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EXHIBIT 10.79
2/1/99 BANK LOAN
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THIRD AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of February 1, 1999
between
THE SPORTS CLUB COMPANY, INC.,
and various of its subsidiaries,
as Borrowers,
and
COMERICA BANK-CALIFORNIA
and such other financial institutions
as may become a lending party hereto
as Banks
and
COMERICA BANK-CALIFORNIA,
as Agent
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS......................................... 2
1.1 Defined Terms............................................................ 2
1.2 Use of Defined Terms..................................................... 15
1.3 Accounting Terms......................................................... 15
1.4 Exhibits and Schedules................................................... 15
ARTICLE 2 LOANS AND LETTERS OF CREDIT.............................................. 15
2.1 General Provisions Regarding Loans and Borrowing Procedures.............. 15
2.2 Intentionally Omitted.................................................... 16
2.3 Prime Rate Loans......................................................... 17
2.4 Eurodollar Loans......................................................... 17
2.5 Redesignation of Loans................................................... 17
2.6 Standby Letters of Credit................................................ 19
2.7 Agent's Right to Assume Funds Available for Advances..................... 22
ARTICLE 3 PAYMENTS AND FEES........................................................ 22
3.1 Principal and Interest................................................... 22
3.2 Commitment Fee........................................................... 25
3.3 Eurodollar Fees and Costs................................................ 25
3.4 Letter of Credit Fees.................................................... 27
3.5 Agent Fee................................................................ 27
3.6 Late Payments/Default Rate............................................... 27
3.7 Computation of Interest and Fees......................................... 28
3.8 Non-Banking Days......................................................... 28
3.9 Manner and Treatment of Payments......................................... 28
3.10 Funding Sources.......................................................... 29
3.11 Failure to Charge Not Subsequent Waiver.................................. 29
3.12 Agent's Right to Assume Payments Will be Made by Borrowers............... 29
3.13 Survivability............................................................ 29
3.14 Unused Line Fee.......................................................... 29
ARTICLE 4 REPRESENTATIONS AND WARRANTIES........................................... 30
4.1 Existence and Qualification; Power; Compliance With Laws................. 30
4.2 Authority; Compliance With Other Agreements and Instruments and
Government Regulations............................................... 31
4.3 No Governmental Approvals Required....................................... 32
4.4 Subsidiaries............................................................. 32
4.5 Financial Statements..................................................... 33
4.6 No Other Liabilities; No Material Adverse Changes........................ 34
4.7 Intangible Assets........................................................ 34
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4.8 Filing of Financing Statements........................................... 34
4.9 Public Utility Holding Company Act....................................... 34
4.10 Litigation............................................................... 35
4.11 Binding Obligations...................................................... 35
4.12 No Default............................................................... 35
4.13 ERISA.................................................................... 35
4.14 Regulations T, U and X; Investment Company Act........................... 36
4.15 Disclosure............................................................... 36
4.16 Tax Liability............................................................ 36
4.17 Projections.............................................................. 36
4.18 Fiscal Year.............................................................. 37
4.19 Employee Matters......................................................... 37
ARTICLE 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING
REQUIREMENTS)....................................................... 37
5.1 Payment of Taxes and Other Potential Charges............................. 37
5.2 Preservation of Existence................................................ 37
5.3 Maintenance of Properties................................................ 38
5.4 Maintenance of Insurance................................................. 38
5.5 Compliance With Laws..................................................... 38
5.6 Additional Borrowers..................................................... 38
5.7 Inspection Rights........................................................ 39
5.8 Keeping of Records and Books of Account.................................. 40
5.9 Compliance With Agreements, Duties and Obligations....................... 40
5.10 Use of Proceeds.......................................................... 40
ARTICLE 6 NEGATIVE COVENANTS....................................................... 40
6.1 Disposition of Property.................................................. 40
6.2 Transactions with Borrowers and Non-Borrower Affiliates.................. 40
6.3 Mergers, Acquisitions and New Club Developments.......................... 41
6.4 Profitability............................................................ 45
6.5 Redemption, Dividends and Distributions; Payments to Partners............ 45
6.6 ERISA.................................................................... 45
6.7 Change in Nature of Business/Management.................................. 46
6.8 Real Property Leases..................................................... 47
6.9 Indebtedness, Guaranties and Liens....................................... 47
6.10 Transactions with Affiliates............................................. 48
6.11 Change in Fiscal Year.................................................... 48
6.12 Capital Expenditures and Purchase Money Transactions..................... 48
6.13 Tangible Net Worth....................................................... 49
6.14 Ratio of Total Unsubordinated Liabilities to Tangible Net Worth.......... 50
6.15 Debt Service Coverage Ratio.............................................. 50
6.16 Intentionally Omitted.................................................... 50
6.17 Loans to Officers........................................................ 50
6.18 Deposit Accounts......................................................... 50
6.19 Ratio of Funded Debt to EBITDA........................................... 50
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ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS................................... 50
7.1 Financial and Business Information....................................... 50
7.2 Compliance Certificates.................................................. 54
7.3 Revisions or Updates to Schedules........................................ 55
7.4 New Club Development Project Reports..................................... 55
ARTICLE 8 CONDITIONS............................................................... 56
8.1 Initial Loans, Etc....................................................... 56
8.2 Any Loan................................................................. 57
ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT..................... 59
9.1 Events of Default........................................................ 59
9.2 Remedies Upon Event of Default........................................... 61
ARTICLE 10 THE AGENT................................................................ 63
10.1 Appointment and Authorization............................................ 63
10.2 Agent and Affiliates..................................................... 63
10.3 Proportionate Interest of the Banks in any Collateral.................... 64
10.4 Banks' Credit Decisions.................................................. 64
10.5 Action by Agent.......................................................... 64
10.6 Liability of Agent....................................................... 65
10.7 Indemnification.......................................................... 66
10.8 Successor Agent.......................................................... 67
ARTICLE 11 MISCELLANEOUS............................................................ 67
11.1 Intentionally Omitted.................................................... 67
11.2 Cumulative Remedies; No Waiver........................................... 67
11.3 Amendments; Consents..................................................... 68
11.4 Costs, Expenses and Taxes................................................ 68
11.5 Nature of Banks' Obligations............................................. 69
11.6 Survival of Representations and Warranties............................... 70
11.7 Notices.................................................................. 70
11.8 Execution of Loan Documents.............................................. 70
11.9 Sharing of Setoffs....................................................... 70
11.10 Binding Effect; Assignment............................................... 71
11.11 Assignment of Deposits................................................... 72
11.12 Participation of Loan.................................................... 72
11.13 Indemnity by Borrowers................................................... 72
11.14 Nonliability of Banks.................................................... 73
11.15 No Third Parties Benefited............................................... 74
11.16 Further Assurances....................................................... 74
11.17 Integration.............................................................. 74
11.18 Governing Law............................................................ 74
11.19 Severability of Provisions............................................... 74
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11.20 Headings................................................................. 75
11.21 Time of the Essence...................................................... 75
11.22 Securities Representation................................................ 75
11.23 Joint Borrower Provisions................................................ 75
11.24 Waiver of Jury Trial..................................................... 81
THIRD AMENDED AND RESTATED LOAN AGREEMENT
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Dated as of February 1, 1999
WHEREAS, The Sports Club Company, Inc., The Spectrum Club Company, Inc.,
Pontius Realty, Inc., Sports Club, Inc. of California, Irvine Sports Club, Inc.,
The SportsMed Company, Inc., formerly HealthFitness Organization of America,
Inc., L.A./Irvine Sports Clubs, Ltd., Talla New York, Inc., SCC Sports Club,
Inc., Spectrum Club/Anaheim Hills, Inc. and Green Valley Spectrum Club, Inc. are
parties to that certain Amended and Restated Loan Agreement dated as of February
2, 1998 as amended by a First Amendment dated as of February 23, 1998, a Second
Amendment dated as of March 16, 1998, a Second Amended and Restated Loan
Agreement dated as of June 9, 1998, and a Third Amendment to Amended and
Restated Loan Agreement dated as of January __, 1999 with Sumitomo Bank of
California and Comerica Bank-California as lenders and Sumitomo Bank of
California as the agent ("Predecessor Agent") for such lenders, and to that
certain letter agreement with Predecessor Agent dated August 12, 1998
(collectively, the "Original Loan Agreement"); and
WHEREAS, pursuant to that certain Assignment and Acceptance Agreement
dated as of February 1, 1999 by and between California Bank & Trust, a
California banking corporation, as successor to Sumitomo Bank of California, and
Comerica Bank-California, California Bank & Trust assigned to Comerica
Bank-California, and Comerica Bank-California accepted, all of the rights of
California Bank & Trust under the Original Loan Agreement, including but not
limited to under the Loan Documents and in the Loans;
WHEREAS, pursuant to Section 10.8 of the Original Loan Agreement,
Predecessor Agent has resigned as agent for the Banks (as defined below) and the
Agent (as defined below) has accepted the appointment as successor to the
Predecessor Agent as agent for the Banks under this Third Amended and Restated
Loan Agreement;
WHEREAS, Borrowers, Comerica Bank-California and Agent have agreed to
amend and restate the Original Loan Agreement to provide for, among other
things, certain modifications to the financial and reporting covenants; and
WHEREAS, Borrowers, Agent and Banks do hereby enter into this Third
Amended and Restated Loan Agreement in place and stead of the Original Loan
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto covenant and agree as follows:
ARTICLE 1
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DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the meanings set forth respectively after each:
"Acquisition" means any transaction, or any series of related
transactions, by which any Borrower and/or any of its Subsidiaries directly or
indirectly acquires control of any going business or all or substantially all of
the assets of any firm, partnership, joint venture, limited liability company,
corporation (or division thereof) operating as a health and fitness facility,
whether through purchase of assets, merger or otherwise, (control meaning
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies of such entities); provided that, in any
event, the term "Acquisition" shall include any acquisition in which any
Borrower and/or any Subsidiaries thereof controls a majority in ordinary voting
power of the securities of a corporation operating as a health and fitness
facility which have ordinary voting power for the election of directors or other
governing body of a corporation (other than securities having such power only by
reason of the happening of a contingency), or control 50% or more ownership
interest in any partnership, limited liability company or joint venture
operating as a health and fitness facility.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (and its
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), provided
that, in any event, any Person that owns, directly or indirectly, 50% or more of
the securities having ordinary voting power for the election of directors or
other governing body of a corporation (other than securities having such power
only by reason of the happening of a contingency), or 50% or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person), will be deemed to control such
corporation or other Person.
"Agent" means Comerica Bank - California, a California state
bank, when acting in its capacity as agent under any of the Loan Documents, and
any successor agent.
"Agent's Office" means the office designated by Agent as its
address for purposes of notice under this Agreement.
"Agreement" means this Third Amended and Restated Loan Agreement,
either as originally executed or as it may from time to time be supplemented,
modified, amended, restated or extended.
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"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
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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 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:
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(a) Government Securities due within one year after the
date of the making of the Investment;
(b) certificates of deposit issued by, bank deposits in,
bankers' acceptances of, and repurchase agreements covering, Government
Securities executed by, any bank doing business in and incorporated under the
Laws of the United States of America or any state thereof and having on the date
of such Investment combined capital, surplus and undivided profits of at least
$100,000,000, in each case due within one year after the date of the making of
the Investment; and/or
(c) readily marketable commercial paper of corporations
doing business in and incorporated under the Laws of the United States of
America or any state thereof given on the date of such Investment the highest
credit rating by NCO/Moody's Commercial Paper Division of Moody's Investors
Service, Inc. or Standard & Poor's Corporation, in each case due within six
months after the date of the making of the Investment.
"Certificate of a Responsible Official" means a certificate
signed by a Responsible Official of the Person providing the certificate.
"Closing Date" means the Banking Day on which the consummation of
all of the transactions contemplated in Section 8.1 occurs.
"Club" means a health and fitness facility operated by any
Borrower.
"Collateral" means, collectively, all Property on or in which the
Agent or any Bank has a Lien pursuant to this Agreement or any other Loan
Document.
"Commitment" means, collectively, the lending commitment
hereunder of Comerica Bank - California, as such commitment may be reduced or
offset under this Agreement. The percentage obligations of each Bank with
respect to the Commitment are as follows:
Bank Amount Percentage
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Comerica Bank - California $30,000,000 100%
"Default" means any Event of Default and/or any event that, with
the giving of notice or passage of time or both, would be an Event of Default.
"Default Rate" means the rate of interest per annum otherwise
provided under this Agreement plus two percent (2%).
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"Designated Deposit Account" means deposit account no.
01800220570 to be maintained by Borrowers with Agent at Agent's Office, or such
other deposit account as from time to time designated by Borrowers by written
notification to Agent and approved by Agent.
"Designated Eurodollar Market" means, with respect to any
Eurodollar Loan, the London Eurodollar Market, or such other Eurodollar Market
as may from time to time be designated by Agent.
"dollars" or "$" means United States dollars.
"EBITDA" means, for any fiscal period, for Borrowers, their
Subsidiaries, Sports Connection-ES/MB, to the extent of Borrowers' interest
therein, and, on a pro forma basis, any entity acquired by any of the Borrowers
or any of the Subsidiaries, adjusted for verifiable cost savings acceptable to
Banks: (a) the consolidated net income before extraordinary items of such
Persons for that period, determined in accordance with generally accepted
accounting principles, consistently applied, plus (b) consolidated interest
expense for that period, plus (c) income tax expense for that fiscal period,
plus (d) depreciation expense for that fiscal period plus (e) amortization
expense for that fiscal period.
"ERISA" means the Employee Retirement Income Security Act of
1974, and any regulations issued pursuant thereto, as amended or replaced and as
in effect from time to time.
"Eurodollar Banking Day" means any Banking Day on which dealings
in dollar deposits are conducted by and between banks in the Designated
Eurodollar Market.
"Eurodollar Lending Office" means as to each Bank, its office or
branch so designated by written notice to Borrowers and Agent as its Eurodollar
Lending Office. If no Eurodollar Lending Office separately is designated by a
Bank, its Eurodollar Lending Office shall be its office as designated for
purposes of notice hereunder.
"Eurodollar Loan" means a Loan made hereunder and designated or
redesignated as a Eurodollar Loan in accordance with Article 2.
"Eurodollar Market" means a regular established market located
outside the United States of America by and among banks for Eurodollar
Obligations.
"Eurodollar Obligations" means eurocurrency liabilities, as
defined in Regulation D.
"Eurodollar Period" means, as to each Eurodollar Loan, the period
commencing on the date specified by Borrowers pursuant to Sections 2.1(b) or
2.5(c) and ending 30, 60 or 90 days
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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
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I 1.50%
II 1.75%
III 2.00%
"Event of Default" shall have the meaning provided in Section
9.1.
"Existing Real Property Liens" shall have the meaning provided in
Section 7.2.
"Funded Debt" means all liabilities of Borrowers and their
Subsidiaries for borrowed money, including capitalized leases.
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"Global Collateral Documents Amendment" means that certain Global
Collateral Documents Amendment, of even date herewith, by and among Agent, SCC,
Inc., Sports Club, Inc. of California and the Parties to the Pledge Agreement
(Partnership), substantially in the form of Exhibit A hereto.
"Government Securities" means readily marketable direct
obligations of the United States of America or obligations fully guarantied by
the United States of America.
"Governmental Agency" means (a) any international, foreign,
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, authority, board,
bureau, commission, department, instrumentality or public body, (c) any court,
administrative tribunal or public utility, or (d) any arbitration tribunal or
other non-governmental authority to whose jurisdiction a Person has consented.
"Investment" means, when used in connection with any Person, any
investment by or of that Person, whether by means of purchase or other
acquisition of stock or other securities or by means of loan, advance, capital
contribution, guaranty or other debt or equity participation or interest in any
other Person, or otherwise, and includes, without limitation, any partnership
and joint venture interests of such Person.
"Issuing Bank" means, with respect to any Standby Letter of
Credit, Comerica Bank - California or any other Bank designated by Borrowers
(with the consent of the Requisite Banks) which issued that Standby Letter of
Credit.
"Laws" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial precedents.
"LIBOR Rate" means the interest (rounded upward to the nearest
1/16th of one percent) as determined by the British Bankers Association and
disseminated daily as an average of the rate at which certain major banks would
offer U.S. dollar deposits for the applicable Eurodollar Period to other major
banks in the London inter-bank market.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
security interest, encumbrance, lien or charge of any kind, whether voluntarily
incurred or arising by operation of Law or otherwise, affecting any Property,
including any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof, and/or the
filing of or agreement to give any financing statement under the Uniform
Commercial Code or comparable Laws of any jurisdiction.
"Loan" or "Loans" means the advances to be made by Banks to
Borrowers pursuant to this Agreement. Each individual Loan shall consist of
advances made by Banks pursuant to
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Article 2, including advances made as new advances, and also including advances
made by converting or redesignating existing advances in accordance with the
provisions of Article 2. In connection with each Loan, the amount of such Loan
by each Bank shall be determined according to that Bank's percentage share of
the Commitment.
"Loan Documents" means, collectively, this Agreement, the Global
Collateral Documents Amendment, the Notes, the Pledge Agreements, the Pledge
Agreement (Partnership), the Standby Letters of Credit, any assignments, any
financing statements and any other certificates, documents or agreements of any
type of nature heretofore or hereafter executed or delivered by Borrowers and/or
any one or more of their Subsidiaries or Affiliates to Agent or to Banks in any
way relating to or in furtherance of this Agreement, in each case either as
originally executed or as the same may from time to time be supplemented,
modified, amended, restated or extended.
"Maturity Date" means May 31, 2000, subject to the option of
Banks, in their sole and absolute discretion, following the written request of
Borrowers, to be received by Agent no later than sixty (60) days prior to each
anniversary of the date of this Agreement, and subject to such terms and
conditions as Bank may require, to extend the Maturity Date for an additional
period of one year.
"Maximum Loan Amount" means, as of any date of determination
thereof, the amount of the Commitment.
"Maximum Standby Letter of Credit Amount" means $8,000,000.
"Multiemployer Plan" means any employee benefit plan of the type
described in Section 4001(a)(3) of ERISA.
"New Club Development" means the establishment de novo of a new
health and fitness facility, or any other investment in a health and fitness
facility that does not constitute an Acquisition, by one or more existing or
future Borrowers and/or Subsidiaries.
"Non-Borrower Affiliate" means any Affiliate of a Borrower, now
existing or hereafter acquired, that is not a Borrower hereunder.
"Note" means any of the promissory notes executed by Borrowers in
favor of Banks evidencing the Loans made by Banks or any of them under the
Commitment, substantially in the form of Exhibit B hereto, either as originally
executed or as the same may from time to time be supplemented, modified,
amended, renewed, extended or refinanced.
"Obligations" means all present and/or future obligations of
every kind or nature of Borrowers or any Party at any time and/or from time to
time owed to Agent or Banks or any one or
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more of them, under any one or more of the Loan Documents, whether due or to
become due, matured or unmatured, liquidated or unliquidated, or contingent or
noncontingent, including obligations of performance as well as obligations of
payment, and including interest that accrues prior to or after the commencement
of any bankruptcy or insolvency proceeding by or against any Borrower or any
Party.
"Opinion of Counsel" means the favorable written legal opinion of
Kinsella, Boesch, Fujikawa and Towle, as counsel to Borrowers and their
Subsidiaries, in a form acceptable to Agent, together with copies of all factual
certificates and legal opinions upon which such counsel has relied.
"Outstanding Standby Letters of Credit" means, as of any date of
determination thereof, the aggregate face amount of all Standby Letters of
Credit outstanding on such date, not to exceed the Maximum Standby Letter of
Credit Amount.
"Party" means any Person (including Borrowers and/or any
Subsidiaries or Affiliates of Borrowers), other than Agent and Banks, which now
or hereafter is a party to any of the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereof established under ERISA.
"Person" means any entity, whether an individual, trustee,
corporation, general partnership, limited partnership, limited liability
company, joint stock company, trust, unincorporated organization, bank, business
association, firm, joint venture, Governmental Agency, or otherwise.
"Plan" means any employee benefit plan subject to ERISA and
maintained by Borrowers and/or any Subsidiary thereof or to which Borrowers
and/or any Subsidiary thereof are required to contribute on behalf of their
employees.
"Pledge Agreement" means the Pledge Agreement, dated as of
February 2, 1998, executed by SCC, Inc. and Sports Club, Inc. of California in
favor of Agent for the ratable benefit of Banks, as amended by the Global
Documents Amendment and as such document may from time to time hereafter be
supplemented, modified, amended, restated or extended.
"Pledge Agreement (Partnership)" means the Pledge Agreement
(Partnership), dated as of February 2, 1998 executed by certain Borrowers
identified therein as the "Grantors" in favor of Agent for the ratable benefit
of Banks, as amended by the Global Documents Amendment and as such document may
from time to time hereafter be supplemented, modified, amended, restated or
extended.
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"Prime Rate" means the floating commercial loan rate of Comerica
Bank - California, announced from time to time as its "base rate", which
interest rate may not necessarily be the lowest interest rate at which Comerica
Bank -California is willing to extend credit facilities.
"Prime Rate Loan" means a Loan designated or redesignated as a
Prime Rate Loan in accordance with Article 2, or converted to a Prime Rate Loan
in accordance with Section 3.3(a).
"Prime Rate Spread" means the additional component of interest,
expressed as a percentage per annum, to be added to the Prime Rate in
determining the applicable rate of interest for Prime Rate Loans. As of the date
of this Agreement, the Prime Rate Spread is zero percent (0%) per annum.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Qualified Stock Repurchase" means the common stock repurchase
program instituted in April, 1998; provided that the aggregate amount expended
in repurchasing common stock of SCC, Inc. shall not exceed $7,800,000 until
completion of the Thousand Oaks Sale/Leaseback, after which time the aggregate
amount expended shall not exceed $10,800,000."
"Regulations T, U and X " means Regulation T,U and X as at any
time amended, of the Board of Governors of the Federal Reserve System, or any
other regulation in substance substituted therefor.
"Request for Standby Letter of Credit" means a written request
for the issuance of a Standby Letter of Credit substantially in the form of
Exhibit "C", signed by a Responsible Official of a Borrower on behalf of the
Borrowers and properly completed to provide all information required to be
included therein.
"Request for Loan" means a written request for a Loan
substantially in the form of Exhibit "D", signed by a Responsible Official of a
Borrower on behalf of the Borrowers and properly completed to provide all
information required to be included therein.
"Request for Redesignation of Loans" means a written request for
redesignation of Loans substantially in the form of Exhibit "E", signed by a
Responsible Official of a Borrower on behalf of the Borrowers and properly
completed to provide all information required to be included therein.
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"Requisite Banks" means, at any time, Banks holding at least 70%
of the aggregate unpaid amount of the Loans outstanding, or, if no Loans then
are outstanding, Banks having at least 70% of the aggregate Commitment then in
effect.
"Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member banks of the
Federal Reserve System for eurocurrency liabilities, as defined in Regulation D,
rounded upward to the nearest 1/100th of one percent. The percentage will be
expressed as a decimal, and will include, without limitation, marginal,
emergency, supplemental, special, and other reserve percentages.
"Responsible Official" means:
(a) When used with reference to any Person, other than an
individual, any corporate officer of such Person, general partner of such
Person, corporate officer of a corporate general partner of such Person, or
corporate officer of a corporate general partner of a partnership that is a
general partner of such Person, or any other responsible official thereof duly
acting on behalf thereof; and
(b) When used with reference to a Person who is an
individual, such Person.
Except as otherwise specifically provided herein, any requirement that
any document or certificate be signed or executed by any Person requires that
such document or certificate be signed or executed by a Responsible Official of
such Person, and that the Responsible Official signing or executing such
document or certificate on behalf of such Person shall be authorized to do so by
all necessary corporate, partnership and/or other action.
"Right of Others" means, as to any Property in which a Person has
an interest, any legal or equitable claim, right, title or other interest (other
than a Lien) in or with respect to that Property held by any other Person, and
any option or right held by any other Person to acquire any such claim, right,
title or other interest, including any option or right to acquire a Lien.
"SCC, Inc." means The Sports Club Company, Inc., a Delaware
corporation.
"Special Eurodollar Circumstance" means the application or
adoption of any Law or interpretation, or any change therein or thereof, or any
change in the interpretation or administration thereof by any Governmental
Agency, central bank or comparable authority charged with the interpretation or
administration thereof, or compliance by any Bank or its Eurodollar Lending
Office with any request or directive (whether or not having the force of Law) of
any such Governmental Agency, central bank or comparable authority, or the
existence or occurrence of
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circumstances affecting the Designated Eurodollar Market generally, in each
case, that is beyond the reasonable control of such Bank.
"Standby Letter of Credit" means any standby letter of credit
issued by the Issuing Bank pursuant to Section 2.6, in the standard form for
standby letters of credit of the Issuing Bank, either as originally issued or as
the same may from time to time be supplemented, modified, amended, renewed or
extended.
"Subsidiary" means, as of any date of determination thereof and
with respect to any Person, any corporation, limited liability company,
partnership or joint venture, whether now existing or hereafter organized or
acquired: (a) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors or other
governing body (other than securities having such power only by reason of the
happening of a contingency) are at the time owned by such Person and/or one or
more Subsidiaries of such Person, or (b) in the case of a partnership, joint
venture or limited liability company, of which such Person or a Subsidiary of
such Person is a general partner or joint venturer or of which a majority of the
partnership or other ownership interests are at the time owned by such Person
and/or one or more of its Subsidiaries.
"Tangible Net Worth" means, as of any date of determination
thereof, the consolidated net worth of Borrowers, excluding goodwill, patents,
trademarks, trade names, organization expenses, capitalized acquisition
expenses, deferred tax assets and money due from any Affiliate, officers,
directors or shareholders of Borrowers or their Subsidiaries, determined in
accordance with generally accepted accounting principles, consistently applied.
"The Sports Club/Irvine" means the athletic club owned by Irvine
Sports Club, Inc. located at 1980 Main Street, Irvine, California.
"The Sports Club/LA" means the athletic club owned by L.A./Irvine
Sports Clubs, Ltd. located at 1835 Sepulveda Boulevard, West Los Angeles,
California.
"Thousand Oaks Sale/Leaseback" means the consummation of the sale
of certain real property assets and improvements at the Thousand Oaks Site to
Equity Advisory Group, and the subsequent reduction of the outstanding balance
of Loans extended by Banks under this Agreement.
"to the best knowledge of" means, when modifying a
representation, warranty or other statement of any Person, that the fact or
situation described therein is known by the Person (or, in the case of a Person
other than a natural Person, known by a Responsible Official of that Person)
making the representation, warranty or other statement, or with the exercise of
reasonable due diligence under the circumstances (in accordance with the
standard of what a reasonable Person in similar circumstances would have done)
should have been known by the Person (or, in the case of a
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Person other than a natural Person, should have been known by a Responsible
Official of that Person).
"Total Unsubordinated Liabilities" means, as of any date of
determination thereof, the sum of (a) all liabilities that should be reflected
as a liability in a consolidated balance sheet of Borrowers and its Subsidiaries
on such date prepared in accordance with generally accepted accounting
principles, consistently applied, minus (b) subordinated debt as to which a
subordination agreement acceptable to Agent has been executed and all deferred
membership revenues, plus (c) the aggregate face amount of all outstanding
Standby Letters of Credit and other letters of credit issued at the request of
Borrowers; provided, however, that any amount described in clause (c) shall be
added only to the extent that the Standby Letter of Credit or other letter of
credit covers liabilities that would not be reflected in a consolidated balance
sheet of Borrowers and its Subsidiaries on such date.
"Total Outstanding" means, as of any date of determination
thereof, the sum of (a) all outstanding Loans evidenced by the Notes on that
date and (b) Outstanding Standby Letters of Credit.
"type", when used with respect to any Loan, means the designation
of whether such Loan is a Prime Rate Loan or a Eurodollar Loan.
1.2 Use of Defined Terms. Any defined term used in the plural shall
refer to all members of the relevant class, and any defined term used in the
singular shall refer to any one or more of the members of the relevant class.
1.3 Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be construed in conformity with, and all financial data
required to be submitted by this Agreement shall be prepared in conformity with,
generally accepted accounting principles applied on a consistent basis, as in
effect on the date hereof, except as otherwise specifically prescribed herein.
1.4 Exhibits and Schedules. All exhibits and schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference.
ARTICLE 2
LOANS AND LETTERS OF CREDIT
2.1 General Provisions Regarding Loans and Borrowing Procedures.
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(a) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time prior to the Maturity Date, each
Bank shall, pro rata according to that Bank's percentage of the then Commitment,
make Loans to Borrowers in such amounts as Borrowers may request that do not
exceed in the aggregate at any one time outstanding the amount of the
Commitment; provided that, Banks shall not be obligated to make a Loan if, after
giving effect to such Loan, the Total Outstanding would exceed $30,000,000.
Except as may otherwise be payable on an earlier date as provided in Section
3.1, all Obligations of Borrowers hereunder shall be due and payable on the
Maturity Date. Subject to the limitations set forth herein and in Section
3.1(e), Borrowers may borrow, repay and reborrow under the Commitment without
premium or penalty.
(b) Except as otherwise provided in Section 2.5(c), each Loan
shall be made pursuant to a written Request for Loan. Not later than 11:00 a.m.,
Los Angeles time, at least two (2) Banking Days prior to the date that a
proposed Loan is to be made (unless greater notice is required by Section 2.4),
Agent shall have received, at Agent's Office, a properly completed Request for
Loan specifying the requested (1) date of such Loan, (2) type of Loan, (3)
amount of such Loan, and (4) in the case of a Eurodollar Loan, specifying the
Eurodollar Period. Agent may, in its sole and absolute discretion, permit any
Request for Loan to be made by telephone or telecopier by a Responsible Official
of a Borrower on behalf of Borrowers, in which case such Borrower shall confirm
same by mailing or faxing a written Request for Loan to Agent within 48 hours
following the Loan. If Borrowers fail to make a written Request for Loan,
Borrowers hereby waive the right to dispute the amount, interest rate or term of
any such Loan made upon such telephone request.
(c) Promptly following receipt of a Request for Loan, Agent
shall notify each Bank by telephone, telecopier or Telex of the date and type of
the Loan, the applicable Eurodollar Period (in the case of a Eurodollar Loan),
and that Bank's pro rata portion of the Loan. Not later than 11:00 a.m., Los
Angeles time, on the date specified for any Loan, each Bank shall make its
portion of the Loan in immediately available funds available to Agent at Agent's
Office. Upon fulfillment of the applicable conditions set forth in Article 8,
all Loans shall be credited in immediately available funds to Borrowers'
Designated Deposit Account, or to such other deposit account of Borrowers with
Agent as Borrowers may specify in writing to Agent.
(d) Unless the Requisite Banks otherwise consent, the
aggregate amount of each Eurodollar Loan shall be in an integral multiple of
$250,000, and the aggregate amount of each Prime Rate Loan shall be in an
integral multiple of $100,000 or the balance of the Commitment.
(e) The Loans made by each Bank shall be evidenced by that Bank's
Note.
(f) A Request for Loan shall be irrevocable upon receipt by
Agent.
2.2 Intentionally Omitted.
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2.3 Prime Rate Loans. All Loans shall constitute Prime Rate Loans unless
properly designated or redesignated as Eurodollar Loans pursuant to Sections 2.4
or 2.5.
2.4 Eurodollar Loans.
(a) Subject to the terms and conditions set forth in this
Agreement, Borrowers may, from time to time, designate all or any portion of the
Loans to be Eurodollar Loans.
(b) Each request by Borrowers for a Eurodollar Loan shall be
made pursuant to a Request for Loan received by Agent, at Agent's Office, not
later than 12:00 noon, Los Angeles time, at least three (3) Eurodollar Banking
Days before the first day of the applicable Eurodollar Period.
(c) At or about 10:00 a.m., Los Angeles time, two (2)
Eurodollar Banking Days before the first day of the applicable Eurodollar
Period, Agent shall determine the applicable Eurodollar Rate (which
determination shall be conclusive in the absence of manifest error) and promptly
shall give notice of the same to Borrowers and the Banks by telephone or
telecopier.
(d) Upon fulfillment of the applicable conditions set forth in
Article 8, a Eurodollar Loan shall become effective on the first day of the
applicable Eurodollar Period.
(e) Unless the Requisite Banks otherwise consent, no more than
six (6) Eurodollar Loans, in the aggregate, shall be outstanding at any one
time.
(f) Nothing contained herein shall require any Bank to fund
any Eurodollar Loan in the Designated Eurodollar Market.
2.5 Redesignation of Loans.
(a) Subject to Section 8.2, if any Eurodollar Loan is not
repaid or renewed on the last day of the applicable Eurodollar Period, such
Eurodollar Loan automatically shall be redesignated as a Prime Rate Loan on such
date.
(b) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time from the Closing Date until the
thirty-third day preceding the Maturity Date, Borrowers may request that all or
a portion of outstanding Prime Rate Loans be redesignated as a Eurodollar Loan
or that a maturing Eurodollar Loan be redesignated as a new Eurodollar Loan,
provided that no Loan redesignated as a Eurodollar Loan shall have a Eurodollar
Period expiring after the Maturity Date.
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(c) Each redesignation of all or a portion of outstanding
Prime Rate Loans or to renew a maturing Eurodollar Loan as a Eurodollar Loan
shall be made pursuant to a written Request for Redesignation of Loans. Not
later than 12:00 noon, Los Angeles time, at least three (3) Eurodollar Banking
Days prior to the first day of the applicable Eurodollar Period, Agent shall
have received, at Agent's Office, a properly completed Request for Redesignation
of Loans specifying the requested (1) date of redesignation and (2) amount of
Loans to be redesignated as a Eurodollar Loan, and (3) the applicable Eurodollar
Period. Agent may, in its sole and absolute discretion, permit a Request for
Redesignation of Loans to be made by telephone by a Responsible Official of a
Borrower on behalf of the Borrowers, in which case such Borrower shall confirm
same by mailing or faxing a written Request for Redesignation of Loans to Agent
within 48 hours following the date of redesignation. If Borrowers fail to make a
written Request for Redesignation of Loans, Borrowers hereby waive the right to
dispute the amount, interest rate or term of any such Eurodollar Loan.
(d) Unless the Requisite Banks otherwise consent, the amount
of such Loans to be redesignated as a Eurodollar Loan shall be an integral
multiple of $250,000.
(e) With respect to any redesignation of a Loan as a
Eurodollar Loan, at or about 10:00 a.m., Los Angeles time, three (3) Eurodollar
Banking Days before the first day of the applicable Eurodollar Period, Agent
shall determine the applicable Eurodollar Rate (which determination shall be
conclusive in the absence of manifest error) and promptly shall give notice of
the same to Borrowers and the Banks by telephone or telecopier.
(f) Upon fulfillment of the applicable conditions set forth in
Article 8, the redesignation of all or a portion of outstanding Loans as a
Eurodollar Loan shall become effective on the first day of the applicable
Eurodollar Period.
(g) Nothing contained herein shall require any Bank to fund
any Eurodollar Loan resulting from redesignation of all or a portion of any of
its Prime Rate Loans, in the Designated Eurodollar Market.
(h) A request for Redesignation of Loans shall be irrevocable
upon receipt by Agent.
2.6 Standby Letters of Credit.
(a) Subject to the terms and conditions hereof, at any time
and from time to time from the Closing Date through the Banking Day immediately
preceding May 31, 2000 or other applicable Maturity Date, the Issuing Bank shall
issue such Standby Letters of Credit as a Responsible Official of a Borrower on
behalf of Borrowers may request by a Request for Standby Letter of Credit;
provided that, upon giving effect to such Standby Letter of Credit, (i) Total
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Outstanding shall not exceed $30,000,000 and (ii) Outstanding Standby Letters of
Credit shall not exceed the Maximum Standby Letter of Credit Amount. Unless the
Requisite Banks otherwise consent in writing, the term of any Standby Letter of
Credit shall not exceed the Maturity Date. If on the Maturity Date, there exist
any Outstanding Standby Letters of Credit, Borrowers shall provide to Agent a
standby letter of credit issued by a bank satisfactory to the Requisite Banks,
in form and substance satisfactory to the Requisite Banks, in favor of Banks in
a face amount equal to the Outstanding Standby Letters of Credit on that date,
or shall make other provisions satisfactory to the Requisite Banks for the
collateralization or settlement of such Outstanding Standby Letters of Credit.
No Standby Letter of Credit shall be issued except in the ordinary course of
business of Borrowers or their Subsidiaries. Unless otherwise agreed to by the
Requisite Banks, the face amount of any Standby Letter of Credit shall not be
less than $250,000.
(b) Each Request for Standby Letter of Credit shall be
submitted to the Issuing Bank not later than 11:00 a.m., Los Angeles time, at
least five (5) Banking Days prior to the date upon which the requested Standby
Letter of Credit is to be issued and Borrowers shall execute such documents and
agreements relating to such Standby Letter of Credit as the Issuing Bank may
reasonably require. Upon issuance of a Standby Letter of Credit, the Issuing
Bank promptly shall notify Agent and Banks of the amount and terms thereof. The
Issuing Bank shall notify Agent and Banks within ten (10) days after the end of
each month of all payments, reimbursements, expirations, negotiations, transfers
and other activity during that month with respect to outstanding Standby Letters
of Credit.
(c) Upon the issuance of a Standby Letter of Credit, each Bank
shall be deemed to have purchased a pro rata participation therein from the
Issuing Bank in a amount equal to that Bank's pro rata share, according to its
percentage of the Commitment, of the face amount of the Standby Letter of
Credit. Without limiting the scope and nature of each Bank's participation in
any Standby Letter of Credit, to the extent that the Issuing Bank has not been
reimbursed by Borrowers for any payment required to be made by the Issuing Bank
under any Standby Letter of Credit, each Bank shall, pro rata according to its
participation, reimburse the Issuing Bank promptly upon demand for the amount of
such payment. The obligation of each Bank to so reimburse the Issuing Bank shall
be absolute and unconditional and shall not be affected by the occurrence of any
Event of Default or any other occurrence or event. Any such reimbursement shall
not relieve or otherwise impair the obligation of Borrowers to reimburse the
Issuing Bank for the amount of any payment made by the Issuing Bank under any
Standby Letter of Credit together with interest as hereinafter provided.
(d) Borrowers agree to pay to the Issuing Bank, at its Office
designated as the address for notices pursuant to this Agreement, or at such
other payment location as the Issuing Bank shall have specified in writing to
Borrowers, with respect to each Standby Letter of Credit, within one (1) Banking
Day after demand therefor, a principal amount equal to any payment made by the
Issuing Bank under that Standby Letter of Credit, together with interest on such
amount from
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the date of any payment made by the Issuing Bank through the date of payment by
Borrowers at the rate provided for in Section 3.6. The principal amount of any
such payment made by Borrowers to the Issuing Bank shall be used to reimburse
the Issuing Bank for the payment made by it under the Standby Letter of Credit.
Each Bank that has reimbursed the Issuing Bank pursuant to Section 2.6(c) for
its pro rata share of any payment made by the Issuing Bank under a Standby
Letter of Credit thereupon shall acquire a pro rata participation, to the extent
of such reimbursement, in the claim of the Issuing Bank against Borrowers under
this Section 2.6(d).
(e) At all times prior to the Maturity Date, if Borrowers fail
to make any payment required by Section 2.6(d), Agent may, but is not required
to, without notice to or the consent of Borrowers, make Loans under the
Commitment in an aggregate amount equal to the amount paid by the Issuing Bank
on the relevant Standby Letter of Credit, whether or not the same would cause
the Commitment to exceed $30,000,000, and, for this purpose, the conditions
precedent set forth in Article 8 and the amount limitations set forth in Section
2.1(d) shall not apply. The proceeds of such Loans shall be retained by the
Issuing Bank to reimburse it for the payment made by it under the Standby Letter
of Credit.
(f) The issuance of any supplement, modification, amendment,
renewal or extension to or of any Standby Letter of Credit shall be treated in
all respects the same as the issuance of a new Standby Letter of Credit.
(g) The obligation of Borrowers to pay to the Issuing Bank the
amount of any payment made by the Issuing Bank under any Standby Letter of
Credit shall be absolute, unconditional and irrevocable. Without limiting the
foregoing, such obligation of Borrowers shall not be affected by any of the
following circumstances absent the Issuing Bank's gross negligence or willful
misconduct:
(i) any lack of validity or enforceability of the Standby
Letter of Credit, this Agreement, or any other agreement or instrument relating
thereto;
(ii) any amendment or waiver of or any consent to
departure from the Standby Letter of Credit, this Agreement, or any other
agreement or instrument relating thereto;
(iii) the existence of any claim, setoff, defense or other
rights which Borrowers may have at any time against any Bank, any beneficiary of
the Standby Letter of Credit (or any Persons or entities for whom any such
beneficiary may be acting) or any other Person, whether in connection with the
Standby Letter of Credit, this Agreement or any other agreement or instrument
relating thereto, or any unrelated transactions;
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(iv) any demand, statement or any other document presented
under the Standby Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect whatsoever;
(v) payment by the Issuing Bank under the Standby Letter
of Credit against presentation of a draft or any accompanying document which
does not strictly comply with the terms of the Standby Letter of Credit;
(vi) the solvency (or insolvency) or financial
responsibility (or lack thereof) of any party issuing any documents in
connection with a Standby Letter of Credit;
(vii) any error in the transmission of any message
relating to a Standby Letter of Credit, or any delay or interruption in any such
message not caused by the Issuing Bank; and/or
(viii) any error, neglect or default of any correspondent
of the Issuing Bank in connection with a Standby Letter of Credit.
2.7 Agent's Right to Assume Funds Available for Advances. Unless Agent
shall have been notified by any Bank at least two hours prior to the funding by
Agent of any Loan that such Bank does not intend to make available to Agent such
Bank's portion of the total amount of such Loan, Agent may assume that such Bank
has made such amount available to Agent on the date of the Loan and Agent may,
in reliance upon such assumption, make available to Borrowers a corresponding
amount. If such corresponding amount is not in fact made available to Agent by
such Bank, Agent shall be entitled to recover such corresponding amount on
demand from such Bank, which demand shall be made in a reasonably prompt manner.
If such Bank does not pay such corresponding amount forthwith upon Agent's
demand therefor, Agent promptly shall notify Borrowers and Borrowers shall pay
such corresponding amount to Agent. Agent also shall be entitled to recover from
such Bank or Borrowers, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was made
available by Agent to Borrowers to the date such corresponding amount is
recovered by Agent, at a rate per annum equal to the actual cost to Agent of
funding such amount as notified by Agent to such Bank or Borrowers, as the case
may be. Nothing herein shall be deemed to relieve any Bank from its obligation
to fulfill its share of the Commitment or to prejudice any rights which the
Agent or Borrowers may have against any Bank as a result of any default by such
Bank hereunder.
ARTICLE 3
PAYMENTS AND FEES
3.1 Principal and Interest.
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(a) Interest shall be payable on the outstanding daily unpaid
principal amount of each Loan from the date thereof until payment in full is
made and shall accrue and be payable at the rates set forth herein both before
and after default and before and after maturity and judgment, with overdue
amounts to bear interest at the rate set forth in Section 3.6, to the fullest
extent permitted by applicable Law. Upon any partial prepayment or redesignation
of outstanding Prime Rate Loans to Eurodollar Loans, interest accrued through
the date of such prepayment or redesignation shall be payable on the next
following interest payment date occurring pursuant to Section 3.1(b). Upon any
partial prepayment or payment in full or redesignation or conversion of any
Eurodollar Loan or upon any payment or redesignation in full of all outstanding
Prime Rate Loans, interest accrued through the date of such prepayment, payment,
redesignation or conversion shall be payable on such date.
(b) Interest accrued on each Prime Rate Loan shall be payable
on the first day of each month, commencing with the first such date to occur
after the Closing Date. Agent shall use its best efforts to notify Borrowers of
the amount of interest so payable prior to each interest payment date, but
failure of Agent to do so shall not excuse payment of such interest when
payable. Except as otherwise provided in Section 3.6, the unpaid principal
amount of any Prime Rate Loan shall bear interest at a fluctuating rate per
annum equal to the Prime Rate plus the applicable Prime Rate Spread. Each change
in the interest rate shall take effect simultaneously with the corresponding
change in the Prime Rate and/or the Prime Rate Spread. Each change in the Prime
Rate shall be effective as of 12:01 a.m. on the Banking Day on which the change
in the Prime Rate is announced, unless otherwise specified in such announcement,
in which case the change shall be effective as so specified.
(c) Interest accrued on each Eurodollar Loan shall be payable
on the first day of each month, commencing with the first such date to occur
after the Closing Date, and on the maturity date of that Eurodollar Loan. Agent
shall use its best efforts to notify Borrowers of the amount of interest so
payable prior to each interest payment date, but failure of Agent to do so shall
not excuse payment of such interest when payable. Except as otherwise provided
in Section 3.6, the unpaid principal amount of any Eurodollar Loan shall bear
interest at a rate per annum equal to the Eurodollar Rate for that Eurodollar
Loan plus the Eurodollar Rate Spread.
(d) If not sooner paid, the principal indebtedness under this
Agreement shall be payable as follows:
(i) subject to the right to renew or convert a Eurodollar
Rate Loan to a Prime Rate Loan, the principal amount of each Loan shall
immediately be payable in Cash on the Maturity Date or, in the case of a
Eurodollar Loan, on the last day of the Eurodollar Period for such Loan; and
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(ii) the principal indebtedness evidenced by the Notes
shall be payable in Cash within two (2) Banking Days in the amount by which the
aggregate outstanding amount of Loans at any time exceeds the Commitment. The
outstanding principal indebtedness evidenced by the Notes shall, in any event,
be payable on the Maturity Date.
(e) The Notes, or any of them, may, at any time and from time
to time, be paid or prepaid in whole or in part without premium or penalty,
except that (i) any partial prepayment shall be an integral multiple of
$100,000, (ii) Agent shall have received notice, by telephone or telecopier, of
any prepayment prior to 12:00 noon on the Banking Day of such prepayment (unless
greater notice is otherwise required by this Agreement), which notice shall
identify the date and amount of the prepayment and the Loan(s) being prepaid,
(iii) each prepayment of principal, except for partial prepayments of Prime Rate
Loans, shall be accompanied by payment of interest accrued through the date of
payment on the amount of principal paid, (iv) except as required by subsections
(d)(ii) above, no Eurodollar Loan may be paid or prepaid in whole or in part
prior to the last day of the applicable Eurodollar Period without the prior
consent of the Requisite Banks, and, notwithstanding such required prepayment or
such consent, any payment or prepayment of all or any part of Eurodollar Loan on
a day other than the last day of the applicable Eurodollar Period shall be made
on a Eurodollar Banking Day, as applicable, shall be preceded by at least four
(4) Eurodollar Banking Days' written notice to Agent of the date and amount of
such payment or prepayment, and shall be subject to Section 3.3(c).
(f) In addition to all other payments hereunder, Borrower
shall make mandatory reductions of the outstanding Loans upon the receipt of,
and in an amount equal to one hundred percent (100%) of, proceeds in excess of
$20,000,000 from either (i) the financing or re-financing of any real property
assets of Borrowers or Non-Borrower Affiliates to the extent such proceeds
exceed the existing debt associated with the respective real property or (ii) a
debt or equity offering; provided, however, that the terms and conditions of
such financing or re-financing or debt or equity offering, including the amount
and form of the proceeds thereof shall be acceptable to Agent and Requisite
Banks.
3.2 Commitment Fee. On the Closing Date, Borrowers shall pay to Banks a
commitment fee equal to .125% of the Commitment. Such commitment fee shall be
fully earned on the Closing Date.
3.3 Eurodollar Fees and Costs.
(a) If, after the date hereof, the existence or occurrence of
any Special Eurodollar Circumstance shall, in the reasonable discretion of any
Bank, make it unlawful, impossible or impracticable for such Bank or its
Eurodollar Lending Office to make or maintain any Eurodollar Loan, or materially
restrict the authority of such Bank to purchase or sell, or to take deposits of,
dollars in the Designated Eurodollar Market, or to determine or charge interest
rates
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based upon the Eurodollar Rate, then such Bank will notify Agent and such Bank's
obligation to make Eurodollar Loans shall be suspended for the duration of such
illegality, impossibility or impracticability and Agent forthwith shall give
notice thereof to the other Banks and Borrowers. Upon receipt of such notice,
the outstanding principal amount of such Bank's Eurodollar Loans, together with
accrued interest thereon, automatically shall be converted to Prime Rate Loans
on either (1) the last day of the Eurodollar Period(s) applicable to such
Eurodollar Loans if such Bank may lawfully continue to maintain and fund such
Eurodollar Loans to such day(s) or (2) immediately if such Bank may not lawfully
continue to fund and maintain such Eurodollar Loans to such day(s), provided
that in such event the conversion shall not be subject to payment of a
prepayment fee under Section 3.3(c). In the event that such Bank is unable, for
the reasons set forth above, to make, maintain or fund any Eurodollar Loan, such
Bank shall fund such amount as a Prime Rate Loan, and such amount shall be
treated in all respects as a Prime Rate Loan.
(b) If, with respect to any proposed Eurodollar Loan:
(1) Agent reasonably determines that, by reason of Special
Eurodollar Circumstances, deposits in dollars (in the applicable amounts) are
not being offered to each of the Banks in the Designated Eurodollar Market for
the applicable Eurodollar Period; or
(2) the Requisite Banks advise Agent that the Eurodollar
Rate as determined by the Banks (i) does not represent the effective pricing to
the Banks for deposits in dollars in the Designated Eurodollar Market in the
relevant amount for the applicable Eurodollar Period, or (ii) will not
adequately and fairly reflect the cost to such Banks of making the applicable
Eurodollar Loans;
then Agent forthwith shall give notice thereof to Borrowers and the
Banks, whereupon until Agent notifies Borrowers that the circumstances giving
rise to such suspension no longer exist, and the obligation of the Banks to make
any future Eurodollar Loans shall be suspended.
(c) Upon payment or prepayment of any Eurodollar Loan, or
conversion of a Eurodollar Loan to a Prime Rate Loan (other than as the result
of a conversion required under Section 3.3(a)), on a day other than the last day
in the applicable Eurodollar Period (whether voluntarily, involuntarily, by
reason of acceleration, or otherwise), Borrowers shall pay to the Banks an
amount equal to the accrued interest on the amount prepaid plus a prepayment fee
equal to the amount (if any) by which: (1) the additional interest which would
have been payable on the amount prepaid had it not been paid until the last day
of the Eurodollar Period, exceeds (2) the interest which would have been
recoverable by placing the amount prepaid on deposit in the Eurodollar market
for a period starting on the date on which it was prepaid and ending on the last
day of the Eurodollar Period for such portion, plus all reasonable out-of-pocket
expenses incurred by Banks and reasonably attributable to such payment or
prepayment; provided that no prepayment fee shall be payable (and no credit or
rebate shall be required) if the product of the foregoing formula is not
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positive. Each Bank's determination of the amount of any prepayment fee payable
under this Section 3.3(c) shall be conclusive in the absence of manifest error.
(d) Borrowers hereby indemnify each Bank against, and agree to
hold each Bank harmless from and reimburse each Bank on demand for, all
reasonable costs, expenses, claims, penalties, liabilities, losses, legal fees
and damages (including, without limitation, any interest paid by any Bank for
deposits in dollars in the Designated Eurodollar Market and any loss sustained
by any Bank in connection with the reemployment of funds) incurred or sustained
by such Bank, as reasonably determined by such Bank, as a result of any failure
of Borrowers to borrow on the date or in the amount specified in any Request for
Loan or Request for Redesignation of Loans; provided that such Bank shall not be
entitled to indemnification for any loss caused by its own gross negligence or
willful misconduct. The determination of such amount by each Bank shall be
conclusive in the absence of manifest error.
(e) Any Bank requesting any payment from Borrowers under this
Section 3.3, shall, at the request of Borrowers, provide reasonable detail to
Borrowers regarding the manner in which the amount of any such payment has been
determined.
3.4 Letter of Credit Fees. Borrowers shall pay to the Issuing Bank a
letter of credit fee of 1.5% of the face amount of the Standby Letter of Credit
for the term of each Standby Letter of Credit issued under Section 2.6, payable
at the time of issuance. Each Standby Letter of Credit fee is earned upon
issuance of each Standby Letter of Credit and is nonrefundable. The Issuing Bank
promptly shall make available to Agent in immediately available funds, and Agent
promptly shall make available to Banks in immediately available funds, pro rata
according to their percentages of the Commitment, the portion of each Standby
Letter of Credit fee which is for the account of Banks as aforesaid.
3.5 Agent Fee. From time to time hereafter, Borrowers shall pay fees to
Agent as agreed between Borrowers and Agent in a separate agreement.
3.6 Late Payments/Default Rate.
(a) Should any installment of principal or interest or any fee
or cost or other amount payable under any Loan Document to Agent or any Bank not
be paid when due, such installment shall thereafter bear interest at a
fluctuating interest rate per annum at all times equal to two percent (2.0%)
above the then prevailing applicable Prime Rate based interest rate for all
Loans made hereunder, to the fullest extent permitted by applicable Law. Accrued
and unpaid interest on past due amounts (including, without limitation, interest
on past due interest) shall be compounded monthly, on the last day of each
calendar month, to the fullest extent permitted by applicable Law and payable on
the first day of the following month.
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(b) Upon the occurrence and during the continuance of any
other Event of Default, at the option of the Requisite Banks, Borrowers shall
pay interest on the outstanding principal and interest at the Default Rate. This
shall not constitute a waiver of any Event of Default.
3.7 Computation of Interest and Fees. All computations of interest and
fees under any Loan Document that relate to any Prime Rate Loan or any
Eurodollar Loan shall be calculated on the basis of a year of 360 days and the
actual number of days elapsed.
3.8 Non-Banking Days. If any payment to be made by Borrowers or any
other Party under any Loan Document shall come due on a day other than a Banking
Day (and a Eurodollar Banking Day, in the case of a Eurodollar Loan), payment
shall be made on the next succeeding Banking Day (and, in the case of a
Eurodollar Loan, the next succeeding Eurodollar Banking Day that is also a
Banking Day) and the extension of time shall be reflected in computing interest.
3.9 Manner and Treatment of Payments.
(a) Borrowers agree that interest and principal payments and
any fees will be deducted automatically on the due date from the Designated
Deposit Account, or any other accounts of Borrowers held by Agent which contain
sufficient funds. Such debits shall occur on the dates the payments become due.
If the due date does not fall on a Banking Day, Agent will cause such debits to
be made on the first Banking Day following the due date. Borrowers shall
maintain sufficient funds in the Designated Deposit Account on the dates Agent
enters debits authorized by this Agreement. If there are insufficient funds in
the Designated Deposit Account or the other accounts of Borrowers on the date
Agent enters any debit authorized by this Agreement, Borrowers shall
immediately, after notice from Agent, pay such shortfall to Agent. The amount of
all payments received by Agent for the account of each Bank shall be immediately
paid by Agent to the applicable Bank in immediately available funds. All
payments shall be made in lawful money of the United States of America.
(b) Each Bank shall use its best efforts to keep a record of
Loans made by it and payments received by it with respect to each Note and such
record shall be presumptive evidence of the amounts owing.
(c) Each payment or prepayment on account of any Loan shall be
made and applied pro rata according to the outstanding Loans made by each Bank.
(d) Each payment of any amount payable by Borrowers and/or any
other Party under this Agreement and/or any other Loan Document shall be made
free and clear of, and without reduction by reason of, any taxes, assessments or
other charges imposed by any Governmental Agency, central bank or comparable
authority.
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3.10 Funding Sources. Nothing in this Agreement shall be deemed to
obligate Agent or any Bank to obtain the funds for any Loan in any particular
place or manner or to constitute a representation by Agent or any Bank that it
has obtained or will obtain the funds for any Loan in any particular place or
manner.
3.11 Failure to Charge Not Subsequent Waiver. Any decision by Agent or
any Bank not to require payment of any interest (including default interest),
fee, cost or other amount payable under any Loan Document on any occasion shall
in no way limit or be deemed a waiver of Agent's or such Bank's right to require
full payment of any interest (including default interest), fee, cost or other
amount payable under any Loan Document on any other or subsequent occasion.
3.12 Agent's Right to Assume Payments Will be Made by Borrowers. Unless
Agent shall have been notified by Borrowers prior to the date on which any
payment to be made by Borrowers hereunder is due that Borrowers do not intend to
remit such payment, Agent may, in its discretion, assume that Borrowers will
make such payment when so due and Agent may, in its discretion and in reliance
upon such assumption, make available to each Bank on such payment date an amount
equal to such Bank's share of such assumed payment. If Borrowers do not in fact
make such payment to Agent, each Bank shall forthwith on demand repay to Agent
the amount of such assumed payment made available to such Bank, together with
interest thereon in respect of each day from and including the date such amount
was made available by Agent to such Bank to the date such amount is repaid to
Agent at a rate per annum equal to the actual cost to Agent of funding such
amount as notified by Agent to such Bank.
3.13 Survivability. All of Borrowers' obligations under this Article 3
shall survive for one year following the date on which all Loans hereunder are
fully paid.
3.14 Unused Line Fee. On the last day of each calendar quarter,
commencing with the first such date to occur after the Closing Date, Borrower
shall pay to Banks a fee of .25% per annum based on the difference between the
Commitment and an amount equal to the weighted average Total Outstanding during
the previous quarterly period or portion thereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to Agent and each Bank, as of the
Closing Date, that:
4.1 Existence and Qualification; Power; Compliance With Laws.
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(a) SCC, Inc. is a corporation duly formed, validly existing and
in good standing under the Laws of Delaware. The chief executive offices of SCC,
Inc. are in Los Angeles, California.
(b) The Spectrum Club Company, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(c) Pontius Realty, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of California. Its chief executive
offices are in Los Angeles, California.
(d) Sports Club, Inc. of California is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(e) Irvine Sports Club, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(f) The SportsMed Company, Inc. is a corporation duly formed,
validly existing and in good standing under the Laws of California. Its chief
executive offices are in Los Angeles, California.
(g) SCC Sports Club, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of Texas. Its chief executive
offices are in Los Angeles, California.
(h) L.A./Irvine Sports Clubs, Ltd. is a limited partnership duly
formed, validly existing and in good standing under the Laws of California. Its
chief executive offices are in Los Angeles, California.
(i) Talla New York, Inc. is a corporation duly formed, validly
existing and in good standing under the Laws of New York. Its chief executive
offices are in Los Angeles, California.
(j) Green Valley Spectrum Club, Inc. is a corporation duly
formed, validly existing and in good standing under the Laws of Nevada. Its
chief executive offices are in Los Angeles, California.
(k) Spectrum Club/Anaheim is a corporation duly formed, validly
existing and in good standing under the Laws of California. Its chief executive
offices are in Los Angeles, California.
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Each Borrower is duly qualified or registered to transact business and is in
good standing in each other jurisdiction in which the conduct of its business or
the ownership or leasing of its Properties makes such qualification or
registration necessary, except where the failure so to qualify or register and
to be in good standing would not have a material adverse effect on the business,
operations or condition (financial or otherwise) of such Borrower and its
Subsidiaries, taken as a whole. Each Borrower has all requisite power and
authority to conduct its business, to own and lease its Properties and to
execute, deliver and perform all of its Obligations under the Loan Documents.
All outstanding shares of capital stock of each Borrower, as applicable, are
duly authorized, validly issued, fully paid, non-assessable and issued in
compliance with all applicable state and federal securities and other Laws. Each
Borrower is in compliance with all Laws and other legal requirements applicable
to its business, has obtained all authorizations, consents, approvals, orders,
licenses and permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing from, any
Governmental Agency that are necessary for the transaction of its business,
except where the failure so to comply, file, register, qualify or obtain
exemptions would not have a material adverse effect on the business, operations
or condition (financial or otherwise) of such Borrower and its Subsidiaries,
taken as a whole.
4.2 Authority; Compliance With Other Agreements and Instruments and
Government Regulations. The execution, delivery and performance by each Borrower
and its Subsidiaries of the Loan Documents to which it is a Party have been duly
authorized by all necessary action, and do not and will not:
(a) Except as set forth in Schedule 4.2, require any consent or
approval not heretofore obtained of any partner, director, stockholder, security
holder or creditor;
(b) Violate or conflict with any provision of such Party's
partnership agreement, certificate of limited partnership, charter, articles of
incorporation or bylaws, or amendments thereto, as applicable;
(c) Result in or require the creation or imposition of any Lien
or Right of Others (other than as provided under the Loan Documents) upon or
with respect to any Property now owned or leased or hereafter acquired by such
Party;
(d) Violate any provision of any Law (including, without
limitation, Regulations T, U and/or X of the Board of Governors of the Federal
Reserve System), order, writ, judgment, injunction, decree, determination or
award presently in effect and having applicability to such Party; or
(e) Result in a breach of or constitute a default under, or cause
or permit the acceleration of any obligation owed under, any indenture or loan
or credit agreement or any other
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material agreement, lease or instrument to which such Party is a party or by
which such Party or any of its Property is bound or affected;
and no Borrower nor any Subsidiary thereof is in default under any Law, order,
writ, judgment, injunction, decree, determination or award, or any indenture,
agreement, lease or instrument described in this Section 4.2(e), in any respect
that is materially adverse to the interests of Agent or any Bank or that would
have any material adverse effect on the business, operations or condition
(financial or otherwise) of Borrowers and their Subsidiaries, taken as a whole.
4.3 No Governmental Approvals Required. No authorization, consent,
approval, order, license or permit from, or filing, registration or
qualification with, or exemption from any of the foregoing from, any
Governmental Agency is or will be required to authorize or permit under
applicable Law the execution, delivery and performance by any Borrower or any
Subsidiary thereof of the Loan Documents to which it is a Party.
4.4 Subsidiaries.
(a) Except as described in Schedule 4.4, Borrowers do not own any
capital stock, partnership interest, joint venture interest or other equity
interest in any Person. Unless otherwise indicated in Schedule 4.4 all of the
outstanding shares of capital stock or partnership or joint venture interests of
each Borrower are owned of record and beneficially by Borrowers and all
securities and interests so owned are duly authorized, validly issued, fully
paid, non-assessable and issued in compliance with all applicable state and
federal securities and other Laws, and are free and clear of all Liens and
Rights of Others.
(b) Each Subsidiary identified in Schedule 5.2 as an "Inactive
Subsidiary" has (i) aggregate collections or distributions of cash from its
operations of less than $50,000 and (ii) no tangible or intangible real or
personal property assets having an aggregate fair market value in excess of
$50,000.
(c) Each Subsidiary of each Borrower is a legal entity of the
form described for that Subsidiary in Schedule 4.4, duly formed, validly
existing and in good standing under the Laws of its jurisdiction of formation,
is duly qualified or registered to transact business and is in good standing in
each other jurisdiction in which the conduct of its business or the ownership or
leasing of its Properties makes such qualification or registration necessary,
except where the failure so to qualify or register and to be in good standing
does not have a material adverse effect on the business, operations or condition
(financial or otherwise) of the Borrowers and their Subsidiaries, taken as a
whole, and has all requisite legal power and authority to conduct its business
and to own and lease its Properties and to execute, deliver and perform all of
its Obligations under the Loan Documents.
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(d) Each Subsidiary of each Borrower is in compliance with all
Laws and other legal requirements applicable to its business, has obtained all
authorizations, consents, approvals, orders, licenses and permits from, and has
accomplished all filings, registrations and qualifications with, or obtained
exemptions from any of the foregoing from, any Governmental Agency that are
necessary for the transaction of its business, except where the failure to so
comply, file, register, qualify or obtain exemptions would not have a material
adverse effect on the business, operations or condition (financial or otherwise)
of the Borrowers and their Subsidiaries, taken as a whole.
4.5 Financial Statements. Borrowers have furnished to Agent and Banks
(a) the audited consolidated balance sheet of Borrowers and their Subsidiaries
as at December 31, 1997, and audited consolidated income statement and cash flow
statement of Borrowers and their Subsidiaries for their fiscal year then ended,
and (b) the unaudited consolidated balance sheets of Borrowers and their
Subsidiaries as at September 30, 1998, and unaudited consolidated income
statements, cash flow statements of Borrowers and their Subsidiaries and
unaudited individual Club operating statements for such month and for the
portion of their fiscal year ended with such month. Such financial statements
fairly present the financial condition, results of operations and cash flow of
Borrowers and their Subsidiaries as at such dates and for such periods, in
conformity with generally accepted accounting principles, consistently applied,
provided that the balance sheets and statements referred to in (b) above are
subject to normal year-end audit adjustments.
4.6 No Other Liabilities; No Material Adverse Changes. Except as set
forth in Schedule 4.6 hereto, Borrowers and their Subsidiaries do not have any
material liability or material contingent liability not reflected or disclosed
in the financial statements or notes thereto described in Section 4.5. There has
been no material adverse change in the business, operations or condition
(financial or otherwise) of Borrowers and their Subsidiaries, taken as a whole,
since the date of the financial statements described in Section 4.5(b).
4.7 Intangible Assets. Borrowers and their Subsidiaries own, or possess
the unrestricted right to use, all trademarks, trade names, copyrights, patents,
patent rights, licenses and deferred tax assets that are used in the conduct of
their businesses as now operated, and no such intangible asset, to the best
knowledge of Borrowers, conflicts with the valid trademark, trade name,
copyright, patent, patent right or deferred tax asset of any other Person to the
extent that such conflict would have a material adverse effect on the business,
operations or condition (financial or otherwise) of Borrowers and their
Subsidiaries, taken as a whole.
4.8 Filing of Financing Statements. Upon the filing and/or recording of
financing statements describing the Collateral with the Governmental Agencies
listed in Schedule 4.8, and except for the requirement that continuation
statements periodically be filed and/or recorded with respect thereto, and upon
the taking of possession of the stock certificates of any and all Borrowers,
other than SCC, Inc., all necessary steps will have been taken to fully perfect
and to maintain fully
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perfected the Liens of Agent and Banks on the Collateral, to the fullest extent
that such Liens may be perfected pursuant to Article 9 of the Uniform Commercial
Code.
4.9 Public Utility Holding Company Act. No Borrower or any Subsidiary
thereof is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
4.10 Litigation. Except for (a) the matters set forth in Schedule 4.10,
(b) any matter fully covered as to subject matter and amount (subject to
applicable deductibles and retentions) by insurance for which the insurance
carrier has not asserted lack of subject matter coverage or reserved its right
to do so, or (c) any matter, or series of related matters, involving a
threatened claim against Borrowers of less than $100,000, there are no actions,
suits or proceedings pending or, to the best knowledge of Borrowers, threatened
against or affecting Borrowers or any of its Subsidiaries or any Property of any
of them in any court of Law or before any Governmental Agency.
4.11 Binding Obligations. Each of the Loan Documents to which any
Borrower or any Subsidiary thereof is a Party will, when executed and delivered
by such Party, constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms.
4.12 No Default. No event has occurred and is continuing that is a
Default.
4.13 ERISA.
(a) Except as disclosed in Schedule 4.13, there are no Plans.
(b) With respect to each Plan:
(1) such Plan complies in all material respects with ERISA
and any other applicable Law;
(2) such Plan has not incurred any material "accumulated
funding deficiency", as that term is defined in Section 302 of ERISA;
(3) no "reportable event" (as defined in Section 4043 of
ERISA) has occurred that could result in the termination or disqualification of
such Plan; and
(4) no Borrower nor any Subsidiary thereof has engaged in
any "prohibited transaction" (as defined in Section 4975 of the Internal Revenue
Code of 1954, as amended).
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(c) no Borrower nor any Subsidiary thereof is or has been a party
to any Multi employer Plan.
(d) Borrowers and their Subsidiaries are in compliance with each
covenant contained in Section 6.6.
4.14 Regulations T, U and X; Investment Company Act. No Borrower nor any
of its Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" or "margin security" within the meanings of
Regulations T, U or X, respectively, of the Board of Governors of the Federal
Reserve System. If requested by Agent or any Bank, Borrowers will furnish or
will cause their Subsidiaries, as requested, to furnish Agent or any Bank with a
statement or statements in conformity with the requirements of Federal Reserve
Form U-1 referred to in Regulation U of said Board of Governors. No part of the
proceeds of any Loan hereunder will be used to purchase or carry any such
"margin security" or "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any such "margin security" or "margin stock"
in violation of Regulations T, U or X of said Board of Governors. No Borrower
nor any of its Subsidiaries is or is required to be registered under the
Investment Company Act of 1940.
4.15 Disclosure. No written statement made by Borrowers or any
Subsidiary thereof to Agent or any Bank in connection with this Agreement, or in
connection with any Loan, or in connection with the issuance of any Standby
Letter of Credit, contains any untrue statement of a material fact or omits a
material fact necessary to make the statement made not misleading. To the best
knowledge of Borrowers, there is no fact which Borrowers have not disclosed to
Agent and Banks in writing which materially and adversely affects nor, so far as
Borrowers can now foresee, is reasonably likely to prove to affect materially
and adversely the business, operations, Properties, prospects, profits or
condition (financial or otherwise) of Borrowers and their Subsidiaries, taken as
a whole, or the ability of Borrowers and their Subsidiaries to perform their
Obligations under the Loan Documents.
4.16 Tax Liability. Borrowers and their Subsidiaries have filed all
income tax returns which are required to be filed, and have paid, or made
provision for the payment of, all taxes which have become due pursuant to said
returns or pursuant to any assessment received by any Borrower or any Subsidiary
thereof, except such taxes, if any, as are being contested in good faith and as
to which adequate reserves have been provided.
4.17 Projections. The financial projections set forth in Schedule 4.17
are based on facts known to Borrowers and on assumptions that are reasonable and
consistent with such facts. To the best knowledge of Borrowers, except as may be
disclosed on Schedule 4.17, no material fact or assumption is omitted as a basis
for such projections, and such projections are reasonably based on
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such facts and assumptions. Nothing in this Section 4.17 shall be construed as a
representation that such projections in fact will be achieved.
4.18 Fiscal Year. Borrowers and their Subsidiaries each operate on a
fiscal year corresponding to the calendar year and ending on December 31, the
fiscal months of which correspond to the calendar months of the calendar year.
4.19 Employee Matters. There is no strike, work stoppage or labor
dispute with any union or group of employees pending or overtly threatened
involving Borrowers or any of their Subsidiaries. Since June 1996, there has
been no increase in the salary, bonus or other compensation arrangements of the
employees of Borrowers and their Subsidiaries other than normal increases in the
ordinary course of business.
ARTICLE 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
So long as any Loan or any other indebtedness owing in connection
therewith remains unpaid hereunder or any portion of the Commitment remains
outstanding, Borrowers shall, and shall cause each of its Subsidiaries to,
unless the Requisite Banks otherwise consent in writing:
5.1 Payment of Taxes and Other Potential Charges. Pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon
any of them, upon their respective Property or any part thereof, upon their
respective income or profits or any part thereof or upon any right or interest
of Agent or any Bank under any Loan Document, except that Borrowers and their
Subsidiaries shall not be required to pay or cause to be paid (a) any income or
gross receipts tax generally applicable to banks or (b) any tax, assessment,
charge or levy that is not yet past due, or is being contested in good faith by
appropriate proceedings, so long as the relevant entity has established and
maintains adequate reserves for the payment of the same and by reason of such
nonpayment and contest no material item or portion of Property of Borrowers and
their Subsidiaries, taken as a whole, is in jeopardy of being seized, levied
upon or forfeited.
5.2 Preservation of Existence. Preserve and maintain their respective
existences, except for mergers permitted in Section 6.3 of this Agreement.
Preserve and maintain all material licenses, rights, franchises and privileges
in the jurisdiction of their formation and all authorizations, consents,
approvals, orders, licenses, permits, or exemptions from, or registrations with,
any Governmental Agency that are necessary for the transaction of their
respective business. Qualify and remain qualified to transact business in each
jurisdiction in which such qualification is necessary in view of their
respective business, except any Subsidiaries listed in Schedule 5.2 that are
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inactive or have immaterial assets. With respect to any Subsidiaries listed in
Schedule 5.2 that are inactive or have immaterial assets, Borrowers shall
immediately give Agent and Banks written notice of any change in such entities'
respective existences or statuses of qualification.
5.3 Maintenance of Properties. Maintain, preserve and protect all of
their respective Properties and equipment in good order and condition, subject
to replacement wear and tear in the ordinary course of business, and not permit
any waste of their respective Properties, except that the failure to maintain,
preserve and protect a particular item of Property or equipment that is not of
significant value, either intrinsically or to the operations of Borrowers and
their Subsidiaries, taken as a whole, shall not constitute a violation of this
covenant.
5.4 Maintenance of Insurance. Maintain liability and casualty insurance
with responsible insurance companies acceptable to the Requisite Banks in such
amounts and against such risks as is usually carried by responsible companies
engaged in similar businesses and owning similar Properties in the general areas
in which Borrowers and their Subsidiaries operate; and, as requested by the
Agent, cause Agent and Banks to be designated as additional insured and loss
payees with respect to such insurance, and obtain the written agreement of such
insurers that such insurance shall not be canceled or terminated, nor shall the
coverage or terms or exclusions thereof be materially modified, without at least
thirty (30) days prior written notice to Agent.
5.5 Compliance With Laws. Comply with the requirements of all applicable
Laws and orders of any Governmental Agency, noncompliance with which could
materially adversely affect the business, operations or condition (financial or
otherwise) of Borrowers and their Subsidiaries, taken as a whole, except that
Borrowers and their Subsidiaries need not comply with a requirement then being
contested by any of them in good faith by appropriate proceedings so long as no
interest of Agent or any Bank would be materially impaired thereby.
5.6 Additional Borrowers. In the event (i) the aggregate amount of all
advances to, investments in or commitments to any Non-Borrower Affiliate by
Borrowers, after the date hereof, exceeds at any time $200,000, in addition to
the amounts set forth for the Non-Borrower Affiliates in Schedule 5.6, but
excluding accrued management fees owing to Borrowers from such Non-Borrower
Affiliates, (ii) any Non-Borrower Affiliate identified in Schedule 5.2 ceases to
meet the criteria for an "Inactive Subsidiary" set forth in Section 4.4(b) of
this Agreement, (iii) any Borrower becomes a majority shareholder or a general
partner of any Non-Borrower Affiliate now or hereafter existing, or (iv) any
Borrower or Borrowers, taken as a whole, obtain a majority of the partnership or
other ownership interests of any Non-Borrower Affiliate, Borrowers shall cause
such Non-Borrower Affiliate to become a Borrower hereunder or enter into such
other agreement or arrangement with Banks concerning such Non-Borrower Affiliate
as may be acceptable to the Requisite Banks in its sole discretion. In order to
add a Non-Borrower Affiliate as a Borrower hereunder, the Borrowers shall
deliver to Agent and Banks (a) the agreement of such Non-Borrower Affiliate to
be added as a Borrower hereunder and to be bound by the terms hereof, (b) the
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agreement of the owners of all capital stock or other ownership interests, as
applicable, of such new Borrower to become a party to the Pledge Agreement, (c)
the certificates and other documents required to be delivered pursuant to the
terms of the Pledge Agreement, and (d) such other documents as the Requisite
Banks may reasonably require. Schedule 5.6 attached hereto sets forth as of the
date hereof the amount of all advances to, investments in or commitments to any
Non-Borrower Affiliate by Borrowers, the percentage ownership of each Borrower
in any Non-Borrower Affiliate, and Borrowers which are general partners of any
Non-Borrower Affiliate.
5.7 Inspection Rights. Upon reasonable notice by Agent or any Bank to
Borrowers, at any time during regular business hours and as reasonably
requested, permit Agent or any Bank, or any employee, agent or representative
thereof, to examine, audit and make copies and abstracts from the records and
books of account and to visit and inspect the Properties of Borrowers and their
Subsidiaries and to discuss the affairs, finances and accounts of Borrowers and
their Subsidiaries with any of their officers and key employees, customers or
vendors, and, upon request, furnish promptly to Agent or any Bank true copies of
all financial information and internal management reports made available to the
senior management of Borrowers or any of their Subsidiaries. If any of
Borrowers' Property, books or records are in the possession of a third party,
Borrowers, upon not less than three (3) days' advance notice, hereby authorize
such third party to permit Agent or Banks to have access to perform inspections
or audits and to respond to Agent's or a Bank's request for information
concerning such Property, books or records. If an Event of Default has occurred
and is continuing, no advance notice of any audits and inspections shall be
required.
5.8 Keeping of Records and Books of Account. Keep adequate records and
books of account reflecting all financial transactions in conformity with
generally accepted accounting principles, consistently applied, and in material
conformity with all applicable requirements of any Governmental Agency having
regulatory jurisdiction over Borrowers or any of their Subsidiaries.
5.9 Compliance With Agreements, Duties and Obligations. Promptly and
fully comply with all their respective agreements, duties and obligations under
the Loan Documents, and with material terms of any other material agreements,
indentures, leases and/or instruments to which any one or more of them is a
party, whether such other agreements, indentures, leases and/or instruments are
with Agent and any Bank or another Person.
5.10 Use of Proceeds. Use the proceeds of the Loans for the following
purposes only: (i) for working capital purposes; (ii) for Capital Expenditures;
(iii) for Standby Letters of Credit; (iv) to fund non-hostile Acquisitions; and
(v) to fund New Club Developments.
ARTICLE 6
NEGATIVE COVENANTS
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So long as any Loan or other indebtedness owing in connection therewith
remains unpaid hereunder or any portion of the Commitment remains outstanding,
Borrowers shall not (and shall cause each of their Subsidiaries to not) unless
the Requisite Banks otherwise consent in writing:
6.1 Disposition of Property. Sell, assign, exchange, transfer, lease or
otherwise dispose of, or contract to sell, assign, exchange, transfer, lease or
otherwise dispose of, any of their respective Properties, whether now owned or
hereafter acquired, and whether to an Affiliate or otherwise, except (a)
Properties sold, assigned, exchanged, transferred, leased or otherwise disposed
of in the ordinary course of business, and (b) as permitted under Section 6.3.
6.2 Transactions with Borrowers and Non-Borrower Affiliates. Advance
funds to, guarantee obligations of, or make any other investments in or
commitments or make distributions to any Non-Borrower Affiliate unless (a) such
Non-Borrower Affiliate is made a Borrower under this Agreement or some other
arrangement acceptable to the Requisite Banks in their sole discretion is made
in accordance with Section 5.6, or (b) the aggregate amount of all advances to,
guaranties of, investments in and commitments to all Non-Borrower Affiliates
does not exceed $200,000, in addition to the amounts set forth for the
Non-Borrower Affiliates in Schedule 5.6, but excluding accrued management fees
owing to Borrowers from such Non-Borrower Affiliates, Borrowers shall provide
Agent and Banks a monthly report detailing such transactions, such report to be
in a form as is acceptable to Agent and Requisite Banks. The Borrowers shall
have the right, with the consent of the Requisite Banks, not to be unreasonably
withheld but subject to such terms and conditions as the Requisite Banks may
require, to add any Non-Borrower Affiliate as a Borrower hereunder.
6.3 Mergers, Acquisitions and New Club Developments.
(a) Merge, consolidate or amalgamate with or into any Person,
except mergers, consolidations or amalgamations of a Subsidiary of a Borrower
into a Borrower (with such Borrower as the surviving entity) prior notice of the
details of which shall have been given to Agent and Banks, or mergers,
consolidations or amalgamations in connection with an Acquisition or New Club
Development permitted pursuant to Section 6.3(b) or 6.3(c).
(b) Make any Acquisition or enter into any agreement to make
any Acquisition, provided that the consent of the Requisite Banks shall not be
required in connection with any Acquisition satisfying the following conditions:
(i) such Acquisition requires payment of an amount of less than either (A)
$10,000,000 of total consideration in connection with such Acquisition alone or
(B) $15,000,000 of total consideration when such Acquisition is combined with
all other Acquisitions made by Borrowers during the twelve months prior to such
Acquisition, excluding Borrowers' investment in the Vertical Club and Borrowers'
investment in any Acquisition previously approved by the Requisite Banks, (ii)
such Acquisition is not for a sum greater than seven and one-half times the
EBITDA of the acquired entity, with adjustments acceptable to Banks for
identifiable savings which will occur as a result of such Acquisition, or (iii)
such Acquisition is
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not of an entity engaged in a business different from that of Borrowers. In
connection with an Acquisition meeting the above requirements, the Borrowers may
enter into a partnership or a corporate or other joint venture with one or more
unaffiliated Persons.
(c) Pursue any New Club Development, provided that the consent
of the Requisite Banks shall not be required for a New Club Development
satisfying the following conditions: (i) such New Club Development is projected
to generate positive EBITDA for the twelve-month period commencing on the first
anniversary following completion of such New Club Development; and (ii)
Borrowers do not expend more than $5,000,000 on such New Club Development alone
or more than $10,000,000 when the expenditures for such New Club Development are
combined with all other New Club Development expenditures during the twelve
months prior to the commencement of such New Club Development, exclusive of
expenditures in connection with existing development projects already approved
by Banks, including those development projects described on Schedule 6.3(c).
(d) In any event, no more than three mergers, Acquisitions or
New Club Developments in the "pre sale phase of development" shall be pursued at
any given time. "Pre sale phase of development" shall mean the period during
which memberships in the new Clubs are offered for sale prior to the date the
Club opens for business.
(e) Prior to any Acquisition, Borrowers shall deliver to Agent
and Banks (i) an executive summary of the Acquisition in form and substance
acceptable to Agent and Banks, (ii) a multi-year financial forecast, including
assumptions, (iii) a pro forma financial statement giving effect to the proposed
Acquisition, (iv) a pro forma compliance certificate executed by a Responsible
Official of a Borrower certifying that giving effect to the proposed
Acquisition, Borrowers shall be in compliance with the terms of this Section 6.3
and all other terms and financial covenants set forth in this Agreement, (v) a
schedule of sources and uses of funds, and (vi) such other details about such
Acquisition as Agent or any Bank may reasonably request. Prior approval by the
Requisite Banks shall be required for every Acquisition other than those
permitted under Section 6.3(b) above.
(f) Prior to any New Club Development, Borrowers shall deliver
to Agent and Banks (i) an executive summary detailing the development project,
demographic and site analysis, cost estimates and financing sources, (ii) a
multi-year financial forecast, including assumptions, demonstrating positive
projected EBITDA for the twelve-month period commencing on the first anniversary
following completion of such New Club Development, (iii) a pro forma compliance
certificate executed by a Responsible Officer of a Borrower certifying that
giving effect to the proposed development, Borrowers shall be in compliance with
the terms of this Section 6.3 and all other terms and financial covenants set
forth in this Agreement, and (iv) such other details about such development as
Agent or any Bank may reasonably request. Prior approval by the Requisite
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Banks shall be required for every New Club Development other than those
permitted under Section 6.3(c) above.
(g) Banks acknowledge prior receipt of a request from
Borrowers for funding an amount not to exceed $10,000,000 in connection with the
purchase of land and a building by The Spectrum Club Company, Inc. and its
development as a new Spectrum Club in Thousand Oaks, California (the "Thousand
Oaks Club"). Funding for the Thousand Oaks Club New Club Development has been
approved subject to the following:
(i) the occurrence of no material adverse change with
respect to Borrowers or the proposed Acquisition and no Default having occurred
prior to such funding or which would occur as a result of such funding; and
(ii) such other evidence of full compliance with all other
terms and conditions of this Agreement as Agent or any Bank shall reasonably
request both before and after such Acquisition.
(h) Concurrent with the execution and delivery of this
Agreement, Banks acknowledge receipt of a request from Borrowers to permit
Borrowers to make a net investment not to exceed $24,000,000 for the Acquisition
and development of the Vertical Club in New York City. In connection with such
request, Borrowers have provided Banks with the information package attached
hereto as Exhibit F (the "Vertical Club Materials"). Banks have approved
Borrowers' Acquisition and development of the Vertical Club subject to the
following:
(i) the occurrence of no material adverse change with
respect to Borrowers or the proposed Acquisition and development from the
information reflected in the Vertical Club Materials, and no Default having
occurred prior to such funding or which would occur as a result of such funding;
(ii) Borrowers' adherence to the budgets and time lines
provided in the Vertical Club Materials, as such budgets and time lines may be
refined in the quarterly project development status reports delivered by
Borrowers to Agent pursuant to Section 7.1(n) hereof, with material
modifications approved by Banks; and
(iii) such other evidence of full compliance with all
other terms and conditions of this Agreement as Agent or any Bank shall
reasonably request both before and after such Acquisition.
(i) Concurrent with the execution and delivery of this
Agreement, Banks acknowledge receipt of a request from Borrowers to permit
Borrowers to make a net investment not to exceed $20,800,00 for a New Club
Development of a Sports Club in Houston (the "Houston
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Sports Club"). In connection with such request, Borrowers have provided Banks
with the information package attached hereto as Exhibit G (the "Houston Sports
Club Materials"). Banks have approved Borrowers' development of the Houston
Sports Club subject to the following:
(A) the occurrence of no material change with respect to
Borrowers or the proposed development from the information reflected in the
Houston Sports Club Materials, and no default having occurred prior to such
funding or which would occur as a result of such funding;
(B) Borrowers' adherence to the budgets and time lines
provided in the Houston Sports Club Materials, as such budgets and time lines
may be refined in the quarterly project development status reports delivered by
Borrower to Agent pursuant to Section 7.1(n) hereof, with material modifications
approved by Banks; and
(C) such other evidence of full compliance with all other
terms and conditions of this Agreement as Agent or any Bank shall reasonably
request both before and after such development.
(j) Notwithstanding the right of Borrowers' pursuant to
Section 6.3(b) and (c) above to make certain Acquisitions or pursue certain New
Club Developments without obtaining the prior consent of the Requisite Banks,
Borrowers shall notify Agent of, or submit to Agent a formal request for
approval of, as applicable, any and all intended Acquisitions or New Club
Developments prior to entering into a definitive purchase agreement, in the case
of any intended Acquisition, or, in the case of any intended New Club
Development, upon the earlier of (i) the approval of such New Club Development
by the Board of Directors of the applicable Borrower or (ii) the applicable
Borrower's execution of any contract or expenditure of any money which would
financially obligate such Borrower to proceed with such New Club Development.
6.4 Profitability. Fail to maintain on a combined basis a positive net
income after taxes and extraordinary items on a quarterly basis except as a
result of Borrowers' payment of the prepayment penalty in connection with the
prepayment of their financing obligations to AT&T Commercial Finance
Corporation.
6.5 Redemption, Dividends and Distributions; Payments to Partners.
Redeem or repurchase stock or partnership interests, declare or pay any
dividends or make any other distribution, whether of capital, income or
otherwise, and whether in Cash or other Property, except that, subject to
applicable statutory restrictions and provided no Event of Default exists or
would exist after such action, (a) any Borrower or Subsidiary of a Borrower may,
subject to Section 6.2, declare and pay dividends or make distributions directly
or indirectly to another Borrower, (b) SCC, Inc. may make a Qualified Stock
Repurchase, (c) Borrowers and Subsidiaries may, subject to Section 6.2, pay
partner distributions as required under the partnership agreements as currently
in effect as of the date hereof, or with such amendments as are approved in
writing by the Requisite Banks, of
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L.A./Irvine Sports Clubs, Ltd., El Segundo TDC, Ltd., Sports Connection-ES/MB
and Reebok-Sports Club/NY or any other entity approved in writing by the
Requisite Banks pursuant to Section 5.6 of this Agreement, (d) Borrowers and
Subsidiaries may declare or make operating distributions or declare or pay
dividends or make distributions in connection with the purchase of partnership
interests in L.A./Irvine Sports Clubs, Ltd., El Segundo TDC, Ltd., Sports
Connection-ES/MB and/or Reebok-Sports Club/NY or any other entity approved in
writing by the Requisite Banks pursuant to Sections 5.6 and 6.2 of this
Agreement, and (e) The SportsMed Company, Inc. and/or HFA Services, Inc. shall
have the right to repurchase securities pursuant to the terms of the
Shareholders Agreements previously entered into by HFA Services, Inc., copies of
which Shareholders Agreements have been delivered to Banks, as such Shareholders
Agreements are currently in effect as of the date hereof, or with such
amendments as are approved in writing by the Requisite Banks, provided that The
SportsMed Company, Inc. and/or HFA Services, Inc. shall not expend more than
$750,000 in the aggregate during the term of this Agreement in connection with
such repurchases of securities.
6.6 ERISA.
(a) At any time, maintain, or be or become obligated to
contribute on behalf of its employees to, any Plan, other than those Plans
disclosed in Schedule 4.13.
(b) At any time, permit any Plan to:
(1) engage in any "prohibited transaction", as such term
is defined in Section 4975 of the Internal Revenue Code of 1954, as amended;
(2) incur any material "accumulated funding deficiency",
as that term is defined in Section 302 of ERISA; or
(3) terminate in a manner which could result in liability
of Borrowers or any Subsidiary thereof to the Plan or to the PBGC or the
imposition of a Lien on the Property of Borrowers or any Subsidiary thereof
pursuant to Section 4068 of ERISA.
(c) At any time, assume any obligation to contribute to any
Multiemployer Plan, nor shall Borrowers or any Subsidiary thereof acquire any
Person or assets of any Person which has, or has had at any time from and after
January 2, 1974, an obligation to contribute to any Multiemployer Plan.
(d) Fail immediately to notify Agent and Banks of the
occurrence of any "reportable event" (as defined in Section 4043 of ERISA) or of
any "prohibited transaction" (as defined in Section 4975 of the Internal Revenue
Code of 1954, as amended) with respect to any Plan or any trust created
thereunder. Upon request by Agent or any Bank, Borrowers promptly shall
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furnish to Agent and Banks copies of any reports or other documents filed by
Borrowers or any Subsidiary thereof with the United States Secretary of Labor,
the PBGC and/or the Internal Revenue Service, with respect to any Plan.
(e) At any time, permit any Plan to fail to comply with ERISA or
other applicable Law in any material respect.
6.7 Change in Nature of Business/Management. Make any material change in
the nature of the business of Borrowers and their Subsidiaries, as conducted and
presently proposed to be conducted, or remove or allow removal of D. Michael
Talla, John Gibbons or Timothy O'Brien from any management position presently
held by him, unless evidence of satisfactory progress to procure a replacement
acceptable to the Requisite Banks is delivered to Agent and Banks within 30 days
thereafter.
6.8 Real Property Leases. Enter into one or more real property lease
agreements (exclusive of any real property lease agreements in connection with a
New Club Development or an Acquisition previously approved by the Requisite
Banks) requiring lease payments by Borrowers or any of them in excess of
$1,500,000 per annum or enter into one or more real property lease agreements on
or after the date of this Agreement which, when taken together with real
property lease agreements entered into prior to the date of this Agreement, will
cause the aggregate amount of lease payments to be made by Borrowers to exceed
$14,000,000 in calendar 1999 or $20,200,000 in calendar 2000.
6.9 Indebtedness, Guaranties and Liens. Create, incur, assume or suffer
to exist any Lien of any nature upon or with respect to any of their respective
Properties, whether now owned or hereafter acquired; create, incur or assume any
indebtedness for borrowed money or in connection with the purchase of Property
or any liability to the issuer of any letter of credit; guaranty or otherwise
become responsible (including, but not limited to, any agreement to purchase any
obligations, stock, Property, goods or services or to supply or advance any
funds, Property, goods or services) for the indebtedness or obligations of any
other Person; or incur any lease obligation that is required to be capitalized
under generally accepted accounting principles, except:
(a) Indebtedness and Liens securing obligations incurred in
the ordinary course of business and incurred in connection with purchase money
transactions including real estate or equipment or fixture purchases, provided
that the amount of such transactions involving purchases of new equipment for
existing Clubs (i.e., other than in connection with Acquisitions or New Club
Developments, as permitted by Section 6.12) shall not exceed an aggregate amount
of $1,500,000 principal (or the equivalent thereof) in any one fiscal year;
(b) Intentionally omitted;
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(c) Intentionally omitted;
(d) Liens securing the claims or demands of materialmen,
mechanics, and other like Persons not yet delinquent or being contested in good
faith by appropriate proceedings and for which appropriate reserves are
maintained;
(e) Indebtedness, liabilities, guaranties or Liens in favor of
Agent and Banks under this Agreement, the Notes and the other Loan Documents;
(f) Indebtedness and Liens listed on Schedule 6.9 or
Indebtedness and Liens arising out of the extension or refinancing of the
obligations of Borrowers described on Schedule 6.9, provided that such
obligations are not increased and are not secured by any additional property;
(g) Guaranties arising from endorsement, in the ordinary course
of collection, of negotiable instruments;
(h) Indebtedness and Liens for taxes and assessments or other
government charges or levies if not yet due and payable or, if due and payable,
which are being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(i) Liens under workers' compensation, unemployment insurance,
social security, or similar legislation, if they are being contested in good
faith by appropriate proceedings and for which appropriate reserves are
maintained; and
(j) Trade credit for goods and services provided to the
Borrowers and the Subsidiaries in the ordinary course of business.
6.10 Transactions with Affiliates. Enter into any transaction of any
kind with any Affiliate of Borrowers other than (a) transactions between or
among Borrowers and their Subsidiaries so long as, as a result of such
transactions, the aggregate amount advanced to, invested in or committed to any
Non-Borrower Affiliate on or after January 1, 1997, does not exceed $200,000,
(b) arms-length transactions with Affiliates which are permitted with
non-Affiliates pursuant to Sections 6.1, 6.3, 6.5, and (c) those transactions
listed in Schedules 6.10 and 6.17.
6.11 Change in Fiscal Year. Change its fiscal year, or the fiscal months
thereof.
6.12 Capital Expenditures and Purchase Money Transactions. Make or incur
obligations for Capital Expenditures in the aggregate for Borrowers and their
Subsidiaries in any fiscal year in excess of five percent (5.0%) of Borrowers'
net revenues derived from operation of the Clubs for such fiscal year before
restatements for acquisitions accounted for using the pooling method of
accounting. For the purpose of determining compliance by Borrowers and their
Subsidiaries with
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the foregoing covenant, the following Capital Expenditures and indebtedness and
Liens securing obligations incurred in connection with purchase money equipment
financings ("Purchase Money Indebtedness and Liens") shall be excluded:
(i) Capital Expenditures made and Purchase Money Indebtedness
and Liens incurred in connection with, and no later than one year following the
consummation of, an Acquisition for which the consent of Banks is not required
pursuant to Section 6.3(b), so long as the aggregate amount of such Capital
Expenditures and Purchase Money Indebtedness and Liens and of all other
expenditures relating to such Acquisition do not exceed the respective limits on
total consideration for such Acquisition set forth in Section 6.3(b);
(ii) Capital Expenditures made and Purchase Money Indebtedness
and Liens incurred in connection with, and no later than one year following the
consummation of, an Acquisition for which the consent of Banks is required
pursuant to Section 6.3(b), so long as the aggregate amount of such Capital
Expenditures and Purchase Money Indebtedness and Liens and of all other
expenditures relating to such Acquisition do not exceed the total consideration
limit imposed for such Acquisition by Banks in issuing their approval of such
Acquisition;
(iii) Capital Expenditures made and Purchase Money Indebtedness
and Liens incurred in connection with, and no later than 90 days following the
opening of the related new Club, a New Club Development for which the consent of
Banks is not required pursuant to Section 6.3(c), so long as the aggregate
amount of such Capital Expenditures and Purchase Money Indebtedness and Liens
and of all other expenditures relating to such New Club Development do not
exceed the respective limits on total consideration for such New Club
Development set forth in Section 6.3(c); and
(iv) Capital Expenditures made and Purchase Money Indebtedness
and Liens incurred in connection with, and no later than 90 days following the
opening of the related new Club, a New Club Development for which the consent of
Banks is required pursuant to Section 6.3(c), so long as the aggregate amount of
such Capital Expenditures and Purchase Money Indebtedness and Liens and of all
other expenditures relating to such New Club Development do not exceed the total
consideration limit imposed by Banks in issuing their approval of such New Club
Development.
6.13 Tangible Net Worth. Permit Tangible Net Worth, as of the last day
of any fiscal quarter of Borrowers and their Subsidiaries ending during any
period specified below, to be less than $77,000,000 plus 80% of Borrowers'
cumulative net income after December 31, 1997 not reduced by net losses and
increased by one hundred percent (100%) of funds generated from any equity
offering occurring after May 31, 1998.
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6.14 Ratio of Total Unsubordinated Liabilities to Tangible Net Worth.
Permit the ratio of Total Unsubordinated Liabilities to Tangible Net Worth, as
of the last day of any fiscal quarter of Borrowers and their Subsidiaries to be
greater than 1.25:1.00.
6.15 Debt Service Coverage Ratio. For Borrowers and their Subsidiaries,
permit the ratio of (i) EBITDA to (ii) interest expense on all indebtedness plus
the current portion of long term debt of Borrowers to be less than 2.00:1.00,
with such ratio to be calculated at the end of each fiscal quarter (x) on a
cumulative annualized basis for each fiscal quarter beginning with the second
quarter of Borrowers' and their Subsidiaries' 1998 fiscal year and continuing
through and including the fourth quarter of Borrowers' and their Subsidiaries'
1998 fiscal year, and (y) on a rolling four-quarter basis for each fiscal
quarter ending after the fourth quarter of Borrowers' and their Subsidiaries
1998 fiscal year. For the purpose of calculation only, the $4,000,000 balloon
payment due November 1999 under the Sports Club/Irvine note shall be excluded.
6.16 Intentionally Omitted.
6.17 Loans to Officers. Make any loans, advances or other extensions of
credit to any of Borrowers' executives, officers, directors, shareholders or
employees (or any relatives of any of the foregoing) in an aggregate amount
exceeding $200,000, other than those set forth on Schedule 6.17.
6.18 Deposit Accounts. Establish any deposit accounts in the name of any
Borrower or any Subsidiary without prior notice to Agent.
6.19 Ratio of Funded Debt to EBITDA. Permit the ratio of (i) Funded Debt
to (ii) EBITDA, as of the last day of the fiscal quarter of Borrowers and their
Subsidiaries, calculated at the end of each such quarter on a rolling four (4)
quarter basis, to be greater than 3.75:1.00.
ARTICLE 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 Financial and Business Information. So long as any Loan remains
unpaid, or any other Obligation remains unpaid or unperformed, or any portion of
the Commitment remains outstanding, Borrowers shall, in addition to complying
with the requirements of Section 8.3 of this Agreement, and unless the Requisite
Banks otherwise consent in writing, deliver to Agent, at Borrowers' sole
expense:
(a) As soon as practicable, and in any event within 30 days
after the end of each fiscal month of Borrowers, (i) consolidated balance sheets
of Borrowers and their Subsidiaries as at the end of such month, setting forth
in comparative form the corresponding figures as at the end of the corresponding
month of their preceding fiscal year, (ii) Club operating statements of each
Club
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as at the end of such month, (iii) consolidated income statements of Borrowers
and their Subsidiaries for such month and for the portion of their fiscal year
ended with such month, setting forth in comparative form the corresponding
figures for the corresponding periods of their preceding fiscal year and (iv)
consolidated cash flow statements of Borrowers and their Subsidiaries for the
portion of their fiscal year ended with such month, setting forth in comparative
form the corresponding figures for the corresponding periods of their preceding
fiscal year, all in reasonable detail. The preceding financial statements shall
be certified by a Responsible Official of a Borrower as fairly presenting the
financial condition, results of operations and cash flow of Borrowers and their
Subsidiaries in accordance with generally accepted accounting principles,
consistently applied, as at such date and for such periods, subject only to
normal year-end audit adjustments.
(b) As soon as practicable, and in any event within 45 days
after the end of each quarter of Borrowers (including the last quarter of each
fiscal year, provided that with respect to such last quarter the financial
statements required hereby may be in preliminary form, prior to year-end audit
adjustments), (i) consolidated balance sheets of Borrowers and their
Subsidiaries as at the end of such quarter, setting forth in comparative form
the corresponding figures as at the end of the corresponding quarter of their
preceding fiscal year, (ii) consolidated income statements of Borrowers and
their Subsidiaries for such quarter and for the portion of their fiscal year
ended with such quarter, setting forth in comparative form the corresponding
figures for the corresponding periods of their preceding fiscal year and (iii)
consolidated cash flow statements of Borrowers and their Subsidiaries for the
portion of their fiscal year ended with such quarter, setting forth in
comparative form the corresponding figures for the corresponding periods of
their preceding fiscal year, all in reasonable detail.
The preceding financial statements shall be certified by a Responsible
Official of a Borrower as fairly presenting the financial condition, results of
operations and cash flow of Borrowers and their Subsidiaries in accordance with
generally accepted accounting principles, consistently applied, as at such date
and for such periods, subject only to normal year-end audit adjustments.
(c) As soon as practicable, and in any event within 90 days
after the close of each fiscal year of Borrowers, (i) consolidated balance
sheets of Borrowers and their Subsidiaries as at the end of such fiscal year,
setting forth in comparative form the corresponding figures as at the end of
their preceding fiscal year, and (ii) consolidated income statements and cash
flow statements of Borrowers and their Subsidiaries for such fiscal year,
setting forth in comparative form the corresponding figures for their previous
fiscal year, all in reasonable detail. Such balance sheets and statements shall
be prepared in accordance with generally accepted accounting principles,
consistently applied, and such consolidated balance sheet and consolidated
statements shall be accompanied by a report and unqualified opinion of
independent public accountants of recognized standing selected by Borrowers and
reasonably satisfactory to the Requisite Banks, which report and opinion shall
be prepared in accordance with generally accepted auditing principles as at such
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date, and shall be subject only to such qualifications and exceptions as are
acceptable to the Requisite Banks in the exercise of their reasonable
discretion.
(d) As soon as practicable, and in any event within 30 days
after the end of each month of Borrowers, a Certificate of a Responsible
Official of a Borrower setting forth a schedule of Capital Expenditures made by
Borrowers and/or their Subsidiaries during such month, and during their fiscal
year to date, separately for each Club.
(e) As soon as practicable, and in any event within 30 days
after the start of each fiscal year of Borrowers, a monthly budget for the then
started fiscal year including, without limiting the generality of the foregoing,
monthly projected consolidated balance sheets, income statements and cash flow
statements of Borrowers and their Subsidiaries and individual Club operating
statements, all in reasonable detail.
(f) Within 30 days following the end of each month, a
membership information report for each Club and in the aggregate in the form now
prepared by Borrowers on a monthly basis, reflecting no less than the
immediately preceding consecutive six months, and reflecting the number of
members, the number of new memberships sold and the gross reduction in number of
memberships, and supplemented by such additional information as Agent may
request.
(g) Within 30 days after the close of each fiscal year of
Borrowers, Borrowers' budget of capital expenditures for capital improvements,
replacements and other related purposes for the following fiscal year.
(h) Within the earlier of 5 days after (i) the same are filed
with the Securities and Exchange Commission ("SEC") or (ii) the same are
required to be filed with the SEC, subject to allowable SEC extensions, copies
of each annual report, proxy or financial statement or other report or
communication sent to the shareholders of Borrowers, and copies of all annual,
regular, periodic and special reports and registration statements which
Borrowers may file or be required to file with the Securities and Exchange
Commission or any similar or corresponding Governmental Agency or with any
securities exchange.
(i) Within 5 days after receipt of copies of all correspondence
and notices received by Borrowers from the Internal Revenue Service ("IRS")
relating to any adverse action or determination by the IRS in respect of any
Borrower's tax status under the Internal Revenue Code.
(j) Immediately upon becoming aware of the existence of any
condition or event which constitutes a Default, a written notice specifying the
nature and period of existence thereof and what action Borrowers or their
Subsidiaries are taking or propose to take with respect thereto.
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(k) Promptly upon request by Agent or the Requisite Banks,
copies of any detailed audit reports submitted to Borrowers or any of their
Subsidiaries by independent accountants in connection with the accounts or books
of Borrowers or any of their Subsidiaries, or any audit of any of them.
(l) Promptly after request by Agent or the Requisite Banks,
copies of any report or other document filed by Borrowers or any of their
Subsidiaries with any Governmental Agency.
(m) Promptly upon becoming aware that any Person asserts a
claim against Borrowers or any of their Subsidiaries in excess of $500,000 and
that such Person has given notice or taken any other action with respect to a
claimed default or event of default, a written notice specifying the notice
given or action taken by such Person and the nature of the claimed default or
event of default and what action Borrowers or their Subsidiaries are taking or
propose to take with respect thereto.
(n) As soon as practicable, and in any event within 45 days
after the end of each fiscal quarter of Borrowers, a project development status
report in form and substance acceptable to Agent and Banks, which shall include,
at a minimum, a timetable for architectural and construction design, permitting,
construction milestones, as may be available, as well as an estimated date for
completion. Such report also shall include the budget as originally approved by
the Board of Directors of the applicable Borrower or Subsidiary and by Banks, as
well as any material modifications that have been approved by Banks or which may
require such approval.
(o) Such other data and information as from time to time may
be reasonably requested by Agent or the Requisite Banks.
7.2 Compliance Certificates. So long as any Loan remains unpaid, or any
other Obligation remains unpaid or unperformed, or any portion of the Commitment
remains outstanding, Borrowers shall, unless the Requisite Banks otherwise
consent in writing, deliver to Agent, at Borrowers' sole expense, not later than
45 days after the end of each fiscal quarter of Borrower, a Certificate of a
Responsible Official of a Borrower (a) setting forth computations showing, in
detail satisfactory to the Requisite Banks, whether Borrowers and their
Subsidiaries were in compliance with their obligations pursuant to Sections 6.11
through 6.16, inclusive; (b) setting forth computations showing, in detail
satisfactory to the Requisite Banks, the Applicable Pricing Level; (c) stating
that a review of the activities of Borrowers and their Subsidiaries during such
fiscal period has been made under supervision of the certifying Responsible
Official with a view to determining whether during such fiscal period Borrowers
and their Subsidiaries performed and observed all their respective Obligations
under the Loan Documents, and either (i) stating that, to the best knowledge of
the certifying Responsible Official, during such fiscal period, Borrowers and
their Subsidiaries performed and observed each covenant and condition of the
Loan Documents applicable to them, or (ii) if Borrowers and their Subsidiaries
have not performed and observed such covenants and
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conditions, specifying all such Defaults and their nature and status; (d)
stating that the Properties of Borrowers and their Subsidiaries are being
maintained and are in reasonable working order and condition, ordinary
replacement wear and tear excepted; and (e) stating that (i) the real property
assets of Borrowers are free and clear of all Liens other than the respective
Liens of the MKDG/Rhodes SC Partnership on the land, improvements and building
of the Sports Club/Irvine and of Hawthorne Savings on the land, improvements and
building of the Sports Club/Agoura Hills (the "Existing Real Property Liens"),
(ii) there has been no increase in the amount of any indebtedness or liability
secured by each Existing Real Property Lien during such fiscal quarter, (iii) no
real property assets of Borrowers have been sold, assigned, exchanged,
transferred, leased or otherwise conveyed or disposed of to any Person, and (iv)
no Borrower has entered into any agreement to do any of the foregoing.
7.3 Revisions or Updates to Schedules. Should any of the information or
disclosures provided on any of the Schedules originally attached hereto become
outdated or incorrect in any material respect, upon request by Agent, Borrowers
promptly shall provide to Agent such revisions or updates to such Schedule(s) as
may be necessary or appropriate to update or correct such Schedule(s); provided
that no such revisions or updates to any Schedule(s) shall be deemed to have
amended, modified or superseded such Schedule(s) as originally attached hereto,
or to have cured any breach of warranty or representation resulting from the
inaccuracy or incompleteness of any such Schedule(s), unless and until the
Requisite Banks, in their sole and absolute discretion, shall have accepted in
writing such revisions or updates to such Schedule(s).
7.4 New Club Development Project Reports. So long as any Loan
remains unpaid, or any other Obligation remains unpaid or unperformed, or any
portion of the Commitment remains outstanding, Borrowers shall, unless the
Requisite Banks otherwise consent in writing, deliver to Agent, at Borrower's
sole expense, not later than 10 days after the end of each calendar month, a
Certificate of a Responsible Official of a Borrower, in form and substance
satisfactory to Agent, setting forth the name of each New Development Project
and the aggregate amount of funds expended in connection with each such New
Development Project to and including the last day of such calendar month.
ARTICLE 8
CONDITIONS
8.1 Initial Loans, Etc. The obligation of each Bank to make the initial
Loans and to issue the initial Standby Letter of Credit, each are subject to the
following conditions precedent (in addition to any applicable conditions
precedent set forth elsewhere in this Article 8), each of which shall be
satisfied prior to or concurrently with the making of the initial Loans and the
issuance of the initial Standby Letter of Credit (unless Banks, in their sole
and absolute discretion, shall agree otherwise):
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(a) Agent shall have received all of the following, each of which
shall be originals unless otherwise specified, each properly executed by
a Responsible Official of each party thereto, each dated as of the
Closing Date and each in form and substance satisfactory to Agent and
its legal counsel (unless otherwise specified or, in the case of the
date of any of the following, unless Agent otherwise agrees or directs):
(1) six executed counterparts of this Agreement;
(2) the Notes executed by Borrowers payable to the order
of Banks;
(3) with respect to each Borrower and any and each
Subsidiary thereof, such documentation as Agent may require to
establish the due organization, valid existence and good standing
of such Borrower and each such Subsidiary, its qualification to
engage in business in each jurisdiction in which it is engaged in
business or required to be so qualified, its authority to
execute, deliver and perform any Loan Documents to which it is a
Party, and the identity, authority and capacity of each
Responsible Official thereof authorized to act on its behalf,
including, without limitation, certified copies of articles of
incorporation and amendments thereto, bylaws and amendments
thereto, partnership agreements, certificates of limited
partnerships, certificates of good standing and/or qualification
to engage in business, certificates of corporate resolutions,
incumbency certificates, Certificates of Responsible Officials,
and the like;
(4) such Loan Documents as Agent or Requisite Banks may
require pledging Property of Borrowers and/or any of their
Subsidiaries, together with such related financing statements or
other documents as Agent or Requisite Banks may request to
perfect, effect, facilitate, consent to, give notice of or
otherwise evidence any Liens created thereby;
(5) the Global Collateral Documents Amendment;
(6) the Opinion of Counsel;
(7) a Certificate of a Responsible Official of Borrowers
certifying that the conditions specified in Sections 8.1(c) and
8.1(d) have been satisfied;
(8) evidence that all Liens or Rights of Others on or in
the Property of Borrowers and/or their Subsidiaries (other than
such Liens and Rights of Others as are permitted by Section 6.8)
have been terminated or discharged; and
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(9) such other certificates, documents, consents or
opinions as Agent or Requisite Banks reasonably may require.
(b) Duly executed financing statements with respect to the
Collateral shall have been filed and/or recorded with such Governmental
Agencies, and in such jurisdictions and locales, as Agent or Requisite
Banks may specify.
(c) The representations and warranties of Borrowers contained in
Article 4 shall be true and correct as of the date made or reaffirmed.
(d) Borrowers and their Subsidiaries and any other Parties shall
be in compliance with all the terms and provisions of the Loan
Documents, and no Default shall have occurred and be continuing.
(e) The fees referred to in Sections 3.2 and 3.5 have been paid
to Banks and/or Agent, as applicable.
8.2 Any Loan. In addition to any applicable conditions precedent set
forth elsewhere in this Article 8, the obligation of Banks to make any Loan, to
redesignate any Loan, and issue any Standby Letter of Credit are subject to the
following conditions precedent:
(a) except (i) for representations and warranties which speak as
of a particular date or are no longer true and correct as a result of a
change which is permitted by this Agreement or (ii) as disclosed by
Borrowers and approved in writing by the Requisite Banks, the
representations and warranties contained in Article 4 shall be true and
correct on and as of the date of the Loan or redesignation or issuance
or creation, as the case may be, as though made on and as of that date;
(b) except for (i) the matters set forth in Schedule 4.10, (ii)
any matter fully covered as to subject matter and amount (subject to
applicable deductibles and retentions) by insurance for which the
insurance carrier has not asserted lack of subject matter coverage or
reserved its right to do so, or (iii) any matter, or series of related
matters, involving a claim against Borrowers of less than $100,000,
there shall be no actions, suits or proceedings pending against or
affecting Borrowers or any of their Subsidiaries or any Property of any
of them in any court of Law or before any Governmental Agency which
might reasonably be expected to have a material adverse effect on the
business, operations or condition (financial or otherwise) of Borrowers
and their Subsidiaries, taken as a whole;
(c) no material adverse change shall have occurred in the
business, operations or condition (financial or otherwise) of Borrowers
and their Subsidiaries, taken as a whole, since the Closing Date;
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(d) no Default shall have occurred and be continuing;
(e) Agent shall have timely received a properly completed Request
for Loan, Request for Redesignation of Loans or Request for Standby
Letter of Credit, as the case may be, in compliance with all applicable
provisions of Article 2; and Agent shall have received, dated as of the
date of the Loan or redesignation or issuance or creation, as the case
may be, a Certificate of a Responsible Official of a Borrower to the
effect that all of the above conditions have been satisfied, with any
changes or exceptions thereto being described in a schedule attached to
such certificate and with such changes or exceptions being subject to
the approval of the Requisite Banks; and
(f) Agent shall have received, in form and substance satisfactory
to the Requisite Banks such other certificates, documents or consents as
the Requisite Banks reasonably may require.
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
9.1 Events of Default. The existence or occurrence of any one or more of
the following events, whatever the reason therefor, shall constitute an Event of
Default:
(a) Borrowers fail to pay any installment of principal or
interest on any indebtedness on any of the Notes or any portion thereof,
or to reimburse Agent or any Bank for any payment made under any Standby
Letter of Credit, or to pay any fee or any other amount due Agent or any
Bank under any Loan Document, within five (5) Banking Days following the
giving of notice by Agent or Requisite Banks of such Default; or
(b) Any failure to comply with Section 7.1(j); or
(c) Borrowers, any of their Subsidiaries or any other Party fails
to perform or observe any other term, covenant or agreement contained in
any Loan Document, including, but not limited to, those set forth in
Articles 6 and 7 of this Agreement, on its part to be performed or
observed within fifteen (15) days after the giving of written notice by
Agent or Borrowers otherwise becoming aware of such Default; or
(d) Any representation or warranty made in any Loan Document or
in any certificate, agreement, instrument or other document made or
delivered by any Party pursuant to or in connection with any Loan
Document proves to have been incorrect when made in any respect that is
materially adverse to the interests of Agent or Banks; or
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(e) Borrowers or any of their Subsidiaries (i) fail to pay the
principal, or any principal installment, of any present or future
indebtedness for borrowed money of $200,000 or more or in connection
with the purchase or lease of Property, or any guaranty of present or
future indebtedness for borrowed money of $200,000 or more or issued in
connection with the purchase or lease of Property, on its part to be
paid, when due (or within any stated grace period), whether at the
stated maturity, upon acceleration, by reason of required prepayment or
otherwise or (ii) fails to perform or observe any other term, covenant
or agreement on its part to be performed or observed in connection with
any present or future indebtedness for borrowed money of $200,000 or
more or in connection with the purchase or lease of Property, or of any
guaranty of present or future indebtedness of $200,000 or more for
borrowed money or issued in connection with the purchase or lease of
Property, if as a result of such failure any holder or holders thereof
(or an agent or trustee on its or their behalf) has the right to declare
such indebtedness due before the date on which it otherwise would become
due, or has commenced judicial or nonjudicial action to collect such
indebtedness or to foreclose or otherwise realize upon security held
therefor, or has taken or is taking such other actions as might
materially adversely affect the Collateral, the interests of any Bank
under the Loan Documents or the ability of Borrowers or their
Subsidiaries to pay and perform their Obligations under the Loan
Documents; or
(f) Any Loan Document, at any time after its execution and
delivery and for any reason other than the agreement of the Requisite
Banks or satisfaction in full of all the Obligations, ceases to be in
full force and effect or is declared by a court of competent
jurisdiction to be null and void, invalid or unenforceable in any
respect which, in the reasonable opinion of the Requisite Banks, is
materially adverse to the interests of the Banks; or any Party thereto
denies that it has any or further liability or obligation under any Loan
Document, or purports to revoke, terminate or rescind same; or
(g) A final judgment against any Borrower or any of its
Subsidiaries is entered for the payment of money in excess of $500,000
and such judgment remains unsatisfied without procurement of a stay of
execution for more than thirty (30) calendar days after the date of
entry of judgment; or
(h) Any Borrower or any of Subsidiary thereof, is the subject of
an order for relief in a bankruptcy case, or is unable or admits in
writing its inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors; or applies for or consents to
the appointment of any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer for it or for all or any
part of its Property; or any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer is appointed without the
application or consent of that Person and the appointment continues
undischarged or unstayed for thirty (30) calendar days; or institutes or
consents to any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, custodianship,
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conservatorship, liquidation, rehabilitation or similar case or
proceedings relating to it or to all or any part of its Property under
the Laws of any jurisdiction; or any similar case or proceeding is
instituted without the consent of that Person and continues undismissed
or unstayed for thirty (30) calendar days; or any judgment, writ,
warrant of attachment or execution or similar process is issued or
levied against all or any material part of the Property of any such
Person and is not released, vacated or fully bonded within thirty (30)
calendar days after its issue or levy; or
(i) Except as otherwise expressly permitted by any Loan Document
or agreed to by the Requisite Banks, any Lien on any Collateral created
by any Loan Document, at any time after the execution and delivery of
that Loan Document and for any reason other than satisfaction in full of
all Obligations, ceases or fails to constitute a valid, perfected and
subsisting first priority Lien on the Collateral purported to be covered
thereby (unless such cessation or failure is the fault of Agent or the
Banks to timely file continuation statements); or
(j) Any Borrower or any Subsidiary thereof is dissolved or
liquidated or all or substantially all of the assets of any Borrower or
any Subsidiary thereof are sold or otherwise transferred in violation of
the provisions of this Agreement without the written consent of the
Requisite Banks.
9.2 Remedies Upon Event of Default. Without limiting any other rights or
remedies of Agent or Banks provided for elsewhere in this Agreement, or the Loan
Documents, or by applicable Law, or in equity or otherwise:
(a) Upon the occurrence of any Event of Default other than an
Event of Default described in Section 9.1(f):
(1) the Commitment to make Loans and all other obligations
of the Agent or the Banks and all rights of Borrowers and any
other Parties under the Loan Documents shall terminate without
notice to or demand upon Borrowers, which are expressly waived by
Borrowers, except that the Requisite Banks may waive the Event of
Default or, without waiving, determine, upon terms and conditions
satisfactory to Banks, to make further Loans, which waiver or
determination shall apply equally to, and shall be binding upon,
all of the Banks; and
(2) the Requisite Banks may request the Agent to, and the
Agent thereupon shall declare all or any part of the unpaid
principal of all Notes, all interest accrued and unpaid thereon
and all other amounts payable under the Loan Documents to be
forthwith due and payable, whereupon the same shall become and
be forthwith due and payable, without protest, presentment,
notice of dishonor,
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demand or further notice of any kind, all of which are expressly
waived by Borrowers.
(b) Upon the occurrence of any Event of Default described in
Section 9.1(f):
(1) the Commitment to make Loans and all other obligations
of Agent or any Bank and all rights of Borrowers and any other
Parties under the Loan Documents shall terminate without notice
to or demand upon Borrowers, which are expressly waived by
Borrowers, except that all of the Banks may waive the Event of
Default or, without waiving, determine, in their sole discretion,
to make further Loans; and
(2) the unpaid principal of all Notes, all interest
accrued and unpaid thereon and all other amounts payable under
the Loan Documents shall be forthwith due and payable, without
protest, presentment, notice of dishonor, demand or further
notice of any kind, all of which are expressly waived by
Borrowers.
(c) Upon the occurrence of any Event of Default, Agent and Banks
or any of them, without notice to or demand upon Borrowers, which are
expressly waived by Borrowers, except as required by California
Commercial Code Section 9504 or any modification or replacement statute
thereof, or by the terms of this Agreement, may proceed (but only with
the consent of the Requisite Banks) to protect, exercise and enforce its
rights and remedies under the Loan Documents against Borrowers and such
other rights and remedies as are provided by Law or equity.
(d) The order and manner in which the Banks' rights and remedies
are to be exercised shall be determined by the Requisite Banks in their
sole discretion, and all payments received by Agent and the Banks shall
be applied first to the costs and expenses (including outside attorneys'
fees and disbursements) of Agent, acting as Agent and of Banks pro rata
and thereafter to the Obligations owed to Banks, pro rata, under the
Agreement. For the purpose of computing Borrowers' Obligations under the
Loan Documents, payments shall be applied, first, to the costs and
expenses of Agent and Banks, as set forth above, second, to the payment
of accrued and unpaid interest due under any Loan Documents to and
including the date of such application, third, to the payment of all
unpaid principal amounts due under any Loan Documents (including, for
the purposes hereof, principal due under the Notes and reimbursement due
for payments made under Letters of Credit), and fourth, to the payment
of all other amounts (including fees) then owing to Agent and Banks
under the Loan Documents. No application of payments will cure any Event
of Default, or prevent acceleration, or continued acceleration, of
amounts payable under the Loan Documents, or prevent the exercise, or
continued exercise, of rights or remedies of Banks hereunder or
thereunder or at Law or in equity.
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(e) Upon the occurrence of any event that would be an Event of
Default under Section 9.1(g) with the passage of time, Agent and Banks
may take such action as the Requisite Banks deem necessary to protect
the interests of Banks under the Loan Documents.
ARTICLE 10
THE AGENT
10.1 Appointment and Authorization. Each Bank hereby irrevocably
appoints and authorizes Agent to take such action as agent on its behalf and to
exercise such powers under the Loan Documents as are delegated to Agent by the
terms thereof or are reasonably incidental, as determined by Agent, thereto.
This appointment and authorization is intended solely for the purpose of
facilitating the servicing of the Loans and does not constitute appointment of
Agent as trustee for any Bank or as representative of any Bank for any other
purpose and, except as specifically set forth in the Loan Documents to the
contrary, Agent shall take such action and exercise such powers only in an
administrative and ministerial capacity.
10.2 Agent and Affiliates. Comerica Bank - California (and each
successor Agent) has the same rights and powers under the Loan Documents as any
other Bank and may exercise the same as though it was not the Agent, and the
term "Bank" or "Banks" includes Comerica Bank - California in its individual
capacity. Comerica Bank - California (and each successor Agent) and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with Borrowers, any Subsidiary thereof,
or any Affiliate of Borrowers or any Subsidiary thereof, as if it was not the
Agent and without any duty to account therefor to Banks. Comerica Bank
- -California (and each successor Agent) need not account to any other Bank for
any monies received by it for reimbursement of its costs and expenses as Agent
hereunder, or for any monies received by it in its capacity as a Bank hereunder.
10.3 Proportionate Interest of the Banks in any Collateral. Agent, on
behalf of all the Banks, shall hold in accordance with the Loan Documents all
items of Collateral or interests therein received or held by Agent. Subject to
Agent's and the Banks' rights to reimbursement for their costs and expenses
hereunder (including attorneys' fees and disbursements and other professional
services) and subject to the application of payments in accordance with Section
9.2(d), each Bank shall have an interest in any Collateral or interests therein
in the same proportions that the aggregate Obligations owed such Bank under the
Loan Documents bear to the aggregate Obligations owed under the Loan Documents
to all the Banks, without priority or preference among the Banks.
10.4 Banks' Credit Decisions. Each Bank agrees that it has,
independently and without reliance upon Agent, any other Bank or the directors,
officers, agents, employees or attorneys of
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Agent or of any other Bank, and instead in reliance upon information supplied to
it by or on behalf of Borrowers and upon such other information as it has deemed
appropriate, made its own independent credit analysis and decision to enter into
this Agreement. Each Bank also agrees that it shall, independently and without
reliance upon Agent, any other Bank or the directors, officers, agents,
employees or attorneys of Agent or of any other Bank, continue to make its own
independent credit analyses and decisions in acting or not acting under the Loan
Documents.
10.5 Action by Agent.
(a) Agent may assume that no Default has occurred and is
continuing, unless Agent has actual knowledge of the Default, has
received notice from Borrowers stating the nature of the Default, or has
received notice from a Bank stating the nature of the Default and that
such Bank considers the Default to have occurred and to be continuing.
(b) Agent has only those obligations under the Loan Documents as
are expressly set forth therein.
(c) Except for any obligation expressly set forth in the Loan
Documents and as long as Agent may assume that no Event of Default has
occurred and is continuing, Agent may, but shall not be required to
exercise its discretion to act or not act, except that Agent shall be
required to act or not act upon the instructions of the Requisite Banks
(or of all the Banks, to the extent required by Section 11.3) and those
instructions shall be binding upon Agent and all Banks, provided that
Agent shall not be required to act or not act if to do so would be
contrary to any Loan Document or to applicable Law.
(d) If Agent may not assume that no Event of Default has occurred
and is continuing, Agent shall give notice thereof to Banks and shall
act or not act upon the instructions of the Requisite Banks (or of all
the Banks, to the extent required by Section 11.3), provided that Agent
shall not be required to act or not act if to do so would be contrary to
any Loan Document or to applicable Law, and except that if the Requisite
Banks (or all Banks, if required under Section 11.3) fail, for five (5)
Banking Days after the receipt of notice from Agent, to instruct Agent,
then Agent, in its discretion, may act or not act as it deems advisable
for the protection of the interests of Banks.
(e) Agent shall have no liability to any Bank for acting, or not
acting, as instructed by the Requisite Banks (or all the Banks, if
required under Section 11.3), notwithstanding any other provision
hereof.
10.6 Liability of Agent. Neither Agent nor any of its directors,
officers, agents, employees or attorneys shall be liable for any action taken or
not taken by them under or in connection with the
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Loan Documents, except for their own gross negligence or willful misconduct.
Without limitation on the foregoing, Agent and its directors, officers, agents,
employees and attorneys:
(a) May treat the payee of any Note as the holder thereof until
Agent receives notice of the assignment or transfer thereof, in form
satisfactory to Agent, signed by the payee, and may treat each Bank as
the owner of that Bank's interest in the Obligations for all purposes of
this Agreement until Agent receives notice of the assignment or transfer
thereof, in form satisfactory to Agent, signed by that Bank.
(b) May consult with legal counsel (including in-house legal
counsel), accountants (including in-house accountants) and other
professionals or experts selected by it, or with legal counsel,
accountants or other professionals or experts for Borrowers and/or their
Subsidiaries or Banks, and shall not be liable for any action taken or
not taken by it in good faith in accordance with the advice of such
legal counsel, accountants or other professionals or experts.
(c) Shall not be responsible to any Bank for any statement,
warranty or representation made in any of the Loan Documents or in any
notice, certificate, report, request or other statement (written or
oral) given or made in connection with any of the Loan Documents.
(d) Except to the extent expressly set forth in the Loan
Documents, shall have no duty to ask or inquire as to the performance or
observance by Borrowers or their Subsidiaries of any of the terms,
conditions or covenants of any of the Loan Documents or to inspect any
Collateral or the Property, books or records of Borrowers or their
Subsidiaries.
(e) Will not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, effectiveness,
sufficiency or value of any Loan Document, any other instrument or
writing furnished pursuant thereto or in connection therewith, or any
Collateral.
(f) Will not incur any liability by acting or not acting in
reliance upon any Loan Document, notice, consent, certificate,
statement, request or other instrument or writing believed by it to be
genuine and signed or sent by the proper party or parties.
(g) Will not incur any liability for any arithmetical error in
computing any amount paid or payable by the Borrowers or any Subsidiary
or Affiliate thereof or paid or payable to or received or receivable
from any Bank under any Loan Document, including, without limitation,
principal, interest, commitment fees, advances and other amounts;
provided that, promptly upon discovery of such an error in computation,
the Agent, the
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Banks and (to the extent applicable) Borrowers and/or their Subsidiaries
or Affiliates shall make such adjustments as are necessary to correct
such error and to restore the parties to the position that they would
have occupied had the error not occurred.
10.7 Indemnification. Each Bank shall, ratably in accordance with its
percentage of the total Commitment, indemnify and hold Agent and its directors,
officers, agents, employees and attorneys harmless against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including,
without limitation, attorneys' fees and disbursements) that may be imposed on,
incurred by or asserted against it or them in any way relating to or arising out
of the Loan Documents (other than losses incurred by reason of the failure of
Borrowers to pay the indebtedness represented by the Notes and the Standby
Letters of Credit) or any action taken or not taken by it as Agent thereunder,
except such as result from its own gross negligence or willful misconduct.
Without limitation on the foregoing, each Bank shall reimburse Agent upon demand
for that Bank's ratable share of any cost or expense incurred by Agent in
connection with the negotiation, preparation, execution, delivery amendment,
waiver, restructuring, reorganization (including a bankruptcy reorganization),
enforcement or attempted enforcement of the Loan Documents, to the extent that
Borrowers or any other Party are required by Section 11.4 to pay that cost or
expense but fails to do so upon demand.
10.8 Successor Agent. Agent may resign as such at any time by written
notice to Borrowers and the Banks, to be effective upon a successor's acceptance
of appointment as Agent. The Requisite Banks at any time may remove Agent by
written notice to that effect to be effective on such date as the Requisite
Banks designate. In either event: (a) The Requisite Banks shall appoint a
successor Agent, who must be from among Banks, provided that any resigning Agent
shall be entitled to appoint a successor Agent from among Banks, subject to
acceptance of appointment by that successor Agent, if the Requisite Banks have
not appointed a successor Agent within thirty (30) days after the date the
resigning Agent gave notice of resignation; (b) Upon a successor's acceptance of
appointment as Agent, the successor will thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the resigning Agent or the
removed Agent; and (c) Upon the effectiveness of any resignation or removal, the
resigning Agent or the removed Agent thereupon will be discharged from its
duties and obligations thereafter arising under the Loan Documents other than
obligations arising as a result of any action or inaction of the resigning Agent
or the removed Agent prior to the effectiveness of such resignation or removal.
ARTICLE 11
MISCELLANEOUS
11.1 Intentionally Omitted.
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11.2 Cumulative Remedies; No Waiver. The rights, powers, privileges and
remedies of Agent and Banks provided herein or in any Note or other Loan
Document are cumulative and not exclusive of any right, power, privilege or
remedy provided by Law or equity. No failure or delay on the part of Agent or
any Bank in exercising any right, power, privilege or remedy may be, or may be
deemed to be, a waiver thereof; nor may any single or partial exercise of any
right, power, privilege or remedy preclude any other or further exercise of the
same or any other right, power, privilege or remedy. The terms and conditions of
Article 8 hereof are inserted for the sole benefit of Agent and Banks and Agent
(acting with the consent of the Requisite Banks) or the Requisite Banks may
waive them in whole or in part, with or without terms or conditions, in respect
of any Loan or Standby Letter of Credit, without prejudicing Agent's or any
Bank's rights to assert them in whole or in part in respect of any other Loan or
Standby Letter of Credit.
11.3 Amendments; Consents. No amendment, modification, supplement,
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by the Borrowers or any other Party therefrom, may in any event be
effective unless in writing signed by Agent with approval of the Requisite Banks
(and, in the case of amendments, modifications or supplements of or to any Loan
Document to which any Borrower is a Party, the approval in writing of such
Borrower), and then only in the specific instance and for the specific purpose
given; and, without the approval in writing of all Banks, no amendment,
modification, supplement, termination, waiver or consent may be effective:
(a) To amend or modify the principal of, or the amount of
principal, principal prepayments or the rate of interest payable on, any
Note, or the amount of the Commitment or of any commitment fee payable
to any Bank, or any other fee or amount payable to any Bank under the
Loan Documents or to allow any material release of Collateral;
(b) To postpone any date fixed for any payment of principal of,
prepayment of principal of or any installment of interest on, any Note,
or the facility fee, or any installment of any commitment fee, or any
reimbursement obligation due under any Standby Letter of Credit, or to
extend the term of the Commitment;
(c) To amend or modify the provisions of (1) the definitions of
"Commitment", "Maximum Standby Letter of Credit Amount", "Maximum Loan
Amount", Requisite Banks or "Total Outstanding"; (2) Articles 8 or 9; or
(3) this Section 11.3; or
(d) To amend or modify any other definition or provision of this
Agreement that expressly requires the consent or approval of the
Requisite Banks or some other number of Banks.
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Any amendment, modification, supplement, termination, waiver or consent pursuant
to this Section 10.2 shall apply equally to and shall be binding upon, Agent and
all Banks.
11.4 Costs, Expenses and Taxes. Borrowers shall pay on demand the
reasonable costs and expenses, including attorneys' fees, of Agent and Banks in
connection with the negotiation, preparation, execution and delivery of the Loan
Documents, and of Agent and Banks in connection with the amendment, waiver,
refinancing, restructuring, reorganization (including a bankruptcy
reorganization) and enforcement or attempted enforcement of the Loan Documents,
and any matter related thereto, including, without limitation, filing fees,
recording fees, title insurance fees, appraisal fees, search fees, audit costs
incurred by Agent or Banks during the continuance of or in connection with the
occurrence of an Event of Default and other out-of-pocket expenses and the
reasonable fees and out-of-pocket expenses of any legal counsel, independent
public accountants and other outside experts retained by Agent or any Banks, and
including, without limitation, any costs, expenses or fees incurred or suffered
by Agent or any Banks in connection with or during the course of any bankruptcy
or insolvency proceedings of any Borrower or any Subsidiary thereof. Borrowers
shall pay any and all documentary and other taxes (other than income or gross
receipts taxes generally applicable to banks) and all costs, expenses, fees and
charges payable or determined to be payable in connection with the filing or
recording of this Agreement, any other Loan Document or any other instrument or
writing to be delivered hereunder or thereunder, or in connection with any
transaction pursuant hereto or thereto, and shall reimburse, hold harmless and
indemnify Agent and Banks from and against any and all loss, liability or legal
or other expense with respect to or resulting from any delay in paying or
failure to pay any tax, cost, expense, fee or charge or that any of them may
suffer or incur by reason of the failure of any Party to perform any of its
Obligations. Any amount payable to Agent or any Bank under this Section 11.4
shall bear interest from the fifth Banking Day following the date of demand for
payment at the rate provided for in Section 3.6.
11.5 Nature of Banks' Obligations. The obligations of Banks hereunder
are several and not joint or joint and several. Nothing contained in this
Agreement or any other Loan Document and no action taken by the Agent or Banks
or any of them pursuant hereto or thereto may, or may be deemed to, make Banks a
partnership, an association, a joint venture or other entity, either among
themselves or with Borrowers or any Affiliate of Borrowers. Each Bank's
obligation to make any Loan pursuant hereto is several and not joint or joint
and several, and is conditioned upon the performance by all other Banks of their
obligations to make Loans. A default by any Bank will not increase the
percentage of the Commitment attributable to any other Bank. Any Bank not in
default may, if it desires, assume in such proportion as the nondefaulting Banks
agree the obligations of any Bank in default, but is not obligated to do so.
11.6 Survival of Representations and Warranties. All representations and
warranties contained herein or in any other Loan Document, or in any certificate
or other writing delivered by or on behalf of any one or more of the Parties to
any Loan Document, will survive the making and
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repayment of the Loans hereunder and the execution and delivery of the Notes,
and have been or will be relied upon by Agent and each Bank, notwithstanding any
investigation made by Agent or any Bank or on their behalf.
11.7 Notices. Except as otherwise expressly provided in the Loan
Documents: (a) All notices, requests, demands, directions and other
communications provided for hereunder or under any other Loan Document must be
in writing and must be mailed, telecopied or personally delivered to the
appropriate party at the address set forth on the signature pages of this
Agreement or other applicable Loan Document or, as to any party to any Loan
Document, at any other address as may be designated by it in a written notice
sent to all other parties to such Loan Document in accordance with this Section
11.7; and (b) Any notice, request, demand, direction or other communication
given by telecopier must be confirmed within 48 hours by letter mailed or
delivered to the appropriate party at its respective address. Except as
otherwise expressly provided in any Loan Document, if any notice, request,
demand, direction or other communication required or permitted by any Loan
Document is given by mail it will be effective on the earlier of receipt or the
third calendar day after deposit in the United States mail with first class or
airmail postage prepaid; if given by telecopier, upon electronic confirmation of
receipt, and if given after 4:30 p.m., effective on the next business day; or if
given by personal delivery when delivered.
11.8 Execution of Loan Documents. Unless Agent otherwise specifies with
respect to any Loan Document, this Agreement and any other Loan Document may be
executed in any number of counterparts and any party hereto or thereto may
execute any counterpart, each of which when executed and delivered will be
deemed to be an original and all of which counterparts of this Agreement or any
other Loan Document, as the case may be, when taken together will be deemed to
be but one and the same instrument. The execution of this Agreement or any other
Loan Document by any party hereto or thereto will not become effective until
counterparts hereof or thereof, as the case may be, have been executed by all
the parties hereto or thereto.
11.9 Sharing of Setoffs. Each Bank severally agrees that if it, through
the exercise of any right of setoff, banker's lien or counterclaim against
Borrowers, or otherwise receives payment of the Obligations held by it that is
ratably more than any other Bank, through any means, receives in payment of the
Obligations held by that Bank, then: (a) The Bank exercising the right of
setoff, banker's lien or counterclaim or otherwise receiving such payment shall
purchase, and shall be deemed to have simultaneously purchased, from the other
Bank a participation in the Obligations held by the other Bank and shall pay to
the other Bank a purchase price in an amount so that the share of the
Obligations held by each Bank after the exercise of the right of setoff,
banker's lien or counterclaim or receipt of payment shall be in the same
proportion that existed prior to the exercise of the right of setoff, banker's
lien or counterclaim or receipt of payment; and (b) Such other adjustments and
purchases of participations shall be made from time to time as shall be
equitable to ensure that all of the Banks share any payment obtained in respect
of the Obligations ratably in accordance with each Bank's share of the
Obligations immediately prior to, and without taking into
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account, the payment; provided that, if all or any portion of a disproportionate
payment obtained as a result of the exercise of the right of setoff, banker's
lien, counterclaim or otherwise is thereafter recovered from the purchasing Bank
by Borrowers or any Person claiming through or succeeding to the rights of
Borrowers, the purchase of a participation shall be rescinded and the purchase
price thereof shall be restored to the extent of the recovery, but without
interest. Each Bank that purchases a participation in the Obligations pursuant
to this Section 11.9 shall from and after the purchase have the right to give
all notices, requests, demands, directions and other communications under this
Agreement with respect to the portion of the Obligations purchased to the same
extent as though the purchasing Bank were the owner of the Obligations
purchased. Each Borrower expressly consents to the foregoing arrangements and
agrees that any Bank holding a participation in an Obligation so purchased may
exercise any and all rights of setoff, banker's lien or counterclaim with
respect to the participation as fully as if the Bank were the original owner of
the Obligation purchased; provided, however, that each Bank agrees that it shall
not exercise any right of setoff, banker's lien or counterclaim without first
obtaining the consent of the Requisite Banks.
11.10 Binding Effect; Assignment. This Agreement and the other Loan
Documents shall be binding upon and shall inure to the benefit of the parties
hereto and thereto and their respective successors and assigns, except that
Borrowers and/or their Affiliates may not assign their rights hereunder or
thereunder or any interest herein or therein without the prior written consent
of all the Banks. Banks reserve the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or in any interest in, such
Bank's rights and obligations under the Loan Documents, except that no Bank
shall have the right to sell, assign, pledge or transfer any participation in
its rights hereunder or any interest herein (other than to a Federal Reserve
Bank for 90 days or less or to any Affiliate of such Bank) without the consent
of the Agent and Requisite Banks.
11.11 Assignment of Deposits. As security for the prompt payment and
performance of all Obligations, Borrowers hereby assigns to Agent and Banks a
security interest in all their right, title, and interest in and to any and all
deposit accounts now or hereafter maintained with California Bank & Trust,
Sumitomo Bank of California, Agent or any Bank and the proceeds thereof.
11.12 Participation of Loan. Banks shall have the right to participate,
sell or assign interests in the Loans with financial institutions on such terms
and conditions as may be acceptable to Agent and Requisite Banks.
11.13 Indemnity by Borrowers. Borrowers agree to indemnify, save and
hold harmless Agent and Banks and their directors, officers, agents, attorneys
and employees (collectively the "Indemnitees") from and against: (a) Any and all
claims, demands, actions or causes of action that are asserted against any
Indemnitee by any Person (other than Agent or a Bank) if the claim, demand,
action or cause of action directly or indirectly relates to a claim, demand,
action or cause of action that such Person has or asserts against Borrowers, any
Affiliate of Borrowers or any officer, director or shareholder of Borrowers and
arises out of or relates to the relationship between
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Borrowers and Banks under any of the Loan Documents or the transactions
contemplated thereby; and (b) Any and all liabilities, losses, costs or expenses
(including attorneys' fees and disbursements and other professional services)
that any Indemnitee suffers or incurs as a result of the assertion of any
foregoing claim, demand, action or cause of action; provided that no Indemnitee
shall be entitled to indemnification for any loss caused by its own gross
negligence or willful misconduct. Each Indemnitee is authorized to employ
counsel of its own choosing in enforcing its rights hereunder and in defending
against any claim, demand, action or cause of action covered by this Section
11.13; provided that each Indemnitee shall endeavor, in connection with any
matter covered by this Section 11.13 which also involves other Indemnitees, to
use reasonable efforts to avoid unnecessary duplication of effort by counsel for
all Indemnitees. Any obligation or liability of Borrowers to any Indemnitee
under this Section 11.13 shall be and hereby is covered and secured by the Loan
Documents and the Collateral, and shall survive the expiration or termination of
this Agreement and the repayment of all Loans and the payment and performance of
all other Obligations owed to Agent and/or Banks.
11.14 Nonliability of Banks. Borrowers acknowledge and agree that:
(a) Any inspections of Collateral made by or through Agent or any
Bank are for purposes of administration of the Loan only and Borrowers
are not entitled to rely upon the same;
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to Agent or the Banks pursuant to the Loan
Documents, including any certificate, financial statement, insurance
policy or other document, neither Agent nor any Bank shall be deemed to
have warranted or represented the sufficiency, legality, effectiveness
or legal effect of the same, or of any term, provision or condition
thereof, and such acceptance or approval thereof shall not constitute a
warranty or representation to anyone with respect thereto by Agent or
Banks;
(c) The relationship between Borrowers and Agent and Banks is,
and shall at all times remain, solely that of borrower and lenders;
neither Agent nor any Bank shall under any circumstance be construed to
be partners or joint venturers of Borrowers or its Affiliates; neither
Agent nor any Bank shall under any circumstance be deemed to be in a
relationship of confidence or trust or a fiduciary relationship with
Borrowers or their Affiliates, or to owe any fiduciary duty to Borrowers
or their Affiliates; neither Agent nor any Bank shall undertake or
assume any responsibility or duty to Borrowers or their Affiliates to
select, review, inspect, supervise, pass judgment upon or inform
Borrowers or their Affiliates of any matter in connection with their
Property, any Collateral held by Agent or any Bank or the operations of
Borrowers or their Affiliates; Borrowers and their Affiliates shall rely
entirely upon their own judgment with respect to such matters; and any
review, inspection, supervision, exercise of judgment or supply of
information undertaken or
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assumed by Agent or Banks in connection with such matters is solely for
the protection of Agent and Banks and no Borrower or any other Person is
entitled to rely thereon; and
(d) Agent and Banks shall not be responsible or liable to any
Person for any loss, damage, liability or claim of any kind relating to
injury or death to Persons or damage to Property caused by the actions,
inaction or negligence of Borrowers and/or their Affiliates and
Borrowers hereby indemnify and hold Bank harmless from any such loss,
damage, liability or claim.
11.15 No Third Parties Benefited. This Agreement is made for the purpose
of defining and setting forth certain obligations, rights and duties of
Borrowers and Agent and Banks in connection with the Loans, and is made for the
sole protection of Borrowers and Agent and Banks, and their successors and
assigns. Except as provided in Section 11.13, no other Person shall have any
rights of any nature hereunder or by reason hereof.
11.16 Further Assurances. Borrowers and their Subsidiaries shall, at
their expense and without expense to Agent or any Bank, do, execute and deliver
such further acts and documents as Agent or any Bank from time to time
reasonably require for the assuring and confirming unto Agent and Banks of the
rights hereby created or intended now or hereafter so to be, or for carrying out
the intention or facilitating the performance of the terms of any Loan Document,
or for assuring the validity, perfection, priority or enforceability of any Lien
under any Loan Document.
11.17 Integration. This Agreement, together with the other Loan
Documents, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof. In the event of any conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
rights or remedies in favor of Agent or Banks in any other Loan Document shall
not be deemed a conflict with this Agreement. Each Loan Document was drafted
with the joint participation of the respective parties thereto and shall be
construed neither against nor in favor of any party, but rather in accordance
with the fair meaning thereof.
11.18 Governing Law. Except to the extent otherwise provided therein,
each Loan Document shall be governed by, and construed and enforced in
accordance with, the local Laws of California; provided that the local Laws of
California shall not apply with respect to any foreclosure of real Property
Collateral located outside California, and in no event shall California Code of
Civil Procedure Sections 726 and/or 580a and/or 580b and/or 580d apply to any
such foreclosure outside of California or to the right of Agent and Banks to
obtain a deficiency judgment for all Obligations remaining due following such
foreclosure.
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11.19 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable or invalid as to any party or in
any jurisdiction shall, as to that party or jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining provisions or the
operation, enforceability or validity of that provision as to any other party or
in any other jurisdiction, and to this end the provisions of all Loan Documents
are declared to be severable.
11.20 Headings. Article and Section headings in this Agreement and the
other Loan Documents are included for convenience of reference only and are not
part of this Agreement or the other Loan Documents for any other purpose.
11.21 Time of the Essence. Time is of the essence of the Loan Documents.
11.22 Securities Representation. Each Bank hereby represents that any
disposition by it of all or any part of its rights under the Loan Documents
shall not violate Section 5 of the Securities Act of 1933 to the extent, if any,
applicable.
11.23 Joint Borrower Provisions Borrowers acknowledge and agree that
Borrowers shall be jointly and severally liable for all obligations arising
under this Agreement, any/or Loan Documents. In furtherance thereof, Borrowers
acknowledge and agree as follows:
(a) In lieu of maintaining accounts in the name of each of the
Persons comprising Borrower (for purposes of this Section, each such
Person being referred to as a "Borrowing Entity"), Agent shall maintain
a single designated deposit account for Borrowers. Any advance made by
Bank hereunder shall be made jointly and severally to all Borrowing
Entities. Any payments received by any Bank likewise shall be credited
to all Borrowing Entities. While it is anticipated that SCC, Inc. will
make Requests for Loans or for Standby Letters of Credit, Requests for
Loans or for Standby Letters of Credit may be made by any Borrowing
Entity and Agent and any Bank, in its discretion, is authorized to honor
and rely upon any such Request or any instructions received from any
Responsible Official of any Borrowing Entity. It is expressly agreed and
understood by each Borrowing Entity that Agent and each Bank shall have
no responsibility to inquire into the appointment, allocation or
disposition of any Loans made to Borrowers. All Loans are to be made for
the collective account of Borrowers. For the purpose of implementing the
joint borrower provisions of the Loan Documents, including without
limitation the giving and receiving of notices and other communications,
the making of Requests for Loans or Requests for Standby Letters of
Credit, the execution and delivery of certificates and the receiving and
allocating of disbursements from Bank, Borrowers hereby irrevocably
appoint each other as the agent and attorney-in-fact for all purposes of
the Loan Documents.
(b) It is understood and agreed that the handling of this
credit facility on a joint borrowing basis as set forth in this
Agreement is solely as an accommodation to Borrowers
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and at the request of Borrowers, and that Agent and Banks shall incur no
liability to Borrowers or any Borrowing Entity as a result thereof. To
induce Agent and Banks to do so, and in consideration thereof, each
Borrowing Entity hereby agrees to indemnify Agent and Banks and hold
Agent and Banks harmless from and against any and all liabilities,
expenses, losses, damages and/or claims of damage or injury asserted
against Agent and Banks by Borrowers or by any other Person arising from
or incurred by reason of Agent's or any Bank's handling of the financing
arrangement of Borrowers as herein provided, reliance by Agent and Banks
on any requests or instructions from any Borrowing Entity, or any other
action taken by Agent and Banks.
(c) Each of the Borrowers represents and warrants to Agent and
Banks that the request for joint handling of the Loans was made jointly
by the Borrowing Entities and that the Borrowing Entities are engaged in
an integrated operation that requires financing on a basis permitting
the availability of credit from time to time to each of the Borrowing
Entities as required for the continued successful operation of each of
them and their integrated operations. Each Borrowing Entity expects to
derive benefit, directly or indirectly, from such availability because
the successful operation of the Borrower is dependent on the continued
successful performance of the functions of the integrated group.
(d) Each Borrower acknowledges that the liens and security
interests created or granted herein and by the other Loan Documents will
or may secure obligations of persons or entities other than itself and,
in full recognition of that fact, each Borrower consents and agrees that
any action by Agent or any Bank with respect to the following shall not
affect the enforceability or security hereof or of any other Loan
Document:
(1) supplement, modify, amend, extend, renew, accelerate,
or otherwise change the time for payment or the terms of the
obligations of the other Borrowers or any part thereof, including
any increase or decrease of the rate(s) of interest thereon;
(2) supplement, modify, amend or waive, or enter into or
give any agreement, approval or consent with respect to, the
obligations of the other Borrowers or any part thereof or any of
the Loan Documents or any additional security or guaranties, or
any condition, covenant, default, remedy, right, representation
or term thereof or thereunder;
(3) accept new or additional instruments, documents or
agreements in exchange for or relative to any of the Loan
Documents or the obligations of Borrowers or any part thereof;
(4) accept partial payments on the obligations of
Borrowers;
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(5) receive and hold additional security or guaranties for
the obligations of Borrowers or any part thereof;
(6) release, reconvey, terminate, waive, abandon,
subordinate, exchange, substitute, transfer and enforce any
security or guaranties, and apply any security and direct the
order or manner of sale thereof as Agent or Banks in their sole
and absolute discretion may determine;
(7) release any person or entity or any guarantor from any
personal liability with respect to the obligations of Borrowers
or any part thereof;
(8) settle, release on terms satisfactory to Agent or
Banks or by operation of applicable laws or otherwise liquidate
or enforce any obligations of Borrowers and any security or
guaranty therefor in any manner, consent to the transfer of any
security and bid and purchase at any sale; and
(9) consent to the merger, change or any other
restructuring or termination of the corporate existence of
Borrowers or any other person, and correspondingly restructure
the obligations of Borrowers, and any such merger, change,
restructuring or termination shall not affect the liability of
Borrowers or the continuing existence of any lien or security
interest hereunder, under any other Loan Document to which any
Borrower is a party or the enforceability hereof or thereof with
respect to all or any part of the obligations of Borrowers.
Upon the occurrence of and during the continuance of any
Event of Default, Agent and Banks may enforce this Agreement and the
other Loan Documents independently as to each Borrower and independently
of any other remedy or security Agent or Banks at any time may have or
hold in connection with the obligations of Borrowers, and it shall not
be necessary for Agent or Banks to marshal assets in favor of any of the
Borrowers or any other person or entity or to proceed upon or against
and/or exhaust any other security or remedy before proceeding to enforce
this Agreement and the other Loan Documents. Each of the Borrowers
expressly waives any right to require Agent or Banks to marshal assets
in favor of any Borrower or any other person or entity or to proceed
against any other person or entity or any Collateral provided by any
other person, and agrees that Agent or Banks may proceed against any
persons or entities and/or Collateral in such order as it shall
determine in its sole and absolute discretion. Agent or Banks may file a
separate action or actions against any Borrower, whether action is
brought or prosecuted with respect to any other security or against any
other person, or whether any other person or entity is joined in any
such action or actions. Each of the Borrowers agrees that Agent or Banks
and each of the Borrowers and any other person or entity may deal with
each other in connection with the
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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
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or any Bank for any reason, or (o) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, liquidation or
dissolution proceeding commenced by or against any person, including any
discharge of, or bar or stay against collecting, all or any of the
obligations of Borrowers (or any interest thereon) in or as a result of
any such proceeding.
(e) Each of the Borrowers represents and warrants to Agent and
Banks that such Borrower has established adequate means of obtaining
from the other Borrowers, on a continuing basis, financial and other
information pertaining to the businesses, operations and condition
(financial and otherwise) of the other Borrowers and their respective
properties, and each of the Borrowers now is and hereafter will be
completely familiar with the businesses, operations and condition
(financial and otherwise) of the other Borrowers and their respective
properties. Each of the Borrowers hereby expressly waives and
relinquishes any duty on the part of Agent or any Bank to disclose to
such Borrower any matter, fact or thing related to the businesses,
operations or condition (financial or otherwise) of any other Borrower
or such other Borrower's properties, whether now known or hereafter
known by Agent or any Bank during the life of this Agreement. With
respect to any of the obligations of Borrowers, Agent and Banks need not
inquire into the powers of any of the Borrowers or the officers or
employees acting or purporting to act on its behalf.
(f) Notwithstanding anything to the contrary elsewhere contained
herein or in any other Loan Document to which any Borrower is a party,
each of the Borrowers hereby waives with respect to each other Borrower
and its respective successors and assigns (including any surety) and any
other party any and all rights at law or in equity, to subrogation, to
reimbursement, to exoneration, to contribution, to setoff or to any
other rights that could accrue to a surety against a principal, to a
guarantor against a maker or obligor, to an accommodation party against
the party accommodated, or to a holder or transferee against a maker and
which each of the Borrowers may have or hereafter acquire against any
other Borrower or any other party in connection with or as a result of
any Borrower's execution, delivery and/or performance of this Agreement
or any other Loan Document to which any such Borrower is a party until
the Obligations hereunder are paid in full. Each of the Borrowers agrees
that it shall not have or assert any such rights against any other
Borrower or any such Borrower's successors and assigns or any other
person or entity (including any surety), either directly or as an
attempted setoff to any action commenced against such Borrower by the
other such Borrower (as borrower or in any other capacity) or any other
person until the obligations hereunder are paid in full. Each of the
Borrowers hereby acknowledges and agrees that this waiver is intended to
benefit Agent and Banks and shall not limit or otherwise affect any of
the Borrowers' liability hereunder, under any other Loan Document to
which any Borrower is a party, or the enforceability hereof or thereof.
(g) Each of the Borrowers warrants and agrees that each of the
waivers and consents set forth herein is made with full knowledge of its
significance and consequences,
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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:
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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
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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.
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11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Telephone: (310) 479-5200
Facsimile: (310) 479-5740
AGENT:
COMERICA BANK - CALIFORNIA
a California banking corporation
By: /s/ Joseph Yurosek
-----------------------------
Joseph Yurosek
Vice President
Address:
Comerica Bank-California
301 E. Ocean Boulevard, Suite 1800
Long Beach, California 90802
Attn: Joseph Yurosek, Vice President
Telecopier: (562) 595-8251
Telephone: (562) 590-2530
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BANKS:
COMERICA BANK - CALIFORNIA
a California banking corporation
By: /s/ Joseph Yurosek
-----------------------------
Joseph Yurosek
Vice President
Address:
Comerica Bank-California
301 E. Ocean Boulevard, Suite 1800
Long Beach, California 90802
Attn: Joseph Yurosek, Vice President
Telecopier: (562) 595-8251
Telephone: (562) 590-2530
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