UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 13, 2004
THE SPORTS CLUB COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-13290 95-4479735
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
11100 Santa Monica Boulevard, Suite 300, Los Angeles, California 90025
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 479-5200
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Not Applicable
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13 e-4(c))
Index of Exhibits on Page 4
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Section 1 - Registrant's Business and Operations
Item 1.01 Entry into a Material Definitive Agreement
On September 14, 2004, The Sports Club Company, Inc. (the "Company") completed a
$2,000,000 private placement of a newly created series of preferred stock. D.
Michael Talla, Rex A. Licklider, and affiliates of Kayne Anderson Capital
Advisors, three of the Company's existing stockholders, purchased the entire
offering. Additionally, Rex A. Licklider serves as the Company's Chief Executive
Officer and each of the purchasers is a member of, or is represented by a member
on, the Company's Board of Directors.
The proceeds of the offering were used to assist the Company in making its
current $5.6 million interest payment on its Senior Secured Notes.
The private placement involved the issuance and sale of 20,000 shares of $0.01
par value Series E Preferred Stock (the "Series E Preferred") at a price of $100
per share. The Series E Preferred provides for the payment of dividends at the
annual rate of $11.375 per share. Dividends are cumulative, do not accrue
interest and, at the Company's option, may be paid in additional shares of
Series E Preferred. The Series E Preferred is not convertible into shares of the
Company's Common Stock and, except as required by law, does not entitle the
holder(s) to vote on matters brought before the Company's stockholders. At any
time after May 31, 2006, (i) the Company may, when it is legally able to do so,
redeem all or part of the Series E Preferred for cash at the redemption price of
$100.00 per share, together with all accrued but unpaid dividends (the
"Redemption Price") or (ii) the holders of at least 50% of the Series E
Preferred may demand that the Company, provided that it is legally able to do
so, redeem all the shares of the Series E Preferred by paying the Redemption
Price in cash to each holder of the Series E Preferred.
For more detailed information regarding the terms and conditions of the Series E
Preferred transaction, reference is made to the Certificate of Designation of
Series E Preferred Stock of The Sports Club Company, Inc. and the Series E
Preferred Stock Purchase Agreement, copies of which are filed as Exhibits 3.1
and 4.1, respectively, and are incorporated herein by reference.
Section 3 - Securities and Trading Markets
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing.
On September 13, 2004, the American Stock Exchange (the "Exchange") informed the
Company that it is not in compliance with certain of the Exchange's continued
listing standards as set forth in the Exchange's Company Guide. Specifically,
the Exchange noted that the Company's stockholders' equity is less than $2
million, and the Company has reported net losses in two of its most recent
fiscal years, in violation of Section 1003(a)(i); the Company's stockholders'
equity is less than $4 million, and the Company has sustained losses in three of
its four most
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recent fiscal years, in violation of Section 1003(a)(ii); and the Company has
sustained losses which are so substantial in relation to the Company's overall
operations or its existing financial resources, or the Company's financial
condition has become so impaired, that it appears questionable, in the opinion
of the Exchange, whether the Company will be able to continue operations or meet
its obligations as they mature, in violation of Section 1003(a)(iv). In order to
maintain listing of the Company's Common Stock, $0.01 par value (the "Common
Stock"), on the Exchange, the Company must submit a plan by October 14, 2004,
advising the Exchange of action the Company has taken, or will take, that would
bring it into compliance with the applicable listing standards. If the Exchange
accepts the plan, the Company may be able to continue listing during the plan
period of up to 18 months, during which time the Company will be subject to
periodic review to determine whether it is making progress consistent with the
plan. If the Exchange does not accept the Company's plan, or, even if accepted,
the Company is not in compliance with the continued listing standards at the end
of the 18-month period or does not make progress consistent with the plan during
such period, the Exchange may initiate delisting proceedings with respect to the
Common Stock.
The Company is currently analyzing specific actions which it may take in
response to the Exchange's notice and intends to submit a plan that it believes
will be acceptable to the Exchange.
The Company's Common Stock continues to trade on the Exchange.
Item 3.02 Unregistered Sales of Equity Securities.
Reference is made to the disclosure provided in response to Item 1.01 of this
Form 8-K with respect to the Company's issuance of 20,000 shares of the Series E
Preferred, which disclosure is incorporated herein by this reference.
The issuance of the Series E Preferred was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and Regulation D promulgated thereunder, and was made
without general solicitation or advertising. Each purchaser of the Series E
Preferred represented to the Company that the purchaser was an "accredited
investor" within the meaning of Rule 501(a) of the Securities Act; that such
purchaser was receiving the shares of the Series E Preferred for investment and
not in connection with the resale or distribution thereof; and that such
purchaser had access to all relevant information necessary to evaluate the
investment.
Item 3.03 Material Modification to Rights of Securities Holders
Reference is made to the disclosure provided in response to Item 1.01 of this
Form 8-K with respect to the Company's issuance of 20,000 shares of the Series E
Preferred, which disclosure is incorporated herein by this reference.
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The Series E Preferred shall, with respect to dividend rights, rank senior to
all series and classes of the Company's Common Stock, to the Series B
Convertible Preferred Stock of the Company (the "Series B Preferred"), the
Series C Convertible Preferred Stock of the Company (the "Series C Preferred"),
and the Series D Convertible Preferred Stock of the Company (the "Series D
Preferred"). Further, in the event of any liquidation, winding up or dissolution
of the Company, the holders of the Series E Preferred shall be entitled to
receive, prior and in preference to any distribution of any assets of the
Company to the holders of the Series B Preferred, Series C Preferred, Series D
Preferred or Common Stock, an amount equal to $100.00 for each outstanding share
of Series E Preferred, plus all accrued or declared but unpaid dividends on such
securities.
Section 5 - Corporate Governance and Management
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year
Reference is made to the disclosure provided in response to Item 1.01 of this
Form 8-K with respect to the Company's issuance of 20,000 shares of the Series E
Preferred, which disclosure is incorporated herein by this reference.
In connection with the consummation of the offering of the Series E Preferred,
the Company filed a Certificate of Designation of Series E Preferred Stock of
The Sports Club Company, Inc. with the Delaware Secretary of State, a copy of
which is filed as Exhibit 3.1 hereto and is incorporated herein by reference.
The Certificate of Designation sets forth the rights, powers, preferences,
qualifications, limitations and restrictions of the Series E Preferred and
amends the Company's Restated Certificate of Incorporation.
Section 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of business acquired.
None
(b) Pro forma financial information.
None
(c) Exhibits
3.1 Certificate of Designation of Series E Preferred Stock of The
Sports Club Company, Inc.
4.1 Series E Preferred Stock Purchase Agreement
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Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 17, 2004 THE SPORTS CLUB COMPANY, INC.
By: /s/ Timothy M. O'Brien
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Timothy M. O'Brien
Chief Financial Officer
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Exhibit 3.1
CERTIFICATE OF DESIGNATION
OF
SERIES E PREFERRED STOCK
OF
THE SPORTS CLUB COMPANY, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
THE SPORTS CLUB COMPANY, INC. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"GCL"), hereby certifies that pursuant to the provisions of Sections 141 and 151
of the GCL, the Board of Directors of the Corporation (the "Board"), at a duly
noticed meeting thereof held on September 8, 2004, adopted the following
resolution, which resolution remains in full force and effect as of the date
hereof:
WHEREAS, the Board is authorized, within the limitations and restrictions
stated in the Certificate of Incorporation of the Corporation, to fix and amend
by resolution or resolutions the designation of each series of Preferred Stock
(the "Preferred Stock"), and the rights, powers, preferences, qualifications,
limitations and restrictions thereof, including, without limiting the generality
of the foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and such other subjects or matters as may be fixed by resolution or
resolutions of the Board under the GCL; and
WHEREAS, it is the desire of the Board, pursuant to its authority as
aforesaid, to authorize and fix the terms of a series of Preferred Stock and the
number of shares constituting such series:
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such number
and series of Preferred Stock on the terms and with the provisions herein set
forth:
1. Designation, Number of Shares, Par Value and Ranking. The shares of the
series of Preferred Stock authorized by this resolution shall be designated as
"Series E Preferred Stock" ("Series E Preferred"). The number of shares
initially constituting the Series E Preferred shall be 50,000, $0.01 par value
per share. The Series E Preferred shall, with respect to dividend rights and
rights on liquidation, winding up, and dissolution, rank senior to all series
and classes of the common stock of the Corporation (the "Common Stock"), to the
Series B Convertible Preferred Stock of the Corporation ("Series B Preferred"),
to the Series C
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Convertible Preferred Stock of the Corporation ("Series C Preferred"), and to
the Series D Convertible Preferred Stock of the Corporation ("Series D
Preferred"). Subject to compliance with applicable protective voting rights
which may be granted to the Preferred Stock or any series thereof in
Certificates of Designation or in the Corporation's Certificate of Incorporation
("Protective Provisions"), but notwithstanding any other rights of the Preferred
Stock or any series thereof, the rights, privileges, preferences and
restrictions of any such additional series may be subordinated to, pari passu
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote or written consent), or senior to any of those of any present or future
class or series of Preferred Stock or Common Stock (including the Series E
Preferred, subject to compliance with Section 6 hereof). Subject to compliance
with applicable Protective Provisions, and subject to the consent of the holders
of 85% of the then outstanding Series E Preferred, the Board is also authorized
to increase or decrease the number of shares of Series E Preferred, but not
below the number of shares of such series then outstanding. In case the number
of shares of Series E Preferred shall be so decreased, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
2. Dividend Rights.
(a) Subject to the rights of holders of all classes of stock (issued in
compliance with Section 6 hereof, if applicable) at the time outstanding having
prior rights as to dividends, the holders of the Series E Preferred shall be
entitled to receive, when and as declared by the Board, out of any assets of the
Corporation legally available therefor, dividends at an annual rate (the
"Dividend Rate") of $11.375 per share (as adjusted for any stock dividends,
combinations or splits with respect to such shares) per annum, payable quarterly
in arrears on each March 31, June 30, September 30 and December 31, as declared
by the Board. Dividends on the Series E Preferred, whether or not declared,
shall be cumulative but shall not accrue interest. The Corporation shall not pay
any dividend to the holders of the Common Stock, the Series B Preferred, the
Series C Preferred or the Series D Preferred during any fiscal year of the
Corporation until it has paid all cumulative but unpaid dividends at the
Dividend Rate to the holders of the Series E Preferred for such fiscal year and
any prior years.
(b) At the option of the Corporation, dividends may be paid in shares of
Series E Preferred. If the Corporation pays a dividend in shares of Series E
Preferred, the number of such shares to be issued to each holder of Series E
Preferred shall equal the dollar amount of the cash dividend that would be
otherwise payable in accordance with Section 2(a), divided by the Original
Series E Issue Price (as defined below). No fractional shares shall be issued,
and the Corporation may round the number of shares of Common Stock payable in
lieu of a cash dividend down to the nearest whole share.
3. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, subject to the rights of the
holders of any other
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series of Preferred Stock that may exist or may from time to time come into
existence, the holders of Series E Preferred shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Corporation to
the holders of Series B Preferred, Series C Preferred, Series D Preferred or
Common Stock by reason of their ownership thereof, an amount equal to $100.00
for each outstanding share of Series E Preferred (the "Original Series E Issue
Price"), plus all accrued or declared but unpaid dividends on such shares. If
upon the occurrence of such event, the assets and funds distributed among the
holders of the Series E Preferred shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then, subject to the
rights of holders of any other series of Preferred Stock that may exist or may
from time to time come into existence (in compliance with Section 6, if
applicable), the entire assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of the Series E
Preferred in proportion to the amount of such stock owned by each such holder.
(b) Upon the completion of the distribution required by Section 3(a) and
any other distribution that may be required with respect to any other series of
Preferred Stock that may exist or may from time to time exist or come into
existence, any remaining assets of the Corporation shall be distributed ratably
to the holders of the Common Stock only, and the Series E Preferred shall have
no right to participate in any such distribution.
(c) (i) For purposes of this Section 3, a liquidation, dissolution or
winding up of the Corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the Corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding any
merger (x) effected exclusively for the purpose of changing the domicile of the
Corporation, or (y) between the Corporation and any majority-owned subsidiary
which can be merged with or into the Corporation through a statutory short-form
merger under applicable corporate law); or (B) a sale of all or substantially
all of the assets of the Corporation, unless the Corporation's stockholders of
record as constituted immediately prior to such acquisition or sale will,
immediately after such acquisition or sale (by virtue of securities issued as
consideration for the Corporation's acquisition or sale or otherwise), hold at
least 50% of the voting power of the surviving or acquiring entity.
(ii) If, upon the consummation of any such transaction, the
consideration to be received by the Corporation is other than cash, its value
will be deemed its fair market value. Any securities to be received by the
Corporation shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or through
NASDAQ-NMS, the value shall be deemed to be the average of the closing prices
of the securities on such exchange over the thirty (30)-day period ending three
(3) days prior to the
closing;
8
(2) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30)-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the Corporation and
the holders of at least a majority of the voting power of all then outstanding
shares of Preferred Stock.
(B) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a stockholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in (A)(1), (2) or (3) to reflect the approximate fair market
value thereof, as mutually determined by the Corporation and the holders of at
least a majority of the voting power of all then outstanding shares of Preferred
Stock.
(iii) In the event the requirements of this Section 3(c) are not
complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such time as the
requirements of this Section 3 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series E Preferred shall revert
to and be the same as such rights, preferences and privileges existing
immediately prior tothe date of the first notice referred to in Section 3(c)(iv)
hereof.
(iv) The Corporation shall give each holder of record of Series E
Preferred written notice of such impending transaction not later than twenty
(20) days prior to the stockholders' meeting called to approve such transaction,
or twenty (20) days prior to the closing of such transaction, whichever is
earlier, and shall also notify such holders in writing of the final approval of
such transaction. The first of such notices shall describe the material terms
and conditions of the impending transaction and the provisions of this Section
3, and the Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the Corporation has given the first notice provided for
herein or sooner than ten (10) days after the Corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
4. Redemption.
(a) Subject to the rights of holders of any other series of Preferred
Stock which may exist or may from time to time come into existence (in
compliance with Section 6
9
hereof, if applicable) and subject to applicable law,the Corporation may, at
any time after May 31, 2006, at the option of the Board, redeem in whole or in
part the Series E Preferred by paying in cash therefor a sum per share equal
to $100.00, together with all accrued but unpaid dividends with respect to such
shares to and including the Redemption Date (such total amount is hereafter
referred to as the "Redemption Price"). In the event of any redemption of only
a part of the then outstanding Series E Preferred, the Corporation shall effect
such redemption pro rata according to the number of shares held by each holder
thereof.
(b) Subject to the rights of holders of any other series of Preferred
Stock which may exist or may from time to time ome into existence (in
compliance with Section 6 hereof, if applicable), at any time after May 31,
2006, within sixty (60) days after the receipt by the Corporation of the
written request of the holders of not less than fifty percent (50%) of the then
outstanding Series E Preferred (the "Redemption Request"), the Corporation
shall redeem all of the then outstanding Series E Preferred, by paying in cash
therefor a sum per share equal to the Redemption Price. Notwithstanding the
foregoing, the Corporation shall not be obligated to redeem any Series E
Preferred under this Section 4(b) if (i) at the time it receives the Redemption
Request, the Corporation is not then permitted to redeem such securities under
applicable law, or (ii) aredemption of the Series E Preferred would, as of the
date of receipt by the Corporation of the Redemption Request, result in any
breach or termination of, or constitute a material default under, or create any
rights of termination, cancellation or acceleration under, any agreement,
contract, instrument or certificate evidencing any indebtedness of the
Corporation, in either of which events, the Corporation's redemption obligation
under this Section 4(b) shall be suspended until such time that the condition(s)
set forth in subsections (i) and/or (ii) above, as applicable, no longer exist.
(c) Subject to the rights of holders of any other series of Preferred
Stock which may exist or may from time to time come into existence (in
compliance with Section 6 hereof, if applicable), at least thirty (30) (or
in the case of a redemption pursuant to Section 4(b), twenty [20]) but no more
than sixty (60) days prior to the date fixed for any redemption of the Series E
Preferred (the "Redemption Date"), notice shall be mailed, first class, postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series E Preferred to be
redeemed, at the address last shown on the records of the Corporation for such
holder or given by the holder to the Corporation for the purpose of notice, or
if no such address appears or is given, at the place where the principal
executive office of the Corporation is located, notifying such holder of the
redemption to be effected, specifying the number of shares to be redeemed from
such holder, the Redemption Date, the Redemption Price and the place at which
payment may be obtained and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, the certificate or
certificates representing the shares to be redeemed (the "Redemption Notice").
Except as provided in Section 4(e) below, on or after the Redemption Date, each
holder of Series E Preferred to be redeemed shall surrender to the Corporation
the certificate or certificates representing such shares, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered
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certificate shall be canceled. In the event fewer than all of the shares
represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
(d) From and after the Redemption Date, unless there shall have been a
default in the payment of the Redemption Price, all rights of the holders of
such shares as holders of Series E Preferred (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. Subject to the rights of holders of any
other series of Preferred Stock which may exist or may from time to time come
into existence (in compliance with Section 6 hereof, if applicable), if the
funds of the Corporation legally available for redemption of shares of Series
E Preferred on any Redemption Date are insufficient to redeem the total
number of shares of Series E Preferred to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum possible number
of such shares ratably among the holders of such shares to be redeemed. The
shares of Series E Preferred not redeemed shall remain outstanding and entitled
to all of the rights and preferences provided herein. Subject to the rights
of holders of any other series of Preferred Stock which may exist or may from
time to time come into existence (in compliance with Section 6 hereof, if
applicable), at any time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of Series E Preferred, such
funds will immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem on any Redemption Date but which it
has not redeemed.
(e) Subject to the rights of holders of any other series of Preferred
Stock which may exist or may from time to time come into existence (in
compliance with Section 6 hereof, if applicable), not less than three (3) days
prior to the Redemption Date, the Corporation shall deposit the Redemption Price
of all outstanding shares of Series E Preferred designated for redemption in the
Redemption Notice, and not yet redeemed or converted, with a bank or trust
company having aggregate capital and surplus in excess of $50,000,000 as a trust
fund for the benefit of the respective holders of the shares designated for
redemption and not yet redeemed. Simultaneously, the Corporation shall deposit
irrevocable instructions and authority to such bank or trust company to publish
the notice of redemption thereof (or to complete such publication if theretofore
commenced) and to pay, on and after the date fixed for redemption or prior
thereto, the Redemption Price to the holders of the Series E Preferred upon
surrender of their certificates. The balance of any monies deposited by the
Corporation pursuant to this Section 4(e) remaining unclaimed at the expiration
of two (2) years following the Redemption Date shall thereafter be returned to
the Corporation, provided that the shareholder to which such monies would be
payable hereunder shall be entitled, upon proof of its ownership of the Series E
Preferred and payment of any bond requested by the Corporation, to receive such
monies but without interest from the Redemption Date.
5. Voting Rights. Except as otherwise required by law, the holders of
shares of Series E Preferred shall not be entitled to any voting rights.
6. Protective Provisions. So long as the number of shares of Series E
Preferred which are issued and outstanding constitute at least 15% of the Series
E Preferred issued on the
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Purchase Date, the Corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least 85%
of the then outstanding shares of Series E Preferred:
(a) alter or change the rights, preferences or privileges of
the shares of Series E Preferred so as to materially and adversely affect such
shares;
(b) authorize, create or issue a senior or pari passu class of
Preferred Stock;
(c) issue more than 20,000 shares of Series E Preferred,
except as dividends on outstanding shares of Series E Preferred as contemplated
by Section 2(b) hereof;
(d) amend the Corporation's Certificate of Incorporation or
Bylaws so as to materially and adversely affect the shares of Series E
Preferred; or
(e) change the Corporation's principal line of business.
7. Status of Redeemed Stock. In the event any shares of Series E Preferred
shall be redeemed pursuant to Section 4 hereof, the shares so redeemed shall be
cancelled and shall not be issuable by the Corporation. The Certificate of
Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
8. Exclusion of Other Rights. Except as may otherwise be required by law,
the shares of Series E Preferred shall not have any preferences or rights other
than those specifically set forth in this Certificate of Designation (as such
Certificate of Designation may be amended from time to time) and in the
Corporation's Certificate of Incorporation.
9. Headings. The headings of the various Sections and subsections hereof
are for convenience of reference only and shall not affect the interpretation of
any of the provisions hereof.
10. Severability of Provisions. If any right, preference or limitation of
the Series E Preferred set forth in this Certificate of Designation (as such
Certificate of Designation may be amended from time to time) is invalid,
unlawful, or incapable of being enforced by reason of any rule of law or public
policy, all other rights, preferences and limitations set forth in this
Certificate of Designation (as so amended) which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation.
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IN WITNESS WHEREOF, The Sports Club Company, Inc. has caused this
certificate to be executed by an authorized officer this 9th day of September,
2004.
By: /s/ Timothy O'Brien
------------------------------------
Name: Timothy O'Brien
Title: Chief Financial Officer
Attest:
/s/ Lois Barberio
--------------------------
Lois Barberio, Secretary
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Exhibit 4.1
SERIES E
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as of
September 13, 2004, by and among The Sports Club Company, Inc., a Delaware
corporation (the "Company"), and the investors listed on Schedule A hereto
(each, an "Investor" and collectively, the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series E Preferred Stock.
(a) Designation. The Company shall adopt and file with the
Secretary of State of the State of Delaware on or before the Closing (as defined
below) the Certificate of Designation (the "Certificate of Designation") of
Series E Preferred Stock in the form attached hereto as Exhibit A (the "Series E
Preferred").
(b) Sale. Subject to the terms and conditions of this
Agreement, at the Closing, each Investor agrees, severally, to purchase, and the
Company agrees to sell and issue to each Investor, that number of shares of the
Series E Preferred set forth opposite each Investor's name on Schedule A hereto
for the purchase price set forth thereon.
(c) Completion of Sale. Each Investor acknowledges and agrees
that such Investor's obligation under this Agreement to purchase the shares of
Series E Preferred listed for such Investor on Schedule A is conditioned upon
the sale of all of the shares of Series E Preferred listed on Schedule A.
1.2 Closing. The purchase and sale of the Series E Preferred
shall take place at the offices of Greenberg Glusker Fields Claman Machtinger &
Kinsella LLP, 1900 Avenue of the Stars, Los Angeles, California 90067 at 11:00
A.M., on September 14, 2004 (which time and place are designated as the
"Closing"). At the Closing, the Company shall deliver to each Investor a
certificate representing the number of shares of Series E Preferred that such
Investor is purchasing against payment of the purchase price therefor by check
or wire transfer.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that, except as set forth on a Schedule
of Exceptions (the "Schedule of Exceptions") attached hereto as Schedule B,
which exceptions shall be deemed to be representations and warranties as if made
hereunder:
14
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse effect on its business or properties. The
Company has all corporate power and authority necessary to own its properties
and to carry on its business as presented conducted.
2.2 Capitalization and Voting Rights. The authorized capital
of the Company consists, or will consist immediately prior to the Closing, of:
(a) Preferred Stock. One Million (1,000,000) shares of
Preferred Stock (the "Preferred Stock"), of which Two Hundred Thousand (200,000)
shares have been designated Series A Junior Participating Cumulative Preferred
Stock, Ten Thousand, Five Hundred (10,500) shares have been designated Series B
Convertible Preferred Stock ("Series B Preferred"), Five Thousand (5,000) shares
have been designated Series C Convertible Preferred Stock ("Series C
Preferred"), One Hundred Thousand (100,000) shares have been designated Series D
Convertible Preferred Shares ("Series D Preferred"), and Fifty Thousand (50,000)
shares have been designated Series E Preferred, Twenty Thousand (20,000) of
which shares are to be sold pursuant to this Agreement. The rights, privileges
and preferences of the Series E Preferred will be as stated in the Certificate
of Designation.
(b) Common Stock. Forty Million (40,000,000) shares of common
stock, $0.01 par value ("Common Stock"), of which approximately Eighteen Million
Seven Hundred Eighty-Three Thousand Seven Hundred Forty-Four (18,783,744) shares
are issued and outstanding as of August 16, 2004.
(c) Validity. The outstanding shares of Common Stock are all
duly and validly authorized and issued, fully paid and nonassessable, and were
issued in compliance with all applicable state and federal laws concerning the
issuance of securities.
(d) Rights. Except for the options described below and the
conversion privileges of the Series B Preferred, the Series C Preferred and the
Series D Preferred, there are not outstanding any options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. The Company has
reserved an aggregate of Four Million Eight Hundred Thousand (4,800,000) shares
of its Common Stock for issuance upon exercise of options granted and to be
granted in the future under the Company's several stock option, ownership and
purchase plans described in Section 2.2 of Schedule B, and, at August 15, 2004,
held Two Million Two Hundred Ninety Thousand Nine Hundred Seventy-Three
(2,290,973) shares of Common Stock as Treasury Stock which may be used to fund
certain benefit plans, as well as for general corporate purposes. Except for the
Investors' Rights Agreement relating to the Series B Preferred, the Investors'
Rights Agreement relating to the Series C Preferred and the Investors' Rights
Agreement relating to the Series D Preferred, the Company is not a party or
subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
granting registration rights, including piggyback rights, to
15
any third party or entity or which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, sale and issuance of
the Series E Preferred being sold hereunder has been taken or will be taken
prior to the Closing. This Agreement constitutes valid and legally binding
obligations of the Company, enforceable in accordance with their terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
2.5 Valid Issuance of Preferred and Common Stock. The Series E
Preferred that is being purchased by the Investors hereunder, when issued, sold
and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable and will be free of restrictions on transfer, other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws.
2.6 Litigation. There is no action, suit, proceeding or
investigation pending, or to the Company's knowledge, currently threatened,
against the Company that questions the validity of this Agreement or the right
of the Company to enter into such agreement or to consummate the transactions
contemplated hereby, or that might result, either individually or in the
aggregate, in any material adverse changes in the business, assets or condition
of the Company, financially or otherwise, or any change in the current equity
ownership of the Company. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
2.7 Compliance with Other Instruments. The Company is not in
violation in any material respect of any provision of its Restated Certificate
of Incorporation or Bylaws nor in any material respect of any indenture, note,
instrument, judgment, order, writ, decree or contract which the Company knows it
is bound by, or to its knowledge, any statute, rule or regulation to which the
Company is subject and a violation of which would have a material adverse effect
on the condition, financial or otherwise, or operations of the Company. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not result in any such violation, or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision or an event that
results in the creation of any lien, charge or encumbrance upon
16
any assets of the Company or the suspension, revocation, impairment, forfeiture
or nonrenewal of any material permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties.
2.8 Permits. The Company has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business, the lack of
which could materially and adversely affect the business, properties or
financial condition of the Company. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
2.9 Title to Property and Assets. All real property owned or
leased by the Company, either directly or through a subsidiary, joint venture,
partnership or other arrangement, is described in Section 2.9 of Schedule B. All
of the Company's owned properties and assets are owned free and clear of all
mortgages, liens, loans and encumbrances, except (i) for statutory liens for the
payment of current taxes that are not yet delinquent, and (ii) for liens,
encumbrances and security interests that arise in the ordinary course of
business and minor defects in title, none of which, individually or in the
aggregate, materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
material compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances, subject to clauses
(i) and (ii).
2.10 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for: (i) the filing of a Notice of
Transaction pursuant to Section 25102(f) of the California Corporate Securities
Law of 1968, as amended, and the rules thereunder which filing will be effected
within the time prescribed by law, and (ii) such other filings required pursuant
to applicable federal and state securities laws and blue sky laws, which filings
will be effected within the required statutory period.
2.11 Offering. Subject in part to the truth and accuracy of
each Investor's representations set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Series E Preferred as contemplated by this
Agreement are exempt from the registration requirements of the Securities Act of
1933, as amended (the "'33 Act"), and the qualification or registration
requirements of the Act or other applicable blue sky laws. Neither the Company
nor any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemptions.
2.12 Patents and Trademarks. The Company possesses all
patents, patent rights, trademarks, trademark rights, service marks, service
mark rights, trade names, trade name rights and copyrights (collectively, the
"Intellectual Property") necessary for its business without, to its knowledge
(but without having conducted any special investigation or patent search), any
conflict with or infringement of the valid rights of others and the lack of
which could materially and adversely affect the operations or condition,
financial or otherwise, of the
17
Company, and the Company has not received any notice of infringement upon or
conflict with the asserted rights of others.
2.13 Agreements; Action.
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to, the Company in excess of $100,000
(individually or in the aggregate, if related), other than obligations of, or
payments to, the Company arising from purchase or sale agreements entered into
in the ordinary course of business, (ii) the lease of any property or other
asset by the Company, other than leases relating to the operation of the
Company's health and fitness club business in the ordinary course, or (iii)
provisions restricting or affecting the Company's right to develop, own and
operate its health and fitness club business.
(b) Since January 1, 2004, the Company has not (i) declared or
paid any dividends or authorized or made any distribution upon or with respect
to any class or series of its capital stock, (ii) incurred any indebtedness for
money borrowed or any other liabilities individually in excess of $100,000 or,
in the case of indebtedness and/or liabilities individually less than $100,000,
in excess of $500,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of any such assets or rights in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(d) The Company has not engaged in the past three (3) months
in any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
2.14 Related-Party Transactions. No employee, officer or
director of the Company or member of his or her immediate family is indebted to
the Company, nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them. To the best of the Company's knowledge,
except as disclosed in the Company's filings with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Exchange Act of 1934,
as amended (the "'34 Act") prior to the date hereof ("Public Filings"), none of
18
such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers or directors of the Company and members
of their immediate families may own stock in publicly traded companies that may
compete with the Company. Except as disclosed in the Public Filings, no member
of the immediate family of any officer or director of the Company is directly or
indirectly interested in any material contract with the Company.
2.15 Financial Statements. The Company has delivered to each
Investor copies of its audited consolidated balance sheets at December 31, 2002
and December 31, 2003, and its audited consolidated statements of operations as
of and for the years ended December 31, 2002 and December 31, 2003, together
with its unaudited consolidated balance sheet at June 30, 2004 and its unaudited
consolidated statements of operation as of and for the six (6) months ended June
30, 2004 (collectively, the "Financial Statements"). The Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and with each
other, except that the Financial Statements as of (and for) the six (6) months
ended June 30, 2004, may not contain all footnotes required by generally
accepted accounting principles. The Financial Statements fairly present the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein, subject to normal year-end audit
adjustments. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.
2.16 Tax Returns. The Company has timely filed all tax returns
(federal, state and local) required to be filed by it. These returns are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The provision for
taxes of the Company as shown in the Financial Statements is adequate for taxes
due or accrued as of the date hereof. The Company has not been advised that any
of its returns are being audited.
2.17 Environmental and Safety Laws. To its knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation.
2.18 Insurance. The Company has in full force and effect fire
and casualty insurance policies with such coverages in amounts (subject to
reasonable deductibles) customary for companies similarly situated.
2.19 Employee Benefit Plans. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.20 Labor Agreements and Actions. The Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has
19
requested or, to the Company's knowledge, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or other
labor dispute involving the Company pending, or to the Company's knowledge,
threatened, that could have a material adverse effect on the assets, properties,
financial condition, operating results or business of the Company, nor is the
Company aware of any labor organization activity involving its employees. The
Company is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing. The employment of each officer and employee of the Company is
terminable at the will of the Company. The Company is not a party to or bound by
any currently effective employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement. To its knowledge, the Company has complied in
all material respects with all applicable state and federal equal employment
opportunity and other laws related to employment.
2.21 Minute Books. The minute books of the Company (which are
available for inspection by any Investor upon reasonable notice) contain a
complete summary of all meetings of directors and shareholders of the Company
since the time of incorporation and reflect all transactions referred to therein
accurately in all material respects.
2.22 Disclosure. The Company has in all material respects
provided each Investor with all the information reasonably available to the
Company without undue expense that such Investor has requested for deciding
whether to purchase the Series E Preferred, including without limitation, copies
of the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2003, as amended by Form 10KA, the Company's Quarterly Reports on Form 10-Q
for the quarters ended March 31, 2004, and June 30, 2004, respectively, as
amended by Form 10QA for the quarter ended March 31, 2004 and all of the
Company's Current Reports on Form 8-K filed with the Commission including,
without limitation, the Form 8K filed with the Commission on June 24, 2004, July
12, 2004, August 17, 2004, August 18, 2004, and August 23, 2004, respectively.
This Agreement does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein or therein not
materially misleading.
3. Representations and Warranties of the Investors. Each Investor
hereby represents, warrants and covenants that:
3.1 Authorization. Such Investor has full power and authority
to enter into this Agreement and such agreement constitutes its valid and
legally binding obligation, enforceable against such Investor in accordance with
its terms.
3.2 Purchase Entirely for Own Account. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series E Preferred to be received by such Investor
(the "Securities") will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
20
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in or otherwise distributing
the same. By executing this Agreement, such Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.
3.3 Disclosure of Information; Knowledge of Company's
Business. Such Investor believes it has received all the information it
considers necessary or appropriate for deciding whether to purchase the Series E
Preferred. Such Investor further represents that it has had an opportunity to
ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Series E Preferred and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Investors to rely
thereon. In addition, Investor further represents and warrants that by virtue of
its current ownership of the Company's Common Stock, such Investor is familiar
with the business, properties, prospects and financial condition of the Company.
3.4 Investment Experience. Such Investor is an experienced
investor, is able to fend for itself, can bear the economic risk of its
investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Series E Preferred. If other than an individual, such Investor also
represents it has not been organized for the purpose of acquiring the Series E
Preferred.
3.5 Accredited Investor. Such Investor is an "accredited
investor" within the meaning of Rule 501 of Regulation D under the `33 Act, as
presently in effect.
3.6 Restricted Securities. Such Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such Securities may be resold without registration under
the `33 Act and applicable state securities laws only in certain limited
circumstances. In the absence of an effective registration statement covering
the Series E Preferred (or the Common Stock issued as dividends thereon) or an
available exemption from registration under the `33 Act or such state securities
laws, the Series E Preferred (or the Common Stock issued as dividends thereon)
must be held indefinitely. In this connection, such Investor represents that it
is familiar with Rule 144 of the Commission, as presently in effect, and
understands the resale limitations imposed thereby and by the `33 Act.
3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3, and:
(a) There is then in effect a registration statement under the
'33 Act covering such proposed disposition and such disposition is made in
accordance with such registration
21
statement;
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the `33 Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances; or
(c) Notwithstanding the provisions of subsections (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer (i) to any affiliate of such Investor, (ii) to any other
Investor, (iii) by an Investor that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, (iv) by an Investor that is a limited liability company ("LLC") to a
member of such LLC or to a retired member of such LLC who retires after the date
hereof, or to the estate of any such member or retired member or the transfer by
gift, will or intestate succession of any member to his or her spouse or to the
siblings, lineal descendants or ancestor, of such member or his or her spouse,
or (v) by an Investor who is an individual or the trustee(s) of an inter-vivos
trust, to his or her spouse or to the siblings, lineal descendents or ancestors
of such individual or trustee, in each case, if the transferee agrees in writing
to be subject to the terms hereof to the same extent as if he or she were an
original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
3.9 Tax Advisors. Such Investor has reviewed with such
Investor's own tax advisors the federal, state and local tax consequences of
this investment, where applicable, and the transactions contemplated by this
Agreement. Each such Investor is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that each such Investor (and not the Company) shall be responsible
for such Investor's own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
22
3.10 Investor Counsel. Such Investor acknowledges that such
Investor has had the opportunity to review this Agreement, the exhibits and the
schedules attached hereto and the transactions contemplated by this Agreement
with such Investor's own legal counsel. Each such Investor is relying solely on
such Investor's legal counsel and not on any statements or representations of
the Company or any of the Company's agents, including Greenberg Glusker Fields
Claman Machtinger & Kinsella LLP, for legal advice with respect to this
investment or the transactions contemplated by this Agreement.
4. California Commissioner of Corporations.
Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations of
each Investor under Section 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2. Performance. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing. The Company shall have obtained all necessary consents, approvals
or authorizations of any federal, state, local governmental authority, or third
party on the part of the Company which is required by law or otherwise to be
obtained prior to the Closing, including, but not limited to, the consent of the
holders of the Series B Preferred, the Series C Preferred and the Series D
Preferred to the issuance and sale of the Series E Preferred.
5.3 Compliance Certificate. The Chief Financial Officer of the
Company shall deliver to each Investor at the Closing a certificate stating that
the conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.4 Qualifications. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in
23
connection with the lawful issuance and sale of the Securities pursuant to this
Agreement shall be duly obtained and effective as of the Closing.
5.5 Corporate Proceedings. This Agreement, all documents and
instruments contemplated by this Agreement, and the issuance of the Series E
Preferred pursuant to the terms of this Agreement, shall have been approved by
the Board.
5.6 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to each Investor, and each shall have received all such counterpart
original and certified or other copies of such documents as he or it may
reasonably request.
5.7 Material Adverse Effect. Since June 30, 2004, there shall
have been no event or occurrence that would have a material adverse effect on
the business, assets or condition of the Company, financially or otherwise.
5.8 Filing of Certificate of Designation. The Certificate of
Designation in the form attached hereto as Exhibit A shall have been filed with
the Secretary of State of the State of Delaware and deemed effective.
5.9 Completion of Sale. Each Investor has concurrently
purchased his or its portion of the Series E Preferred as set forth on Schedule
A.
6. Conditions of the Company's Obligations at Closing. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
6.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investor shall have
delivered the purchase price specified in Section 1.2.
6.3 Qualifications. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
7. Miscellaneous.
7.1 Survival. The warranties, representations and covenants of
the Company and Investors contained in or made pursuant to this Agreement shall
survive the execution and
24
delivery of this Agreement and the Closing and shall in no way be affected by
any investigation of the subject matter thereof made by or on behalf of the
Investors or the Company.
7.2 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto or
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into in California.
7.4 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.5 Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day; (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the address as set forth on the signature page hereof or at such other
address as such party may designate by ten (10) days advance written notice to
the other parties hereto.
7.6 Finder's Fee. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees or representatives is responsible. The Company agrees to indemnify and
hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
7.7 Expenses. Irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the Investors' Rights Agreement or the Certificate of
Designation, the prevailing party shall be entitled to reasonable attorney's
fees (including the fees of in-house counsel), costs and necessary disbursements
in addition to any other relief to which such party may be entitled.
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7.8 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least eighty-five percent (85%) of the outstanding shares of the Series E
Preferred sold pursuant to this Agreement. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding and each
future holder of all such securities and the Company.
7.9 Effect of Amendment or Waiver. Each Investor acknowledges
that by the operation of Section 7.8 hereof the holders of at least eighty-five
percent (85%) of the shares of the Series E Preferred will have the power to
diminish or eliminate all rights of such Investor under this Agreement.
7.10 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.11 Aggregation of Stock. All shares of the Series E
Preferred held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
7.12 Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein.
7.13 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.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE SPORTS CLUB COMPANY, INC., a
Delaware corporation
By: /s/ Timothy O'Brien
-------------------------------------
Name: Timothy O'Brien
Title: Chief Financial Officer
Address: 11100 Santa Monica Boulevard
Suite 300
Los Angeles, CA 90025
INVESTORS:
/s/ Rex A. Licklider /s/ D. Michael Talla
------------------------------------- ----------------------------------
REX A. LICKLIDER, trustee of the
Licklider Living Trust dated May 2, D. MICHAEL TALLA, trustee of the
1986, as Amended and Restated as of Talla Family Irrevocable Trust
April 26, 1994 Dated September 28, 1989
Address: 11100 Santa Monica Boulevard Address: 11100 Santa Monica Boulevard
Suite 300 Suite 300
Los Angeles, CA 90025 Los Angeles, CA 90025
[Signatures Continued on Following Page]
27
ARBCO ASSOCIATES, L.P.
By: Kayne Anderson Capital Advisors, L.P.
By: Kayne Anderson Investment
Management, Inc.
By: /s/ David Shladovsky
----------------------------------
Name: David Shladovsky
Title: General Counsel
Address: 1800 Avenue of the Stars, Second Floor
Los Angeles, CA 90067
KAYNE ANDERSON NON-TRADITIONAL
INVESTMENTS, L.P.
By: Kayne Anderson Capital Advisors, L.P.
By: Kayne Anderson Investment
Management, Inc.
By: /s/ David Shladovsky
----------------------------------
Name: David Shladovsky
Title: General Counsel
Address: 1800 Avenue of the Stars, Second Floor
Los Angeles, CA 90067
[Signatures Continued on Following Page]
28
KAYNE ANDERSON SELECT
INVESTMENTS A, L.P.
By: Kayne Anderson Capital Advisors, L.P.
By: Kayne Anderson Investment
Management, Inc.
By: /s/ David Shladovsky
-----------------------------------
Name: David Shladovsky
Title: General Counsel
Address: 1800 Avenue of the Stars, Second Floor
Los Angeles, CA 90067
[End of Signatures]
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