UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Amendment No. 3
The Sports Club Company, Inc.
(Name of Issuer)
Common Stock, par value $0.01 per share
(Title of Class of Securities)
84917P10
(CUSIP Number)
Lois Barberio, Secretary
The Sports Club Company, Inc.
11100 Santa Monica Boulevard, Suite 300
Los Angeles, CA 90025
(310) 479-5200
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
February 19, 2004
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box / /.
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Section 240.13d-7(b) for
other parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a Filing Person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
1
(1) Name of Filing Person
S.S. or I.R.S. Identification No. of Above Person
Rex A. Licklider
(2) Check the Appropriate Box if a Member of a Group (See Instructions)
(A) /X/
(B) / /
(3) SEC Use Only
(4) Source of Funds (See Instructions)
PF.
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items
2(d)or 2(e)
/ /
(6) Citizenship or Place of Organization
U.S.
(7) Sole Voting Power
76,667
Number of Shares (8) Shared Voting Power
Beneficially Owned 2,641,529
by Each Reporting
Person With (9) Sole Dispositive Power
76,667
(10) Shared Dispositive Power
2,641,529
(11) Aggregate Amount Beneficially Owned by Each Filing Person 2,718,196
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions) / /
(13) Percent of Class Represented by Amount in Row (11)
14.76%(1)
(14) Type of Filing Person (See Instructions)
IN
2
--------
(1) Based on 18,418,714 shares of common stock, par value $0.01 per share, of
The Sports Club Company, Inc., a Delaware corporation (the "Issuer"),
outstanding as reported in the Company's Form 10-Q filed November 12, 2003.
3
(1) Name of Filing Person
S.S. or I.R.S. Identification No. of Above Person
Judith Ann Deemer
(2) Check the Appropriate Box if a Member of a Group (See Instructions)
(A) /X/
(B) / /
(3) SEC Use Only
(4) Source of Funds (See Instructions)
PF.
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d)
or 2(e)
/ /
(6) Citizenship or Place of Organization
U.S.
(7) Sole Voting Power
0
Number of Shares (8) Shared Voting Power
Beneficially Owned 2,641,529
by Each Reporting
Person With (9) Sole Dispositive Power
0
(10) Shared Dispositive Power
2,641,529
(11) Aggregate Amount Beneficially Owned by Each Filing Person
2,718,196
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions) / /
(13) Percent of Class Represented by Amount in Row (11)
14.76%(1)
(14) Type of Filing Person (See Instructions)
IN
4
--------
(1) Based on 18,418,714 shares of common stock, par value $0.01 per share, of
The Sports Club Company, Inc., a Delaware corporation (the "Issuer"),
outstanding as reported in the Company's Form 10-Q filed November 12, 2003.
5
(1) Name of Filing Person
S.S. or I.R.S. Identification No. of Above Person
The Licklider Living Trust dated May 2, 1986
(2) Check the Appropriate Box if a Member of a Group (See Instructions)
(A) /X/
(B) / /
(3) SEC Use Only
(4) Source of Funds (See Instructions)
PF.
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d)
or 2(e)
/ /
(6) Citizenship or Place of Organization
U.S.
(7) Sole Voting Power
0
Number of Shares (8) Shared Voting Power
Beneficially Owned 2,641,529
by Each Reporting
Person With (9) Sole Dispositive Power
0
(10) Shared Dispositive Power
2,641,529
(11) Aggregate Amount Beneficially Owned by Each Filing Person
2,718,196
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions) / /
(13) Percent of Class Represented by Amount in Row (11)
14.76%
(14) Type of Filing Person (See Instructions)
IN
6
--------
(1) Based on 18,418,714 shares of common stock, par value $0.01 per share, of
The Sports Club Company, Inc., a Delaware corporation (the "Issuer"),
outstanding as reported in the Company's Form 10-Q filed November 12, 2003.
7
The Schedule 13D filed with the Securities and Exchange Commission (the
"Commission") on December 5, 1994, as amended to date, is hereby further amended
as follows.
Item 1. Security and Issuer
This statement relates to the common stock, par value $0.01 per share (the
"Common Stock"), of The Sports Club Company, Inc., a Delaware corporation (the
"Issuer"). The principal executive offices of the Issuer are located at 11100
Santa Monica Blvd., Suite 300, Los Angeles, California 90025.
Item 2. Identity and Background
(a) This Statement is being filed by Rex A. Licklider, Judith Ann Deemer
("Mrs. Licklider"), and The Licklider Living Trust dated May 2, 1986 (the
"Living Trust") (collectively the "Filing Persons").
(b) The Filing Persons' business address is 11100 Santa Monica Blvd., Suite
300, Los Angeles, California 90025.
(c) Mr. Licklider currently serves as Co-Chief Executive Officer of The
Sports Club Company, Inc., at its principal executive offices. Ms. Deemer is the
spouse of Mr. Licklider and together they serve as co-trustees of the Living
Trust, a trust for the benefit of Mr. and Mrs. Licklider. Under the Living
Trust, each of Mr. Licklider and Mrs. Licklider has equal authority to vote or
dispose of all shares held by the Living Trust.
(d) The Filing Persons have not, during the last five years, been convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors).
(e) The Filing Persons have not, during the past five years, been a party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
(f) Mr. and Mrs. Licklider are citizens of the United States of America;
the Living Trust is organized under the laws of the State of California.
Item 3. Source and Amount of Funds or Other Consideration
The following information amends and supplements Item 3.
The Filing Persons purchased 12,000 shares on April 8, 2003 for cash in the
amount of $2.75 per share.
8
Between April of 2003 and January 2004, the Filing Persons were issued the
following shares as compensation for their guarantee of certain loans to the
Issuer:
Date Number of Shares
--------- ------------------
April 25, 2003 54,653
November 3, 2003 16,355
January 29, 2004 28,509
Mr. Licklider was granted a stock option on May 20, 2001 to purchase
115,000 shares, of which 76,667 shares will be exercisable within sixty days.
All cash purchases were made with personal funds of the Filing Persons.
Item 4. Purpose of Transaction
The following information amends and supplements Item 4.
On March 31, 2003, Mr. Licklider executed a term sheet and on April 9,
2003, Mr. Licklider entered into an amended and restated term sheet (the "Term
Sheet") with Millennium Partners LLC and its affiliates ("Millennium"), Palisade
Concentrated Equity Partnership, L.P. ("Palisade"), D. Michael Talla ("Talla")
and Kayne Anderson Capital Advisors L.P. ("Kayne," and, together with
Millennium, Talla and Palisade, the "Other Parties"). Mr. Licklider and the
Other Parties are referred to herein as the "Term Sheet Parties." Millennium,
Talla and Kayne are significant beneficial owners of the Issuer's Common Stock
and have filed either a Schedule 13D or Schedule 13G pursuant to the Act. The
Term Sheet sets forth a non-binding preliminary plan for the Term Sheet Parties
to consummate a "going private transaction" whereby Palisade, Mr. Licklider and
Millennium would fund the acquisition of all of the Issuer's outstanding Common
Stock, other than Common Stock held by the Term Sheet Parties and certain other
specified stockholders.
The Term Sheet Parties have abandoned the "going private transaction"
contemplated by the Term Sheet.
The Filing Persons have agreed to make an investment in the Issuer in
accordance with the terms set forth in a non-binding Term Sheet (the "New Term
Sheet") agreed to with Millennium Entertainment Partners, L.P., or affiliate(s)
("Millennium") and Kayne Anderson Capital Advisors, L.P. or affiliate(s)
("Kayne"). Millennium and Kayne are referred to herein as the "13D Parties." The
Filing Persons and the 13D Parties are referred to herein as the "New Term Sheet
Parties." Millennium and Kayne are significant beneficial owners of the Issuer's
Common Stock and have filed either a Schedule 13D or Schedule 13G pursuant to
the Act. The New Term Sheet sets forth a non-binding plan for the New Term Sheet
Parties to consummate a transaction whereby the New Term Sheet Parties will
purchase an aggregate of 65,000 shares of series D convertible preferred stock
(the "Series D Preferred") of the Issuer at $100 per share. The Filing Persons
will purchase an aggregate of 10,000 shares of the Series D Preferred,
convertible into 500,000 shares of Issuer's Common Stock. The New Term Sheet
also sets forth certain rights and obligations of the New Term Sheet Parties
with respect to the Issuer following the consummation of the transactions
9
contemplated by the New Term Sheet, including provisions concerning voting, as
well as protective provisions. The transactions contemplated by the New Term
Sheet are subject to a number of significant conditions precedent as set forth
in the New Term Sheet. The Issuer is not bound by the provisions of the New Term
Sheet, which previously formed a Special Committee of its Board of Directors to
investigate various strategic alternatives for the Issuer, including the
possibility of a "going private" transaction and exploring alternatives to any
such proposed "going private" transaction. As a result of the New Term Sheet,
the Filing Persons are deemed to have formed a "group" with the 13D Parties for
purposes of Section 13(d) of the Act and the rules and regulations promulgated
thereunder. Accordingly, each of the Filing Persons may be deemed to be the
beneficial owner of the shares of the Issuer's Common Stock beneficially owned
by the 13D Parties as reported on their respective Schedule 13D or Schedule 13G.
Except as set forth in this Item 4, the Filing Persons have no plans or
proposals which relate to or which would result in any of the actions specified
in clauses (a) through (j) of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer
(a) As of the date of this Amendment No. 3 to Schedule 13D, the Filing
Persons beneficially own 2,718,196 shares, or 14.76% of the Common Stock.
(b) 2,641,519 shares of the Common Stock of the Issuer are held in the name
of the Living Trust. Mr. and Mrs. Licklider serve as co-trustees of the Living
Trust and thus have equal authority to vote or dispose of shares. The Filing
Persons therefore have shared voting and dispositive power over all shares held
by the Living Trust. 76,667 shares are subject to stock options granted to Mr.
Licklider.
(c) See Item 3.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to
Securities of the Issuer
The following information amends and restates Item 6.
In connection with the Issuer's renewal and extension of its $15,000,000
credit facility with Comerica Bank - California ("Comerica") in July 2001, the
Filing Persons guaranteed up to $5,000,000 of any amounts drawn under the
facility. Pursuant to an Indemnification and Contribution Agreement dated as of
July 3, 2001, by and among the Issuer, the Filing Persons and the other
guarantors with respect to the facility, the Issuer agreed to pay to the Filing
Persons in consideration of their provision of such guaranty: (i) a commitment
fee equal to 1% of their pro rata portion (33.33%) of its maximum permitted
borrowing under the facility, and (ii) a usage fee equal to 2% of their pro rata
portion of the average
10
annual outstanding advances under the facility, which fees may be paid by the
Issuer in cash or Common Stock. On April 25, 2003, the Issuer issued 54,653
shares of Common Stock to the Filing Persons in payment of the commitment fee
due at that time; and on November 3, 2003, 16,355 additional shares were issued
to the Filing Persons in payment of the commitment fees.
On June 12, 2003, the Issuer replaced its credit facility with Comerica
with a new $20.0 million promissory note payable to Orange County's Credit
Union. The note is guaranteed by the Filing Persons and D. Michael Talla.
Pursuant to an Indemnification and Guaranty Agreement dated as of December 1,
2003, by and among the Issuer, Irvine Sports Club, Inc. (a wholly owned
subsidiary of Issuer), the Filing Persons and D. Michael Talla with respect to
the note, the Issuer agreed to pay the Filing Persons in consideration of their
provision of such guaranty a fee equal to three percent (3%) of their pro rata
portion of the average outstanding principal balance of the loan for each
defined three-month period. Such fees may be paid by the Issuer in cash or
Common Stock. On January 29, 2004, the Issuer issued 28,509 shares of Common
Stock to the Filing Persons in payment of the guaranty fee due September 30,
2003.
Other than the Indemnification and Contribution Agreement, the Indemnity
and Guaranty Agreement, the Preferred Stock Purchase Agreement and the
Investors' Rights Agreement entered into in connection with a prior purchase of
the Issuers Series C Convertible Preferred Stock and the Letter Agreement joined
by Mr. Licklider in connection with the purchase by Millennium of the Issuer's
Common Stock, the Filing Persons do not have any contract, arrangement,
understanding or relationship (legal or otherwise) with respect to any
securities of the Issuer.
Item 7. Material to Be Filed as Exhibits
Exhibit A Agreement regarding the Joint Filing of Schedule 13D.*
Exhibit B Indemnification and Contribution Agreement entered into as of July 3,
2001 by and among The Sports Club Company, Inc., Rex A. Licklider, D.
Michael Talla and MDP Ventures II LLC, incorporated herein by reference to
Exhibit 2 to the Issuer's Current Report on Form 8-K filed with the
Commission on July 17, 2001.
Exhibit C Certificate of Designation of Series C Convertible Preferred Stock of
The Sports Club Company, Inc., incorporated by reference to Exhibit 99.1 to
the Issuer's Current Report on Form 8-K filed with the Commission on
September 9, 2002.
Exhibit D Preferred Stock Purchase Agreement entered into as of September 6,
2002 by and among The Sports Club Company, Inc., MDP Ventures II LLC, Rex
A. Licklider as Trustee of the Licklider Living Trust and D. Michael Talla,
Trustee of the Talla Family Irrevocable Trust, incorporated herein by
reference to Exhibit 99.3 to the Issuer's Current Report on Form 8-K filed
with the Commission on September 9, 2002.
___________________
* Previously filed
11
Exhibit E Investors' Rights Agreement entered into as of September 6, 2002 by
and among The Sports Club Company, Inc., MDP Ventures II LLC, Rex A.
Licklider as Trustee of the Licklider Living Trust, and D. Michael Talla,
Trustee of the Talla Family Irrevocable Trust., incorporated herein by
reference to Exhibit 99.2 to the Issuer's Current Report on Form 8-K filed
with the Commission on September 9, 2002.
Exhibit F Indemnity and Guaranty Agreement entered into as of December 1, 2003
by and among The Sports Club Company, Inc., and Irvine Sports Club, Inc.
for the benefit of Rex A. Licklider and D. Michael Talla.
Exhibit G Letter Agreement between Millennium Entertainment Partners, L.P., and
The Sports Club Company, Inc. joined in by D. Michael Talla and Rex A.
Licklider, dated as of March 13, 1997, incorporated herein by reference to
Exhibit 10.92 to the Issuer's Annual Report on Form 10-K filed with the
Commission on March 31, 1997.
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, each
of the undersigned certifies that the information set forth in this statement is
true, complete and correct and agrees that this statement may be filed jointly
with the other undersigned parties.
Dated: February 27, 2004 /s/ Rex A. Licklider
------------------------------------
Rex A. Licklider
Dated: February 27, 2004 /s/ Judith Ann Deemer
------------------------------------
Judith Ann Deemer
Dated: February 27, 2004 /s/ Rex A. Licklider
------------------------------------
Licklider Living Trust
By: Rex A. Licklider
12
EXHIBIT F
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 REX A. LICKLIDER and D. MICHAEL TALLA 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
13
and agreed that this is an unconditional guaranty and that the obligations of
Guarantor hereunder 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.
14
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
15
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
16
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 vires, (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.
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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
18
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
19
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
20
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.
21
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: Rex A. Licklider
c/o The Sports Club Company, Inc.
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
D. Michael Talla
c/o The Sports Club Company, Inc.
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
22
With a copy to:
R. Joseph De Briyn, Esq.
Musick, Peeler & Garrett LLP
624 South Grand Avenue
Suite 2000
Los Angeles, California 90017
If to Guarantor: The Sports Club Company, Inc.
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Attention: Chief Financial Officer
With a copy to:
Ronald K. Fujikawa, Esq.
Greenberg Glusker Fields Claman
Machtinger & Kinsella LLP
1900 Avenue of the Stars
Suite 2100
Los Angeles, California 90067
If to Borrower: Irvine Sports Club, Inc.
11100 Santa Monica Boulevard
Suite 300
Los Angeles, California 90025
Attention: Chief Financial Officer
With a copy to:
Ronald K. Fujikawa, Esq.
Greenberg Glusker Fields Claman
Machtinger & Kinsella LLP
1900 Avenue of the Stars
Suite 2100
Los Angeles, California 90067
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.
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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/ Timothy O'Brien
--------------------------------------
Name: Timothy M. O'Brien
Its: Chief Financial Officer
By: /s/ Lois J. Barberio
-------------------------------------
Name: Lois J. Barberio
Its: Secretary
BORROWER:
IRVINE SPORTS CLUB, INC.
By: /s/ Timothy O'Brien
-------------------------------------
Name: Timothy M. O'Brien
Its: Chief Financial Officer
By: /s/ Lois J. Barberio
--------------------------------------
Name: Lois J. Barberio
Its: Secretary