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EXHIBIT 10.76
THIS FIRST SUPPLEMENTAL AGREEMENT OF LEASE (this "AGREEMENT") made as of the
27th day of March, 2001, between CB-1 ENTERTAINMENT PARTNERS LP, a California
limited partnership, having an office c/o Millennium Partners, 1995 Broadway,
New York, New York 10023 ("LANDLORD"), and S.F. SPORTS CLUB, INC., a Delaware
corporation, having an office c/o SCC Sports Club, Inc., 11100 Santa Monica
Boulevard, Suite 300, Los Angeles, California 90025 ("TENANT").
WITNESSETH:
WHEREAS, pursuant to that certain Athletic Club Lease, dated as of June 1, 1997
(as the same has been or may hereafter be amended, the "LEASE") between Landlord
and Tenant, Landlord leased to Tenant and Tenant hired from Landlord certain
premises to be located in the Building (as defined in the Lease), such premises
being shown on the floor plans annexed to the Lease as EXHIBIT B; and
WHEREAS, Landlord and Tenant desire to amend and modify the Lease to provide for
(a) the deletion of a portion of the Premises (as defined in the Lease) located
on the second floor level of the Building as outlined on the hatched portion of
the floor plan annexed hereto as EXHIBIT A (the "DELETED SPACE"), and (b)
certain other modifications, all as more particularly set forth herein.
NOW, THEREFORE, in consideration of the agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
TERMS
Section 1.1. Except as otherwise defined herein, all terms used in this
Agreement shall have the meanings provided in the Lease.
ARTICLE 2
EFFECTIVE DATE OF AGREEMENT
Section 2.1. Subject to Sections 6.3, 15.9 and 15.14 hereof, this Agreement and
all of the terms, provisions and conditions hereof shall be effective as of the
date first written above (the "EFFECTIVE DATE").
ARTICLE 3
DELETION OF SPACE
Section 3.1. (a) Effective as of the Effective Date and for the entire remaining
term of the Lease, the Lease shall be modified such that the entire Deleted
Space shall be deemed deleted from the Premises.
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(b) (i) Effective as of the Effective Date, Tenant shall vacate, quit and
surrender possession of the entire Deleted Space in the manner set forth in this
Agreement to Landlord.
(ii) Tenant covenants, represents and warrants to Landlord that
(A) Tenant has not assigned, conveyed, encumbered, pledged or otherwise
transferred, in whole or in part, its interest in the Deleted Space or sublet
the Deleted Space, or any portion thereof, nor shall Tenant do any of the
foregoing prior to the Effective Date, (B) there are no persons or entities
claiming under Tenant, or who or which may claim under Tenant, any rights with
respect to the Deleted Space, nor shall Tenant permit any such claim to arise
prior to the Effective Date, and (C) Tenant has the right, power and authority
to execute and deliver this Agreement and to perform Tenant's obligations
hereunder and this Agreement is a valid and binding obligation of Tenant
enforceable against Tenant in accordance with the terms hereof. The foregoing
covenants, representations and warranties of Tenant shall survive the surrender
of the Deleted Space.
(iii) On or before the Effective Date, (A) the Deleted Space
shall be delivered to Landlord and Tenant shall quit and surrender to Landlord
the Deleted Space, and (B) no one other than Tenant has acquired or will acquire
through or under Tenant any right, title or interest in or to the Deleted Space,
or any part thereof, or in or to the alterations, decorations, installations,
additions and/or improvements thereof.
(iv) It is understood and agreed that if Tenant fails to
surrender the Deleted Space on or before the Effective Date, such failure shall
constitute a holdover, and such holdover by Tenant in the Deleted Space beyond
the Effective Date shall constitute a default hereunder and under the Lease and
Landlord shall have
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available to it all remedies provided in the Lease, at law or in equity with
respect to such holdover and Tenant shall be liable to and indemnify Landlord as
provided in the Lease. Notwithstanding anything to the contrary contained
herein, the foregoing shall not limit any attorneys' fees or costs, injunctive
or other equitable, declaratory or other forms of relief to which Landlord may
be entitled.
(c) Effective as of the Effective Date, the delineation of the Premises annexed
to the Lease as a part of EXHIBIT B thereto shall be deemed modified to exclude
the Deleted Space and the floor plans annexed hereto as EXHIBIT B constitute the
delineation of the Premises as amended and modified by this Agreement.
Section 3.2. Upon reasonable advance prior written notice to Landlord's on-site
building manager in the case of non-emergency, and upon any such notice to such
manager as then may be practicable in the event of an emergency, Tenant shall
have reasonable access, at no charge, to the elevator mechanical room and the
pool mechanical room located on the second floor level of the Building as may be
reasonably required in connection with the repair, maintenance and replacement
of the Tenant equipment located therein; provided that Tenant (or its employee,
contractor or other representative) shall, in the event of a non-emergency and
if and to the extent practicable in the case of an emergency, at all times be
accompanied to and supervised in such areas by a member of the Building staff.
In no event, however, shall Tenant (or its employee, contractor or other
representative) be allowed, even in an emergency, access to such mechanical
rooms unless accompanied either by a member of the Building staff or by a
representative of the occupant in whose premises such mechanical rooms are
located. Subject to the foregoing, any such access by Tenant shall be subject to
the terms and provisions of the Lease and Landlord's reasonable rules and
regulations; it being agreed, without limitation, that Section 19.1 of the Lease
shall apply to any Claims arising from Tenant's exercise of any of the rights
granted Tenant in this Section 3.2.
ARTICLE 4
COMMENCEMENT OF TERM
Section 4.1 Effective as of the Effective Date, the second sentence of Section
2.1 of the Lease shall be deemed modified and restated in its entirety as
follows:
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"However, the initial term ("INITIAL TERM") of this Lease shall
commence upon the date (the "COMMENCEMENT DATE") which is the earlier
of:
(i) the date on which Tenant commences normal business operations from
the Premises, or any material portion thereof; it being understood,
however, that (a) the use of the Development as described in Section 2.2
hereof shall not be deemed to constitute normal business operations from
the Premises by Tenant, and (b) the use of the Club by all of its
members for free or at membership rates of no more than twenty-five
percent (25%) of what those rates would otherwise be (as opposed to
discounts or rebates offered to attract members or reduction in
membership rates as a result of the Club not being substantially
completed by Tenant for normal business operations) for up to, but not
more than, a total of ninety (90) days due to Landlord not yet having
Substantially Completed (as defined herein) the Landlord's Work (as
defined herein), including without limitation the work described in
Section 2.1(ii)(c) hereof, shall not be deemed to constitute normal
business operations from the Premises by Tenant (it being understood and
agreed that this Section 2.1(i)(b) shall be inapplicable from and after
the date that Landlord's Work is Substantially Complete); and
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(ii) the date which is the last of:
(a) the seventh (7th) month anniversary of the date on which Landlord
shall Substantially Complete the Minimum Landlord's Work; it being
agreed that such seventh (7th) month anniversary date shall be October
1, 2001.
(b) August 1, 2001 (the "SCHEDULED COMPLETION DATE"), the Scheduled
Completion Date being extended by any actual period that Tenant, using
reasonable diligence, shall have been unable to (1) substantially
complete the Improvements in accordance with the Work Letter
(collectively, "TENANT'S WORK") by the Scheduled Completion Date due to
Landlord Delays (as defined herein) occurring after March 27, 2001 or by
reason of an event of Force Majeure (as defined herein) occurring after
March 27, 2001 and/or (2) conduct normal business operations from the
Premises as a result of the non- completion of Landlord's Work by the
Scheduled Completion Date (as adjusted in accordance with the applicable
provisions of this Lease due to Tenant Delays (as defined herein)) but
only if and to the extent that such non-completion resulted from matters
occurring after March 27, 2001; it being agreed that no extensions
thereof shall be aggregated if and to the extent concurrent,
(c) the day on which (i) the Common Areas reasonably required for the
operation of the Club by Tenant (including the entrance and lobby
serving the Club, all required means of egress and all other public
areas immediately adjacent to the Club's entrance, if any) are
Substantially Completed and (ii) the base building systems and
mechanical systems which interface with and affect the operations of the
Club are Substantially Completed, and
(d) the day on which the parking areas for the Club located on the B-3
level of the Building are reasonably accessible and usable for parking
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purposes, without material impairment by any on-going construction at
the Development.
ARTICLE 5
ANNUAL BASE RENT
Section 5.1 Effective as of the Effective Date, the first sentence of Section
5.1 of the Lease shall be deemed modified and restated in its entirety as
follows:
"During the Initial Term Tenant agrees to pay to Landlord annual base
rent for the Premises (the "ANNUAL BASE RENT") at the rate of Three
Million Eight Hundred Thousand and 00/100 Dollars ($3,800,000.00) per
annum (the "INITIAL ANNUAL BASE RENT AMOUNT"). Notwithstanding the
foregoing, provided that Tenant is not then in default under this Lease
beyond any applicable period set forth in this Lease within which the
default may be cured, Tenant shall be entitled to an aggregate credit of
$1,000,000 to be applied in twelve (12) equal monthly installments of
$83,333.33 against the monthly installments of Annual Base Rent due
hereunder for the second through thirteenth calendar months of the
Initial Term (the "FREE RENT PERIOD"); it being further agreed, however,
that if Tenant is in default under this Lease beyond any applicable cure
period, then (a) any credit not given Tenant during the period of such
default shall only be suspended and shall be given to Tenant, and
carried forward if not capable of immediately being used in its entirety
until capable of being so used in its entirety, upon any subsequent cure
by Tenant of such default and any other then existing default(s) by
Tenant under this Lease, and (b) Tenant shall further be entitled to all
monthly installments of such credit otherwise to be applied, pursuant to
the terms hereof, after such subsequent cure(s). Notwithstanding
anything to the contrary in this Lease, if there shall be Net
Distributable Cash for the Free Rent Period, but calculated for this
purpose only without reference to any additional rent payable pursuant
to this sentence, then Tenant shall pay an amount (such amount, the
"FREE RENT MAKE-UP") equal to the lesser of (1) the amount of the
$1,000,000 credit set forth above actually applied against Annual Base
Rent as provided above, whether such application against Annual Base
Rent was made during the Free Rent Period or subsequent thereto (i.e.,
if any portion of such credit is so applied after the Free Rent Period
pursuant to either or both of the preceding clauses (a) and (b)) or (2)
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the amount of such Net Distributable Cash (as so calculated) to
Landlord, as additional rent, concurrently with the Quarterly Statement
(as defined below) for the quarter that includes the end of the Free
Rent Period. Such Quarterly Statement shall further include, in addition
to the information otherwise required to be included therewith, an
itemization of the Net Distributable Cash, the Gross Cash Receipts, the
Expenditures, the Reserves, the Management Fee, the Operating Loss, the
Percentage Operating Loss Return Payment, the Outstanding Operating
Loss, the Percentage Equity Return Payment and the Outstanding Capital
Investment for the Free Rent Period showing how any such Free Rent
Make-Up was calculated. If there shall be no such Net Distributable Cash
(as so calculated) for the Free Rent Period, then such Quarterly
Statement shall still include an itemization of the Net Distributable
Cash, the Gross Cash Receipts, the Expenditures, the Reserves, the
Management Fee, the Operating Loss, the Percentage Operating Loss Return
Payment, the Outstanding Operating Loss, the Percentage Equity Return
Payment and the Outstanding Capital Investment for the Free Rent Period
but showing instead how it was calculated that no Free Rent Make-Up was
due. The NDC Statement (as defined below) for the Lease Year that
includes the end of the Free Rent Period shall also include an
itemization of the Net Distributable Cash, the Gross Cash Receipts, the
Expenditures, the Reserves, the Management Fee, the Operating Loss, the
Percentage Operating Loss Return Payment, the Outstanding Operating
Loss, the Percentage Equity Return Payment and the Outstanding Capital
Investment for the Free Rent Period and a calculation showing whether
any Free Rent Make-Up was due for such period and, if so, then how much.
Subject to Landlord's right to dispute such NDC Statement pursuant to
Article 58 hereof, if such NDC Statement shall show that the amount, if
any, paid to Landlord hereunder as Free Rent Make-Up exceeds the amount
actually due under such NDC Statement for such Free Rent Make-Up, then
Landlord shall credit Tenant the amount of such overpayment (together
with interest thereon at the Prime Rate less five percent (5%) (e.g., if
the Prime Rate was 8%, then interest thereon would be calculated at a
per annum rate of 3%), but not less than three percent (3%), from the
date such overpayment was paid to Landlord to the date such overpayment
is credited or refunded, as applicable, as provided in this Section if
the actual amount of Free Rent Make-Up actually received by Landlord
under
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Section 57.2(a) hereof was more than ten percent (10%) higher than the
actual amount due and payable to Landlord pursuant to Section 57.2(a)
hereof) against the next accruing installment(s) of NDC Rent. If such
NDC Statement shall show that the amount, if any, of Free Rent Make-Up
paid to Landlord hereunder is less than the amount actually due under
the NDC Statement, then Tenant shall pay the underpayment to Landlord
contemporaneously with the delivery of such NDC Statement to Landlord
(together with interest thereon from the date such payment was due to
the date such payment is paid at the Prime Rate less five percent (5%)
(e.g., if the Prime Rate was 8%, then interest thereon would be
calculated at a per annum rate of 3%), but not less than three percent
(3%), if the actual amount of NDC Rent payable to Landlord under Section
57.2(a) hereof was more than ten percent (10%) higher than the amount
paid to Landlord). The acceptance by Landlord of such NDC Statement, or
payment of Free Rent Make-Up with respect thereto, shall be without
prejudice and shall in no event constitute a waiver of Landlord's right
to claim a deficiency in the payment of Free Rent Make-Up or to audit
Tenant's books and records (as hereafter set forth) for a period of
twenty-four (24) months from the date of receipt of such NDC Statement.
If Landlord does not notify Tenant in writing of any dispute as to any
NDC Statement within such twenty-four (24) month period regarding Free
Rent Make-Up, then Landlord shall waive its right to dispute such NDC
Statement regarding Free Rent Make-Up."
ARTICLE 6
LANDLORD'S CONTRIBUTION/ALLOWANCE
Section 6.1. Effective as of the Effective Date and provided that Tenant
actually surrenders the Deleted Space subject to the terms and provisions of
this Agreement, the fourth sentence of Section 1.2 of the Lease shall be deemed
modified and restated in its entirety as follows:
"Subject to and in accordance with the terms and conditions of the Work
Letter and the Lease, Landlord shall provide Tenant with a contribution
in the amount of Nineteen Million and 00/100 Dollars ($19,000,000.00)
(the "LANDLORD'S CONTRIBUTION" and/or the "ALLOWANCE") in connection
with hard and soft costs and expenses actually incurred by Tenant in the
performance of certain improvements by Tenant to be made in and to the
Premises approved by Landlord and in connection with furniture, fixtures
and
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equipment, in each such case, to initially prepare the Premises for the
operation of the Club, and to build out the presale office for the Club;
it being agreed, however, that such soft costs shall not include any
development or other fee paid to Tenant or any Affiliate."
Section 6.2. Disbursement of the Allowance shall be subject to all of the terms
and conditions set forth in Section 1.2 of the Lease and Article 8 of the Work
Letter; provided, however, that in addition to such terms and conditions, at the
time of each Tenant request for disbursement of the Allowance, Tenant shall
deliver to Landlord a certificate from Tenant's architect setting forth in
reasonable detail any delays which have occurred which may affect the
Construction Schedule and/or the Tenant Work Budget, and any revisions,
amendments or modifications to the Tenant Plans and Specifications.
Section 6.3. Landlord shall pay to Tenant the additional sum of Five Million and
00/100 Dollars ($5,000,000), as reimbursement for additional tenant improvement
costs for this and other affiliated projects but which is not part of Landlord's
Contribution, within ten (10) business days after the Lender (as hereinafter
defined) shall have notified Landlord in writing that it has approved this
Agreement, which notification shall in no event be later than March 29, 2001.
Landlord shall, promptly upon its receipt of any such approval, deliver a copy
of same to Tenant if the Lender has not already done so. Said additional sum
shall not be taken into account in the calculation of NDC Rent under the Lease
or in the calculation of NDC Rent (as defined thereunder) under any other lease
between an Affiliate of Landlord and an Affiliate of Tenant. If the Lender has
not approved this Agreement on or before March 29, 2001, then Tenant may cancel
this Agreement by written notice to Landlord, in which event this Agreement
shall be of no further force or effect, and neither party hereto shall have any
further rights, liabilities or obligations hereunder; it being further agreed
and understood, in such event, that the parties' respective rights, duties,
obligations and positions in respect of the Lease shall remain unchanged by this
Agreement and shall be what they would have been if this Agreement had never
been signed.
ARTICLE 7
TENANT COMPLETION OF THE IMPROVEMENTS
Section 7.1. (a) Tenant, at its sole cost and expense, shall complete the
Improvements shown on the plans and specifications listed on EXHIBIT C annexed
hereto (collectively, the "TENANT PLANS AND SPECIFICATIONS") in accordance with
the terms and provisions of the Lease (as amended by this Agreement), the Work
Letter, the Construction Schedule and the Tenant Work Budget. Tenant shall not
revise, amend or modify the Tenant Plans and Specifications without the prior
written consent of Landlord.
(b) Annexed hereto as SCHEDULE 1 is the schedule, as of the date set forth on
such schedule, for the performance and completion of Tenant's Work (the
"CONSTRUCTION
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SCHEDULE"). Annexed hereto as SCHEDULE 1-A is a schedule of the Tenant's Actual
Improvement Costs, as of the date set forth on such schedule, for Tenant's Work
(the "TENANT WORK BUDGET"). Tenant represents and warrants that the Construction
Schedule and the Tenant Work Budget were prepared in accordance with good
construction practice and reflect, to Tenant's actual knowledge after due and
diligent inquiry, the true and correct schedule for the performance and
completion of Tenant's Work, as of the date set forth on the Construction
Schedule, and the true and correct itemization of all of the Tenant's Actual
Improvement Costs for Tenant's Work, as of the date set forth on the Tenant Work
Budget. Tenant shall promptly inform Landlord of any revision, amendment or
modification to the Construction Schedule or the Tenant Work Budget; it being
agreed that Landlord's prior written consent, not to be unreasonably withheld,
delayed or conditioned, shall be required for any such revision, amendment or
modification the likely effect of which would be to delay the scheduled opening
date of the Club (which is September 1, 2001 as of the date hereof) from what it
would otherwise have been if no such revision, amendment or modification were
made. Notwithstanding anything to the contrary contained herein and/or in the
Lease, Tenant remains obligated for all of Tenant's Actual Improvements Costs
for Tenant's Work. (c) As a material inducement to and in consideration of
Landlord entering into this Agreement, Tenant shall (i) use commercially
reasonable efforts (which shall include for purposes of this Agreement and the
Lease, the completion of the Improvements on a "work around" schedule basis) to
diligently prosecute to completion and complete the Improvements in accordance
with the terms and provisions of the Lease (as amended by this Agreement) and
Work Letter and open the Premises to the general public for the ordinary conduct
of the business described in Section 8.1 of the Lease contemporaneously with the
opening of the Primary Hotel to the general public (subject to extension for
actual delays resulting from an event of Force Majeure and/or a Landlord Delay
and it being agreed and acknowledged that no such extensions shall be aggregated
if and to the extent concurrent) and (ii) thereafter continuously conduct the
business described in Section 8.1 of the Lease in the Premises in a first-class
manner and during the hours comparable to other athletic clubs with comparable
facilities operated by Tenant or any Affiliate of Tenant as of the date hereof
(subject to events of Force Majeure and Temporary Closures). Landlord represents
and warrants to Tenant that, to Landlord's actual knowledge after due and
diligent inquiry, the Primary Hotel, as of the date hereof, is expected to open
to the general public on September 1, 2001.
Section 7.2. [Intentionally omitted]
Section 7.3. (a) The references to three elevators in Paragraphs d.1 and d.1(i)
of Article 1 of the Work Letter are hereby amended to refer to only two such
elevators, which are hereby agreed to be the two (2) passenger elevators, known
as E17 and E18, which are to be located in the Premises and which are more
particularly described on EXHIBIT E annexed hereto (collectively, the "PREMISES
PASSENGER ELEVATORS"). Paragraphs d.1(ii) (referring to an internal elevator)
and d.1(iii) (referring to the non-exclusive use of base building elevator #1)
of Article 1 of the Work Letter remain unchanged. Paragraph d.1(i) of Article 1
of the Work Letter is hereby further amended to provide that Landlord shall
cause, at Landlord's expense except as provided in the Construction Related
Matters Exhibit (as defined below), the Premises Passenger
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Elevators to stop only on the B3 level of the Building, the lobby level of the
Building and the fourth (4th) floor level of the Building.
(b) Landlord shall provide, install and connect at Landlord's expense the other
passenger elevator, known as E19, which is more particularly described on
EXHIBIT E (the "BACK-UP PASSENGER ELEVATOR"), and shall cause it to stop only on
the lobby level of the Building, the second (2nd) floor of the Building and the
fourth (4th) floor of the Building. Tenant may have the non-exclusive use of the
Back-Up Passenger elevator only from 5 P.M. to midnight on business days and at
all times on non-business days (collectively, "NON-BUSINESS HOURS"), except as
otherwise provided below in this Section 7.3(b). Landlord agrees that if either
of the Premises Passenger Elevators are not functioning during any period not
constituting Non-Business Hours, then immediately upon the receipt by Landlord's
on-site building manager of written notice from Tenant of same, Tenant may use
the Back-Up Passenger Elevator for passenger use during such period for as long
as such Premises Passengers Elevator(s) are not functioning and Tenant shall be
using commercially reasonable efforts to diligently prosecute to completion the
repair of such Premises Passenger Elevator(s); it being agreed that Tenant, as
provided in Section 15.1 of the Lease, shall maintain (including necessary
replacements) and preserve the Premises Passenger Elevators and the internal
elevator within the Premises referred to above, but that Tenant shall have no
such responsibility with respect to the Back-Up Passenger Elevator and the base
building elevator #1 referred to above, each of which are part of the Common
Areas, except if and to the extent such maintenance (including replacements) is
not the result of ordinary wear and tear and also results from the acts,
omissions or negligence of Tenant or its agents. In addition, Tenant shall be
entitled to the non-exclusive use the Back-Up Passenger Elevator at all times if
and at such time as the tenant(s) on the second (2nd) floor of the Building
shall no longer reasonably require the exclusive use of the Back-Up Passenger
Elevator during hours that are not Non-Business Hours.
ARTICLE 8
DEFAULTS AND REMEDIES
Section 8.1. Article 23 of the Lease shall be deemed modified and restated in
its entirety as follows:
"23. DEFAULTS AND REMEDIES.
23.1 Defaults. The occurrence of any one or more of the
following events shall constitute a default hereunder by Tenant
("DEFAULT"):
(i) The vacation or abandonment of the Premises by Tenant or failure to
continuously operate the Club in accordance with Article 8 hereof where
Tenant has failed to cure such vacation, abandonment or failure to
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operate within fifteen (15) days following notice from Landlord to
Tenant of the need for such cure (which time period is subject to
extension for actual delays resulting from an event of Force Majeure,
and Tenant shall provide reasonable notification thereof to Landlord),
it being understood and agreed however, that cessation of operations of
business from the Premises from time to time for the purpose of
remodeling the Premises or making alterations, additions or improvements
to the Property (collectively "TEMPORARY CLOSURES") shall not be
considered vacation or abandonment of the Premises provided and on
condition that (1) Tenant shall use commercially reasonable efforts to
complete any and all such work, from time to time, in an expeditious and
non-disruptive manner, (2) Tenant shall have given Landlord at least one
hundred twenty (120) days prior written notice of any such Temporary
Closure (except with respect to an event of Force Majeure, and Tenant
shall provide reasonable notification thereof to Landlord), (3) any such
Temporary Closure shall not exceed ninety (90) days in the aggregate
(which time period is subject to extension for actual delays resulting
from an event of Force Majeure, and Tenant shall provide reasonable
notification thereof to Landlord), (4) Tenant shall reasonably cooperate
with Landlord in order that any such Temporary Closure shall not
unreasonably disturb the normal operations of the Primary Hotel and (5)
Tenant shall reasonably cooperate with Landlord in order to provide a
temporary means to accommodate the Primary Hotel Guests during any
Temporary Closure, such as the temporary relocation of a reasonable
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number of exercise machines and equipment to other areas of the Premises
or to an area in the Primary Hotel for use by the Primary Hotel Guests
during any such Temporary Closure (it being understood and agreed that
all costs and risks associated with such relocation, the use of any such
other areas and such machines and equipment therein, and the relocation
of such machines and equipment back to the Premises when such use is no
longer necessary shall all be the sole obligation and liability of
Landlord);
(ii) Subject to Temporary Closures as provided in Section 23.1(i) hereof
and events of Force Majeure, the failure by Tenant to permit Primary
Hotel Guests to have access to the Club to use the facilities therein
subject to and in accordance with the provisions of Section 4.2 of this
Lease, where such failure shall continue for a period of five (5)
business days following notice thereof from Landlord to Tenant;
(iii) The failure by Tenant to make any payment of Rent or any other
payment required to be made by Tenant hereunder (including the Work
Letter), where such failure shall continue for a period of ten (10)
business days following notice from Landlord to Tenant that such payment
is due; provided, however, Tenant shall be entitled to such notice and
opportunity to cure on only two (2) occasions during any Lease Year;
(iv) Other than as expressly specified in Sections 23.1(i), (ii), (iii),
(v) or (vi) hereof or Section 15.10 of the First Supplemental Agreement
of Lease
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dated as of March 27, 2001 between Landlord and Tenant, in which case
the notice and cure periods specified therein shall apply, the failure
by Tenant to observe or perform any of the covenants or provisions of
this Lease (including the Work Letter) to be observed or performed by
Tenant, where such failure shall continue for a period of thirty (30)
days following notice thereof from Landlord to Tenant. If the nature of
the Default is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in Default
if Tenant shall commence such cure within said thirty-day period and
thereafter diligently prosecutes such cure to completion, which
completion shall occur not later than one hundred twenty (120) days from
the date of such notice from Landlord;
(v) (a) The making by Tenant of any general assignment for the benefit
of creditors; (b) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy unless, in the case of
a petition filed against Tenant the same is dismissed within one hundred
twenty (120) days; (c) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within one hundred twenty (120) days; or (d) the
attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where such seizure is not discharged within 120 days; or
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(vi) The failure by Tenant to complete the Improvements in accordance
with the terms and provisions of this Lease and the Work Letter and/or
open the Premises to the general public for the business described in
Section 8.1 of this Lease within the later of (a) twelve (12) months
following the Substantial Completion of the Minimum Landlord's Work or
(b) eighteen (18) months after the installation of the concrete decks on
floors 2, 3, 4 and 5 of the Premises, subject to extension due to Force
Majeure and/or Landlord Delay, it being agreed that no such extensions
shall be aggregated if and to the extent concurrent, where such failure
shall continue for a period of thirty (30) days following notice from
Landlord to Tenant.
Any notice provided for in this Section 23.1 shall be in addition to,
and not in lieu of, any statutorily required notice regarding unlawful
detainer actions.
In the event that this Lease is terminated by notice as provided for in
Section 23.1(v) hereof and Tenant shall thereafter seek protection under
the Federal Bankruptcy Laws or any state equivalent, then Tenant if a
debtor-in-possession agrees to consent to any application by Landlord to
terminate the automatic stay provisions of the Federal Bankruptcy Code
on the grounds that there is no equity in this Lease as a result of the
pre- petition termination notice.
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23.2 Remedies. In the event of any Default, in addition to any other
remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant
hereunder. In the event that Landlord shall elect to so terminate this
Lease then Landlord may recover from Tenant:
(i) the worth at the time of award of any unpaid Rent which had been
earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which the unpaid
Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the unpaid
Monthly Base Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided.
As used in Section 23.2(i) and (ii) hereof, the "worth at the time of
award" is computed by allowing interest at the prime, base or reference
rate of The Chase Manhattan Bank of New York, or its successors, from
time to time, charged to its most favored customers on commercial loans
having a 90-day duration (the "PRIME RATE") plus two percent (2%) (for
example, if the Prime Rate was 8%, then the worth at the time of the
award would be computed using a per annum interest rate of 10%). As used
in Section
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23.2(iii) hereof, the "worth at the time of award" is computed by
discounting such amount by the Prime Rate at the time of award.
Notwithstanding anything to the contrary contained in this Lease,
neither Landlord nor Tenant shall be liable for consequential or
punitive damages which may be suffered by the other as a result of a
default by Landlord or default by Tenant under this Lease.
23.3 Re-entry. In the event of any Default, Landlord shall also
have the right, without demand or notice, without terminating this
Lease, to re-enter the Premises and remove all persons and property from
the Premises, either by summary proceedings or by action at law, without
being deemed guilty of trespass and without prejudice to any remedies
for nonpayment or late payment of any Rent or breach of any covenant.
Such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant. If Landlord
elects to re-enter the Premises, Landlord may terminate this Lease, or
from time to time, without terminating this Lease, may relet all or any
part of the Premises as agent for Tenant for such term or terms and at
such rental and upon such other terms and conditions as Landlord may
deem advisable, with the right to make alterations and repairs to the
Premises as Landlord, in Landlord's reasonable judgment, considers
advisable and necessary for the purpose of reletting the Premises. No
re-entry or taking possession of the Premises by Landlord pursuant to
this Section 23.3 shall be construed as an election to terminate this
Lease unless notice of such intention is given to Tenant or unless the
termination thereof is decreed by a court of competent jurisdiction.
If Landlord terminates this Lease or re-enters the Premises pursuant to
this Article 23, Tenant shall remain liable (in addition to accrued
liabilities) for: (i) any unpaid Rent due at the time of termination,
plus interest thereon from the due date at the Prime Rate; provided,
however, that if such interest is limited by law to a lesser amount,
Landlord shall be
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entitled to the maximum amount of interest permitted by law, (ii)
subject to clause (v) of this paragraph, Rent until the date this Lease
would have expired had such termination not occurred; (iii) any and all
reasonable expenses (including all reasonable attorneys' fees, costs and
brokerage fees) incurred by Landlord in re-entering and repossessing the
Premises, in making good any Default by Tenant, in protecting and
preserving the Premises by use of watchmen and caretakers and in
reletting the Premises (subject to the provisions of the immediately
preceding paragraph and provided that Tenant shall not be liable for any
expenses incurred by Landlord with respect to alterations which are not
consistent with the use of the Premises as an athletic club and/or a
use(s) complementary to an athletic club); and (iv) any other amount
reasonably necessary to compensate Landlord for any other detriment
actually caused Landlord by Tenant's failure to perform its obligations
under this Lease, less (v) the net proceeds received by Landlord from
any reletting prior to the date this Lease would have expired if it had
not been terminated. Tenant agrees to pay to Landlord the amount so owed
above for each month during the Term, at the beginning of each such
month. Any suit brought by Landlord to enforce collection of such amount
for any one month shall not prejudice Landlord's right to enforce the
collection of any such amount for any subsequent month. In addition to
the foregoing, and without regard to whether this Lease has been
terminated, Tenant shall pay to Landlord all costs incurred by Landlord,
including reasonable legal
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fees and costs, with respect to any lawsuit or action instituted or
taken by Landlord to enforce the provisions of this Lease. Tenant's
liability shall survive the institution of summary proceedings and the
issuance of a warrant or writ thereunder.
If Landlord terminates this Lease, Landlord shall have the right at any
time, at its sole option, to require Tenant to pay to Landlord on
demand, as liquidated and agreed final damages in lieu of Tenant's
liability hereunder: (i) the then present cash value of the Rent, and
all other sums which would have been payable under this Lease from the
date of such demand to the date when this Lease would have expired if it
had not been terminated, minus (ii) the fair market value of the
Premises for the same period; provided, however, that if such damages
are limited by law to a lesser amount, Landlord shall be entitled to
prove as liquidated damages the maximum amount permitted by law.
Landlord shall use commercially reasonable efforts to relet the Premises
in the event this Lease is terminated pursuant to the provisions of this
Article 23.
Tenant, on its own behalf and on behalf of all persons claiming through
Tenant, including, but not limited to, all creditors, does hereby waive
any and all rights and privileges, so far as is permitted by law, which
Tenant and all such persons might otherwise have under any present or
future law: (i) to redeem the Premises; (ii) to reenter or repossess the
Premises;
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(iii) to restore the operation of this Lease, with respect to any
dispossession of Tenant by judgment, warrant or writ of any court or
judge, or any re-entry by Landlord, any expiration or termination of
this Lease, whether such dispossession, re-entry, expiration or
termination of this Lease shall be by operation of law or pursuant to
the provisions of this Lease; or (iv) to the service of any notice of
intention to re-enter or notice to quit which may otherwise be required
to be given. The words "disposition," "re-enter", and "re-elected" as
used in this Lease shall not be deemed to be restricted to their
technical meanings.
In the event of any breach or threatened breach by Tenant or any persons
claiming through Tenant of any of the provisions contained in this
Lease, Landlord shall be entitled to enjoin such breach or threatened
breach and shall have the right to invoke any right or remedy allowed at
law, in equity, or otherwise.
23.4 Cumulative Rights. Except as otherwise expressly provided
in this Lease, all rights, options and remedies of Landlord contained in
this Lease shall be construed and held to be cumulative, and no one of
them shall be exclusive of the others, and Landlord shall have the right
to pursue any one or all of such remedies or any other remedy or relief
which may be provided by law, whether or not stated in this Lease. No
waiver of any Default shall be implied from any acceptance by Landlord
of any rent or other payments due hereunder or any omission by Landlord
to take any action on account of such Default if such Default persists
or is repeated, and no express waiver shall affect Defaults other than
as specified in said waiver.
23.5 Waiver of Trial by Jury. Tenant hereby waives all right to
trial by jury in any claim, action, proceeding or counterclaim by
Landlord against Tenant on any matters
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arising out of or in any way connected with this Lease, the relationship
of Landlord and Tenant, and/or Tenant's use or occupancy of the
Premises."
ARTICLE 9
SECURITY AGREEMENTS/LEASEHOLD MORTGAGES
Section 9.1. A new Article 56 is added to the Lease to read in its entirety as
follows:
"56. SECURITY AGREEMENTS/LEASEHOLD MORTGAGES.
56.1 (a) Subject to the limitations of this Article 56, Tenant shall
have the right to mortgage and pledge its interest in and to this Lease,
provided and on condition that any such mortgage, pledge or other
similar lien instrument (a "LEASEHOLD Mortgage") shall be given to an
Authorized Institution (as herein defined and an Authorized Institution
holding a Leasehold Mortgage shall hereunder be referred to as an
"AUTHORIZED HOLDER"). Any such Leasehold Mortgage shall be subject and
subordinate to the rights of Landlord under this Lease and the Senior
Interest Holders. Landlord shall not be obligated to recognize a holder
of any Leasehold Mortgage, nor shall any such holder be entitled to any
of the rights granted to an Authorized Holder in this Article, unless
such holder shall be an Authorized Institution.
(b) No Authorized Holder of a Leasehold Mortgage on this Lease shall
have the rights or benefits mentioned in this Article 56, nor shall the
provisions of this Article be binding upon Landlord, unless and until an
executed counterpart of such Leasehold Mortgage or a copy certified by
the Authorized Holder or by the recording officer to be true, shall have
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been delivered to Landlord, together with a certified copy of all other
ancillary or security documents (collectively, "LEASEHOLD FINANCING
DOCUMENTS"). Within fifteen (15) business days after request by Tenant,
Landlord shall provide to any proposed holder of a Leasehold Mortgage a
statement as to whether such proposed holder is an Authorized Holder and
whether or not any notice of default under this Lease has been delivered
to Tenant. Except as otherwise set forth in such statement, such
statement shall stop Landlord from asserting that such holder is not an
Authorized Holder, but shall create no liability on Landlord, and, if
the same states that such proposed holder is not an Authorized Holder,
shall set forth the reasons therefor in reasonable detail. In no event,
however, shall any failure by Tenant or other party to comply with the
terms of any such Leasehold Mortgage, including, without limitation, the
use of any proceeds of any debt, the repayment of which is secured by
such Leasehold Mortgage, be deemed to invalidate the lien of such
Leasehold Mortgage.
(c) Tenant and/or the Authorized Holder of such Leasehold Mortgage shall
send to Landlord an executed counterpart of any amendment, modification
or extension of such Leasehold Mortgage or any other Leasehold Financing
Documents promptly after the same are executed.
56.2 If Tenant shall mortgage this Lease in compliance with the
provisions of this Article 56, then so long as any such Leasehold
Mortgage shall remain unsatisfied of record, the following provisions
shall apply:
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(a) Landlord, upon serving Tenant with any notice of default pursuant to
the provisions of Article 23 hereof, shall also serve a copy of such
notice upon the Authorized Holder at the address provided for in Section
56.2(e) hereof, and as to such Authorized Holder only, no notice by
Landlord to Tenant hereunder shall be deemed to have been duly given
unless and until a copy thereof has been so served.
(b) Any Authorized Holder, in case Tenant shall be in default hereunder,
shall, within the period set forth herein to cure such default and
otherwise as herein provided, have the right to remedy such default, or
cause the same to be remedied, and Landlord shall accept such
performance by or at the instance of such Authorized Holder as if the
same had been made by Tenant.
(c) Anything herein contained to the contrary notwithstanding, upon the
occurrence of a Default, Landlord shall take no action to effect a
termination of this Lease without first giving to the Authorized Holder
at the address provided for in Section 56.2(e) hereof written notice
thereof and, as to such Authorized Holder only, (x) with respect to any
Default which can be cured by payment of money, five (5) business days
thereafter within which to cure any such monetary Default; provided,
however, that such Authorized Holder shall, within such five (5)
business day period, deliver to Landlord a valid, legal and binding
written understanding by such Authorized Holder to indemnify, defend and
hold harmless Landlord and the Condominium Association (if applicable)
from and against all
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Claims actually or allegedly arising from or in connection with such
Default and Landlord's forbearing from terminating the Lease; and (y)
with respect to such other Defaults (individually and collectively,
"NON-MONETARY DEFAULTS"), a reasonable time thereafter within which
either to obtain possession of the Leasehold Mortgaged property
(including possession by a receiver) or to institute, prosecute and
complete foreclosure proceedings or otherwise acquire Tenant's interest
under this Lease with diligence; provided, however, that such Authorized
Holder shall, within thirty (30) days following any such Non-Monetary
Default, deliver to Landlord a valid, legal and binding written
undertaking by such Authorized Holder to cure such default subject to
and in accordance with the applicable provisions of the balance of this
Article 56, to pay to Landlord all Rent then due and owing to Landlord
from Tenant and to indemnify, defend and hold harmless Landlord and the
Condominium Association (if applicable) from and against all Claims
actually or allegedly arising from or in connection with such Default
and Landlord's forbearing from terminating this Lease; provided,
further, however, that:
(i) such forbearance shall not subject Landlord to criminal prosecution
or subject all or any portion of the Development to lien or sale
(without limiting the application of the above Landlord shall be deemed
subject to prosecution for a crime if Landlord, or its managing agent,
if any, or any officer, director, partner, shareholder or employee of
Landlord or its managing agent as an individual, is charged with a crime
of any kind or degree whatsoever, whether by summons or otherwise);
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(ii) such forbearance shall not be in breach of any covenant,
representation or warranty of any Senior Interest;
(iii) such Authorized Holder shall promptly, diligently and continuously
prosecute the cure of such event of default; and
(iv) such Authorized Holder upon obtaining possession or acquiring
Tenant's interest under this Lease, shall be required promptly to cure
all defaults then susceptible of being cured prior to the expiration of
the applicable notice and grace periods expressly provided for in this
Lease which periods shall not commence to elapse until the date on which
such Authorized Holder shall obtain possession or acquire Tenant's
interest under this Lease; provided, however, that: (1) such Authorized
Holder shall not be obligated to continue such possession or to continue
such foreclosure proceedings after any such default shall have been
cured; (2) nothing herein contained shall preclude Landlord, subject to
the provisions of this Article 56, from exercising any rights or
remedies under this Lease with respect to the occurrence of any other
event of default during the pendency of any foreclosure proceedings; (3)
such Authorized Holder shall agree with Landlord in writing made within
twenty (20) days after request therefor by Landlord (given after the
occurrence of a Default), to comply during the period of such
forbearance with such of the agreements, terms, conditions and covenants
of this Lease as are susceptible of being complied with by such
Authorized Holder (it being agreed that any agreement, term, condition
or covenant that can be performed or cured solely by payment of money
shall be susceptible of being complied with by such Authorized Holder);
and (4) any default by Tenant not susceptible of being cured by such
Authorized Holder shall be deemed to have been waived by Landlord upon
such possession or acquisition of Tenant's interest in this Lease by
such Authorized Holder. It is understood and agreed that such Authorized
Holder, or its designee, or any purchaser in foreclosure proceedings
(including, without limitation, a
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corporation formed by such Authorized Holder) may become the legal owner
of this Lease through any foreclosure proceedings or by assignment of
this Lease in lieu of foreclosure; provided, however, that such legal
owner shall (A) comply with the applicable provisions of this Article 56
and (B) within thirty (30) days after obtaining possession of or
acquiring Tenant's interest under this Lease or acquiring control of
Tenant's interest under this Lease (provided that the mere appointment
of a receiver shall not be deemed to place such Authorized Holder in
control unless such Authorized Holder has the ability to direct the
appointment of a Qualified Manager) (aa) at all times retain a manager
or operator ("QUALIFIED MANAGER") for the Premises which has
demonstrated experience and expertise in the operation of sports fitness
clubs consistent with the operations required of Tenant under this Lease
(which obligation to retain a Qualified Manager shall be a continuous
and ongoing obligation of any such entity holding Tenant's interest
under this Lease) and shall have notified Landlord of such Qualified
Manager and delivered reasonable documentation as to the experience and
expertise of such Qualified Manager to Landlord, or (bb) assign Tenant's
interests in this Lease in accordance with the terms and conditions of
Article 24 hereof. If a dispute arises with respect to the experience
and/or expertise of a Qualified Manager which dispute is not resolved
within ten (10) days after notice thereof to the other party, either
party may by notice to the other submit the dispute to arbitration in
accordance with Section 7.3 hereof.
(d) In the event of the termination of this Lease prior to the
expiration of the term of this Lease, whether by summary proceedings to
dispossess, service of notice to terminate, or otherwise, due to an
event of default, Landlord shall serve upon the Authorized Holder at the
address provided for in Section 56.2(e) hereof written notice that this
Lease has been terminated together with a statement of any and all sums
which would at
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that time be due under this Lease but for such termination, and of all
other events of default, if any, under this Lease then known to
Landlord. Such Authorized Holder shall thereupon have the option to
obtain a new lease in accordance with and upon the following terms and
conditions:
Upon the written request of such Authorized Holder given within
thirty (30) days after service of such notice from Landlord that
this Lease has been terminated, Landlord shall enter into a new
lease of the Premises with such Authorized Holder, or its
designee, as follows:
Such new lease shall be entered into at the cost
(including, without limitation, reasonable attorneys'
fees, disbursements and expenses and any real estate
transfer or transfer gains taxes imposed, primarily or
secondarily, on Landlord by reason of such termination
and/or the granting of such new lease) of the tenant
thereunder, shall be effective as of the date of the
termination of this Lease, and shall be for the
remainder of the term of this Lease and at the rent and
upon all the agreements, terms, covenants and conditions
contained in this Lease, including any applicable rights
of the lease extension. Such new lease shall require the
tenant to perform any unfulfilled obligation of Tenant
under this Lease which is susceptible of being performed
by such tenant, including, without limitation, curing
any default which can be cured by the payment of a sum
of money. To the extent that Landlord's Work shall have
theretofore been completed, Landlord shall have no
further liability with respect to the initial
construction of Landlord Work's. Such new lease shall
provide that there shall be no liability on the part of
Landlord for any holdover by Tenant. Upon the execution
of such new lease, the tenant named therein shall pay
any and all sums which would at the time of the
execution thereof be due under this Lease but for such
termination and shall pay all expenses, including (i)
reasonable
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attorneys' fees, court costs and disbursements and
expenses and any real estate transfer or transfer gains
taxes imposed, primarily or secondarily, on Landlord by
reason of such termination and/or the granting of such
new lease and (ii) any costs and expenses incurred by
Landlord in connection with such default and
termination, the recovery of possession of the Premises,
and the preparation, execution and delivery of such new
lease.
(e) Any notice or other communication which Landlord shall desire or is
required to give to or serve upon any Authorized Holder shall be in
writing and shall be served by certified mail, addressed to such
Authorized Holder at its address as set forth in such Leasehold
Mortgage, or in the last assignment thereof delivered to Landlord
pursuant to Article 9 hereof or at such other address as shall be
designated by such Authorized Holder by notice in writing given to
Landlord by certified mail.
(f) Any notice or other communication which any Authorized Holder shall
desire or is required to give to or serve upon Landlord shall be deemed
to have been duly given or served if sent by certified mail addressed to
Landlord at Landlord's addresses as set forth in Article 9 hereof or at
such other addresses (including, without limitation, to Senior Interest
Holders designated by Landlord) as shall be designated by Landlord by
notice in writing given to such Authorized Holder by certified mail.
(g) Each such notice and communication provided for under this Section
56.2 shall be governed by the provisions of Article 9 hereof.
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56.3 If any Authorized Holder or its designee shall obtain possession of
or acquire title to Tenant's interest in this Lease, by foreclosure of
the Leasehold Mortgage or by assignment in lieu of foreclosure or by an
assignment to a nominee or wholly-owned subsidiary corporation of such
Authorized Holder or its designee, or under a new lease subject to and
in accordance with this Article 56, such Authorized Holder or such
designee may assign this Lease or such new lease, as the case may be,
and notwithstanding anything contained in Section 24.4 hereof, shall
thereupon be released from all liability for the performance or
observance of the agreements, terms, covenants and conditions in such
lease contained on Tenant's part to be performed and observed from and
after the date of such assignment, provided and on condition that (i)
such Authorized Holder or such designee shall have complied with (a) the
second sentence of Section 24.1 hereof and (b) the terms and conditions
of Section 24.2 hereof, (ii) such assignee shall have in the reasonable
judgement of Landlord, sufficient financial worth to perform the
obligations of Tenant under this Lease as evidenced by the submission to
Landlord of evidence reasonably satisfactory to Landlord of the
financial worth of any such assignee and (iii) such assignee shall at
all times retain a Qualified Manager for the Premises and shall have
notified Landlord of such Qualified Manager and delivered reasonable
documentation as to the experience and expertise of such Qualified
Manager to Landlord.
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56.4 For all purposes of the Lease, an "AUTHORIZED INSTITUTION" means
(a) a bank, savings and loan institution, trust or insurance company,
real estate investment trust, a pension, welfare or retirement fund, an
eleemosynary institution, a commercial bank or trust company acting as
trustee in connection with the issuance of any bonds or any other debt
financing (securitized or otherwise), a special purpose corporation or
other entity established for the purpose of securitized financing which
is owned wholly by any other Authorized Institution(s), or any
combination of the foregoing, acting for its own account or as a
trustee, provided, that each of the above entities, or any combination
of such entities, shall qualify as an Authorized Institution for
purposes of this Lease only if (i) each such entity is not a related
entity of Tenant and (ii) each such entity, or combination of such
entities, or the parent or parents of such entity or entities, or a
guarantor reasonably satisfactory to Landlord of each such entity under
a guaranty to and for the benefit of Landlord in form and substance
reasonably satisfactory to Landlord, shall have individual or combined,
as the case may be, net worth of at least $100,000,000 (subject to CPI
Increase each Lease Year, commencing with the first Lease Year) as of
the date of the giving of a Leasehold Mortgage by Tenant to any such
aforementioned Person, or (b) a governmental or quasi- governmental
instrumentality."
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ARTICLE 10
NDC RENT
Section 10.1. A new Article 57 is added to the Lease to read in its entirety as
follows:
"57. NDC RENT.
57.1 Definitions. For purposes of this Lease, each of the following
terms shall have the meaning given such term in this Section 57.1 or in
the Section of this Lease indicated:
(a) "NET DISTRIBUTABLE CASH" for any period after the
opening of the Club for business shall mean the amount, if any, by which
Gross Cash Receipts (as defined below) exceed the sum of Expenditures
(as defined below) and additions to Reserves (as defined below) if and
to the extent permitted in this Article 57, in each instance, for such
period.
(b) "GROSS CASH RECEIPTS" for any period after the opening
of the Club for business shall mean all revenue and income of any nature
derived by Tenant or an Affiliate (exclusive of the Management Fee) for
such period from the Premises or the use or operation thereof,
including, without limitation, amounts released from Reserves, rent,
fees, proceeds from business interruption insurance, governmental
allowances and awards and other forms of payments or awards from any
source whatsoever, determined on a cash basis, but exclusive of any
proceeds from (1) Tenant's financing of the leasehold created by this
Lease, (2) any sale, direct or indirect, of any interest in Tenant or
Tenant's operations (it
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being agreed, however, that the proceeds from any sale of used Trade
Fixtures or Improvements, for salvage value or otherwise, that are not a
part of any sale, direct or indirect, of any interest in Tenant or
Tenant's operations would constitute Gross Cash Receipts), (3) any
assignment of Tenant's interest in this Lease and (4) any subletting of
all of the Premises if, immediately after such subletting, Tenant or an
Affiliate shall no longer be in day to day control of the operations of
the Club; provided, however, that in the event of any subletting
immediately after which Tenant or an Affiliate shall no longer be in
day-to-day control of the operations of the Club, NDC Rent shall
continue to be calculated, and due from Tenant, as set forth in this
Lease but as if such subtenant were the tenant under this Lease. Gross
Cash Receipts shall further include, without limitation, any income
derived by Tenant or an Affiliate (whether such income is derived from
cash or the receipt of other non-cash assets such as stock) from the
exploitation in connection with the Premises or the use or operation
thereof of any trademark, tradename or other intellectual property of
Tenant or an Affiliate, including, without limitation, from the "naming"
of the Club and the sale of any branded merchandise at the Club; it
being agreed, however, that if and to the extent any such intellectual
property is exploited other than in connection with the Premises or the
use or operation of the Premises, then Gross Cash Receipts shall include
only the equitable portion, if any, of cash and only the equitable
portion, if any, of the fair market value of any non-cash assets
received from the
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exploitation of such intellectual property, in each such instance, in
connection with the Premises or the use or operation of the Premises.
(c) "EXPENDITURES" for any period after the opening of the
Club for business shall mean all cash expenditures made by Tenant or on
behalf of Tenant for such period solely in connection with the Premises,
the use or operation of the Premises or activities outside the Premises
but, in the case of any activities outside the Premises, only if and to
the extent that the revenue and income therefrom is included in Gross
Cash Receipts. Without limiting the foregoing, Expenditures shall
include, if and to the extent expended in connection with the Premises
or the use or operation thereof, (i) financing payments (including
principal and interest) and lease payments for fixtures, furniture and
equipment (collectively "FF&E PAYMENTS"); it being agreed, however, that
no such payments shall be included in Expenditures in connection with
any financing or leasing of more than $2,000,000 worth of the initial
fixtures, furniture and equipment needed to open the Club, (ii) the cost
of operating, repairing and maintaining the Premises, (iii) capital
expenditures, (iv) the Management Fee (as defined below) and (v) Start
Up Costs (as defined below) as if incurred the day after the Club opens
for business. Expenditures shall exclude (1) general overhead and
administrative expenses, other than the Management Fee, (2) non-cash
expenses, including depreciation, (3) debt service (including loan
amortization) (other than FF&E Payments, which shall be included in
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Expenditures if and to the extent set forth above), (4) federal and
state income taxes (it being agreed that Expenditures shall include any
sales taxes, business taxes, gross receipts taxes, or other taxes of a
similar nature assessed at the local level), (5) the hard and soft costs
and expenses incurred by Tenant in the development of the Premises in
order to open the Club (other than FF&E Payments, if and as aforesaid),
and (6) NDC Rent (as defined below).
(d) "RESERVES" for any period after the opening of the
Club for business shall mean a reasonable and customary portion of Gross
Cash Receipts (including, without limitation, unearned initiation fees,
prepaid dues, prepaid services, prepaid rents, prepaid payments and
security deposits solely with respect to the Premises) for such period
that are set aside by Tenant from such Gross Cash Receipts for
reasonably anticipated expenditures required to maintain, repair and
operate the Club in the Premises in the future in a manner comparable to
other clubs operated by Tenant or an Affiliate (exclusive of the
exclusions from Expenditures set forth in clauses (1) through (6) of the
definition of Expenditures); provided that Reserves for any Lease Year
shall not include an amount for capital expenditures greater than 3% of
Gross Cash Receipts for such Lease Year and then only if and to the
extent such amount is actually set aside for capital expenditures.
Security deposits shall be added to Reserves at the later of when
received and the Club's
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opening and shall be deemed released only if, as and when forfeited or
refunded.
(e) "MANAGEMENT FEE" shall mean an amount equal to six
percent (6%) of Gross Cash Receipts for a Lease Year or partial Lease
Year; it being agreed, however, that Gross Cash Receipts, for this
purpose only, shall exclude (i) prepaid dues and initiation fees until
earned and released from Reserves, (ii) prepaid rents and other prepaid
payments until applied and released from Reserves, (iii) security
deposits until forfeited and released from Reserves and (iv) any monies
being released from Reserves (for example, but without limitation, for
capital expenditures) if such monies were previously included in the
calculation of a Management Fee when first received by Tenant.
(f) "ADJUSTED NET DISTRIBUTABLE CASH" shall mean an amount
equal to the Net Distributable Cash for a Lease Year minus, in the
following order, the sum of (i) the Percentage Operating Loss Return
Payment (as hereinafter defined), if any, for such Lease Year plus (ii)
the aggregate amount of Percentage Operating Loss Return Payments for
prior Lease Years, if any, which have not been paid to Tenant (other
than in violation of the last sentence of this Section 57.1(f)), plus
(iii) the then Outstanding Operating Loss (as defined below), if any,
plus (iv) the Percentage Equity Return Payment (as hereinafter defined),
if any, for such Lease Year plus (v) the aggregate amount of Percentage
Equity Return Payments for prior Lease Years, if any, which have not
been paid
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to Tenant (other than in violation of the last sentence of this Section
57.1(f)) plus (vi) the then Outstanding Capital Investment, if any.
Tenant shall apply any and all Net Distributable Cash against the
preceding items (i) through (vi) in such order and in accordance with
customary accounting practices consistently applied.
(g) "OPERATING LOSS" for a period shall mean an amount, if
any, by which the sum of Expenditures and additions to Reserves if and
to the extent permitted in this Article 57 for such period exceeds Gross
Cash Receipts for such period.
(h) "PERCENTAGE OPERATING LOSS RETURN PAYMENT" shall mean
an amount equal to a ten percent (10%) per annum cumulative, annual
compounding return on the aggregate Outstanding Operating Loss (as
hereinafter defined).
(i) "OUTSTANDING OPERATING LOSS" shall mean the portion,
if any, of the aggregate of all Operating Losses which have not, as of
such date, been recouped by Tenant (other than in violation of the last
sentence of Section 57.1(f) hereof).
(j) "PERCENTAGE EQUITY RETURN PAYMENT" shall mean an
amount equal to an eleven percent (11%) per annum cumulative, annual
compounding return on the aggregate Outstanding Capital Investment (as
hereinafter defined).
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(k) "CAPITAL INVESTMENT" shall be zero.
(l) "OUTSTANDING CAPITAL INVESTMENT" shall be zero.
(m) "START UP COSTS" shall mean all costs incurred by or
on behalf of Tenant prior to the opening of the Club solely in
connection with the opening of the Club that are not hard and soft costs
of the performance of improvements in and to the Premises (such
improvements including, without limitation, the build out of the presale
office for the Club) or of furniture, fixtures and equipment. Start Up
Costs include, without limitation, costs incurred in connection with the
sale of memberships before the opening of the Club and the hiring and
training of Club personnel, including without limitation, costs incurred
in connection with operating any pre-sale office, personnel costs,
commissions and marketing.
57.2 NDC Rent.
(a) Tenant shall pay to Landlord, as Additional Rent and in the manner
hereinafter provided, an amount equal to sixty percent (60%) of any
Adjusted Net Distributable Cash for a Lease Year or partial Lease Year
(the "NDC RENT"). NDC Rent shall be payable on a quarterly basis (as
estimated by Tenant in good faith based on Tenant's books and records)
contemporaneously with the delivery of a Quarterly Statement (as
hereinafter defined).
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(b) (i) On or before the thirtieth (30th) day following the expiration
of each quarterly period during the Term, Tenant shall deliver to
Landlord a quarterly statement (each, a "QUARTERLY STATEMENT") signed
and certified by the Financial Officer of Tenant to be true and correct
to the best knowledge of the Financial Officer of Tenant disclosing the
Adjusted Net Distributable Cash for the preceding quarterly period and
an itemization of the Net Distributable Cash, the Gross Cash Receipts,
the Expenditures, the Reserves, the Management Fee, the Operating Loss,
the Percentage Operating Loss Return Payment, the Outstanding Operating
Loss, the Percentage Equity Return Payment and the Outstanding Capital
Investment for such period which were used to compute the Adjusted Net
Distributable Cash and the NDC Rent for such period.
(ii) Tenant shall submit to Landlord, on or before the ninetieth (90th)
day following the end of each Lease Year (including, without limitation,
the last Lease Year or partial Lease Year during the Term of the Lease,
as to which Tenant's obligation to pay NDC Rent shall survive the
Expiration Date or sooner termination of this Lease) an auditor's report
(each, a "NDC STATEMENT"), which shall (A) be prepared, at Tenant's sole
cost and expense, by a so-called "Big 5" accounting firm ("TENANT'S
ACCOUNTING FIRM") and (B) disclose the Adjusted Net Distributable Cash
and the NDC Rent for such Lease Year. Each NDC Statement shall disclose
the Adjusted Net Distributable Cash and the NDC Rent for such Lease Year
or fraction of a Lease Year and an itemization of the Net Distributable
Cash, the Gross Cash Receipts, the Expenditures, the Reserves, the
Management Fee, the Operating Loss, the Percentage Operating Loss Return
Payment, the Outstanding Operating Loss, the Percentage Equity Return
Payment and the Outstanding Capital Investment for such period
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which were used to compute the Adjusted Net Distributable Cash and the
NDC Rent. Subject to Landlord's right to dispute such NDC Statement
pursuant to Article 58 hereof, if such NDC Statement shall show that the
amounts, if any, paid to Landlord under Section 57.2(a) hereof exceed
the amount actually due under such NDC Statement for such Lease Year,
then Landlord shall credit Tenant the amount of such overpayment
(together with interest thereon at the Prime Rate less five percent (5%)
(e.g., if the Prime Rate was 8%, then interest thereon would be
calculated at a per annum rate of 3%), but not less than three percent
(3%), from the date such overpayment was paid to Landlord to the date
such overpayment is credited or refunded, as applicable, as provided in
this Section if the actual amount of NDC Rent actually received by
Landlord under Section 57.2(a) hereof was more than ten percent (10%)
higher than the actual amount due and payable to Landlord pursuant to
Section 57.2(a) hereof) against the next accruing installment(s) of NDC
Rent and if the amount of the credit exceeds the amount of the
subsequent installment(s) of NDC Rent due under this Lease, the excess,
together with the aforementioned interest, shall be refunded to Tenant
within thirty (30) days of the receipt of such NDC Statement. If such
NDC Statement shall show that the amounts, if any, paid to Landlord
under Section 57.2(a) hereof are less than the amount actually due under
the NDC Statement for such Lease Year, then Tenant shall pay the
underpayment to Landlord contemporaneously with the delivery of such NDC
Statement to Landlord (together with interest thereon from the date such
payment was due to the date such payment is paid at the Prime Rate less
five percent (5%) (e.g., if the Prime Rate was 8%, then interest thereon
would be calculated at a per annum rate of 3%), but not less than three
percent (3%), if the actual amount of NDC Rent payable to Landlord under
Section 57.2(a) hereof was more than ten percent (10%) higher than the
amount paid to Landlord). The acceptance by Landlord of such NDC
Statement, or payments of NDC Rent with respect thereto, shall be
without prejudice
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and shall in no event constitute a waiver of Landlord's right to claim a
deficiency in the payment of NDC Rent or to audit Tenant's books and
records (as hereafter set forth) for a period of twenty-four (24) months
from the date of receipt of such NDC Statement. If Landlord does not
notify Tenant in writing of any dispute as to any NDC Statement within
such twenty-four (24) month period, then Landlord shall waive its right
to dispute such NDC Statement."
ARTICLE 11
BOOKS AND RECORDS
Section 11.1. A new Article 58 is added to the Lease to read in its entirety as
follows:
"58. BOOKS AND RECORDS.
58.1 (a) (i) In the event Tenant fails to maintain such books of account
or other records as required hereunder adequate for Landlord to perform
an audit of the accuracy of the NDC Statement ("REQUIRED RECORDS") as
provided herein for the first Lease Year, then, in such event, the
Adjusted Net Distributable Cash and the NDC Rent for such Lease Year
shall be the amount which, in the opinion of Tenant's Accounting Firm,
reflects a fair and accurate estimate of the Adjusted Net Distributable
Cash and the NDC Rent for such first Lease Year, subject to Landlord's
right to dispute such estimate pursuant to this Article 58.
(ii) Tenant shall prepare and keep in Tenant's main accounting office in
the United States of America for a period of not less than twenty-four
(24) months following the end of each Lease Year (plus any additional
time during which an audit or dispute with respect to the Adjusted Net
Distributable Cash or the NDC Rent for such period is pending), true,
complete and accurate books of account and records of the Net
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Distributable Cash, the Gross Cash Receipts, the Expenditures, the
Reserves, the Management Fee, the Operating Loss, the Percentage
Operating Loss Return Payments, the Outstanding Operating Loss, the
Percentage Equity Return Payments and the Outstanding Capital Investment
from which the Adjusted Net Distributable Cash and the NDC Rent can be
determined.
(iii) Landlord shall have the right, at any time and from time to time
for a period of twenty-four (24) months following the submission of each
NDC Statement to Landlord (which period shall be extended for any
additional time during which an audit with respect thereto is pending),
upon reasonable written notice, to cause a so-called "Big 5" accounting
firm to perform on behalf of Landlord a complete audit to be made in
accordance with standard auditing practices of all Required Records
pertaining to the Adjusted Net Distributable Cash and the NDC Rent and
of any one or more NDC Statements, and in connection with such audit, to
examine the books of account and records (including, without limitation,
all supporting data and any other records from which the Adjusted Net
Distributable Cash and the NDC Rent may be tested or determined) of the
Adjusted Net Distributable Cash and the NDC Rent disclosed in any
statement given to Landlord; and as to Tenant's books of account and
records, Tenant shall make all such books of account and records with
respect to the Adjusted Net Distributable Cash and the NDC Rent
available for such examination in the United States of America at the
office where the same are regularly maintained. Landlord and Landlord's
accounting firm shall have the right, at Landlord's sole cost and
expense, to copy and duplicate such information as Landlord may require
and use Tenant's duplicating machines in connection therewith. Tenant
shall cooperate with Landlord and Landlord's accounting firm in
connection with any such audit and shall furnish to Landlord and
Landlord's accounting firm within ten (10) days after written demand
representations signed and certified by the Financial Officer of Tenant
to be true and correct as may be necessary for the
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issuance of an audit opinion by Landlord's accounting firm with respect
to Adjusted Net Distributable Cash and the NDC Rent for any Lease Year.
Landlord shall promptly provide Tenant with a copy of any such audit.
(iv) If any such audit discloses that, with respect to the period for
which Landlord conducted such audit, Tenant paid less NDC Rent than
Tenant was obligated to pay in accordance with the terms and conditions
of this Lease, then Tenant shall pay Landlord the amount of such
underpayment (with interest thereon at the greater of ten percent (10%)
per annum or the Prime Rate from the date such payment was due to the
date such payment is paid) within thirty (30) days after demand therefor
and, if the audit discloses that a NDC Statement was inaccurate and the
actual amount of NDC Rent payable to Landlord was more than five percent
(5%) higher than the amount paid by Tenant as a result of any such
inaccuracy and/or if the audit discloses that a Quarterly Statement was
inaccurate and the actual amount of NDC Rent payable to Landlord was
more than ten percent (10%) higher than the amount paid by Tenant as a
result of any such inaccuracy, then Tenant shall, in addition to such
additional NDC Rent plus interest, pay to Landlord the reasonable actual
out-of-pocket cost of such audit and examination incurred by Landlord
(not to exceed $7,500.00 in each instance) within thirty (30) days after
demand therefor. If any such audit discloses that, with respect to the
period for which Landlord conducted such audit, Tenant paid more NDC
Rent than Tenant was obligated to pay in accordance with the terms and
conditions of this Lease, then Landlord shall credit the amount of such
overpayment (with interest thereon at the Prime Rate from the date such
overpayment was paid to Landlord to the date such overpayment is
credited or refunded, as applicable, as provided in this Section
58.1(a)(iv)) against the next accruing installment(s) of NDC Rent and if
the amount of the credit exceeds the amount of the subsequent
installment(s) of NDC Rent due under this Lease, the excess shall be
refunded to Tenant within thirty (30) days after any such audit by
Landlord. If any audit shall be commenced by
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Landlord or if there shall arise a dispute concerning the Adjusted Net
Distributable Cash and/or the NDC Rent, then, and in any such event, the
books of account and records required to be maintained shall be
preserved and retained until such audit has been completed or there has
been a final resolution or final determination of such dispute or any
related litigation.
(b) If Tenant shall fail to prepare and deliver any NDC Statement,
Landlord shall have the right, in addition to any other rights or
remedies Landlord may have hereunder, to audit the Required Records, and
to prepare the statement or statements which Tenant has failed to
prepare and deliver. Such audit shall be made and such statement(s)
shall be prepared by an independent certified public accountant selected
by Landlord. Subject to Tenant's arbitration rights under Article 59
hereof, the statement(s) prepared by Landlord shall be conclusive and
binding upon Tenant, and Tenant shall pay within fifteen (15) days after
rendition of a bill, all expenses incurred in the preparation of such
statement(s) and all sums, if any, as may be shown by such audit to be
due as NDC Rent, together with interest thereon at the greater of ten
percent (10%) per annum or the Prime Rate from the date such payment was
due hereunder.
(c) If a dispute arises with respect to the determination of the
Adjusted Net Distributable Cash or NDC Rent payable hereunder which
dispute is not resolved within thirty (30) days after the date that NDC
Rent is due hereunder then, at any time within twenty-four (24) months
following submission of the applicable NDC Statement to Landlord (which
period
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shall be extended for any additional time during which an audit with
respect thereto is pending), either party may by notice to the other
submit the dispute to arbitration pursuant to Article 59 hereof. Pending
the determination of such dispute, Tenant shall pay all amounts not in
dispute in accordance with Section 57.2 hereof. If such arbitration
shall mandate that additional amounts are due Landlord, then Tenant
shall pay to Landlord such amount with interest thereon at the greater
of ten percent (10%) per annum or the Prime Rate from the date such
payment was due hereunder. If such arbitration shall mandate that Tenant
paid more NDC Rent than Tenant was obligated to pay in accordance with
the terms and conditions of this Lease, then Landlord shall credit the
amount of such overpayment (with interest thereon at the Prime Rate from
the date such overpayment was paid to Landlord to the date such
overpayment is credited or refunded, as applicable, as provided in this
Section 58.1(c)) against the next accruing installment(s) of NDC Rent
and if the amount of the credit exceeds the amount of the subsequent
installment(s) of NDC Rent due under this Lease, the excess shall be
refunded to Tenant within thirty (30) days after any such arbitration
decision.
(d) Landlord shall at all times maintain the confidentiality of the
Quarterly Statements and the NDC Statements, except to the extent
reasonably necessary to (i) comply with applicable laws, regulations,
court or administrative orders, or to prosecute or defend any claim or
suit by litigation or otherwise under this Lease, and (ii) provided that
the recipients
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of such information agree in writing to hold same in confidence (A)
carry out the obligations set forth in this Lease or documents
evidencing and/or securing any ground leases or underlying leases which
may now exist or hereafter be executed affecting the Premises, any lien
of any mortgage or deed of trust which may now exist or hereafter be
executed in any amount for which the Premises is specified as security,
and any condominium documents and any private covenants, conditions or
restrictions or reciprocal easements which may now or hereafter be
recorded encumbering the Development, (B) obtain legal, financial and/or
tax advice from Landlord's attorneys, accountants and financial
advisors, (C) negotiate or complete a transaction with a lender to
Landlord or any Affiliate of Landlord secured by Landlord's and/or such
Affiliate's interest in the Development, any building situated on the
Development or this Lease (including, without limitation, a pledge of
rents payable thereunder) or purchaser of any building situated on the
Development or the Development or (D) negotiate or complete a public or
private syndication or similar offering involving this Lease, Landlord
or any Affiliate of Landlord, the interests of any of the members of
Landlord or any Affiliate of Landlord, the Development and/or any
building situated on the Development."
ARTICLE 12
ARBITRATION
Section 12.1. A new Article 59 is added to the Lease to read in its entirety as
follows:
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"59. ARBITRATION.
59.1 In each case specified in Articles 57 and 58 of this Lease in which
resort to arbitration shall be required, such arbitration (unless
otherwise specifically provided in other Sections of this Lease) shall
be in New York City with respect to the first, third, fifth and each
subsequent odd arbitration entered into in connection with said Articles
and in Los Angeles, California with respect to the second, fourth, sixth
and each subsequent even arbitration entered into in connection with
said Articles in accordance with the Commercial Arbitration Rules of the
American Arbitration Association and the applicable provisions of this
Lease, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
59.2 Either party may request arbitration of any matter in dispute
wherein arbitration is expressly provided in Articles 57 and/or 58 of
this Lease as the appropriate remedy. The party requesting arbitration
shall do so by giving written notice to that effect to the other party,
specifying in such notice the nature of the dispute and the name and
address of the person designated to act as an arbitrator on its behalf.
Within fifteen (15) days after the service of such notice, the other
party shall give notice to the first party specifying the name and
address of the person designated to act as an arbitrator on its behalf.
If the second party fails to notify the first party of the appointment
of its arbitrator, as aforesaid, within the time above specified, then
the appointment of the second arbitrator shall be
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made in the same manner as hereinafter provided for the appointment of a
third arbitrator in a case where the two arbitrators appointed hereunder
and the parties are unable to agree upon such appointment. The two
arbitrators so chosen shall meet within ten (10) days after the second
arbitrator is appointed and if, within thirty (30) days after the second
arbitrator is appointed, the two arbitrators shall not agree upon the
question in dispute, they shall together appoint a third arbitrator. In
the event of their being unable to agree upon such appointment within
thirty (30) days after the appointment of the second arbitrator, the
third arbitrator shall be selected by the parties themselves if they can
agree thereon within a further period of fifteen (15) days. If the
parties do not so agree, then either party, on behalf of both and on
notice to the other, may request such appointment by the American
Arbitration Association (or any organization successor thereto) in
accordance with its rules then prevailing or if the American Arbitration
Association (or such successor organization) shall fail to appoint said
third arbitrator within fifteen (15) days after such request is made,
then either party may apply, on notice to the other, to the Supreme
Court in the County of New York or in the County of Los Angeles, as
applicable (or any other court having jurisdiction and exercising
functions similar to those now exercised by such court), for the
appointment of such third arbitrator. Such third arbitrator chosen or
appointed pursuant to this Section shall be a disinterested person and
each arbitrator chosen or appointed shall have at
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least ten (10) years' experience in the County of New York or in the
County of Los Angeles, as applicable, in a calling connected with the
dispute.
59.3 The arbitrators shall have the right to retain and consult experts
and competent authorities skilled in the matters under arbitration. The
arbitrators shall render their award, upon the concurrence of at least
two (2) of their number, within sixty (60) days after the appointment of
the third arbitrator. Such award shall be in writing and shall be final
and conclusive on the parties and counterpart copies thereof shall be
delivered to each of the parties. In rendering such decision and award,
the arbitrators shall not add to, subtract from or otherwise modify the
provisions of this Lease. Judgment may be had on the decision and award
of the arbitrators so rendered, in any court of competent jurisdiction.
59.4 If for any reason whatsoever the written decision and award of the
arbitrators shall not be rendered within sixty (60) days after the
appointment of the third arbitrator, then at any time thereafter before
such decision and award shall have been rendered either party may apply
to the Supreme Court of the State of New York or to the Supreme Court of
the State of California, as applicable, or to any other court having
jurisdiction and exercising the functions similar to those now exercised
by such court, by action, proceeding or otherwise (but not by a new
arbitration proceeding) as may be proper to determine the question in
dispute consistent with the provisions of this Lease.
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59.5 Each party shall pay the fees and expenses of the one of the two
original arbitrators appointed by or for such party, as well as the
attorneys' fees, witness fees and similar expenses incurred by such
party, and the fees and expenses of the third arbitrator and all other
expenses of the arbitration shall be borne by the parties equally.
Notwithstanding the foregoing, if a majority of the arbitrators
determine that the position of either party was taken willfully and is
without merit or the consent of either party was unreasonably withheld
or delayed, the arbitrators may require such party to bear all the
expenses of the arbitration as well as the prevailing party's witness
fees, attorney fees and similar expenses.
59.6 In the case of any arbitration hereunder, the arbitrators shall be
instructed and will give effect to the intent of this Lease."
ARTICLE 13
OPERATIONAL BUDGETS AND OPERATIONAL STRATEGIES
Section 13.1. A new Article 60 is added to the Lease to read in its entirety as
follows:
"60. OPERATIONAL BUDGETS AND STRATEGIES.
60.1 On an annual basis, Tenant shall prepare a written line item budget
in reasonable detail and substantially in the form of SCHEDULE 2 annexed
hereto ( the "INITIAL OPERATIONAL BUDGET") of all anticipated Net
Distributable Cash, Gross Cash Receipts, Reserves, Management Fees,
Adjusted Net Distributable Cash, Operating Losses, Percentage Operating
Loss Return Payments, Outstanding Operating Losses, Percentage Equity
Return Payments, Outstanding Capital Investment, and NDC Rent for the
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next fiscal year of Tenant (each such budget, a "BUDGET" and each such
fiscal year, a "FISCAL YEAR") and shall submit such Budget to Landlord
for its information and review as and when the same shall be prepared by
Tenant in the course of its ordinary business practice but not later
than the commencement of such Fiscal Year. Simultaneously with the
delivery of the Budget for each Fiscal Year, Tenant shall also deliver
to Landlord for its information and review a reasonably detailed
operations, sales and marketing strategy for the Premises (said
strategy, the "STRATEGY"). Tenant shall also prepare and submit to
Landlord, for its information and review, within 30 days after the end
of each month after the general opening of the Club to its members,
reasonably detailed information regarding that month's operating
revenue, expenditures, membership level, membership sales and marketing
activities. Notwithstanding the foregoing, however, Tenant shall not be
required to prepare and deliver to Landlord pursuant to this Section
60.1 any information not otherwise already being prepared by Tenant for
its own internal use. Tenant shall give good faith consideration to any
comments Landlord may have regarding any such Budget, Strategy or
monthly information but shall not be required to implement any of the
same. Landlord shall keep all such Budgets, Strategies and monthly
materials confidential, except that Landlord may disclose such materials
(i) if and then only to the extent as may be required by process of law,
(ii) to its professional advisors if they agree to keep such materials
confidential on the same terms as Landlord is
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required to keep them confidential and (iii) to any potential purchaser
of the Premises or any interest therein, any lender potentially making a
loan secured in whole or in part by the Premises, or any potential
purchaser of any interest, direct or indirect, in Landlord, but in each
such case, only if the party in question agrees to keep such materials
confidential on the same terms as Landlord is required to keep them
confidential.
ARTICLE 14
BROKERAGE
Section 14.1. Tenant and Landlord each represent and warrant that neither
consulted or negotiated with any broker or finder with regard to the terms of
this Agreement. Tenant and Landlord each agree to indemnify, defend and save the
other party harmless from an against any claims for fees or commissions from
anyone with whom the indemnifying party has dealt in connection with the terms
of this Agreement.
ARTICLE 15
MISCELLANEOUS
Section 15.1. Except as may be expressly modified or amended by this Agreement,
the terms, covenants and conditions of the Lease are hereby ratified and
confirmed and shall be and remain in full force and effect in accordance with
their terms. Except insofar as reference to the contrary is made in any such
instrument, all references to the "Lease" in the Lease and any future
correspondence, notice or instrument shall be deemed to refer to the Lease as
modified by this Agreement.
Section 15.2. This Agreement shall not be binding upon Landlord and Tenant
unless and until it is signed by both parties hereto and a signed copy hereof is
delivered by Landlord to Tenant.
Section 15.3. This Agreement constitutes the entire agreement among the parties
hereto with respect to the matters stated herein and may not be amended or
modified unless such amendment or modification shall be in writing and signed by
the party against whom enforcement is sought.
Section 15.4. The terms, covenants and conditions contained in this Agreement
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns (subject in any event to the limitations and prohibitions
set forth in the Lease on Tenant's right to assign its interest therein).
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Section 15.5. This Agreement shall be governed in all respects by the laws of
the State of California.
Section 15.6. Article 9 of the Lease is modified by changing all references to
"Battle Fowler LLP" to "Paul, Hastings, Janofsky & Walker LLP."
Section 15.7. Except as expressly modified herein, the parties hereto affirm
that the Lease is in full force and effect.
Section 15.8. Tenant hereby grants the residents of the condominium units in the
Building, if and for so long as valet parking within the Development shall also
be reasonably available to such residents, the non-exclusive use of the
elevators located in the Premises for access to and from the Building parking
garage from and to the Building lobby.
Section 15.9. This Agreement shall be subject to the approval of Landlord's
lender, Fleet Bank National Association (the "LENDER"). After the date this
Agreement is executed and delivered by both parties hereto, Landlord agrees to
promptly submit this Agreement to the Lender for its approval and Landlord shall
use commercially reasonable efforts thereafter to diligently obtain the approval
of the Lender, including the funding of additional funds or the depositing of
additional funds with the Lender reasonably required by the Lender (but not in
excess of an additional $9.5 million in respect of the increase in the Landlord
Allowance from the $9.5 million originally set forth in the Lease to the $19
million set forth in the Lease as amended by this Agreement plus an additional
$5 million in respect of the payment described in Section 6.3 hereof) in order
to obtain the approval of the Lender. In connection with the foregoing, Tenant
agrees to reasonable cooperate with Landlord to obtain the approval of the
Lender and Tenant hereby consents to any non-material modifications to this
Agreement reasonably requested by the Lender. If the Lender disapproves of this
Agreement, (a) this Agreement shall be cancelled and be of no further force or
effect and neither party hereto shall have any further rights, liabilities or
obligations hereunder, it being agreed and understood, however, that if this
Agreement is not approved by the Lender, then the parties' respective rights,
duties, obligations and positions in respect of the Lease shall remain unchanged
by this Agreement and shall be what they would have been if this Agreement had
never been signed, and (b) thereafter Landlord and Tenant shall negotiate in
good faith so that Landlord and Tenant shall obtain the benefits of the material
terms set forth in this Agreement, including, without limitation, the Landlord
Contribution, the $5 million payment described in Section 6.3 hereof and the
obligations of Tenant described in Article 7 hereof, whether by means of the
execution of a certain subsequent agreement(s) between the parties which is
mutually acceptable or in such other mutually agreeable manner.
Section 15.10. Tenant agrees that Tenant shall take no willful action, not
otherwise permitted in accordance with the terms and conditions of this Lease,
the effect of which shall be to materially interfere with the operations, use or
enjoyment of any portion of the Development, other than the Premises, by the
occupants or users thereof. Landlord agrees Landlord shall take no willful
action, not otherwise permitted to be taken by
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Landlord in accordance with the terms and conditions of this Lease, the effect
of which shall be to materially interfere with the operations, use or enjoyment
of the Premises or its associated parking and other Common Areas by Tenant, any
permitted subtenant, members of the Club or other permitted occupants or users
of the Premises; provided, however, that the use by Landlord or a Person other
than Tenant of any space within the Development that is not a part of the Common
Areas shall not be a violation of this Section 15.10 if and for so long as such
use is not prohibited by Section 8.4 of the Lease. Landlord further agrees that
it shall promptly and diligently exercise any rights and remedies it may have
under any documents pertaining to the Project (including, without limitation,
any covenants, conditions and restrictions and any declaration of any
condominium association for all or any part of the Project) so as to prevent or
halt any act or omission which materially interferes with the operations, use or
enjoyment of the Premises or its associated parking and other Common Areas by
Tenant, any permitted subtenant, members of the Club or any other permitted
occupants or users of the Premises. Landlord further agrees that, for so long as
it is the owner of the parking associated with the Premises, it shall not permit
any operator of such parking, whether under a parking lease, a parking
management contract, or otherwise, to take any willful action, not otherwise
permitted to be taken by Landlord in accordance with the terms and conditions of
this Lease, the effect of which shall be to materially interfere with the
parking rights granted to Tenant under Section 36 of the Lease. If Landlord
shall, at any time, not own the parking associated with the Premises, then
Landlord, before Landlord shall have ceased to own the same, shall have taken
such actions as are reasonably necessary in order for the owner of the parking
spaces to which Tenant has rights hereunder to acknowledge and agree (i) to
preserve such parking rights, subject to the terms and conditions of this Lease
applicable to such parking spaces, and (ii) that Tenant is an express third
party beneficiary of the agreement described in the immediately preceding clause
(i) and is entitled to enforce the same against such owner, as a non-exclusive
remedy and at such owner's expense if Tenant is the prevailing party, as if such
agreement had been made directly with Tenant. The failure of Landlord or Tenant
to perform under this Section 15.10, if and for so long as such failure shall
continue for a period of three (3) days following notice thereof from the other
party, shall constitute, as applicable, a Default by Tenant or a default by
Landlord, in each case, without there being any additional notice and cure
period applicable thereto whether under Section 23 of the Lease or otherwise;
provided, however, that if there shall be two such failures by a party in any
consecutive twelve (12) month period, then any additional such failure by such
party during such twelve (12)-month period shall continue to be, as applicable,
a Default by Tenant or a default by Landlord even if such failure shall
subsequently be cured after the expiration of the three (3)-day period
commencing upon notice thereof from the other party.
Section 15.11 Notwithstanding anything to the contrary contained in the Lease,
in no event shall the payment of any interest due under the Lease, from time to
time, be calculated at a rate higher than the maximum permitted legal rate.
Section 15.12 The following new Section 46.4 is hereby added to the Lease as
follows:
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"In the event that any of the machinery, fixtures, furniture and
equipment installed by Tenant (collectively, "COLLATERAL"), from time to
time, in the Premises are purchased or acquired by Tenant subject to a
chattel mortgage, conditional sale agreement or other title retention or
security agreement, Landlord agrees, at Tenant's sole cost and expense,
reasonably to cooperate in connection therewith, including, without
limitation, executing, acknowledging and delivering any commercially
reasonable consent that the third party to such chattel mortgage,
conditional sale agreement or other title retention or security
agreement may require of Landlord; provided that (i) Landlord shall be
under no obligation to preserve or protect any of the Collateral at any
time, (ii) following a Default by Tenant under this Lease and/or a
default or breach by Tenant under any applicable chattel mortgage,
conditional sale, or other title retention or security agreement, the
third party or parties thereunder must reimburse Landlord for any and
all reasonable costs incurred by Landlord in storing any of the
Collateral and in restoring the Premises upon the removal of any of the
Collateral, and (iii) Landlord shall be under no obligation to release
any of the Collateral except as may be provided in the applicable
consent or absent such consent as ordered by a court of competent
jurisdiction in the event of any bankruptcy filing by Tenant."
Section 15.13. By executing this Agreement, The Sports Club Company, a Delaware
corporation, hereby confirms that all references to the "Lease" in the Guaranty
of Lease, dated as of October 27, 1998, from The Sports Club Company to Landlord
means the Lease as modified by this Agreement.
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Section 15.14 This Agreement shall be subject to the parties' mutual agreement
upon an exhibit, to be attached hereto as Exhibit F if and when so mutually
agreed upon (the "CONSTRUCTION RELATED MATTERS EXHIBIT"), regarding the
settlement of various construction related charges, such as hard and soft costs
(including overtime charges if required). The parties shall negotiate the
Construction Related Matters Exhibit diligently and in good faith. If the
parties have not mutually agreed upon the Construction Related Matters Exhibit
on or before March 29, 2001, then either party thereafter may cancel this
Agreement by written notice to the other party. If this Agreement shall be
canceled as a result of any such failure to have agreed upon the same, then this
Agreement shall be of no further force or effect, and neither party hereto shall
have any further rights, liabilities or obligations hereunder; it being agreed
and understood, however, that in such case the parties' respective rights,
duties, obligations and positions in respect of the Lease shall remain unchanged
by this Agreement and shall be what they would have been if this Agreement had
never been signed.
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IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Agreement as of the day and year first above written.
LANDLORD:
CB-1 ENTERTAINMENT PARTNERS LP,
a California limited partnership
By: CB-1 Office Partners LP, a California limited
partnership, its general partner
By: Millennium/WDG Office Partners LLC,
a California limited liability company,
its general partner
By: Millennium Partners LLC,
a New York limited liability company,
its managing member
By: Millennium Partners Management LLC,
a New York limited liability company,
its managing member
By: Millennium Manager I, Inc.,
a New York corporation,
its managing member
By:
Name: /s/ Brian J. Collins
--------------------------------
Title:
TENANT:
S.F. SPORTS CLUB, INC.,
a Delaware corporation
By: /s/ Timothy O'Brien
----------------------------------
Name: Timothy O'Brien
Title: President and Chief Financial Officer
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If the Lender approves of this Agreement and it is not otherwise terminated
pursuant to Sections 6.3 and 15.14 of this Agreement, then The Sports Club
Company hereby confirms, acknowledges and agrees that the terms and provisions
of that certain Guaranty of Lease, dated as of October 27, 1998, are hereby
extended to include this Agreement and all of the terms and provisions contained
herein (including, without limitation, Section 15.13 of this Agreement), and
that such Guaranty remains in full force and effect and the legal, valid and
binding obligation of the undersigned, enforceable in accordance with its terms.
THE SPORTS CLUB COMPANY,
a Delaware Corporation
By: /s/ Timothy O'Brien
---------------------------------------
Name: Timothy O'Brien
Title: Chief Financial Officer
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