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EXHIBIT 10.83
10/27/98 LETTER AGREEMENT
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THE SPORTS CLUB COMPANY, INC.
11100 SANTA MONICA BOULEVARD, SUITE 300
Los Angeles, California 90025
October 27, 1998
Millennium Partners LLC
1995 Broadway, 3rd Floor
New York, New York 10023-5882
Re: Option on Future Clubs
Gentlemen:
Concurrently with the execution of this letter agreement, an affiliate
of yours and an affiliate of ours are entering into a lease for a health club in
a large mixed use project in San Francisco (the "SF Project"). You plan, either
yourself or through an affiliate, to develop a number of future large mixed use
projects in major metropolitan areas, including Washington, DC, Boston, Miami,
Toronto and Atlanta (such five cities, initially, the "Cities"). As part of the
consideration for the San Francisco health club lease, you, Millennium Partners
LLC ("Millennium"), hereby grant to us, The Sports Club Company, Inc.
("SCC"), the following option.
1. If Millennium or an affiliate of Millennium proceeds with any large
mixed use project in any of the Cities (it being understood that any SCC option
to lease as described in this letter agreement shall apply to only one (1)
project per City) and if each of the following conditions precedent are then
satisfied:
(i) neither SCC nor any affiliate of SCC then remains in monetary
default or in material default under any lease or other material written
agreement (including, without limitation that certain participation agreement
between Millennium and SCC dated as of the date hereof) with Millennium or any
affiliate of Millennium after expiration of any applicable notice and cure
period without such default having been cured,
(ii) SCC or an affiliate of SCC is then operating at least one first
class health club,
(iii) SCC is not then in bankruptcy,
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(iv) SCC then has a net worth of not less than $30 million, as supported
by documentation reasonably acceptable to Millennium, and
(v) Millennium or its affiliate is going to have a health club of at
least 50,000 square feet in such project, then SCC shall have the option to
elect to have an affiliate of SCC enter into a lease for a health club in such
project on substantially the same terms and conditions (i.e., the same lease,
work letter, guaranty and participation agreement) (collectively, "Project
Documents") as apply to the health club lease in the San Francisco Project,
except for the following:
A. Subject to any adjustment required pursuant to clauses B, D
and E below, the annual rent for any health club in Miami, Toronto or Atlanta or
any other City pursuant to paragraph 2 below shall be $2.5 million rather than
$3 million; it being understood that, notwithstanding anything to the contrary
contained in this letter agreement, the annual rent for any health club in
Washington, D.C. or Boston shall be $3 million and shall not be subject to any
such adjustment.
B. Except for the Washington, D.C. and Boston clubs whose size
has been communicated to SCC, if any health club as to which SCC exercises its
option contains less than 100,000 rentable square feet as mutually determined by
SCC and Millennium prior to the execution of the Project Documents with respect
thereto (except to a de minimis degree, the parties hereby agreeing that a
difference from 100,000 rentable square feet of up to 2,000 rentable square feet
shall be de minimis and that any such difference in excess of 2,000 rentable
square feet shall not be de minimis) (a "Typical Health Club"), then the amount
of annual rent and tenant improvement allowance for such health club shall be
equitably adjusted to reflect such lesser square footage.
C. The applicable landlord shall use reasonable efforts to
reasonably accommodate the applicable tenant's reasonable parking needs for the
health club in question upon commercially reasonable terms, it being understood
that the foregoing shall not be deemed a representation that such reasonable
efforts of the applicable landlord shall satisfy the parking needs of the
applicable tenant.
D. Except for the initial Washington, D.C. and Boston leases, if
any lease is to be entered into pursuant to this letter agreement after the
third anniversary of the execution of the San Francisco lease, then a percentage
of the annual rent under such lease (after being adjusted pursuant to clause B
above if and to the extent applicable) shall be further adjusted prior to the
execution thereof, from what it would otherwise have been absent such further
adjustment, by the percentage change in the applicable index of construction
costs for such City from what such index was on the date of execution of the San
Francisco lease to what such index was on the date of execution of such lease.
The percentage of the annual rent so adjusted shall be the percentage equivalent
of the fraction whose numerator is the "hard"
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construction costs for such health club and whose denominator is all costs
(including, without limitation, "hard" construction costs, "soft" construction
costs, financing costs and land costs) for such health club. Such fraction, and
the components thereof, shall be certified to SCC by the chief financial officer
of Millennium, subject to SCC's right to review the components, and backup
documentation, for the same.
E. If (i) SCC were to enter into five leases for health clubs
pursuant to its option before the third anniversary of the execution of the San
Francisco lease and (ii) all five of such health clubs were either Typical
Health Clubs or leases in Washington, D.C. or Boston for health clubs whose size
is consistent with what was communicated to SCC and accepted by SCC as of the
date hereof (an "Approved Health Club"), then it is the intention of the parties
that the aggregate average rent pursuant to all five of such leases plus the San
Francisco lease would be $2.75 million. The parties further recognize that such
average annual rent may not be arrived at, from time to time, if the stated
annual rent, before any adjustment pursuant to clauses B or D, for each health
club in a City other than Washington, D.C. or Boston was fixed at $2.5 million,
pursuant to clause A. Accordingly, the parties hereby agree that, before any
adjustment pursuant to clauses B or D is made to the annual rent under any lease
for a health club for any City other than Washington, D.C. or Boston, the annual
rent under such lease shall first be adjusted so that the average annual rent
under such lease, any other leases then already entered into pursuant to SCC's
option and the San Francisco Lease shall be $2.75 million. Once any such
adjustment has been made, then the stated annual rent under such lease shall
further be adjusted, if and as may be required, first pursuant to clause B and
then pursuant to clause D. All such adjustments, if any, to such a lease shall
be made prior to execution of such lease.
While the layout of any health club in any particular City will vary, the level
of landlord work will be substantially the same as in the San Francisco health
club, subject to equitable adjustment as aforesaid if the health club in
question is not a Typical Health Club.
2. SCC recognizes that neither Millennium nor any affiliate of
Millennium is under any obligation to actually proceed with any large mixed use
project in any of the Cities, whether or not SCC exercises its option or fails
to exercise its option with respect to any project in any City. (Millennium
shall keep SCC reasonably apprised of the status and progress of any project as
to which SCC has exercised its option and shall promptly notify SCC if and when
Millennium may decide not to proceed with such project.) If Millennium or an
affiliate of Millennium, in its sole discretion, shall elect not to proceed with
such a project in Washington, DC or in Boston, then SCC shall continue to have
the option set forth in this letter agreement for each of the remaining Cities
but no other cities. If, however, Millennium or an affiliate of Millennium, in
its sole discretion, shall not have given SCC the notice referenced in paragraph
3 of its intention to develop such a project in any one or more of Miami,
Toronto or Atlanta by October 1, 2000, then the definition of the "Cities" shall
be expanded, on a one-for-one basis, to
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include any additional major metropolitan cities in which Millennium or an
affiliate of Millennium may proceed with such a project. (Thus, if Millennium or
an affiliate of Millennium elects not to proceed with any one of Miami, Toronto
or Atlanta, then the next city in which Millennium or an affiliate of Millennium
shall proceed that would not otherwise have been a City shall be a City; if
Millennium or an affiliate of Millennium elects not to proceed with any two of
Miami, Toronto or Atlanta, then the next two additional cities in which
Millennium or an affiliate of Millennium shall proceed that would not otherwise
have been Cities shall be Cities; and if Millennium or an affiliate of
Millennium does not proceed with all three of Miami, Toronto and Atlanta, then
the next three additional cities in which Millennium or an affiliate of
Millennium shall proceed that would not otherwise have been Cities shall be
Cities.) The definition of "Cities" shall further be expanded to include any
such additional major metropolitan cities if and to the extent necessary,
pursuant to paragraph 5, to give SCC an option on up to a total of 5 projects.
3. SCC shall exercise its option with respect each City, if at all and
in its sole discretion, as follows. Millennium shall give written notice to SCC,
in accordance with the notice provisions of the San Francisco lease, of its
intention to develop a large mixed use project in a City as soon as reasonably
possible following Millennium's good faith determination to proceed with such
project. Such notice shall include the location of such project, Millennium's
then intent regarding the tenant mix and design of such project, Millennium's
estimated ground breaking date for such project and the approximate size of the
health club Millennium then intends to have in such project. SCC shall exercise
its option with respect to such project, if at all and in its sole discretion,
by giving written notice to Millennium, again in accordance with the notice
provisions of the San Francisco lease, not later than the business day first
occurring at least 30 days after the date of SCC's actual receipt of
Millennium's notice (time being of the essence in this regard). Millennium shall
use its good faith efforts to keep SCC generally apprised of the status of its
efforts to develop any large mixed use project in any City, or potential City,
prior to Millennium's actually giving any such notice to SCC. From and after
Millennium's giving any such notice to SCC and until the expiration of the
period of time in which SCC has to respond to such notice, Millennium shall
cooperate with SCC's reasonable requests for information regarding the subject
project. Subject to paragraph 5, SCC's failure timely to respond to any such
notice from Millennium shall conclusively be deemed SCC's election not to enter
into a lease for a health club in such project. Millennium and SCC shall use
their respective good faith efforts diligently to finalize and execute Project
Documents for any project as to which SCC has timely exercised its option, as
aforesaid.
4. Subject to paragraph 5, if SCC (i) fails timely to exercise its
option with respect to any particular project, as aforesaid, or (ii) fails,
after having timely exercised any such option, to use its good faith efforts to
finalize and execute, or have its applicable affiliate finalize and execute, the
Project Documents with respect to such project, then, in each such event, SCC
shall be deemed to have waived and relinquished its right to lease space at the
applicable project,
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and Millennium shall at any and all times thereafter be entitled to lease all
or any portion of such space to others at such rental and upon such terms as
Millennium, at its sole discretion, may desire. Notwithstanding the foregoing,
however, if Millennium, within 5 years after SCC is deemed to have waived its
original option with respect thereto pursuant to this paragraph 4, other than
pursuant to clause (ii) of this paragraph 4, either shall have an offer to lease
or shall propose to lease, without yet having any actual offer to lease, any of
such space for a health club upon economic terms and conditions (for example and
without limitation, rental, term, free rent, construction allowance and
escalations) which are less than 95% on an aggregate basis of those terms and
conditions under the applicable Project Documents, then subject to the
provisions in clauses (i) through (v) of paragraph 1 of this letter agreement
(a) SCC's option for such project shall be reinstated on the new economic terms
and conditions and (b) Millennium shall be required promptly to issue a new
notice (including such new economic terms and conditions) to SCC for such
project except that SCC's time within which to elect to exercise its option with
respect to such project shall be 15 business days, rather than 30 business days.
If SCC is deemed to have waived such reinstated option, other than pursuant to
clause (ii) of this paragraph 4, then Millennium shall have a period of 180 days
from the date of such deemed waiver to lease such space on such terms and
conditions (or terms and conditions less advantageous to the proposed tenant)
that SCC is deemed to have waived. SCC's option shall, however, again be
reinstated, subject to the provisions of this paragraph 4 and in clauses (i)
through (v) of paragraph 1 hereof, either after such 180 day period if no lease
has yet been entered into for such space or if Millennium proposes during such
180 day period to lease such space on terms and conditions more advantageous to
the tenant than those that SCC declined; provided, however, that such 180 day
period shall be extended for up to an additional consecutive 90 days if and for
so long as Millennium shall be actively engaged in good faith negotiations with
a potential tenant at the expiration of such 180 day period and shall thereafter
continue to engage in such good faith negotiations with such potential tenant.
Once Millennium has entered into a permitted lease for such space, however, SCC
shall have no further option regarding the same; it being agreed that Millennium
shall provide SCC with a copy of any such lease promptly following execution of
any such lease.
6. The parties intend for SCC's option set forth in this letter
agreement to apply to up to a total of 5 projects, one such project in each of a
total of up to 5 major metropolitan cities; provided, however, that if (i)
Millennium's notice regarding any project references Millennium's intent to have
a health club in such project that shall be smaller than a Typical Health Club
or an Approved Health Club with respect to a health club located in Washington,
D.C. or Boston, as applicable, and (ii) SCC elects, in its sole discretion, not
to exercise its option as to such project, then such project shall not count
toward the up to 5 projects that are to be the subject of SCC's option.
Alternatively, if SCC elects, in its sole discretion, to exercise its option as
to any project having a health club smaller than the health club in the San
Francisco Project, then such project shall count towards the up to 5 projects
that are to be the subject of SCC's option. If SCC elects, in its sole
discretion, to exercise its option as to any project and if
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Millennium nonetheless determines, in its sole discretion, not to proceed
with such project, then such project shall not count towards the up to 5
projects that are to be the subject of SCC's option. In no event, however, shall
SCC have the right to lease space pursuant to its option (a) in more than 5
major metropolitan cities, in the aggregate, (b) in Chicago, Los Angeles or New
York City and (c) in any project, other than in the initial Cities or in any
subsequent City required to be offered to SCC pursuant to this letter agreement,
on which Millennium has commenced construction prior to October 1, 2000.
6. Although SCC's option set forth in this letter agreement does not
apply to any project in Chicago, Los Angeles or New York City, Millennium and
SCC nonetheless desire for SCC to have a right of first offer with respect to
any health club of at least 50,000 square feet that Millennium shall propose to
have in any such project. The terms and conditions for such right of first offer
shall be identical, in all respects, to the terms and conditions for SCC's
option set forth above, as if such Chicago, Los Angeles and New York were
Cities, except as otherwise set forth in this paragraph 6. Millennium's notice
to SCC regarding any project in Chicago, Los Angeles and New York City shall
include, in addition to those matters referenced in paragraph 3 hereof, what
Millennium believes to be the fair market rent for such health club. If SCC
fails to exercise its right of first offer with respect to such project or fails
to finalize and execute Project Documents for such project as provided herein,
then SCC shall be deemed to have waived its right of first offer with respect to
such project, and Millennium shall at any and all times thereafter be entitled
to lease all or any portion of such space to others at such rental and upon such
terms as Millennium, at its sole discretion, may desire but subject to the
provisions of paragraph 4. For these purposes, paragraph 4 shall be interpreted
without reference to paragraph 5, and Millennium shall be required to re-offer
such space to SCC if Millennium proposes to lease, whether or not Millennium yet
has any actual offer to lease, any of such space for a health club upon new
economic terms and conditions which are less than 100% on an aggregate basis of
those terms and conditions that SCC shall be deemed to have waived. The
calculation of whether such new terms and conditions are less than such 100%
threshold shall be made on the basis of the net economic effect to Millennium of
the terms and conditions SCC waived as compared to the new terms and conditions
after taking into account any brokerage commission payable by Millennium for a
third party lease on such new terms and conditions as compared to no brokerage
commission being payable by Millennium in connection with a lease to SCC or its
affiliate on the terms and conditions that were waived by SCC. Whether or not
SCC exercises its option as to any City shall have no effect on its right of
first offer as to Chicago, Los Angeles and New York City, and whether or not SCC
exercises its right of first offer as to Chicago, Los Angeles or New York City
shall have no effect on its option as to the Cities.
7. This letter agreement shall expire on the earlier to occur of (i)
five leases (other than the San Francisco lease) having been signed pursuant
hereto, (ii) the fifth anniversary of the date of execution of the lease for the
San Francisco health club, (iii) any lease with Millennium or an affiliate of
Millennium for a health club either in a City or in San Francisco no
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longer being in full force and effect as a result of a default thereunder by
SCC or an affiliate of SCC not having been cured after the expiration of any
applicable notice and cure period or (iv) SCC or an affiliate of SCC no longer
operating at least one first class health club.
8. The option and right of first offer set forth herein are personal to
SCC and may only be assigned or transferred by SCC to an affiliate of SCC.
Sincerely,
THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By: /s/ John Gibbons
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Its: President
Acknowledge and agreed to as
of the date first set forth above:
MILLENNIUM PARTNERS LLC,
a New York limited liability company
By: Millennium Partners Management LLC,
a New York limited liability company,
its managing member
By: Millennium Manager I, Inc.
a New York corporation,
its manager
By: /s/ Philip Lovett
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Its:
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