EXHIBIT
10.70
Fitness Club and Spa
Management and Pre-Opening
Service Agreement between
Terramark Brickell II, Ltd. And
the Registrant effective as of
January 1, 2003
52
FITNESS CLUB AND SPA
MANAGEMENT AND PRE-OPENING SERVICES AGREEMENT
between
TERREMARK BRICKELL II LTD.
as Owner,
and
THE SPORTS CLUB COMPANY INC.
as Operator,
PREMISES:
Millennium Tower,
located at
0000-0000 Xxxxxxxx Xxxxxx
Miami, FloridaJanuary 1, 2003
53
FITNESS CLUB AND SPA
--------------------
MANAGEMENT AND PRE-OPENING SERVICES AGREEMENT
---------------------------------------------
THIS FITNESS CLUB AND SPA MANAGEMENT AND PRE-OPENING SERVICES AGREEMENT
(the "Agreement") is made and effective as of the 1st day of January, 2003 (the
"Effective Date") by and between TERREMARK BRICKELL II LTD., a Florida limited
partnership ("Owner"), and THE SPORTS CLUB COMPANY, INC., a Delaware corporation
("Operator").
STATEMENT OF FACTS
A. Owner intends to subject all of the real property located at 1431 0000
Xxxxxxxx Xxxxxx in Miami, Florida (as more particularly described and identified
in the Declaration (as hereinafter defined), the "Premises"), to the terms,
conditions, provisions and covenants set forth in a Declaration of Covenants,
Restrictions and Easements for Millennium Tower in more particularly described
on Exhibit B, with such revisions, deletions or additions as Owner shall deem
necessary, appropriate or desirable in its sole discretion (as the same may be
amended, revised and/or restated from time to time, the "Declaration"), which
Declaration shall be recorded with the office of the County Clerk in and for
Dade County, Florida.
B. Owner is, and after submission of the Premises to the terms of the
Declaration shall continue to be, the fee owner of the Hotel Lot (as such term
is defined in the Declaration), which Hotel Lot is being developed by Owner as a
world class hotel (the "Hotel") and will be managed, upon completion, by Four
Seasons Hotels Limited ("Hotel Manager") on behalf of Owner pursuant to and in
accordance with that certain Hotel Management Agreement dated December 26, 2000
(as the same may be amended, revised or restated the "HMA") made by and between
Owner and Hotel Manager.
C. Owner is, and after submission of the Premises to the terms of the
Declaration shall continue to be, the fee owner of the Spa Lot (as such term is
defined in the Declaration) which shall consist of approximately 44,000 square
feet, exclusive of mechanical rooms, stairs and core elements (the "Club Lot").
D. Owner intends to construct, develop, improve, build out, furnish and
equip the entire Club Lot (x) in part, as a full-service, luxury spa (the "Spa")
and (y) in part, as a first class fitness/health club facility, together with
associated salon, juice bar, retail and sports club/fitness amenities
(collectively, the "Fitness Facility"; and together with the Spa, being referred
to herein, collectively, as the "Club").
E. Although Hotel Manager will not be directly involved with the operation
or management of the Club and Operator will not be directly involved with the
operation of the Hotel, Operator and Owner acknowledge and agree that it is
essential to the proper functioning of the Club and the Hotel that Operator and
Hotel Manager coordinate operations of the Club and the Hotel and the
residential and other components of the Premises in order to create an
appropriate guest experience for (x) hotel guests, residential unit owners,
tenants of the residential, office and retail components of the Premises and
members of the Club ("Club
54
Members") at the Club, and (y) for hotel guests, residential unit owners, Club
Members and patrons of the Club at certain facilities of the Hotel.
F. Based on Operator's extensive experience in opening and operating
various first class health club facilities, salons, retail establishments, juice
bars and sports clubs under the name "Sports Club/LA(TM)", Owner desires to have
Operator, as an independent contractor, manage and operate the Club in
accordance with, and subject to, the terms and conditions of this Agreement.
G. Operator desires to manage and operate the Club for Owner, as an
independent contractor, in accordance with, and subject to, the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, Owner and Operator hereby agree as follows:
TERMS AND CONDITIONS
Article I.
Engagement of Operator; Term
----------------------------
1.1 Engagement of Operator
(a) Engagement of Operator. Owner hereby appoints, authorizes and
engages Operator, as an independent contractor, to act as the exclusive
operator and manager of the Club during the Term (as hereinafter defined)
with exclusive responsibility for, and control over, the operation,
management, supervision and direction of the Club (and its staff) as a
luxury spa and first class health/fitness club, which appointment and
authorization is subject only to the terms, conditions, restrictions,
limitations, and approval rights set forth in this Agreement.
(b) Authority of Operator. Subject to compliance (except where such
compliance is specifically excused hereunder) with the Minimum Standard,
the Operating Criteria, the Membership Marketing Plan and each applicable
Annual Plan and Approved Budget (as such terms are hereinafter defined),
the Operator is hereby authorized, directed and required to take all
actions necessary to operate the Club in accordance with the Minimum
Standard, including, without limitation, the following actions:
(i) Determine, in a manner consistent with the Membership
Marketing Plan, all terms for admittance and charges for membership,
guests, commercial space and other amenities and services provided at
or with respect to the Club and establish entertainment policies
(including pricing) with respect to the Club and implement the
Membership Marketing Plan;
(ii) Determine all credit policies with respect to the operation
of the Club, including entering into policies and agreements with
credit card organizations;
55
(iii) Determine all labor policies, including wage and salary
rates and terms, fringe benefits, pension, retirement, bonus and
employee benefit plans, collective bargaining agreements (provided,
however, that no collective bargaining agreements, pension or
retirement plans concerning all or some of the employees of the Club
shall be executed unless and until Owner has approved of same in its
reasonable discretion, after full disclosure of all material terms to
Owner) and hiring or discharge of all employees with respect to the
Club, subject to Owner's right to approve the general manager of the
Club;
(iv) Arrange in Operator's name (or in the name of a Permitted
Assignee (as such term is hereinafter defined)) for utility,
telephone, vermin extermination, trash removal and other necessary
services for the Operation of the Club;
(v) Establish all advertising, public relations and promotional
policies with respect to the Club, including all paid advertising,
press releases and conferences and complimentary policies; provided,
however, that if, and to the extent, any such materials or policies
constitute a material or substantial variance from, or are
inconsistent in any material respect with, the applicable Membership
Marketing Plan, or involve the use of the name or trademarks of either
Owner or Hotel Operator, then, in each such case, Operator shall give
Owner at least ten (10) business days prior notice of its intention to
implement such policy or distribute or publish such materials
(including a copy thereof) and Owner's approval thereof which approval
(except with respect to Hotel Operator's name or trademark) will not
be unreasonably withheld and shall be deemed to have been given if
Owner fails to respond within the ten (10) business days, provided,
that Operator has advised Owner in writing that Owner's failure to
timely respond to Operator's request for Owner's approval shall result
in Owner being deemed to have given its approval thereto (provided
further that Owner shall have ten (10) business days from such notice
before Owner's approval shall be deemed to have been given);
(vi) Purchase on behalf and for the account of Owner all
inventories and all necessary or desirable additions to and
replacements of supplies and such other services and merchandise as
are necessary for the proper operation of the Club;
(vii) Enter into licenses, concession agreements and other
undertakings in the name of Operator (or in the name of any Permitted
Assignee) as Operator shall from time to time consider appropriate for
the operation of the Club, provided that all such agreements shall be
expressly subject and subordinate to this Agreement and shall be
terminable, at the option of Owner, immediately following the
termination of this Agreement, unless Operator has previously
exercised its option to lease the Club Lot, in which case any such
agreements may continue in force until such time as the lease expires
or is terminated;
(viii) After Owner's reasonable approval, except in cases of
expenditures of less than twenty thousand dollars ($20,000) per
occurrence or less than fifty thousand dollars ($50,000) in the
aggregate for any Fiscal Year, hire such persons or organizations as
Operator may deem necessary to provide advice with respect to
Operator's performance hereunder, including attorneys, accountants and
other professionals and specialists such as interior design, lighting,
fixtures, acoustics, etc., after prior written notice to Owner;
56
(ix) To the extent authorized in the applicable Annual Plan and
consistent with the Applicable Budget, or otherwise, in case of
emergency (i.e. in order to prevent imminent damage to persons or
property, but, in such cases, only with the prior written or oral
consent of Owner if the cost of same is reasonably expected to exceed
$20,000), cause all needed repairs and maintenance to be made to the
Club and cause all such other things to be done in and about the Club
as shall be necessary to comply with all requirements of governmental
authority, boards of fire underwriters and other bodies exercising
similar functions (and Operator shall send Owner a copy of any notice
received ordering compliance with any such requirement);
(x) Invoice or xxxx Club Members for all initiation fees,
periodic dues and other Club-related charges, collect all initiation
fees, membership dues and all other accounts receivable relating to
the operation of the Club, including any amounts due for services
rendered or merchandise sold at the Club, other than those fees,
charges, dues and accounts receivable which Operator deems appropriate
to write off in the ordinary course of business in a manner consistent
with the Operating Criteria (as such term is hereinafter defined) and
the Minimum Standard, provided that Owner's consent shall be required
as to any writeoffs which, when aggregated with all other writeoffs in
a given Fiscal Year, exceed $15,000 in such Fiscal Year; provided,
however, for purposes hereof, "writeoffs" shall not include
adjustments to the books and records of the Club made to reflect
reversals of fees and dues which have been accrued but not earned.
Operator shall install and maintain an accurate and efficient billing
and accounting system for receipts, which shall be compatible and
coordinated with the Hotel's POS system. In connection with Operator's
collection of dues and other accounts receivable only, Operator may
take any actions, including, without limitation the termination or
deactivation of Club Memberships and/or the commencement of
appropriate legal actions or proceedings, which are reasonably
necessary to effect such collections, provided, that in deciding
whether or not to commence any such collection actions, Operator shall
act in a manner consistent with the Minimum Standard; and provided,
further, that no such action may be brought in the Owner's name
without the prior written consent of Owner.
(xi) In addition to the collection actions referred to above,
institute and defend such other actions or proceedings at law or in
equity in the name of Operator or the Club, utilizing counsel selected
by Operator, which Operator (acting in a manner consistent with the
Minimum Standard) shall deem reasonably necessary or proper in
connection with the routine operation of the Club, including the
defense of any legal actions brought against the Club and/or the
institution of dispossessory, eviction and trespass suits provided,
that, with respect to any litigation where Owner or the Club is
potentially subject to any liability in excess of $10,000, then,
unless such action is adequately defended and covered by insurance
maintained by the Club, Owner reserves the right to (x) approve the
counsel designated by Operator, (y) participate in and be kept fully
informed of all significant developments related to such actions and
(z) approve, in its reasonable discretion, any settlement of such
action, any confession of judgment or the interposition of any new
claims or defenses in such action; and
(xii) Subject to Owner's approval rights with respect to the
general manager of the Club (Owner agreeing to approve or disapprove
any candidate for such position within ten (10) business days of
Operator's request for such approval, provided that Owner is given an
opportunity to interview such candidate) and subject further to the
applicable
57
Approved Budget, Operator shall also have the sole right to select,
appoint and supervise, in its sole but reasonable discretion, the
general manager and such other personnel as Operator may deem
necessary or desirable for the proper operation, maintenance and
security of the Club. The general manager and all other personnel at
the Club shall be employees of the Operator and, subject to Owner's
approval rights with respect to the general manager of the Club and
subject further to the applicable Approved Budget, the terms of the
hiring and firing thereof shall be at the sole but reasonable
discretion of Operator. Owner shall have no right to supervise or
direct any such employees.
Operator hereby accepts such appointment, authorization and
engagement and covenants and agrees to use commercially
reasonable efforts to maintain, manage and operate the Club,
during the Term, as a luxury spa and first class health/fitness
club, and, in all respects, in accordance with the Minimum
Standard and the terms and conditions set forth herein.
(c) Owner's Responsibility: Subject to the provisions of this
Agreement and the applicable Annual Plan and Approved Budget and
Section 4.1(b) of this Agreement, Owner shall provide the necessary
funds and in all other reasonable respects allow the Club to be
developed, constructed, furnished, equipped operated, managed,
supervised, directed, serviced and marketed by Operator as a luxury
spa and first class health/fitness club in accordance with the Minimum
Standard (as hereinafter defined), and shall fulfill in a timely
manner all of its obligations under this Agreement.
(d) Sublease or Submanagement of the Salon Component. Anything to
the contrary set forth in Section 1.1 notwithstanding, unless
otherwise directed by Owner in writing, Operator shall make
commercially reasonable efforts to sublease the salon component of the
Club (the "Salon") or hire an independent submanager for the Salon. If
Operator presents Owner with a suitable submanager or sublessee (i.e.
one having (i) as demonstrated through financial statements prepared
by a firm of certified public accountants reasonably satisfactory to
Owner, the financial wherewithal to meet its obligations under the
sublease or sub-management agreement and (ii) at least three (3) years
experience managing and/or operating luxury salons meeting the Minimum
Standard), Owner will not unreasonably withhold approval of said
submanager or sublessee. Objective criteria for the minimum standard
of operation of the Salon shall be included in the Operating Criteria
that have been approved by Owner, but shall in no event be of a lesser
standard than the standard currently being maintained in those Salon's
being operated by Operator in those certain other mixed use facilities
developed by Owner's affiliates and located in San Francisco,
California, Boston, Massachusetts and Washington, D.C. (collectively,
the "Other Millennium Partners Projects"). Any lease, sublease or
sub-management agreement relating to the Salon shall be subject and
subordinate in all respects to this Agreement and co-terminous with
this Agreement (unless Operator shall have previously exercised its
option to lease the Club Lot, in which case such lease or
sub-management agreement shall be co-terminus with the lease) and
shall automatically terminate upon the termination hereof.
(e) Minimum Standard. Subject to the provisions of Section
4.1(b), at all times during the Term of this Agreement, Operator shall
operate the Club, and all components thereof other than the Spa, in a
manner consistent with the standard maintained at The Sports
58
Club/LA facilities located in the Other Millennium Partners Projects
as of the date of this Agreement (the "General Club Standard"). In
addition, subject to the provisions of Section 4.1(b), Operator shall
maintain the Spa in compliance with each of the qualitative criteria,
aesthetic components, services standards and other standards
identified on Schedule 1.1(e) hereof (the parties agreeing that each
of such standards are intended to be on a par with the equivalent
standards maintained at the spa in the Mandarin Hotel, in Miami,
Florida as of the date of this Agreement) (the "Spa Standard") (the
General Club Standard and the Spa Standard hereinafter collectively
referred to as the "Minimum Standard"). For the avoidance of doubt,
Owner and Operator acknowledge and agree that Operator's obligation to
operate the Club in compliance with the Minimum Standard and Owner's
obligation to approve budgets or otherwise provide funds in amounts
sufficient to permit Operator to comply with the Minimum Standard will
not require additions to or improvements upon the FF&E package
originally installed in the Club, unless such additions or
improvements are agreed to by Owner acting in its sole and absolute
discretion (and without regard to any obligation under this
Agreement), as part of the budget approval process. By way of example,
if the Sports Club/LA facilities at the Other Millennium Partners
Projects each add a boxing studio, Owner shall not be obligated to
fund the provision of same, unless Owner acting in its sole and
absolute discretion, agrees to do so.
1.2 Term and Extension. The term of this Agreement (the "Term") shall
commence on the Effective Date and shall end, unless sooner terminated as herein
provided, on the day immediately preceding the fifth (5th) anniversary of the
first day of the month following the date when, as publicly announced, the Club
shall be formally opened to the public for the regular conduct of business (the
"Opening Date"). Owner and Operator agree that the Opening Date shall be no
later than the day (the "Outside Opening Date") which is thirty (30) days after
Owner notifies Operator in writing (a "Substantial Completion Notice") of the
"substantial completion of the Club" (as defined in Section 1.4); provided,
however, that, if the Opening Date is delayed beyond the Outside Date due solely
to unanticipated delays caused by Owner or its agents, then, at the option of
Operator (which option shall be exercised, by a written notice delivered to
Owner within ten (10) business days of Operator's receipt of the Substantial
Completion Notice), the Outside Opening Date shall be adjourned by the number of
days of unanticipated delay in the opening of the Club which are directly
attributable to unanticipated delays caused by Owner or its agents.
1.3 Post-Term Lease Option and Right of First Consideration.
(a) Lease Option. Provided that (i) this Agreement has not previously
been terminated in accordance with its terms or applicable law, and (ii)
Operator is not in default hereunder, beyond the expiration of any
applicable grace, notice or cure periods as of either (x) the date of its
purported exercise of its option to lease the Club Lot or (y) the last day
of the Term, then Operator may elect to lease the Club Lot for a term (the
"Lease Term") commencing on the day next following the end of the Term and
ending on the tenth (10th) anniversary of such day, along with four (4)
extension options of five (5) years each, upon the terms and conditions set
forth in that certain Agreement of Lease annexed hereto as Exhibit C (the
"Lease Agreement") by executing and delivering to Owner five (5) executed
copies of the Lease Agreement together with the security deposit required
under the Lease Agreement and first and last month's rent. Such election
shall be made by Operator, if at all, in writing at least one hundred
eighty (180) days prior to the expiration of the Term but no earlier than
one year prior to
59
the end of the Term, as to which dates, TIME SHALL BE OF THE ESSENCE. The
provisions of this Section 1.3 are expressly subject to the provisions of
Section 1.5.
(b) Right of First Consideration. If Operator fails to duly exercise
its option to lease the Club Lot, within the time allotted under Section
1.3(a) of this Agreement, then Owner may either (x) cause the Hotel
Operator to manage and/or operate the Club, as part of the Hotel, on such
terms as may be agreed upon by Hotel Operator and Owner, in Owner's sole
and absolute discretion, (y) lease the Club Lot to a third party at an
annual rent of $1,600,000 and on the other terms (with such immaterial
deviations thereto as may be agreed to by Owner) set forth in the Lease
Agreement (the "Minimum Lease Terms") or (z) subject to Operator's limited
right of first consideration described below (the "First Consideration
Right"), lease the Club Lot to a third party for an annual rent of less
than $1,600,000 (or otherwise on terms less favorable to Owner than the
Minimum Lease Terms), which First Consideration Right shall be subject to
and exercisable only in strict accordance with the provisions of this
Section 1.3(b).
If, at any time within one (1) year after the expiration of the Term (the
"Option Period"), Owner desires to lease the Club Lot (on terms less favorable
to Owner than the Minimum Lease Terms), then Owner shall deliver a notice (the
"Offer Notice") to Operator in accordance with the notice provisions of this
Agreement which Offer Notice shall set forth and constitute an offer to lease
the Club Lot to Operator for the fixed base rent and any additional rent and on
the other terms set forth in the Offer Notice (which shall include, at a
minimum, the minimum term, the security deposit, any additional rent, any rent
concessions and construction or fit-out allowances and any other material terms
which deviate from the Minimum Lease Terms), and in accordance with the terms
and provisions of this Section 1.3(b) (collectively, the "Offer Terms"). In the
event Operator desires to lease the Club Lot on the Offer Terms, then Operator,
within 30 days of Owner's sending of the Offer Notice (the "Election Period"),
shall send to Owner, in the manner provided above, a notice (an "Election
Notice") setting forth Operator's agreement to lease the Club Lot on the Offer
Terms.
Following Operator's delivery of the Election Notice, the parties agree to
make good faith efforts to expedite the negotiation and execution of a final
lease agreement (which shall be in the form of the lease agreement annexed
hereto, revised only to the extent necessary to incorporate the Offer Terms; as
so revised, the "Revised Lease") within a reasonable period of time. The
foregoing notwithstanding, if Owner and Operator have not agreed to the terms of
the Revised Lease on or before the forty-fifth (45th) day after the date on
which the Election Notice was sent by Operator, then the parties shall execute
the Lease Agreement (to which the parties shall annex the Offer Terms as an
Exhibit) together with a rider thereto stating that the terms of the Lease
Agreement shall be deemed revised, modified and amended to the degree necessary
to incorporate the Offer Terms (as so modified, the "Supplemented Lease") and
that, in the event of any discrepancy, inconsistency or conflict between the
terms of the Lease Agreement and the Offer Terms, then the Offer Terms shall
control and bind the parties. If the Operator does not deliver to the Owner a
signed copy of the Revised Lease or the Supplemented Lease, as applicable,
together with any monies required thereunder to be paid prior to commencement
(e.g., security deposit and prepaid base rent) within such 45 day period, then
Operator shall be deemed to have failed to timely send an Election Notice,
provided, that Owner previously advised Operator, in writing, that Operator's
failure to execute the Revised Lease or the
60
Supplemented Lease and remit the necessary monies within such 45 day period
shall result in Operator being deemed to have failed to timely deliver an
Election Notice.
If Operator does not deliver to Owner an Election Notice (or in the event
that Operator is deemed to have failed to timely do so) during the Election
Period, TIME BEING OF THE ESSENCE with regard to any such delivery, then Owner
may immediately and at any time thereafter lease the Club Lot to any third party
on the terms set forth in the Offer Sheet or on terms which are more favorable
to the Owner (as determined by Owner, in its reasonable discretion) and Operator
shall be deemed to have waived and affirmatively relinquished the First
Consideration Right and any and all rights in and to the Club and the Club Lot.
Anything to the contrary set forth in this Section 1.3(b) notwithstanding,
if, Owner delivers an Offer Notice to Operator and Operator does not deliver an
Election Notice to Owner and, subsequently, during the Option Period, Owner
desires to lease the Club Lot on terms which are less favorable to Owner than
the Offer Terms, Owner shall deliver to Operator a supplemental Offer Notice
specifying revised Offer Terms and Operator may thereafter, during the Election
Period (commencing with the sending of the supplemental Offer Notice), elect, in
accordance with this Section 1.3(b), to lease the Club Lot on the revised Offer
Terms and as otherwise provided in this Section 1.3(b).
Anything to the contrary set forth in this Agreement notwithstanding, any
agreement with the Hotel Operator to manage and/or operate the Club shall not be
subject to the First Consideration Right nor to the terms, conditions or
requirements of this Section 1.3(b). Operator and Owner agree and declare that
the Right of First Consideration is personal to Operator and may not be
transferred, assigned, pledged or conveyed, either voluntarily, by operation of
law or otherwise (including by will), to any other person or entity. Owner and
Operator acknowledge and agree that Operators First Consideration Rights shall
expire and terminate on the date which is one year after the expiration of the
Term or, if earlier, the termination of this Agreement.
1.4 Substantial Completion. For purposes of Section 1.2 hereof,
Owner's written notice to Operator of "substantial completion of the Club"
shall include written certification by the Owner's architect of the
substantial completion of the improvements comprising the Club, together
with a copy of the permanent or temporary certificate of occupancy (or
equivalent certification by the appropriate building authorities) covering
the Club. The parties further agree to execute a confirmatory letter
establishing the exact Opening Date hereunder, based upon Section 1.2.
1.5 Relation of the Parties. Owner and Operator acknowledge that in
performing its duties hereunder and managing and/or operating the Club,
Operator shall act only as the appointed representative of Owner in
accordance with the terms hereof. Nothing herein shall constitute or create
any other relationship, including without limitation, a partnership or
joint venture. Anything to the contrary set forth herein notwithstanding,
Owner and Operator hereby acknowledge and agree that this Agreement does
not grant, convey or demise to Operator, directly, indirectly, by operation
of law or otherwise, any lease, license, sublease, use or occupancy rights
or any other possessory interest in and to any portion of the Club Lot or
any other portion of the Premises and, except if, when and to the extent
(x) Operator duly exercises its option to lease the Club Lot pursuant to
and in accordance with the provisions of Section 1.3
61
hereof, and (y) the annexed Lease Agreement becomes effective, nothing
herein or in the Lease Agreement annexed hereto shall be deemed to grant,
transfer or assign to Operator any tenancy, license or other occupancy or
use rights other than those necessary for it to perform its obligations as
operator and manager of the Club on behalf of Owner. Neither party shall
represent that its relationship to the other is other than as provided for
in Section 1.1 and this Section 1.5.
1.6 Operator's Representations. Operator makes the following
representations to Owner, all of which shall survive the execution,
delivery, performance or termination of this Agreement:
(a) Operator is duly organized, validly existing, and in good
standing under the laws of the state of its incorporation, and has
complied, and shall continue to comply, with all applicable laws in
order to conduct its business in the jurisdiction or state where the
Club is located;
(b) Operator has all power and authority required to execute,
deliver, and perform its obligations under this Agreement, and
Operator has, or will have when necessary, sufficient staff and other
resources, each of whom is sufficiently experienced and qualified, to
carry out Operator's duties hereunder in accordance with the standards
set forth herein;
(c) The execution, delivery and performance of Operator's
obligation under this Agreement have been duly authorized by all
necessary action on the part of Operator, its directors and
stockholders;
(d) No consents, approvals, releases, waivers, resolutions,
certificates or notices to or of any other persons or persons, other
than those previously procured by Operator, are necessary in order for
Operator to execute this Agreement and perform its obligations
hereunder;
(e) Operator is not subject to any agreement, judgment, judicial
order, contract or other enforceable instrument or ruling which would
have a material, adverse impact on Operator's ability to lawfully,
timely and efficiently perform its obligations hereunder; and
(f) Operator has, or will have (x) on or before the Opening Date,
all licenses and permits which are necessary to commence the operation
of all of the components of the Club and, (y) at all times during the
Term of this Agreement, all licenses and permits which, from time to
time, are necessary for Operator to legally and validly execute,
deliver and perform its obligations under this Agreement, it being
agreed that (i) Owner shall provide its reasonable cooperation to
Operator and shall execute any applications reasonably requested by
Operator which must be signed by the Owner of the Club in order to
facilitate the procurement of such licenses and permits and (ii)
Operator shall not be obligated to procure or maintain any licenses or
permits if, but only to the extent that, the procurement or
maintenance of same has been prevented by (A) the Owner's failure to
satisfy its obligations under clause (i) above or (B) any
unanticipated conditions at the Club, which exist due to no fault of
the Operator; and.
62
1.7 Fiscal Year. As used herein, the term "Fiscal Year" shall
mean a period of twelve (12) consecutive calendar months included in
the Term and ending on December 31st, except that the first Fiscal
Year hereunder shall commence on the Opening Date and shall end on
December 31st of the calendar year in which the Opening Date falls.
Any costs, fees or obligations arising in a Fiscal Year during the
Term which is not comprised of twelve (12) consecutive months (i.e.,
the first Fiscal Year if commencing on any day other than January 1),
shall be prorated based upon the number of days in such Fiscal Year
(based on a 360 day year). In the event that there shall be a
termination of the Term on a date other than December 31st, the last
Fiscal Year hereunder shall end on such date of termination.
Article II.
Construction of Club; Installation of FF&E
------------------------------------------
2.1 Construction and Costs. Notwithstanding any contrary provision of
this Agreement, except as set forth in Section 2.2, Owner shall be
responsible, at its sole cost and expense, for construction of a luxury spa
and first class health/fitness club in accordance, in all material
respects, with the specifications annexed hereto as Exhibit D-1 (as the
same may be hereafter modified and/or supplemented the "Construction
Specifications"). The Construction Specifications include, without
limitation, the construction of the shell building (to the extent necessary
to operate the Club), all related building components and "soft costs"
necessary to complete the Club, but exclude all furnishings, fixtures and
equipment set forth on the FF&E Specifications (as hereinafter defined).
The construction of the Club shall be performed in accordance with that
certain Construction Management Agreement dated as of December 19, 2000, as
amended (the "CMA") between Owner and Bovis Lend Lease ("Construction
Manager"). Owner shall cause the Club to be constructed by Construction
Manager in a good and workmanlike manner, using new and high quality
materials, and in accordance, in all material respects, with the
Construction Specifications, and in all respects being sufficient to permit
the Operator to meet the Minimum Standard.
2.2 Provision and Installation of FF&E. In addition to its obligations
under Section 2.1 hereof, Owner shall also be responsible for paying all
the costs associated with furnishing, fixturing and equipping the Club in
accordance with the FF&E Specifications set forth on Exhibit D-2 hereof (as
the same may be modified and/or supplemented, the "FF&E Specifications";
and, together with the Construction Specifications being referred to herein
collectively as the "Construction and FF&E Specifications"), including all
furniture, fixtures and equipment required for the operation of a luxury
spa facility and first class health and fitness club ("FF&E") and all
operating supplies and equipment required to meet the Minimum Standard (the
"OS&E"). Anything to the contrary set forth in the preceding sentence
notwithstanding, Owner reserves the right, in its sole discretion, to
acquire any of the FF&E by lease, installment purchase or other financing
arrangement it may choose and may cause any periodic payments to be made as
part of the Club's operating expenses. Subject to Owner's obligation to pay
for same, Operator and Owner shall be jointly responsible for selecting,
purchasing and procuring all FF&E and all OS&E (as hereinafter defined),
and for implementing, supervising and managing the installation of all FF&E
in accordance with the FF&E Specifications (which joint responsibilities
are described more fully in Exhibit D-2 attached hereto). Operator shall,
at Owner's cost and expense, but subject to the applicable Approved Budget,
implement, supervise and manage the installation of the OS&E in accordance
63
with the FF&E Specifications. All operating supplies and equipment, which
installation shall be performed in a good and workmanlike manner and as may
otherwise be required to fit-out and operate a luxury spa facility and
first class fitness club meeting the Minimum Standard. Operator hereby
acknowledges that it has reviewed the FF&E Specifications and that the
installation of the FF&E and OS&E identified therein will be sufficient to
permit the Operator to meet the Minimum Standard.
Article III.
Operator's Pre-Opening Services
-------------------------------
3.1 Technical and Operating Assistance. From the Effective Date until
the later of (x) the Opening Date and (y) the date on which all FF&E and
OS&E have been installed in the Club in accordance with the FF&E
Specifications (as determined by Owner, in its reasonable discretion),
Operator shall perform the services required under Section 2.2 of this
Agreement and all other services reasonably requested by Owner which relate
to (x) the design, furnishing, and all other activities and services
related to the preparation of the Club for opening in accordance with the
Minimum Standard and (y) the pre-opening marketing and promotion of the
Club and the sale of memberships in the Club (each, a "Club Membership")
including, without limitation, the following services (collectively, the
"Pre-Opening Services"):
(a) Provide technical support and consulting services, as
requested by Owner, relating to (i) the design, layout, development,
equipping, furnishing, set up, construction and pre-opening of the
Club; (ii) the preparation, modification, supplementation and further
development of the Construction and FF&E Specifications; (iii)
development and implementation of a critical path of construction with
respect to the installation of FF&E and all operating supplies and
equipment necessary to operate the Club (the "OS&E") in order to
achieve a standard of utility, services, amenities, quality and luxury
which shall meet or exceed the Minimum Standard, (iv) preparing,
updating, revising and reviewing with Owner, as and when requested, an
outline of the responsibilities of all specialist engineers and
designers, such as those involved with the design and layout of the
Spa, Salon, juice bar and the area in which the exercise equipment is
located; (v) assisting Owner in the selection of designers,
contractors and engineers, including, without limitation, providing
assistance in defining the scope of services required and negotiating
the fees to be paid to such professionals; (vi) assisting Owner with
the preparation of a Club organization chart outlining, among other
things, the identity of all individuals involved in the development
and construction of the Club and their responsibilities; (vii) meeting
with Owner and all designers, architects and engineers in order to
develop, review and revise the Operating Criteria (as hereinafter
defined), the operating pro forma and supporting rationale, the design
standards schedule, the Pre-Opening Budget, and the responsibilities,
sources of direction, budget control and reporting functions of
specialist designers; and (viii) attending all meetings, either in
person or by telephone, as reasonably requested by Owner to assist in
the development and finalization of the schematic design drawings,
which meetings shall in no event exceed one per month;
(b) Operator has already prepared, and Owner has approved, the
budget for the period commencing on the Effective Date and continuing
through the Opening Date (the "Pre-Opening Budget"), a copy of which
is attached hereto as Exhibit "E";
64
(c) Operator has already prepared and delivered to Owner, a
proposed pro-forma operating statement for the first five (5) fiscal
years of the Club, a copy of which is attached hereto as Exhibit "F"
and Owner shall approve or provide comments to same on or before
September 1, 2003;
(d) Provide Owner with (i) information regarding the cost of the
FF&E and OS&E generally used in spa/fitness club operations of a
quality commensurate with the Minimum Standard and (ii) the benefit of
its procurement services in connection with the sourcing and purchase
of the FF&E and OS&E at Operator's procurement costs;
(e) Procure, at Owner's expense (as an operating expense and, to
the extent permitted by Applicable Law (as herein defined), in the
names of both Owner and Operator), all permits and licenses and
concession agreements necessary to operate the Club for the purposes
described in Article IV below, including, without limitation, any and
all health and operating permits from the appropriate governmental
authorities, excluding the permits for construction, building and life
safety systems to be obtained by Owner (such permits and licenses
being defined collectively as the "Operating Permits");
(f) Secure, at Owner's expense and at Owner's election,
agreements for the provision of all requisite utility services,
including without limitation, electricity, hot and cold water, gas,
heat and air-conditioning, refuse removal and telephone service;
(g) Market and sell Club Memberships pursuant to and in
accordance with the approved Membership Marketing Plan;
(h) In conjunction with Owner, issue all necessary directives to
the Owner's architect, Construction Manager and such other contractors
and designers as shall be engaged by Construction Manager, Owner or
Operator in connection with the implementation of the Construction and
FF&E Specifications (with Owner's express understanding and
acknowledgement that Operator is not licensed in any of these areas
and will comment based solely upon its practical experience); review
and comment on all drawings and specifications submitted by the
various architects, specialist contractors and/or designers, review
and comment upon all mechanical and electrical documents and
specifications and provide assistance when requested for contractors
and designers to design the optimal energy management system for the
energy efficiency of the Club (again, based upon Owner's express
understanding and acknowledgement that Operator's comments will be
based solely on its practical experience in these areas); provide all
necessary technical information for specialist systems for the Club,
including (without limitation) computer systems to be incorporated in
the FF&E Specifications;
(i) Coordinate all work to be performed by, or at the direction
of, Operator, in connection with the installation of the FF&E and OS&E
with the continuing work being performed by Construction Manager in
all portions of the Premises, including the portion of the Premises
comprising the Club to ensure that the Club, as contracted, furnished,
fixtured and equipped will be able to meet the Minimum Standard and
use its commercially reasonable efforts to avoid conflict among the
persons engaged in building out and equipping the Club (including the
Construction Manager) and all persons engaged by Operator in
connection with its performance of the Pre-Opening Services and/or the
installation of the OS&E and/or FF&E;
65
recommend and assist Owner in implementing a detailed system of
inspection of all deficiencies identified pursuant to Section 3.4,
below, attend design and construction meetings as required to assist
in the resolution of problems, to expedite construction and to
co-ordinate same with the timetable for the installation of FF&E and
OS&E (with the express understanding that any meetings required by the
Owner other than those identified, or for which provision is made, in
the Pre-Opening Budget shall be attended by Operator, with all travel
and related expenses to be paid for or reimbursed to Operator by Owner
outside of the agreed upon budget);
(j) Prepare and submit to Owner, on a monthly basis, a complete
report of costs and expenditures for the marketing, operating and
staffing of the Club commencing with the first month following Owner's
approval of the Pre-Opening Plan and Budget;
(k) Assist Owner regarding sourcing and purchasing of all FF&E
and OS&E required to be installed at the Club, and verifying all
quantities of furnishings stated by the interior designers; verifying
that the cost of all FF&E and OS&E fits within the Pre-Opening Budget;
sourcing and obtaining competitive bids for FF&E and OS&E where
appropriate; and coordinating the preparation or the design of, or the
selection of, uniforms, menus, collateral, exercise-related equipment,
spa products and treatments;
(l) Following substantial completion of the fit-out of the Club
and the installation of the FF&E and OS&E, with respect to FF&E and
OS&E, assist Owner to: (i) inspect all areas and components of the
club; (ii) compare same to the Construction and FF&E Specifications;
(iii) prepare deficiency lists (e.g., punch lists); (iv) identify and
direct the rectification of all deficiencies; (v) carry out a final
inspection of the Club on completion of the rectification of all known
deficiencies; (vi) purchase replacements for damaged or stolen items
of FF&E or OS&E; (vii) prepare a final purchasing report for FF&E and
OS&E, including (without limitation) a reconciliation to the
Pre-Opening Budget; and (viii) prepare a set of drawings, a list of
local service companies, a set of purchase orders and a summary of all
guarantees received in connection with furnishing and equipping the
Club; and
(m) Develop (in conjunction with Owner) standards for the
operation and maintenance of the Club (the "Operating Criteria"),
including, without limitation, rules governing the use of the Club by
its members and guests (including spa patrons and hotel guests) and
work rules for Club employees.
3.2 Pre-Opening Budget Approval. Owner has received and approved the
Pre-Opening Budget, a copy of which is attached hereto as Exhibit E. Owner and
Operator must agree in writing to any additions, deletions or modifications to
the Pre-Opening Budget.
3.3 Outside Delivery Dates for Certain Pre-Opening Services.
(a) Anything to the contrary set forth herein notwithstanding, the
following items have been, or will be, submitted by Operator for Owner's
approval, by the respective dates specified below:
(i) Operator has submitted and Owner has approved the Pre-Opening
Budget, covering all estimated costs and expenses to be incurred by
Owner and/or the
66
Club prior to the Opening Date in connection with the installation of
the FF&E and OS&E, the hiring and training of employees, the
development of operating procedures and all other pre-opening
activities, together with a Sale/Marketing Plan for the pre-opening
period;
(ii) By July 1, 2003, Operator shall submit and Owner shall
approve a business and marketing plan, covering the period from
October 1, 2003 through September 30, 2004, for the post-opening
operation of the Club and the marketing and sale of Club Memberships
(a "Membership Marketing Plan");
(iii) On or before May 1, 2003, a timeline and critical path for
the Pre-Opening Services and related activities concerning the
preparation of the Club for opening;
(iv) On or before May 1, 2003, a description of anticipated
synergies;
(v) On or before May 1, 2003, Operator will submit a five (5)
year pro-forma operating statement;
(vi) At least 90 days prior to the scheduled Opening Date, a
proposed draft of the Operating Criteria; and
(vii) At least 90 days prior to the scheduled Opening Date, an
Annual Plan (as defined in Section 4.4 below) for the first Fiscal
Year of operations.
(b) Owner and Operator hereby covenant and agree to act reasonably and
in good faith in negotiating a Membership Marketing Plan, an Annual Plan
for the first full Fiscal Year and an Approved Budget for the first full
Fiscal Year. However, if, despite the reasonable, good faith efforts of
Owner and Operator, the parties are unable to agree on a Membership
Marketing Plan, an Annual Plan for the first Fiscal Year and/or an Approved
Budget for the First Fiscal Year on or before July 1, 2003, then either
Operator or Owner may terminate this Agreement on at least ten (10)
business days notice to the other at any time prior to the approval of the
same.
3.4 Deficiencies.
At any time on or before the tenth (10th) day following the Opening Date,
Operator may prepare and deliver to Owner a listing (a "Punchlist") of all work
not completed in substantial accordance with the Construction and FF&E
Specifications (the "Punchlist Items"), which Punchlist shall be prepared with
sufficient detail so as to enable Owner to appreciate the alleged defective or
incomplete nature of each Punchlist Item, it being agreed that each such
Punchlist Item shall be subject to approval by Owner in its reasonable
discretion. All such Punchlist Items shall be completed or rectified by Owner as
soon as possible following the Opening Date, but in no event longer than three
months after the date on which Operator shall have notified Owner of same in
accordance with this Section 3.4); provided that, if such punchlist work cannot
reasonably be completed or rectified within such three-month period, Owner shall
commence such actions within such period and thereafter diligently prosecute
such work to completion. Operator shall cooperate in all reasonable respects
with Owner in
67
connection with the correction of the Punchlist Items. Subject to Section 4.1(b)
hereof, the obligation of Owner to complete such punchlist items shall be
limited to, and the cost of such punchlist work shall be funded from,: (x)
monies specifically allocated to punchlist work in either the Pre-Opening Budget
or the Approved Budget for the first Fiscal Year, in which case such monies
shall be disbursed from the Club Operating Account or, in the event that the
Club Operating Account has insufficient monies, from Owner, and (y) available
monies in the CapEx Reserve, it being acknowledged and agreed that Owner shall
not be obligated to fund any other monies in order to complete such punchlist
work.
Article IV.
Operator's Rights and Obligations and Duties During Term
--------------------------------------------------------
4.1 Operating Standard.
(a) The Club shall consist of the following components: (a) first
class fitness facilities, (b) the Spa, (c) a retail component, (d) the
Salon and (e) a juice bar. Operator shall manage and operate all
components of the Club (x) in compliance with the applicable Annual
Plan, the applicable Approved Budget, the Minimum Standard and the
Operating Criteria (it being agreed that the Operating Criteria shall
be prepared by Operator and reasonably approved by Owner prior to the
Opening Date and thereafter supplemented and amended from time to
time, at Owner's request or with Owner's approval, as shall be
necessary to cause the Club to meet the Minimum Standard), (y) in an
efficient and cost effective manner in order to maximize profitability
and (z) in a manner consistent with the reasonable, prudent and
professional management standards of a luxury spa and first class
health/fitness club operated as part of a five star, world class hotel
and, in addition, shall, at all times, employ that level of skill,
competence and diligence as is used by operators of other
health/fitness clubs meeting the Minimum Standard. Without limiting
the foregoing, Operator shall, on behalf of Owner, implement, or cause
to be implemented, the decisions of Owner with respect to the Club and
shall conduct the ordinary and usual business of the Club as provided
in this Agreement and the Operating Criteria. Anything to the contrary
set forth herein notwithstanding, Owner expressly reserves unto itself
and Operator acknowledges and agrees that it shall have no right,
power or authority to (a) convey or otherwise, transfer, pledge, lease
or encumber the Club, the Club Lot or any other portion of the
Premises, (b) pledge the credit of Owner, or incur any monetary or
other obligation or execute any promissory note, mortgage, deed of
trust or security agreement or other contract, lease or other
agreement in the name of or on behalf of Owner, other than as
expressly permitted under this Agreement, (c) make any structural
alterations, replacements or changes to the Club or any other portion
of the Premises or, except to the extent identified in the applicable
Annual Plan and Approved Budget, make any installations therein or
additions thereto, (d) commence, terminate, defend or settle any
lawsuits in the name of Owner or (e) incur any expense chargeable to
the Club or the Owner other than expenses included in the applicable
Approved Budget, except to the extent specifically authorized by Owner
in writing.
(b) Anything herein to the contrary notwithstanding, if Owner
fails to (i) correct any Punchlist Item(s) which it is required to
correct pursuant to Section 3.4 hereof; (ii) approve any item(s) in
any Proposed Annual Budget or certain line items therein reasonably
proposed by Operator; (iii) increase the Cap Ex Ceiling in response to
a reasonable request therefore received from Operator; or (iv)
maintain sufficient funds in the Club Operating
68
Account to satisfy all payments obligations and debts reasonably
anticipated for a one (1) month operating period (any of the events
described in subsections (i) through (iv) hereinafter a "Funding
Failure"), and, if, Operator notifies Owner, in a writing delivered
subsequent to any such Funding Failure, that such Funding Failure will
result in Operator being unable to meet the Minimum Standard, then, to
the extent that, such Funding Failure causes the Operator to be unable
to meet the Minimum Standard, Operator shall be excused from its
obligation to meet the Minimum Standard. Additionally, to the extent
that any Funding Failure prevents Operator from operating the Club in
a manner consistent with the average standard being maintained by
Operator, or its affiliates, at its Other Millennium Partners Projects
at that time (hereinafter, the "Moveable Standard"), then, Operator
may terminate this Agreement after providing the Owner with sixty (60)
days notice of such Funding Failure, unless Owner, within such sixty
(60) day period, corrects such Punchlist Items or funds to the Club's
Operating Account the amount(s) necessary to cure such Funding
Failure, as applicable.
(c) Customer Satisfaction. During the Term, Operator shall take
reasonable actions to ensure that the Club Members and the hotel
guests are satisfied with their experience at the Club. Operator
acknowledges that Hotel guests who choose to use the Club during their
stay at the Hotel, may be asked by the Hotel Manager, on the Hotel's
guest comment card, to evaluate the Club and Operator (the "Hotel
Evaluations"). Operator shall send written questionnaires (on the form
then being used at the Sports Club/LA facilities being operated at
other Millennium Partners projects or on another form reasonably
approved by Owner) to all Club Members, no less frequently than once
per calendar year, asking them to evaluate the Club and their
experience at the Club (the "Sports Club Evaluations"). The results of
the Sports Club Evaluations shall be promptly delivered to Owner by
Operator, as soon as they become available, together with a comparison
of same against the annual evaluations, if any, received from members
and guests of the Sports Club/LA facilities operated at the Other
Millennium Partners Projects. Additionally, no less frequently than
quarterly, Operator shall compile and deliver to Owner consolidated
quarterly reports reflecting any complaints received by Operator from
Club Members (including the number of times each such complaint was
received) and describing any responses thereto made by Operator.
4.2 Purchasing Standards. All purchases relating to the operation of the
Club shall be paid for by Owner but made or arranged by Operator at the best
negotiated prices reasonably available (consistent with the Minimum Standard and
Operating Criteria), taking advantage of Operator's procurement services, all
available discounts, rebates, bulk purchases (including, where feasible,
combined bulk purchases with other Sports Club/LA facilities), and other
commercially reasonable methods of negotiating the best combination of price and
quality, all of which shall inure to the sole benefit of the Club, without any
consideration being paid to Operator or its Affiliates in connection therewith
other than as reimbursement for actually incurred, out of pocket distribution
costs. Subject to Section 4.12 hereof, Operator shall be entitled to enter into
agreements, purchase orders or contracts with vendors and suppliers for the
provision of goods and services for the Club; provided, however, that the terms
of any transaction are in compliance with the Annual Plan and all applicable
approved budgets and in substantial conformity with industry standards for an
arms-length agreement in the State of Florida. Operator shall order and manage
stock levels for all retail products and operating supplies. Additionally,
Operator shall make available to Owner and the Club, on an equal basis as these
materials are made available to Operator's other clubs, retail products and
service
69
supplies from the Operator's distribution center at distributor cost (plus any
actually incurred, out-of-pocket expenses associated therewith which are charged
to Operator's other clubs) without xxxx-up for profit.
4.3 Management of Leased or Submanaged Spa or Salon Components. If the Spa
or Salon is leased to a third party, or is to be submanaged by a third party, in
accordance with Section 1.1(d) hereof or otherwise with the consent of Owner,
then Operator shall (a) negotiate the terms of the lease or submanagement
agreement on behalf of, and subject to the approval of, Owner, (ii) collect all
rents, license fees, net receipts and all other monies and other consideration
which are payable to the Club, the Owner or Operator under the terms of the
sublease or submanagement agreement as applicable (it being acknowledged and
agreed that all such monies shall be included as part of and deemed to be part
of Gross Revenues of the Club and all monies paid to or on behalf of any such
person by Owner or Operator shall be treated as and deemed to be operating
expenses of the Club) and (iii) cause such lessee or submanager, as applicable,
to abide by and fulfill all of its obligations under the lease agreement or
submanagement agreement as applicable. Although Operator will engage
commercially reasonable efforts to locate a lessee who will agree to assume the
cost for millwork and FF&E, Owner understands that Operator cannot, and does
not, guarantee it will be able to locate such a subtenant.
4.4 Annual Plan and Annual Budget.
(a) Operator shall prepare and submit to Owner for its approval (x) at
least ninety (90) days before the Opening Date, a Proposed Annual Plan (as
hereinafter defined) for the initial abbreviated Fiscal Year and the first
full Fiscal Year and (y) at least ninety (90) days before the beginning of
each Fiscal Year after the first Fiscal Year, a proposed annual plan for
the operation of the Club for the immediately following Fiscal Year (each,
a "Proposed Annual Plan" and, to the extent approved by Owner, an "Annual
Plan") which Proposed Annual Plan shall include a budget of all anticipated
operating expenses of the Club, including, without limitation, all planned
capital expenses (including repairs, maintenance, FF&E, replacements and
capital improvements which are capitalized under United States generally
accepted accounting principles, consistently applied ("GAAP")) ("Capital
Expenditures") for the operation of the Club for the following Fiscal Year
(each, a "Proposed Budget"; and, once approved by the Owner in accordance
herewith, an "Approved Budget"). With respect to Capital Expenditures,
anything to the contrary set forth in this Agreement notwithstanding, Owner
and Operator hereby agree that, unless otherwise approved by Owner, (x) no
Annual Budget shall provide for Capital Expenditures which exceed one
(1.0%) percent of estimated Gross Revenues during the first Fiscal Year of
the Term, two (2.0%) percent of estimated Gross Revenues during the second
Fiscal Year of the Term, three (3.0%) percent of estimated Gross Revenues
during the third Fiscal Year of the Term or four (4.0%) percent of
estimated Gross Revenues during all subsequent Fiscal Years of the Term
(each such annual limitation being referred to herein as a "CapEx Ceiling"
and each such applicable percentage of Gross Revenues being hereinafter
referred to as the "CapEx Percentage") and, subject to Section 4.1(b)
hereof, Owner shall have no obligation to fund Capital Expenditures in
excess of the applicable CapEx Ceiling.
Each Annual Plan shall also include:
70
(i) An updated Membership Marketing Plan, including, without
limitation, all of the information, plans, programs, projections,
statements, policies, prices and other data set forth in the initial
Membership Marketing Plan approved by Owner;
(ii) An updated five (5) year pro-forma operating statement
covering the period commencing on the first day of the coming fiscal
year and ending on the fifth (5th) anniversary thereof;
(iii) A budget of all expenses of operating the Club, itemized in
such detail as shall be acceptable to Owner in its reasonable
discretion and an annual forecast of operations for the Club as a
whole and for each of the fitness club, Salon, Spa, juice bar and
retail components separately, in substantially the form annexed hereto
as Exhibit G, with such additions and revisions as Owner may
reasonably request;
(iv) A projected balance sheet and profit and loss statement
showing Operator's reasonable estimate (on a monthly basis) of Gross
Revenues (as defined in Section 6.5), operating expenses, sources and
uses of funds during the Fiscal Year for which such Annual Plan is
submitted;.
(v) A compensation plan for employees performing services at the
Club, proposed wage and benefit guidelines (including bonuses), the
number and categories of employees who will be needed for the
operation of the Club, including a general manager and assistant
managers, and all other retail and administrative personnel (including
all supervisory and training expenses) and other employee-related
costs (which plan shall not be subject to Owner's approval, provided
same conforms to the applicable Approved Budget).
(b) Within thirty (30) days after Owner's receipt of a Proposed Annual
Plan and Proposed Budget, Owner shall notify Operator of its approval or
disapproval thereof. If Owner does not approve a Proposed Budget, or any
line item within a Proposed Budget, within thirty (30) days after delivery
of the same to Owner, then such Proposed Budget, or such line item or items
not specifically approved by Owner, shall be deemed disapproved. If Owner
shall disapprove a Proposed Annual Plan, any Proposed Budget or any portion
of either thereof, then Owner shall specify with particularity the reasons
for its disapproval and Operator shall, after consultation with Owner,
submit to Owner a new Proposed Annual Plan, Proposed Budget or appropriate
portion thereof as the case may be, within ten (10) days after the date of
Owner's disapproval of the same. The foregoing procedure shall be followed
until the Proposed Annual Plan and Proposed Budget for such Fiscal Year is
fully approved by Owner, except that Owner shall have ten (10) days (rather
than thirty (30) days) to respond with particularity to each resubmittal by
Operator.
(c) Until such time as an Annual Plan and Approved Budget have been
approved in their entirety, and pending resolution of any differences
between Owner and Operator, Operator shall operate the Club in accordance
with the Annual Plan and Approved Budget in effect during the preceding
Fiscal Year.
(d) Notwithstanding any contrary provision of this Agreement, Owner
shall be required to approve any items in the Proposed Annual Plan and/or
Proposed Budget for
71
any Fiscal Year which are: (i) necessary to prevent an imminent threat to
life, health, safety or property of the Club, the Hotel or the respective
guests or employees thereof; (ii) required to comply with Applicable Law,
(iii) required to permit payment of Operator's Fees and Expenses (as
defined in Article 6 below); (iv) related to increases in costs for real
estate taxes, condominium common charges, insurance premiums, utilities,
employee payroll taxes or employee health care premiums, repairs and
maintenance, towels and linens, laundry costs and parking; and (v) any
variable operating expenses that exceed the amounts budgeted therefor due
to revenues in excess of those anticipated in the Annual Plan (including
but not limited to ancillary payroll, commissions and bonuses which are the
result of unanticipated sales), but only to the extent such excess
operating expenses are the result of revenues exceeding the levels
estimated in the Annual Plan (such items described in subsections (i)
through (v) being referred to herein, collectively, as the
"Non-Discretionary Club Expenses"). If Operator reasonably determines that
Owner has disapproved any expenditure that is a Non-Discretionary Club
Expense then Operator shall specifically identify such required items in
writing. If Owner does not agree within thirty days to include such
expenditures in the approved Annual Plan and/or Approved Budget, then
Operator shall have the right to submit the matter (i.e. whether or not
such expenses constitute Non-Discretionary Club Expenses) to arbitration as
provided in Article XI and any such determination, as to such disputed
expenditures only, shall be final and binding on both Owner and Operator.
Except with respect to Non-Discretionary Club Expenses and subject to the
terms and provisions of Section 4.1(b) hereof, Owner may approve or
disapprove of any Proposed Budget, Proposed Annual Plan, or any portion(s)
thereof, in its sole and absolute discretion, and no dispute or issue
relating to the approval by Owner of any Proposed Annual Plan or Proposed
Budget (other than a dispute with respect to whether certain proposed
expenses are Non-Discretionary Club Expenses) shall be arbitrable or
submitted to arbitration by either Owner or Operator, provided, however
that Operator shall have the right to raise any such matters in any action,
proceeding or claim otherwise brought between Owner and Operator. The
parties agree to negotiate reasonably and in good faith to arrive at an
Approved Budget for each Fiscal Year.
(e) Owner and Operator both acknowledge that, although the estimates
of revenues and expenses contained in each Annual Plan and Approved Budget
represent Operator's best estimate of the same for the applicable Fiscal
Year, such estimates can vary for reasons beyond the control of Operator,
including, without limitation: (i) the volume of business and the levels of
Club Memberships; (ii) increases in utility rates, insurance premiums and
taxes; and (iii) unanticipated and extraordinary repair and maintenance
expenses. Nevertheless, subject to variances resulting from the items
described in the immediately preceding sentence and/or any other
Non-Discretionary Club Expenses, Operator shall use all diligent efforts to
achieve the forecast results in each Annual Plan. If at any time Operator
estimates that it (a) has or will be required to exceed the operating
expenses budgeted for in an Approved Budget by more than five (5%) percent
or (b) will not achieve the revenues estimated in an Annual Plan, by more
than five (5%) percent, then Operator shall promptly notify Owner and
consult with Owner with respect to strategies to better conform actual
results to the Annual Plan. Operator will periodically update its forecasts
and provide copies of such updates to Owner for discussion with Owner, but
no such updates shall be considered amendments to the then approved Annual
Plan or the applicable Approved Budget. Operator shall not incur any costs
or make any expenditures, in any Fiscal Year, which will cause the
operating expenses for such Fiscal Year in the applicable Approved Budget
to be exceeded by more than 10% without the prior written
72
consent of Owner (except to the extent necessary to address unforeseen
Non-Discretionary Club Expenses).
Subject to Section 4.1(b) hereof, with respect to Capital
Expenditures as set forth in an Approved Budget, Operator shall have
no right to require Owner, and Owner shall not be obligated, to incur
any such expenses (other than Non-Discretionary Club Expenses) except
pursuant to and in accordance with such Approved Budget and CapEx
Ceiling.
4.5 Laundry.
-------
The Club will not have its own laundry facility. Operator will contract out
the laundry to a third party vendor or to Hotel Manager. Owner expects, but does
not ensure, that if Hotel Manager is engaged to provide laundering services,
then the per pound rate will be at the actual cost that is incurred by the Hotel
Manager.
4.6 Coordination with Hotel.
Operator will cooperate, assist and facilitate in all aspects with the
coordination of the operations of the Club with the Hotel and all other
components of the Premises. At Owner's request, the on-site manager of the Club
shall meet with representatives of the Hotel Manager to discuss any and all
matters relating to the coordination of the services offered by the Hotel and
the Club and the overall enhancement of the experience for hotel guests and Club
Members. Owner shall make reasonable efforts to obtain Hotel's cooperation in
this regard.
4.7 Pool Deck.
---------
Access to the swimming/bathing pools located within the Hotel Lot (but
specifically excluding the pool and pool deck which is reserved in the
Declaration for the exclusive use of the Residential Unit Owners, as defined in
the declaration), and all appurtenant and ancillary facilities comprising a part
of the Hotel (collectively, the "Hotel Pool Areas") will be limited to Executive
Members of the Club and Spa Patrons who shall pay a daily fee per person, in an
amount to be agreed upon between Hotel Operator, Owner and Operator, for each
and every day on which such persons access the Hotel Pool Areas. No other Club
Members or other persons shall be entitled to access the Hotel Pool Areas,
except with the prior written consent of the Hotel Operator. At the request of
either party, Owner and Operator shall endeavor to negotiate, in good faith,
with Hotel Manager with respect to one or more proposed modifications to the
foregoing pool access policy (including, without limitation, access for other
Club Members, a lump sum or other revised access fee arrangement or any other
matter which is necessitated or indicated by past use of the Hotel Pool Areas by
Executive Members and/or requests of other Club Members for access to Hotel Pool
Areas) which modifications, if any, will in all events, be acceptable to the
Hotel Operator, Owner and Operator, it being agreed that, subject to the
reasonable approval of Owner, the Hotel Manager and Operator may barter services
and/or access at their respective facilities in exchange for services or access
at the other's facility.
4.8 Club Access for Hotel Guests, Residents and Office/Retail Tenants.
-----------------------------------------------------------------
73
(a) Hotel Guests. Guests of the Hotel shall have full access to the
Club, provided that a fee/access agreement satisfactory to Operator, Owner
and Hotel Operator is agreed to and executed by all such parties. At the
request of either party, Owner and Operator shall endeavor to negotiate, in
good faith, with Hotel Manager with respect to reaching an agreement
providing for the payment by the Hotel Manager to the Club of a per guest
fee (which shall not be greater than 75% of the lowest daily rate charged
to guests of other hotels in the area) or a fixed sum annually for access
by all Hotel Guests (and any person other than a residential unit owner
that occupies a condo/hotel unit, as a "hotel guest") to the Fitness
component of the Club in an amount to be agreed upon by Owner, Operator and
Hotel Operator, it being agreed that, subject to the reasonable approval of
Owner, the Hotel Operator and Operator may barter services and/or access at
their respective facilities in exchange for services or access at the
other's facility. All Hotel guests, employees of office/retail tenants of
the Premises and owners/tenants of the residential condominium units at the
Premises shall have access, at no charge, to the Spa and Salon (which shall
not include access to any other Club facilities); provided, however, that
any services, merchandise, personal training or massages and all other
items which are separately paid for by Club Members in addition to their
regular membership dues shall be paid for by Hotel Guests at the same rates
as are then charged to standard Club Members.
(b) Residents. The owners of (x) residential condominium units
("Residential Units") and (y) condo hotel condominium units ("Condo/Hotel
Units") at the Premises shall receive, on a complimentary basis, standard
Club Memberships for two individuals incident to the purchase of their
Residential Unit or Condo/Hotel Unit. In consideration of the issuance of
such Club Memberships, Owner shall pay to the Club, on the day which is
thirteen months after the Opening Date, an aggregate, one-time amount equal
to $75,000. In addition to such aggregate, one-time sum to be paid by Owner
to the Operator, Owner shall cause the Residential Condominium Association,
on behalf of all owners of Residential Units or Condo/Hotel Units, to pay
to the Club a fixed annual amount equal to $70,000 (payable in twelve equal
monthly installments) which annual amount shall be adjusted annually, by
the percentage change in the Consumer Price Index - All Urban Consumers for
the Miami-Dade area from the date hereof to the date in question.
Additional standard Club Memberships per residential unit (in addition to
the two complimentary standard memberships per unit), subject to
availability, will receive a 25% discount off the monthly membership fee,
with initiation fees to be determined by and between Owner and Operator, by
negotiations to be conducted in good faith by both parties, but which, in
any event, shall not exceed 50% of the standard cost for same, as set forth
in the applicable Membership Marketing Plan.
(c) Office & Retail. Tenants of the office and retail components of
the Premises will receive a 50% discount off the then applicable initiation
fee for standard Club Memberships (as set forth in the applicable
Membership Marketing Plan) for all of their respective full time employees,
subject to availability. Owner and Operator will, in good faith, work with
the leasing agent on negotiating a discount off the regular monthly dues
payable by such employees, consistent with the Club's normal corporate
pricing practices, provided, that, in any event, the terms offered to the
employees of the tenants of the office and retail components of the
Premises will be of a "most favored" nature (i.e., equal to or better than
the terms offered to any other pool of members or corporate sponsor of
group memberships).
74
4.9 Parking. During the Term of this Agreement, Owner shall provide
short term daily self-parking for each Club Member requesting same (it
being agreed that Owner shall not be required to provide more than 200
spaces at any one time) at (x) a fixed cost equal to $1.50 for the first
three (3) hours that each vehicle is parked within the Premises on any
given day (which sum shall be increased, annually, after the first full
year, by a percentage equal to any positive change in CPI (as hereinafter
defined) during the prior year) and (y) at market rates, as reasonable
determined by the operator of the parking garage, for (x) all vehicles in
excess of 200 at any one time and (y) all additional hours after the first
three (3) hours per vehicle on any one day (the "Initial Parking Rates").
The Initial Parking Rates (not including any CPI increase) shall be
effective for the first fiscal year of the Club, following which (A) the
Initial Parking Rates shall be subject to annual review by Owner and
Operator tied to fair market pricing and (B) anything to the contrary set
forth in this Section 4.9 notwithstanding, if the parking facility is
operating at a loss due, wholly or in part, to the complimentary and/or
reduced fee parking and valet services being provided to Club Members under
this Section 4.9, then, at the request of Owner, the parties hereto will
implement a revised parking fee structure based on the standard parking
rates charged by the operator of the parking facility at the Premises to
the general public, provided, however that for the sole purpose of
determining the Incentive Fee, if any, which is payable to Operator under
this Agreement, Net Operating Income shall be deemed increased by any
amounts paid by the Club to Owner for parking which are in excess of $1.50
for the first three hours of parking during the first full year (which
$1.50 threshold shall, for purposes of this sentence, be subject to annual
increase by a percentage equal to the positive change in the Consumer Price
Index - All Urban Consumers, for the Miami/Dade area ("CPI") from the date
hereof to the date in question). Throughout the initial five year term of
this Agreement, up to four hundred (400) Executive Members of the Club will
get complimentary self parking and free valet for up to three (3) hours
while they are using the Club's facilities, with all additional hours and
all Executive Members in excess of four hundred (400) being charged at
market rates. The parking facility at the Premises will be operated by the
owner of the parking component or a third-party operator pursuant to rules
and regulations that will be subject to change from time to time by the
owner of the parking component, provided that no such changes may interfere
with Operator's rights under this Agreement. All parking revenues will
belong to the owner of the parking facility and will not be deemed or
treated as revenue of the Club for any purpose hereunder.
4.10 Club Employees. Operator, in compliance with the applicable
Annual Plan and Approved Budget, shall hire, promote, train, discharge, and
supervise the work of the staff of the Club, including the general manager
and assistant managers and shall use reasonable care in the hiring,
training, supervision and discharge of all employees. Additionally,
Operator shall be permitted, subject to compliance with the Annual Plan and
Approved Budget, to hire independent contractors to perform certain
services within the Club. All such personnel, except any independent
contractor, shall be employees of Operator and, subject to the immediately
following sentence, Owner shall be liable for all wages, compensation,
fringe and statutory benefits, and all other employee obligations for the
employees of the Club and any independent contractors hired by Operator in
connection with the Club. The total aggregate compensation, including,
without limitation, benefits and annual bonuses paid or payable to the
employees so assigned and all amounts to be paid to any independent
contractor hired by Operator, to the extent in compliance with the
applicable Annual Plan and Approved Budget shall be funded by
75
Owner and paid out of the Club Operating Account as provided in Section
4.4(d), to the extent such expenses are consistent with the applicable
Approved Budget and any such payments shall constitute operating expenses
of the Club. The term "benefits" shall include, without limitation, the
cost of pension or profit sharing plans, workers' compensation benefits,
group life and accident and health insurance or equivalent benefits and
similar benefits available to such employees by virtue of their employment
at the Club. Notwithstanding anything to the contrary set forth above, the
on-site manager of the Club shall be approved by Owner, which approval
shall not be unreasonably withheld. Owner agrees not to solicit, directly
or indirectly, the general manager of the Club for a period of one year
after termination of this Agreement, unless the termination results from a
default by Operator hereunder. Operator agrees to use reasonable, good
faith efforts to coordinate the training of its employees with the training
of Hotel Operator's employees and to cause its human resources director to
continually communicate with the human resources director of Hotel Operator
so that both the Operator and Hotel Operator can take all reasonable steps
which may be necessary to afford guest of both the Hotel and the Club a
seamless, consistent experience in terms of quality and services provided.
4.11 Repairs and Maintenance; Utilities. Subject to Section 4.1(b)
hereof and in substantial accordance with the applicable approved Annual
Plan, the Approved Budget and the Operating Criteria, Operator shall
arrange for the cleaning, repair and maintenance of the Club as and when
necessary but no less frequently than daily and at all times necessary to
ensure compliance with the Minimum Standard and shall arrange for all
electricity, gas, water, phone services, cable/satellite television
services, interior window cleaning, vermin extermination, waste removal,
janitorial services, landscape and the replenishment of all OS&E as shall
be necessary to meet the Minimum Standard. Subject to Section 4.1(b) hereof
and compliance with the applicable Approved Budget, Operator shall be
authorized to sign any invoices pertaining to such cleaning, repair and
maintenance services rendered at the Club and shall pay such invoices on a
timely basis using funds in the Club Operating Account as an operating
expense of the Club.
4.12 Contracts and Service Agreements. Operator is hereby authorized
to sign, in its capacity as manager of the Club, without Owner's prior
written consent, only those instruments which are executed as part of the
ordinary day-to-day operation and management of the Club, consistent with
the Operating Criteria and which (a) do not require the expenditure by the
Club or Owner of an amount in excess of $40,000 over the term of such
agreement or contract, (b) do not have a term in excess of one (1) year and
(c) relate to (i) the purchasing of OS&E, at costs which are consistent
with the then applicable Annual Plan and Annual Budget, (ii) routine
maintenance, upkeep, operation and repair of the FF&E in accordance with
the applicable Approved Budget or (iii) the marketing and sale of Club
Memberships on terms set forth in the approved Membership Marketing Plan.
Operator shall not enter into any service contract, agreement for services
or other agreement requiring a monetary commitment on behalf of the Club,
unless same is contemplated in the Operating Criteria and is in compliance
with the Approved Budget. Additionally, all contracts for repairs, capital
improvements, goods, and services exceeding $40,000 shall require the prior
written approval of Owner and, shall be awarded on the basis of competitive
bidding, solicited in the following manner:
(1) A minimum of three (3) written bids shall be obtained
for each.
76
(2) Each bid will be solicited in a uniform format (using
Operator's standard forms) so that uniformity will exist in the
bid quotes.
(3) Operator may accept the lowest bid without prior
approval from Owner; otherwise, Owner's consent shall be
required, provided, however, that if Owner does not respond
within seven (7) business days, the bid will be deemed approved,
provided, that Operator has advised Owner in writing that Owner's
failure to timely respond to Operator's request for Owner's
approval shall result in Owner being deemed to have given its
approval thereto (provided further that Owner shall have seven
(7) business days from such notice before Owner's approval shall
be deemed to have been given).
(4) Operator may request that Owner waive these competitive
bidding requirements, and Owner's direction in any single
instance shall not be deemed to be its consent in any subsequent
instance.
Operator shall not hold itself out as having the authority to approve any
contract or agreement without the prior written approval of Owner, except as
provided herein.
4.13 Contracts with Operator's Affiliates. Operator may enter into
contracts and agreements with Operator's Affiliates (as hereinafter defined)
only (a) with full prior written disclosure to Owner and Owner's prior written
consent and (b) if such contracts and agreements are consistent with the
approved Annual Budget and otherwise contain terms that are competitive and
consistent with the terms of, and are no less favorable to the Club than,
contracts or agreements that may have been negotiated on an "arm's-length"
basis. For purposes of this Agreement, the term "Affiliate" means (x) any
corporation, partnership, venture or other entity which controls, is controlled
by, or is under common control with Operator or in which Operator has a legal or
beneficial ownership interest and/or (y) the directors, officers, employees of
Operator or any entity controlled by any such persons or in which any such
persons has a legal or beneficial ownership interest.
4.14 Compliance with Law. Operator shall use commercially reasonable
efforts to comply (as an operating expense of the Club except to the extent that
compliance is required due to Operator's gross negligence or intentional
misconduct or illegal acts) with all statutes, ordinances, laws, rules,
regulations, orders and determinations by any governmental authority having
jurisdiction thereover ("Applicable Laws") affecting or applicable to the Club,
Operator or Operator's management, operation or use of the Club and, in
connection with the operation of the Club, shall timely make, as applicable, all
registrations and filings and obtain all permits, certificates and approvals
necessary to manage and operate the Club in the manner required hereunder and in
compliance with all Applicable Laws.
4.15 Compliance with Loan Agreements. Owner having delivered to Operator
full and complete copies of all relevant documents (the "Current Loan
Documents") prior to the execution of this Agreement, Operator shall at all
times during the Term comply with all of the terms, covenants and conditions set
forth in the documents which evidence and secure that certain $215,000,000
construction loan (the "Fleet Loan") made by Fleet National Bank, N.A.,
Westdeustsche Immobilienbank and Ocean Bank (collectively, the "Lender") to
Owner, and/or any other mortgage loan that may hereafter be secured by a
mortgage or deed of trust
77
encumbering the Premises or the Club, provided that, as to all loan documents
other than the Current Loan Documents, Owner shall submit to Operator full and
complete copies of all relevant documents, it being agreed that Operator shall
not be obligated to comply with the provisions of any documents other than the
Current Loan Documents, where such compliance would result in the imposition
upon Operator of restrictions or the incurrence by Operator of obligations which
are in any material respect greater than the restrictions or obligations under
the Current Loan Documents, unless Operators agrees to do so in its reasonable
discretion.
4.16 Operating Hours. Subject to routine maintenance (which shall be
performed, whenever possible, during hours when the Club is regularly closed to
the public) and Force Majeure Events (as hereinafter defined), Operator shall
keep all facilities at the Club fully operational and open for business no less
than 362 days per year and on all such days the Club shall be open at all times
between the ***[hours of ___ A.M. to ___ P.M.]***, it being agreed that the
three (3) days in each calendar year on which Operator is permitted to close the
Club shall be Christmas Day, Thanksgiving Day, New Year's Day. As used herein,
"Force Majeure Events" shall mean, to the extent not within Operator's control,
acts of God or the public enemy, expropriation or confiscation of facilities,
acts of declared or undeclared war, public disorder and demonstrations or
protests, rebellion, sabotage, revolution, earthquake, pestilence, riots,
strikes or lockouts or labor disputes, embargo, emergency acts, or the inability
of a party to obtain necessary materials or equipment due to unanticipated or
extraordinary events, future laws, rules or regulations of governmental
authorities, to the extent any of the same actually and reasonably delays
Operator's performance hereunder.
4.17 Non-Compete.
Neither Operator nor any Affiliate thereof shall own, manage, license, rent
or operate a sports club, spa, health/fitness club, salon, gym, or similar
enterprise in the Counties of Dade, Florida or Broward, Florida or otherwise
within ten (10) miles of the Premises, during the Term of this Agreement and for
a period of three (3) years after expiration or earlier termination of this
Agreement, it being agreed that this non-compete covenant shall not apply
following the termination of this Agreement by Operator, where such termination
results from Owner's default hereunder or is effectuated in accordance with the
provisions of Section 4.1(b) hereof. Owner shall have the right to specific
performance and other injunctive relief in the event of any violations of the
provisions of this Section 4.17 in addition to any other remedies available at
law or under this Agreement. The foregoing notwithstanding, if and when the
Lease Agreement is in effect, then, if and to the extent any non-compete, radius
or exclusivity clauses contained therein shall conflict with, contradict or be
inconsistent with the provision hereof, then the provisions of the Lease
Agreement shall control and bind the parties.
4.18 Membership Programs. Operator shall develop market, promote and
administer the membership programs for all Club Memberships including all
corporate programs, travel packages and other promotions and special
solicitations and shall invoice and collect all related initiation fees and
monthly dues, in a manner consistent with the Membership Marketing Plan approved
by Owner.
4.19 Noncompliance with Minimum Standard. Notwithstanding any contrary
provision of this Agreement, Operator shall be excused from its obligation to
operate the Club in
78
conformity with the Minimum Standard whenever, but only to the extent that,
Operator shall be prevented from compliance with such standard by Owner's
Default or a Force Majeure Event.
4.20 Club Operating Account. At the end of each day during the Term,
Operator shall deliver or deposit, as applicable, to a segregated account (the
"Club Operating Account") opened and maintained in a federally insured
depository within the City of Miami, State of Florida which shall be approved by
Owner, all cash, checks, money orders and other receipts derived from the
operation of the Club. All signatories on the Club Operating Account shall be
approved by Owner in writing, which approval may be withheld in Owner's sole
discretion. All of Operator's employees handling receipts of the Club shall be
bonded in a manner and in an amount reasonably acceptable to Owner. The costs of
such bonding shall be borne by Operator and shall not be an operating expense of
the Club.
4.21 Payment of Expenses. Operator, using monies available in the Club
Operating Account (including any monies which Owner is required to fund into the
Club Operating Account pursuant to the terms of this Agreement), shall make
timely and full payment of all operating expenses of the Club, reimbursable
costs of Operator (payable pursuant to Section 6.4 below), and all other amounts
due and owing to Operator, vendors, suppliers or other parties entitled to
payment under the terms of this Agreement, provided that, except as otherwise
provided herein, all such expenditures shall be consistent with the applicable
Approved Budget. All disbursements of funds pertaining to the Club, whether by
check or other withdrawal from the Club Operating Account or from xxxxx cash,
shall be substantiated by appropriate records and in accordance with the
accounting procedures set forth herein or in the Operating Criteria. After
payment of monthly operating expenses of the Club and before any Net Receipts
(as hereinafter defined) are disbursed to Owner, Operator shall fund the Monthly
CapEx Amount (as such term is defined below) to the Cap Ex Reserve Account (as
such term is defined below).
4.22 Payment of Property Obligations. Subject to the availability of
necessary funds in the Club Operating Account, as required to be funded by
Owner, Operator shall make timely payment, on behalf of Owner, of all real
estate taxes, water and sewer rents, condominium common charges, special
assessments, payment of insurance premiums relating to the Club and the interest
of Owner therein, and all obligations of Owner pursuant to any agreements to
which Owner is, or may in the future be, a party or bound (all of the foregoing
obligations shall hereinafter be collectively referred to as the "Property
Obligations"), prior to the time that any penalty shall attach for the
non-payment hereof.
4.23 Payment of Net Receipts to Owner. Within fifteen (15) days of the end
of each calendar month during the Term, Operator shall disburse to Owner all
sums remaining in the Club Operating Account after payment of (a) all operating
expenses of the Club which are then due and payable or which are expected to be
due and payable within the next thirty (30) days, (b) the funding of any monthly
CapEx Ceiling and (c) the payment of any Fees and Expenses then due and payable
to Operator hereunder (the "Net Receipts").
4.24 Accounting and Payroll Services. Operator shall provide all accounting
and financial reporting services for the Club's operation in accordance with
GAAP. Operator's accounting personnel, on a daily basis, shall gather, generate
and compile all records of daily receipts (including cash and credit card
receipts), revenues and expenses for the Club together
79
with such additional information as is necessary in order for Operator's
accounting personnel to prepare the Monthly Statements and the Annual Statements
for the Club as provided herein below. In addition, Operator's accounting
personnel shall provide payroll and benefits processing for all Club employees
(and independent contractors), maintain payroll records, make all related
governmental and statutory tax reporting and filings, and provide all
bookkeeping and clerical services incident to the operation and maintenance of
the Club.
4.25 Monthly Statements. On or before the twentieth (20th) day of each
calendar month during the Term, Operator's accounting personnel shall render to
Owner unaudited financial statements for the Club (collectively, the "Monthly
Statements") in the form and containing all of the statements, notes and
information set forth in the form of the monthly reportss annexed hereto as
Exhibit H or such other form as Owner may hereafter approve, together with such
additional or alternative statements and or financial information which Owner
may reasonably request. In addition to the Monthly Statements, Operator shall
provide daily sales reporting and periodic labor and productivity reporting with
each payroll.
4.26 Weekly Flash Report. At the end of each week during the Term, Operator
shall deliver to Owner, by facsimile or e-mail, a weekly flash report in the
form annexed hereto as Exhibit I and containing all of the information set forth
therein, together with such additional information as may reasonably be
requested by the Owner.
4.27 Annual Statements. In addition to the Monthly Statements, as soon as
practicable after the end of each Fiscal Year and in any event within ninety
(90) days thereafter, Operator's accounting personnel shall render to Owner the
financial information prepared for each set of Monthly Statements compiled on an
annual basis, together with such additional information as Owner may reasonably
request (which shall be unaudited); setting forth in each case comparisons to
the applicable Annual Plan and actual results from the prior Fiscal Year, all in
reasonable detail (collectively, the "Annual Statements"). In connection
therewith, Owner shall promptly forward to Operator's accounting personnel any
data in Owner's possession or within Owner's control necessary for Operator to
prepare and file all necessary reports and returns related to the Club with
respect to withholding taxes, social security taxes, income taxes, unemployment
insurance, disability insurance under the Fair Labor Standards Act and any other
similar filing required under Applicable Law.
4.28 Books and Records. Copies of all books and records pertaining to the
Club shall be available during normal business hours and upon reasonable notice
during the Term and for a period of five (5) years after the expiration or
earlier termination of this Agreement, for inspection, transcription and audit
by Owner or its representatives. If such inspection or audit shall disclose any
error in the reporting of Gross Revenues or Net Operating Income (as defined in
Section 6.5) in any Fiscal Year, then the party benefiting from the error shall
pay to the other parties the funds necessary to correct the error plus interest
at the Default Rate (as defined in Article VII). If the error exceeds five (5%)
percent of the actual Gross Revenue and/or Net Operating Income for such Fiscal
Year Owner may recover the cost of the audit and of any proceeding commenced by
Owner to establish such deficiency. If the error is less than 5%, or if there is
no error, then Owner shall pay the cost of the audit and any proceeding
commenced by either party to establish the amount or lack of any deficiency.
80
4.29 Insurance.
(a) Owner shall, at all times prior to the Opening Date, procure and
maintain, or cause to be procured and maintained, with companies which are
licensed to insure risks in the City of Miami, State of Florida, and having
a rating in the most current edition of Best's Insurance Reports of A-/VII
or better (i) public liability insurance in respect of the Club insuring
both Owner and Operator against claims or loss arising in connection with
the construction, furnishing and equipping of the Club and the Pre-Opening
activities of Operator hereunder, and (ii) adequate property insurance for
the full insurable value of the Club against all risk of direct physical
damage, including but not limited to fire and extended coverage, hurricane
coverage (but only to the extent available at reasonable rates), boiler and
machinery, and such other risks and perils for which insurance is
customarily provided for world class five star hotels of similar character
during the period of construction and completion. Operator shall procure
and maintain, or cause to be procured and maintained, similarly qualified
Workers' Compensation or similar insurance, at Owner's cost.
(b) Owner shall, at all times during the Term, procure and maintain,
or cause to be procured and maintained, the following insurance, in form
and amounts, and with responsible and properly licensed companies
satisfying the requirements set forth in subsection (a), above, as
reasonably approved by Operator (which amounts shall in no event be less
than the amounts required under any mortgage, deed of trust or security
agreement affecting or applicable to the Club):
Property and casualty insurance against all risk of direct physical loss,
including but not limited to, fire and extended coverage including business
interruption, hurricane coverage (but only to the extent available at
commercially reasonable rates), boiler and machinery coverage including use and
occupancy, and such other risks and perils with respect to which insurance is
customarily carried by operators of luxury Club facilities or health clubs;
Such other insurance as Operator or Owner shall deem reasonably necessary
for protection against claims, liabilities and losses arising from the operation
of the Club.
(c) Operator shall at all times during the Term, procure and maintain,
or cause to be procured or maintained, the following insurance, respecting
the Club in form and amounts, and with responsible and properly licensed
companies satisfying the requirements set forth in subsection (a) above, as
approved by Owner (which amounts shall in no event be less than the amounts
required under any mortgage, deed of trust or security agreement affecting
or applicable to the Club): (i) Statutory personnel-related insurance,
including without limitation, workers' compensation, unemployment, health,
employers liability and a broad form "all states" endorsement or similar
insurance as may be required by applicable law, (ii) crime and fidelity
insurance against dishonest acts by employees and others working at the
Club; (iii) professional liability insurance insuring the Club and its
employees and independent contractors against claims arising from services
and/or the sale/use of retail product and professional supplies; and (iv)
general liability insurance, on an occurrence form basis, for injury to or
death of persons and damage to or loss of property.
81
(d) All policies evidencing the insurance required by subsections
4.29(a) and (b) shall name Owner as the principal insured and shall name
Operator, its directors, officers, employees and agents and (if required by
Owner) any mortgagee of the Club as additional insureds thereunder. In
addition, all such policies shall be endorsed to cause them to be primary
to any other valid and collectible insurance available to Operator.
(e) All insurance policies required to be carried hereunder shall, to
the extent obtainable, have attached thereto an endorsement that the same
shall not be cancelled or changed without at least thirty (30) days prior
written notice to all named insureds and additional insureds.
(f) For the purpose of evidencing compliance with the provisions of
this Section 4.29, each of Operator and Owner shall furnish and maintain on
a current basis certificates of insurance evidencing the coverage, and
furnish at the request of the other party, certified copies of all
insurance policies required to be maintained by Owner or Operator, as
applicable, pursuant to this Section 4.29.
(g) The insurance policies required by this Section 4.30 will provide
that the insurer's right of subrogation shall be waived in favor of the
party not providing the insurance.
Article V.
Owner's Obligations and Duties
-------------------------------
5.1 Funding of Club Operating Account. As otherwise herein provided, (a)
Owner shall be obligated to maintain a minimum balance in the Club Operating
Account sufficient to finance the operations of the Club and satisfy all payment
obligations and debts reasonably anticipated for a one (1) month operating
period and (b) Owner shall be obligated to deposit, within five (5) days of its
receipt of a written request therefore from Operator, additional funds into the
Club Operating Account if the balance of the Club Operating Account becomes
inadequate to meet expenses of the Club, it being acknowledged and agreed that,
except with respect to Non-Discretionary Club Expenses and subject to the
provisions of Section 4.1(b), Owner shall have no obligation, after the first
full year of operations, to fund any amounts on account of expenses which, when
added to all other operating expenses of the Club, results in the annual
operating expenses of the Club exceeding, by more than ten (10%) percent, the
total of all budgeted expenses for the Club as set forth in the applicable
Approved Budget for the then current fiscal year of the Club. Without limiting
the foregoing, unless excused by Owner in writing, it shall be an Event of
Default by Operator under this Agreement if any such expenses, when added to all
other operating expenses of the Club, result in the annual operating expenses of
the Club exceeding, by more than ten (10%) percent, the total of all budgeted
expenses for the Club as set forth in the applicable Approved Budget for the
then current fiscal year of the Club. Notwithstanding the foregoing, Operator
shall have no liability under this Section 5.1 to fund or otherwise pay any Club
expenses in excess of the Approved Budget.
5.2 Funding of Reserves. Subject to the provisions of Section 4.4 hereof,
after payment of all other operating expenses of the Club and before paying any
Net Receipts to Owner, Operator shall, on a monthly basis, fund an amount (the
"Monthly CapEx Amount")
82
equal to the lesser of (x) one twelfth of the CapEx Ceiling for such Fiscal Year
and (y) an amount equal to (A) the applicable CapEx Ceiling divided by (B)
twelve multiplied by (C) the number of months elapsed in such Fiscal Year minus
(D) the amount of funds then on account in the CapEx Reserve. At all times, the
CapEx Reserve and all interest or other returns thereon shall be the sole
property of Owner, and Owner shall have the right, in its sole and absolute
discretion, to withdraw monies from the CapEx Reserve to satisfy the obligations
of Owner to fund any operating expenses of the Club, including any Capital
Expenditures, or for any other purpose whatsoever whether or not related to the
Club. Operator shall maintain the CapEx Reserve funds in a special, segregated
account called Terremark Brickell II, Ltd - Fitness Club CapEx Reserve Account
in a bank selected by Owner (the "CapEx Reserve Account"). Operator shall
provide Owner with the account numbers, account name, signature cards and
deposit account agreement for such account and only the Owner's officers and
such of the officers of Operator as shall be approved by Owner, shall be
permitted signatories thereon. Anything to the contrary set forth herein
notwithstanding, no monies may be withdrawn from the CapEx Reserve Account
without the signature of an officer of the Owner.
5.3 Signage. Owner will furnish and install, at Owner's sole cost and
expense, a sign on the exterior of the building (at a location and elevation to
be specified by Owner), which sign shall be of a size and color and contain only
such content as shall be consistent with the existing signs on Operator's other
clubs.. No additional or replacement signs or any modifications to any approved
sign shall be permitted without Owner's and Operator's consent.
5.4 Club and Hotel Interface. Operator shall provide an electronic
interface from the Club's point of sale ("POS") system and related applications
(scheduling and gift certificates) to the Hotel's POS system for posting room
and group charges, including any upgrades required in the future. Owner shall
also provide (i) during the term of the Hotel Management Agreement, a PBX system
for integrated phone use between the Hotel (reception, guest rooms and house
telephones) and the Club and the individual residential units and office/retail
units forming a part of the premises, and (ii) external and dedicated telephone
lines for outside calls. Operator shall take all actions necessary to integrate
the POS system with the Hotel's point of sale system. Any upgrades to, or
maintenance of, any portion of the systems or equipment provided by Owner under
this Article V shall be paid for as an operating expense of the Club.
Article VI.
Operator's Compensation and Other Fees
--------------------------------------
As full and complete compensation to Operator for the services provided
hereunder, Owner shall pay to Operator (x) the below described fees, and (y) to
the extent any such expenditures are made, actual out-of-pocket expenses
incurred by Operator on Owner's behalf, in accordance with the terms and
conditions hereof (collectively, the "Fees and Expenses"):
6.1 Base Management Fee. For each Fiscal Year, Operator shall receive, in
respect of its management services hereunder, an annual fee (the "Base
Management Fee") equal to six (6.0%) percent of Gross Revenues (as such term is
hereafter defined), which shall be
83
paid, on a monthly installment basis, by Operator withdrawing funds from the
Club Operating Account on the tenth (10th) day following Owner's receipt of
Operator's Monthly Statements, in an amount equal to six (6.0%) percent of Gross
Revenues for the immediately preceding calendar month. If, for any Fiscal Year,
the aggregate amount of the monthly installments disbursed to Operator as the
Base Management Fee shall be more or less than the annual Base Management Fee
payable for such Fiscal Year based upon the final determination of Gross
Revenues for such Fiscal Year as reflected in the Annual Statements for such
Fiscal Year, then, by way of year end adjustment, within sixty (60) days of
Owner's receipt of Operator's Annual Statement, Operator shall pay to Owner the
amount of any such overpayment, or Owner shall pay to Operator, or authorize
Operator to withdraw from the Club Operating Account, the amount of any such
underpayment.
6.2 Incentive Fee. For each Fiscal Year for which there is positive Net
Operating Income, Operator shall receive, in addition to the Base Management
Fee, an "Incentive Fee" equal to forty percent (40%) of Net Operating Income for
such Fiscal Year. The Incentive Fee shall be paid annually by Owner to Operator
within thirty (30) days following Owner's receipt of Operator's Annual Statement
for the applicable Fiscal Year, by wire transfer to Operator's bank, in an
amount equal to forty percent (40%) of Net Operating Income for the preceding
Fiscal Year.
6.3 Pre-Opening Services Fee. As compensation for the Pre-Opening Services
to be rendered by Operator during the development, construction and pre-opening
phases of the Club, Owner shall pay to Operator a nonrefundable fee of Five
Thousand Dollars ($5,000) for each month beginning January 1, 2003 until the
Opening Date (which amount shall be prorated for any partial months) provided
that in no event shall the aggregate amount of such fees exceed forty five
thousand ($45,000) Dollars (the "Pre-Opening Services Fee"). For the avoidance
of doubt, Operator acknowledges and agrees that it shall continue to provide the
Pre-Opening Services at all times after it has received the entire Pre-opening
Services Fee, unless it is otherwise entitled to terminate this Agreement.
6.4 Operator Reimbursement. Operator shall be reimbursed by Owner for
out-of-pocket expenses it incurs resulting from (i) items approved by Owner as
part of the applicable Annual Plan or Approved Budget, (ii) commercially
reasonable, actual out-of-pocket expenses incurred by Operator on Owner's behalf
pursuant to the terms of this Agreement, including, without limitation,
purchases of OS&E, provided that all such expenses shall be incurred in
accordance with the applicable Approved Budget or as otherwise required by
Operator, and (iii) reasonable out-of-pocket expenses incurred by Operator in
connection with site visits by Operator's Vice President of Operations, Director
of Human Resources, Regional Manager and Regional Comptroller only. In the event
this Agreement is terminated, for any reason whatsoever, prior to the opening of
the Club, Owner agrees to reimburse Operator for the above-described expenses
and for all expenses incurred in connection with moving its current General
Manager to Florida.
6.5 Definitions. For the purposes of this Agreement:
"Gross Revenues" shall mean, for any period, any and all gross receipts
(including cash and credit card receipts) received by Operator from the
operation of the Club and
84
deposited into the Club Operating Account, including, without limitation, all
initiation fees for Club Memberships, monthly or annual dues received from Club
Members, monies received in lieu of membership dues as described in Section 4.8,
daily use fees, all fees and other monies paid under any sublicense or
submanagement agreement covering the Salon, gift certificates redeemed at the
Club, receipts from sales of merchandise, provision of services, permitted
concessions and vending machines, and business interruption insurance proceeds
and other insurance proceeds intended to cover the insured for lost Gross
Revenues, determined in accordance with GAAP, but excluding the following:
capital event proceeds, financing proceeds, sales of gift certificates (until
the gift certificate is redeemed at the Club for goods and/or services or it
expires), salon/spa goods sold through mail-order, gratuities or service charges
added to guests' bills or statements which are paid over to employees; federal,
state and local excise, sales, use or rent taxes collected directly from patrons
or guests as part of or as an addition to the sales price of any goods or
services; and discounts, allowances, and refunds or credits to Club Members,
patrons or guests (including Hotel Guests).
"Net Operating Income" shall mean Gross Revenues, less all costs and
expenses incurred to manage and operate the Club, including without limitation,
the following (all calculated in accordance with GAAP and consistently applied):
An assumed annual rent payment of $1,600,000 per year, which
shall be deemed to have been paid in equal monthly installments
of $133,333.33 on the final day of each month during each Fiscal
Year;
Payroll and all related fringe and statutory benefits;
Insurance premiums;
Costs of goods sold (for retail products) and cost of supplies
(for services);
Monthly CapEx Amounts;
Direct advertising and promotion;
Direct operating expenses, including repair and maintenance, utilities,
telephone and fax, postage and Federal Express, laundry and uniforms, office
supplies/printing, professional fees and services, travel and entertainment,
training, credit card fees, cash overages/shortages, and miscellaneous expenses
for the Club;
Base Management Fee, and Operator's reimbursable expenses; and
Direct general and administrative costs associated with the Club as
described under the express provisions of this Agreement, including national and
technical training, recruiting, regional supervision and management
(pre-opening, grand opening and throughout the Term), and Owner support services
such as payroll, benefits and accounting, as well as out-of-pocket expenses of
Operator and its Affiliates incurred for the account of or in connection with
the Club operation, including reasonable travel expenses of employees, officers
and other representatives and consultants of Operator and its Affiliates.
85
The following items will not be a deduction for purposes of calculating Net
Operating Income: Incentive Fees; real property taxes; common charges or CAM
payable under the Declaration; depreciation and amortization; any general or
administrative expenses of Owner or any of its affiliates and any self-parking
costs in excess of $1.50 subject to CPI adjustment as described more fully in
Section 4.9, above.
Article VII.
Default Interest
----------------
If either party shall, after being given fifteen (15) business days written
notice, fail to pay, when due, to the other party any sum payable hereunder
(including, without limitation, pursuant to Section 10.3 below), then the
defaulting party shall be liable to the non-defaulting party for the payment of
such sum together with interest thereon at the rate of (i) a per annum floating
rate equal to Citibank N.A.'s Prime Rate, as publicly announced from time to
time, plus three (3%) percent per annum, or (ii) the maximum rate of interest
allowed by law, whichever shall be less, from the date when such sum shall
become due to the date of actual payment (the "Default Rate").
Article VIII.
Marketing and Initial Membership Fees
-------------------------------------
8.1 Advertising. In accordance with each Annual Plan, Approved Budget and
Membership Marketing Plan, Operator shall prepare, arrange and contract for all
advertising, publicity and promotional activities for the Club, it being agreed
that any substantial variations from the forms and type of advertising approved
in the applicable Membership Marketing Plan (other than those which are
necessary to render the materials consistent with the then current Membership
Marketing Plan or current state of facts) shall be approved by Owner prior to
the dissemination thereof. Failure to approve or disapprove within ten (10)
business days shall be deemed an approval by Owner, provided that Operator has
notified Owner in writing that Owner's failure to timely respond will be deemed
to be Owner's approval thereof (provided further that Owner shall have ten (10)
business days from such notice before Owner's approval shall be deemed to have
been given). At Owner's request, Operator shall cooperate with Owner in all
respects, at no out-of-pocket expense to Operator, in all advertising programs
for the Hotel, the Residential and Condo/Hotel Units and the office and retail
components of the Premises.
8.2 Prebooking and Marketing. Owner and Operator each covenant to cooperate
in good faith with each other and with the Hotel Manager to cross-promote and
market the services offered at the Club, the Hotel, the parking facility and all
other components of the Premises.
8.3 Membership Fees. Except to the extent otherwise provided in Section 4.9
hereof, the initial membership fees and all annual/monthly membership dues shall
be no less than the amounts set forth in the Membership Marketing Plan approved
by Owner, except for discounts granted by Operator in the normal course of
business and in a manner and of a magnitude set forth in the applicable Annual
Plan.
8.4 Trademarks.
86
(a) Owner acknowledges that Operator and/or its affiliates is the sole
and exclusive owner of the Operator's and its affiliates' trade name,
trademark, service xxxx, logo, company depiction or identifying symbol (the
"Sports Club Marks") and that Owner has no right, title or interest in or
to the Sports Club Marks or any right, license or permission to use same
for any purpose without the express written consent of Operator except the
right to use the Sports Club Marks pursuant to the terms and conditions set
forth in this Agreement. Operator agrees to respond to each request for
permission to use a Sports Club Xxxx (which consent shall not be
unreasonably withheld) within ten (10) days of its receipt of a written
request together with a copy of the proposed materials which will include
the Sports Club Marks. Any unauthorized use by Owner of the Sports Club
Marks shall (x) entitle Operator to exercise any and all of its remedies
under this Agreement or applicable law for such infringement and (y) if,
and to the extent that such unauthorized use is intentional, willful,
grossly negligent or unreasonably repetitive, be a default hereunder.
(b) Operator acknowledges that Hotel Manager is the sole and exclusive
owner, and Owner is the licensee, of Hotel Manager's trade name, trademark,
service xxxx, logo, company depiction or identifying symbol (collectively,
the "Hotel Marks") and that Operator has no right, title or interest in or
to the Hotel Marks or any right, license or permission to use same for any
purpose without the express written consent of Hotel Operator. Owner agrees
to use reasonable efforts to cause the Hotel Manager to respond to each
request for permission to use a Hotel Xxxx within ten (10) days of its
receipt of a written request together with a copy of the proposed materials
which will include the Hotel Marks. Any use of the Hotel Marks by Operator
which is not previously authorized, in writing, by Hotel Operator, shall
entitle Hotel Operator (or Owner, but only as agent or indemnitor of Hotel
Operator) to exercise any and all of its remedies under applicable law for
such infringement. Operator hereby agrees to indemnify and hold Owner
harmless from and against any and all claims, liability, actions, law
suits, costs, expenses and/or damages which may be incurred by Owner as a
result of such unauthorized use, including, without limitation, any damages
awarded to Hotel Operator as against Owner resulting from any such
unauthorized use.
(c) Operator acknowledges that Owner and/or its affiliates are the
sole and exclusive owner, of Owner's and its affiliates' trade name,
trademark, service xxxx, logo, company depiction or identifying symbol
(collectively, the "Millennium Marks") and that Operator has no right,
title or interest in or to the Millennium Marks or any right, license or
permission to use same for any purpose without the express written consent
of Owner. Owner agrees to respond to each request for permission to use a
Millennium Xxxx (which consent may not be unreasonably withheld) within ten
(10) days of its receipt of a written request together with a copy of the
proposed materials which will include the Millennium Marks. Any
unauthorized use by Operator of the Millennium Marks shall (x) entitle
Owner to exercise any and all of its remedies under this Agreement or
applicable law for such infringement and (y) if, and to the extent that
such unauthorized use is intentional, willful, grossly negligent or
unreasonably repetitive, be a default hereunder.
8.5 Notification of Infringement. Owner and Operator shall notify each
other promptly of any adoption, use or registration that may come to their
attention of any trademark, service xxxx, trade name, trading style or corporate
name or other designation which would appear to infringe or impair the
applicable party's respective rights in the Sports Club Marks, the
87
Millennium Marks and/or the Hotel Marks, as the case may be. Owner and Operator
agree to cooperate with each other and their respective attorneys and other
authorized representatives in any investigation or legal proceeding (other than
any dispute between the parties in which case this section shall not be deemed
to impose any obligations or requirements in excess of what is required under
applicable rules governing the arbitration or judicial proceeding, as the case
may be) which any party may deem desirable to protect its rights in the Sports
Club Marks, the Millennium Marks and/or the Hotel Marks; provided, however, the
party attempting to protect its Marks shall be responsible for all costs
associated therewith. Unless authorized by the applicable party in writing, no
party shall make any claim or protest or institute or prosecute any legal
proceeding involving the Sports Club Marks, the Millennium Marks and/or the
Hotel Marks of the other party before any official, board, or administrative
body. Owner and Operator shall notify each other promptly in writing of any
protest, claim of infringement, or legal proceeding instituted against a party
involving the Sports Club Marks, the Millennium Marks and/or the Hotel Marks,
and agrees that the party to whom such xxxx belongs shall have the right to
control and direct the defense or settlement of such legal proceeding, and to
retain any damages or settlement paid in respect thereof.
8.6 Remedy for Infringement. Owner and Operator recognize that any
disagreement arising out of or relating to the Sports Club Marks, the Millennium
Marks and/or the Hotel Marks, whether arising during the Term or subsequent
thereto, may give rise to irreparable injury to the party who owns such Xxxx,
which such injury is inadequately compensable in damages. Accordingly, each
party may obtain injunctive relief against the breach or threatened breach of
any of the obligations or undertakings set forth in Sections 8.3, 8.4 and 8.5,
in addition to any other remedies which may be available to it at law or in
equity, and each party hereby consents to the obtaining of such relief or
remedies in any court of competent jurisdiction. Notwithstanding the foregoing,
Owner and Operator shall also be fully entitled to seek any relief pursuant to
Section 10 below.
8.7 Termination. At no time after the expiration or sooner termination of
this Agreement shall the Club be described as a Sports Club/LA or shall any
party make or permit any representation that the Club is a Sports Club/LA or is
in any way affiliated with Operator or its Affiliates. Notwithstanding the
foregoing, printed material using the Sports Club Marks which has been
distributed in good faith during the Term need not be recalled, except for
materials in the guest rooms and other locations within the Hotel (which shall
be recalled), provided that, upon Operator's request, Owner shall cause to be
distributed material adequately informing affected parties that the Club is no
longer a Sports Club/LA; and provided further, upon the expiration of six (6)
months following any such expiration or termination, all material using any
Sports Club Marks shall be destroyed.
Article IX.
Point of Sale
-------------
9.1 Software. Owner acknowledges that Operator's POS (as defined in Section
5.4, above) to be used at the Club during the Term shall include, without
limitation, any and all computer programs developed by Operator or whose
development is contracted for by Operator, and all data files and information
resulting from use of such programs (the "Software") which shall be, in all
respects, the functional equivalent of the POS and Software
88
installed and used at the Sports Club/LA being operated adjacent to the Four
Seasons Hotel, San Francisco, CA. The Software is and shall be the sole and
exclusive property of Operator, including all applicable rights to patents,
copyrights, trademarks and trade secrets inherent in and appurtenant to the
Software. Subject to the provisions hereof, Operator hereby grants to Owner
during the Term, a nonexclusive, nonassignable and nontransferable license to
use the Software in connection with the sale of Club services. Operator shall
take all actions necessary to integrate its POS system with the point of sale
system of the Hotel.
9.2 Hardware. In connection with the implementation of the POS, Operator
shall assist Owner in procuring the hardware necessary for operation of the POS
(the "Hardware"). The Hardware shall be purchased by Owner, at Owner's sole
cost, and shall remain the property of Owner upon the termination of this
Agreement; provided, however, Owner shall allow Operator to remove from the
Hardware any Software, which shall remain the exclusive property of Operator, as
provided in Section 9.1 above.
9.3 Operator's Removal of the POS. Upon the expiration or earlier
termination of this Agreement for any reason whatsoever, Operator shall remove
and take possession of all Operator proprietary Software and documentation
relating thereto and all copies of any of the foregoing. Owner shall cooperate
in good faith with Operator to fully effect the foregoing; provided, however,
that Operator shall permit Owner to possess a computer-readable electronic copy
of all of the Club's data files so that the Club facility may continue normal
operations after such expiration or termination.
9.4 No Copies. Except for backup copies expressly permitted by Operator in
each instance, Owner shall not make copies of any of the Software during the
Term or upon the expiration or earlier termination of this Agreement. Owner
shall not sell, transfer, publish, disclose, display, use for its own account,
or otherwise make available to any person, firm or entity any source code,
object code or documentation relating to the Software.
Article X.
Termination of Agreement
------------------------
10.1 Events of Default. The following shall constitute "Events of Default"
hereunder following the expiration of the referenced cure period, if any:
(a) The failure of either party (the "Defaulting Party") to pay to the
other party (the "Non-Defaulting Party") any sum which may become due
hereunder within fifteen (15) days after receipt by the Defaulting Party of
a notice from the Non-Defaulting Party specifying such failure;
(b) Subject to the occurrence of any Force Majeure events, the failure
by Operator to continuously operate the Club, and the failure by the Owner
to fulfill any necessary obligations hereunder to enable the Operator to
continuously operate the Club, in accordance with the Minimum Standard on
all days on which the Club is required to be open under Section 4.16
hereof;
(c) The occurrence of any Insolvency Default (as such term is defined
in Section 10.5 hereof);
89
(d) Any fraud or intentional misconduct on behalf of Operator or Owner
or any misrepresentation, whether by affirmative statement or omission of a
fact necessary to make the representation not materially misleading, in any
of the material representations made by Operator or Owner hereunder;
(e) Any other event or occurrence which is designated as an Event of
Default pursuant to another provision of this Agreement;
(f) Any failure by Operator to meet the Minimum Standard, unless such
failure is cured to the reasonable satisfaction of Owner, within sixty (60)
days of Owner's delivery to Operator of notice of such failure; or
(g) The failure by the Defaulting Party to perform, keep or fulfill
any of the material terms, covenants, undertakings, obligations or
conditions set forth in this Agreement other than those referred to in the
foregoing subsection (a), and, except with respect to these defaults for
which a different notice or cure period is specified herein, the
continuance of such failure for a period of thirty (30) days after receipt
by the Defaulting Party of written notice thereof from the Non-Defaulting
Party specifying such failure; or, in the event such failure is of a nature
that it cannot, with due diligence and in good faith, be cured within
thirty (30) days and such Defaulting Party fails to proceed promptly and
with due diligence and in good faith to cure the same and thereafter to
prosecute the curing of such failure with due diligence and in good faith
and in any event shall fully cure the same within ninety (90) days of the
occurrence of the event in question (it being intended that, in connection
with a failure not susceptible of being cured with diligence and in good
faith within thirty (30) days, the time of such Defaulting Party within
which to cure the same shall be extended for such period, not in excess of
any aggregate period of ninety (90) days, as may be necessary for the
curing thereof with due diligence and in good faith).
10.2 Rights of Non-Defaulting Party. If an Event of Default shall occur,
the Non-Defaulting Party may give to the Defaulting Party notice of intention to
terminate the Term, which termination shall be effective thirty (30) days from
the date of such notice (except with respect to a Default by Owner for failing
to pay necessary funds into the Club Operating Account or Operator's
misappropriation of Net Receipts to Owner, in which case the termination shall
be effective fifteen(15) days after the date of such notice) and, upon the
expiration of such period, the Term shall expire unless such default has been
cured within such 30-day period (or 15-day period, as the case may be), in which
case such notice shall be of no force and effect and such Event of Default shall
be deemed rectified. However, if either party commits an Insolvency Default,
then this Agreement shall terminate automatically upon the happening of such
event. Such termination shall be without prejudice to any right to damages which
the Non-Defaulting Party may have against the Defaulting Party under Applicable
Law.
10.3 Remedying Defaults. Notwithstanding anything to the contrary contained
in this Agreement, Owner shall be entitled to remedy any default of Operator
under this Agreement with thirty (30) days actual notice to Operator, or without
notice in the event of any emergency, without prejudice to any rights Owner may
possess under this Agreement, and Owner shall be repaid by Operator, upon
demand, for the reasonable cost of remedying such default, together with
interest on such cost at the Default Rate, from the date of incurring such
90
cost until paid. The parties hereto acknowledge and agree that Operator shall
have no obligation to reimburse Owner for the cost of any actions undertaken
under this Section 10.3, unless such actions were undertaken by Owner to cure an
actual default by Operator hereunder, or if a court of law or arbitrator
determines that no such default existed.
10.4 Payments Upon Termination, Accounting.
(a) Upon termination of this Agreement pursuant to Sections 10.1, 10.2
or 10.4, or the natural termination of this Agreement, Operator shall be
entitled (in addition to any rights or remedies available to it at law or
in equity) to all sums, charges and fees which Operator has then earned and
is entitled to receive under this Agreement (including, without limitation,
Sections 6.1 and 6.2, above), together with costs and expenses, if any,
reimbursable to it pursuant to Section 6.4, or for which it may be
responsible arising out of anything done within the scope of its
responsibilities under this Agreement to the date of termination, all as
disclosed in the accounting described in the succeeding sentence (the
"Operator Reimbursements"). Operator shall prepare and deliver to Owner a
reasonably detailed accounting of the amount of all such sums, charges,
fees, costs and expenses for the period ending on the date of termination.
The accounting described in the preceding sentence shall be delivered to
Owner as soon as reasonably practicable thereafter (and in any event within
90 days following the termination date), reflecting such amounts that
cannot be readily ascertained on the termination date (the "Final
Accounting"). On the termination date, any funds in the Club Operating
Account and any separate reserve accounts shall be disbursed to Owner;
provided, however, Operator shall be permitted to retain up to $500,000
(the "Retained Funds") of funds in the Club Operating Account to be applied
against Operator Reimbursements set forth in the Final Accounting. Within
five (5) business days following the delivery of the Final Accounting to
Owner, Owner shall pay (or authorize the release of any necessary Retained
Funds) to Operator any Operator Reimbursements reflected in the Final
Accounting and not yet paid to Operator. Any Retained Funds in excess of
the Operator Reimbursements set forth in the Final Accounting shall be
disbursed to Owner on the date the Final Accounting is provided by
Operator, and in any event, no later than the ninetieth (90th) day
following termination. In the event of any dispute regarding the amounts
set forth in the Final Accounting, (i) Owner shall pay to Operator the
undisputed amount of the Operator Reimbursements (or authorize the release
of Retained Funds in such amount), and the balance of the Retained Funds in
excess of the disputed amounts, if any, shall be disbursed to Owner and
(ii) any remaining Retained Funds shall be held by Operator until such time
as the dispute regarding such amounts is resolved pursuant to Article XI
hereof.
(b) Operator shall promptly turn over to Owner all correspondence,
files, books, and records (including, without limitation, all membership
records) in respect of the Club which are in Operator's possession,
provided that all such materials shall remain available to Operator at all
reasonable times for inspection, audit and transcription for a period of
seven (7) years from the date of termination. Finally, unless the Agreement
is terminated by Operator as a result of a default hereunder by Owner,
Operator shall also reasonably cooperate with the transition from Operator
to any successor manager or operator of the Club, provided that Owner agree
to additionally compensate Operator for such cooperation. All FF&E, OS&E
and improvements relating to the Club, or the operation thereof, shall
remain at the Club as the property of Owner.
91
(c) The parties agree that upon the effective date of any termination
of this Agreement, (i) Operator shall have no continuing right or
obligation to manage, operate or control the Club, or any portion thereof,
and shall cease acting in its capacity as manager or operator of the club;
(ii) Operator shall no longer have any authority to act on behalf of Owner
or the Club and shall advise all persons contacting Operator with regard to
the Club that Operator no longer operates or manages the Club and will
refer all such persons to the Owner; (iii) Owner shall have no continuing
right whatsoever to use or invoke Operator's name or any Sports Club Marks
(except to the extent otherwise explicitly set forth herein) in connection
with the Club and shall immediately cease and desist doing so; (iv) Owner
and Operator shall advise all persons who inquire that Operator is no
longer affiliated in any way with the Club; (v) Owner shall cause any and
all signage bearing or depicting any Sports Club Marks which is affixed to
any portion of the Club Lot to be removed as soon as practicable at Owner's
sole cost and expense; and (vi) Owner shall immediately cease from using
and return to Operator all other intellectual property belonging to
Operator (including but not limited to software programs, training manuals,
protocols, marketing materials and anything with Operator's logo affixed,
but excluding non-proprietary books, records (including, without
limitation, all membership records) and data relating to the operation of
and results at the Club).
10.5 Insolvency Default. An "Insolvency Default" by a party hereto shall
occur whenever:
(a) Such party shall file a voluntary petition in bankruptcy or shall
be adjudicated bankrupt or insolvent, or shall file any petition or answer
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under the present or
any future federal bankruptcy act or any other present or future applicable
federal, state or other statute or law relative to bankruptcy, insolvency
or other relief for debtors, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver, conservator or liquidator of such
party or of all or a substantial part of its properties (for the purpose of
this Section 10.5, "acquiescence" shall include, without limitation, the
failure to file a petition or motion to vacate or discharge any order,
judgment or decree providing for such appointment within thirty (30) days
after any such appointment);
(b) A court of competent jurisdiction shall enter an order, judgment
or decree approving a petition filed against such party seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief against such party under the present or any
future federal bankruptcy law or any other present or future applicable
federal, state or other statute or law relating to bankruptcy, insolvency
or other relief for debtors, and such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of ninety (90) days (whether
or not consecutive) from the date of entry thereof, or any trustee,
receiver, conservator or liquidator of such party or of all or any
substantial part of such party's property shall be appointed without the
consent or acquiescence of such party and such appointment shall remain
unvacated and unstayed for an aggregate of sixty (60) days (whether or not
consecutive);
(c) Such party shall admit in writing its inability to pay its debts
as they mature;
92
(d) Such party shall give notice to any governmental body of
insolvency or pending insolvency, or suspension or pending suspension of
operations;
(e) Such party shall make an assignment for the benefit of creditors
or take any other similar action for the protection or benefit of
creditors; or
(f) The dissolution or liquidation of such party.
Article XI.
Dispute Resolution and Arbitration
----------------------------------
11.1 Unless otherwise specifically provided for in this Agreement, all
disputes, controversies, claims or disagreements arising out of or relating to
this Agreement (singularly, a "Dispute" and collectively, "Disputes") shall be
resolved in the following manner:
11.2 The parties shall seek to resolve all Disputes by negotiation in good
faith for a period of thirty (30) days after either party shall determine that a
Dispute exists and notifies the other party thereof.
11.3 If the parties are unable to resolve the Dispute through negotiation
within such 20-day period, the Dispute shall be settled by arbitration conducted
in accordance with the following subparagraphs of this Article XI.
11.4 Any Dispute submitted to arbitration shall be resolved by binding
arbitration pursuant to the laws of the State of Florida and to the extent they
do not conflict, the Commercial Arbitration Rules of the American Arbitration
Association as in effect on the date hereof (the "AAA Rules") or the provisions
of this Agreement, it being the intention of the parties that the provisions of
this Agreement shall, to the extent permitted by law, control over all contrary
provisions of law or the AAA Rules. The arbitration shall take place in Miami,
Florida. Judgment upon the decision entered by the arbitrators may be entered in
any court having jurisdiction. In the event of a failure, refusal, or inability
of any arbitrator to act, his successor shall be appointed by him, or, if he
fails to do so within ten (10) business days, by the remaining two arbitrators,
or, if they fail to do so within an additional five (5) business days, as
provided by the AAA Rules. The arbitrators shall attempt to decide the issue
within ten (10) business days of the end of the hearing , but must decide the
issue within fifteen (15) business days. The arbitrators shall determine the
proportion of the expenses of the arbitration that each party shall bear; in all
other respects the parties shall bear all of their own costs, including
attorneys' fees and expenses of witnesses. The arbitrators shall have the right
to consult experts and competent authorities with factual information or
knowledge concerning the Dispute and the fees of such authorities shall be borne
by the unsuccessful party.
11.5 In connection with any arbitration proceeding pursuant to this Article
XI, the parties shall choose the arbitrators as follows:
(a) The arbitration shall be conducted by three (3) arbitrators, which
arbitrators shall be selected in accordance with the AAA Rules, and at
least one (1) of whom (but no more than two (2) of whom) shall have had
experience in the management and/or operation of
93
health/fitness clubs, or as a consultant in connection with the management
and/or operation of health/fitness clubs. The decision of a majority of the
arbitrators shall be binding on the parties.
(b) Notwithstanding Section 11.4 above, if the Dispute at issue is for
a liquidated amount not in excess of $200,000 (subject to CPI Adjustment
from the Opening Date), then the arbitration shall be conducted by one (1)
arbitrator in accordance with AAA Rules for Expedited Procedures, which
arbitrator (i) shall be selected in accordance with the AAA Rules for
Expedited Procedures, and (ii) shall have had experience in the management
and/or operation of hotels, or as a consultant in connection with the
management and/or operation of hotels.
(c) As used in this Agreement, the term "arbitrator" shall mean the
one (1) member arbitration panel or the three (3) member arbitration panel,
as applicable, described herein.
(d) In connection with any arbitration proceeding pursuant to this
Article XI, the arbitrators shall each have the following qualifications:
(i) Experience in the matter to be arbitrated (e.g., operating
and managing luxury spas and first class health/fitness clubs similar
in quality and services offered to the Club).
(ii) The arbitrators shall be neutral and independent of the
parties to this Agreement, their Affiliates and their consultants and
advisors.
(iii) No arbitrator shall have been employed or engaged by, or
received any compensation from, a party hereto, its Affiliates or its
consultants or advisors.
(iv) No arbitrator shall be affiliated with either party's
auditors.
(v) No arbitrator shall have a conflict of interest with
(including, without limitation, any bias towards or against) a party
hereto or its affiliates or its then current consultants or advisors.
(e) In order to ensure the neutrality of the arbitrators, the parties
agree that neither they nor their Affiliates will offer employment or any
other compensation to any of the arbitrators for a period of twelve (12)
months following completion of the arbitration.
(f) The decision of the arbitrators shall be accompanied by a
statement of the reasons upon which the decision is based.. The arbitrators
shall not have the power or authority to modify this Agreement, unless
expressly granted to them, in writing, by the Owner and Operator. The
decision may not include, and the parties specifically waive, any award of
attorneys fees. Accordingly, each party shall bear its own attorneys fees
incurred in connection with any arbitration proceeding.
(g) The arbitrators may consolidate proceedings with respect to any
Dispute under this Agreement with proceedings with respect to any related
controversy, provided that any parties to such controversy who are not
parties to this Agreement consent to such consolidation.
94
(h) The parties will cooperate in the exchange of documents relevant
to any Dispute. Deposition or interrogatory discovery may be conducted only
by agreement of the parties or if ordered by the arbitrators. In
considering a request for such deposition or interrogatory discovery, the
arbitrators shall take into account that the parties are seeking to avoid
protracted discovery in connection with any arbitration proceeding
hereunder.
(i) Notwithstanding anything herein contained in this Article XI, both
the Owner and Operator shall be entitled to (a) commence legal proceedings
seeking such mandatory, declaratory or injunctive relief as may be
necessary to define or protect the rights and enforce the obligations
contained herein pending the settlement of a Dispute in accordance with the
arbitration proceedings set forth in this Article XI; or (b) join any
arbitration proceeding arising out of this Agreement with any other
arbitration proceeding arising out of this Agreement.
(j) If the subject of the dispute concerns the funding of operations,
Owner must continue to provide sufficient cash to operate the club in
accordance with this Agreement pending the outcome of the dispute.
(k) Nothing in this Article XI shall be deemed to limit the rights of
a secured party or mortgagee to pursue any remedies, enforce any rights,
seek any relief or commence any legal proceedings in any court or other
tribunal to which it may be entitled pursuant to any financing agreement or
mortgage, or any documents executed in connection therewith, or pursuant to
Applicable Law.
(l) If a party determines that a Dispute presents such party with an
extraordinary situation that requires it to seek emergency provisional
relief prior to the appointment of the arbitrator who will determine such
Dispute, it may seek such emergency provisional relief from any court
having jurisdiction; provided, however, that (i) in order to obtain any
such relief, the court shall determine that such party has met any
applicable standards imposed by the law applicable to the relief requested
with respect to such party's rights to such relief; and (ii) such relief
may only be sought and obtained on the condition that any order entered by
the court will expire ten (10) days after the appointment of the arbitrator
unless the party that sought the order renews its application for emergency
provisional relief to the arbitrator within such ten (10) day period, which
arbitrator shall then make de novo any findings of fact that may be
required in ruling on such renewed application.
Article XII.
Casualty and Condemnation
-------------------------
If the Club, or any portion thereof, shall be damaged or destroyed at any
time or times after the Effective Date by fire or any other casualty, or if any
portion of the Club is taken by eminent domain or condemnation, then Owner,
shall use due diligence and dispatch, to repair, rebuild or replace the same so
that after such restoration the Club shall be substantially the same as prior to
such damage, destruction or condemnation (such repairing, rebuilding or
replacing being herein called "Restoration"), and all proceeds of insurance
shall be made available to Owner for this purpose. All insurance proceeds
realized in connection with a casualty and all
95
condemnation awards paid or payable in connation with any condemnation of all or
any part of the Club shall belong to and be the property of Owner and Operator
shall have no right, title or interest therein and no right to make any separate
claim in connection therewith . The foregoing notwithstanding, Owner shall have
no obligation to effect a restoration if (x) sufficient insurance proceeds or
condemnation awards are not made available to Owner for such purpose by the
insurance carrier and/or all mortgagees, (y) the repair or restoration cannot be
reasonably accomplished within six (6) months of the occurrence of any such
taking or casualty or (z) at least 20% of the building of which the Club forms a
part is condemned or damaged, in which case Owner shall have the right, in its
sole discretion, to terminate this Agreement. Additionally, in the event that
Owner elects not to promptly undertake the Restoration, then Operator may
terminate this Agreement on at least thirty (30) days notice to Owner, unless
Owner, within such thirty (30) day period, agrees to promptly undertake and
diligently prosecute such Restoration.
Article XIII.
Transfer or Assignment
13.1 Assignment. Except as provided below, Operator shall not voluntarily,
involuntarily, by operation of law or otherwise, assign, convey, pledge,
delegate, submanage, hypothecate or otherwise transfer all or any part of its
rights or obligations under this Agreement without the approval of Owner which
approval may be withheld in Owner's sole discretion. Operator shall have the
right to assign its rights and obligations under this Agreement, without the
consent of Owner, to any "Permitted Assignee" in connection with a "Permitted
Transaction." In the event of an assignment, Operator shall continue to be
liable under this Agreement to the same extent as though such assignment had not
been made. In the event Operator sells a controlling interest, such sale shall
constitute an assignment of Operator's interest requiring Owner's approval. A
"controlling interest" refers to the ability to control the management or
operation of such entity in fact arising by contract, equity ownership or
otherwise. Owner may assign its rights under this Agreement to any successor
owner of the Club Lot, without any notice to or consent to the Operator.
13.2 Permitted Transaction. For purposes hereof, a "Permitted Transaction"
shall mean any transaction, regardless of its form, in which (a) the permitted
assignee expressly assumes, in writing, all of the liabilities and obligations
of the Operator hereunder for all the rest and remainder of the Term hereof; and
(b) upon such transfer or assignment, the permitted assignee shall continue to
have the right to manage and operate, under the Sports Club/LA trade name, not
less than seventy percent (70%) of the number of the Sports Club/LA facilities
then owned and/or managed and operated as of the date of the transfer or
assignment in the United States of America. In addition to the foregoing
requirements, for purposes hereof, a "Permitted Assignee" shall mean any wholly
owned subsidiary of the Operator or any person or entity acquiring a controlling
interest in the Operator, or the Operator's assets, including the rights and
obligations of the Operator under this Agreement. Anything to the contrary set
forth herein notwithstanding, Operator may, without the consent of, but on at
least ten (10) business days prior notice to, Owner, assign its rights, duties,
obligations and interests under this Agreement to any wholly owned subsidiary of
Operator, in which case all contracts, agreements and instruments relating to
the Club may be entered into by such wholly owned affiliate, provided, that such
wholly owned affiliate shall assume, in writing, all of the liabilities and
obligations of the Operator hereunder for all the rest and remainder of the Term
hereof and provided, further,
96
that, any such assignment and assumption notwithstanding, The Sports Club
Company, Inc. shall remain fully and primarily liable for the performance of all
of the Operator's obligations under this Agreement.
13.3 Invalid Assignment. Any assignment or transfer, or purported
assignment or transfer, which is consummated by Operator in violation of this
Article XIII shall, at the option of Owner, be void and of no force or effect.
Additionally, if (x) Operator effectuates or attempts to effectuate any
assignment or transfer without first satisfying all conditions precedent to such
transfer or assignment pursuant to this Article XIII and (y) either Operator or
the purported transferee refuses to confirm, acknowledge or recognize, in
writing, that the purported assignment or transfer is ineffective and a nullity
with respect to this Agreement and Owner, or if the transferee refuses to vacate
the Club or to cease controlling the management and/or operation of the Club,
then any such refusal or failure shall be a material default hereunder entitling
Owner to terminate this Agreement unless such default is cured within fifteen
(15) business days of Owner's delivery of a notice of termination to Operator,
following which neither party shall have any further liability under this
Agreement except for the payment of money due at the time of such termination
and all other obligations which specifically survive the termination of this
Agreement.
Article XIV.
Indemnification
---------------
14.1 Indemnification of Owner. Operator shall indemnify, defend and hold
Owner and its Affiliates, officers, directors, partners, members, trustees,
employees and agents (individually, an "Owner Indemnitee") harmless for, from
and against any damages, liability, cost, claim or expense, including attorneys'
fees (collectively, "Claims"), attributable to the negligence (unless fully
covered and defended by an insurer under a valid insurance policy), gross
negligence, fraud, misapplication of monies, breach of obligations hereunder or
willful misconduct of Operator or any affiliates, officers, directors, members,
partners, employees (including employees of the Club), agents, servants or
others under the control of Operator.
14.2 Indemnification of Operator. Owner shall indemnify, defend and hold
Operator and its Affiliates, officers, directors, partners, members, trustees,
employees and agents (individually, a "Operator Indemnitee") harmless for, from
and against any and all Claims attributable to the negligence (unless fully
covered and defended by an insurer under a valid insurance policy), gross
negligence, fraud, misapplication of monies, breach of obligations hereunder or
willful misconduct of Owner or any affiliates, officers, directors, members,
partners, employees (including employees working at the Premises ), agents,
servants or others under the control of Owner.
Article XV.
Confidential Information and Publicity
--------------------------------------
15.1 Disclosure of Information. Owner and Operator acknowledge that each
may receive certain material which is not publicly known concerning the business
and affairs of the other (including without limitation not only the terms of
this Agreement, but numerous manuals, outlines, charts, designs, and other
materials prepared by Operator or otherwise
97
reflecting Operator's expertise in the many areas that are the subject of this
agreement; collectively "Confidential Information") in connection with this
Agreement, and agree that each of them has a proprietary interest in their
respective Confidential Information. All disclosures of Confidential Information
to a party under this Agreement, including its affiliates, agents,
representatives, lenders, accountants, attorneys and employees shall be held in
strict confidence by such party, its affiliates, agents and employees, and such
party may disclose the Confidential Information only to those of its affiliates,
agents, representatives, lenders, accountants, attorneys and employees to whom
it is necessary in order to properly carry out their duties hereunder, as
required by legal process or in order to comply with the disclosure obligations
of a publicly-held company. Neither party shall use the Confidential Information
of the other after termination or expiration of this Agreement and each party
shall return to the other all copies of the other's Confidential Information as
soon as reasonably practicable after the date of such termination or expiration.
15.2 Approval of Form. The dissemination of information with respect to
this Agreement or the transactions contemplated hereby including, without
limitation, press releases, advertising materials and other disclosures, shall
be subject to the prior written approval of Operator and Owner, which shall not
be unreasonably withheld or delayed by either party.
Article XVI.
Notices
-------
Any and all notices, consents, directives, or other communications by either
party intended for the other must be in writing and sent by nationally
recognized overnight carrier or by registered or certified mail, return receipt
requested, to Owner, at c/o Millennium Partners, 0000 Xxxxxxxx, 0xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000, Attention: Chief Financial Officer, with a copy to Paul,
Hastings, Xxxxxxxx & Xxxxxx LLP, 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Attention: Xxxx X. Xxxxxx, Esq. and to Operator, at 00000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxx 000, Xxx Xxxxxxx, Xx. 00000, Attention: Xxxx Xxxxx, President
and Chief Operating Officer; Xxxx Xxxxxxxxx, Corporate Counsel; with a copy to
Xxxxx Xxxxxxx Xxxxxx & Xxxxxx LLP, 00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxxx Xxxxx,
Xxx Xxxxxxx, Xx. 90025, Attention Xxxx Xxxxxxxxxx, unless either party shall
have designated different addresses by serving written notice of change of
address on the other party by registered or certified mail.
Article XVII.
Entire Agreement
----------------
This Agreement (together with any Schedules and Exhibits hereto, which are
incorporated herein by this reference) constitutes the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all negotiations, discussions and agreements previously made
between the parties relating to its subject matter. There are no other
understandings or agreements between them, other than as expressly set forth
herein.
Article XVIII.
Non-Waiver
----------
98
No delay or failure by either party to exercise any right under this
Agreement, and no partial or single exercise of that right, shall constitute a
waiver of that or any other right, unless otherwise expressly provided herein.
Article XIX.
Survival
--------
Notwithstanding the termination of the Term or Operator's management of the
Club in accordance with this Agreement, all terms, provisions and obligations of
either party contained herein, which in order to give them effect and accomplish
their intent and purpose need to survive such termination (i.e., Section 4.17,
Section 8.6, Article X,Article XIV, and Article XV) shall survive and continue
until they have been fully satisfied or performed. Except to the extent set
forth above all other terms, provisions and obligations, shall be automatically
deemed terminated and of no further force or effect following the termination of
this Agreement.
Article XX.
Lender Approvals, Subordination and Estoppel Certificates
---------------------------------------------------------
20.1 Lender Approvals.
(a) The Premises are subject to and encumbered by the terms of the
documents evidencing and securing the Fleet Loan. This Agreement and all of
the terms herein are subject to Lender's approval of same. Owner shall use
commercially reasonable efforts to obtain Lender's consent to this
Agreement; however, if despite such efforts, Lender refuses to consent to
this Agreement, this Agreement shall be terminated upon notice of such
refusal to Operator and neither party shall have any further rights, duties
or obligations hereunder except to the extent such rights, duties or
obligations survive the termination hereof, and Owner shall pay to Operator
that portion of the Pre-Opening Services Fee and/or Fees and Expenses which
are due and payable through the date of such termination, and shall
reimburse Operator for all out of pocket expenses incurred through the date
of such termination.
(b) Operator's rights, entitlements and interests under this Agreement
and, if executed, the Lease shall be subject and subordinate to the Fleet
Loan and to all other third party financing encumbering the Club and/or the
Premises and/or Owner's interests therein. The foregoing subordination of
this Agreement and Operator's rights as manager or the Club shall be
self-operative and no further instrument shall be required to effect any
such subordination; however, Operator, from time to time, within ten (10)
days of a written request made by Owner, shall execute an agreement
confirming such subordination. Owner, upon written request of Operator,
shall use commercially reasonably efforts to obtain a subordination,
non-disturbance and attornment agreement (each, an "SNDA") in favor of
Operator from each such lender on the lender's then standard form (but
which shall provide that any mortgagee or other successor to the interests
of Owner under this Agreement shall be obligated to pay to Operator all
arrears in Management Fees, Incentive Fees and expense reimbursements as a
condition precedent to Operator attorning to such successor), it being
acknowledged and agreed by Operator that in the event that any such lender
succeeds to the interests of Owner under this Agreement, by virtue of
foreclosure, deed in lieu or otherwise, then Operator shall attorn to such
successor and such successor (i) shall not be liable for any act or
omission of Owner under this
99
Agreement, nor for any pre-existing defaults by Owner under this Agreement,
(ii) shall not be subject to any offset, abatement, defense or counterclaim
accruing prior to such sale or conveyance to lender, (iii) shall not be
bound by any prepayment of monies due and/or payable to Owner which may be
offset against future net revenue of the Club and (iv) shall be liable for
the performance of the other obligations of Owner under this Agreement only
during the period such lender shall own the Club.
(c) At the request of the Lender and/or any other future mortgagee of
the Club and/or in connection with any proposed mortgage financing,
Operator shall, from time to time, amend or modify this Agreement, to the
extent requested by Owner or any mortgagee provided that such amendment (i)
does not materially diminish or reduce any rights or remedies of Operator
hereunder and (ii) does not impose obligations upon Operator which are
materially more burdensome than the obligations hereunder.
(d) At any time and from time to time, on at least ten (10) days prior
written notice, Operator or Owner, upon request to the other, shall execute
an estoppel certificate in form acceptable to Owner or Operator, as the
case may be, and/or Lender and containing such statements as may be
reasonably requested.
Article XXI.
Headings
--------
Headings in this Agreement are for convenience only and shall not be used
to interpret or construe its provisions.
Article XXII.
Governing Law
-------------
This Agreement shall be construed in accordance with and governed by the
laws of Florida.
Article XXIII.
Counterparts
------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
Article XXIV.
Binding Effect
--------------
Subject to Article XIII, the provisions of this Agreement shall be binding
upon and inure to the benefit of both of the parties and their respective legal
representatives, successors, and permitted assignees.
Article XXV.
Miscellaneous
-------------
100
25.1 It is expressly agreed that TIME IS OF THE ESSENCE WITH RESPECT TO THE
PARTIES' OBLIGATIONS UNDER THIS AGREEMENT.
25.2 (a) No person or entity other than Operator (including, without
limitation, no disclosed or undisclosed, direct or indirect, partner, member,
shareholder, officer, director, employee, agent or principal in or of Operator)
shall be personally liable for the performance of any of Operator's obligations,
or for the satisfaction of any of Operator's liabilities, under this Agreement.
(b) No person or entity other than Owner (including, without
limitation, no disclosed or undisclosed, direct or indirect, partner,
member, shareholder, officer, director, employee, agent or principal in or
of Owner) shall be personally liable for the performance of any of Owner's
obligations, or for the satisfaction of any of Owner's liabilities, under
this Agreement.
25.3 If any term or provision of this Agreement or the application thereof
to any person or circumstance shall to any extent be held by a court or other
governmental authority of competent jurisdiction to be invalid or unenforceable,
the remaining terms and provisions of this Agreement, or the application of such
terms or provisions to the person or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and be enforced to the
fullest extent permitted by law.
101
IN WITNESS WHEREOF the parties hereto have caused this instrument to be
executed on the day and year first above written.
OWNER:
TERREMARK BRICKELL II LTD,
a Florida limited partnership
By: Terremark Brickell II, Inc.,
its general partner
By: /s/ Xxxxxx Xxxxxxx
-------------------------
Name: Xxxxxx Xxxxxxx
Title: Vice President
OPERATOR:
THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By: /s/ Xxxx Xxxxx
-------------------------
Name: Xxxx Xxxxx
Title: President and COO
102
10.71
First Supplement to Fitness
Club and Spa Management
and Pre-Opening Services
Agreement effective as of
January 1, 2003
103
FIRST SUPPLEMENT TO FITNESS CLUB AND SPA MANAGEMENT
AND PRE-OPENING SERVICES AGREEMENT
This First Supplement (this "Supplement") to that certain Fitness Club and
Spa Management and Pre-Opening Services Agreement between Terremark Brickell II
Ltd. ("Owner") and The Sports Club Company, Inc. (the "Operator"), effective as
of January 1, 2003, (the "Original Agreement") is also entered into between
Owner and Operator effective as of January 1, 2003 and concurrently with their
entering into the Original Agreement.
Now, therefore, for good and valuable consideration, the mutual receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Construction. Capitalized terms not otherwise defined in this
Supplement shall have the meaning given them in the Original Agreement. In
the event of any conflict between the terms and conditions of this
Supplement and those of the Original Agreement, the terms and conditions of
this Supplement shall control. This Supplement shall be construed neutrally
so as to give fair effect to its meaning and without regard to any
presumption as to whom the drafter of this Supplement may have been. All
references in the Original Agreement and in this Supplement to the
`Agreement' shall be to the Original Agreement as amended by this
Supplement. Except as modified hereby, all of the terms and conditions of
the Original Agreement shall remain in full force and effect.
2. Lease Agreement. All references to the `Lease Agreement' are hereby
deleted from the Original Agreement and those Sections of the Agreement
which reference the `Lease Agreement' shall be deemed modified accordingly
to be consistent with such deletion. During the Term, Owner and Operator
shall endeavor to negotiate a lease agreement which shall commence on the
stated expiration of the Term and shall, at a minimum, include the terms
described on Exhibit A attached hereto. If the Term shall terminate prior
to the stated expiration thereof, the obligation set forth in the preceding
sentence shall terminate.
3. First Consideration Right. Notwithstanding the deletion of all
references to the Lease Agreement from the Original Agreement, Operator
shall continue to have the First Consideration Right as provided in the
Original Agreement, which shall apply to any proposed lease, management
agreement or sale of the Club assets (excluding a sale of Club assets in
conjunction with a sale of the Club Lot) in respect of the Club or Club
Lot, regardless of what the terms and conditions thereof may be, except
that the First Consideration Right shall not apply to any proposed lease or
management agreement, with, or sale of Club assets to, the Hotel Operator.
4. Hotel Operator Interference. If the Hotel Operator takes any action
that Operator reasonably believes is likely to have a material adverse
effect upon the operations of the Club, then Operator, without limitation ,
shall be entitled to terminate the Agreement upon 90 days notice to Owner
if such action has not been cured, to Operator's reasonable satisfaction,
within 15 days notice by Operator to Owner describing such action and its
anticipated adverse effect on the operations of the Club.
104
5. Additional Pre-Opening Services Fee. Operator shall be entitled to
an additional Pre-Opening Services Fee for the period of time from October
1, 2003 through the Opening Date at the rate of $20,000 per month (which
amount shall be prorated for any partial month).
6. Base Management Fee. The Base Management Fee shall be calculated on
a cash, not GAAP or accrual, basis.
7. Incentive Fee. The Incentive Fee shall be calculated on a cash, not
GAAP or accrual, basis. Assessments or other costs of any kind allocable to
the Club Lot under the Declaration or any similar document shall not be a
deduction for purposes of calculating Net Operating Income. Net Operating
Income shall only be reduced, at the time of deposit, by the amounts
actually deposited, from time to time, into the Cap Ex Reserve Account, and
it shall be increased, at the time of withdrawal, by any sums withdrawn
from such account and not applied to the payment of capital expenditures
for the Club.
8. Spa Operating Standard. Operator shall maintain and operate the Spa
to the same standard that Operator currently maintains and operates the spa
components of its other health club facilities. The parties acknowledge
that it is their intent that the Spa be maintained and operated in a manner
which exceeds the standard described in the preceding sentence, but
Operator's failure to exceed such standard shall not constitute a breach of
the Agreement. All references to the Spa Standard and Schedule 1.1(e) in
the Original Agreement are hereby deleted from the Original Agreement.
9. Plans and Budgets. Owner acknowledges and agrees that (i) any and
all plans and budgets under the Agreement shall represent Operator's
commercially reasonable estimates only, (ii) Operator does not guaranty
that the results set forth in any such plans or budgets shall actually be
achieved, and (iii) Operator shall not be in breach of the Agreement solely
by reason of any such results not being achieved.
10. Owner's Funding Obligations. Owner shall have no obligation to
maintain sufficient funds in the Club Operating Account except (i) if and
to the extent already required to do so by the express terms and conditions
of the Original Agreement, and (ii) (a) to pay, as and when due Operator
under the Agreement, all Fees as defined in Article VI of the Agreement;
(b) all employee related costs of Operator incurred in connection with the
Club provided they are consistent with the Annual Plan, (c) all
installation, maintenance and upgrade costs incurred, from time to time, in
connection with the hardware and software associated with the integration
of the Club's operations with the operations of the Hotel provided they are
consistent with the Annual Plan, and (d) any other expenses incurred by
Operator in its own name, rather than in Owner's name, if such other
expenses, when added to all other operating expenses of the Club, are
within 110% of the amount set forth for such expenses in the Approved
Budget.
11. Responsibility for Club Operations. All obligations with respect
to the Club and its operations are to be entered into by Operator on behalf
of Owner, as the agent of Owner and at Owner's expense. If Operator
nonetheless is required or elects, as may be permitted by the Original
Agreement, instead to enter into any obligation in its own name (for
example, but without limitation, obligations relating to utilities,
advertising, insurance, employees and Club memberships), then Owner shall
indemnify, defend and hold Operator harmless from and against any and all
claims, costs, damages, liabilities and losses arising out of or in
connection with any
105
failure by Owner, from time to time, to pay any such obligation as and when
due. Operator shall have no obligation to fund any obligations or expenses
relating to the Club or its operations.
12. Suspension of Use for Non-Payment. Operator may, from time to
time, suspend usage of the Club by, as applicable, all Hotel guests and all
owners of the Residential Units and Condo/Hotel units if, as applicable,
the Hotel Operator, the Owner or the Residential Condominium Association
has not paid to Operator, as and when due, any sum owing for such usage of
the Club by such parties; it being agreed, however, that Operator shall not
be entitled to suspend any such usage unless Operator shall have first
given notice of such non-payment to Owner and such non-payment shall not
have been cured, in full, within 15 days thereafter.
13. Covenant Not to Compete. The covenant not to compete set forth in
paragraph 4.17 of the Original Agreement shall not apply to the activities
of any current or former non-executive level employee of Operator. If
Operator or any affiliate thereof shall enter into an agreement to acquire
any interest that would violate such covenant not to compete as a result of
Operator's acquisition of another entity or Operator's acquisition of or
other involvement with a portfolio of existing facilities, then Operator
may (i) terminate those portions of such transaction which would violate
the covenant not to compete and/or (ii) request Owner to waive such
covenant not to compete in respect of those portions of the transaction
which violate the same (which such waiver may be granted or withheld in
Owner's sole and absolute discretion) and upon such termination or waiver,
as the case may be, Operator shall be in compliance with the covenant not
to compete in respect of the applicable portions of any such transaction.
If Operator or any affiliate would violate either such covenant not to
compete or Article XIII of the Agreement as a result of a Permitted
Transfer to a successor operator, a combination with another entity, a sale
of substantially all of the stock or assets of Operator, or a sale of a
controlling interest in Operator, then (i) Owner shall have the right to
terminate the Agreement by giving written notice to Operator within ninety
(90) days following Operator's notice to Owner of the occurrence of such
transaction, such termination to be effective on the termination date to be
set forth in Owner's notice and (ii) Operator shall not be deemed to be in
violation of such covenant if Owner does not give any such termination
notice.
14. Default. Paragraph 10.1(b) of the Original Agreement is hereby
amended and restated, in its entirety, as follows: "(b) Subject to (i) the
occurrence of any Force Majeure events, (ii) the failure by Owner to
fulfill any obligations hereunder necessary to continuously operate the
Club and (iii) permitted remodeling activities, the failure by Operator to
continuously operate the Club on all days on which the Club is required to
be opened under Section 4.16 hereof, unless such failure is cured to the
reasonable satisfaction of Owner within 5 days of Owner's delivery to
Operator of notice of such failure; it being further agreed that Owner
shall not be required to give more than one such notice in any consecutive
12 month period; "
15. Owner's Loan Documents. Paragraph 4.15 of the Original Agreement
(entitled "Compliance with Loan Agreements") is hereby deleted in its
entirety.
16. Counterparts. This Supplement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
106
In witness whereof, the parties have caused this Supplement to be executed
on the day and year first above written.
OWNER:
TERREMARK BRICKELL II, LTD.,
a Florida limited partnership
By: Terremark Brickell II, Inc.,
its general partner
By: /s/ Xxxxxx Xxxxxxx
--------------------------------
Name: Xxxxxx Xxxxxxx
---------------------------
Title: Vice President
---------------------------
OPERATOR:
THE SPORTS CLUB COMPANY, INC.,
a Delaware corporation
By: /s/ Xxxxxx Xxxxx
--------------------------------
Name: Xxxx Xxxxx
----------------------------
Title: President and COO
----------------------------
107
EXHIBIT
10.77
Indemnity and Guaranty
Agreement entered into as of
December 1, 2003 among
the Registrant, Irvine Sports
Club, Inc., Xxx X. Xxxxxxxxx
and D. Xxxxxxx Xxxxx
108
INDEMNITY AND GUARANTY
----------------------
THIS INDEMNITY AND GUARANTY is made and entered into this 1st day of
December, 2003, by THE SPORTS CLUB COMPANY, INC., a Delaware corporation
("Guarantor") and IRVINE SPORTS CLUB, INC., a California corporation
("Borrower") for the benefit of XXX X. XXXXXXXXX and D. XXXXXXX XXXXX as their
interests may appear (the "Beneficiaries").
RECITALS
--------
A. Borrower borrowed the sum of Twenty Million Dollars ($20,000,000) from
Orange County's Credit Union ("Lender") in a borrowing (the "Loan") secured by
real and personal property of Borrower and personal property of Guarantor,
pursuant to the terms of which, among other things, Beneficiaries guaranteed
performance of all obligations of Borrower to Lender as described in Section 2
of the Beneficiaries' Guaranty in favor of Lender ("Beneficiaries' Guaranty") a
copy of which is attached hereto as Exhibit A (the "Guaranteed Obligations").
B. As a condition to the making of the Loan, Lender required that
Beneficiaries personally guarantee performance of all obligations of Borrower to
Lender undertaken in connection with the Loan.
C. Guarantor is the parent corporation of Borrower, owning one hundred
percent (100%) of the equity securities of Borrower.
D. The proceeds of the Loan were for the direct benefit of Guarantor.
E. As a condition to giving the Beneficiaries' Guaranty, Beneficiaries
required this Indemnity and Guaranty. Prior to delivery by Beneficiaries of the
Beneficiaries' Guaranty, Guarantor agreed to give this Indemnity and Guaranty.
INDEMNITY AND GUARANTY
----------------------
NOW, THEREFORE, as an inducement to Beneficiaries to make the
Beneficiaries' Guaranty in favor of Lender and for other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, Guarantor and Borrower agree as follows:
ARTICLE I
NATURE AND SCOPE OF INDEMNITY AND GUARANTY
------------------------------------------
Section 1.1 Guaranty of Obligations. Guarantor hereby absolutely and
unconditionally guarantees to Beneficiaries the prompt and unconditional payment
and full and prompt performance when due by Borrower of the Guaranteed
Obligations. It is expressly understood and agreed that this is an unconditional
guaranty and that the obligations of Guarantor hereunder
109
are and shall be absolute and irrevocable under any and all circumstances,
without regard to the validity, regularity or enforceability of the
Beneficiaries' Guaranty.
Section 1.2 Nature of Guaranty. This Guaranty is an irrevocable, absolute
guarantee of payment and, to the extent of the Guaranteed Obligations, of
performance, and is not merely a guarantee of collection. This Guaranty may not
be revoked by Guarantor and shall continue to be effective with respect to any
Guaranteed Obligations of Borrower arising or created after any attempted
revocation by Guarantor. The fact that at any time or from time to time the
Guaranteed Obligations of Borrower may be increased or reduced shall not release
or discharge the obligation of Guarantor to Beneficiaries with respect to the
Guaranteed Obligations of Borrower. This Guaranty may be enforced by
Beneficiaries or either of them. This Guaranty is an unsecured obligation of
Guarantor.
Section 1.3 Indemnification. Guarantor hereby indemnifies and agrees to
defend and save Beneficiaries (and each of them) safe and harmless from and
against any liability, loss, cost, damage or expense, including, without
limitation, attorneys' fees and costs of litigation, arising in any way from or
under the Beneficiaries' Guaranty. Obligations of Guarantor hereunder shall be
in addition to and not in lieu of Guarantor's obligations under other provisions
of this Indemnity and Guaranty.
Section 1.4 Payment by Guarantor. Upon any claim being made by Lender under
or by reason of the Beneficiaries' Guaranty against any Beneficiary, such
Beneficiary or Beneficiaries may, at his or their option, proceed directly and
at once, without notice, against Guarantor to collect and recover the full
amount of the liability hereunder or any portion thereof, without proceeding
against Borrower or any other person.
Section 1.5 Guaranteed Obligations of Borrower Not Reduced by Offset. The
Guaranteed Obligations and the liabilities and obligations of Guarantor to
Beneficiaries hereunder shall not be reduced, discharged or released because or
by reason of any existing or future offset, claim or defense of Borrower, or any
other party, against Lender, any Beneficiary, or against payment of the
Guaranteed Obligations, whether such offset, claim or defense arises in
connection with the Guaranteed Obligations of Borrower (or the transactions
creating the Guaranteed Obligations of Borrower) or otherwise; provided,
however, that Beneficiaries shall be entitled only to amounts for which
Beneficiaries are liable from time to time under Beneficiaries' Guaranty.
Section 1.6 Payment of Expenses. Guarantor agrees that, with or without
notice or demand, Guarantor will reimburse Beneficiaries for all expenses
(including counsel fees) incurred by Beneficiaries in connection with the
collection of the Guaranteed Obligations or any portion thereof or with the
enforcement of this Indemnity and Guaranty.
110
ARTICLE II
BENEFICIARIES' FEES
-------------------
Section 2.1 Fees. In consideration of each Beneficiary executing the
Beneficiaries' Guaranty in connection with the Loan, Guarantor shall pay to each
Beneficiary a fee (the "Guaranty Fee") equal to three percent (3%) of such
Beneficiaries' pro rata portion of the average outstanding principal balance of
the Loan for each Loan Period (as hereinafter defined), or partial Loan Period,
during which the Loan is in effect. The Guaranty Fee shall be payable to each
Guarantor within thirty (30) days of the end of each Loan Period until the
earlier of (i) the Lender's release of the Beneficiaries under the
Beneficiaries' Guaranty (the "Beneficiaries' Release"), and (ii) the date (A)
the Borrower's obligations under the Loan are terminated and (B) all amounts
borrowed by the Borrower under the Loan (including accrued interest) have been
repaid (such date being referred to as the "Loan Termination"). If the
Beneficiaries' Release or Loan Termination occurs at any time prior to the last
date of a Loan Period, the Fees for such partial Loan Period shall be paid not
more than thirty (30) days after the applicable event. Each three-month period
ending on September 30, December 31, March 31 and June 30, commencing with the
period ending on September 30, 2003 is referred to herein as a "Loan Period," it
being understood that the first Loan Period is, in fact, one hundred eight (108)
days. The pro rata portion for each Beneficiary shall mean fifty percent (50%)
of the total amount in question.
Section 2.2 Payment. At the Guarantor's option, the Fees may be paid in
cash, restricted shares of the Guarantor's Common Stock, $.01 par value (the
"Common Stock"), or a combination thereof. The Guarantor shall accrue the Fees
for each Loan Period during which any portion of the Loan is outstanding. If the
Guarantor elects to pay, in whole or in part, in Common Stock, within thirty
(30) days following the end of each Loan Period during which the Loan is (or
was) outstanding, the Guarantor shall calculate, and shall notify Beneficiaries,
of that number of shares of Common Stock issuable to each Beneficiary in respect
of the Fees payable to such Beneficiary for such Loan Period (the "Fee Shares").
In the event Guarantor elects to pay any portion of the fees in Common Stock, to
the extent the federal and state income tax payable by either Beneficiary
attributable to such payment exceeds any cash paid by Guarantor (the "Tax
Deficiency"), either Beneficiary or both Beneficiaries may require such Tax
Deficiency (as adjusted for the reduction in the number of shares of Common
Stock) to be paid in cash in lieu of Common Stock. For purposes of calculating
such Tax Deficiency, Beneficiaries shall be presumed to pay taxes at the maximum
marginal rates and to give effect to a deduction for state income taxes. Such
election by Beneficiaries shall be made by notice given to Guarantor within ten
(10) days following Guarantor's notice of its election to Beneficiaries. All
payments of cash, or delivery of Common Stock, shall be made within fifteen (15)
days following Beneficiaries' notice, or, if Beneficiary does not give such a
notice, within twenty (20) days following Guarantor's notice, or if Guarantor
does not give such a notice, within thirty (30) days following the end of such
Loan Period. For purposes of calculating the number of Fee Shares issuable to
each Beneficiary in respect of his portion of the Fees, the value of the Common
Stock shall be the average closing price for the most recent thirty (30)
calendar days prior to the end of the appropriate Loan Period as reported on the
American Stock Exchange. The Fee Shares will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under state
securities (or Blue Sky) laws, but will be issued to each Guarantor in reliance
on the non-public offering exemptions under Section 4(2) of the Securities
111
Act and Regulation D promulgated thereunder. As a condition to the issuance of
the Fee Shares for any Loan Period, each Beneficiary shall execute and deliver
to Guarantor an investment representation agreement. In calculating the number
of Fee Shares issuable to each Beneficiary, fractional shares will be
disregarded, and the number of such Shares will be rounded down to the next
lowest whole number. The Guarantor shall ensure the availability of a sufficient
number of shares of Common Stock to enable it to fulfill its obligations under
this Agreement.
ARTICLE III
OTHER AGREEMENTS
----------------
Section 3.1 Deferment of Rights. Any indebtedness of Guarantor to Borrower
now or hereafter existing, whether in connection with the Loan or otherwise (the
"Subordinated Obligations"), shall be, and such indebtedness is, hereby
deferred, postponed and subordinated to the prior payment in full of all amounts
owed hereunder until payment in full of the Loan; provided, however, that
payment may be made if such payment is applied to payment of the Loan. Borrower
agrees not to accept any payment or satisfaction of any kind of indebtedness of
Guarantor to Borrower unless such indebtedness is applied to payment of the
Loan. Borrower shall not be entitled to enforce or receive payment of any
Subordinated Obligations until all of the Loan obligations have been paid and
performed in full, unless payment of such indebtedness is applied to payment of
the Loan, and any such sums received in violation of this Indemnity and Guaranty
shall be received by Borrower in trust for Beneficiaries.
Section 3.2 Events and Circumstances Not Reducing or Discharging
Guarantor's Obligations. Guarantor hereby consents and agrees to each of the
following and agrees that Guarantor's obligations under this Indemnity and
Guaranty shall not be released, diminished, impaired or adversely affected by
any of the following, and waives any common law, equitable, statutory or other
rights (including, without limitation, rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:
(a) Modifications. Any modification of all or any part of the Guaranteed
Obligations or any document, instrument, contract or understanding between
Borrower and Lender, or any other parties, pertaining to the Guaranteed
Obligations or any failure of Beneficiaries to notify Guarantor of any such
action.
(b) Adjustment. Any adjustment, indulgence, forbearance or compromise that
might be granted or given by Lender to Borrower or Guarantor.
(c) Condition of Borrower or Guarantor. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability, dissolution or
lack of power of Borrower, Guarantor or any other party at any time liable for
the payment of all or part of the Guaranteed Obligations, or any dissolution of
Borrower or Guarantor, or any sale, lease or transfer of any or all of the
assets of Borrower or Guarantor, or any changes in the shareholders of Borrower
or Guarantor, or any reorganization of Borrower or Guarantor. Guarantor hereby
assumes full responsibility for due diligence, as well as for keeping informed
of all matters which may affect
112
Borrower's ability to pay and perform its obligations to Lender. Except for any
fiduciary duties Beneficiaries may have by reason of their positions as officers
or directors, Beneficiaries have no duty to disclose to Guarantor any
information which they or either of them may have or may receive about
Borrower's financial condition or business operations, the condition or uses of
Borrower's assets, or any other circumstances bearing on Borrower's ability to
perform.
(d) Invalidity of Guaranteed Obligations of Borrower. The invalidity,
illegality or unenforceability of all or any part of the Guaranteed Obligations,
or any document or agreement executed in connection with the Guaranteed
Obligations, for any reason whatsoever, including, without limitation, any of
the following: (a) the Guaranteed Obligations, or any part thereof, exceed the
amount permitted by law, (b) the act of creating the Guaranteed Obligations or
any part thereof is ultra xxxxx, (c) the officers or representatives executing
Loan documents or otherwise creating the Guaranteed Obligations acted in excess
of their authority, (d) the Guaranteed Obligations violate applicable usury
laws, (e) Borrower has valid defenses, claims or offsets (whether at law, in
equity or by agreement) which render the Guaranteed Obligations wholly or
partially uncollectible, (f) the creation, performance or repayment of the
Guaranteed Obligations (or the execution, delivery and performance of any
document or instrument representing part of the Guaranteed Obligations or
executed in connection with the Guaranteed Obligations, or given to secure the
repayment of the Guaranteed Obligations) is illegal, uncollectible or
unenforceable, or (g) any of the Loan documents are irregular or not genuine or
authentic, it being agreed that Guarantor shall remain liable hereon regardless
of whether Borrower or any other person be found not liable on the Guaranteed
Obligations or any part thereof for any reason; provided, however, that
Beneficiaries shall be entitled only to amounts for which Beneficiaries are
liable from time to time under Beneficiaries' Guaranty.
(e) Release of Collateral. Any release, surrender, exchange, subordination,
deterioration, waste, loss or impairment (including, without limitation,
negligent, willful, unreasonable or unjustifiable impairment) of any collateral,
property or security, at any time existing in connection with, or assuring or
securing payment of, all or any part of the Guaranteed Obligations.
(f) Unenforceability. The fact that any collateral, security, security
interest or lien contemplated or intended to be given, created or granted as
security for the repayment of the Guaranteed Obligations, or any part thereof,
shall not be properly perfected or created, or shall prove to be unenforceable
or subordinate to any other security interest or lien, it being recognized and
agreed by Guarantor that Guarantor is not entering into this Indemnity and
Guaranty in reliance on, or in contemplation of the benefits of, the validity,
enforceability, collectibility or value of any of the security or collateral for
the Guaranteed Obligations.
(g) Other Actions Taken or Omitted. Any other action taken or omitted to be
taken with respect to the Loan, the Guaranteed Obligations, or the security or
collateral therefor, whether or not such action or omission prejudices Guarantor
or increases the likelihood that Borrower will be unable to pay the Guaranteed
Obligations pursuant to the terms thereof.
113
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Beneficiaries to enter into the Beneficiaries' Guaranty, Borrower
and Guarantor represent and warrant to Beneficiaries as follows:
Section 4.1 Legality. The execution, delivery and performance by Borrower
and Guarantor of this Indemnity and Guaranty and the consummation of the
transactions contemplated hereunder do not, and will not, contravene or conflict
with any law, statute or regulation whatsoever to which either Borrower or
Guarantor is subject or constitute a default (or an event which with notice or
lapse of time or both would constitute a default) under, or result in the breach
of, any indenture, mortgage, deed of trust, charge, lien, or any contract,
agreement or other instrument to which either Borrower or Guarantor is a party
or which may be applicable to either of them. This Indemnity and Guaranty is a
legal and binding obligation of, respectively, Borrower and Guarantor and is
enforceable in accordance with its terms, except as limited by bankruptcy,
insolvency or other laws of general application relating to the enforcement of
creditors' rights and by general principals of equity.
Section 4.2 Litigation. Except as otherwise disclosed to Beneficiaries,
there are no proceedings pending or, so far as Borrower or Guarantor know,
threatened before any court or administrative agency which, if decided adversely
to Borrower or Guarantor, would materially adversely affect the financial
condition of Borrower or Guarantor or the authority of either of them to enter
into, or the validity or enforceability of, this Indemnity and Guaranty.
ARTICLE V
WAIVERS
-------
Section 5.1 Waivers.
(a) Guarantor hereby waives notice of the acceptance hereof, presentment,
demand for payment, protest, notice of protest, or any and all notice of
nonpayment, nonperformance or nonobservance, or other proof, or notice or
demand, whereby to charge Guarantor therefor.
(b) Guarantor further agrees that the validity of this Indemnity and
Guaranty and the obligations of Guarantor hereunder shall in no way be
terminated, affected or impaired (a) by reason of the assertion by Lender of any
rights or remedies which it may have under or with respect to the Loan
documents, or (b) by reason of any failure to file or record any instruments or
to take or perfect any security intended to be provided thereby, or (c) by
reason of the release or exchange of any property constituting security or
collateral for the Loan, or (d) by reason of Lender's failure to exercise, or
delay in exercising, any such right or remedy or any right or remedy Lender may
have, or (e) by reason of the commencement of a case under the Bankruptcy Code
by or against any person obligated under the Loan documents, or (f) by reason of
any payment made on or by reason of the Loan, whether made by Borrower or
Guarantor or any other person, which is required to be refunded pursuant to any
bankruptcy or insolvency law; it
114
being understood that no payment so refunded shall have the effect of reducing
the liability of Guarantor hereunder. It is further understood that Guarantor
shall remain liable hereunder if Borrower shall have taken advantage of, or be
subject to the protection of, any provision in the Bankruptcy Code, the effect
of which is to prevent or delay Lender from taking any remedial action against
Borrower, including the exercise of any option Lender has to declare the Loan
due and payable.
(c) Guarantor hereby waives: (i) all statutes of limitations as a defense
to any action or proceeding brought against Guarantor by Beneficiaries, to the
fullest extent permitted by law; (ii) any right Guarantor may have to require
Beneficiaries to proceed against Borrower, proceed against or exhaust any
security for the Loan provided to Lender by Borrower or any other person
(including Guarantor), or pursue any other remedy in Beneficiaries' power to
pursue; (iii) any defense based on any claim that Guarantor's obligations exceed
or are more burdensome than those of Borrower; (iv) any defense based on (A) any
legal disability of Borrower, (B) any release, discharge, modification,
impairment or limitation of the liability of Borrower to Lender from any cause,
whether consented to by Lender or arising by operation of law or from any
bankruptcy or other voluntary or involuntary proceeding, in or out of court, for
the adjustment of debtor-creditor relationships (an "Insolvency Proceeding"),
and (C) any rejection or disaffirmance of the Loan, or any part of it, or any
security held for it, in any such Insolvency Proceeding; (v) any defense based
on any action taken or omitted by Lender in any Insolvency Proceeding involving
Borrower, including any election to have Lender's claim allowed as being
secured, partially secured or unsecured, any extension of credit by Lender to
Borrower in any Insolvency Proceeding, and the taking and holding by Lender of
any security for any such extension of credit; (vi) all presentments, demands
for performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, notices of acceptance of this Indemnity and Guaranty and of
the existence, creation, or incurring of new or additional indebtedness, and
demands and notices of every kind except for any demand or notice by Lender to
Guarantor expressly provided for herein; (vii) any defense based on or arising
out of any defense that Borrower may have to the payment or performance of the
Debt and other Loan obligations or any part of them; and (viii) any defense
based on or arising out of any action of Lender described herein.
(d) Waivers of subrogation and other rights and defenses.
(i) Regardless of whether Guarantor may have made any payments to
Beneficiaries, Guarantor hereby waives (A) all rights of subrogation,
indemnification, contribution and any other rights to collect
reimbursement from Borrower or any other party for any sums paid to
Beneficiaries, whether contractual or arising by operation of law
(including the Bankruptcy Code or any successor or similar statute) or
otherwise, (B) all rights to enforce any remedy that Beneficiaries may
have against Borrower, and (C) all rights to participate in any
security now or later to be held by Lender for the Loan. The foregoing
waivers shall be effective until the Loan obligations have been paid
and performed in full, or Beneficiaries are otherwise absolved of any
further obligations under Beneficiaries' Guaranty.
(ii) Guarantor understands and acknowledges that if Lender
forecloses judicially or nonjudicially against any real property
security for the Loan, that foreclosure could impair or destroy any
ability that Beneficiaries or Guarantor may have to seek
115
reimbursement, contribution or indemnification from Borrower or others
based on any right Guarantor or Beneficiaries may have of subrogation,
reimbursement, contribution or indemnification for any amounts paid by
Guarantor under this Guaranty. Guarantor further understands and
acknowledges that in the absence of this Section, such potential
impairment or destruction of Guarantor's rights, if any, may entitle
Guarantor to assert a defense to this Indemnity and Guaranty based on
Section 580d of the California Code of Civil Procedure. By executing
this Indemnity and Guaranty, Guarantor freely, irrevocably and
unconditionally (A) waives and relinquishes that defense and agrees
that Guarantor will be fully liable under this Indemnity and Guaranty
even though Lender may foreclose judicially or nonjudicially against
any real property security for the Loan, (B) agrees that Guarantor
will not assert that defense in any action or proceeding which
Beneficiaries may commence to enforce this Indemnity and Guaranty, (C)
acknowledges and agrees that the rights and defenses waived by
Guarantor under this Indemnity and Guaranty include any right or
defense that Guarantor may have or be entitled to assert based upon or
arising out of any one or more of Sections 580a, 580b, 580d or 726 of
the California Code of Civil Procedure or Sections 2787, 2848, 2855
and 2856 of the California Civil Code, and (D) acknowledges and agrees
that Beneficiaries are relying on this waiver in guaranteeing the
Loan, and that this waiver is a material part of the consideration
which Beneficiaries are receiving for guaranteeing the Loan.
(iii) As provided in Civil Code Section 2856, Guarantor makes the
following waivers of specific rights afforded under California law:
"The Guarantor waives all rights and defenses that the
Guarantor may have because the debtor's debt is secured by real
property. This means, among other things:
(1) The creditor may collect from the Guarantor without
first foreclosing on any real or personal property collateral
pledged by the debtor.
(2) If the creditor forecloses on any real property
collateral pledged by the debtor:
(A) The amount of the debt may be reduced only by the
price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale
price.
(B) The creditor may collect from the Guarantor even if
the creditor, by foreclosing on the real property
collateral, has destroyed any right the Guarantor may have
to collect from the debtor.
This is an unconditional and irrevocable wavier of any
rights and defenses the Guarantor may have because the
debtor's debt is secured by real property. These rights and
defenses include, but
116
are not limited to, any rights or defenses based on Section
580a, 580b, 580d, or 726 of the Code of Civil Procedure."
(iv) In addition, Guarantor waives all rights and defenses arising out of
an election of remedies by Lender, even though that election of remedies, such
as a nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed Guarantor's rights of subrogation and reimbursement
against Borrower by the operation of Section 580d of the California Code of
Civil Procedure or otherwise.
(A) Guarantor hereby waives any right or defense it may have at law or
equity, including California Code of Civil Procedure Section 580a, to a
fair market value hearing or action to determine a deficiency judgment
after a foreclosure.
(B) No provision or waiver in this Indemnity and Guaranty shall be
construed as limiting the generality of any other provision or waiver
contained in this Indemnity and Guaranty. It is the intention of the
parties that Guarantor shall not be deemed to be a "creditor" or
"creditors" (as defined in Section 101 of the Bankruptcy Code) of Borrower
by reason of the existence of this Indemnity and Guaranty. If Borrower
becomes a debtor in any proceeding under the Bankruptcy Code, Guarantor
hereby waives any such right as a "creditor" under the Bankruptcy Code.
117
ARTICLE VI
MISCELLANEOUS
-------------
Section 6.1 No Waiver. No failure to exercise, and no delay in exercising,
on the part of Beneficiaries, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right. The rights of
Beneficiaries hereunder shall be in addition to all other rights provided by
law. No modification or waiver of any provision of this Indemnity and Guaranty,
nor consent to departure therefrom, shall be effective unless in writing, and no
such consent or waiver shall extend beyond the particular case and purpose
involved. No notice or demand given in any case shall constitute a waiver of the
right to take other action in the same, similar or other instances without such
notice or demand.
Section 6.2 Applicable Law. This Indemnity and Guaranty shall be deemed to
be a contract entered into pursuant to the laws of the State of California and
shall in all respects be governed, construed, applied and enforced in accordance
with applicable federal law and the laws of such state, without reference to or
giving effect to any choice of law doctrine.
Section 6.3 Notices. All acceptances, approvals, consents, demands,
notices, requests, waivers and other communications required or permitted to be
given under this Indemnity and Guaranty must be in writing and (a) delivered
personally by a process server providing a sworn declaration evidencing the date
of service, the individual served, and the address where the service was made;
(b) sent by certified mail, return receipt requested; or (c) delivered by a
nationally recognized overnight delivery service that provides evidence of the
date of delivery, with all charges prepaid (for next morning delivery if sent by
overnight delivery service), addressed to the appropriate party at its address
listed below:
If to Beneficiaries: Xxx X. Xxxxxxxxx
c/o The Sports Club Company, Inc.
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
D. Xxxxxxx Xxxxx
c/o The Sports Club Company, Inc.
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
118
With a copy to:
X. Xxxxxx De Briyn, Esq.
Xxxxxx, Xxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
If to Guarantor: The Sports Club Company, Inc.
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
With a copy to:
Xxxxxx X. Xxxxxxxx, Esq.
Xxxxxxxxx Glusker Fields Claman
Machtinger & Xxxxxxxx LLP
1900 Avenue of the Stars
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
If to Borrower: Irvine Sports Club, Inc.
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
With a copy to:
Xxxxxx X. Xxxxxxxx, Esq.
Xxxxxxxxx Glusker Fields Claman
Machtinger & Xxxxxxxx LLP
1900 Avenue of the Stars
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Section 6.4 Entire Agreement. All prior understandings, representations and
agreements with respect to this Indemnity and Guaranty are merged into this
Indemnity and Guaranty which alone fully and completely expresses the agreement
of the parties.
Section 6.5 No Oral Amendment. This Indemnity and Guaranty may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of any party hereto, but only by an
agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
119
Section 6.6 Successors and Assigns. Each reference herein to
"Beneficiaries" shall be deemed to include their respective successors and
assigns, to whose favor the provisions of this Indemnity and Guaranty shall also
inure. Each reference herein to "Guarantor" shall be deemed to include the
successors and assigns of Guarantor, all of whom shall be bound by the
provisions of this Indemnity and Guaranty. The term "Guarantor" shall also
include any new successor entity formed as a result of any merger,
reorganization, sale or transfer of Guarantor or any interest in Guarantor, and
Guarantor and its constituents shall not thereby be released from any obligation
or liability hereunder. The term "Borrower" as used herein shall include any new
or successor entity formed as a result of any merger, reorganization, sale or
transfer of Borrower or any interest in Borrower.
Section 6.7 Headings. The article, section and subsection headings are for
convenience of reference only and shall in no way affect the interpretation of
this Indemnity and Guaranty.
IN WITNESS WHEREOF, Guarantor has executed this Indemnity and Guaranty as
of the date first above set forth.
GUARANTOR:
THE SPORTS CLUB COMPANY, INC.
By: /s/ Xxxxxxx X'Xxxxx
-------------------------------
Name: Xxxxxxx X'Xxxxx
Its: Chief Financial Officer
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------
Name: Xxxx X. Xxxxxxxx
Its: Secretary
BORROWER:
IRVINE SPORTS CLUB, INC.
By: /s/ Xxxxxxx X'Xxxxx
-------------------------------
Name: Xxxxxxx X'Xxxxx
Its: Chief Financial Officer
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------
Name: Xxxx X. Xxxxxxxx
Its: Secretary
120
EXHIBIT
10.79
Supplemental Indenture
dated as of February 4, 2004
between the Registrant, the
Subsidiary Guarantors and
U.S. Bank National
Association
121
SUPPLEMENTAL INDENTURE
This Supplemental Indenture (the "Supplemental Indenture") is made and
entered into as of this 4th day of February, 2004, by and among The Sports Club
Company, Inc., a Delaware corporation (the "Company"), the Subsidiary Guarantors
(as defined in the Indenture [defined below]), and U.S. Bank Trust National
Association, a national banking association, now known as U.S. Bank National
Association, as trustee (the "Trustee"), with reference to the following:
A. The Company, the Subsidiary Guarantors and the Trustee are parties to an
Indenture dated as of April 1, 1999 (the "Indenture"), pursuant to which the
Company issued $100,000,000 principal amount of its 11 3/8% Senior Secured Notes
due 2006 (the "Notes"). The Notes are held by a number of Holders; the three
largest groups of Holders are (i) the following funds managed, advised or
sub-advised by affiliates of the TCW Group, Inc.: TCW LINC III CBO Ltd.;
Crescent/MACH I Partners, L.P.; AIMCO CDO, Series 2000-A; TCW GEMV, Limited;
Plaza II Emerging Market CBO Limited; TCW Shared Opportunity Fund II, L.P.; TCW
Shared Opportunity Fund II B LLC; and TCW Shared Opportunity Fund III, L.P.
(collectively the "TCW Funds"), (ii) Massachusetts Mutual ("Mass Mutual") and
(iii) funds managed by MW Post Advisory Group, LLC ("Post Group"); the TCW
Funds, Mass Mutual and Post Group collectively own approximately $69,000,000 of
the aggregate principal amount of outstanding Notes.
B. The Company's Board of Directors approved the creation of a special
committee (the "Special Committee") to investigate various strategic
alternatives, including the possibility of a "going private" transaction in
which certain of the Company's principal shareholders and a private equity
group, Palisade Concentrated Equity Partnership L.P. ("Palisade"), intended to
participate (the "Prior Transaction"). In order to permit such principal
shareholders and Palisade to discuss among themselves the structure, terms and
conditions of the Prior Transaction, the Subsidiary Guarantors, the Company and
the Trustee executed a Supplemental Indenture (the "First Supplement") to modify
the Change of Control provisions of the Indenture (as defined therein) for a
period of 180 days. The term of the First Supplement expired on September 24,
2003.
C. The principal shareholders and Palisade abandoned the Prior Transaction
and have instead commenced negotiations on the terms and conditions under which
Palisade, on the one hand, and Xxx X. Xxxxxxxxx, Millennium Entertainment
Partners, L.P., and its affiliates and Xxxxx Xxxxxxxx Capital Advisors and its
affiliates (the "Insider Stockholders"), on the other, would invest up to $37
million in the Company and receive in consideration thereof a new class of
convertible preferred stock, following which the Company would remain subject to
the reporting requirements under the Securities Exchange Act of 1934, as amended
(the "Proposed Transaction").
D. In order to permit the Insider Stockholders, Palisade and the Company to
engage in negotiations concerning, and execute and deliver a term sheet and
definitive documentation governing, the Proposed Transaction without arguably
violating the Change of Control provisions of the Indenture, the Company wishes
to amend the Indenture to modify the
122
Change of Control provisions for a period of one hundred eighty (180) days from
and after the date of this Supplemental Indenture, and the Trustee is willing to
amend the Indenture to allow for such modification and amendment, subject to the
terms and conditions set forth in this Supplemental Indenture.
E. Pursuant to Section 9.2 of the Indenture, the Trustee, the Subsidiary
Guarantors and the Company have the right to execute and deliver this
Supplemental Indenture to amend the Indenture as described in Recital D above if
such amendment is approved or consented to by Holders of at least a majority of
the principal amount of the Notes outstanding, and the TCW Funds, Mass Mutual
and Post Group (who collectively hold approximately 69% of the principal amount
of outstanding Notes) are willing to consent to this Supplemental Indenture.
A G R E E M E N T
In consideration of the recitals, and the mutual covenants and agreements
hereinafter set forth, the Company, the Subsidiary Guarantors and the Trustee
mutually covenant and agree for the benefit of the Holders of the Notes as
follows:
1. Recitals; Definitions. The terms and conditions set forth in the
Recitals shall be deemed a part of this Supplemental Indenture as if set forth
in a numbered paragraph hereof. Unless otherwise defined herein, capitalized
words or terms appearing in this Supplemental Indenture shall have the meanings
given to them in the Indenture.
2. Term. The term of this Supplemental Indenture shall commence on the date
hereof and shall terminate and expire as of 5:00 p.m., P.S.T., on July 31, 2004
(the "Term"). Upon the expiration of the Term, except for its application to
events which occurred during the Term, this Supplemental Indenture shall be of
no further force or effect, and the terms and provisions of the Indenture shall
continue to apply as if this Supplemental Indenture were never effective.
3. Modification of Change of Control Provision.
(a) Subject to the terms of subsection (b) hereof, the following events
which may occur during the Term shall not be deemed to be a Change of Control
under the Indenture: (i) any discussions, understandings or agreements by and
among the Insider Stockholders, or any of them, relating to or in contemplation
of a Proposed Transaction, whether or not such discussions, understandings or
agreements involve other Persons or whether such Insider Stockholders (including
any such other Persons) file, or are required to file, with the Commission a
Schedule 13D or 14D in connection therewith, (ii) the preparation and submission
to the Company of a term sheet, letter of intent or other written proposal
setting forth the terms and conditions under which one or more of the Insider
Stockholders (or any Affiliates thereof) are prepared to consummate the Proposed
Transaction, or (iii) the negotiation, execution and delivery of a definitive
stock purchase agreement and related agreements and instruments by one or more
of the Insider Stockholders or their Affiliates relating to the Proposed
Transaction; provided that this Section 3(a) shall not be effective if any such
definitive stock purchase agreement or related agreement or instrument contains
any provision that would result in an adverse consequence to the Company in the
event the Proposed Transaction is not consummated due to the failure of the
123
Holders of the Notes to waive or modify the Change of Control provisions of the
Indenture with respect to such transaction.
(b) Anything in subsection (a) to the contrary notwithstanding, the Change
of Control provisions of the Indenture shall not be deemed to be waived or
modified with respect to the consummation of the Proposed Transaction or any
aspect thereof. Without limiting the generality of the foregoing and for
purposes of clarification, in the event the consummation of the Proposed
Transaction or any aspect thereof constitutes a Change of Control under the
Indenture, all of the provisions of the Indenture shall apply as if this
Supplemental Indenture was not effective, including the obligation to make a
Change of Control Offer pursuant to Section 4.14 of the Indenture.
4. No Other Changes. Except as expressly set forth in this Supplemental
Indenture, the terms of the Indenture shall continue in full force and effect in
accordance with its terms.
5. Miscellaneous. This Supplemental Indenture (together with the Indenture,
as previously amended and supplemented) represents the entire agreement and
understanding between the parties hereto with respect to this Supplemental
Indenture and supersedes all prior and contemporaneous written and oral
negotiations, discussions and agreements; shall be binding on, and inure to the
benefit of, the parties hereto and their respective successors, assigns and
legal representatives; and may be executed in counterparts, each of which shall
be deemed an original but all of which shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Supplemental
Indenture on the date first written above.
Company:
-------
THE SPORTS CLUB COMPANY, INC.
By: /s/ Xxxxxxx X'Xxxxx
------------------------
Name: Xxxxxxx X'Xxxxx
------------------------
Title: Chief Financial Officer
------------------------
Trustee:
-------
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Xxxxxxxx X. Xxxxxxx
-----------------------
Name: Xxxxxxxx X. Xxxxxxx
-----------------------
Title: Trust Officer
-----------------------
124
Subsidiary Guarantors:
---------------------
SCC DEVELOPMENT COMPANY LA/IRVINE SPORTS CLUBS, LTD.
By: Sports Club, Inc. of California, its
General partner
By: /s/ Xxxxxxx X'Xxxxx
------------------------------
Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer By: /s/ Xxxxxxx X'Xxxxx
-------------------------------
Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer
SCC NEVADA, INC.
XXXXXXX REALTY, INC.
By: /s/ Xxxxxxx X'Xxxxx
------------------------------
Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer By: /s/ Xxxxxxx X'Xxxxx
------------------------------
Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer
HFA SERVICES, INC.
By: /s/ Xxxxxxx X'Xxxxx SCC SPORTS CLUB, INC.
------------------------------
Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer
By: /s/ Xxxxxxx X'Xxxxx
-----------------------------
Name: Xxxxxxx X'Xxxxx
IRVINE SPORTS CLUB, INC. Title: Chief Financial Officer
By: /s/ Xxxxxxx X'Xxxxx
-------------------------------
Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer
125
XXXXXXXXX REALTY AND TVE, INC.
DEVELOPMENT COMPANY, INC.
By: /s/ Xxxxxxx X'Xxxxx By: /s/ Xxxxxxx X'Xxxxx
------------------------------- -----------------------------
Name: Xxxxxxx X'Xxxxx Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer Title: Chief Financial Officer
SF SPORTS CLUB, INC. SCC CALIFORNIA, INC.
By: /s/ Xxxxxxx X'Xxxxx By: /s/ Xxxxxxx X'Xxxxx
-------------------------------- -----------------------------
Name: Xxxxxxx X'Xxxxx Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer Title: Chief Financial Officer
SCC REALTY COMPANY THE SPORTS CONNECTION HOLDING
COMPANY
By: /s/ Xxxxxxx X'Xxxxx By: /s/ Xxxxxxx X'Xxxxx
--------------------------------- -----------------------------
Name: Xxxxxxx X'Xxxxx Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer Title: Chief Financial Officer
SPORTS CLUB, INC. OF CALIFORNIA THE SPORTSMED COMPANY, INC.
By: /s/ Xxxxxxx X'Xxxxx By: /s/ Xxxxxxx X'Xxxxx
--------------------------------- ------------------------------
Name: Xxxxxxx X'Xxxxx Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer Title: Chief Financial Officer
TALLA NEW YORK, INC. WASHINGTON D.C. SPORTS CLUB, INC.
By: /s/ Xxxxxxx X'Xxxxx By: /s/ Xxxxxxx X'Xxxxx
--------------------------------- ------------------------------
Name: Xxxxxxx X'Xxxxx Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer Title: Chief Financial Officer
NY SPORTS CLUB, INC.
By: /s/ Xxxxxxx X'Xxxxx
-----------------------------
Name: Xxxxxxx X'Xxxxx
Title: Chief Financial Officer
126
EXHIBIT
21.1
Subsidiaries of the
Registrant
127
THE SPORTS CLUB COMPANY
(a Delaware Corporation)
Subsidiaries
Subsidiary Form State Parent Ownership
---------- ---- ----- ------ ---------
TVE, Inc. Corporation CA The Sports Club Company, Inc. 100.000%
SCC Development Company Corporation CA The Sports Club Company, Inc. 100.000%
The Sports Connection Holding Company Corporation CA The Sports Club Company, Inc. 100.000%
SCC California, Inc. Corporation CA The Sports Club Company, Inc. 100.000%
Sports Club, Inc. of California Corporation CA The Sports Club Company, Inc. 100.000%
Xxxxxxx Realty, Inc. Corporation CA The Sports Club Company, Inc. 100.000%
Irvine Sports Club, Inc. Corporation CA The Sports Club Company, Inc. 100.000%
The SportsMed Company, Inc. Corporation CA The Sports Club Company, Inc. 100.000%
L.A./Irvine Sports Clubs, Ltd. Partnership CA Sports Club, Inc. of California 50.100%
Talla New York, Inc. Corporation NY Sports Club, Inc. of California 100.000%
Reebok-Sports Club/NY Partnership NY Talla New York, Inc. 60.000%
El Segundo-TDC, Ltd. Partnership CA SCC California, Inc. 17.185%
Xxxxxxx Realty, Inc. 0.754%
Sports Club, Inc. of California 9.890%
The Sports Club Company, Inc. 9.890%
SCC Sports Club, Inc. Corporation TX The Sports Club Company, Inc. 100.000%
SCC Nevada, Inc. Corporation NV The Sports Club Company, Inc. 100.000%
SF Sports Club, Inc. Corporation DA The Sports Club Company, Inc. 100.000%
Washington D.C. Sports Club, Inc. Corporation DA The Sports Club Company, Inc. 100.000%
HFA Services, Inc. Corporation CA The SportsMed Company, Inc. 100.000%
SCC Realty Company Corporation CA The Sports Club Company, Inc. 100.000%
Xxxxxxxxx Realty and Development Co., Inc.Corporation CA The Sports Club Company, Inc. 100.000%
NY Sports Club, Inc. Corporation DA The Sports Club Company, Inc. 100.000%
128
EXHIBIT
23.1
Consent of KPMG LLP
129
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
The Sports Club Company, Inc.:
We consent to the incorporation by reference in the registration statement (No.
333-26421) on Form S-8 and the registration statement (No. 333-38459) on Form
S-3 of The Sports Club Company, Inc. of our report dated May 24, 2004, relating
to the consolidated balance sheets of The Sports Club Company, Inc. as of
December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 2003, and the related financial statement
schedule, which report appears in the December 31, 2003, annual report on Form
10-K of The Sports Club Company, Inc.
Our report includes an explanatory paragraph that states that the Company has
suffered recurring net losses, has a working capital deficiency, and has
negative cash flows from operating activities that raise substantial doubt about
its ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Our report also refers to a restatement of the Company's 2002 consolidated
financial statements and to a change in the method of accounting for goodwill
and other intangible assets on January 1, 2002.
/s/ KPMG LLP
Los Angeles, California
June 16, 2004
130
EXHIBIT
31.1
CERTIFICATION OF
XXX XXXXXXXXX
131
CERTIFICATIONS
I, Xxx X. Xxxxxxxxx, Chief Executive Officer of The Sports Club Company, Inc.
certify that:
1. I have reviewed this annual report on Form 10-K of The Sports Club
Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures (as of the end of the period covered by this
report based on such evaluation); and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
132
(a) All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls over financial reporting.
Dated, June 21, 2004
/s/ Xxx X. Xxxxxxxxx
--------------------------------------
Xxx X. Xxxxxxxxx
Chief Executive Officer
133
EXHIBIT
31.2
CERTIFICATION OF
XXXXXXX X'XXXXX
134
CERTIFICATIONS
I, Xxxxxxx X'Xxxxx, Chief Financial Officer of The Sports Club Company, Inc.
certify that:
1. I have reviewed this annual report on Form 10-K of The Sports
Club Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures (as of the end of the period covered
by this report based on such evaluation); and
(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
135
(a) All significant deficiencies and material weaknesses in
the design or operation of internal controls over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial financial
information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls over
financial reporting.
Dated, June 21, 2004
/s/ Xxxxxxx X'Xxxxx
--------------------------------------
Xxxxxxx X'Xxxxx
Chief Financial Officer
136
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT
TO
SECTION 906 OF THE
XXXXXXXX-XXXXX ACT OF
2002
137
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE XXXXXXXX-XXXXX ACT OF 2002
In connection with the annual report of The Sports Club Company, Inc. (the
"Company") on Form 10-K for the period ending December 31, 2003 filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Xxx X.
Xxxxxxxxx, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. (Section Xxxx) 1350, as adopted pursuant to 906 of the Xxxxxxxx-Xxxxx Act
of 2002, that to my knowledge:
i. The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
ii. The information contained in the Report fairly
represents, in all material respects, the financial
condition and result of operations of the Company.
/s/ Xxx X. Xxxxxxxxx
------------------------------------------
The Sports Club Company, Inc.
Chief Executive Officer
June 21, 2004
138
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT
TO
SECTION 906 OF THE
XXXXXXXX-XXXXX ACT OF
2002
139
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE XXXXXXXX-XXXXX ACT OF 2002
In connection with the annual report of The Sports Club Company, Inc. (the
"Company") on Form 10-K for the period ending December 31, 2003 filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Xxxxxxx
X'Xxxxx, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
(Section Xxxx) 1350, as adopted pursuant to 906 of the Xxxxxxxx-Xxxxx Act of
2002, that to my knowledge:
(1) The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(1) The information contained in the Report fairly
represents, in all material respects, the financial
condition and result of operations of the Company.
/s/ Xxxxxxx X'Xxxxx
------------------------------------------
The Sports Club Company, Inc.
Chief Financial Officer
June 21, 2004
140
