, severance, stamp, occupation, premium, real or
personal property, windfall profits, customs, duties, escheat liabilities or
other taxes, fees, assessments, required deposits or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto; (b) any liability for payment of
amounts described in clause (a) whether as a result of transferee or successor
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period or otherwise through operation of law; and (c) any
liability for the payment of amounts described in clauses (a) or (b) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other Person.
"Trade Secrets" means know-how, inventions, methods, processes and any other
information, in each case to the extent any of the foregoing derives economic
value (actual or potential) from not being generally known to other Persons who
can obtain economic value from its disclosure or use, excluding any Copyrights
or Patents that may cover or protect any of the foregoing.
"Washington Club" has the meaning set forth on Exhibit B hereto.
"Washington Club Pool Problem" means the leaks affecting the swimming pool
located at the Washington Club.
"Welfare Plan" means any "employee welfare benefit plan", as defined in Section
3(1) of ERISA, (i) that any of the Sellers or any of its ERISA Affiliates
maintains, administers, contributes to or is required to contribute to, or under
which any such entity may incur any liability and (ii) that covers or has
covered any employee or former employee of any such entity (with respect to
their relationship with such entities) or for which any such entity may be
responsible.
Table of Definitions. The following terms have
the meanings set forth in the Sections set forth below:
Definition Location
---------- --------
Acquired Club Balance Sheets...........................3.5(a)
Acquired Club Financial Statements.....................3.5(a)
Acquired Memberships.....................................3.19
Acquisition Transaction...............................5.11(c)
Aggregate Buyer Credit Amount..........................2.8(a)
Aggregate SCC Credit Amount............................2.8(a)
Agreement............................................Preamble
Amendment to Investors' Rights Agreement...........2.7(b)(vi)
Assignment of Leases...............................2.7(b)(ix)
Assignment of Partnership Interest..................2.7(b)(x)
Assumed Lease Liabilities..............................2.3(f)
Assumed Liabilities.......................................2.3
Bill of Sale......................................2.7(b)(vii)
Breakup Fee.......................................9.3(b)(iii)
Buyer................................................Preamble
Buyer Business Group Employee..........................5.3(c)
Buyer Confidential Information.........................5.7(a)
Buyer Credit Accounts..................................2.8(a)
Buyer FSA..............................................5.6(h)
Buyer Group Health Plan................................5.6(g)
Buyer Reimbursable Expenses............................2.8(g)
Buyer Termination Fee...............................9.3(b)(1)
Buyer Welfare Plans....................................5.6(f)
Buyer 401(k) Plan......................................5.6(j)
Claims.................................................4.2(d)
Closing................................................2.7(a)
Closing Balance Sheet..................................2.8(b)
Closing Credit Amounts.................................2.8(b)
Closing Date...........................................2.7(a)
Closing Date Aggregate Buyer Credit Amount.............2.8(b)
Closing Date Aggregate SCC Credit Amount...............2.8(b)
COBRA..................................................5.6(e)
Company SEC Reports......................................3.26
Consideration.............................................6.6
Core Representations...................................8.1(a)
Corrective Action.....................................5.12(b)
Credit Accounts........................................2.8(a)
Deposit................................................2.6(a)
Disclosure Schedules..............................Article III
Environmental Reports....................................3.17
Equity Benefits........................................3.9(e)
ESA...................................................5.12(a)
Estimated Closing Balance Sheet........................7.3(m)
Exchange Act.............................................3.26
Excluded Assets...........................................2.2
Excluded Liabilities......................................2.4
Financial Statements...................................3.5(a)
Form Membership Agreement................................3.19
Group Health Plan......................................5.6(e)
HSR Act................................................3.3(b)
Indemnified Party......................................8.4(a)
Indemnifying Party.....................................8.4(a)
Indenture..............................................7.1(d)
Independent Accounting Firm............................2.8(d)
Insurance Policies.......................................3.23
Interim Monthly Reports................................5.2(b)
Kayne Anderson.........................................5.3(a)
Losses....................................................8.2
Material Contracts....................................3.18(a)
Material Shared Contracts.............................3.18(a)
Members...............................................3.19(a)
Miami Assignment.................................2.7(b)(viii)
Miami Management Agreement................................8.7
Non-Compete Period.....................................5.3(a)
Notes..................................................7.1(d)
Notice of Disagreement.................................2.8(c)
Operating Standards Agreement......................2.7(b)(ii)
Owner.....................................................8.7
Permitted Encumbrances.................................3.4(a)
Pledge Agreement.......................................2.6(d)
Pontius................................................7.3(e)
Post-Closing Escrow Deposit............................2.6(c)
Promissory Note........................................2.3(d)
Proviso................................................4.2(d)
Purchase Price.........................................2.6(d)
Purchased Assets..........................................2.1
Redemption Date........................................7.1(d)
Reebok Club Partnership Agreement..................3.16(i)(v)
Reimbursement Notice...................................2.8(g)
Representatives........................................5.2(a)
Retained Asset License Agreement..................2.7(b)(iii)
Rock Center Option.....................................2.6(b)
SCC..................................................Preamble
SCC Credit Accounts....................................2.8(a)
SCC Reimbursable Expenses..............................2.8(g)
SCC Termination Fee................................9.3(b)(ii)
Sellers..............................................Preamble
Seller Business Group Employee.........................5.3(d)
Seller Confidential Information........................5.7(b)
Seller FSA.............................................5.6(h)
Seller Group Health Plan...............................5.6(g)
Seller Guaranties........................................5.14
Seller Guaranty Properties...............................5.14
Seller Indemnitees.....................................4.2(d)
Seller Registered IP..................................3.13(f)
Seller Reimbursable Expenses...........................2.8(g)
Seller 401(k) Plan.....................................5.6(g)
Site..................................................5.12(a)
Stockholders Agreement..............................2.7(b)(v)
Superior Transaction..................................5.11(c)
Tax Partnership...........................................6.8
Third Party Claim......................................8.4(a)
Transfer Taxes............................................6.5
Transferring Employees.................................5.6(b)
Transition Services Agreement.......................2.7(b)(i)
Trustee................................................7.1(d)
WARN Act..............................................3.10(b)
Website Services Agreement.........................2.7(b)(iv)
PURCHASE AND SALE
Purchase and Sale of Assets. Upon the terms
and subject to the conditions of this Agreement, at the Closing, the Sellers
shall sell, assign, transfer, convey and deliver to the Buyer, and the Buyer, in
reliance on the representations, warranties and covenants of the Sellers
contained herein, shall purchase from the Sellers, all of the Sellers' right,
title and interest, direct or indirect, in, to and under the assets, properties
and rights of every nature, kind and description, whether tangible or
intangible, real, personal or mixed, accrued or contingent, wherever
located and whether now existing or hereafter acquired prior to the Closing
Date, in each case used or held for use in connection with the Acquired
Business, as the same shall exist on the Closing Date, whether or not carried or
reflected on or specifically referred to in the Sellers' books or financial
statements or in the Schedules hereto, other than the Excluded Assets
(collectively, the "Purchased Assets"), in each case free and clear of any
Encumbrances other than Permitted Encumbrances, including all of the Sellers'
right, title and interest in, to and under the following:
all assets recorded or reflected on the June 30, 2005
Acquired Club Balance Sheets (including assets such as Contracts to
which no value was attributed);
all assets acquired by the Sellers since the date of
the June 30, 2005 Acquired Club Balance Sheets which, had they been
held by the Sellers on such date, would have been recorded or reflected
on the Acquired Club Balance Sheets (including assets such as Contracts
to which no value would have been attributed);
all assets that would be recorded or reflected on a
balance sheet of the Acquired Business as of the Closing Date prepared
in accordance with GAAP;
all Receivables;
all Seller Contracts (other than Contracts to which
RSC/NY, but not any Seller, is a party);
all rights in respect of all Leased Real Property;
all Personal Property;
all Inventory;
all Acquired Business Records;
all Permits;
all Prepaid Items, other than prepaid insurance as
set forth in account #104000 of the Acquired Club Balance Sheets;
all Rights;
all Intellectual Property solely related to the
Reebok Club;
the Seller Partnership Interest; and
the goodwill and going concern value and other
intangible assets, if any, arising from or related to the Acquired
Business.
Excluded Assets. The Sellers are not selling,
and the Buyer is not purchasing, any assets, properties or rights of any nature,
kind or description, whether tangible or intangible, real, personal or mixed,
and whether now existing or hereafter acquired prior to the Closing Date, in
each case used or held for use in connection with the Retained Business, whether
or not carried or reflected on or specifically referred to in the Seller's books
or financial statements or in the schedules thereto, including all of Sellers'
right, title and interest in, to and under the following (the "Excluded
--------
Assets"):
- ------
all of the Sellers' cash, restricted cash
certificates of deposit and cash equivalents, and all rights to refunds
which are not related to any Assumed Liability;
all assets and properties located at the Retained
Clubs and all corporate assets and properties located at, or used in
connection with the Sellers' corporate and general administrative
functions conducted at, the Sellers' corporate headquarters in West Los
Angeles, California, in each case which are not Purchased Assets;
all licenses, permits and approvals held by the
Sellers to the extent primarily related to the operation of the
Retained Business;
all rights and assets related to any of the Sellers'
Employee Plans, unless expressly assumed by the Buyer pursuant to
Section 5.6;
all Seller Intellectual Property;
all Business Records that do not constitute Acquired
Business Records;
the goodwill and going concern value and other
intangible assets, if any, arising from or related to the Retained
Business;
prepaid insurance as set forth in account # 104000 of
the Acquired Club Balance Sheets; and
all rights of the Sellers under this Agreement and
the Ancillary Agreements.
Assumed Liabilities. In connection with the
purchase and sale of the Purchased Assets pursuant to this Agreement, at the
Closing, the Buyer shall assume the following liabilities and obligations of the
Sellers related to the Acquired Business (the "Assumed Liabilities"):
-------------------
all liabilities recorded on the June 30, 2005
Acquired Club Balance Sheets and that are of the type which customarily
would be included in any of the categories listed under the column
"Purchased Asset/Assumed Liability" on Exhibit E attached hereto;
all liabilities incurred by the Acquired Business
subsequent to the date of the June 30, 2005 Acquired Club Balance
Sheets in the ordinary course of business consistent with past practice
and in compliance with Section 5.1 and that are of the type which
customarily would be included in any of the categories listed under the
column "Purchased Asset/Assumed Liability" on Exhibit E attached
hereto;
all liabilities of the Sellers under the Membership
Agreements (other than those based on a tort claim), whether accruing,
arising or asserted prior or subsequent to the Closing Date;
all liabilities of the Sellers under the Seller
Contracts, the Seller Partnership Interest, the Permits and the leases
of the Leased Real Property, in each case to the extent (but only to
the extent) to be performed on or after, or in respect of periods
following, the Closing Date;
the costs of remedying the Boston Club HVAC Problem
and the Washington Club Pool Problem, subject to the Sellers'
contribution to such costs as provided in Section 2.4(l); and
all liabilities of the Sellers under the leases of
the Leased Real Properties solely with respect to the physical
condition of such properties, other than the Excluded Liabilities
included in Sections 2.4(b), 2.4(k) and 2.4(l) (collectively, the
"Assumed Lease Liabilities"). For the avoidance of doubt, examples of
the application of this Section 2.3(f) are set forth on Exhibit F
hereto.
Excluded Liabilities. Notwithstanding the
provisions of Section 2.3 or any other provision of this Agreement, any Schedule
or Exhibit hereto or any Ancillary Agreement to the contrary, except for the
Assumed Liabilities, the Buyer shall not assume or be obligated to pay, perform
or otherwise discharge (and the Sellers shall retain, pay, perform or otherwise
discharge without recourse to the Buyer) any liabilities or obligations of the
Sellers of any kind, character or description whatsoever, whether direct or
indirect, known or unknown, absolute or contingent, matured or unmatured, and
currently existing or hereinafter arising (the "Excluded Liabilities"),
including the following:
subject to Section 6.3, all Taxes arising from or
with respect to the Purchased Assets or the operation of the Acquired
Business that are incurred in or attributable to any period ending on
or prior to the Closing Date or with respect to the pre-Closing portion
of any period that begins before and ends after the Closing Date;
any penalties, fines and other liabilities, including
any Claims seeking indemnification or contribution as a result of a
third party (including, without limitation, Government Authorities)
seeking indemnification or contribution from the Buyer, relating to
Hazardous Substances which were first introduced into or upon any
Leased Real Property by a Seller prior to the Closing Date;
any liability not expressly assumed by the Buyer
pursuant to Section 5.6 arising in respect of or relating to Business
Employees or any Employee Plan;
any indebtedness or guarantees of indebtedness
outstanding as of the Closing Date;
any liability arising from or related to any breach,
failure to perform, torts related to the performance of, violations of
Law, infringements or indemnities under, guaranties pursuant to and
overcharges or underpayments under, any Seller Contract (other than the
Assumed Lease Liabilities and liabilities under the Membership
Agreements which are not based on a tort claim) prior to the Closing
Date, whether or not a claim with respect to such liability is asserted
prior to, on or after the Closing Date;
(i) with respect to any Seller Contract or Permit
that has not been assigned to Buyer as of the Closing Date and further
with respect to which a financial accommodation has not been made
pursuant to Section 2.5 to provide that the Buyer receive the interest
of the Sellers in the benefits under such Seller Contract or Permit,
any liability arising under such Seller Contract or Permit from the
Closing Date until the effective date of the assignment of such Seller
Contract or Permit or the consummation of an alternate arrangement
pursuant to Section 2.5 and (ii) with respect to any Seller Contract
that has not been amended on or prior to the Closing Date pursuant to
Section 5.10 and further with respect to which an accommodation has not
been made pursuant to Section 5.10 to enable the Buyer to obtain the
benefits and assume the liabilities under such Seller Contract prior to
amendment thereof, any liability arising under such Seller Contract
from the Closing Date until the effective date of the amendment of such
Seller Contract or the consummation of an alternate arrangement
pursuant to Section 5.10;
any liability (other than the Assumed Lease
Liabilities) arising from or related to any compliance or noncompliance
prior to the Closing Date with any Law applicable to any Seller, the
Acquired Business or the Purchased Assets;
any liability (other than the Assumed Lease
Liabilities) arising from or related to any Action against any Seller,
the Acquired Business or the Purchased Assets pending as of the Closing
Date or based upon any action, event, circumstance or condition arising
prior to the Closing Date;
any liability incurred by any of the Sellers or any
Person other than the Buyer arising out of or relating to the
negotiation, preparation, execution, delivery or performance of this
Agreement and the Ancillary Agreements (including fees and expenses
payable to all attorneys and accountants, other professional fees and
expenses and bankers', brokers' or finders' fees for persons not
engaged by the Buyer);
all liabilities (other than Assumed Lease
Liabilities) of the Sellers under the Seller Contracts (other than
accrued liabilities for training or for prepaid dues under the
Membership Agreements), the Permits and the Seller Partnership Interest
to be performed prior to, or in respect of periods prior to, the
Closing Date;
all liabilities under the leases of the Leased Real
Properties which arose, accrued or are to be performed prior to the
Closing Date (other than liabilities to the extent attributable to the
physical condition of such properties at the Closing), including,
without limitation, (i) monetary penalties, fines and liabilities owing
to third parties (including, without limitation, Government
Authorities) resulting from the physical condition of such properties
prior to the Closing to the extent such monetary penalties, fines and
liabilities relate to the period prior to the Closing Date, and (ii)
all obligations which accrued prior to the Closing Date and which
relate to, or arise out of, indemnification obligations relating to (A)
accidents, claims or lawsuits and (B) breaches (including defaults)
under such leases, which accidents, lawsuits or breaches, as
applicable, occurred or were instituted, as the case may be, prior to
the Closing Date;
(i) the cost to remedy the Boston Club HVAC Problem
not to exceed the lesser of (A) $200,000 and (B) fifty percent (50%) of
such cost; (ii) the cost to remedy the Washington Club Pool Problem not
to exceed the lesser of (A) $100,000 and (B) fifty percent (50%) of
such cost; (iii) one hundred percent (100%) of the cost to remedy the
New York Sales Tax Issue; and (iv) one hundred percent (100%) of the
cost to remedy the Massachusetts Property Tax Issue;
all liabilities of the Sellers arising from any
action taken by the Sellers, or any failure on the part of the Sellers
to take any action, at any time after the Closing Date;
payroll obligations (including related Taxes,
vacation pay; employee benefits and employee gratuities) to Business
Employees on or prior to the Closing Date;
intercompany indebtedness and any other intercompany
obligations; and
any liability or obligation relating to or arising
out of any Excluded Asset or the Retained Business.
Consents and Waivers; Further Assurances.
----------------------------------------
Nothing in this Agreement or the Ancillary Agreements
shall be construed as an agreement to assign any Seller Contract,
Permit, Right or other Purchased Asset that by its terms or pursuant to
applicable Law is not capable of being sold, assigned, transferred or
delivered without the consent or waiver of a third party or
Governmental Authority unless and until such consent or waiver shall be
given. The Sellers shall use their commercially reasonable efforts, and
the Buyer shall cooperate reasonably with the Sellers, to obtain such
consents and waivers and to resolve the impediments to the sale,
assignment, transfer or delivery contemplated by this Agreement or the
Ancillary Agreements and to obtain any other consents and waivers
necessary to convey to the Buyer all of the Purchased Assets; provided,
however, that the requirement in this Section 2.5 to use commercially
reasonable efforts shall not require the Sellers or the Buyer to pay
any material fee as consideration for obtaining such consents. In the
event any such consents or waivers are not obtained prior to the
Closing Date, the Sellers shall continue to use their commercially
reasonable efforts to obtain the relevant consents or waivers until
such consents or waivers are obtained, and the Sellers will cooperate
with the Buyer in any lawful and economically feasible arrangement to
provide that the Buyer shall receive the interest of the Sellers in the
benefits under any such Seller Contract, Permit, Right or other
Purchased Asset, including performance by the applicable Seller, if
economically feasible, as agent; provided that the Buyer shall
undertake to pay or satisfy the corresponding liabilities for the
enjoyment of such benefit to the extent the Buyer would have been
responsible therefor hereunder if such consents or waivers had been
obtained. Nothing in this Section 2.5(a) shall affect the Buyer's right
to terminate this Agreement under Section 9.1 in the event that any
consent or waiver as described herein is not obtained.
From time to time after the Closing, and for no
further consideration, each of the parties shall execute, acknowledge
and deliver such assignments, transfers, consents, assumptions and
other documents and instruments and take such other actions as may be
necessary or desirable to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary
Agreements.
Consideration; Escrow.
---------------------
In full consideration for the sale, assignment,
transfer, conveyance and delivery of the Purchased Assets to the Buyer,
at the Closing, the Buyer shall (i) pay to the Sellers, by wire
transfer to a bank account designated in writing by the Sellers to the
Buyer at least two (2) Business Days prior to the Closing Date, an
amount equal to (A) $65,000,000 less (B) the sum of (x) the amount of
the Deposit (together with any interest earned thereon) and (y) the
amount of the Post-Closing Escrow Deposit and (ii) assume the Assumed
Liabilities. By the end of the Business Day after the date hereof, the
Buyer shall deposit with the Escrow Agent pursuant to the terms of the
Escrow Agreement an amount equal to $2,500,000 (the "Deposit"), which
amount shall be applied as a credit toward the payment of the Purchase
Price on the Closing Date as provided above or delivered to SCC or to
the Buyer, as the case may be, as provided in Section 9.2.
Anything herein to the contrary notwithstanding, SCC
shall have the sole right and option, exercisable in its sole
discretion, to keep the Rock Center Club (the "Rock Center Option"),
which right and option must be exercised, if at all, no later than the
close of business on the thirtieth (30th) day after the date hereof, by
written notice to the Buyer. If SCC exercises the Rock Center Option,
then (i) the Rock Center Club will not be deemed an Acquired Club or
part of the Acquired Business, but will instead be deemed a Retained
Club and part of the Retained Business (and the storage space lease
related thereto will not be Leased Real Property); and (ii) the amount
referred to in Section 2.6(a)(i)(A) shall be increased from $65,000,000
to $80,000,000.
On the Closing Date, the Buyer shall deposit with the
Escrow Agent the sum of $1,250,000 (the "Post-Closing Escrow Deposit"),
which would otherwise be part of the cash portion of the Purchase Price
payable to the Sellers. The Post-Closing Escrow Deposit shall be used
as follows: (i) up to $500,000 to pay for the cost of remedying the New
York Sales Tax Issue; (ii) up to $450,000 to pay for the cost of
remedying the Massachusetts Property Tax Issue; (iii) up to $200,000
for the cost payable by the Sellers pursuant to Section 2.4(l) to
remedy the Boston Club HVAC Problem; and (iv) up to $100,000 for the
cost payable by the Sellers pursuant to Section 2.4(l) to remedy the
Washington Club Pool Problem. The amount of the Post-Closing Escrow
Deposit shall be reduced to the extent that the Sellers have paid or
otherwise satisfied the New York Sales Tax Issue, the Massachusetts
Property Tax Issue and/or paid the costs provided for in Section
2.4(l), in each case prior to the Closing Date. The Post-Closing Escrow
Deposit will be held, utilized and disbursed by Escrow Agent pursuant
to and in accordance with the terms of the Escrow Agreement. In
addition, if the Sellers shall have remedied the Boston Club HVAC
Problem and/or the Washington Club Pool Problem prior to the Closing
Date, on the Closing Date, the Buyer shall pay to the Sellers, by wire
transfer to a bank account designated in writing by the Sellers to the
Buyer at least two (2) Business Days prior to the Closing Date, the
amount of the cost to remedy such Boston Club HVAC Problem and/or
Washington Club Pool Problem that the Buyer is responsible for pursuant
to Section 2.3(e).
The consideration to be paid to the Sellers by the
Buyer pursuant to Section 2.6(a) is referred to herein as the "Purchase
Price". Notwithstanding anything to the contrary in this Section 2.6, a
portion of the Purchase Price equal to the amount of the liquidation
preference (including accrued and unpaid dividends) of the shares of
Preferred Stock held by the Buyer Guarantor shall be payable by the
Buyer by delivery to SCC of a Promissory Note in the form attached
hereto as Exhibit G (the "Promissory Note"). The Buyer's obligations
under the Promissory Note shall be (i) guaranteed by the Buyer
Guarantor pursuant to the Buyer Guaranty and (ii) secured by a pledge
of all of the shares of Preferred Stock owned by the Buyer Guarantor
pursuant to the terms of the Pledge Agreement in the form attached
hereto as Exhibit H (the "Pledge Agreement").
Closing.
-------
The sale and purchase of the Purchased Assets and the
assumption of the Assumed Liabilities contemplated by this Agreement
shall take place at a closing (the "Closing") to be held at the offices
of Paul, Hastings, Janofsky & Walker LLP, 75 E. 55th Street, New York,
NY 10022, at 10:00 A.M. New York City time on the last day of the
calendar month in which all conditions to the obligations of the
parties set forth in Article VII (other than such conditions as may, by
their terms, only be satisfied at the Closing or on the Closing Date)
have been satisfied or, to the extent permitted by applicable Law,
waived, or at such other place or at such other time or on such other
date as the Sellers and the Buyer mutually may agree in writing.
Notwithstanding the foregoing, the Closing shall not occur prior to the
ninetieth (90th) day following the date hereof. The day on which the
Closing takes place is referred to as the "Closing Date".
At the Closing, the Sellers shall deliver or cause to
be delivered to the Buyer the following documents:
a counterpart of the Transition
Services Agreement, in the form of
Exhibit I hereto (the "Transition
Services Agreement"), duly executed
by the applicable Sellers;
a counterpart of the Operating
Standards Agreement, in the form of
Exhibit J hereto (the "Operating
Standards Agreement"), duly executed
by the applicable Sellers;
a counterpart of the Retained Asset
License Agreement, in the form of
Exhibit K hereto (the "Retained
Asset License Agreement"), duly
executed by the applicable Sellers;
a counterpart of the Website Services
Agreement, in a form to be mutually
agreed upon by the Buyer and SCC
(the "Website Services Agreement"),
duly executed by the applicable
Sellers;
a bill of sale and assignment and
assumption agreement, in the form of
Exhibit L hereto (the "Bill of
Sale"), duly executed by the
Sellers;
a counterpart of the Miami Management
Agreement Assignment and Assumption
Agreement, in the form of Exhibit M
hereto (the "Miami Assignment"),
duly executed by the Sellers;
an instrument of assignment of all
leases of the Leased Real Property,
in the form of Exhibit N hereto (the
"Assignment of Leases"), duly
executed by the applicable Sellers;
an instrument of assignment of the
Seller Partnership Interest, in the
form of Exhibit O hereto (the
"Assignment of Partnership
Interest"), duly executed by the
applicable Sellers;
executed landlord consents with respect to
the East Side Club and the Rock
Center Club (if the Rock Center
Option is not exercised), in the
form of Exhibit P hereto;
executed landlord estoppel certificates
(disclosing no material defaults on
the part of the tenant) with respect
to the East Side Club and the Rock
Center Club (if the Rock Center
Option is not exercised), in the
form of Exhibit Q hereto;
executed estoppel certificates from each
lessee, sublessee or licensee under
any Seller Lease of real property,
in the form of Exhibit R hereto;
certified copies of the certificate of
incorporation and bylaws of each of
the Sellers;
certified resolutions of the board of
directors and shareholders of each
of the Sellers authorizing the
execution and delivery of this
Agreement and the Ancillary
Agreements, and the consummation of
the transactions contemplated herein
and therein;
a duly executed certificate of the
secretary of each of the Sellers as
to incumbency and specimen
signatures of the officers of each
such Seller executing this Agreement
and the Ancillary Agreements;
a duly executed certificate of an executive
officer of each of the Sellers
pursuant to Section 7.3(a);
an opinion of counsel for the Sellers, dated
the Closing Date, substantially in
the form of Exhibit S hereto; and
---------
such other bills of sale, assignments and
other instruments of assignment,
transfer or conveyance, in form and
substance reasonably satisfactory to
the Buyer, as the Buyer may
reasonably request or as may be
otherwise necessary or desirable to
evidence and effect the sale,
assignment, transfer, conveyance and
delivery of the Purchased Assets to
the Buyer and to put the Buyer in
actual possession or control of the
Purchased Assets, duly executed by
the applicable Sellers.
At the Closing, the Buyer shall deliver or cause to
be delivered to SCC, on behalf of all the Sellers, the following
documents:
a counterpart of the Transition Services
Agreement, duly executed by the
Buyer;
a counterpart of the Operating Standards
Agreement, duly executed by Buyer;
a counterpart of the Retained Asset License
Agreement, duly executed by the
Buyer;
a counterpart of the Website Services
Agreement, duly executed by the
Buyer;
the Buyer Guaranty, duly executed by the
Buyer Guarantor;
a counterpart of the Bill of Sale, duly
executed by the Buyer;
a counterpart of the Miami Assignment, duly
executed by the Buyer;
a counterpart of the Assignment of Leases,
duly executed by the Buyer;
a counterpart of the Assignment of
Partnership Interest, duly executed
by the Buyer;
certified copies of the certificate of
formation and operating agreement of
the Buyer;
certified resolutions of the board of
directors or similar governing body
of the Buyer authorizing the
transactions contemplated by this
Agreement and the Ancillary
Agreements;
a duly executed certificate of the
secretary or equivalent officer of
the Buyer as to incumbency and
specimen signatures of officers of
the Buyer executing this Agreement
and the Ancillary Agreements;
a duly executed certificate of an executive
officer of the Buyer pursuant to
Section 7.2(a);
an opinion of counsel to the Buyer, dated
the Closing Date, substantially in
the form of Exhibit T hereto; and
---------
such other documents and instruments, in
form and substance reasonably
satisfactory to the Sellers, as the
Sellers may reasonably request or as
may be otherwise necessary or
desirable to evidence and effect the
assumption by the Buyer of the
Assumed Liabilities, duly executed
by the Buyer.
Post-Closing Adjustment of Purchase Price.
-----------------------------------------
Attached as Exhibit E hereto is a schedule of certain
accounts (the "Credit Accounts") used in preparing the Acquired Club
Balance Sheets. "Aggregate SCC Credit Amount" shall mean the aggregate
dollar amount in all Credit Accounts designated "SCC Credit Accounts"
on Exhibit E. "Aggregate Buyer Credit Amount" shall mean the aggregate
dollar amount in all Credit Accounts designated as "Buyer Credit
Accounts" on Exhibit E.
Within ninety (90) days after the Closing Date, SCC
shall deliver to the Buyer a consolidated statement of Purchased Assets
and Assumed Liabilities with respect to the Acquired Business,
including all notes thereto, dated as of the Closing Date (the "Closing
Balance Sheet") which shall also include a calculation of the Aggregate
SCC Credit Amount and the Aggregate Buyer Credit Amount as of the
Closing Date (respectively, the "Closing Date Aggregate SCC Credit
Amount" and the "Closing Date Aggregate Buyer Credit Amount", and,
collectively, the "Closing Credit Amounts"). The Closing Balance Sheet
shall be prepared in accordance with GAAP, applied on a basis
consistent with the preparation of the Acquired Club Balance Sheets;
provided that in the event of a conflict between GAAP and consistent
application thereof, GAAP shall prevail. The Buyer shall cause its
employees to provide commercially reasonable assistance to SCC and its
auditors in the preparation of the Closing Balance Sheet and the
calculation of the Closing Credit Amounts and shall provide SCC and its
auditors reasonable access, during normal business hours and upon
reasonable prior notice, to the personnel, properties, books and
records of the Buyer for such purpose.
During the 20-Business Day period following the
Buyer's receipt of the Closing Balance Sheet and the calculation of the
Closing Credit Amounts, the Sellers shall use their commercially
reasonable efforts to provide the Buyer and its auditors with access to
the working papers of the Sellers and their auditors relating to the
Closing Balance Sheet and the Closing Credit Amounts, and the Sellers
shall cooperate with the Buyer and its auditors to provide them with
any other information used in preparing the Closing Balance Sheet and
the calculation of the Closing Credit Amounts reasonably requested by
the Buyer and its auditors. The Closing Balance Sheet, including the
Closing Credit Amounts as calculated therein, shall become final and
binding on the 20th Business Day following delivery thereof, unless
prior to the end of such period, the Buyer delivers to Sellers written
notice of its disagreement (a "Notice of Disagreement") specifying the
nature and amount of any disputed item and accompanied by a certificate
of the Buyer's auditors stating that they concur with the position
taken by the Buyer in the Notice of Disagreement. The Buyer shall be
deemed to have agreed with all items and amounts in the Closing Balance
Sheet not specifically referenced in the Notice of Disagreement, and
such items and amounts shall not be subject to review in accordance
with Section 2.8(d). Any Notice of Disagreement may reference only
disagreements based on mathematical errors or based on amounts
reflected on the Closing Balance Sheet not being calculated in
accordance with this Section 2.8.
During the 10-Business Day period following delivery
of a Notice of Disagreement by the Buyer to SCC, the parties in good
faith shall seek to resolve in writing any differences that they may
have with respect to the matters specified therein. During such
10-Business Day period, the Buyer shall use its commercially reasonable
efforts to provide SCC and its auditors with access to the working
papers of the Buyer and its auditors relating to such Notice of
Disagreement, and the Buyer and its auditors shall cooperate with SCC
and its auditors to provide them with any other information used in
preparation of such Notice of Disagreement reasonably requested by SCC
or its auditors. Any disputed items resolved in writing between SCC and
the Buyer within such 10-Business Day period shall be final and binding
with respect to such items, and if SCC and the Buyer agree in writing
on the resolution of each disputed item specified by the Buyer in the
Notice of Disagreement and the amount of the Closing Credit Amounts,
the amount so determined shall be final and binding on the parties for
all purposes hereunder. If SCC and the Buyer have not resolved all such
differences by the end of such 10-Business Day period, SCC and the
Buyer shall, within twenty (20) Business Days following the expiration
of such 10-Business Day period, submit, in writing, to an independent
public accounting firm (the "Independent Accounting Firm"), their
briefs detailing their views as to the correct nature and amount of
each item remaining in dispute and the amount of the Closing Credit
Amounts, and the Independent Accounting Firm shall make a written
determination as to each such disputed item and the amount of the
Closing Credit Amounts, which determination shall be final and binding
on the parties for all purposes hereunder. The determination of the
Independent Accounting Firm shall be accompanied by a certificate of
the Independent Accounting Firm that it reached such determination in
accordance with the provisions of this Section 2.8. The Independent
Accounting Firm shall be agreed in writing by SCC and the Buyer and
must be a firm with which neither SCC nor the Buyer has had a material
relationship during the preceding five years. SCC and the Buyer shall
use their commercially reasonable efforts to cause the Independent
Accounting Firm to render a written decision resolving the matters
submitted to it within twenty (20) Business Days following the
submission thereof. The Independent Accounting Firm shall be authorized
to resolve only those items remaining in dispute between the parties in
accordance with the provisions of this Section 2.8 within the range of
the difference between the Buyer's position with respect thereto and
SCC's position with respect thereto. The Sellers and the Buyer agree
that judgment may be entered upon the written determination of the
Independent Accounting Firm in any court referred to in Section 10.9.
The costs of any dispute resolution pursuant to this Section 2.8(d),
including the fees and expenses of the Independent Accounting Firm and
of any enforcement of the determination thereof, shall be borne by the
parties in inverse proportion as they may prevail on the matters
resolved by the Independent Accounting Firm, which proportionate
allocation shall be calculated on an aggregate basis based on the
relative dollar values of the amounts in dispute and shall be
determined by the Independent Accounting Firm at the time the
determination of such firm is rendered on the merits of the matters
submitted. The fees and disbursements of the auditors and other
advisors of each party incurred in connection with their preparation or
review of the Closing Balance Sheet and preparation or review of any
Notice of Disagreement, as applicable, shall be borne by such party.
The Purchase Price shall be adjusted, upwards or
downwards, as follows:
if the Closing Date Aggregate SCC
Credit Amount is greater than the
Closing Date Aggregate Buyer Credit
Amount, as each is finally
determined pursuant to this Section
2.8, the Purchase Price shall be
adjusted upwards in an amount equal
to the difference between the
Closing Date Aggregate SCC Credit
Amount and the Closing Date
Aggregate Buyer Credit Amount and
the Buyer shall pay such amount to
the Sellers; and
if the Closing Date Aggregate Buyer
Credit Amount is greater than the
Closing Date Aggregate SCC Credit
Amount, as each is finally
determined pursuant to this Section
2.8, the Purchase Price shall be
adjusted downwards in an amount
equal to the difference between the
Closing Date Aggregate Buyer Credit
Amount and the Closing Date
Aggregate SCC Credit Amount and the
Sellers shall pay such amount to the
Buyer.
Amounts to be paid pursuant to Section 2.8(e) shall
bear interest from the Closing Date to the date of such payment at a
rate per annum equal to the rate of interest from time to time
announced publicly by Citibank as its prime rate. Payments in respect
of Section 2.8(e) shall be made within five (5) Business Days of final
determination of the Closing Credit Amounts pursuant to the provisions
of this Section 2.8 by wire transfer of United States dollars in
immediately available funds to such account or accounts as may be
designated in writing by the party entitled to such payment at least
two (2) Business Days prior to such payment date.
Any expenses incurred by the Sellers with respect to
any of the Assumed Liabilities for periods on or after the Closing Date
("SCC Reimbursable Expenses") shall be reimbursed promptly by the
Buyer. Any expenses incurred by the Buyer with respect to any of the
Excluded Liabilities for periods prior to the Closing Date ("Buyer
Reimbursable Expenses") shall be reimbursed promptly by SCC. In the
event that the Buyer incurs any Buyer Reimbursable Expenses, the Buyer
shall deliver notice (a "Reimbursement Notice") to SCC which shall
include reasonable evidence of such expenses and a calculation of the
amount of such expenses relating to the period prior to the Closing
Date. In the event that the Sellers incur any SCC Reimbursable
Expenses, SCC shall deliver a Reimbursement Notice to Buyer which shall
include reasonable evidence of such expenses and a calculation of the
amount of such expense relating to the period occurring on and after
the Closing Date. Within ten (10) Business Days of receipt of a
Reimbursement Notice from the other party, the Buyer or SCC, as the
case may be, shall either pay in full the amounts set forth in such
Reimbursement Notice for which it is responsible pursuant to this
Section 2.8(g), or shall deliver a Notice of Disagreement with respect
to all or a portion of such amount. During the 10-Business Day period
following delivery of a Notice of Disagreement, the parties in good
faith shall seek to resolve in writing any differences that they may
have with respect to the matters specified therein. During such
10-Business Day period, the party claiming reimbursement shall use its
commercially reasonable efforts to provide the other party and its
accountants with all reasonably relevant documentation relating to such
Notice of Disagreement. Any disputed items resolved in writing between
SCC and the Buyer within such 10-Business Day period shall be final and
binding with respect to such items, and if SCC and the Buyer agree in
writing on the resolution of each disputed item specified in the Notice
of Disagreement the amount so determined shall be final and binding on
the parties for all purposes hereunder. If SCC and the Buyer have not
resolved all such differences by the end of such 10-Business Day
period, SCC and the Buyer shall, within twenty (20) Business Days
following the expiration of such 10-Business Day period, submit any
remaining dispute to the Independent Accounting Firm for resolution
pursuant to the terms of Section 2.8(d). Amounts to be paid pursuant to
this Section 2.8(g) shall bear interest from the date that is ten (10)
days after the date of the delivery of the applicable Reimbursement
Notice to the date of such payment at a rate per annum equal to the
rate of interest from time to time announced publicly by Citibank as
its prime rate. Payments in respect of this Section 2.8(g) shall be
made within five (5) Business Days of final determination of the
amounts due pursuant to the provisions of this Section 2.8(g) by wire
transfer of United States dollars in immediately available funds to
such account or accounts as may be designated in writing by the party
entitled to such payment at least two (2) Business Days prior to such
payment date.
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
Except as set forth in the corresponding sections or subsections of the
Disclosure Schedules attached hereto (collectively, the "Disclosure Schedules")
(each of which shall qualify the specifically identified Sections or subsections
hereof to which such Disclosure Schedule relates and any other provision of this
Agreement or any Ancillary Agreement to which such provision reasonably
relates), the Sellers, jointly and severally, hereby represent and warrant to
the Buyer as follows:
Organization and Qualification. Each of the
Sellers is a corporation duly organized, validly existing and in good standing
under the laws of the state in which it was incorporated, as set forth on
Schedule 3.1 of the Disclosure Schedules, and has full corporate power and
authority to own, lease and operate the Purchased Assets and to carry on the
Acquired Business as it is now being conducted. Each of the Sellers is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the ownership or operation of the Purchased
Assets or the conduct of the Acquired Business makes such qualification or
licensing necessary, except for any such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, have a
Seller Material Adverse Effect.
Authority. Each of the Sellers has full
corporate power and authority to execute and deliver this
Agreement and each of the Ancillary Agreements to which it will be a party, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by each
such Seller of this Agreement and each of the Ancillary Agreements to which it
will be a party and the consummation by each such Seller of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action. This Agreement has been, and upon their execution
each of the Ancillary Agreements to which each such Seller will be a party will
have been, duly executed and delivered by each such Seller. This Agreement
constitutes, and upon their execution each of the Ancillary Agreements to which
each such Seller will be a party will constitute, the legal, valid and binding
obligations of each such Seller, enforceable against each such Seller in
accordance with its and their respective terms.
No Conflict; Required Filings and Consents.
------------------------------------------
Except as set forth on Schedule 3.3 of the Disclosure
Schedules, the execution, delivery and performance by each of the
Sellers of this Agreement and each of the Ancillary Agreements to which
each such Seller will be a party, and the consummation of the
transactions contemplated hereby and thereby, do not and will not:
conflict with or violate the certificate of
incorporation or bylaws or
equivalent organizational documents
of any such Seller;
conflict with or violate any Law applicable
to any such Seller, the Acquired
Business or any of the Purchased
Assets or by which any such Seller,
the Acquired Business or any of the
Purchased Assets may be bound or
affected; or
result in any breach of, constitute a
default (or an event that, with
notice or lapse of time or both,
would become a default) under,
require any consent of any Person
pursuant to, give to others any
right of termination, amendment,
modification, acceleration or
cancellation of, allow the
imposition of any fees or penalties,
require the offering or making of
any payment or redemption, give rise
to any increased, guaranteed,
accelerated or additional rights or
entitlements of any Person or
otherwise adversely affect any
rights of any such Seller or the
Acquired Business under, or result
in the creation of any Encumbrance
on any of the Purchased Assets
pursuant to, any note, bond,
mortgage, indenture, agreement,
lease, license, permit, franchise,
instrument, obligation or other
Seller Contract to which any such
Seller is a party or by which each
such Seller, the Acquired Business
or the Purchased Assets may be bound
or affected,
except where, with respect to clause (ii) or (iii) above, any such conflicts,
violations, breaches, defaults or other occurrences would not have a Seller
Material Adverse Effect.
None of the Sellers is required to file, seek or
obtain any notice, authorization, approval, order, permit or consent of
or with any Governmental Authority in connection with the execution,
delivery and performance by each such Seller of this Agreement and each
of the Ancillary Agreements to which it will be a party or the
consummation of the transactions contemplated hereby or thereby or in
order to prevent the termination of any right, privilege, license or
qualification of or affecting the Acquired Business or the Purchased
Assets, except for any filings required to be made under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act").
Title to Assets; Sufficiency of Assets.
--------------------------------------
The Sellers have good and valid title to or a valid
leasehold interest in all of the Purchased Assets, free and clear of
any Encumbrance, other than (i) liens for current taxes and assessments
not yet past due, (ii) mechanics', workmen's, repairmen's,
warehousemen's and carriers' liens arising in the ordinary course of
business consistent with past practice of the Acquired Business, (iii)
any Encumbrances disclosed on Schedule 3.4(a)(iii) of the Disclosure
Schedules, (iv) any occupancy agreements, leases, subleases, licenses
and all other similar agreements relating to the operation of the
Acquired Clubs and the Seller Leases that are expected to survive the
Closing and set forth on Schedule 3.4(a)(iv) of the Disclosure
Schedules; (v) any Encumbrances created by, through or under the Buyer;
(vi) any such matters of record; and (vii) Encumbrances and other
imperfections of title that do not, individually or in the aggregate,
materially impair the continued ownership, use and operation of the
assets to which they relate in the conduct of the Acquired Business as
currently conducted(collectively, "Permitted Encumbrances"). The
delivery to the Buyer of the Bill of Sale and other instruments of
assignment, conveyance and transfer pursuant to this Agreement and the
Ancillary Agreements will transfer to the Buyer good and valid title to
or a valid leasehold interest in all of the Purchased Assets, free and
clear of any Encumbrance other than Permitted Encumbrances.
The Purchased Assets, and the Buyer's rights under
the Transition Services Agreement, the Retained Asset License
Agreement, the Operating Standards Agreement and the various
instruments of assignment referred to in Section 2.7(b), are sufficient
to enable the Buyer to conduct and operate the Acquired Business as
currently conducted and operated by the Sellers as of the date hereof.
Financial Statements.
--------------------
Attached hereto as Schedule 3.5(a) of the Disclosure
Schedules are true and complete copies of (i) the audited consolidated
balance sheets of SCC as at December 31, 2002, December 31, 2003,
December 31, 2004, and the related audited consolidated statements of
results of operations and cash flows of SCC and its subsidiaries,
together with all related notes and schedules thereto, accompanied by
the reports thereon of SCC's independent auditors; (ii) the unaudited
consolidated balance sheet of SCC as at June 30, 2005, and the related
unaudited consolidated statements of results of operations and cash
flows of SCC and its subsidiaries (the financial statements included in
clause (i) and clause (ii) are collectively referred to as the
"Financial Statements"); (iii) the unaudited balance sheets of each
Acquired Club as at December 31, 2004 and June 30, 2005, respectively
(such balance sheets, the "Acquired Club Balance Sheets"), and the
related unaudited statements of results of operations and cash flows of
each Acquired Club (together with the Acquired Club Balance Sheets, the
"Acquired Club Financial Statements"); and (iv) a reconciliation
statement demonstrating that the assets and liabilities set forth on
the June 30, 2005 Acquired Club Balance Sheets together with the assets
and liabilities set forth on the June 30, 2005 balance sheets of the
Retained Clubs equal the total assets and liabilities set forth on the
consolidated balance sheet of SCC as of June 30, 2005. Each of the
Financial Statements and the Acquired Club Financial Statements (i) are
correct and complete in all material respects and have been prepared in
accordance with the books and records of SCC, (ii) have been prepared
in accordance with GAAP applied on a consistent basis throughout the
periods indicated (except as may be indicated in the statements
themselves or in the notes thereto) and (iii) except as set forth on
Schedule 3.5(a)(iii) of the Disclosure Schedules, fairly present, in
all material respects, the consolidated financial position, results of
operations and cash flows of SCC and the Acquired Clubs, as the case
may be, as at the respective dates thereof and for the respective
periods indicated therein, except as otherwise noted therein, and
subject to normal and recurring year-end adjustments that will not,
individually or in the aggregate, be material, except, in each case,
that the Acquired Club Financial Statements relating to the Miami Club
exclude PP&E, equipment financing transactions, long-term debt and
depreciation expense.
To the Sellers' Knowledge, except as and to the
extent adequately accrued or reserved against in the Acquired Club
Balance Sheets or disclosed in the notes thereto, the Sellers do not
have any liabilities of any nature arising out of, relating to or
affecting the Acquired Business, whether accrued, absolute or
contingent, and whether or not required by GAAP to be reflected in a
consolidated balance sheet of the Acquired Business or disclosed in the
notes thereto, except for liabilities (i) set forth on Schedule 3.5(b)
of the Disclosure Schedules, or (ii) incurred in the ordinary course of
business consistent with past practice (A) since the date of the
Acquired Club Balance Sheets or (B) under the Seller Contracts.
The books of account and financial records of the
Sellers pertaining to the Acquired Business are true and correct in all
material respects and have been prepared and are maintained in
accordance with sound accounting practice. None of the Sellers has made
any changes in its accounting methods or practices since the date of
the Acquired Club Balance Sheets.
Absence of Certain Changes or Events. Since
December 31, 2004; (i) the Sellers have conducted the Acquired Business
only in the ordinary course consistent with past practice; (ii) there has not
occurred any Seller Material Adverse Effect; (iii) neither the Acquired Business
nor the Purchased Assets have suffered any material loss, damage, destruction or
other casualty affecting any material properties or assets thereof or included
therein, whether or not covered by insurance; and (iv) the Sellers have not
taken any action that, if taken after the date of this Agreement, would
constitute a breach of any of the covenants set forth in Section 5.1.
Compliance with Law; Permits.
----------------------------
Except as otherwise set forth on Schedule 3.7(a) of
the Disclosure Schedules, to the Knowledge of the Sellers, the Sellers
are and have been in compliance in all material respects with all Laws
applicable to them in connection with the conduct or operation of the
Acquired Business and the ownership or use of the Purchased Assets.
Except as otherwise set forth on Schedule 3.7(a) of the Disclosure
Schedules, neither the Sellers nor any of their executive officers have
received during the past five years, nor, to the Knowledge of the
Sellers, is there any basis for, any notice, order, complaint or other
communication from any Governmental Authority or any other Person that
any of the Sellers is not in compliance in all material respects with
any such Laws.
Schedule 3.7(b) of the Disclosure Schedules sets
forth a true and complete list of all Permits necessary for the Sellers
to own, lease and operate the Purchased Assets and to carry on the
Acquired Business in all material respects as currently conducted.
Except as set forth on Schedule 3.7(b) of the Disclosure Schedules, the
Sellers possess such Permits, such Permits are current and the Sellers
have been in compliance in all material respects with such Permits. The
Sellers shall, prior to the Closing, obtain those Permits listed on
Schedule 3.7(b) of the Disclosure Schedules which the Company does not
currently possess or which have expired, as indicated on Schedule
3.7(b) of the Disclosure Schedules. As of the date hereof, no
suspension, cancellation, modification, revocation or nonrenewal of any
material Permit is pending or, to the Knowledge of the Sellers,
threatened.
Litigation. Except as disclosed on Schedule
3.8, there is no Action pending or, to the Knowledge of the Sellers, threatened
in connection with the Acquired Business or the Purchased Assets or the Sellers'
ownership or operation thereof. There is no Action pending or, to the Knowledge
of the Sellers, threatened seeking to prevent, hinder, modify, delay or
challenge the transactions contemplated by this Agreement or the Ancillary
Agreements. There is no outstanding order, writ, judgment, injunction, decree,
determination or award of, or pending or, to the Knowledge of the Sellers,
threatened investigation by, any Governmental Authority relating to the Acquired
Business, the Purchased Assets, the Sellers' ownership or operation thereof or
the transactions contemplated by this Agreement or the Ancillary Agreements.
There is no Action by any of the Sellers pending, or which any of the Sellers
has commenced preparations to initiate, against any other Person in connection
with the Acquired Business or the Purchased Assets.
Employee Benefit Plans.
----------------------
Schedule 3.9(a)(i) of the Disclosure Schedules sets
forth a complete and accurate list of the names of all current Business
Employees, specifying their positions with respect to the Acquired
Business, and their dates of birth, current salaries, dates of hire,
business locations and identifying which Business Employees are
currently absent or on leave from active employment. Schedule
3.9(a)(ii) of the Disclosure Schedules describes all commission, bonus
and incentive entitlements of all General Managers of the Acquired
Clubs. There has been no material change in the Company's disability or
leave policies since January 1, 2004.
Schedule 3.9(b) of the Disclosure Schedules sets
forth a true and complete list of all Employee Plans. True and complete
copies of each of the following documents have been delivered by the
Sellers to the Buyer:
each Welfare Plan, Pension Plan and
Multiemployer Plan (and, if
applicable, related trust
agreements) and all amendments
thereto, all written interpretations
thereof and written descriptions
thereof (including summary plan
descriptions and summaries of
material modifications) which have
been distributed to the Sellers'
employees or participants or
beneficiaries in such plan, all
annuity contracts or other funding
instruments, and the three most
recent annual reports (Form Series
5500) and all schedules and
financial statements attached
thereto, if any, required under
ERISA or the Code;
each Benefit Arrangement, including
written interpretations thereof and
written descriptions thereof which
have been distributed to any
Business Employee or his or her
beneficiaries in such Benefit
Arrangement and a complete
description of any such Benefit
Arrangement that is not in writing;
and
the most recent determination letter
issued by the Internal Revenue
Service with respect to each Pension
Plan that covers any Business
Employee.
Except as set forth on Schedule 3.9(c) of the
Disclosure Schedules:
none of the Pension Plans is or was a
Multiemployer Plan or a Pension Plan
that is subject to either Title IV
of ERISA or Section 412 of the Code,
and none of the Employee Plans is or
was a "multiple employer welfare
arrangement," as defined in Section
3(40)(A) of ERISA;
each Pension Plan and each related trust
agreement, annuity contract or other
funding instrument (A) has been
established and maintained in
material compliance with its terms
and with all applicable Laws,
including ERISA and the Code, (B) is
qualified and tax exempt under the
provisions of Code Sections 401(a)
(or 403(a), as appropriate) and
501(a) and has been so qualified
during the period from its adoption
to date, and nothing has occurred
that could result in the loss of
such tax qualified status;
no "prohibited transaction," within the
meaning of Section 4975 of the Code
or Sections 406 and 407 of ERISA,
and not otherwise exempt under
Section 408 of ERISA, has occurred
with respect to any Pension Plan;
each Welfare Plan which is a "group
health plan," as defined in Section
607(1) of ERISA, has been operated
in material compliance with its
terms and with all applicable Laws,
including the provisions of Part 6
of Title I of ERISA and Sections
162(k) and 4980B of the Code at all
times;
no Employee Plan provides (except at no
cost to the Sellers or any ERISA
Affiliate), or reflects or
represents any liability of the
Sellers or any ERISA Affiliate to
provide, retiree life insurance,
retiree health benefits or other
retiree employee welfare benefits to
any Person for any reason, except as
may be required by COBRA or other
applicable Law;
there are no claims, audits, inquiries,
investigations, or proceedings
pending, or, to the Knowledge of the
Sellers, threatened or reasonably
anticipated (other than routine
claims for benefits), against any
Employee Plan or against the assets
of any Employee Plan; and
neither the execution and delivery of this
Agreement or the Ancillary
Agreements nor the consummation of
the transactions contemplated hereby
or thereby will result in the
acceleration or creation of any
rights of any Business Employee
under any Employee Plan (including
the acceleration of the vesting or
exercisability of any stock options,
the acceleration of the vesting of
any restricted stock, the
acceleration of the accrual or
vesting of any benefits under any
Pension Plan or the acceleration or
creation of any rights under any
severance, parachute or change in
control agreement).
Schedule 3.9(d) of the Disclosure Schedules
identifies each Employee Plan that is or has ever been a "nonqualified
deferred compensation plan" within the meaning of Code Section 409A and
associated Treasury Department guidance, including IRS Notice 2005-1.
Each such nonqualified deferred compensation plan has (i) since January
1, 2005, satisfied the requirements of paragraphs (2), (3) and (4) of
Code Section 409A(a), and been operated in accordance with such
requirements, and (ii) since October 3, 2004, not been "materially
modified" within the meaning of Code Section 409A and associated
Treasury Department guidance, including IRS Notice 2005-1, Q&A 18.
With respect to each Employee Plan in which
participants hold shares of SCC Common Stock, options to purchase such
shares or other equity-based compensation (collectively, "Equity
Benefits"), the transactions contemplated by this Agreement will not
impose any liability or obligation on the Buyer or its Affiliates to
pay any consideration to such participants in respect of such Equity
Benefits, and the Sellers shall honor such Equity Benefits in
accordance with the terms of each such Employee Plan.
Labor and Employment Matters.
----------------------------
None of the Sellers are a party to any labor or
collective bargaining Contract that pertains to any Business Employees.
Except as set forth on Schedule 3.10(a) of the Disclosure Schedules,
there are no collective bargaining arrangements or, to the Knowledge of
the Sellers, organizing activities that could affect the Acquired
Business pending or under discussion with any Business Employees or any
labor organization. There is, and during the past five years there has
been, no labor dispute, strike, controversy, slowdown, work stoppage or
lockout pending or, to the Knowledge of the Sellers, threatened against
or affecting the Acquired Business or any of the Sellers in connection
with the Acquired Business, nor to the Knowledge of the Sellers, is
there any basis for any of the foregoing. None of the Sellers has
breached or otherwise failed to comply with the provisions of any
collective bargaining or union Contract affecting any Business
Employees. To the Knowledge of the Sellers, the Sellers are in
compliance in all material respects with all applicable Laws respecting
employment and employment practices, terms and conditions of
employment, including, without limitation, wages and hours, labor
relations, employment discrimination, disability rights or benefits,
equal opportunity, plant closure or mass layoff issues, affirmative
action, leaves of absence, occupational health and safety, workers
compensation and unemployment insurance. There are no pending or, to
the Knowledge of the Sellers, threatened union grievances or union
representation questions involving any Business Employees. To the
Knowledge of the Sellers, none of the Sellers has engaged or is
engaging in any unfair labor practice in connection with the Acquired
Business. No unfair labor practice or labor charge, inquiry,
investigation, proceeding or complaint is pending or, to the Knowledge
of the Sellers, threatened with respect to the Acquired Business or any
of the Sellers in connection with the Acquired Business before the
National Labor Relations Board, the Equal Employment Opportunity
Commission or any other Governmental Authority. Each of the Sellers has
withheld and paid to the appropriate Governmental Authority or is
holding for payment not yet due to such Governmental Authority all
amounts required to be withheld from Business Employees and is not
liable for any arrears of wages, Taxes, penalties or other sums for
failure to comply with any applicable Laws relating to the employment
of labor in connection with the Acquired Business. The Sellers have
paid in full to all Business Employees all wages, salaries,
commissions, bonuses, benefits and other compensation due to the
Business Employees or on behalf thereof for services rendered through
and including the date hereof, or have adequately accrued therefor, in
accordance with GAAP. None of the Sellers is a party to, or otherwise
bound by, any consent decree with, or citation by, any Governmental
Authority relating to or affecting Business Employees or employment
practices in connection with the Acquired Business. None of the Sellers
nor any of their executive officers has received within the past five
years any notice of intent by any Governmental Authority responsible
for the enforcement of labor or employment laws to conduct an
investigation relating to the Acquired Business and, to the Knowledge
of the Sellers, no such investigation is in progress. To the Knowledge
of the Sellers, no current Key Business Employee intends, or is
expected, to terminate his employment relationship with the Acquired
Business following the consummation of the transactions contemplated
hereby
Other than in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements, since the
enactment of the Worker Adjustment and Retraining Notification Act (the
"WARN Act"), 29 U.S.C. ss.ss. 2101 et seq., none of the Sellers has
effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Sellers, or (ii)
a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of the Sellers related to the Acquired Business,
nor has any of the Sellers been affected by any transaction or engaged
in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local law. No Business Employee has
suffered an "employment loss" (as defined in the WARN Act) in the past
three years.
The Sellers have exercised reasonable care in
distinguishing between those rendering services to the Acquired
Business as employees and those rendering services to the Acquired
Business as independent contractors. No Person who has rendered, or is
currently rendering, any services to the Acquired Business while
classified as an independent contractor has raised any challenge or
dispute over the accuracy of such classification, nor, to the Knowledge
of the Sellers, is there any basis for any such Person to do so.
Real Property.
-------------
Schedule 3.11(a) of the Disclosure Schedules sets
forth a true and complete list of all Leased Real Property and the
leases related thereto and all Seller Leases. None of the Sellers has
received written notice that any parcel of Leased Real Property is
subject to any governmental decree or order to be sold or is being
condemned, expropriated or otherwise taken by any public authority with
or without payment of compensation therefor. None of the Sellers is in
default under any material term of any Seller Lease, and, to the
Knowledge of the Sellers, no other party thereto is in breach of any
material term of such Seller Lease, as applicable.
Other than as set forth on Schedule 3.11(b) of the
Disclosure Schedules, (i) there are no other Contracts which any Seller
has entered into that preclude or restrict the ability to use any
Leased Real Property or operate the Acquired Business for the purposes
for which it is currently being used and operated.
Personal Property.
-----------------
Schedule 3.12(a) of the Disclosure Schedules sets
forth a true and complete list of (i) all Personal Property owned by
any of the Sellers, including all exercise equipment, (ii) each lease
or other Contract under which any of the Sellers is the lessee of, or
holds or operates, any Personal Property owned by a third Person. No
exercise equipment has been removed from any Acquired Club during the
six month period immediately prior to the date of this Agreement,
except in the ordinary course of business.
All of the Personal Property has been maintained in
all material respects in accordance with past practice and generally
accepted industry practice. The Personal Property is in all material
respects in good operating condition and repair, ordinary wear and tear
excepted, and is adequate for the uses to which it is being put. All
leased Personal Property is in all material respects in the condition
required of such property by the terms of the lease applicable thereto.
The Sellers have delivered to the Buyer copies of all
product warranties relating to the Personal Property, and all
instruction manuals and other printed materials supplied or received in
connection with the acquisition of such Personal Property, in either
such case that are in the Sellers' possession.
Intellectual Property.
---------------------
The Sellers own, or have valid right to use, all of
the Intellectual Property required for the operation of the Acquired
Business as currently conducted.
Schedule 3.13 of the Disclosure Schedules sets forth
a true and complete list of all Patents, registered and material
unregistered Marks, and registered Copyrights included in the Seller
Intellectual Property, including any pending applications to register
any of the foregoing, identifying for each whether it is owned by or
exclusively licensed to any Seller.
No registered Mark identified on Schedule 3.13 of the
Disclosure Schedules has been or is now involved in any opposition or
cancellation proceeding and, to the Knowledge of the Sellers, no such
proceeding is or has been threatened with respect to any of such Marks.
No Patent identified on Schedule 3.13 of the Disclosure Schedules has
been or is now involved in any interference, reissue or reexamination
proceeding and, to the Knowledge of the Sellers, no such proceeding is
or has been threatened with respect thereto any of such Patents.
The Sellers exclusively own, free and clear of any
and all Encumbrances, to the Knowledge of the Sellers, all of the
Seller Intellectual Property except for the Seller Intellectual
Property so identified on Schedule 3.13 of the Disclosure Schedules
that are licensed to any of the Sellers by a third party licensor
pursuant to a written license agreement that remains in effect. None of
the Sellers has received any notice or claim challenging its ownership
of any of the Seller Intellectual Property owned (in whole or in part)
by such Seller, nor to the Knowledge of the Sellers is there a
reasonable basis for any claim that it does not so own any of such
Seller Intellectual Property.
The Sellers have taken reasonable steps in accordance
with standard industry practices to protect their rights in the Seller
Intellectual Property and at all times have taken steps reasonably
calculated to maintain the confidentiality of all information that
constitutes or constituted a Trade Secret included therein.
All registered Marks, issued Patents and registered
Copyrights identified on Schedule 3.13 of the Disclosure Schedules
("Seller Registered IP"), to the Knowledge of the Sellers, are valid
and subsisting and enforceable, and none of the Sellers has received
any notice or claim challenging the validity or enforceability of any
Seller Registered IP or alleging any misuse of such Seller Registered
IP. To the Sellers' Knowledge, none of the Sellers has taken any action
or failed to take any action that could reasonably be expected to
result in the abandonment, cancellation, forfeiture, relinquishment,
invalidation or unenforceability of any of the Seller Registered IP
(including the failure to pay any filing, examination, issuance, post
registration and maintenance fees, annuities and the like and the
failure to disclose any known material prior art in connection with the
prosecution of patent applications).
Use of Seller Intellectual Property by or on behalf
of the Acquired Business or the Retained Business or any of the Sellers
in connection with the Acquired Business or the Retained Business, to
the Knowledge of the Sellers, has not infringed upon, misappropriated,
violated, diluted or constituted the unauthorized use of, any
Intellectual Property of any third party, and none of the Sellers has
received any notice or claim asserting or suggesting that any such
infringement, misappropriation, violation, dilution or unauthorized use
is or may be occurring or has or may have occurred, nor to the
Knowledge of the Sellers, is there a reasonable basis therefor. No
Seller Intellectual Property is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting the use or
licensing thereof by any Seller, the Retained Business or the Acquired
Business. To the Knowledge of each Seller, no third party is
misappropriating, infringing, diluting or violating any Seller
Intellectual Property in a material manner.
Except as set forth on Schedule 3.13 of the
Disclosure Schedules, none of the Sellers has transferred ownership of,
or granted any license with respect to, any material Seller
Intellectual Property. To the Knowledge of the Sellers, no loss or
expiration of any of the material Seller Intellectual Property, or any
other material Intellectual Property used or held for use by any of the
Sellers in connection with the conduct of the Acquired Business, is
pending or threatened. Upon the execution and delivery of the Retained
Asset License Agreement, the Buyer shall have a perpetual, royalty-free
license, free of any Encumbrances other than those set forth in the
Retained Asset License Agreement, in all Intellectual Property used or
held for use in connection with the conduct of the Acquired Business.
Such license shall grant to the Buyer all rights with respect to
Intellectual Property that are necessary for the conduct of the
Acquired Business as currently conducted by the Sellers.
Receivables. All Receivables reflected on
the Acquired Club Balance Sheets or to be reflected on
the Closing Balance Sheet represent or will represent bona fide and valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business. Unless paid prior to the Closing, all
Receivables will be collectible net of the respective reserves shown on the
Acquired Club Balance Sheets or to be shown on the Closing Balance Sheet (which
reserves have been calculated consistent with past practice). There is no
contest, claim or right of set-off, other than returns in the ordinary course of
business, under any Contract with any obligor of any Receivables related to the
amount or validity of such Receivable.
Inventory. Schedule 3.15 of the Disclosure
Schedules sets forth a true and complete list of all Inventory as of the date
of the Acquired Club Balance Sheets, the value thereof and the address at which
such Inventory is located. Such Inventory has not been consigned to, or held on
consignment from, any third person. Such Inventory and additional items of
Inventory arising since the date of the Acquired Club Balance Sheets was
acquired and has been maintained in accordance with the regular business
practices of the Sellers, consists of new and unused items of a
quality and quantity substantially all of which is usable or saleable in the
ordinary course of business, and is valued at prices equal to the lower of cost
or realizable value and in accordance with the internal accounting practices of
the Sellers applied on a basis consistent with the Financial Statements, each
consistently applied throughout the periods covered by the Financial Statements,
with adequate provisions or adjustments for excess inventory, slow-moving
inventory, spoilage and inventory obsolescence and shrinkage. The Inventory
(including items of Inventory acquired or manufactured subsequent to the date of
the Acquired Club Balance Sheets) consists, and will as of the Closing Date
consist, of products of quality and quantity commercially usable and salable at
not substantially less than cost in the ordinary course of business, except for
any items of obsolete material or material below standard quality, substantially
all of which have been written down to realizable market value, or for which
adequate reserves have been provided, and, except as described on Schedule 3.15
of the Disclosure Schedules, the present quantities of all Inventory are
reasonable in the present circumstances of the Acquired Business and consistent
with the average level of Inventory in the past 24 months.
Taxes.
-----
Except as otherwise disclosed on Schedule 3.16 of the
Disclosure Schedules, to the extent a breach or inaccuracy of any of
the following could result in a liability of the Buyer to any Person in
connection with the transactions contemplated by this Agreement or the
Ancillary Agreements, whether as a result of applicable Law, Contract
or otherwise: (i) each of the Sellers and any entity that comprises the
Acquired Business has timely paid and will continue to pay all Taxes
when the same have become due, (ii) there is no outstanding claim,
assessment, audit or other examination or proceeding with respect to
Taxes of any of the Sellers or any entity that comprises the Acquired
Business, (iii) none of the Sellers has Knowledge of any basis for a
claim by any Governmental Authority for Taxes with respect to any
Purchased Asset or entity that comprises the Acquired Business, (iv)
each of the Sellers and any entity that comprises the Acquired Business
has timely filed all Returns it is required to have filed and will
continue to file such Returns as they become due, (v) all Returns
filed, or to be filed, by each such Seller or any entity that comprises
the Acquired Business have been and will be true, correct, and
complete, and (vi) the Sellers have not agreed to any waiver or
extension of the statute of limitations for Taxes. Except for Taxes for
which payment is not yet due, there are no Taxes of any of the Sellers
or any entity that comprises the Acquired Business that form or could
form the basis for an Encumbrance on any of the Purchased Assets.
None of the Sellers or any entity that comprises the
Acquired Business (i) is a party to any Contract or plan that has
resulted or would result, individually or in the aggregate, in
connection with this Agreement or any change of control of any Seller,
in the payment of any "excess parachute payments" within the meaning of
Section 280G of the Code or (ii) has made any payments, is obligated to
make any payments, or is a party to any Contract or plan that would
reasonably be expected to obligate it to make any payments that will
not be deductible by reason of Sections 162, 280G or 404 of the Code.
None of the Purchased Assets is property that is
required to be treated as owned by another Person pursuant to the "safe
harbor lease" provisions of the Code and in effect immediately prior to
the enactment of the Tax Reform Act of 1986, and none of the foregoing
assets is "tax exempt use property" within the meaning of Section
168(h) of the Code.
Neither the Sellers with respect to the Acquired
Business nor any entity that comprises the Acquired Business has
entered into any reportable transactions, or transactions which should
be expected to be reportable, under Treasury Regulation ss.1.6011-4(c).
There is no claim for Taxes by any jurisdiction, in
which any entity that comprises the Acquired Business does not
currently file Returns, that Returns should be filed there. To the
Sellers' Knowledge, there is no basis for such a claim by any such
jurisdiction.
Neither the Sellers nor any entity that comprises the
Acquired Business is subject to any Tax sharing, Tax indemnity or Tax
allocation agreement. Neither the Sellers nor any entity that comprises
an Acquired Business is obligated to pay Taxes of any Person other than
themselves under any provision of state, local or foreign law as a
result of filing any type of combined, unitary or group return.
All material Tax elections have been disclosed to the
Buyer or its Representatives in writing during the due diligence
process or on Schedule 3.16 of the Disclosure Schedules.
All Taxes and assessment that the Sellers are
required to withhold or to collect have been duly withheld or collected
and all withholdings and collections have either been duly and timely
paid over to the appropriate Governmental Authorities or are, together
with the payments due or to become due in connection therewith, duly
reflected in the Financial Statements.
With respect to RSC/NY:
All Taxes and other assessments and
levies which RSC/NY is required by
applicable law to withhold or to
collect for payment have been duly
withheld and collected, and have
been paid, and with respect to such
Taxes due on or prior to the Closing
Date will be paid, to the
appropriate governmental authority
as required by applicable Law.
RSC/NY (a) has not disposed of property in
a transaction being accounted for
under the installment method
pursuant to Section 453 or 453A of
the Code or similar provision of
state, local or foreign law; (b) is
not a party to any Tax sharing,
allocation or indemnity agreement,
arrangement or understanding, and
RSC/NY is not obligated to pay Taxes
of any Person other than itself
under any federal, state, local or
foreign Law as a result of the
filing of any combined,
consolidated, unitary or group
return.
RSC/NY is and at all times has been
properly classified and treated for
federal and state income tax
purposes as a partnership and not an
association taxable as a
corporation. The partners of RSC/NY
have not caused it to elect out of
treatment under Subchapter K of the
Code, and at all relevant times have
reported themselves as partners in
RSC/NY for all Tax reporting
purposes. Therefore, RSC/NY (a) has
not been a United States real
property holding corporation within
the meaning of Section 897(c)(2) of
the Code, and (b) has no any
liability for the Taxes of any
Person under Treasury Regulation
Section 1.1502-6 (or any similar
provision of state, local, or
foreign law), or as a transferee or
successor, by contract, or
otherwise.
Except as set forth on Schedule 3.16(f) of
the Disclosure Schedules, the
Returns of RSC/NY for all taxable
years are closed because of the
statute of limitations and no
amended Return has been filed for
any taxable year. Except as provided
on Schedule 3.16(f) of the
Disclosure Schedules, there is no
audit, examination or inquiry now
pending, with respect to which
RSC/NY has been notified in writing,
regarding any Return of RSC/NY, and
all tax deficiencies which have been
asserted in writing against RSC/NY
with respect to any Return of
RSC/NY, if any, have been paid,
fully settled or adequately provided
for in the Financial Statements.
Except as provided on Schedule
3.16(f) of the Disclosure Schedules,
RSC/NY has not (a) waived, nor been
requested by any taxing authority to
waive, any statute of limitations in
respect of any Taxes, (b) agreed to
any extension of time with respect
to any Tax assessment or deficiency,
or (c) executed, or entered into, a
closing agreement pursuant to
Section 7121 of the Code, or any
predecessor provision or any similar
provision of state, local or foreign
law.
The Sellers' Affiliate which is the
managing partner of RSC/NY has not,
to the Knowledge of the Sellers,
entered into any transaction on
behalf of, or binding upon, RSC/NY
or its partners in violation of the
terms of the certain Amended and
Restated Limited Partnership
Agreement of RSC/NY, dated October
12, 1994 (the "Reebok Club
Partnership Agreement").
Schedule 3.16(i)(vi) of the Disclosure
Schedules sets forth all documents
and agreements relating to the
Reebok Club Partnership Agreement,
including amendments thereof.
Environmental Matters. Except as set forth
in the reports described on Schedule 3.17 of the Disclosure Schedules
(collectively, the "Environmental Reports") or as otherwise disclosed in said
Schedule 3.17:
to the Knowledge of the Sellers, each of the Sellers
is and has been in material compliance with all applicable
Environmental Laws in connection with the conduct or operation of the
Acquired Business and the ownership or use of the Purchased Assets;
none of the Sellers nor any of their executive
officers has received during the past five years any written
communication or complaint from a Governmental Authority or other
Person alleging that any such Seller has any liability under any such
Environmental Law or is not in compliance with any such Environmental
Law, in each case with respect to an Acquired Club or the Acquired
Business;
except as set forth on Schedule 3.17(c) of the
Disclosure Schedules, to the Knowledge of the Sellers, (i) no Hazardous
Substances have been used, manufactured, generated, sold, handled,
treated, transported, stored or disposed of by the Sellers on or at any
Leased Real Property; and (ii) there is and has been no release of
Hazardous Substances nor any clean-up or corrective action of any kind
relating thereto, within or from any Acquired Club during the term of
the applicable lease therefor prior to the Closing Date;
to the Knowledge of the Sellers, no underground
improvement, including any treatment or storage tank or water, gas or
oil well, is or has been located in the buildings demised under the
East Side Lease;
there is no pending or, to the Knowledge of the
Sellers, threatened investigation by any Governmental Authority, nor
any pending or, to the Knowledge of the Sellers, threatened Action with
respect to the Acquired Business or any of the Sellers in connection
with the Acquired Business relating to Hazardous Substances or
otherwise under any Environmental Law;
to the Knowledge of Sellers, each of the Sellers
holds all applicable Environmental Permits and is and has been in
compliance therewith in all material respects; and
the reports identified on Schedule 3.17(g) of the
Disclosure Schedules include all "Phase I", "Phase II" or other
studies, analyses, audits or environmental assessment reports in its
possession or control addressing the Leased Real Property.
Material Contracts.
------------------
Except as set forth on Schedule 3.18(a) of the
Disclosure Schedules, there are no Contracts (other than Membership
Agreements, Seller Leases, leases of the Leased Real Property and
Contracts entered into by any of the Sellers in the ordinary course of
business which call for payments to or by each such Seller of less than
$50,000 per year) relating to the Acquired Business or the Purchased
Assets of the following nature (such Contracts as are required to be
set forth on Schedule 3.18(a) of the Disclosure Schedules being
"Material Contracts"):
any broker, distributor, dealer,
manufacturer's representative,
franchise, agency, sales promotion,
market research, marketing,
consulting or advertising Contract;
any Contract for the purchase or delivery of
goods, or performance of services,
to any of the Sellers or the
Acquired Business;
any Contract relating to or evidencing
indebtedness of the Acquired
Business or any of the Sellers in
connection with Acquired Business,
including mortgages, other grants of
security interests, guarantees or
notes;
any Contract with any Governmental
Authority;
any Contract with any Related Party of any
Seller;
any employment Contract;
any Contract that limits, or purports to
limit, the ability of any of the
Sellers or the Acquired Business to
compete in any line of business or
with any Person or in any geographic
area or during any period of time,
or that restricts the right of any
of the Sellers or the Acquired
Business to sell to or purchase from
any Person or to hire any Person, or
that grants the other party or any
third party "most favored nation"
status or any type of special
discount rights;
any Contract that requires a consent to
or otherwise contains a provision
relating to a "change of control",
or that would prohibit or delay the
consummation of the transactions
contemplated by this Agreement or
the Ancillary Agreements;
any Contract pursuant to which any of
the Sellers is the lessee or lessor
of, or holds, uses, or makes
available for use to any Person, (A)
any real property or (B) any
tangible personal property;
any Contract for the sale or purchase of
any real property, or for the sale
or purchase of any tangible personal
property;
any Contract providing for indemnification
to or from any Person with respect
to liabilities relating to any
Seller, the Acquired Business or the
Purchased Assets;
any Contract relating in whole or in part to
any Seller Intellectual Property;
any joint venture;
any Contract with any labor union or
providing for benefits under any
Employee Plan;
any Contract relating to settlement of any
administrative or judicial
proceedings within the past five
years;
any management agreements between (a)
any of the Sellers or any Affiliate
thereof and any other Seller or
Affiliate thereof or (b) any of the
Sellers or any Affiliate thereof and
any third party, in each case
relating to the Acquired Business or
any of the Acquired Clubs; and
any other Contract, whether or not made
in the ordinary course of business
that (a) has a term greater than one
year and cannot be cancelled by each
of the Sellers party thereto without
penalty or further payment and
without more than thirty (30) days'
notice or (b) is material to the
business, operations, assets,
financial condition, results of
operations or prospects of the
Acquired Business, taken as a whole.
Schedule 3.18(a) of the Disclosure Schedules sets
forth a true, accurate and complete list of all Material Contracts. All Material
Contracts that relate to both the Acquired Business and the Retained Business
(the "Material Shared Contracts") are marked with an asterisk (*) on Schedule
3.18(a).
Each Material Contract is a legal, valid, binding and
enforceable agreement and is in full force and effect. None of the
Sellers nor, to the Knowledge of the Sellers, any other party is in
material breach or violation of, or (with or without notice or lapse of
time or both) default under, any Material Contract, nor has any of the
Sellers received any claim of any such breach, violation or default.
Each of the Sellers has delivered or made available to the Buyer true
and complete copies of all Material Contracts to which it is a party,
including any amendments thereto.
Other than those Material Contracts disclosed on
Schedule 3.18(a) of the Disclosure Schedules and this Agreement, none
of the Sellers is a party to any agreement or contract that limits or
restricts, or will limit or restrict after the Closing Date, any
Seller, the Buyer or the Acquired Business in competing or engaging in
the health and fitness business in any geographic area or areas.
Members and Suppliers. Attached as
Schedule 3.19 of the Disclosure Schedules is the form (or forms) of current
standard written membership agreement (the "Form Membership Agreement") used by
the Sellers to evidence the membership of members of the Acquired Clubs
("Acquired Memberships"). Each of the Schedules referred to in this Section 3.19
is true, accurate and complete as of August 31, 2005 and provides the
information set forth therein for each individual Acquired Club as of such date.
Schedule 3.19(a) of the Disclosure Schedules sets
forth (i) the initiation fee/dues structure for the various categories
of Acquired Memberships; and (ii) the number of Persons holding
Acquired Memberships at such Acquired Club ("Members"), broken down by
membership categories.
Schedule 3.19(b) of the Disclosure Schedules sets
forth the names of each Member subject to a membership agreement,
whether written or oral, other than a Form Membership Agreement, which
(i) has a term of twelve months or more and (ii) contains terms and
conditions that are materially different from the comparable terms and
conditions of the applicable Form Membership Agreement, including the
material terms of each such agreement.
Schedule 3.19(c)(i) of the Disclosure Schedules sets
forth a listing of Members including the name, address, and
commencement date of each Member and the amount of monthly dues payable
by each Member. Schedule 3.19(c)(ii) of the Disclosure Schedule sets
forth the amount, if any, of dues prepaid by each Member as of
September 19, 2005 and the expiration date for such prepayments.
Schedule 3.19(d) of the Disclosure Schedules includes
a listing of Members, the amount of prepaid private training payments
paid by each Member and the number of unused sessions for each such
Member.
Schedule 3.19(e) of the Disclosure Schedules sets
forth a listing of Members and the amount of unfulfilled obligations
for complimentary private training sessions bundled with initiation
fees for each Member.
Schedule 3.19(f) of the Disclosure Schedules sets
forth a description of all Capitated Arrangements with Christies, the
NBA and other entities, and the material terms thereof.
None of the Sellers has received any notice or has
any reason to believe that the number of Members that will terminate
their memberships in each Acquired Club for the twelve month period
following the Closing Date will materially exceed the membership
attrition rate of the Acquired Business for the twelve month period
ended December 31, 2004.
Schedule 3.19(h) of the Disclosure Schedules sets
forth a true and complete list of all suppliers of the Acquired
Business (including any Seller and its Affiliates) from which any of
the Sellers ordered products or services during the twelve (12)-month
period ended December 31, 2004 in an aggregate amount of $100,000 or
more. Except as otherwise set forth on Schedule 3.19(h) of the
Disclosure Schedules, none of the Sellers has received any notice or
has any reason to believe that there has been any material adverse
change in the price of such supplies or services provided by any such
supplier (including any Seller and its Affiliates), or that any such
supplier (including any Seller and its Affiliates) will not sell
supplies or services to the Buyer at any time after the Closing Date on
terms and conditions substantially the same as those used in its
current sales to any of the Sellers, subject to general and customary
price increases, in each case under or with respect to arrangements
calling for payments thereunder of at least $100,000 per year. To the
Sellers' Knowledge, no such supplier has otherwise threatened to take
any action described in the preceding sentence as a result of the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.
Product Liability. To the Knowledge of
Sellers, there is no basis for any product liability, warranty, material
backcharge, material additional work, field repair or other claims by any third
party (whether based on contract or tort and whether relating to personal
injury, including death, property damage or economic loss) arising from (a)
services rendered by or on behalf of the Acquired Business during the period
through and including the Closing Date, (b) the sale, distribution, erection or
installation of any product, good, component or other item manufactured, sold or
delivered by or on behalf of the Acquired Business whether delivered to a
customer before or after the Closing Date (except with respect to any liability
or obligation arising out of any action or omission by the Buyer after the
Closing Date) or (c) the operation of the Acquired Business or the ownership of
the Purchased Assets during the period through and including the Closing Date.
Conduct of Acquired Business. Each of the
Sellers has conducted and operated the Acquired Business only through itself and
the other Sellers and not through any other divisions or any direct or indirect
Subsidiary or Affiliate of such Seller that is not also a Seller.
Affiliate Interests and Transactions.
------------------------------------
Other than as disclosed in SCC's Annual Report on
Form 10-K for the year ended December 31, 2004 or as set forth on
Schedule 3.22(a) of the Disclosure Schedules, no Related Party of any
Seller: (i) owns or has owned, directly or indirectly, any equity or
other financial or voting interest in any competitor, supplier,
licensor, lessor, distributor, independent contractor or customer of
the Acquired Business; (ii) owns or has owned, directly or indirectly,
or has or has had any interest in any property (real or personal,
tangible or intangible) used in the Acquired Business; (iii) has or has
had any material business dealings or a material financial interest in
any transaction with the Acquired Business or involving the Acquired
Business or any of the Purchased Assets, other than business dealings
or transactions conducted in the ordinary course of business at
prevailing market prices and on prevailing market terms; or (iv) is or
has been a Business Employee.
Except for (i) transactions between the Sellers, on
the one hand, and the Buyer and its Affiliates, on the other hand, (ii)
Excluded Liabilities consisting of ordinary course intercompany
indebtedness and other obligations between any of the Sellers or any of
the Subsidiaries thereof on the one hand and any other Seller or any of
the Subsidiaries thereof, on the other hand, and (iii) as disclosed on
Schedule 3.22(b) of the Disclosure Schedules, there are no outstanding
notes payable to, accounts receivable from or advances by the Acquired
Business or by any of the Sellers to a Related Party of any of the
Sellers in connection with the Acquired Business or involving any
Purchased Assets, and neither the Acquired Business nor any of the
Sellers in connection with the Acquired Business is otherwise a debtor
or creditor of, or has any liability or other obligation of any nature
to, any Related Party of any Seller. Since the date of the Acquired
Club Balance Sheets, neither the Acquired Business nor any of the
Sellers in connection with the Acquired Business has incurred any
obligation or liability to, or entered into or agreed to enter into any
transaction with or for the benefit of, any Related Party of any
Seller, other than the transactions contemplated by this Agreement and
the Ancillary Agreements. There are no loans of any kind outstanding on
the date hereof between any of the Sellers or Related Party thereof and
any other Seller or any Related Party of such other Seller.
Insurance. Schedule 3.23 of the Disclosure
Schedules sets forth a true and complete list of all
casualty, directors and officers liability, general liability, product liability
and all other types of insurance maintained with respect to the Acquired
Business and the Purchased Assets (the "Insurance Policies"), together with the
carriers and liability limits for each such policy and the identity of the
policy holder. All such policies are in full force and effect, and no
application therefor included a material misstatement or omission. All premiums
with respect thereto have been paid to the extent due. No notice of
cancellation, termination or reduction of coverage has been received with
respect to any such policy. Except as set forth on Schedule 3.23 of the
Disclosure Schedules, there are no losses under any such policy or policies. All
Insurance Policies (other than directors and officers liability policies) are
"occurrence" policies. The Sellers have provided notice to the applicable
insurer of any potential claim under any such policy of which any Seller has
Knowledge. All material insurable risks in respect of the Acquired Business and
the Purchased Assets are covered by such insurance policies and the types and
amounts of coverage provided therein are usual and customary in the context of
the Acquired Business and the Purchased Assets. The activities and operations of
the Acquired Business have been conducted in a manner so as to conform in all
material respects to all applicable provisions of such insurance policies.
No Vote Required. No affirmative vote of
any of the holders of any class of SCC's outstanding securities, separately or
in combination with the holders of any other class of SCC's outstanding
securities, is necessary for SCC to execute and deliver this Agreement and the
Ancillary Agreements and to fully consummate the transactions contemplated
hereby and thereby.
Brokers. Except for Barnett & Partners LLC
and its Affiliates, the fees of which will be paid by
the Sellers, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
any Seller. The Sellers have furnished to the Buyer a complete and correct copy
of all agreements between any of the Sellers and Barnett & Partners LLC pursuant
to which such firm would be entitled to any payment relating to the transactions
contemplated hereby.
Disclosure. SCC has made available to the
Buyer true and correct copies of (i) SCC's Annual Report on Form 10-K for the
years ended December 31, 2004, 2003, 2002 and 2001, (ii) all proxy statements
relating to SCC's meetings of shareholders held after January 1, 2001, (iii) all
reports on Form 10-Q filed after January 1, 2001, and (iv) all Current Reports
on Form 8-K filed by the SCC with the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), since January 1, 2001 (collectively, the
"Company SEC Reports"). As of their respective dates, the Company SEC Reports
and all documents filed by SCC with the SEC under the Securities Act of 1933, as
amended, or the Exchange Act, as the case may be, between October 4, 2005 and
the Closing Date did not, or in the case of documents filed on or after October
4, 2005 will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
REPRESENTATIONS, WARRANTIES AND
ACKNOWLEDGEMENTS OF THE BUYER
Representations and Warranties. The Buyer
hereby represents and warrants to the Sellers as follows:
The Buyer is a limited liability company duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has full power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted.
The Buyer has full corporate power and authority to
execute and deliver this Agreement and each of the Ancillary Agreements
to which it will be a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by the Buyer of this Agreement and
each of the Ancillary Agreements to which it will be a party and the
consummation by the Buyer of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary action
of its members. This Agreement has been, and upon their execution each
of the Ancillary Agreements to which the Buyer will be a party will
have been, duly and validly executed and delivered by the Buyer. This
Agreement constitutes, and upon their execution each of the Ancillary
Agreements to which the Buyer will be a party will constitute, the
legal, valid and binding obligations of the Buyer, enforceable against
the Buyer in accordance with its and their respective terms.
The execution, delivery and performance by the Buyer
of this Agreement and each of the Ancillary Agreements to which the
Buyer will be a party, and the consummation of the transactions
contemplated hereby and thereby, do not and will not:
conflict with or violate the certificate of
formation or operating agreement of
the Buyer;
conflict with or violate any Law applicable
to the Buyer; or
result in any breach of, constitute a
default (or an event that, with
notice or lapse of time or both,
would become a default) under or
require any consent of any Person
pursuant to, any note, bond,
mortgage, indenture, agreement,
lease, license, permit, franchise,
instrument, obligation or other
Contract to which the Buyer is a
party,
except for any such conflicts, violations, breaches, defaults or other
occurrences would not, individually or in the aggregate, have a Buyer Material
Adverse Effect.
The Buyer is not required to file, seek or obtain any
notice, authorization, approval, order, permit or consent of or with
any Governmental Authority in connection with the execution, delivery
and performance by the Buyer of this Agreement and each of the
Ancillary Agreements to which it will be party or the consummation of
the transactions contemplated hereby or thereby, except for any filings
required to be made under the HSR Act.
The Buyer shall have at the Closing sufficient funds
to permit the Buyer to consummate the transactions contemplated hereby.
No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with
the transactions contemplated hereby based upon arrangements made by or
on behalf of the Buyer.
Acknowledgement of "AS IS" Sale
-------------------------------
Except for the representations and warranties of the
Sellers set forth in this Agreement or any of the Ancillary Agreements,
the Buyer acknowledges and agrees that the Sellers have not made, are
not herein making, and hereby expressly disclaim, any representations
or warranties of any kind or character, whether express or implied,
regarding the physical condition of the Leased Real Properties,
including, without limitation, representations and warranties as to (i)
matters of title, (ii) environmental matters relating to the Leased
Real Properties or any portion thereof, including, without limitation,
the presence of Hazardous Substances in, on, under or in the vicinity
of any Leased Real Properties, (iii) geological conditions, including,
without limitation, subsidence, subsurface conditions, water table,
underground water reservoirs, limitations regarding the withdrawal of
water and geologic faults and the resulting damage of past or future
faulting, (iv) whether, and the extent to which, any Leased Real
Properties or any portion thereof is affected by any stream (surface or
underground), body of water, wetlands, flood prone area, flood plain,
floodway or special flood hazard, (v) drainage, (vi) soil conditions,
including the existence of instability, past soil repairs, soil
additions or conditions of soil fill, or susceptibility to landslides,
or the sufficiency of any undershoring, (vii) the presence of
endangered species or any environmentally sensitive or protected areas,
(viii) zoning or building entitlements to which any Leased Real
Properties or any portion thereof may be subject, (ix) the availability
of any utilities to any Leased Real Properties or any portion thereof
including, without limitation, water, sewage, gas and electric, (x)
usages of adjoining property or properties, (xi) access to the Leased
Real Properties or any portion thereof, (xii) the value, compliance
with the plans and specifications, size, location, age, use, design,
quality, description, suitability, structural integrity, operation,
title to, or physical or financial condition of any Leased Real
Properties or any portion thereof, or any income, expenses, charges,
liens, encumbrances, rights or claims on or affecting or pertaining to
any such Leased Real Property or any part thereof, (xiii) the condition
or use of any Leased Real Properties or compliance of any Leased Real
Properties with any or all past, present or future federal, state or
local Laws (including, without limitation, building, safety, fire or
zoning ordinances, codes or other similar laws or ordinances, (xiv) the
existence or non-existence of underground storage tanks, surface
impoundments, or landfills, (xv) the merchantability of the Leased Real
Properties or fitness of any such Properties for any particular
purpose, (xvi) tax consequences of owning or operating the Leased Real
Properties, or (xvii) any other matter or thing with respect to the
physical condition of the Leased Real Properties.
The Buyer acknowledges and agrees that upon the
Closing, the Sellers shall sell, transfer and convey to the Buyer, and
the Buyer shall accept, the Leased Real Properties (including all
leases covering such Leased Real Properties, including all amendments
and supplements thereto) on an "AS IS, WHERE IS, WITH ALL FAULTS,"
basis, except to the extent provided otherwise herein or in the
Ancillary Agreements. The Buyer represents that it is a knowledgeable,
experienced and sophisticated purchaser of real estate and that, except
as expressly set forth herein or in the Ancillary Agreements, it is
relying solely on its own expertise and due diligence investigation (as
well as that of the Buyer's consultants and experts) in acquiring the
Leased Real Properties (and the Sellers' leasehold interest therein)
and has made, and is relying exclusively on, its own independent
investigation and verification of all matters affecting the Leased Real
Properties. The Buyer acknowledges that, except to the extent provided
herein or in the Ancillary Agreements, the Sellers have afforded the
Buyer adequate access to the Leased Real Properties and the Buyer has
had an opportunity to conduct such investigations thereof as the Buyer
deemed necessary to satisfy itself as to its condition and the
existence or non-existence of any curative action to be taken with
respect to any deficiencies or problems affecting the improvements,
fixtures, systems and other components located on, or forming a part
of, such Leased Real Properties. Upon the Closing, except to the extent
provided herein or in the Ancillary Agreements, the Buyer shall assume
the risk that adverse matters, including, but not limited to, adverse
physical or construction defects or adverse environmental, health or
safety conditions, may not have been revealed by the Buyer's
inspections and investigations.
The Buyer has fully reviewed the disclaimers and
waivers set forth in this Agreement with its counsel and understands
the significance and effect thereof. The Buyer acknowledges and agrees
that the disclaimers and waivers set forth in this Agreement are an
integral part of this Agreement and that Sellers would not have agreed
to sell, transfer and convey their interest in the Leased Real
Properties to the Buyer for the Purchase Price without such disclaimer,
waiver and other agreements set forth in this Agreement.
Without limiting the generality of the foregoing, but
subject to the representations, warranties and covenants set forth
herein and in the Ancillary Agreements, the Buyer, effective as of the
Closing, the Millennium Landlords and their respective successors and
permitted assigns, hereby expressly waive, relinquish, acquit, forever
discharge and release any and all past, present or future fixed or
contingent, matured or unmatured and liquidated or unliquidated,
claims, causes of actions, cross-claims, liabilities, rights, remedies,
demands (including letter-demands, notices or inquiries from any person
or Governmental Authority), penalties, assessments, damages, requests,
suits, lawsuits, costs (including attorneys' fees and expenses),
actions, administrative proceedings or orders, of whatever nature,
character, type, or description, whenever and however occurring,
whether at law or in equity, and whether any statutory or common law
claim or remedy of any type (collectively, "Claims"), which the Buyer
or the Millennium Landlords may as of the Closing or thereafter have
against the Sellers, or any of them, or any of their shareholders,
officers, employees, agents, or other Related Parties (collectively,
the "Seller Indemnitees"), whether known or unknown, with respect to
the physical condition of the Leased Real Properties, or any part or
portion thereof, including, without limitation, (i) any latent or
patent defect in any of the improvements, fixtures, systems or other
components located on, or forming a part of, the Leased Real
Properties, or any part or portion thereof (including, without
limitation, subsidence and subsurface conditions); and (ii) any past,
present or future presence or existence of Hazardous Substances on,
under or about the Leased Real Properties or with respect to any past,
present or future violations of any Laws now or hereafter enacted,
regulating or governing the use, handling, storage or disposal of
Hazardous Substances, including, without limitation, (a) any and all
rights which the Buyer or the Millennium Landlords may have to seek
contribution from Sellers under Section 113(f)(i) of CERCLA, as amended
by the Superfund Amendments and Reauthorization Act of 1986 (42
U.S.C.A. ss.9613), as the same may be further amended or replaced by
any similar Law, (b) any and all Claims, whether known or unknown,
existing, with respect to the Leased Real Properties under Section 107
of CERCLA (42 U.S.C.A. ss.9607), and (c) any and all rights the Buyer
or the Millennium Landlords may have under any other Environmental Law
with respect to the Leased Real Properties; provided, however, that the
provisions of this Section 4.2(d) shall not apply with respect to any
Claim seeking indemnification or contribution for any matter for which
the Sellers are liable pursuant to Section 2.3(f) or with respect to
Excluded Liabilities. Subject to the terms, representations, warranties
and covenants set forth herein and in the Ancillary Agreements,
(including, without limitation, the exclusions set forth in the proviso
in the immediately preceding sentence (the "Proviso")), the Buyer and
the Millennium Landlords hereby further agree that there is a risk that
subsequent to the Closing, the Buyer and the Millennium Landlords may
discover, incur, or suffer from Claims which were unknown or
unanticipated at the time of the Closing, including, without
limitation, unknown or unanticipated Claims which, if known by the
Buyer and the Millennium Landlords on the date this Agreement is
executed, may have materially affected the Buyer's decision to execute
this Agreement and consummate the transactions contemplated hereby.
Subject to the terms, representations, warranties and covenants set
forth herein and in the Ancillary Agreements, (including, without
limitation, the exclusions set forth in the Proviso), the Buyer and the
Millennium Landlords acknowledge that they are assuming the risk of
such unknown and unanticipated Claims and agree that the release set
forth in this Section 4.2(d) applies thereto. The Buyer and the
Millennium Landlords represent and warrant that they have been
represented by independent counsel in connection with the preparation
and review of the release set forth in this Section 4.2(d), that the
Buyer and the Millennium Landlords have specifically discussed with
such counsel the meaning and effect of such release and that the Buyer
and the Millennium Landlords have carefully read and understand the
scope and effect of each provision contained in this Section 4.2(d).
Except for the representations, warranties, covenants and statements
set forth herein and in the Ancillary Agreements, the Buyer and the
Millennium Landlords further represent and warrant that they are not
relying on, and have not relied on, any representation or statement
made by any Seller or any their respective officers, employees,
attorneys or other representatives with regard to the subject matter,
basis or effect of the release set forth in this Section 4.2(d) as it
relates to the Leased Real Properties.
Except in connection with financing transactions for
a business purpose (e.g., as required by any secured lender to perfect
its security interest in any Leased Real Property and any personal
property therein), the Buyer covenants and agrees that the Buyer will
not assign or transfer, or purport to assign or transfer, any Claim or
Claims or any portion thereof or any interest therein to any party who
does not acquire an interest in any Leased Real Property.
COVENANTS
Conduct of Acquired Business Prior to the Closing.
Between the date of this Agreement and the Closing Date, unless the Buyer shall
otherwise agree in writing, the Acquired Business shall be conducted only in the
ordinary course consistent with past practice (including, without limitation,
with respect to the payment of liabilities and obligations of the Acquired
Business, the collection of Receivables, the maintenance of Inventory levels and
the pricing of memberships and prepaid training sessions); and the Sellers shall
use their commercially reasonable efforts to preserve intact the organization of
the Acquired Business (including, without limitation, MARS), keep available the
services of the current Business Employees and consultants of the Acquired
Business and preserve the current relationships of the Acquired Business with
customers, suppliers and other persons with which it has significant business
relations. By way of amplification and not limitation, between the date of this
Agreement and the Closing Date, none of the Sellers shall do or propose to do,
directly or indirectly, any of the following in connection with the Acquired
Business or the Purchased Assets without the prior written consent of the Buyer,
which consent shall not be unreasonably withheld or delayed:
(a) issue, sell, pledge, dispose of or otherwise subject to any Encumbrance
any Purchased Assets, other than sales or transfers of Inventory,
Receivables or equipment in the ordinary course of business consistent
with past practice;
other than (i) indebtedness which is non-recourse to
any assets of the Acquired Business or (ii) the payment, in whole or in
part, of the principal of, and interest accrued on, the Notes, incur
any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise become responsible for, the
obligations of any Person, or make any loans or advances, in each case
affecting the Acquired Business or the Purchased Assets, except in the
ordinary course of business consistent with past practice; provided
that in no event shall any Seller in connection with the Acquired
Business (i) incur, assume or guarantee any long-term indebtedness for
borrowed money; or (ii) make any prepayment of any indebtedness for
borrowed money (other than prepayment of the Notes);
amend, waive, modify or consent to the termination of
any material Seller Contract, or amend, waive, modify or consent to the
termination of any Sellers' rights thereunder, or enter into any
Contract in connection with the Acquired Business or the Purchased
Assets other than in the ordinary course of business consistent with
past practice;
authorize, or make any commitment with respect to,
any single capital expenditure (not included in the budget attached
hereto as Exhibit U) for the Acquired Business that is in excess of
$25,000 per Acquired Club or capital expenditures which are, in the
aggregate, in excess of $100,000 for the Acquired Business taken as a
whole;
enter into any joint venture, strategic alliance,
exclusive dealing, noncompetition or similar contract or arrangement
with respect to the Acquired Business;
enter into any lease of real or personal property or
any renewals thereof in connection with the Acquired Business involving
a term of more than one year or rental obligation exceeding $25,000 per
year in any single case;
fail to deliver all financial and operating
statements and other information with respect to the Acquired Clubs
required to be delivered to the Buyer's Affiliates, as landlord, under
the leases of the Acquired Clubs and the Miami Management Agreement,
including "NDC Rent" statements required under the leases of the Boston
Club, the Washington Club and the San Francisco Club;
fail to maintain (or obtain and maintain, if lapsed)
all Permits required to operate such Acquired Clubs in compliance with
all applicable Law;
increase the compensation payable or to become
payable or the benefits provided to its Business Employees, except for
normal increases made in the ordinary course of business, consistent
with past practice in salaries or wages of Business Employees, or grant
any severance or termination payment to, or pay, loan or advance any
amount to, any Business Employee, or establish, adopt, enter into or
amend any Employee Plan (other than any amendments that are required by
Law or permitted by Section 5.6(j));
enter into any Contract with any Related Party of any
of the Sellers in connection with or affecting the Acquired Business or
the Purchased Assets;
make any change in any method of accounting or
accounting practice or policy affecting the financial statements of the
Acquired Business, except as required by GAAP;
make any tax election or file any Return relating to
the Acquired Business other than on a basis consistent with past
practice;
pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise) relating to the Acquired Business or the Purchased Assets,
other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice, of liabilities
reflected or reserved against on the Acquired Club Balance Sheets or
subsequently incurred in the ordinary course of business consistent
with past practice;
cancel, compromise, waive or release any right or
claim relating to the Acquired Business or the Purchased Assets, other
than in the ordinary course of business consistent with past practice;
permit the lapse of any existing policy of insurance
relating to the Acquired Business or the Purchased Assets without
having in place prior to the effective date of such lapse and in a
manner such that there is no period of time during which the Acquired
Business is uninsured with respect to the matters previously insured by
the existing policy, a reasonably equivalent replacement occurrence
policy, in terms of the rating of the insurer, the terms of the
insurance, and the scope and amount of coverage;
permit the lapse, without reasonably equivalent
replacement, of any right relating to Seller Intellectual Property or
any other intangible asset used or held for use in connection with the
Acquired Business, other than in the ordinary course of business
consistent with past practice;
accelerate the collection of or discount any
Receivables, delay the payment of liabilities that would become Assumed
Liabilities or defer expenses, reduce Inventories or otherwise increase
cash on hand in connection with the Acquired Business, except in the
ordinary course of business consistent with past practice;
use any assets of the Acquired Business to pay any
costs or expenses arising out of or relating to the transactions
contemplated by this Agreement or the Ancillary Agreements;
commence or settle any Action relating to the
Acquired Business, the Purchased Assets or the Assumed Liabilities;
take any action, or intentionally fail to take any
action, that would reasonably be expected to cause any representation
or warranty made by the Sellers in this Agreement or any Ancillary
Agreement to be untrue or result in a breach of any covenant made by
any of the Sellers in this Agreement or any Ancillary Agreement, or
that would have a Seller Material Adverse Effect;
remove any Personal Property from any of the Acquired
Clubs, including exercise and fitness equipment or any other assets,
other than in the ordinary course of business, consistent with past
practice; or
announce an intention, enter into any formal or
informal agreement, or otherwise make a commitment to do any of the
foregoing.
From the date of this Agreement to the Closing Date, the Sellers shall maintain
all Personal Property in good operating condition and repair, in all material
respects in accordance with past practice and generally accepted industry
practice, ordinary wear and tear excepted, and shall not defer any scheduled or
required maintenance with respect thereto. The Sellers shall maintain all Leased
Real Property in compliance with the terms of the lease applicable thereto.
Covenants Regarding Information.
-------------------------------
From the date hereof until the Closing Date, the
Sellers shall continue to afford the Buyer and its officers, directors,
principals, employees, advisors, auditors, agents, bankers and other
representatives (collectively, "Representatives") complete access
(including for inspection and copying) at all reasonable times to the
Purchased Assets and the Sellers' properties, offices, plants and other
facilities, books and records relating to the Acquired Business and the
Purchased Assets, and shall furnish the Buyer (in the form then being
maintained or produced by Sellers for its management) with such
financial, operating and other data and information in connection with
the Acquired Business and the Purchased Assets as the Buyer may
reasonably request.
From the date hereof to the Closing Date, within
twenty (20) days after the end of each calendar month, the Sellers
shall deliver to the Buyer the financial and operating statistics for
each Acquired Club set forth on Exhibit V hereto, with respect to such
calendar month just ended (the "Interim Monthly Reports").
On the Closing Date, the Sellers will deliver or
cause to be delivered to the Buyer all original agreements, documents,
books and records and files stored on computer disks or tapes or any
other storage medium in the possession of any of the Sellers which
constitute Acquired Business Records.
In order to facilitate the resolution of any claims
made by or against or incurred by the Buyer after the Closing or for
any other reasonable purpose, for a period of seven years following the
Closing, SCC shall: (i) retain all Business Records that relate to the
Acquired Business, the Purchased Assets or the Assumed Liabilities for
periods prior to the Closing and which shall not otherwise have been
delivered to the Buyer as part of the Acquired Business Records; (ii)
upon reasonable notice, afford the Buyer and its Representatives
reasonable access (including for inspection and copying, at the Buyer's
expense), during normal business hours, to such Business Records,
including in connection with claims, proceedings, actions,
investigations, audits and other regulatory or legal proceedings
involving or relating to the Acquired Business, the Purchased Assets or
the Assumed Liabilities; and (iii) furnish the Buyer and its
Representatives reasonable assistance (at the Buyer's expense),
including access to personnel, in connection with any such claims and
other proceedings; provided that such access shall be granted until the
later of seven years following the Closing and the expiration date of
the applicable statute of limitations with respect to Tax matters. SCC
shall permit, promptly upon reasonable request, the Buyer and its
Representatives to use original copies of any such Business Records for
purposes of litigation; provided that such records shall promptly be
returned to SCC following such use in substantially the same condition
as they were when received by the Buyer. SCC shall not destroy any such
Business Records without providing the Buyer with written notice
detailing the contents of such Business Records, and providing the
Buyer with the opportunity to obtain such Business Records, which
notice must be given at least ninety (90) days prior to the destruction
thereof.
In order to facilitate the resolution of any claims
made by or against or incurred by any of the Sellers after the Closing
or for any other reasonable purpose, for a period of seven years
following the Closing, the Buyer shall: (i) retain all Acquired
Business Records; (ii) upon reasonable notice, afford each of the
Sellers and its Representatives reasonable access (including for
inspection and copying, at such Seller's expense), during normal
business hours, to such Acquired Business Records, including in
connection with claims, proceedings, actions, investigations, audits
and other regulatory or legal proceedings involving or relating to the
Acquired Business, the Purchased Assets or the Assumed Liabilities; and
(iii) furnish each of the Sellers and its Representatives reasonable
assistance (at such Seller's expense), including access to personnel,
in connection with any such claims and other proceedings; provided that
such access shall be granted until the later of seven years following
the Closing and the expiration date of the applicable statute of
limitations with respect to Tax matters. The Buyer shall permit,
promptly upon reasonable request, any of the Sellers and its
Representatives to use original copies of any such Acquired Business
Records for purposes of litigation; provided that such records shall
promptly be returned to the Buyer following such use in substantially
the same condition as they were when received from the Buyer. The Buyer
shall not destroy any Acquired Business Records without providing the
Sellers with written notice detailing the contents of such Acquired
Business Records, and providing the Sellers with the opportunity to
obtain such Acquired Business Records, which notice must be given at
least ninety (90) days prior to the destruction thereof.
Non-Competition; Non-Solicitation.
---------------------------------
For a period of five years following the Closing (the
"Non-Compete Period"), each of the Sellers shall not, and shall cause
its Affiliates not to, directly or indirectly through any Person or
contractual arrangement, own, manage or operate any sports and fitness
facilities anywhere in Buyer's Territory, or render financial
assistance to, receive any economic benefit from, exert any influence
upon, or participate in or allow any of its then directors (other than
Christopher M. Jeffries or any other director designated and/or
nominated by the Buyer or any of its Related Parties), officers or
employees to be connected as a director, officer, employee, partner,
member, stockholder, consultant or otherwise with, any sports and
fitness facilities located anywhere in Buyer's Territory in whole or in
part; provided that the restrictions in this Section 5.3(a) shall not
apply to: (i) the record or beneficial ownership in the aggregate among
all of the Sellers and their Affiliates (including any officers,
directors or employees of any of the Sellers or any such Affiliate) of
three percent (3%) or less of the securities of any publicly-held
operator of sports and fitness facilities, subject to the condition
that none of the Sellers or such other Persons has management or
operational responsibilities or rights with respect to any assets or
facilities of such operator; (ii) the Sellers' operation of the Rock
Center Club, in the event that SCC exercises the Rock Center Option
pursuant to Section 2.6(b), for so long as the Sellers have not
transferred, in one transaction or a series of transactions, directly
or indirectly, a majority of the voting or economic interest in the
Rock Center Club to any other Person(s); (iii) the sale by any Seller
of products or other merchandise bearing the THE SPORTS CLUB/LA
trademark and/or the THE SPORTS CLUB/LA Design trademark (A) to third
party distributors or wholesalers located in Buyer's Territory and (B)
via the Internet or direct mail to Persons located in Buyer's
Territory; (iv) the acquisition (and subsequent ownership and
operation) of, or the provision of management and/or consulting
services to, any existing operating sports and fitness facility which
is not located within ten (10) miles of any sports and fitness facility
owned, managed and/or operated by the Buyer or any of its Affiliates;
and (v) Kayne Anderson Capital Advisors, L.P., and its Affiliates
(collectively, "Kayne Anderson").
During the Non-Compete Period, the Buyer shall not,
and shall cause its Affiliates not to, directly or indirectly through
any Person or contractual arrangement, own, manage or operate any
sports and fitness facilities anywhere in Sellers' Territory, or render
financial assistance to, receive any economic benefit from, exert any
influence upon, or participate in or allow any of its then officers or
employees to be connected as an officer, employee, partner, member,
stockholder, consultant or otherwise with, any sports and fitness
facilities anywhere in Sellers' Territory in whole or in part; provided
that in the event that SCC exercises the Rock Center Option, the
Buyer's obligations as set forth above in this Section 5.3(b) shall
also apply within the Rockefeller Center Complex in New York, New York;
provided, further, that the restrictions in this Section 5.3(b) shall
not apply to: (i) the record or beneficial ownership in the aggregate
among the Buyer and its Affiliates (including any officers, directors
or employees of the Buyer or any such Affiliate) of three percent (3%)
or less of the securities of any publicly-held operator of sports and
fitness facilities, subject to the condition that neither the Buyer nor
such other Persons has management or operational responsibilities or
rights with respect to any assets or facilities of such operator; (ii)
sports and fitness facilities located in residential or office
buildings owned in whole or in part by the Buyer or any of its
Affiliates which are used exclusively by residents or tenants of such
buildings and their guests; and (iii) the acquisition (and subsequent
ownership and operation) of, or the provision of management and/or
consulting services to, any existing operating sports and fitness
facility which is not located within ten (10) miles of any sports and
fitness facility owned, managed and/or operated by any of the Sellers
(other than the Rock Center Club if the Rock Center Option is
exercised).
During the Non-Compete Period, each of the Sellers
shall not, and shall cause its Affiliates, Persons who are directly or
indirectly managed, supervised or financed by such of the Sellers or
its Affiliates and Persons who act at the request of or otherwise to
the benefit of such of the Sellers or its Affiliates in connection with
the recruitment, retention or hiring of employees not to, (i) solicit
or recruit any person who at any time on or after the date of this
Agreement is a Buyer Business Group Employee or (ii) hire any person
who at any time on or after the date hereof serves as a General Manager
or other senior officer of the Acquired Business. The foregoing shall
not prohibit (a) a general solicitation to the public of general
advertising or similar methods of solicitation by search firms not
specifically directed at Buyer Business Group Employees; (b) any of the
Sellers or any of its Affiliates from soliciting, recruiting or hiring
any Buyer Business Group Employee who has ceased to be employed or
retained by the Buyer for at least six months; (c) Kayne Anderson in
connection with any business in which it might, directly or indirectly
own, operate, finance or otherwise have an investment or other interest
in; or (d) any Seller from using any consultant for the Retained
Business who (or which) may also be providing consulting services to
the Buyer after the Closing with respect to the Acquired Business. In
addition, if SCC exercises the Rock Center Option in accordance with
Section 2.6(b), then the foregoing shall not prohibit Sellers from
continuing to employ any group exercise or private training instructors
who may also be employed at one of the Acquired Clubs located in New
York City. For purposes of this Section 5.3(c), "Buyer Business Group
Employees" means, collectively, Business Employees, and employees and
Persons acting under any management, service, consulting, distribution,
dealer or similar Contract in connection with the Acquired Business,
the Purchased Assets, or any other business related to sports and
fitness, including sports and fitness clubs other than the Acquired
Clubs, conducted by the Buyer or any Affiliate thereof in accordance
with the terms of this Agreement.
During the Non-Compete Period, the Buyer shall not,
and shall cause its Affiliates, Persons who are directly or indirectly
managed, supervised or financed by the Buyer or its Affiliates and
Persons who act at the request of or otherwise to the benefit of the
Buyer or its Affiliates in connection with the recruitment, retention
or hiring of employees not to, (i) solicit or recruit any person who at
any time on or after the date of this Agreement is a Seller Business
Group Employee or (ii) hire any person who at any time after the date
hereof serves as a General Manager or other senior officer of the
Retained Business. The foregoing shall not prohibit (a) a general
solicitation to the public of general advertising or similar methods of
solicitation by search firms not specifically directed at Seller
Business Group Employees, (b) the Buyer or any of its Affiliates from
soliciting, recruiting or hiring any Seller Business Group Employee who
has ceased to be employed or retained by any of the Sellers for at
least six months, or (c) the Buyer or any of its Affiliates from hiring
any Key Business Employee, or (d) the Buyer from using any consultant
for the Acquired Business who (or which) may also be providing
consulting services to any of the Sellers after the Closing with
respect to the Retained Business. In addition, if SCC exercises the
Rock Center Option in accordance with Section 2.6(b), then the
foregoing shall not prohibit the Buyer from continuing to employ any
group exercise or private training instructors who may also be employed
at the Rock Center Club. For purposes of this Section 5.3(d), "Seller
Business Group Employees" means, collectively, Business Employees and
employees or Persons acting under any management, service, consulting,
distribution, dealer or similar Contract in connection with the
Retained Business or the Retained Assets or any other business related
to sports and fitness, including sports and fitness clubs other than
the Retained Clubs, conducted by any of the Sellers or any Affiliate
thereof in accordance with the terms of this Agreement.
The Sellers and the Buyer acknowledge that the
covenants of the Sellers and the Buyer set forth in this Section 5.3
are an essential element of this Agreement and that any breach by any
of the Sellers or the Buyer of any provision of this Section 5.3 will
result in irreparable injury to the non-breaching party. The Sellers
and the Buyer acknowledge that in the event of such a breach, in
addition to all other remedies available at law, the non-breaching
party shall be entitled to equitable relief, including injunctive
relief, and an equitable accounting of all earnings, profits or other
benefits arising therefrom, as well as such other damages as may be
appropriate. Each Seller and the Buyer have independently consulted
with its counsel and after such consultation agrees that the covenants
set forth in this Section 5.3 are reasonable and proper to protect the
legitimate interest of the Sellers and the Buyer.
If a court of competent jurisdiction determines that
the character, duration or geographical scope of the provisions of this
Section 5.3 are unreasonable, it is the intention and the agreement of
the parties that these provisions shall be construed by the court in
such a manner as to impose only those restrictions on any of the
Sellers' or the Buyer's conduct, as the case may be, that are
reasonable in light of the circumstances and as are necessary to assure
to the Buyer or the Sellers, as the case may be, the benefits of this
Agreement. If, in any judicial proceeding, a court of competent
jurisdiction shall refuse to enforce all of the separate covenants of
this Section 5.3 because taken together they are more extensive than
necessary to assure to the Buyer or the Sellers, as the case may be,
the intended benefits of this Agreement, it is expressly understood and
agreed by the parties that the provisions hereof that, if eliminated,
would permit the remaining separate provisions to be enforced in such
proceeding, shall be deemed eliminated, for the purposes of such
proceeding, from this Agreement.
If, in any judicial proceeding, a court of competent
jurisdiction shall find any of the covenants contained in (i) Section
5.3(a) to be unenforceable, such covenants, together with the
corresponding covenants contained in Section 5.3(b), shall terminate
effective as of the date of such finding or (ii) Section 5.3(b) to be
unenforceable, such covenants, together with the corresponding
covenants contained in Section 5.3(a), shall terminate effective as of
the date of such finding. If, in any judicial proceeding, a court of
competent jurisdiction finds that (i) any of the Sellers has breached
(after notice and a reasonable opportunity to cure) any of the
covenants contained in Section 5.3(a), then the covenants contained in
Section 5.3(b) shall terminate effective as of the date of such finding
or (ii) the Buyer has breached (after notice and a reasonable
opportunity to cure) any of the covenants contained in Section 5.3(b),
then the covenants contained in Section 5.3(a) shall terminate
effective as of the date of such finding. If the Buyer, instead of
instituting a judicial proceeding, determines in good faith that any of
the Sellers has breached any of the covenants contained in Section
5.3(a) and the Buyer has provided SCC notice of such breach and a
reasonable opportunity to cure such breach, then the covenants
contained in Section 5.3(b) shall terminate effective as of the end of
such cure period. If SCC, instead of instituting a judicial proceeding,
determines in good faith that the Buyer has breached any of the
covenants contained in Section 5.3(b) and SCC has provided the Buyer
notice of such breach and a reasonable opportunity to cure such breach,
then the covenants contained in Section 5.3(a) shall terminate
effective as of the end of such cure period.
In the event that the Sellers retain the Rock Center
Club and thereafter at any time during the Non-Compete Period sell,
transfer or assign in any manner any interest in the Rock Center Club
or in all or substantially all the assets of the Rock Center Club to
any Person other than the Buyer or any of the Buyer's Affiliates, the
Sellers hereby agree that (i) such sale, transfer or assignment shall
only be consummated upon the condition that the buyer, transferee or
assignee, as the case may be, shall agree to be bound, as a successor
to the Sellers, under the provisions of Sections 5.3(c), (e) and (f)
and (ii) in connection with any such sale, transfer or assignment, the
Sellers shall not sell, transfer or assign the current name of the Rock
Center Club to such buyer, transferee or assignee, as the case may be,
nor to any Related Party thereof.
Notification of Certain Matters; Supplements to
-----------------------------------------------
Disclosure Schedules.
--------------------
On or prior to the Closing Date (except with respect
to clauses (iv) and (v) below, the obligations with respect thereto to
survive the Closing Date), the Sellers shall give prompt written notice
to the Buyer of (i) the occurrence or non-occurrence of any change,
condition or event the occurrence or non-occurrence of which would
render any representation or warranty of the Sellers contained in this
Agreement or any Ancillary Agreement, if made on or immediately
following the date of such event, untrue or inaccurate, (ii) the
occurrence of any change, condition or event that has had or is
reasonably likely to have a Seller Material Adverse Effect, (iii) any
failure of the Sellers or any Affiliate of the Sellers to comply with
or satisfy any covenant or agreement to be complied with or satisfied
by it hereunder or any event or condition that would otherwise result
in the nonfulfillment of any of the conditions to the Buyer's
obligations hereunder, (iv) any notice or other communication from any
Person alleging that the consent of such Person is or may be required
in connection with the consummation of the transactions contemplated by
this Agreement or the Ancillary Agreements, or (v) any Action pending
or, to any of the Sellers' Knowledge, threatened against a Seller
relating to the transactions contemplated by this Agreement or the
Ancillary Agreements.
On or prior to the Closing Date (except with respect
to clauses (iv) and (v) below, the obligations with respect thereto to
survive the Closing Date), the Buyer shall give prompt written notice
to the Seller of (i) the occurrence or non-occurrence of any change,
condition or event the occurrence or non-occurrence of which would
render any representation or warranty of the Buyer contained in this
Agreement or any Ancillary Agreement, if made on or immediately
following the date of such event, untrue or inaccurate, (ii) the
occurrence of any change, condition or event that has had or is
reasonably likely to have a Buyer Material Adverse Effect, (iii) any
failure of the Buyer or any Affiliate of the Buyer to comply with or
satisfy any covenant or agreement to be complied with or satisfied by
it hereunder or any event or condition that would otherwise result in
the nonfulfillment of any of the conditions to the Sellers' obligations
hereunder, (iv) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in
connection with the consummation by the Buyer of the transactions
contemplated by this Agreement or the Ancillary Agreements, or (v) any
Action pending or, to the Buyer's Knowledge, threatened against the
Buyer relating to the transactions contemplated by this Agreement or
the Ancillary Agreements.
Supplementing Disclosure Schedules. On or
prior to the Closing Date, the Sellers shall supplement the information set
forth on the Disclosure Schedules with respect to any matter now existing or
hereafter arising that, if existing or occurring at or prior to the date of this
Agreement, would have been required to be set forth or described in the
Disclosure Schedules or that is necessary to correct any information in the
Disclosure Schedules or in any representation or warranty of the Sellers which
has been rendered inaccurate thereby promptly following discovery thereof. No
such supplement shall be deemed to cure any breach of any representation or
warranty made in this Agreement or any Ancillary Agreement or have any effect
for purposes of determining the satisfaction of the conditions set forth in
Section 7.3 or the compliance by the Sellers with any covenant set forth herein.
Employee Matters.
----------------
Except as specifically provided in this Section 5.6,
the Buyer shall not adopt, become a sponsoring employer of, or have any
obligations under or with respect to the Employee Plans, and the
Sellers shall be solely responsible for and shall indemnify the Buyer
from and against any and all liabilities and obligations that have
arisen or may arise under or in connection with any Employee Plan.
Except as provided in Section 5.6(b), the Sellers shall be solely
responsible for and shall indemnify the Buyer from and against any and
all liabilities arising out of or relating to the employment of any
Business Employee through the date such Business Employee's employment
is terminated by the Sellers, including those who become Transferring
Employees of the Buyer or any Affiliate thereof.
On the Closing Date, the Sellers shall terminate the
employment of each Business Employee listed on Schedule 3.9(a) of the
Disclosure Schedules who is actively at work as of the Closing Date.
The Buyer shall, or shall cause one of its Affiliates to, extend offers
of employment to substantially all such Business Employees (all such
employees who accept the Buyer's offer of employment are referred to as
the "Transferring Employees") on terms that are reasonably comparable,
in the aggregate, with the terms of employment of other similarly
situated employees of the Buyer. For purposes of this Agreement, any
Business Employee who is not at work on the Closing Date due to a
short-term absence (including due to vacation, holiday, jury duty,
illness, authorized short-term leave of absence or disability) shall be
deemed to be "actively at work." The Sellers shall cooperate with and
use their commercially reasonable efforts to assist the Buyer in its
efforts to secure satisfactory employment arrangements with those
employees of the Sellers to whom the Buyer makes offers of employment;
provided, however, that any refusal by any such employees to accept the
Buyer's offer of employment shall in no event be deemed a breach by
Sellers hereunder.
The Sellers shall indemnify and hold harmless the
Buyer from and against any and all Losses and claims of any type
incurred or sustained by the Buyer or its Affiliates with respect to
claims, causes of action, judgments, damages, penalties and liabilities
asserted by any Business Employee arising out of or related to any act
or failure to act, any transaction or any facts or circumstances
occurring through the date such Business Employee's employment is
terminated by the Sellers, including, but not limited to: (i) the
termination of such Business Employee; (ii) any alleged discrimination,
breach of Contract or other wrongful termination of such Business
Employee; and (iii) any alleged right to workers' compensation
benefits, unemployment compensation or statutory or contractual
severance, including claims for any withdrawal liability or unfunded
liability incurred because of participation in any Multiemployer Plan.
The Buyer shall indemnify, defend and hold harmless
the Sellers and their Affiliates from and against any and all Losses
and claims of any type incurred or sustained by the Sellers or their
Affiliates with respect to claims, causes of action, judgments,
damages, penalties and liabilities asserted by Transferring Employees
arising out of or related to any act, failure to act, any transaction
or any facts or circumstances occurring from and after the Closing
Date, including, without limitation, (i) the termination of such
Business Employee by the Buyer or (ii) any alleged discrimination,
breach of Contract or other wrongful employment practice in connection
with the Buyer's or any agent of the Buyer's hiring or termination of
any such Business Employee from and after the Closing Date.
Each of the Sellers and its ERISA Affiliates shall
comply with the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), as set forth in
Section 4980B of the Code and Part 6 of Title I of ERISA, with respect
to any employee, former employee or beneficiary of any such employee or
former employee who is covered under any group health plan, as defined
in Section 5000(b)(1) of the Code (a "Group Health Plan"), maintained
by each such Seller and its ERISA Affiliates as of the Closing Date or
whose "qualifying event" within the meaning of Section 4980B(f) of the
Code occurs on or prior to the Closing Date, whether pursuant to the
provisions of COBRA or otherwise. Each of the Sellers and its ERISA
Affiliates shall take all steps that may be necessary to ensure that
the provisions of Treasury Regulation ss.54.4980B-9, Q&A 8(c) do not
become applicable at any time, and to prevent the Buyer from becoming,
by operation of such regulation section or otherwise, a "successor
employer" for purposes of COBRA. The Buyer shall comply with the
provisions of COBRA with respect to Transferring Employees who are
covered under any Group Health Plan maintained by the Buyer after the
Closing Date.
Following the Closing Date, pursuant to plans and
arrangements established or maintained by the Buyer (the "Buyer Welfare
Plans"), the Buyer will provide the Transferring Employees with health
and welfare benefits that are reasonably comparable, on an aggregate
basis, to the health and welfare benefits provided to other, similarly
situated employees of the Buyer. Subject to the provisions of Section
5.6(g) and Section 5.6(h), the Buyer shall use its commercially
reasonable efforts, to the extent permitted by the applicable Contract,
to (i) waive or cause its insurance carriers to waive all limitations
as to pre-existing conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to
Transferring Employees and their covered dependents under the Buyer
Welfare Plans, other than limitations or waiting periods that are
already in effect with respect to such employees and that have not been
satisfied as of the Closing Date under the corresponding Employee Plan
and (ii) provide each Transferring Employee with credit under the Buyer
Welfare Plans for any co-payments, deductibles or out-of-pocket
requirements for expenses paid under the corresponding Employee Plans
prior to the Closing Date in satisfying any applicable deductible or
out-of-pocket requirements for the year in which the Closing Date
occurs.
Without in any way limiting the provisions of Section
5.6(f), the Buyer shall establish a group health plan (the "Buyer Group
Health Plan") for Transferring Employees who participate in the
Sellers' group health plan (the "Seller Group Health Plan") immediately
prior to the Closing Date. Such Buyer Group Health Plan may, in the
Buyer's discretion, be a pre-existing group health plan that the Buyer
or an Affiliate sponsors and amends to cover Transferring Employees.
Without in any way limiting the provisions of Section
5.6(f) or Section 5.6(g), the Buyer shall establish a health care
flexible spending account plan (the "Buyer FSA") for Transferring
Employees who participate in the Sellers' health care flexible spending
account plan (the "Seller FSA") immediately prior to the Closing Date.
Such Buyer FSA may, in the Buyer's discretion, be a pre-existing
flexible spending account plan that the Buyer or an Affiliate sponsors
and amends to cover Transferring Employees. As of the Closing Date, the
Buyer shall cause each Transferring Employee to be credited under the
Buyer FSA with amounts available for reimbursement between the Closing
Date and December 31, 2005 equal to such amounts as were credited under
the Seller FSA with respect to such Transferring Employee immediately
prior to the Closing Date, but only if the Sellers promptly provide the
Buyer with all information reasonably suited to this purpose. The Buyer
shall give effect under the Buyer FSA to calendar year 2005 elections
made by the Transferring Employees with respect to the Seller FSA. The
Buyer, in its discretion, may establish the Buyer FSA through a
transfer or assumption of the assets and liabilities of the Seller FSA
that pertain to the Transferring Employees, in which event the Sellers
shall cooperate with the Buyer to provide such assistance as the Buyer
reasonably requests to effectuate such transfer or assumption.
Except as otherwise specifically provided in this
Section 5.6, for purposes of determining eligibility to participate and
vesting (but not accrual or entitlement to benefits other than
severance benefit accrual where length of service is relevant) for
Transferring Employees under all employee benefit plans and
arrangements of the Buyer, the Buyer shall recognize service with the
Sellers to the same extent recognized under the corresponding Employee
Plans as in effect immediately prior to the Closing Date.
Effective as of the Closing Date, the Buyer shall
establish or designate a defined contribution retirement plan eligible
for qualification under Section 401(a) of the Code (the "Buyer 401(k)
Plan"). Each Transferring Employee who satisfies the eligibility
requirements of the Buyer 401(k) Plan shall become eligible to
participate in the Buyer 401(k) Plan as soon as administratively
feasible after the date he or she is hired by the Buyer and shall be
credited with eligibility service and vesting service (but not benefit
accrual service) for all periods of service with the Sellers or any
other entity if so credited with such service under any existing
defined contribution retirement plan of the Sellers that is eligible
for qualification under Section 401(a) of the Code (the "Seller 401(k)
Plan"). To the extent permissible under ERISA and the Code, the Buyer
401(k) Plan shall permit each Transferring Employee who has an account
balance under the Seller 401(k) Plan to rollover his or her "eligible
rollover distribution" to the Buyer 401(k) Plan. As soon as
administratively feasible after the Closing Date (but not later than
the period required under applicable Law), the Sellers shall contribute
to the Seller 401(k) Plan unpaid employer matching contributions to the
Seller 401(k) Plan that have accrued (under GAAP principles) for the
plan year in which the Closing Date occurs, and shall amend the Seller
401(k) Plan if necessary to permit such contribution.
Nothing contained in this Agreement shall create any
third party beneficiary rights in any Transferring Employee, any
beneficiary or dependents thereof, or any collective bargaining
representative thereof, with respect to the compensation, terms and
conditions of employment and benefits that may be provided to any
Transferring Employee by the Buyer or under any benefit plan that the
Buyer may maintain.
Nothing contained in this Agreement shall confer upon
any Transferring Employee any right with respect to continued
employment by the Buyer, nor shall anything herein interfere with the
right of the Buyer to terminate the employment of any Transferring
Employee at any time, with or without cause, following the effective
date of his or her employment with the Buyer, or restrict the Buyer in
the exercise of its independent business judgment in modifying any of
the terms and conditions of the employment of the Transferring
Employees.
Confidentiality.
---------------
From the date hereof until the fifth anniversary of
the Closing Date, each of the Sellers shall not, and shall cause its
Affiliates and the respective Representatives of such Seller and its
Affiliates not to, use for its or their own benefit or divulge or
convey to any third party, any Buyer Confidential Information;
provided, however, (i) the foregoing restriction shall not apply to the
Sellers' use (but shall apply to the Sellers' disclosure) of any Buyer
Confidential Information as required in connection with the Sellers'
operation of the Retained Business and the performance of its
obligations under the Transition Services Agreement after the Closing
Date; and (ii) any of the Sellers or its Affiliates may furnish such
portion (and only such portion) of the Buyer Confidential Information
as such Seller or such Affiliate reasonably determines it is legally
obligated to disclose after consultation with and upon advice of
counsel; provided that, the disclosing Person shall notify Buyer
sufficiently in advance of the proposed disclosure to enable Buyer to
seek a protective order or other judicial relief with respect to such
disclosure, at Buyer's sole cost. For purposes of this Agreement,
"Buyer Confidential Information" consists of all information and data
relating to the Acquired Business (including Intellectual Property,
customer and supplier lists, pricing information, marketing plans,
market studies, client development plans, business acquisition plans
and all other information or data), the Purchased Assets or the
transactions contemplated hereby and all information and data supplied
to the Sellers under the Transition Services Agreement, except for data
or information that is or becomes available to the public other than as
a result of a breach of this Section 5.7(a).
From the date hereof until the fifth anniversary of
the Closing Date, the Buyer shall not, and shall cause its Affiliates
and the Representatives of the Buyer and its Affiliates not to, use for
its or their own benefit or divulge or convey to any third party, any
Seller Confidential Information; provided, however, that the foregoing
restriction shall not apply to the Buyer's use (but shall apply to the
Buyer's disclosure) of any Seller Confidential Information as required
in connection with the Buyer's operation of the Acquired Business after
the Closing Date; and provided, further, that the Buyer or its
Affiliates may furnish such portion (and only such portion) of the
Seller Confidential Information as the Buyer or such Affiliate
reasonably determines it is legally obligated to disclose after
consultation with and upon advice of counsel. For purposes of this
Agreement, "Seller Confidential Information" consists of all
information and data relating to the Retained Business (including
Intellectual Property, customer and supplier lists, pricing
information, marketing plans, market studies, client development plans,
business acquisition plans and all other information or data), the
Excluded Assets or the transactions contemplated hereby and all
information and data supplied to the Buyer under the Website Services
Agreement, except for data or information that is or becomes available
to the public other than as a result of a breach of this Section
5.7(b).
Effective as of the Closing, each of the Sellers
hereby assigns to the Buyer all of each such Seller's right, title and
interest in and to any confidentiality agreements entered into by such
Seller (or its Affiliates or Representatives) and each Person (other
than the Buyer and its Affiliates and Representatives) who entered into
any such agreement or to whom Seller Confidential Information was
provided in connection with any transaction involving the acquisition
or purchase of all or any portion of the Acquired Business or the
Purchased Assets. From and after the Closing, each of the Sellers will
use their commercially reasonable efforts to assist the Buyer in
enforcing the rights so assigned. Each of the Sellers shall use its
commercially reasonable efforts to cause any such Person to return to
each such Seller any documents, files, data or other materials
constituting Seller Confidential Information that was provided to such
Person in connection with the consideration of any such transaction.
The parties acknowledge and agree that each such confidentiality
agreement shall be considered and treated as either a Seller Contract
or a Material Shared Contract under Section 5.10.
Consents and Filings. Each of the Sellers
and the Buyer shall use all commercially reasonable efforts to take, or cause to
be taken, all appropriate action to do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the transactions contemplated by this Agreement and the
Ancillary Agreements as promptly as practicable, including to
(i) obtain from Governmental Authorities and other Persons (including the board
of directors and the shareholders of each of the Sellers) all consents,
approvals, authorizations, qualifications and orders as are necessary for the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements, (ii) promptly make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement required
under the HSR Act or any other applicable Law and (iii) have vacated, lifted,
reversed or overturned any order, decree, ruling, judgment, injunction or other
action (whether temporary, preliminary or permanent) that is then in effect and
that enjoins, restrains, conditions, makes illegal or otherwise restricts or
prohibits the consummation of the transactions contemplated by this Agreement
and the Ancillary Agreements. In furtherance and not in limitation of the
foregoing, each of the Sellers shall permit the Buyer reasonably to participate
in the defense and settlement of any claim, suit or cause of action relating to
this Agreement or the transactions contemplated hereby, and none of the Sellers
shall settle or compromise any such claim, suit or cause of action without the
Buyer's written consent, which consent shall not be unreasonably delayed or
withheld. Notwithstanding anything herein to the contrary, the Buyer shall not
be required by this Section 5.8 to consent to any settlement or compromise of
any claim, or to take or agree to undertake any action, including entering into
any consent decree, hold separate order or other arrangement, that would (a)
require the divestiture of any assets of the Buyer or any of its Affiliates or
any portion of the Acquired Business or the Purchased Assets or (b) materially
limit the Buyer's freedom of action with respect to, or its ability to
consolidate and control, the Acquired Business or the Purchased Assets or any of
the Buyer's or its Affiliates' other assets or businesses, except as set forth
in this Agreement or the Ancillary Agreements. Similarly, none of the Sellers
shall be required by this Section 5.8 to take or agree to undertake any action,
including entering into any consent decree, hold separate order or other
arrangement, that would (x) require the divestiture of any assets of any of the
Sellers or its Affiliates or any portion of the Retained Business or the
Retained Clubs, or (y) materially limit any of the Sellers' freedom of action
with respect to, or its ability to consolidate and control, the Retained
Business or the Retained Clubs or any of the Sellers' or their Affiliates' other
assets or businesses, except as set forth in this Agreement or the Ancillary
Agreements.
Public Announcements. The Sellers and the
Buyer shall consult with each other before issuing, and provide each other the
opportunity to review and comment upon, any press release or other public
statement with respect to the transactions contemplated hereby, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable Law.
Material Shared Contracts. On or prior to
the Closing Date, the Sellers shall use their commercially reasonable efforts to
amend all Material Shared Contracts so that, after the Closing Date, the
Material Shared Contracts shall be equitably apportioned (such that the rights
and obligations of the Buyer and the Sellers are separate) through such
amendment and/or other agreements between the Acquired Business and the Retained
Business without any adverse effect on the rights of the Buyer or the Sellers
thereunder (including on substantially the same economic terms as such
arrangements exist as of the Closing Date). On or prior to the Closing Date,
each of the Sellers shall use its commercially reasonable efforts to amend all
Seller Contracts, other than the Material Shared Contracts, between (a) any of
the Sellers, on the one hand and (b) any other Person, on the other hand, that
relate to both to the Acquired Business and the Retained Business so that, after
the Closing Date, such other contracts shall be equitably apportioned between
the Acquired Business and the Retained Business through such amendment and/or
terms as such arrangements exist as of the Closing Date. Notwithstanding the
foregoing, the requirement to use commercially reasonable efforts pursuant to
the preceding two sentences shall not require the Sellers to pay any material
fee as consideration for obtaining any such amendment. If such amendments cannot
be obtained, or if any such attempted amendment would adversely affect in a
material respect the rights of the Sellers or the Buyer thereunder, the Sellers
and the Buyer shall use its commercially reasonable efforts to negotiate a
mutually acceptable arrangement pursuant to Section 2.5 under which (i) the
Buyer shall obtain the benefits and assume the obligations under such other
contracts to the extent relating to the Acquired Business, including by entering
into sub-contracting, sub-licensing or sub-leasing arrangements for the benefit
of the Buyer or (ii) the Sellers shall enforce for the benefit of the Buyer (at
the Buyer's expense), with the Buyer assuming the Sellers' obligations, any and
all rights of the Sellers against a third party thereto to the extent relating
to the Acquired Business.
No Solicitation.
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The Sellers will immediately cease any and all
existing discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Transaction. Subject to
Section 5.11(b), from the date hereof until the termination of this
Agreement in accordance with Article IX, none of the Sellers shall, and
shall not authorize, and shall not permit, any of their officers,
directors, employees, investment bankers, attorneys, accountants,
consultants or other agents or advisors to, directly or indirectly, (i)
solicit or initiate any proposal related to an Acquisition Transaction,
(ii) enter into, continue or participate in any discussions or
negotiations with, furnish any nonpublic information relating to the
Acquired Business or afford access to the business, properties, assets,
books or records of the Acquired Business to any third party seeking to
make, or that has made, a proposal related to an Acquisition
Transaction, (iii) approve, endorse or recommend any Acquisition
Transaction or (iv) enter into any letter of intent or similar document
or any Contract, agreement or commitment contemplating or otherwise
relating to any Acquisition Transaction. In the event any of the
Sellers receives any proposal related to an Acquisition Transaction,
the Sellers shall as promptly as reasonably practicable, notify the
Buyer of such receipt and provide the Buyer with the identity of the
third party making such proposal and a copy of such proposal or a
reasonably detailed written summary setting forth the material terms
and conditions thereof.
Notwithstanding the foregoing, nothing in this
Section 5.11 or other term of this Agreement shall prohibit SCC, its
Board of Directors and/or its Special Committee, as the case may be,
directly or indirectly through advisors, agents or other
intermediaries, from (i) engaging in negotiations or discussions with
any third party (whether or not such third party has had previous
discussions or negotiations with SCC) that makes (and may continue such
discussions and negotiations until such third party withdraws) a bona
fide written unsolicited proposal related to an Acquisition Transaction
that the Special Committee in good faith determines constitutes or
could lead to a Superior Transaction, (ii) furnishing to such third
party nonpublic information relating to SCC or affording access to the
business, properties, assets, books or records of SCC to such third
party, (iii) taking and disclosing to its shareholders a position
contemplated by Rules 14d-9 and 14e-2(a) under the Exchange Act or
otherwise making disclosure to them, (iv) approving or recommending a
proposal related to an Acquisition Transaction (which the Special
Committee determines in good faith constitutes a Superior Transaction)
and entering into an agreement for any such Acquisition Transaction,
and/or (vi) taking any action ordered to be taken by SCC by any court
of competent jurisdiction; provided, however, that prior to furnishing
any nonpublic information to such third party or group, such third
party or group enters into a confidentiality agreement in a form
reasonably acceptable to SCC's board of directors or its Special
Committee. The Special Committee may recommend any Superior
Transaction, recommend SCC's entering into an agreement with respect to
any Superior Transaction, approve the solicitation of additional
takeover or other investment proposals or cause SCC to exercise its
termination rights under Section 9.1, in each case, at any time after
the fifth (5th) Business Day following delivery to the Buyer of notice
of its intention to take such action with respect to the Superior
Transaction.
For purposes of this Agreement, "Acquisition
Transaction" means any transaction or series of transactions involving,
(i) a merger, consolidation, business combination, share exchange,
issuance of securities, reorganization, recapitalization,
reclassification, extraordinary joint venture, tender offer, exchange
offer or similar transaction in which (a) a Person or group (as defined
in the Exchange Act and the rules promulgated thereunder) of Persons
directly or indirectly acquires beneficial or record ownership of
securities representing more than fifteen percent (15%) of the
outstanding securities of any class of voting securities of SCC, or (b)
SCC issues securities representing more than fifteen percent (15%) of
the outstanding securities of any class of voting securities of SCC;
(ii) any direct or indirect sale, lease, license, exchange, transfer,
acquisition or disposition of any business or businesses or assets or
rights of the Sellers that constitute or account for twenty five
percent (25%) or more of the consolidated net revenues, income or
assets of the Sellers; (iii) a sale of twenty five percent (25%) or
more of the shares of capital stock of SCC, assuming conversion of any
Preferred Stock (including by way of a tender offer); or (iv) any
liquidation or dissolution of any of the Sellers, in each case, other
than through the transactions contemplated by this Agreement; and
"Superior Transaction" means any Acquisition Transaction that the
Special Committee determines, in its good faith judgment (after
consultation with its financial advisor) would, if consummated, provide
greater value from a financial point of view to the Public Stockholders
than the transactions contemplated by this Agreement. Further, for
purposes of this Agreement, "Acquisition Transaction" shall not include
any transaction relating solely to one or more of the Retained Clubs.
Environmental Site Assessments.
------------------------------
Prior to the Closing, the Sellers shall obtain a
Phase I Environmental Site Assessment Report (the "ESA") prepared by an
environmental engineer or consultant, chosen by the Buyer at the
Buyer's sole discretion, and prepared in accordance with the ASTM
Standard Practice for Environmental Site Assessment: Phase I
Environmental Site Assessment Process, E 1527-00 for the East Side Club
(the "Site"). In addition, the Sellers shall permit the Buyer's
consultants access to the Site to conduct a survey for asbestos
containing materials. The ESA shall be obtained at the Buyer's expense.
Prior to the Closing, the Sellers shall comply with
and address any and all reasonable recommendations and all recognized
environmental conditions, including asbestos conditions (collectively,
"Corrective Action") documented in the ESA, if any; provided that, (i)
the Sellers shall not be required to implement or complete any
Corrective Action as to which the Sellers are not required by Law or
responsible under the applicable lease to address or rectify such
problem(s), and (ii) the maximum amount for which Sellers are
responsible hereunder shall be $10,000. Subject to the limitations set
forth in this Section 5.12(b), the Sellers' obligation to address any
and all Corrective Actions for which the Sellers are legally
responsible shall extend to any subsequent update, supplement or
clarification to the ESA made before the Closing.
Guaranty of Buyer Obligations. In the
event that the Consolidated Net Worth (as defined in the Buyer Guaranty) as
determined by the Buyer's independent certified public accountants in accordance
with Section 1 of the Buyer Guaranty), of the Buyer Guarantor shall at any time
be less than $25,000,000 while any Obligations (as defined in the Buyer
Guaranty) remain outstanding, then the Buyer shall promptly cause the Buyer
Guarantor to assign and delegate the Buyer Guaranty to another
Affiliate of the Buyer which has a Consolidated Net Worth of at least
$25,000,000 and to cause such Affiliate to accept such assignment and delegation
and assume all obligations thereunder in accordance with the terms thereof.
Notwithstanding the foregoing, the obligation of the Buyer to deliver a
substitute Buyer Guaranty hereunder will be subject to the simultaneous delivery
by SCC of an fully executed termination and release, in a form reasonably
satisfactory to the Buyer, of the prior Buyer Guaranty and the prior Buyer
Guarantor thereunder.
Release of Sellers as Guarantors. Prior to
the date hereof, SCC guaranteed the obligations of a Seller (collectively, the
"Seller Guaranties") under those leases of the Leased Real Property described on
Schedule 5.14 of the Disclosure Schedules (collectively, the "Seller Guaranty
Properties"). Prior to the Closing Date, the Buyer shall use its commercially
reasonable efforts to cause the landlord in respect of each Seller Guaranty
Property to release the applicable Seller Guaranty and the Sellers will use
their commercially reasonable efforts to assist the Buyer in connection
therewith; provided, however, that the Buyer shall not be required to pay any
fee as consideration for obtaining any such release.
Insurance Policies. Prior to the Closing,
SCC shall purchase "run-off" or "tail" insurance policies with respect to each
Insurance Policy which provides liability coverage for SCC's directors, officers
and employees or the Acquired Club's employees, which will continue the
coverages provided by such Insurance Policies for claims made after the Closing
Date but arising out of pre-Closing events for a period of six years after the
Closing Date.
TAX MATTERS
Sellers' Liability for Taxes.
Notwithstanding anything to the contrary contained herein, the Excluded
Liabilities include (i) any Taxes imposed with respect to the Acquired
Business or any Purchased Assets or any income or gain derived with respect
thereto for the taxable periods, or portions thereof, ended on or before the
Closing Date and (ii) Losses directly or indirectly relating to or arising out
of any liability for Taxes imposed with respect to the Acquired Business or any
Purchased Assets or any income or gain derived with respect thereto for the
taxable periods, or portions thereof, ended on or before the Closing Date.
Buyer's Liability for Taxes. The Buyer
shall be liable for (i) any Taxes imposed with respect to the Acquired Business
or any Purchased Assets or any income or gains derived with respect thereto for
any taxable period, or portion thereof, beginning after the Closing Date and
(ii) Losses directly or indirectly relating to or arising out of any liability
for Taxes imposed with respect to the Acquired Business or any Purchased Assets
or any income or gains derived with respect thereto for any taxable period, or
portion thereof, beginning after the Closing Date.
Proration of Taxes. To the extent
necessary to determine the liability for Taxes for a portion of a taxable year
or period that begins before and ends after the Closing Date,
the determination of the Taxes for the portion of the year or period ending on,
and the portion of the year or period beginning after, the Closing Date shall be
determined by assuming that the Taxable year or period ended as of the close of
business on the Closing Date, except that those annual property taxes and
exemptions, allowances or deductions that are calculated on an annual basis
shall be prorated on a time basis. In the event that the Buyer or any of the
Sellers plans to file a Return that covers periods both before and after the
Closing Date, the preparing party shall prepare such Return and promptly forward
it to the other for its approval. If the proposed Return is not reasonably
approved within a reasonable period of time after its receipt, then any
disagreement between the Sellers and the Buyer with respect to such Return shall
be resolved in accordance with Section 6.6.
Tax Returns.
-----------
Except as provided in Sections 6.3 or 6.5, if the
Sellers or the Buyer shall be liable hereunder for any portion of the
Tax shown due on any Returns required to be filed by the other party,
the party preparing such Return shall deliver a copy of the relevant
portions of such Return to the party so liable for its review and
approval not less than fifteen (15) days prior to the date on which
such Returns are due to be filed (taking into account any applicable
extensions). If the parties disagree as to any item reflected on any
such return, the party liable for such Taxes shall determine how the
disputed items are reflected, if at all, and such determination shall
be binding for purposes of Article VI of this Agreement unless such
returns relate solely to Taxes for which the Seller are liable
hereunder, in which case the Sellers shall make the determination with
the Buyer's permission, which shall not be unreasonably withheld or
delayed. The party liable for any portion of a Tax under Article VI
(but which are payable with Returns to be filed by the other party)
shall pay the other party at least ten (10) days prior to the due date
for the filing of such Returns.
With respect to RSC/NY and any other entity that
comprises the Acquired Business, the Sellers shall prepare and file, or
cause to be prepared and filed, on a timely basis and at the Sellers'
expense, all Returns of RSC/NY for any period that ends on or before
the Closing Date for which a Return has not been filed as of the
Closing Date; provided that prior to filing any such Return, the
Sellers shall deliver each such Return to the Buyer for its review and
reasonable consent no less than twenty (20) days in advance of the
applicable filing date including any extensions. The Sellers shall
prepare at their expense and deliver to the Buyer for review no less
than ten (10) days prior to the due date any Return that relates to a
period prior to the Closing Date and which is due after the Closing
Date. The Buyer shall file such Returns as delivered to it by Seller if
prepared in accordance with past practice and applicable law. Each of
the Sellers and the Buyer shall cooperate fully with each other and
make available to each other in a timely fashion such data and other
information as may reasonably be required for the preparation of any
Return of RSC/NY for a period ending prior to, on or including the
Closing Date and shall preserve such data and other information until
the expiration of any applicable limitation period under any applicable
law with respect to Taxes. The Sellers shall be responsible for all
Taxes owed for any taxable periods ending on or prior to the Closing
Date. If upon final determination, it is determined that, pursuant to
the immediately preceding sentence, the Sellers owe any Taxes
attributable to any pre-Closing period of RSC/NY for which RSC/NY is
liable, each Seller shall pay to RSC/NY in immediately available funds
its pro rata share of the amount of such Taxes owed within ten (10)
days of receipt of such final determination.
Transfer Taxes. All federal, state, local
or foreign or other excise, sales, use, value added, transfer (including real
property transfer or gains), stamp, documentary, filing, recordation and other
similar taxes and fees that may be imposed or assessed as a result of the
transactions contemplated hereby, together with any interest, additions or
penalties with respect thereto and any interest in respect of such additions or
penalties ("Transfer Taxes"), shall be borne fifty percent (50%) by the Buyer
and fifty percent (50%) by the Sellers. Any Returns that must be filed in
connection with Transfer Taxes shall be prepared by the party primarily or
customarily responsible under applicable local Law for filing such Returns, and
such party will use its reasonable best efforts to provide such Returns to the
other party at least ten (10) Business Days prior to the date such Returns are
due to be filed, including any applicable extensions. Such Returns shall be
prepared consistent with the allocation of Consideration pursuant to Section
6.6. The Buyer and the Sellers shall cooperate in the timely completion and
filing of all such Returns. Any Transfer Taxes resulting from any
subsequent increase in Consideration shall be borne in accordance with the
provisions of this Section 6.5. The Sellers and the Buyer shall cooperate to
obtain all available tax clearance certificates, bulk sales reports or
clearances and all similar documents from applicable taxing authorities.
Determination and Allocation of
Consideration. The parties to this Agreement agree to determine
the amount of and allocate the total consideration transferred by the Buyer to
the Sellers or their Affiliates pursuant to this Agreement (the "Consideration")
plus the Assumed Liabilities in accordance with the fair market value of the
assets and liabilities transferred and in accordance with Section 1060 of the
Code, including the items set forth on Schedule 3.11(c). The Buyer shall provide
the Sellers with one or more schedules allocating the Consideration at least
twenty (20) days prior to the Closing. If the Sellers disagree with any items
reflected on the schedules so provided, the Sellers shall notify the Buyer of
such disagreement and their reasons for so disagreeing, in which case the
Sellers and the Buyer shall attempt to resolve the disagreement. To the extent
the Sellers and the Buyer cannot agree on a mutually acceptable determination
and/or allocation of the Consideration, such determination and/or allocation
shall be made by a nationally recognized third party appraiser selected and
agreed upon by the Sellers and the Buyer, whose decision shall be final and
binding and whose expenses shall be shared equally by the Sellers and the Buyer.
The Sellers and the Buyer agree to prepare and file an IRS Form 8594 consistent
with the allocation described in this Section 6.6 in a timely fashion and in
accordance with the rules under Section 1060 of the Code. To the extent that the
Consideration is adjusted after the Closing Date, the parties agree to revise
and amend the schedule and IRS Form 8594 in the same manner and according to the
same procedure. The determination and allocation of the Consideration derived
pursuant to this 6.6 shall be binding on the Sellers and the Buyer for all Tax
reporting purposes. The Sellers and the Buyer shall not take, or cause to be
taken, any action that would be inconsistent with or prejudice the allocation
described in this Section 6.6.
Employee Withholding and Reporting Matters.
Prior to the Closing, the parties hereto agree that the Sellers shall, with
respect to their current Business Employees and in accordance with and to the
extent permitted pursuant to Revenue Procedure 2004-53, 2004-34, I.R.B. 320, be
responsible for preparing and filing Form W-2, Wage and Tax Statement, Form
W- 3, Transmittal of Income and Tax Statements, Form 941, Employer's Quarterly
Federal Tax Return, Form W-4, Employee's Withholding Allowance Certificate and
Form W-5, Earned Income Credit Advance Payment Certificate. Following the
Closing, the Buyer shall, with respect to the Transferring Employees and in
accordance with and to the extent permitted pursuant to Revenue Procedure
2004-53, 2004-34, I.R.B. 320, assume all responsibility for preparing and filing
Form W-2, Wage and Tax Statement, Form W- 3, Transmittal of Income and Tax
Statements, Form 941, Employer's Quarterly Federal Tax Return, Form W-4,
Employee's Withholding Allowance Certificate and Form W-5, Earned Income Credit
Advance Payment Certificate. The Sellers and the Buyer agree to comply with the
procedures described in Section 5 of the Revenue Procedure 2004-53 and each to
provide Form W-2 to their respective employees for the period that each of the
Buyer and any of the Sellers was the employer of the applicable employee.
Section 754 Election. The Sellers shall use
their best efforts to cause any entity classified as a partnership for U.S.
federal income tax purposes in which any of the Sellers hold an interest that is
being acquired hereunder (a "Tax Partnership") to make and not withdraw the
election under Section 754 of the Code. Any such Tax Partnerships which may not
have a Section 754 election validly made on the Closing Date shall be disclosed
to the Buyer at least thirty (30) days prior to the Closing Date.
CONDITIONS TO CLOSING
General Conditions. The respective
obligations of the Buyer and the Sellers to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment,
at or prior to the Closing, of each of the following conditions, any of which
may, to the extent permitted by applicable Law, be waived in writing by either
party in its sole discretion (provided that such waiver shall only be effective
as to the obligations of such party):
No Injunction or Prohibition. No Governmental
Authority shall have enacted, issued, promulgated, enforced or entered
any Law (whether temporary, preliminary or permanent), that is in
effect and that enjoins, restrains, conditions, makes illegal or
otherwise prohibits the consummation of the transactions contemplated
by this Agreement or the Ancillary Agreements.
HSR Act. Any waiting period (and any extension
thereof) under the HSR Act applicable the transactions contemplated by
this Agreement and the Ancillary Agreements shall have expired or shall
have been terminated.
Consents. All authorizations, consents, orders and
approvals of Governmental Authorities and other Persons set forth on
Exhibit W attached hereto shall have been received and shall be
satisfactory in form and substance to the parties.
Senior Secured Notes. SCC shall have (A) complied
with the "covenant defeasance" provisions of Section 8.3 of the
Indenture, dated as of April 1, 1999 (the "Indenture"), by and among
SCC, the subsidiary guarantors named therein and U.S. Bank Trust
National Association, as trustee (the "Trustee"), as amended, and shall
have (i) caused an irrevocable notice of redemption to be mailed to the
holders of SCC's 11 3/8% Senior Secured Notes due 2006 (the "Notes")
pursuant to Article III of the Indenture stating that the Notes will be
redeemed on the thirtieth (30th) day after the Closing Date (the
"Redemption Date"), (ii) irrevocably deposited with the Trustee cash in
an amount sufficient to pay the redemption price, together with accrued
and unpaid interest, for all of the outstanding Notes on the Redemption
Date, and (iii) obtained the release of the security interest of the
Trustee in the Purchased Assets and the Acquired Business or (B) shall
have repaid the Notes in full (including all accrued and unpaid
interest).
Conditions to the Obligations of the
Sellers. The obligations of the Sellers to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment, at or prior
to the Closing, of each of the following conditions, any of which may be waived
in writing by the Sellers in their sole discretion:
Representations, Warranties and Covenants. (i) The
representations and warranties of the Buyer contained in this Agreement
or any Ancillary Agreement or any schedule, certificate or other
document delivered pursuant hereto or thereto or in connection with the
transactions contemplated hereby or thereby shall be true and correct
in all material respects (other than representations and warranties
that are qualified as to materiality or Buyer Material Adverse Effect,
which representations and warranties shall be true in all respects) as
if made on the Closing Date, or in the case of representations and
warranties that are made as of a specified date, such representations
and warranties shall be true and correct, to the extent set forth
above, as of such specified date; (ii) the Buyer shall have performed
in all material respects all obligations and agreements and complied in
all material respects with all covenants and conditions required by
this Agreement or any Ancillary Agreement to be performed or complied
with by it prior to or at the Closing; and (iii) the Sellers shall have
received from the Buyer a certificate to the effect set forth in the
foregoing clauses (i) and (ii), signed by a duly authorized officer
thereof.
Deliveries. The Sellers shall have received an
executed copy of each of the documents listed in Section 2.7(c).
Refinancing of the LA Real Estate. The existing
indebtedness relating to the real property and improvements comprising
the Retained Club located in West Los Angeles, California shall have
been refinanced on terms reasonably acceptable to SCC.
No Litigation. No Action shall have been commenced or
threatened by any Governmental Authority that is reasonably likely to
(i) prohibit or impose limitations on the Sellers' ownership or
operation of all or a material portion of the Retained Business or the
Excluded Assets or (ii) impose limitations on the ability of the
Sellers or their Affiliates, or render the Sellers or their Affiliates
unable, effectively to control the Retained Business in any material
respect.
Conditions to Obligations of the Buyer.
The obligations of the Buyer to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions, any of which may be waived in writing by the
Buyer in its sole discretion:
Representations, Warranties and Covenants. (i) The
representations and warranties of the Sellers contained in this
Agreement or any Ancillary Agreement or any schedule, certificate or
other document delivered pursuant hereto or thereto or in connection
with the transactions contemplated hereby or thereby shall be true and
correct in all material respects (other than representations and
warranties that are qualified as to materiality or Seller Material
Adverse Effect, which representations and warranties shall be true in
all respects) as if made on the Closing Date, or in the case of
representations and warranties that are made as of a specified date,
such representations and warranties shall be true and correct, to the
extent set forth above, as of such specified date; (ii) the Sellers
shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants and
conditions required by this Agreement or any Ancillary Agreement to be
performed or complied with by them prior to or at the Closing; and
(iii) the Buyer shall have received from the Sellers a certificate to
the effect set forth in the foregoing clauses (i) and (ii), signed by a
duly authorized officer thereof.
No Litigation. No Action shall have been commenced or
threatened by any Governmental Authority that is reasonably likely to
(i) prohibit or impose limitations on the Buyer's ownership or
operation of all or a material portion of the Acquired Business or the
Purchased Assets or any of its other businesses or assets (or those of
any of its Subsidiaries or Affiliates) or (ii) impose limitations on
the ability of the Buyer or its Affiliates, or render the Buyer or its
Affiliates unable, effectively to control the Acquired Business or the
Purchased Assets in any material respect.
Deliveries. The Buyer shall have received an executed
copy of each of the documents listed in Section 2.7(b).
Evidence of Title. The Buyer shall have received a
1970 ALTA Extended Coverage Form Policy of Title Insurance issued by
one or more title insurance companies selected by the Buyer in the form
of the title commitment attached hereto as Exhibit X (including the
additions and deletions marked thereon by the Buyer) and covering the
Leased Real Property, including the Rock Center Club if SCC fails to
exercise the Rock Center Option. The cost of all such title policies
shall be borne by the Buyer; provided, however, that (i) with respect
to the San Francisco Club, the cost of the CLTA Policy of Title
Insurance for such club shall be borne by the Sellers and the
incremental additional cost of obtaining the ALTA title policy for such
club shall be borne by the Buyer and (ii) with respect to the
Washington Club, the cost shall be borne fifty percent (50%) by the
Buyer and fifty percent (50%) by the Sellers. Notwithstanding anything
herein to the contrary, the Buyer shall be responsible, at its sole
cost and expense, for obtaining ALTA surveys for each parcel of Leased
Real Property, and to the extent the Buyer fails to do so, then the
Buyer's title insurance for the applicable parcel may contain an
exception for survey matters.
Landlord Priority Rent Calculations. The Sellers
shall have completed, pursuant to the terms of the applicable lease
agreement, statements (audited by SCC's independent auditors)
containing calculations of landlord rents for the Reebok Club, the
Washington Club, the San Francisco Club and the Boston Club.
Lease Obligations Current. Except for accrued
obligations that will be paid pursuant to Section 2.8(g) and accrued
real estate taxes that shall be paid pursuant to Article VI hereof, all
obligations of the Sellers under leases of the Leased Real Property
which have become due on or prior to the Closing shall have been
satisfied or performed in full in accordance with the terms of the
applicable lease, taking into account any priority rent calculations
and no default, event of default or event giving any third party the
right to accelerate the obligations of any Seller under any lease of
Leased Real Property shall have occurred.
Updated Membership Information. The Sellers shall
have delivered to Buyer the revised schedules required by Section 3.19,
updated to a date no more than five (5) Business Days prior to the
Closing Date.
No Material Adverse Effect. There shall not have
occurred any Seller Material Adverse Effect.
Section 754 Election. The Sellers shall have made a
valid election under Section 754 of the Code with respect to each Tax
Partnership.
East Side Required Repairs. The East Side Required
Repairs shall have been completed by the Sellers in a manner reasonably
satisfactory to the Buyer and the cost therefor shall have been paid in
full by the Sellers.
East Side Water Issue. The East Side Water Issue
shall have been cured, such that water is not penetrating into the
structure at the time of Closing, to the satisfaction of the Buyer;
provided that the Sellers shall not be required to warranty the
effectiveness of such cure after the Closing Date.
Estimated Closing Date Balance Sheet. On or prior to
the date which is three (3) Business Days prior to the Closing Date,
SCC shall have prepared and delivered to the Buyer a balance sheet (the
"Estimated Closing Balance Sheet") which reasonably estimates the
financial position of the Acquired Business as of the Closing Date in
conformity with GAAP applied on a basis consistent with the preparation
of the Acquired Club Balance Sheets, and sets forth a detailed
calculation of the estimated Aggregate SCC Credit Amount and the
estimated Aggregate Buyer Credit Amount as of the Closing Date.
Reebok Club Management Agreement. The Reebok Club
Management Agreement shall have been terminated and the Buyer or one of
its Affiliates shall have entered into a new management agreement with
RSC/NY with respect to the management of the Reebok Club on
substantially the same economic terms as the Reebok Club Management
Agreement.
INDEMNIFICATION
Survival of Covenants and Representations
and Warranties. All of the covenants, agreements and obligations of the Sellers
and the Buyer contained in this Agreement, any Ancillary Agreement or any other
document delivered pursuant hereto or thereto which are required to be performed
or fulfilled prior to the Closing shall survive the Closing until the eighteen
month anniversary of the Closing Date; provided, however, that the covenant
contained in the last sentence of Section 5.1 shall not survive the Closing.
Except as otherwise provided in this Agreement, all of the covenants, agreements
and obligations of the Sellers and the Buyer contained in this Agreement, any
Ancillary Agreement or any other document delivered pursuant hereto or thereto
which are required to be performed or fulfilled after the Closing shall survive
the Closing (i) until fully performed or fulfilled, unless non-compliance with
such covenants, agreements or obligations is waived in writing by the party or
parties entitled to such performance or (ii) if not fully performed or
fulfilled, until the expiration of the relevant statute of limitations. The
representations and warranties of the Sellers and the Buyer contained in this
Agreement, any Ancillary Agreement or any schedule, certificate or other
document delivered pursuant hereto or thereto or in connection with the
transactions contemplated hereby or thereby shall survive the Closing until the
eighteen month anniversary of the Closing Date; provided, however, that:
the representations and warranties set forth in
Sections 3.1 and 4.1(a) relating to organization and existence,
Sections 3.2 and 4.1(b) relating to authority, Section 3.4 relating to
the Purchased Assets, Sections 3.19(a) and (b) relating to members of
the Acquired Clubs and Sections 3.25 and 4.1(f) relating to broker's
fees and finder's fees (Sections 3.1, 3.2, 3.4, 3.19(a) and (b), 3.25,
and 4.1(a), 4.1(b) and 4.1(f) are collectively referred to herein as
the "Core Representations"), and any representation in the case of
fraud, intentional misrepresentation or intentional breach, shall
survive indefinitely;
the representations and warranties set forth in
Section 3.16 relating to Taxes shall survive until the close of
business on the one hundred and twentieth (120th) day following the
expiration of the applicable statute of limitations with respect to the
Tax liabilities in question (giving effect to any waiver, mitigation or
extension thereof); and
the representations and warranties set forth in
Section 3.17 relating to environmental matters shall survive until the
close of business on the one hundred and twentieth (120th) day
following the expiration of the applicable statute of limitations
(giving effect to any waiver, mitigation or extension thereof).
Neither the Sellers nor the Buyer shall have any liability whatsoever with
respect to any such representation and warranty or covenant unless a claim is
made hereunder prior to the expiration of the survival period for such
representation and warranty or covenant, in which case such representation and
warranty or covenant shall survive as to such claim until such claim has been
finally resolved.
Indemnification by the Sellers. The
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Sellers, jointly and severally, shall save, defend, indemnify and hold harmless
the Buyer and its Affiliates and the respective Representatives, successors and
assigns of each of the foregoing from and against any and all losses, damages,
liabilities, deficiencies, Taxes, claims, interest, awards, judgments,
penalties, costs and expenses (including attorneys' fees, costs and other
out-of-pocket expenses incurred in investigating, preparing or defending the
foregoing) (collectively, "Losses"), asserted against, incurred, sustained or
suffered by any of the foregoing as a result of, arising out of or relating to:
any breach of any representation or warranty made by
any of the Sellers contained in this Agreement or any Ancillary
Agreement or any schedule, certificate or other document delivered
pursuant hereto or thereto;
any breach of any covenant or agreement by any of the
Sellers contained in this Agreement or any Ancillary Agreement or any
other document delivered pursuant hereto or thereto;
any of the Excluded Liabilities or the Excluded
Assets;
the first $500,000 of Losses resulting from any
breaches by the tenant under the Scores Lease;
the Sellers' operation of the Retained Clubs and the
Retained Business; and
any Seller's failure to comply with the terms and
conditions of any bulk sales or bulk transfer or similar Laws of any
jurisdiction that may be applicable to the sale or transfer of any or
all of the Purchased Assets to the Buyer or its Subsidiaries;
provided that, if any Losses for which Buyer is entitled to indemnification
under this Section 8.2 relate to the Reebok Club, then Sellers' aggregate
liability in respect thereof (i) shall be the full amount of such Losses if such
Losses are liabilities of, or result from an obligation of, SCC or any
Subsidiary and (ii) shall be limited to sixty percent (60%) of such Losses if
such Losses are the liability of, or result from an obligation of, RSC/NY.
Indemnification by the Buyer. The Buyer
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shall save, defend, indemnify and hold harmless the Sellers and their Affiliates
and the respective Representatives, successors and assigns of each of the
foregoing from and against any and all Losses incurred, sustained or suffered by
any of the foregoing as a result of, arising out of or relating to:
any breach of any representation or warranty made by
the Buyer contained in this Agreement or any Ancillary Agreement or any
schedule, certificate or other document delivered pursuant hereto or
thereto;
any breach of any covenant or agreement by the Buyer
contained in this Agreement or any Ancillary Agreement or any schedule,
certificate or other document delivered pursuant hereto or thereto;
after the Closing, any Assumed Liability; and
the Buyer's operation of the Acquired Clubs and the
Acquired Business from and after the Closing.
Procedures.
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In order for a party (the "Indemnified Party") to be
entitled to any indemnification provided for under this Agreement in
respect of, arising out of or involving a Loss or a claim or demand
made by any Person against the Indemnified Party (a "Third Party
Claim"), such Indemnified Party shall deliver notice thereof to the
party against whom indemnity is sought (the "Indemnifying Party") with
reasonable promptness after receipt by such Indemnified Party of
written notice of the Third Party Claim and shall provide the
Indemnifying Party with such information with respect thereto as the
Indemnifying Party may reasonably request. The failure to provide such
notice, however, shall not release the Indemnifying Party from any of
its obligations under this Article VIII except to the extent that the
Indemnifying Party is materially prejudiced by such failure and shall
not relieve the Indemnifying Party from any other obligation or
liability that it may have to the Indemnified Party pursuant to this
Article VIII.
If the Indemnifying Party acknowledges in writing its
obligation to indemnify the Indemnified Party against any and all
Losses that may result from a Third Party Claim pursuant to the terms
of this Agreement, the Indemnifying Party shall have the right, upon
written notice to the Indemnified Party within fifteen (15) days of
receipt of notice from the Indemnified Party of the commencement of
such Third Party Claim, to assume the defense thereof at the expense of
the Indemnifying Party (which expenses shall not be applied against any
indemnity limitation herein) with counsel selected by the Indemnifying
Party and satisfactory to the Indemnified Party. The Indemnifying Party
shall be liable for the reasonable fees and expenses of counsel
employed by the Indemnified Party for any period during which the
Indemnifying Party has failed to assume the defense thereof. If the
Indemnifying Party does not expressly elect to assume the defense of
such Third Party Claim within the time period and otherwise in
accordance with the first sentence of this Section 8.4(b), the
Indemnified Party shall have the sole right to defend and settle such
Third Party Claim. If the Indemnifying Party assumes the defense of
such Third Party Claim, the Indemnified Party shall have the right to
employ separate counsel and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless (i) the employment of such counsel shall have
been specifically authorized in writing by the Indemnifying Party or
(ii) the named parties to the Third Party Claim (including any
impleaded parties) include both the Indemnified Party and the
Indemnifying Party, and the Indemnified Party reasonably determines
that representation by counsel to the Indemnifying Party of both the
Indemnifying Party and such Indemnified Party may present such counsel
with a conflict of interest. If the Indemnifying Party assumes the
defense of any Third Party Claim, the Indemnified Party shall, at the
Indemnifying Party's expense, cooperate with the Indemnifying Party in
such defense and make available to the Indemnifying Party all
witnesses, pertinent records, materials and information in the
Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably required by the Indemnifying Party.
If the Indemnifying Party assumes the defense of any Third Party Claim,
(1) the Indemnifying Party shall not admit any liability with respect
to, or settle, compromise or discharge, or offer to compromise, settle
or discharge, such Third Party Claim without the Indemnified Party's
prior written consent (which consent may not be unreasonably withheld
or delayed) and (2) the Indemnified Party shall consent to any
settlement, compromise or discharge of a Third Party Claim that the
Indemnifying Party may recommend and that by its terms requires that
the Indemnifying Party pay the full amount of the liability in
connection therewith, that otherwise releases the Indemnified Party
completely and with prejudice to the claimant in connection with such
Third Party Claim, and that would not otherwise materially adversely
affect the Indemnified Party.
The indemnification required hereunder in respect of
a Third Party Claim shall be made by prompt payment by the Indemnifying
Party of the amount of actual Losses thereof, as and when bills are
received by the Indemnifying Party or Losses incurred have been
notified to the Indemnifying Party, together with interest (at the rate
of interest from time to time announced publicly by Citigroup as its
"prime rate") on any amount not repaid as necessary to the Indemnified
Party by the Indemnifying Party within five (5) Business Days after
receipt of notice therefor, from the date such Losses have been
notified to the Indemnifying Party.
The Indemnifying Party shall not be entitled to
require that any action be made or brought against any other Person
before action is brought or claim is made against it hereunder by the
Indemnified Party.
In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder that does not involve a
Third Party Claim being asserted against or sought to be collected from
such Indemnified Party, the Indemnified Party shall deliver notice of
such claim with reasonable promptness to the Indemnifying Party. The
failure to provide such notice, however, shall not release the
Indemnifying Party from any of its obligations under this Article VIII
except to the extent that the Indemnifying Party is materially
prejudiced by such failure and shall not relieve the Indemnifying Party
from any other obligation or liability that it may have to the
Indemnified Party or otherwise than pursuant to this Article VIII. If
the Indemnifying Party agrees that it has an indemnification obligation
but asserts that it is obligated to pay a lesser amount than that
claimed by the Indemnified Party, the Indemnifying Party shall pay such
lesser amount promptly to the Indemnified Party, without prejudice to
or waiver of the Indemnified Party's claim for the difference.
Notwithstanding the provisions of Section 10.9, each
Indemnifying Party hereby consents to the nonexclusive jurisdiction of
any court in which an Action in respect of a Third Party Claim is
brought against any Indemnified Party for purposes of any claim that an
Indemnified Party may have under this Agreement with respect to such
Action or the matters alleged therein and agrees that process may be
served on each Indemnifying Party with respect to such claim anywhere.
Limits on Indemnification. Notwithstanding
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anything to the contrary contained in this Agreement: (a) an Indemnifying Party
shall not be liable for any claim for indemnification pursuant to Section 8.2(a)
or Section 8.3(a), as the case may be, unless and until the aggregate amount of
indemnifiable Losses which may be recovered from the Indemnifying Party equals
or exceeds $100,000, in which case the Indemnifying Party shall
be liable only for the amount of such Losses which exceeds $100,000, and
(b) the maximum aggregate amount of indemnifiable Losses which may be
recovered from an Indemnified Party arising out of or relating to
the causes set forth in Section 8.2(a) or Section 8.3(a), as the case may be,
shall not exceed $15,000,000 ($20,000,000 in the event that SCC exercises the
Rock Center Option in accordance with Section 2.6(b)); provided that the
foregoing clauses (a) and (b) shall not apply to Losses arising out of or
relating to the untruth or breach of any representation or warranty made in any
Core Representation or in Section 3.16 relating to Taxes, in Section 3.17
relating to environmental matters, or to any representation or warranty in the
event of fraud, intentional misrepresentation or intentional breach or with
respect to any agreement relating to Taxes in Article VI. The Indemnified Party
may not make a claim for indemnification under Section 8.2(a) or Section 8.3(a),
as the case may be, for breach by the Indemnifying Party of a particular
representation or warranty after the expiration of the survival period thereof
specified in Section 8.1, except as otherwise provided in Section 8.1.
Notwithstanding anything to the contrary in this Agreement, the Sellers shall
have no liability to the Buyer for the Assumed Lease Liabilities,
notwithstanding the fact that such Assumed Lease Liabilities may arise out of,
result from or relate to a breach or inaccuracy of a representation or warranty
of the Sellers set forth in Section 3.5, 3.6, 3.7 or 3.17 or the last sentence
of Section 3.11(a) (to the extent the Buyer has received a clean estoppel
certificate certifying the information set forth in such sentence); provided
that none of Rex Licklider, Tim O'Brien, Lois Barberio, Suzanne Madison or Jill
Rosenthal has actual knowledge (i.e., there is no obligation to make any inquiry
or investigation) of a (i) written claim, notice or inquiry from a Governmental
Authority involving facts or circumstances which would cause a breach or
inaccuracy of such representation or warranty or (ii) a pending or completed
legal proceeding which would cause a breach or inaccuracy of such representation
or warranty.
Pre-Closing Disclosure or Knowledge of
--------------------------------------
Breach. Notwithstanding anything to the contrary in this Agreement, neither
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Sellers, on the one hand, nor Buyer, on the other, shall have
any liability under this Article VIII for the events or matters giving rise to
the nonfulfillment of any condition to Closing under Article VII in the event
such party waives such condition to the extent of the facts disclosed to such
party prior to the Closing. If the transactions contemplated hereby are
consummated, each party hereby expressly waives the right to seek indemnity or
other remedy for any Losses arising out of or relating to any breach to the
extent such breach was disclosed to such party or such party had Knowledge of
the breach prior to the Closing.
Tax Matters. Article VI of this Agreement
-----------
provides for certain rights and obligations of the parties with respect to
indemnification for Tax matters. The provisions of this Article VIII that by
their terms apply to Tax matters (including, by example and not limitation,
Sections 8.1(b), 8.2 and 8.5) shall apply notwithstanding the provisions of
Article VI.
Miami Club. The parties acknowledge that
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SCC manages (but does not own) the Miami Club pursuant to the Fitness Club and
Spa Management and Pre-Opening Services Agreement dated as of January 1, 2003
(the "Miami Management Agreement"), by and between FSM Spa LLC (as assignee of
Terremark Brickell II Ltd.), as owner (the "Owner"), and SCC, as operator.
Accordingly, because the Owner is an Affiliate of the Buyer, the Buyer
indirectly enjoys the benefits of, and is at risk with respect to, the
operation of the Miami Club. In light of the foregoing, the parties acknowledge
that (a) the representations and warranties of the Sellers hereunder, to the
extent they relate to the Miami Club, are being given for informational purposes
as a report by SCC under the Miami Management Agreement; (b) the Sellers shall
have no liability under the terms of this Agreement with respect to the
inaccuracy of the representations and warranties, or the failure to perform or
satisfy any covenants, in either case as they relate to the Miami Club; (c) the
covenants of the Sellers in this Agreement relating to the Acquired Clubs or the
Acquired Business shall not apply to the Miami Club; and (d) the assignment of
the Miami Management Agreement by SCC shall not limit the rights of the Owner
against SCC for any breach thereof (after giving effect to all cure periods, if
any) occurring prior to such assignment.
Exclusive Remedy. Except for remedies that
----------------
(a) cannot be waived as a matter of Law (including fraud); (b) arise out of the
breach of any agreement relating to Taxes set forth in Article VI; or (c) seek
injunctive or provisional relief, the indemnification provided in this Article
VIII shall constitute the exclusive remedy of the parties hereto (including
their respective directors, officers, employees, Affiliates, Related Parties,
Representatives, agents and assigns) from and against any and all Losses
asserted against, imposed upon or suffered by, any of them, directly or
indirectly, as a result of, or based upon or arising out of,
the breach of any representation or warranty or the non-fulfillment of any
agreement or covenant in this Agreement or pursuant to any applicable Law.
TERMINATION
Termination. This Agreement may be
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terminated at any time prior to the Closing:
by mutual written consent of the Buyer and SCC;
(i) by SCC, if the Buyer breaches or fails to perform
in any respect any of its representations, warranties or covenants
contained in this Agreement or any Ancillary Agreement and such breach
or failure to perform (a) would give rise to the failure of a condition
set forth in Section 7.2, (b) cannot be or has not been cured within
thirty (30) days following delivery by SCC of written notice of such
breach or failure to perform and (c) has not been waived by SCC or (ii)
by the Buyer, if any of the Sellers breaches or fails to perform in any
respect any of its representations, warranties or covenants contained
in this Agreement or any Ancillary Agreement and such breach or failure
to perform (x) would give rise to the failure of a condition set forth
in Section 7.3, (y) cannot be or has not been cured within thirty (30)
days following delivery by the Buyer of written notice of such breach
or failure to perform and (z) has not been waived by the Buyer;
by either SCC or the Buyer if the Closing shall not
have occurred by December 31, 2005; provided that the right to
terminate this Agreement under this Section 9.1(c) shall not be
available if the failure of the party so requesting termination to
fulfill any obligation under this Agreement shall have been the cause
of, or shall have resulted in, the failure of the Closing to occur on
or prior to such date;
by either SCC or the Buyer in the event that any
Governmental Authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and nonappealable;
provided that the party so requesting termination shall have used its
commercially reasonable efforts, in accordance with Section 5.8, to
have such order, decree, ruling or other action vacated; or
by SCC if SCC shall have received a proposal that the
Special Committee determines constitutes a Superior Transaction, but
only if prior to termination under this subsection, SCC shall have
complied with the provisions of Section 5.11 in all material respects.
The party seeking to terminate this Agreement pursuant to this Section 9.1
(other than Section 9.1(a)) shall give prompt written notice of such termination
to the other party.
Effect of Termination. In the event of
---------------------
termination of this Agreement as provided in Section 9.1, this Agreement shall
forthwith become void and there shall be no liability on the part of either
party except (a) for the provisions of Sections 3.25 and 4.1(f) relating to
broker's fees and finder's fees, Section 5.7 relating to
confidentiality, Section 5.9 relating to public announcements, Section 10.1
relating to fees and expenses, Section 10.4 relating to notices, Section 10.7
relating to third-party beneficiaries, Section 10.8 relating to governing law,
Section 10.9 relating to submission to jurisdiction, Section 9.3 relating to
expenses and termination fees and this Section 9.2, and (b) that nothing herein
shall relieve either party from liability for any breach of this Agreement or
any agreement made as of the date hereof or subsequent thereto pursuant to this
Agreement, except to the extent a fee has been paid pursuant to Section 9.3(b),
in which case such fee shall constitute liquidated damages, and not a penalty,
and shall be the sole remedy of the terminating party for any such breach. In
addition, upon termination of this Agreement, except as otherwise provided in
Section 9.3(b)(ii), SCC and the Buyer shall submit joint written instructions to
the Escrow Agent directing the Escrow Agent to return the Deposit (together with
all interest thereon) to the Buyer within two (2) Business Days after receipt of
such joint written instructions.
Expenses and Termination Fees.
-----------------------------
Except as set forth in this Section 9.3, all fees and
expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses, whether or not the Closing occurs; provided,
however, that SCC and the Buyer shall share equally all fees and
expenses, other than attorneys' and accountants' fees, incurred in
connection with the filing by the parties hereto of the pre-merger
notification and report forms relating to the transactions contemplated
by this Agreement under the HSR Act and the filing of any notice or
other document under any applicable foreign antitrust law or
regulation.
In the event that:
this Agreement is terminated by the Buyer
pursuant to Section 9.1(b)(ii) and
the Buyer is not then in breach of
this Agreement, then SCC shall pay
to the Buyer, in immediately
available funds at the time
specified in Section 9.3(c), a
nonrefundable cash fee in an amount
equal to $500,000 (the "Buyer
Termination Fee"); provided that, if
the cause of such termination is
Sellers' breach of a representation
or warranty which gives rise to a
failure of a condition set forth in
Section 7.3, and the events or
circumstances giving rise to such
breach occur after the date hereof
and are disclosed by Sellers to
Buyer, Buyer shall not be entitled
to the Buyer Termination Fee;
this Agreement is terminated by SCC
pursuant to Section 9.1(b)(i) and
SCC is not then in breach of this
Agreement, then SCC and the Buyer
shall submit joint written
instructions to the Escrow Agent
directing the Escrow Agent to
deliver to SCC, in immediately
available funds at the time
specified in Section 9.3(c),
$500,000 of the Deposit (the "SCC
Termination Fee") and the remainder
of the Deposit (including any
earnings thereon) to the Buyer;
provided that, if the cause of such
termination is Buyer's breach of a
representation or warranty which
gives rise to a failure of a
condition set forth in Section 7.2,
and the events or circumstances
giving rise to such breach occur
after the date hereof and are
disclosed by Buyer to SCC, SCC shall
not be entitled to the SCC
Termination Fee; or
this Agreement is terminated by SCC
pursuant to Section 9.1(e) and the
Buyer is not then in breach of this
Agreement, SCC shall pay to the
Buyer, in immediately available
funds at the time specified in
Section 9.3(c), a nonrefundable cash
fee in an amount equal to $2,500,000
(the "Breakup Fee").
In the case of termination of this Agreement by the
Buyer pursuant to Section 9.1(b)(ii), the Buyer Termination Fee shall
be paid by SCC within two (2) Business Days after such termination. In
the case of termination of this Agreement by SCC pursuant to Section
9.1(b)(i), the SCC Termination Fee shall be delivered by the Escrow
Agent within two (2) Business Days after such termination. In the case
of termination of the Agreement by SCC pursuant to Section 9.1(e), the
Breakup Fee shall be paid by SCC simultaneously with or prior to, and
in either case as a condition precedent to, the termination of this
Agreement by SCC.
The parties acknowledge and agree that the agreements
contained in this Section 9.3 are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, the
Sellers and the Buyer would not enter into this Agreement.
Notwithstanding any other provision contained herein, if either party
fails to pay when due any amount payable under this Section 9.3, then
such party shall pay to the other party its costs and expenses
(including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to
collect payment, together with interest on such overdue amount (for the
period commencing as of the date such overdue amount was originally
required to be paid and ending on the date such overdue amount is
actually paid to the other party in full) at a rate per annum equal to
the prime rate as announced by Citibank in effect on the date such
overdue amount was originally required to be paid.
GENERAL PROVISIONS
Fees and Expenses. Except as otherwise
-----------------
provided herein, all fees and expenses incurred in connection with or related to
this Agreement and the Ancillary Agreements and the transactions contemplated
hereby and thereby shall be paid by the party incurring such fees or expenses,
whether or not such transactions are consummated; provided that no such fees and
expenses payable by the Sellers shall be paid from any assets otherwise
transferable to the Buyer pursuant hereto. In the event of termination of this
Agreement, the obligation of each party to pay its own expenses will be subject
to any rights of such party arising from a breach of this Agreement by the
other.
Amendment and Modification. This Agreement
--------------------------
may not be amended, modified or supplemented in any manner, whether by course of
conduct or otherwise, except by an instrument in writing signed on behalf of
each party and otherwise as expressly set forth herein.
Waiver. No failure or delay of either party
------
in exercising any right or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, or any
course of conduct, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the parties
hereunder are cumulative and are not exclusive of any rights or remedies which
they would otherwise have hereunder. Any agreement on the part of either party
to any such waiver shall be valid only if set forth in a written instrument
executed and delivered by a duly authorized officer on behalf of such party.
Notices. All notices and other
-------
communications hereunder shall be in writing and shall be deemed
duly given (a) on the date of delivery if delivered personally, or if by
facsimile, upon written confirmation of receipt by facsimile, e-mail or
otherwise, (b) on the first (1st) Business Day following the date of dispatch if
delivered by a recognized next-day courier service or (c) on the earlier of
confirmed receipt or the fifth Business Day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered to the addresses set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
if to any of the Sellers, to:
The Sports Club Company, Inc.
11110 Santa Monica Blvd., Suite 300
Los Angeles, California 90025
Attention: Tim O'Brien
Facsimile: (310) 479-5740
with copies (which shall not constitute notice) to:
Greenberg Glusker Fields Claman Machtinger & Kinsella
LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, California 90067
Attention: Ronald K. Fujikawa, Esq.
Facsimile: (310) 201-2300
if to the Buyer, to:
Millennium Development Partners VIII LLC
c/o Millennium Partners
1995 Broadway, 3rd Floor
New York, New York 10023
Attention: Chief Financial Officer
Facsimile: (212) 595-1831
with a copy (which shall not constitute notice) to:
Paul, Hastings, Janofsky & Walker LLP
75 East 55th Street
New York, New York 10022
Attention: Jeffrey J. Pellegrino, Esq.
Facsimile: (212) 319-4090
Interpretation. When a reference is made in
--------------
this Agreement to a Section, Article or Exhibit such reference shall be to a
Section, Article or Exhibit of this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement or in any Exhibit are
for convenience of reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All words used in this Agreement
will be construed to be of such gender or number as the circumstances require.
Any capitalized terms used in any Exhibit but not otherwise defined therein
shall have the meaning as defined in this Agreement. All Exhibits annexed hereto
or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth herein. The word "including" and words of similar
import when used in this Agreement will mean "including, without limitation",
unless otherwise specified.
Entire Agreement. This Agreement and the
----------------
Ancillary Agreements, Exhibits, Schedules and other agreements and instruments
delivered in connection herewith constitutes the entire agreement, and
supersedes all prior written agreements, arrangements, communications
and understandings and all prior and contemporaneous oral agreements,
arrangements, communications and understandings among the parties with respect
to the subject matter of this Agreement. Notwithstanding any oral agreement of
the parties or their Representatives to the contrary, no party to this Agreement
shall be under any legal obligation to enter into or complete the transactions
contemplated hereby unless and until this Agreement shall have been executed and
delivered by each of the parties.
No Third-Party Beneficiaries. Except as
----------------------------
otherwise provided in Article VIII, (a) this Agreement shall be binding upon
and inure solely to the benefit of each party and their respective successors
and assigns, and (b) nothing in this Agreement, express or implied, is intended
to or shall confer upon any other Person any legal or equitable right, benefit
or remedy of any nature under or by reason of this Agreement.
Governing Law. This Agreement and all
-------------
disputes or controversies arising out of or relating to this Agreement or the
transactions contemplated hereby shall be governed by, and construed in
accordance with, the internal laws of the State of New York, without regard to
the laws of any other jurisdiction that might be applied because of the
conflicts of laws principles of the State of New York other than
Section 5-1401 of the New York General Obligations Law.
Submission to Jurisdiction. Each of the
--------------------------
parties irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or for recognition and enforcement of any judgment in
respect hereof brought by the other party or its successors or assigns may be
brought and determined in any Delaware State or federal court sitting in
Wilmington, Delaware (or, if such court lacks subject matter jurisdiction, in
any appropriate Delaware State or federal court), and each of the parties hereby
irrevocably submits to the jurisdiction of the aforesaid courts for itself and
with respect to its property, generally and unconditionally, with regard to any
such action or proceeding arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any action, suit or
proceeding relating thereto except in such courts). Each of the parties further
agrees to accept service of process in any manner permitted by such courts. Each
of the parties hereby irrevocably and unconditionally waives, and agrees not to
assert, by way of motion or as a defense, counterclaim or otherwise, in any
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, (a) any claim that it is not personally
subject to the jurisdiction of the above-named courts for any reason other than
the failure lawfully to serve process, (b) that it or its property is exempt or
immune from jurisdiction of any such court or from any legal process commenced
in such courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise)
and (c) to the fullest extent permitted by law, that (i) the suit, action or
proceeding in any such court is brought in an inconvenient forum, (ii) the venue
of such suit, action or proceeding is improper or (iii) this Agreement, or the
subject matter hereof, may not be enforced in or by such courts.
Assignment; Successors. Neither this
----------------------
Agreement nor any of the rights, interests or obligations
under this Agreement may be assigned or delegated, in whole or in part, by
operation of law or otherwise, by either party without the prior written consent
of the other party, and any such assignment without such prior written consent
shall be null and void; provided, however, that the Buyer may assign this
Agreement to any Affiliate of the Buyer without the prior consent of the Sellers
and; provided, further, that no assignment shall limit the assignor's
obligations hereunder. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
Enforcement. The parties agree that
-----------
irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, each of the parties
shall be entitled to specific performance of the terms hereof, including an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any Delaware State or
federal court sitting in Wilmington, Delaware (or, if such court lacks subject
matter jurisdiction, in any appropriate Delaware State or federal court), this
being in addition to any other remedy to which they are entitled at law or in
equity. Each of the parties further hereby waives (a) any defense in any action
for specific performance that a remedy at law would be adequate and (b) any
requirement under any law to post security as a prerequisite to obtaining
equitable relief.
Currency. All references to "dollars" or
--------
"$" or "US$" in this Agreement or any Ancillary
Agreement refer to United States dollars, which is the currency used for all
purposes in this Agreement and any Ancillary Agreement.
Severability. Whenever possible, each
------------
provision or portion of any provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable Law, but if any provision or portion of any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable Law or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision or portion of any
provision in such jurisdiction, and this Agreement shall be reformed, construed
and enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
Waiver of Jury Trial. EACH OF THE PARTIES
--------------------
TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Counterparts. This Agreement may be
------------
executed in two or more counterparts, all of which shall be
considered one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party.
Facsimile Signature. This Agreement may be
-------------------
executed by facsimile signature and a facsimile signature shall constitute an
original for all purposes.
Time of Essence. Time is of the essence
---------------
with regard to all dates and time periods set forth or referred to in this
Agreement.
[The remainder of this page is intentionally left blank.]
-------------------------------------------------------
7
IN WITNESS WHEREOF, the Sellers and the Buyer have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
THE SPORTS CLUB COMPANY, INC.
By: /s/ Rex A. Licklider
---------------------------------
Name: Rex A. Licklider
Title: Chief Executive Officer
WASHINGTON D.C. SPORTS CLUB, INC.
By: /s/ Timothy M. O'Brien
---------------------------------
Name: Timothy M. O'Brien
Title: President
SF SPORTS CLUB, INC.
By: /s/ Timothy M. O'Brien
---------------------------------
Name: Timothy M. O'Brien
Title: President
TALLA NEW YORK, INC.
By: /s/ Timothy M. O'Brien
---------------------------------
Name: Timothy M. O'Brien
Title: President
PONTIUS REALTY, INC.
By: /s/ Timothy M. O'Brien
---------------------------------
Name: Timothy M. O'Brien
Title: President
8
MILLENNIUM DEVELOPMENT PARTNERS
VIII LLC
By: /s/ Mario J. Palumbo, Jr.
----------------------------------
Name: Mario J. Palumbo Jr.
Title: Vice President
Acknowledged and Agreed Solely with Respect
to Section 4.2(d):
NEW COMMONWEALTH COMMERCIAL HOLDING CO
LLC
By: /s/ Mario J. Palumbo, Jr.
------------------------------------
Name: Mario J. Palumbo, Jr.
Title: President
CB-1 ENTERTAINMENT PARTNERS LP
By: CB-1 GP LLC, its general partner
By: /s/ Mario J. Palumbo, Jr.
------------------------------
Name: Mario J. Palumbo, Jr.
Title: Vice President
FSM SPA LLC
By: /s/ Mario J. Palumbo, Jr.
--------------------------------------
Name: Mario J. Palumbo, Jr.
Title: Vice President
LINCOLN SQUARE COMMERCIAL HOLDING CO LLC
By: /s/ Mario J. Palumbo, Jr.
--------------------------------------
Name: Mario J. Palumbo, Jr.
Title: Vice President
9
MILLENNIUM CAF II LLC, in its capacity as trustee of the Millennium Washington
Commercial Trust, a trust formed under the laws of the District of Columbia
By: /s/ Mario J. Palumbo, Jr.
--------------------------------------
Name: Mario J. Palumbo, Jr.
Title: Vice President
10
EXHIBIT 99.3
TRANSITION SERVICES AGREEMENT
TRANSITION SERVICES AGREEMENT (this "Agreement"), dated as of _____________,
2005, by and between The Sports Club Company, Inc., a Delaware corporation
(together with its subsidiaries and affiliates, "Sports Club"), and Millennium
Development Partners VIII LLC, a Delaware limited liability company (together
with its subsidiaries and affiliates, "Millennium"). Sports Club and Millennium
are each referred to herein as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Sports Club and Millennium are parties to an Asset Purchase Agreement
dated as of September __, 2005 (the "Asset Purchase Agreement") (capitalized
terms used herein without definitions shall have the meanings given to them in
the Asset Purchase Agreement);
WHEREAS, pursuant to the Asset Purchase Agreement, Millennium is purchasing from
Sports Club substantially all of the assets, properties and rights, whether
tangible or intangible, used by them in connection with the management and
operation of seven sports and fitness facilities located in New York, New York,
Washington, D.C., San Francisco, California, Miami, Florida and Boston,
Massachusetts (collectively, the "Facilities");
WHEREAS, in connection with the transactions contemplated by the
Asset Purchase Agreement, Millennium desires to obtain the use of certain
services for the purpose of enabling Millennium to manage an orderly transition
in its operation of the Facilities; and
WHEREAS, the closing of the transactions contemplated by the Asset Purchase
Agreement is conditioned upon, among other things, the execution and delivery of
this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Sports Club and Millennium hereby agree as
follows:
AGREEMENT
SECTION 1. Scope of Agreement. Sports Club hereby agrees to provide certain
administrative and operational support and related services to Millennium in
accordance with the terms and conditions of this Agreement. The nature and scope
of each Service (as defined below) are described in Sections 3 and 4 of this
Agreement. Upon the occurrence of the Transition Date (as defined below) for the
applicable Service, it is the Parties' intention that Millennium will either
enter into its own license or contract with Sports Club's software vendor or
third party providing such Service; establish a new relationship for the
provision of such Service; or develop the Service capability internally, all
without any further assistance of Sports Club.
SECTION 2. Term. The term of this Agreement shall commence on the date on
which the transactions contemplated by the Asset Purchase Agreement are
consummated (the "Closing Date") and shall end on the latest Transition Date.
Sports Club's obligation to provide each category of Services (e.g., Payroll
Services, Insurance Services, etc.) under this Agreement shall terminate on the
applicable date (the "Transition Date") set forth on Exhibit A hereto for each
such category of Services, subject to early termination or extension as provided
in Section 9 of this Agreement.
SECTION 3. Transition to the East Coast Office. Sports Club shall assist
Millennium in (a) establishing and developing an administrative office at an
eastern United States site to be selected by Millennium (the "East Coast
Office") and (b) transitioning control and location of the services listed
within Section 4 of this Agreement from Sports Club's offices in Los Angeles,
California and New York, New York to the East Coast Office.
SECTION 4. Services to be Provided by Sports Club. Sports Club shall
provide Millennium with the services set forth in this Section 4 (together with
the services set forth in Section 3 hereof, the "Services"). Sports Club
represents and warrants that the Services constitute substantially all of the
services which Sports Club's corporate headquarters staff in Los Angeles,
California and New York, New York have provided to the Facilities at any time
during the twelve (12)-month period immediately preceding the date hereof
(hereinafter, "Past Practice"). For the sake of clarity, (a) provision of the
Services does not contemplate payment of any premiums or fees applicable to the
Facilities after the Closing Date, all of which are the sole responsibility of
Millennium; and (b) the transitional assistance required of Sports Club in
providing the Services shall not require it to hire additional personnel (other
than replacements for personnel who have ceased to be employed by Sports Club)
or pay overtime or any increased amounts to its employees in the scope of their
employment; any such excess charges or amounts, if required by Millennium after
notice of such charges has been provided to Millennium, will be at Millennium's
expense.
4.1 Payroll Services. Sports Club shall support the payroll functions of
the Facilities by providing the same type and quality of payroll services
provided by Sports Club to the Facilities consistent with Past Practice,
including, but not limited to, the following payroll services (the "Payroll
Services"):
(a) Recurring Services. Sports Club shall provide the following
payroll processing services using the Ceridian System for all hourly and
salaried employees of the Facilities:
(i) Prepare and distribute payroll checks. (ii) Record vacation time
and cash-out information for exempt employees.
(iii) Record changes submitted by employees of the Facilities.
(iv) Respond to reasonable payroll-related inquiries by employees of
the Facilities.
(v) Enter into the Ceridian System employee direct deposit information
submitted by employees of the Facilities.
(vi) Coordinate Ceridian payroll services for Millennium's daily
payroll processing needs.
(vii) Enter information concerning employees of the Facilities for
purposes of withholding and recording employee state payroll taxes.
(viii) Validate weekly and semimonthly payroll runs for employees of
the Facilities through a payroll reconciliation process.
(ix) Prepare and distribute payroll reports as reasonably required by
Millennium.
(x) Forward to Millennium payroll and related tax funding requirements
upon completion of processing relevant payroll data.
(xi) Submit required information and contributions to third-party
benefit plan record-keeper or plan administrators.
(xii) Maintain applicable supporting records and documentation.
(xiii) Administer and update Ceridian software at the Facilities,
including, but not limited to, maintaining the compensation database and
administering the sales compensation system.
(xiv) Provide semi-monthly summary of Ceridian payroll run to
Millennium for approval prior to the release of payroll checks.
(xv) Assist Millennium in establishing new payroll bank accounts.
(xvi) Provide software updates and interfaces as necessary between
Ceridian payroll systems and Solomon general ledger software.
(xvii) Maintain interface with Kronos time clock system as necessary.
(xviii) Notify Millennium regarding any change in laws or regulations
governing wages and hours.
(xix) Reconcile payroll bank account.
(b) Administrative Support and Transition Assistance. In connection
with the Services described in paragraph (a) above, Sports Club, either
itself or through a payroll processing contractor (the "Payroll Processing
Contractor"), will accommodate reasonable additional reporting with respect
to demographic information and support Millennium's conversion from the
Ceridian System to another system, including by providing employee data
files in Sports Club format, assisting Millennium with data interpretation
and providing such other support services as requested by Millennium;
provided that such additional reporting and other services do not require
Sports Club to expend any funds for which it is not reimbursed by
Millennium hereunder. If a Payroll Processing Contractor is employed by
Sports Club, Sports Club shall remain responsible for all Services to be
provided to Millennium hereunder, subject to the terms of Section 7.1
hereof and any requirements imposed by applicable privacy laws or
practices.
(c) Additional Information Regarding Payroll Processing. The
processing of any payroll items pursuant to this Section 4.1 for both
direct deposits and checks shall be performed utilizing bank accounts of
Millennium funded by Millennium, it being understood that Sports Club shall
have no obligation to make any payments or advance any funds with respect
to such payroll processing. Millennium shall provide Sports Club or the
Payroll Processing Contractor with all authorizations necessary for the
purpose of processing payroll payments pursuant to this Section 4.1 by
check and direct deposit from Millennium's accounts. Millennium also shall
supply Sports Club with checks containing Millennium's name and bank
account number thereon for purposes of making such payroll payments to be
made by check. Sports Club shall, or shall cause the Payroll Processing
Contractor to, use reasonable efforts to provide Millennium with the amount
of payroll payments at least one (1) business day prior to the date on
which such payments are scheduled to be made. Sports Club shall, or shall
cause the Payroll Processing Contractor to, calculate the amount of
employee authorized deductions, employee deductions required by law
(including without limitation, wage garnishments, child support and other
domestic relations orders and taxes and other levies), and amounts payable
to third parties with respect to each such payroll payment based solely on
(and in reliance on) employee deductions and other information set forth in
the forms the employees will complete immediately after the Closing Date,
which forms will be provided by Millennium to Sports Club as soon
thereafter as reasonably practicable, as adjusted from time to time in
writing by Millennium to Sports Club or the Payroll Processing Contractor,
in the same format as was utilized by Sports Club with respect to its
payroll immediately prior to the Closing Date (it being understood that
neither Sports Club nor the Payroll Processing Contractor will have any
obligation to make payments on behalf of Millennium or Millennium employees
to third parties with respect to the same). Once funding requirement
information is furnished to Millennium by Sports Club, Millennium shall
confirm that sufficient uncommitted funds remain in the relevant payroll
account, or ensure that sufficient funds are promptly transferred into the
relevant payroll account no later than twenty-four (24) hours prior to each
projected payroll or other disbursement. To the extent Sports Club, at its
sole option, agrees to utilize its Payroll Processing Contractor for
payroll or related deductions on behalf of Millennium for administrative
convenience, Millennium shall pay to Sports Club the amount required for
such payment by wire transfer of immediately available funds prior to
Sports Club making such payment.
(d) Payroll Tax Returns. Sports Club shall use commercially reasonable
efforts to cause the Payroll Processing Contractor to: (i) prepare all W-2
forms for such period for which Sports Club provides payroll processing
services pursuant to this Section 4.1 and (ii) supply the data necessary
for Millennium to prepare and file all United States federal, state and
local payroll tax returns in connection with payroll payments processed by
Sports Club pursuant to this Section 4.1 (notwithstanding that such filings
may be made after the Termination Date), it being understood that Sports
Club shall have no obligation to make deposits or payments to taxing
authorities or any other person or entity with respect to such payroll
payments or payroll tax returns or statutory employment taxes related
thereto. Millennium shall provide Sports Club or the Payroll Processing
Contractor with proper federal and state tax identification numbers and
related forms and information to complete such W-2 forms. Sports Club shall
prepare, deliver to all employees of the Facilities and applicable
government agencies, and file with all applicable government agencies, W-2
forms for all employees of the Facilities.
4.2 Insurance Services. Sports Club shall support the insurance functions
of the Facilities by providing the same type and quality of insurance services
provided by Sports Club to the Facilities consistent with Past Practice,
including, but not limited to, the following insurance services (the "Insurance
Services"):
(a) Cooperate with Millennium regarding the transfer of insurance
functions to Millennium by the Transition Date for the Insurance Services.
(b) Provide guidance to Millennium regarding procedures for initiation
of claims and administration of claims during settlement process.
(c) Consult with Millennium regarding the types of insurance and
coverage levels for the Facilities.
4.3 Accounting Services. Sports Club shall support the accounting functions
of the Facilities using Solomon accounting software by providing the same type
and quality of accounting services provided by Sports Club to the Facilities
consistent with Past Practice, including, but not limited to, the following
accounting services (the "Accounting Services"):
(a) Participate, consistent with past practice, in month-end closing
and preparation of monthly Facility level financial statements.
(b) Maintain current general ledger and fixed asset systems.
(c) Assist as required in converting to a new general ledger system.
(d) Assist the Facilities' controllers consistent with past practice
with monthly general ledger maintenance and year-end budget process.
(e) In consultation with Millennium, assist in recording purchase
accounting entry relating to the transactions contemplated by the Asset
Purchase Agreement.
(f) Reconcile general bank accounts.
(g) Monitor fixed asset records and prepare entries for procurement,
retirement and depreciation of assets.
(h) Prepare flash membership and ancillary revenue reports consistent
with Sports Club's current practices.
(i) Ensure that sales tax reports are processed timely.
(j) Provide supporting schedules to assist Millennium in preparing
necessary property, real estate, rent and income tax filings.
(k) Cooperate with audits which Millennium may conduct or may be
subject to; provided that Millennium shall reimburse Sports Club for the
cost of providing any such services after the fourth full month after the
Closing Date at the rate of $100 per hour (this obligation shall survive
the expiration or termination of this Agreement for a period of six years
after the date hereof).
(l) Provide training and knowledge transfer to Millennium controllers
and membership staff in order for them to independently support the
administration of accounting policies and procedures.
(m) Assist Millennium in setting up requisite bank accounts.
(n) Advise Millennium on efficient cash management procedures.
4.4 Accounts Payable Services.
(a) Description of Services. Sports Club shall support the accounts
payable functions of the Facilities using Solomon accounting software by
providing the same type and quality of accounts payable services provided
by Sports Club to the Facilities consistent with Past Practice, including,
but not limited to, the following accounts payable services (the "Accounts
Payable Services"):
(i) Process vendor payments which have been approved by
Millennium.
(ii) Assist Millennium with setting up new disbursement checking
accounts.
(iii) Maintain accounts payable information for vendors and
reconcile accounts payable bank accounts.
(iv) Prepare 1099 forms for payments processed.
(v) Maintain software for interface between accounts payable and
general ledger systems.
(vi) Maintain supply of checks, signature stamps or other signing
devices in a safe and secure environment.
(vii) Deliver vendor files to Millennium upon Millennium's
request.
(viii) Assist Millennium with conversion of data to new
accounting system.
(b) Additional Information Regarding Accounts Payable Processing. The
processing of any accounts payable pursuant to this Section 4.4 shall be
performed utilizing bank accounts of Millennium funded by Millennium, it
being understood that Sports Club shall have no obligation to make any
payments or advance any funds with respect to such accounts payable
processing. For accounts payable payments approved by Millennium for
payment by Sports Club pursuant to this Section 4.4, Millennium shall
provide Sports Club with all necessary information and authorizations in a
timely fashion. Millennium also shall supply checks, as directed by Sports
Club, containing Millennium's name and bank account number thereon for
purposes of making such accounts payable payments to be made by check. Upon
completion of weekly processing of accounts payable and direct disbursement
transactions and determination of the cash funding requirement, Sports Club
shall provide Millennium with the appropriate funding requirements
information. Once funding requirement information is furnished to
Millennium by Sports Club, Millennium shall confirm that sufficient
uncommitted funds remain in the relevant accounts payable account, or
ensure that sufficient funds are promptly transferred into the relevant
accounts payable account no later than 24 hours prior to each projected
disbursement.
4.5 Membership Accounting Services. Sports Club shall support the
membership accounting functions of the Facilities using the MARS accounting
software by providing the same type and quality of membership accounting
services provided by Sports Club to the Facilities consistent with Past
Practice, including, but not limited to, the following membership accounting
services (the "Membership Accounting Services"):
(a) Conduct electronic funds transfer ("EFT") monthly billing for
members of the Facilities, whereby fees processed from members of the
Facilities shall be deposited directly into bank accounts designated by
Millennium.
(b) Process rejects for collection.
(c) Assist Millennium in negotiation of new agreements for EFT and
credit card billing.
(d) Post billings and collections to accounts receivable records.
(e) Implement dues increases as directed by Millennium.
(f) Provide guidance for treatment of corporate memberships,
complimentary memberships, suspended memberships and leaves of absence.
(g) Process inter-club transactions between the Facilities.
(h) Provide reports that are currently in place, including, but not
limited to, dues grids, membership retention reports and weekly sales
reports.
(i) Train controllers and membership staff on Sports Club policies and
procedures.
(j) Consider implementing changes to MARS system as requested by
Millennium.
(k) Generate monthly statements, letters for renewals, expiring credit
cards, etc.
(l) Provide information and reports necessary to continue the C.L.U.B.
call program.
(m) Maintain the MARS database for the Facilities, maintain the
integrity of the database, control and maintain the user rights and access
privileges in accordance with guidelines to be provided or agreed to by
Millennium.
(n) Maintain and update form membership agreements for each Facility,
including, but not limited to, updating the membership agreements to
reflect (i) any changes in the laws and regulations applicable to the
Facilities and (ii) the change in ownership of the Facilities.
(o) Provide MARS "help desk" services.
(p) Prepare reports tracking membership sales by individual sales
managers.
4.6 Marketing. Sports Club shall support the marketing functions of the
Facilities by providing the same type and quality of marketing services provided
by Sports Club to the Facilities consistent with Past Practice, including, but
not limited to, the following marketing services (the "Marketing Services"):
(a) Provide public relations, marketing, graphic printing and
reproduction services.
(b) Secure print advertisement relating to the Facilities.
(c) Develop direct mail programs, e-marketing, newsletters and other
member communications and monthly marketing strategies and sales offers.
(d) Design and produce collateral materials for the Facilities in
accordance with guidelines established by Millennium.
(e) Provide training to the Millennium marketing staff located at the
East Coast Office, including, but not limited to, providing access to and
information about the Sports Club marketing materials that are available to
Millennium.
Notwithstanding the foregoing, Millennium will have the right to
approve (which approval shall not be unreasonably withheld or delayed) all
marketing plans relating to the Facilities, but Sports Club will have the right
to finalize and use specific advertising materials and campaigns which are
consistent with such approved plans without having to obtain Millennium's
approval.
4.7 Purchasing. Sports Club shall support the purchasing functions of the
Facilities by providing the same type and quality of purchasing services
provided by Sports Club to the Facilities consistent with Past Practice,
including, but not limited to, the following purchasing services (the
"Purchasing Services"):
(a) Submit purchase orders to vendors selected by Millennium (the
"Vendors") as directed by Millennium (which authority may be delegated to a
manager of the Facilities) and process approved purchase orders for
payment.
(b) Oversee mail, messenger and courier services to and from the
Facilities to the Los Angeles, California and New York, New York offices,
as applicable.
(c) Maintain inventory of necessary forms.
(d) Maintain existing method of allocating purchases and provide
detailed accounting of purchases, costs and allocation of supplies.
(e) Negotiate pricing arrangements with the Vendors.
(f) Coordinate and arrange for purchases of office and club supplies
with the Vendors.
(g) Assist in procurement of capital assets as directed by Millennium
(which authority may be delegated to a manager of the Facilities).
(h) Transfer calls and inquiries from Vendors to the appropriate
individuals at the Facilities.
(i) Purchase, store and distribute PTS products, uniforms and spa
products as directed by Millennium (which authority may be delegated to a
manager of the Facilities).
Notwithstanding the foregoing, all payments for purchases facilitated or made on
behalf of Millennium by Sports Club are the responsibility of Millennium.
4.8 Human Resources. Sports Club shall support the human resources
functions of the Facilities by providing the same type and quality of human
resources services provided by Sports Club to the Facilities consistent with
Past Practice, including, but not limited to, the following human resources
services (the "Human Resources Services"), subject to applicable privacy
legislation and practices:
(a) Store, maintain and make available to Millennium files for
employees of the Facilities, including, but not limited to, benefit
information and personnel files for terminated employees of the Facilities
(any such files relating to periods after the Closing Date shall be the
property of Millennium).
(b) Process changes to employee records.
(c) Administer paperwork and processes relating to hiring and
termination of employees of the Facilities.
(d) Provide all training programs, manuals and other materials and
services used to train employees consistent with Past Practice.
(e) Administer workers' compensation claims.
(f) Administer benefit plans for employees of the Facilities,
including 401(k) plan; life, health and dental insurance; and vacation
plans.
(g) Notify terminated employees of their rights under benefit plans.
(h) Prepare and file required government reports, including Form
5500s.
(i) Maintain benefit plan accounting and administrative information.
(j) Provide services relating to labor relations, labor dispute
resolution, employee contract negotiations, EEO compliance and workplace
issues management.
(k) Prepare affirmative action plans, manage compliance with
Department of Labor standards, provide on-site compliance support, assist
Millennium in investigating allegations of harassment and/or discrimination
and establishing policies on allegations and assist in grievance
resolution.
(l) Sports Club will produce attrition reports regarding employees of
the Facilities in the same format and schedule as provided by Sports Club
with respect to employees of its other facilities after the Closing Date.
4.9 Staffing Services. Sports Club shall support the staffing functions of
the Facilities by providing the same type and quality of staffing services
provided by Sports Club to the Facilities consistent with Past Practice,
including, but not limited to, the following staffing services (the "Staffing
Services"):
(a) Assist with recruitment.
(b) Assist with interviewing candidates, extending offers to
candidates as directed by Millennium and tracking offers made.
(c) Assist with job postings and job fairs as reasonably requested by
Millennium.
4.10 Fitness Services. Sports Club shall support the fitness service
functions of the Facilities by providing the same type and quality of fitness
services provided by Sports Club to the Facilities consistent with Past
Practice, including, but not limited to, the following fitness services (the
"Fitness Services"):
(a) Administer and supervise private training programs, group exercise
programs, "For Kids Only" programs and all other services which have been
provided by the Vice President of Sports and Fitness and the Regional
Training Manager consistent with Past Practice in connection with the
current operation of the Facilities.
(b) Maintain operating standards currently in place for private
trainers and group exercise instructors.
(c) Assist with the purchase of fitness equipment which has been
approved by Millennium.
(d) Provide Millennium with reports consistent with those reports
provided by Sports Club with respect to its other facilities after the
Closing Date.
4.11 MARS and RIO Information Technology. Subject to the terms of Section
4.15 hereof and the consent of the licensor under the Softbrands Hospitality,
Inc. Equipment Sales and Software License Agreement dated June 10, 2003, Sports
Club shall support the MARS and RIO information technology functions of the
Facilities by providing the same type and quality of MARS and RIO information
technology services provided by Sports Club to the Facilities consistent with
Past Practice, including, but not limited to, the following MARS and RIO
information technology services (the "MARS and RIO Information Technology
Services"):
(a) Assist with the conversion of the MARS and RIO systems to the
systems selected by Millennium to replace the MARS and RIO systems.
(b) At the sole discretion of Sports Club, prepare modifications to
existing MARS and RIO software which have been requested by Millennium.
(c) Provide the Facilities with support for the MARS and RIO systems.
(d) Provide Millennium with back-up data files on a weekly basis.
(e) Maintain MARS and RIO licensing agreements with Vendors and assist
with the transition of such licensing agreements to Millennium.
(f) Forward e-mails sent to former employees of Sports Club who are
then employed at the Facilities to the e-mail accounts established by
Millennium for such employees.
4.12 Other Information Technology. In addition to the MARS and RIO
Information Technology Services, Sports Club shall support the other information
technology functions of the Facilities by providing the same type and quality of
information technology services provided by Sports Club to the Facilities
consistent with Past Practice, including, but not limited to, the following
other information technology services (the "Other Information Technology
Services"):
(a) Assist with conversion to multiple systems, including, but not
limited to, e-mail server, web-server, WAN, PT database system, Kronos and
general ledger systems.
(b) Maintain information technology hardware and software at Sports
Club's corporate headquarters and maintain the network between such
corporate headquarters and the Facilities.
(c) Provide software updates to computers at the Facilities at the
same time (or times) as such updates are provided by Sports Club for its
facilities.
(d) Prepare modifications to existing software as necessary.
(e) Provide the Facilities with support for the Solomon systems.
(f) Provide Millennium with support for multiple systems, including,
but not limited to, e-mail server, web-server, WAN, PT database system,
Kronos and general ledger systems.
(g) Maintain licensing agreements with vendors and assist with the
transition of licensing agreements to Millennium.
4.13 Legal and Regulatory Assistance. Sports Club shall support the legal
and regulatory functions of the Facilities by providing the same type and
quality of legal and regulatory services provided by Sports Club to the
Facilities consistent with Past Practice with respect to disputes and litigation
relating to the Facilities and for compliance with state, county and local laws,
ordinances, regulations and codes relating to the operation of the Facilities,
including, but not limited to, the following regulatory services (the
"Regulatory Services"):
(a) Maintain the licenses and permits required to operate the
Facilities pending the transfer of such licenses and permits to Millennium
and assist in the transfer of such licenses and permits to Millennium
(b) Procure other licenses and permits as required or advisable for
the Facilities as currently operated.
(c) Prosecute warranty claims and other causes of action related to
the operation of the Facilities.
(d) Review contracts with Vendors, suppliers, etc.
(e) Assist in resolving disputes and litigation with members arising
from the use of the Facilities or provisions within the membership
agreements.
4.14 Executive Services. Sports Club shall provide Millennium with the
following executive services (the "Executive Services"): Rex Licklider, Timothy
O'Brien and Lois Barberio shall be available upon reasonable notice during
normal business hours to consult with Millennium regarding all aspects of the
management and operation of the Facilities; provided that Millennium understands
that to the extent Messrs. Licklider and O'Brien and Ms. Barberio will continue
to be full-time employees of Sports Club following the Closing Date, the
duration and nature of requested consulting services will be appropriately
limited and will be subject to the availability of such people given their
Sports Club responsibilities.
4.15 Online Access for MARS System.
(a) Sports Club shall provide Millennium online access to and use of
the MARS system (the "MARS Services") comprising Sports Club's proprietary
software (the "MARS Software") hosted on one or more servers maintained by
Sports Club or a third party designee. Subject to all of the terms and
conditions of this Agreement, Sports Club hereby grants Millennium and any
of its Affiliates which own, manage or operate a Facility a
nontransferable, nonexclusive, royalty-free license to the MARS Services
and to use the MARS Software during the term of this Agreement, solely in
connection with the operation of the Facilities, and solely relating to the
Facilities. The MARS Services may not be resold, leased, sublicensed or
distributed, accessed or used for any other purpose by Millennium without
Sports Club's prior written approval. No implied licenses are granted by
virtue of this Agreement and Sports Club reserves all rights not expressly
granted herein. Except as otherwise permitted by the Retained Asset License
Agreement, Millennium shall not, and shall not permit any third party to,
(i) use the MARS Services to provide services through any timesharing
service or service bureau or network or otherwise for revenue generating
purposes, (ii) attempt to decompile, disassemble, or otherwise reverse
engineer or attempt to reconstruct or discover any source code or
underlying ideas or algorithms of any portions of the MARS Software, except
to the extent permitted by applicable law, or (iii) attempt to modify or
alter any portion of the MARS Software.
(b) Millennium shall exclusively own all right, title and interest in
and to all information and data provided by Millennium to Sports Club in
connection with this Agreement and all intellectual property and
proprietary rights existing anywhere in the world therein. Subject to the
rights granted in this Agreement, Sports Club shall retain all right, title
and interest in and to the MARS Services (and any underlying technology and
software including, without limitation, the MARS Software) and all
modifications, enhancements, derivative works and improvements of any of
the foregoing, any and all methods, algorithms, discoveries, inventions,
materials, ideas and other work product that is conceived, originated,
prepared or reduced to practice by Sports Club in connection with MARS and
RIO Information Technology Services provided hereunder, and all
intellectual property and proprietary rights existing anywhere in the world
therein.
SECTION 5. License of Assets. Until this Agreement expires or is terminated in
accordance with Section 9, Millennium will license to Sports Club, on a royalty
free basis, any asset, property or right which has been purchased by Millennium
from Sports Club pursuant to the Asset Purchase Agreement and which Sports Club
requires to provide any of the Services described in Section 4.
SECTION 6. Fees and Expenses. Millennium shall pay Sports Club a monthly fee,
payable in arrears, for the Group I Services and Group II Services (each as
defined on Exhibit A hereto) provided to Millennium pursuant to this Agreement
in the amount set forth on Exhibit A hereto. The monthly fee shall be pro rated
for any partial month. Any such monthly fee shall be payable by the fifteenth
day of the month immediately following the month in which the Group I Services
and/or Group II Services were provided. In addition, Millennium shall reimburse
Sports Club for any reasonable out-of-pocket expenses incurred by Sports Club
solely in connection with rendering the Services and which are not otherwise
included in the monthly fee payable for the Group I Services or the Group II
Services; provided, however, that Sports Club shall not incur any such expenses
without the prior approval of Millennium. Any such expenses shall be reimbursed
promptly after receipt by Millennium of invoices from Sports Club.
SECTION 7. Level of Services.
7.1 General. Sports Club will each use the same degree of care in rendering
Services under this Agreement as it utilizes in rendering such Services for its
own operations; provided that Millennium acknowledges that Sports Club shall not
be liable or responsible for (a) any acts or omissions of any Vendor or other
third party selling any goods or providing any Services hereunder (including the
Payroll Processing Contractor), or (b) any of its acts or omissions in providing
any Services hereunder which do not constitute willful misconduct or gross
negligence.
7.2 Cooperation. Millennium shall cooperate with Sports Club to permit
Sports Club to perform its duties and obligations under this Agreement in a
timely manner (including, without limitation, providing to Sports Club any
reports or other information required by Sports Club or the Payroll Processing
Contractor to discharge its duties hereunder).
7.3 Limitations. Sports Club shall not be required to provide any Service
to the extent the provision of such Service would require Sports Club to violate
any applicable laws, rules or regulations, or would result in the breach of any
software license or other applicable contract. Notwithstanding anything in this
Section 7.3 to the contrary, if an event occurs that materially and adversely
affects Sports Club's ability to provide any of the Services or support pursuant
to this Agreement, Sports Club shall provide immediate written notice to
Millennium, and the Parties shall then negotiate a resolution in good faith.
SECTION 8. Legal Requirements Related to Certain Services. The Parties
understand and recognize that the Facilities are subject to state, county and
local laws, ordinances, regulations and codes relating to the operation of
sports and fitness facilities. The Parties are familiar with and agree to comply
with all such regulations, including any future modifications thereof.
SECTION 9. Early Termination/Extension of Services. Millennium may terminate
Sports Club's obligation to provide the Group II Services prior to the
applicable Transition Date for such Group II Services by providing at least
ninety (90) days prior written notice to Sports Club, and Sports Club's
obligation to provide such Group II Services and Millennium's obligation to pay
the applicable fee for such Group II Services shall terminate prior to such
Transition Date on the date specifically indicated within Millennium's
termination request. Millennium may extend Sports Club's obligation to provide
Group II Services for up to an additional one hundred and eighty (180) days
beyond the applicable Transition Date for such Group II Services by providing at
least one hundred and twenty (120) days prior written notice to Sports Club, and
Sports Club's obligation to provide such Group II Services and Millennium's
obligation to pay the applicable fee for such Group II Services shall be
extended to the date specifically indicated within Millennium's extension
request. Even if Sports Club's obligation to provide a particular category of
Services expires or is terminated by Millennium, Sports Club will continue to
interact with and provide access to Millennium to the extent that Services still
being provided relate to the expired or terminated category of Services;
provided that such interaction does not interfere with, or unreasonably detract
from, the full and timely discharge by Sports Club's employees of their duties
and responsibilities for the benefit of Sports Club.
SECTION 10. Miscellaneous.
10.1 Amendment and Modification. This Agreement may not be amended,
modified or supplemented in any manner, whether by course of conduct or
otherwise, except by an instrument in writing signed on behalf of each Party and
otherwise as expressly set forth herein.
10.2 Waiver. No failure or delay of either Party in exercising any right or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such right or power, or any course of
conduct, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Parties hereunder are
cumulative and are not exclusive of any rights or remedies which they would
otherwise have hereunder. Any agreement on the part of either Party to any such
waiver shall be valid only if set forth in a written instrument executed and
delivered by a duly authorized officer on behalf of such Party.
10.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or if by facsimile, upon written confirmation of receipt by
facsimile, e-mail or otherwise, (b) on the first Business Day following the date
of dispatch if delivered by a recognized next-day courier service or (c) on the
earlier of confirmed receipt or the fifth Business Day following the date of
mailing if delivered by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered to the addresses set
forth below, or pursuant to such other instructions as may be designated in
writing by the Party to receive such notice:
if to Sports Club, to:
The Sports Club Company, Inc.
11110 Santa Monica Blvd., Suite 300
Los Angeles, California 90025
Attention: Tim O'Brien
Facsimile: (310) 479-5740
with copies (which shall not constitute notice) to:
Greenberg Glusker Fields Claman Machtinger & Kinsella
LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, California 90067
Attention: Ronald K. Fujikawa, Esq.
Facsimile: (310) 201-2300
and to:
Morris, Nichols, Arsht & Tunnell
1201 North Market Street
Wilmington, Delaware 19899
Attention: Frederick H. Alexander, Esq.
Facsimile: (302) 658-3989
if to Millennium, to:
Millennium Development Partners VIII LLC
c/o Millennium Partners
1995 Broadway, 3rd Floor
New York, New York 10023
Attention: Chief Financial Officer
Facsimile: (212) 595-1831
with a copy (which shall not constitute notice) to:
Paul, Hastings, Janofsky & Walker LLP
75 East 55th Street
New York, New York 10022
Attention: Jeffrey J. Pellegrino
Facsimile: (212) 319-4090
10.4 Interpretation. When a reference is made in this Agreement to a
Section, Article or Exhibit such reference shall be to a Section, Article or
Exhibit of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement or in any Exhibit are for convenience of
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Any
capitalized terms used in any Exhibit but not otherwise defined therein shall
have the meaning as defined in this Agreement. All Exhibits annexed hereto or
referred to herein are hereby incorporated in and made a part of this Agreement
as if set forth herein. The word "including" and words of similar import when
used in this Agreement will mean "including, without limitation", unless
otherwise specified.
10.5 Entire Agreement. This Agreement and the Exhibits and other agreements
and instruments delivered in connection herewith constitutes the entire
agreement, and supersedes all prior written agreements, arrangements,
communications and understandings and all prior and contemporaneous oral
agreements, arrangements, communications and understandings among the Parties
with respect to the subject matter of this Agreement. Notwithstanding any oral
agreement of the Parties or their Representatives to the contrary, no Party to
this Agreement shall be under any legal obligation to enter into or complete the
transactions contemplated hereby unless and until this Agreement shall have been
executed and delivered by each of the Parties.
10.6 No Third Party Beneficiaries. This Agreement shall be binding upon and
inure solely to the benefit of each Party and their respective successors and
assigns, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature under or by reason of this Agreement.
10.7 Governing Law. This Agreement and all disputes or controversies
arising out of or relating to this Agreement or the transactions contemplated
hereby shall be governed by, and construed in accordance with, the internal laws
of the State of New York, without regard to the laws of any other jurisdiction
that might be applied because of the conflicts of laws principles of the State
of New York other than Section 5-1401 of the New York General Obligations Law.
10.8 Submission to Jurisdiction. Each of the Parties irrevocably agrees
that any legal action or proceeding arising out of or relating to this Agreement
or for recognition and enforcement of any judgment in respect hereof brought by
the other party or its successors or assigns may be brought and determined in
any Delaware State or federal court sitting in Wilmington, Delaware (or, if such
court lacks subject matter jurisdiction, in any appropriate Delaware State or
federal court), and each of the Parties hereby irrevocably submits to the
jurisdiction of the aforesaid courts for itself and with respect to its
property, generally and unconditionally, with regard to any such action or
proceeding arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any action, suit or proceeding
relating thereto except in such courts). Each of the parties further agrees to
accept service of process in any manner permitted by such courts. Each of the
Parties hereby irrevocably and unconditionally waives, and agrees not to assert,
by way of motion or as a defense, counterclaim or otherwise, in any action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, (a) any claim that it is not personally subject to the
jurisdiction of the above-named courts for any reason other than the failure
lawfully to serve process, (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise)
and (c) to the fullest extent permitted by law, that (i) the suit, action or
proceeding in any such court is brought in an inconvenient forum, (ii) the venue
of such suit, action or proceeding is improper or (iii) this Agreement, or the
subject matter hereof, may not be enforced in or by such courts.
10.9 Assignment. Neither Party shall be permitted to assign any of its
rights or delegate any of its obligations under this Agreement without the prior
written consent of the other Party; except that (i) Millennium may, without such
consent, assign all such rights to any Affiliate(s) of Millennium, including the
Affiliates which own the Facilities, or to any Person providing financing to
Millennium as collateral security for such financing; provided that no such
assignment shall relieve Millennium of any of its obligations hereunder; and
(ii) Sports Club may, without such consent, assign all such rights to (A) any
Affiliate controlling Sports Club; provided that no such assignment shall
relieve Sports Club of any of its obligations hereunder or (B) any Person that
acquires, directly or indirectly, all or any substantial portion of the assets
or securities of Sports Club. Any unauthorized assignment or transfer shall be
null and void. Subject to the preceding sentences, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
10.10 Enforcement. The Parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly,
each of the Parties shall be entitled to specific performance of the terms
hereof, including an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in any Delaware State or federal court sitting in Wilmington, Delaware (or, if
such court lacks subject matter jurisdiction, in any appropriate Delaware State
or federal court), this being in addition to any other remedy to which they are
entitled at law or in equity. Each of the Parties further hereby waives (a) any
defense in any action for specific performance that a remedy at law would be
adequate and (b) any requirement under any law to post security as a
prerequisite to obtaining equitable relief.
10.11 Severability. Whenever possible, each provision or portion of any
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable Law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable Law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
10.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
10.13 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Party.
10.14 Facsimile Signature. This Agreement may be executed by facsimile
signature and a facsimile signature shall constitute an original for all
purposes.
10.15 Force Majeure. Neither Party shall be liable for failure or delay in
performance of its obligations under this Agreement to the extent such failure
or delay is caused by an act of God, act of a public enemy, war or national
emergency, rebellion, insurrection, riot, epidemic, quarantine restriction,
fire, flood, explosion, storm, earthquake, interruption in the supply of
electricity, power, or energy, or other catastrophe, terrorist attack, labor
dispute or disruption, or other event beyond the reasonable control of such
Party. If a Party's performance under this Agreement is affected by a force
majeure event, such Party shall give prompt written notice of such event to the
other Party and shall at all times use its reasonable commercial efforts to
mitigate the impact of the force majeure event on its performance under this
Agreement. In the event of a force majeure event as described in this Section
that affects either or both Parties' ability to perform under this Agreement,
the Parties agree to cooperate in good faith in order to resume the affected
Services as soon as commercially possible to the extent commercially reasonable.
10.16 No Agency. Nothing in this Agreement shall constitute or be deemed to
constitute a partnership or joint venture between the Parties or constitute or
be deemed to constitute any Party the agent or employee of the other Party for
any purpose whatsoever and neither Party shall have authority or power to bind
the other or to contract in the name of, or create a liability against, the
other in any way or for any purpose.
10.17 Information. Subject any applicable laws and privileges, each Party
covenants and agrees to provide the other Party with all information regarding
itself and the transactions under this Agreement that the other Party reasonably
believes is required to comply with all applicable federal, state, county, and
local laws, ordinances, regulations, and codes, and to satisfy the requesting
Party's obligations hereunder.
IN WITNESS WHEREOF, the
Parties have caused this
Agreement to be executed as
of the date first above
written. THE SPORTS CLUB
COMPANY, INC.
By: _______________________________
Name:
Title:
MILLENNIUM DEVELOPMENT PARTNERS VIII LLC
By: _______________________________
Name:
Title:
11
EXHIBIT A
TRANSITION DATES AND FEES
Services Transition Date Monthly Fee
(Full Months after the
Closing Date)
Group I Services: 4 $269,359 ($242,423 if
Sports Club exercises the
Rock Center Option)
Payroll........................
Insurance......................
Accounting.....................
Accounts Payable...............
Marketing......................
Purchasing.....................
Human Resources................
Staffing.......................
Fitness........................
Legal & Regulatory.............
Group II Services: 12 $68,288 ($61,459 if Sports
Club exercises the Rock
Center Option)
Membership Accounting..........
MARS & RIO Information Technology
Other Information Technology....
Executive......................
Online Access for MARS System..
12
EXHIBIT 99.4
OPERATING STANDARDS AGREEMENT
OPERATING STANDARDS AGREEMENT (this "Agreement"), dated as of _________, 2005,
by and between The Sports Club Company, Inc., a Delaware corporation (together
with its subsidiaries and affiliates, "Sports Club"), and Millennium Development
Partners VIII LLC, a Delaware limited liability company (together with its
subsidiaries and affiliates, "Millennium"). Sports Club and Millennium are each
referred to herein as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Sports Club and Millennium are parties to an Asset Purchase Agreement,
dated as of September __, 2005 (the "Asset Purchase Agreement") (capitalized
terms used herein without definitions shall have the meanings given to them in
the Asset Purchase Agreement);
WHEREAS, upon the closing of transactions contemplated by the Asset Purchase
Agreement (the "Closing"), Millennium will own and operate seven sports and
fitness facilities located in New York, New York, Washington, D.C., San
Francisco, California, Miami, Florida and Boston, Massachusetts (the "Acquired
Clubs");
WHEREAS, in accordance with the provisions of Section 5.3(b) of the Asset
Purchase Agreement and the provisions of the Retained Asset License Agreement,
dated the date hereof (the "License Agreement"), by and between Sports Club and
Millennium, Millennium may own, manage and/or operate additional sports and
fitness facilities and may use the name "The Sports Club/LA" or "Sports Club"
associated with the name of a city or place in connection with the operation
thereof (collectively with the Acquired Clubs, the "Millennium Clubs");
WHEREAS, upon the Closing, Sports Club will own and operate three sports and
fitness facilities located in Beverly Hills, California, West Los Angeles,
California and Irvine, California and may own, manage and/or operate a sports
and fitness facility located at the Rockefeller Center in New York City, and
additional sports and fitness facilities in accordance with the provisions of
Section 5.3(a) of the Asset Purchase Agreement (collectively, the "SCC Clubs");
WHEREAS, in connection with the transactions contemplated by the Asset Purchase
Agreement, the Parties desire to establish (i) a set of operating standards to
protect and govern the quality, appearance, reputation and operation of (A) the
Millennium Clubs (the "Millennium Branded Clubs") which are managed and/or
operated using the name "The Sports Club/LA" or "Sports Club" associated with
the name of a city or place (the "Sports Club Name") (for purposes of this
Agreement, the Millennium Club located in New York, New York and operated using
the name "Reebok Sports Club" shall be considered a Millennium Branded Club) and
(B) the SCC Clubs (the "SCC Branded Clubs") which are managed and/or operated
using the Sports Club Name; (ii) a set of standards to govern the advertising
and marketing campaigns conducted by Sports Club and Millennium with respect to
the Millennium Branded Clubs and the SCC Branded Clubs; and (iii) reciprocity of
membership and other rights between Sports Club and Millennium for the benefit
of members of the Millennium Branded Clubs and the SCC Branded Clubs;
WHEREAS, the Closing is conditioned upon, among other things, the execution and
delivery of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Sports Club and Millennium hereby agree as
follows:
AGREEMENT
Scope Of Agreement. Each Party hereby agrees to maintain certain
standards of reciprocity ("Reciprocity") with respect to membership rights in
accordance with the terms and conditions described in Section 3 of this
Agreement. Each Party hereby agrees to operate its respective Millennium Branded
Clubs and SCC Branded Clubs and all components thereof in a manner consistent
with the standards of quality, appearance and operation (the "Operating
Standards") set forth in Section 4 of this Agreement. Each Party hereby agrees
to conduct and maintain advertising and marketing campaigns in a manner
consistent with the standards of quality described in Section 5 of this
Agreement.
Term. The Parties' respective duties, rights and obligations provided
within Section 3 of this Agreement shall commence on the date hereof and shall
continue until both Parties have terminated their obligations under Section 3 in
accordance with Section 3.6 hereof. The Parties' respective duties, rights and
obligations provided within Sections 4 and 5 of this Agreement shall commence on
the date hereof and shall continue until the tenth (10th) anniversary of the
date hereof.
Reciprocity. Each Party agrees to maintain the following standards of
Reciprocity.
Guest Passes and Gift Certificates. Millennium will honor all guest
passes permitting access to the Millennium Branded Clubs distributed by Sports
Club prior to the date hereof in accordance with the terms of such guest passes.
Sports Club represents and warrants that any such guest passes have been
distributed in the ordinary course of business consistent with past practice. On
and after the date hereof, neither Sports Club nor Millennium shall distribute
any guest pass permitting access to the other Party's clubs except as otherwise
agreed in writing by the other Party. Millennium will honor all valid gift
certificates issued by a SCC Branded Club and presented for use at a Millennium
Branded Club. Sports Club will honor all valid gift certificates issued by a
Millennium Branded Club and presented for use at a SCC Branded Club.
Transfer of Memberships. Memberships shall not be transferable from
the Millennium Clubs to the SCC Clubs or vice versa. Subject to Section 5.3 of
the Asset Purchase Agreement, Sports Club and Millennium, each in their sole
discretion, shall be permitted to develop policies with respect to membership
terms to be offered to former members of the Millennium Clubs or the SCC Clubs,
as the case may be.
Access to the Sports Club Facilities. Sports Club shall provide
access to and use of the SCC Branded Clubs to persons that maintain in good
standing a "Bi-Coastal", "Executive", "Access West" or "Access East" membership
at one of the Millennium Branded Clubs in accordance with the current terms of
such membership (the "Millennium Members"). Upon the presentation at any SCC
Branded Club by any Millennium Member of proof of such a membership, Sports Club
shall permit such Millennium Member, free of charge, to enter and use the
facilities and services at such SCC Branded Club. Notwithstanding the foregoing,
any services, merchandise, personal training or massages and other items which
are separately paid for by members of such SCC Branded Club in addition to their
regular membership dues shall be paid for by such Millennium Member at the same
rates as are then charged to members of such SCC Branded Club. Sports Club
agrees to treat Millennium Members with the same degree of respect and courtesy
with which it treats members of the SCC Branded Clubs, and to provide Millennium
Members with the same level of customer service that is provided by Sports Club
to members of the SCC Branded Clubs. In addition, Millennium Members holding an
"Executive" membership shall be entitled to customary charge privileges at any
SCC Branded Club. Sports Club and Millennium shall cooperate in establishing
appropriate monitoring systems and credit limits with respect to such charge
privileges. Sports Club shall charge Millennium a fee of $25 for each visit to
an SCC Branded Club by a Millennium Member. Subject to Section 3.6 hereof by the
15th day after the end of each month, Sports Club shall prepare and provide to
Millennium an invoice that (a) summarizes the number of visits by Millennium
Members to each of the SCC Branded Clubs during such month and sets forth the
total amount owed by Millennium to Sports Club for such visits (the "Millennium
Fees"), (b) in the case of Millennium Members holding an "Executive" membership,
summarizes the charges incurred by such members at each of the SCC Branded Clubs
(providing the same detail of information currently provided to such members in
connection with such charges) and sets forth the total amount owed by Millennium
to Sports Club for such charges (the "Millennium Charges"), and (c) lists the
gift certificates issued by a Millennium Branded Club and redeemed at a SCC
Branded Club during such month and sets forth the total amount owed by
Millennium to Sports Club for honoring such gift certificates; provided,
however, that Millennium shall only be obligated to reimburse Sports Club for
50% of the total value of any gift certificate issued by an Acquired Club prior
to the Closing and redeemed at a SCC Branded Club (collectively, the "Millennium
Gift Certificate Charges"). Any such Millennium Fees, Millennium Charges and
Millennium Gift Certificate Charges shall be payable by Millennium to Sports
Club no later than thirty (30) days after Millennium's receipt of such invoice.
Access to the Millennium Facilities. Millennium shall provide access
to and use of the Millennium Branded Clubs to persons that maintain in good
standing a "Bi-Coastal", "Executive", "Access West" or "Access East" membership
at one of the SCC Branded Clubs in accordance with the current terms of such
membership (the "SCC Members"). Upon the presentation at any Millennium Branded
Club by any SCC Member of proof of such a membership, Millennium shall permit
such SCC Member, free of charge, to enter and use the facilities and services at
such Millennium Branded Club. Notwithstanding the foregoing, any services,
merchandise, personal training or massages and other items which are separately
paid for by members of such Millennium Branded Club in addition to their regular
membership dues shall be paid for by such SCC Member at the same rates as are
then charged to members of such Millennium Branded Club. Millennium agrees to
treat SCC Members with the same degree of respect and courtesy with which it
treats members of the Millennium Branded Clubs, and to provide SCC Members with
the same level of customer service that is provided by Millennium to members of
the Millennium Branded Clubs. In addition, SCC Members holding an "Executive"
membership shall be entitled to customary charge privileges at any Millennium
Branded Club. Sports Club and Millennium shall cooperate in establishing
appropriate monitoring systems and credit limits with respect to such charge
privileges. Millennium shall charge Sports Club a fee of $25 for each visit to a
Millennium Branded Club by a SCC Member. Subject to Section 3.6 hereof, by the
15th day after the end of each month, Millennium shall prepare and provide to
Sports Club an invoice that (a) summarizes the number of visits by SCC Members
to each of the Millennium Branded Clubs during such month and sets forth the
total amount owed by Sports Club to Millennium for such visits (the "SCC Fees"),
(b) in the case of SCC Members holding an "Executive" membership, summarizes the
charges incurred by such members at each of the Millennium Branded Clubs
(providing the same detail of information currently provided to such members in
connection with such charges) and sets forth the total amount owed by Sports
Club to Millennium for such charges (the "SCC Charges"), and (c) lists the gift
certificates issued by a SCC Branded Club and redeemed at a Millennium Branded
Club during such month and sets forth the total amount owed by Sports Club to
Millennium for honoring such gift certificates (the "SCC Gift Certificate
Charges"). Any such SCC Fees, SCC Charges and SCC Gift Certificate Charges shall
be payable by Sports Club to Millennium no later than thirty (30) days after
Sports Club's receipt of such invoice.
Exchange of Information. Subject to Section 3.6 hereof, Sports Club
and Millennium each shall provide to the other Party on the first business day
of each month an electronic list of current members in good standing holding
"Executive", "Bi-Coastal", "Access West" or "Access East" memberships (along
with such other information as shall be reasonably requested) at the SCC Branded
Clubs or the Millennium Branded Clubs, as the case may be, and each Party shall
be entitled to rely on such list in extending the access and charge privileges
set forth in Sections 3.3 and 3.4 hereof to such members. Notwithstanding the
foregoing, if Sports Club or Millennium provides notice to the other Party that
such a member is no longer in good standing at such member's home club (i.e.,
the club at which such member opened a membership and at which such member's
membership records are maintained), such other Party shall not be entitled to
reimbursement for visitation fees or charges incurred by such member more than
two business days following receipt of such notice. Each Party shall comply in
all material respects with all applicable laws and regulations regarding the
gathering, use and disclosure of personal information of members.
Termination. Sports Club may terminate its obligations under Sections
3.1, 3.3 and 3.5 hereof by providing Millennium sixty (60) days written notice
(or at least 30 days notice if termination is to be effective concurrently with
a termination noticed by Millennium pursuant to this Section 3.6). Sports Club's
obligation to pay SCC Fees, SCC Charges and SCC Gift Certificate Charges in
accordance with Section 3.4 hereof shall survive any such termination.
Millennium may terminate its obligations under Sections 3.1, 3.4 and 3.5 hereof
by providing Sports Club sixty (60) days written notice (or at least 30 days
notice if termination is to be effective concurrently with a termination noticed
by Sports Club pursuant to this Section 3.6). Millennium's obligation to pay
Millennium Fees, Millennium Charges and Millennium Gift Certificate Charges in
accordance with Section 3.3 hereof shall survive any such termination.
Standards of Operations. For the purpose of giving
distinctiveness to the Sports Club Name, enhancing the public image and
reputation of the Millennium Branded Clubs and the SCC Branded Clubs
and increasing the demand for services and products provided by the
Parties at such clubs, each of Sports Club and Millennium agrees to
operate and keep the condition of their respective Millennium Branded
Clubs and SCC Branded Clubs in all respects and at all times in
accordance and compliance with the following standards and policies.
Sports Club Obligations. Sports Club agrees to operate and maintain
the SCC Branded Clubs under a world-class luxury physical and service standard
consistent and compatible with the same degree of care and standard of quality
that Sports Club has historically utilized in operating the Acquired Clubs and
the SCC Clubs. Representatives of Millennium shall have the right to visit the
SCC Branded Clubs at any time, in an unobtrusive manner, to ensure Sports Club's
compliance with these obligations.
Millennium Obligations. Millennium agrees to operate and maintain the
Millennium Branded Clubs under a world-class luxury physical and service
standard consistent and compatible with the same degree of care and standard of
quality that Sports Club has historically utilized in operating the Acquired
Clubs and the SCC Clubs. Representatives of Sports Club shall have the right to
visit the Millennium Branded Clubs at any time, in an unobtrusive manner, to
ensure Millennium's compliance with these obligations.
Marketing and Advertising Obligations. Sports Club and Millennium
each agrees to conduct its respective advertising and marketing
campaigns with respect to the Millennium Branded Clubs or the SCC
Branded Clubs, as the case may be, in a tasteful manner consistent with
Sports Club's historical advertising and marketing campaigns with
respect to the Acquired Clubs and the SCC Clubs and consistent with
advertising and marketing campaigns conducted by operators of
world-class luxury sports and fitness facilities and in a fashion which
shall not demonstrably diminish the status or reputation of the
Millennium Branded Clubs or the SCC Branded Clubs.
Legal Requirements Related to Certain Services. The Parties understand
and recognize that the Millennium Branded Clubs and the SCC Branded Clubs are
subject to state, county and local laws, ordinances, regulations and codes
relating to the operation of sports and fitness facilities. The Parties are
familiar with and agree to comply in all material respects with all such
regulations, including any future modifications thereof.
Miscellaneous.
Amendment and Modification. This Agreement may not be amended, modified
or supplemented in any manner, whether by course of conduct or
otherwise, except by an instrument in writing signed on behalf of
each Party.
Waiver. No failure or delay of either Party in exercising any right or
remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or
power, or any course of conduct, preclude any other or further
exercise thereof or the exercise of any other right or power. The
rights and remedies of the Parties hereunder are cumulative and
are not exclusive of any rights or remedies which they would
otherwise have hereunder. Any agreement on the part of either
Party to any such waiver shall be valid only if set forth in a
written instrument executed and delivered by a duly authorized
officer on behalf of such Party.
Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery
if delivered personally, or if by facsimile, upon written
confirmation of receipt by facsimile, e-mail or otherwise, (b) on
the first business day following the date of dispatch if delivered
by a recognized next-day courier service or (c) on the earlier of
confirmed receipt or the fifth business day following the date of
mailing if delivered by registered or certified mail, return
receipt requested, postage prepaid. All notices hereunder shall be
delivered to the addresses set forth below, or pursuant to such
other instructions as may be designated in writing by the Party to
receive such notice:
If to Sports Club:
The Sports Club Company, Inc.
11100 Santa Monica Boulevard, Suite 300
Los Angeles, CA 90025
Attention: Tim O'Brien
Facsimile: (310) 479-5740
with a copy (which shall not constitute notice) to:
Greenberg Glusker Fields Claman Machtinger & Kinsella LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, CA 90067
Attention: Ronald K. Fujikawa, Esq.
Facsimile: (310) 201-2300
and
Morris, Nichols, Arsht & Tunnell
1201 North Market Street
Wilmington, Delaware 19899
Attention: Frederick H. Alexander, Esq.
Facsimile: (302) 425-4666
If to Millennium:
Millennium Development Partners VIII LLC
c/o Millennium Partners
1995 Broadway, 3rd Floor
New York, New York 10023
Attention: Chief Financial Officer
Facsimile: (212) 595-1831
with a copy (which shall not constitute notice) to:
Paul, Hastings, Janofsky & Walker LLP
75 East 55th Street
New York, NY 10022
Attention: Jeffrey J. Pellegrino, Esq.
Facsimile: 212-319-4090
Entire Agreement. This Agreement and the other agreements and
instruments delivered in connection herewith constitute the entire
agreement, and supersede all prior written agreements,
arrangements, communications and understandings and all prior and
contemporaneous oral agreements, arrangements, communications and
understandings among the Parties, with respect to the subject
matter of this Agreement. Notwithstanding any oral agreement of
the Parties or their representatives to the contrary, no Party
shall be under any legal obligation to enter into or complete the
transactions contemplated hereby unless and until this Agreement
shall have been executed and delivered by each of the Parties.
No Third-Party Beneficiaries. This Agreement shall be binding upon and
inure solely to the benefit of the Parties and their respective successors and
assigns, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature under or by reason of this Agreement.
Governing Law. This Agreement and all disputes or controversies arising
out of or relating to this Agreement or the transactions
contemplated hereby shall be governed by, and construed in
accordance with, the internal laws of the State of New York,
without regard to the laws of any other jurisdiction that might be
applied because of the conflicts of laws principles of the State
of New York other than Section 5-1401 of the New York General
Obligations Law.
Submission to Jurisdiction. Each of the Parties irrevocably agrees that
any legal action or proceeding arising out of or relating to this
Agreement or for recognition and enforcement of any judgment in
respect hereof brought by the other Party or its successors or
assigns may be brought and determined in any Delaware State or
federal court sitting in Wilmington, Delaware (or, if such court
lacks subject matter jurisdiction, in any appropriate Delaware
State or federal court), and each of the Parties hereby
irrevocably submits to the jurisdiction of the aforesaid courts
for itself and with respect to its property, generally and
unconditionally, with regard to any such action or proceeding
arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any action, suit
or proceeding relating thereto except in such courts). Each of the
Parties further agrees to accept service of process in any manner
permitted by such courts. Each of the Parties hereby irrevocably
and unconditionally waives, and agrees not to assert, by way of
motion or as a defense, counterclaim or otherwise, in any action
or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts
for any reason other than the failure lawfully to serve process,
(b) that it or its property is exempt or immune from jurisdiction
of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of
judgment or otherwise) and (c) to the fullest extent permitted by
law, that (i) the suit, action or proceeding in any such court is
brought in an inconvenient forum, (ii) the venue of such suit,
action or proceeding is improper or (iii) this Agreement, or the
subject matter hereof, may not be enforced in or by such courts.
Assignment; Successors. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise, by either Party (other than
to an Affiliate of either such Party) without the prior written consent of the
other Party, and any such assignment without such prior written consent shall be
null and void. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the Parties and their
respective successors and assigns.
Enforcement. The Parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly,
each of the Parties shall be entitled to specific performance of the terms
hereof, including an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in any Delaware State or federal court sitting in Wilmington, Delaware (or, if
such court lacks subject matter jurisdiction, in any appropriate Delaware State
or federal court), this being in addition to any other remedy to which they are
entitled at law or in equity. Each of the Parties further hereby waives (a) any
defense in any action for specific performance that a remedy at law would be
adequate and (b) any requirement under any law to post security as a
prerequisite to obtaining equitable relief.
Severability. Whenever possible, each provision or portion of any
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Waiver of Jury Trial. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. This Agreement may be executed and delivered by
facsimile and the Parties agree that such facsimile execution and delivery shall
have the same force and effect as delivery of an original document with original
signatures, and that each Party may use such facsimile signatures as evidence of
the execution and delivery of this Agreement by all Parties to the same extent
that an original signature could be used.
Facsimile Signatures. This Agreement may be executed by facsimile
signature and a facsimile signature shall constitute an original
for all purposes.
Captions. All section titles or captions contained in this Agreement
are for convenience only and shall not be deemed a part of this
Agreement or affect the meaning or interpretation of this
Agreement. Unless otherwise specified, all references herein to
numbered sections are to sections of this Agreement.
Liquidated Damages. If either Party defaults in the performance of its
obligations under Section 4 or 5 of this Agreement, the
non-defaulting Party shall prepare and provide to the defaulting
Party a written notice of default ("Notice of Default") that
specifically identifies and details the instance(s) in which the
defaulting Party violated the terms of this Agreement. The
defaulting Party shall have thirty (30) days (the "Cure Period")
from its receipt of a Notice of Default to cure the default(s)
specified within such Notice of Default. If the defaulting Party
does not cure such default(s) within the Cure Period, liquidated
damages of $10,000 per week shall be immediately due and payable
by the defaulting Party to the non-defaulting Party from the
expiration of the Cure Period until such default(s) is cured.
Notwithstanding anything to the contrary contained in this
Agreement, the Parties agree that it would be impracticable and
extremely difficult to ascertain the actual damages suffered by
the non-defaulting Party as a result of the defaulting Party's
default under this Agreement, and that under the circumstances
existing as of the date of this Agreement, the liquidated damages
provided for in this Section 7.15 represents a fair and reasonable
estimate of the damages which the non-defaulting Party will incur
as a result of such default. The Parties acknowledge that the
payment of such liquidated damages is not intended as a forfeiture
or penalty, but is intended to constitute liquidated damages to
the non-defaulting Party.
Force Majeure. Neither Party shall be liable for failure or delay in
performance of its obligations under this Agreement to the extent
such failure or delay is caused by an act of God, act of a public
enemy, war or national emergency, rebellion, insurrection, riot,
epidemic, quarantine restriction, fire, flood, explosion, storm,
earthquake, interruption in the supply of electricity, power, or
energy, or other catastrophe, terrorist attack, labor dispute or
disruption, or other event beyond the reasonable control of such
Party. If a Party's performance under this Agreement is affected
by a force majeure event, such Party shall give prompt written
notice of such event to the other Party and shall at all times use
its commercially reasonable efforts to mitigate the impact of the
force majeure event on its performance under this Agreement. In
the event of a force majeure event as described in this Section
7.16 that affects either or both Parties' ability to perform under
this Agreement, the Parties agree to cooperate in good faith in
order to resume the affected services or otherwise comply with
this Agreement as soon as commercially possible to the extent
commercially reasonable.
No Agency. Nothing in this Agreement shall constitute or be deemed to
constitute a partnership or joint venture between the Parties or
constitute or be deemed to constitute any Party the agent or
employee of the other Party for any purpose whatsoever and neither
Party shall have authority or power to bind the other or to
contract in the name of, or create a liability against, the other
in any way or for any purpose.
IN WITNESS WHEREOF, the
Parties have caused this
Agreement to be executed as
of the date first above
written. THE SPORTS CLUB
COMPANY, INC.
By: _______________________________
Name:
Title:
MILLENNIUM DEVELOPMENT PARTNERS VIII LLC
By: _______________________________
Name:
Title:
13
EXHIBIT 99.5
RETAINED ASSET LICENSE AGREEMENT
This RETAINED ASSET LICENSE AGREEMENT (this "Agreement") is made as of
______________, 2005, by and among Millennium Development Partners VIII LLC, a
Delaware limited liability company ("Buyer"), and The Sports Club Company, Inc.,
a Delaware corporation ("SCC", and together with the subsidiaries thereof listed
on Exhibit A of the Asset Purchase Agreement (as defined below), "Sellers").
Capitalized terms used but not defined herein shall have the meanings ascribed
to such terms in the Asset Purchase Agreement.
RECITALS
WHEREAS, Sellers operate premium sports and fitness complexes under "The Sports
Club/LA" name in various cities in the United States (the "Complexes");
WHEREAS,
Sellers have made a considerable investment in the development of the business
processes, methods of doing business, know-how and other proprietary information
used in the operation of the Complexes, including all tangible embodiments of
the foregoing, such as instruction manuals and summaries (excluding the
Purchased Assets, the "Proprietary Information");
WHEREAS, Sellers own the
trademarks listed in Schedule 1 attached hereto, including, without limitation,
the Names and Logos (defined below) (the "Registered Trademarks"), and may have
acquired rights in common law trademarks in connection with Sellers' operation
of the Complexes (such common law trademarks are referred to herein together
with the Registered Trademarks as the "Trademarks");
WHEREAS, Buyer and Sellers
are parties to that certain Asset Purchase Agreement dated as of October 28,
2005 (the "Asset Purchase Agreement");
WHEREAS, pursuant to the Asset Purchase
Agreement, Buyer is purchasing from Sellers substantially all of the assets,
properties and rights used by them in connection with the management and
operation of the Acquired Clubs;
WHEREAS, SCC and Buyer are entering into a
Transition Services Agreement (the "TSA") of even date herewith, under which SCC
is agreeing to provide Buyer with certain transition "Services" (as defined in
the TSA) for the periods, and subject to the terms and conditions, set forth
therein;
WHEREAS, in connection with the transactions contemplated by the Asset
Purchase Agreement, Sellers have agreed to license to Buyer, in connection with
the operation of Buyer's Clubs (as defined herein), the right to use Sellers'
tangible and intangible assets, systems, and rights relating thereto (including,
without limitation, the Proprietary Information and the Trademarks and all
updates, modifications and improvements thereof that Sellers in their sole
discretion create) which (a) are set forth on Schedule 2 attached hereto, and
(b) Buyer reasonably deems to be necessary or useful for the management,
operation and/or promotion of Buyer's Clubs from and after the Closing Date (the
"Retained Assets"); and
WHEREAS, the closing of the transactions contemplated by
the Asset Purchase Agreement is conditioned upon, among other things, the
execution and delivery of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
License.
License Grant.
(a) Sellers hereby grant to Buyer, and Buyer hereby accepts, subject to all
of the terms and conditions set forth herein, a perpetual, exclusive (except as
otherwise provided in Section 1.2 hereof), non-transferable (except as provided
in Section 1.5 hereof), non-sublicenseable (except as provided in Section 1.1(b)
hereof), royalty-free right and license to use and exploit the Retained Assets
solely in connection with the ownership, management, operation and/or promotion
of the Acquired Clubs and any other sports and fitness facilities that are
owned, managed or operated by Buyer or any Affiliate of Buyer (each, an
"Additional Club", and together with the Acquired Clubs, each a "Buyer's Club,"
or, collectively, "Buyer's Clubs"); provided, however, that Buyer shall not be
permitted to use, or grant a license to any Person to use, (a) the Retained
Assets in any manner which would result in a violation of Section 5.3(b) of the
Asset Purchase Agreement and (b) THE SPORTS CLUB/LA trademark and/or THE SPORTS
CLUB/LA Design trademark (collectively, the "Name and Logo") in connection with
the management, operation or promotion of any Buyer's Club located within
Sellers' Territory.
(b) Notwithstanding anything to the contrary contained in this Agreement or
the Asset Purchase Agreement, (i) the license granted to Buyer hereunder shall
include the right to use the Retained Assets in connection with sports and
fitness facilities located in residential or office buildings, owned in whole or
in part by Buyer or any of its Affiliates, which are located within Seller's
Territory and which are used exclusively by residents or tenants of such
buildings and their guests; and (ii) Buyer shall be permitted to sublicense the
license granted to Buyer hereunder to any subsidiary or Affiliate of Buyer that
owns, manages or operates one or more of the Buyer's Clubs solely in connection
with such Affiliate's or subsidiary's management, operation and promotion of
such Buyer's Clubs, subject to the restrictions applicable to Buyer set forth in
Section 5.3(b) of the Asset Purchase Agreement and Section 1.2 hereof. In
addition, Buyer shall have the non-exclusive right to use the Trademarks in
connection with the advertisement, marketing and promotion within Sellers'
Territory of Buyer's Clubs in compliance with Section 5.3(b) of the Asset
Purchase Agreement.
(c) Subject to Section 1.2 hereof, Sellers shall not use, or license to any
other Person the right to use, without Buyer's prior written consent which may
be granted or withheld in Buyer's sole discretion, any of the Registered
Trademarks in connection with any sports or fitness facility located anywhere in
Buyer's Territory, except for the Rock Center Club if the Rock Center Option is
exercised.
Sellers' Retained Rights.
(a) Sellers retain (i) the exclusive right, subject to Buyer's rights under
Section 1.1(b) hereof, to use the Name and Logo in Sellers' Territory and (ii)
the non-exclusive right to use the Retained Assets in Buyer's Territory
commencing on the date, if any, that Buyer begins to operate a sports and
fitness facility (other than a sports and fitness facility located in a
residential or office building, owned in whole or in part by Buyer or any of its
Affiliates, and which is used exclusively by residents or tenants of such
buildings and their guests) within a ten (10)-mile radius of any Retained Club
(other than the Rock Center Club if the Rock Center Option is exercised).
(b) Sellers retain the non-exclusive right to use in Buyer's Territory (i)
the Trademarks in connection with (A) the advertisement, marketing and promotion
of the Retained Clubs, and (B) the advertisement, marketing, promotion and sale
of products and other merchandise bearing any of the Trademarks in compliance
with Section 5.3(a)(iii) of the Asset Purchase Agreement, and (ii) the Retained
Assets (other than the Registered Trademarks, except as otherwise provided in
Section 1.2(a)(ii) or Section 1.2(c) hereof) (A) as permitted by Section
5.3(a)(iv) of the Asset Purchase Agreement, and (B) upon expiration of the
Non-Compete Period.
(c) Notwithstanding the provisions of Section 1.1(c), if Buyer abandons the
use of the Name and Logo in connection with the operation of a majority of the
Acquired Clubs which used the Name and Logo as of the date hereof, then (i)
during the Non-Compete Period, Sellers may use the Registered Trademarks (in
addition to the other Retained Assets) within Buyer's Territory in connection
with the activities of Sellers permitted under Section 5.3(a)(iv) of the Asset
Purchase Agreement from and after the first anniversary of the date on which
Buyer first abandoned the use of the Name and Logo in connection with the
operation of a majority of the Acquired Clubs which used the Name and Logo as of
the date hereof, and (ii) after the expiration of the Non-Compete Period,
Sellers may use, or license to any other Person the right to use, the Registered
Trademarks (in addition to the other Retained Assets) within Buyer's Territory
in any manner whatsoever on (or, if abandonment occurs prior to five years after
the date of this Agreement, from and after the first anniversary of) the date on
which Buyer first abandoned the use of the Name and Logo in connection with the
operation of a majority of the Acquired Clubs which used the Name and Logo as of
the date hereof. The parties acknowledge and agree that as of the date hereof
the Reebok Club is not using the Name and Logo. As used herein, Buyer shall be
deemed to have abandoned the Name and Logo for an Acquired Club if the Name and
Logo are not a primary means of identifying such Acquired Club.
Transition Services Agreement. For the sake of clarity, the "Services"
described and defined in the TSA, which shall be provided by Sellers to Buyer
until the Transition Dates set forth in Exhibit A to the TSA, and the physical
assets and information technology systems used to provide such Services other
than Sellers' MARS proprietary software system (the "MARS System"), shall not
constitute Retained Assets hereunder, except as otherwise may be agreed to by
SCC in its reasonable discretion. If SCC agrees that any such Services, or any
such physical assets or information technology systems used to deliver such
Services to Buyer, do constitute Retained Assets subject to the license set
forth herein, then Buyer and SCC will supplement Schedule 2 hereto accordingly,
and Buyer's license rights shall attach to such Retained Assets from and after
the date of SCC's consent to have same treated as Retained Assets hereunder.
Online Access to MARS System; Source Code for MARS System, Easy Batch
System and Fitness Data Base System. In the event that Buyer, at least 60 days
prior to the Transition Date (as defined in the TSA) for Buyer's use of the MARS
System, notifies SCC that it would like to continue using the MARS System after
the Transition Date, and SCC and Buyer are able to agree on terms for such use,
then the license granted to Buyer pursuant to Section 1.1 shall include online
access to and use of the MARS system, including Sellers' proprietary software
hosted on one or more servers maintained by Sellers or a third party designee,
by an unlimited number of Buyer's or its Affiliates' personnel solely in
connection with the operation of Buyer's Clubs. The MARS System may not be
resold, leased, sublicensed or distributed, accessed or used for any other
purpose by Buyer, other than by or to an Affiliate of Buyer, without SCC's prior
written approval. Prior to the Transition Date for use of the MARS System, Buyer
shall not, and shall not permit any third party to, use the MARS System for any
timesharing service, service bureau or network or otherwise for revenue
generating purposes. Until such time as Sellers deliver the MARS System source
code to Buyer pursuant to this Section 1.4, Buyer shall not, and shall not
permit any third party to, (a) attempt to decompile, disassemble, or otherwise
reverse engineer or attempt to reconstruct or discover any source code or
underlying ideas or algorithms of any portions of the MARS System, except to the
extent permitted by applicable law or (b) attempt to modify or alter any portion
of the MARS System. Notwithstanding anything herein to the contrary, Buyer
acknowledges and agrees that its use of the MARS System shall only be with
respect to Buyer's Clubs, and Sellers shall continue to have the right to use
the MARS System in connection with Sellers' ownership, operation and management
of the Retained Clubs, and any other sports and fitness facilities which it may
operate or manage after the date hereof which are located in Sellers' Territory
or in Buyer's Territory, to the extent permitted by Section 5.3(a) of the Asset
Purchase Agreement or Section 1.2 hereof (collectively, "Sellers' Clubs").
Sellers shall, upon written request by Buyer, promptly provide Buyer with the
MARS System, Easy Batch System and/or Fitness Data Base System source code, and
Buyer's license rights shall attach to such source code from and after the date
of its delivery by Sellers. Subject to all of the terms and conditions of this
Agreement, Buyer shall have the right to update, modify, and adapt to a new
system the MARS System, Easy Batch System and/or Fitness Data Base System (such
modifications by Buyer being referred to herein as "Buyer's Modifications").
Sale of Buyer's Clubs. Buyer may transfer, convey and assign to any
Person that acquires all or substantially all of the assets of any of Buyer's
Clubs (the "Acquirer"), whether such acquisition is effected through a stock
sale, sale of assets or other combination or arrangement ("Sold Club"), the
right to use and exploit the license granted hereby in the Retained Assets,
excluding the THE SPORTS CLUB/LA, THE SPORTS CLUB/LA and design, PRIVATE TRAINER
SYSTEM (Stylized), PRIVATE TRAINER SYSTEM PTS & Design, PTS, PTS PRIVATE TRAINER
SYSTEM & Design and FOR KIDS ONLY & Design trademarks (collectively, the "Sports
Club Trademarks") and the rights granted in the Sports Club Trademarks shall
immediately revert to Sellers solely in connection with the management,
operation and promotion of the Sold Club; provided that the Acquirer agrees in
writing to assume all of Buyer's obligations and restrictions hereunder with
respect to Buyer's license relating to the Retained Assets in connection with
the Acquirer's management, operation and promotion of the Sold Club, and all of
the Sports Club Trademarks are removed from all tangible manifestations of same
in or at such Sold Club and all marketing and promotional materials and
campaigns relating to such Sold Clubs as set forth below. Although use of the
Sports Club Trademarks by the Acquirer shall cease immediately, Buyer and the
Acquirer shall have a period of ninety (90) days following consummation of the
sale of such Sold Club in which to remove all signage displaying any of the
Sports Club Trademarks at such Sold Club and cease all use of any marketing and
promotional materials or campaigns displaying any Sports Club Trademark at such
Sold Club. Buyer's license shall remain in effect in accordance with this
Agreement with respect to (a) the portion of the Sold Club, if any, retained by
Buyer and (b) the operation of the remaining Buyer's Clubs.
Closure of a Club. In the event of the closure of any Buyer's Club,
Buyer shall, at its sole expense, immediately (a) notify SCC of the closure; and
(b) promptly remove all exterior building signs displaying any of the Sports
Club Trademarks.
License Limitations. Notwithstanding the license granted in Section
1.1 hereof, Buyer agrees and acknowledges that Sellers shall have no obligation
to (a) update any of the Retained Assets (or any enhancements or proprietary
information derived therefrom), (b) develop any new proprietary information,
trademarks, software or other tangible or intangible property, or (c) provide to
Buyer any intellectual property, unrelated to any of the Retained Assets, that
is developed or acquired by Sellers after the Closing Date (except as expressly
provided in the TSA and except for the MARS System, Easy Batch System and
Fitness Data Base System source code as provided in Section 1.4).
Use of Trademarks.
Use Restrictions. Buyer shall not (a) identify itself as the owner of
any of the Trademarks or any right or interest therein or any registration or
application for registration thereof, except as a licensee, (b) adopt, use or
register any corporate name, trade name, fictitious business name, trademark,
domain name, service mark or certification mark or other designation which
infringes any Trademark, (c) combine any of the Trademarks, or use any of the
Trademarks in close proximity, with any other trademark so as to effectively
create a composite trademark, (d) apply for the registration anywhere in the
world of any trademark or domain name which is the same as or confusingly
similar to any of the Trademarks, (e) modify or use any of the Trademarks in any
manner which reasonably would be expected to tarnish, dilute, weaken or impair
any of Sellers' rights or interest in the Trademarks.
Use Requirements; Approval. Buyer acknowledges that Sellers have
established significant goodwill with respect to the Trademarks and, therefore,
it is of great importance to maintain the high standards and reputation
associated with the Trademarks. Buyer's actions shall at all times reflect
favorably on the Trademarks. Accordingly, Buyer agrees that its use of the
Registered Trademarks shall at all times be in full compliance with Sellers'
Trademark Style Guide, a copy of which is attached hereto as Exhibit A
("Trademark Style Guide"). Buyer shall comply with all updates by Sellers of the
Trademark Style Guide to the extent an update does not materially increase
Buyer's obligations with respect to the Registered Trademarks or materially
interfere with the operation of Buyer's Clubs. Sellers shall have the right to
visit Buyer's Clubs at any time, in an unobtrusive manner, to ensure Buyer's
compliance with its obligations under this Section 2.2. In addition, any use of
the Registered Trademarks in advertising copy or content or otherwise that is
not in complete compliance with the Trademark Style Guide shall be subject to
SCC's prior approval; provided, however, that any use that is consistent with
Sellers' historical usage shall not require SCC's approval. If SCC fails to
notify Buyer of approval or disapproval of any submission within ten (10)
business days following SCC's receipt of the request for approval, Buyer's
submission shall be deemed to have been approved. For the sake of clarity, the
sole purpose of SCC's approval is to ensure proper use of the Registered
Trademarks, and not to control the marketing plans and initiatives of Buyer.
Buyer shall (i) cause the "(R)" symbol to appear in close proximity to the first
prominent display in a publication of each Registered Trademark, and (ii) cause
the "TM" or "SM," as the case may be, to appear in close proximity to the first
prominent display in a publication of each Trademark that is not registered in
the United States.
Website Services. Sellers shall modify and update portions of The
Sports Club/LA website pertaining to Buyer's Clubs, as Buyer may
reasonably request from time to time, in accordance with the terms of a
Website Services Agreement to be entered into by SCC and Buyer as of
the date hereof.
Confidential Information. Each party hereto understands and
acknowledges that it may have access to information concerning the
other parties that is confidential or proprietary including, without
limitation, information about such party's business and marketing
plans, sales volumes, pricing, customers and suppliers ("Confidential
Information"). For the avoidance of doubt, the Proprietary Information
and all source code of the MARS System, Easy Batch System and Fitness
Data Base System shall be deemed Sellers' Confidential Information.
Each party hereto (the "Receiving Party") shall maintain such
Confidential Information disclosed by any other party hereto (the
"Disclosing Party") in strict confidence during the Term and for a
period of not less than five (5) years following the expiration or
termination of this Agreement. The Receiving Party shall not directly
or indirectly disclose to any third party or make any use of the
Disclosing Party's Proprietary Information, except as may be necessary
for the Receiving Party to operate its sports or fitness facilities,
subject to the restrictions and limitations on use of the Retained
Assets set forth herein, to perform its obligations hereunder or, in
the case of Buyer, with respect to the source code for the MARS System,
Easy Batch System and/or Fitness Data Base System, to develop and
operate its own system based on such source code. The foregoing
obligations and restrictions shall not apply to any information that
(a) is or becomes public knowledge through no fault or action of the
Receiving Party, (b) was known to the Receiving Party prior to its
receipt from the Disclosing Party or (c) becomes known to the Receiving
Party without confidentiality restrictions from a third party other
than the Disclosing Party.
Ownership.
Ownership by Sellers. Buyer acknowledges that, as between the parties,
the Retained Assets, including any and all modifications, improvements,
enhancements and derivative works thereof (excluding Buyer's Modifications), and
all intellectual property and proprietary rights anywhere in the world related
thereto, is and shall be owned solely and exclusively by Sellers. Should Buyer
acquire any rights, other than the rights expressly granted hereunder, in the
Retained Assets or any modifications, improvements, enhancements or derivative
works thereof (excluding Buyer's Modifications), Buyer agrees to assign, and
does hereby irrevocably assign, to Sellers all right, title and interest
acquired in such Retained Assets or modifications, improvements, enhancements or
derivative works thereof. Buyer agrees that it will not attack or contest the
validity of Sellers' ownership of any of the Retained Assets, except to the
minimum extent necessary in connection with Buyer's assertion of any claim
arising out of the Asset Purchase Agreement concerning Buyer's ownership of any
of the Purchased Assets. All use of the Trademarks by Buyer shall inure to
Sellers' benefit. Subject to (a) the rights expressly granted to Buyer
hereunder, and (b) the limitations set forth in Sections 1.1(c) and 1.2 hereof,
Sellers reserve all rights in the Retained Assets not expressly granted to Buyer
hereunder and Sellers shall have the right to use and exploit the Retained
Assets in any manner whatsoever unless such use or exploitation would result in
a violation of Section 5.3(a) of the Asset Purchase Agreement. In connection
with any direct or indirect sale, transfer or conveyance by Sellers of all or
any portion of the Retained Assets to any Person, Sellers shall obtain the
written acknowledgment from such Person that such Person agrees to be bound by
all of the terms and provisions of this Agreement with respect to such Retained
Assets. Any failure to obtain such acknowledgement shall render such sale,
transfer or conveyance null and void.
Further Assurances. Upon SCC's request during the term of this
Agreement or anytime thereafter, Buyer agrees to assist Sellers in their efforts
to evidence, record and perfect the assignment of rights pursuant to Section
5.1, to apply for and prosecute additional registrations for the Registered
Trademarks in any country and to record or cancel the recording of the foregoing
assignment or of this Agreement including, without limitation, providing
information, preparing and making affidavits and executing documents.
Ownership by Buyer. Sellers acknowledge that, as between the parties,
Buyer's Modifications, and all intellectual property and proprietary rights
anywhere in the world related thereto, are and shall be owned solely and
exclusively by Buyer.
Third Party Infringement. Buyer shall promptly notify SCC of any
infringement of the Retained Assets of which Buyer becomes aware.
Initially, Sellers shall have the exclusive right, but not the
obligation, to take any action including instituting legal action or
taking other actions which it deems necessary in its sole and absolute
discretion to protect its interest in the Retained Assets. Buyer shall
cooperate with and assist Sellers in any such action and Sellers shall
reimburse Buyer for any reasonable out-of-pocket expenses it incurs.
Sellers shall be entitled to retain all amounts that they may be
awarded in any such action. In the event that Buyer notifies SCC of
actual or threatened infringement of any of the Retained Assets, and
SCC indicates in writing that they do not intend to take any action
against such infringement, or Sellers fail to initiate action within
thirty (30) days after receipt of such notice, Buyer shall have the
right to initiate its own action and retain all amounts awarded in any
such action, unless SCC indicates in writing to Buyer that in the
exercise of its reasonable business judgment it does not wish Buyer to
take any such action, and Sellers have provided Buyer with written
justification of their position, in which event no such action can be
taken.
New Trademarks; Abandoned Trademarks. Buyer acknowledges that
Sellers will continue to use, enhance, modify and exploit the Retained
Assets, or substantially similar intellectual property, including,
without limitation, in connection with the operation of the Retained
Clubs and Sellers' Clubs under "The Sports Club/LA" name and Trademarks
after the Closing Date. Nothing in this Agreement or otherwise shall
limit or restrict Sellers from creating and adopting new trademarks or
service marks. Buyer shall have sole responsibility for any and all
costs it incurs in adopting any new version of the Name and Logo that
Sellers may adopt from time to time (each, a "New Sports Club
Trademark"). If Buyer refuses to adopt, within a reasonable period of
time, any New Sports Club Trademark, Sellers may terminate Buyer's
license to use the Name and Logo pursuant to Section 10.2. Buyer's
license hereunder, subject to all of the restrictions and limitations
set forth herein, shall include use of all New Sports Club Trademarks
in connection with the operation of Buyer's Clubs. Sellers will notify
Buyer in advance of their intention to cease the prosecution of any
registration application, or not to renew any registration, of any of
the Trademarks (an "Abandoned Trademark"). Buyer shall have the right
to continue its use of an Abandoned Trademark in accordance with the
terms of this Agreement. Upon Buyer's request, Sellers will assign
their rights in the Abandoned Trademark to Buyer, without any
representation or warranty. Notwithstanding any provision to the
contrary herein, once Sellers provide Buyer with notice that (a)
Sellers no longer intend to use a Trademark, or (b) Sellers will cease
prosecution of any registration application or will not renew
registration of a Trademark, from the date of such notice any use by
Buyer of such Trademark or Abandoned Trademark shall be without any
representations or warranties, and Sellers will have no liability or
obligations owing to Buyer with respect thereto (including any
indemnity obligations under Section 9.2 hereof).
Representations and Warranties; Disclaimer.
Necessary Trademarks. Sellers represent and warrant that the
Registered Trademarks constitute all of the trademarks registered with the
United States Patent and Trademark Office that are used by Sellers to conduct
and operate the Acquired Business as of the date hereof.
Warranty Disclaimer. EXCEPT AS EXPRESSLY PROVIDED IN THE ASSET
PURCHASE AGREEMENT, THE RETAINED ASSETS, AND BUYER'S LICENSE THEREIN, ARE
PROVIDED TO BUYER "AS IS" WITHOUT WARRANTIES OF ANY KIND, AND SELLERS DISCLAIM
ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT.
Indemnification.
Buyer's Indemnification. Buyer shall defend, indemnify and hold
Sellers, their Affiliates and their respective officers, directors,
stockholders, employees, agents, successors and assigns harmless from and
against any and all third party demands, claims, liabilities, suits and
proceedings ("Claims") and resulting damages, losses, judgments and settlements
and all related costs and expenses including, but not limited to, reasonable
attorneys' fees and court costs, arising directly or indirectly from or in
connection with the management, operation and promotion of any of Buyer's Clubs
after the Closing Date (other than any Claim of infringement of third party
intellectual property rights arising from Buyer's licensed use of the Retained
Assets).
Sellers' Indemnification. Sellers shall defend, indemnify and hold
Buyer, its Affiliates and their respective officers, directors, stockholders,
employees, agents, successors and assigns harmless from and against any and all
Claims and resulting damages, losses, judgments and settlements and all related
costs and expenses including, but not limited to, reasonable attorneys' fees and
court costs to the extent caused by infringement of any third party's
intellectual property rights by (a) any of the Registered Trademarks or (b) any
of the Retained Assets other than the Trademarks.
Indemnification Procedures.
(a) In order for a party hereto (the "Indemnified Party") to be entitled to any
indemnification provided for under this Agreement in respect of, arising out of
or involving a Claim, such Indemnified Party shall deliver written notice
thereof to the party against whom indemnity is sought (the "Indemnifying Party")
with reasonable promptness after receipt by such Indemnified Party of written
notice of the Claim and shall provide the Indemnifying Party with such
information with respect thereto as the Indemnifying Party may reasonably
request. The failure to provide such written notice, however, shall not release
the Indemnifying Party from any of its obligations under this Section 9 except
to the extent that the Indemnifying Party is materially prejudiced by such
failure and shall not relieve the Indemnifying Party from any other obligation
or liability that it may have to the Indemnified Party pursuant to this Section
9.
(b) If the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party against a Claim pursuant to the terms of this
Agreement, the Indemnifying Party shall have the right, upon written notice to
the Indemnified Party within fifteen (15) days of receipt of notice from the
Indemnified Party of the commencement of such Claim, to assume the defense
thereof at the expense of the Indemnifying Party (which expenses shall not be
applied against any indemnity limitation herein) with counsel selected by the
Indemnifying Party and satisfactory to the Indemnified Party. The Indemnifying
Party shall be liable for the fees and expenses of counsel employed by the
Indemnified Party for any period during which the Indemnifying Party has failed
to assume the defense thereof. If the Indemnifying Party does not expressly
elect to assume the defense of such Claim within the time period and otherwise
in accordance with the first sentence of this Section 9.3(b), the Indemnified
Party shall have the sole right to assume the defense of and to settle such
Claim. If the Indemnifying Party assumes the defense of such Claim, the
Indemnified Party shall have the right to employ separate counsel and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
Indemnifying Party or (ii) the named parties to the Claim (including any
impleaded parties) include both the Indemnified Party and the Indemnifying
Party, and the Indemnified Party reasonably determines that representation by
counsel to the Indemnifying Party of both the Indemnifying Party and such
Indemnified Party may present such counsel with a conflict of interest. If the
Indemnifying Party assumes the defense of any Claim, the Indemnified Party
shall, at the Indemnifying Party's expense, cooperate with the Indemnifying
Party in such defense and make available to the Indemnifying Party all
witnesses, pertinent records, materials and information in the Indemnified
Party's possession or under the Indemnified Party's control relating thereto as
is reasonably required by the Indemnifying Party. If the Indemnifying Party
assumes the defense of any Claim, (1) the Indemnifying Party shall not admit any
liability with respect to, or settle, compromise or discharge, or offer to
compromise, settle or discharge, such Claim without the Indemnified Party's
prior written consent and (2) the Indemnified Party shall consent to any
settlement, compromise or discharge of a Claim that the Indemnifying Party may
recommend and that by its terms requires that the Indemnifying Party pay the
full amount of the liability in connection therewith, that otherwise releases
the Indemnified Party completely and with prejudice in connection with such
Claim and that would not otherwise adversely affect the Indemnified Party.
Term and Termination.
Term. The term of this Agreement shall commence on the date on which
the transactions contemplated in the Asset Purchase Agreement are consummated
(the "Closing Date") and shall continue in effect indefinitely thereafter,
except to the extent of a termination of Buyer's license to use the Registered
Trademarks in accordance with Section 10.2.
Termination of the License to Use the Registered Trademarks. Sellers
shall have the right to terminate Buyer's license of the Registered Trademarks
upon thirty (30) days' prior written notice in the event Buyer refuses or fails
to adopt a New Sports Club Trademark within a reasonable period of time. Buyer
shall have the right to terminate its license to use the Registered Trademarks
at any time upon written notice to Sellers. In addition, Sellers shall have the
right to terminate Buyer's license of the Registered Trademarks granted
hereunder immediately in the event (a) of any material breach or default by
Buyer in the performance of any of its obligations under this Agreement, which
is not fully cured within thirty (30) days after SCC's written notice to Buyer
describing the breach or default, (b) Buyer seeks protection under any
bankruptcy, receivership, trust deed, creditors arrangement, composition or
comparable proceeding, or if any such proceeding is instituted against Buyer and
is not dismissed within sixty (60) days, (c) Buyer has a custodian, trustee or
receiver appointed for it and such appointment is not discharged within thirty
(30) days, (d) Buyer is declared insolvent, (e) Buyer makes an assignment for
the benefit of creditors or (f) Buyer transfers to any Person other than an
Affiliate, whether through a sale, merger or otherwise, (i) more than fifty
percent (50%) of its voting stock or other securities or rights entitled to vote
for the election of directors or other governing body or (ii) all or
substantially all of its assets.
Effect of Termination of the License of the Registered Trademarks.
Upon any termination of Buyer's license of the Registered Trademarks granted
hereunder pursuant to Section 10.2, Buyer shall use its commercially reasonable
efforts to promptly adopt new trademarks for use in connection with the
operation of Buyer's Clubs and, following a ninety (90)-day transition period,
(a) all rights in the Registered Trademarks granted to Buyer hereunder shall
cease and automatically revert to Sellers and (b) Buyer shall cease all use of
the Registered Trademarks and shall remove all exterior building signs
displaying any of the Registered Trademarks. Any termination of Buyer's license
of the Registered Trademarks shall not affect any of Sellers' or Buyer's other
rights or obligations under this Agreement.
Exclusion of Consequential Damages. NOTWITHSTANDING ANYTHING ELSE
IN THIS AGREEMENT OR OTHERWISE, NEITHER SELLERS NOR BUYER WILL BE
LIABLE WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
THEORY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES
OR LOST PROFITS.
Miscellaneous.
Assignment. Except as provided in Section 1.1 or 1.5, neither this
Agreement nor any of the rights or obligations hereunder may be assigned by
Buyer, except (a) to any Affiliate of Buyer, (b) any Person providing financing
to Buyer or an Affiliate of Buyer, which Person requires this Agreement to be
pledged as security for such financing, or (c) with SCC's prior written consent,
which may be withheld in SCC's sole discretion (a "Permitted Assignee"). Each
party hereto agrees that it shall cause any Permitted Assignee (other than a
Permitted Assignee pursuant to clause (b) above) to become bound by the terms
hereof for the benefit of the other parties hereto as a condition precedent to
such assignment. Any unauthorized assignment or transfer, or any purported
assignment which does not comply with this Section 12.1, shall be null and void.
Governing Law. This Agreement and all disputes or controversies
arising out of or relating to this Agreement or the transactions contemplated
hereby shall be governed by, and construed in accordance with, the internal laws
of the State of New York, without regard to the laws of any other jurisdiction
that might be applied because of the conflicts of laws principles of the State
of New York other than Section 5-1401 of the New York General Obligations Law.
Submission to Jurisdiction. Each of the parties hereto irrevocably
agrees that any legal action or proceeding arising out of or relating to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other parties hereto or their respective successors or assigns
may be brought and determined in any Delaware State or federal court sitting in
Wilmington, Delaware (or, if such court lacks subject matter jurisdiction, in
any appropriate Delaware State or federal court), and each of the parties hereby
irrevocably submits to the jurisdiction of the aforesaid courts for itself and
with respect to its property, generally and unconditionally, with regard to any
such action or proceeding arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any action, suit or
proceeding relating thereto except in such courts). Each of the parties hereto
further agrees to accept service of process in any manner permitted by such
courts. Each of the parties hereto hereby irrevocably and unconditionally
waives, and agrees not to assert, by way of motion or as a defense, counterclaim
or otherwise, in any action or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure lawfully to serve process, (b) that it or its property is
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise) and (c) to the fullest extent permitted by law, that (i) the suit,
action or proceeding in any such court is brought in an inconvenient forum, (ii)
the venue of such suit, action or proceeding is improper or (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
No Third-Party Beneficiaries. Except as otherwise provided in Section
9 hereof, this Agreement shall be binding upon and inure solely to the benefit
of the parties hereto and their respective successors and assigns, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other Person any legal or equitable right, benefit or remedy of any nature under
or by reason of this Agreement.
Enforcement. The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
Accordingly, each of the parties hereto shall be entitled to specific
performance of the terms hereof, including an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any Delaware State or federal court sitting in
Wilmington, Delaware (or, if such court lacks subject matter jurisdiction, in
any appropriate Delaware State or federal court), this being in addition to any
other remedy to which they are entitled at law or in equity. Each of the parties
hereto further hereby waives (a) any defense in any action for specific
performance that a remedy at law would be adequate and (b) any requirement under
any law to post security as a prerequisite to obtaining equitable relief.
Facsimile Signatures. This Agreement may be executed by facsimile
signature and a facsimile signature shall constitute an original for all
purposes.
Successors and Assigns. Except as otherwise provided herein, the terms
and conditions of this Agreement shall inure to the benefit of, be binding upon
and be enforceable by the respective permitted successors and assigns of the
parties hereto.
Force Majeure. No party hereto shall be liable for failure or delay in
performance of its obligations under this Agreement to the extent such failure
or delay is caused by an act of God, act of a public enemy, war or national
emergency, rebellion, insurrection, riot, epidemic, quarantine restriction,
fire, flood, explosion, storm, earthquake, interruption in the supply of
electricity, power, or energy, or other catastrophe, terrorist attack, labor
dispute or disruption, or other event beyond the reasonable control of such
party. If a party's performance under this Agreement is affected by a force
majeure event, such party shall give prompt written notice of such event to the
other Party and shall at all times use its commercially reasonable efforts to
mitigate the impact of the force majeure event on its performance under this
Agreement. In the event of a force majeure event as described in this Section
12.8 that affects a party's ability to perform under this Agreement, the parties
agree to cooperate in good faith in order to resume the affected services or
otherwise comply with this Agreement as soon as commercially possible to the
extent commercially reasonable.
Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or if by facsimile, upon written confirmation of receipt by
facsimile, e-mail or otherwise, (b) on the first Business Day following the date
of dispatch if delivered by a recognized next-day courier service or (c) on the
earlier of confirmed receipt or the fifth Business Day following the date of
mailing if delivered by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered to the addresses set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
If to Sports Club:
The Sports Club Company, Inc.
11100 Santa Monica Boulevard, Suite 300
Los Angeles, CA 90025
Attention: Tim O'Brien
Facsimile: (310) 479-5740
with a copy (which shall not constitute notice) to:
Greenberg Glusker Fields Claman Machtinger & Kinsella LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, CA 90067
Attention: Ronald K. Fujikawa, Esq.
Facsimile: (310) 201-2300
If to Millennium:
Millennium Development Partners VIII LLC
c/o Millennium Partners
1995 Broadway, 3rd Floor
New York, New York 10023
Attention: Chief Financial Officer
Facsimile: (212) 595-1831
with a copy (which shall not constitute notice) to:
Paul, Hastings, Janofsky & Walker LLP
75 East 55th Street
New York, NY 10022
Attention: Jeffrey J. Pellegrino
Facsimile: (212) 319-4090
Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
Entire Agreement; Amendments. This Agreement and the other agreements
and instruments delivered in connection with the Asset Purchase Agreement
constitute the entire agreement, and supersede all prior written agreements,
arrangements, communications and understandings and all prior and
contemporaneous oral agreements, arrangements, communications and understandings
among the parties hereto with respect to the subject matter of this Agreement.
Notwithstanding any oral agreement of the parties hereto or their
representatives to the contrary, no party hereto shall be under any legal
obligation to enter into or complete the transactions contemplated hereby unless
and until this Agreement shall have been executed and delivered by each of the
parties hereto. This Agreement cannot be modified, amended or supplemented
except by a written agreement executed by SCC and Buyer.
Captions. All section titles or captions contained in this Agreement
are for convenience only and shall not be deemed a part of this Agreement or
affect the meaning or interpretation of this Agreement. Unless otherwise
specified, all references herein to numbered sections are to sections of this
Agreement.
Severability. Whenever possible, each provision or portion of any
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Waiver. No failure or delay of a party in exercising any right or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such right or power, or any course of
conduct, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the parties hereunder are
cumulative and are not exclusive of any rights or remedies which they would
otherwise have hereunder. Any agreement on the part of a party to any such
waiver shall be valid only if set forth in a written instrument executed and
delivered by a duly authorized officer on behalf of such party.
No Agency. Nothing in this Agreement shall constitute or be deemed to
constitute a partnership or joint venture between the parties hereto or
constitute or be deemed to constitute any party the agent or employee of any
other party for any purpose whatsoever and no party shall have authority or
power to bind the other or to contract in the name of, or create a liability
against, any other in any way or for any purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized, all as of the
day and year first above written.
THE SPORTS CLUB COMPANY, INC. MILLENNIUM DEVELOPMENT PARTNERS VIII LLC
By:
-----------------------------------
By: Name:
---------------------------------- ----------------------------------
Name: Title:
---------------------------- ----------------------------------
Title:
----------------------------
[SUBSIDIARY #1]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
14
SCHEDULE 1
REGISTERED TRADEMARKS
Mark U.S. Registration No./Serial No.
- ---- --------------------------------
1/2 MUSH, 1/2 MUSIC 2529281
BODYART 2511097
Design Of A Flying Lady 2239483; 2492323; 2152237; 2747640
FOR KIDS ONLY & Design 2696108
PRIVATE TRAINER SYSTEM (Stylized) 2254434
PRIVATE TRAINER SYSTEM PTS & Design 2254433
PTS 2261607
PTS PRIVATE TRAINER SYSTEM & Design 2779850
REV 2507933
THE LOOP 78/565348
THE LOOP (Stylized) 78/565352
THE SPORTS CLUB/LA 2616150
THE SPORTS CLUB/LA and Design 2796508; 1727704; 1543906
FITLAB 2747640
======
15
SCHEDULE 2
----------
RETAINED ASSETS
MARS System (in accordance with Sections 1.3 and 1.4 hereof)
"PTS" private training and nutrition system
Website designated by the URL, and any successor sites
Proprietary Information
Trademarks
Easy Batch System
Fitness Data Base System
Any other intellectual property, facilities or systems which SCC agrees
constitute Retained
Assets hereunder
16
EXHIBIT A
---------
THE SPORTS CLUB/LA TRADEMARK STYLE GUIDE
[to be provided]
17
EXHIBIT 99.6
PROMISSORY NOTE
---------------
$_______________ _______, 2005
FOR VALUE RECEIVED, and intending to be legally bound hereby,
Millennium Development Partners VIII LLC, a Delaware limited liability company
(the "Borrower"), promises to pay to the order of The Sports Club Company, Inc.,
a Delaware corporation, or its successors or assigns as holders of this Note
(the "Holder"), the principal amount of _________________ DOLLARS
($_____________) (the "Principal Amount"), together with interest thereon from
the date set forth above, on or before the seventh anniversary of the date of
this Note (the "Maturity Date"). The Principal Amount shall bear interest until
such Principal Amount is paid at a rate of nine percent (9.0%) per annum (the
"Interest Rate"). The Interest Rate shall be calculated annually for the actual
days elapsed on the basis of a 360-day year from the date hereof. Such interest
shall accrue and shall be payable on the Maturity Date. This Note is (a) secured
by collateral pledged by MDP Ventures II LLC, a Delaware limited liability
company and an affiliate of the Borrower (the "Pledgor"), to the Holder pursuant
to the terms of a Pledge Agreement dated of even date herewith (the "Pledge
Agreement"), and (b) guaranteed by the Pledgor pursuant to the terms of a
Guaranty dated of even date herewith (the "Guaranty"). If any payment under this
Note is not made when due, then such payment shall bear interest at a per annum
rate from the due date thereof until paid at the lesser of (i) ten percent (10%)
or (ii) the maximum rate of interest then permitted by applicable law.
The Borrower may, at its option, prepay at any time all or any portion
of the Principal Amount without penalty or premium upon prior written notice to
the Holder; provided, however, that any such prepayment shall be applied as
follows (i) first, to any costs and expenses due to the Holder hereunder, (ii)
second, to any accrued and unpaid interest hereunder through the date of such
repayment, and (iii) third, to the Principal Amount outstanding hereunder.
If the Holder repurchases or redeems any shares of its Series C
Convertible Preferred Stock, par value $.01 per share, or Series D Convertible
Preferred Stock, par value $.01 per share, held by the Pledgor, the Borrower
shall be required to prepay a portion of the Principal Amount equal to the
amount of proceeds received by the Pledgor from such repurchase or redemption.
Any such prepayment shall be made by the Borrower within ten (10) days after the
Pledgor receives such proceeds from the Holder.
Repayments of the Principal Amount and any interest thereon shall be
made at the offices of the Holder at 11100 Santa Monica Boulevard, Suite 300,
Los Angeles, California 90025.
The occurrence of one or more of the following events shall constitute
an Event of Default hereunder: (a) the Borrower fails to make any payment due to
the Holder under this Note when and as the same shall become due and payable
whether upon acceleration, at maturity or otherwise, (b) the Pledgor defaults
under any of its material obligations under the Pledge Agreement or the Guaranty
(after the expiration of any applicable cure periods), or (c) if the Borrower
becomes insolvent, bankrupt or generally fails to pay its debts as such debts
become due; is adjudicated insolvent or bankrupt; or admits in writing its
inability to pay his debts.
Upon the occurrence of an Event of Default, the entire unpaid Principal
Amount plus any and all interest accrued thereon plus all other sums due and
payable to the Holder hereunder shall become due and payable immediately without
presentment, demand, notice of nonpayment, protest, notice of protest, or other
notice of dishonor, all of which are hereby expressly waived by the Borrower.
In the event that the Holder exercises any right, power or remedy
reasonably necessary to enforce this Note, the Borrower agrees to pay all of the
Holder's reasonable fees, including attorney's fees, costs and expenses as
incurred, whether or not an action is filed in connection therewith.
Each right, power and remedy of the Holder hereunder, under applicable
laws or otherwise shall be cumulative and concurrent, and the exercise of any
one or more of them shall not preclude the simultaneous or later exercise by the
Holder of any or all such other rights, powers or remedies. By accepting full or
partial payment after the due date of any amount of principal on this Note, the
Holder shall not be deemed to have waived the right either to require payment
when due and payable of all other amounts of principal of or interest on this
Note or to exercise any rights and remedies available to it in order to collect
all such other amounts due and payable under this Note.
No modification, change, waiver or amendment of this Note shall be
deemed to be made unless such waiver is evidenced by a writing signed by the
Holder, and each such waiver, if any, shall apply only with respect to the
specific instance involved. In the event that any provision of this Note is held
to be invalid, illegal or unenforceable in any respect or to any extent, such
provision shall nevertheless remain valid, legal and enforceable in all such
other respects and to such extent as may be permissible. Any such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Note, but this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
No provision of this Note, the Pledge Agreement or the Guaranty shall
alter or impair the obligation of the Borrower, which is absolute and
unconditional, to pay the Principal Amount and any accrued interest thereon at
the place and time and in the currency prescribed in this Note. The Borrower
agrees that to the extent the Borrower makes any payment to the Holder in
connection with the indebtedness evidenced by this Note, and all or any part of
such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid by the Holder or paid over to a
trustee, receiver or any other entity whether under any bankruptcy act or
otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then the indebtedness of the Borrower under this Note shall continue
or be reinstated, as the case may be, and, to the extent of such payment or
repayment by the Borrower, the indebtedness evidenced by this Note or part
thereof intended to be satisfied by such Preferential Payment shall be revived
and continued in full force and effect as if such Preferential Payment had not
been made.
In the event of the loss, theft or destruction of this Note, upon the
Borrower's receipt of a reasonably satisfactory indemnification agreement
executed in favor of the Borrower by the Holder, or in the event of the
mutilation of this Note, upon the Holder's surrender to the Borrower of the
mutilated Note, the Borrower will execute and deliver to the Holder a new
promissory note in form and substance identical to this Note in lieu of the
lost, stolen, destroyed or mutilated Note.
This Note and all disputes or controversies arising out of or relating
to this Note shall be governed by, and construed in accordance with, the
internal laws of the State of New York, without regard to the laws of any other
jurisdiction that might be applied because of the conflicts of laws principles
of the State of New York other than Section 5-1401 of the New York General
Obligations Law.
Each of the parties irrevocably agrees that any legal action or
proceeding arising out of or relating to this Note or for recognition and
enforcement of any judgment in respect hereof brought by the other party or its
successors or assigns may be brought and determined in any Delaware State or
federal court sitting in Wilmington, Delaware (or, if such court lacks subject
matter jurisdiction, in any appropriate Delaware State or federal court), and
each of the parties hereby irrevocably submits to the jurisdiction of the
aforesaid courts for itself and with respect to its property, generally and
unconditionally, with regard to any such action or proceeding arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any action, suit or proceeding relating thereto except in such
courts). Each of the parties further agrees to accept service of process in any
manner permitted by such courts. Each of the parties hereby irrevocably and
unconditionally waives, and agrees not to assert, by way of motion or as a
defense, counterclaim or otherwise, in any action or proceeding arising out of
or relating to this Note, (a) any claim that it is not personally subject to the
jurisdiction of the above-named courts for any reason other than the failure
lawfully to serve process, (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise)
and (c) to the fullest extent permitted by law, that (i) the suit, action or
proceeding in any such court is brought in an inconvenient forum, (ii) the venue
of such suit, action or proceeding is improper or (iii) this Note, or the
subject matter hereof, may not be enforced in or by such courts.
IN WITNESS WHEREOF, the undersigned executes this Note the day and year
first above written.
MILLENNIUM DEVELOPMENT PARTNERS VIII LLC
By:
Name:
Title: