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EXHIBIT 10.77
6/9/98 BANK LOAN
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SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of June 9, 1998
between
THE SPORTS CLUB COMPANY, INC.,
and various of its subsidiaries,
as Borrowers,
and
SUMITOMO BANK OF CALIFORNIA,
COMERICA BANK-CALIFORNIA,
and such other financial institutions
as may become a lending party hereto
as Banks
and
SUMITOMO BANK OF CALIFORNIA,
as Agent
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TABLE OF CONTENTS
Page
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ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS................................................1
1.1 Defined Terms................................................................1
1.2 Use of Defined Terms........................................................12
1.3 Accounting Terms............................................................12
1.4 Exhibits and Schedules......................................................12
ARTICLE 2 LOANS AND LETTERS OF CREDIT....................................................13
2.1 General Provisions Regarding Loans and Borrowing Procedures.................13
2.2 Intentionally Omitted.......................................................14
2.3 Prime Rate Loans............................................................14
2.4 Eurodollar Loans............................................................14
2.5 Redesignation of Loans......................................................14
2.6 Standby Letters of Credit...................................................15
2.7 Agent's Right to Assume Funds Available for Advances........................18
ARTICLE 3 PAYMENTS AND FEES..............................................................19
3.1 Principal and Interest......................................................19
3.2 Commitment Fee..............................................................20
3.3 Eurodollar Fees and Costs...................................................20
3.4 Letter of Credit Fees.......................................................22
3.5 Agent Fee...................................................................22
3.6 Late Payments/Default Rate..................................................22
3.7 Computation of Interest and Fees............................................23
3.8 Non-Banking Days............................................................23
3.9 Manner and Treatment of Payments............................................23
3.10 Funding Sources.............................................................23
3.11 Failure to Charge Not Subsequent Waiver.....................................24
3.12 Agent's Right to Assume Payments Will be Made by Borrowers..................24
3.13 Survivability...............................................................24
3.14 Unused Line Fee.............................................................24
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.................................................25
4.1 Existence and Qualification; Power; Compliance With Laws....................25
4.2 Authority; Compliance With Other Agreements and Instruments and
Government Regulations....................................................26
4.3 No Governmental Approvals Required..........................................27
4.4 Subsidiaries................................................................27
4.5 Financial Statements........................................................28
4.6 No Other Liabilities; No Material Adverse Changes...........................28
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4.7 Intangible Assets...........................................................28
4.8 Filing of Financing Statements..............................................28
4.9 Public Utility Holding Company Act..........................................28
4.10 Litigation..................................................................29
4.11 Binding Obligations.........................................................29
4.12 No Default..................................................................29
4.13 ERISA.......................................................................29
4.14 Regulations T, U and X; Investment Company Act..............................30
4.15 Disclosure..................................................................30
4.16 Tax Liability...............................................................30
4.17 Projections.................................................................30
4.18 Fiscal Year.................................................................30
4.19 Employee Matters............................................................30
ARTICLE 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS)......31
5.1 Payment of Taxes and Other Potential Charges................................31
5.2 Preservation of Existence...................................................31
5.3 Maintenance of Properties...................................................31
5.4 Maintenance of Insurance....................................................31
5.5 Compliance With Laws........................................................32
5.6 Additional Borrowers........................................................32
5.7 Inspection Rights...........................................................32
5.8 Keeping of Records and Books of Account.....................................33
5.9 Compliance With Agreements, Duties and Obligations..........................33
5.10 Use of Proceeds.............................................................33
ARTICLE 6 NEGATIVE COVENANTS.............................................................34
6.1 Disposition of Property.....................................................34
6.2 Transactions with Borrowers and Non-Borrower Affiliates.....................34
6.3 Mergers, Acquisitions and New Club Developments.............................34
6.4 Profitability...............................................................37
6.5 Redemption, Dividends and Distributions; Payments to Partners...............37
6.6 ERISA.......................................................................38
6.7 Change in Nature of Business/Management.....................................38
6.8 Intentionally Omitted.......................................................38
6.9 Indebtedness, Guaranties and Liens..........................................39
6.10 Transactions with Affiliates................................................40
6.11 Change in Fiscal Year.......................................................40
6.12 Capital Expenditures and Purchase Money Transactions........................40
6.13 Tangible Net Worth..........................................................41
6.14 Ratio of Total Unsubordinated Liabilities to Tangible Net Worth.............41
6.15 Debt Service Coverage Ratio.................................................41
6.16 Intentionally Omitted.......................................................41
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6.17 Loans to Officers...........................................................41
6.18 Deposit Accounts............................................................41
6.19 Ratio of Funded Debt to EBITDA..............................................41
ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS.........................................43
7.1 Financial and Business Information..........................................43
7.2 Compliance Certificates.....................................................45
7.3 Revisions or Updates to Schedules...........................................46
ARTICLE 8 CONDITIONS.....................................................................47
8.1 Initial Loans, Etc..........................................................47
8.2 Any Loan....................................................................48
ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT...........................50
9.1 Events of Default...........................................................50
9.2 Remedies Upon Event of Default..............................................52
ARTICLE 10 THE AGENT.....................................................................54
10.1 Appointment and Authorization...............................................54
10.2 Agent and Affiliates........................................................54
10.3 Proportionate Interest of the Banks in any Collateral.......................54
10.4 Banks' Credit Decisions.....................................................54
10.5 Action by Agent.............................................................55
10.6 Liability of Agent..........................................................55
10.7 Indemnification.............................................................56
10.8 Successor Agent.............................................................57
ARTICLE 11 MISCELLANEOUS.................................................................58
11.1 Intentionally Omitted.......................................................58
11.2 Cumulative Remedies; No Waiver..............................................58
11.3 Amendments; Consents........................................................58
11.4 Costs, Expenses and Taxes...................................................59
11.5 Nature of Banks' Obligations................................................59
11.6 Survival of Representations and Warranties..................................59
11.7 Notices.....................................................................60
11.8 Execution of Loan Documents.................................................60
11.9 Sharing of Setoffs..........................................................60
11.10 Binding Effect; Assignment.................................................61
11.11 Assignment of Deposits.....................................................61
11.12 Participation of Loan......................................................61
11.13 Indemnity by Borrowers.....................................................61
11.14 Nonliability of Banks......................................................62
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11.15 No Third Parties Benefited.................................................63
11.16 Further Assurances.........................................................63
11.17 Integration................................................................63
11.18 Governing Law..............................................................63
11.19 Severability of Provisions.................................................63
11.20 Headings...................................................................63
11.21 Time of the Essence........................................................63
11.22 Securities Representation..................................................64
11.23 Joint Borrower Provisions..................................................64
11.24 Waiver of Jury Trial.......................................................69
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Exhibits
A Global Collateral Documents Amendment
B Note
C Request for Standby Letter of Credit
D Request for Loan
E Request for Redesignation of Loans
F Vertical Club Materials
G Houston Sports Club Materials
Schedules
4.2 Necessary Consents
4.4 Subsidiaries
4.6 Material Contingent Liabilities
4.8 Governmental Agencies With Which Financing Statements Need be Filed
and/or Recorded
4.10 Litigation
4.13 Plans Subject to ERISA
4.17 Projections
5.2 Preservation of Existence
5.6 Additional Borrowers
6.3(c) Existing New Club Development Projects
6.9 Indebtedness, Guaranties and Liens
6.10 Transactions with Affiliates
6.17 Loans to Officers
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SECOND AMENDED AND RESTATED LOAN AGREEMENT
Dated as of June 9, 1998
WHEREAS, The Sports Club Company, Inc., The Spectrum Club Company,
Inc., Pontius Realty, Inc., Sports Club, Inc. of California, Irvine Sports Club,
Inc., The SportsMed Company, Inc., formerly HealthFitness Organization of
America, Inc., L.A./Irvine Sports Clubs, Ltd., Talla New York, Inc., SCC Sports
Club, Inc., Spectrum Club/Anaheim Hills, Inc. and Green Valley Spectrum Club,
Inc. are parties to that certain Amended and Restated Loan Agreement dated as of
February 2, 1998 as amended by a First Amendment dated as of February 23, 1998
and a Second Amendment dated as of March 16, 1998 (collectively, the "Original
Loan Agreement") with Sumitomo Bank of California and Comerica Bank - California
as lenders and Agent (as defined below) as the agent for such lenders; and
WHEREAS, Borrowers (as defined below), Sumitomo Bank of
California, Comerica Bank -California and Agent have agreed to amend and restate
the Original Loan Agreement to provide for, among other things, an increase in
the amount and an extension of the term of the credit facilities, a reduction in
the interest rates applicable to the credit facilities, and certain
modifications to the financial covenants; and
WHEREAS, Borrowers, Agent and Banks (as defined below) do hereby
enter into this Second Amended and Restated Loan Agreement in place and stead of
the Original Loan Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the meanings set forth respectively after each:
"Acquisition" means any transaction, or any series of related
transactions, by which any Borrower and/or any of its Subsidiaries
directly or indirectly acquires control of any going business or all or
substantially all of the assets of any firm, partnership, joint venture,
limited liability company, corporation (or division thereof) operating as
a health and fitness facility, whether through purchase of assets, merger
or otherwise, (control meaning possession, directly or indirectly, of the
power to direct or cause the direction of management or policies of such
entities); provided that, in any event, the term "Acquisition" shall
include any acquisition in which any Borrower and/or any Subsidiaries
thereof controls a majority in ordinary voting power of the securities of
a corporation operating as a health and fitness facility which have
ordinary voting power for the election of directors or other governing
body of a corporation (other than securities having such power only by
reason of the happening of a contingency), or control 50% or more
ownership interest in any partnership, limited liability company or joint
venture operating as a health and fitness facility.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (and
its correlative meanings, "controlled by" and "under common control
with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise), provided that, in any event, any Person that
owns, directly or indirectly, 50% or more of the securities having
ordinary voting power for the election of directors or other governing
body of a corporation (other than securities having such power only by
reason of the happening of a contingency), or 50% or more of the
partnership or other ownership interests of any other Person (other than
as a limited partner of such other Person), will be deemed to control
such corporation or other Person.
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"Agent" means Sumitomo Bank of California, a California state
bank, when acting in its capacity as agent under any of the Loan
Documents, and any successor agent.
"Agent's Office" means the office designated by Agent as its
address for purposes of notice under this Agreement.
"Agreement" means this Second Amended and Restated Loan Agreement,
either as originally executed or as it may from time to time be
supplemented, modified, amended, restated or extended.
"Applicable Pricing Level" means, for any Eurodollar Period, the
pricing level set forth below opposite the ratio of Funded Debt to
EBITDA, which Agent shall determine quarterly upon, and with effect from
and after the date of, Agent's receipt of the quarterly compliance
certificates required by Section 7.2 of this Agreement:
Ratio of Funded Debt
Pricing Level to EBITDA
------------- --------------------------------------
I Less than 2.50 to 1.0
II Equal to or greater than 2.50
to 1.00 but less than 3.25 to 1.00
III Equal to or greater than 3.25 to 1.00.
"Bank" or "Banks" means individually or collectively Sumitomo Bank
of California, Comerica Bank - California and any one or more banks or
other financial institutions which become lending parties to this
Agreement in accordance with the terms hereof.
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday on which all of the Banks are open for business at their
respective addresses for notice designated as provided herein.
"Borrower or Borrowers" means, individually or collectively, The
Sports Club Company, Inc., The Spectrum Club Company, Inc., Pontius
Realty, Inc., Sports Club, Inc. of California, Irvine Sports Club, Inc.,
The SportsMed Company, Inc., L.A./Irvine Sports Clubs, Ltd., Talla New
York, Inc., SCC Sports Club, Inc., Green Valley Spectrum Club, Inc.,
Spectrum Club Anaheim and any subsequent Person who becomes a Borrower
pursuant to the terms hereof.
"Capital Expenditure" means any expenditure (including any
capitalized lease expenditure) that is considered a capital expenditure
under generally accepted accounting principles, consistently applied,
including, without limitation, any amount that is required to be treated
as a capitalized asset pursuant to Financial Accounting Standards Board
Statement No. 13.
"Cash" means, when used in connection with any Person, all
monetary and non-monetary items belonging to such Person that are treated
as cash in accordance with generally accepted accounting principles,
consistently applied.
"Cash Equivalents" means, when used in connection with any Person,
such Person's Investments in:
(a) Government Securities due within one year after the
date of the making of the Investment;
(b) certificates of deposit issued by, bank deposits in,
bankers' acceptances of, and repurchase agreements covering,
Government Securities executed by, any bank doing business in
and incorporated under the Laws of the United States of America
or any state thereof and
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having on the date of such Investment combined capital, surplus
and undivided profits of at least $100,000,000, in each case due
within one year after the date of the making of the Investment;
and/or
(c) readily marketable commercial paper of corporations
doing business in and incorporated under the Laws of the United
States of America or any state thereof given on the date of such
Investment the highest credit rating by NCO/Moody's Commercial
Paper Division of Moody's Investors Service, Inc. or Standard &
Poor's Corporation, in each case due within six months after the
date of the making of the Investment.
"Certificate of a Responsible Official" means a certificate signed
by a Responsible Official of the Person providing the certificate.
"Closing Date" means the Banking Day on which the consummation of
all of the transactions contemplated in Section 8.1 occurs.
"Club" means a health and fitness facility operated by any
Borrower.
"Collateral" means, collectively, all Property on or in which the
Agent or any Bank has a Lien pursuant to this Agreement or any other Loan
Document.
"Commitment" means, collectively, the respective lending
commitments hereunder of Sumitomo Bank of California and Comerica Bank -
California, as such commitments may be reduced or offset under this
Agreement. The respective percentage obligations of each Bank with
respect to the Commitment are as follows:
Bank Amount Percentage
---- ------ ----------
Sumitomo Bank of California $15,000,000 50%
Comerica Bank - California $15,000,000 50%
"Default" means any Event of Default and/or any event that, with
the giving of notice or passage of time or both, would be an Event of
Default.
"Default Rate" means the rate of interest per annum otherwise
provided under this Agreement plus two percent (2%).
"Designated Deposit Account" means deposit account no. 01800220570
to be maintained by Borrowers with Agent at Agent's Office, or such other
deposit account as from time to time designated by Borrowers by written
notification to Agent and approved by Agent.
"Designated Eurodollar Market" means, with respect to any
Eurodollar Loan, the London Eurodollar Market, or such other Eurodollar
Market as may from time to time be designated by Agent.
"dollars" or "$" means United States dollars.
"EBITDA" means, for any fiscal period, for Borrowers, their
Subsidiaries, Sports Connection-ES/MB, to the extent of Borrowers'
interest therein, and, on a pro forma basis, any entity acquired by any
of the Borrowers or any of the Subsidiaries, adjusted for verifiable cost
savings acceptable to Banks: (a) the consolidated net income before
extraordinary items of such Persons for that period, determined in
accordance with generally accepted accounting principles, consistently
applied, plus (b) consolidated interest expense for that period, plus (c)
income tax expense for that fiscal period, plus (d) depreciation expense
for that fiscal period plus (e) amortization expense for that fiscal
period.
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"ERISA" means the Employee Retirement Income Security Act of 1974,
and any regulations issued pursuant thereto, as amended or replaced and
as in effect from time to time.
"Eurodollar Banking Day" means any Banking Day on which dealings
in dollar deposits are conducted by and between banks in the Designated
Eurodollar Market.
"Eurodollar Lending Office" means as to each Bank, its office or
branch so designated by written notice to Borrowers and Agent as its
Eurodollar Lending Office. If no Eurodollar Lending Office separately is
designated by a Bank, its Eurodollar Lending Office shall be its office
as designated for purposes of notice hereunder.
"Eurodollar Loan" means a Loan made hereunder and designated or
redesignated as a Eurodollar Loan in accordance with Article 2.
"Eurodollar Market" means a regular established market located
outside the United States of America by and among banks for Eurodollar
Obligations.
"Eurodollar Obligations" means eurocurrency liabilities, as
defined in Regulation D.
"Eurodollar Period" means, as to each Eurodollar Loan, the period
commencing on the date specified by Borrowers pursuant to Sections 2.1(b)
or 2.5(c) and ending 30, 60 or 90 days thereafter, as specified by
Borrowers in the applicable Request for Loan or Request for Redesignation
of Loans, provided that:
(a) The first day of any Eurodollar Period shall be a
Eurodollar Banking Day;
(b) Any Eurodollar Period that would otherwise end on a
day that is not a Eurodollar Banking Day shall be extended to
the next succeeding Eurodollar Banking Day unless such
Eurodollar Banking Day falls in another calendar month, in which
case such Eurodollar Period shall end on the next preceding
Eurodollar Banking Day; and
(c) No Eurodollar Period shall extend beyond the
Maturity Date.
"Eurodollar Rate" means, with respect to any Eurodollar Loan, (a)
the LIBOR Rate offered for deposits as of about 10:00 a.m., Los Angeles
time, two (2) Eurodollar Banking Days before the first day of the
applicable Eurodollar Period in an aggregate amount approximately equal
to the amount of such Eurodollar Loan and for a period of time comparable
to the number of days in the applicable Eurodollar Period divided by (b)
1.00 minus the Reserve Percentage. The determination of the Eurodollar
Rate by Agent shall be conclusive in the absence of manifest error.
"Eurodollar Rate Spread" means, for each Eurodollar Period, the
applicable additional component of interest, expressed as a percentage
per annum, set forth below opposite the Applicable Pricing Level, to be
added to the Eurodollar Rate in determining the applicable rate of
interest for Eurodollar Loans:
Applicable Pricing Eurodollar Rate
Level Spread
------------------ ---------------
I 1.50%
II 1.75%
III 2.00%
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"Event of Default" shall have the meaning provided in Section 9.1.
"Funded Debt" means all liabilities of Borrowers and their
Subsidiaries for borrowed money, including capitalized leases.
"Global Collateral Documents Amendment" means that certain Global
Collateral Documents Amendment, of even date herewith, by and among
Agent, SCC, Inc., Sports Club, Inc. of California and the Parties to the
Pledge Agreement (Partnership), substantially in the form of Exhibit A
hereto.
"Government Securities" means readily marketable direct
obligations of the United States of America or obligations fully
guarantied by the United States of America.
"Governmental Agency" means (a) any international, foreign,
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, authority,
board, bureau, commission, department, instrumentality or public body,
(c) any court, administrative tribunal or public utility, or (d) any
arbitration tribunal or other non-governmental authority to whose
jurisdiction a Person has consented.
"Investment" means, when used in connection with any Person, any
investment by or of that Person, whether by means of purchase or other
acquisition of stock or other securities or by means of loan, advance,
capital contribution, guaranty or other debt or equity participation or
interest in any other Person, or otherwise, and includes, without
limitation, any partnership and joint venture interests of such Person.
"Issuing Bank" means, with respect to any Standby Letter of
Credit, Sumitomo Bank of California or any other Bank designated by
Borrowers (with the consent of the Requisite Banks) which issued that
Standby Letter of Credit.
"Laws" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, regulations, ordinances, codes
and administrative or judicial precedents.
"LIBOR Rate" means the interest (rounded upward to the nearest
1/16th of one percent) as determined by the British Bankers Association
and disseminated daily as an average of the rate at which certain major
banks would offer U.S. dollar deposits for the applicable Eurodollar
Period to other major banks in the London inter-bank market.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
security interest, encumbrance, lien or charge of any kind, whether
voluntarily incurred or arising by operation of Law or otherwise,
affecting any Property, including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and/or the filing of or agreement to give
any financing statement under the Uniform Commercial Code or comparable
Laws of any jurisdiction.
"Loan" or "Loans" means the advances to be made by Banks to
Borrowers pursuant to this Agreement. Each individual Loan shall consist
of advances made by Banks pursuant to Article 2, including advances made
as new advances, and also including advances made by converting or
redesignating existing advances in accordance with the provisions of
Article 2. In connection with each Loan, the amount of such Loan by each
Bank shall be determined according to that Bank's percentage share of the
Commitment.
"Loan Documents" means, collectively, this Agreement, the Global
Collateral Documents Amendment, the Notes, the Pledge Agreements, the
Pledge Agreement (Partnership), the Standby Letters of Credit, any
assignments, any financing statements and any other certificates,
documents or agreements of any type of nature heretofore or hereafter
executed or delivered by Borrowers and/or any one or more of their
Subsidiaries or Affiliates to Agent or to Banks in any way relating to or
in furtherance of this
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Agreement, in each case either as originally executed or as the same may
from time to time be supplemented, modified, amended, restated or
extended.
"Maturity Date" means May 31, 2000, subject to the option of
Banks, in their sole and absolute discretion, following the written
request of Borrowers, to be received by Agent no later than sixty (60)
days prior to each anniversary of the date of this Agreement, and subject
to such terms and conditions as Bank may require, to extend the Maturity
Date for an additional period of one year.
"Maximum Loan Amount" means, as of any date of determination
thereof, the amount of the Commitment.
"Maximum Standby Letter of Credit Amount" means $8,000,000.
"Multiemployer Plan" means any employee benefit plan of the type
described in Section 4001(a)(3) of ERISA.
"New Club Development" means the establishment de novo of a new
health and fitness facility, or any other investment in a health and
fitness facility that does not constitute an Acquisition, by one or more
existing or future Borrowers and/or Subsidiaries.
"Non-Borrower Affiliate" means any Affiliate of a Borrower, now
existing or hereafter acquired, that is not a Borrower hereunder.
"Note" means any of the promissory notes executed by Borrowers in
favor of Banks evidencing the Loans made by Banks or any of them under
the Commitment, substantially in the form of Exhibit B hereto, either as
originally executed or as the same may from time to time be supplemented,
modified, amended, renewed, extended or refinanced.
"Obligations" means all present and/or future obligations of every
kind or nature of Borrowers or any Party at any time and/or from time to
time owed to Agent or Banks or any one or more of them, under any one or
more of the Loan Documents, whether due or to become due, matured or
unmatured, liquidated or unliquidated, or contingent or noncontingent,
including obligations of performance as well as obligations of payment,
and including interest that accrues prior to or after the commencement of
any bankruptcy or insolvency proceeding by or against any Borrower or any
Party.
"Opinion of Counsel" means the favorable written legal opinion of
Kinsella, Boesch, Fujikawa and Towle, as counsel to Borrowers and their
Subsidiaries, in a form acceptable to Agent, together with copies of all
factual certificates and legal opinions upon which such counsel has
relied.
"Outstanding Standby Letters of Credit " means, as of any date of
determination thereof, the aggregate face amount of all Standby Letters
of Credit outstanding on such date, not to exceed the Maximum Standby
Letter of Credit Amount.
"Party" means any Person (including Borrowers and/or any
Subsidiaries or Affiliates of Borrowers), other than Agent and Banks,
which now or hereafter is a party to any of the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereof established under ERISA.
"Person" means any entity, whether an individual, trustee,
corporation, general partnership, limited partnership, limited liability
company, joint stock company, trust, unincorporated organization, bank,
business association, firm, joint venture, Governmental Agency, or
otherwise.
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"Plan" means any employee benefit plan subject to ERISA and
maintained by Borrowers and/or any Subsidiary thereof or to which
Borrowers and/or any Subsidiary thereof are required to contribute on
behalf of their employees.
"Pledge Agreement" means the Pledge Agreement, dated as of
February 2, 1998, executed by SCC, Inc. and Sports Club, Inc. of
California in favor of Agent for the ratable benefit of Banks, as amended
by the Global Documents Amendment and as such document may from time to
time hereafter be supplemented, modified, amended, restated or extended.
"Pledge Agreement (Partnership)" means the Pledge Agreement
(Partnership), dated as of February 2, 1998 executed by certain Borrowers
identified therein as the "Grantors" in favor of Agent for the ratable
benefit of Banks, as amended by the Global Documents Amendment and as
such document may from time to time hereafter be supplemented, modified,
amended, restated or extended.
"Prime Rate" means the floating commercial loan rate of Sumitomo
Bank of California, announced from time to time as its "prime rate",
which interest rate may not necessarily be the lowest interest rate at
which Sumitomo Bank of California is willing to extend credit facilities.
"Prime Rate Loan" means a Loan designated or redesignated as a
Prime Rate Loan in accordance with Article 2, or converted to a Prime
Rate Loan in accordance with Section 3.3(a).
"Prime Rate Spread" means the additional component of interest,
expressed as a percentage per annum, to be added to the Prime Rate in
determining the applicable rate of interest for Prime Rate Loans. As of
the date of this Agreement, the Prime Rate Spread is zero percent (0%)
per annum.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Qualified Stock Repurchase" means the common stock repurchase
program instituted in April, 1998; provided that the aggregate amount
expended in repurchasing common stock of SCC, Inc. shall not exceed
$3,750,000.
"Regulations T, U and X " means Regulation T,U and X as at any
time amended, of the Board of Governors of the Federal Reserve System, or
any other regulation in substance substituted therefor.
"Request for Standby Letter of Credit" means a written request for
the issuance of a Standby Letter of Credit substantially in the form of
Exhibit "C", signed by a Responsible Official of a Borrower on behalf of
the Borrowers and properly completed to provide all information required
to be included therein.
"Request for Loan" means a written request for a Loan
substantially in the form of Exhibit "D", signed by a Responsible
Official of a Borrower on behalf of the Borrowers and properly completed
to provide all information required to be included therein.
"Request for Redesignation of Loans" means a written request for
redesignation of Loans substantially in the form of Exhibit "E", signed
by a Responsible Official of a Borrower on behalf of the Borrowers and
properly completed to provide all information required to be included
therein.
"Requisite Banks" means, at any time, Banks holding at least 70%
of the aggregate unpaid amount of the Loans outstanding, or, if no Loans
then are outstanding, Banks having at least 70% of the aggregate
Commitment then in effect.
"Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member banks
of the Federal Reserve System for eurocurrency liabilities, as defined in
Regulation D, rounded upward to the nearest 1/100th of one percent. The
percentage will
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be expressed as a decimal, and will include, without limitation,
marginal, emergency, supplemental, special, and other reserve
percentages.
"Responsible Official" means:
(a) When used with reference to any Person, other than an
individual, any corporate officer of such Person, general partner
of such Person, corporate officer of a corporate general partner
of such Person, or corporate officer of a corporate general
partner of a partnership that is a general partner of such Person,
or any other responsible official thereof duly acting on behalf
thereof; and
(b) When used with reference to a Person who is an
individual, such Person.
Except as otherwise specifically provided herein, any requirement that
any document or certificate be signed or executed by any Person requires
that such document or certificate be signed or executed by a Responsible
Official of such Person, and that the Responsible Official signing or
executing such document or certificate on behalf of such Person shall be
authorized to do so by all necessary corporate, partnership and/or other
action.
"Right of Others" means, as to any Property in which a Person has
an interest, any legal or equitable claim, right, title or other interest
(other than a Lien) in or with respect to that Property held by any other
Person, and any option or right held by any other Person to acquire any
such claim, right, title or other interest, including any option or right
to acquire a Lien.
"SCC, Inc." means The Sports Club Company, Inc., a Delaware
corporation.
"Special Eurodollar Circumstance" means the application or
adoption of any Law or interpretation, or any change therein or thereof,
or any change in the interpretation or administration thereof by any
Governmental Agency, central bank or comparable authority charged with
the interpretation or administration thereof, or compliance by any Bank
or its Eurodollar Lending Office with any request or directive (whether
or not having the force of Law) of any such Governmental Agency, central
bank or comparable authority, or the existence or occurrence of
circumstances affecting the Designated Eurodollar Market generally, in
each case, that is beyond the reasonable control of such Bank.
"Standby Letter of Credit" means any standby letter of credit
issued by the Issuing Bank pursuant to Section 2.6, in the standard form
for standby letters of credit of the Issuing Bank, either as originally
issued or as the same may from time to time be supplemented, modified,
amended, renewed or extended.
"Subsidiary" means, as of any date of determination thereof and
with respect to any Person, any corporation, limited liability company,
partnership or joint venture, whether now existing or hereafter organized
or acquired: (a) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors or
other governing body (other than securities having such power only by
reason of the happening of a contingency) are at the time owned by such
Person and/or one or more Subsidiaries of such Person, or (b) in the case
of a partnership, joint venture or limited liability company, of which
such Person or a Subsidiary of such Person is a general partner or joint
venturer or of which a majority of the partnership or other ownership
interests are at the time owned by such Person and/or one or more of its
Subsidiaries.
"Tangible Net Worth" means, as of any date of determination
thereof, the consolidated net worth of Borrowers, excluding goodwill,
patents, trademarks, trade names, organization expenses, capitalized
acquisition expenses, deferred tax assets and money due from any
Affiliate, officers, directors or shareholders of Borrowers or their
Subsidiaries, determined in accordance with generally accepted accounting
principles, consistently applied.
16
"The Sports Club/Irvine" means the athletic club owned by Irvine
Sports Club, Inc. located at 1980 Main Street, Irvine, California.
"The Sports Club/LA" means the athletic club owned by L.A./Irvine
Sports Clubs, Ltd. located at 1835 Sepulveda Boulevard, West Los Angeles,
California.
"to the best knowledge of" means, when modifying a representation,
warranty or other statement of any Person, that the fact or situation
described therein is known by the Person (or, in the case of a Person
other than a natural Person, known by a Responsible Official of that
Person) making the representation, warranty or other statement, or with
the exercise of reasonable due diligence under the circumstances (in
accordance with the standard of what a reasonable Person in similar
circumstances would have done) should have been known by the Person (or,
in the case of a Person other than a natural Person, should have been
known by a Responsible Official of that Person).
"Total Unsubordinated Liabilities" means, as of any date of
determination thereof, the sum of (a) all liabilities that should be
reflected as a liability in a consolidated balance sheet of Borrowers and
its Subsidiaries on such date prepared in accordance with generally
accepted accounting principles, consistently applied, minus (b)
subordinated debt as to which a subordination agreement acceptable to
Agent has been executed and all deferred membership revenues, plus (c)
the aggregate face amount of all outstanding Standby Letters of Credit
and other letters of credit issued at the request of Borrowers; provided,
however, that any amount described in clause (c) shall be added only to
the extent that the Standby Letter of Credit or other letter of credit
covers liabilities that would not be reflected in a consolidated balance
sheet of Borrowers and its Subsidiaries on such date.
"Total Outstanding" means, as of any date of determination
thereof, the sum of (a) all outstanding Loans evidenced by the Notes on
that date and (b) Outstanding Standby Letters of Credit.
"type", when used with respect to any Loan, means the designation
of whether such Loan is a Prime Rate Loan or a Eurodollar Loan.
1.2 Use of Defined Terms. Any defined term used in the plural
shall refer to all members of the relevant class, and any defined term used in
the singular shall refer to any one or more of the members of the relevant
class.
1.3 Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed in conformity with, and all
financial data required to be submitted by this Agreement shall be prepared in
conformity with, generally accepted accounting principles applied on a
consistent basis, as in effect on the date hereof, except as otherwise
specifically prescribed herein.
1.4 Exhibits and Schedules. All exhibits and schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference.
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ARTICLE 2
LOANS AND LETTERS OF CREDIT
2.1 General Provisions Regarding Loans and Borrowing Procedures.
(a) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time prior to the Maturity Date,
each Bank shall, pro rata according to that Bank's percentage of the then
Commitment, make Loans to Borrowers in such amounts as Borrowers may
request that do not exceed in the aggregate at any one time outstanding
the amount of the Commitment; provided that, Banks shall not be obligated
to make a Loan if, after giving effect to such Loan, the Total
Outstanding would exceed $30,000,000. Except as may otherwise be payable
on an earlier date as provided in Section 3.1, all Obligations of
Borrowers hereunder shall be due and payable on the Maturity Date.
Subject to the limitations set forth herein and in Section 3.1(e),
Borrowers may borrow, repay and reborrow under the Commitment without
premium or penalty.
(b) Except as otherwise provided in Section 2.5(c), each
Loan shall be made pursuant to a written Request for Loan. Not later than
11:00 a.m., Los Angeles time, at least two (2) Banking Days prior to the
date that a proposed Loan is to be made (unless greater notice is
required by Section 2.4), Agent shall have received, at Agent's Office, a
properly completed Request for Loan specifying the requested (1) date of
such Loan, (2) type of Loan, (3) amount of such Loan, and (4) in the case
of a Eurodollar Loan, specifying the Eurodollar Period. Agent may, in its
sole and absolute discretion, permit any Request for Loan to be made by
telephone or telecopier by a Responsible Official of a Borrower on behalf
of Borrowers, in which case such Borrower shall confirm same by mailing
or faxing a written Request for Loan to Agent within 48 hours following
the Loan. If Borrowers fail to make a written Request for Loan, Borrowers
hereby waive the right to dispute the amount, interest rate or term of
any such Loan made upon such telephone request.
(c) Promptly following receipt of a Request for Loan, Agent
shall notify each Bank by telephone, telecopier or Telex of the date and
type of the Loan, the applicable Eurodollar Period (in the case of a
Eurodollar Loan), and that Bank's pro rata portion of the Loan. Not later
than 11:00 a.m., Los Angeles time, on the date specified for any Loan,
each Bank shall make its portion of the Loan in immediately available
funds available to Agent at Agent's Office. Upon fulfillment of the
applicable conditions set forth in Article 8, all Loans shall be credited
in immediately available funds to Borrowers' Designated Deposit Account,
or to such other deposit account of Borrowers with Agent as Borrowers may
specify in writing to Agent.
(d) Unless the Requisite Banks otherwise consent, the
aggregate amount of each Eurodollar Loan shall be in an integral multiple
of $250,000, and the aggregate amount of each Prime Rate Loan shall be in
an integral multiple of $100,000 or the balance of the Commitment.
(e) The Loans made by each Bank shall be evidenced by that
Bank's Note.
(f) A Request for Loan shall be irrevocable upon receipt by
Agent.
2.2 Intentionally Omitted.
2.3 Prime Rate Loans. All Loans shall constitute Prime Rate Loans
unless properly designated or redesignated as Eurodollar Loans pursuant to
Sections 2.4 or 2.5.
2.4 Eurodollar Loans.
(a) Subject to the terms and conditions set forth in this
Agreement, Borrowers may, from time to time, designate all or any portion
of the Loans to be Eurodollar Loans.
18
(b) Each request by Borrowers for a Eurodollar Loan shall
be made pursuant to a Request for Loan received by Agent, at Agent's
Office, not later than 12:00 noon, Los Angeles time, at least three (3)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period.
(c) At or about 10:00 a.m., Los Angeles time, two (2)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period, Agent shall determine the applicable Eurodollar Rate (which
determination shall be conclusive in the absence of manifest error) and
promptly shall give notice of the same to Borrowers and the Banks by
telephone or telecopier.
(d) Upon fulfillment of the applicable conditions set forth
in Article 8, a Eurodollar Loan shall become effective on the first day
of the applicable Eurodollar Period.
(e) Unless the Requisite Banks otherwise consent, no more
than six (6) Eurodollar Loans, in the aggregate, shall be outstanding at
any one time.
(f) Nothing contained herein shall require any Bank to fund
any Eurodollar Loan in the Designated Eurodollar Market.
2.5 Redesignation of Loans.
(a) Subject to Section 8.2, if any Eurodollar Loan is not
repaid or renewed on the last day of the applicable Eurodollar Period,
such Eurodollar Loan automatically shall be redesignated as a Prime Rate
Loan on such date.
(b) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time from the Closing Date until
the thirty-third day preceding the Maturity Date, Borrowers may request
that all or a portion of outstanding Prime Rate Loans be redesignated as
a Eurodollar Loan or that a maturing Eurodollar Loan be redesignated as a
new Eurodollar Loan, provided that no Loan redesignated as a Eurodollar
Loan shall have a Eurodollar Period expiring after the Maturity Date.
(c) Each redesignation of all or a portion of outstanding
Prime Rate Loans or to renew a maturing Eurodollar Loan as a Eurodollar
Loan shall be made pursuant to a written Request for Redesignation of
Loans. Not later than 12:00 noon, Los Angeles time, at least three (3)
Eurodollar Banking Days prior to the first day of the applicable
Eurodollar Period, Agent shall have received, at Agent's Office, a
properly completed Request for Redesignation of Loans specifying the
requested (1) date of redesignation and (2) amount of Loans to be
redesignated as a Eurodollar Loan, and (3) the applicable Eurodollar
Period. Agent may, in its sole and absolute discretion, permit a Request
for Redesignation of Loans to be made by telephone by a Responsible
Official of a Borrower on behalf of the Borrowers, in which case such
Borrower shall confirm same by mailing or faxing a written Request for
Redesignation of Loans to Agent within 48 hours following the date of
redesignation. If Borrowers fail to make a written Request for
Redesignation of Loans, Borrowers hereby waive the right to dispute the
amount, interest rate or term of any such Eurodollar Loan.
(d) Unless the Requisite Banks otherwise consent, the
amount of such Loans to be redesignated as a Eurodollar Loan shall be an
integral multiple of $250,000.
(e) With respect to any redesignation of a Loan as a
Eurodollar Loan, at or about 10:00 a.m., Los Angeles time, three (3)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period, Agent shall determine the applicable Eurodollar Rate (which
determination shall be conclusive in the absence of manifest error) and
promptly shall give notice of the same to Borrowers and the Banks by
telephone or telecopier.
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(f) Upon fulfillment of the applicable conditions set forth
in Article 8, the redesignation of all or a portion of outstanding Loans
as a Eurodollar Loan shall become effective on the first day of the
applicable Eurodollar Period.
(g) Nothing contained herein shall require any Bank to fund
any Eurodollar Loan resulting from redesignation of all or a portion of
any of its Prime Rate Loans, in the Designated Eurodollar Market.
(h) A request for Redesignation of Loans shall be
irrevocable upon receipt by Agent.
2.6 Standby Letters of Credit.
(a) Subject to the terms and conditions hereof, at any time
and from time to time from the Closing Date through the Banking Day
immediately preceding May 31, 2000 or other applicable Maturity Date, the
Issuing Bank shall issue such Standby Letters of Credit as a Responsible
Official of a Borrower on behalf of Borrowers may request by a Request
for Standby Letter of Credit; provided that, upon giving effect to such
Standby Letter of Credit, (i) Total Outstanding shall not exceed
$30,000,000 and (ii) Outstanding Standby Letters of Credit shall not
exceed the Maximum Standby Letter of Credit Amount. Unless the Requisite
Banks otherwise consent in writing, the term of any Standby Letter of
Credit shall not exceed the Maturity Date. If on the Maturity Date, there
exist any Outstanding Standby Letters of Credit, Borrowers shall provide
to Agent a standby letter of credit issued by a bank satisfactory to the
Requisite Banks, in form and substance satisfactory to the Requisite
Banks, in favor of Banks in a face amount equal to the Outstanding
Standby Letters of Credit on that date, or shall make other provisions
satisfactory to the Requisite Banks for the collateralization or
settlement of such Outstanding Standby Letters of Credit. No Standby
Letter of Credit shall be issued except in the ordinary course of
business of Borrowers or their Subsidiaries. Unless otherwise agreed to
by the Requisite Banks, the face amount of any Standby Letter of Credit
shall not be less than $250,000.
(b) Each Request for Standby Letter of Credit shall be
submitted to the Issuing Bank not later than 11:00 a.m., Los Angeles
time, at least five (5) Banking Days prior to the date upon which the
requested Standby Letter of Credit is to be issued and Borrowers shall
execute such documents and agreements relating to such Standby Letter of
Credit as the Issuing Bank may reasonably require. Upon issuance of a
Standby Letter of Credit, the Issuing Bank promptly shall notify Agent
and Banks of the amount and terms thereof. The Issuing Bank shall notify
Agent and Banks within ten (10) days after the end of each month of all
payments, reimbursements, expirations, negotiations, transfers and other
activity during that month with respect to outstanding Standby Letters of
Credit.
(c) Upon the issuance of a Standby Letter of Credit, each
Bank shall be deemed to have purchased a pro rata participation therein
from the Issuing Bank in a amount equal to that Bank's pro rata share,
according to its percentage of the Commitment, of the face amount of the
Standby Letter of Credit. Without limiting the scope and nature of each
Bank's participation in any Standby Letter of Credit, to the extent that
the Issuing Bank has not been reimbursed by Borrowers for any payment
required to be made by the Issuing Bank under any Standby Letter of
Credit, each Bank shall, pro rata according to its participation,
reimburse the Issuing Bank promptly upon demand for the amount of such
payment. The obligation of each Bank to so reimburse the Issuing Bank
shall be absolute and unconditional and shall not be affected by the
occurrence of any Event of Default or any other occurrence or event. Any
such reimbursement shall not relieve or otherwise impair the obligation
of Borrowers to reimburse the Issuing Bank for the amount of any payment
made by the Issuing Bank under any Standby Letter of Credit together with
interest as hereinafter provided.
(d) Borrowers agree to pay to the Issuing Bank, at its
Office designated as the address for notices pursuant to this Agreement,
or at such other payment location as the Issuing Bank shall have
specified in writing to Borrowers, with respect to each Standby Letter of
Credit, within one (1) Banking Day after demand therefor, a principal
amount equal to any payment made by the
20
Issuing Bank under that Standby Letter of Credit, together with interest
on such amount from the date of any payment made by the Issuing Bank
through the date of payment by Borrowers at the rate provided for in
Section 3.6. The principal amount of any such payment made by Borrowers
to the Issuing Bank shall be used to reimburse the Issuing Bank for the
payment made by it under the Standby Letter of Credit. Each Bank that has
reimbursed the Issuing Bank pursuant to Section 2.6(c) for its pro rata
share of any payment made by the Issuing Bank under a Standby Letter of
Credit thereupon shall acquire a pro rata participation, to the extent of
such reimbursement, in the claim of the Issuing Bank against Borrowers
under this Section 2.6(d).
(e) At all times prior to the Maturity Date, if Borrowers
fail to make any payment required by Section 2.6(d), Agent may, but is
not required to, without notice to or the consent of Borrowers, make
Loans under the Commitment in an aggregate amount equal to the amount
paid by the Issuing Bank on the relevant Standby Letter of Credit,
whether or not the same would cause the Commitment to exceed $30,000,000,
and, for this purpose, the conditions precedent set forth in Article 8
and the amount limitations set forth in Section 2.1(d) shall not apply.
The proceeds of such Loans shall be retained by the Issuing Bank to
reimburse it for the payment made by it under the Standby Letter of
Credit.
(f) The issuance of any supplement, modification,
amendment, renewal or extension to or of any Standby Letter of Credit
shall be treated in all respects the same as the issuance of a new
Standby Letter of Credit.
(g) The obligation of Borrowers to pay to the Issuing Bank
the amount of any payment made by the Issuing Bank under any Standby
Letter of Credit shall be absolute, unconditional and irrevocable.
Without limiting the foregoing, such obligation of Borrowers shall not be
affected by any of the following circumstances absent the Issuing Bank's
gross negligence or willful misconduct:
(i) any lack of validity or enforceability of the
Standby Letter of Credit, this Agreement, or any other agreement
or instrument relating thereto;
(ii) any amendment or waiver of or any consent to
departure from the Standby Letter of Credit, this Agreement, or
any other agreement or instrument relating thereto;
(iii) the existence of any claim, setoff, defense or
other rights which Borrowers may have at any time against any
Bank, any beneficiary of the Standby Letter of Credit (or any
Persons or entities for whom any such beneficiary may be acting)
or any other Person, whether in connection with the Standby
Letter of Credit, this Agreement or any other agreement or
instrument relating thereto, or any unrelated transactions;
(iv) any demand, statement or any other document
presented under the Standby Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect
whatsoever;
(v) payment by the Issuing Bank under the Standby
Letter of Credit against presentation of a draft or any
accompanying document which does not strictly comply with the
terms of the Standby Letter of Credit;
(vi) the solvency (or insolvency) or financial
responsibility (or lack thereof) of any party issuing any
documents in connection with a Standby Letter of Credit;
(vii) any error in the transmission of any message
relating to a Standby Letter of Credit, or any delay or
interruption in any such message not caused by the Issuing Bank;
and/or
21
(viii) any error, neglect or default of any
correspondent of the Issuing Bank in connection with a Standby
Letter of Credit.
2.7 Agent's Right to Assume Funds Available for Advances. Unless
Agent shall have been notified by any Bank at least two hours prior to the
funding by Agent of any Loan that such Bank does not intend to make available to
Agent such Bank's portion of the total amount of such Loan, Agent may assume
that such Bank has made such amount available to Agent on the date of the Loan
and Agent may, in reliance upon such assumption, make available to Borrowers a
corresponding amount. If such corresponding amount is not in fact made available
to Agent by such Bank, Agent shall be entitled to recover such corresponding
amount on demand from such Bank, which demand shall be made in a reasonably
prompt manner. If such Bank does not pay such corresponding amount forthwith
upon Agent's demand therefor, Agent promptly shall notify Borrowers and
Borrowers shall pay such corresponding amount to Agent. Agent also shall be
entitled to recover from such Bank or Borrowers, as the case may be, interest on
such corresponding amount in respect of each day from the date such
corresponding amount was made available by Agent to Borrowers to the date such
corresponding amount is recovered by Agent, at a rate per annum equal to the
actual cost to Agent of funding such amount as notified by Agent to such Bank or
Borrowers, as the case may be. Nothing herein shall be deemed to relieve any
Bank from its obligation to fulfill its share of the Commitment or to prejudice
any rights which the Agent or Borrowers may have against any Bank as a result of
any default by such Bank hereunder.
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ARTICLE 3
PAYMENTS AND FEES
3.1 Principal and Interest.
(a) Interest shall be payable on the outstanding daily
unpaid principal amount of each Loan from the date thereof until payment
in full is made and shall accrue and be payable at the rates set forth
herein both before and after default and before and after maturity and
judgment, with overdue amounts to bear interest at the rate set forth in
Section 3.6, to the fullest extent permitted by applicable Law. Upon any
partial prepayment or redesignation of outstanding Prime Rate Loans to
Eurodollar Loans, interest accrued through the date of such prepayment or
redesignation shall be payable on the next following interest payment
date occurring pursuant to Section 3.1(b). Upon any partial prepayment or
payment in full or redesignation or conversion of any Eurodollar Loan or
upon any payment or redesignation in full of all outstanding Prime Rate
Loans, interest accrued through the date of such prepayment, payment,
redesignation or conversion shall be payable on such date.
(b) Interest accrued on each Prime Rate Loan shall be
payable on the first day of each month, commencing with the first such
date to occur after the Closing Date. Agent shall use its best efforts to
notify Borrowers of the amount of interest so payable prior to each
interest payment date, but failure of Agent to do so shall not excuse
payment of such interest when payable. Except as otherwise provided in
Section 3.6, the unpaid principal amount of any Prime Rate Loan shall
bear interest at a fluctuating rate per annum equal to the Prime Rate
plus the applicable Prime Rate Spread. Each change in the interest rate
shall take effect simultaneously with the corresponding change in the
Prime Rate and/or the Prime Rate Spread. Each change in the Prime Rate
shall be effective as of 12:01 a.m. on the Banking Day on which the
change in the Prime Rate is announced, unless otherwise specified in such
announcement, in which case the change shall be effective as so
specified.
(c) Interest accrued on each Eurodollar Loan shall be
payable on the first day of each month, commencing with the first such
date to occur after the Closing Date, and on the maturity date of that
Eurodollar Loan. Agent shall use its best efforts to notify Borrowers of
the amount of interest so payable prior to each interest payment date,
but failure of Agent to do so shall not excuse payment of such interest
when payable. Except as otherwise provided in Section 3.6, the unpaid
principal amount of any Eurodollar Loan shall bear interest at a rate per
annum equal to the Eurodollar Rate for that Eurodollar Loan plus the
Eurodollar Rate Spread.
(d) If not sooner paid, the principal indebtedness under
this Agreement shall be payable as follows:
(i) subject to the right to renew or convert a
Eurodollar Rate Loan to a Prime Rate Loan, the principal amount of
each Loan shall immediately be payable in Cash on the Maturity
Date or, in the case of a Eurodollar Loan, on the last day of the
Eurodollar Period for such Loan; and
(ii) the principal indebtedness evidenced by the
Notes shall be payable in Cash within two (2) Banking Days in the
amount by which the aggregate outstanding amount of Loans at any
time exceeds the Commitment. The outstanding principal
indebtedness evidenced by the Notes shall, in any event, be
payable on the Maturity Date.
(e) The Notes, or any of them, may, at any time and from
time to time, be paid or prepaid in whole or in part without premium or
penalty, except that (i) any partial prepayment shall be an integral
multiple of $100,000, (ii) Agent shall have received notice, by telephone
or telecopier, of any prepayment prior to 12:00 noon on the Banking Day
of such prepayment (unless greater notice is otherwise required by this
Agreement), which notice shall identify the date and amount of the
prepayment and the Loan(s) being prepaid, (iii) each prepayment of
principal, except for partial prepayments of Prime Rate Loans, shall be
accompanied by payment of interest accrued through the date
23
of payment on the amount of principal paid, (iv) except as required by
subsections (d)(ii) above, no Eurodollar Loan may be paid or prepaid in
whole or in part prior to the last day of the applicable Eurodollar
Period without the prior consent of the Requisite Banks, and,
notwithstanding such required prepayment or such consent, any payment or
prepayment of all or any part of Eurodollar Loan on a day other than the
last day of the applicable Eurodollar Period shall be made on a
Eurodollar Banking Day, as applicable, shall be preceded by at least four
(4) Eurodollar Banking Days' written notice to Agent of the date and
amount of such payment or prepayment, and shall be subject to Section
3.3(c).
(f) In addition to all other payments hereunder, Borrower
shall make mandatory reductions of the outstanding Loans upon the receipt
of, and in an amount equal to one hundred percent (100%) of, proceeds in
excess of $20,000,000 from either (i) the financing or re-financing of
any real property assets of Borrowers or Non-Borrower Affiliates to the
extent such proceeds exceed the existing debt associated with the
respective real property or (ii) a debt or equity offering; provided,
however, that the terms and conditions of such financing or re-financing
or debt or equity offering, including the amount and form of the proceeds
thereof shall be acceptable to Agent and Requisite Banks.
3.2 Commitment Fee. On the Closing Date, Borrowers shall pay to
Banks a commitment fee equal to .125% of the Commitment. Such commitment fee
shall be fully earned on the Closing Date.
3.3 Eurodollar Fees and Costs.
(a) If, after the date hereof, the existence or occurrence
of any Special Eurodollar Circumstance shall, in the reasonable
discretion of any Bank, make it unlawful, impossible or impracticable for
such Bank or its Eurodollar Lending Office to make or maintain any
Eurodollar Loan, or materially restrict the authority of such Bank to
purchase or sell, or to take deposits of, dollars in the Designated
Eurodollar Market, or to determine or charge interest rates based upon
the Eurodollar Rate, then such Bank will notify Agent and such Bank's
obligation to make Eurodollar Loans shall be suspended for the duration
of such illegality, impossibility or impracticability and Agent forthwith
shall give notice thereof to the other Banks and Borrowers. Upon receipt
of such notice, the outstanding principal amount of such Bank's
Eurodollar Loans, together with accrued interest thereon, automatically
shall be converted to Prime Rate Loans on either (1) the last day of the
Eurodollar Period(s) applicable to such Eurodollar Loans if such Bank may
lawfully continue to maintain and fund such Eurodollar Loans to such
day(s) or (2) immediately if such Bank may not lawfully continue to fund
and maintain such Eurodollar Loans to such day(s), provided that in such
event the conversion shall not be subject to payment of a prepayment fee
under Section 3.3(c). In the event that such Bank is unable, for the
reasons set forth above, to make, maintain or fund any Eurodollar Loan,
such Bank shall fund such amount as a Prime Rate Loan, and such amount
shall be treated in all respects as a Prime Rate Loan.
(b) If, with respect to any proposed Eurodollar Loan:
(1) Agent reasonably determines that, by reason of
Special Eurodollar Circumstances, deposits in dollars (in the
applicable amounts) are not being offered to each of the Banks in
the Designated Eurodollar Market for the applicable Eurodollar
Period; or
(2) the Requisite Banks advise Agent that the
Eurodollar Rate as determined by the Banks (i) does not represent
the effective pricing to the Banks for deposits in dollars in the
Designated Eurodollar Market in the relevant amount for the
applicable Eurodollar Period, or (ii) will not adequately and
fairly reflect the cost to such Banks of making the applicable
Eurodollar Loans;
then Agent forthwith shall give notice thereof to Borrowers and the
Banks, whereupon until Agent notifies Borrowers that the circumstances
giving rise to such suspension no longer exist, and the obligation of the
Banks to make any future Eurodollar Loans shall be suspended.
24
(c) Upon payment or prepayment of any Eurodollar Loan, or
conversion of a Eurodollar Loan to a Prime Rate Loan (other than as the
result of a conversion required under Section 3.3(a)), on a day other
than the last day in the applicable Eurodollar Period (whether
voluntarily, involuntarily, by reason of acceleration, or otherwise),
Borrowers shall pay to the Banks an amount equal to the accrued interest
on the amount prepaid plus a prepayment fee equal to the amount (if any)
by which: (1) the additional interest which would have been payable on
the amount prepaid had it not been paid until the last day of the
Eurodollar Period, exceeds (2) the interest which would have been
recoverable by placing the amount prepaid on deposit in the Eurodollar
market for a period starting on the date on which it was prepaid and
ending on the last day of the Eurodollar Period for such portion, plus
all reasonable out-of-pocket expenses incurred by Banks and reasonably
attributable to such payment or prepayment; provided that no prepayment
fee shall be payable (and no credit or rebate shall be required) if the
product of the foregoing formula is not positive. Each Bank's
determination of the amount of any prepayment fee payable under this
Section 3.3(c) shall be conclusive in the absence of manifest error.
(d) Borrowers hereby indemnify each Bank against, and agree
to hold each Bank harmless from and reimburse each Bank on demand for,
all reasonable costs, expenses, claims, penalties, liabilities, losses,
legal fees and damages (including, without limitation, any interest paid
by any Bank for deposits in dollars in the Designated Eurodollar Market
and any loss sustained by any Bank in connection with the reemployment of
funds) incurred or sustained by such Bank, as reasonably determined by
such Bank, as a result of any failure of Borrowers to borrow on the date
or in the amount specified in any Request for Loan or Request for
Redesignation of Loans; provided that such Bank shall not be entitled to
indemnification for any loss caused by its own gross negligence or
willful misconduct. The determination of such amount by each Bank shall
be conclusive in the absence of manifest error.
(e) Any Bank requesting any payment from Borrowers under
this Section 3.3, shall, at the request of Borrowers, provide reasonable
detail to Borrowers regarding the manner in which the amount of any such
payment has been determined.
3.4 Letter of Credit Fees. Borrowers shall pay to the Issuing Bank
a letter of credit fee of 1.5% of the face amount of the Standby Letter of
Credit for the term of each Standby Letter of Credit issued under Section 2.6,
payable at the time of issuance. Each Standby Letter of Credit fee is earned
upon issuance of each Standby Letter of Credit and is nonrefundable. The Issuing
Bank promptly shall make available to Agent in immediately available funds, and
Agent promptly shall make available to Banks in immediately available funds, pro
rata according to their percentages of the Commitment, the portion of each
Standby Letter of Credit fee which is for the account of Banks as aforesaid.
3.5 Agent Fee. From time to time hereafter, Borrowers shall pay
fees to Agent as agreed between Borrowers and Agent in a separate agreement.
3.6 Late Payments/Default Rate.
(a) Should any installment of principal or interest or any
fee or cost or other amount payable under any Loan Document to Agent or
any Bank not be paid when due, such installment shall thereafter bear
interest at a fluctuating interest rate per annum at all times equal to
two percent (2.0%) above the then prevailing applicable Prime Rate based
interest rate for all Loans made hereunder, to the fullest extent
permitted by applicable Law. Accrued and unpaid interest on past due
amounts (including, without limitation, interest on past due interest)
shall be compounded monthly, on the last day of each calendar month, to
the fullest extent permitted by applicable Law and payable on the first
day of the following month.
(b) Upon the occurrence and during the continuance of any
other Event of Default, at the option of the Requisite Banks, Borrowers
shall pay interest on the outstanding principal and interest at the
Default Rate. This shall not constitute a waiver of any Event of Default.
25
3.7 Computation of Interest and Fees. All computations of interest
and fees under any Loan Document that relate to any Prime Rate Loan or any
Eurodollar Loan shall be calculated on the basis of a year of 360 days and the
actual number of days elapsed.
3.8 Non-Banking Days. If any payment to be made by Borrowers or
any other Party under any Loan Document shall come due on a day other than a
Banking Day (and a Eurodollar Banking Day, in the case of a Eurodollar Loan),
payment shall be made on the next succeeding Banking Day (and, in the case of a
Eurodollar Loan, the next succeeding Eurodollar Banking Day that is also a
Banking Day) and the extension of time shall be reflected in computing interest.
3.9 Manner and Treatment of Payments.
(a) Borrowers agree that interest and principal payments
and any fees will be deducted automatically on the due date from the
Designated Deposit Account, or any other accounts of Borrowers held by
Agent which contain sufficient funds. Such debits shall occur on the
dates the payments become due. If the due date does not fall on a Banking
Day, Agent will cause such debits to be made on the first Banking Day
following the due date. Borrowers shall maintain sufficient funds in the
Designated Deposit Account on the dates Agent enters debits authorized by
this Agreement. If there are insufficient funds in the Designated Deposit
Account or the other accounts of Borrowers on the date Agent enters any
debit authorized by this Agreement, Borrowers shall immediately, after
notice from Agent, pay such shortfall to Agent. The amount of all
payments received by Agent for the account of each Bank shall be
immediately paid by Agent to the applicable Bank in immediately available
funds. All payments shall be made in lawful money of the United States of
America.
(b) Each Bank shall use its best efforts to keep a record
of Loans made by it and payments received by it with respect to each Note
and such record shall be presumptive evidence of the amounts owing.
(c) Each payment or prepayment on account of any Loan shall
be made and applied pro rata according to the outstanding Loans made by
each Bank.
(d) Each payment of any amount payable by Borrowers and/or
any other Party under this Agreement and/or any other Loan Document shall
be made free and clear of, and without reduction by reason of, any taxes,
assessments or other charges imposed by any Governmental Agency, central
bank or comparable authority.
3.10 Funding Sources. Nothing in this Agreement shall be deemed to
obligate Agent or any Bank to obtain the funds for any Loan in any particular
place or manner or to constitute a representation by Agent or any Bank that it
has obtained or will obtain the funds for any Loan in any particular place or
manner.
3.11 Failure to Charge Not Subsequent Waiver. Any decision by
Agent or any Bank not to require payment of any interest (including default
interest), fee, cost or other amount payable under any Loan Document on any
occasion shall in no way limit or be deemed a waiver of Agent's or such Bank's
right to require full payment of any interest (including default interest), fee,
cost or other amount payable under any Loan Document on any other or subsequent
occasion.
3.12 Agent's Right to Assume Payments Will be Made by Borrowers.
Unless Agent shall have been notified by Borrowers prior to the date on which
any payment to be made by Borrowers hereunder is due that Borrowers do not
intend to remit such payment, Agent may, in its discretion, assume that
Borrowers will make such payment when so due and Agent may, in its discretion
and in reliance upon such assumption, make available to each Bank on such
payment date an amount equal to such Bank's share of such assumed payment. If
Borrowers do not in fact make such payment to Agent, each Bank shall forthwith
on demand repay to Agent the amount of such assumed payment made available to
such Bank, together with interest thereon in respect of each day from and
including the date such amount was made available by Agent to such Bank to the
date such amount
26
is repaid to Agent at a rate per annum equal to the actual cost to Agent of
funding such amount as notified by Agent to such Bank.
3.13 Survivability. All of Borrowers' obligations under this
Article 3 shall survive for one year following the date on which all Loans
hereunder are fully paid.
3.14 Unused Line Fee. On the last day of each calendar quarter,
commencing with the first such date to occur after the Closing Date, Borrower
shall pay to Banks a fee of .25% per annum based on the difference between the
Commitment and an amount equal to the weighted average Total Outstanding during
the previous quarterly period or portion thereof.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to Agent and each Bank, as of the
Closing Date, that:
4.1 Existence and Qualification; Power; Compliance With Laws.
(a) SCC, Inc. is a corporation duly formed, validly existing and
in good standing under the Laws of Delaware. The chief executive offices
of SCC, Inc. are in Los Angeles, California.
(b) The Spectrum Club Company, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its
chief executive offices are in Los Angeles, California.
(c) Pontius Realty, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(d) Sports Club, Inc. of California is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its
chief executive offices are in Los Angeles, California.
(e) Irvine Sports Club, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(f) The SportsMed Company, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its
chief executive offices are in Los Angeles, California.
(g) SCC Sports Club, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of Texas. Its chief
executive offices are in Los Angeles, California.
(h) L.A./Irvine Sports Clubs, Ltd. is a limited partnership duly
formed, validly existing and in good standing under the Laws of
California. Its chief executive offices are in Los Angeles, California.
(i) Talla New York, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of New York. Its chief
executive offices are in Los Angeles, California.
(j) Green Valley Spectrum Club, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of Nevada. Its chief
executive offices are in Los Angeles, California.
(k) Spectrum Club/Anaheim is a corporation duly formed, validly
existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
Each Borrower is duly qualified or registered to transact business and is in
good standing in each other jurisdiction in which the conduct of its business or
the ownership or leasing of its Properties makes such qualification or
registration necessary, except where the failure so to qualify or register and
to be in good standing would not have a material adverse effect on the business,
operations or condition (financial or otherwise) of such Borrower and its
Subsidiaries, taken as a whole. Each Borrower has all requisite power and
authority to conduct its business, to own and lease its Properties and to
execute, deliver and perform all of its Obligations under the Loan Documents.
All outstanding shares of capital stock of each Borrower, as applicable, are
duly authorized, validly issued, fully paid, non-assessable and issued in
compliance with all applicable state and federal securities and other Laws. Each
Borrower is in compliance with all Laws and other legal requirements applicable
to its business, has obtained all authorizations, consents, approvals, orders,
licenses and permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing from, any
Governmental Agency that are necessary for the transaction of its business,
except where the failure so to comply, file, register, qualify or obtain
exemptions would not have a material adverse effect on the business, operations
or condition (financial or otherwise) of such Borrower and its Subsidiaries,
taken as a whole.
28
4.2 Authority; Compliance With Other Agreements and Instruments
and Government Regulations. The execution, delivery and performance by each
Borrower and its Subsidiaries of the Loan Documents to which it is a Party have
been duly authorized by all necessary action, and do not and will not:
(a) Except as set forth in Schedule 4.2, require any
consent or approval not heretofore obtained of any partner, director,
stockholder, security holder or creditor;
(b) Violate or conflict with any provision of such Party's
partnership agreement, certificate of limited partnership, charter,
articles of incorporation or bylaws, or amendments thereto, as
applicable;
(c) Result in or require the creation or imposition of any
Lien or Right of Others (other than as provided under the Loan Documents)
upon or with respect to any Property now owned or leased or hereafter
acquired by such Party;
(d) Violate any provision of any Law (including, without
limitation, Regulations T, U and/or X of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award presently in effect and having applicability to
such Party; or
(e) Result in a breach of or constitute a default under, or
cause or permit the acceleration of any obligation owed under, any
indenture or loan or credit agreement or any other material agreement,
lease or instrument to which such Party is a party or by which such Party
or any of its Property is bound or affected;
and no Borrower nor any Subsidiary thereof is in default under any Law,
order, writ, judgment, injunction, decree, determination or award, or any
indenture, agreement, lease or instrument described in this Section
4.2(e), in any respect that is materially adverse to the interests of
Agent or any Bank or that would have any material adverse effect on the
business, operations or condition (financial or otherwise) of Borrowers
and their Subsidiaries, taken as a whole.
4.3 No Governmental Approvals Required. No authorization, consent,
approval, order, license or permit from, or filing, registration or
qualification with, or exemption from any of the foregoing from, any
Governmental Agency is or will be required to authorize or permit under
applicable Law the execution, delivery and performance by any Borrower or any
Subsidiary thereof of the Loan Documents to which it is a Party.
4.4 Subsidiaries.
(a) Except as described in Schedule 4.4, Borrowers do not
own any capital stock, partnership interest, joint venture interest or
other equity interest in any Person. Unless otherwise indicated in
Schedule 4.4 all of the outstanding shares of capital stock or
partnership or joint venture interests of each Borrower are owned of
record and beneficially by Borrowers and all securities and interests so
owned are duly authorized, validly issued, fully paid, non-assessable and
issued in compliance with all applicable state and federal securities and
other Laws, and are free and clear of all Liens and Rights of Others.
(b) Each Subsidiary identified in Schedule 5.2 as an
"Inactive Subsidiary" has (i) aggregate collections or distributions of
cash from its operations of less than $50,000 and (ii) no tangible or
intangible real or personal property assets having an aggregate fair
market value in excess of $50,000.
(c) Each Subsidiary of each Borrower is a legal entity of
the form described for that Subsidiary in Schedule 4.4, duly formed,
validly existing and in good standing under the Laws of its jurisdiction
of formation, is duly qualified or registered to transact business and is
in good standing in each other jurisdiction in which the conduct of its
business or the ownership or leasing of its Properties makes such
qualification or registration necessary, except where the failure so to
qualify or register and to be in good standing does not have a material
adverse effect on the business, operations or condition
29
(financial or otherwise) of the Borrowers and their Subsidiaries, taken
as a whole, and has all requisite legal power and authority to conduct
its business and to own and lease its Properties and to execute, deliver
and perform all of its Obligations under the Loan Documents.
(d) Each Subsidiary of each Borrower is in compliance with
all Laws and other legal requirements applicable to its business, has
obtained all authorizations, consents, approvals, orders, licenses and
permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing
from, any Governmental Agency that are necessary for the transaction of
its business, except where the failure to so comply, file, register,
qualify or obtain exemptions would not have a material adverse effect on
the business, operations or condition (financial or otherwise) of the
Borrowers and their Subsidiaries, taken as a whole.
4.5 Financial Statements. Borrowers have furnished to Agent and
Banks (a) the audited consolidated balance sheet of Borrowers and their
Subsidiaries as at December 31, 1997, and audited consolidated income statement
and cash flow statement of Borrowers and their Subsidiaries for their fiscal
year then ended, and (b) the unaudited consolidated balance sheets of Borrowers
and their Subsidiaries as at March 31, 1998, and unaudited consolidated income
statements, cash flow statements of Borrowers and their Subsidiaries and
unaudited individual Club operating statements for such month and for the
portion of their fiscal year ended with such month. Such financial statements
fairly present the financial condition, results of operations and cash flow of
Borrowers and their Subsidiaries as at such dates and for such periods, in
conformity with generally accepted accounting principles, consistently applied,
provided that the balance sheets and statements referred to in (b) above are
subject to normal year-end audit adjustments.
4.6 No Other Liabilities; No Material Adverse Changes. Except as
set forth in Schedule 4.6 hereto, Borrowers and their Subsidiaries do not have
any material liability or material contingent liability not reflected or
disclosed in the financial statements or notes thereto described in Section 4.5.
There has been no material adverse change in the business, operations or
condition (financial or otherwise) of Borrowers and their Subsidiaries, taken as
a whole, since the date of the financial statements described in Section 4.5(b).
4.7 Intangible Assets. Borrowers and their Subsidiaries own, or
possess the unrestricted right to use, all trademarks, trade names, copyrights,
patents, patent rights, licenses and deferred tax assets that are used in the
conduct of their businesses as now operated, and no such intangible asset, to
the best knowledge of Borrowers, conflicts with the valid trademark, trade name,
copyright, patent, patent right or deferred tax asset of any other Person to the
extent that such conflict would have a material adverse effect on the business,
operations or condition (financial or otherwise) of Borrowers and their
Subsidiaries, taken as a whole.
4.8 Filing of Financing Statements. Upon the filing and/or
recording of financing statements describing the Collateral with the
Governmental Agencies listed in Schedule 4.8, and except for the requirement
that continuation statements periodically be filed and/or recorded with respect
thereto, and upon the taking of possession of the stock certificates of any and
all Borrowers, other than SCC, Inc., all necessary steps will have been taken to
fully perfect and to maintain fully perfected the Liens of Agent and Banks on
the Collateral, to the fullest extent that such Liens may be perfected pursuant
to Article 9 of the Uniform Commercial Code.
4.9 Public Utility Holding Company Act. No Borrower or any
Subsidiary thereof is a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.10 Litigation. Except for (a) the matters set forth in Schedule
4.10, (b) any matter fully covered as to subject matter and amount (subject to
applicable deductibles and retentions) by insurance for which the insurance
carrier has not asserted lack of subject matter coverage or reserved its right
to do so, or (c) any matter, or series of related matters, involving a
threatened claim against Borrowers of less than $100,000, there are no actions,
suits or proceedings pending or, to the best knowledge of Borrowers, threatened
against or affecting Borrowers or any of its Subsidiaries or any Property of any
of them in any court of Law or before any Governmental Agency.
30
4.11 Binding Obligations. Each of the Loan Documents to which any
Borrower or any Subsidiary thereof is a Party will, when executed and delivered
by such Party, constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms.
4.12 No Default. No event has occurred and is continuing that is a
Default.
4.13 ERISA.
(a) Except as disclosed in Schedule 4.13, there are no
Plans.
(b) With respect to each Plan:
(3 such Plan complies in all material respects with
ERISA and any other applicable Law;
(4 such Plan has not incurred any material
"accumulated funding deficiency", as that term is defined in
Section 302 of ERISA;
(5 no "reportable event" (as defined in Section 4043
of ERISA) has occurred that could result in the termination or
disqualification of such Plan; and
(6 no Borrower nor any Subsidiary thereof has
engaged in any "prohibited transaction" (as defined in Section
4975 of the Internal Revenue Code of 1954, as amended).
(c) no Borrower nor any Subsidiary thereof is or has been a
party to any Multi employer Plan.
(c) Borrowers and their Subsidiaries are in compliance with
each covenant contained in Section 6.6.
4.14 Regulations T, U and X; Investment Company Act. No Borrower
nor any of its Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" or "margin security" within the meanings of
Regulations T, U or X, respectively, of the Board of Governors of the Federal
Reserve System. If requested by Agent or any Bank, Borrowers will furnish or
will cause their Subsidiaries, as requested, to furnish Agent or any Bank with a
statement or statements in conformity with the requirements of Federal Reserve
Form U-1 referred to in Regulation U of said Board of Governors. No part of the
proceeds of any Loan hereunder will be used to purchase or carry any such
"margin security" or "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any such "margin security" or "margin stock"
in violation of Regulations T, U or X of said Board of Governors. No Borrower
nor any of its Subsidiaries is or is required to be registered under the
Investment Company Act of 1940.
4.15 Disclosure. No written statement made by Borrowers or any
Subsidiary thereof to Agent or any Bank in connection with this Agreement, or in
connection with any Loan, or in connection with the issuance of any Standby
Letter of Credit, contains any untrue statement of a material fact or omits a
material fact necessary to make the statement made not misleading. To the best
knowledge of Borrowers, there is no fact which Borrowers have not disclosed to
Agent and Banks in writing which materially and adversely affects nor, so far as
Borrowers can now foresee, is reasonably likely to prove to affect materially
and adversely the business, operations, Properties, prospects, profits or
condition (financial or otherwise) of Borrowers and their Subsidiaries, taken as
a whole, or the ability of Borrowers and their Subsidiaries to perform their
Obligations under the Loan Documents.
31
4.16 Tax Liability. Borrowers and their Subsidiaries have filed
all income tax returns which are required to be filed, and have paid, or made
provision for the payment of, all taxes which have become due pursuant to said
returns or pursuant to any assessment received by any Borrower or any Subsidiary
thereof, except such taxes, if any, as are being contested in good faith and as
to which adequate reserves have been provided.
4.17 Projections. The financial projections set forth in Schedule
4.17 are based on facts known to Borrowers and on assumptions that are
reasonable and consistent with such facts. To the best knowledge of Borrowers,
except as may be disclosed on Schedule 4.17, no material fact or assumption is
omitted as a basis for such projections, and such projections are reasonably
based on such facts and assumptions. Nothing in this Section 4.17 shall be
construed as a representation that such projections in fact will be achieved.
4.18 Fiscal Year. Borrowers and their Subsidiaries each operate on
a fiscal year corresponding to the calendar year and ending on December 31, the
fiscal months of which correspond to the calendar months of the calendar year.
4.19 Employee Matters. There is no strike, work stoppage or labor
dispute with any union or group of employees pending or overtly threatened
involving Borrowers or any of their Subsidiaries. Since June 1996, there has
been no increase in the salary, bonus or other compensation arrangements of the
employees of Borrowers and their Subsidiaries other than normal increases in the
ordinary course of business.
32
ARTICLE 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
So long as any Loan or any other indebtedness owing in connection
therewith remains unpaid hereunder or any portion of the Commitment remains
outstanding, Borrowers shall, and shall cause each of its Subsidiaries to,
unless the Requisite Banks otherwise consent in writing:
5.1 Payment of Taxes and Other Potential Charges. Pay and
discharge promptly all taxes, assessments and governmental charges or levies
imposed upon any of them, upon their respective Property or any part thereof,
upon their respective income or profits or any part thereof or upon any right or
interest of Agent or any Bank under any Loan Document, except that Borrowers and
their Subsidiaries shall not be required to pay or cause to be paid (a) any
income or gross receipts tax generally applicable to banks or (b) any tax,
assessment, charge or levy that is not yet past due, or is being contested in
good faith by appropriate proceedings, so long as the relevant entity has
established and maintains adequate reserves for the payment of the same and by
reason of such nonpayment and contest no material item or portion of Property of
Borrowers and their Subsidiaries, taken as a whole, is in jeopardy of being
seized, levied upon or forfeited.
5.2 Preservation of Existence. Preserve and maintain their
respective existences, except for mergers permitted in Section 6.3 of this
Agreement. Preserve and maintain all material licenses, rights, franchises and
privileges in the jurisdiction of their formation and all authorizations,
consents, approvals, orders, licenses, permits, or exemptions from, or
registrations with, any Governmental Agency that are necessary for the
transaction of their respective business. Qualify and remain qualified to
transact business in each jurisdiction in which such qualification is necessary
in view of their respective business, except any Subsidiaries listed in Schedule
5.2 that are inactive or have immaterial assets. With respect to any
Subsidiaries listed in Schedule 5.2 that are inactive or have immaterial assets,
Borrowers shall immediately give Agent and Banks written notice of any change in
such entities' respective existences or statuses of qualification.
5.3 Maintenance of Properties. Maintain, preserve and protect all
of their respective Properties and equipment in good order and condition,
subject to replacement wear and tear in the ordinary course of business, and not
permit any waste of their respective Properties, except that the failure to
maintain, preserve and protect a particular item of Property or equipment that
is not of significant value, either intrinsically or to the operations of
Borrowers and their Subsidiaries, taken as a whole, shall not constitute a
violation of this covenant.
5.4 Maintenance of Insurance. Maintain liability and casualty
insurance with responsible insurance companies acceptable to the Requisite Banks
in such amounts and against such risks as is usually carried by responsible
companies engaged in similar businesses and owning similar Properties in the
general areas in which Borrowers and their Subsidiaries operate; and, as
requested by the Agent, cause Agent and Banks to be designated as additional
insured and loss payees with respect to such insurance, and obtain the written
agreement of such insurers that such insurance shall not be canceled or
terminated, nor shall the coverage or terms or exclusions thereof be materially
modified, without at least thirty (30) days prior written notice to Agent.
5.5 Compliance With Laws. Comply with the requirements of all
applicable Laws and orders of any Governmental Agency, noncompliance with which
could materially adversely affect the business, operations or condition
(financial or otherwise) of Borrowers and their Subsidiaries, taken as a whole,
except that Borrowers and their Subsidiaries need not comply with a requirement
then being contested by any of them in good faith by appropriate proceedings so
long as no interest of Agent or any Bank would be materially impaired thereby.
5.6 Additional Borrowers. In the event (i) the aggregate amount of
all advances to, investments in or commitments to any Non-Borrower Affiliate by
Borrowers, after the date hereof, exceeds at any time $200,000, in addition to
the amounts set forth for the Non-Borrower Affiliates in Schedule 5.6, but
excluding accrued management fees owing to Borrowers from such Non-Borrower
Affiliates, (ii) any Non-Borrower Affiliate identified in Schedule 5.2 ceases to
meet the criteria for an "Inactive Subsidiary" set forth in Section
33
4.4(b) of this Agreement, (iii) any Borrower becomes a majority shareholder or a
general partner of any Non-Borrower Affiliate now or hereafter existing, or (iv)
any Borrower or Borrowers, taken as a whole, obtain a majority of the
partnership or other ownership interests of any Non-Borrower Affiliate,
Borrowers shall cause such Non-Borrower Affiliate to become a Borrower hereunder
or enter into such other agreement or arrangement with Banks concerning such
Non-Borrower Affiliate as may be acceptable to the Requisite Banks in its sole
discretion. In order to add a Non-Borrower Affiliate as a Borrower hereunder,
the Borrowers shall deliver to Agent and Banks (a) the agreement of such
Non-Borrower Affiliate to be added as a Borrower hereunder and to be bound by
the terms hereof, (b) the agreement of the owners of all capital stock or other
ownership interests, as applicable, of such new Borrower to become a party to
the Pledge Agreement, (c) the certificates and other documents required to be
delivered pursuant to the terms of the Pledge Agreement, and (d) such other
documents as the Requisite Banks may reasonably require. Schedule 5.6 attached
hereto sets forth as of the date hereof the amount of all advances to,
investments in or commitments to any Non-Borrower Affiliate by Borrowers, the
percentage ownership of each Borrower in any Non-Borrower Affiliate, and
Borrowers which are general partners of any Non-Borrower Affiliate.
5.7 Inspection Rights. Upon reasonable notice by Agent or any Bank
to Borrowers, at any time during regular business hours and as reasonably
requested, permit Agent or any Bank, or any employee, agent or representative
thereof, to examine, audit and make copies and abstracts from the records and
books of account and to visit and inspect the Properties of Borrowers and their
Subsidiaries and to discuss the affairs, finances and accounts of Borrowers and
their Subsidiaries with any of their officers and key employees, customers or
vendors, and, upon request, furnish promptly to Agent or any Bank true copies of
all financial information and internal management reports made available to the
senior management of Borrowers or any of their Subsidiaries. If any of
Borrowers' Property, books or records are in the possession of a third party,
Borrowers, upon not less than three (3) days' advance notice, hereby authorize
such third party to permit Agent or Banks to have access to perform inspections
or audits and to respond to Agent's or a Bank's request for information
concerning such Property, books or records. If an Event of Default has occurred
and is continuing, no advance notice of any audits and inspections shall be
required.
5.8 Keeping of Records and Books of Account. Keep adequate records
and books of account reflecting all financial transactions in conformity with
generally accepted accounting principles, consistently applied, and in material
conformity with all applicable requirements of any Governmental Agency having
regulatory jurisdiction over Borrowers or any of their Subsidiaries.
5.9 Compliance With Agreements, Duties and Obligations. Promptly
and fully comply with all their respective agreements, duties and obligations
under the Loan Documents, and with material terms of any other material
agreements, indentures, leases and/or instruments to which any one or more of
them is a party, whether such other agreements, indentures, leases and/or
instruments are with Agent and any Bank or another Person.
5.10 Use of Proceeds. Use the proceeds of the Loans for the
following purposes only: (i) for working capital purposes; (ii) for Capital
Expenditures; (iii) for Standby Letters of Credit; (iv) to fund non-hostile
Acquisitions; and (v) to fund New Club Developments.
34
ARTICLE 6
NEGATIVE COVENANTS
So long as any Loan or other indebtedness owing in connection
therewith remains unpaid hereunder or any portion of the Commitment remains
outstanding, Borrowers shall not (and shall cause each of their Subsidiaries to
not) unless the Requisite Banks otherwise consent in writing:
6.1 Disposition of Property. Sell, assign, exchange, transfer,
lease or otherwise dispose of, or contract to sell, assign, exchange, transfer,
lease or otherwise dispose of, any of their respective Properties, whether now
owned or hereafter acquired, and whether to an Affiliate or otherwise, except
(a) Properties sold, assigned, exchanged, transferred, leased or otherwise
disposed of in the ordinary course of business, and (b) as permitted under
Section 6.3.
6.2 Transactions with Borrowers and Non-Borrower Affiliates.
Advance funds to, guarantee obligations of, or make any other investments in or
commitments or make distributions to any Non-Borrower Affiliate unless (a) such
Non-Borrower Affiliate is made a Borrower under this Agreement or some other
arrangement acceptable to the Requisite Banks in their sole discretion is made
in accordance with Section 5.6, or (b) the aggregate amount of all advances to,
guaranties of, investments in and commitments to all Non-Borrower Affiliates
does not exceed $200,000, in addition to the amounts set forth for the
Non-Borrower Affiliates in Schedule 5.6, but excluding accrued management fees
owing to Borrowers from such Non-Borrower Affiliates, Borrowers shall provide
Agent and Banks a monthly report detailing such transactions, such report to be
in a form as is acceptable to Agent and Requisite Banks. The Borrowers shall
have the right, with the consent of the Requisite Banks, not to be unreasonably
withheld but subject to such terms and conditions as the Requisite Banks may
require, to add any Non-Borrower Affiliate as a Borrower hereunder.
6.3 Mergers, Acquisitions and New Club Developments.
(a) Merge, consolidate or amalgamate with or into any Person, except mergers,
consolidations or amalgamations of a Subsidiary of a Borrower into a
Borrower (with such Borrower as the surviving entity) prior notice of the
details of which shall have been given to Agent and Banks, or mergers,
consolidations or amalgamations in connection with an Acquisition or New
Club Development permitted pursuant to Section 6.3(b) or 6.3(c).
(b) Make any Acquisition or enter into any agreement to make any Acquisition,
provided that the consent of the Requisite Banks shall not be required in
connection with any Acquisition satisfying the following conditions: (i)
such Acquisition requires payment of an amount of less than either (A)
$10,000,000 of total consideration in connection with such Acquisition
alone or (B) $15,000,000 of total consideration when such Acquisition is
combined with all other Acquisitions made by Borrowers during the twelve
months prior to such Acquisition, excluding Borrowers' investment in the
Vertical Club and Borrowers' investment in any Acquisition previously
approved by the Requisite Banks, (ii) such Acquisition is not for a sum
greater than seven and one-half times the EBITDA of the acquired entity,
with adjustments acceptable to Banks for identifiable savings which will
occur as a result of such Acquisition, or (iii) such Acquisition is not
of an entity engaged in a business different from that of Borrowers. In
connection with an Acquisition meeting the above requirements, the
Borrowers may enter into a partnership or a corporate or other joint
venture with one or more unaffiliated Persons.
(c) Pursue any New Club Development, provided that the consent of the
Requisite Banks shall not be required for a New Club Development
satisfying the following conditions: (i) such New Club Development is
projected to generate positive EBITDA for the twelve-month period
commencing on the first anniversary following completion of such New Club
Development; and (ii) Borrowers do not expend more than $5,000,000 on
such New Club Development alone or more than $10,000,000 when the
expenditures for such New Club Development are combined with all other
New Club Development expenditures during the twelve months prior to the
commencement of such New Club Development, exclusive of expenditures in
connection with existing development projects already approved by Banks,
including those development projects described on Schedule 6.3(c).
35
(d) In any event, no more than three mergers, Acquisitions or New Club
Developments in the "pre sale phase of development" shall be pursued at
any given time. "Pre sale phase of development" shall mean the period
during which memberships in the new Clubs are offered for sale prior to
the date the Club opens for business.
(e) Prior to any Acquisition, Borrowers shall deliver to Agent and Banks (i)
an executive summary of the Acquisition in form and substance acceptable
to Agent and Banks, (ii) a multi-year financial forecast, including
assumptions, (iii) a pro forma financial statement giving effect to the
proposed Acquisition, (iv) a pro forma compliance certificate executed by
a Responsible Official of a Borrower certifying that giving effect to the
proposed Acquisition, Borrowers shall be in compliance with the terms of
this Section 6.3 and all other terms and financial covenants set forth in
this Agreement, (v) a schedule of sources and uses of funds, and (vi)
such other details about such Acquisition as Agent or any Bank may
reasonably request. Prior approval by the Requisite Banks shall be
required for every Acquisition other than those permitted under Section
6.3(b) above.
(f) Prior to any New Club Development, Borrowers shall deliver to Agent and
Banks (i) an executive summary detailing the development project,
demographic and site analysis, cost estimates and financing sources, (ii)
a multi-year financial forecast, including assumptions, demonstrating
positive projected EBITDA for the twelve-month period commencing on the
first anniversary following completion of such New Club Development,
(iii) a pro forma compliance certificate executed by a Responsible
Officer of a Borrower certifying that giving effect to the proposed
development, Borrowers shall be in compliance with the terms of this
Section 6.3 and all other terms and financial covenants set forth in this
Agreement, and (iv) such other details about such development as Agent or
any Bank may reasonably request. Prior approval by the Requisite Banks
shall be required for every New Club Development other than those
permitted under Section 6.3(c) above.
(g) Banks acknowledge prior receipt of a request from Borrowers for funding
an amount not to exceed $10,000,000 in connection with the purchase of
land and a building by The Spectrum Club Company, Inc. and its
development as a new Spectrum Club in Thousand Oaks, California (the
"Thousand Oaks Club"). Funding for the Thousand Oaks Club New Club
Development has been approved subject to the following:
(i) the occurrence of no material adverse change with
respect to Borrowers or the proposed Acquisition and no Default having
occurred prior to such funding or which would occur as a result of such
funding; and
(ii) such other evidence of full compliance with all other
terms and conditions of this Agreement as Agent or any Bank shall
reasonably request both before and after such Acquisition.
(h) Concurrent with the execution and delivery of this Agreement, Banks
acknowledge receipt of a request from Borrowers to permit Borrowers to
make a net investment not to exceed $24,000,000 for the Acquisition and
development of the Vertical Club in New York City. In connection with
such request, Borrowers have provided Banks with the information package
attached hereto as Exhibit F (the "Vertical Club Materials"). Banks have
approved Borrowers' Acquisition and development of the Vertical Club
subject to the following:
(i) the occurrence of no material adverse change with
respect to Borrowers or the proposed Acquisition and development from the
information reflected in the Vertical Club Materials, and no Default
having occurred prior to such funding or which would occur as a result of
such funding;
(ii) Borrowers' adherence to the budgets and time lines
provided in the Vertical Club Materials, as such budgets and time lines
may be refined in the quarterly project development status reports
delivered by Borrowers to Agent pursuant to Section 7.1(n) hereof, with
material modifications approved by Banks; and
36
(iii) such other evidence of full compliance with all other
terms and conditions of this Agreement as Agent or any Bank shall
reasonably request both before and after such Acquisition.
(i) Concurrent with the execution and delivery of this Agreement, Banks
acknowledge receipt of a request from Borrowers to permit Borrowers to
make a net investment not to exceed $20,800,00 for a New Club Development
of a Sports Club in Houston (the "Houston Sports Club"). In connection
with such request, Borrowers have provided Banks with the information
package attached hereto as Exhibit G (the "Houston Sports Club
Materials"). Banks have approved Borrowers' development of the Houston
Sports Club subject to the following:
(A) the occurrence of no material change with respect to
Borrowers or the proposed development from the information reflected in
the Houston Sports Club Materials, and no default having occurred prior
to such funding or which would occur as a result of such funding;
(B) Borrowers' adherence to the budgets and time lines
provided in the Houston Sports Club Materials, as such budgets and time
lines may be refined in the quarterly project development status reports
delivered by Borrower to Agent pursuant to Section 7.1(n) hereof, with
material modifications approved by Banks; and
(C) such other evidence of full compliance with all other
terms and conditions of this Agreement as Agent or any Bank shall
reasonably request both before and after such development.
(j) Notwithstanding the right of Borrowers' pursuant to Section 6.3(b) and
(c) above to make certain Acquisitions or pursue certain New Club
Developments without obtaining the prior consent of the Requisite Banks,
Borrowers shall notify Agent of, or submit to Agent a formal request for
approval of, as applicable, any and all intended Acquisitions or New Club
Developments prior to entering into a definitive purchase agreement, in
the case of any intended Acquisition, or, in the case of any intended New
Club Development, upon the earlier of (i) the approval of such New Club
Development by the Board of Directors of the applicable Borrower or (ii)
the applicable Borrower's execution of any contract or expenditure of any
money which would financially obligate such Borrower to proceed with such
New Club Development.
6.4 Profitability. Fail to maintain on a combined basis a positive
net income after taxes and extraordinary items on a quarterly basis except as a
result of Borrowers' payment of the prepayment penalty in connection with the
prepayment of their financing obligations to AT&T Commercial Finance
Corporation.
6.5 Redemption, Dividends and Distributions; Payments to Partners.
Redeem or repurchase stock or partnership interests, declare or pay any
dividends or make any other distribution, whether of capital, income or
otherwise, and whether in Cash or other Property, except that, subject to
applicable statutory restrictions and provided no Event of Default exists or
would exist after such action, (a) any Borrower or Subsidiary of a Borrower may,
subject to Section 6.2, declare and pay dividends or make distributions directly
or indirectly to another Borrower, (b) SCC, Inc. may make a Qualified Stock
Repurchase, (c) Borrowers and Subsidiaries may, subject to Section 6.2, pay
partner distributions as required under the partnership agreements as currently
in effect as of the date hereof, or with such amendments as are approved in
writing by the Requisite Banks, of L.A./Irvine Sports Clubs, Ltd., El Segundo
TDC, Ltd., Sports Connection-ES/MB and Reebok-Sports Club/NY or any other entity
approved in writing by the Requisite Banks pursuant to Section 5.6 of this
Agreement, (d) Borrowers and Subsidiaries may declare or make operating
distributions or declare or pay dividends or make distributions in connection
with the purchase of partnership interests in L.A./Irvine Sports Clubs, Ltd., El
Segundo TDC, Ltd., Sports Connection-ES/MB and/or Reebok-Sports Club/NY or any
other entity approved in writing by the Requisite Banks pursuant to Sections 5.6
and 6.2 of this Agreement, and (e) The SportsMed Company, Inc. and/or HFA
Services, Inc. shall have the right to repurchase securities pursuant to the
terms of the Shareholders Agreements previously entered into by HFA Services,
Inc., copies of which Shareholders Agreements have been delivered to Banks, as
such Shareholders Agreements are currently in effect as of the date hereof, or
with such amendments as are approved in writing by the Requisite Banks, provided
that
37
The SportsMed Company, Inc. and/or HFA Services, Inc. shall not expend more than
$750,000 in the aggregate during the term of this Agreement in connection with
such repurchases of securities.
6.6 ERISA.
(a) At any time, maintain, or be or become obligated to
contribute on behalf of its employees to, any Plan, other than those
Plans disclosed in Schedule 4.13.
(b) At any time, permit any Plan to:
(7 engage in any "prohibited transaction", as such
term is defined in Section 4975 of the Internal Revenue Code of
1954, as amended;
(8 incur any material "accumulated funding
deficiency", as that term is defined in Section 302 of ERISA; or
(9 terminate in a manner which could result in
liability of Borrowers or any Subsidiary thereof to the Plan or to
the PBGC or the imposition of a Lien on the Property of Borrowers
or any Subsidiary thereof pursuant to Section 4068 of ERISA.
(c) At any time, assume any obligation to contribute to any
Multiemployer Plan, nor shall Borrowers or any Subsidiary thereof acquire
any Person or assets of any Person which has, or has had at any time from
and after January 2, 1974, an obligation to contribute to any
Multiemployer Plan.
(d) Fail immediately to notify Agent and Banks of the
occurrence of any "reportable event" (as defined in Section 4043 of
ERISA) or of any "prohibited transaction" (as defined in Section 4975 of
the Internal Revenue Code of 1954, as amended) with respect to any Plan
or any trust created thereunder. Upon request by Agent or any Bank,
Borrowers promptly shall furnish to Agent and Banks copies of any reports
or other documents filed by Borrowers or any Subsidiary thereof with the
United States Secretary of Labor, the PBGC and/or the Internal Revenue
Service, with respect to any Plan.
(e) At any time, permit any Plan to fail to comply with
ERISA or other applicable Law in any material respect.
6.7 Change in Nature of Business/Management. Make any material
change in the nature of the business of Borrowers and their Subsidiaries, as
conducted and presently proposed to be conducted, or remove or allow removal of
D. Michael Talla, John Gibbons or Timothy O'Brien from any management position
presently held by him, unless evidence of satisfactory progress to procure a
replacement acceptable to the Requisite Banks is delivered to Agent and Banks
within 30 days thereafter.
6.8 Intentionally Omitted.
6.9 Indebtedness, Guaranties and Liens. Create, incur, assume or
suffer to exist any Lien of any nature upon or with respect to any of their
respective Properties, whether now owned or hereafter acquired; create, incur or
assume any indebtedness for borrowed money or in connection with the purchase of
Property or any liability to the issuer of any letter of credit; guaranty or
otherwise become responsible (including, but not limited to, any agreement to
purchase any obligations, stock, Property, goods or services or to supply or
advance any funds, Property, goods or services) for the indebtedness or
obligations of any other Person; or incur any lease obligation that is required
to be capitalized under generally accepted accounting principles, except:
(a) Indebtedness and Liens securing obligations incurred in
the ordinary course of business and incurred in connection with purchase
money transactions including real estate or equipment or fixture
purchases, provided that the amount of such transactions involving
purchases of new equipment for existing Clubs (i.e., other than in
connection with Acquisitions or New Club
38
Developments, as permitted by Section 6.12) shall not exceed an aggregate
amount of $1,500,000 principal (or the equivalent thereof) in any one
fiscal year;
(b) Intentionally omitted;
(c) Intentionally omitted;
(d) Liens securing the claims or demands of materialmen,
mechanics, and other like Persons not yet delinquent or being contested
in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(e) Indebtedness, liabilities, guaranties or Liens in favor
of Agent and Banks under this Agreement, the Notes and the other Loan
Documents;
(f) Indebtedness and Liens listed on Schedule 6.9 or
Indebtedness and Liens arising out of the extension or refinancing of the
obligations of Borrowers described on Schedule 6.9, provided that such
obligations are not increased and are not secured by any additional
property;
(g) Guaranties arising from endorsement, in the ordinary
course of collection, of negotiable instruments;
(h) Indebtedness and Liens for taxes and assessments or
other government charges or levies if not yet due and payable or, if due
and payable, which are being contested in good faith by appropriate
proceedings and for which appropriate reserves are maintained;
(i) Liens under workers' compensation, unemployment
insurance, social security, or similar legislation, if they are being
contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained; and
(j) Trade credit for goods and services provided to the
Borrowers and the Subsidiaries in the ordinary course of business.
6.10 Transactions with Affiliates. Enter into any transaction of
any kind with any Affiliate of Borrowers other than (a) transactions between or
among Borrowers and their Subsidiaries so long as, as a result of such
transactions, the aggregate amount advanced to, invested in or committed to any
Non-Borrower Affiliate on or after January 1, 1997, does not exceed $200,000,
(b) arms-length transactions with Affiliates which are permitted with
non-Affiliates pursuant to Sections 6.1, 6.3, 6.5, and (c) those transactions
listed in Schedules 6.10 and 6.17.
6.11 Change in Fiscal Year. Change its fiscal year, or the fiscal
months thereof.
6.12 Capital Expenditures and Purchase Money Transactions. Make or
incur obligations for Capital Expenditures in the aggregate for Borrowers and
their Subsidiaries in excess of $10,000,000 during the Borrowers' 1998 fiscal
year or, in any subsequent fiscal year, in excess of five percent (5.0%) of
Borrowers' net revenues derived from operation of the Clubs for such fiscal year
before restatements for acquisitions accounted for using the pooling method of
accounting. For the purpose of determining compliance by Borrowers and their
Subsidiaries with the foregoing covenant, the following Capital Expenditures and
indebtedness and Liens securing obligations incurred in connection with purchase
money equipment financings ("Purchase Money Indebtedness and Liens") shall be
excluded:
(i) Capital Expenditures made and Purchase Money
Indebtedness and Liens incurred in connection with, and no later than one
year following the consummation of, an Acquisition for which the consent
of Banks is not required pursuant to Section 6.3(b), so long as the
aggregate amount of such Capital Expenditures and Purchase Money
Indebtedness and Liens and of all other
39
expenditures relating to such Acquisition do not exceed the respective
limits on total consideration for such Acquisition set forth in Section
6.3(b);
(ii) Capital Expenditures made and Purchase Money
Indebtedness and Liens incurred in connection with, and no later than one
year following the consummation of, an Acquisition for which the consent
of Banks is required pursuant to Section 6.3(b), so long as the aggregate
amount of such Capital Expenditures and Purchase Money Indebtedness and
Liens and of all other expenditures relating to such Acquisition do not
exceed the total consideration limit imposed for such Acquisition by
Banks in issuing their approval of such Acquisition;
(iii) Capital Expenditures made and Purchase Money
Indebtedness and Liens incurred in connection with, and no later than 90
days following the opening of the related new Club, a New Club
Development for which the consent of Banks is not required pursuant to
Section 6.3(c), so long as the aggregate amount of such Capital
Expenditures and Purchase Money Indebtedness and Liens and of all other
expenditures relating to such New Club Development do not exceed the
respective limits on total consideration for such New Club Development
set forth in Section 6.3(c); and
(iv) Capital Expenditures made and Purchase Money
Indebtedness and Liens incurred in connection with, and no later than 90
days following the opening of the related new Club, a New Club
Development for which the consent of Banks is required pursuant to
Section 6.3(c), so long as the aggregate amount of such Capital
Expenditures and Purchase Money Indebtedness and Liens and of all other
expenditures relating to such New Club Development do not exceed the
total consideration limit imposed by Banks in issuing their approval of
such New Club Development.
6.13 Tangible Net Worth. Permit Tangible Net Worth, as of the last
day of any fiscal quarter of Borrowers and their Subsidiaries ending during any
period specified below, to be less than $77,000,000 plus 80% of Borrowers'
cumulative net income after December 31, 1997 not reduced by net losses and
increased by one hundred percent (100%) of funds generated from any equity
offering occurring after May 31, 1998.
6.14 Ratio of Total Unsubordinated Liabilities to Tangible Net
Worth. Permit the ratio of Total Unsubordinated Liabilities to Tangible Net
Worth, as of the last day of any fiscal quarter of Borrowers and their
Subsidiaries to be greater than 1.25:1.00.
6.15 Debt Service Coverage Ratio. For Borrowers and their
Subsidiaries, permit the ratio of (i) EBITDA to (ii) interest expense on all
indebtedness plus the current portion of long term debt of Borrowers to be less
than 2.00:1.00, with such ratio to be calculated at the end of each fiscal
quarter (x) on a cumulative annualized basis for each fiscal quarter beginning
with the second quarter of Borrowers' and their Subsidiaries' 1998 fiscal year
and continuing through and including the fourth quarter of Borrowers' and their
Subsidiaries' 1998 fiscal year, and (y) on a rolling four-quarter basis for each
fiscal quarter ending after the fourth quarter of Borrowers' and their
Subsidiaries 1998 fiscal year. For the purpose of calculation only, the
$4,000,000 balloon payment due November 1999 under the Sports Club/Irvine note
shall be excluded.
6.16 Intentionally Omitted.
6.17 Loans to Officers. Make any loans, advances or other
extensions of credit to any of Borrowers' executives, officers, directors,
shareholders or employees (or any relatives of any of the foregoing) in an
aggregate amount exceeding $200,000, other than those set forth on Schedule
6.17.
6.18 Deposit Accounts. Establish any deposit accounts in the name
of any Borrower or any Subsidiary without prior notice to Agent.
6.19 Ratio of Funded Debt to EBITDA. Permit the ratio of (i)
Funded Debt to (ii) EBITDA, as of the last day of the fiscal quarter of
Borrowers and their Subsidiaries, calculated at the end of each such quarter on
a rolling four (4) quarter basis, to be greater than 3.75:1.00.
40
ARTICLE 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 Financial and Business Information. So long as any Loan
remains unpaid, or any other Obligation remains unpaid or unperformed, or any
portion of the Commitment remains outstanding, Borrowers shall, in addition to
complying with the requirements of Section 8.3 of this Agreement, and unless the
Requisite Banks otherwise consent in writing, deliver to Agent, at Borrowers'
sole expense:
(a) As soon as practicable, and in any event within 30 days
after the end of each fiscal month of Borrowers, (i) consolidated balance
sheets of Borrowers and their Subsidiaries as at the end of such month,
setting forth in comparative form the corresponding figures as at the end
of the corresponding month of their preceding fiscal year, (ii) Club
operating statements of each Club as at the end of such month, (iii)
consolidated income statements of Borrowers and their Subsidiaries for
such month and for the portion of their fiscal year ended with such
month, setting forth in comparative form the corresponding figures for
the corresponding periods of their preceding fiscal year and (iv)
consolidated cash flow statements of Borrowers and their Subsidiaries for
the portion of their fiscal year ended with such month, setting forth in
comparative form the corresponding figures for the corresponding periods
of their preceding fiscal year, all in reasonable detail. The preceding
financial statements shall be certified by a Responsible Official of a
Borrower as fairly presenting the financial condition, results of
operations and cash flow of Borrowers and their Subsidiaries in
accordance with generally accepted accounting principles, consistently
applied, as at such date and for such periods, subject only to normal
year-end audit adjustments.
(b) As soon as practicable, and in any event within 45 days
after the end of each quarter of Borrowers (including the last quarter of
each fiscal year, provided that with respect to such last quarter the
financial statements required hereby may be in preliminary form, prior to
year-end audit adjustments), (i) consolidated balance sheets of Borrowers
and their Subsidiaries as at the end of such quarter, setting forth in
comparative form the corresponding figures as at the end of the
corresponding quarter of their preceding fiscal year, (ii) consolidated
income statements of Borrowers and their Subsidiaries for such quarter
and for the portion of their fiscal year ended with such quarter, setting
forth in comparative form the corresponding figures for the corresponding
periods of their preceding fiscal year and (iii) consolidated cash flow
statements of Borrowers and their Subsidiaries for the portion of their
fiscal year ended with such quarter, setting forth in comparative form
the corresponding figures for the corresponding periods of their
preceding fiscal year, all in reasonable detail.
The preceding financial statements shall be certified by a Responsible
Official of a Borrower as fairly presenting the financial condition,
results of operations and cash flow of Borrowers and their Subsidiaries
in accordance with generally accepted accounting principles, consistently
applied, as at such date and for such periods, subject only to normal
year-end audit adjustments.
(c) As soon as practicable, and in any event within 90 days
after the close of each fiscal year of Borrowers, (i) consolidated
balance sheets of Borrowers and their Subsidiaries as at the end of such
fiscal year, setting forth in comparative form the corresponding figures
as at the end of their preceding fiscal year, and (ii) consolidated
income statements and cash flow statements of Borrowers and their
Subsidiaries for such fiscal year, setting forth in comparative form the
corresponding figures for their previous fiscal year, all in reasonable
detail. Such balance sheets and statements shall be prepared in
accordance with generally accepted accounting principles, consistently
applied, and such consolidated balance sheet and consolidated statements
shall be accompanied by a report and unqualified opinion of independent
public accountants of recognized standing selected by Borrowers and
reasonably satisfactory to the Requisite Banks, which report and opinion
shall be prepared in accordance with generally accepted auditing
principles as at such date, and shall be subject only to such
qualifications and exceptions as are acceptable to the Requisite Banks in
the exercise of their reasonable discretion.
(d) As soon as practicable, and in any event within 30 days
after the end of each month of Borrowers, a Certificate of a Responsible
Official of a Borrower setting forth a schedule of
41
Capital Expenditures made by Borrowers and/or their Subsidiaries during
such month, and during their fiscal year to date, separately for each
Club.
(e) As soon as practicable, and in any event within 30 days
after the start of each fiscal year of Borrowers, a monthly budget for
the then started fiscal year including, without limiting the generality
of the foregoing, monthly projected consolidated balance sheets, income
statements and cash flow statements of Borrowers and their Subsidiaries
and individual Club operating statements, all in reasonable detail.
(f) Within 30 days following the end of each month, a
membership information report for each Club and in the aggregate in the
form now prepared by Borrowers on a monthly basis, reflecting no less
than the immediately preceding consecutive six months, and reflecting the
number of members, the number of new memberships sold and the gross
reduction in number of memberships, and supplemented by such additional
information as Agent may request.
(g) Within 30 days after the close of each fiscal year of
Borrowers, Borrowers' budget of capital expenditures for capital
improvements, replacements and other related purposes for the following
fiscal year.
(h) Within the earlier of 5 days after (i) the same are
filed with the Securities and Exchange Commission ("SEC") or (ii) the
same are required to be filed with the SEC, subject to allowable SEC
extensions, copies of each annual report, proxy or financial statement or
other report or communication sent to the shareholders of Borrowers, and
copies of all annual, regular, periodic and special reports and
registration statements which Borrowers may file or be required to file
with the Securities and Exchange Commission or any similar or
corresponding Governmental Agency or with any securities exchange.
(i) Within 5 days after receipt of copies of all
correspondence and notices received by Borrowers from the Internal
Revenue Service ("IRS") relating to any adverse action or determination
by the IRS in respect of any Borrower's tax status under the Internal
Revenue Code.
(j) Immediately upon becoming aware of the existence of any
condition or event which constitutes a Default, a written notice
specifying the nature and period of existence thereof and what action
Borrowers or their Subsidiaries are taking or propose to take with
respect thereto.
(k) Promptly upon request by Agent or the Requisite Banks,
copies of any detailed audit reports submitted to Borrowers or any of
their Subsidiaries by independent accountants in connection with the
accounts or books of Borrowers or any of their Subsidiaries, or any audit
of any of them.
(l) Promptly after request by Agent or the Requisite Banks,
copies of any report or other document filed by Borrowers or any of their
Subsidiaries with any Governmental Agency.
(m) Promptly upon becoming aware that any Person asserts a
claim against Borrowers or any of their Subsidiaries in excess of
$500,000 and that such Person has given notice or taken any other action
with respect to a claimed default or event of default, a written notice
specifying the notice given or action taken by such Person and the nature
of the claimed default or event of default and what action Borrowers or
their Subsidiaries are taking or propose to take with respect thereto.
(n) As soon as practicable, and in any event within 45 days
after the end of each fiscal quarter of Borrowers, a project development
status report in form and substance acceptable to Agent and Banks, which
shall include, at a minimum, a timetable for architectural and
construction design, permitting, construction milestones, as may be
available, as well as an estimated date for completion. Such report also
shall include the budget as originally approved by the Board of Directors
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of the applicable Borrower or Subsidiary and by Banks, as well as any
material modifications that have been approved by Banks or which may
require such approval.
(o) Such other data and information as from time to time
may be reasonably requested by Agent or the Requisite Banks.
7.2 Compliance Certificates. So long as any Loan remains unpaid,
or any other Obligation remains unpaid or unperformed, or any portion of the
Commitment remains outstanding, Borrowers shall, unless the Requisite Banks
otherwise consent in writing, deliver to Agent, at Borrowers' sole expense, not
later than 45 days after the end of each fiscal quarter of Borrower, a
Certificate of a Responsible Official of a Borrower (a) setting forth
computations showing, in detail satisfactory to the Requisite Banks, whether
Borrowers and their Subsidiaries were in compliance with their obligations
pursuant to Sections 6.11 through 6.16, inclusive; (b) setting forth
computations showing, in detail satisfactory to the Requisite Banks, the
Applicable Pricing Level; (c) stating that a review of the activities of
Borrowers and their Subsidiaries during such fiscal period has been made under
supervision of the certifying Responsible Official with a view to determining
whether during such fiscal period Borrowers and their Subsidiaries performed and
observed all their respective Obligations under the Loan Documents, and either
(i) stating that, to the best knowledge of the certifying Responsible Official,
during such fiscal period, Borrowers and their Subsidiaries performed and
observed each covenant and condition of the Loan Documents applicable to them,
or (ii) if Borrowers and their Subsidiaries have not performed and observed such
covenants and conditions, specifying all such Defaults and their nature and
status; and (d) stating that the Properties of Borrowers and their Subsidiaries
are being maintained and are in reasonable working order and condition, ordinary
replacement wear and tear excepted.
7.3 Revisions or Updates to Schedules. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect, upon request by
Agent, Borrowers promptly shall provide to Agent such revisions or updates to
such Schedule(s) as may be necessary or appropriate to update or correct such
Schedule(s); provided that no such revisions or updates to any Schedule(s) shall
be deemed to have amended, modified or superseded such Schedule(s) as originally
attached hereto, or to have cured any breach of warranty or representation
resulting from the inaccuracy or incompleteness of any such Schedule(s), unless
and until the Requisite Banks, in their sole and absolute discretion, shall have
accepted in writing such revisions or updates to such Schedule(s).
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ARTICLE 8
CONDITIONS
8.1 Initial Loans, Etc. The obligation of each Bank to make the
initial Loans and to issue the initial Standby Letter of Credit, each are
subject to the following conditions precedent (in addition to any applicable
conditions precedent set forth elsewhere in this Article 8), each of which shall
be satisfied prior to or concurrently with the making of the initial Loans and
the issuance of the initial Standby Letter of Credit (unless Banks, in their
sole and absolute discretion, shall agree otherwise):
(a) Agent shall have received all of the following, each of
which shall be originals unless otherwise specified, each properly
executed by a Responsible Official of each party thereto, each dated as
of the Closing Date and each in form and substance satisfactory to Agent
and its legal counsel (unless otherwise specified or, in the case of the
date of any of the following, unless Agent otherwise agrees or directs):
(10) six executed counterparts of this Agreement;
(11) the Notes executed by Borrowers payable to the
order of Banks;
(12) with respect to each Borrower and any and each
Subsidiary thereof, such documentation as Agent may require to
establish the due organization, valid existence and good standing
of such Borrower and each such Subsidiary, its qualification to
engage in business in each jurisdiction in which it is engaged in
business or required to be so qualified, its authority to execute,
deliver and perform any Loan Documents to which it is a Party, and
the identity, authority and capacity of each Responsible Official
thereof authorized to act on its behalf, including, without
limitation, certified copies of articles of incorporation and
amendments thereto, bylaws and amendments thereto, partnership
agreements, certificates of limited partnerships, certificates of
good standing and/or qualification to engage in business,
certificates of corporate resolutions, incumbency certificates,
Certificates of Responsible Officials, and the like;
(13) such Loan Documents as Agent or Requisite Banks
may require pledging Property of Borrowers and/or any of their
Subsidiaries, together with such related financing statements or
other documents as Agent or Requisite Banks may request to
perfect, effect, facilitate, consent to, give notice of or
otherwise evidence any Liens created thereby;
(14) the Global Collateral Documents Amendment;
(15) the Opinion of Counsel;
(16) a Certificate of a Responsible Official of
Borrowers certifying that the conditions specified in Sections
8.1(c) and 8.1(d) have been satisfied;
(17) evidence that all Liens or Rights of Others on
or in the Property of Borrowers and/or their Subsidiaries (other
than such Liens and Rights of Others as are permitted by Section
6.8) have been terminated or discharged; and
(18) such other certificates, documents, consents or
opinions as Agent or Requisite Banks reasonably may require.
(b) Duly executed financing statements with respect to the
Collateral shall have been filed and/or recorded with such Governmental
Agencies, and in such jurisdictions and locales, as Agent or Requisite
Banks may specify.
44
(c) The representations and warranties of Borrowers
contained in Article 4 shall be true and correct as of the date made or
reaffirmed.
(d) Borrowers and their Subsidiaries and any other Parties
shall be in compliance with all the terms and provisions of the Loan
Documents, and no Default shall have occurred and be continuing.
(e) The fees referred to in Sections 3.2 and 3.5 have been
paid to Banks and/or Agent, as applicable.
8.2 Any Loan. In addition to any applicable conditions precedent
set forth elsewhere in this Article 8, the obligation of Banks to make any Loan,
to redesignate any Loan, and issue any Standby Letter of Credit are subject to
the following conditions precedent:
(a) except (i) for representations and warranties which
speak as of a particular date or are no longer true and correct as a
result of a change which is permitted by this Agreement or (ii) as
disclosed by Borrowers and approved in writing by the Requisite Banks,
the representations and warranties contained in Article 4 shall be true
and correct on and as of the date of the Loan or redesignation or
issuance or creation, as the case may be, as though made on and as of
that date;
(b) except for (i) the matters set forth in Schedule 4.10,
(ii) any matter fully covered as to subject matter and amount (subject to
applicable deductibles and retentions) by insurance for which the
insurance carrier has not asserted lack of subject matter coverage or
reserved its right to do so, or (iii) any matter, or series of related
matters, involving a claim against Borrowers of less than $100,000, there
shall be no actions, suits or proceedings pending against or affecting
Borrowers or any of their Subsidiaries or any Property of any of them in
any court of Law or before any Governmental Agency which might reasonably
be expected to have a material adverse effect on the business, operations
or condition (financial or otherwise) of Borrowers and their
Subsidiaries, taken as a whole;
(c) no material adverse change shall have occurred in the
business, operations or condition (financial or otherwise) of Borrowers
and their Subsidiaries, taken as a whole, since the Closing Date;
(d) no Default shall have occurred and be continuing;
(e) Agent shall have timely received a properly completed
Request for Loan, Request for Redesignation of Loans or Request for
Standby Letter of Credit, as the case may be, in compliance with all
applicable provisions of Article 2; and Agent shall have received, dated
as of the date of the Loan or redesignation or issuance or creation, as
the case may be, a Certificate of a Responsible Official of a Borrower to
the effect that all of the above conditions have been satisfied, with any
changes or exceptions thereto being described in a schedule attached to
such certificate and with such changes or exceptions being subject to the
approval of the Requisite Banks; and
(f) Agent shall have received, in form and substance
satisfactory to the Requisite Banks such other certificates, documents or
consents as the Requisite Banks reasonably may require.
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ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
9.1 Events of Default. The existence or occurrence of any one or
more of the following events, whatever the reason therefor, shall constitute an
Event of Default:
(a) Borrowers fail to pay any installment of principal or
interest on any indebtedness on any of the Notes or any portion thereof,
or to reimburse Agent or any Bank for any payment made under any Standby
Letter of Credit, or to pay any fee or any other amount due Agent or any
Bank under any Loan Document, within five (5) Banking Days following the
giving of notice by Agent or Requisite Banks of such Default; or
(b) Any failure to comply with Section 7.1(j); or
(c) Borrowers, any of their Subsidiaries or any other Party
fails to perform or observe any other term, covenant or agreement
contained in any Loan Document, including, but not limited to, those set
forth in Articles 6 and 7 of this Agreement, on its part to be performed
or observed within fifteen (15) days after the giving of written notice
by Agent or Borrowers otherwise becoming aware of such Default; or
(d) Any representation or warranty made in any Loan
Document or in any certificate, agreement, instrument or other document
made or delivered by any Party pursuant to or in connection with any Loan
Document proves to have been incorrect when made in any respect that is
materially adverse to the interests of Agent or Banks; or
(e) Borrowers or any of their Subsidiaries (i) fail to pay
the principal, or any principal installment, of any present or future
indebtedness for borrowed money of $200,000 or more or in connection with
the purchase or lease of Property, or any guaranty of present or future
indebtedness for borrowed money of $200,000 or more or issued in
connection with the purchase or lease of Property, on its part to be
paid, when due (or within any stated grace period), whether at the stated
maturity, upon acceleration, by reason of required prepayment or
otherwise or (ii) fails to perform or observe any other term, covenant or
agreement on its part to be performed or observed in connection with any
present or future indebtedness for borrowed money of $200,000 or more or
in connection with the purchase or lease of Property, or of any guaranty
of present or future indebtedness of $200,000 or more for borrowed money
or issued in connection with the purchase or lease of Property, if as a
result of such failure any holder or holders thereof (or an agent or
trustee on its or their behalf) has the right to declare such
indebtedness due before the date on which it otherwise would become due,
or has commenced judicial or nonjudicial action to collect such
indebtedness or to foreclose or otherwise realize upon security held
therefor, or has taken or is taking such other actions as might
materially adversely affect the Collateral, the interests of any Bank
under the Loan Documents or the ability of Borrowers or their
Subsidiaries to pay and perform their Obligations under the Loan
Documents; or
(f) Any Loan Document, at any time after its execution and
delivery and for any reason other than the agreement of the Requisite
Banks or satisfaction in full of all the Obligations, ceases to be in
full force and effect or is declared by a court of competent jurisdiction
to be null and void, invalid or unenforceable in any respect which, in
the reasonable opinion of the Requisite Banks, is materially adverse to
the interests of the Banks; or any Party thereto denies that it has any
or further liability or obligation under any Loan Document, or purports
to revoke, terminate or rescind same; or
(g) A final judgment against any Borrower or any of its
Subsidiaries is entered for the payment of money in excess of $500,000
and such judgment remains unsatisfied without procurement of a stay of
execution for more than thirty (30) calendar days after the date of entry
of judgment; or
46
(h) Any Borrower or any of Subsidiary thereof, is the
subject of an order for relief in a bankruptcy case, or is unable or
admits in writing its inability to pay its debts as they mature, or makes
an assignment for the benefit of creditors; or applies for or consents to
the appointment of any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer for it or for all or any
part of its Property; or any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer is appointed without the
application or consent of that Person and the appointment continues
undischarged or unstayed for thirty (30) calendar days; or institutes or
consents to any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, custodianship, conservatorship,
liquidation, rehabilitation or similar case or proceedings relating to it
or to all or any part of its Property under the Laws of any jurisdiction;
or any similar case or proceeding is instituted without the consent of
that Person and continues undismissed or unstayed for thirty (30)
calendar days; or any judgment, writ, warrant of attachment or execution
or similar process is issued or levied against all or any material part
of the Property of any such Person and is not released, vacated or fully
bonded within thirty (30) calendar days after its issue or levy; or
(i) Except as otherwise expressly permitted by any Loan
Document or agreed to by the Requisite Banks, any Lien on any Collateral
created by any Loan Document, at any time after the execution and
delivery of that Loan Document and for any reason other than satisfaction
in full of all Obligations, ceases or fails to constitute a valid,
perfected and subsisting first priority Lien on the Collateral purported
to be covered thereby (unless such cessation or failure is the fault of
Agent or the Banks to timely file continuation statements); or
(j) Any Borrower or any Subsidiary thereof is dissolved or
liquidated or all or substantially all of the assets of any Borrower or
any Subsidiary thereof are sold or otherwise transferred in violation of
the provisions of this Agreement without the written consent of the
Requisite Banks.
9.2 Remedies Upon Event of Default. Without limiting any other
rights or remedies of Agent or Banks provided for elsewhere in this Agreement,
or the Loan Documents, or by applicable Law, or in equity or otherwise:
(a) Upon the occurrence of any Event of Default other than
an Event of Default described in Section 9.1(f):
(1) the Commitment to make Loans and all other
obligations of the Agent or the Banks and all rights of Borrowers
and any other Parties under the Loan Documents shall terminate
without notice to or demand upon Borrowers, which are expressly
waived by Borrowers, except that the Requisite Banks may waive the
Event of Default or, without waiving, determine, upon terms and
conditions satisfactory to Banks, to make further Loans, which
waiver or determination shall apply equally to, and shall be
binding upon, all of the Banks; and
(2) the Requisite Banks may request the Agent to,
and the Agent thereupon shall declare all or any part of the
unpaid principal of all Notes, all interest accrued and unpaid
thereon and all other amounts payable under the Loan Documents to
be forthwith due and payable, whereupon the same shall become and
be forthwith due and payable, without protest, presentment, notice
of dishonor, demand or further notice of any kind, all of which
are expressly waived by Borrowers.
(b) Upon the occurrence of any Event of Default described
in Section 9.1(f):
(1) the Commitment to make Loans and all other
obligations of Agent or any Bank and all rights of Borrowers and
any other Parties under the Loan Documents shall terminate without
notice to or demand upon Borrowers, which are expressly waived by
Borrowers, except that all of the Banks may waive the Event of
Default or, without waiving, determine, in their sole discretion,
to make further Loans; and
47
(2) the unpaid principal of all Notes, all interest
accrued and unpaid thereon and all other amounts payable under the
Loan Documents shall be forthwith due and payable, without
protest, presentment, notice of dishonor, demand or further notice
of any kind, all of which are expressly waived by Borrowers.
(c) Upon the occurrence of any Event of Default, Agent and
Banks or any of them, without notice to or demand upon Borrowers, which
are expressly waived by Borrowers, except as required by California
Commercial Code Section 9504 or any modification or replacement statute
thereof, or by the terms of this Agreement, may proceed (but only with
the consent of the Requisite Banks) to protect, exercise and enforce its
rights and remedies under the Loan Documents against Borrowers and such
other rights and remedies as are provided by Law or equity.
(d) The order and manner in which the Banks' rights and
remedies are to be exercised shall be determined by the Requisite Banks
in their sole discretion, and all payments received by Agent and the
Banks shall be applied first to the costs and expenses (including outside
attorneys' fees and disbursements) of Agent, acting as Agent and of Banks
pro rata and thereafter to the Obligations owed to Banks, pro rata, under
the Agreement. For the purpose of computing Borrowers' Obligations under
the Loan Documents, payments shall be applied, first, to the costs and
expenses of Agent and Banks, as set forth above, second, to the payment
of accrued and unpaid interest due under any Loan Documents to and
including the date of such application, third, to the payment of all
unpaid principal amounts due under any Loan Documents (including, for the
purposes hereof, principal due under the Notes and reimbursement due for
payments made under Letters of Credit), and fourth, to the payment of all
other amounts (including fees) then owing to Agent and Banks under the
Loan Documents. No application of payments will cure any Event of
Default, or prevent acceleration, or continued acceleration, of amounts
payable under the Loan Documents, or prevent the exercise, or continued
exercise, of rights or remedies of Banks hereunder or thereunder or at
Law or in equity.
(e) Upon the occurrence of any event that would be an Event
of Default under Section 9.1(g) with the passage of time, Agent and Banks
may take such action as the Requisite Banks deem necessary to protect the
interests of Banks under the Loan Documents.
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ARTICLE 10
THE AGENT
10.1 Appointment and Authorization. Each Bank hereby irrevocably
appoints and authorizes Agent to take such action as agent on its behalf and to
exercise such powers under the Loan Documents as are delegated to Agent by the
terms thereof or are reasonably incidental, as determined by Agent, thereto.
This appointment and authorization is intended solely for the purpose of
facilitating the servicing of the Loans and does not constitute appointment of
Agent as trustee for any Bank or as representative of any Bank for any other
purpose and, except as specifically set forth in the Loan Documents to the
contrary, Agent shall take such action and exercise such powers only in an
administrative and ministerial capacity.
10.2 Agent and Affiliates. Sumitomo Bank of California (and each
successor Agent) has the same rights and powers under the Loan Documents as any
other Bank and may exercise the same as though it was not the Agent, and the
term "Bank" or "Banks" includes Sumitomo Bank of California in its individual
capacity. Sumitomo Bank of California (and each successor Agent) and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with Borrowers, any Subsidiary thereof,
or any Affiliate of Borrowers or any Subsidiary thereof, as if it was not the
Agent and without any duty to account therefor to Banks. Sumitomo Bank of
California (and each successor Agent) need not account to any other Bank for any
monies received by it for reimbursement of its costs and expenses as Agent
hereunder, or for any monies received by it in its capacity as a Bank hereunder.
10.3 Proportionate Interest of the Banks in any Collateral. Agent,
on behalf of all the Banks, shall hold in accordance with the Loan Documents all
items of Collateral or interests therein received or held by Agent. Subject to
Agent's and the Banks' rights to reimbursement for their costs and expenses
hereunder (including attorneys' fees and disbursements and other professional
services) and subject to the application of payments in accordance with Section
9.2(d), each Bank shall have an interest in any Collateral or interests therein
in the same proportions that the aggregate Obligations owed such Bank under the
Loan Documents bear to the aggregate Obligations owed under the Loan Documents
to all the Banks, without priority or preference among the Banks.
10.4 Banks' Credit Decisions. Each Bank agrees that it has,
independently and without reliance upon Agent, any other Bank or the directors,
officers, agents, employees or attorneys of Agent or of any other Bank, and
instead in reliance upon information supplied to it by or on behalf of Borrowers
and upon such other information as it has deemed appropriate, made its own
independent credit analysis and decision to enter into this Agreement. Each Bank
also agrees that it shall, independently and without reliance upon Agent, any
other Bank or the directors, officers, agents, employees or attorneys of Agent
or of any other Bank, continue to make its own independent credit analyses and
decisions in acting or not acting under the Loan Documents.
10.5 Action by Agent.
(a) Agent may assume that no Default has occurred and is
continuing, unless Agent has actual knowledge of the Default, has received
notice from Borrowers stating the nature of the Default, or has received
notice from a Bank stating the nature of the Default and that such Bank
considers the Default to have occurred and to be continuing.
(b) Agent has only those obligations under the Loan
Documents as are expressly set forth therein.
(c) Except for any obligation expressly set forth in the
Loan Documents and as long as Agent may assume that no Event of Default
has occurred and is continuing, Agent may, but shall not be required to
exercise its discretion to act or not act, except that Agent shall be
required to act or not act upon the instructions of the Requisite Banks
(or of all the Banks, to the extent required by Section 11.3) and those
instructions shall be binding upon Agent and all Banks, provided that
Agent shall not be required to act or not act if to do so would be
contrary to any Loan Document or to applicable Law.
49
(d) If Agent may not assume that no Event of Default has
occurred and is continuing, Agent shall give notice thereof to Banks and
shall act or not act upon the instructions of the Requisite Banks (or of
all the Banks, to the extent required by Section 11.3), provided that
Agent shall not be required to act or not act if to do so would be
contrary to any Loan Document or to applicable Law, and except that if the
Requisite Banks (or all Banks, if required under Section 11.3) fail, for
five (5) Banking Days after the receipt of notice from Agent, to instruct
Agent, then Agent, in its discretion, may act or not act as it deems
advisable for the protection of the interests of Banks.
(e) Agent shall have no liability to any Bank for acting,
or not acting, as instructed by the Requisite Banks (or all the Banks, if
required under Section 11.3), notwithstanding any other provision hereof.
10.6 Liability of Agent. Neither Agent nor any of its directors,
officers, agents, employees or attorneys shall be liable for any action taken or
not taken by them under or in connection with the Loan Documents, except for
their own gross negligence or willful misconduct. Without limitation on the
foregoing, Agent and its directors, officers, agents, employees and attorneys:
(a) May treat the payee of any Note as the holder thereof
until Agent receives notice of the assignment or transfer thereof, in form
satisfactory to Agent, signed by the payee, and may treat each Bank as the
owner of that Bank's interest in the Obligations for all purposes of this
Agreement until Agent receives notice of the assignment or transfer
thereof, in form satisfactory to Agent, signed by that Bank.
(b) May consult with legal counsel (including in-house
legal counsel), accountants (including in-house accountants) and other
professionals or experts selected by it, or with legal counsel,
accountants or other professionals or experts for Borrowers and/or their
Subsidiaries or Banks, and shall not be liable for any action taken or not
taken by it in good faith in accordance with the advice of such legal
counsel, accountants or other professionals or experts.
(c) Shall not be responsible to any Bank for any statement,
warranty or representation made in any of the Loan Documents or in any
notice, certificate, report, request or other statement (written or oral)
given or made in connection with any of the Loan Documents.
(d) Except to the extent expressly set forth in the Loan
Documents, shall have no duty to ask or inquire as to the performance or
observance by Borrowers or their Subsidiaries of any of the terms,
conditions or covenants of any of the Loan Documents or to inspect any
Collateral or the Property, books or records of Borrowers or their
Subsidiaries.
(e) Will not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness, effectiveness,
sufficiency or value of any Loan Document, any other instrument or writing
furnished pursuant thereto or in connection therewith, or any Collateral.
(f) Will not incur any liability by acting or not acting in
reliance upon any Loan Document, notice, consent, certificate, statement,
request or other instrument or writing believed by it to be genuine and
signed or sent by the proper party or parties.
(g) Will not incur any liability for any arithmetical error
in computing any amount paid or payable by the Borrowers or any Subsidiary
or Affiliate thereof or paid or payable to or received or receivable from
any Bank under any Loan Document, including, without limitation,
principal, interest, commitment fees, advances and other amounts; provided
that, promptly upon discovery of such an error in computation, the Agent,
the Banks and (to the extent applicable) Borrowers and/or their
Subsidiaries or Affiliates shall make such adjustments as are necessary to
correct such error and to restore the parties to the position that they
would have occupied had the error not occurred.
50
10.7 Indemnification. Each Bank shall, ratably in accordance with
its percentage of the total Commitment, indemnify and hold Agent and its
directors, officers, agents, employees and attorneys harmless against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
(including, without limitation, attorneys' fees and disbursements) that may be
imposed on, incurred by or asserted against it or them in any way relating to or
arising out of the Loan Documents (other than losses incurred by reason of the
failure of Borrowers to pay the indebtedness represented by the Notes and the
Standby Letters of Credit) or any action taken or not taken by it as Agent
thereunder, except such as result from its own gross negligence or willful
misconduct. Without limitation on the foregoing, each Bank shall reimburse Agent
upon demand for that Bank's ratable share of any cost or expense incurred by
Agent in connection with the negotiation, preparation, execution, delivery
amendment, waiver, restructuring, reorganization (including a bankruptcy
reorganization), enforcement or attempted enforcement of the Loan Documents, to
the extent that Borrowers or any other Party are required by Section 11.4 to pay
that cost or expense but fails to do so upon demand.
10.8 Successor Agent. Agent may resign as such at any time by
written notice to Borrowers and the Banks, to be effective upon a successor's
acceptance of appointment as Agent. The Requisite Banks at any time may remove
Agent by written notice to that effect to be effective on such date as the
Requisite Banks designate. In either event: (a) The Requisite Banks shall
appoint a successor Agent, who must be from among Banks, provided that any
resigning Agent shall be entitled to appoint a successor Agent from among Banks,
subject to acceptance of appointment by that successor Agent, if the Requisite
Banks have not appointed a successor Agent within thirty (30) days after the
date the resigning Agent gave notice of resignation; (b) Upon a successor's
acceptance of appointment as Agent, the successor will thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
resigning Agent or the removed Agent; and (c) Upon the effectiveness of any
resignation or removal, the resigning Agent or the removed Agent thereupon will
be discharged from its duties and obligations thereafter arising under the Loan
Documents other than obligations arising as a result of any action or inaction
of the resigning Agent or the removed Agent prior to the effectiveness of such
resignation or removal.
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ARTICLE 11
MISCELLANEOUS
11.1 Intentionally Omitted.
11.2 Cumulative Remedies; No Waiver. The rights, powers,
privileges and remedies of Agent and Banks provided herein or in any Note or
other Loan Document are cumulative and not exclusive of any right, power,
privilege or remedy provided by Law or equity. No failure or delay on the part
of Agent or any Bank in exercising any right, power, privilege or remedy may be,
or may be deemed to be, a waiver thereof; nor may any single or partial exercise
of any right, power, privilege or remedy preclude any other or further exercise
of the same or any other right, power, privilege or remedy. The terms and
conditions of Article 8 hereof are inserted for the sole benefit of Agent and
Banks and Agent (acting with the consent of the Requisite Banks) or the
Requisite Banks may waive them in whole or in part, with or without terms or
conditions, in respect of any Loan or Standby Letter of Credit, without
prejudicing Agent's or any Bank's rights to assert them in whole or in part in
respect of any other Loan or Standby Letter of Credit.
11.3 Amendments; Consents. No amendment, modification, supplement,
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by the Borrowers or any other Party therefrom, may in any event be
effective unless in writing signed by Agent with approval of the Requisite Banks
(and, in the case of amendments, modifications or supplements of or to any Loan
Document to which any Borrower is a Party, the approval in writing of such
Borrower), and then only in the specific instance and for the specific purpose
given; and, without the approval in writing of all Banks, no amendment,
modification, supplement, termination, waiver or consent may be effective:
(a) To amend or modify the principal of, or the amount of
principal, principal prepayments or the rate of interest payable on, any
Note, or the amount of the Commitment or of any commitment fee payable
to any Bank, or any other fee or amount payable to any Bank under the
Loan Documents or to allow any material release of Collateral;
(b) To postpone any date fixed for any payment of principal
of, prepayment of principal of or any installment of interest on, any
Note, or the facility fee, or any installment of any commitment fee, or
any reimbursement obligation due under any Standby Letter of Credit, or
to extend the term of the Commitment;
(c) To amend or modify the provisions of (1) the
definitions of "Commitment", "Maximum Standby Letter of Credit Amount",
"Maximum Loan Amount", Requisite Banks or "Total Outstanding"; (2)
Articles 8 or 9; or (3) this Section 11.3; or
(d) To amend or modify any other definition or provision of
this Agreement that expressly requires the consent or approval of the
Requisite Banks or some other number of Banks.
Any amendment, modification, supplement, termination, waiver or consent pursuant
to this Section 10.2 shall apply equally to and shall be binding upon, Agent and
all Banks.
11.4 Costs, Expenses and Taxes. Borrowers shall pay on demand the
reasonable costs and expenses, including attorneys' fees, of Agent and Banks in
connection with the negotiation, preparation, execution and delivery of the Loan
Documents, and of Agent and Banks in connection with the amendment, waiver,
refinancing, restructuring, reorganization (including a bankruptcy
reorganization) and enforcement or attempted enforcement of the Loan Documents,
and any matter related thereto, including, without limitation, filing fees,
recording fees, title insurance fees, appraisal fees, search fees, audit costs
incurred by Agent or Banks during the continuance of or in connection with the
occurrence of an Event of Default and other out-of-pocket expenses and the
reasonable fees and out-of-pocket expenses of any legal counsel, independent
public accountants and other outside experts retained by Agent or any Banks, and
including, without limitation, any costs, expenses or fees incurred or suffered
by Agent or any Banks in connection with or during the course of
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any bankruptcy or insolvency proceedings of any Borrower or any Subsidiary
thereof. Borrowers shall pay any and all documentary and other taxes (other than
income or gross receipts taxes generally applicable to banks) and all costs,
expenses, fees and charges payable or determined to be payable in connection
with the filing or recording of this Agreement, any other Loan Document or any
other instrument or writing to be delivered hereunder or thereunder, or in
connection with any transaction pursuant hereto or thereto, and shall reimburse,
hold harmless and indemnify Agent and Banks from and against any and all loss,
liability or legal or other expense with respect to or resulting from any delay
in paying or failure to pay any tax, cost, expense, fee or charge or that any of
them may suffer or incur by reason of the failure of any Party to perform any of
its Obligations. Any amount payable to Agent or any Bank under this Section 11.4
shall bear interest from the fifth Banking Day following the date of demand for
payment at the rate provided for in Section 3.6.
11.5 Nature of Banks' Obligations. The obligations of Banks
hereunder are several and not joint or joint and several. Nothing contained in
this Agreement or any other Loan Document and no action taken by the Agent or
Banks or any of them pursuant hereto or thereto may, or may be deemed to, make
Banks a partnership, an association, a joint venture or other entity, either
among themselves or with Borrowers or any Affiliate of Borrowers. Each Bank's
obligation to make any Loan pursuant hereto is several and not joint or joint
and several, and is conditioned upon the performance by all other Banks of their
obligations to make Loans. A default by any Bank will not increase the
percentage of the Commitment attributable to any other Bank. Any Bank not in
default may, if it desires, assume in such proportion as the nondefaulting Banks
agree the obligations of any Bank in default, but is not obligated to do so.
11.6 Survival of Representations and Warranties. All
representations and warranties contained herein or in any other Loan Document,
or in any certificate or other writing delivered by or on behalf of any one or
more of the Parties to any Loan Document, will survive the making and repayment
of the Loans hereunder and the execution and delivery of the Notes, and have
been or will be relied upon by Agent and each Bank, notwithstanding any
investigation made by Agent or any Bank or on their behalf.
11.7 Notices. Except as otherwise expressly provided in the Loan
Documents: (a) All notices, requests, demands, directions and other
communications provided for hereunder or under any other Loan Document must be
in writing and must be mailed, telecopied or personally delivered to the
appropriate party at the address set forth on the signature pages of this
Agreement or other applicable Loan Document or, as to any party to any Loan
Document, at any other address as may be designated by it in a written notice
sent to all other parties to such Loan Document in accordance with this Section
11.7; and (b) Any notice, request, demand, direction or other communication
given by telecopier must be confirmed within 48 hours by letter mailed or
delivered to the appropriate party at its respective address. Except as
otherwise expressly provided in any Loan Document, if any notice, request,
demand, direction or other communication required or permitted by any Loan
Document is given by mail it will be effective on the earlier of receipt or the
third calendar day after deposit in the United States mail with first class or
airmail postage prepaid; if given by telecopier, upon electronic confirmation of
receipt, and if given after 4:30 p.m., effective on the next business day; or if
given by personal delivery when delivered.
11.8 Execution of Loan Documents. Unless Agent otherwise specifies
with respect to any Loan Document, this Agreement and any other Loan Document
may be executed in any number of counterparts and any party hereto or thereto
may execute any counterpart, each of which when executed and delivered will be
deemed to be an original and all of which counterparts of this Agreement or any
other Loan Document, as the case may be, when taken together will be deemed to
be but one and the same instrument. The execution of this Agreement or any other
Loan Document by any party hereto or thereto will not become effective until
counterparts hereof or thereof, as the case may be, have been executed by all
the parties hereto or thereto.
11.9 Sharing of Setoffs. Each Bank severally agrees that if it,
through the exercise of any right of setoff, banker's lien or counterclaim
against Borrowers, or otherwise receives payment of the Obligations held by it
that is ratably more than any other Bank, through any means, receives in payment
of the Obligations held by that Bank, then: (a) The Bank exercising the right of
setoff, banker's lien or counterclaim or otherwise receiving such payment shall
purchase, and shall be deemed to have simultaneously purchased, from the other
Bank a participation in the Obligations held by the other Bank and shall pay to
the other Bank a purchase price in
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an amount so that the share of the Obligations held by each Bank after the
exercise of the right of setoff, banker's lien or counterclaim or receipt of
payment shall be in the same proportion that existed prior to the exercise of
the right of setoff, banker's lien or counterclaim or receipt of payment; and
(b) Such other adjustments and purchases of participations shall be made from
time to time as shall be equitable to ensure that all of the Banks share any
payment obtained in respect of the Obligations ratably in accordance with each
Bank's share of the Obligations immediately prior to, and without taking into
account, the payment; provided that, if all or any portion of a disproportionate
payment obtained as a result of the exercise of the right of setoff, banker's
lien, counterclaim or otherwise is thereafter recovered from the purchasing Bank
by Borrowers or any Person claiming through or succeeding to the rights of
Borrowers, the purchase of a participation shall be rescinded and the purchase
price thereof shall be restored to the extent of the recovery, but without
interest. Each Bank that purchases a participation in the Obligations pursuant
to this Section 11.9 shall from and after the purchase have the right to give
all notices, requests, demands, directions and other communications under this
Agreement with respect to the portion of the Obligations purchased to the same
extent as though the purchasing Bank were the owner of the Obligations
purchased. Each Borrower expressly consents to the foregoing arrangements and
agrees that any Bank holding a participation in an Obligation so purchased may
exercise any and all rights of setoff, banker's lien or counterclaim with
respect to the participation as fully as if the Bank were the original owner of
the Obligation purchased; provided, however, that each Bank agrees that it shall
not exercise any right of setoff, banker's lien or counterclaim without first
obtaining the consent of the Requisite Banks.
11.10 Binding Effect; Assignment. This Agreement and the other
Loan Documents shall be binding upon and shall inure to the benefit of the
parties hereto and thereto and their respective successors and assigns, except
that Borrowers and/or their Affiliates may not assign their rights hereunder or
thereunder or any interest herein or therein without the prior written consent
of all the Banks. Banks reserve the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or in any interest in, such
Bank's rights and obligations under the Loan Documents, except that no Bank
shall have the right to sell, assign, pledge or transfer any participation in
its rights hereunder or any interest herein (other than to a Federal Reserve
Bank for 90 days or less or to any Affiliate of such Bank) without the consent
of the Agent and Requisite Banks.
11.11 Assignment of Deposits. As security for the prompt payment
and performance of all Obligations, Borrowers hereby assigns to Agent and Banks
a security interest in all their right, title, and interest in and to any and
all deposit accounts now or hereafter maintained with Agent or any Bank and the
proceeds thereof.
11.12 Participation of Loan. Banks shall have the right to
participate, sell or assign interests in the Loans with financial institutions
on such terms and conditions as may be acceptable to Agent and Requisite Banks.
11.13 Indemnity by Borrowers. Borrowers agree to indemnify, save
and hold harmless Agent and Banks and their directors, officers, agents,
attorneys and employees (collectively the "Indemnitees") from and against: (a)
Any and all claims, demands, actions or causes of action that are asserted
against any Indemnitee by any Person (other than Agent or a Bank) if the claim,
demand, action or cause of action directly or indirectly relates to a claim,
demand, action or cause of action that such Person has or asserts against
Borrowers, any Affiliate of Borrowers or any officer, director or shareholder of
Borrowers and arises out of or relates to the relationship between Borrowers and
Banks under any of the Loan Documents or the transactions contemplated thereby;
and (b) Any and all liabilities, losses, costs or expenses (including attorneys'
fees and disbursements and other professional services) that any Indemnitee
suffers or incurs as a result of the assertion of any foregoing claim, demand,
action or cause of action; provided that no Indemnitee shall be entitled to
indemnification for any loss caused by its own gross negligence or willful
misconduct. Each Indemnitee is authorized to employ counsel of its own choosing
in enforcing its rights hereunder and in defending against any claim, demand,
action or cause of action covered by this Section 11.13; provided that each
Indemnitee shall endeavor, in connection with any matter covered by this Section
11.13 which also involves other Indemnitees, to use reasonable efforts to avoid
unnecessary duplication of effort by counsel for all Indemnitees. Any obligation
or liability of Borrowers to any Indemnitee under this Section 11.13 shall be
and hereby is covered and secured by the Loan Documents and the Collateral, and
shall survive the expiration or termination of this Agreement and the repayment
of all Loans and the payment and performance of all other Obligations owed to
Agent and/or Banks.
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11.14 Nonliability of Banks. Borrowers acknowledge and agree that:
(a) Any inspections of Collateral made by or through Agent
or any Bank are for purposes of administration of the Loan only and
Borrowers are not entitled to rely upon the same;
(b) By accepting or approving anything required to be
observed, performed, fulfilled or given to Agent or the Banks pursuant
to the Loan Documents, including any certificate, financial statement,
insurance policy or other document, neither Agent nor any Bank shall be
deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not
constitute a warranty or representation to anyone with respect thereto
by Agent or Banks;
(c) The relationship between Borrowers and Agent and Banks
is, and shall at all times remain, solely that of borrower and lenders;
neither Agent nor any Bank shall under any circumstance be construed to
be partners or joint venturers of Borrowers or its Affiliates; neither
Agent nor any Bank shall under any circumstance be deemed to be in a
relationship of confidence or trust or a fiduciary relationship with
Borrowers or their Affiliates, or to owe any fiduciary duty to Borrowers
or their Affiliates; neither Agent nor any Bank shall undertake or
assume any responsibility or duty to Borrowers or their Affiliates to
select, review, inspect, supervise, pass judgment upon or inform
Borrowers or their Affiliates of any matter in connection with their
Property, any Collateral held by Agent or any Bank or the operations of
Borrowers or their Affiliates; Borrowers and their Affiliates shall rely
entirely upon their own judgment with respect to such matters; and any
review, inspection, supervision, exercise of judgment or supply of
information undertaken or assumed by Agent or Banks in connection with
such matters is solely for the protection of Agent and Banks and no
Borrower or any other Person is entitled to rely thereon; and
(d) Agent and Banks shall not be responsible or liable to
any Person for any loss, damage, liability or claim of any kind relating
to injury or death to Persons or damage to Property caused by the
actions, inaction or negligence of Borrowers and/or their Affiliates and
Borrowers hereby indemnify and hold Bank harmless from any such loss,
damage, liability or claim.
11.15 No Third Parties Benefited. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
Borrowers and Agent and Banks in connection with the Loans, and is made for the
sole protection of Borrowers and Agent and Banks, and their successors and
assigns. Except as provided in Section 11.13, no other Person shall have any
rights of any nature hereunder or by reason hereof.
11.16 Further Assurances. Borrowers and their Subsidiaries shall,
at their expense and without expense to Agent or any Bank, do, execute and
deliver such further acts and documents as Agent or any Bank from time to time
reasonably require for the assuring and confirming unto Agent and Banks of the
rights hereby created or intended now or hereafter so to be, or for carrying out
the intention or facilitating the performance of the terms of any Loan Document,
or for assuring the validity, perfection, priority or enforceability of any Lien
under any Loan Document.
11.17 Integration. This Agreement, together with the other Loan
Documents, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof. In the event of any conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
rights or remedies in favor of Agent or Banks in any other Loan Document shall
not be deemed a conflict with this Agreement. Each Loan Document was drafted
with the joint participation of the respective parties thereto and shall be
construed neither against nor in favor of any party, but rather in accordance
with the fair meaning thereof.
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11.18 Governing Law. Except to the extent otherwise provided
therein, each Loan Document shall be governed by, and construed and enforced in
accordance with, the local Laws of California; provided that the local Laws of
California shall not apply with respect to any foreclosure of real Property
Collateral located outside California, and in no event shall California Code of
Civil Procedure Sections 726 and/or 580a and/or 580b and/or 580d apply to any
such foreclosure outside of California or to the right of Agent and Banks to
obtain a deficiency judgment for all Obligations remaining due following such
foreclosure.
11.19 Severability of Provisions. Any provision in any Loan
Document that is held to be inoperative, unenforceable or invalid as to any
party or in any jurisdiction shall, as to that party or jurisdiction, be
inoperative, unenforceable or invalid without affecting the remaining provisions
or the operation, enforceability or validity of that provision as to any other
party or in any other jurisdiction, and to this end the provisions of all Loan
Documents are declared to be severable.
11.20 Headings. Article and Section headings in this Agreement and
the other Loan Documents are included for convenience of reference only and are
not part of this Agreement or the other Loan Documents for any other purpose.
11.21 Time of the Essence. Time is of the essence of the Loan
Documents.
11.22 Securities Representation. Each Bank hereby represents that
any disposition by it of all or any part of its rights under the Loan Documents
shall not violate Section 5 of the Securities Act of 1933 to the extent, if any,
applicable.
11.23 Joint Borrower Provisions Borrowers acknowledge and agree
that Borrowers shall be jointly and severally liable for all obligations arising
under this Agreement, any/or Loan Documents. In furtherance thereof, Borrowers
acknowledge and agree as follows:
(a) In lieu of maintaining accounts in the name of each of
the Persons comprising Borrower (for purposes of this Section, each such
Person being referred to as a "Borrowing Entity"), Agent shall maintain
a single designated deposit account for Borrowers. Any advance made by
Bank hereunder shall be made jointly and severally to all Borrowing
Entities. Any payments received by any Bank likewise shall be credited
to all Borrowing Entities. While it is anticipated that SCC, Inc. will
make Requests for Loans or for Standby Letters of Credit, Requests for
Loans or for Standby Letters of Credit may be made by any Borrowing
Entity and Agent and any Bank, in its discretion, is authorized to honor
and rely upon any such Request or any instructions received from any
Responsible Official of any Borrowing Entity. It is expressly agreed and
understood by each Borrowing Entity that Agent and each Bank shall have
no responsibility to inquire into the appointment, allocation or
disposition of any Loans made to Borrowers. All Loans are to be made for
the collective account of Borrowers. For the purpose of implementing the
joint borrower provisions of the Loan Documents, including without
limitation the giving and receiving of notices and other communications,
the making of Requests for Loans or Requests for Standby Letters of
Credit, the execution and delivery of certificates and the receiving and
allocating of disbursements from Bank, Borrowers hereby irrevocably
appoint each other as the agent and attorney-in-fact for all purposes of
the Loan Documents.
(b) It is understood and agreed that the handling of this
credit facility on a joint borrowing basis as set forth in this
Agreement is solely as an accommodation to Borrowers and at the request
of Borrowers, and that Agent and Banks shall incur no liability to
Borrowers or any Borrowing Entity as a result thereof. To induce Agent
and Banks to do so, and in consideration thereof, each Borrowing Entity
hereby agrees to indemnify Agent and Banks and hold Agent and Banks
harmless from and against any and all liabilities, expenses, losses,
damages and/or claims of damage or injury asserted against Agent and
Banks by Borrowers or by any other Person arising from or incurred by
reason of Agent's or any Bank's handling of the financing arrangement of
Borrowers as herein provided, reliance by Agent and Banks on any
requests or instructions from any Borrowing Entity, or any other action
taken by Agent and Banks.
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(c) Each of the Borrowers represents and warrants to Agent
and Banks that the request for joint handling of the Loans was made
jointly by the Borrowing Entities and that the Borrowing Entities are
engaged in an integrated operation that requires financing on a basis
permitting the availability of credit from time to time to each of the
Borrowing Entities as required for the continued successful operation of
each of them and their integrated operations. Each Borrowing Entity
expects to derive benefit, directly or indirectly, from such
availability because the successful operation of the Borrower is
dependent on the continued successful performance of the functions of
the integrated group.
(d) Each Borrower acknowledges that the liens and security
interests created or granted herein and by the other Loan Documents will
or may secure obligations of persons or entities other than itself and,
in full recognition of that fact, each Borrower consents and agrees that
any action by Agent or any Bank with respect to the following shall not
affect the enforceability or security hereof or of any other Loan
Document:
(1) supplement, modify, amend, extend, renew,
accelerate, or otherwise change the time for payment or the terms
of the obligations of the other Borrowers or any part thereof,
including any increase or decrease of the rate(s) of interest
thereon;
(2) supplement, modify, amend or waive, or enter
into or give any agreement, approval or consent with respect to,
the obligations of the other Borrowers or any part thereof or any
of the Loan Documents or any additional security or guaranties, or
any condition, covenant, default, remedy, right, representation or
term thereof or thereunder;
(3) accept new or additional instruments, documents
or agreements in exchange for or relative to any of the Loan
Documents or the obligations of Borrowers or any part thereof;
(4) accept partial payments on the obligations of
Borrowers;
(5) receive and hold additional security or
guaranties for the obligations of Borrowers or any part thereof;
(6) release, reconvey, terminate, waive, abandon,
subordinate, exchange, substitute, transfer and enforce any
security or guaranties, and apply any security and direct the
order or manner of sale thereof as Agent or Banks in their sole
and absolute discretion may determine;
(7) release any person or entity or any guarantor
from any personal liability with respect to the obligations of
Borrowers or any part thereof;
(8) settle, release on terms satisfactory to Agent
or Banks or by operation of applicable laws or otherwise liquidate
or enforce any obligations of Borrowers and any security or
guaranty therefor in any manner, consent to the transfer of any
security and bid and purchase at any sale; and
(9) consent to the merger, change or any other
restructuring or termination of the corporate existence of
Borrowers or any other person, and correspondingly restructure the
obligations of Borrowers, and any such merger, change,
restructuring or termination shall not affect the liability of
Borrowers or the continuing existence of any lien or security
interest hereunder, under any other Loan Document to which any
Borrower is a party or the enforceability hereof or thereof with
respect to all or any part of the obligations of Borrowers.
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Upon the occurrence of and during the continuance of any
Event of Default, Agent and Banks may enforce this Agreement and the
other Loan Documents independently as to each Borrower and independently
of any other remedy or security Agent or Banks at any time may have or
hold in connection with the obligations of Borrowers, and it shall not
be necessary for Agent or Banks to marshal assets in favor of any of the
Borrowers or any other person or entity or to proceed upon or against
and/or exhaust any other security or remedy before proceeding to enforce
this Agreement and the other Loan Documents. Each of the Borrowers
expressly waives any right to require Agent or Banks to marshal assets
in favor of any Borrower or any other person or entity or to proceed
against any other person or entity or any Collateral provided by any
other person, and agrees that Agent or Banks may proceed against any
persons or entities and/or Collateral in such order as it shall
determine in its sole and absolute discretion. Agent or Banks may file a
separate action or actions against any Borrower, whether action is
brought or prosecuted with respect to any other security or against any
other person, or whether any other person or entity is joined in any
such action or actions. Each of the Borrowers agrees that Agent or Banks
and each of the Borrowers and any other person or entity may deal with
each other in connection with the obligations of Borrowers or otherwise,
or alter any contracts or agreements now or hereafter existing between
any of them, in any manner whatsoever, all without in any way altering
or affecting the security of this Agreement or the other Loan Documents.
The rights of Agent and Banks hereunder and under the other Loan
Documents shall be reinstated and revived, and the enforceability of
this Agreement and the other Loan Documents shall continue, with respect
to any amount at any time paid on account of the obligations of
Borrowers which thereafter shall be required to be restored or returned
by Agent and Bank upon bankruptcy, insolvency or reorganization of any
Borrower or any other person, or otherwise, all as though such amount
had not been paid. The enforceability of this Agreement and the other
Loan Documents at all times shall remain effective even though the
obligations of Borrowers, including any part thereof or any other
security or guaranty therefor, may be or hereafter may become invalid or
otherwise unenforceable as against any of the Borrowers or any other
person or entity and whether or not any of the Borrowers or any other
person or entity shall have any personal liability with respect thereto.
Each of the Borrowers expressly waives any and all defenses now or
hereafter arising or asserted by reason of (a) any disability or other
defense of any of the other Borrowers or any other person or entity with
respect to the obligations of Borrowers, (b) the unenforceability or
invalidity of any security or guaranty for the obligations of Borrowers
or the lack of perfection or continuing perfection or failure of
priority of any security for the obligations of Borrowers, (c) the
cessation for any cause whatsoever of the liability of any other
Borrower or any other person or entity (other than by reason of the full
payment and performance of all obligations of Borrowers), (d) any
failure of Agent or any Bank to marshal assets in favor of any of the
Borrowers or any other person, (e) any failure of Agent or any Bank to
give notice of sale or other disposition to any of the other Borrowers
or any other person or entity or any defect in any notice that may be
given in connection with any sale or disposition, (f) any failure of
Agent or any Bank to comply in any non-material respect with applicable
laws in connection with the sale or other disposition of any Collateral
or other security for any obligation of Borrowers, (g) any act or
omission of Agent or any Bank or others that directly or indirectly
results in or aids the discharge or release of any Borrower or any other
person or entity or the obligations of Borrowers or any other security
or guaranty therefor by operation of law or otherwise, (h) any law which
provides that the obligation of a surety or guarantor must neither be
larger in amount nor in other respects more burdensome than that of the
principal or which reduces a surety's or guarantor's obligation in
proportion to the principal obligation, (i) any failure of Agent or any
Bank to file or enforce a claim in any bankruptcy or other proceeding
with respect to any person, (j) the election by Agent or any Bank, in
any bankruptcy proceeding of any person, of the application or
non-application of Section 1111(b)(2) of the United States Bankruptcy
Code, (k) any extension of credit or the grant of any lien under Section
364 of the United States Bankruptcy Code, (l) any use of cash collateral
under Section 363 of the United States Bankruptcy Code, (m) any
agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any person, (n) the avoidance
of any lien or security interest in favor of Agent or any Bank for any
reason, or (o) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, liquidation or dissolution proceeding commenced by
or against any person, including any discharge of, or bar or stay
against collecting, all or any of the obligations of Borrowers (or any
interest thereon) in or as a result of any such proceeding.
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(e) Each of the Borrowers represents and warrants to Agent
and Banks that such Borrower has established adequate means of obtaining
from the other Borrowers, on a continuing basis, financial and other
information pertaining to the businesses, operations and condition
(financial and otherwise) of the other Borrowers and their respective
properties, and each of the Borrowers now is and hereafter will be
completely familiar with the businesses, operations and condition
(financial and otherwise) of the other Borrowers and their respective
properties. Each of the Borrowers hereby expressly waives and
relinquishes any duty on the part of Agent or any Bank to disclose to
such Borrower any matter, fact or thing related to the businesses,
operations or condition (financial or otherwise) of any other Borrower
or such other Borrower's properties, whether now known or hereafter
known by Agent or any Bank during the life of this Agreement. With
respect to any of the obligations of Borrowers, Agent and Banks need not
inquire into the powers of any of the Borrowers or the officers or
employees acting or purporting to act on its behalf.
(f) Notwithstanding anything to the contrary elsewhere
contained herein or in any other Loan Document to which any Borrower is
a party, each of the Borrowers hereby waives with respect to each other
Borrower and its respective successors and assigns (including any
surety) and any other party any and all rights at law or in equity, to
subrogation, to reimbursement, to exoneration, to contribution, to
setoff or to any other rights that could accrue to a surety against a
principal, to a guarantor against a maker or obligor, to an
accommodation party against the party accommodated, or to a holder or
transferee against a maker and which each of the Borrowers may have or
hereafter acquire against any other Borrower or any other party in
connection with or as a result of any Borrower's execution, delivery
and/or performance of this Agreement or any other Loan Document to which
any such Borrower is a party until the Obligations hereunder are paid in
full. Each of the Borrowers agrees that it shall not have or assert any
such rights against any other Borrower or any such Borrower's successors
and assigns or any other person or entity (including any surety), either
directly or as an attempted setoff to any action commenced against such
Borrower by the other such Borrower (as borrower or in any other
capacity) or any other person until the obligations hereunder are paid
in full. Each of the Borrowers hereby acknowledges and agrees that this
waiver is intended to benefit Agent and Banks and shall not limit or
otherwise affect any of the Borrowers' liability hereunder, under any
other Loan Document to which any Borrower is a party, or the
enforceability hereof or thereof.
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(g) Each of the Borrowers warrants and agrees that each of
the waivers and consents set forth herein is made with full knowledge of
its significance and consequences, with the understanding that events
giving rise to any defense waived may diminish, destroy or otherwise
adversely affect rights which each of the Borrowers otherwise may have
against the other Borrowers, Agent or any Bank, or others, or against
any Collateral. If any of the waivers or consents herein are determined
to be contrary to any applicable law or public policy, such waivers and
consents shall be effective to the maximum extent permitted by law.
11.24 Waiver of Jury Trial. The parties to this Agreement
acknowledge that jury trials often entail additional expenses and delays not
occasioned by nonjury trials. The parties to this Agreement further agree and
stipulate that a fair trial may be had before a state or federal judge by means
of a bench trial without a jury. In view of the foregoing, and as a specifically
negotiated provision of this Agreement, each party to this Agreement hereby
expressly waives any right to trial by jury of any claim, demand, action or
cause of action (1) arising under this Agreement or any other instrument,
document or agreement executed or delivered in connection herewith, or (2) in
any way connected with or related or incidental to the dealings of the parties
hereto or any of them with respect to this Agreement or any other instrument,
document or agreement executed or delivered in connection herewith, or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether sounding in contract or tort or otherwise; and
each party hereby agrees and consents that any such claim, demand, action or
cause of action shall be decided by court trial without a jury, and that any
party to this Agreement may file an original counterpart or a copy of this
section with any court as written evidence of the consent of the parties hereto
to the waiver of their right to trial by jury.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
BORROWERS:
THE SPORTS CLUB COMPANY, INC. THE SPECTRUM CLUB COMPANY, INC.,
a Delaware corporation a California corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
PONTIUS REALTY, INC., L.A./IRVINE SPORTS CLUB, LTD.,
a California corporation a California limited partnership
By: /s/ Timothy O'Brien By: Sports Club, Inc. of California
------------------------------- general partner
Timothy O'Brien
By: /s/ Timothy O'Brien
-----------------------------
Its: Chief Financial Officer
60
SPORTS CLUB, INC. OF CALIFORNIA, TALLA NEW YORK, INC.,
a California corporation a New York corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
IRVINE SPORTS CLUB, INC., GREEN VALLEY SPECTRUM CLUB, INC.,
a California corporation a New York corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
THE SPORTSMED COMPANY, INC., SPECTRUM CLUB ANAHEIM,
a California corporation a California corporation
By: /s/ Timothy O'Brien By: /s/ Timothy O'Brien
------------------------------- ---------------------------------
Timothy O'Brien Timothy O'Brien
Its: Chief Financial Officer Its: Chief Financial Officer
SCC SPORTS CLUB, INC.,
a Texas corporation
By: /s/ Timothy O'Brien
Timothy O'Brien
Its: Chief Financial Officer
Borrowers' Address:
c/o The Sports Club Company, Inc.
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Telephone: (310) 479-5200
Facsimile: (310) 479-5740
61
AGENT:
SUMITOMO BANK OF CALIFORNIA,
a California banking corporation
By: /s/ Noel Ryan
--------------------------------------
Noel Ryan
Senior Vice President
Address:
Sumitomo Bank of California
611 West Sixth Street, Suite 3900
Los Angeles, California 90017
Attn: Noel Ryan, Senior Vice President
Telecopier: (213) 622-1385
Telephone: (213) 362-5700
BANKS:
SUMITOMO BANK OF CALIFORNIA,
a California banking corporation
By: /s/ Noel Ryan
--------------------------------------
Noel Ryan
Senior Vice President
Address:
Sumitomo Bank of California
611 West Sixth Street, Suite 3900
Los Angeles, California 90017
Attn: Noel Ryan, Senior Vice President
Telecopier: (213) 622-1385
Telephone: (213) 362-5700
62
COMERICA BANK - CALIFORNIA
a California banking corporation
By: /s/ Joseph Yurosek
--------------------------------------
Joseph Yurosek
Vice President
Address:
Comerica Bank-California
301 E. Ocean Boulevard, Suite 1800
Long Beach, California 90802
Attn: Joseph Yurosek, Vice President
Telecopier: (562) 595-8251
Telephone: (562) 590-2530