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EXHIBIT 2
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement"), dated as of September
16, 1999, is by and among Racquetball and Fitness Clubs, Inc., a Texas
corporation ("Buyer"), The Spectrum Club Company, Inc., a California corporation
("SCCI"), Canoga/Agoura Spectrum Club, Inc., a California corporation
("Canoga"), Spectrum Club Anaheim, a California corporation ("Anaheim"), El
Segundo-TDC, Ltd., a California limited partnership ("El Segundo"), TVE, Inc., a
California corporation ("TVE"), and The Sports Club Company, Inc., a Delaware
corporation ("Parent", together with all other parties hereto except Buyer, each
a "Seller" and collectively "Sellers").
WHEREAS, Sellers propose to sell to Buyer, and Buyer proposes to
purchase from Sellers, all of the stock of Sellers' newly-formed subsidiary
("Newco") to be formed prior to Closing;
WHEREAS, Buyer wishes to acquire the stock of a newly-formed corporation
in order to limit its exposure to Sellers' preexisting liabilities, if any,
whether asserted or unasserted at the time of this Agreement, that are not
otherwise disclosed to Buyer in this Agreement; and
WHEREAS, as of the date of this Agreement, Sellers operate health and
fitness clubs under the "Sports Club" and "Spectrum Club" names in Southern
California, and Sellers will continue to operate health and fitness clubs under
the "Sports Club" name in Southern California and elsewhere.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Parties hereto agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the following
meanings. Any of such terms, unless the context otherwise requires, may be used
in the singular or plural, depending upon the reference.
"Action" shall mean any action, claim, suit, litigation, proceeding,
labor dispute, arbitral action, governmental audit, inquiry, criminal
prosecution, investigation or unfair labor practice charge or complaint.
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"Affiliate" shall mean, with respect to any Person, any other Person
that directly or through one or more intermediaries, controls or is controlled
by or is under common control with such Person.
"Ancillary Agreements" shall mean the Agreements attached as Exhibits
hereto.
"Applicable Contracts" shall mean any Contract (a) under which Newco or
any Seller has or may acquire any rights relating to the Business or the Assets,
or (b) under which Newco or any Seller has or may become subject to any
obligation or liability relating to the Business or the Assets, or (c) by which
Newco or any Seller or any of the Assets are or may become bound, including
without limitation confidentiality agreements and non-solicitation agreements,
but excluding the Construction Contracts.
"Assets" shall mean all of Sellers' right, title and interest in and to
the business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal and constituting, or used or useful in connection
with, or related to, the Business, all of which will be contributed by Sellers
to Newco (other than the Excluded Assets), including without limitation all of
Sellers' right, title and interest in the following:
(a) all accounts and notes receivable (whether current or noncurrent),
refunds, deposits, prepayments, prepaid expenses, prepaid commissions and
customer acquisition costs of Sellers relating to the Business;
(b) all Contract Rights;
(c) all Leases listed on Schedule 4.6;
(d) all Fixtures and Equipment and, subject to the terms of the
applicable Lease, all Leasehold Improvements;
(e) all Inventory;
(f) all Owned Real Property;
(g) all Books and Records; provided that Sellers may maintain copies
thereof;
(h) all Proprietary Rights relating to the Business, including the name
"Spectrum Club";
(i) all Permits, to the extent transferable;
(j) all computers and all installed software (whether owned or licensed)
located at any Facility, except for software identified on Schedule 1.1A which
will be covered in the Transition Services Agreement;
(k) all supplies, sales literature, promotional literature, customer,
supplier and distributor lists, art work, display units, telephone and fax
numbers (to the extent allowed by the applicable telephone carrier) and
purchasing records related to the Business;
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(l) all rights under or pursuant to all warranties, representations and
guarantees made by suppliers, contractors or materialmen in connection with the
Assets or services furnished to Newco or any of the Sellers pertaining to the
Business or affecting the Assets, to the extent such warranties, representations
and guarantees are not required by Newco or any of the Sellers to fulfill their
obligations under this Agreement;
(m) the Manhattan Beach Management Agreement;
(n) the partnership interests owned by SCCI and El Segundo TDC, Ltd. in
Manhattan Beach; and
(o) all claims, causes of action, choses in action, rights of recovery
and rights of set off of any kind, against any person or entity, including
without limitation any liens, security interests, pledges or other rights to
payment or to enforce payment in connection with the operation of the Business,
all to the extent necessary for Buyer to obtain the benefit and use of the
Assets and the Business, excluding rights for refunds of amounts paid prior to
Closing or claims for defective products or services remedied by Newco or Seller
prior to Closing;
but excluding the Excluded Assets (except insofar as Sellers license rights in
Excluded Assets to Buyer pursuant to the Transition Services Agreement).
"Books and Records" shall mean (a) all records and lists of Newco or
Sellers pertaining to the Assets, (b) all records and lists pertaining to the
Business, members, customers, suppliers or, to the extent permitted by law,
personnel of Sellers, (c) all product, business and marketing plans of Sellers
and (d) all books, ledgers, files, reports, plans, drawings and operating
records of every kind maintained by Sellers, in each case to the extent related
to a Facility or related solely to the Business, but excluding the originals of
Sellers' minute books, stock books and tax returns; provided that to the extent
an item, record, list or other information would be within the definition of
"Books and Records" except for the fact that it contains information in addition
to that related to the Business, the portion related to the Business shall be
deemed to be "Books and Records", and Buyer will be furnished with a copy or
copies thereof.
"Business" shall mean Newco's or Sellers' (and, if applicable, any
Affiliate of Sellers') business of owning, leasing and operating sports and
fitness clubs under the "Spectrum Club" name at the locations specified on
Schedule 1.1B hereto.
"Closing Date" shall mean the later of (i) September 30, 1999, or (ii)
subject to Section 11.1, the second business day after satisfaction of all
conditions to Closing, or (iii) fifteen (15) days after Brentwood Associates
Private Equity III, LP makes its capital call to its limited partners (which
will be made upon Sellers' mailing all the requests for landlord consent and/or
non-disturbance agreement), but in no case later than the later of October 31,
1999 or forty (40) days after Sellers mail all the requests for landlord consent
and/or non-disturbance agreement.
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"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder.
"Construction Contracts" means the AIA A111 agreement dated October 19,
1998 between The Sports Club Company and X.X. Xxxxx Construction L.P. for the
Spectrum Club/Xxxxxx Hills, the AIA A111 agreement dated October 19, 1998
between The Sports Club Company and X.X. Xxxxx Construction L.P. for the
Spectrum Club/Thousand Oaks, the AIA A101 agreement dated February 15, 1999
between The Sports Club Company and Vratsinas Construction Company for The
Spectrum Club/Anaheim, and, when entered into pursuant to the terms of this
Agreement, the construction contracts for the parking structure or office tenant
improvements at the Spectrum Club/Thousand Oaks.
"Contribution Agreement" shall mean the Contribution Agreement dated one
day prior to the Closing Date among Sellers and Newco.
"Contemplated Transactions" shall mean the following:
(a) the contribution of the Assets by Sellers to Newco;
(b) the performance by Buyer and Sellers of their respective covenants
and obligations under this Agreement and the Ancillary Agreements;
and
(c) Buyer's acquisition and ownership of all stock in Newco.
"Contract" shall mean any lease, agreement, contract, note, loan,
evidence of indebtedness, sales order, purchase order, license, letter of
credit, franchise agreement, undertaking, covenant not to compete, employment
agreement, license, instrument, obligation, commitment or claim of right or
benefit to which Newco or any of the Sellers is a party or is bound and which is
included in the Assets, whether oral or written.
"Contract Rights" shall mean all of Newco's or Sellers' rights and
obligations under the Applicable Contracts.
"Disclosure Schedule" shall mean collectively the schedules executed and
delivered by Sellers to Newco and Buyer as of the date hereof which set forth
the exceptions to the representations and warranties contained in Article IV
hereof and certain other information called for by this Agreement. Unless
otherwise specified, each reference in this Agreement to any numbered schedule
is a reference to that numbered schedule which is included in the Disclosure
Schedule.
"Encumbrance" shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right of way,
encroachment, private building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
agreement or lease in the nature thereof.
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"Excluded Assets" notwithstanding any other provision of this Agreement,
shall mean the following assets which will not be contributed by Sellers to
Newco:
(a) all assets and rights of any kind, whether tangible or intangible,
real or personal, which are not used in connection with the Business or which
are used in connection with both the Business and other business activities of
any Seller, and are not located at a Facility;
(b) all employment and consulting contacts, and all other contracts for
personal services;
(c) intercompany receivables;
(d) Sellers' Organizational Documents;
(e) Tax refunds;
(f) all claims, causes of action, choses in action, rights of recovery
and rights of set-off of any kind against any person or entity arising out of or
relating to the Assets to the extent related solely to the Excluded Liabilities
(as defined in Section 2.3) or not otherwise described in clause (o) of the
definition of Assets;
(g) all Plans (as hereinafter defined);
(h) prepaid insurance premiums;
(i) truck used to deliver towels to the Xxxxxx Xxxxxx Spectrum Club;
(j) the Proprietary Rights licensed to Buyer pursuant to Section 6.13
below; and
(k) the stock of SportsMed, Inc.
"Facility" shall mean any one of the sports and fitness clubs operated
under the "Spectrum Club" name (including the sports and fitness club operated
by Manhattan Beach for purposes of representations and warranties relating to
Facilities), including office space, fitness space, storage space, parking space
and any and all improvements, whether consisting of one or more structures.
"Facility Lease" shall mean each Lease covering each Facility.
"Financial Statements" shall mean the Year-End Financial Statements and
the Interim Financial Statements.
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
furnishings, machinery, supplies, equipment and other tangible personal property
owned by Newco and used in connection with the Business.
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"Governmental Body" shall mean any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Interim Financial Statements" shall mean the balance sheet and the
statements of operations for the six-month period ended on June 30, 1999, copies
of which are attached hereto as Exhibit A.
"Inventory" shall mean all of Newco's inventory held for resale and all
of Newco's raw materials, work in process, finished products, wrappings, supply
and packaging items and similar items, in each case solely with respect to the
Business and located at a Facility.
"Knowledge" shall mean knowledge of a particular fact or other matter,
provided that Sellers shall be deemed to have "knowledge" of all facts in
Sellers' corporate records and files which would have been discovered by or
known to a person making a prudent review of such files to determine the
accuracy of any representation or warranty made by Sellers in this Agreement or
compliance by Sellers with any of the covenants in this Agreement.
"Leasehold Improvements" shall mean all leasehold improvements situated
in or on any Facility and owned by Newco or any of the Sellers.
"Leases" shall mean all of the existing leases with respect to the
personal or real property of Newco or any of the Sellers (and, solely for
purposes of representations and warranties relating to Leases, shall include the
Manhattan Beach Lease) including all amendments, modifications and supplements
thereto, relating to the Business.
"Legal Requirement" shall mean any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance,
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principle of common law, regulation, statute, or treaty, including without
limitation, zoning laws.
"Manhattan Beach" shall mean Sports Connection - ES/MB, a joint venture
formed under the laws of the State of California.
"Manhattan Beach Joint Venture Agreement" shall mean that certain Joint
Venture Agreement for Sports Connection - ES/MB dated as of January 3, 1986,
between TDC-El Segundo, Ltd. ("TDC") and Continental El Segundo Corporation
("Continental"), as amended by (i) Corrective Amendment to Joint Venture
Agreement dated January 3, 1986, between TDC and Continental, (ii) Amendment to
Joint Venture Agreement for Sports Connection - ES/MB dated as of October 20,
1994 among TDC, Continental and Agoura Hills Spectrum Club, and (iii) Amendment
to Joint Venture Agreement for Sports Connection - ES/MB dated as of February
18, 1995, among TDC, Continental and The Spectrum Club Company, Inc.
"Manhattan Beach Lease" shall mean that certain Athletic Facility Lease
dated January 3, 1986, by and between Continental Development Corporation, as
lessor, and Sports Connection - ES/MB, as lessee, as amended by (i) Corrective
Amendment to Athletic Facility Lease dated January 3, 1986, (ii) First Amendment
to Lease dated October 17, 1986, (iii) Second Amendment to Lease dated Xxxxx 0,
0000, (xx) Third Amendment to Athletic Facility Lease dated March 31, 1988, and
(v) Fourth Amendment to Office Lease dated July 24, 1990.
"Manhattan Beach Management Agreement" shall mean the Club Management
Contract dated as of January 3, 1986, among Sports Connection - ES/MB, and Talla
Development Company, as amended by (i) Corrective Amendment to Club Management
Contract dated as of January 3, 1986, (ii) First Amendment to the Club
Management Contract dated September 17, 1987, and (iii) Third Amendment to Club
Management Contract dated August 14, 1992.
"Material Adverse Effect" or "Material Adverse Change" shall mean with
respect to the Business or the Assets any material adverse effect or material
change in the condition (financial or other), business, results of operations,
assets, liabilities, operations or prospects of the Business and the Assets,
taken as a whole, or on the ability of Sellers to consummate the Contemplated
Transactions.
"Order" shall mean any written award, decision, injunction, judgment,
order, ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any arbitrator.
"Organizational Documents" shall mean (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) any partnership agreement,
organizational document, charter or similar document adopted or filed in
connection with the creation, formation, or organization of a Person; and (c)
any amendment to any of the foregoing.
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"Owned Real Property" shall mean all real property owned in fee by Newco
or Sellers, and used in the operation of the Business, including the real
property underlying the Spectrum Club - Canoga Park, the Spectrum Club - Agoura
Hills and the improvements at the Spectrum Club - Fullerton and the Spectrum
Club - Xxxxxx Xxxxxx, but excluding the real property underlying the Spectrum
Club - Thousand Oaks, including without limitation all rights, easements and
privileges appertaining or relating thereto, all buildings, Fixtures and
Improvements located thereon and all Facilities thereon, if any.
"Permits" shall mean all licenses, permits, franchises, approvals,
authorizations, consents, orders, waivers or other authorizations of, or filings
with, any Governmental Body or other Person, or pursuant to any Legal
Requirement, in any case, necessary for the past, present or anticipated conduct
of, or relating to the operation of, the Business.
"Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
Sellers, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
"Proprietary Rights" shall mean all of Newco's or Sellers' copyrights,
patents, trademarks, technology rights and licenses, computer software
(including without limitation any source or object codes therefor or
documentation relating thereto), trade secrets, franchises, know-how,
inventions, designs, specifications, plans, drawings and intellectual property
rights, in each case related to the Business.
"Representative" shall mean any officer, director, principal, attorney,
agent, employee or other representative.
"Spectrum Personnel" means (i) all employees, independent contractors
and other persons receiving periodic payments from any of the Sellers as
compensation for services rendered to the Business primarily at a Facility, and
(ii) people listed on Schedule 1.1C hereto.
"Sublease" shall mean any sublease to Buyer of a Facility Lease.
"Tax" shall mean any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated or other tax of any kind whatsoever,
including any interest, penalty or addition thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for
refund, information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof, or other
document required to be filed in respect of Taxes.
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"Transition Services Agreement" shall mean the transition services
agreement between Parent and Buyer in substantially the form of Exhibit B
hereto.
"Year-End Financial Statements" shall mean the combined Balance Sheet of
the Business dated December 31, 1998, and the related combined statements of
operations, changes in shareholders' equity for the year ended December 31,
1998.
ARTICLE II.
PURCHASE AND SALE OF STOCK
2.1 Newco's Assets. Upon the terms and subject to the conditions
contained herein, prior to the Closing, Sellers will have contributed to Newco
(which shall have no other assets or liabilities and which shall have conducted
no business) the Assets except the partnership interests owned by SCCI and El
Segundo in Manhattan Beach, in exchange for all of the outstanding stock of
Newco ("Newco Stock"); provided that any Assets located at Sellers' corporate
headquarters shall, except as set forth in the Transition Services Agreement, be
delivered to Newco promptly (and in no event more than seven days) following the
Closing Date. At Closing, Sellers will sell, convey, transfer, assign and
deliver to Buyer, and Buyer will acquire from Sellers, all of the Newco Stock.
In addition, at Closing, Sellers will sell, convey, transfer, assign and deliver
to Buyer, and Buyer will acquire from Sellers, the partnership interests owned
by SCCI and El Segundo in Manhattan Beach.
2.2 Newco's Liabilities. Upon the terms and subject to the conditions
contained herein, in connection with the contribution of the Assets to Newco,
Newco shall have assumed the following, and only the following, obligations and
liabilities of Sellers prior to the Closing (the "Assumed Liabilities"):
(a) All obligations and liabilities accruing, arising out of, or
relating to events or occurrences happening after the Closing Date under the
Applicable Contracts and Leases included in the Assets, but not including any
obligation or liability accruing, arising out of, or relating to events or
occurrences happening before the Closing Date;
(b) All of Sellers' deferred membership fees, deferred lease
obligations and other accrued liabilities, reflected on the Interim Balance
Sheet or incurred after the Interim Balance Sheet Date (i) in the ordinary
course of Sellers' business, (ii) consistent with past practice, and (iii) in
compliance with the terms of this Agreement, in each case, other than those
liabilities described on Schedule 2.2(b) (the "Retained Operating Liabilities");
(c) obligations reflected on the Closing Balance Sheet for
accrued vacation pay of the Spectrum Personnel listed on Schedule 2.2(c) hereto
and obligations to honor accrued sick leave rights of the Spectrum Personnel
(not to exceed 48 hours per individual) listed on Schedule 2.2(c) hereto; and
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(d) all obligations arising under membership contracts on or
after the Closing Date, including without limitations refunds of prepaid
membership fees, private training fees and other member prepayments related to
the Business.
2.3 Excluded Liabilities. Notwithstanding any other provision of this
Agreement, except for the Assumed Liabilities expressly specified in Section
2.2, Newco shall not have assumed, or otherwise be responsible for, any
liabilities or obligations of Sellers, whether actual or contingent, matured or
unmatured, liquidated or unliquidated, or known or unknown, whether arising out
of occurrences prior to, at or after the date hereof ("Excluded Liabilities"),
which Excluded Liabilities include, without limitation:
(a) Except for accrued vacation accrued on the Closing Balance
Sheet and sick leave rights included in Assumed Liabilities, any liability or
obligation to or in respect of any employees or former employees of Sellers
including without limitation (i) any Employment Contract, as defined in Section
4.12(a), (ii) any liability under any Plan at any time maintained, contributed
to or required to be contributed to by or with respect to Sellers or under which
any of the Sellers may incur liability, or any contributions, benefits or
liabilities therefor, or any liability with respect to Sellers' withdrawal or
partial withdrawal from or termination of any Plan and (iii) any claim of an
unfair labor practice, or any claim under any state unemployment compensation or
worker's compensation law or regulation or under any federal or state employment
discrimination law or regulation, which shall have been asserted on or prior to
the Closing Date or is based on acts or omissions which occurred on or prior to
the Closing Date;
(b) Except as set forth in Section 2.7 hereof, any liability or
obligation of any of the Sellers in respect of any Tax;
(d) Any liability arising from any injury to or death of any
person or damage to or destruction of any property whether based on negligence,
breach of warranty, strict liability, enterprise liability or any other legal or
equitable theory arising from operation of the Business prior to the Closing
Date;
(e) Any liability or obligation of any of the Sellers arising out
of or related to any Action which relates to events or omissions prior to the
Closing Date;
(f) Any liability or obligation of any of the Sellers resulting
from entering into, performing its obligations pursuant to or consummating the
Contemplated Transactions;
(g) Any liability or obligation of any of the Sellers to Parent;
Any indebtedness of any of the Sellers for borrowed money or pursuant to a
capitalized lease;
(h) Any obligation or liability for any undisclosed breach of any
Contracts or Leases occurring on or prior to the Closing Date; and
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(i) Any obligation or liability arising out of the failure or
alleged failure of any form of membership agreement with respect to any Spectrum
Club to comply with applicable law.
2.4 Purchase Price.
(a) Definitions. As used in this Section, the following terms
have the following meanings:
(i) "EBITDA" means, with respect to the Business for any period,
(a) Net Income for such period plus (b) without duplication and to the extent
deducted in determining Net Income, the sum of (i) interest expense for such
period, net of interest income for such period, (ii) charges for income tax
expense for such period, (iii) charges for depreciation and amortization (other
than amortization charges counted as interest expense) for such period, minus
(c) without duplication and to the extent added to any revenues in determining
Net Income for such period, all extraordinary and nonrecurring gains during such
period, all as determined in accordance with GAAP, plus (d) without duplication
and to the extent deducted in determining Net Income for such period, all
extraordinary and nonrecurring losses and pre-opening expenses during such
period, all as determined in accordance with GAAP;
(ii) "Audited Six Month Income Statement" means the income
statement of the Business for the six months ended June 30, 1999, audited by
KPMG, independent auditor for Sellers, whose unqualified audit report shall be
included therewith;
(iii) "Audited Financials" mean the Audited Six Month Income
Statement plus (i) a balance sheet of the Business at June 30, 1999, December
31, 1998 and December 31, 1997, plus (ii) an income statement of the Business
for the fiscal year ended each of December 31, 1998 (the "1998 Audited Income
Statement") and December 31, 1997, in all cases audited by KPMG, independent
auditor for Sellers, whose unqualified audit report shall be included therein;
(iv) "Audited Balance Sheet" means the balance sheet of the
Business at June 30, 1999, audited by KPMG, independent auditors for Sellers,
whose unqualified audit report shall be included therewith;
(v) "Net Income" means, for any period, net income or loss of the
Business for such period determined on a combined basis in accordance with GAAP;
(vi) "GAAP" means generally accepted accounting principles
consistently applied; and
(b) Purchase Price. At the Closing, upon the terms and subject to
the conditions set forth herein, Buyer shall pay to Sellers for the sale,
transfer, assignment, conveyance and delivery of the Newco Stock, the sum of
$49,646,143 in U.S. funds (the "Purchase Price"), payable by wire transfer of
immediately available funds to an account designated by Parent; subject,
however, to adjustment as set forth in Section 2.5, less the
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Holdback Amount. Sellers shall present a calculation of the Pre-Opening
Reduction Amount (as defined in Section 2.5(c) below), together with such
supporting documentation as Buyer may reasonably request, at least two business
days prior to Closing, and the Closing shall not take place until the parties
have mutually agreed on such calculations, subject to Section 2.5(d).
Notwithstanding the foregoing, at least three business days prior to Closing,
Sellers will deliver the Audited Financials (including the Audited Six Month
Income Statement) to Buyer, together in each case with a calculation of EBITDA
based thereon, adjusted (solely in the case of the Audited Financials) as
follows: (i) plus (minus) increase (decrease) in deferred revenue liabilities
(including initiation fees (net of associated deferred costs) and prepaid dues)
from December 31, 1998 through June 30, 1999, (ii) plus (minus) increase
(decrease) in deferred lease obligations from December 31, 1998 through June 30,
1999, and (iii) plus corporate cost allocations.
If such EBITDA is less than EBITDA shown on the Interim Financial
Statements, then the Purchase Price shall be reduced at Closing by an amount
equal to fourteen times such difference (in the case of Manhattan Beach, seven
times such difference), and if EBITDA based on the Audited Six Month Income
Statement is more than EBITDA shown on the Interim Financial Statements, then
the Purchase Price shall be increased at Closing by an amount equal to fourteen
times such difference (in the case of Manhattan Beach, seven times such
difference); provided that if any such increase or decrease would increase or
decrease the Purchase Price by more than $4,000,000, either Seller or Buyer
shall have the right to terminate this Agreement upon prompt notice to the other
parties to this Agreement; provided further that Seller shall not have the right
to terminate in the case of a decrease if Buyer agrees to limit the decrease in
Purchase Price to $4,000,000 notwithstanding that the EBITDA adjustment would
have resulted in a greater decrease; and provided further that Buyer shall not
have the right to terminate in the case of an increase if Seller agrees to limit
the increase in Purchase Price to $4,000,000 notwithstanding that the EBITDA
adjustment would have resulted in a greater increase.
In addition, Buyer shall have the right to terminate this
Agreement within three business days following receipt of the Audited Financials
if the shortfall (expressed as a positive number) between (i) EBITDA based on
the 1998 Audited Income Statement (and adjusted in the same manner as the
Audited Six Month Income Statement pursuant to the last sentence of the first
paragraph of Section 2.4(b)) and (ii) EBITDA based on the 1998 income statement
included in the unaudited Year-End Financial Statements (using the same
methodology) is more than the greater of (x) five percent (5%) or (y) 300% of
the shortfall (expressed as a positive number) between EBITDA based on the
Audited Six Month Income Statement and EBITDA based on the Interim Financial
Statements.
(c) The "Holdback Amount" shall be an amount equal to four
percent (4%) of the Purchase Price paid at Closing plus $1,500,000, which shall
be held in escrow, pursuant to the terms of the Escrow Agreement attached as
Exhibit C (which, except as provided in the next sentence, shall terminate one
year after the date hereof except to the extent of claims made prior to such
date). One million five hundred thousand dollars
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($1,500,000) of the Holdback Amount will be released to Sellers when the
Spectrum Club - Anaheim is (a) delivered to Buyer ready for use by members and
(b) has received a certificate of occupancy.
2.5 Working Capital Adjustment.
(a) Closing Balance Sheet. As promptly as possible after Closing
(and in any event within 30 days), the Sellers will prepare and deliver to Buyer
(i) a combined balance sheet of the Business dated the Closing Date (the
"Closing Balance Sheet") and prepared in accordance with each Sellers' method of
accounting utilized in the preparation of the Audited Balance Sheet, except that
none of the Sellers shall include any intercompany receivables, Excluded Assets,
Excluded Liabilities or the Retained Operating Liabilities on either balance
sheet, and, (ii) a reasonably detailed calculation of the Adjustment Amount, as
defined in Section 2.5(b) below (including any portion of the Pre-Opening
Reduction Amount to be calculated pursuant to Section 2.5(d)) including all
supporting documentation with respect thereto.
(b) Adjustment Amount. The "Adjustment Amount" shall be the
amount by which Net Working Capital as reflected on the Closing Balance Sheet is
greater than or less than Net Working Capital on the Audited Balance Sheet
(except that only one-half of any amount attributable to Manhattan Beach which
would otherwise affect the Adjustment Amount shall be included). "Net Working
Capital" shall mean the excess (or deficiency) of current assets (excluding
Excluded Assets which are current assets) over current liabilities (excluding
the current portion of any of Sellers' long-term liabilities or current notes
payable, accrued Taxes which are not Assumed Liabilities and other current
liabilities which are not Assumed Liabilities) on the Closing Balance Sheet.
(i) If the Adjustment Amount is a positive number, then
Buyer will pay or cause to be paid to Sellers the Adjustment Amount in cash.
(ii) If the Adjustment Amount is a negative number, then
Sellers will pay or cause to be paid to Buyer the Adjustment Amount in cash.
(c) Anaheim Adjustment. In addition to the foregoing, the
Purchase Price will be reduced or increased by the amount (a "Pre-Opening
Adjustment Amount") by which pre-opening net cash flow through the Closing
(consisting of pre-opening initiation fees and dues collected in cash, exceeds
or is less than pre-opening operating expenses through the Closing as the case
may be) generated by Spectrum Club-Anaheim.
(d) Disputed Adjustment Amount. Solely for purposes of utilizing
the dispute resolution mechanisms of Section 2.5(d) and (e), any amounts
otherwise includable in calculating the Pre-Opening Reduction Amount which are
attributable to the time period between the agreement of such amount pursuant to
Section 2.5(c) and the Closing Date shall be treated as if they were part of the
Adjustment Amount. If Buyer disagrees with the Adjustment Amount, it will notify
Sellers of such disagreement in writing, specifying the particulars of such
disagreement, within fifteen (15) business days
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after Buyer's receipt of the Closing Balance Sheet. To the extent that any
portion of the Adjustment Amount is not in dispute, within fifteen (15) business
days after Buyer's receipt of the Closing Balance Sheet, Buyer will pay Sellers
or Sellers WILL PAY BUYER, AS the case may be, that portion of the Adjustment
Amount which is not in dispute in the manner set forth in Section 2.5(b).
(e) Resolution of Disputed Adjustment Amount. Buyer and Sellers
will use their best efforts for a period of thirty (30) calendar days after
Buyer's delivery of such notice to resolve any disagreements with respect to the
calculation of the Adjustment Amount. If, at the end of such period, Buyer and
Sellers are unable to resolve such disagreements, they shall be arbitrated
pursuant to Section 10.7.
(f) Payment of Adjustment Amount. Within five (5) business days
after the date of determination of the Adjustment Amount, Buyer shall pay
Sellers, or Sellers shall pay Buyer, as the case may be, the Adjustment Amount.
2.6 Prorations.
(a) Interest. On the Closing Date, or as promptly as practicable
following the Closing Date, but in no event later than sixty (60) calendar days
thereafter, all prepaid interest and interest payable with respect to any
interest bearing obligations assumed by Newco hereunder shall be prorated
between Newco and Sellers as of the Closing Date.
(b) Utilities; Taxes. On the Closing Date, or as promptly as
practicable following the Closing Date, but in no event later than sixty (60)
calendar days thereafter, the real and personal property taxes, water, gas,
electricity and other utilities, common area maintenance reimbursements to
lessors, local business or other license fees or taxes, merchants' association
dues and other similar periodic charges payable with respect to the Assets or
the Business shall be prorated between Newco and Sellers effective as of the
Closing Date. To the extent practicable, utility meter readings for the
Facilities shall be determined as of the Closing Date. If the real property tax
rate for the current tax year or other charges, such as common area maintenance
reimbursements, are not established by the Closing Date, the prorations shall be
made on the basis of the rate in effect for the preceding tax year or other
estimates and shall be adjusted when the exact amounts are determined. All such
prorations relating to real property taxes shall be based upon the most recent
available assessed value of each Facility prior to the Closing Date.
(c) Rents. Sellers shall pay all rent under the Leases through
the end of the calendar month in which the Closing Date occurs, and Newco shall
reimburse Sellers for such rent accrued from the Closing Date through the end of
such month as part of the post-Closing proration and for the $12,000 security
deposit for the Spectrum Club - Water Garden. Payments of percentage rent due
under the provisions of the Leases for the Spectrum Club - Valencia and the
Spectrum Club - Fullerton, shall be adjusted to the Closing Date as follows:
Newco shall pay any percentage rent due for periods expiring after the Closing
Date, and Sellers shall be responsible for that portion of such percentage
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rent paid by Newco and due under such Leases based on sales from the
commencement of the current lease year though the Closing Date, and Newco shall
be responsible for that portion due under such Leases based on sales from and
after the Closing Date. Within ninety (90) calendar days after the Closing Date,
Sellers will furnish to Buyer records which enable Buyer to comply with the
percentage rent provision of each such Lease. Buyer shall provide to Sellers,
within thirty (30) calendar days before the annual settlement of percentage rent
under any such Lease for the partial year in which any of the Sellers was
operating such Facility, a statement showing the manner of computation of all
percentage rent due under each Lease for such year. Any reimbursement due Buyer
from Sellers in respect of its pro rata share of percentage rent shall be paid
within fifteen (15) calendar days after written demand therefor by Buyer.
Percentage rent receivable under subleases shall be prorated in the same manner
as percentage rent payable under provisions of the Leases.
2.7 Closing Costs; Transfer Taxes and Fees. Except for real property
transfer taxes which will be paid by Sellers, Buyer and Seller shall each be
responsible for one-half of any state non-income based transfer or other similar
taxes imposed by reason of the sale of the Newco Stock to Buyer or the
contribution of the Assets consisting of tangible personal property to Newco by
Sellers; provided that this Section 2.7 shall not limit Buyer's rights to
indemnification in any manner. Buyer will be responsible for the cost of
obtaining Permits for Newco and obtaining the transfer of existing Permits to
Newco. Parent will prepare all the application forms necessary for Newco to
obtain Permits and the transfer of existing Permits, and Buyer will pay $60 per
hour for the time spent by Parent's personnel in performing such services,
subject to receipt and review of time sheets showing by date the tasks performed
and hours (rounded to the nearest quarter hour) spent. Sellers and Buyer each
shall be responsible for one half of the escrow fees. Sellers shall be
responsible for the costs of owner's policies of title insurance.
2.8 Intended Tax Treatment. Each of the Sellers and Buyer intend that
for federal, state, local and foreign Tax purposes, this Agreement shall
constitute the binding commitment of each of the Sellers to sell their Newco
Stock to Buyer, with the result that the contributions of the Assets to Newco as
described in the first sentence of Section 2.1 hereof shall not qualify for
tax-free treatment pursuant to Section 351 of the Code (or any similar
provisions of state, local or foreign tax law). Each of the Sellers agrees to
report the transactions contemplated by this Agreement in accordance with the
Tax treatment described in the preceding sentence, and none of the Sellers will
take any position on any Tax Return contrary to that described in the preceding
sentence.
ARTICLE III.
CLOSING
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3.1 Closing. The Closing of the transaction contemplated herein (the
"Closing") shall be held at 9:00 a.m. Pacific Time on the Closing Date at the
offices of Xxxxxx & Xxxxxxx, 000 Xxxx 0xx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000,
unless the parties hereto otherwise agree.
3.2 Conveyances at Closing By Sellers.
(a) Instruments and Possession. To effect the sale and transfer
referred to in Section 2.1 hereof, Sellers will execute and deliver to Newco
prior to the Closing:
(i) one or more Bills of Contribution, in the substantial
form of Exhibit A attached to the Contribution Agreement, conveying in the
aggregate all of Sellers' owned personal property included in the Assets, in
consideration for Newco's first issue of Newco Stock;
(ii) (A) an Assignment of Lease in the form attached
hereto as Exhibit D with respect to the Leases for the Spectrum Club - Fullerton
and the Spectrum Club - Thousand Oaks and (B) to the extent permitted in
Articles IV and VIII hereof, a Sublease and a Memorandum of Lease in the form
attached as Exhibits E and F hereto, respectively, or, in the alternative, an
Assignment of Lease in the form attached as Exhibit D hereto, with respect to
the Leases for the Spectrum Club - Water Garden, the Spectrum Club - Xxxxxx
Xxxxxx, the Spectrum Club - Fullerton, the Spectrum Club - Valencia, the
Spectrum Club - Xxxxxx Hills and the Spectrum Club - Anaheim;
(iii) an Assignment of Contract Rights in the substantial
form of Exhibit C attached to the Contribution Agreement, with respect to the
Contract Rights;
(iv) an Assignment of Partnership Interest with respect to
Sports Connection - ES/MB;
(v) one or more grant deeds conveying good and marketable
fee simple title to the Owned Real Property;
(vi) a sublease for the Office Space portion of the
Premises under the Lease for the Spectrum Club - Thousand Oaks complying with
the provisions of Sections 16.2.4 of such Lease and otherwise on terms and
conditions mutually agreed by Sellers and Buyer prior to the Closing Date;
(vii) an Assignment of Trademarks in the substantial form
of Exhibit D attached to the Contribution Agreement; and
(viii) such other instruments as shall be reasonably
requested by Buyer to vest in Newco title in and to the Assets in accordance
with the provisions hereof.
Immediately following the above contributions, Sellers will
deliver to Buyer at closing a certificate representing the Newco Stock, duly
endorsed for transfer to Buyer.
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(b) Form of Instruments. To the extent that the form of any
document to be delivered hereunder is not attached as an Exhibit hereto, such
document shall be in form and substance, and shall be executed and delivered in
a manner, reasonably satisfactory to the parties.
(c) Nonforeign Affidavit. Sellers shall furnish Buyer an
affidavit, stating, under penalty of perjury, the transferor's United States
taxpayer identification number and that the transferor is not a foreign person,
pursuant to Section 1445(b)(2) of the Code.
3.3 Conveyances at Closing By Buyer. To effect the sale and transfer
referred to in Section 2.1 hereof, Buyer will, at the Closing, execute and
deliver to Sellers:
(a) the Initial Cash Payment; and
(b) all other documents listed in Section 3.2 above in which Buyer is a
party.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers (other than El Segundo) jointly and severally represent and
warrant to Buyer as follows (as used in Sections 4.1 through 4.31, the term
"Sellers" shall include Manhattan Beach unless otherwise stated), except as set
forth on the corresponding section of the Disclosure Schedule:
4.1 Organization And Good Standing.
(a) Each of the Sellers (other than El Segundo and Manhattan
Beach) and Newco is a corporation duly organized, validly existing and in good
standing under the laws of the state of its organization. El Segundo is a
limited partnership and Manhattan Beach is a joint venture, in each case duly
organized, validly existing and in good standing under the laws of the State of
California. Schedule 4.1 hereto contains a complete and accurate list of
jurisdictions in which each of the Sellers is authorized to do business. Parent
owns, directly and/or indirectly through wholly-owned subsidiaries, all of the
issued and outstanding stock of each of the Sellers other than Parent and El
Segundo. Each of the Sellers has the corporate or partnership power and
authority, as the case may be, to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. Each of the
Sellers and Newco is duly qualified to do business as a foreign corporation or
partnership, as the case may be, and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification, except where the failure to be so qualified and in
good standing would not reasonably be expected to have a Material Adverse
Effect. None of the Sellers except Parent has employees, owns or leases property
in any state other than California. Except as set forth in Schedule 4.1, none of
the Sellers conducts any operations other than the
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Business. Newco is a newly-formed corporation which has conducted no business
except the execution of the Contribution Agreement between Sellers and Newco
just prior to the Closing and has no assets or liabilities other than the Assets
and the Assumed Liabilities received upon closing of the transactions under the
Contribution Agreement. Parent will own, directly or indirectly through
wholly-owned subsidiaries, all of the Assets prior to and immediately after the
contribution thereof to Newco.
(b) Each of the Sellers has delivered to Buyer copies of its
Organizational Documents, as currently in effect. Newco has delivered to Buyer
copies of its Organizational Documents, as currently in effect.
(c) None of the Sellers or Newco has subsidiaries except as set
forth on Schedule 4.1.
4.2 Authority; No Conflict.
(a) This Agreement has been duly authorized by the board of
directors and shareholders (or partners, as the case may be) of each of the
Sellers and constitutes the legal, valid, and binding obligation of each of the
Sellers, enforceable against each of them in accordance with its terms, except
(a) that such enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally, (b) to
the extent that enforceability may be limited by California courts with respect
to any "unconscionable" provisions contained therein, and (c) that certain of
the covenants contained herein may not be specifically enforceable and courts
may award money damages rather than specific performance of contractual
provisions involving matters other than the payment of money. Upon the execution
and delivery by Sellers of the Ancillary Agreements to which each of them is a
party (collectively, "Sellers' Closing Documents"), Sellers' Closing Documents
will constitute the legal, valid, and binding obligations of each of the
Sellers, as applicable, enforceable against each of them in accordance with its
respective terms. except (a) that such enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally, (b) to the extent that enforceability may be limited by California
courts with respect to any "unconscionable" provisions contained therein, and
(c) that certain of the covenants contained herein may not be specifically
enforceable and courts may award money damages rather than specific performance
of contractual provisions involving matters other than the payment of money.
Except for the consents (the "Consents") described in Schedule 4.2 hereto, each
of the Sellers has the right, power, authority, and capacity to execute and
deliver this Agreement and the Sellers' Closing Documents to which it is a party
and to perform its obligations under this Agreement and the Sellers' Closing
Documents.
(b) Except as set forth in Schedule 4.2 hereto, neither the
execution and delivery of this Agreement nor the consummation or performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time):
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(i) contravene, conflict with, or result in a violation of
(A) any provision of the Organizational Documents of any Seller or Newco, or (B)
any resolution adopted by the Board of Directors of each of the Sellers or
Newco;
(ii) contravene, conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to prohibit any of
the Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any Seller or Newco, or any
of the Assets, may be subject;
(iii) contravene, conflict with, or result in a violation
of any of the terms or requirements of, or give any Government Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Permit that is held
by any Seller or Newco or any other Person that relates to the Business or the
Assets;
(iv) contravene, conflict with, or result in a violation
or breach of any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract or any Lease; or
(v) result in the imposition or creation of any
Encumbrance upon or with respect to any of the Assets other than as a result of
actions by Buyer.
Except as set forth in Schedule 4.2 hereto, none of the Sellers
or Newco is or will be required to give any notice to or obtain any Permit in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
4.3 Financial Statements. Each of the Sellers has delivered to
Buyer: (a) combined balance sheets of each of the Business as at December 31,
1998, 1997, 1996 and 1995 (the "1998 Balance Sheet", the "1997 Balance Sheet",
the "1996 Balance Sheet" and the "1995 Balance Sheet", respectively), and the
related consolidated statements of income for the fiscal years then ended and
(b) a combined balance sheet of each of the Business as at June 30, 1999 (the
"Interim Balance Sheet") and the related combined statements of income for the
five (or six, as the case may be) months then ended. Such financial statements
fairly present the financial condition and the results of operations of the
Business as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with GAAP consistently applied except
(i) in the case of the Interim Financial Statements, for the absence of complete
notes and (ii) subject to normal, recurring year-end adjustments not material in
amount.
4.4 Books And Records. The books of account, minutes, stock
records and other records of Newco and Sellers relating to the Assets and the
Business ("Minute Books"), all of which have been made available to Buyer, are
complete and correct and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal controls.
The Minute Books contain accurate and complete records of all meetings held of,
and corporate action taken by, the
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stockholders, the Boards of Directors, and committees of the Boards of Directors
of Sellers relating to the Business or the Assets, and no meeting of any such
stockholders, Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books.
4.5 Membership Agreement. The forms of the Membership Agreement
currently used by Sellers in the Business plus two old Membership Agreements are
attached hereto as Schedule 4.5. The grid of membership dues information and
other information attached as Schedule 4.5 hereto accurately represents the
membership dues information relating to the Facilities set forth thereon.
4.6 Leases. Schedule 4.6 hereto contains a complete and accurate
list of all real property leased by Newco or Sellers or otherwise with respect
to the Business. Except for the Owned Real Property, the Assets do not include
any other interest in real property other than as set forth on Schedule 4.6
hereto. Sellers have delivered to Buyer true and complete copies of all such
Leases. Such Leases are in full force and effect and are valid, binding, and
enforceable in accordance with their terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights and (ii) general principles of equity relating to
the availability of equitable remedies (regardless of whether such agreements
are sought to be enforced in a proceeding at law or in equity) and no event of
default has occurred which (whether with or without notice, lapse of time or
both or the happening or occurrence of any other event) would constitute a
default thereunder on the part of Sellers; and Sellers have no knowledge of the
occurrence of any event of default which (whether with or without notice, lapse
of time or both or the happening or occurrence of any other event) would
constitute a default thereunder by any other party.
4.7 Title To Properties; Encumbrances. Prior to Closing, Sellers
owned (and at Closing Newco will own) all the Assets (whether tangible or
intangible) that they purport to own located in the Facilities operated by
Sellers or reflected as owned in the books and records of Sellers, including all
of the Assets reflected in the Balance Sheet and the Interim Balance Sheet
(except for personal property sold or otherwise disposed of since the date of
the Balance Sheet and the Interim Balance Sheet, as the case may be, in the
ordinary course of business), and all of the Assets purchased or otherwise
acquired by Sellers since the date of the Balance Sheet (except for personal
property acquired and sold since the date of the Balance Sheet in the ordinary
course of business and consistent with past practice) which subsequently
purchased or acquired Assets (other than inventory and short-term investments)
are accounted for in the Interim Balance Sheet or are listed in Schedule 4.7
hereto. The Assets constitute all of the tangible personal property held by each
Seller (other than Parent) immediately prior to the contribution thereof to
Newco. Except as set forth in Schedule 4.7 (and subject to the fact that, as
noted on Schedule 4.7, certain Encumbrances listed thereon are to be eliminated
or modified at or prior to Closing), all Assets reflected in the Balance Sheet
and the Interim Balance Sheet are free and clear of all Encumbrances except,
with respect to all such Assets, (a) rights of lessors under the Leases
described in Schedule 4.7 and under personal property Leases, (b)
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Permitted Encumbrances (as defined in Section 4.28(a)). Except as set forth in
Schedule 4.7, the Assets are adequate for the conduct of the Business as
presently conducted.
4.8 Accounts Receivable. All accounts receivable of Newco that
are reflected on the Sellers' Balance Sheet or the Interim Balance Sheet or on
the accounting records of Newco as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the ordinary course
of business. Unless paid prior to the Closing Date, the Accounts Receivable are
or will be as of the Closing Date current and collectible net of the respective
reserves shown on the Closing Balance Sheet or the Interim Balance Sheet or on
the accounting records of Sellers as of the Closing Date (which reserves are
adequate and calculated consistent with past practice). There is no contest,
claim, or right of set-off, other than in the ordinary course of Business, under
any Contract with any obligor of an Accounts Receivable relating to the amount
or validity of such Accounts Receivable. Sellers have provided to Buyer a
complete and accurate list (titled "Aging of Accounts Receivable") of all
Accounts Receivable as of the date of the Interim Balance Sheet, which list sets
forth the aging of such Accounts Receivable.
4.9 Inventory. No Inventory set forth on the Interim Balance
Sheet or included in the Assets and acquired by Seller since the date thereof is
located anywhere other than at one or more of the Facilities, and all such
Inventory was acquired and has been maintained in accordance with the regular
business practices of Sellers, consists of new and unused items of a quality and
quantity usable or salable in the ordinary course of business, and is valued at
the lower of cost or market on the Interim Balance Sheet. None of such Inventory
is obsolete, unusable, damaged or unsaleable in the ordinary course of business,
except for such items of Inventory which have been written down in accordance
with GAAP or for which adequate reserves have been provided for on the Interim
Balance Sheet in accordance with GAAP.
4.10 No Undisclosed Liabilities. Except as set forth in Schedule
4.10 hereto, Newco and Sellers have no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent, or
otherwise) relating to the Business except for (i) liabilities or obligations
reflected or reserved against in the Interim Balance Sheet or (ii) current
liabilities incurred in the ordinary course of business (and not in violation of
this Agreement) since the date of the Interim Balance Sheet, and (iii)
liabilities or obligations under Applicable Contracts or in connection with
Actions. Parent's direct contribution of Assets to Newco was solely in exchange
for Newco's stock, and no direct liabilities of Parent were or will be assumed
by Newco in such exchange.
4.11 Tax Matters.
(a) Each Seller and Newco has timely filed, or caused to
be timely filed, all Tax Returns that it was required to file. All such Tax
Returns were correct and complete in all material respects. All Taxes owed by
each Seller and Newco (whether or not shown on any Tax Return) that are due and
payable have been paid. None
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of the Sellers or Newco is currently the beneficiary of any extension of time
within which to file any Tax Return, except as provided on Schedule 4.11 hereto.
None of the Sellers or Newco has received written notice of any claim by an
authority in a jurisdiction where any of the Sellers or Newco does not file Tax
Returns that any of the Sellers is subject to taxation by that jurisdiction.
There are no liens on any of the Assets that arose in connection with any
failure (or alleged failure) to pay any Tax.
(b) Each Seller and Newco has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or other third
party.
(c) There is no dispute or claim concerning any liability
of any Seller or Newco for Taxes claimed or raised by any authority in writing,
or of which any Seller has knowledge. To the knowledge of Sellers, no audit or
examination of any Tax Return is currently in progress, and none of the Sellers
or Newco has received notice of any proposed audit or examination. Sellers have
furnished to Buyer or its Representatives correct and complete copies of all
federal income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by Sellers or Newco with respect to years ended on
or after December 31, 1996. None of the Sellers or Newco has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(d) None of the Sellers or Newco has filed a consent under
Section 341(f) of the Code concerning collapsible corporations (or any
comparable state income tax provision). None of the Sellers or Newco has made
any payments, is obligated to make any payments, or is a Party to any agreement
that under certain circumstances could obligate it to make any payments that
will not be deductible under Section 280G of the Code. None of the Sellers is a
party to any Tax allocation, sharing or indemnity agreement. None of the Sellers
or Newco (I) has been a member of any combined, consolidated or unitary Tax
Return (other than Tax Returns filed by a group of which Parent is the common
parent) or (ii) has any liability for the Taxes of any person (other than any of
the Sellers) under Regulation Section 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract, or
otherwise.
(e) The unpaid Taxes of the Sellers and Newco (i) did not,
as of the date of the Interim Balance Sheet, exceed by any material amount the
reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the Interim Balance Sheet, and (ii) will not exceed by any
material amount the reserve as adjusted for operations and transactions through
the Closing Date in accordance with the past custom and practice of Newco or the
Sellers in filing their Tax Returns.
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4.12 No Material Adverse Change. Since the date of the Balance Sheet,
there has not been any Material Adverse Change and Sellers have no Knowledge of
any event or circumstance that would reasonably be expected to result in such a
Material Adverse Change.
4.13 Employee Benefits.
(a) Schedule 4.13 hereto sets forth a complete and correct list
of all (i) written employment contracts, employment arrangements, summaries of
oral employment contracts (excluding at-will employment arrangements which
Parent may terminate at any time without any severance pay) and other
arrangements that provide benefits to Spectrum Personnel and that are not Plans
(as defined below) (collectively, the "Employment Contracts") and (ii) all
"employee welfare benefit plans" or "employee pension benefit plans," as such
terms are defined in Sections 3(1) and 3(2), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), which are
maintained, administered or contributed to by the Sellers (collectively, the
"Plans") which cover current or former Spectrum Personnel.
(b) None of the Plans is subject to Title IV of ERISA. In the
past six years, Sellers have not maintained, sponsored, or been required to
contribute to, have not withdrawn from (either completely or partially), and
have not incurred any liability with respect to, any plan subject to Title IV of
ERISA or the minimum funding requirements of Section 412 of the Code.
(c) The Plans have been administered in compliance in all
material respects with their terms and with all filings, reporting, disclosure,
and other requirements of ERISA, the Code and any other applicable law. The only
Plan which is an "employee pension benefit plan," as such term is defined in
Section 3(2) of ERISA, is Parent's 401(k) profit sharing plan (the "401(k)
Plan"). The 401(k) Plan is and has been for all the years of the Plan the
subject of a favorable determination letter issued by the Internal Revenue
Service as to its qualified status under Code Section 401. Parent has no
knowledge of any facts which might adversely affect the qualified status of the
401(k) Plan.
(d) Neither Sellers, nor any of Sellers' employees or directors,
nor, to the Knowledge of Sellers, any plan fiduciary of any of the Plans, have
engaged in any transaction in violation of Section 406(a) or (b) of ERISA or any
"prohibited transaction" (as defined in Section 4975(c)(1) of the Code) for
which no exemption exists.
(e) Other than routine claims for benefits made in the ordinary
course of business, there are no pending Actions, and to the Knowledge of the
Sellers, no such Actions are threatened, against any Plan or fiduciary of any
such Plan by any participant, beneficiary or Governmental Body with respect to
the qualification or administration of any such Plan.
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(f) Sellers have provided to Buyer or its Representatives a copy
of the Employment Contracts, the Plans which cover current or former Spectrum
Personnel, related trust agreements and all amendments thereto.
(g) For purposes of this Section 4.13, all references to Sellers
shall be deemed also to refer to any entity which is under common control or
affiliated with Sellers within the meaning of Section 4001 of ERISA and the
rules and regulations thereunder and/or Section 414 of the Code and the rules
and regulations thereunder.
(h) All amounts required to be contributed to any Plan by the
Sellers with respect to Spectrum Personnel will, as of the Closing Date, have
been paid or properly accrued on the books of the Sellers or Shareholder. As
soon as practicable following the Closing Date, the Sellers shall contribute the
amount of all employer matching contributions or discretionary contributions (in
an amount determined in accordance with Sellers' past practices) to the 401(k)
Plan which in the ordinary course of business would be contributed for or
attributable to the period prior to the Closing Date.
(i) Neither the execution and delivery of this Agreement, the
Ancillary Agreements nor any of the Contemplated Transactions, will terminate or
modify, or give a third party a right to terminate or modify, the provisions or
terms of any Employment Contract or Plan and will not constitute a stated
triggered event under any Employment Contract or Plan or any other agreement
with any person or entity that will result in any payment or the acceleration of
the right to receive any payment (including parachute payments, severance
payments or any similar payments) that would not be deductible becoming due to
any employees of the Sellers.
(j) All Plans that are group health plans have been operated in
compliance with the continuation coverage requirements of Section 4980B of the
Code and applicable state law. Except to the extent required by Section 4980B of
the Code, neither Sellers nor any Plan which is a "welfare benefit plan"
provides health or other welfare benefits (through the purchase of insurance or
otherwise ) for any retired or former employees.
4.14 Compliance With Legal Requirements; Permits
(a) Except as set forth in Schedule 4.14 hereto,
(i) Each of the Sellers is, and at all times has been, in
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its Business or the ownership or use of any of the
Assets except where the failure would not have a Material Adverse Effect;
(ii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) has had or would reasonably be
expected to (A) constitute or result in a violation by any Seller of, or a
failure on the part of any Seller to comply with, any Legal Requirement relating
to the Business, or (B) give rise to any obligation on
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the part of Sellers to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature relating to the Business; and
(iii) Sellers have not received any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential violation of,
or failure to comply with, any material Legal Requirement relating to the
Business, or (B) any actual, alleged, possible, or potential obligation on the
part of Sellers to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature relating to the Business.
(b) Schedule 4.14 hereto contains a complete and accurate list of
each material Permit that is held by Sellers or that otherwise relates to the
Business, or to any of the Assets. Each Permit listed or required to be listed
in Schedule 4.14 hereto is valid and in full force and effect. Except as set
forth in Schedule 4.14 hereto:
(i) Sellers are, and since January 1, 1996 at all times
have been, in full compliance with all of the material terms of each Permit
identified or required to be identified in Schedule 4.14 hereto;
(ii) since January 1, 1996, no event has occurred or
circumstance exists that would reasonably be expected to (with or without notice
or lapse of time) (A) constitute or result directly or indirectly in a material
violation of or a material failure to comply with any term or requirement of any
Permit listed or required to be listed in Schedule 4.14 hereto, or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or any materially adverse modification to, any Permit listed
or required to be listed in Schedule 4.14 hereto;
(iii) since January 1, 1996, Sellers have not received any
written notice or other written communication from any Governmental Body
regarding (A) any actual, alleged, possible, or potential violation of or
failure to comply with any term or requirement of any material Permit listed or
required to be listed in Schedule 4.14, or (B) any actual, revocation,
withdrawal, suspension, cancellation, termination of, or materially adverse
modification to, any Permit listed or required to be listed in Schedule 4.14;
and
(iv) Since January 1, 1996, all applications required to
have been filed for the renewal of the Permits listed or required to be listed
in Schedule 4.14 hereto have been duly filed with the appropriate Governmental
Bodies, and all other filings required to have been made with respect to such
Permits have been duly made with the appropriate Governmental Bodies.
The Permits listed in Schedule 4.14 hereto collectively constitute all
of the material Permits necessary to permit Sellers to lawfully conduct and
operate the Business in the manner Sellers currently conduct and operate the
Business and to permit Sellers to own and use the Assets in the manner in which
Sellers currently own and use the Assets.
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4.15 Legal Proceedings; Orders. Except as provided in Schedule 4.15,
there is no Action, Order, writ, or decree outstanding or pending, or to the
Knowledge of the Sellers threatened or anticipated (a) against, related to or
affecting Sellers, the Business or the Assets or (b) seeking to delay, limit or
enjoin the Contemplated Transactions, and Sellers have no Knowledge of any event
or circumstance that would reasonably be expected to give rise to or serve as a
basis for the commencement of any such Action. There is no Order to which any of
the Sellers is subject relating to the Business or the Assets.
4.16 Absence Of Certain Changes And Events. Except as set forth in
Schedule 4.16 hereto, since the date of the Interim Balance Sheet, Sellers have
conducted the Business only in the ordinary course of business and there has not
been any:
(a) payment or increase by Sellers of any bonuses, salaries, or
other compensation to any Spectrum Personnel (except in the ordinary course of
business) or entry into any Employment Contract or severance agreement, with any
Spectrum Personnel;
(b) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any Spectrum
Personnel;
(c) damage to or destruction or loss of any Asset, whether or not
covered by insurance, which has had or which would reasonably be expected to
have a Material Adverse Effect;
(d) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Contract or transaction
involving a total remaining commitment by or to Sellers of at least $25,000;
(e) sale (other than sales of inventory and used equipment in the
ordinary course of business), lease, or other disposition of any material Asset
or mortgage, pledge, or imposition of any lien on any material Asset, other than
to Newco pursuant to the Contribution Agreement;
(f) cancellation or waiver of any claims or rights with a value
to Sellers in excess of $25,000;
(g) material change in the accounting methods used by Sellers; or
(h) agreement, whether oral or written, by Sellers to do any of
the foregoing.
4.17 Applicable Contracts; No Defaults.
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(a) Newco or Sellers have delivered to Buyer true and complete
copies of:
(i) each Applicable Contract that involves the future
performance of services or delivery of goods or materials by Newco or any of the
Sellers of an amount or value in excess of $25,000;
(ii) each Applicable Contract that involves the future
performance of services or delivery of goods or materials to Newco or any of the
Sellers of an amount or value in excess of $25,000 (excluding amounts due more
than one year from Closing under contracts for the ongoing purchase of supplies
or for services (such as gardening) to Facilities, in each case terminable by
Sellers without penalty upon 30 days notice or less);
(iii) each Applicable Contract that was not entered into
in the ordinary course of business and that involves future expenditures or
receipts of Newco or Sellers in excess of $25,000;
(iv) each Applicable Contract affecting the ownership of,
leasing of, title to, use of, or any leasehold or other interest in, any Asset
(except Asset leases and installment and conditional sales agreements having a
value per item or aggregate payments of less than $25,000);
(v) each Applicable Contract with respect to patents,
trademarks, copyrights, software or other intellectual property, including
agreements with current or former Spectrum Personnel regarding the appropriation
or the non-disclosure of any of the intellectual property Assets;
(vi) each Applicable Contract to which Newco or Sellers
and any labor union or other employee representative of a group of Spectrum
Personnel are parties;
(vii) each Applicable Contract (however named) involving a
sharing of profits, losses, costs, or liabilities related to the Business
between any of the Sellers or Newco and any other Person;
(viii) each Applicable Contract containing covenants that
in any way purport to restrict the freedom of Newco or Sellers to engage in the
Business;
(ix) each Applicable Contract providing for payments to or
by any Person based on sales, purchases, or profits, other than direct payments
for goods;
(x) each power of attorney given by Newco or Sellers and
related to the Business that is currently effective and outstanding;
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(xi) each Applicable Contract entered into other than in
the ordinary course of business that contains or provides for an express
undertaking by Newco or Sellers to be responsible for consequential damages;
(xii) each Applicable Contract providing for capital
expenditures in excess of $10,000 after the date hereof;
(xiii) each Applicable Contract containing written
warranty, guaranty, and/or other similar undertaking with respect to contractual
performance extended by Newco or Sellers, other than in the ordinary course of
business;
(xiv) each Construction Contract;
(xv) each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing; and
(xvi) each Applicable Contract relating to the
construction of any improvements on any Owned Real Property or property subject
to Leases.
Schedule 4.17(a) hereto sets forth a list of such Applicable
Contracts, including the parties to the Contracts and the date thereof.
(b) Except as set forth in Schedule 4.17(b) hereto, to the
Knowledge of Newco and Sellers:
(i) no Affiliate of Newco or Sellers has any rights under
any Applicable Contract (other Applicable Contracts entered into by Parent for
the benefit of its wholly and/or partially owned subsidiaries or partnerships);
and
(ii) none of the Spectrum Personnel is bound by any
Contract that purports to limit the ability of such Person to (A) engage in or
continue any conduct, activity, or practice relating to the Business, or (B)
assign to Sellers or to any other Person any rights to any invention,
improvement, or discovery.
(c) Except as set forth in Schedule 4.17(c) hereto, each
Applicable Contract described in Section 4.16(a) above is in full force and
effect and is valid and enforceable in accordance with its terms.
(d) Except as set forth in Schedule 4.17(d) hereto:
(i) each of the Sellers and Newco is, and since January 1,
1996 at all times has been, in material compliance with all applicable terms and
requirements of each Applicable Contract;
(ii) To Sellers' Knowledge, each other Person that has or
had any obligation or liability under any Applicable Contract is, and at all
times since January
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1, 1996 has been, in full compliance with all applicable terms and requirements
of such Contract;
(iii) To Sellers' Knowledge no event has occurred or
circumstance exists that (with or without notice or lapse of time) would
reasonably be expected to contravene, conflict with, or result in a violation or
breach of, or give any of the Sellers or other Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable Contract; and
(iv) None of the Sellers has given to or received from any
other Person any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or breach of, or
default under, any Applicable Contract.
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to Newco
or Sellers under current or completed Applicable Contracts with any Person and
no such Person has made written demand for such renegotiation.
(f) The Applicable Contracts relating to the provision of
services by Newco or Sellers have been entered into in the ordinary course of
business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that to Sellers' Knowledge are or would be in violation of any Legal
Requirement.
(g) The Construction Contracts are in full force and effect, and
there exists no default or circumstance which, with the giving of notice or
lapse of time or both, would constitute a default on the part of the owner or,
to Sellers' Knowledge, on the part of the contractor, thereunder. The
Construction Contracts are the only contracts for improvements to any
Facilities.
4.18 Insurance. Schedule 4.18 contains a complete and accurate list of
all policies or binders of fire, liability, title, worker's compensation,
product liability, cargo and other forms of insurance (showing as to each policy
or binder the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage) maintained by Newco or
Sellers on the (i) Business, (ii) Assets, (iii) Spectrum Personnel, as presently
maintained, and a list of all such policies or binders for all times since
January 1, 1998. All insurance coverage applicable to the Business or Assets is
in full force and effect and provides coverage required by applicable Legal
Requirements and by any and all Applicable Contracts. There is no material
default under any such coverage nor has there been any material failure to give
notice or present any claim under any such coverage in a due and timely fashion.
There are no outstanding unpaid premiums except in the ordinary course of
business and no notice of cancellation or nonrenewal of any such coverage has
been received. There are no outstanding performance bonds covering or issued for
the benefit of the Business. Except as provided
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in Schedule 4.18, no insurer has advised Sellers that it intends to reduce
coverage, increase premiums or fail to renew existing policy or binder. Sellers
have paid all premiums due, and have otherwise performed all of their respective
obligations, under each policy.
4.19 Environmental Matters.
(a) Definitions. The following terms, when used in this Section
4.19, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, used in the singular or the plural depending on the
reference.
(i) "Sellers" for the purposes of this Section, shall
include (i) Sellers and (ii) all predecessor or former corporations,
partnerships, joint ventures, organizations, businesses or other entities,
whether in existence as of the date hereof or at any time prior to the date
hereof, the assets or obligations of which have been acquired or assumed by
Sellers or to which Sellers has succeeded.
(ii) "Release" shall mean and include any spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing into the environment or the workplace of any
Hazardous Substance, and otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
contaminant, chemical, waste and any toxic, infectious, carcinogenic, reactive,
corrosive, ignitable or flammable chemical or chemical compound or hazardous
substance, material or waste, whether solid, liquid or gas, including, without
limitation, any quantity of asbestos in any form, urea formaldehyde, PCB's,
radon gas, crude oil or any fraction thereof, all forms of natural gas,
petroleum products or by-products or derivatives, radioactive substance or
material, pesticide waste waters, sludges, slag and any other substance,
material or waste that is classified as a Hazardous Substance under any
Environmental Laws.
(iv) "Environmental Laws" shall mean foreign, federal,
state or local laws, statutes, ordinances, regulations, policies, guidance,
rules, judgments, orders, court decisions, permits, restrictions and licenses
which (i) regulate or relate to the protection or clean-up of the environment,
the use, treatment, storage, transportation, generation, manufacture,
processing, distribution, handling or disposal of, or emission, discharge or
other release or threatened release of, Hazardous Substances (whether, gas,
liquid or solid), the preservation or protection of waterways, groundwater,
drinking water, air, wildlife, plants or other natural resources, or the health
and safety of persons or property, including without limitation protection of
the health and safety of employees; or (ii) impose liability or responsibility
with respect to any of the foregoing. Environmental Laws shall include, without
limitation, the Federal Insecticide, Fungicide, Rodenticide Act, Resource
Conservation & Recovery Act, Clean Water Act, Safe Drinking Water Act, Atomic
Energy Act, Occupational Safety and Health Act, Toxic Substances Control Act,
Clean Air Act, Comprehensive Environmental Response, Compensation and Liability
Act,
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Emergency Planning and Community Right-to-Know Act, Hazardous Materials
Transportation Act and all analogous or related federal, state or local law,
each as amended.
(v) "Environmental Conditions" means the introduction into
the environment of any Hazardous Substance (whether or not upon any Facility or
former Facility and whether or not such Hazardous Substance constituted at the
time thereof a violation of any Environmental Law as a result of any Release of
any kind whatsoever of any Hazardous Substance) and as a result of which Sellers
has or may become liable to any Person or by reason of which any Assets may
suffer or be subjected to any Encumbrance.
(b) Environmental Compliance. Except as set forth on Schedule
4.19 or as disclosed to Buyer pursuant to Section 4.19(e), the Assets and the
Business now and always have been in compliance with any and all Environmental
Laws except where the failure to so comply would not reasonably be expected to
have a Material Adverse Effect.
(c) Notice of Violation. Except as set forth on Schedule 4.19, or
as disclosed to Buyer pursuant to Section 4.19(e), Sellers have not received any
notice of alleged, actual or potential responsibility for, or any inquiry or
investigation regarding, (i) any Release or threatened Release of any Hazardous
Substance at any property currently or previously owned, leased or operated by
any Seller in connection with the Business or (ii) an alleged violation of or
non-compliance with the conditions of any Environmental Law relating to the
Business, nor do Sellers have any knowledge of any facts which would reasonably
be expected to form the basis of any such notice. Except as set forth on
Schedule 4.19, Sellers have not received notice of any other demand or Action by
any Person alleging any actual or threatened injury or damage to any person,
property, natural resource or the environment arising from or relating to any
Release or threatened Release of any Hazardous Substances at, on, under, in, to
or from any property currently or previously owned, leased or operated by
Sellers in connection with the Business.
(d) Environmental Conditions. Except as set forth on Schedule
4.19, or as disclosed to Buyer pursuant to Section 4.19(c), there are no present
or to Sellers' Knowledge past Environmental Conditions in any way relating to
the Business or any Facility.
(e) Environmental Audits or Assessments. True, complete and
correct copies of the written reports, and all parts thereof, including any
drafts of such reports if such drafts are in the possession or control of
Sellers, of all environmental audits or assessments which have been conducted at
any property currently or previously owned, leased or operated by Sellers and
used in the Business, either by Sellers or any attorney, environmental
consultant or engineer engaged for such purpose, have been delivered to Buyer
and a list of all such reports, audits and assessments and any other similar
environmental report, audits and assessments and any other similar report, audit
or assessment of which Sellers have Knowledge is included on the Disclosure
Schedule.
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(f) Indemnification Agreements. Except as provided in Applicable
Contracts or set forth in Schedule 4.19, none of the Sellers is a party, whether
as a direct signatory or as successor, assign or third party beneficiary, or
otherwise bound, to any Applicable Contract (excluding insurance policies
disclosed on the Disclosure Schedule) under which any Seller is obligated by or
entitled to the benefits of, directly or indirectly, any representation,
warranty, indemnification, covenant, restriction or other undertaking concerning
Environmental Conditions relating to the Business or the Assets.
(g) Releases or Waivers. Sellers have not, with respect to any
Person against whom, to Sellers' Knowledge, Sellers had a claim relating to the
Business based on Environmental Laws, (i) released any claim under any
Environmental Law, or (ii) waived any rights concerning any Environmental
Condition.
(h) Notices, Warnings and Records. Sellers have given all notices
and warnings, made all reports, and kept and maintained all records required by
and in compliance with all Environmental Laws relating to the Business.
4.20 Employees.
(a) Schedule 4.20 hereto contains a complete and accurate list of
the following information for each Spectrum Personnel, including each Spectrum
Personnel on leave of absence or layoff status as of September 1, 1999;
employer; name; current compensation paid or payable; vacation accrued; and hire
date for purposes of vesting and eligibility to participate under any Employment
Contract or Plan.
(b) To Sellers' Knowledge, none of the Spectrum Personnel is a
party to, or is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between such
Person and any other Person ("Proprietary Rights Agreement") that in any way
materially adversely affects or will materially adversely affect (i) the
performance of his duties as a Spectrum Personnel, or (ii) the ability of Newco
or Sellers to conduct their business, including any Proprietary Rights Agreement
with Sellers by any such Person. To Sellers' Knowledge, none of the Spectrum
Personnel intends to terminate his or her employment with any of the Sellers.
4.21 Labor Relations; Compliance. None of the Sellers or Newco is a
party to any labor agreement with respect to any Spectrum Personnel with any
labor organization, union, group or association, and there are no employee
unions (nor any other similar labor or employee organizations) under local
statutes, custom or practice. None of the Sellers has experienced any attempt by
organized labor or its representatives to make it conform to demands of
organized labor relating to any Spectrum Personnel or to enter into a binding
agreement with organized labor that would cover any Spectrum Personnel. Except
as provided in Schedule 4.21, there is no labor strike or labor disturbance
pending or, to the Knowledge of Sellers, threatened against Sellers, nor is any
labor grievance currently being asserted, and none of the Sellers has
experienced a work stoppage or other labor difficulty, and is not and has not
engaged in any unfair labor practice. Without limiting the foregoing, to the
Knowledge of Sellers, Sellers and Newco are in compliance
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with the Immigration Reform and Control Act of 1986. Each of the Sellers
maintains a current Form I-9, as required by such Act, in the personnel file of
any Spectrum Personnel hired after November 9, 1986.
4.22 Intellectual Property. Except for the federally registered
trademark "Spectrum Club" (a copy of which registration is attached to Schedule
4.22) and for paid-up licenses for publicly available mass-produced software
programs under which Newco or any of the Sellers is the licensee and other
assets listed or described on Schedule 4.22, there are no intellectual property
assets included in the Assets.
4.23 Certain Payments. None of the Sellers or Parent or director,
officer, agent, or employee of Sellers, or to Sellers' Knowledge, any other
Person associated with or acting for or on behalf of Sellers, has directly or
indirectly in violation of any Legal Requirement, (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other payment to
any Person, private or public, regardless of form, whether in money, property,
or services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, or (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
Sellers or any Affiliate thereof, or (b) established or maintained any fund or
asset that has not been properly recorded in the books and records of Sellers.
4.24 Disclosure.
(a) To Sellers' knowledge, no representation or warranty of
Sellers in this Agreement omits to state a material fact necessary to make the
statements herein, in light of the circumstances in which they were made, not
materially misleading.
(b) There is no fact of which Sellers have Knowledge (other than
general economic or industry conditions with respect to Sellers) and that has
had or would reasonably be expected to have a Material Adverse Effect that has
not been set forth in this Agreement or the Disclosure Schedule.
4.25 Relationships With Related Persons. Except as set forth on Schedule
4.25, no Affiliate, director or officer of any of the Sellers has, or since
January 1, 1996 has (a) had any interest in any property (whether real,
personal, or mixed and whether tangible or intangible), used in or pertaining to
the Business, or (b) owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with
Sellers, or (ii) engaged in competition with Sellers with respect to the
Business or any significant portion thereof (a "Competing Business") in any
market presently served by Sellers, except for one percent or less of the
outstanding capital stock of any Competing Business that is publicly traded on
any recognized exchange or in the over-the-counter market. Except as set forth
in Schedule 4.25 hereto, no Affiliate of Sellers is a party to any Applicable
Contract with, or has any claim or right against, Sellers.
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4.26 Brokers Or Finders. Newco, Sellers and their Representatives have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement (other than a fee to Sutro & Company which is the sole
responsibility of Sellers) and will indemnify and hold Buyer harmless from any
such payment alleged to be due by or through Sellers as a result of the action
of their Representatives.
4.27 Year 2000 Compliance. All of Newco's and Sellers' information
technology ("IT") systems and relating to accounting and membership will be Year
2000 compliant by December 31, 1999. Sellers have received written assurances
from vendors of certain non-IT systems, such as elevators, that such systems are
Year 2000 compliant. Sellers have no Knowledge of the inability of Newco's or
Sellers' significant suppliers, customers and others with which they conduct
business to identify and resolve their respective Year 2000 compliance issues.
Sellers hereby incorporate by reference the text under the heading "Year 2000
Disclosure" in Parent's Form 10-Q filed with the Securities and Exchange
Commission for the quarter ended June 30, 1999.
4.28 Facilities. Schedule 4.6 contains a complete and accurate list of
all Owned and leased Real Property.
(a) Owned Real Property. The Owned Real Property is owned by
Sellers free and clear of all Encumbrances, except for (i) Encumbrances
reflected in the preliminary title reports concerning the Owned Real Property
delivered by Sellers to Buyer, (ii) rights of members under Membership
Agreements referred to in Section 4.5, (iii) rights of concessionaires under
subleases and license agreements listed on Schedule 4.17(a), (iv) liens for
current taxes not yet due, (v) matters that would be revealed by a survey of the
Owned Real Property, and (vi) to the extent not reflected in the preliminary
title reports referred to above, non-monetary Encumbrances recorded in the real
estate records of the counties in which the Owned Real Property is located which
do not conflict with the current use of the Facilities, and as to which none of
the Sellers or Newco is a party or has Knowledge (the "Permitted Encumbrances"
for the Owned Real Property). Prior to the Closing, Sellers shall remove, or
cause to be removed, all monetary Encumbrances (except liens for taxes not yet
due) on the Owned Real Property. Between the date hereof and the Closing Date,
Sellers shall not create any non-monetary Encumbrances on the Owned Real
Property. Each of the Sellers enjoys peaceful and undisturbed possession of all
Owned Real Property.
(b) Actions. Except as set forth in Schedule 4.28, there are no
pending or, to the Knowledge of Sellers, threatened in writing condemnation
proceedings or other Actions relating to any Facility.
(c) Leases or Other Agreements. Except for Permitted
Encumbrances, there are no leases, subleases, licenses, occupancy agreements,
options, rights, concessions or other agreements or arrangements, written or
oral, granting to any Person the right to purchase, use or occupy any Facility,
or any real property used in connection with the Business or any portion thereof
or interest in any such Facility or real property.
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(d) Leased Real Property. Sellers shall deliver to Buyer
preliminary title reports covering the real property subject to the Leases set
forth on Schedule 4.6 within five (5) days after the execution of this
Agreement. Prior to the Closing, Sellers shall use their best efforts (which
shall include the payment of money only to the extent expressly required to be
paid under the applicable Lease for such purpose) to cause to be delivered to
Buyer an executed non-disturbance agreement made by each holder of a monetary
Encumbrance on the fee interest in the real property subject to any such Lease
in favor of Buyer and in commercially reasonable form. The fee interest in the
property subject to Leases set forth on Schedule 4.6 and Sellers' leasehold
interest therein is free and clear of all Encumbrances created by Sellers,
except for (i) the Leases and any memoranda thereof, (ii) Encumbrances reflected
in the preliminary title reports covering such real property delivered to Buyer
as set forth above, (iii) rights of members under Membership Agreements referred
to in Section 4.5, (iv) rights of concessionaires under subleases and license
agreements listed in Schedule 4.17(a) and (v) liens for current taxes not yet
due (the "Permitted Encumbrances" for the Leased Real Property). On the date
hereof and the Closing Date, Sellers represent and warrant that they do not have
any Knowledge of any Encumbrance on the fee interest in the property subject to
Leases referred to on Schedule 4.6, or on Sellers' leasehold interest therein,
which would interfere with the lessee's current use of the property in
accordance with the terms of such Lease. Prior to the Closing, Sellers shall
remove, or cause to be removed, all monetary Encumbrances created by Sellers
(except liens for taxes not yet due) on the fee interest in the property subject
to Leases referred to on Schedule 4.6 and on Sellers' leasehold interest
therein. Between the date hereof and the Closing Date, Sellers shall not
voluntarily create any non-monetary Encumbrances on the fee interest in the
property subject to the Leases referred to on Schedule 4.6 or on Sellers'
leasehold interest therein. Each of the Sellers enjoys peaceful and undisturbed
possession of all leased Real Property. Each of the Sellers shall use its best
efforts (which shall include the payment of money only to the extent expressly
required to be paid under the applicable Lease) to remove or provide endorsement
or other coverage against any non-monetary Encumbrance (x) indicated in Schedule
4.28(d) or (y) reflected in the preliminary title reports for the leased Real
Property delivered to Buyer on or after the date hereof, the removal of which is
reasonably requested by Buyer.
(e) Certificate of Occupancy. All Facilities (except Spectrum
Club-Anaheim) have received and complied with all required Governmental
Authorizations (including without limitation Permits and certificate of
occupancy or other similar certificate permitting lawful occupancy of the
Facilities) required in connection with the operation thereof and have been in
material compliance with all applicable Legal Requirements.
(f) Flood Zone. No Facility is located in a flood hazard area as
defined by the Federal Insurance Administration.
(g) Utilities. All Facilities are supplied with utilities
(including without limitation water, sewage, disposal, electricity, gas and
telephone) and other services necessary for the operation of such Facilities as
currently operated, and there is no
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condition of which any of the Sellers has Knowledge which would reasonably be
expected to result in the termination of the present access from any Facility to
such utility services. Each Facility has adequate rights of access to public
ways and streets.
(h) Improvements, Fixtures and Equipment. Except as set forth on
Schedule 4.28, the improvements constructed on the Facilities, including without
limitation all Leasehold Improvements, and all Fixtures and Equipment and other
tangible assets owned, leased or used by Sellers at the Facilities are (i)
insured to the extent and in a manner customary in the industry, (ii)
structurally sound with no known material defects, (iii) in good operating
condition and repair, (iv) not in need of maintenance, repair or correction
except for ordinary routine maintenance and repair, the cost of which would not
be material, (v) sufficient for the operation of the Business as presently
conducted, (vi) in conformity, in all material respects, with all applicable
Legal Requirements, and (vii) in conformity, in all material respects, with the
Construction Contracts.
(i) Physical Conditions. Except as set forth on Schedule 4.28,
each Facility is free of structural defects and all building systems contained
therein are in good working order, subject to ordinary wear and tear. All
construction work performed pursuant to the Construction Contracts has been
performed in material compliance therewith and in compliance with all applicable
Legal Requirements. Sellers have made, or have caused to be made, all payments
required to be made on or prior to the date hereof by the Owner under each
Construction Contract.
(j) No Special Assessment. None of the Sellers has received
notice of any special assessment relating to any Facility or any portion thereof
and there is no pending or to Sellers' Knowledge threatened special assessment.
4.29 Manhattan Beach. Sellers own, directly and/or indirectly, as of the
date of this Agreement, a 50% equity interest in Manhattan Beach. Sellers will
convey such interests to Buyer at Closing as described in the definition of
Assets.
4.30 Software Licenses. Sellers have fully paid up licenses for each
copy of all software installed on computers included in the Assets.
4.31 Miscellaneous. The consummation of the transactions contemplated by
this Agreement, including without limitation the sale to Buyer of a 50% interest
in Manhattan Beach joint venture, will not constitute a termination of the
Manhattan Beach partnership (as defined in Section 8.01 of the Manhattan Beach
Joint Venture Agreement). References in the Manhattan Beach Joint Venture
Agreement to "TDC-El Segundo, Ltd." are typographical errors intended to refer
to El Segundo-TDC, Ltd., which is the joint venture party. Sellers' gross
proceeds on the sale-leaseback of the Spectrum Club - Thousand Oaks will not be
less than $12,000,000.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
5.1 Organization And Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Texas. Buyer is duly qualified to do business as a foreign corporation and is in
good standing under the laws of the State of California.
5.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, as applicable, enforceable against Buyer, in accordance
with its terms. Upon the execution and delivery by Buyer of the Ancillary
Agreements ("Buyer's Closing Documents"), Buyer's Closing Documents will
constitute the legal, valid, and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms. Buyer has the absolute
and unrestricted right, power, and authority to execute and deliver this
Agreement, and Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver the Buyer's Closing Documents and to perform
each of their obligations under this Agreement and Buyer's Closing Documents.
(b) Except as set forth in Schedule 5.2, neither the execution
and delivery of this Agreement by Buyer, nor the consummation or performance of
any of the Contemplated Transactions by Buyer will give any Person the right to
prevent, delay, or otherwise interfere with any of the Contemplated Transactions
pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the Board of Directors or
the stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be
subject; or
(iv) any Contract to which Buyer is a Party or by which
Buyer or may be bound.
Except as set forth in Schedule 5.2, Buyer is not and will not be
required to obtain any Permit in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the Contemplated
Transactions.
5.3 Certain Actions. There is no pending Action that has been commenced
against Buyer and that challenges, or may have the effect of preventing,
delaying, making
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illegal, or otherwise interfering with, any of the Contemplated Transactions. To
Buyer's Knowledge, no such proceeding has been threatened.
5.4 Brokers Or Finders. Neither Buyer nor its Representatives have
incurred any obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement, and Buyer will indemnify and hold Sellers and Shareholder
harmless from any such payment alleged to
5.5 Disclosure.
(a) To Buyer's knowledge, no representation or warranty of Buyer
in this Agreement omits to state a material fact necessary to make the
statements herein, in light of the circumstances in which they were made, not
materially misleading.
(b) There is no fact of which Buyer has Knowledge (other than
general economic or industry conditions with respect to Buyer) and that has had
or would reasonably be expected to have a Material Adverse Effect that has not
been set forth in this Agreement or the Disclosure Schedule.
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ARTICLE VI.
CERTAIN COVENANTS
6.1 Access and Due Diligence. Between the date of this Agreement and the
Closing Date, Sellers will (a) afford Buyer and its Representatives and
prospective lenders and their Representatives (collectively, "Buyer's Advisors")
full and free access to Sellers' personnel, properties (including subsurface
testing), contracts, books and records, and other documents and data, (b)
furnish Buyer and Buyer's Advisors with copies of all such contracts, books and
records, and other existing documents and data as Buyer may reasonably request,
and (c) furnish Buyer and Buyer's Advisors with such additional financial,
operating, and other data and information as Buyer may reasonably request in
each case to the extent related to the Business.
6.2 Operation of the Business. Between the date of this Agreement and
the Closing Date, Sellers will:
(a) conduct the Business only in the ordinary course of business,
including without limitation (A) not accelerating collections, deferring
payables, or changing policies with respect to bad debt reserves or (B) not
offering promotional programs, membership rates or initiation fees that are
inconsistent with Sellers' past customary practices or (C) not remodeling any
Facility or incurring capital expenditures which are not (I) listed on Schedule
6.2A, or (II) approved in writing by Buyer, or (III) with respect to Spectrum
Club - Anaheim, Spectrum Club - Canoga Park, Spectrum Club - Xxxxxx Hills,
Spectrum Club - Manhattan Beach and Spectrum Club - Thousand Oaks, consistent
with the capital budget attached hereto as Schedule 6.2A and the Construction
Contracts;
(b) except for routine periodic increases in base compensation in
the ordinary course of business, not increase the compensation or benefits
(including, without limitation, salary, bonus and commission schedules) of any
Spectrum Personnel;
(c) without the consent of Buyer, which shall not be unreasonably
withheld, not enter into, extend, materially modify, terminate or renew any Plan
or any Applicable Contract included in the Assets listed on Schedule 4.17 (or
which would be required to be listed on Schedule 4.17 by virtue of such entry,
extension, modification or renewal);
(d) use its best efforts to preserve intact the current business
organization of Sellers, keep available the services of the current Spectrum
Personnel, and maintain the relations and good will with suppliers, customers,
landlords, creditors, employees, agents, and others having business
relationships with the Business consistent with Sellers' sound business judgment
and past practices;
(e) not sell, assign, transfer, convey, lease, mortgage, pledge
or otherwise dispose of or voluntarily subject to any Encumbrance any of the
Assets, or any
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interest therein, except for (i) purchase money security interests in acquired
equipment, and (ii) sales of inventory and used equipment, in each case in the
ordinary course of business consistent with past practice, (iii) cash
distributions, and (iv) as provided pursuant to the Contribution Agreement;
(f) except with respect to Parent or as set forth on Schedule
6.2B, not acquire by merger or consolidation with, or merge or consolidate with,
or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of any Person;
(g) except with respect to Parent or as set forth on Schedule
6.2C, not make any loans or advances to any Person, except in the ordinary
course of business;
(h) not fail to comply in any material respect with all Legal
Requirements applicable to the Assets and the Business;
(i) not intentionally do any other act which would cause any
representation or warranty of Newco or Sellers in this Agreement to be or become
untrue in any material respect;
(j) confer with Buyer concerning operational changes or
developments of a material nature;
(k) ensure that the form of membership agreement used at each
Spectrum Club complies, as of the Closing Date, with applicable law and remove
from Spectrum Club premises any noncomplying forms so as to ensure that the
forms on hand are in compliance; and
(l) not amend any Construction Contract, and not enter into any
contract for the parking structure or office tenant improvements at the Spectrum
Club - Thousand Oaks, the expansion and parking structures at the Spectrum Club
- Manhattan Beach, the surplus space at the Spectrum Club - Xxxxxx Hills, or any
other capital improvement or construction project, without Buyer's prior written
consent;
(m) use their best efforts to complete the sale-leaseback of the
Spectrum Club - Thousand Oaks in accordance with the documents delivered to
Buyer prior to the date of this Agreement; and
(n) otherwise report periodically to Buyer concerning the status
of the Business and the Assets.
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6.3 Negative Covenants. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Sellers and
Newco will not, without the prior consent of Buyer, take any affirmative action,
or fail to take any reasonable action within their control, as a result of which
any of the changes or events listed in Section 4.16 is reasonably likely to
occur.
6.4 Required Approvals. As promptly as practicable after the date of
this Agreement, each of Buyer and Sellers will make all filings required by
Legal Requirements to be made by them in order to consummate the Contemplated
Transactions.
6.5 Notification. Between the date of this Agreement and the Closing
Date, each of Buyer and Sellers will promptly notify the other parties hereto in
writing if it acquires Knowledge of any fact or condition that causes or
constitutes or would reasonably be expected to result in a breach of any of its
representations and warranties as of the date of this Agreement or failure of
any of the conditions to Closing (except as expressly contemplated by this
Agreement).
6.6 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 11, Sellers will not, and will cause each of
their Representatives not to, directly or indirectly, solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the stock, business or assets (other than in
the ordinary course of business) of Newco or Sellers, or any merger,
consolidation, business combination, or similar transaction involving Newco or
Sellers.
6.7 Best Efforts. Between the date of this Agreement and the Closing
Date, the Buyer and Sellers will use their respective best efforts to cause the
conditions in Sections 7 and 8 to be satisfied.
6.8 Further Assurances. Upon the terms and subject to the conditions
contained herein, each of the parties hereto agrees, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the Contemplated Transactions, (ii)
to execute any documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to carry out any of the Contemplated
Transactions, and (iii) to cooperate with each other in connection with the
foregoing including using their respective commercially reasonable efforts (A)
to obtain all necessary Permits; provided, however that neither Sellers nor
Buyer shall be required to make any payments, commence litigation or agree to
modifications of the terms thereof in order to obtain any such Permits, and (C)
to fulfill all conditions to this Agreement.
6.9 Employee Matters.
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(a) Buyer may, in its sole discretion, extend offers of
employment to those of Sellers' employees whom Buyer desires to hire, upon such
terms and conditions as Buyer may determine in its sole discretion. Nothing
contained in this Agreement shall confer upon any of Sellers' employees any
right with respect to initial employment or continuance of employment by Buyer;
nothing herein shall interfere with the right of Buyer to terminate the
employment of any employee, at any time, with or without cause, or restrict
Buyer in the exercise of its independent business judgment in modifying any of
the terms and conditions of the employment of Sellers' employees.
(b) Sellers shall retain all liability for and be solely
responsible for all Plans and all obligations and liabilities thereunder.
Neither Newco nor Buyer shall assume any of the Plans or any obligation or
liability thereunder. Sellers will timely provide all notices and any
continuation of health benefit coverage (including without limitation, medical
and dental coverage) required to be provided to employees, former employees or
beneficiaries or dependents of such employees or former employees under COBRA to
the extent such notices and continuation of coverage are required to be provided
by reason of events occurring prior to or on the Closing Date or by reason of
the Contemplated Transactions. Sellers shall fully vest all Spectrum Personnel
who are participants in Parent's 401(k) Plan on the Closing Date in their
accounts under Parent's 401(k) Plan. Sellers shall allow employees to receive
distribution of their accounts under Parent's 401(k) Plan as soon as practicable
following the Closing.
(c) Buyer shall give credit to Spectrum Personnel whom it hires
for service with Sellers for purposes of eligibility and vesting, but not
benefit accruals, in all employee benefit plans (including health insurance)
maintained by Buyer for its employees in general.
6.10 Sellers' Post-Closing Obligations. Sellers covenant and agree to
fulfill their obligations under the Construction Contracts on and after the
Closing Date, and acknowledge that Buyer would not have entered into this
Agreement but for Sellers' agreement stated in this Section 6.10.
6.11 Covenants Regarding Operation of Clubs.
(a) Except as set forth in Schedule 6.11, Sellers agree that for
a period of five (5) years following the Closing Date, Sellers (including, for
purposes of this Section, their Controlled Affiliates, as defined below) shall
not, directly or indirectly, be connected as a director, officer, employee,
partner, consultant or otherwise with, or permit their names to be used by or in
connection with, or participate in the ownership, management, operation or
control of (collectively, "Participate") in, any Spectrum-Type health and/or
fitness club (as defined below); and Buyer agrees that for a period of five (5)
years following the Closing Date, Buyer (including, for purposes of this
Section, its Controlled Affiliates) shall not construct any Sports Club-Type
health and/or fitness club. The foregoing shall not prevent either party from
owning 2% or less of a class of publicly traded securities. Further, the
foregoing shall not prevent Buyer from acquiring any health and/or fitness club
as long as Buyer does not add any of the Business Amenities (as
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defined below) to such club. Finally, the foregoing shall not prevent any of the
Sellers from managing health club/spa facilities for any hotel in Los Angeles,
Orange and Ventura counties, provided that such facilities are primarily and
substantially for the benefit of such hotel's guests and do not exceed 10,000
square feet. As used in this Section, Controlled Affiliate means any Affiliate
of a party other than an individual stockholder who, together with his or her
Affiliates, owns directly or indirectly less than 40% of an entity.
(b) As used herein, a "Spectrum-Type" health and/or fitness club
shall mean any health and/or fitness club which contains less than 55,000 square
feet of usable club facility and is located in Los Angeles, Ventura or Orange
County, and a "Sports Club-Type" health and/or fitness club shall mean (i) any
health and/or fitness club which Buyer constructs within five miles of The
Sports Club/LA or The Sports Club/Irvine (each such radius being a "Radius"), as
the case may be, if all Sports Club-Type clubs constructed by Buyer within such
Radius contain, in the aggregate, more than 55,000 square feet of usable club
facility, or (ii) any other club constructed by Buyer within five miles of The
Sports Club/LA or The Sports Club/Irvine, which has a full service restaurant or
bar, or two or more of the following amenities (the "Business Amenities"): (A)
personal (i.e., permanent) lockers, (B) laundry, dry cleaning or shoe shine
service for members; (C) beauty salon, (D) banquet rooms, (E) regular valet
parking, (F) locker room concierge attendant service, or (G) saunas. For
purposes of calculating 55,000 square feet with respect to clubs within five
miles of The Sports Club/LA, the existing square footage of the Spectrum Club -
Water Garden will be included. Notwithstanding the foregoing, if Buyer expands
any sports and/or fitness club acquired by Buyer within either Radius, the first
3,000 square feet of such expansion at any club shall not be included for
purposes of calculating 55,000 square feet under this Section 6.11(b).
(c) The parties agree that the provisions of this Section 6.11
are reasonable and necessary to protect the legitimate interests of Buyer and
Sellers, in light of the fact that (i) both Sports Clubs and Spectrum Clubs
utilize substantially similar Proprietary Information and Sellers have agreed
pursuant to Section 6.12 to license to Buyers the right to use all Proprietary
Information currently used in the operation of the Spectrum Clubs; (ii) the
Sellers have made a considerable investment in the Proprietary Information and
believe the Proprietary Information is a material factor in their successful
operation of "premium" health and fitness clubs; (iii) Sellers have technical
expertise associated with the Business and have valuable business contacts with
clients and potential clients of the Business and with professionals in the
fitness industry, (iv) Sellers' reputation and goodwill are an integral part of
the success of both the Sports Clubs and the Spectrum Clubs throughout the area
where the clubs operate, (v) Buyer will be deprived of the benefits it has
bargained for pursuant to this Agreement if Sellers use the Proprietary
Information or goodwill associated with the Business in order to carry on a
similar business in proximity to existing Spectrum Clubs, and (vi) Sellers will
be deprived of the benefits Sellers have bargained for pursuant to this
Agreement if Buyers use the Proprietary Information or goodwill associated with
the Sports Clubs in order to carry on a similar business in proximity to
existing Sports Clubs.
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(d) Buyer and Sellers acknowledge that any violation of this
Section will result in irreparable injury to the other party, the exact amount
of which will be difficult to ascertain, and the remedies at law for any such
violation would not be reasonable or adequate compensation for such violation.
Accordingly, in the event of a violation of this Section, a party shall be
entitled to specific performance and injunctive relief, without posting bond or
other security, and without the necessity of proving actual damages.
(e) If any provision of this Section 6.11 is determined by any
court to be unenforceable by reason of duration, geographic scope or otherwise,
such covenant shall be interpreted to have the broadest application determined
to be enforceable by such court, provided that: (i) if the duration of any
covenant is limited by a Ruling (as defined below to less than five years, all
covenants herein shall be similarly limited, (ii) if any other aspect of the
covenants set forth in this Section is materially limited by a Ruling, the party
against whom such Ruling is made may, at any time while such Ruling remains in
effect, by written notice to the other party, terminate the covenants set forth
in this Section on a prospective basis (without prejudice to rights accruing for
breach of this Section prior to the date of termination). As used herein, the
term "Ruling" means any enforceable order which is (x) made by any court of
competent jurisdiction or any arbitrator appointed pursuant to Section 10.6
hereof, including, without limitation, a temporary restraining order,
preliminary injunction, stipulated order, interlocutory ruling or order, final
ruling or judgment, or a ruling of an appellate court, and (y) issued upon the
motion or request of the party restricted by the covenant limited by such order,
or by any Affiliate of such party, or by any other Person who has entered into
an agreement pursuant to which such Person would purchase a material portion of
the business or become an Affiliate of such Party.
6.12 Grant of License; PTS Manufacturing Arrangements. Sellers hereby
license to Buyer the irrevocable, perpetual, royalty-free, worldwide right to
use and exploit, on a non-exclusive basis, the trade secrets and confidential
and proprietary information currently utilized in the operation of the Spectrum
Clubs (the "Proprietary Information"), which shall include, without limitation:
(i) the architectural and interior design plans, drawings and specifications
utilized in the Spectrum Clubs, including the right to utilize similar plans,
drawings and specifications in additional health and fitness clubs acquired or
developed by Buyer; (ii) all personnel training programs currently utilized in
the operation of the Business, including all written materials related thereto;
(iii) the "PTS" private training and nutrition system utilized by the Spectrum
Clubs; (iv) all sales and marketing programs, materials and strategies
previously utilized by the Spectrum Clubs; and (v) all exercise and nutrition
protocols previously prepared and distributed to Spectrum Club Members. Further,
if Sellers make any manufacturing or purchase arrangements during the five year
period following the Closing Date for any nutritional or vitamin product,
Sellers shall also manufacture or order the quantities of such products for
Buyer as Buyer may request and arrange for Buyer's desired packaging and
labeling; provided that Buyer shall pay the vendor or reimburse Sellers for the
costs of the products Buyer ordered, including without limitation, any
incremental packaging costs due to the size of Buyer's order.
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ARTICLE VII.
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Newco Stock and to take the other
actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
7.1 Accuracy of Representations. The representations and warranties made
by Sellers in this Agreement (i) to the extent qualified by Material Adverse
Effect or any other materiality qualification must be true and correct and (ii)
to the extent not qualified by Material Adverse Effect or any other materiality
qualification must be true and correct in all material respects, as of the
Closing Date as if made on the Closing Date, except to the extent that such
representations and warranties expressly relate to a different date and Buyer
shall have received an officer's certificate to such effect signed on behalf of
Sellers.
7.2 Sellers' Performance. Each of the covenants and obligations that
Newco and Sellers are required to perform or to comply with pursuant to this
Agreement at or prior to the Closing must have been duly performed and complied
with, and Buyer shall have received an officer's certificate to such effect
signed on behalf of Sellers. Buyer shall have received and reviewed the
Contribution Agreement to ensure that Newco's only assets are the Assets and
rights under Ancillary Agreements to which it is a party and that Newco's only
liabilities are the Assumed Liabilities. Sellers shall have completed the
sale-leaseback of the Spectrum Club - Thousand Oaks in accordance with the
documents delivered to Buyer prior to the date of this Agreement.
7.3 Permits. All the Permits referred to in Schedule 4.14 hereto must be
obtained prior to the Closing and must be in full force and effect. The
applicable waiting period, including any extension thereof, under the HSR Act
shall have expired.
7.4 No Actions or Court Orders. No Action shall have been instituted or
threatened which questions the validity or legality of the Contemplated
Transactions and which could reasonably be expected to have a Material Adverse
Effect. There shall not be any Legal Requirement or Order that makes the
Contemplated Transactions illegal or otherwise prohibited.
7.5 No Material Adverse Change. Since May 31, 1999, there shall not have
occurred any Material Adverse Change with respect to the Business or the Assets.
7.6 Financing and Audit. (a) Buyer shall have obtained financing on
terms and conditions satisfactory to Buyer, in its sole discretion, sufficient
to enable it to consummate the transactions contemplated hereby and to provide
working capital for its operations after the Closing; provided that this
condition will expire on September 23, 1999. (b) Buyer shall have received the
Audited Financials at least three business days
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prior to the Closing Date and shall not have exercised its right to terminate
this Agreement pursuant to Section 2.4(b), provided that this condition will
expire at the close of business on the third business day following delivering
to Buyer of the Audited Financials.
7.7 Additional Documents. Each of the following documents (with such
changes as may be reasonably required by Buyer's lender) must have been
delivered to Buyer:
(a) an opinion of Kinsella, Boesch, Fujikawa & Xxxxx, LLP, and/or
any local counsel to Sellers, dated the Closing Date, in the form of Exhibit G
hereto;
(b) estoppel certificates executed on behalf of the landlords of
all Leases, each in the form of Exhibit H;
(c) the Ancillary Agreements executed by the parties thereto
other than Buyer;
(d) the documents contemplated by Section 3.2 and such other
documents as Buyer may reasonably request for the purpose of (i) evidencing the
accuracy of any of the Sellers' representations and warranties, (ii) evidencing
the performance by each of the Sellers of, or the compliance by each of the
Sellers with, any covenant or obligation required to be performed or complied
with by Sellers, (iii) evidencing the satisfaction or waiver of any condition
referred to in this Section 7, or (iv) otherwise facilitating the consummation
or performance of any of the Contemplated Transactions;
(e) nondisturbance agreements in commercially reasonable form (or
in form reasonably acceptable to Buyer) from all lenders holding a security
interest in the fee interest in any real property subject to a Lease and
including, without limitation, all other lenders with a lien on the fee or
leasehold interest in the Spectrum Club - Thousand Oaks;
(f) a nondisturbance and attornment agreement from the
sale-leaseback owner of the Spectrum Club/Thousand Oaks in the form of Exhibit I
hereto (with such changes as Buyer shall approve in its sole but good faith
discretion), and (ii) a nondisturbance and attornment agreement in the form of
Exhibit I hereto (with such changes as Buyer shall approve in its sole but good
faith discretion) from all lessors under Leases for which Newco or Sellers elect
to provide Subleases in lieu of assignments of leases;
(g) a sublease for the Office Space portion of the Premises under
the Lease for the Spectrum Club/Thousand Oaks in substantially the form attached
hereto as Exhibit J;
(h) (A) an Assignment of Lease in the form attached hereto as
Exhibit D with respect to the Leases for the Spectrum Club/Thousand Oaks and (B)
a Sublease and a Memorandum of Sublease in the form attached as Exhibits E and F
hereto, respectively, or, alternatively, an Assignment of Lease in the form
attached as Exhibit D hereto, with respect to the Leases for the Spectrum
Club/Water Garden, the Spectrum
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Club/Xxxxxx Xxxxxx, the Spectrum Club/Fullerton, the Spectrum Club/Valencia, the
Spectrum Club/Xxxxxx Hills and the Spectrum Club/Anaheim. The Assignment of
Lease for the Spectrum Club/Thousand Oaks shall be signed by the landlord and
shall provide (a) that the assignment of such Lease to Buyer will not result in
any increase in rent payments, (b) that Buyer shall not assume any obligations
under Section 12.3, (c) that Buyer shall be a third-party beneficiary of
Sellers' construction obligations, and shall have the same cure rights as the
landlord, under Section 12.3, and (d) that in the event Sellers have commenced
but have not completed all work of construction described in Section 12.3 or
restored the premises (including restoring to Buyer the number of parking spaces
currently available to the Facility) prior to the date eight (8) months after
groundbreaking, Sellers shall pay to Buyer, as liquidated damages and not as a
penalty, (a) $300 per day, beginning on the first day of the 9th month following
the Closing Date and continuing until the final day of such month, (b) $400 per
day, beginning on the first day of the 10th month after the Closing Date and
continuing until the final day of such month, and (c) $500 per day, beginning on
the first day of the 11th month after the Closing Date and continuing until the
final day of the 24th month after the Closing Date. If for six (6) consecutive
months, Sellers do not have an active building permit or have not been actively
pursuing a building permit for the parking structure described in Section 12.3,
or Sellers have advised Buyer that they are abandoning the construction project
described in Section 12.3, Buyer shall have the right to terminate the sublease
for the Office Space portion of the Premises and to use such Office Space for
any purpose permitted by such Lease, all without any payment to Sellers for such
right of termination or any cost, expense or liability whatsoever with respect
thereto;
(i) a guaranty from Sellers with respect to the performance of
the non-contractor party under each of the Construction Contracts, as well as
Section 12.3 of the Lease for the Spectrum Club/Thousand Oaks; and
(j) an appropriate confirmation from the contractor under each of
the Construction Contracts, in a form reasonably acceptable to Buyer, requiring
such contractor (a) to deliver to Buyer any notice of default or incipient
default delivered by such contractor to Sellers, at the same time such notice is
delivered to Sellers, (b) to provide Newco and Buyer a reasonable opportunity to
cure any such default or incipient default and (c) to acknowledge Newco and
Buyer as third-party beneficiaries of such contractor's obligations under such
Construction Contract.
(k) consents from all lenders holding a security interest in the
fee interest in any real property subject to any Lease (and from all landlords
under any such Lease, to the extent not already included in the estoppel
certificates referred to above) to the transactions contemplated by this
Agreement, including without limitation the sublease or assignment of such
Lease, as the case may be, and Newco's encumbrance of the leasehold interest in
such Lease, in form acceptable to Newco, Buyer and Buyer's lender.
7.8 No Action. Since the date of this Agreement, there must not have
been commenced or threatened against Buyer, or against any Affiliate of Buyer,
any Action
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(a) involving any challenge to, or seeking damages or other relief in connection
with, any of the Contemplated Transactions, or (b) that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with any of the
Contemplated Transactions.
7.9 No Prohibition. Neither the consummation nor the performance of any
of the Contemplated Transactions by Buyer will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of any Legal Requirement or Order applicable to
Buyer.
7.10 Title Insurance Policies. Newco and/or Buyer's lender, if any,
shall have received an owner's and ALTA lender's policy of title insurance
policy or policies, as appropriate, covering the fee or leasehold interest in
such Facilities as Newco, Buyer or such lender may require, insuring fee or
leasehold title, as appropriate, vested in Newco, issued by a company reasonably
acceptable to Buyer or such lender, subject to no Encumbrances other than
Encumbrances which have been approved by Buyer, Newco and such Lender in their
sole but good faith discretion, and including such endorsements as shall
reasonably be requested by Buyer, Newco or such lender.
7.11 Transfer of Interest in Real Property. Sellers shall have
transferred to Newco fee simple title to all Owned Real Property, and the
leasehold interest in the Leases set forth on Schedule 4.6, whether by
assignment or sublease.
ARTICLE VIII.
CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Newco Stock and to take the other
actions required to be taken by Sellers at or prior to the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by the Sellers, in whole or in part):
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8.1 Accuracy of Representations. The representations and warranties made
by Buyer in this Agreement (i) to the extent qualified by Material Adverse
Effect or any other materiality qualification must be true and correct and (ii)
to the extent not qualified by Material Adverse Effect or any other materiality
qualification must be true and correct in all material respects, as of the
Closing Date as if made on the Closing Date, except to the extent that such
representations and warranties expressly relate to a different date, and Sellers
shall have received an officer's certificate to such effect signed on behalf of
Buyer.
8.2 Buyer's Performance. Each of the covenants and obligations that the
Buyer is required to perform or to comply with pursuant to this Agreement at or
prior to the Closing must have been duly performed and complied with, and
Sellers shall have received an officer's certificate to such effect signed on
behalf of Buyer.
8.3 HSR. The applicable waiting period, including any extension thereof,
under the HSR Act shall have expired.
8.4 No Actions or Court Orders. No Action shall have been instituted or
threatened which questions the validity or legality of the Contemplated
Transactions and which could reasonably be expected to have a Material Adverse
Effect if the Contemplated Transactions are consummated. There shall not be any
Legal Requirement or Order that makes the Contemplated Transactions illegal or
otherwise prohibited.
8.5 Additional Documents. Each of the following documents (with such
changes as may be reasonably required by Buyer's lender) must have been
delivered to Sellers:
(a) an opinion of Xxxxxx & Xxxxxxx and / or other local counsel
to Buyer, dated the Closing Date, in the form of Exhibit K hereto;
(b) the Ancillary Agreements executed by Buyer and all other
parties thereto (other than Sellers); and
(c) he documents contemplated by Section 3.2 and such other
documents as Sellers may reasonably request for the purpose of (i) evidencing
the accuracy of any of Buyer's representations and warranties, (ii) evidencing
the performance by Buyer of, or the compliance by Buyer with, any covenant or
obligation required to be performed or complied with by Buyer, (iii) evidencing
the satisfaction or waiver of any condition referred to in this Section 8, or
(iv) otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
8.6 Permits. All the Permits referred to in Schedule 4.14 hereto must be
obtained prior to the Closing and must be in full force and effect. The
applicable waiting period, including any extension thereof, under the HSR Act
shall have expired.
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8.7 No Prohibition. Neither the consummation nor the performance of any
of the Contemplated Transactions by Sellers will, directly or indirectly (with
or without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of any Legal Requirement or Order applicable to
Sellers or Newco.
8.8 Thousand Oaks Sale Leaseback. Sellers shall have completed the
sale-leaseback of the Spectrum Club -- Thousand Oaks in accordance with the
documents delivered to Buyer prior to the date of this Agreement.
ARTICLE IX.
CONSENTS TO ASSIGNMENT
9.1 Consents to Assignment. Anything in this Agreement to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
Contract, or any benefit arising thereunder or resulting therefrom if an
attempted assignment thereof, without the consent of a third party thereto,
would constitute a breach thereof or in any way adversely affect the rights of
Newco or Buyer thereunder. If such consent is not obtained, or if an attempted
assignment thereof would be ineffective or would adversely affect the rights
thereunder so that Newco or Buyer would not receive all such rights, Sellers
will cooperate with Buyer, in all reasonable respects, to provide to Newco or
Buyer the benefits under any such Contract.
ARTICLE X.
ACTIONS BY SELLERS AND
BUYER AFTER THE CLOSING
10.1 Name Change. Any of the Sellers whose corporate name includes the
word "Spectrum" shall file at or promptly after Closing an amendment to such
Sellers' Articles of Incorporation to change its corporate name so as not to
include the word "Spectrum" or any other name or xxxx that has a near
resemblance thereto and deliver a copy thereof to Buyer to file with the
Secretary of State of each Seller's state of incorporation.
10.2 Books and Records; Tax Matters.
(a) Books and Records. Each party agrees that it will cooperate
with and make available to the other party, during normal business hours, all
Books and Records, information and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing which are
necessary or useful in connection with any tax inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter requiring any such
Books and Records, information or employees for any reasonable business purpose.
The party requesting any such Books and Records, information or employees shall
bear all of the out-of-pocket costs and expenses (including, without limitation,
attorneys' fees, but excluding reimbursement for salaries and employee benefits)
reasonably incurred in connection with providing such Books and
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Records, information or employees. All information received pursuant to this
Section 10.2(a) shall be subject to the terms of the confidentiality agreement
entered into between Parent and Brentwood Associates Private Equity III, L.P.
(b) Cooperation and Records Retention. Sellers and Buyer shall
(i) each provide the other with such assistance as may reasonably be requested
by any of them in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for Taxes, (ii) each retain and provide the other with any
records or other information that may be relevant to such return, audit or
examination, proceeding or determination, and (iii) each provide the other with
any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return of
the other for any period. Without limiting the generality of the foregoing,
Buyer and Sellers shall each retain, until the applicable statutes of
limitations (including any extensions) have expired, copies of all tax returns,
supporting work schedules, and other records or information that may be relevant
to such returns for all tax periods or portions thereof ending on or before the
Closing Date and shall not destroy or otherwise dispose of any such records
without first providing the other party with a reasonable opportunity to review
and copy the same.
10.3 Survival of Representations, Etc. All statements contained in the
Disclosure Schedule or in any certificate, schedule, exhibit or instrument or
conveyance delivered by or on behalf of the parties pursuant to this Agreement
or in connection with the Contemplated Transactions shall be deemed to be
representations and warranties by the parties hereunder. The representations,
warranties, covenants and agreement of Sellers and Buyer contained herein shall
survive the consummation of the Contemplated Transactions and the Closing Date,
without regard to any investigation made by any of the parties hereto. Except as
provided in this sentence, all such representations and warranties and covenants
herein (other than Excluded Liabilities) and all claims and causes of Action
with respect thereto (other than the provisions of Sections 4.11, 4.13 and 4.19
and all Claims with respect thereto) shall terminate one year after the Closing
Date. The representations and warranties in Sections 4.11, 4.13, and 4.19 shall
survive until the expiration of the applicable statute of limitations (with
extensions) with respect to the matters addressed in such sections. The
termination of the representations and warranties provided herein shall not
affect the rights of a party in respect of any Claim (as defined in Section
10.4(d)) made by such party in a writing received by the other party prior to
the expiration of the applicable survival period provided herein.
10.4 Indemnifications.
(a) By Sellers. Sellers shall indemnify, save and hold harmless
Buyer, its Affiliates (including without limitation Newco) and their respective
Representatives, from and against any and all costs, losses (including without
limitation diminution in value), Taxes, liabilities, obligations, damages,
lawsuits, deficiencies, claims, demands, and expenses, including without
limitation interest, penalties, costs of mitigation, losses in connection with
any environmental law (including without limitation any necessary clean-
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up or remedial action), damages to the environment, attorneys' fees and all
amounts paid in investigation, defense or settlement of any of the foregoing
(herein, "Damages"), reasonably incurred in connection with, arising out of,
resulting from or incident to (i) any breach of any representation or warranty
or the inaccuracy of any representation, made by any of the Sellers in or
pursuant to this Agreement or any Ancillary Agreement or in the Contribution
Agreement; (ii) any breach of any covenant or agreement made by any of the
Sellers in or pursuant to this Agreement (including, without limitation, a
breach of the covenants made in Section 2.8 hereof) or any Ancillary Agreement
or the Contribution Agreement; (iii) the imposition of any and all Taxes on any
Person other than Newco under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract, or otherwise; and/or (iv) any Excluded Liability (collectively
"Indemnification Liability"). Except as provided in Section 10.9, the
obligations under this Section 10.4 are joint and several as between each
Seller.
The term "Damages" as used in this Section 10.4 is not limited to
matters asserted by third parties against Sellers, Newco or Buyer, but includes
Damages incurred or sustained by any of the Sellers or Newco, or Buyer in the
absence of third party claims. However, the term Damages specifically excludes
(i) amounts which have already been deducted from the Purchase Price pursuant to
Section 2.5 and (ii) the amount of any insurance recovery or other recovery from
a third party (in any case, an "Insurer") attributable to an injury, cost or
loss otherwise subject to indemnification hereunder which would otherwise
constitute Damages hereunder. Payments by Buyer of amounts for which Buyer is
indemnified hereunder, and payments by Sellers of amounts for which Sellers are
indemnified, shall not be a condition precedent to recovery. Sellers' obligation
to indemnify Buyer, and Buyer's obligation to indemnify Sellers, shall not limit
any other rights, including without limitation rights of contribution which
either party may have under statute or common law.
(b) By Buyer. Buyer shall indemnify and save and hold harmless
Sellers and their Affiliates, and their respective Representatives from and
against any and all Damages incurred in connection with, arising out of,
resulting from or incident to (i) any breach of any representation or warranty
or the inaccuracy of any representation, made by Buyer in or pursuant to this
Agreement or any Ancillary Agreement; (ii) any breach of any covenant or
agreement made by Buyer in or pursuant to this Agreement or any Ancillary
Agreement; (iii) arising out of the ownership of the Assets or the operation of
the Business from and after the Closing Date; or (iv) from and after the
Closing, any Assumed Liability.
(c) Cooperation. The Indemnitee shall cooperate in all reasonable
respects with the Indemnitor and such attorneys in the investigation, trial and
defense of any Action and any appeal arising therefrom; provided, however, that
the Indemnitee may, at its own cost, participate in the investigation, trial and
defense of such Action and any appeal arising therefrom. The parties shall
cooperate with each other in any notifications to insurers.
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(d) Defense of Claims. If a claim for Damages (a "Claim") is to
be made by a party entitled to indemnification (the "Indemnitee") hereunder
against the indemnifying party (the "Indemnitor"), the Indemnitee shall, subject
to Section 10.3, give written notice (a "Claim Notice") to the Indemnitor as
soon as practicable after the Indemnitee becomes aware of any fact, condition or
event which may give rise to Damages for which indemnification may be sought
under this Section 10.4. Such notice shall describe in reasonable detail the
Damages, the amount thereof, if known, and the method of computation of such
Damages, all with reasonable particularity. If any Action is filed by or against
a third party with respect to which the Indemnitee intends to claim any
liability or expenses as Damages hereunder, the Indemnitee shall promptly notify
the Indemnitor of such Action. If any Action is filed against any party entitled
to the benefit of indemnity hereunder, written notice thereof shall be given to
the Indemnitor as promptly as practicable (and in any event within fifteen (15)
calendar days after the service of any citation or summons). The failure of any
Indemnitee to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the Indemnitor demonstrates
actual damage caused by such failure. Such notice shall contain a reasonably
detailed description of all circumstances surrounding the Claim. After such
notice, if the Indemnitor shall acknowledge in writing to the Indemnitee that
the Indemnitor shall be obligated under the terms of its indemnity hereunder in
connection with such Action, then the Indemnitor shall be entitled, if it so
elects, (i) to take control of the defense and investigation of such Action,
(ii) to employ and engage attorneys of its own choice to handle and defend the
same, at the Indemnitor's cost, risk and expense unless the named parties to
such Action include both the Indemnitor and the Indemnitee and the Indemnitee
has been advised in writing by counsel that there is a conflict of interest
precluding effective representation of both parties by the same attorneys and
(iii) to compromise or settle any Claim, which compromise or settlement shall be
made only with the written consent of the Indemnitee, such consent not to be
unreasonably withheld. Until such time as the Indemnitee has received written
notice form the Indemnitor stating that the Indemnitor elects to assume the
defense of such Claim, the Indemnitee against which such Claim has been asserted
will (upon delivering notice to such effect to the Indemnitor), at the
Indemnitor's cost and expense, undertake the defense, compromise or settlement
of such claim on behalf of and for the account and risk of the Indemnitor;
provided, however, that such Claim shall not be compromised or settled without
the written consent of the Indemnitor, which consent shall not be unreasonably
withheld, delayed or conditioned. The Indemnitor shall have the right at its own
expense to participate in the defense of any such third party Claim and to
employ counsel at its own expense to assist in such defense. In the event the
Indemnitor does not elect to assume the defense of any third party Claim, the
Indemnitor shall pay the reasonable fees and disbursements of the Indemnified
Parties' counsel. In the event the Indemnitee assumes the defense of the Claim,
the Indemnitee will keep the Indemnitor reasonably informed of the progress of
any such defense, compromise or settlement. The Indemnitor shall be liable for
any settlement of any Action effected pursuant to and in accordance with this
Section 10.4 and for any final judgment (subject to any right of appeal), and
the Indemnitor agrees to indemnify and hold harmless an Indemnitee from and
against any Damages by reason of such settlement or judgment. If an Indemnitee
recovers Damages
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from an Indemnitor which are later recovered by Indemnitee from an Insurer,
Indemnitee shall reimburse Indemnitor to the extent of such recovery.
(e) Buyer's Right of Offset. Anything in this Agreement to the
contrary notwithstanding, either party may withhold and set off against any
other amounts otherwise due the other party, any amount as to which such party
is obligated to indemnify the other pursuant to any provision of this Section
10.4.
(f) Exclusive Remedy. The indemnification provided by this
Section 10.4 shall constitute the exclusive remedy for monetary damages for
breach of this Agreement.
(g) Non-Liability of El Segundo TDC, Ltd. Notwithstanding any
other term hereof, Sellers and Buyer agree that in no event shall El Segundo
TDC, Ltd. have any liability for any representation, warranty or covenant
hereunder.
(h) Limitations. Neither Buyer nor Sellers shall be liable to the
other under this Section 10.4 for any Damages unless and to the extent that
until the aggregate amount otherwise due the Indemnitee exceeds an accumulated
total of $500,000, except that this Section 10.4(h) shall not apply to Sections
4.11, 4.13 and 4.19 or to any Purchase Price adjustment otherwise provided for
in this Agreement.
10.5 Bulk Sales. It may not be practicable to comply or attempt to
comply with the procedures of the "Bulk Sales Act" or similar law of any or all
of the states in which the Assets are situated or of any other state which may
be asserted to be applicable to the transactions contemplated hereby.
Accordingly, to induce Buyer to waive any requirements for compliance with any
or all of such laws, Sellers hereby agree that the indemnity provisions of
Section 10.4 hereof shall apply to any Damages of Buyer or any institution
providing financing to Buyer arising out of or resulting from the failure of
Sellers or Buyer to comply with any such laws, other than any Damage relating to
the failure of Buyer to pay or fulfill the Assumed Liabilities in a timely
manner.
10.6 Arbitration. Any controversy arising after the Closing of or
relating to this Agreement (including, without limitation, pursuant to Section
10.4, but excluding for purposes of this Section 10.6 and the Employment and
Non-Competition Agreements, or relating to the breach hereof), shall be
submitted to arbitration by a retired judge who is a panelist with
JAMS/Endispute (or any successor) in Los Angeles, in accordance with
JAMS/Endispute's procedures then in effect (except as otherwise expressly
provided in this Agreement), except that disputes related to the preparation of
financial statements shall be arbitrated by a mutually agreeable Big 5
accounting firm which has no relationship to either Buyer or Sellers. Buyer and
Sellers shall use their best efforts to cause such arbitrator to make its
determination within thirty (30) calendar days of accepting its selection. The
fees and expenses of such arbitrator shall be borne by Buyer and Sellers
equally. The award rendered by the arbitrator(s) shall be final, binding and
conclusive on the parties, and judgment upon the award rendered by the
arbitrator(s) may be entered upon it in any court having jurisdiction thereof.
The arbitrator(s) shall possess
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the powers to issue mandatory orders and restraining orders in connection with
such arbitration. The agreement to arbitrate shall be specifically enforceable
under the prevailing arbitration law. During the continuance of any arbitration
proceedings, the parties shall continue to perform their respective obligations
under this Agreement.
10.7 Management Employees. Neither Buyer nor Sellers shall solicit for
employment any club manager or executive level personnel from the other for a
three year period after the Closing Date, or hire any club manager or executive
level personnel from the other during the one year period following the Closing
Date.
ARTICLE XI.
TERMINATION
11.1 Termination Events. This Agreement may, by notice given prior to or
at the Closing, be terminated:
(i) by either Buyer or Sellers if a material breach of any
provision of this Agreement has been committed by the other party, such breach
has not been waived and such breach (if curable) is not cured within 10 days
after notice thereof;
(ii) by Buyer if any of the conditions in Section 7 has
not been satisfied as of the Closing Date (or other date specified in this
Agreement with respect to any such condition) or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Buyer to
comply with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or by Sellers, if any of the conditions
in Section 8 has not been satisfied as of the Closing Date (or other date
specified in this Agreement with respect to any such condition) or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Sellers to comply with their obligations under this Agreement)
and Sellers have not waived such condition on or before the Closing Date;
(iii) by mutual consent of Buyer and Sellers;
(iv) by either Buyer or Sellers if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before the later of October 31, 1999 or forty (40) days after Sellers mail all
the request for landlord consent and/or non-disturbance agreement, or such later
date as the parties may agree upon;
(v) by Sellers on September 30, 1999, if all conditions to
Seller's and Buyer's obligations to close have not been satisfied by such date
by reason of the failure of Buyer to comply fully with its obligations under
Sections 8.1, 8.2, 8.4, 8.5 or 8.7 of this Agreement; or
(vi) as provided in Section 2.4(b) or Section 7.6.
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11.2 Effect of Termination
(a) General. Each party's right of termination under Section 11.1
is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election of
remedies. If this Agreement is terminated pursuant to Section 11.1, all further
obligations of the parties under this Agreement will terminate, except as
provided in Section 11.2(b) below and except that the obligations in Sections
12.6 and 12.9 will survive; provided, however, that if this Agreement is
terminated by a party because of the breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
Upon any termination, both parties shall return to the other party all written
materials provided in connection with this Agreement.
ARTICLE XII.
MISCELLANEOUS
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12.1 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; except that Buyer may, without such consent,
assign all such rights to any lender as collateral security and assign all such
rights and obligations to a wholly-owned subsidiary (or a partnership controlled
by Buyer) or subsidiaries of Buyer or to a successor in interest to Buyer which
shall assume all obligations and liabilities of Buyer under this Agreement.
Notwithstanding the foregoing, Buyer shall remain liable with respect to all
obligations under this Agreement in the event of any such assignment. Subject to
the foregoing, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns, and no
other person shall have any right, benefit or obligation under this Agreement as
a third party beneficiary or otherwise.
12.2 Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express); and
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
If to Sellers, addressed to:
The Sports Club Company, Inc.
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxxxx, XX 00000-0000
Attention: Xxxx Xxxxxxx
Fax: (000) 000-0000
With a copy to (with regard to notices to Sellers):
Xxxxxx X. Xxxxxxxx, Esq. or
Xxxxxx X. Xxxxxxxx, Esq.
Kinsella, Boesch, Fujikawa & Xxxxx, LLP
0000 Xxxxxx xx xxx Xxxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Fax: (000) 000-0000
If to Buyer, addressed to:
Racquetball & Fitness Clubs, Inc.
c/o Brentwood Associates
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 0000
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Xxx Xxxxxxx, XX 00000
Attention: Xxxxxx X. XxXxxx and Xxxxx Xxxxxxxx
With a copy to:
Xxxxxxxxx X. Xxxxxxxx, Esq.
Xxxxxx & Xxxxxxx
000 X. 0xx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Fax: 000-000-0000
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
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12.3 Choice of Law. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of the State of
California (without reference to the choice of law provisions of California
law), except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
12.4 Entire Agreement; Amendments and Waivers. This Agreement and the
Ancillary Agreements, together with all exhibits and schedules hereto and
thereto (including the Disclosure Schedule), and the confidentiality agreement
referred to in section 10.2 constitute the entire agreement among the parties
pertaining to the subject matter hereof and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. No amendment, supplement, modification or waiver of this Agreement shall
be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
12.5 Multiple Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.6 Expenses. Except as otherwise specified in this Agreement, each
party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect.
12.7 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
12.8 Titles. The titles, captions or headings of the Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
12.9 Publicity. Neither Sellers nor Shareholder, nor, prior to Closing,
Buyer shall issue any press release or make any public statement or public
disclosure regarding the transactions contemplated hereby, without prior written
approval of the other party; provided that Shareholder if Shareholder believes a
press release or other public disclosure is required by applicable law or the
rules and regulations of the American Stock Exchange ("AMEX"), Shareholder will
promptly inform Buyer and provide Buyer with a reasonable opportunity to review
and comment on Shareholder's proposed disclosure.
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12.10 Cumulative Remedies. All rights and remedies of either party
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
12.11 Attorneys' Fees. If any party to this Agreement brings an action
to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers thereunto
duly authorized, all as of the day and year first above written.
THE SPECTRUM CLUB COMPANY,INC.
By /s/ Xxxx X. Xxxxxxx
---------------------------------------------
Name: Xxxx X. Xxxxxxx
---------------------------------------------
Title: Chief Executive Officer
---------------------------------------------
CANOGA/AGOURA SPECTRUM CLUB, INC.
By /s/ Xxxx X. Xxxxxxx
---------------------------------------------
Name: Xxxx X. Xxxxxxx
---------------------------------------------
Title: Chief Executive Officer
---------------------------------------------
TVE, INC.
By /s/ Xxxx X. Xxxxxxx
---------------------------------------------
Name: Xxxx X. Xxxxxxx
---------------------------------------------
Title: Chief Executive Officer
---------------------------------------------
EL SEGUNDO TDC, LTD.
By /s/ Xxxx X. Xxxxxxx
---------------------------------------------
Name: Xxxx X. Xxxxxxx
---------------------------------------------
Title: Chief Executive Officer
---------------------------------------------
SPECTRUM CLUB ANAHEIM
By /s/ Xxxx X. Xxxxxxx
---------------------------------------------
Name: Xxxx X. Xxxxxxx
---------------------------------------------
Title: Chief Executive Officer
---------------------------------------------
THE SPORTS CLUB COMPANY, INC.
By /s/ Xxxx X. Xxxxxxx
---------------------------------------------
Name: Xxxx X. Xxxxxxx
---------------------------------------------
Title: Chief Executive Officer
---------------------------------------------
RACQUETBALL & FITNESS CLUBS, INC.
By /s/ Xxxxxxx Xxxx
---------------------------------------------
Name: Xxxxxxx Xxxx
---------------------------------------------
Title: Secretary
---------------------------------------------
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