1
EXHIBIT 10.79
Transition Services Agreement dated December 3, 1999 by and among
Registrant and Spectrum Clubs, Inc.
2
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT (this "Agreement") is made as of December 3,
1999, by and among The Sports Club Company, Inc., a Delaware corporation
("Parent") and Spectrum Clubs, Inc., a Texas corporation formerly named as
Racquetball & Fitness Clubs, Inc. ("Buyer"). Parent and Buyer are referred to
herein collectively as the "Parties" and individually as a "Party."
W I T N E S S E T H :
WHEREAS, pursuant to that certain Stock Purchase Agreement (the "Purchase
Agreement"), dated as of September 16, 1999, as amended, by and among Buyer,
Parent, The Spectrum Club Company, Inc., ("Spectrum"), Canoga/Agoura Spectrum
Club, Inc., Spectrum Club Anaheim, El Segundo-TDC, Ltd., and TVE, Inc. (all such
entities except Buyer being collectively called the "Sellers" and individually
each a "Seller"), Buyer is purchasing from Sellers the stock of Newco (as
defined in the Purchase Agreement); and
WHEREAS, Buyer desires that, after the Closing, Parent provide to Buyer or an
Affiliate of Buyer certain administrative, corporate and other services on a
transitional basis; and
WHEREAS, capitalized terms used herein and not otherwise defined herein have the
meanings given to such terms in the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and covenants set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Parties hereby agree as follows:
Transition Services. Upon the terms and subject to the conditions set forth in
this Agreement, during the term of this Agreement as set forth in Section 4
below (the "Transition Period"), Parent shall provide to Buyer or its
Affiliates, from the date of this Agreement and for a period of two hundred
seventy (270) days thereafter (subject to extension as set forth in Section 4
below), the respective services set forth on Annex A attached hereto (the
"Services"). The Services will be provided in the manner, within the time frames
and at a level of service consistent with that provided to Sellers by Parent
and/or its Affiliates with respect to the Business prior to the date hereof.
Such Services shall be provided at the cost specified beside each category of
Service on Annex A.
Billing and Payment. On the 15th and the last day of each calendar month, Buyer
shall pay half of the monthly payment for Services for the coming month. If in
connection with performing Services, Parent incurs any direct costs not included
in Annex A hereto, Parent shall deliver Buyer monthly invoices for such costs
incurred . All invoices shall be paid not later than thirty (30) days following
receipt, subject to receiving from Parent, if reasonably requested by Buyer, any
appropriate support documentation for such invoices. All payments to Parent
shall be made by wire transfer in accordance with written instructions provided
by Parent. Without limitation, examples of direct costs include (i) costs of
newsletter publication, newspaper advertising, directory listings, public
relations agency fees and related print and supplies expenses, (ii) costs for
building operations supplies and sundries not maintained at the club level, and
(iii) costs of logo wear. Direct costs also include out-of-pocket expenses paid
to third parties consistent with past practices for services outside the normal
course, which services are incurred solely for Buyer's benefit. Direct costs do
not include outsourcing of any function currently performed by personnel of
Parent or one of its affiliates. Prior to incurring direct costs in excess of
$5,000,
3
Parent shall obtain written approval from Buyer.
Services requiring use of checks issued by Parent or other fund transfers by
Parent on behalf of Buyer will be provided only to the extent funded by a Buyer
account or to the extent that Buyer provides Parent with immediately available
funds prior to Parent's issuance of the check or the fund transfer, as the case
may be.
Validity of Documents. The Parties shall be entitled to rely upon the
genuineness, validity or truthfulness of any document, instrument or other
writing presented in connection with this Agreement unless such document,
instrument or other writing appears on its face to be fraudulent, false or
forged.
Term of Agreement. The term of this Agreement shall commence on the date hereof
and shall continue (unless sooner terminated pursuant to the terms hereof) for a
period of 270 days; provided that by written notice at least thirty (30)
business days prior to the 270th day, Buyer may request (on a per Service basis)
the continuation of all or any portion of the Services for up to an additional
90 days. If Buyer requests continuation of a Service for less than 90 days,
Buyer may later extend such request up to the full 90 days or any part thereof.
Any period during which Buyer requests continuation after the 270th day is
called the "Continuation Period").
Partial Termination. Any or all of the Services provided hereunder are
terminable at any time by Buyer on thirty (30) business days prior written
notice to Parent. Even if a particular Service is terminated by Buyer, Parent
will continue to interact with and provide access to Buyer to the extent that
Services still being provided are related to the terminated Service. For
example, if Buyer terminates payroll services but is still receiving human
resources services from Parent, Parent will continue to allow Buyer's payroll
department to interact with Parent's human resources department to the extent
necessary to allow both Services to function smoothly.
Access. With respect to each Service provided by Parent or any of its Affiliates
hereunder, Buyer and Parent shall provide the other Party and its personnel with
access to the equipment, office and storage space and systems relating to such
Service during normal business hours for the term of this Agreement to the
extent reasonably required in connection with the provision of such Services
hereunder; provided that such access shall be supervised by the appropriate
personnel of the Parties and shall be done in a manner so as to minimize the
interruption of the Parties' normal business operations.
Assignment. This Agreement shall not be assignable in whole or in part by any
Party hereto, nor may a Party delegate performance of its obligations hereunder,
without the prior written consent of the other Parties hereto, such consent not
to be unreasonably withheld in the case of a proposed transfer/delegation to an
Affiliate (with consideration given, in the case of a proposed
assignment/delegation by Parent, to whether the assignee/delegate has the
personnel available to perform the Services). Buyer may also assign its interest
in this Agreement to the extent that assignments of contract rights are required
by Buyer's lenders as security, to Buyer's lenders. Subject to the foregoing,
this Agreement shall be binding on, and shall inure to the benefit of and be
enforceable by, the Parties and their respective successors, permitted assigns
and legal representatives.
Confidentiality. Each Party shall cause each of its Affiliates and each of their
respective officers, directors, employees, consultants and agents to hold all
information relating to the business of the other Parties disclosed to it by
reason of this Agreement confidential and will not disclose any of such
information to any person or entity unless legally compelled to disclose such
information, provided, however, that to the extent that any of them may become
so legally
4
compelled they may only disclose such information if they shall first have used
reasonable efforts to, and, if practicable, shall have afforded the other
Parties the opportunity to, obtain an appropriate protective order or other
satisfactory assurance of confidential treatment for the information required to
be so disclosed.
Governing Law. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of California applicable to agreements made
and to be performed entirely within such State, without regard to the conflicts
of law principles of such State.
Indemnification. Except with respect to claims by Buyer against Parent for
breach of this Agreement, Buyer agrees to indemnify and hold harmless Parent and
each of its Affiliates and Representatives (the "Parent Indemnified Parties") to
the fullest extent lawful, harmless from and against any and all losses, claims,
damages, liabilities, costs (including without limitation reasonable attorneys'
fees) and expenses (including without limitation costs and expenses incurred in
connection with investigation, preparing, pursuing or defending against any of
the foregoing) (collectively "Losses"), as incurred, relating to, based on or
arising out of the performance by the Parent Indemnified Parties of the duties
of Parent hereunder, provided that Buyer shall not be liable to any Parent
Indemnified Party for any Losses to the extent that such Losses are caused by
the breach of this Agreement by an Indemnified Party or by the negligence or
willful misconduct of a Parent Indemnified Party.
Except with respect to claims by Parent against Buyer for breach of this
Agreement, Parent agrees to indemnify and hold harmless Buyer and each of its
Affiliates and Representatives (the "Buyer Indemnified Parties") to the fullest
extent lawful, harmless from and against any and all losses, claims, damages,
liabilities, costs (including without limitation reasonable attorneys' fees) and
expenses (including without limitation costs and expenses incurred in connection
with investigation, preparing, pursuing or defending against any of the
foregoing) (collectively "Losses"), as incurred, relating to, based on or
arising out of the breach of this Agreement by Parent or Parent's negligence or
willful misconduct, provided that Parent shall not be liable to any Buyer
Indemnified Party for any Losses to the extent that such Losses are caused by
the breach of this Agreement by any Buyer Indemnified Party or by the negligence
or willful misconduct of a Buyer Indemnified Party.
Counterparts. This Agreement may be executed in one or more counterparts
(including by means of telecopied signature pages), all of which shall be
considered one and the same Agreement, and shall become effective when one or
more counterparts have been signed by each of the Parties and delivered to the
other Parties.
Notices. Unless otherwise indicated herein, all notices, requests, demands or
other communications to Parent and Buyer shall be deemed to have been given or
made three business days after being deposited in the mails, registered or
certified mail, return receipt requested, postage prepaid, or when delivered by
means of overnight delivery service or messenger, addressed to the Party to be
notified, or by facsimile to Parent or Buyer at the following address:
To Parent: The Sports Club Company, Inc.
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxxxx, XX 00000-0000
Attention: Xxxx Xxxxxxx
Fax No. (000) 000-0000
Copy to: Kinsella, Boesch, Fujikawa & Xxxxx, LLP
0000 Xxxxxx xx xxx Xxxxx
Xxx Xxxxxxx, XX 00000
5
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Fax No. (000) 000-0000
To Buyer: Racquetball & Fitness Clubs, Inc.
c/o Brentwood Associates
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxx XxXxxx
Fax No.: (000) 000-0000
Copy to: Xxxxxx & Xxxxxxx
000 Xxxx 0xx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxxxx X. Xxxxxxxx, Esq.
Fax No.: (000) 000-0000
Modification, Nonwaiver, Severability. Neither this Agreement nor any part
hereof may be changed, altered or amended orally. Any modification must be by
written instrument signed by Parent and Buyer. Failure by any Party to exercise
promptly any right granted herein or to require strict performance of any
obligation imposed hereunder shall not be deemed a waiver of such right. If any
provision of this Agreement is held ineffective for any reason, the other
provisions shall remain effective.
Interpretation. The headings and captions contained in this Agreement and in
Annex A attached hereto are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement. The use of the word
"including" herein shall mean "including without limitation."
No Strict Construction. The language used in this Agreement shall be deemed to
be the language chosen by the Parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against any person or entity.
Entire Agreement. This Agreement (including Annex "A" hereto) and the Purchase
Agreement contain the entire agreement and understanding among the Parties
hereto with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements, negotiations and understandings, whether written or
oral, relating to such subject matter.
Relationship of Parties. Except as specifically provided herein, none of the
Parties shall act or represent or hold itself out as having authority to act as
an agent or partner of any other Party, or in any way bind or commit any other
Party to any obligations. Nothing contained in this Agreement shall be construed
as creating a partnership, joint venture, agency, trust or other association of
any kind, each Party being individually responsible only for its obligations as
set forth in this Agreement.
Attorneys' Fees. If either Party shall initiate any Action to enforce or
interpret any term or provisions hereof, the Party prevailing in such Action
shall be entitled to its reasonable attorneys' fees and disbursements from the
non-prevailing party.
6
IN WITNESS WHEREOF, the Parties have caused this Transition Services Agreement
to be executed by their duly authorized representatives as of the date and year
first set forth above.
THE SPORTS CLUB COMPANY, INC.
By: /s/ Xxxx X. Xxxxxxx
---------------------------------
Title: Chief Executive Officer
SPECTRUM CLUBS, INC., f/k/a
RACQUETBALL & FITNESS CLUBS, INC.
By: /s/ Xxxxxxx Xxxx
---------------------------------
Title: Secretary for the buyer
7
ANNEX A
TO TRANSITION SERVICES AGREEMENT
For purposes of this Annex A, the first "month" of this Annex A shall begin on
the Closing Date and end on the day immediately preceding the next month's
anniversary of the Closing Date, and each succeeding "month" shall be determined
in like manner. (For example, if the Closing Date were September 28, 1999, the
first "month" would run from September 28, 1999 through October 27, 1999, and
the next month would run from October 28, 1999 through November 27, 1999).
With respect to all Services, the services and fees set forth below include
transfer of records and data relating to such service and transitioning of such
service to Buyer as and when reasonably requested by Buyer. The only additional
charges for transitioning will be mutually agreed on if Parent is required to
perform services outside those that would have been expected in transitioning
the Services to Buyer if all the transitioning had occurred at the closing of
the transaction or if Buyer materially changes the operation of the Business
(including without limitation by the opening of additional clubs).
All Services are to be provided to the same extent and in the same manner as
provided to the Spectrum Clubs prior to the date of this Agreement, except that
Services will also be provided in such manner to the Anaheim and Xxxxxx Hills
Spectrum Clubs as and to the extent such clubs become operational. Set forth
below are examples and illustrations of Services, but they are not intended to
be exhaustive, and any services falling within the categories below are intended
to be covered by this Agreement.
1. HUMAN RESOURCES. $10,360 per month ($14,504 per month during Continuation
Period)
- Prepare affirmative action plans, manage Department of Labor compliance
audits, provide on-site compliance support, investigate allegations of
harassment and/or discrimination, establish policies on allegations,
assist in grievance resolution, providing benefit administration.
- Administer benefit plans for employees of Buyer, including 401(k) plan,
dental, life and medical insurance, vacation and other similar plans;
prepare and file (or deliver to Buyer in a timely fashion for filing)
required government reports (including plan 5500's); maintain benefit
plan accounting and administrative information.
- Administer workers compensation claims of Buyer, including interface
with insurance providers.
- Provide services relating to labor relations, labor dispute resolution,
employee contract negotiations, EEO compliance, and workplace issues
management.
- Conduct periodic human resource-related training for Buyer's employees,
including health and safety seminars at the clubs operated by Buyer.
- Maintain human resources systems.
- Deliver Buyer's employee files to Buyer at any time upon Buyer's
request, provided that Parent may retain copies of such files for its
records.
- Administer paperwork and processes related to hiring and termination of
Buyer's employees, including processes required to update payroll
accounts.
- Maintain master file/database of employees.
- Provide all training programs, manuals and other materials and services
used to train employees in the same manner as prior to the date of this
Agreement.
- Use the same degree of care as used in Parent's business to notify Buyer
of any changes in applicable laws and regulations relating to employees,
including without limitation wages and hours, job posting, "right to
know" and safety.
2. CHILD CARE $1,498 per month ($2,097 per month during Continuation
Period)
- Administer and supervise child care programs and services at Spectrum
Clubs in the same manner as prior to this Agreement.
8
- Inform Buyer as to applicable legal requirements related to child care
and prepare and file with governmental authorities any necessary
paperwork so that relevant employees maintain licenses, bonds and
otherwise comply with such requirements.
3. FITNESS $1,428 per month ($1,999 per month during Continuation Period)
- Assist with fitness equipment purchasing programs in place.
- Provide supervision and administration of all fitness and group exercise
functions.
- Assist in maintaining all staffing levels and standard in place prior to
date of this Agreement.
4. PAYROLL $3,300 per month ($4,620 per month during Continuation Period)
- Provide payroll processing services for hourly and salaried employees of
Buyer (e.g. input data, process payroll, distribute paychecks, provide
compensation system development and support, maintain compensation
database, process payroll taxes and reports, issue W-2 forms, submit
required information and contributions to third-party benefit plan
record-keeper or plan administrators, reconcile with general ledger, and
maintain applicable supporting records and documentation).
- Administer and update Ceridian software at the club level.
- Provide semi-monthly summary of Ceridian payroll run to Buyer for
approval prior to release of payroll checks. (Buyer shall be responsible
for turnaround in time for payroll to be timely paid.)
- Provide software updates and interfaces as necessary between Ceridian
payroll systems and Solomon general ledger software (or other systems
and software used by Parent).
- Maintain interface with Kronos time-clock system as necessary.
- Notify Buyer regarding any change in laws or regulations governing wages
and hours, overtime and similar items with respect to employee
compensation.
- Reconcile payroll checkbook within 30 days after receipt of bank
statement.
5. ACCOUNTS PAYABLE $2,782 per month ($3,894 per month during Continuation
Period)
- Process vendor payments.
- Maintain and upgrade all software and interfaces with Solomon general
ledger system.
- Maintain all functions necessary to interface with purchasing services.
- Maintain payment records in accordance with GAAP.
- Produce 1099 forms.
- Maintain A/P Vendor information with either SSN or Employer ID for all
contractors.
- Deliver to Buyer the vendor files at any time upon Buyer's request.
- Maintain check stock, signature stamps, MICR cartridges or any other
signing device in a safe and secure environment.
- Deliver to Buyer check stock at any time upon Buyer's request.
- Maintain existing checks and balances with regards to Purchase Orders,
Invoices, Payments, as well as routine audits of these controls.
- Prepare and mail checks on Buyer's behalf of open invoices to maintain
good credit and to take advantage of available vendor discounts (checks
to be drawn on Buyer's account).
- Reconcile accounts payable checkbook within 30 days after receipt of
bank statement.
6. PURCHASING $4,472 per month ($6,260 per month during Continuation
Period)
- Provide detailed accounting of purchases, costs and allocation of
supplies.
- Maintain all existing methods of allocating purchases in place prior to
the date of this Agreement.
- Provide purchasing functions on a "most favored nations" basis vis-a-vis
Parent's Sports Club operations, including negotiation of vendor
contracts.
- Maintain forms inventory.
9
- Oversee mail, messenger and courier services.
- Coordinate and arrange for purchases of office and club supplies and
needs of building operations department.
- Process orders and payments, maintain accurate records and obtain
approval of Buyer for any capital purchases.
7. MIS $6,338 per month ($8,873 per month during Continuation Period)
- Maintain EDP hardware and software.
- Provide membership database queries to Buyer.
- Provide modifications and programming assistance with all software and
hardware.
- Process monthly EFT's.
- Provide backup program and data files so that Facilities can properly
backup program and data files at the Facilities.
- Licensing fees for separate Ceridian systems is deemed an extra direct
cost to be borne by Buyer.
8. ACCOUNTING $11,022 per month ($15,430 per month during Continuation
Period)
- Assist Spectrum Club controllers in preparing monthly, quarterly and
year-end income statements on a club-by-club basis.
- Assist Spectrum Club controllers with general ledger maintenance and
control (separate from Seller's ongoing business and other assets)
including monthly general ledger closings and reconciliation of bank
account and general ledger account balances; prepare reconciliation for
all subsidiary systems, including but not limited to accounts
receivable, accounts payable, inventory, fixed assets and unsettled
liability.
- Assist Spectrum Club controllers in preparing flash (daily) and weekly
operating results.
- Provide monthly fixed asset, marketing, promotions and inventory
reporting.
- Provide accounts payable processing in the normal course of business,
including marketing programs and purchases.
- Maintain capital asset records, updating for additions, retirements,
depreciation and other transactions. Make capital asset general ledger
entries.
- Maintain and support all existing systems and provide systems
programming time; provide system trouble shooting services (including
after business hours) consistent with current practice.
- Provide financial and management reports in formats used as of the date
of this Agreement, including but not limited to all membership, pricing,
and dues grid information.
- Assist in preparation of tax returns and state annual reports; provide
other tax consultation to the extent currently performed in-house.
- Provide Buyer with real time access to all systems from Buyer's
corporate headquarters, including access to all archived data or
information on paper, as long as it doesn't disrupt normal operation.
- Cooperate with respect to any audits of Buyer's financial records and
other information reasonably requested by auditors, lenders or other
persons or entities designated by Buyer, at Buyer's reasonable request.
- Assist with conversion of and provide export files of pertinent
accounting files, including budgets, history, payroll, human resources
and accounts receivable.
- Maintain EDP hardware and software.
- Prepare financial statements in accordance with GAAP using methods as
directed by Buyer.
- Oversee EFT processing.
- Provide technical support and process assistance for Buyer's budget
preparation.
9. DEVELOPMENT $0 per month ($0 per month during the Continuation Period)
- Perform responsibilities customary for general contractor and real
estate developers with respect to existing projects at Anaheim, Thousand
Oaks, Canoga Park and Xxxxxx Hills.
- Oversee construction projects undertaken at Manhattan Beach.
10. MARKETING $5,438 per month ($7,613 per month during Continuation
Period)
10
- Provide marketing, advertising, graphics, printing and production
services.
- Meet deadlines for placement of advertising and production of all
collateral materials.
11. BUILDING OPERATIONS $15,474 per month ($21,663 per month during
Continuation Period)
- Oversee facilities and building operations managers.
- Repair equipment and club facilities.
- Manage third-party service providers.
- Maintain detailed, item-by-item inventory of equipment (provided that
Buyer notifies personnel responsible for this if Buyer uses its own
personnel and equipment to move inventory).
12. RETAIL $722 per month ($1,010 per month during Continuation Period)
- Provide oversight of the retail operations (kiosks) at Spectrum Clubs.
- Supply logo wear on same terms as prior to the date of this Agreement
(direct cost of such logo wear is billable to Buyer).
13. MISCELLANEOUS (no charge unless specifically noted below)
- Provide laundry services to the extent and expense currently provided to
any Spectrum Club (e.g. Xxxxxx Xxxxxx) at the same charge as existing in
historical financial statements.
- Provide assistance in obtaining licenses and permits necessary to
operate the Spectrum Clubs in substantially the same manner as operated
prior to the date of this Agreement at an hourly rate of $60 per hour.
Provide assistance in reviewing such licenses and permits that expire
during the term of this Agreement for no charge.
- Implement fitness equipment purchases already included in capital
budget.
- Supply Buyer's requirements for PTS (Private Trainer Systems) branded
nutritional products or any successor or replacement products offered by
Parent or any of its subsidiaries in the operation of the Sports Clubs,
at a pass-through (e.g. no markup) of Parent's cost for the same
product.
- Provide Special projects (e.g. management of "Member Appreciation Days")
at the request of Buyer at a fee equal to the Seller's hourly wage rate
for the individual providing the service.
- Assist in preparing sales tax returns.
- Transfer calls and otherwise refer inquiries and contacts from vendors,
customers, members, etc. to Buyer.
