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EXHIBIT I
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 7, 2000 (herein
together with the Appendices, Schedules and Exhibits attached hereto, referred
to as the "Agreement") by and among TOWN SPORTS INTERNATIONAL, INC., a New York
corporation ("TSI"), TSI/HDC, INC., a Massachusetts corporation and a
wholly-owned subsidiary of TSI ("TSI Sub"), and HEALTH DEVELOPMENT CORPORATION,
a Massachusetts corporation (the "Company"). Certain terms used in this
Agreement shall have the meanings set forth in Appendix A: "Definitions".
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of TSI Sub and the
Company deem it advisable and in the best interests of their respective
shareholders to consummate the business combination transaction provided for
herein in which TSI Sub would merge with and into the Company, and the Company
would become a wholly-owned subsidiary of TSI (the "Merger");
WHEREAS, to effectuate the Merger, the respective Boards of
Directors of TSI Sub and the Company have approved the Merger, whereby all of
the issued and outstanding
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shares of Company Stock (as defined in Section 2.1) will be converted into the
right to receive the consideration set forth in Section 2.1.3; and
WHEREAS, TSI, TSI Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, and intending to be legally bound, TSI, TSI Sub and the Company hereby
agree as follows:
1. The Merger.
1.1 Effective Time of the Merger. Upon the terms and subject
to the conditions of this Agreement, and in accordance with the Business
Corporation Law of the Commonwealth of Massachusetts (the "BCL"), TSI Sub shall
be merged with and into the Company at the Effective Time (as hereinafter
defined). On the Closing Date (as defined in Section 3), the Articles of Merger,
in substantially the form of Exhibit A hereto (the "Articles of Merger"),
setting forth the information required by Section 78 of the BCL shall be
delivered by the parties to the office of the State Secretary of the
Commonwealth of Massachusetts for filing as provided in the BCL. The Merger
shall become effective upon the filing of the Articles of Merger with the State
Secretary, which shall be done on the Closing Date (the "Effective Time").
1.2 Effects of the Merger.
1.2.1 At the Effective Time,
(a) the separate existence of TSI Sub shall cease and
TSI Sub shall be
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merged with and into the Company (TSI Sub and the Company are sometimes
referred to herein as the "Constituent Corporations" and the Company
after the Effective Time (i.e. after the Closing Date) is sometimes
referred to herein as the "Surviving Corporation"),
(b) the Articles of Organization of the Surviving Corporation
shall be deemed to be the Articles of Organization of the Company as of
the date hereof, as amended by the amendment indicated in Section 3 of
the Articles of Merger (i.e. amending the total authorized shares from
3,000,000 shares of common stock, $.01 par value, to 1,000 shares of
common stock, $1.00 par value), and TSI shall automatically be deemed
the sole holder of all of the authorized shares of the Surviving
Corporation (i.e. 1,000 shares of common stock), and
(c) the By-laws of the Company as in effect immediately prior
to the Closing Date shall be the By-laws of the Surviving Corporation.
1.2.2 The Surviving Corporation shall, by virtue of the Merger
and in accordance with the BCL, possess all of the properties and
rights and be subject to all of the liabilities of the Constituent
Corporations. From and after the Effective Time (i.e. the Closing
Date), the Merger shall have all of the effects provided by applicable
law.
1.3 Directors and Officers of the Surviving Corporation. The directors
and officers of TSI Sub immediately prior to the Closing Date shall be, from and
after the Closing Date, the directors and officers, respectively, of the
Surviving Corporation until their respective successors shall have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Articles of Organization
and By-laws. Effective as of the Closing Date, all of the directors and officers
of the Company shall, in writing, formally resign from such positions.
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2. Effect of the Merger on the Capital Stock of the Constituent
Corporations.
2.1 Effect on Capital Stock. As of the Closing Date, by virtue of the
Merger and without any further action on the part of the holder of (i) any
common share, par value $.01 per share, of the Company (the "Company Stock"), or
(ii) any common share of TSI Sub (the "TSI Sub Stock"):
2.1.1 TSI Sub Stock. Each issued and outstanding share of TSI Sub Stock
shall be converted into and become one fully paid and non-assessable share of
common stock of the Surviving Corporation.
2.1.2 Cancellation of Options, Etc. Except as specifically set forth to
the contrary in Section 2.2.2(c), any outstanding right, subscription, security,
warrant, call, unsatisfied preemptive right, option or other agreement,
commitment, arrangement or undertaking of any kind to purchase or otherwise to
receive from the Company any of the outstanding, authorized or unauthorized
shares of the capital stock or any other security of the Company (whether or not
vested) not exercised at or prior to the Closing Date shall be canceled and
retired and shall cease to exist and no portion of the Aggregate Merger Price
(as defined in Section 2.1.3) or other consideration shall be delivered in
exchange therefor.
2.1.3 Per Share Merger Price for Company Stock. (a) On the Closing Date
(i.e. the Effective Time), each issued and outstanding share of Company Stock1
shall be converted into the right to receive an amount equal to the Per Share
Merger Price (as defined below and calculated in accordance with the following
calculation):
1 Other than shares held by the Company Shareholders who take all of the
steps required to be taken in order to entitle such shareholders to be
paid the fair value of such shares in accordance with the BCL
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I. NINETEEN MILLION TWO HUNDRED THOUSAND DOLLARS ($19,200,000.00) (the
"Initial Amount") minus the appropriate reductions required for the Wellesley
Holdback Adjustment (Section 2.2.2(b)), the Conversion Option (Section
2.2.2(c)), the Escrow Amounts (Section 2.2.2(d)) and the Equipment Financing
Amount (Section 2.2.2(e)) shall be paid to the Delivery Agent by TSI on behalf
of the Company Shareholders and the Company (such amount hereinafter the
"Closing Date Payment").
II. The Delivery Agent shall thereafter immediately (i.e. on the
Closing Date) pay each of the following amounts from the Closing Date Payment:
(i) the amount of the Bank Debt (as defined in Section 4.20),
(ii) the amount of the Unsecured Financing (as defined in Section
4.16),
(iii) the amount of the Adjusted Employee Change of Control Amount (as
defined in Section 4.25(f)), and
(iv) the amount of the Company Transaction Expenses (as defined in
Section 6.3). The Closing Date Payment, minus each of the expenses listed in
items (i) through (iv) immediately above, hereinafter referred to as the
"Aggregate Merger Price".
III. The Aggregate Merger Price, divided by the total number of shares
of Company Stock issued and outstanding immediately prior to the Effective Time,
shall hereinafter be referred to as the "Per Share Merger Price". The parties
acknowledge and agree that upon the execution of this Agreement, Schedule 2.1.3,
which sets forth each of the holders of shares of Company Stock (the "Company
Shareholders"), assumes that prior to the Closing all holders of options listed
thereon will have exercised in full their options listed on such Schedule 2.1.3.
If
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one or more of such option holders shall fail to exercise such options, the
parties will amend Schedule 2.1.3 accordingly prior to the Closing.
(b) All shares of Company Stock, when converted pursuant to this
Section 2.1.3, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the Per Share Merger Price multiplied by
the number of shares represented by such certificate upon the surrender of such
certificate in accordance with Section 2.2.1, without interest, and except as
otherwise provided under the BCL.
2.2 Delivery of Certificates and Payment.
2.2.1 Delivery of Shares. At the Effective Time (i.e. on the Closing
Date), each Company Shareholder, as identified on Schedule 2.1.3, shall deliver
to TSI certificates representing all of the shares of Company Stock owned by
such shareholder as set forth opposite such shareholder's name on Schedule 2.1.3
hereto, and in the event that any Company Shareholder has lost a certificate, or
a certificate has been destroyed, each such Company Shareholder shall deliver to
TSI an affidavit, in form and substance reasonably satisfactory to TSI, to such
effect.
2.2.2 Payment of Closing Date Payment and Delivery of TSI Options. (a)
On the Closing Date and upon delivery of the shares of Company Stock pursuant to
Section 2.2.1, (i) TSI shall deliver to ▇▇▇▇▇ and ▇▇▇▇▇▇ LLP (the "Delivery
Agent") on behalf of the Company Shareholders and the Company (A) by wire
transfer in immediately available funds to an account designated by Delivery
Agent, an amount equal to the Closing Date Payment (after making the appropriate
reductions for the Wellesley Holdback Adjustment, the Conversion
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Option, the Escrow Amounts and the Equipment Financing Amount, each as set forth
in this Section 2.2.2), and (B) the appropriate number, if any, of options ("TSI
Options") for shares of TSI Common Stock, and (ii) TSI shall deliver to ▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇▇▇, in its capacity as escrow agent (the "Escrow Agent") the Escrow
Amounts. The Delivery Agent shall immediately (a) (i) pay all Bank Debt to
Fleet, (ii) all Unsecured Debt to the applicable third parties, (iii) the
Adjusted Employee Change of Control Amount to the Company (for TSI's benefit),
and (iv) all Company Transaction Expenses to the appropriate third parties, and
(b) pay the Aggregate Merger Price to the Company Shareholders in accordance
with the terms of this Agreement.
(b) Wellesley Holdback Adjustment. (i) The parties acknowledge and
agree that, except as otherwise set forth in subsections (ii) and (iii)
immediately below, TSI shall withhold FIVE HUNDRED THOUSAND DOLLARS
($500,000.00) from the Initial Amount (the "Wellesley Holdback Amount"), and
shall not pay such amount to the Delivery Agent (or the Company Shareholders) at
the Closing. In the event that on or before November 1, 2000, (A) the Wellesley
Lease is amended, substantially and materially in accordance with the terms of
the form of lease amendment set forth as Exhibit E-1 (the "Wellesley Lease
Amendment"), or (B) the Wellesley Landlord agrees in writing to substantially
and materially all of the terms set forth in the Wellesley Lease Amendment and
is ready, willing and able to enter into such agreement, but TSI, in its own
discretion, determines not to execute the Wellesley Lease Amendment, then, TSI
shall pay the Wellesley Holdback Amount to the Delivery Agent, in the case of
(A) above, within five (5) business days after the Wellesley Landlord executes
and delivers to TSI a fully-binding, valid and enforceable Wellesley Lease
Amendment, or in the case of (B) above, no later than five (5) business days
after November 1, 2000. In conjunction with such payment, TSI shall subtract
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and retain any amounts due (if any) from the Company Shareholders (arising from
the exercise by Company employees of Company Options) with respect to
withholding taxes and other amounts arising from such payment. In the event
that, neither (A) nor (B) in the preceding sentence occurs on or prior to
November 1, 2000, TSI shall keep the Wellesley Holdback Amount and shall have no
obligation to pay all or any portion of the Wellesley Holdback Amount to the
Delivery Agent (or the Company Shareholders).
(ii) Notwithstanding anything to the contrary in subsection (i)
immediately above, at least five (5) days prior to the Closing, the Company
shall have the option (to be exercised by providing written notice to TSI and
TSI's counsel as set forth herein), to elect not to pursue the Wellesley Lease
Amendment, in which case the Initial Amount shall be decreased by THREE HUNDRED
THOUSAND DOLLARS ($300,000.00) (as opposed to FIVE HUNDRED THOUSAND DOLLARS
($500,000.00)), and there shall be no Wellesley Holdback Amount.
(iii) Notwithstanding anything to the contrary in subsections (i) and
(ii) immediately above, in the event that on or prior to the Closing Date,
Sportsfit, Inc. (a Subsidiary of the Company), the Company, as Guarantor, and
the Wellesley Landlord each execute and deliver a fully-binding, valid and
enforceable Wellesley Lease Amendment, there shall be no Wellesley Holdback, and
this Section 2.2.2(b) shall have no force or effect.
(c) Conversion Option. (i) Notwithstanding anything to the contrary in
this Agreement, each of the individual Company Shareholders listed on Schedule
2.2.2(c) hereto (the "Executive Group") shall, provided he or she complies with
the requirements of the following sentence, have the option (to be exercised in
his or her sole and exclusive discretion), to exchange up to fifty percent (50%)
of his or her outstanding options ("Company Options") to
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purchase shares of Company Stock, for TSI Options to purchase shares of TSI's
Class A common stock, par value $.001 ("TSI Common Stock"), as opposed to
receiving cash consideration at the Closing for the Company Stock underlying
such Company Options (the "Conversion Option").
(ii) The Conversion Option shall be exercisable by each member of the
Executive Group who, at least ten (10) days prior to the Closing, provides TSI
with written notice of (i) the amount of Company Options he or she wishes to
exchange for TSI Options, (ii) acceptance of the valuation (which shall be
agreed upon by TSI and the Executive Group) of TSI Common Stock for purposes of
establishing a conversion ratio from shares of Company Stock to shares of TSI
Common Stock, (iii) his or her agreement to execute, on the Closing Date, an
employment agreement with TSI (substantially and materially in the form of
Exhibit I-1) or, for ▇▇▇▇▇▇ Strategic Marketing and Communications ("BSMC") a
consulting agreement with TSI (substantially and materially in the form of
Exhibit I-2), and (iv) his or her agreement to execute, on the Closing Date,
each of the TSI Shareholder Documents. Such notice shall be substantially and
materially in the form of Exhibit B (the "Conversion Notice"). The TSI Options
shall be issued in accordance with the terms and provisions of TSI's Amended and
Restated 1996 Common Stock Option Plan with modifications, if any, as required.
(iii) Each of the parties hereby acknowledge and agree that,
notwithstanding anything to the contrary in this Agreement or any other
agreement, certificate, document or other writing, in the event that one or more
of the members of the Executive Group validly exercise their Conversion Option,
(A) the amount of the Initial Amount shall be reduced by the following amount:
(I) the number of shares of Company Stock for which the converted Company
Options would have been exercisable for, (II) multiplied by the Per Share Merger
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Price, and (B) TSI shall deliver to the Delivery Agent the appropriate number of
TSI Options in exchange for the Company Options.
(d) Escrow Amounts. Notwithstanding anything to the contrary herein, in
accordance with Section 2.1.3, on the Closing Date, TSI shall deposit with the
Escrow Agent the following four (4) escrow amounts: (A) One Hundred Thousand
Dollars ($100,000.00) with respect to the audit of the Federal 1996 Return (the
"1996 Federal Tax Escrow Amount"), (B) One Hundred Thousand Dollars
($100,000.00) with respect to the Threatened Litigation (the "Threatened
Litigation Escrow Amount"), (C) Three Hundred Thirty-Seven Thousand Five Hundred
Sixty-Six Dollars ($337,566.00) with respect to the Valuation Issue (as defined
in the Escrow Agreement) (the "Valuation Escrow Amount"), and (D) One Hundred
Thousand Dollars ($100,000.00) with respect to any other breach(es) or
violation(s) of any nature whatsoever of this Agreement by the Company, or of
the Company Shareholder Agreement by the Company Shareholders (the "General
Escrow Amount"), (the 1996 Federal Tax Escrow Amount, the Threatened Litigation
Escrow Amount, the Valuation Escrow Amount and the General Escrow Amount,
together, the "Escrow Amounts"), all in accordance with the terms of an Escrow
Agreement to be executed on or prior to the Closing Date substantially and
materially in the form of Exhibit L attached hereto. Release of the Escrow
Amounts shall be permitted only in accordance with the terms and conditions of
the Escrow Agreement. In conjunction with any release of the Escrow Amounts to
the Delivery Agent (on behalf of the Company Shareholders), TSI shall subtract
and retain any amounts due (if any) from the Company Shareholders (arising from
the exercise by Company employees of Company Options) with respect to
withholding taxes and other amounts arising from such payment.
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(e) Equipment Financing Amount. On or before the Closing Date, the
Company shall provide TSI with proof of the Equipment Financing Amount, which
shall be subject to verification by TSI. The parties agree that the agreed upon
Equipment Financing Amount shall be subtracted from the Initial Amount in
accordance with the terms of Section 2.1.3 hereof. The Equipment Financing
Amount shall be retained by TSI for its own account.
2.3 No Further Ownership Rights in Company Stock. (i) The Per
Share Merger Price shall be deemed full payment for each share of Company Stock
and all rights pertaining to such shares of Company Stock. There shall be no
further registration of transfers on the stock transfer books of the Company of
the shares of Company Stock which were outstanding immediately prior to the
Effective Time. If, after the Closing Date, certificates representing shares of
Company Stock are presented to TSI or the Surviving Corporation for any reason,
they shall be canceled and exchanged solely for the Aggregate Merger Price (as
delivered to the Delivery Agent) and neither TSI nor the Surviving Corporation
shall have any obligation to make any additional payment.
(ii) In the event that any Company Shareholder exercises his or her
appraisal rights in accordance with the provisions of the BCL, the Delivery
Agent shall hold the Per Share Merger Price relating to such Company Stock, and
shall release such amount solely upon the applicable court's final determination
of the "fair market value" of such shares of Company Stock.
3. Closing; Closing Date. The closing of the Merger (the "Closing")
shall take place at the offices of ▇▇▇▇▇ and ▇▇▇▇▇▇ LLP, at 10:00 a.m. local
time, on Thursday, June 29, 2000,
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or such other time or date as TSI and the Company agree in writing. The time and
date upon which the Closing occurs is herein called the "Closing Date."
4. Representations and Warranties of the Company. The Company
represents and warrants to TSI and TSI Sub as of the date of this Agreement and,
unless specifically stated to the contrary, as of the Closing Date, as follows:
4.1 Due Organization and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts and has all requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as now being and heretofore conducted. Each of the Subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its assets and properties and to
carry on its business as now being and heretofore conducted.
4.2 Authority to Execute and Perform Agreement. The Company
has the corporate power and authority required to execute and deliver this
Agreement and to perform fully the Company's obligations hereunder. This
Agreement has been duly executed and delivered by the Company and (assuming due
authorization, execution and delivery hereof by each of TSI and TSI Sub)
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. The execution and delivery by the
Company of this Agreement, the consummation of the transactions contemplated
hereby and the performance by the Company of this Agreement in accordance with
its terms will not (a) require
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the approval, consent or action of, or the making of any filing with or the
giving of any notice to, any Governmental Body (as defined in Section 4.11) or
any other Person, other than (i) the approval by the Board of Directors of the
Company which has been obtained, (ii) the approval by two-thirds of the
outstanding shares of Company Stock; (iii) the filing of the Articles of Merger
with the Office of the State Secretary of the Commonwealth of Massachusetts; and
(iv) the consents, approvals, notices and waivers, set forth on Schedule 4.2,
including, but not limited to compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act ("HSR
Act") (collectively, the "Required Consents"); (b) conflict with or result in
any breach or violation of any of the terms and conditions of, or constitute (or
with notice or lapse of time or both would constitute) a default under, the
Articles of Organization or By-laws of the Company or any of the Subsidiaries,
any Law or Order (as defined in Section 4.11) of any Governmental Body
applicable to the Company or any of the Subsidiaries, or any of their assets or
properties or any contract, agreement, instrument, lease, sublease, mortgage or
other binding arrangement (collectively, the "Contracts") to which the Company,
any of the Subsidiaries, or any of their assets or properties is a party or by
or to which the Company, any of the Subsidiaries, or any of their assets or
properties is bound or subject, except for the Required Consents which will be
obtained at or prior to the Closing; or (c) result in the creation of any Lien
on the assets or properties of the Company or any of the Subsidiaries.
4.3 Qualification. The Company and each of the Subsidiaries is
duly qualified to transact business and is in good standing under the laws of
each jurisdiction where such qualification is required. Each jurisdiction in
which the Company and each Subsidiary is qualified to transact business is set
forth on Schedule 4.3.
4.4 Subsidiaries, Equity Investments and Other Affiliates. (a)
The Company
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owns 100% of the issued and outstanding shares of each of the Subsidiaries.
Schedule 4.4 sets forth the name, jurisdiction of incorporation, authorized
capitalization and share ownership of each subsidiary of the Company. As used in
this Section 4.4, the term "subsidiary" means any corporation of which the
Company, directly or indirectly, owns or controls any capital stock. Except as
set forth in Schedule 4.4, the Company does not own, directly or indirectly, any
capital stock or other equity securities of any corporation or have any direct
or indirect equity or ownership interest, including interests in partnerships,
limited liability companies and joint ventures, in any business of any nature
whatsoever. All of the outstanding capital stock of each Subsidiary is owned by
the Company free and clear of all Liens, (as such term is defined in Section
4.20) except for restrictions on transfer under federal and state securities
laws. All such shares of capital stock have been validly issued and are fully
paid and nonassessable. There are no outstanding options, warrants or other
rights of any kind to acquire any additional shares of capital stock of any
Subsidiary or securities convertible into or exchangeable for, or which
otherwise confer on the holder thereof any right to acquire, any such additional
shares, nor is any Subsidiary committed to issue any such option, warrant, right
or security. There are no agreements relating to the voting, purchase or sale of
capital stock of any Subsidiary.
(b) None of the Non-Operating Subsidiaries: (i) have conducted any
business of any nature whatsoever for a period of at least two years prior to
the date hereof, and (ii) have any debts, liabilities or obligations, of any
nature whatsoever, contingent or otherwise.
4.5 Outstanding Capital Stock. The Company is only authorized
to issue Three Million (3,000,000) shares of Company Stock, of which Eight
Hundred Eighty Two Thousand Ninety Six (882,096) shares are issued and
outstanding as of the date hereof. All of the
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outstanding shares of Company Stock are owned of record by the Company
Shareholders in the respective amounts set forth on Schedule 2.1.3. If all of
the stock options set forth on Schedule 2.1.3 hereto are exercised in full by
the holders thereof on or prior to the Closing Date, on the Closing Date, One
Million One Hundred Ninety Thousand Five Hundred Ninety Six (1,190,596) shares
of Company Stock will be issued and outstanding. The Company is not a party to,
or bound by, any instrument that restricts the transfer of Company Stock. All of
the outstanding shares of Company Stock are duly authorized and validly issued,
fully paid and nonassessable. No other class of capital stock or other ownership
interests of the Company is authorized, issued, reserved for issuance or
outstanding. None of the securities of the Company, or the options set forth on
Schedule 2.1.3, have, to the Company's knowledge, been issued in violation of
applicable Federal or state securities laws.
4.6 Options or Other Rights. Except as set forth on Schedule
4.6, there is no outstanding right, subscription, security, warrant, call,
unsatisfied preemptive right, option or other agreement, commitment, arrangement
or undertaking of any kind to purchase or otherwise to receive from the Company
or any Subsidiary any of the outstanding, authorized or unauthorized shares of
the capital stock or any other security of the Company or any Subsidiary, and
there is no outstanding security of any kind convertible into any such capital
stock. The list of outstanding stock options of the Company set forth on
Schedule 4.6 is true and complete and such options, except as provided in
Section 2.2.2(c), will be fully vested and exercisable for an aggregate of Three
Hundred Eight Thousand Five Hundred (308,500) shares of Company Stock by the
holders thereof at or prior to the Closing Date, and except as provided in
Section 2.2.2(c) (Conversion Option), any unexercised options outstanding on the
Closing Date shall be
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automatically cancelled without any actions of the Company, the Surviving
Corporation or any other Person. There is no bond, debenture, note or other
indebtedness of the Company or any Subsidiary having the right to vote (or
convertible into or exchangeable for securities having the right to vote) on any
matter on which shareholders of the Company or any Subsidiary may vote.
4.7 Charter Documents and Corporate Records. The Company has
heretofore delivered to TSI true and complete copies of the Company's and each
Subsidiary's (i) Articles of Organization, or similar certificate of formation
(certified, in each case, by the Secretary of State or other appropriate
official of the jurisdiction of incorporation), and (ii) By-laws (certified by
such company's clerk or an assistant clerk), in each case, as in effect on the
date hereof. The minute books of the Company and each of the Subsidiaries which
have been made available to TSI for its inspection contain true and complete
records of all meetings and consents in lieu of meeting of the Board of
Directors (and any committee thereof) of such company, and its shareholders,
since the time of its organization and accurately reflect in all material
respects all transactions referred to in such minutes and consents in lieu of
meeting. The stock books of the Company and each of the Subsidiaries which have
been made available to TSI for its inspection are true and complete.
4.8 Financial Statements. Each of the balance sheets of the
Company (i) as of December 31, 1999 and December 31, 1998 and the related
statements of income, retained earnings and cash flows for the years then ended,
including the notes thereto, which have been audited by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP,
independent public accountants ("▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇"), (ii) as of December 31, 1997
and the related statements of income, retained earnings and cash flows for the
years then ended, including the notes thereto, which have been reviewed by
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
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and (iii) as of December 31, 1996 and December 31, 1995 and the related
statements of income, retained earnings and cash flows for the years then ended,
including the notes thereto, which have been reviewed by Macdonald, Levine,
▇▇▇▇▇▇▇ & Co., P.C., each of which have been delivered to TSI, are each complete
and correct and present fairly the financial position of the Company and the
Subsidiaries as at such dates and the results of operations and cash flows of
the Company and the Subsidiaries for the years then ended, in each case in
accordance with generally accepted accounting principles ("GAAP") consistently
applied for the periods covered thereby. (The foregoing financial statements of
the Company (and the Subsidiaries) as of December 31, 1999 and for the year then
ended are sometimes herein called the "Audited Financials," the balance sheet
included in the Audited Financials is sometimes herein called the "Reference
Balance Sheet" and December 31, 1999 is sometimes herein called the "Reference
Balance Sheet Date.") The balance sheets of the Company (and the Subsidiaries)
as of January 31, 2000, February 29, 2000, March 31, 2000 and April 30, 2000 and
the related statements of income, retained earnings and cash flows for the
periods then ended, which were prepared internally by the Company, and which
have been delivered to TSI, are complete and correct and present fairly the
financial position of the Company (and the Subsidiaries) as of such dates and
the results of operations and cash flows of the Company for the periods then
ended, in each case in conformity with GAAP applied on a basis consistent with
that of the Audited Financials, except for normal year-end adjustments and the
lack of footnotes and other presentation items. (The foregoing unaudited
financial statements of the Company as of January 31, 2000, February 29, 2000,
March 31, 2000 and April 30, 2000 and for the periods then ended are sometimes
herein called the "Interim Financials," the balance sheets included in the
Interim Financials is sometimes herein called the
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"Interim Balance Sheets" and April 30, 2000 is sometimes herein called the
"Interim Balance Sheet Date.") The Company does not have any liabilities or
obligations of any nature (whether accrued, absolute, contingent, unasserted or
otherwise) except (i) as disclosed, reflected or reserved against on the Audited
Financials or the Interim Financials, and (ii) for liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
and not in violation of this Agreement since the Reference Balance Sheet Date.
As of the Closing Date, the Company shall not have any liabilities or
obligations of any nature (whether accrued, absolute, contingent, unasserted or
otherwise) except (i) as disclosed, reflected or reserved against on the Audited
Financials, the Interim Financials or the March 31, 2000 Financials (as defined
in Section 6.14), and (ii) for liabilities and obligations incurred in the
ordinary course of business and consistent with past practice and not in
violation of this Agreement since the Reference Balance Sheet Date and the
Interim Balance Sheet Date.
4.9 No Material Adverse Change. Except (i) as set forth on
Schedule 4.9, (ii) as reflected in the Interim Financials, or (iii) as
contemplated by this Agreement, since the Reference Balance Sheet Date, there
has been no change, event or occurrence which has materially adversely affected
the Business, the Clubs, the properties, the assets, the operations, the results
of operations, or the condition (financial or otherwise) of the Company or any
of the Subsidiaries (each a "Material Adverse Change"). To the knowledge of the
Company, no event has occurred and no fact or circumstance exists that the
Company believes would result in a Material Adverse Change. Since the Interim
Balance Sheet Date, there has been no damage, destruction, loss or change in the
condition of any property which would or reasonably could be expected to
materially adversely affect the Company's and/or any of its Subsidiaries'
condition
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(financial or otherwise) or operations.
4.10 Taxation Representations and Warranties. (i) For purposes
of this Agreement, the following terms shall have the following
meanings:
(1) "Code" means the Internal Revenue Code of 1986, as
amended.
(2) "Pre-Closing Tax Period" means any taxable period
ending on or before the Closing Date and the portion
ending on and including the Closing Date of any
taxable period that commences prior to, and includes
(but does not end on) the Closing Date.
(3) "Tax" or "Taxes" means all Federal, state, county, local
or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, capital stock,
franchise, profits, withholding, social security (or
similar), unemployment, disability, real property,
personal property, estimates or other tax of any kind
whatsoever, including interest, penalty or addition
thereto, whether disputed or not.
(4) "Tax Return" means any return, declaration, report,
estimate, or information return or statement relating to
Taxes including any schedule or attachment thereto, and
including any amendment thereof.
(ii) The Company (on behalf of itself and the
Subsidiaries) has filed or will timely file all Tax Returns
that are required to be filed on or prior to the Closing Date
and has paid all Taxes owed by the Company and its
Subsidiaries (whether or not shown on any Tax Return) or has
reserved sufficient amounts
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therefore. All such Tax Returns are correct and complete and,
without in any manner limiting the foregoing, the Company has
taken no position thereon that would subject it to accuracy
related penalties under section 6662 of the Code (or any
comparable provision of state, local or foreign Tax law);
(iii) The Company has delivered to TSI correct and
complete copies of all federal and state income Tax Returns
filed by the Company, together with any examination reports
and statements of deficiencies assessed against or agreed to
by the Company since December 31, 1995. Except for the
Federal Tax Return for the year ended December 31, 1996 (the
"Federal 1996 Return", none of such Tax Returns, including,
but not limited to, income tax returns and sales and use tax
returns, have been audited. Except for the Federal 1996
Return, no Tax Returns of the Company are currently the
subject of audit;
(iv) There is no dispute or claim concerning any Tax
liability of the Company (or any of the Subsidiaries) pending
of which the Company has been notified, or, to the knowledge
of the Company, threatened by any taxing authority. The
Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency, nor has any Person entered into
a closing agreement pursuant to section 7121 of the Code (or
any comparable provision of state, local or foreign Law) that
is currently in force and determines the Tax liability of the
Company;
(v) The reserves for Taxes due, or accrued but not
yet due, relating to the income, properties or operations of
the Company for any Pre-Closing Tax Period
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as reflected on the books of the Company are adequate to cover
such Taxes;
(vi) The Company is not a party to, or bound by, any
Tax allocation or sharing agreement. Neither the Company nor
any Subsidiary has been a member of an affiliated group filing
a consolidated federal or state income tax return (other than
a group, the common parent of which is the Company) or has any
liability for the Taxes of any other Person (other than the
Company and its Subsidiaries) under Treasury Regulation
1.1502-6 (or similar provision of state, local or foreign
law), as transferee or successor, by contract or otherwise;
(vii) Schedule 4.10 sets forth all Federal tax
elections under the Code that are in effect with respect to
the Company as of the date hereof. After the date hereof, no
election with respect to Taxes will be made without the
written consent of TSI;
(viii) Neither the Company nor any Subsidiary has at
any time taken any action that would cause (a) section 341(f)
of the Code (or any comparable provision of state, local or
foreign Law) to apply to the Company or any Subsidiary or to
any disposition of any asset owned by any of them, (b) section
280G of the Code to apply to any payment paid by the Company
or any Subsidiary or (c) the "safe harbor lease" provisions of
former section 168(f)(8) of the Code to apply to the Company
or any Subsidiary;
(ix) All Taxes that the Company or any Subsidiary is
required by Law to withhold or collect have been duly withheld
or collected, and have been timely paid over to the
appropriate governmental authorities to the extent due and
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payable;
(x) Except as set forth on Schedule 4.10, no power of attorney
is currently in effect, and no Tax ruling has been requested of any
governmental authority, with respect to any Tax matter relating to
the Company or any Subsidiary;
(xi) Except as set forth on Schedule 4.10, the Company has not
agreed to make, nor is it required to make, any adjustment under
section 481(a) of the Code by reason of a change in accounting
method or otherwise;
(xii) As of the Closing Date, the Company shall have collected
all applicable withholding and employer-related taxes and other
amounts, if any, due upon (A) the exercise of any option, warrant or
other right of any kind to acquire shares of Company Stock,
including, but not limited to, the exercise of options to purchase
Company Stock exercised after the date hereof and on or prior to the
Closing Date, or (B) the payment of the Per Share Merger Price for
such Company Stock in connection with the transactions contemplated
herein, and the Company shall have no other tax obligations of any
nature whatsoever with respect to the same; and
(xiii) No claim has ever been made by any authority in any
jurisdiction where any of the Company or its Subsidiaries does not
file Tax Returns that the Company or any Subsidiary is, or may be,
subject to taxation in such jurisdiction.
4.11 Compliance with Laws. Neither the Company nor any Subsidiary (i) is
in violation of any applicable order, judgment, injunction, award, decree or
writ (collectively, "Orders"), or, to each of their knowledge, any applicable
law, statute, code, ordinance, regulation
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or other requirement (collectively, "Laws"), of any government or political
subdivision thereof, whether Federal, state, county, local or foreign, or any
agency, commission or instrumentality of any such government or political
subdivision, or any court or arbitrator (collectively, "Governmental Bodies"),
(ii) the Company is not subject to, and shall not be subject to, any fines or
penalties for any present or past non-compliance, and (iii) to the Company's
knowledge, no such violation is being alleged. To the knowledge of the Company,
no investigation or review by any Governmental Body with respect to the Company
or any Subsidiary is pending or threatened and neither the Company nor any
Subsidiary has received any notice of any intention by any Governmental Body to
conduct the same. This Section 4.11 does not and is not intended to deal with
any environmental matters, and all representations and warranties regarding
environmental matters are contained exclusively in Section 4.32.
4.12 Permits. Each of the Company and the Subsidiaries has all
licenses, permits and authorizations of any Governmental Body that are necessary
for the conduct of the Business and for the use and occupancy of the Business at
each of the Leased Premises (collectively, "Permits"). All Permits are listed on
Schedule 4.12 and are in full force and effect. The Company and each of its
Subsidiaries is in compliance with the terms of the Permits and, to the
knowledge of the Company, no proceeding is pending or threatened to revoke,
suspend, modify or limit any Permit. No Permit will be subject to revocation,
suspension, modification or limitation as a result of this Agreement or the
consummation of the transactions contemplated hereby, and all Permits shall
remain valid and in effect, in accordance with their terms, after the Closing
Date. This Section 4.12 does not and is not intended to deal with any
environmental matters, and all representations and warranties regarding
environmental matters are contained
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exclusively in Section 4.32.
4.13 Claims and Proceedings. There are no outstanding Orders of any
Governmental Body against the Company, any of the Subsidiaries, the Business,
any of the Clubs, or any of the assets or properties of the Company or the
Subsidiaries. Except as set forth in the last sentence of this Section 4.13,
there are no actions, suits, disputes, claims or legal, administrative or
arbitral proceedings (collectively, "Claims") pending, or to the knowledge of
the Company, threatened, against the Company, any of the Subsidiaries, the
Business, any of the Clubs, or any of the assets or properties of the Company or
the Subsidiaries. To the knowledge of the Company, there is no fact, event or
circumstance that the Company expects to give rise to any Claim. During the past
five (5) years, there has not been any product liability or personal injury
Claims against the Company or any of the Subsidiaries for any product
manufactured at any time by the Company or any of the Subsidiaries. There are no
Claims pending or, to the knowledge of the Company, threatened that would give
rise to any right of indemnification on the part of any director or officer of
the Company or any of the Subsidiaries, or the heirs, executors or
administrators of such directors or officers, against the Company, any of the
Subsidiaries, or any successor. (i) The Company has received notice that a law
suit may be commenced by (A) ▇▇▇ ▇▇▇▇▇▇▇, an ex-employee, concerning alleged
libel and slander committed against ▇▇. ▇▇▇▇▇▇▇ by employees of the Company and
(B) ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, concerning refusal to allow children to use certain
weight room facilities at the Framingham Club, and (ii) acknowledges that a
member, Mr. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, recently died of a heart attack at the Wellesley
Club, and, because this accident has occurred so recently, does not yet know
whether the same may result in future litigation (collectively, the "Threatened
Litigation").
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4.14 Membership Contracts; Other Contracts. (a) The Company has
heretofore provided TSI with a complete and accurate list, dated April 30, 2000,
of all of the Present Membership Agreements (including all amendments,
modifications and extensions related thereto) of the Company and each of the
Subsidiaries for each of the Owned Clubs and the North Point Club (the
"Membership List"). The Membership List accurately lists the expiration date of
each Present Membership Agreement, and, to the Company's knowledge, all other
information therein is true, complete and correct. On the Closing Date, the
Company shall have delivered to TSI a revised complete and accurate list of all
of the Present Membership Agreements, dated not more than three (3) days prior
to the Closing Date (the "Revised Membership List"). Each Present Membership
Agreement is in full force and effect in accordance with its terms. As of April
30, 2000, the Company and the Subsidiaries have a total of (i) 11,170 active
monthly dues paying Present Members, (ii) 5,924 annual paid-in-full Present
Members with no guaranteed renewal rates, (iii) 1,097 interim Present Members,
and (iv) 4,195 seasonal paid-in-full Present Members. As of such date, there is
no more than $70,000.00 of membership dues and fees which is thirty (30) days or
more overdue. The total electronic fund transfers, credit card payments and
other monthly dues and freeze fees collected from the Present Members
(collectively, "Monthly Dues"), received by the Company and the Subsidiaries for
all dues billed as of April 1, 2000 totalled $719,754.00. Except as set forth on
Schedule 4.14(a), each of the following are true, complete and correct:
(i) Except for renewal rights of interim Present Members,
there are no renewal rights with respect to the Present Membership
Agreements which allow a Present Member to renew or otherwise
continue his or her membership at an
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advantageous or preferred rate (a "Preferred Renewal Provision");
(ii) There are no provisions in any Present Membership
Agreements which entitle any Present Member to free or discounted
personal services ("Personal Services"), including, without
limitation, spinning, baby-sitting, massage therapy, court time,
private training, swimming, outdoor summer programs, lockers,
laundry, tanning, nutrition counseling, or karate classes (each a
"Personal Services Discount");
(iii) There are no outstanding coupons or certificates for
Personal Services issued by the Company or any of the Subsidiaries,
which have been sold or otherwise provided to any individual
(exclusive of any such Personal Services provided for in the Present
Membership Agreements) and which would obligate the Company or any
Subsidiary to provide Personal Services to any individual after the
Closing Date;
(iv) There are no "special use" or "limited use" Present
Membership Agreements, including any membership which allows any
individual limited use of the facilities of the Clubs (including,
without limitation, memberships restricted to access for karate,
dance, or other classes, or for summer sessions) at a reduced price
or under preferential terms;
(v) There are no Present Membership Agreements subject to
special corporate, family, senior citizen, group or other special
rates;
(vi) There are no Present Membership Agreements which entitle
any Person to a free, discounted or complimentary membership;
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(b) Except as set forth in Schedule 4.14(a), each of the
following is true, complete and correct as of the date of this Agreement:
(i) Neither the Company nor any Subsidiary has any obligation,
whether written or verbal, to allow any Person, other than Present
Members, to use any of the Clubs;
(ii) There are no oral modifications with respect to any of
the Present Membership Agreements or oral agreements between the
Company or any Subsidiary and any Person which would entitle any
Person, other than a Present Member, to any right customarily held
by a Present Member;
(iii) As of the date hereof, all refund obligations with
respect to any and all Present Members or past members have been
paid in the ordinary course; and
(iv) within the last twelve (12) months, (i) no third party
has threatened to terminate or modify any Special Membership
Arrangement, or has threatened to cancel or otherwise terminate the
relationship of such third party with the Company or any Subsidiary,
(ii) the Company's revenues generated from any Special Membership
Arrangement (as defined in Section 4.14(c) below) have not decreased
materially.
(c) Schedule 4.14(c) lists all of the following Contracts to
which the Company or any the Subsidiaries is a party or by or to which the
Company or any the Subsidiaries, or any of their respective properties or
assets, may be bound or subject:
(i) employment agreements, severance agreements, consultant
agreements, management agreements (excluding the Club Management
Agreements),
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independent contractor agreements, agreements with any of the
officers or directors, trainers, coaches, counselors or private
service providers;
(ii) Contracts with suppliers, vendors, maintenance providers
and purchase order arrangements, in each case which obligate the
Company and/or any Subsidiary to make payments in excess of $5,000;
(iii) loan agreements, revolving credit agreements, line of
credit agreements, financing leases, mortgages, indentures,
promissory notes, guarantees, security agreements and any other
agreements evidencing indebtedness of the Company or any Subsidiary
or creating any Lien with respect to any property of the Company;
(iv) guarantees, including, but not limited to guarantees
relating to any of the Leases or the Club Management Agreements;
(v) installment sale Contracts;
(vi) non-competition Contracts restricting the Company from
competition, including any such provisions in any of the Leases;
(vii) equipment leases or equipment financing agreements;
(viii) acquisition or disposition Contracts other than in
the ordinary course of business, including, but not limited to,
asset purchase agreements, stock purchase agreements and merger
agreements entered into over the past three (3) years;
(ix) confidentiality and standstill Contracts;
(x) each of the Space Licenses (as defined in Section 4.23;
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(xi) Contracts to provide goods or services below cost;
(xii) Contracts entered into other than on an arm's-length
basis;
(xiii) all other Contracts outside the ordinary course of
business, or which either involve receipt or payment of more than
$5,000 or have a remaining term of more than twelve (12) months,
other than the Leases (as defined in Section 4.15);
(xiv) copies of each of the forms of membership agreement used
by the Company or any of the Subsidiaries with any Present Member;
(xv) agreements with corporations, HMOs, hospitals, and other
third parties with respect to special membership rates, privileges,
referrals, etc. for the use of the Business (collectively, "Special
Membership Arrangements"); and
(xvi) agreements with any third parties that allows any
individual, other than the Present Members, use of any of the Clubs
or any other service provided by the Company or any of the
Subsidiaries.
(d) As of the Closing Date, and to the extent that the Company
has the same, the Company shall have delivered to TSI the true and complete
originals of all Present Membership Agreements set forth on Schedule 4.14(a) and
originals of each of the written Contracts set forth on Schedule 4.14(c) or on
any other Schedule, and accurate written summaries of any oral Contracts set
forth on any Schedule. All of the Present Membership Agreements and Contracts
referred to in the preceding sentence are valid and binding upon the Company
and/or the Subsidiaries in accordance with their terms, and the Company has
received no written or verbal notice from any other third party that the same
are not valid and in full force and effect with respect to the other party(s)
thereto. The Company is not in material default, after all
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applicable grace periods, under any of such Contracts, nor, to the Company's
knowledge, does any condition exist that with notice or lapse of time or both
would constitute such a default thereunder. To the knowledge of the Company, no
other party to any such Contract is in default thereunder nor does any condition
exist that with notice or lapse of time or both would constitute such a default
thereunder.
(e) As of the Closing Date, the Company shall have terminated
each of the Terminated Contracts (as defined in Section 7.19) and neither the
Company nor any Subsidiary shall have any accrued or unaccrued obligations
thereunder.
4.15 Managed Clubs; Real Property; Leased Premises. (a) The Company
has heretofore delivered to TSI a true, correct and complete copy of each of the
Club Management Agreements (including all modifications, amendments, assignments
and supplements thereto). The Company has the right to manage and operate each
of the Managed Clubs in accordance with the applicable Club Management
Agreement. Each of the Club Management Agreements is valid, binding and is in
full force and effect with respect to the Company, and, the Company has, as of
the date hereof, received no written or verbal notice that any other party
thereto is in default. Any amounts of any nature whatsoever (if any) payable by
the Company, as manager, under the Club Management Agreements are current and
paid-in-full. To the Company's knowledge, the Company has complied with all of
the terms and conditions of the Club Management Agreements, and no termination
event or condition or uncured default exists under any of the Club Management
Agreements, and the Company has not received any notice of default which remains
uncured. The Company is not in default under any of the Club Management
Agreements and, to the Company's knowledge, no condition exists that with notice
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or the lapse of time or both would constitute a default thereunder. To the
knowledge of the Company, no owner of any of the Managed Clubs is in default
under any of the Club Management Agreements and no event has occurred and no
condition exists which, with the giving of notice or the lapse of time or both,
would constitute such a default or termination event or condition. None of the
owners of the Managed Clubs has indicated its intention to (i) terminate a Club
Management Agreement, or (ii) not renew a Club Management Agreement at the
expiration of its term. Exhibit C-1, with respect to the ▇▇▇▇ ▇▇▇▇ Club, and
Exhibit C-2, with respect to the North Point Club, sets forth the terms of each
of the consent agreements to be obtained from the owners of the ▇▇▇▇ ▇▇▇▇ Club
and the North Point Club, respectively. (collectively, the "Club Management
Consents").
(b) Neither the Company nor any Subsidiary owns any land,
buildings, structures, plants, facilities or other improvements, other than
leasehold improvements and fixtures. With respect to any real property owned by
the Company or any Subsidiary at any time over the past three (3) years, the
Company has heretofore delivered to TSI complete and correct copies of each and
every of the following, if any, in the possession of the Company or any
Subsidiary: (i) title reports, title binders, survey documents and data
affording information or opinions with respect to, certifying to, or evidencing
the extent, current title, title history, title marketability, use, possession,
restriction or regulation, if any (governmental or otherwise), and compliance
with Laws, of such real property; and (ii) deed or title-holding or trust
agreements, if any, under which any of the such real property may have been
conveyed to or from the Company or any Subsidiary.
(c) The only real property used or occupied by the Company or
any of the
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Subsidiaries in connection with the Business are the nine (9) Leased
Club Premises, and the one (1) Office Premises, used as the Company's office
headquarters (the Leased Club Premises and the Office Premises, collectively,
the "Leased Premises"). Neither the Company nor any Subsidiary is a party to any
other lease or sublease of real property.
(d) The Company has heretofore delivered to TSI a true,
correct and complete copy of each of the Club Leases (including all
modifications, amendments, assignments, letter agreements, side letters and
supplements thereto) and the Office Lease (including all modifications,
amendments, assignments, letter agreements, side letters and supplements
thereto) (the Club Leases and the Office Lease, collectively, the "Leases").
Each of the Leases is valid, binding and is in full force and effect with
respect to the Company or the applicable Subsidiary, and, to the knowledge of
the Company, with respect to any other parties thereto. All rent, additional
rent, taxes, percentage rents, utility charges, additional charges and other
sums and charges of any nature whatsoever payable by the Company, or the
applicable Subsidiary, as tenant, under the Leases are current and paid-in-full.
Each of the Company and Subsidiaries, as applicable, has complied with all of
the material terms and conditions of the Leases, and no termination event or
condition or uncured default exists under any of the Leases. Neither the
Company, nor any of the Subsidiaries, (i) is in default under any of the Leases,
or (ii) except for defaults which will be cured prior to the Closing, has
received notice of any default which remains uncured, and no condition exists
that with notice or the lapse of time or both would constitute a default
thereunder. To the knowledge of the Company, no landlord or sublandlord is in
default under any of the Leases and no event has occurred and no condition
exists which, with the giving of notice or the lapse of time or both, would
constitute such a
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default or termination event or condition. (I) Exhibit D-1 (the "New Lexington
Lease") and Exhibit D-2 (the "New Franklin Lease"), each attached hereto, set
forth the new lease to be entered into on the Closing Date between The Lexington
Club, Inc. and the Lexington Landlord, and The Franklin Athletic Club, Inc. and
the Franklin Landlord, respectively, and (II) Exhibit E-1 (Wellesley), Exhibit
E-2 (Colonial), Exhibit E-3 (Sky Club), Exhibit E-4 (Ferncroft), Exhibit E-5
(Royal Ridge), Exhibit E-6 (Framingham) and Exhibit E-7 (Andover), each attached
hereto, set forth the terms of each of the respective consents and amendments to
the respective remaining Club Leases (the "Club Lease Consents and Amendments").
On the Closing Date the existing leases with respect to the Lexington Club and
the Franklin Club shall have been validly terminated and be of no further force
or effect.
(e) Neither the Company nor any Subsidiary has mortgaged,
assigned, sublet or otherwise transferred or encumbered any of its interest
under any of the Leases. The Company's, or applicable Subsidiary's, leasehold
interest in each of the Leased Premises as of the Closing Date shall be free and
clear of all Liens.
(f) Except as disclosed on Schedule 4.15, (i) each of the
Leased Premises and all buildings, improvements, fixtures, building systems and
utility systems, including, but not limited to, pool and pool systems and tennis
courts are in good operating condition and repair, except for ordinary, routine
maintenance, (ii) there are no leaks with respect to any pools, steam rooms,
whirlpools, bathrooms, pipes, roofs, etc., and (iii) the Company has made all
required maintenance and repairs thereto.
(g) Neither the Company nor any Subsidiary has received any
notice, and has no knowledge of (i) any pending, threatened or contemplated,
appropriation, condemnation
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or like proceeding, relating to or affecting any of the Leased Premises or any
part thereof, (ii) any sale or other disposition of any of the Leased Premises
or any part thereof in lieu of condemnation, or (iii) the commencement of any
foreclosure action against any landlord under any of the Leases.
(h) Except for assessments occurring on an annual basis in
accordance with applicable Laws, to the knowledge of the Company, there is no
pending reassessment, or reassessment under consideration, of any parcel
included in the Leased Premises that may increase the real estate tax assessment
for such properties. Neither the Company nor any Subsidiary has received any
notice in connection therewith.
(i) Neither the Company nor any Subsidiary has received any
notices that any of the Leased Premises, any of the improvements thereon, or the
use thereof for purposes of the Business, fails to comply with any applicable
building, parking or zoning codes or laws, environmental laws, deed
restrictions, ordinances, insurance requirements, or other Law or Order; and to
the knowledge of the Company, no such violation exists.
(j) Neither the Company nor any Subsidiary has received any
notice that the buildings and other improvements of each parcel included in the
Leased Premises encroach on any easements or on any land not included within the
boundary lines of such Leased Premises or that neighboring improvements encroach
on such Leased Premises.
(k) The current uses of any parcel included in the Leased
Premises do not violate or conflict with the terms and provisions of any
contractual obligations of the Company or any of the Subsidiaries relating
thereto.
(l) The Company and the Subsidiaries are in peaceful and
undisturbed
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possession of the Leased Premises, and the Company, or the applicable
Subsidiary, has good and valid rights of ingress and egress to and from the
Leased Premises from and to the public street systems for all usual street, road
and utility purposes and other purposes necessary or incidental to the Business.
(m) There is a valid certificate of occupancy, which was
validly and properly obtained, in effect for each of the Leased Club Premises,
covering all of the buildings and improvements thereon, each permitting the
lawful operation of the Business as presently being conducted therein.
(n) There is a total of approximately $44,000.00 owed to the
Sky Club Landlord for approximately seven (7) years of past HVAC maintenance
charges, and no other past amounts are due to the Sky Club Landlord, and (ii)
the Company has received an estimate from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ indicating that the
total cost for the preparation of the Company's tax return for the stub period
from January 1, 2000 through the Closing Date will be approximately $10,000.00.
4.16 Unsecured Financing. The Company and the Subsidiaries have
unsecured financing in the total principal amount of Nine Hundred Sixty Thousand
Dollars ($960,000.00), in the form of promissory notes, bearing interest at the
rate of fifteen percent (15%) per annum, issued by the Company to each of the
individuals and in each of the amounts set forth on Schedule 4.16 (the
"Unsecured Financing"). All of the interest due to date has been paid, and will
be paid by the Company through the Closing Date, and the total amount due to
such individuals at Closing will be $960,000.00. Neither the Company nor any
Subsidiary maintains any other unsecured financing of any nature whatsoever.
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4.17 Receivables. Except as set forth on Schedule 4.17, all accounts
receivable of the Company and the Subsidiaries, whether reflected on the Interim
Balance Sheet or subsequently acquired, (i) have arisen from bona fide
transactions in the ordinary course of business of the Company and the
Subsidiaries, and (ii), subject only to a reserve for bad debts computed by the
Company on or before the Closing Date in a manner consistent with past practice
and reasonably estimated to reflect the probable results of collection, have
been collected or are collectible in the ordinary course of business of the
Company and the Subsidiaries in the aggregate recorded amounts thereof in
accordance with their terms. The Company has heretofore provided TSI with a true
and correct aged list of all accounts receivable of the Company as of the end of
April, 2000.
4.18 Tangible Property. (a) Schedule 4.18 sets forth, on a Club by
Club basis, all of the tangible physical assets of the Company and the
Subsidiaries, that do not constitute real property (including, but not limited
to, all exercise and fitness equipment, computer equipment, laundry equipment,
furniture, furnishings, leasehold improvements and fixtures), which have a value
in excess of $750.00.
(b) Except as set forth on Schedule 4.18, (i) all of the
equipment and other assets of the Company and the Subsidiaries is owned, free
and clear of any debt, financing payments, lease payments, or Liens, and (ii)
neither the Company nor any Subsidiary has entered into any contract or lease
with respect to any of the assets of the Company and the Subsidiaries,
including, but not limited to, the fitness equipment used by the Business, to
which the Company or any Subsidiary has any past, present or future financial or
other obligations, and (iii) all past lessors or lenders have provided the
Company or the applicable Subsidiary with UCC-3
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termination statements, or other lien terminations, necessary to terminate any
and all security interests in the assets of the Company and the Subsidiaries.
For purposes of this Agreement, "Equipment Financing" shall mean all of the
equipment leases and/or equipment financing in effect with respect to the
Company and/or any Subsidiary, except for the equipment leases for certain
laundry equipment which are accounted for on the Reference Balance Sheet as
operating expenses as opposed to debt (the "Operating Leases"). As of the date
hereof, the total amount necessary to pay all interest, principal, rent payments
and penalties due or to be due with respect to the Equipment Financing is Eight
Thousand Fifty Seven Dollars ($8,057.00). The total dollar amount that would be
necessary on the Closing Date to pay-in-full all amounts (past, present or
future) associated with the Equipment Financing shall he referred to herein as
the "Equipment Financing Amount".
(c) All of the assets, including, but not limited to, the
fitness equipment and other tangible physical assets of the Company and the
Subsidiaries which are material to any of the Club's businesses, are in good
operating condition and repair, normal wear, tear and repair excepted, in a
condition sufficient to conduct the Business as now being conducted, are being
used or are useful in the Business at its present level of activity, and have
been maintained in accordance with generally accepted industry practice. All
inventory of supplies and products sold by the Company and/or the Subsidiaries
are consistent with the Company's and each of the Subsidiary's normal operating
levels.
(d) Except as set forth on Schedule 4.18, during the past
three (3) years there has not been any material interruption of the operations
of any of the Clubs due to fires, casualties, inadequate maintenance or repair
of the assets, or for any other reason whatsoever.
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4.19 Intellectual Property. Neither the Company nor any Subsidiary
owns, licenses or uses any trademarks, trade names, service names, service
marks, patents or copyrights ("Intellectual Property") in connection with the
Business. Except for commercial software licenses, the Company is not a licensor
or licensee in respect of any Intellectual Property rights, does not pay any
royalty to or receive any royalty from any Person with respect thereto, or has
not granted any rights to or received any rights from any Person with respect
thereto. To the knowledge of the Company, no services currently provided or
products currently sold by or on behalf of the Company or any Subsidiary
infringes any patents, trademarks, service marks, copyrights, or any other
intellectual property rights of any Person, and no Claims have been made or, to
the knowledge of the Company, threatened, against the Company or any Subsidiary.
4.20 Title to Properties. Except for the Liens set forth on Schedule
4.20, the Company and each of the Subsidiaries has good and marketable title to,
or a valid leasehold interest in, all of its assets and properties, including,
without limitation, all of the assets and properties reflected on the Interim
Balance Sheet or thereafter acquired, in each case free and clear of any lien,
pledge, mortgage, security interest, claim, charge, encumbrance or other similar
restriction or limitation (collectively, "Liens"). As of the Closing Date, each
of the Liens set forth on Schedule 4.20, except for Liens (if any) relating
solely to the Operating Leases (as defined in Section 4.18(b)), shall be
terminated and released. Schedule 4.20 sets forth the amount of principal,
interest and penalties (if any) due with respect to each Lien and/or with
respect to any and all bank financing as of the date hereof (collectively, the
"Bank Debt"). As of the date hereof, the total Bank Debt (including all amounts
owed to Fleet) is (i) $944,628.00, representing general corporate business
purposes and (ii) approximately, $7,400,000.00
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representing other secured debt. Neither the Company nor any Subsidiary has
allowed the filing of any Liens under the name "Fitness Advantage Network" or
any other name, other than the actual name of the Company or of a Subsidiary.
4.21 Accounts Payable. The Company has heretofore provided TSI with
a true and correct aged list of all accounts payable of the Company and the
Subsidiaries as of the end of April, 2000. Except as set forth on Schedule 4.21
and/or in the ordinary course of business, no account payable of the Company or
any Subsidiary that has arisen subsequent to the end of the month prior to the
date hereof has exceeded $2,000 nor has the aggregate of such accounts payable
exceeded $10,000.00. Except for the Company Transaction Expenses (as set forth
in Section 6.3), neither the Company nor any Subsidiary has incurred, or will
incur, any expenses in connection with, or related to, the transactions
contemplated herein.
4.22 Contractors. Except as set forth on Schedule 4.22, all
contractors, sub-contractors, materialmen, suppliers, expediters, attorneys,
architects and other service providers (collectively, "Contractors"), providing
any services or labor on behalf of the Company or any of the Subsidiaries have
been paid-in-full for any and all work conducted to date, and no mechanic's or
materialmen's liens have been filed against the Company, any of the
Subsidiaries, any of the Clubs, any of the Leased Premises, or any of the assets
or the properties of the Business. No Contractor has the legal right to file, a
mechanic's or materialmen's lien against the Company, any of the Subsidiaries,
any of the Clubs, any of the Leased Premises, or any of the assets or the
properties of the Business.
4.23 Subleases; Space Licenses. Except as listed on Schedule 4.23,
neither the Company nor any Subsidiary has entered into any written or verbal
licenses, subleases, or other
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agreements which grant any third party the right to use all or any portion of
any of the Leased Premises (each a "Space License"). The Company has heretofore
delivered to TSI a true, correct and complete copy of each of the Space Licenses
(including all modifications, amendments and supplements thereto). Each of the
Space Licenses are in full force and effect and the "tenant" or "licensee" under
each Space License (each a "Sub-Licensee") has made all rent payments promptly
and in full, and no Sub-Licensee is presently in default under such applicable
Space License. Schedule 4.23 indicates that amount of security deposit deposited
with the Company, or the applicable Subsidiary, by each Sublicensee (each a
"Sub-Licensee Security Deposit") and the monthly rental rate under each Space
License. No Sub-Licensee Security Deposit has heretofore been used or applied
against rent by the Company or any Subsidiary.
4.24 Labor Relations. Neither the Company nor any Subsidiary is a
party to, or engaged in negotiating, any collective bargaining agreement.
Neither the Company nor any Subsidiary is the subject of any Claim which is
pending or, to the knowledge of the Company, threatened, asserting that the
Company or any Subsidiary has committed an unfair labor practice (within the
meaning of the National Labor Relations Act or applicable state statutes) or
seeking to compel the Company or any Subsidiary to bargain with any labor
organization as to wages and conditions of employment. No strike or other labor
dispute involving the Company or any Subsidiary is pending or, to the knowledge
of the Company, threatened, and there is no activity involving any employees of
the Company or any Subsidiary seeking to certify a collective bargaining unit or
engaging in any other organization activity.
4.25 ERISA Compliance; Absence of Changes in Benefit Plans. (a)
Schedule 4.25 contains a list of each "employee pension benefit plan" (as
defined in Section 3(2) of the
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Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(hereinafter a "Pension Plan"), "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA, hereinafter a "Welfare Plan"), stock option, stock
purchase, deferred compensation plan or arrangement, and other employee fringe
benefit plan or arrangement sponsored, maintained, contributed to (or required
to be contributed to) by the Company or any Subsidiary for the benefit of any
present or former officers, employees, directors or independent contractors of
the Company or any Subsidiary (all the foregoing being herein called "Benefit
Plans"). No other entity exists which together with the Company and the
Subsidiaries would be treated as a single employer under Section 414(b), (c),
(m) or (o) of the Code. The Company has made available to TSI true, complete and
correct copies of (1) each Benefit Plan (or, in the case of any unwritten
Benefit Plans, written descriptions thereof), (2) the three (3) most recent
annual reports on form 5500 filed with the Internal Revenue Service with respect
to each Benefit Plan (if any such report was required by applicable Law), (3)
the most recent summary plan description for each Benefit Plan for which such a
summary plan description is required by applicable Law or was otherwise provided
to plan participants, including all summaries of material modifications, if any,
as required by applicable law, for each summary plan description, and (4) each
trust agreement, insurance contract or other funding vehicle relating to any
Benefit Plan.
(b) Each Benefit Plan has been administered in accordance with
its terms. The Company, each Subsidiary and all the Benefit Plans are in
compliance with the applicable provisions of ERISA and the Code, as well as any
other applicable Laws of any jurisdiction. All forms, reports, returns and
similar documents with respect to the Benefit Plans required to be filed with
any Governmental Body or distributed to any Benefit Plan participant within the
past
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six years have been duly and timely filed or distributed, and all such forms,
reports, returns and similar documents were complete and correct. Neither the
Company nor any Subsidiary has received any notice of any investigation by any
Governmental Body or any other Claims (except claims for benefits payable in the
normal operation of the Benefit Plans) against or involving any Benefit Plan or
asserting any rights or claims to benefits under any Benefit Plan that could
give rise to any liability, and there are not any facts that could give rise to
any liability in the event of any such investigation or Claim.
(c) (1) All contributions to, and payments from, the Benefit
Plans that may have been required to be made in accordance with the terms of the
Benefit Plans have been timely made by the Company and payment of all insurance
premiums have been timely made and (2) neither the Company nor any Subsidiary
(A) is currently contributing to, and has not contributed in the past six (6)
years to, a Pension Plan subject to Section 302 of ERISA or Section 412 of the
Code or (B) is, or has ever been, required to contribute to a "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA).
(d) Any Pension Plan that is intended to be a "qualified" plan
within the meaning of Sections 401(a), et seq., of the Code, is the subject of a
valid and current determination letter from the Internal Revenue Service with
respect to conformance with Sections 401 and 501(a) of the Code, and the Company
has adopted all amendments and is in compliance with all applicable requirements
in order to rely on such determination letter for purposes of maintaining a plan
qualified under Sections 401 and 501(a) of the Code. The Company has delivered
to TSI a copy of the determination letter from the Internal Revenue Service
received with respect to any such Pension Plans. No amendment to any of the
Pension
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Plans within the past year could reasonably be expected to materially increase
the cost of any such Pension Plan. No event has occurred that could reasonably
be expected to subject any Pension Plan to tax under Section 511 of the Code.
(e) Except as disclosed on Schedule 4.25, (i) no "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA)
has occurred with respect to any Benefit Plan or related trust and (ii) neither
the Company, and Subsidiary, or any trustee, administrator or other fiduciary of
any Benefit Plan, or any agent of any of the foregoing has engaged in any
transaction or acted in a manner that could, or failed to act, so as to subject
the Company or any Subsidiary to any liability for breach of fiduciary duty
under ERISA or any other applicable Law.
(f) Schedule 4.25 sets forth a list of all severance policies
or arrangements applicable to the Company, any of the Subsidiaries, or any of
their employees. Except for the agreement to make the following severance
payments to certain employees: (i) six (6) months salary, bonuses, benefits and
employee's FICA, to each of the following employees: ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, (ii) six months consulting fees
plus all applicable bonuses to BSMC, and (iii) twelve (12) months salary,
bonuses, benefits and employee's FICA to ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (the total of which is
approximately $700,000.00 - the final total to be provided to TSI at Closing)
(collectively, the "Employee Change of Control Bonuses") neither the Company nor
any Subsidiary has any obligation under any severance plan, policy or
arrangement which would require severance pay, including but not limited to
salary, bonuses, benefits, and/or employee's FICA, to be paid to any employee of
the Company as a result of the transactions contemplated by this Agreement. The
total amount of
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the Employee Change of Control Bonuses multiplied by (1.00 - .4027 + .0145)
shall be deemed the "Adjusted Employee Change of Control Amount". After the
Closing, the Company (i.e. for TSI' benefit), not the Company Shareholders,
shall be entitled to the related tax deduction arising from the payment of the
Employee Change of Control Bonuses.
(g) Neither the Company nor any Subsidiary has acted in a
manner that could, or failed to act so as to, result in fines, penalties, taxes
or related charges under Section 502(c), (i) or (l) of ERISA or Chapter 43 of
Subtitle E of the Code.
(h) Each Welfare Plan listed on Schedule 4.25 may be amended
or terminated in accordance with its terms without liability to the Company or
any Subsidiary immediately after the Closing (other than liabilities payable by
the Company upon amendment or termination of such Welfare Plans in accordance
with the terms of such Welfare Plans). The Company and each of the Subsidiaries
complies with the applicable requirements of Section 4980B(f) of the Code with
respect to each Benefit Plan that is a group health plan, as such term is
defined in Section 5000(b)(1) of the Code.
(i) Except as disclosed in Schedule 4.25, no employee of the
Company or any Subsidiary will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any Benefit
Plan as a result of the transactions contemplated by this Agreement or in
connection with any event subsequent to the execution of this Agreement.
(j) There are no liabilities of the Company or any Subsidiary
for retiree health or life benefits as defined in Statement of Financial
Accounting Standards No. 106 or "post-employment benefits" as defined in
Statement of Financial Accounting Standards No. 112.
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(k) Neither the Company nor any Subsidiary has any employee
whose employment is outside the United States.
(l) Except as disclosed in Schedule 4.25, the Company and each
of the Subsidiaries has paid all salaries, benefits, bonuses, penalties,
employment taxes, unemployment insurance, and any and all other sums owed to, or
owed with respect to, its employees and consultants in the ordinary course of
business, and no such amounts are overdue.
(m) Except as disclosed in Schedule 4.25 or in another
Schedule to this Agreement, neither the Company nor any Subsidiary has entered
into any written or verbal agreements or letters which obligates the Company or
any Subsidiary to pay any set salary, bonus or benefits to any employees or
consultants.
4.26 Insurance. Schedule 4.26 sets forth a list of all policies or
binders of fire, liability, product liability, workmen's compensation, vehicular
and other insurance held by or on behalf of the Company or any Subsidiary
(specifying the policyholder, the amount of the coverage, the insurer, the type
of the coverage, the risks insured and any pending claims thereunder). Such
policies and binders are valid and binding in accordance with their terms and
are in full force and effect. Neither the Company nor any Subsidiary is in
default with respect to any provision contained in any such policy or binder or
has failed to give any notice or present any claim under any such policy or
binder in due and timely fashion or in the manner or detail required by the
policy or binder. There are no outstanding unpaid premiums or claims under any
such policy or binder and there are no provisions for retroactive or
retrospective premium adjustments under or in any such policy or binder. Neither
the Company nor any Subsidiary has received any notice of cancellation or
non-renewal of, or any disallowance of any material claim
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under, any such policy or binder. Schedule 4.26 also contains a true, accurate
and complete description of all outstanding bonds and other surety arrangements
issued or entered in connection with the business and operations of the Company
(including any bonds or surety arrangements entered into pursuant Massachusetts
and New Hampshire health club law).
4.27 Intentionally Omitted.
4.28 Directors, Officers and Employees. Schedule 4.28 sets forth (i)
the name and total 1999 Form W-2 compensation of each director and officer of
the Company and each Subsidiary, (ii) all wage and salary increases, bonuses and
increases in any other direct or indirect compensation received by each officer
or director (other than stock options) since January 1, 2000 and (iii) any
payments or commitments to pay any severance or termination pay to any officer,
director, employee, consultant, agent or other representative of the Company or
any Subsidiary. Except as disclosed on Schedule 4.28, none of the Company's or
Subsidiary's salaried employees has indicated to the Company, or the applicable
Subsidiary, that he or she will cancel or otherwise terminate such person's
relationship with the Company, or the applicable Subsidiary.
4.29 Operations of the Company and Subsidiaries. (a) Except as set
forth on Schedule 4.29, since the Reference Balance Sheet Date, the Company and
each of the Subsidiaries (i) has conducted its business only in the ordinary
course of business, and (ii) neither the Company, nor any Subsidiary, has:
(i) declared or paid any dividends or declared or made any
other distributions to its shareholders with respect to their
shares, or made any direct or indirect redemption, retirement,
purchase or other acquisition of any shares of its
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capital stock;
(ii) paid any bonuses to any employees, officers, directors or
consultants, except as set forth in the Reference Balance Sheet;
(iii) incurred any indebtedness or any other commitment in
excess of $10,000.00, or repaid any indebtedness above the minimum
scheduled payments of principal and interest due on such
indebtedness;
(iv) reduced its cash or short-term investments or their
equivalent, other than to meet cash needs arising in the ordinary
course of business, consistent with past practices;
(v) conducted any construction or material repairs at any of
the Clubs in excess of $5,000.00 per Club, or $20,000.00 in the
aggregate, except for repairs and construction at the Andover Club;
(vi) waived any material right under any Contract; (vii) made
any change in its accounting methods or
practices or made any change in depreciation or amortization
policies or rates adopted by it;
(viii) materially changed any of its business policies,
including, without limitation, advertising, investment, marketing,
pricing, purchasing, personnel, memberships, sales, services,
refunds or budget;
(ix) made any loan or advance to any of its directors,
officers, shareholders, employees, consultants, agents or other
representatives or Affiliates;
(x) sold, abandoned or made any other disposition of any of
its assets or properties or made any acquisition of all or any part
of the assets, properties,
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capital stock or business of any other Person;
(xi) terminated or failed to renew, or received any written
threat (that was not subsequently withdrawn) to terminate or fail to
renew, any Contract, Club Lease, or Club Management Agreement; or
(xii) except for (A) the exercise of options to purchase
Company Stock, as contemplated by Section 2.1.3, (B) the entering
into of a management and consulting agreement with Harvard
University to manage a fitness center owned by Harvard University
(which will nonetheless require the prior written approval of TSI),
and (C) the entering into an agreement with the owner of the North
Point Club in which the Company, a Subsidiary or an Affiliate
"purchases" the club and enters into a lease (as tenant) (which will
nonetheless require the prior written approval of TSI), engaged in
any other material transaction other than in the ordinary course of
business which TSI has not consented to in writing.
(b) As of the Closing Date, in connection with the payment to
the Company by certain Company Shareholders of the exercise price to purchase
shares of Company Stock (the "Exercise Proceeds"), the Company shall have
collected from such individuals all amounts necessary to pay all withholding and
other employer-related taxes arising either (i) from the exercise of such
options, or (ii) from the payment of the Per Share Merger Price for such shares
of Company Stock. Notwithstanding anything to the contrary in Section 4.29(a)
immediately above or elsewhere in this Agreement, the Company Shareholders shall
have the benefit of such Exercise Proceeds and may (for their benefit) use the
Exercise Proceeds for the repayment of any indebtedness of the Company,
including the Company Transaction Expenses,
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and the same shall not be deemed a breach of this representation; provided,
however, that the Company shall provide TSI with written notice and itemization
of such repayments.
4.30 Transaction with Affiliates. Except as set forth on Schedule
4.30, no executive officer, director or Affiliate of the Company or any
Subsidiary, no Company Shareholder, no relative or spouse (or relative of such
spouse) of any such officer, director or Affiliate or of a Company Shareholder
and no entity controlled by one or more of the foregoing has any cause of action
or other Claim whatsoever against, or owes any amount to, the Company or any
Subsidiary, except for claims in the ordinary course of business such as for
accrued vacation pay, accrued benefits under employee benefit plans, and similar
matters and Contracts existing on the date hereof.
4.31 Banks, Brokers and Proxies; Credit Cards. Schedule 4.31 sets
forth (i) the name of each bank, trust company, securities or other broker or
other financial institution with which the Company or any Subsidiary has an
account, credit line or safe deposit box or vault, or otherwise maintains
relations; (ii) the name of each Person authorized by the Company to draw
thereon or to have access to any safe deposit box or vault; (iii) the number of
each such account, safe deposit box or vault; and (iv) the names of all Persons
authorized by proxies, powers of attorney or other instruments to act on behalf
of the Company or any Subsidiary in matters concerning its business or affairs.
(b) ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ are the only individuals who hold, or are
entitled to use an American Express or other major credit card or charge card on
behalf of the Company.
4.32 Environmental Matters. (a) As used in this Agreement,
"Environmental
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Laws" means all local, state and federal Laws and Orders concerning pollution or
protection of the environment or the use, treatment, storage, generation,
transport, handling, release or threatened release, discharge, emission or
disposal of Hazardous Substances, including, but not limited to, the Hazardous
Materials Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the Toxic
Substances Control Act, the Clean Water Act and the Clean Air Act, regulations
or orders promulgated pursuant to such federal statutes, and any state or local
analogy of such federal statutes. As used in this Agreement, "Hazardous
Substances" means hazardous materials, contaminants, pollutants, oils, hazardous
wastes and hazardous substances, as those terms are defined in any Environmental
Law.
(b) Except as may be disclosed on Schedule 4.32, and to the
Company's knowledge (i) neither the conduct nor operation of the Company or any
Subsidiary nor any condition of any property presently or previously owned,
leased, used or operated by the Company or any Subsidiary violates or violated
Environmental Laws; (ii) no condition or event has occurred with respect to the
Company or any Subsidiary, or any such property that, with notice or the passage
of time, or both, would constitute a violation of Environmental Laws or obligate
(or potentially obligate) the Company or any Subsidiary to remedy, stabilize,
neutralize, clean up or otherwise alter the environmental condition of any such
property; (iii) neither the Company nor any Subsidiary has received any notice
from any Person, regulatory authority or other entity to the effect that the
Company or any Subsidiary, or the operation or condition of any property ever
leased or operated by the Company or any Subsidiary are or were in violation of
any Environmental Laws or that the Company or any Subsidiary (or any former
subsidiary or
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Affiliate) is responsible (or potentially responsible) for any remedial action
or removal action with respect to, or the clean up of, any Hazardous Substances
at, on or beneath any property; (iv) the Company and each Subsidiary has
obtained and is in compliance with all material portions of all Permits required
by applicable Environmental Laws; and (v) there is no friable asbestos at, on,
about, under or within any of the Leased Premises. The Company has delivered to
TSI correct and complete copies of all environmental reports and environmental
audits in the Company's possession.
4.33 Brokers. Except for ▇▇▇▇▇▇▇ & Company (the "Broker"), whose
fees and expenses (the "Broker Fee") will be borne by the Company Shareholders,
no broker, investment banker, financial advisor or other Person is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
4.34 Full Disclosure. (a) All documents, Contracts, instruments,
certificates, notices, consents, affidavits, letters, statements, and any other
papers of the Company or any Subsidiary delivered by or on behalf of the Company
or any Subsidiary in connection with this Agreement and the transactions
contemplated hereby are true, complete and authentic in all material respects.
Neither this Agreement nor the Company Shareholder Agreement, nor any exhibit,
schedule or certificate made or delivered in connection herewith or therewith,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
(b) The material distributed by the Company to the Company
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Shareholders relating to the meeting of the Company Shareholders held in
connection with the Merger including, without limitation, the president's
letter, the notice to shareholders and the proxy statement, at the time of the
meeting of the Company Shareholders held in connection with the Merger taken as
a whole together with the oral and written information presented to the Company
Shareholders at any shareholders meeting held with respect to the Merger, does
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
5. Representations and Warranties of TSI and TSI Sub. TSI and TSI Sub,
jointly and severally, represent and warrant to the Company as of the date of
this Agreement and as of the Closing Date as follows:
5.1 Due Organization and Authority. Each of TSI and TSI Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, and has all requisite corporate power
and authority to own, lease and operate its assets and properties and to carry
on its business as now being and as heretofore conducted.
5.2 Authority to Execute and Perform Agreement. Each of TSI and TSI
Sub has the corporate power and authority required to execute and deliver this
Agreement and to perform fully its obligations hereunder. This Agreement has
been duly executed and delivered by TSI and TSI Sub and (assuming the due
authorization, execution and delivery hereof by the Company) is a valid and
binding obligation of TSI and TSI Sub enforceable in accordance with its terms.
The execution and delivery by TSI and TSI Sub of this Agreement, the
consummation of the
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transactions contemplated hereby and the performance by TSI and TSI Sub of this
Agreement in accordance with its terms will not (a) except for the filing
required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, require the approval, consent or
action of, or the making of any filing with or the giving of any notice to, any
Governmental Body or any other Person, other than (i) the approval by the Board
of Directors of each of TSI Sub and TSI and the approval by TSI as the sole
shareholder of TSI Sub, both of which have been obtained and (ii) the filing of
the Articles of Merger with the Office of the State Secretary of the
Commonwealth of Massachusetts; (b) conflict with or result in any breach or
violation of any of the terms and conditions of, or constitute (or with notice
or lapse of time or both would constitute) a default under, the Certificate of
Incorporation or By-laws of TSI or the Articles of Organization or By-laws of
TSI Sub, any Law or Order of any Governmental Body applicable to TSI or TSI Sub,
or any Contract to which TSI or TSI Sub is a party or by or to which TSI or TSI
Sub or any of their respective properties is bound or subject; or (c) result in
the creation of any Lien on any of the properties of TSI or TSI Sub.
5.3 Interim Operations of TSI Sub. TSI Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
6. Covenants and Agreements.
6.1 Conduct of Business. From the date hereof through the Closing
Date, the Company agrees that it will (i) conduct its business, and each of the
Subsidiaries shall conduct its business, solely in the ordinary course,
substantially and materially in the same manner as heretofore conducted and so
that the representations and warranties contained in Article 4 shall continue to
be true and correct on and as of the Closing Date as if made on and as of the
Closing
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Date, and, without the prior written consent of TSI, not to undertake any of the
actions specified in Section 4.29; and (ii) to use commercially reasonable
efforts to preserve intact their current business organizations, keep available
the services of their current officers, employees and consultants and preserve
their relationships with Present Members, new members, landlords, Sub-Licensees
and other Persons having business dealings with them. The Company shall give TSI
notice, as soon as practicable and in any event prior to the Closing Date, of
any event, condition or circumstance occurring from the date hereof through the
Closing Date that would constitute a violation or breach of any representation
or warranty, whether made as of the date hereof or as of the Closing Date, or
that would constitute a violation or breach of any covenant of the Company
contained in this Agreement.
6.2 Publicity. Each of the parties hereto agrees that, except as
required by applicable Law or court process, no publicity release to the general
public or announcement concerning this Agreement or the transactions
contemplated hereby shall be made by any party or any director or officer, or to
the extent under such party's control, any employee, agent, shareholder or other
representative of such party, without advance written approval thereof by the
other party.
6.3 Expenses. TSI shall bear its expenses incurred in connection
with the preparation, negotiation, execution and performance of this Agreement
and the transactions contemplated hereby, including, without limitation, all
fees and expenses of agents, representatives, counsel and accountants. The
Company Shareholders shall bear all of the expenses incurred, or to be incurred,
in connection with the preparation, negotiation, execution and performance of
this Agreement and the transactions contemplated hereby, including, without
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limitation, (i) all fees and expenses of agents, representatives, counsel and
accountants of the Company, (ii) any prepayment expenses incurred in the
paying-off or modification of the Bank Debt, the Unsecured Debt, the Equipment
Financing or other closing costs or expenses of any nature whatsoever incurred
in performing the transactions contemplated herein, (iii) all fees and expenses
incurred in the transfer of any real property from the Company or any
Subsidiary, including, but not limited to, all transfer taxes, legal fees,
recording fees, bank fees, etc., (iv) the Broker Fee, and (v) the agreed upon
parking lot improvement and repair amount with respect to the Lexington Club, in
the amount of $18,500.00, which shall be paid to the Company (on behalf of TSI)
(all such fees and expenses listed in (i), (ii), (iii), (iv) and (v)
collectively, the "Company Transaction Expenses"), provided that any costs and
expenses incurred by any Company Shareholder individually (including, without
limitation, the cost of any such Company Shareholder retaining separate legal
counsel or other advisors) shall be borne by each such Company Shareholder and
shall not be paid by the Company Shareholders as a group. The Parties agree that
at Closing: upon TSI paying the Closing Date Payment to the Delivery Agent and
the Escrow Amounts to the Escrow Agent, (i) the Delivery Agent shall immediately
pay all Bank Debt, all Unsecured Debt, all Equipment Financing, the Adjusted
Employee Change of Control Amount, and all Company Transaction Expenses to the
appropriate parties, and (ii) the Delivery Agent shall pay the Aggregate Merger
Price to the Company Shareholders in accordance with the terms of this
Agreement. Notwithstanding anything to the contrary in this Agreement, TSI
agrees that the following amounts shall not be paid by the Company Shareholders,
and shall remain the responsibility of the Company (i.e. TSI) after the Closing
Date: (i) the $44,000 owed to the Sky Club Landlord for approximately seven (7)
years of past
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water charges, (ii) the Company's HSR Payment, and (iii) the fee to be incurred
for the preparation of the Company's tax return for the stub period from January
1, 2000 through the Closing Date.
6.4 Nonsolicitation. (a) From the date hereof through the actual
Closing Date or termination of this Agreement, neither the Company, nor any
Subsidiary (nor any of their respective directors, officers, employees, agents
or Affiliates), shall (i) solicit or initiate the submission of any Competing
Proposal (as defined below) or (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Competing Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
director, officer, employee, agent or Affiliate of the Company, any Subsidiary,
or investment banker, attorney or other advisor or representative of the
Company, whether or not such Person is purporting to act on behalf of such party
or otherwise, shall be deemed to be a breach of this Section 6.4 by such party.
"Competing Proposal" shall mean any proposal for a transaction or a series of
related translations to acquire, in any manner, any equity interest in, or
voting securities of, or a substantial portion of assets of, the Company or any
Subsidiary, or to merge or engage in other business combinations involving the
Company or any Subsidiary, other than the transactions contemplated by this
Agreement.
(b) The Company agrees promptly to advise TSI in reasonable
detail of any proposal or any inquiry received after the execution and delivery
of this Agreement with respect to any Competing Proposal and the identity of the
Person making any such proposal or
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inquiry. Without limiting any other obligation of the parties under this Section
6.4, each such party will keep TSI reasonably informed of the status and details
of any such proposal or inquiry.
6.5 Contracts and Litigation. From the date hereof through the
Closing Date, the Company shall promptly notify TSI of any significant
development in any pending Claim, if any, (or new Claim) or business matter
involving the Company or any Subsidiary. If the Company proposes to (i) enter
into a settlement on or prior to the Closing Date with respect to any such
pending Claim, or (ii) enter into, terminate, amend or modify any Contract, or
(iii) enter into any material business transaction, the Company shall first
notify TSI of the terms of such proposed action and obtain the prior written
consent of TSI with regard to such terms.
6.6 Further Assurances. Each of the parties shall execute such
documents and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby. Each such party shall use its commercially reasonable efforts to fulfill
or obtain the fulfillment of the conditions to the Closing set forth in Articles
7 and 8.
6.7 Termination of Stock Options. Except as set forth in Section
2.2.2(c) with respect to the Executive Group, prior to the Closing Date, all
outstanding stock options, subscriptions, rights or any other right to acquire
an equity interest in the Company pursuant to the Company's stock incentive
plans, or otherwise, shall be terminated and from and after the Closing Date
shall be of no further force or effect as against TSI, the Surviving
Corporation, any Subsidiary, or any of their Affiliates.
6.8 Employee Benefits. (a) Retirement Plans. TSI shall, with respect
to each person who remains an employee of the Surviving Corporation following
the Closing Date (each
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a "Continued Employee"), provide benefits in accordance with this Section 6.8.
Effective as of the Closing Date, TSI shall assume the sponsorship of the Health
Development Corporation 401(k) Plan (the "Company 401(k) Plan"). The Continued
Employees shall continue to be eligible to make elective deferrals under the
Company 401(k) Plan through no later than December 31, 2001. Effective
immediately following the cessation of elective deferrals to the Company 401(k)
Plan, each Continued Employee shall be eligible to participate in the defined
contribution plan (the "TSI Defined Contribution Plan") available to similarly
situated employees of TSI. TSI shall cause the TSI Defined Contribution Plan to
count for purposes of eligibility and vesting, but not benefit accrual, all
services of the Continued Employees that was counted for such purposes under the
Company 401(k) Plan.
(b) Welfare Plans. Until such time as described below in this
Section 6.8(b), TSI shall continue to maintain, on and after the Closing Date,
the medical, dental, AD&D, long-term disability, and Section 125 and other
welfare benefit plans covering the Continued Employees immediately prior to the
Closing Date. Effective on or before January 1, 2001, TSI shall cause each
Continued Employee to be eligible to be covered by the welfare benefit plans of
TSI (the "TSI Welfare Plans") that are available to similarly situated employees
of TSI, provided that each such Continued Employee is an active and eligible
employee of the Company (or TSI, or any other TSI Affiliate). TSI shall cause
the TSI Welfare Plans to waive any applicable pre-existing condition
requirements and waiting periods with respect to each Continued Employee,
provided that such Continued Employee is an active and eligible employee of the
Company (or TSI, or any TSI Affiliate).
(c) Other Employee Benefits. Effective on or before January 1,
2001,
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each Continued Employee shall be eligible to participate in the bonus, stock
incentive and other compensatory and fringe benefit plans of TSI (if any)
available to similarly situated employees of TSI, provided that such Continued
Employee is an active and eligible employee of the Company (or TSI, or any TSI
Affiliate). TSI shall recognize such Continued Employees' service with the
Company prior to the Closing Date for purposes of eligibility only.
6.9 Termination of Existing Lexington Lease and Franklin Lease.
Prior to the Closing Date, the Company shall take all actions reasonably
necessary to terminate, and satisfy-in-full, the existing leases with respect to
each of the Lexington Club and the Franklin Club.
6.10 Lease Consents and Amendments; Club Management Consents; New
Leases; SNDAs. (a) From the date hereof through the actual Closing Date, the
Company and TSI, as applicable, shall each diligently pursue each of the
following:
(i) negotiate and obtain valid and enforceable executed
originals of each of the Club Lease Consents and Amendments from the
applicable landlords, each substantially and materially in the form
of Exhibits E-1, E-2, E-3, E-4, E-5, E-6 and E-7;
(ii) negotiate and obtain valid and enforceable executed
originals of each of the Club Management Consents from the
applicable owners, each substantially and materially in the form of
Exhibit C-1 and Exhibit C-2; provided, however, that in the event
that the Company and the owner of the North Point Club enter into an
agreement in which the Company, one of the Subsidiaries or an
Affiliate, "purchase" the North Point Club and enter into a lease
agreement with respect to the same, the Club Management Consent for
the North Point Club shall not be
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necessary;
(iii) the Company shall direct the Lexington Landlord and the
Franklin Landlord to execute valid and enforceable originals of the
New Lexington Lease and the New Franklin Lease, each substantially
and materially in the form of Exhibit D-1 and Exhibit D-2; and
(iv) negotiate and obtain a subordination, non-disturbance and
attornment agreement (each a "SNDA") from each of the lenders, in
such lenders' standard form, with respect to the Lexington Club and
the Franklin Club; and
(v) negotiate and obtain a SNDA from each of the lenders for
each of the Andover Club, the Colonial Club and the Ferncroft Club.
(b) The parties shall keep each other apprised of any changes
requested by the landlords or owners in the form of the proposed consents and/or
amendments and all such changes must be reasonably acceptable to TSI.
(c) In the event that TSI, in its sole and exclusive
discretion decides to waive the obligation of the Company to obtain any of the
Club Lease Consents and Modification Agreements (as set forth in Section
6.10(a)(i) above and in Section 7.11 below), the Company shall use it best
efforts to obtain and deliver to TSI a certificate from each such landlord (each
a "Landlord Certificate"), dated not earlier than June 1, 2000, certifying (i)
that such Lease is in good standing and full force and effect in accordance with
its terms and has not been modified (except for the modifications set forth
therein); (ii) the date(s) to which rent and other charges thereunder have been
paid; (iii) that there is no default thereunder by either party thereto; and
(iv) that all work required to be done under such Lease on the part of tenant
has been completed
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to the satisfaction of landlord.
(d) From the date hereof through the Closing Date, the Company
shall use its best efforts to obtain from each of the Sub-Licensees an estoppel
certificate, substantially and materially in the form of Exhibit F (each a
"Sub-Licensee Estoppel"). From the date hereof through the actual Closing Date,
neither the Company nor any Subsidiary shall amend, renew, extend, assign or
otherwise modify in any manner whatsoever any Space License.
6.11 Termination of all Liens and Payment of all Bank Debt and
Unsecured Financing. From the date hereof through the Closing Date, the Company
shall prepare all documentation and shall take all actions necessary to
terminate the Bank Debt and the Unsecured Financing on the Closing Date, and the
Company shall use its best efforts to provide to TSI all necessary or relevant
information concerning the same. The Company shall inform TSI of the actual
amount of all such debt and related fees, and shall provide TSI with copies of
all necessary documents to be used by the Company to terminate such debt on the
Closing Date.
6.12 Access for Due Diligence Investigation. From the date hereof
through the Closing Date, the Company shall provide TSI and its employees,
consultants, advisors, accountants, attorneys, contractors and agents reasonable
access to all of its, and its Subsidiaries', books, records, assets, properties,
financial information, Leased Premises, etc. in order to allow TSI to complete,
in its sole and exclusive discretion, its accounting, legal, engineering,
financial, membership, and other due diligence investigation of the Company and
the Subsidiaries (the "Due Diligence Investigation").
6.13 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Compliance. The Company and TSI shall each
use diligent efforts to (i) jointly prepare and file the Notification and Report
Form, necessary exhibits
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thereto, and all other information required in order to comply with the HSR Act,
and (ii) obtain all other Required Consents.
6.14 March 31, 2000 Financials. The Company shall prepare the
balance sheet of the Company (and the Subsidiaries) as of March 31, 2000, and
the related statements of income, retained earnings and cash flows for the three
months then ended, which will (i) be reviewed by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, (ii) be
delivered to TSI prior to the Closing Date, and (iii) shall be complete and
correct and present fairly the financial position of the Company (and the
Subsidiaries) as at such date and the results of operations and cash flows of
the Company for the three months then ended, in each case in conformity with
GAAP applied on a basis consistent with that of the Audited Financials except
for normal year-end adjustments and the lack of footnotes and other presentation
items. (The foregoing unaudited financial statements of the Company as of March
31, 2000 and for the three months then ended are sometimes herein called the
"March 31, 2000 Financials".)
7. Conditions Precedent to the Obligation of TSI and TSI Sub to Close. The
obligation of TSI and TSI Sub to enter into and complete the Merger is subject,
at the option of TSI and TSI Sub acting in accordance with the provisions of
Section 10 with respect to termination of this Agreement, to the fulfillment on
or prior to the Closing Date of the following conditions, any one or more of
which may be waived by TSI, in its sole and exclusive discretion:
7.1 Representations and Covenants. (a) The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date. The Company shall have
performed and complied in all material respects with all
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covenants and agreements required by this Agreement to be performed or complied
with by the Company on or prior to the Closing Date. The Company shall have
delivered to TSI and TSI Sub a certificate, dated the date of the Closing and
signed by an officer of the Company, to the foregoing effect.
(b) The representations and warranties of each of the Company
Shareholders contained in the Company Shareholder Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date. Each of the
Company Shareholders shall have performed and complied in all material respects
with all covenants and agreements required by the Company Shareholder Agreement
to be performed or complied with by each such Company Shareholder on or prior to
the Closing Date.
7.2 Consents and Approvals. The Required Consents, including, but
not limited to consent (expiration of waiting period) under the HSR Act, shall
have been obtained and be in full force and effect, and TSI shall have been
furnished with evidence reasonably satisfactory to it of the granting of such
Required Consents. The Company shall have agreed (in accordance with Section
2.1.3) to reimburse TSI, and shall have reimbursed TSI for one-half of all
expenses, including one-half of special HSR counsel fees, incurred in connection
with complying with the HSR Act (the "Company's HSR Payment").
7.3 Opinions of Counsel. TSI shall have received the opinion of
▇▇▇▇▇ and ▇▇▇▇▇▇ LLP, counsel to the Company, dated as of the Closing Date,
addressed to TSI, in the form of Exhibit G attached hereto.
7.4 No Litigation. There shall not be pending or threatened any
Claim (a) by any
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Person that has a reasonable likelihood of success or which, if successful,
reasonably could be expected to have resulted in a material adverse effect on
the properties, assets, business, results of operations, condition (financial or
otherwise) or prospects of the Company or any of the Subsidiaries (a "Material
Adverse Effect") or (b) by any Governmental Body (i) challenging the Merger or
any of the other transactions contemplated by this Agreement or seeking to
obtain from TSI or TSI Sub any damages in relation to the Company, (ii) seeking
to prohibit or limit the ownership or operation by TSI of the business or assets
of, or to compel TSI to dispose of or hold separate any portion of, the business
or assets of the Company, as a result of the transactions contemplated by this
Agreement, (iii) seeking to impose limitations on the ability of TSI to acquire
or hold, or to exercise full rights of ownership of, the Company or any shares
of Company Stock, (iv) seeking to prohibit TSI from effectively controlling the
business or operations of the Company or (v) which otherwise is reasonably
likely to have a Material Adverse Effect.
7.5 Non-Competition Agreements. Each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall have executed and
delivered to the Surviving Corporation a Non-Competition Agreement substantially
and materially in the form of Exhibit H attached hereto.
7.6 Employment Agreements and Consulting Agreement. (i) Each of the
members of the Executive Group shall have executed and delivered to the
Surviving Corporation an Employment Agreement, substantially and materially in
the form of Exhibit I-1 attached hereto, and (ii) BSMC shall have executed and
delivered to the Surviving Corporation a Consulting Agreement, substantially and
materially in the form of Exhibit I-2 attached hereto.
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7.7 Company Shareholder Agreement. Company Shareholders owning at
least ninety percent (90%) of the issued and outstanding shares of Company Stock
shall have executed and delivered to TSI the Company Shareholder Agreement in
the form attached hereto as Exhibit J.
7.8 Share Certificates. At the Closing, each of the Company
Shareholders who has executed the Company Shareholder Agreement shall have
delivered to TSI the share certificates representing his or her shares of the
Company Common Stock.
7.9 Satisfaction with Due Diligence Investigation. TSI, in its sole
and exclusive discretion, shall be satisfied with the results of its Due
Diligence Investigation.
7.10 Termination of Existing Franklin Lease and Lexington Lease. The
Franklin Landlord and the Lexington Landlord shall terminate the existing
Franklin lease and Lexington lease, and thereafter the same shall be of no
further force or effect.
7.11 Execution of all Lease Modifications, Management Modifications,
New Leases and other Consents. (a) On the Closing Date each of the following
agreements, modifications, amendments, consents or certificates shall have been
executed by the Company and/or the applicable Subsidiary and the applicable
landlord or other third party (as appropriate) and delivered to TSI:
(i) each of the Club Lease Consents and Amendments
(substantially and materially in the form of Exhibits E-1, E-2, E-3,
E-4, E-5, E-6 and E-7, respectively) (except, as provided in Section
2.2.2(b), for the Wellesley Lease Amendment), or, in the event that
TSI, in its sole and exclusive discretion decides to waive the
obligation of the Company to obtain any of the Club Lease Consents
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and Modification Agreements, the Company shall obtain and deliver to
TSI a Landlord Certificate from each applicable landlord;
(ii) each of the Club Management Consents (substantially and
materially in the form of Exhibit C-1 and Exhibit C-2); provided,
however, that in the event that the Company and the owner of the
North Point Club enter into an agreement in which the Company, one
of the Subsidiaries or an Affiliate "purchase" the North Point Club
and enter into a lease agreement with respect to the same, the Club
Management Consent for the North Point Club shall not be necessary;
(iii) each of the New Lexington Lease and the New Franklin
Lease (substantially and materially in the form of Exhibit D-1 and
Exhibit D-2) shall have been executed by each of the applicable
Subsidiaries and the Lexington Landlord and the Franklin Landlord,
respectively;
(iv) an SNDA from each of the lenders (in such lenders'
standard form), with respect to the Lexington Club and the Franklin
Club; and
(v) a Sub-Licensee Estoppel from each Space Licensee
(substantially and materially in the form of Exhibit F).
7.12 Proof of Amount of Certain Debt and Payment of Debts. As of the
Closing Date, (a) the Company or the Company Shareholders, through the Delivery
Agent, shall have paid, and shall have provided proof, reasonably satisfactory
to TSI, of the payment of each of (i) the Bank Debt (as defined in Section 4.20)
to Fleet, (ii) the Unsecured Financing (as defined in Section 4.16) to the
appropriate third parties, (iii) the Adjusted Employee Change of Control Amount
(as defined in Section 4.25(f)) to the Company (for TSI's benefit), and (iv) the
Company
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Transaction Expenses (as defined in Section 6.3) to the appropriate third
parties, (b) the Company shall have agreed that all such amounts shall be
subtracted from the Closing Date Payment in accordance with Section 2.1.3, (c)
the Company shall have terminated and extinguished all of the Liens (excluding
Liens (i) with respect to the Operating Leases or (ii) filed by the Babson
Recreation Center, Inc. provided for in the lease for the Wellesley Club), and
shall have filed all necessary UCC-3 termination statements or other termination
agreements), and (d) all other documents and certificates reasonably necessary
to terminate (in TSI's reasonable discretion) any and all claims of any third
parties with respect to the Bank Debt, the Unsecured Financing, the Employee
Change of Control Bonus obligations and the Company Transaction Expenses
obligations shall have been executed and delivered to TSI.
7.13 Shareholder Approval. (i) The Company shall have obtained the
approval of the holders of the outstanding shares of Company Stock (A) with
respect to the Merger, as contemplated by Section 4.2, and (B) with respect to
the accelerated vesting of all Company Options in connection with the Merger,
and shall have delivered reasonably satisfactory proof of the same to TSI, and
(ii) all holders of options listed on Schedule 2.1.3 shall have exercised in
full their options listed on such Schedule 2.1.3.
7.14 Good Standing Certificates. The Company shall have provided TSI
with good standing certificates, dated no earlier than thirty (30) days prior to
the Closing, of the Company and each of the Subsidiaries, indicating that such
corporations are, according to the applicable State's records, in "good
standing" with such State.
7.15 Resignations and Bank Accounts. Each of the directors, and
officers (to be indicated by TSI), of the Company shall have provided to TSI a
written resignation from such
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office, and each of the directors shall have provided written notice to Fleet
to, as of the Closing Date, immediately remove their names as signatories from
any and all bank accounts of the Company and the Subsidiaries.
7.16 Variances. All variances necessary for the use and occupancy of
the Andover Club and the Lexington Club in the manner presently being utilized
shall remain in full force and effect as of the Closing Date.
7.17 Delivery of Revised Membership List. On the Closing Date, the
Company shall have delivered to TSI the Revised Membership List (as defined in
Section 4.14(a)).
7.18 Delivery of Certificate of Tax Good Standing. On the Closing
Date, the Company shall have delivered to TSI (i) a Certificate of Tax Good
Standing, with respect to the Company and the Subsidiaries, from the Department
of Revenue of the Commonwealth of Massachusetts, and (ii) with respect to Hotel
Clubs, Incorporated (the Royal Ridge Club), the equivalent from the State of New
Hampshire, in each case, in a form reasonably satisfactory to TSI.
7.19 Termination of Certain Contracts. On or prior to the Closing
Date, the Company, or the applicable Subsidiary, shall have effectively
terminated each of the Contracts set forth on Schedule 7.19 (the "Terminated
Contracts"), and neither the Company nor any Subsidiary shall have any accrued
or unaccrued obligations thereunder.
7.20 Certificate of Occupancy. On or prior to the Closing Date, the
Company shall deliver to TSI a final certificate of occupancy, or the equivalent
thereof, for the entire demised premises of the Colonial Club.
7.21 Proof of Collection of Withholding and Other Employer-Related
Taxes. On
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or prior to the Closing Date, the Company shall provide proof, reasonably
satisfactory to TSI, that the Company, in connection with Section 4.29(b), has
collected, and either (i) paid to the applicable Governmental Body, or (ii) held
in reserve, all amounts necessary to pay all withholding and other
employer-related taxes arising from either (A) the exercise of such options, or
(B) the payment of the Per Share Merger Price for such shares of Company Stock.
7.22 Intentionally Omitted.
7.23 March 31, 2000 Financials. On or prior to the Closing Date, the
Company shall have delivered to March 31, 2000 Financials, reviewed by ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, in a form reasonably satisfactory to TSI.
7.24 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Permission. On or prior to the Closing Date,
the Company shall have delivered to TSI written permission from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
allowing TSI to include the audited financial statements for the years ended
December 31, 1998 and 1999 in TSI's Form 8K.
Notwithstanding anything to the contrary in this Section 7, TSI hereby agrees to
provide the Company (or the counsel of the Company as indicated herein) with
written notice, five (5) days prior the Closing Date (the "Determination Date"),
of whether or not the Conditions Precedent set forth in Sections 7.9, 7.11(a)(i)
and 7.11(a)(ii), (i) will be waived by TSI at Closing, (ii) have been satisfied
as of such date, or (ii) will not be waived by TSI at Closing. In the event that
TSI does not deliver such written notice to the Company on or before the
Determination Date, it shall be conclusively construed as a waiver by TSI of
such Conditions Precedent.
8. Conditions Precedent to the Obligation of the Company to Close. The
obligation of the Company to enter into and complete the Merger is subject, at
the option of the Company
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acting in accordance with the provisions of Section 10 with respect to
termination of this Agreement, to the fulfillment on or prior to the Closing
Date of the following conditions, any one or more of which may be waived by the
Company, in it sole and absolute discretion:
8.1 Representations and Covenants. The representations and
warranties of TSI and TSI Sub contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date. TSI and TSI Sub
shall have performed and complied in all material respects with all covenants
and agreements required by this Agreement to be performed or complied with by
them on or prior to the Closing Date. TSI and TSI Sub shall have delivered to
the Company a certificate, dated the date of the Closing and signed by an
officer of TSI and TSI Sub, respectively, to the foregoing effect.
8.2 Consents and Approvals. All Required Consents shall have been
obtained and be in full force and effect.
8.3 No Litigation. There shall not be pending or threatened any
Claim to restrain or prohibit the consummation of the transactions contemplated
hereby.
8.4 Company Shareholder Agreement. TSI shall have executed and
delivered to the Company Shareholders the Company Shareholder Agreement in the
form attached hereto as Exhibit J.
8.5 Opinion of Counsel to TSI and TSI Sub. The Company Shareholders
shall have received the opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, counsel to TSI and TSI
Sub, dated as of the Closing Date, in the form of Exhibit K attached hereto.
8.6 Payment of Closing Date Payment and Delivery of Escrow Amounts
to the
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Escrow Agent. TSI shall have delivered (i) the Closing Date Payment (in
accordance with the terms hereof) and the TSI Options (if any) to the Delivery
Agent, and (ii) the Escrow Amounts to the Escrow Agent.
8.7 Intentionally Omitted.
8.8 New Franklin Lease and New Lexington Lease. TSI shall not have
take any action to prevent The Lexington Club, Inc. and The Franklin Athletic
Club, Inc, respectively, from executing each of the New Lexington Lease and the
New Franklin Lease, each substantially and materially in the form of the
applicable Exhibits hereto.
8.9 Shareholder Approval. The Company shall have obtained the
approval of the outstanding shares of Company Common Stock with respect to the
Merger, as contemplated by Section 4.2.
8.10 Good Standing Certificates. TSI shall have provided the Company
with good standing certificates, dated no earlier than thirty (30) days prior to
the Closing, of TSI and TSI Sub, indicating that such corporations are,
according to the applicable State's records, in "good standing" with such State.
9. Survival of Representations, Warranties, Covenants and Agreements.
9.1 Representations, Warranties, Covenants and Agreements of the
Company. Notwithstanding any right of TSI and TSI Sub fully to investigate the
affairs of the Company and notwithstanding any knowledge of facts determined or
determinable by TSI or TSI Sub pursuant to such investigation or right of
investigation, TSI and TSI Sub have the right to rely fully upon the
representations, warranties, covenants and agreements of the Company contained
in this Agreement. All such representations, warranties, covenants and
agreements of the Company
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shall survive the execution and delivery of this Agreement and the Closing
hereunder as set forth below:
(a) All representations and warranties contained in Sections
4.2, 4.4, 4.5, 4.6, 4.8, 4.25 and 4.32 shall terminate and expire on the date of
expiration of the applicable statute of limitations;
(b) All representations and warranties of the Company
contained in this Agreement relating to Taxes shall terminate and expire on the
later of (i) the date upon which the liability to which any claim based upon,
arising out of or otherwise in respect of any inaccuracy in or any breach of any
such representation, warranty, covenant or agreement ("Tax Claim") may relate is
barred by all applicable statutes of limitation and (ii) the date upon which any
claim for refund or credit related to such Tax Claim is barred by all applicable
statutes of limitations; and
(c) All other representations, warranties, covenants and
agreements not covered by clause (a) or (b) above shall terminate and expire
eighteen (18) months after the Closing Date.
9.2 Representations, Warranties, Covenants and Agreements of TSI and
TSI Sub. All representations, warranties, covenants and agreements of TSI and
TSI Sub contained in this Agreement shall terminate and expire eighteen (18)
months after the Closing Date.
10. Termination of Agreement.
10.1 Termination. This Agreement may be terminated prior to the
Closing as follows:
(i) at the election of the Company if any one or more of the
conditions to the obligation of the Company to close has not been fulfilled
within thirty (30) days after the
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scheduled Closing Date;
(ii) at the election of TSI, if any one or more of the
conditions to the obligation of TSI and TSI Sub to close has not been fulfilled
within thirty (30) days after the scheduled Closing Date;
(iii) at the election of the Company if TSI has breached any
material representation, warranty, covenant or agreement contained in this
Agreement, which breach cannot be, or is not, cured by the scheduled Closing
Date; provided, however, that if such breach can be cured, and TSI has commenced
reasonable actions to cure such breach prior to the scheduled Closing Date and
continues such reasonable actions after the scheduled Closing Date, the Company
shall not terminate this Agreement until at least thirty (30) days after the
scheduled Closing Date;
(iv) at the election of TSI, if the Company has breached any
material representation, warranty, covenant or agreement contained in this
Agreement or any of the Company Shareholders has breached any material
representation, warranty, covenant or agreement contained in the Company
Shareholder Agreement, which breach cannot be, or is not, cured by the scheduled
Closing Date; provided, however, that if such breach can be cured, and the
Company or the Company Shareholders, as applicable, have commenced reasonable
actions to cure such breach prior to the scheduled Closing Date and continue
such reasonable actions after the scheduled Closing Date, TSI shall not
terminate this Agreement until at least thirty (30) days after the scheduled
Closing Date; or
(v) at any time on or prior to the Closing Date, by mutual
written consent of the Company and TSI.
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10.2 Survival After Termination. If this Agreement is terminated in
accordance with Section 10.1 and the transactions contemplated hereby are not
consummated, this Agreement shall become void and of no further force and
effect; provided, however, that the terms of that certain Confidentiality
Agreement, dated December 9, 1999, shall remain in full force and effect in
accordance with its terms.
11. Miscellaneous.
11.1 Certain Definitions. Each of the definitions used herein, but
not otherwise defined herein, shall have the meaning set forth in Appendix A
"Definitions", attached hereto.
11.2 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally, or sent by facsimile transmission or, if mailed, five days after the
date of deposit in the United States mails, as follows:
(i) if to TSI or Merger Sub, to:
Town Sports International, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
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Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to the Company, to:
Health Development Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Telecopy No. 781-245-3900
with a copy to:
▇▇▇▇▇ and ▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
11.3 Entire Agreement. This Agreement, together with the Appendices,
Exhibits, and Schedules hereto, and any collateral agreements executed in
connection with the consummation of transactions contemplated hereby contain the
entire agreement among the parties with respect to the Merger and supersede all
prior agreements, written or oral, with respect thereto.
11.4 Waivers and Amendments; Preservation of Remedies. This
Agreement may be amended, superseded, cancelled, renewed or extended, and the
terms hereof may be waived, only by a written instrument signed by the parties
hereto or, in the case of a waiver, by the party waiving compliance. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any
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such right, power or privilege, nor any single or partial exercise of any such
right, power or privilege, preclude any further exercise thereof or the exercise
of any other such right, power or privilege. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any representation, warranty, covenant or agreement contained in this
Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement contained in this Agreement (or in any other
agreement between the parties) as to which there is no inaccuracy or breach.
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
11.6 Dispute Resolution. Any dispute, disagreement or controversy
arising out of or relating to this Agreement or the interpretation of the same
that the parties cannot resolve among themselves without assistance shall be
settled by arbitration to be held in Boston, Massachusetts, in accordance with
the then-applicable rules of the American Arbitration Association or any
successor thereto. If the parties shall not have agreed on a mutually
satisfactory arbitrator within twenty (20) days of the request of any party for
arbitration hereunder, the President of the American Arbitration Association
shall forthwith appoint an arbitrator; provided, however, that such arbitrator
shall be a member of the State Bar of the Commonwealth of Massachusetts. The
arbitrator may grant injunctions or other relief in such dispute. The decision
of the arbitrator shall be final, conclusive and binding on the parties to the
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arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction, and the parties hereby irrevocably consent to the
jurisdiction of the United States District Court for the District of
Massachusetts, or if that court has no jurisdiction, to the Superior Court of
the Commonwealth of Massachusetts in and for the County of Suffolk. In
connection with any such dispute, each party shall bear its own attorneys' fees
and costs.
11.7 Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation of
law, except that TSI Sub may assign its rights hereunder to any of its
Affiliates.
11.8 Variations in Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
11.9 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
11.10 Appendices, Exhibits and Schedules. The Appendices, Exhibits
and Schedules are a part of this Agreement as if fully set forth herein. All
references herein to Appendices, Sections, Exhibits and Schedules shall be
deemed references to such parts of this Agreement, unless the context shall
otherwise require. Any fact or item in any Schedule referenced by a particular
section in this Agreement shall be deemed to have been disclosed and set forth
with respect to all purposes under this Agreement regardless of whether a
specific cross-
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reference appears. The specification of any dollar amount in the representations
or warranties contained in this Agreement or the inclusion of any specific item
in any Schedules hereto is not intended to imply that such amounts, or higher or
lower amounts, or the items so included or other items, are or are not material,
and neither party shall use the fact of the setting of such amounts or the
inclusion of any such item in any dispute or controversy between the parties as
to whether any obligation, item, or matter not described herein or included in a
Schedule is or is not material for purposes of this Agreement.
11.11 Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
11.12 Severability of Provisions. If any provision or any portion of
any provision of this Agreement, or the application of any such provision or any
portion thereof to any person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, and the application of such provision or portion
of such provision as is held invalid or unenforceable to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby.
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IN WITNESS WHEREOF, the parties have executed this Merger Agreement
on the date first above written.
TOWN SPORTS INTERNATIONAL, INC.
By:/s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇
Executive Vice President
TSI/HDC, INC.
By:/s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇
Executive Vice President
HEALTH DEVELOPMENT CORPORATION
By:/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
President
AGREED AND ACCEPTED:
▇▇▇▇▇ AND ▇▇▇▇▇▇ LLP,
solely in its capacity as
Delivery Agent
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇, Partner
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=============================
AGREEMENT AND PLAN OF MERGER
by and among
TOWN SPORTS INTERNATIONAL, INC.,
TSI/HDC, INC.
and
HEALTH DEVELOPMENT CORPORATION
-----------------------------
Dated as of June 7, 2000
-----------------------------
=============================
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APPENDIX A: DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"1996 Federal Tax Escrow Amount" shall have the meaning set forth in
Section 2.2.2(d) hereof.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with, or the parents, spouse,
lineal descendants or beneficiaries of, such Person.
"Adjusted Employee Change of Control Amount" shall have the meaning set
forth in Section 4.25(f) hereof.
"Aggregate Merger Price" shall have the meaning set forth in Section
2.1.3 hereof.
"▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇" shall have the meaning set forth in Section 4.8
hereof.
"Articles of Merger" shall have the meaning set forth in Section 1.1
hereof.
"Audited Financials" shall have the meaning set forth in Section 4.8
hereof.
"Bank Debt" shall have the meaning set forth in Section 4.20 hereof.
"BCL" shall have the meaning set forth in Section 1.1 hereof.
"Benefit Plans" shall have the meaning set forth in Section 4.25(a)
hereof.
"Broker" shall have the meaning set forth in Section 4.33 hereof.
"Broker Fee" shall have the meaning set forth in Section 4.33 hereof.
"BSMC" shall have the meaning set forth in Section 2.2.2(c)(ii) hereof.
"Business" means, the business of the Company and each of the
Subsidiaries, of owning, operating and/or managing health, exercise, racquet,
swimming and similar facilities, including owning, operating and/or managing
each of the Owned Clubs and Managed Clubs.
"Claims" shall have the meaning set forth in Section 4.13 hereof.
"Closing" shall have the meaning set forth in Section 3 hereof.
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"Closing Date" shall have the meaning set forth in Section 3 hereof.
"Closing Date Payment" shall have the meaning set forth in Section
2.1.3.
"Club Leases" means, each of the following leases:
(i) that certain lease, dated as of September 1, 1995, among
Babson College, as ground landlord, Babson Recreation Center, Inc., as landlord
(the "Wellesley Landlord"), and Sportsfit, Inc., as tenant, as supplemented and
modified by letter agreements dated November 23, 1998 and November 23, 1998,
with respect to the demised premises located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, in
Wellesley, Massachusetts (the "Wellesley Demised Premises"), as more
particularly described therein (the "Wellesley Lease"),
(ii) that certain lease, dated as of November 1, 1990, between
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (predecessor in interest to Starwood Lodging Corporation), as
landlord (the "Colonial Landlord"), and the Colonial Club, Inc., as tenant, with
respect to the demised premises located at ▇▇▇▇▇ ▇▇▇/▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, in the
Colonial Sheraton Hotel, in Lynnfield, Massachusetts (the "Colonial Demised
Premises"), as more particularly described therein (the "Colonial Lease"),
(iii) that certain lease, dated as of May 16, 1983, between
Devonshire Associates Limited Partnership, as landlord (the "Sky Club
Landlord"), and the Company, as tenant, as amended by (i) First Amendment to
Lease dated September 1, 1984; (ii) Second Amendment to Lease dated September
30, 1988; (iii) a Third Amendment to Lease dated April 1, 1992; (iv) Fourth
Amendment to Lease dated September 30, 1993; and (v) Fifth Amendment to Lease
dated September 30, 1998, with respect to the demised premises located at One
Devonshire Place, on the 41st and 42nd floors of the Devonshire apartment
building, in Boston, Massachusetts (the "Sky Club Demised Premises"), as more
particularly described therein (the "Sky Club Lease"),
(iv) that certain lease, dated as of January 1, 1993, between
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (predecessor in interest to Starwood Lodging Corporation), as
landlord (the "Ferncroft Landlord"), and Hotel Clubs, Incorporated, as tenant,
with respect to the demised premises located at ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, adjacent to
the Sheraton Ferncroft Hotel, in Danvers, Massachusetts (the "Ferncroft Demised
Premises"), as more particularly described therein (the "Ferncroft Lease"),
(v) that certain lease, dated as of January 1, 1993, between
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (predecessor in interest to Starwood Lodging Corporation) as
landlord (the "Royal Ridge Landlord"), and Hotel Clubs, Incorporated, as tenant,
with respect to the demised premises located at ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, in the
Sheraton Hotel, in Nashua, New Hampshire (the "Royal Ridge Demised Premises"),
as more particularly described therein (the "Royal Ridge Lease"),
(vi) that certain lease, dated as of January 1, 1993, between
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
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(predecessor in interest to Starwood Lodging Corporation) as landlord (the
"Framingham Landlord"), and Hotel Clubs, Incorporated, as tenant, with respect
to the demised premises located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, in Framingham,
Massachusetts (the "Framingham Demised Premises"), as more particularly
described therein (the "Framingham Lease"),
(vii) that certain lease, dated as of August 30, 1999, between
▇▇▇▇▇▇ Street Associates Limited Partnership, as landlord (the "Andover
Landlord"), and Andover Athletic Club, Inc., as tenant, with respect to the
demised premises located at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, in Andover, Massachusetts (the
"Andover Demised Premises"), as more particularly described therein (the
"Andover Lease"),
(viii) that certain lease, dated as of May 22, 2000, between
HDC Real Estate, LLC, as landlord (the "Lexington Landlord"), and The Lexington
Club, Inc., as tenant, with respect to the demised premises located at ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ (the "Lexington Demised Premises"), as
more particularly described therein (the "Lexington Lease"), and
(ix) that certain lease, dated as of May 22, 2000, between HDC
Real Estate, LLC, as landlord (the "Franklin Landlord"), and The Franklin
Athletic Club, Inc., as tenant, with respect to the demised premises located at
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ (the "Franklin Demised Premises"), as
more particularly described therein (the "Franklin Lease").
"Club Lease Consents" shall have the meaning set forth in Section
4.15(d) hereof.
"Club Management Agreements" means, each of the following agreements
with third parties for the management and operation of health club facilities:
(i) that certain management agreement, dated as of October 1,
1989, between President and Fellows of Harvard College, as owner (the "Harvard
Owner"), and the Company, as manager, as amended by certain letter agreements
dated October 1, 1989, September 21, 1993 and February 19, 1996, with respect to
the management of the health club facility located at ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
in Boston, Massachusetts, as more particularly described therein (the "▇▇▇▇ ▇▇▇▇
Management Agreement"),
(ii) that certain management agreement, dated as of March 1,
1998, between Shorenstein Realty Investors Two, L.P., as owner (the "Bay Colony
Owner"), and the Company, as manager, with respect to the management of the
health club facility located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, in Waltham, Massachusetts,
as more particularly described therein (the "Bay Colony Management Agreement"),
and
(iii) that certain management agreement, dated as of October
1998, between Museum Towers, LLC, as owner (the "North Point Owner"), and the
Company, as manager, with respect to the management of the health club facility
located at 6 Museum Way, in the Museum Towers, in Cambridge, Massachusetts, as
more particularly described therein (the "North Point
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Management Agreement").
"Club Management Consents" shall have the meaning set forth in Section
4.15(a) hereof.
"Code" shall have the meaning set forth in Section 4.10 hereof.
"Company 401k Plan" shall have the meaning set forth in Section 6.8(a)
hereof.
"Company Options" shall have the meaning set forth in Section 2.2.2(c)
hereof.
"Company Shareholders" shall have the meaning set forth in Section
2.1.3.
"Company Shareholder Agreement" means the agreement to be executed and
delivered by TSI and the holders of shares of Company Stock, substantially and
materially in the form attached hereto as Exhibit J (the "Company Shareholder
Agreement").
"Company Stock" shall have the meaning set forth in Section 2.1 hereof.
"Company Transaction Expenses" shall have the meaning set forth in
Section 6.3 hereof.
"Company's HSR Payment" shall have the meaning set forth in Section 7.2
hereof.
"Constituent Corporations" shall have the meaning set forth in Section
1.2.1 hereof.
"Continued Employee" shall have the meaning set forth in Section 6.8(a)
hereof.
"Contractors" shall have the meaning set forth in Section 4.22 hereof.
"Contracts" shall have the meaning set forth in Section 4.2 hereof.
"Conversion Notice" shall have the meaning set forth in Section
2.2.2(c) hereof.
"Conversion Option" shall have the meaning set forth in Section
2.2.2(c) hereof.
"Delivery Agent" shall have the meaning set forth in Section 2.2.2.
hereof.
"Determination Date" shall have the meaning set forth in the final
paragraph of Section 7 hereof.
"Due Diligence Investigation" shall have the meaning set forth in
Section 6.12 hereof.
"Effective Time" shall have the meaning set forth in Section 1.1
hereof.
"Employee Change of Control Bonuses" shall have the meaning set forth
in Section
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4.25(f) hereof.
"Environmental Laws" shall have the meaning set forth in Section
4.32(a) hereof.
"Equipment Financing" shall have the meaning set forth in Section
4.18(b) hereof.
"Equipment Financing Amount" shall have the meaning set forth in
Section 4.18(b) hereof.
"ERISA" shall have the meaning set forth in Section 4.25(a) hereof.
"Escrow Agent" shall have the meaning set forth in Section 2.2.2(a)
hereof.
"Escrow Amounts" shall have the meaning set forth in Section 2.2.2(d)
hereof.
"Executive Group" shall have the meaning set forth in Section 2.2.2(c)
hereof.
"Exercise Proceeds" shall have the meaning set forth in Section 4.29(b)
hereof.
"Federal 1996 Return" shall have the meaning set forth in Section 4.10
hereof.
"Fleet" shall have the meaning set forth in Section 6.9 hereof.
"GAAP" shall have the meaning set forth in Section 4.8 hereof.
"General Escrow Amount" shall have the meaning set forth in Section
2.2.2(d) hereof.
"Governmental Bodies" shall have the meaning set forth in Section 4.11
hereof.
"Hazardous Substances" shall have the meaning set forth in Section
4.32(a) hereof.
"HSR Act" shall have the meaning set forth in Section 4.2 hereof.
"Initial Amount" shall have the meaning set forth in Section 2.1.3.
"Intellectual Property" shall have the meaning set forth in Section
4.19 hereof.
"Interim Balance Sheet" shall have the meaning set forth in Section 4.8
hereof.
"Interim Balance Sheet Date" shall have the meaning set forth in
Section 4.8 hereof.
"Interim Financials" shall have the meaning set forth in Section 4.8
hereof.
"knowledge" with respect to the Company means the actual knowledge of
any of the
86
directors or officers of the Company, after such party has consulted with
employees, officers, directors, or legal counsel of the Company or the
Subsidiary who would reasonably be expected to have knowledge of the matter in
question; provided that prior to such consultation, such employees shall have
been instructed to make reasonable inquiry and investigation; and "knows" has a
correlative meaning.
"Landlord Certificate" shall have the meaning set forth in Section
6.10(c) hereof.
"Laws" shall have the meaning set forth in Section 4.11 hereof.
"Leased Club Premises" means, collectively, the Wellesley Demised
Premises, the Colonial Demised Premises, the Sky Club Demised Premises, the
Ferncroft Demised Premises, the Royal Ridge Demised Premises, the Framingham
Demised Premises, the Andover Demised Premises, the Lexington Demised Premises
and the Franklin Demised Premises.
"Leased Premises" shall have the meaning set forth in Section 4.15(c)
hereof.
"Leases" shall have the meaning set forth in Section 4.15(d) hereof.
"Liens" shall have the meaning set forth in Section 4.20 hereof.
"Managed Clubs" means, the following health club facilities currently
managed by the Company in accordance with the applicable Club Management
Agreement:
(i) the health club facility owned by the President and
Fellows of Harvard College, located at ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, in Boston,
Massachusetts, as set forth in the ▇▇▇▇ ▇▇▇▇ Management Agreement (the "▇▇▇▇
▇▇▇▇ Club"),
(ii) the health club facility owned by Shorenstein Realty
Investors Two, L.P., located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, in Waltham, Massachusetts,
as set forth in the Bay Colony Management Agreement (the "Bay Colony Club"), and
(iii) the health club facility owned by Museum Towers, LLC,
located at 6 Museum Way, in the Museum Towers, in Cambridge, Massachusetts, as
set forth in the North Point Management Agreement (the "North Point Club").
"March 31, 2000 Financials" shall have the meaning set forth in Section
6.14 hereof.
"Material Adverse Change" shall have the meaning set forth in Section
4.9 hereof.
"Material Adverse Effect" shall have the meaning set forth in Section
7.4 hereof.
"Membership List" shall have the meaning set forth in Section 4.14(a)
hereof.
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"Merger" shall have the meaning set forth in the first WHEREAS clause
hereof.
"Monthly Dues" shall have the meaning set forth in Section 4.14(a)
hereof.
"New Franklin Lease" shall have the meaning set forth in Section
4.15(d) hereof.
"New Lexington Lease" shall have the meaning set forth in Section
4.15(d) hereof.
"Office Lease" means, that certain lease, dated as of July 12, 1995,
between ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (predecessor in interest to SLC Operating Limited
Partnership), as landlord (the "Office Landlord"), and the Company, as tenant,
with respect to the demised premises used as the Company's headquarters (the
"Office Premises") located at One Audubon Road, Wakefield, Massachusetts, as
more particularly described therein.
"Operating Leases" shall have the meaning set forth in Section 4.18(b)
hereof.
"Owned Clubs" means, each of the following health club facilities owned
and operated by the Company and its Subsidiaries:
(i) the health club facility located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, in Wellesley, Massachusetts, (the "Wellesley Club"),
(ii) the health club facility located at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
in Lexington, Massachusetts (the "Lexington Club"),
(iii) the health club facility located at ▇▇▇▇▇ ▇▇▇/▇▇ ▇▇▇▇▇▇▇
▇▇▇▇, in the Colonial Sheraton Hotel, in Lynnfield, Massachusetts (the "Colonial
Club"),
(iv) the health club facility located at One Devonshire Place,
on the 41st and 42nd floors of the Devonshire apartment building, in Boston,
Massachusetts, (the "Sky Club"),
(v) the health club facility located at ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
adjacent to the Sheraton Ferncroft Hotel, in Danvers, Massachusetts (the
"Ferncroft Club"),
(vi) the health club facility located at ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, in
the Sheraton Hotel, in Nashua, New Hampshire (the "Royal Ridge Club"),
(vii) the health club facility located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
in Framingham, Massachusetts (the "Framingham Club"),
(viii) the health club facility located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
in Franklin, Massachusetts (the "Franklin Club"), and
(ix) the health club facility located at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, in
Andover,
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Massachusetts (the "Andover Club").
"Orders" shall have the meaning set forth in Section 4.11 hereof.
"Pension Plan" shall have the meaning set forth in Section 4.25(a)
hereof.
"Per Share Merger Price" shall have the meaning set forth in Section
2.1.3 hereof.
"Permits" shall have the meaning set forth in Section 4.12 hereof.
"Person" means, any individual, corporation, limited liability company,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or other entity.
"Personal Services" shall have the meaning set forth in Section 4.14(a)
hereof.
"Personal Service Discounts" shall have the meaning set forth in
Section 4.14(a) hereof.
"Pre-Closing Tax Period" shall have the meaning set forth in Section
4.10 hereof.
"Preferred Renewal Provisions" shall have the meaning set forth in
Section 4.14(a) hereof.
"Present Members" means, those persons or entities which are members of
any of the Owned Clubs and/or the North Point Club, entitled to use the services
of one or more of such clubs pursuant to the Present Membership Agreements.
"Present Membership Agreements" means, the present membership
agreements listed on Schedule 4.14(a), between the Present Members of the
Business and the Company or any Subsidiary, which are in full force and effect
with respect to each of such Present Members and the Company.
"property" or "properties" means, real, personal or mixed property,
tangible or intangible.
"Reference Balance Sheet" shall have the meaning set forth in Section
4.8 hereof.
"Reference Balance Sheet Date" shall have the meaning set forth in
Section 4.8 hereof.
"Required Consents" shall have the meaning set forth in Section 4.2
hereof.
"Revised Membership List" shall have the meaning set forth in Section
4.14(a) hereof.
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"SNDA" shall have the meaning set forth in Section 6.10(a) hereof.
"Space Licenses" shall have the meaning set forth in Section 4.23
hereof.
"Special Membership Arrangements" shall have the meaning set forth in
Section 4.14(c) hereof.
"Sub-Licensee" shall have the meaning set forth in Section 4.23 hereof.
"Sub-Licensee Estoppel" shall have the meaning set forth in Section
6.10(d) hereof.
"Sub-Licensee Security Deposit" shall have the meaning set forth in
Section 4.23 hereof.
"Subsidiaries", means each corporation of which the Company, directly
or indirectly, owns or controls any capital stock, including each of the
following:
(i) each of the following operating corporations, each of
which is a Massachusetts corporation (collectively, the "Operating
Subsidiaries"):
(A) The Lexington Club, Inc.,
(B) The Colonial Club, Inc.,
(C) Hotel Clubs, Incorporated,
(D) Sportsfit, Inc.,
(E) Andover Athletic Club, Inc., and
(F) The Franklin Athletic, Inc., and
(ii) each of the following non-operating corporations, each of
which is a Massachusetts corporation (collectively, the "Non-Operating
Subsidiaries":
(A) Casco Bay Club, Inc.,
(B) Middlesex Racquet & Swim, Inc., and
(C) Club Management Corp.
"Surviving Corporation" shall have the meaning set forth in Section
1.2.1 hereof.
"Tax" or "Taxes" shall have the meaning set forth in Section 4.10
hereof.
"Tax Claim" shall have the meaning set forth in Section 9.1(b) hereof.
"Tax Return" shall have the meaning set forth in Section 4.10 hereof.
"Terminated Contracts" shall have the meaning set forth in Section 7.19
hereof.
"Threatened Litigation" shall have the meaning set forth in Section
4.13 hereof.
"Threatened Litigation Escrow Amount" shall have the meaning set forth
in Section
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2.2.2(d) hereof.
"TSI Common Stock" shall have the meaning set forth in Section 2.2.2(c)
hereof.
"TSI Defined Contribution Plan" shall have the meaning set forth in
Section 6.8(a) hereof.
"TSI Options" shall have the meaning set forth in Section 2.2.2.
"TSI Shareholder Documents", means, each of the following agreements,
which new option holders and shareholders of TSI are required to execute: (i)
the 2000 Executive Stock Agreement, (ii) the 2000 Common Stock Option Agreement,
(iii) Joinder to Registration Rights Agreement, (iv) Joinder to Shareholders
Agreement, and (v) Agreement of Purchase and Sale of Stock.
"TSI Sub Stock" shall have the meaning set forth in Section 2.1 hereof.
"TSI Welfare Plan" shall have the meaning set forth in Section 6.8(b)
hereof.
"Unsecured Financing" shall have the meaning set forth in Section 4.16
hereof.
"Valuation Escrow Amount" shall have the meaning set forth in Section
2.2.2(d) hereof.
"Welfare Plan" shall have the meaning set forth in Section 4.25(a)
hereof.
"Wellesley Holdback Amount" shall have the meaning set forth in Section
2.2.2(b) hereof.
"Wellesley Lease Amendment" shall have the meaning set forth in Section
2.2.2(b) hereof.
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SCHEDULES
Schedule 2.1.3 Company Shareholders
Schedule 2.2.2(c) Executive Group
Schedule 4.2 Required Consents
Schedule 4.3 Qualification
Schedule 4.4 Subsidiaries
Schedule 4.6 Options or Other Rights
Schedule 4.9 Material Adverse Change
Schedule 4.10 Taxes
Schedule 4.12 Permits
Schedule 4.14(a) Present Membership Agreements
Schedule 4.14(c) Contracts
Schedule 4.15 Exceptions: Good Repair
Schedule 4.16 Unsecured Financing
Schedule 4.17 Accounts Receivable
Schedule 4.18 Tangible Property
Schedule 4.20 Liens
Schedule 4.21 Accounts Payable
Schedule 4.22 Contractors
Schedule 4.23 Space Licenses
Schedule 4.25 ERISA Compliance
Schedule 4.26 Insurance
Schedule 4.28 Directors, Officers and Employees
Schedule 4.29 Operations of the Company
Schedule 4.30 Transactions with Affiliates
Schedule 4.31 Banks, Brokers and Proxies
Schedule 4.32 Environmental Matters
Schedule 7.19 Terminated Contracts
EXHIBITS
Exhibit A Articles of Merger
Exhibit B Conversion Notice
Exhibit C-1 ▇▇▇▇ ▇▇▇▇ Club Management Consent
Exhibit C-2 North Point Club Management Consent
Exhibit D-1 New Lexington Lease
Exhibit D-2 New Franklin Lease
Exhibit E-1 Wellesley Lease Amendment
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Exhibit E-2 Colonial Lease Amendment
Exhibit E-3 Sky Club Lease Amendment
Exhibit E-4 Ferncroft Lease Amendment
Exhibit E-5 Royal Ridge Lease Amendment
Exhibit E-6 Framingham Lease Amendment
Exhibit E-7 Andover Lease Amendment
Exhibit F Sub-Licensee Estoppel Certificates
Exhibit G Opinion of the Company's Counsel
Exhibit H Non-Competition Agreement
Exhibit I-1 Employment Agreement
Exhibit I-2 Consulting Agreement
Exhibit J Company Shareholder Agreement
Exhibit K Opinion of TSI's Counsel