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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Commission file number 1-2493
NEW VALLEY CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-5482050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 S.E. Second Street, Miami, Florida 33131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 579-8000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$15.00 Class A Increasing Rate Cumulative Senior Preferred Shares
($100 Liquidation Value), $.01 par value
$3.00 Class B Cumulative Convertible Preferred Shares ($25 Liquidation Value),
$.10 par value
Common Shares, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months
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(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 29, 1996 was $131,205,846 (based on the shares of
voting stock of the registrant outstanding at March 29, 1996 and the last
reported sales price on such date for each class of voting stock of the
registrant, which includes the Class A Senior Preferred Shares, Class B
Preferred Shares and Common Shares). Directors and officers and ten percent or
greater stockholders are considered affiliates for purposes of this calculation
but should not necessarily be deemed affiliates for any other purposes.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
At March 29, 1996, there were 191,552,476 Common Shares outstanding.
Documents Incorporated by Reference:
Part III (Items 10,11, 12 and 13) from the definitive Proxy Statement
for the 1996 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission no later than 120 days after the end of the registrant's
fiscal year covered by this report.
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TABLE OF CONTENTS
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Page
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PART I
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Item 1. Business ......................................................... 1
Item 2. Properties ....................................................... 13
Item 3. Legal Proceedings ................................................ 14
Item 4. Submission of Matters to a Vote of Security-Holders; Executive
Officers of the Registrant ....................................... 14
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters .......................................................... 17
Item 6. Selected Financial Data .......................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................ 19
Item 8. Financial Statements and Supplementary Data ...................... 29
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................. 29
PART III
Item 10. Directors and Executive Officers of the Registrant ............... 30
Item 11. Executive Compensation ........................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management ....................................................... 30
Item 13. Certain Relationships and Related Transactions ................... 30
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K .............................................................. 31
SIGNATURES ................................................................ 38
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PART I
ITEM 1. BUSINESS
GENERAL
New Valley Corporation (the "Company") was organized under the laws of
the State of New York in 1851. The principal executive office of the Company is
located at 100 S.E. Second Street, Miami, Florida 33131, and the telephone
number is (305) 579-8000.
On January 18, 1995, the Company emerged from bankruptcy
reorganization proceedings and completed substantially all distributions to
creditors under its First Amended Joint Chapter 11 Plan of Reorganization, as
amended (the "Joint Plan"). The Joint Plan was confirmed by the United States
Bankruptcy Court for the District of New Jersey, Newark Division on November 1,
1994, and pursuant thereto, the Company effected certain related asset
dispositions. For further information with respect to the Company's bankruptcy
reorganization proceedings and asset dispositions, see "Bankruptcy
Reorganization" and "Recent Dispositions", respectively, below.
The Company is engaged, through its ownership of Ladenburg, Thalmann &
Co. Inc. ("Ladenburg"), in the investment banking and brokerage business,
through its New Valley Realty division, in the ownership and management of
commercial real estate, and in the acquisition of operating companies.
The Company's Board of Directors has unanimously approved a proposal
to change the Company's jurisdiction of incorporation from the State of New York
to the State of Delaware (the "Redomestication") pursuant to a merger between
the Company and a newly formed wholly-owned subsidiary of the Company (the
"Merger"), which would also provide for a "reverse stock split" of the Company's
common shares, par value $.01 per share (the "Common Shares"), that would reduce
the number of such shares outstanding on a one-for-twenty basis (the "Reverse
Stock Split"). For further information concerning the Redomestication, see Item
5, "Market for Registrant's Common Equity and Related Shareholder Matters" and
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Recent Developments - The Redomestication Proposal", below. The
Redomestication is subject to the approval of the Company's shareholders at the
Company's Annual Meeting of Shareholders in June 1996 in accordance with the New
York Business Corporation Law (the "NYBCL").
RECENT DISPOSITIONS
Pursuant to the Joint Plan, (i) on November 15, 1994 the Company sold
the assets and operations with which it provided domestic and international
money transfer services, bill payment services, telephone cards, money orders
and bank card services (collectively, the
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"Money Transfer Business"), including the capital stock of its subsidiary,
Western Union Financial Services, Inc. ("FSI") and certain related assets, to
First Financial Management Corporation ("FFMC") and (ii) on January 13, 1995, it
sold to FFMC all of the trademarks and tradenames used in the Money Transfer
Business and constituting the Western Union name and trademark (the "Seller's
Marks"), for an aggregate purchase price of approximately $1,193 million,
including $893 million in cash and $300 million representing the assumption by
FFMC of substantially all of the Company's obligations under the Western Union
Pension Plan (the "Pension Plan"). For financial accounting purposes, the
Company recognized a gain on this sale of approximately $1,056 million in 1994.
For further information with respect to this sale, see "Sale of FSI to FFMC",
below.
Through October 1, 1995, the Company was engaged in the messaging
services business (including the Mailgram(R), Telegram, Priority Letter(SM),
Hotline(SM), Automated Voice Telegram(SM), Commercial Teleservices, Customer
Letter(SM), Cablegram, Opiniongram(SM), and Datagram(R) messaging business (the
"Messaging Services Business")) through its wholly owned subsidiary, Western
Union Data Services Company, Inc. ("DSI"). On October 31, 1995, the Company
completed the sale of substantially all of the assets (exclusive of certain
contracts) and conveyance of substantially all of the liabilities of DSI to FFMC
for $20 million in cash, subject to certain adjustments. This transaction was
effective as of October 1, 1995. For financial accounting purposes, the Company
recognized a gain on this sale of approximately $13 million during the fourth
quarter of 1995. For further information with respect to this sale, see "Sale of
DSI to FFMC", below.
As a result of the foregoing dispositions of the Money Transfer
Business and the Messaging Services Business to FFMC, such operations have been
treated as discontinued operations in the accompanying Consolidated Financial
Statements.
LADENBURG, THALMANN & CO. INC.
On May 31, 1995, the Company acquired all of the outstanding shares of
common stock and other equity interests of Ladenburg for $25.8 million, net of
cash acquired, subject to adjustment. Ladenburg is a full service broker-dealer
which has been a member of the New York Stock Exchange ("NYSE") since 1876. Its
specialties include investment banking, trading, research, market making, client
services, institutional sales and asset management.
Ladenburg's investment banking area maintains relationships with
businesses and provides them with research, advisory and investor relations
support. Services include merger and acquisition consulting, management of and
participation in underwriting of equity and debt financing, private debt and
equity financing, and rendering appraisals, financial
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evaluations and fairness opinions. Ladenburg's listed securities and
over-the-counter trading areas include trading a variety of financial
instruments in both national and international markets. Ladenburg's client
services and institutional sales departments serve over 20,000 accounts
worldwide and its asset management area provides investment management and
financial planning services to individuals and institutions.
Ladenburg is a wholly-owned subsidiary of Ladenburg, Thalmann Group
Inc. ("Ladenburg Group"), which has other subsidiaries specializing in merchant
banking, venture capital and investment banking activities on an international
level. Since the Company's acquisition of Ladenburg through March 29, 1996, the
Company has contributed approximately $34 million to the capital of Ladenburg
Group.
NEW VALLEY REALTY DIVISION
On January 10 and January 11, 1996, the Company acquired four
commercial office buildings (the "Office Buildings") and eight shopping centers
(the "Shopping Centers"), respectively, for an aggregate purchase price of
$183.9 million, consisting of $23.9 million in cash and $160 million in
non-recourse mortgage financing. The Office Buildings and Shopping Centers are
being operated through the Company's recently established division, New Valley
Realty.
The Office Buildings consist of two adjacent commercial office
buildings in Troy, Michigan and two adjacent commercial office buildings in
Bernards Township, New Jersey. The Company acquired the Office Buildings in
Michigan from Bellemead of Michigan, Inc. ("Bellemead Michigan") and the Office
Buildings in New Jersey from Jared Associates, L.P. (each, a "Seller"), for an
aggregate purchase price of $111.4 million. Each Seller is an affiliate of
Bellemead Development Corporation, which is indirectly wholly owned by The Chubb
Corporation. The purchase price was paid for the Office Buildings as follows:
(i) $23.5 million for the 700 Tower Drive property, located in Troy, Michigan;
(ii) $28.1 million for the 800 Tower Drive property, located in Troy, Michigan;
(iii) $48.3 million for the Westgate I property, located in Bernards Township,
New Jersey; and (iv) $11.4 million for the Westgate II property, located in
Bernards Township, New Jersey. The two Michigan buildings were constructed in
1987 and the two New Jersey buildings were constructed in 1991. The gross square
footage of the Office Buildings ranges from approximately 50,300 square feet to
approximately 244,000 square feet.
The Company acquired a fee simple interest in each Office Building
(subject to certain rights of existing tenants), together with a fee simple
interest in the land underlying three of the Office Buildings and a 98-year
ground lease (the "Ground Lease") underlying one of the Office Buildings. Under
the Ground Lease, Bellemead Michigan, as lessor, is entitled to receive rental
payments of a fixed monthly amount and a specified portion of the income
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received from the 700 Tower Drive property. Space in the Office Buildings is
leased to commercial tenants and, as of the closing date, the Office Buildings
were fully occupied.
Concurrently with the acquisition of the Office Buildings, the Company
engaged a property-management affiliate of Sellers that had previously managed
the Office Buildings to act as the managing agent and leasing agent for the
Office Buildings. The agreement has a fifteen-year term, but may be terminated
by either party on 60 days' notice without cause or economic penalty.
On January 11, 1996, the Company acquired the Shopping Centers from
various limited partnerships (AP Century I., L.P., AP Century II, L.P., AP
Century III, L.P., AP Century IV, L.P., AP Century V, L.P., AP Century VI, L.P.,
AP Century VIII, L.P., and AP Century IX, L.P.) (each, a "Partnership") for an
aggregate purchase price of $72.5 million. Each Partnership is an affiliate of
Apollo Real Estate Investment Fund, L.P. ("Apollo"). The Shopping Centers are
located in Marathon and Royal Palm Beach, Florida; Lincoln, Nebraska; Santa Fe,
New Mexico; Milwaukee, Oregon; Richland and Marysville, Washington; and
Charleston, West Virginia. The Company acquired a fee simple interest in each
Shopping Center and the underlying land for each property. Space in the Shopping
Center is leased to a variety of commercial tenants and, as of March 31, 1996,
the aggregate occupancy of the Shopping Centers was approximately 93%. The
Shopping Centers were constructed at various times during the period 1963-1988.
The gross square footage of the Shopping Centers ranges from approximately
108,500 square feet to approximately 222,500 square feet.
The purchase price was paid for the Shopping Centers as follows: (i)
$3.9 million for the Marathon Shopping Center property, located in Marathon,
Florida; (ii) $9.8 million for the Village Royale Plaza Shopping Center
property, located in Royal Palm Beach, Florida; (iii) $6.0 million for the
University Place property, located in Lincoln, Nebraska; (iv) $9.6 million for
the Coronado Shopping Center property, located in Santa Fe, New Mexico; (v) $7.3
million for the Holly Farm Shopping Center property, located in Milwaukee,
Oregon; (vi) $10.6 million for the Washington Plaza property, located in
Richland, Washington; (vii) $12.4 million for the Marysville Towne Center
property, located in Marysville, Washington; and (viii) $12.9 million for the
Kanawha Mall property, located in Charleston, West Virginia (the properties
described in clauses (i), (ii), (v), (vii) and (viii) are subject to an
underlying mortgage in favor of a single lender and are referred to collectively
as the "Properties").
Concurrently with the acquisition of the Shopping Centers, the Company
engaged a property-management firm, whose principals were the former minority
partners in the Partnerships, that had previously managed the Shopping Centers
to act as the managing agent and leasing agent for the Shopping Centers. The
engagement agreement has a one-year term, and may be terminated by either party
at any time after December 31, 1996 on 60 days' notice without cause or economic
penalty.
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The acquisition of the Office Buildings was effected pursuant to a
purchase agreement dated January 10, 1996. The acquisition of the Shopping
Centers was effected pursuant to a purchase agreement dated January 11, 1996. As
of March 21, 1996, an affiliate of Apollo and the Partnerships was a holder of
debt securities of BGLS Inc. ("BGLS"), a Delaware corporation and a wholly-owned
subsidiary of Brooke Group Ltd. ("Brooke"), a Delaware corporation. BGLS
directly and indirectly holds Common Shares and Preferred Shares (as defined
below) of the Company representing in the aggregate approximately 42% of the
voting power of the Company. See "Significant Shareholders" and the information
incorporated by reference under Item 12, "Security Ownership of Certain
Beneficial Owners and Management". The foregoing description of these
acquisitions is qualified in its entirety by reference to the purchase
agreements, copies of which are incorporated by reference as exhibits to this
report.
For further information with respect to this acquisition, see Note 21
(Subsequent Events) to the Consolidated Financial Statements.
OTHER ACQUISITIONS AND INVESTMENTS
Thinking Machines Corporation. On January 11, 1996, Ladenburg,
Thalmann Capital Corp. ("Ladenburg Capital"), the merchant banking subsidiary of
Ladenburg Group, in connection with the First Amended Joint Plan of
Reorganization (the "Plan") of Thinking Machines Corporation ("Thinking
Machines"), a developer and marketer of parallel software for high-end and
networked computer systems, made a $10.6 million convertible bridge loan
(the "Loan") to TMCA Acquisition Corp. ("TMCA"), an entity formed to invest
the Loan proceeds (net of certain expenses) in Thinking Machines.
On February 8, 1996, the date of confirmation of the Plan, Thinking
Machines emerged from bankruptcy and in connection therewith, TMCA pursuant to
the Plan, merged into Thinking Machines thereby converting the Loan into a
controlling interest in a certain partnership which holds approximately 61% of
the outstanding common stock of Thinking Machines. Thinking Machines will use
the Loan proceeds to help fund its advanced product development and marketing.
For further information concerning this transaction, see Note 21 (Subsequent
Events) to the Consolidated Financial Statements.
RJR Nabisco Holdings Corp. In August 1995, the Company filed a
notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with
respect to the acquisition of up to 15% of the voting securities of RJR Nabisco
Holdings Corp. ("RJR Holdings") in the open market. On August 29, 1995, the
waiting period under such notification expired. As of March 29, 1996, the
Company held approximately 5.2 million shares of RJR Holdings
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common stock, representing approximately 1.9% of RJR Holdings common stock
outstanding. As of March 29, 1996, the Company's cost for such shares and the
amount of related margin loan financing were approximately $158 million and
approximately $83.5 million, respectively.
For additional information concerning the Company's investment and
involvement in certain matters relating to RJR Holdings, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Recent Developments - Certain Matters Relating to RJR Holdings".
Miscellaneous Investments. On February 1, 1995, the Company acquired,
for $12.7 million, a 28.2% equity interest in a holding company that owned a
16.5% voting interest in Empresa Brasileira de Aeronautica, S.A., a Brazilian
airplane manufacturer.
In addition, as of December 31, 1995, the Company had, among others,
investments in limited partnerships of $18.7 million and an equity investment in
a software company of $1.0 million. The principal business of such partnerships
is investing in a variety of securities. The Company is in the process of
liquidating its interest in certain of the limited partnerships. During the
fourth quarter of 1995, the Company recognized an impairment loss on certain of
its investments. For further information concerning these and other investments,
see Note 6 (Long-Term Investments) to the Consolidated Financial Statements.
The Company may acquire additional operating businesses through
merger, purchase of assets, stock acquisition or other means, or seek to acquire
control of operating companies through one of such means. There can be no
assurance that the Company will be successful in targeting or consummating any
such acquisitions.
DISCONTINUED OPERATIONS
Money Transfer Services. Prior to the sale of the Company's Money
Transfer Business, including FSI, to FFMC in November 1994 and January 1995, the
Company's core business was that of providing domestic and international money
transfer services, bill payment services, telephone cards, money orders and bank
car services. As a result of this sale, the Company terminated its activities in
the Money Transfer Business.
Messaging Services. Prior to the sale of its Messaging Services
Business to FFMC in October 1995, the Company conducted the Messaging Services
Business through its DSI subsidiary. As a result of such sale, the Company
terminated substantially all of its activities in the Messaging Services
Business.
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REGULATION
In connection with the interstate and foreign telegram service and
consumer-originated Mailgram(R) services retained by DSI in connection with the
sale of DSI assets to FFMC (see "Sale of DSI to FFMC", below), DSI is
subject to the jurisdiction of the Federal Communications Commission (the
"FCC").
The Investment Company Act of 1940, as amended (the "Investment
Company Act"), and the rules and regulations thereunder require the registration
of, and impose various substantive restrictions on, companies that engage
primarily in the business of investing, reinvesting or trading in securities or
engage in the business of investing, reinvesting, owning, holding or trading in
securities and own or propose to acquire "investment securities" having a
"value" in excess of 40% of a company's "total assets" (exclusive of Government
securities and cash items) on an unconsolidated basis. Following dispositions of
its then operating businesses pursuant to the Joint Plan, the Company was above
this threshold and relied on the one-year exemption from registration under the
Investment Company Act provided by Rule 3a-2 thereunder, which exemption expired
on January 18, 1996. Prior to such date, through the Company's acquisition of
the investment banking and brokerage business of Ladenburg and its acquisition
of the Office Buildings and Shopping Centers (see "Ladenburg, Thalmann & Co.
Inc." and "New Valley Realty Division", above), the Company was engaged
primarily in a business or businesses other than that of investing, reinvesting,
owning, holding or trading in securities, and the value of its investment
securities was below the 40% threshold. Under the Investment Company Act, the
Company is required to determine the value of its total assets for purposes of
the 40% threshold based on "market" or "fair" values, depending on the nature of
the asset, at the end of the last preceding fiscal quarter and based on cost for
assets acquired since that date. However, no assurance can be given that the
Company will continue to operate below the 40% threshold, and accordingly, there
may be risk that the Company will become subject to the Investment Company Act.
If the Company were required to register under the Investment Company Act, it
would be subject to a number of material restrictions on its operations, capital
structure and management, including without limitation its ability to enter into
transactions with affiliates.
SALE OF FSI TO FFMC
On November 15, 1994, FFMC purchased all of the issued and outstanding
shares of common stock of FSI (the "FSI Shares") and certain assets (the
"Related Assets") of the Company and its affiliates (other than the Seller's
Marks) relating to the Money Transfer Business, for $593.2 million in cash and
$300 million representing the assumption by FFMC of the Company's obligations
under the Pension Plan. In addition, FFMC assumed certain liabilities
associated with the Company's collective
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bargaining agreements and the Related Assets. Of the $593.2 million cash
consideration paid on November 15, 1994, $45 million was placed in escrow as
security for the performance by the Company of its obligations under the
Purchase Agreement, dated as of October 20, 1994, between the Company and FFMC
(as amended, the "Purchase Agreement"). The purchase price thereunder (the
"Purchase Price") was subject to certain post-closing adjustments as provided in
the Purchase Agreement, all of which adjustments were finally settled in
connection with the sale of DSI to FFMC in October 1995. See "Sale of DSI to
FFMC", below.
On November 15, 1994, the Company contributed to DSI all of the assets
and properties used in the Messaging Services Business of the Company, and FSI
transferred to the Company certain assets not included among the Related Assets
sold to FFMC. In addition, FSI paid a cash dividend of $117,895,434 to the
Company. On January 13, 1995, pursuant to the Purchase Agreement, the Company
sold the Seller's Marks to FFMC for $300 million in cash. The Purchase
Agreement prohibits the Company from competing with FSI's Money Transfer
Business for five years. In addition, on January 13, 1995, FFMC paid to the
Company a license or royalty fee of $3.733 million for the use of the Seller's
Marks between November 15, 1994 and January 13, 1995.
The aggregate purchase price paid by FFMC for the FSI Shares and the
Related Assets (including the Seller's Marks) was approximately $893 million in
cash plus the assumption of pension liabilities in the amount of $300 million.
The Company recognized a gain of approximately $1,056 million in 1994 for
financial reporting purposes as a result of this sale. Completion of the sale of
the Money Transfer Business was part of the implementation of the Joint Plan, as
described under "Bankruptcy Reorganization", below.
Following the sale of the FSI Shares and the Related Assets to FFMC,
the Company retained the Messaging Services Business (through its ownership of
all of the outstanding capital stock of DSI) and approximately $382 million of
cash and cash equivalents, computed on a pro forma basis at December 31, 1994
after giving effect to the estimated liabilities under the Joint Plan as of
such date. The Messaging Services Business has subsequently been sold by the
Company. See "Sale of DSI to FFMC", below.
At December 31, 1995, after giving effect to the utilization of net
operating losses necessary to offset the taxable gain on the sale of FSI and the
Seller's Marks to FFMC, the Company estimates that it had approximately $180
million of net operating losses available to offset future operating income,
subject to certain limitations, as discussed in Note 9 to the Consolidated
Financial Statements.
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In connection with the sale of the Money Transfer Business and the
Seller's Marks, the Company, FSI, DSI and FFMC entered into various agreements
relating to, among other things, the operation of the Messaging Services
Business. Pursuant to a Release and Termination Agreement dated as of September
30, 1995 (the "Release and Termination Agreement"), certain of these agreements,
and all payments to be made thereunder, were terminated as of October 1, 1995 in
connection with the sale of DSI to FFMC. See "Sale of DSI to FFMC", below. The
Pension and Retiree Benefits Administration Services Agreement (pursuant to
which FFMC administers the Company's retiree healthcare and other benefits and
performs pension services on behalf of retirees), and Consulting Services
Agreement (pursuant to which the Company has access to its former senior
management and employees who accepted employment with FSI for consulting
services) were not terminated and remain in effect in accordance with their
terms.
In addition, pursuant to the Release and Termination Agreement, the
Company and FFMC agreed to the release of $20 million of the $45 million in
funds held in escrow pursuant to the Purchase Agreement, as follows: (i)
$6 million was released to the Company; (ii) $13.5 million was released to FFMC;
and (iii) $500,000 was released to FSI on behalf of FFMC. This release of escrow
funds constituted payment and settlement in full of any and all claims with
respect to adjustments to the Purchase Price (including all claims with respect
to the Pro Forma Balance Sheet previously delivered by the Company to FSI under
the Purchase Agreement) and with respect to the payment of certain of FFMC's
expenses incurred in connection with the bankruptcy court auction of the Money
Transfer Business and related assets. See "Sale of DSI to FFMC", below.
SALE OF DSI TO FFMC
Pursuant to an Asset Purchase Agreement dated as of September 30, 1995
(the "Asset Purchase Agreement"), on October 31, 1995, the Company completed the
sale of substantially all of the assets (exclusive of certain contracts) and
conveyance of substantially all of the liabilities of DSI to FFMC for $20
million cash, subject to certain adjustments. After adjustment for the decrease
in DSI's net assets from November 1, 1994 to September 30, 1995 of $2.46
million, the cash purchase price received by the Company at closing was $17.54
million. The transactions under the Asset Purchase Agreement became effective as
of October 1, 1995. The Trademark License Agreement entered into in connection
with the Purchase Agreement had contained an option (the "Option") pursuant to
which the Company granted to FFMC the right to purchase, and FFMC granted to the
Company the right to cause the Company to purchase, the capital stock of DSI for
$20 million, during the period January 1, 1996 through March 31, 1996. The Asset
Purchase Agreement in effect accelerated the transactions contemplated by the
Option. In connection with the DSI asset sale, the Company and FFMC agreed to a
release of $20 million of escrow funds constituting a final adjustment to the
Purchase Price and a final settlement of all expenses incurred by
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FFMC pursuant to the bankruptcy court-approved Solicitation Procedures (as
defined below).
BANKRUPTCY REORGANIZATION
On November 15, 1991, an involuntary petition under Chapter 11 of
Title 11 of the United States Code (the "Bankruptcy Code") was commenced against
the Company in the United States Bankruptcy Court for the District of New
Jersey, Newark Division (the "Bankruptcy Court"). On March 31, 1993, the Company
consented to the entry of an order for relief under the Bankruptcy Code.
In the Chapter 11 proceedings, the Company solicited offers for the
purchase of FSI or other assets of the Company or for investments in the
Company, and in connection therewith the Bankruptcy Court conducted a hearing on
June 24, 1994 during which certain procedures (the "Solicitation Procedures")
designed to obtain the highest and best price for the FSI Shares and the Related
Assets (collectively, the "Sale Assets") were developed by the parties and
approved by the Bankruptcy Court. On September 23, 1994, the Bankruptcy Court
determined that FFMC's bid of $1,193 million (without assumption of the
liabilities of the Pension Plan), was the "Highest and Best Offer for the Sale
Assets" (as defined in the Solicitation Procedures), and, following negotiations
with FFMC, the Purchase Agreement was executed on October 20, 1994. In addition,
pursuant to the terms of a Settlement Agreement dated October 19, 1994, the
Pension Benefit Guaranty Corporation (the "PBGC") filed with the Bankruptcy
Court a notice of dismissal of the proceedings which they initiated for an order
involuntarily terminating the Pension Plan.
On November 1, 1994, the Bankruptcy Court entered an order confirming
the Joint Plan. In addition to providing for the sale of assets to FFMC, the
Joint Plan provided for, among other things, (i) the satisfaction of allowed
claims in full, in cash, including settlement of all issues relating to
post-petition interest, (ii) the discharge (unless otherwise specifically
provided therein) of all pending lawsuits, pre-petition indebtedness (other than
disputed claims), accrued interest and post-petition interest and (iii) the
reinstatement of all of the Company's $15.00 Class A Increasing Rate Cumulative
Senior Preferred Shares ($100 Liquidation Value), $.01 par value per share (the
"Class A Senior Preferred Shares"), all of the Company's $3.00 Class B
Cumulative Convertible Preferred Shares ($25 Liquidation Value), $.10 par value
per share (the "Class B Preferred Shares", and together with the Class A Senior
Preferred Shares, the "Preferred Shares"), all of the Company's Common Shares,
and all other equity security interests of the Company. In addition, in
connection with the purchase by FFMC of the FSI Shares and Related Assets, FSI
became the sponsor of the Pension Plan, and the Company was permanently and
irrevocably released and discharged from all responsibilities, obligations
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and liabilities under the Pension Plan. The Joint Plan (i) required the Company
to pay a dividend (the "Special Cash Dividend") of $50 per share on the Class A
Senior Preferred Shares and (ii) required the Company, within 60 days after the
Effective Date (as defined below), to commence an offer to purchase (the "Tender
Offer") up to 150,000 Class A Senior Preferred Shares at a price of $80 per
share, in cash, net to the seller. The foregoing summary of the material
features of the Joint Plan is qualified in its entirety by reference to the
Joint Plan, which is incorporated by reference as an exhibit to this report.
The Joint Plan also provided that the Company use its best efforts to
cause each class of its equity securities to be listed on the NYSE or the
American Stock Exchange, or to be quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System (the "NASDAQ SmallCap
Market") and, if possible, the National Market System thereof (the "NMS").
During the first quarter of 1995, the Company filed an application to list its
equity securities on the NMS; however, such application was denied because of
the Company's failure to satisfy certain minimum listing standards, including
the minimum share bid price and the minimum net tangible asset requirements. The
proposed Redomestication, which is subject to approval, in accordance with the
NYBCL, of the Company's shareholders at the Company's Annual Meeting of
Shareholders to be held in June 1996, also contemplates the Reverse Stock Split
(as defined below) in which the number of Common Shares outstanding would be
reduced on a one-for-twenty basis. The principal purpose of the Reverse Stock
Split is to enhance the Company's ability to list the Common Shares on the
NASDAQ SmallCap Market or NMS, and in particular to satisfy the NASDAQ SmallCap
Market (and NMS) minimum bid price requirements, although there can be no
assurance that the market price of the Common Shares will rise in proportion to
the reduction in the number of the Common Shares outstanding as a result of the
Reverse Stock Split, that the Company will be able to satisfy the other NASDAQ
SmallCap Market (and NMS) listing standards, or that the Common Shares will be
approved for listing on the NASDAQ SmallCap Market or the NMS. In addition, the
Company may pursue other listing options; however, there is no assurance that
such listing efforts, if any, will be successful. If a listing is not achieved,
the equity securities will continue to trade in the over-the-counter market and
be quoted on the National Association of Securities Dealers, Inc.'s ("NASD") OTC
Electronic Bulletin Board, an NASD sponsored and operated inter-dealer quotation
system, under the symbols NVLY, NVLYA and NVLYB. See Item 5, "Market for
Registrant's Common Equity and Related Shareholder Matters".
The Joint Plan also (i) makes provisions for restrictions on and
approvals for certain transactions with affiliates to which the Company may be a
party, (ii) imposes requirements regarding proposed investments in capital stock
or other ownership interests in other entities, or in capital assets, under
certain circumstances, and (iii) requires that, whenever the vote of the holders
of the Class A Senior Preferred Shares acting as a single class is necessary for
any approval, then such vote must, in addition to satisfying all other
applicable requirements, reflect the affirmative vote of either (x) 80% of the
outstanding shares of that class or (y) a simple majority of all shares of that
class voting on the issue exclusive of shares beneficially owned by Brooke.
On January 18, 1995, the effective date of the Joint Plan (the
"Effective Date"), pursuant to the Joint Plan, the Company made distributions to
holders of its publicly-held debt securities as follows: (i) $334.6 million was
distributed in respect of claims allowed on behalf of holders of the Company's
outstanding 19 1/4% Notes, (ii) $133.8 million was distributed in respect of
claims allowed on behalf of holders of eight other series of senior debt
securities of the Company and (iii) $50.1 million was distributed in respect of
claims allowed on behalf of holders of two series of subordinated debt
securities of the Company.
<PAGE> 15
12
In addition, the Company also made distributions of approximately $33
million in respect of general and other unsecured claims, and paid $21.3 million
into an escrow account in respect of certain litigation. Subsequently, the
litigation was settled and the funds released from escrow with $15.7 million
being paid to other parties to the litigation and $5.6 million being returned to
the Company. Approximately $35.6 million in disputed claims remain to be
resolved by the Bankruptcy Court. Pursuant to the Joint Plan, all of the
Company's debt and allowed claims were satisfied in full and all classes of
preferred shares, common shares and other equity interests were reinstated and
retained all of their legal, equitable and contractual rights.
Pursuant to the Bankruptcy Code and the terms of the Joint Plan, on
December 13, 1994, the Company amended its Restated Certificate of Incorporation
to prohibit the issuance of non-voting equity securities.
On January 18, 1995, pursuant to the Joint Plan, the Company paid the
Special Cash Dividend to holders of record of Class A Senior Preferred Shares on
December 20, 1994 in an aggregate amount of approximately $75.1 million.
Pursuant to the Joint Plan, the Company commenced the Tender Offer on
January 20, 1995. On February 21, 1995, the Company accepted for payment all
54,445 Class A Senior Preferred Shares validly tendered in the Tender Offer. The
Tender Offer was made pursuant to the provisions of the Joint Plan and
definitive offering materials filed with the Securities and Exchange Commission
(the "SEC") and mailed to holders of Class A Senior Preferred Shares.
AGREEMENTS WITH EQUITY REPRESENTATIVES
In connection with the settlement of certain objections to the Joint
Plan, among other things, Barry W. Ridings and Henry C. Beinstein (together the
"Shareholder Designees") were initially appointed as directors of the Company
and were subsequently elected at the last Annual Meeting of Shareholders held on
May 15, 1995 by holders of the Preferred Shares, in accordance with the
Company's Restated Certificate of Incorporation, as a result of dividend
<PAGE> 16
13
arrearages thereon. The Company and the Board of Directors have agreed to take
all steps within their power to cause the Shareholder Designees (or their
permitted successors) to serve as directors of the Company until their
successors are elected at the third annual meeting of shareholders held after
the Effective Date (the "Shareholder Designee Termination Date"). The Joint Plan
contains provisions for the election of successors to the Shareholder Designees
if they are unwilling or unable to continue to serve.
Members of the Brooke Group (as defined in the Joint Plan) have agreed
to vote or cause to be voted all of their respective shares of capital stock in
the Company in favor of the election of the Shareholder Designees. Until the
Shareholder Designee Termination Date, if any director other than a Shareholder
Designee shall resign or become unable to serve, the remaining directors shall
be entitled to designate a successor.
SIGNIFICANT SHAREHOLDERS
At March 29, 1996, Brooke, a corporation which is controlled by
Bennett S. LeBow, the Chairman of the Board and Chief Executive Officer of the
Company (the "Chairman"), held in the aggregate through BGLS' direct and
indirect ownership of Class A Senior Preferred Shares, Class B Preferred Shares
and Common Shares of the Company, representing approximately 42% of the combined
voting power of the Company. See the information incorporated by reference under
Item 12, "Security Ownership of Certain Beneficial Owners and Management".
EMPLOYEE RELATIONS
At December 31, 1995, the Company had approximately 294 full-time
employees of which approximately 278 were employed by Ladenburg. The Company
believes that relations with its employees are satisfactory.
ITEM 2. PROPERTIES
The Company's principal executive office is in Miami, Florida, where
it shares offices with Brooke. The Company entered into an expense sharing
agreement for use of such office space. The Company also leases operating
centers and office and warehouse facilities in various cities. Ladenburg's
principal offices are located in New York. Ladenburg leases approximately 74,000
square feet and approximately 64,000 square feet of office space in office
buildings pursuant to leases that expire on June 30, 2015 and December 31, 1996,
respectively.
In January 1996, the Company acquired the Office Buildings and The
Shopping Centers. Two of the Office Buildings are located in Bernards Township,
New Jersey, and the other two are located in Troy, Michigan. The Shopping
Centers are located in Marathon and
<PAGE> 17
14
Royal Palm Beach, Florida; Lincoln, Nebraska; Santa Fe, New Mexico; Milwaukee,
Oregon; Richland and Marysville, Washington; and Charleston, West Virginia. The
Company acquired a fee simple interest in each Office Building (subject to
certain rights of existing tenants), together with a fee simple interest in the
land underlying three of the Office Buildings and a 98-year ground lease
underlying one of the Office Buildings. The Office Buildings are subject to
purchase money liens in favor of the Sellers. The Company acquired a fee simple
interest in each Shopping Center and the underlying land for each property. The
Shopping Centers are subject to existing senior liens in favor of lenders to the
sellers and to subordinated purchase money liens in favor of the Sellers. The
Office Buildings and Shopping Centers are being operated through the Company's
newly-formed New Valley Realty division. See Item 1, "Business - New Valley
Realty Division".
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Notes 8 and 15 to the Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS; EXECUTIVE
OFFICERS OF THE REGISTRANT
During the last quarter of 1995, no matter was submitted to
shareholders for their vote or approval, through the solicitation of proxies or
otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The table below, together with accompanying text, presents certain
information regarding all current executive officers of the Company as of April
1, 1996. There are no family relationships among the executive officers of the
Company. Each of the executive officers of the Company serves until the election
and qualification of his successor or until his death, resignation or removal by
the Board of Directors of the Company.
<PAGE> 18
15
<TABLE>
<CAPTION>
Year individual
became an executive
Name Age Position officer
- ---- --- -------- -------------------
<S> <C> <C> <C>
Bennett S. LeBow 58 Chairman of the Board 1988
and Chief Executive
Officer
Howard M. Lorber 47 President and Chief 1994
Operating Officer
Richard J. Lampen 42 Executive Vice President and 1995
General Counsel
Gerald E. Sauter 52 Vice President, Treasurer 1994
and Chief Financial Officer
</TABLE>
- -------------------
BENNETT S. LEBOW. For the past five years, the Chairman's principal
occupation has been as an officer and/or director of, and a private investor in,
privately and publicly held companies.
The Chairman has been Chairman of the Board of the Company since
January 1988 and Chief Executive Officer thereof since November 1994 and
currently holds various positions with the Company's subsidiaries. Since June
1990, the Chairman has been the Chairman of the Board, President and Chief
Executive Officer of Brooke, a New York Stock Exchange-listed holding company,
and since October 1986 has been a director of Brooke. Since November 1990, he
has been Chairman of the Board, President and Chief Executive Officer of BGLS,
which directly or indirectly holds Brooke's equity interests in several private
and public companies. Each of the public companies have been, directly or
indirectly, operating companies.
The Chairman has been a director of Liggett Group Inc. ("Liggett"), a
manufacturer and seller of cigarettes since June 1990 and was Chairman of the
Board from July 1990 to May 1993. He served as one of three interim Co-Chief
Executive Officers from March 1993 to May 1993. Liggett is a wholly-owned
subsidiary of BGLS. From June 1990 until August 1994, he was Chairman of the
Board and/or a director of SkyBox International Inc., Brooke's former indirect
wholly-owned subsidiary.
<PAGE> 19
16
He was also a director of MAI Systems Corporation, Brooke's former
indirect majority-owned subsidiary, from September 1984 to October 1995, its
Chairman of the Board from November 1990 to May 1995 and the Chief Executive
Officer from November 1990 to April 1993.
HOWARD M. LORBER has been President and Chief Operating Officer of the
Company since November 1994. Mr. Lorber has been Chairman of the Board and Chief
Executive Officer of Hallman & Lorber Assoc., Inc., consultants and actuaries to
qualified pension and profit sharing plans ("Hallman & Lorber"), since 1975. Mr.
Lorber was also Chairman of the Board and/or a director of VTX Electronics
Corporation, a distributor of wire and cable, from October 1991 until April
1994. He has been a shareholder of Aegis Capital Corp., a broker-dealer and a
member firm of the NASD, since 1984; Chairman of the Board of Directors since
1987 and Chief Executive Officer since November 1993 of Nathan's Famous, Inc., a
chain of fast food restaurants; and was a director of SkyBox from November 1993
until May 1995 and Chairman of the Board of Directors of SkyBox from March 1994
until May 1995. Mr. Lorber also serves as a director and member of the Audit
Committee of United Capital Corp., a real estate investment and diversified
manufacturing company, since May 1991; a director and member of the Audit
Committee of Alpine Lace Brands, Inc., a company which develops and markets a
full line of low salt, low cholesterol and fat-free cheeses, since 1993; and a
director and member of the Audit Committee of Prime Hospitality Corp., a company
doing business in the lodging industry, since May 1994. Mr. Lorber has also been
a shareholder of a corporate general partner, of a limited partnership organized
to acquire and operate real estate property. The limited partnership filed for
protection under the Federal bankruptcy laws in 1991.
RICHARD J. LAMPEN has been Executive Vice President and General
Counsel of the Company since October 1995. Mr. Lampen has been a director of
Thinking Machines since February 1996. From May 1992 to September 1995, Mr.
Lampen was a partner at Steel Hector & Davis, a law firm located in Miami,
Florida. From January 1991 to April 1992, Mr. Lampen was a Managing Director at
Salomon Brothers Inc, an investment bank, and was an employee at Salomon
Brothers Inc from 1986 to April 1992. Mr. Lampen has served as a director of a
number of companies, including U.S. Can Corporation and The International Bank
of Miami, N.A., as well as a court-appointed independent director of Trump Plaza
Funding, Inc.
GERALD E. SAUTER has been Vice President, Treasurer and Chief
Financial Officer of the Company since November 1994 and currently holds various
positions with the Company's subsidiaries. Mr. Sauter has also been Vice
President and Chief Financial Officer of Brooke since April 1993; Vice President
and Chief Financial Officer of BGLS since April 1993 and currently holds various
positions with certain BGLS subsidiaries; Vice President and Treasurer
<PAGE> 20
17
of Eve Holdings, Inc., a wholly-owned subsidiary of Liggett, since October 1992
and a director since December 1992.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Common Shares (and the Preferred Shares) are quoted on the NASD
OTC Electronic Bulletin Board, an NASD sponsored and operated inter-dealer
automated quotation system, under the symbols NVLY, NVLYA and NVLYB. The Common
Shares are principally traded in the over-the-counter market. During the first
quarter of 1995, the Company filed an application to have its equity securities
(including the Common Shares) made eligible for quotation and listing on the
NMS; however, such application was denied because the Company did not satisfy
certain minimum listing standards, including the minimum share bid price and
the minimum net tangible asset requirements.
The following table sets forth, for the calendar quarters indicated,
the range of per share prices for the Common Shares. The table shows the range
of high and low bid quotations for the first, second and third quarters of 1994
as published by the National Quotation Bureau, Inc. Such quotations reflect
inter-dealer prices in the over-the-counter market, without retail markups,
markdowns or commissions, and do not necessarily represent actual transactions.
Prices for the fourth quarter of 1994 are high and low sale prices as published
by the NASDAQ Stock Market, Inc. and 1995 prices reflect quotations on the NASD
OTC Electronic Bulletin Board.
<TABLE>
<CAPTION>
Year High Low
- ---- ---- ---
<S> <C> <C>
1995:
First Quarter ........................................ $.28 .15
Second Quarter ....................................... .31 .17
Third Quarter ........................................ .54 .20
Fourth Quarter ....................................... .51 .26
1994:
First Quarter ........................................ $.01 .01
Second Quarter ....................................... .10 .10
Third Quarter ........................................ .10 .10
Fourth Quarter ....................................... .35 .06
</TABLE>
<PAGE> 21
18
At March 29, 1996, there were approximately 27,350 holders of record of
the Common Shares.
No dividends were paid on the Common Shares in 1995. The Company's
Restated Certificate of Incorporation provides that no dividends shall be paid
or declared (i) on the Class B Preferred Shares (other than a dividend payable
in junior stock) as long as there are any dividend arrearages on the Class A
Senior Preferred Shares, and (ii) on the Common Shares so long as there are
dividend arrearages on the Preferred Shares. The accrued and unpaid dividend
arrearage on the Class A Senior Preferred Shares at December 31, 1995 was
$121,893,406 or $110.06 per Class A Senior Preferred Share. The accrued and
unpaid dividend arrearage on the Class B Preferred Shares at December 31, 1995
was $95,117,810 or $34.08 per Class B Preferred Share. Within these
constraints, the payment of future dividends, if any, will be determined by the
Board of Directors in light of the Company's financial condition, cash flow,
results of operations, legal dividend capacity and other factors.
The proposed Redomestication (and attendant Merger) which is subject to
approval of the Company's shareholders in accordance with the NYBCL at the
Company's Annual Meeting of Shareholders to be held in June 1996, would effect
the Reverse Stock Split, in which the number of Common Shares outstanding would
be reduced on a one-for-twenty basis. See Item 1, "Business - General". The
rights, designations, limitations and preferences of the Common Shares upon
completion of the Merger will in all other respects be identical to the rights,
designations, limitations and preferences of the Common Shares immediately prior
to the Merger. The principal purpose for the Reverse Stock Split is to enhance
the Company's ability to list the Common Shares on the NASDAQ SmallCap Market or
NMS, and in particular satisfy the NASDAQ SmallCap Market (and NMS) minimum bid
price requirements, although there can be no assurance that the market price of
the Common Shares will rise in proportion to the reduction in the number of the
Common Shares outstanding as a result of the Reverse Stock Split, that the
Company will be able to satisfy the other NASDAQ SmallCap Market (and NMS)
listing standards such as the minimum net tangible asset requirement, or that
the Common Shares will be approved for listing on the NASDAQ SmallCap Market or
the NMS. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Developments - The Redomestication
Proposal", below.
ITEM 6. SELECTED FINANCIAL DATA
See "Consolidated Five-Year Financial Summary" on pages F-30 and F-31 of
this report.
<PAGE> 22
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The information set forth below applied to the Company's Consolidated
Financial Statements, which include the Company and its consolidated
subsidiaries.
INTRODUCTION
The following discussion provides an assessment of the results of
operations, capital resources and liquidity of the Company and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this report. The operating results of the periods
presented were not significantly affected by inflation.
On November 1, 1994, the Bankruptcy Court confirmed the Joint Plan and,
thereafter, on January 18, 1995, the Company emerged from bankruptcy. The Joint
Plan provided for, among other things, the sale of the Company's Money Transfer
Business, the payment of all allowed claims (including post-petition interest of
$178,000), a $50 per share dividend to holders of Class A Senior Preferred
Shares and the Tender Offer by the Company for up to 150,000 Class A Senior
Preferred Shares at a purchase price of $80 per share.
Pursuant to the Joint Plan, the Company sold its interest in the Money
Transfer Business to FFMC for $1,193,000 (including a $300,000 credit for the
assumption by FFMC of the Western Union Pension Plan) and recognized a gain on
the sale of $1,056,000. In addition, the Company received the Option to sell to
FFMC and FFMC received the Option to purchase the Company's Messaging Services
Business for $20,000, exercisable during the first quarter of 1996. As a result,
the results of operations of the Money Transfer Business and the Messaging
Services Business are presented as discontinued operations. These discontinued
operations, as more fully described below, generated virtually all of the
previously reported revenues of the Company in 1993 and 1994. See Item 1,
"Business - Bankruptcy Reorganization".
On October 31, 1995, the Company consummated the sale of the Messaging
Services Business to FFMC for $20,000 in cash, subject to certain adjustments,
prior to the exercise of the Option. The parties agreed to consummate the sale
early in connection with their definitive resolution of certain post-closing
adjustments to the Purchase Price, as prescribed by the Purchase Agreement.
<PAGE> 23
20
RECENT DEVELOPMENTS
CERTAIN MATTERS RELATING TO RJR HOLDINGS
Solicitations to Initiate a Spinoff of RJR Holdings' Food Business. On
October 17, 1995, the Company and its subsidiary ALKI Corp. ("ALKI") entered
into an agreement, as amended (the "Agreement"), with High River Limited
Partnership ("High River"), an entity owned by Carl C. Icahn. Pursuant to the
Agreement, the Company sold approximately 1,600,000 shares of RJR Holdings
common stock to High River for an aggregate purchase price of approximately $51
million. In addition, the parties agreed that each of the Company and ALKI, on
the one hand, and High River and its affiliates, on the other hand, would invest
up to approximately $150 million in shares of RJR Holdings common stock and may
invest up to approximately $250 million in shares of RJR Holdings common stock,
subject to certain conditions and limitations. Any party to the Agreement may
terminate it at any time, although under certain circumstances, the terminating
party will be required to pay a fee of $50 million to the nonterminating party.
The Agreement also provides that High River will be entitled to a payment equal
to 20% of the net profit with respect to RJR Holdings common stock held or sold
by the Company after deduction of certain expenses as defined in the Agreement.
Similarly, on October 17, 1995, BGLS and Brooke entered into an agreement, as
amended (the "High River Agreement"), with High River.
Pursuant to each of these agreements, the parties agreed to take
certain actions designed to cause RJR Holdings to effectuate an immediate
spinoff of its food business, Nabisco Holdings Corp. ("Nabisco"). Among other
things, Brooke agreed to solicit the holders of RJR Holdings common stock to
adopt an advisory resolution approving an immediate spinoff of Nabisco to RJR
Holdings stockholders (the "Spinoff Resolution"). Among other things, High River
agreed in the High River Agreement to grant a written consent to the Spinoff
Resolution with respect to all shares of RJR Holdings common stock held by it
and to grant a proxy with respect to all such shares in the event that Brooke
seeks to replace RJR Holdings' incumbent Board of Directors at its 1996 annual
stockholders' meeting with a slate of directors committed to effect the spinoff.
The Spinoff Resolution was approved by the holders of a majority of RJR Holdings
common stock in March 1996, as more fully described below. Brooke, BGLS and
their affiliates agreed not to engage in certain transactions with RJR Holdings
(including a sale of Liggett or a sale of shares of RJR Holdings common stock to
RJR Holdings) and not to take certain other actions to the detriment of RJR
Holdings stockholders. High River also agreed that it would not engage in such
transactions or take such other actions while the agreement was in effect. In
the event that any signatory engages in such transactions or takes such other
actions, the High River Agreement provides that the party so doing must pay a
fee of $50 million to the other, except under certain limited circumstances. Any
party to the High River Agreement may terminate it at any time, although under
certain circumstances, the terminating party will be required to pay a fee of
$50 million to the nonterminating party.
<PAGE> 24
21
The High River Agreement also provides that BGLS pay certain other fees to High
River under certain circumstances. The foregoing description is qualified in its
entirety by reference to such agreement, a copy of which is incorporated by
reference as an exhibit to this report.
On October 30, 1995, Brooke announced, among other things, its intention
to solicit consents from stockholders of RJR Holdings in support of, among other
things, the Spinoff Resolution. In connection therewith, Brooke also indicated
that it would propose a new slate of directors to replace RJR Holdings'
incumbent Board of Directors at its 1996 annual stockholders' meeting if such
board does not commit prior to November 20, 1995, the deadline for proposing new
directors, to effect the Spinoff Resolution.
On November 6, 1995, Brooke filed a Preliminary Consent Statement with
the SEC that included, among other things, the Spinoff Resolution.
On November 20, 1995, Brooke, acting to preserve its right to nominate a
slate of directors at RJR Holdings' 1996 annual stockholders' meeting, submitted
to RJR Holdings information with respect to nominees committed to an immediate
spinoff of Nabisco.
On December 27, 1995, the Company entered into an agreement with Brooke
pursuant to which the Company agreed to pay directly or reimburse Brooke and its
subsidiaries for reasonable out-of-pocket expenses incurred in connection with
pursuing the completed consent solicitation and the proxy solicitation
(described below). The Company has also agreed to pay to BGLS a fee of 20% of
the net profit received by the Company or its subsidiaries from the sale of
shares of RJR Holdings common stock after the Company and its subsidiaries have
achieved a rate of return of 20% and after deduction of certain expenses
incurred by the Company and its subsidiaries, including the costs of the consent
solicitation, the proxy solicitation and of acquiring the shares of RJR Holdings
common stock. The Company has also agreed to indemnify Brooke and its affiliates
against certain liabilities arising out of the completed consent solicitation
and the proxy solicitation. The foregoing description is qualified in its
entirety by reference to such agreement, a copy of which is incorporated by
reference as an exhibit to this report.
On December 28, 1995, the Company, Brooke and Liggett engaged
Jefferies & Company, Inc. ("Jefferies") to act as financial advisor in
connection with the Company's investment in RJR Holdings and the consent
solicitation and proxy solicitation by Brooke (as amended on February 28, 1996
and April 9, 1996, the "Jefferies Agreement"). In connection with this
engagement, the Company has (i) paid to Jefferies an initial fee of $1,500,000
and (ii) agreed to pay Jefferies, during the period commencing January 1, 1996
and ending March 31, 1996, a monthly fee of $250,000, which monthly fee
increased to $500,000 on February 20, 1996 (to be prorated for February) and, in
addition, during each of the three months ending March 31, 1996, an additional
monthly fee of $100,000, and during the month of April 1996, a $160,000 fee.
These companies have also agreed to pay Jefferies 10% of the net profit (up to a
maximum of $15,000,000) with respect to RJR
<PAGE> 25
22
Holdings common stock (including any distributions made by RJR Holdings) held or
sold by these companies and their affiliates after deduction of certain
expenses, including the costs of the consent solicitation and the proxy
solicitation by Brooke relating to the Spinoff and the costs of acquiring the
shares of RJR Holdings' common stock (all of which expenses will be borne by the
Company, ALKI or Brooke). In addition, the Company agreed to reimburse Jefferies
for all reasonable out-of-pocket expenses, including the fees and expenses of
its counsel, incurred by Jefferies in connection with its engagement and the
Company and Brooke agreed to indemnify Jefferies and certain related persons
against certain liabilities and expenses. The foregoing description is qualified
in its entirety by reference to such agreement, a copy of which is incorporated
by reference as an exhibit to this report.
On December 29, 1995, Brooke filed a definitive Consent Statement with
the SEC and commenced solicitation of consents from stockholders of RJR Holdings
seeking, among other things, the approval of the Spinoff Resolution. On February
20, 1996, Brooke announced that, based on a preliminary count, over a majority
of the outstanding shares of RJR Holdings voted in favor of the Spinoff
Resolution. On March 13, 1996, Brooke was informed by the independent inspectors
of election that consents representing 142,237,880 votes (50.58%) were delivered
in favor of the Spinoff Resolution and 150,926,535 votes (53.67%) were delivered
in favor of certain amendments to RJR Nabisco's bylaws proposed by Brooke. RJR
Nabisco announced that it currently had no plans to contest the outcome of the
vote.
On March 4, 1996, Brooke filed a definitive Proxy Statement with the SEC
and commenced solicitation of proxies in favor of its previously nominated slate
of directors to replace RJR Holdings' incumbent Board of Directors at its 1996
annual meeting of stockholders.
The Company's Investment in RJR Holdings. As of March 29, 1996, the
Company held approximately 5.2 million shares of RJR Holdings common stock. As
of March 29, 1996, the Company's costs for such shares and the amount of related
margin loan financing were approximately $158,000 and approximately $83,500,
respectively. As of March 29, 1996, the Company had an unrealized loss of $2,082
on its investment in RJR Holdings common stock and had expensed approximately
$10,000 for costs relating to such investment, of which approximately $4,000 was
expensed in 1995.
On February 29, 1996, the Company entered into a total return equity
swap transaction with an unaffiliated company (the "Counterparty") relating to
1,000,000 shares of RJR Holdings common stock. The transaction is for a period
of up to six months, subject to earlier termination at the election of the
Company, and provided for the Company to make payment to the Counterparty of
approximately $1,537 upon commencement of the swap. At the termination of the
transaction, if the price of the RJR Holdings common stock during a specified
period prior to such date (the "Final Price") exceeds $34.42, the price of the
RJR Holdings common stock during a specified period following the commencement
of
<PAGE> 26
23
the swap (the "Initial Price"), the Counterparty will pay the Company an amount
in cash equal to the amount of such appreciation with respect to 1,000,000
shares of RJR Holdings common stock plus the value of any dividends with a
record date occurring during the swap period. If the Final Price is less than
the Initial Price, then the Company will pay the Counterparty at the termination
of the transaction an amount in cash equal to the amount of such decline with
respect to the 1,000,000 shares of RJR Holdings common stock, offset by the
value of any dividends, provided that, with respect to approximately 225,000
shares of RJR Holdings common stock, the Company will not be required to pay any
amount in excess of an approximate 25% decline in the value of the shares. The
potential obligations of the Counterparty under the swap are being guaranteed by
the Counterparty's parent, a large foreign bank, and the Company has pledged
certain collateral in respect of its potential obligations under the swap and
has agreed to pledge additional collateral under certain conditions. As of
March 29, 1996, the Company had an unrealized loss on this swap transaction of
approximately $4,200 and had pledged collateral of approximately $11,800. The
foregoing description is qualified in its entirety by reference to such
agreement, a copy of which is incorporated by reference as an exhibit to this
report.
OTHER RECENT DEVELOPMENTS
Thinking Machines. On January 11, 1996, Ladenburg Capital, the
merchant banking subsidiary of Ladenburg Group, in connection with the Plan of
Thinking Machines, made the Loan (a $10,600 million convertible bridge loan) to
TMCA, an entity formed to invest the Loan proceeds (net of certain expenses) in
Thinking Machines.
On February 8, 1996, the date of confirmation of the Plan, Thinking
Machines emerged from bankruptcy and merged with TMCA pursuant to the Plan. As a
result of this merger, the Loan was converted into a controlling interest in a
certain partnership which holds approximately 61% of the outstanding common
stock of Thinking Machines. Thinking Machines will use the Loan proceeds to help
fund its advanced product development and marketing. For further information
concerning this transaction, see Note 21 (Subsequent Events) to the Consolidated
Financial Statements.
New Valley Realty Division. On January 11, 1996, the Company completed
the acquisition of four Office Buildings and eight Shopping Centers. The
aggregate purchase price of $183,900 consisted of $23,900 in cash and $160,000
in mortgage financing. These real estate properties are operated by the
Company's newly formed division, New Valley Realty. See Item 1, "Business -
New Valley Realty Division".
<PAGE> 27
24
Class A Senior Preferred Shares. On January 15, 1996 and February 5,
1996, the Company repurchased 65,275 and 6,829 Class A Senior Preferred Shares,
respectively, for a total amount of $10,530. The Company declared and paid a
cash dividend of $10 per share on the Class A Senior Preferred Shares in March
1996.
The Redomestication Proposal. The Company's Board of Directors has
unanimously approved the Redomestication proposal that would effect a change of
the Company's jurisdiction of incorporation from the State of New York to the
State of Delaware. The Redomestication would be accomplished through the merger
(the "Merger") of the Company with and into a newly-formed wholly owned
subsidiary of the Company that is incorporated in Delaware ("NV Delaware"), with
NV Delaware as the surviving corporation in the Merger. NV Delaware has not
conducted any business other than with respect to the proposed Merger. The
Redomestication would not result in any change in the business, management,
executive officers, directors, location of principal executive offices, assets,
liabilities or net worth of the Company. By operation of law, upon the
completion of the Merger, all assets, property, rights, liabilities and
obligations of the Company would be transferred to and assumed by NV Delaware.
Upon completion of the Merger, NV Delaware would be renamed "New Valley
Corporation". The Merger would be accomplished pursuant to the terms and
conditions of a merger agreement (the "Merger Agreement") between the Company
and NV Delaware. The Redomestication and the Merger Agreement are subject to the
approval of the Company's shareholders in accordance with the NYBCL at the
Company's annual meeting to be held in June 1996.
The principal purpose of the Redomestication is to change the law
applicable to the Company's corporate affairs from the NYBCL to the Delaware
General Corporation Law, because the Company believes that Delaware corporation
law offers a number of advantages over New York corporation law. In addition,
the Redomestication would, as a result of the transactions contemplated by the
Merger Agreement, effect the Reverse Stock Split reducing the number of
outstanding Common Shares on a one-for-twenty basis. See Item 5, "Market for
Registrant's Common Equity and Related Shareholder Matters". Other than the
Reverse Stock Split, the Merger will have no effect on the capital stock of the
Company.
New Accounting Pronouncements. In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable and that long-lived assets and certain identifiable intangibles to
be disposed of generally be reported at the lower of carrying amount of fair
value less cost to sell. SFAS No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. The Company does
<PAGE> 28
25
not expect the adoption of SFAS No. 121 to have a material effect on its
financial position or results of operations.
RESULTS OF OPERATIONS
The year 1995 compared to the year 1994
Revenues. Revenues for 1995 were $67,730 as compared with $10,381 for
1994. The increase in revenues of $57,349 is due primarily to the acquisition of
Ladenburg on May 1, 1995, and an increase in interest, dividends, and net gains
on sales of investments resulting from the investment of the cash received from
the sale of the Money Transfer Business in November 1994 and January 1995.
Ladenburg contributed $40,418 in revenues in 1995 for the eight months during
which it was owned by the Company. Interest and dividend income increased
$13,943 in 1995 as compared to 1994.
Other income for 1995 was $18,558 as compared with $3,277 for 1994.
Ladenburg's other income of $9,589 in 1995 was comprised primarily of $5,942 of
corporate finance fees and $1,683 of syndications and underwriting fees. Net
gains on sales of investments, exclusive of Ladenburg's operations, were $7,078
in 1995 as compared to no sales in 1994.
Expenses. Expenses for 1995 were $66,064 as compared with $26,146 for
1994. Employee compensation and benefits expense was $30,994 in 1995, of which
$25,530 related to Ladenburg. In 1994, virtually all of the Company's employee
compensation was included in discontinued operations. Interest expense increased
from $643 in 1994 to $2,102 in 1995 due to the Company obtaining a margin loan
in 1995 to fund the purchase of additional shares of RJR Nabisco.
In 1995, the Company reversed $2,044 in certain restructuring accruals
that were created in 1994 through a $22,734 provision. The reversal of
restructuring accruals in 1995 resulted from the Company settling certain claims
at amounts below the accrued claim liability. During the fourth quarter of 1995,
the Company recognized an impairment loss on certain of its investments of
approximately $12,000.
Other expenses of $23,222 in 1995 consisted of $12,534 related to
Ladenburg's operations and $10,688 of corporate expenses. Ladenburg's other
expenses consisted primarily of $3,444 of clearance fees, $2,007 of
communication expenses, and $1,677 of rent expenses. Corporate expenses in 1995
primarily related to investment expenses of $6,279, of which $3,879 pertained to
the Company's investment in RJR Holdings. Other expenses in 1994 of $2,550
related to various corporate overhead expenses such as professional fees,
insurance, and communications.
<PAGE> 29
26
Income tax expense for 1995 was $292, or approximately 17% of the income
from continuing operations before income taxes and extraordinary items, as
compared to an income tax benefit of $500 for 1994. This effective tax rate
represented the alternative minimum tax rate for federal tax purposes in
addition to a blended state income tax rate. The income tax benefit in 1994 was
due to state income tax benefits from the Company's net operating loss from
continuing operations.
Discontinued Operations. Income from discontinued operations, net of
income taxes, decreased from $79,625 in 1994 to $4,315 in 1995 as a result of
the sale of the Money Transfer Business in the fourth quarter of 1994. For 1995,
income from discontinued operations represented the operations of the Messaging
Services Business which was sold effective October 1, 1995, and resulted in a
pre-tax gain of $13,958.
The year 1994 compared to the year 1993
Continuing Operations. As previously discussed, virtually all of the
Company's operations in 1994 and 1993 were reclassified to discontinued. The
Company's net loss from continuing operations was $15,265 in 1994 as compared to
$10,965 in 1993. The net losses from continuing operations was primarily a
result of restructuring charges of $22,734 and $9,035 in 1994 and 1993,
respectively, resulting from the Company's reorganization. See Item 1,
"Business - Bankruptcy Reorganization".
Discontinued Operations. Income from discontinued operations, net of
income taxes, increased from $38,368 in 1993 to $79,625 in 1995 as a result of
the growth in revenues and income in the Company's money transfer business. As
previously discussed, the Company's Money Transfer Business was sold in 1994.
Liquidity and Capital Resources
During 1995, the Company paid $584,397 in allowed prepetition claims,
purchased short-term and long-term investments, net of sales, of $249,190,
acquired Ladenburg for a net cash payment of $25,750, and paid dividends of
$132,162 on the Class A Senior Preferred Shares from the $893,000 received from
the sale of the Money Transfer Business and other cash held at December 31,
1994.
The Company's working capital decreased from $284,849 at December 31,
1994 to $155,565 at December 31, 1995 primarily as a result of the payment of
preferred dividends of $132,162, and the repurchase of 393,845 shares of Class A
Senior Preferred Shares for $47,761. On January 15, 1996 and February 5, 1996,
the Company repurchased 65,275 and 6,829 Class A Senior Preferred Shares,
respectively, for a total amount of $10,530. The Company declared and paid a
cash dividend of $10 per share on the Class A Senior Preferred Shares in March
1996. The Company did not have any material commitments for capital expenditures
at December 31, 1995.
<PAGE> 30
27
As a result of the asset dispositions pursuant to the Joint Plan, the
Company emerged from bankruptcy protection on January 18, 1995 with a
significant amount of cash and cash equivalents, and investment securities. From
January 1995 to January 1996, the Company reinvested sufficient capital in
operating companies to avoid potentially burdensome regulation under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). The
Investment Company Act and the rules and regulations thereunder require the
registration of, and impose various substantive restrictions on, companies that
engage primarily in the business of investing, reinvesting or trading in
securities or engage in the business of investing, reinvesting, owning, holding
or trading in securities and own or propose to acquire "investment securities"
having a "value" in excess of 40% of a company's "total assets" (exclusive of
Government securities and cash items) on an unconsolidated basis. Following
dispositions of its then operating businesses pursuant to the Joint Plan, the
Company was above this threshold and relied on the one-year exemption from
registration under the Investment Company Act provided by Rule 3a-2 thereunder,
which exemption expired on January 18, 1996. Prior to such date, through the
Company's acquisition of the investment banking and brokerage business of
Ladenburg and its acquisition of the Office Buildings and Shopping Centers (see
Item 1, "Business - Ladenburg, Thalmann & Co. Inc." and "- New Valley Realty
Division", above), the Company was engaged primarily in a business or businesses
other than that of investing, reinvesting, owning, holding or trading in
securities, and the value of its investment securities was below the 40%
threshold. Under the Investment Company Act, the Company is required to
determine the value of its total assets for purposes of the 40% threshold based
on "market" or "fair" values, depending on the nature of the asset, at the end
of the last preceding fiscal quarter and based on cost for assets acquired since
that date. However, no assurance can be given that the Company will continue to
operate below the 40% threshold, and accordingly, there may be risk that the
Company will become subject to the Investment Company Act. However, no assurance
can be given that the Company will continue to operate below the 40% Threshold,
and accordingly, there may be risk that the Company will become subject to the
Investment Company Act. If the Company were required to register under the
Investment Company Act, it would be subject to a number of material restrictions
on its operations, capital structure and management, including without
limitation its ability to enter into transactions with affiliates.
As discussed in this Item 7, " - Recent Developments - Certain Matters
Relating to RJR Holdings", the Company has taken certain actions and has entered
into certain agreements in connection with its investment in RJR Holdings.
As of March 29, 1996, the Company held approximately 5.2 million shares
of RJR Holdings common stock, representing approximately 1.9% of RJR Holdings'
common stock outstanding. As of March 29, 1996, the Company's cost for such
shares and the amount of related margin loan financing were $158,000 and
$83,500, respectively. As of March 29, 1996, the Company had an unrealized loss
of $2,082 on its investment in RJR Holdings common stock.
Of the $111,400 aggregate purchase price for the Office Buildings
acquired by the Company on January 10, 1996 (see Item 1, "Business - New Valley
Realty Division", above), the Company paid $11,400 in cash at the closing, and
executed four promissory notes in the aggregate principal amount of $100,000
(the "Office Building Notes") in favor of the applicable Seller for the balance
of the purchase price. Each Office Building Note has a term of approximately 15
years (other than the note for the 800 Tower Drive property, which has a term of
approximately 10 years), bears interest at the rate of 7.5% per annum, and is
secured by a first mortgage on the respective Office Building in favor of the
applicable Seller, as well as by an assignment of leases and rents. Principal is
amortized to the extent of approximately
<PAGE> 31
28
7% (or, in the case of the 800 Tower Drive property, approximately 6%) during
the term of the Office Building Notes and, with respect to the 800 Tower Drive
property only, the Company must make additional prepayments of principal to the
Sellers on a quarterly basis to the extent of a specified portion of tenants'
payments for electricity and overtime heat, ventilation and air conditioning.
The Office Building Notes may be prepaid without penalty and are non-recourse
against the Company, except to a specified extent for misappropriations of rents
and certain other proceeds and failure to pay special assessments and taxes on
the mortgaged properties and except for material misrepresentations by the
Company in the purchase agreement pursuant to which it acquired the Office
Buildings.
Of the $72,500 aggregate purchase price for the Shopping Centers
acquired by the Company on January 11, 1996 (see Item 1, "Business - New Valley
Realty Division", above), the Company paid $12,500 in cash at the closing, and
pursuant to certain loan and security agreements (the "Loan and Security
Agreements") executed eight promissory notes in the aggregate principal amount
of $60,000 (the "Shopping Center Notes") in favor of the applicable Partnership
for the balance of the purchase price. Each Shopping Center Note has a term of
approximately five years, and bears interest at the rate of 8% per annum for the
first two and one-half years and at the rate of 9% for the remainder of the
term. In addition, with respect to the Properties only, if the net operating
income from such Shopping Center is insufficient to cover the interest payments
on the corresponding Shopping Center Note, the interest rate thereon is reduced
to a rate per annum not less than 6%, whereupon the interest otherwise payable
will be deferred until the earlier of the date on which sufficient net operating
income is available and the maturity date. There is no amortization of principal
except in connection with payments made to obtain the release of mortgages from
the property and to the extent net operating income from the Shopping Centers is
so available as provided in the Loan and Security Agreements.
Under agreements entered into after January 11, 1996, the closing date
of the Shopping Centers purchase, income from the Shopping Centers are paid to a
trustee bank. Under such agreements, certain payments, including regular
payments of principal and interest on the Senior Mortgages and the Shopping
Center Notes, are to be made before the Company receives income for such period
from the Shopping Centers. In addition, the Company has agreed to use any net
income from the Shopping Centers it receives in excess of a specified return on
its cash investment in the Shopping Centers to pay down principal on the
Shopping Center Notes.
Each Shopping Center Note is secured by a subordinated purchase-money
mortgage (each, a "Purchase-Money Mortgage") and an assignment of leases and
rents, and the five Shopping Center Notes covering the Properties are also
secured by mortgages junior to the Purchase-Money Mortgages (the "Junior
Mortgages") and subordinated assignments of leases, rents and fixtures. Each
Purchase-Money Mortgage and Junior Mortgage (together with corresponding
assignments) "wraps around" and is junior to the Senior Mortgages (as defined
<PAGE> 32
29
below), and is in favor of the applicable Partnership. The five Shopping Center
Notes covering the Properties are cross-collateralized. The other three Shopping
Center Notes may also be cross-collateralized at the option of the applicable
Partnerships, provided certain conditions have been met. In addition, the
Shopping Centers are subject to existing senior mortgages (the "Senior
Mortgages") in favor of certain lenders to the Partnerships (the "Lenders"). The
Shopping Center Notes are non-recourse against the Company, except for
misappropriations of insurance and certain other proceeds, failures to apply
rent and other income to required maintenance and taxes, environmental
liabilities and certain other matters.
The maturities of the Partnerships' obligations to the Lenders under the
Senior Mortgages are in all cases but one shorter than those of the Company to
the Partnerships under the Purchase-Money Mortgages and have remaining
maturities ranging from approximately one month to approximately seven years.
The Company is entitled to certain rights of offset with respect to the Shopping
Center Notes in the event of the Seller's failure to discharge or refinance any
of the Senior Mortgages and to an indemnity from the Partnerships relating
thereto. In addition, the Company has obtained indemnities from Apollo relating
to (i) discrepancies between the Purchase-Money (and Junior) Mortgages, on the
one hand, and Senior Mortgages, on the other hand, in each case with respect to
the Properties, (ii) defaults or acceleration of payments under the Senior
Mortgages triggered as a result of the acquisition of the Shopping Centers
(other than the Properties) by the Company or the financing thereof and (iii)
certain environmental matters.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements and Notes thereto, together
with the report thereon of Coopers & Lybrand L.L.P. ("Coopers & Lybrand") dated
April 10, 1996, and Price Waterhouse LLP ("Price Waterhouse") dated March 24,
1995, on pages F-1 through F-32, and "Quarterly Financial Data" on page F-29
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 8, 1995, the Board of Directors voted to terminate the
engagement of Price Waterhouse as its independent auditors effective upon
completion of the audit for the fiscal year ended December 31, 1994, and to
approve the engagement of Coopers & Lybrand, as auditors for the fiscal year
1995.
During the fiscal year ended December 31, 1994 and the subsequent
interim period through March 8, 1995, there were no disagreements with Price
Waterhouse on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Price Waterhouse, would
<PAGE> 33
30
have caused them to make reference in connection with their opinion to the
subject matter of the disagreements.
The audit reports of Price Waterhouse on the consolidated financial
statements of the Company and its subsidiaries as of and for the fiscal years
ended December 31, 1993 and 1994 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified as to audit scope or accounting
principles.
The Company engaged Coopers & Lybrand as its independent accountants as
of March 8, 1995.
Pursuant to Item 304 of Regulation S-K, a letter from Price Waterhouse,
dated March 13, 1995, is incorporated by reference as an exhibit to this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is contained in the Company's definitive Proxy
Statement for its 1996 annual meeting of shareholders (the "Proxy Statement"),
to be filed with the SEC not later than 120 days after the end of the
registrant's fiscal year covered by this report pursuant to Regulation 14A under
the Exchange Act, and incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information is contained in the Proxy Statement and incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is contained in the Proxy Statement and incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is contained in the Proxy Statement and incorporated
herein by reference.
<PAGE> 34
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) INDEX TO 1996 CONSOLIDATED FINANCIAL STATEMENTS:
The Consolidated Financial Statements and the Notes thereto, together
with the report thereon of Coopers & Lybrand dated April 10, 1996, and Price
Waterhouse dated March 24, 1995, appear on pages F-1 through F-32 of this
report. Financial statement schedules not included in this report have been
omitted because they are not applicable or the required information is shown in
the Consolidated Financial Statements or the Notes thereto.
(A)(2) FINANCIAL STATEMENT SCHEDULES:
Schedule II Valuation and Qualifying Accounts ....................... Page F-32
(A)(3) EXHIBITS
* (2)(a) Joint Plan (incorporated by reference to Exhibit 2 in the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994).
* (b) Plan Amendment (incorporated by reference to Exhibit 2 in the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994).
* (c) Notice of Modification to the First Amended Joint Chapter 11 Plan
of Reorganization (incorporated by reference to Exhibit 2 in the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994).
* (3)(a) Restated Certificate of Incorporation of the Company, as amended
to date (incorporated by reference to Exhibit 3(a) in the
Company's Form 10-K for the fiscal year ended December 31, 1994).
* (b) By-laws of the Company, as amended to date (incorporated by
reference to Exhibit (3)(b) in Amendment No. 4 to the Company's
Registration Statement No. 33-28883).
<PAGE> 35
32
* (4)(a) First Mortgage, Security Agreement, Assignment of Leases and
Rents and Fixture Filing dated January 10, 1996 by the Company,
as Mortgagor, and Jared Associates, L.P., as Mortgagee (Westgate
I) (incorporated by reference to Exhibit 4.1 in the Company's
Current Report on Form 8-K dated January 25, 1996).
* (b) Secured Promissory Note of the Company dated January 10, 1996 in
favor of Jared Associates, L.P. (Westgate I) (incorporated by
reference to Exhibit 4.2 in the Company's Current Report on Form
8-K dated January 25, 1996).
* (c) Loan and Security Agreement dated January 11, 1996 by and between
AP Century III, L.P., AP Century IV, L.P., AP Century V, L.P., AP
Century VI, L.P. and AP Century VIII, L.P., as Lenders, and the
Company, as Borrower (the Properties) (incorporated by reference
to Exhibit 4.3 in Amendment No. 1 to the Company's Current Report
on Form 8-K dated January 25, 1996, as amended).
* (10)(a) 1987 Stock Option Plan of the Company, as amended to date
(incorporated by reference to Exhibit 10(b) in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1991.
(b)(i)(A) Employment Agreement dated as of June 1, 1995, as amended,
effective as of January 1, 1996, between the Company and Bennett
S. LeBow.
(ii) Employment Agreement dated as of June 1, 1995, as amended,
effective as of January 1, 1996, between the Company and Howard
M. Lorber.
* (iii) Employment Agreement dated September 22, 1995, between the
Company and Richard J. Lampen (incorporated by reference to
Exhibit 10(c) in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1995).
* (iv) Letter Agreement between New Valley Holdings, Inc. ("NV
Holdings"), the Company and Robert J. Amman, dated December 7,
1994 (incorporated by reference to Exhibit (c)(13) in the
Company's Issuer Tender Offer Statement on Schedule 13E-4 dated
January 20, 1995).
* (v) Irrevocable Proxy, dated December 7, 1994, granted by Robert J.
Amman to NV Holdings (incorporated by reference to Exhibit
(c)(14) in the Company's Issuer Tender Offer Statement on
Schedule 13E-4 dated January 20, 1995).
<PAGE> 36
33
* (vi) Amendment No. 1 to the Purchase Agreement, dated November 14,
1994, between FFMC and the Company (incorporated by reference to
Exhibit 10(b) in the Company's Current Report on Form 8-K dated
November 1, 1994).
* (h)(i) Services Agreement, dated November 15, 1994, by and among the
Company, DSI and FSI (incorporated by reference to Exhibit 10(c)
in the Company's Current Report on Form 8-K dated November 1,
1994).
* (ii) Consulting Services Agreement, dated November 15, 1994, between
the Company and FSI (incorporated by reference to Exhibit 10(d)
in the Company's Current Report on Form 8-K dated November 1,
1994).
* (iii) Pension and Retiree Benefits Administration Services Agreement,
dated November 1, 1994, between the Company and FSI (incorporated
by reference to Exhibit 10(e) in the Company's Current Report on
Form 8-K dated November 1, 1994).
* (iv) Trademark License Agreement, dated November 15, 1994, by and
among the Company, as licensor, and FFMC and FSI, as licensees
(incorporated by reference to Exhibit 10(f) in the Company's
Current Report on Form 8-K dated November 1, 1994).
* (v) Trademark License Agreement, dated November 15, 1994, by and
among FFMC and FSI as licensors, and the Company and DSI, as
licensees (incorporated by reference to Exhibit 10(g) in the
Company's Current Report on Form 8-K dated November 1, 1994.
* (vi) Service Mark License Agreement, dated November 15, 1994, by and
among the Company, DSI and FSI (incorporated by reference to
Exhibit 10(h) in the Company's Current Report on Form 8-K dated
November 1, 1994).
* (vii) Sales and Marketing Services Agreement, dated November 15, 1994,
by and among the Company, DSI and FSI (incorporated by reference
to Exhibit 10(i) in the Company's Current Report on Form 8-K
dated November 1, 1994).
* (viii) Escrow Agreement, dated November 15, 1994, by and among the
Company, FFMC and NationsBank of Georgia, National Association
(incorporated by reference to Exhibit 10(j) in the Company's
Current Report on Form 8-K dated November 1, 1994).
* (ix) Settlement Agreement dated October 19, 1994 among the Company,
the Statutory Committee of Unsecured Creditors, the Official
Committee of
<PAGE> 37
34
Secured Noteholders, FSI, FFMC and the Pension Benefit Guaranty
Corporation (incorporated by reference to Exhibit 10(c) in the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994).
* (x) Stipulation dated October 20, 1994 among the Western Union
Employee Benefit Committee, the Company and the Pension Benefit
Guaranty Corporation (incorporated by reference to Exhibit 10(d)
in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1994).
* (xi) Settlement Agreement, Stipulation and Order dated October 28,
1994 among the Company, BGLS, NV Holdings, the Statutory
Committee of Unsecured Creditors, the Official Committee of
Secured Noteholders and the Official Committee of Equity Security
Holders, the Preferred A Stockholders' Sub- Committee of the
Equity Committee and certain beneficial holders of Series A
Preferred Stock of the Company (incorporated by reference to
Exhibit 10(b) in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1994).
* (i) Purchase Agreement dated January 10, 1996 by and among the
Company, Bellemead Michigan, Inc., and Jared Associates, L.P.
(incorporated by reference to Exhibit 2.1 in the Company's
Current Report on Form 8-K dated January 25, 1996).
* (j) Purchase Agreement dated January 11, 1996 between the Company and
AP Century I, L.P., AP Century II, L.P., AP Century III, L.P., AP
Century IV, L.P, A.P. Century V, L.P., A.P. Century VI, L.P.,
A.P. Century VIII, L.P. and AP Century IX, L.P. (incorporated by
reference to Exhibit 2.2 in the Company's Current Report on Form
8-K dated January 25, 1996, as amended).
(k)(i) Indemnity Agreement, dated January 11, 1996, from Apollo Real
Estate Investment to the Company regarding loan document
discrepancies.
(ii) Indemnity Agreement, dated January 11, 1996, from Apollo Real
Estate Investment to the Company regarding existing lender
consents.
(iii) Environmental Indemnity Agreement, dated January 11, 1996, from
Apollo to the Company regarding University Place Property.
(iv) Environmental Indemnity Agreement, dated January 11, 1996, from
the Company to Apollo regarding post-closing contamination.
<PAGE> 38
35
* (l) Expense Sharing Agreement made and entered into as of January 18,
1995, by and between Brooke and the Company (incorporated by
reference to Exhibit 10(a) in the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1995).
* (m) Asset Purchase Agreement dated September 30, 1995 among the
Company, DSI and FFMC (incorporated by reference to Exhibit 10(b)
in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1995).
* (n) Agreement among the Company, ALKI and High River, dated October
17, 1995 (incorporated by reference to Exhibit 10(d) in the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1995).
* (o) Letter Amendment, dated October 17, 1995, to the Agreement among
the Company, ALKI and High River, dated October 17, 1995
(incorporated by reference to Exhibit 10(e) in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995).
* (p) Letter Amendment, dated November 5, 1995, to the Agreement among
the Company, ALKI, and High River, dated October 17, 1995
(incorporated by reference to Exhibit 10(f) in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995).
(q) Amended and Restated Plan and Agreement of Merger by and among
Thinking Machines, OTMC Corporation and TMC Acquisition Corp.,
dated as of January 9, 1996.
(r) TMC Investment Partnership Agreement dated as of February 2,
1996, between Ladenburg Thalmann Capital Corp. and Levin-A
Limited Partnership.
* (s) Form of Margin Agreement dated September 12, 1995, between ALKI
and Bear Stearns & Co. (incorporated by reference to Exhibit 2 in
the Schedule 13D filed by, among others, the Company with the SEC
on March 11, 1996, as amended, with respect to the common stock
of RJR Nabisco Holdings Corp. (the "Schedule 13D")).
* (t) Agreement, dated December 28, 1995, between Jefferies, Brooke,
the Company and Liggett (incorporated by reference to Exhibit 7
in the Schedule 13D).
<PAGE> 39
36
* (u) Letter Amendment, dated February 28, 1996, to the Agreement
between Jefferies, Brooke, the Company and Liggett, dated
February 27, 1996 (incorporated by reference to Exhibit 7 in the
Schedule 13D).
* (v) Agreement, dated December 27, 1995, between Brooke and the
Company (incorporated by reference to Exhibit 8 in the Schedule
13D).
* (w) International Swap Dealers Association Master Agreement (and the
schedules and annexes thereto) and Confirmation, dated February
28, 1996, between the Company and Internationale Nederlanden
(U.S.) Capital Markets, Inc. (incorporated by reference to
Exhibit 10 in the Schedule 13D).
* (x) Agreement and Plan of Merger by and between the Company and
Ladenburg dated March 31, 1995 (schedules omitted) (incorporated
by reference to Exhibit 99(a) in the Company's Current Report on
Form 8-K dated April 4, 1995).
(y) Release and Termination Agreement, dated September 30, 1995,
among the Company, FSI, DSI and FFMC, which agreement terminated
certain agreements among such parties in connection with the sale
of DSI.
(11) Statement re computation of per share earnings.
* (16)(a) Letter from Price Waterhouse, dated March 13, 1995.
(incorporated by reference to Exhibit 4.1 in the Company's
Current Report on Form 8-K dated March 8, 1995).
* (b) Letter from Price Waterhouse, dated April 5, 1995
(incorporated by reference to Exhibit 4.2 in Amendment No. 1 to
the Company's Current Report on Form 8-K dated March 8, 1995).
(21) Subsidiaries of the Company.
(27) Financial Data Schedule (for SEC use only).
* (99)(a) Order confirming First Amended Joint Chapter 11 Plan of
Reorganization for the Company entered by the United States
Bankruptcy Court for the District of New Jersey on November 1,
1994 (incorporated by reference to Exhibit
<PAGE> 40
37
99(b) in the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1994).
* (b) Order Authorizing Sale of Shares and Related Assets entered by
the United States Bankruptcy Court for the District of New Jersey
on November 1, 1994 (incorporated by reference to Exhibit 99(a)
in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1994).
- --------------
* Incorporated by reference.
The foregoing list omits instruments defining the rights of holders of
long-term debt of the Company and its consolidated subsidiaries where the total
amount of securities authorized thereunder does not exceed 10% of the total
assets of the Company and its consolidated subsidiaries. The Company hereby
agrees to furnish a copy of each such instrument or agreement to the SEC upon
request.
Exhibits not filed herewith are incorporated by reference to the
exhibits to prior filings indicated in parenthesis.
(b) REPORTS ON FORM 8-K:
During the fourth quarter of 1995, the Company filed a Current Report
on Form 8-K, dated November 1, 1995, concerning item 2, with the Commission on
November 3, 1995.
<PAGE> 41
NEW VALLEY CORPORATION
Form 10-K for the Year Ended December 31, 1995
Items 6, 7, 8, 14(a)(1) and (2), and 14(d)
Index to Selected Financial Information,
Management's Discussion and Analysis of
Financial Condition and Results of Operations,
Financial Statements and Financial Statement Schedules
Selected Financial Information, Management's Discussion and Analysis
of Financial Condition and Results of Operations,
Financial Statements and Schedules of the Registrant and its subsidiaries,
required to be included in Items 6, 7, 8, 14(a)(1) and (2), and 14(d)
are listed below:
Page
----
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................... 19
FINANCIAL STATEMENTS:
Reports of Independent Accountants ................................. F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994......... F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993.................................. F-4
Consolidated Statements of Changes in Non-Redeemable Preferred
Shares, Common Shares and Other Capital (Deficit) for the
years ended December 31, 1995, 1994 and 1993..................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993................................. F-7
Notes to Consolidated Financial Statements.......................... F-9
QUARTERLY FINANCIAL DATA (UNAUDITED).................................. F-29
SELECTED FINANCIAL DATA............................................... F-30
FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts..................... F-32
Financial Statement Schedules not listed above have been omitted because they
are not applicable or the required information is contained in the Consolidated
Financial Statements or accompanying Notes.
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the
Shareholders of New Valley Corporation
We have audited the accompanying consolidated balance sheet of New Valley
Corporation and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, changes in non-redeemable preferred
shares, common shares and other capital (deficit), and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
New Valley Corporation and subsidiaries at December 31, 1995, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Miami, Florida
April 10, 1996
F-1
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the
Shareholders of New Valley Corporation
In our opinion, the consolidated financial statements as of December 31,
1994, appearing under Item 14(a)(1) present fairly, in all material respects,
the financial position of New Valley Corporation and its subsidiaries (the
"Company") at December 31, 1994, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluation the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Morristown, New Jersey
March 24, 1995
F-2
<PAGE> 44
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
---------------------------------
December 31,
---------------------------------
---------------------------------
1995 1994
---------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 51,742 $ 376,170
Investment securities 241,526
Contract receivable 300,000
Restricted assets 22,919 354,639
Receivable from clearing brokers 13,752
Other current assets 3,546 8,400
--------- -----------
Total current assets 333,485 1,039,209
--------- -----------
Investment securities 517
Assets of discontinued operations held for sale 5,400
Restricted assets 15,086 25,000
Long-term investments, net 29,512
Other assets 7,222 282
--------- -----------
Total assets $ 385,822 $ 1,069,891
========= ===========
LIABILITIES AND CAPITAL (DEFICIT)
Current liabilities:
Margin loan payable $ 75,119
Accounts payable and accrued liabilities 27,712 $ 10,931
Prepetition claims and restructuring accruals 33,392 619,833
Dividend payable 75,070
Income taxes 20,283 31,907
Securities sold, not yet purchased 13,047
Current portion of long-term obligations 8,367 16,619
--------- -----------
Total current liabilities 177,920 754,360
--------- -----------
Deferred income taxes payable 19,572
Long-term obligations 11,967 16,605
Redeemable preferred shares 226,396 317,798
Commitments and contingencies
Non-redeemable preferred shares, Common Shares and other
capital (deficit):
Cumulative preferred shares; liquidation preference of $69,769,
dividends in arrears: 1995 - $95,118; 1994 - $76,700 279 279
Common Shares, $.01 par value; 850,000,000 shares
authorized; 191,551,586 and 188,725,550 shares
outstanding 1,916 1,887
Additional paid-in capital 679,058 692,001
Accumulated deficit (714,364) (732,611)
Unrealized appreciation on investment securities, net of
taxes of $294 2,650
--------- -----------
Total non-redeemable preferred shares, Common
Shares and other capital (deficit) (30,461) (38,444)
--------- -----------
Total liabilities and capital (deficit) $ 385,822 $ 1,069,891
========= ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-3
<PAGE> 45
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
------------------------------------------------
Year Ended
------------------------------------------------
December 31, December 31, December 31,
------------------------------------------------
1995 1994 1993
------------------------------------------------
<S> <C>
Revenues:
Principal transactions, net $ 18,237
Commissions 9,888
Interest and dividends 21,047 $ 7,104 $ 3,369
Other income 18,558 3,277 475
--------- ----------- --------
Total revenues 67,730 10,381 3,844
--------- ----------- --------
Costs and expenses:
Employee compensation and benefits 30,994 219
Interest 2,102 643 2,752
Provision for (recovery of) restructuring charges (2,044) 22,734 9,035
Write-down of long-term investments (Note 6) 11,790
Other expenses 23,222 2,550 3,247
--------- ----------- --------
Total costs and expenses 66,064 26,146 15,034
--------- ----------- --------
Income (loss) from continuing operations before income
taxes and extraordinary items 1,666 (15,765) (11,190)
Income tax provision (benefit) 292 (500) (225)
--------- ----------- --------
Income (loss) from continuing operations before
extraordinary items 1,374 (15,265) (10,965)
--------- ----------- --------
Discontinued operations (Note 3):
Income from discontinued operations, net
of income taxes of $480, $5,500, and
$1,325, respectively 4,315 79,625 38,368
Gain on disposal of discontinued operations, net
of income taxes of $1,400 and $52,000 12,558 1,056,081
--------- ----------- --------
Income from discontinued operations 16,873 1,135,706 38,368
--------- ----------- --------
Income before extraordinary items 18,247 1,120,441 27,403
Extraordinary items:
Loss on extinguishment of debt, net of income
taxes of $3,475 (Note 15) (110,500)
Gain on extinguishment of lease obligation (Note 8) 8,417
--------- ----------- --------
Net income 18,247 1,009,941 35,820
Dividends on preferred shares - undeclared (72,303) (80,037) (68,706)
Excess of carrying value of redeemable preferred
shares over cost of shares purchased 40,342
--------- ----------- --------
Net income (loss) applicable to Common Shares $ (13,714) $ 929,904 $(32,886)
========= =========== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-4
<PAGE> 46
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
------------------------------------------------
Year Ended
------------------------------------------------
December 31, December 31, December 31,
------------------------------------------------
1995 1994 1993
------------------------------------------------
<S> <C> <C> <C>
Income (loss) per common share:
Continuing operations before extraordinary items $ (.16) $ (.50) $ (.42)
Discontinued operations .09 6.03 .20
------------ ------------ ------------
Before extraordinary items (.07) 5.53 (.22)
Extraordinary items -- (.59) .04
------------ ------------ ------------
Net income (loss) $ (.07) $ 4.94 $ (.18)
============ ============ ============
Number of shares used in computation 191,086,000 188,298,000 187,723,000
============ ============ ============
Income (loss) per common share assuming full dilution:
Continuing operations before extraordinary items $ (.16) $ (.37) $ (.42)
Discontinued operations .09 5.36 .20
------------ ------------ ------------
Before extraordinary items (.07) 4.99 (.22)
Extraordinary items -- (.52) .04
------------ ------------ ------------
Net income (loss) $ (.07) $ 4.47 $ (.18)
============ ============ ============
Number of shares used in computation 191,086,000 211,558,000 187,723,000
============ ============ ============
Supplemental information:
Additional interest expense, absent
the Chapter 11 filing $ 2,314 $ 46,927 $ 46,927
============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-5
<PAGE> 47
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NON-REDEEMABLE PREFERRED
SHARES, COMMON SHARES AND OTHER CAPITAL (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
$3.00 Class B
Preferred Shares Common Shares Additional
---------------- ------------- Paid In Accumulated Unrealized
Shares Amount Shares Amount Capital Deficit Appreciation
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 3,025 $ 303 186,163 $1,862 $809,215 $(1,778,372)
Net income 35,820
Undeclared dividends and accretion
on redeemable preferred shares (54,149)
Conversion of preferred shares (234) (24) 1,951 19 5
Accrued compensation associated
with stock options granted 450
----- ----- ------- ------ -------- -----------
Balance December 31, 1993 2,791 279 188,114 1,881 755,521 (1,742,552)
Net income 1,009,941
Undeclared dividends and accretion
on redeemable preferred shares (63,635)
Conversion of preferred shares 3
Exercise of stock options 609 6 115
----- ----- ------- ------ -------- -----------
Balance, December 31, 1994 2,791 279 188,726 1,887 692,001 (732,611)
Net income 18,247
Undeclared dividends and accretion
on redeemable preferred shares (53,821)
Purchase of redeemable preferred
shares 40,342
Exercise of stock options 2,825 29 536
Unrealized appreciation on investment
securities, net of taxes $2,650
----- ----- ------- ------ -------- ----------- ------
Balance, December 31, 1995 2,791 $ 279 191,551 $1,916 $679,058 $ (714,364) $2,650
===== ===== ======= ====== ======== =========== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-6
<PAGE> 48
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
------------------------------------------
Year Ended December 31,
------------------------------------------
------------------------------------------
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 18,247 $ 1,009,941 $ 35,820
Adjustments to reconcile net income to net
cash used for operating activities:
Gain on disposal of business (12,558) (1,056,081)
Income from discontinued operations (4,315) (79,625) (38,368)
Provision for loss on long-term investments 11,790
Reversal of restructuring accruals (2,044) (318) (2,117)
Extraordinary loss (gain) 110,500 (8,417)
Financial restructuring costs 23,052 11,152
Changes in assets and liabilities, net of effects from acquisition:
Decrease (increase) in receivables and other assets 12,292 (7,571) 160
Decrease in income taxes payable and deferred taxes (32,517)
Decrease in securities sold not yet purchased (9,359)
Increase (decrease) in accounts payable and accrued
liabilities 5,223 (16,896) (12,635)
--------- ----------- ---------
Net cash used for operating activities (13,241) (16,998) (14,405)
--------- ----------- ---------
Cash flows from investing activities:
Net proceeds from disposal of business 17,540 467,822
Payment of prepetition claims and restructuring accruals (584,397)
Collection of contract receivable 300,000
Decrease (increase) in restricted assets 341,634 (367,378)
Sale or maturity of investment securities 250,129
Purchase of investment securities (458,017)
Purchase of long-term investments (77,411)
Sale or liquidation of long-term investments 36,109
Payment for purchase of Ladenburg, net of cash acquired (25,750)
--------- -----------
Net cash provided from (used for) investing activities (200,163) 100,444
--------- -----------
Cash flows from financing activities:
Payment of preferred dividends (132,162)
Purchase of Class A preferred stock (47,761)
Increase in margin loan payable 75,119
Payment of long-term obligations (12,890)
Exercise of stock options 565
---------
Net cash used for financing activities (117,129)
---------
Expenses of financial restructuring (23,052) (11,152)
----------- ---------
Net cash provided from discontinued operations 6,105 139,410 71,417
--------- ----------- ---------
Net (decrease) increase in cash and cash equivalents (324,428) 199,804 45,860
Cash and cash equivalents, beginning of year 376,170 176,366 130,506
--------- ----------- ---------
Cash and cash equivalents, end of year $ 51,742 $ 376,170 $ 176,366
========= =========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-7
<PAGE> 49
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
---------------------------------
Year Ended December 31,
---------------------------------
---------------------------------
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid during the year for:
Interest (including capital leases and
excluding interest on prepetition claims) $ 2,105 $ 476 $ 2,915
Income taxes 33,662 882 834
Non-cash investing and financing activities:
Contract receivable 300,000
Pension liability discharge 245,000
Capital leases 4,982
Detail of Ladenburg acquisition:
Fair value of assets acquired 59,066
Liabilities assumed 32,316
--------
Cash paid 26,750
Less cash acquired 1,000
--------
Net cash paid for acquisition 25,750
========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-8
<PAGE> 50
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
Principles of Consolidation
The consolidated financial statements include the accounts of New Valley
Corporation (the "Company") and its majority owned subsidiaries
(collectively, "New Valley"). All significant intercompany transactions
are eliminated in consolidation.
Certain amounts in the 1993 and 1994 financial statements have been
reclassified to conform to the 1995 presentation.
Reorganization
On November 15, 1991, an involuntary petition under Chapter 11 of Title
11 of the United States Code (the "Bankruptcy Code") was commenced against
the Company in the United States Bankruptcy Court for the District of New
Jersey (the "Bankruptcy Court"). On March 31, 1993, the Company consented
to the entry of an order for relief placing it under the protection of
Chapter 11 of the Bankruptcy Code.
On November 1, 1994, the Bankruptcy Court entered an order confirming the
First Amended Joint Chapter 11 Plan of Reorganization, as amended (the
"Joint Plan"). The terms of the Joint Plan provided for, among other
things, the sale of Western Union Financial Services Company, Inc. ("FSI"),
a wholly-owned subsidiary of the Company, and certain other Company assets
related to FSI's money transfer business, payment in cash of all allowed
claims, payment of postpetition interest in the amount of $178,000 to
certain creditors, a $50 per share cash dividend to the holders of the
Company's $15.00 Class A Increasing Rate Cumulative Senior Preferred
Shares ($100 Liquidation Value), $.01 par value per share (the "Class A
Senior Preferred Shares"), a tender offer by the Company for up to 150,000
shares of the Class A Senior Preferred Shares, at a price of $80 per share,
and the reinstatement of all of the Company's equity interests.
On November 15, 1994, pursuant to the Asset Purchase Agreement, dated
as of October 20, 1994, as amended (the "Purchase Agreement"), by and
between the Company and First Financial Management Corporation ("FFMC"),
FFMC purchased all of the common stock of FSI and other assets relating to
FSI's money transfer business for $1,193,000 (the "Purchase Price"). The
Purchase Price consisted of $593,000 in cash, $300,000 representing the
assumption of the Western Union Pension Plan obligation, and $300,000 paid
on January 13, 1995 for certain intangible assets of FSI. The Purchase
Agreement contained various terms and conditions, including the escrow of
$45,000 of the Purchase Price, a put option by the Company to sell to FFMC,
and a call option by FFMC to purchase, Western Union Data Services Company,
Inc., a wholly-owned subsidiary of the Company engaged in the messaging
service business (the "Messaging Services Business"), for $20,000,
exercisable during the first quarter of 1996, and various services
agreements between the Company and FFMC.
On January 18, 1995, the effective date of the Joint Plan, the Company
paid approximately $550,000 on account of allowed prepetition claims and
emerged from bankruptcy. At December 31, 1995, the Company had accrued
$33,392 for unsettled prepetition claims and restructuring accruals (see
Note 15).
F-9
<PAGE> 51
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
On October 31, 1995, the Company completed the sale of substantially
all of the assets (exclusive of certain contracts), and conveyed
substantially all of the liabilities of the Messaging Services Business
to FFMC for $20,000, which consisted of $17,540 in cash and $2,460 in
cancellation of intercompany indebtedness. The sale of the Messaging
Services Business was effective as of October 1, 1995, and the Company
recognized a gain on the sale of such business of $12,558, net of
income taxes of $1,400.
2. ACQUISITION
On May 31, 1995, the Company consummated its acquisition of Ladenburg,
Thalmann & Co. Inc. ("Ladenburg"), a registered broker-dealer and
investment bank, for $25,750, net of cash acquired. The acquisition was
treated as a purchase for financial reporting purposes and, accordingly,
these consolidated financial statements include the operations of Ladenburg
from the date of acquisition. The excess of the consideration paid over
the estimated fair value of net assets acquired of $1,342 has been
recorded as goodwill to be amortized on the straight-line basis over 15
years.
Unaudited pro-forma data giving effect to the acquisition of Ladenburg
as if it had been consummated as of January 1, 1994 are shown below. The
unaudited pro-forma data do not purport to be indicative of what would
have occurred had the acquisition been consummated as of such date.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
---- ----
<S> <C> <C>
Revenues $ 93,072 $ 69,251
Income (loss) from continuing
operations before extraordinary item 1,633 (13,699)
Income before extraordinary item 18,506 1,122,007
Net income 18,506 1,011,507
Net income (loss) applicable to
common shares (13,455) 931,470
Net income (loss) per common share (.07) 4.95
</TABLE>
3. DISCONTINUED OPERATIONS
As noted above, the Company sold FSI during the fourth quarter of 1994
and sold the Messaging Services Business effective October 1, 1995.
Accordingly, the financial statements reflect the financial position
and the results of operations of the discontinued operations of FSI and
the Messaging Services Business separately from continuing operations
which principally consisted of the investment banking and brokerage
business of Ladenburg and income derived from its other investments at
December 31, 1995.
Operating results of the discontinued operations, as shown below, include
the operations of the Messaging Services Business for the nine months ended
September 30, 1995 and the operations of FSI and Messaging Services
Business for the years ended December 31, 1994 and 1993.
F-10
<PAGE> 52
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues $37,771 $489,916 $477,349
======= ======== ========
Operating Income $ 4,795 $ 85,125 $ 39,693
======= ======== ========
Income before income taxes $ 4,795 $ 85,125 $ 39,693
Provision for income taxes 480 5,500 1,325
------- -------- --------
Net income $ 4,315 $ 79,625 $ 38,368
======= ======== ========
</TABLE>
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents. The Company considers all highly liquid
financial instruments with an original maturity of less than three months
to be cash equivalents.
Fair Value of Financial Instruments. Investments in securities and
securities sold, not yet purchased traded on a national securities exchange
or listed on NASDAQ are valued at the last reported sales prices of the
reporting period. Futures contracts are valued at their last reported sales
price. Investments in securities, principally warrants, which have exercise
or holding period restrictions, are valued at fair value as determined by
the Company's management based on the intrinsic value of the warrants
discounted for such restrictions.
Investment Securities. The Company follows the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" which requires certain
investments in debt and marketable equity securities be classified as
either trading, available for sale, or held to maturity. Trading securities
are carried at fair value, with unrealized gains and losses included in
income. Investments classified as available for sale are carried at fair
value, with net unrealized gains and losses included as a separate
component of stockholders' equity (deficit). Debt securities classified as
held to maturity are carried at amortized cost. Realized gains and losses
are included in other income, except for those relating to the Company's
broker-dealer subsidiary which are included in principal transactions
revenues. The cost of securities sold is determined based on average cost.
Restricted Assets. At December 31, 1995, the current and noncurrent
portions of restricted assets consisted primarily of $28,200 held in escrow
pursuant to the sale of FSI to FFMC, which have been classified based on
the terms of the Purchase Agreement and the anticipated release of the
escrow. Restricted assets consists of investments in U.S. government bonds.
At December 31, 1994, restricted assets consisted of $334,600 held in
escrow for certain debenture holders, which monies were released on January
18, 1995, in addition to $45,000 held in escrow pursuant to the Purchase
Agreement. In addition, pursuant to certain provisions contained in the
Joint Plan, the Company's cash and cash equivalents held at December 31,
1994 were restricted to short-term high grade marketable securities until
January 18, 1995.
F-11
<PAGE> 53
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
Depreciation. Property and equipment (including equipment subject to
capital leases) is depreciated over the estimated useful lives, using the
straight-line method. Leasehold improvements are amortized on a
straight-line basis over their estimated useful lives or the lease term, if
shorter. As property and equipment is retired, its cost and the related
accumulated depreciation are eliminated. Depreciation expense was $600,
$9,000 and $12,400 in 1995, 1994 and 1993, respectively. Depreciation
expense for 1994 and 1993 is included in discontinued operations.
Income Taxes. At December 31, 1995, the Company had $84,678 of unrecognized
net deferred tax assets, comprised primarily of net operating loss
carryforwards, available to offset future taxable income for federal tax
purposes. A valuation allowance has been provided against this deferred tax
assets as it is presently deemed more likely than not that the benefit of
the tax assets will not be utilized. The Company continues to evaluate the
realizability of its deferred tax assets. The provision for income taxes,
which represented the effect of the Alternative Minimum Tax and state
income taxes, for the three years ended December 31, 1995, 1994 and 1993,
does not bear a customary relationship with pre-tax accounting income
from continuing operations principally as a consequence of the reduction
in the valuation allowance relating to deferred tax assets.
Securities Sold, Not Yet Purchased. Securities sold, but not yet purchased,
represent obligations of the Company to deliver a specified security at a
contracted price and thereby creates a liability to repurchase the security
in the market at prevailing prices. Accordingly, these transactions
involve, to varying degrees, elements of market risk, as the Company's
ultimate obligation to satisfy the sale of securities sold, but not yet
purchased, may exceed the amount recognized in the consolidated statement
of financial condition. At December 31, 1995, securities sold, but not yet
purchased, consisted of $10,293 of equity and index options and $2,754 of
common stock.
Income (Loss) Per Common Share. Net income (loss) per common share is based
on the weighted average number of Common Shares outstanding. Net income
(loss) per common share represents net income (loss) after dividends on
redeemable and non-redeemable preferred shares (undeclared) and any
adjustment for the difference between excess of carrying value of
redeemable preferred shares and the cost of the shares purchased. Net
income (loss) per common share assuming full dilution is based on the
weighted average number of Common Shares outstanding plus the additional
common shares resulting from the conversion of convertible preferred shares
if such conversion was dilutive.
New Accounting Pronouncements. In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No.
121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those
assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable and that long-lived assets and certain identifiable intangibles
to be disposed of generally be reported at the lower of carrying amount or
fair value less cost to sell. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
does not expect the adoption of SFAS No. 121 to have a material effect on
its financial position or results of operations.
5. INVESTMENT SECURITIES
Investment securities classified as available for sale are carried at fair
value, with net unrealized gains of $2,944 ($3,252 of unrealized gains and
$308 of unrealized losses) included as a separate component of
stockholders' equity (deficit). The Company had net realized gains on sales
of
F-12
<PAGE> 54
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
investment securities available for sale of $6,736 ($9,223 of realized
gains and $2,487 of realized losses) for the year ended December 31, 1995.
In August 1995, the Company received approval from the Federal Trade
Commission to purchase up to 15% of the voting securities of RJR
Nabisco Holdings Corp. ("RJR Nabisco"). As of December 31, 1995, the
Company, through a wholly-owned subsidiary, held approximately 4.9
million shares of RJR Nabisco common stock, par value $.01 per share
(the "RJR Nabisco Common Stock"), with a market value of $150,446 (cost
of $149,005). The Company's investment in RJR Nabisco collateralizes
margin loan financing of $75,119 at December 31, 1995. This margin loan
bears interest at .25% below the broker's call rate (6.5% at December
31, 1995).
At December 31, 1995, investment securities consisted of the following:
<TABLE>
<S> <C>
Securities available for sale $210,832
Trading securities 31,211
--------
Total $242,043
========
</TABLE>
The details of the investment categories by type of security at December
31, 1995 are as follows:
<TABLE>
<CAPTION>
Fair
Cost Value
---- -----
<S> <C> <C>
Available for Sale:
Marketable equity securities:
RJR Nabisco common stock $149,005 $150,446
Other marketable securities 9,147 10,506
-------- --------
Total marketable equity securities 158,152 160,952
U.S. government securities 49,219 49,363
Marketable debt securities (long-term) 517 517
-------- --------
Total securities available for sale 207,888 210,832
Trading Securities (Ladenburg):
Marketable equity securities 21,431 21,828
Equity and index options 6,253 6,134
Other securities 2,585 3,249
-------- -------
Total trading securities 30,269 31,211
-------- --------
Total Investment securities 238,157 242,043
Less long-term portion of investment securities 517 517
-------- --------
Investment securities - current portion $237,640 $241,526
======== ========
</TABLE>
The $517 long-term portion of investment securities at cost consists of
marketable debt securities which mature in three years.
On October 17, 1995, the Company entered into an agreement, as amended (the
"Agreement"), with High River Limited Partnership ("High River"), an entity
owned by Carl C. Icahn. Pursuant to the Agreement, the Company sold
approximately 1.6 million shares of RJR Nabisco Common Stock to High River
for an aggregate purchase price of $51,000 and the parties agreed that the
Company and High River would each invest up to approximately $250,000 in
shares of RJR Nabisco Common Stock, subject to certain conditions and
limitations. Any party to the Agreement may terminate it at any time,
although under certain circumstances, the terminating party will be
required to pay a fee of $50,000 to the nonterminating party. The Agreement
also provides for the parties to pay certain other fees to each other under
certain circumstances, including a fee to High River equal to 20% of the
F-13
<PAGE> 55
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
Company's profit on its RJR Nabisco Common Stock, after certain expenses as
defined in the Agreement.
On December 27, 1995, the Company entered into an agreement with Brooke
Group Ltd. ("Brooke"), an affiliate of the Company, pursuant to which it
agreed to pay directly or reimburse Brooke and its subsidiaries for
reasonable out-of-pocket expenses incurred in connection with Brooke's
solicitation of consents and proxies from the shareholders of RJR Nabisco.
The Company has also agreed to pay to a wholly-owned subsidiary of Brooke a
fee of 20% of the net profit received by the Company or its subsidiaries
from the sale of shares of RJR Nabisco Common Stock after the Company and
its subsidiaries have achieved a rate of return of 20% and after deduction
of certain expenses incurred by the Company and its subsidiaries, including
the cost of the consent and proxy solicitations and of acquiring the shares
of common stock. The Company has also agreed to indemnify Brooke and its
affiliates against certain liabilities arising out of the solicitations.
On December 28, 1995, the Company, Brooke and Liggett, a wholly-owned
subsidiary of Brooke, engaged Jefferies & Company, Inc. ("Jefferies") to
act as a financial advisor in connection with the Company's investment in
RJR Nabisco and Brooke's solicitation of consents and proxies (as amended
on February 28, 1996 and April 9, 1996, the "Jefferies Agreement"). The
Company has (i) paid to Jefferies an initial fee of $1,500 and (ii) agreed
to pay to Jefferies for the period commencing January 1, 1996 and ending
March 31, 1996 monthly fees of $250 (which increased to $500 on February
20, 1996 and was pro rated for February) and, in addition, until March 31,
1996, an additional monthly fee of $100, and during the month of April
1996, a $160 fee. The companies also have agreed to pay Jefferies 10% of
the net profit (up to a maximum of $15,000) with respect to RJR Nabisco
Common Stock (including the distributions made by RJR Nabisco) held or sold
by these companies and their affiliates after deduction of certain
expenses, including the costs of the solicitations and the costs of
acquiring the RJR Nabisco Common Stock. The Company has also agreed to
indemnify Jefferies against certain liabilities arising out of the
solicitations.
During 1995, the Company expensed $3,879 relating to the RJR Nabisco
investment. Included in this amount is $1,419 in out-of-pocket expenses
owed to Brooke at December 31, 1995 pursuant to the Brooke agreement. In
February 1996, the Company acquired 269,200 additional shares in RJR
Nabisco for an aggregate consideration of $9,220. The Company's investment
in RJR Nabisco decreased from a $1,440 unrealized gain at December 31, 1995
to a $2,082 unrealized loss at March 29, 1996. Since January 1, 1996, the
Company expensed approximately $6,000 relating to its RJR Nabisco
investments.
6. LONG-TERM INVESTMENTS
At December 31, 1995, long-term investments consisted of investments in the
following:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
----- -----
<S> <C> <C>
Limited partnerships $18,715 $23,200
Foreign corporations 6,000 6,000
Joint venture 3,796 3,796
U.S. corporation 1,001 1,001
------- -------
Total $29,512 $33,997
======= =======
</TABLE>
The principal business of the limited partnerships is investing in
investment securities. The estimated fair value of the limited partnerships
was provided by the partnerships based on the indicated market
F-14
<PAGE> 56
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
values of the underlying investment portfolio. At December 31, 1995, the
Company had committed to fund one of the limited partnerships up to an
additional $20,000. The investment in foreign corporations is currently
comprised of an indirect ownership of a 1.9% interest in a Brazilian
airplane manufacturer (the "Brazilian Investment") acquired for $12,698,
and a 10% equity interest in a company that owns a 33.3% interest in a
Russian commercial bank (the "Russian Investment") acquired for $2,000. The
joint venture represents an investment of $6,888 in bonds of a foreign
republic with a face amount of $12,654 at December 31, 1995. The joint
venture partner is in the process of litigation to collect the amounts owed
under these bonds. During the fourth quarter of 1995, the Company
determined that an other than temporary impairment in the value of its
Brazilian Investment and its investment in the joint venture had occurred.
Accordingly, $11,790 was provided for the Brazilian Investment and for the
investment in the joint venture as an impairment charge in 1995. The
investment in a U.S. corporation represents a minority equity interest in a
computer software company.
7. PENSIONS AND RETIREE BENEFITS
New Valley has a Profit Sharing Plan (the "Plan") for substantially all
employees of Ladenburg. The Plan includes three features: a 401(k) option,
profit sharing, and a deferred compensation vehicle. The 401(k) is funded
solely by employee contributions. Contributions to the profit sharing
portion of the Plan are made by Ladenburg on a discretionary basis. The
deferred compensation feature of the Plan enables non-salaried employees to
invest up to 15% of their pre-tax annual compensation. For the year ended
December 31, 1995, employer contributions to the Plan were approximately
$200, excluding those made under the deferred compensation feature
described above.
During 1994 and 1993, New Valley maintained a suspended defined benefit
plan and two defined contribution plans which covered virtually all
full-time employees. Total pension costs accrued under all plans was
$18,900 and $25,100 in 1994 and 1993, respectively. All pension costs for
1994 and 1993 are included in the results of the discontinued operations.
Contributions were made to the pension plans in amounts necessary to meet
the minimum funding requirements of the Employee Retirement Income Security
Act of 1974 ("ERISA"). As discussed in Note 1, the liabilities related to
these pension plans were assumed by FFMC on November 15, 1994. These
liabilities aggregated approximately $245,000 at the date of sale.
Net pension cost accrued under defined benefit plans for 1994 and 1993 was:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
---- ----
<S> <C> <C>
Service cost $ 1,250 $ 1,500
Interest cost 35,490 43,928
Return on assets (21,448) (55,046)
Net amortization and deferral -- 30,406
-------- --------
Net pension cost $ 15,292 $ 20,788
======== ========
</TABLE>
Actuarial assumptions underlying the above data for financial statement
purposes were as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discounted rates 7.5-8.5% 7.5%
Assumed rates of return on invested assets 10.0% 10.0%
</TABLE>
F-15
<PAGE> 57
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
The change in discount rates from 7.5% to 8.5% as of March 31, 1994
resulted in a $29,200 decrease in the minimum pension liability.
New Valley made contributions to its suspended defined benefit pension
plans in amounts necessary to meet minimum funding requirements under
ERISA. Cash contributions to such suspended plans were $20,300 and $24,700
in 1994 and 1993, respectively. Pension expense for defined contribution
plans was $3,100 and $3,500 in 1994 and 1993, respectively. Effective
November 15, 1994, sponsorship of these defined contribution plans were
assumed by FFMC.
8. COMMITMENT AND CONTINGENCIES
Leases
New Valley is currently obligated under two noncancelable lease agreements
for office space, expiring in December 1996 and December 2015,
respectively. The following is a schedule by fiscal year of future minimum
rental payments required under the agreements that have noncancelable terms
of one year or more at December 31, 1995:
<TABLE>
<S> <C>
1996 $ 2,058
1997 3,327
1998 3,324
1999 3,047
2000 3,047
2001 and thereafter 56,020
-------
$70,823
=======
</TABLE>
During 1994 and 1993, New Valley leased certain real properties for use as
customer service centers, corporate headquarters and sales offices. It also
leased certain data communications terminals, electronic data processing
equipment and automobiles. Effective November 15, 1994, virtually all of
these leases were assumed by FFMC as part of the sale of FSI.
Rental expense for operating leases for the years ended 1995, 1994 and 1993
was $1,677, $3,600, and $1,200, respectively. Virtually all of the rental
expense for the years ended 1994 and 1993 are included in the results of
the discontinued operations.
In December 1993, an $8,400 extraordinary gain was recorded as a result of
the extinguishment of a capital lease obligation associated with the
Company's former corporate headquarters.
Lawsuits
The Company is a defendant in various lawsuits and may be subject to
unasserted claims primarily in connection with its activities as a
securities broker-dealer and participation in public underwritings. These
lawsuits involve claims for substantial or indeterminate amounts and are in
varying stages of legal proceedings. In the opinion of management, after
consultation with counsel, the ultimate resolution of these matters will
not have a material adverse effect on the Company's consolidated financial
position or results of operations.
F-16
<PAGE> 58
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
Investment Company Act
The Investment Company Act of 1940, as amended (the "Investment Company
Act") and the rules and regulations thereunder require the registration of,
and impose various substantive restrictions on, companies that engage
primarily in the business of investing, reinvesting or trading in
securities or engage in the business of investing, reinvesting, owning,
holding or trading in securities and own or propose to acquire "investment
securities" having a "value" in excess of 40% of a company's "total assets"
(exclusive of Government securities and cash items) on an unconsolidated
basis. Following dispositions of its then operating businesses pursuant to
the Joint Plan, the Company was above this threshold and relied on the
one-year exemption from registration under the Investment Company Act
provided by Rule 3a-2 thereunder, which exemption expired on January 18,
1996. Prior to such date, through the Company's acquisition of the
investment banking and brokerage business of Ladenburg and its acquisition
of the Office Buildings and Shopping Centers (see Note 21), the Company was
engaged primarily in a business or businesses other than that of investing,
reinvesting, owning, holding or trading in securities, and the value of its
investment securities was below the 40% threshold. Under the Investment
Company Act, the Company is required to determine the value of its total
assets for purposes of the 40% threshold based on "market" or "fair"
values, depending on the nature of the asset, at the end of the last
preceding fiscal quarter and based on cost for assets acquired since that
date. If the Company were required to register under the Investment Company
Act, it would be subject to a number of material restrictions on its
operations, capital structure and management, including without limitation
its ability to enter into transactions with affiliates.
9. FEDERAL INCOME TAX
In January 1993, New Valley prospectively adopted SFAS No. 109 "Accounting
for Income Taxes" which changes the Company's method of accounting for
income taxes from the deferred method (APB 11) to an asset and liability
approach. New Valley files a consolidated Federal income tax return. Since
1993, Federal income tax provisions were based on Alternative Minimum Tax
rates.
The provision for income taxes on continuing operations differs from the
amount of income tax determined by applying the applicable U.S. statutory
federal income tax rate (35%) to pretax income from continuing operations
as a result of the following differences:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Provision (credit) under statutory U.S. tax rates $ 583 $(5,518) $(3,916)
Increase (decrease) in taxes resulting from:
Nondeductible items 543 2,100 (2,664)
State taxes, net of Federal benefit 180 (122) --
(Decrease) increase in valuation reserve (1,014) 3,040 6,355
------- ------- -------
Income tax provision (benefit) $ 292 $ (500) $ (225)
======= ======= =======
</TABLE>
As described in Note 3, the Company sold FSI and the Messaging Services
Business to FFMC and has therefore reflected these operations as
discontinued. In addition, the Company recognized an extraordinary loss on
the extinguishment of debt in 1994. Income taxes associated with
discontinued operations and extraordinary items have been shown net of the
utilization of the net operating loss carryforward and the change in other
deferred tax assets.
F-17
<PAGE> 59
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
Deferred tax amounts are comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforward:
Restricted net operating loss $ 21,786 $ 21,666
Unrestricted net operating loss 51,156 120,336
Other 14,592 8,750
-------- ---------
Total deferred tax assets 87,534 150,752
-------- ---------
Deferred tax liabilities:
Deferred gain on sale -- (105,000)
Other (2,856) (13,512)
-------- ---------
Total deferred tax liabilities (2,856) (118,512)
-------- ---------
Net deferred tax assets 84,678 32,240
Valuation allowance (84,678) (51,812)
-------- ---------
Deferred tax liability $ -- $ (19,572)
======== =========
</TABLE>
As of December 31, 1994, virtually all of the Company's current and
deferred income taxes payable of $31,900 and $19,600, respectively,
resulted from income taxes on discontinued operations.
In 1995, the Company identified additional potential tax benefits,
principally relating to the amount of net operating losses and changes in
tax rates. Since the Company deems it more likely than not that future
taxable income will not be sufficient to realize the deferred tax assets,
the valuation allowance was increased accordingly.
In December 1987, New Valley consummated certain restructuring transactions
that included certain changes in the ownership of New Valley's stock. The
Internal Revenue Code restricts the amount of future income that may be
offset by losses and credits incurred prior to an ownership change. New
Valley's annual limitation on the use of its net operating losses is
approximately $7,700, computed by multiplying the "long-term tax exempt
rate" at the time of change of ownership by the fair market value of the
company's outstanding stock immediately before the ownership change. The
limitation is cumulative; any unused limitation from one year may be added
to the limitation of a following year. Operating losses incurred subsequent
to an ownership change are generally not subject to such restrictions.
As of December 31, 1995, New Valley had consolidated net operating loss
carryforwards of approximately $180,000 for tax purposes, which expire at
various dates through 2007. Approximately $54,000 of net operating loss
carryforwards constitute pre-change losses and $126,000 of net operating
losses were unrestricted.
New Valley's Federal income tax returns have been examined and settled
through 1980. In addition, the Federal income tax returns for 1981 through
1991 have been preliminary surveyed by the IRS and no changes have been
proposed. In addition, all years through 1991 are closed for audit by
virtue of the statute of limitations except to the extent of net operating
loss carryforwards.
F-18
<PAGE> 60
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
10. LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
December 31,
1995 (b) 1994 (b)
---------------------- ------------------------
Long-term Current Long-term Current
portion portion portion portion
------- ------- ------- -------
<S> <C> <C> <C> <C>
9% note payable due 7/14/92(a) $ -- $ 5,400
Amount payable to FFMC pursuant to
the purchase contract $ 3,500 $6,567 10,967 10,167
Retiree and disability obligations 8,467 1,800 5,638 1,052
------- ------ ------- -------
Total long-term obligations $11,967 $8,367 $16,605 $16,619
======= ====== ======= =======
</TABLE>
- ---------------
(a) The 9% Note that was due 7/14/92 was paid in February 1995.
(b) See Note 15 for additional information concerning Prepetition Claims.
The maturity of the long-term portion at December 31, 1995 is as follows:
1997 - $5,300, 1998 - $1,500, 1999 - $1,000, 2000 - $1,000, and $3,167
thereafter.
11. REDEEMABLE PREFERRED SHARES
At December 31, 1995, the Company had authorized and outstanding 2,000,000
and 1,107,566, respectively, of its Class A Senior Preferred Shares. At
December 31, 1994, there were 1,501,411 Class A Senior Preferred Shares
outstanding. At December 31, 1995 and 1994, respectively, the carrying
value of such shares amounted to $226,396 and $317,798, including
undeclared dividends of $121,893 and $176,761, or $110.06 and $117.73 per
share.
The holders of Class A Senior Preferred Shares are currently entitled to
receive a quarterly dividend, as declared by the Board, payable at the rate
of $19.00 per annum. The Class A Senior Preferred Shares are mandatorily
redeemable on January 1, 2003 at $100 per share plus accrued dividends. The
Class A Senior Preferred Shares were recorded at their market value ($80
per share) at December 30, 1987, the date of issuance. The discount from
the liquidation value is accreted, utilizing the interest method, as a
charge to additional paid-in capital and an increase to the recorded value
of the Class A Senior Preferred Shares, through the redemption date. As of
December 31, 1995, the unamortized discount on the Class A Senior Preferred
Shares was $6,254.
In the event a required dividend or redemption is not made on the Class A
Senior Preferred Shares, no dividends shall be paid or declared and no
distribution made on any junior stock other than a dividend payable in
junior stock. If at any time six quarterly dividends payable on the Class A
Senior Preferred Shares shall be in arrears or such shares are not redeemed
when required, the number of directors will be increased by two and the
holders of the Class A Senior Preferred Shares, voting as a class, will
have the right to elect two directors until full cumulative dividends shall
have been paid or declared and set aside for payment. Such directors were
designated pursuant to the Joint Plan in November 1994.
Pursuant to the Joint Plan, the Company made an $80 per share cash tender
offer for a maximum of 150,000 Class A Senior Preferred Shares. This tender
offer expired February 17, 1995 and resulted
F-19
<PAGE> 61
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
in a payment of $4,355 for 54,445 shares tendered and increased the
Company's additional paid-in capital by $7,358.
Pursuant to the Joint Plan, the Company declared a cash dividend in
December 1994 on the Class A Senior Preferred Shares of $50 per share which
was paid in January 1995. The Company declared and paid cash dividends on
the Class A Senior Preferred Shares of $12.50 per share in July 1995 and
$37.50 per share in September 1995. Undeclared dividends are accrued
quarterly and such accrued and unpaid dividends shall accrue additional
dividends in respect thereof compounded monthly at the rate of 19% per
annum, both of which accruals are included in the carrying amount of
redeemable preferred shares, offset by a charge to additional paid-in
capital.
On April 6, 1995, the Company's Board of Directors (the "Board") authorized
the Company to repurchase as many as 200,000 shares of its Class A Senior
Preferred Shares. The Company completed the repurchase for an aggregate
consideration of $18,674 and thereafter, on June 21, 1995, the Board
authorized the Company to repurchase as many as 300,000 additional shares.
The Company repurchased in the open market 33,000 of such shares in July
1995 and 106,400 of such shares in September 1995 for an aggregate
consideration of $24,732. The repurchase of the Class A Senior Preferred
Shares increased the Company's additional paid-in capital by $26,266 for
the 200,000 shares acquired and $6,718 for the 139,400 shares acquired
based on the difference between the purchase price and the carrying values
of the shares.
For information on Class A Senior Preferred Shares owned indirectly by
Brooke, see Note 17.
12. PREFERRED SHARES NOT SUBJECT TO REDEMPTION REQUIREMENTS
The holders of the $3.00 Class B Cumulative Convertible Preferred Shares
($25 Liquidation Value), $.10 par value per share (the "Class B Preferred
Shares"), 12,000,000 shares authorized and 2,790,776 shares outstanding as
of December 31, 1995 and 1994, are entitled to receive a quarterly
dividend, as declared by the Board, at a rate of $3.00 per annum.
Undeclared dividends are accrued quarterly at a rate of 12% per annum, and
such accrued and unpaid dividends shall accrue additional dividends in
respect thereof, compounded monthly at the rate of 12% per annum.
Each Class B Preferred Share is convertible at the option of the holder
into 8.3333 Common Shares based on a $25 liquidation value and a conversion
price of $3.00 per Common Share.
At the option of the Company, the Class B Preferred Shares are redeemable
in the event that the closing price of the Common Shares equals or exceeds
140% of the conversion price at a specified time prior to the redemption.
If redeemed by New Valley, the redemption price would equal $25 per share
plus accrued dividends.
In the event a required dividend is not paid on the Class B Preferred
Shares, no dividends shall be paid or declared and no distribution made on
any junior stock other than a dividend payable in junior stock. If at any
time six quarterly dividends on the Class B Preferred Shares are in
arrears, the number of directors will be increased by two, and the holders
of Class B Preferred Shares and any other classes of preferred shares
similarly entitled to vote for the election of two additional directors,
voting together as a class, will have the right to elect two directors to
serve until full cumulative dividends shall have been paid or declared and
set aside for payment. Such two directors were designated pursuant to the
Joint Plan in November 1994. During 1994 and 1993, 3,094 and 1,951,155
Common Shares, respectively, were issued upon conversion of 372 and 234,141
Class B Preferred Shares, respectively.
F-20
<PAGE> 62
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
No dividends on the Class B Preferred Shares have been declared since the
fourth quarter of 1988. The undeclared dividends, as adjusted for
conversions of Class B Preferred Shares into Common Shares, cumulatively
amounted to $95,118 and $76,700 at December 31, 1995 and 1994,
respectively. These undeclared dividends represent $34.08 and $27.46 per
share as of the end of each period. No accrual was recorded for such
undeclared dividends as the Class B Preferred Shares are not mandatorily
redeemable.
13. COMMON SHARES
Stock Warrants. In 1995, 1994 and 1993, no warrants were exercised. Stock
warrants outstanding at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Common Shares
Subject to Exercise
Date Issued Warrants Price Expiration Date
----------- -------- ----- ---------------
<S> <C> <C> <C>
September 30, 1987 220,000 $2.50 November 13, 1997
October 30, 1987 220,000 $2.50 November 13, 1997
-------
440,000
=======
</TABLE>
Stock Option Plans. Under the 1987 Stock Option Plan (the "1987 Plan"),
options to purchase up to 30,000,000 Common Shares may be offered to key
employees, including officers, and non-employee directors. Options may be
issued at an exercise price of not less than 35% of the fair market value
of the Common Shares at date of grant.
A summary of transactions during 1995 and 1994 with respect to options is
as follows:
<TABLE>
<CAPTION>
Number
of Shares
Optioned Price Range
-------- -----------
<S> <C> <C>
Outstanding at January 1, 1994 19,270,000 $.20 -- $.48
Exercised (608,750) $.20
Canceled, expired or terminated (1,675,300) $.20
-----------
Outstanding at December 31, 1994(a) 16,985,950 $.20 -- $.48
Exercised (2,825,000) $.20
Canceled, expired or terminated (14,160,950) $.20 -- $.48
-----------
Outstanding at December 31, 1995 --
===========
</TABLE>
- -------------------
(a) 14,401,230 shares exercisable.
F-21
<PAGE> 63
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
14. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The composition of accounts payable and accrued liabilities is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
Accounts payable and accrued liabilities:
Accrued compensation $ 6,981 $ 95
Taxes (property and miscellaneous) 2,637 2,758
Excise tax payable (a) 6,000 6,000
Accrued expenses and other liabilities 10,675 2,078
Due to affiliates 1,419 --
------- -------
Total $27,712 $10,931
======= =======
</TABLE>
(a) The Excise tax payable relates to an excise tax imposed on annual
contributions to retirement plans that exceed a certain percentage of
annual payroll. The Company intends to vigorously contest this tax
liability.
15. PREPETITION CLAIMS UNDER CHAPTER 11 AND RESTRUCTURING ACCRUALS
Those liabilities that are expected to be resolved as part of the Joint
Plan are classified in the Consolidated Balance Sheets as prepetition
claims. On January 18, 1995, approximately $550,000 of prepetition claims
were paid pursuant to the Joint Plan. Another $36,000 of prepetition claims
and restructuring accruals have been settled and paid since January 18,
1995. The remaining prepetition claims may be subject to future adjustments
depending on pending discussions with the various parties and the decisions
of the Bankruptcy Court.
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
---- ----
<S> <C> <C>
Debentures and notes(a) $304,172
Accrued interest - prepetition(a) 44,512
Accrued interest - postpetition(b) $ 3,634 178,000
Restructuring accruals(c) 18,759 74,166
Payable to connecting carriers 3,405 7,648
Money transfer payable(d) 7,444 8,645
Other, miscellaneous 150 2,690
-------- --------
Total $ 33,392 $619,833
======== ========
</TABLE>
- -------------------
(a) The Company's debentures and notes, and accrued interest
thereon, listed above were paid in full on January 18, 1995.
(b) Prior to the Joint Plan being confirmed on November 1, 1994,
no interest expense was accrued on prepetition claims since
December 31, 1992. The terms of the Joint Plan provided for
the
F-22
<PAGE> 64
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
payment of postpetition interest in the amount of $178,000.
An extraordinary loss of $110,500 was recorded for the
extinguishment of this debt.
(c) Restructuring accruals at December 31, 1995 consisted of
$15,600 of disputed claims, primarily related to leases and
$3,200 of other restructuring accruals.
(d) Represents unclaimed money transfers issued by the Company
prior to January 1, 1990. The Company is currently in
litigation in Bankruptcy Court seeking a determination that
these amounts are not an obligation of the Company. There can
be no assurance as to the outcome of the litigation.
16. RESTRUCTURING CHARGES
In 1995, 1994 and 1993, New Valley reversed $2,044, $300 and $2,100,
respectively, of prior year restructuring accruals as a result of
settlements on certain of its prepetition claims and vacated real estate
lease obligations.
In 1994 and 1993, New Valley incurred financial restructuring costs of
$23,100 and $11,200, respectively, which consisted of professional fees
related to its financial restructuring.
17. RELATED PARTY TRANSACTIONS
At December 31, 1995, Brooke, a company under the control of Bennett S.
LeBow, Chairman of the Company's Board of Directors, held indirectly
79,794,229 Common Shares (approximately 41.7% of such class), 618,326
Class A Senior Preferred Shares (approximately 55.8% of such class) and
250,885 Class B Preferred Shares (approximately 9% of such Class) which
represented in the aggregate 42.1% of all voting power. Several of the
other officers and directors of the Company are also affiliated with
Brooke. In 1995, the Company signed an expense sharing agreement with
Brooke to share certain lease, legal and administrative expenses.
The Company expensed approximately $600 under this expense sharing
agreement in 1995.
The Joint Plan imposes a number of restrictions on transactions between
the Company and certain affiliates of the Company, including Brooke, and
establishes certain restrictions on proposed investments.
A director of the Company received a commission of $800 on the purchase of
Ladenburg, of which $400 was paid by the Company and $400 was paid by the
selling shareholders. Two directors of the Company are affiliated with law
firms that rendered legal services to the Company. The Company paid these
firms $1,083 during 1995 for legal services. An executive officer and
director of the Company is a shareholder in a brokerage firm to which the
Company paid $584 in brokerage commissions and other fees during 1995.
In connection with their agreement to serve as Brooke nominees at RJR
Nabisco's Annual Meeting, two directors of the Company were each paid $30
by Brooke during the fourth quarter of 1995. In addition, Brooke also
entered into an agreement with each of the Brooke nominees whereby it has
agreed to indemnify such nominees from and against any losses incurred by
such nominees resulting from, relating to, or arising out of any claim in
connection with the solicitation of proxies in support of the nominees'
election at the Annual Meeting, including the right to be advanced by
Brooke for any expenses incurred in connection with any such claim.
In connection with the acquisition of the Office Buildings by the Company
on January 10, 1996, a director of Brooke received a commission of $220
from the seller.
18. OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
Ladenburg - As a nonclearing broker, Ladenburg's transactions are cleared
by other brokers and dealers in securities pursuant to clearance
agreements. Although Ladenburg clears its customers through other brokers
and dealers in securities, Ladenburg is exposed to off-balance-sheet risk
in the event that customers or other parties fail to satisfy their
obligations. In accordance with industry practice, agency securities
transactions are recorded on a settlement-date basis. Should a customer
F-23
<PAGE> 65
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
fail to deliver cash or securities as agreed, Ladenburg may be required to
purchase or sell securities at unfavorable market prices.
The clearing operations for Ladenburg's securities transactions are
provided by several brokers. At December 31, 1995, substantially all of the
securities owned and the amounts due from brokers reflected in the
consolidated statement of financial condition are positions held at and
amounts due from one clearing broker. Ladenburg is subject to credit risk
should this broker be unable to fulfill its obligations.
Financial Instruments - In the normal course of its business, the Company
enters into transactions in financial instruments with off-balance-sheet
risk. These financial instruments consist of financial futures contracts
and written index option contracts.
Financial futures contracts provide for the delayed delivery of a financial
instrument with the seller agreeing to make delivery at a specified future
date, at a specified price. These futures contracts involve elements of
market risk in excess of the amounts recognized in the consolidated
statement of financial condition. Risk arises from changes in the values of
the underlying financial instruments or indices. At December 31, 1995, the
Company had commitments to purchase and sell financial instruments under
futures contracts of $2,560 and $4,270, respectively.
Equity index options give the holder the right to buy or sell a specified
number of units of a stock market index, at a specified price, within a
specified time from the seller ("writer") of the option and are settled in
cash. The Company generally enters into these option contracts in order to
reduce its exposure to market risk on securities owned. Risk arises from
the potential inability of the counterparties to perform under the terms of
the contracts and from changes in the value of a stock market index. As a
writer of options, the Company receives a premium in exchange for bearing
the risk of unfavorable changes in the price of the securities underlying
the option. At December 31, 1995, the Company had written options to sell
units of various stock market indices with a contract amount of $338,650.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and
appropriate valuation methodologies described below. However, considerable
judgment is required to develop the estimates of fair value and,
accordingly, the estimates presented herein are not necessarily indicative
of the amounts that could be realized in a current market exchange.
<TABLE>
<CAPTION>
December 31, 1995
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 51,742 $ 51,742
Investments (Note 5) 242,043 242,043
Restricted assets 38,005 38,005
Receivable from clearing broker 13,752 13,752
Long-term investments (Note 6) 29,512 33,997
Financial liabilities:
Short-term loan 75,119 75,119
Redeemable preferred shares 226,396 161,704
</TABLE>
F-24
<PAGE> 66
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
For cash and cash equivalents, restricted assets, receivable from clearing
broker, and short-term loan, the carrying value of these amounts is a reasonable
estimate of their fair value. The fair value of the Company's redeemable
preferred shares is based on their last reported sales price.
F-25
<PAGE> 67
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
20. BUSINESS SEGMENT INFORMATION
Prior to the acquisition of Ladenburg on May 1, 1995, virtually all of the
Company's operating businesses were reported as discontinued operations.
The following table presents certain financial information of the Company's
broker-dealer operations of Ladenburg and the Company's corporate
operations as of and for the year ended December 31, 1995.
<TABLE>
<CAPTION>
Broker- Corporate
Dealer and Other Total
------ --------- -----
<S> <C> <C> <C>
Revenues $ 40,418 $ 27,312 $ 67,730
Operating income 300 1,074 1,374
Identifiable assets 61,175 324,647 385,822
Depreciation and amortization 608 -- 608
Capital expenditures 372 -- 372
</TABLE>
21. SUBSEQUENT EVENTS
Purchase of Assets. On January 10 and January 11, 1996, the Company
acquired four commercial office buildings (the "Office Buildings") and
eight shopping centers (the "Shopping Centers") for an aggregate purchase
price of $183,900, consisting of $23,900 in cash and $160,000 in
non-recourse mortgage financing. The Company paid $11,400 in cash and
executed four promissory notes aggregating $100,000 for the Office
Buildings. The Office Building notes bear interest at 7.5% and have terms
of ten to fifteen years. These Office Buildings consist of two adjacent
commercial office buildings in Troy, Michigan and two adjacent commercial
office buildings in Bernards Township, New Jersey. The Shopping Centers
were acquired for an aggregate purchase price of $72,500, consisting of
$12,500 in cash and $60,000 in eight promissory notes. Each Shopping Center
note has a term of five years, and bears interest at the rate of 8% for the
first two and one-half years and at the rate of 9% for the remainder of the
term. The Shopping Centers are located in Marathon and Royal Palm Beach,
Florida; Lincoln, Nebraska; Santa Fe, New Mexico; Milwaukee, Oregon;
Richland and Marysville, Washington; and Charleston, West Virginia.
The following pro forma condensed balance sheet gives effect to the
purchase of real estate as if it had occurred on December 31, 1995.
<TABLE>
<CAPTION>
As Reported Pro Forma
----------- ---------
<S> <C> <C>
Assets:
Current assets $ 333,485 $ 309,585
Real estate, net -- 183,900
Other non-current assets 52,337 52,337
--------- ---------
$ 385,822 $ 545,822
========= =========
Liabilities:
Current liabilities $ 177,920 $ 181,920
Long-term debt -- 156,000
Other long-term liabilities 11,967 11,967
Redeemable preferred shares 226,396 226,396
Shareholders' deficit (30,461) (30,461)
--------- ---------
$ 385,822 $ 545,822
========= =========
</TABLE>
F-26
<PAGE> 68
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
Acquisition. On January 11, 1996, New Valley, through a partnership
controlled by New Valley, provided a $10,600 convertible bridge loan to
finance Thinking Machines Corporation ("TMC"), a developer and marketer of
parallel software of high-end and networked computer systems. In February
1996, the bridge loan was converted into a controlling interest in a
partnership which holds 3.3 million common shares of TMC which represent
61.4% of the outstanding shares.
Pro Forma Information. The following table presents unaudited pro forma
results of continuing operations as if the acquisitions of Ladenburg, TMC
and the Office Buildings and Shopping Centers had occurred on January 1,
1995. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what would have occurred had
the acquisitions been consummated as of such date.
<TABLE>
<CAPTION>
Year Ended
December 31,
1995
------------
<S> <C>
Revenues $ 143,680
Net income 641
Net loss applicable to common shares (30,920)
Net loss per common share (.16)
</TABLE>
Class A Senior Preferred Shares. In January and February, 1996, the
Company repurchased 72,104 Class A Senior Preferred Shares for $10,530.
This repurchase of Class A Senior Preferred Shares increased the Company's
additional paid-in capital by $4,279 based on the difference between the
purchase price and the carrying value of the shares. The Company declared
and paid a cash dividend of $10 per share on the Class A Senior Preferred
Shares in March 1996.
RJR Nabisco Equity Swap. On February 29, 1996, New Valley entered into a
total return equity swap transaction (the Equity Swap Agreement") with an
unaffiliated company (the "Counterparty") relating to 1,000,000 shares of
RJR Nabisco Common Stock. The transaction is for a period of up to six
months, subject to earlier termination at the election of New Valley, and
provides for New Valley to make a payment to the Counterparty of $1,537
upon commencement of the swap. At the termination of the transaction, if
the price of the RJR Nabisco Common Stock during a specified period prior
to such date (the "Final Price") exceeds $34.42, the price of the RJR
Nabisco Common Stock during a specified period following the commencement
of the swap (the "Initial Price"), the Counterparty will pay New Valley an
amount in cash equal to the amount of such appreciation with respect to
1,000,000 shares of RJR Nabisco Common Stock plus the value of any
dividends with a record date occurring during the swap period. If the Final
Price is less than the Initial Price, then New Valley will pay the
Counterparty at the termination of the transaction an amount in cash equal
to the amount of such decline with respect to 1,000,000 shares of RJR
Nabisco Common Stock, offset by the value of any dividends, provided that,
with respect to approximately 225,000 shares of RJR Nabisco Common Stock,
New Valley will not be required to pay any amount in excess of an
approximate 25% decline in the value of the shares. The potential
obligations of the Counterparty under the swap are being guaranteed by the
Counterparty's parent, a large foreign bank, and New Valley has pledged
certain collateral in respect of its potential obligations under the swap
and has agreed to pledge additional collateral under certain conditions.
At March 29, 1996, the Company had an unrealized loss on this swap
transaction of approximately $4,200 and had pledged collateral of $11,806.
Redomestication and Reverse Stock Split. The Company's Board of Directors
has unanimously approved a proposal to change the Company's jurisdiction of
incorporation from the State of New
F-27
<PAGE> 69
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)-(CONTINUED)
York to the State of Delaware (the "Redomestication") pursuant to a merger
between the Company and a newly formed wholly-owned subsidiary of the Company,
which would also provide for a "reverse stock split" of the Company's Common
Shares, that would reduce the number of such shares outstanding on a
one-for-twenty-basis (the "Reverse Stock Split"). The Redomestication (and
attendant Reverse Stock Split) is subject to the approval of the Company's
shareholders at the Company's Annual Meeting of Shareholders in June 1996 in
accordance with the New York Business Corporation Law.
F-28
<PAGE> 70
NEW VALLEY CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Quarters
--------
1st 2nd 3rd 4th
--- --- --- ---
<S> <C> <C> <C> <C>
1995:
Revenues $ 7,669 $ 10,032 $ 21,514 $ 28,515
Expenses(b) 1,038 7,748 18,730 38,840
-------- -------- -------- -----------
Income (loss) from continuing operations 6,631 2,284 2,784 (10,325)
Discontinued operations(d) 1,398 2,682 235 12,558
-------- -------- -------- -----------
Net income $ 8,029 $ 4,966 $ 3,019 $ 2,233
======== ======== ======== ===========
Income (loss) per Common Share:
Income (loss) from continuing
operations $ (.04) $ .06 $ (.04) $ (.14)
Discontinued operations .01 .01 -- .07
-------- -------- -------- -----------
Net income (loss)(c) $ (.03) $ .07 $ (.04) $ (.07)
======== ======== ======== ===========
1994(a):
Revenues $ 345 $ 467 $ 918 $ 8,651
Expenses(b) 5,528 13,420 7,497 (799)
-------- -------- -------- -----------
Income (loss) from continuing operations
before extraordinary item (5,183) (12,953) (6,579) 9,450
Discontinued operations(d) 17,587 29,226 26,071 1,062,822
-------- -------- -------- -----------
Income before extraordinary item 12,404 16,273 19,492 1,072,272
Extraordinary item(e) -- -- -- (110,500)
-------- -------- -------- -----------
Net income $ 12,404 $ 16,273 $ 19,492 $ 961,772
======== ======== ======== ===========
Income (loss) per Common Share:
Loss from continuing operations
before extraordinary item $ (.12) $ (.18) $ (.15) $ (.06)
Discontinued operations .09 .16 .14 5.64
Extraordinary item -- -- -- (.59)
-------- -------- -------- -----------
Net income (loss)(c) $ (.03) $ (.02) $ (.01) $ 4.99
======== ======== ======== ===========
</TABLE>
- -------------------
(a) The quarterly financial data has been restated to reflect the
discontinued operations of FSI and DSI.
(b) Includes provision for Federal and state income taxes, and
reorganization items. Includes write-down in carrying amount of
certain investments of $11,790 in the 4th quarter of 1995. See
Note 6.
(c) Income (loss) per common share is determined after giving effect to
dividends on preferred shares and the repurchase of such shares. The
sum of quarterly income (loss) per share may not equal income (loss)
per share for the year, because the per share data for each quarter
and for the year is independently computed. Fully diluted earnings
per share is anti-dilutive for all periods of 1995 and 1994, except
for the 4th quarter of 1994. See Note 4.
(d) Includes gain on sale of FSI in the 4th quarter of 1994 of
$1,056,081, and gain on sale of the Messaging Services Business in
the 4th quarter of 1995 of $12,558. See Note 1.
(e) Represents extraordinary loss on extinguishment of debt. See Note
15.
F-29
<PAGE> 71
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:(a)
Total revenues $ 67,730 $ 10,381 $ 3,844 $ 10,908 $ 11,400
Total costs and expenses(b) 66,064 26,146 15,034 65,006 43,047
-------- ----------- -------- -------- --------
Income (loss) from continuing operations
before provision for income taxes and
extraordinary items 1,666 (15,765) (11,190) (54,098) (31,647)
Provision (benefit) for income taxes 292 (500) (225) -- --
-------- ----------- -------- -------- --------
Income (loss) from continuing operations
before extraordinary items 1,374 (15,265) (10,965) (54,098) (31,647)
Income (loss) from discontinued operations 16,873 1,135,706 38,368 34,173 (445)
-------- ----------- -------- -------- --------
Income (loss) before extraordinary items 18,247 1,120,441 27,403 (19,925) (32,092)
Extraordinary items(c) -- (110,500) 8,417 -- --
-------- ----------- -------- -------- --------
Net income (loss) 18,247 1,009,941 35,820 (19,925) (32,092)
Dividends on preferred shares(d) (72,303) (80,037) (68,706) (60,086) (52,148)
Excess of carrying value of redeemable
preferred shares over cost of shares
purchased 40,342 -- -- -- --
-------- ----------- -------- -------- --------
Net income (loss) applicable to
Common Shares $(13,714) $ 929,904 $(32,886) $(80,011) $(84,240)
======== =========== ======== ======== ========
Per Common and equivalent share:
Primary:
Income (loss) from continuing operations
before extraordinary items $ (.16) $ (.50) $ (.42) $ (.61) $ (.46)
Discontinued operations .09 6.03 .20 .18 --
Extraordinary items -- (.59) .04 -- --
Net income (loss) (.07) 4.94 (.18) (.43) (.46)
Fully diluted:
Income (loss) from continuing operations
before extraordinary items (.16) (.37) (.42) (.61) (.46)
Discontinued operations .09 5.36 .20 .18 --
Extraordinary items -- (.52) .04 -- --
Net income (loss) (.07) 4.47 (.18) (.43) (.46)
Dividends declared(d) -- -- -- -- --
</TABLE>
F-30
<PAGE> 72
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY - (Continued)
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(a)
Total assets $ 385,822 $ 1,069,891 $ 269,483 $ 242,802 $ 236,391
Long-term debt classified as current(e) -- -- -- -- 98,167
Long-term obligations 11,967 36,177 19,318 7,230 358,998
Prepetition claims(f) 33,392 619,833 791,893 809,185 --
Redeemable preferred shares(g) 226,396 317,798 329,233 275,085 229,002
Non-redeemable preferred shares 279 279 279 303 317
Deficit (30,740) (38,723) (1,020,935) (986,616) (929,234)
Working capital (deficit) 155,565 284,849 64,695 45,967 (395,875)
</TABLE>
- -------------------
(a) The operating results for the years 1993 through 1991 were reclassified to
reflect the discontinued operations of FSI and DSI. See Note 3 to the
Consolidated Financial Statements.
(b) Includes reorganization expense (benefit) of $(2,044), $22,734, $9,035,
$(6,756), and $(12,272) in 1995, 1994, 1993, 1992 and 1991, respectively.
(c) Represents extraordinary loss on the extinguishment of debt in 1994 and the
extraordinary gain on the early termination of a capital lease in 1993.
(d) No dividends on preferred shares were declared for 1993, 1992, and 1991. In
both 1995 and 1994, dividends of $50 per share on the Class A Redeemable
Preferred stock were declared. The 1995, 1994, 1993, 1992, and 1991
dividend amounts include $521, $4,847, $3,999, $3,260, and $2,657,
respectively, accrued on redeemable preferred shares to reflect the
effective dividend yield over the life of such securities. All preferred
dividends, whether or not declared, are reflected as a deduction in
arriving at income (loss) applicable to Common Shares.
(e) At December 31, 1991, New Valley was in default under various loan
agreements and indentures, and, as a result, the portion of the long-term
debt so affected was classified as current in the balance sheet. In
subsequent years such debt is included in prepetition claims. See note (f)
below.
(f) Comprised of prepetition claims against the Corporation in its bankruptcy
case, including long-term notes, debentures, pension liabilities and
certain other obligations. See Note 15 to the Consolidated Financial
Statements.
(g) Includes undeclared cumulative preferred dividends on redeemable preferred
shares of $121,893, $176,761, $193,042, $142,893, and $100,000 at December
31, 1995, 1994, 1993, 1992, and 1991, respectively. See Note 11 to the
Consolidated Financial Statements.
F-31
<PAGE> 73
SCHEDULE II
NEW VALLEY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(THOUSANDS)
<TABLE>
<CAPTION>
Losses
Additions Charged to
Balance at Charged to Reserve, Net Other Balance at
Description January 1, Expenses of Collections Charges (a) December 31,
- ----------- ---------- -------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Year 1994
Allowance for
uncollectible
receivables 8,820 4,614 (4,946) (8,488) --
Year 1993
Allowance for
uncollectible
receivables 9,145 5,130 (5,455) -- 8,820
</TABLE>
(a) The receivable and related allowance for uncollectible receivables were sold
to FFMC on November, 1994.
F-32
<PAGE> 74
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
NEW VALLEY CORPORATION
(REGISTRANT)
By: /s/ Bennett S. LeBow
--------------------------------
Bennett S. LeBow
Chairman of the Board
and Chief Executive
Officer
Date: April 12, 1996
<PAGE> 75
39
POWER OF ATTORNEY
The undersigned directors and officers of New Valley Corporation
hereby constitute and appoint Howard M. Lorber, Richard J. Lampen and Marc N.
Bell, and each of them, with full power to act without the other and with full
power of substitution and resubstitution, our true and lawful attorneys-in-fact
with full power to execute in our name and behalf in the capacities indicated
below, this Annual Report on Form 10-K and any and all amendments thereto and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby ratify and
confirm all that such attorneys-in-fact, or any of them, or their substitutes
shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on April 12, 1996.
SIGNATURE TITLE
--------- -----
/s/ Bennett S. LeBow Chairman of the Board
- ---------------------------- and Chief Executive Officer
Bennett S. LeBow (Principal Executive Officer)
/s/ Howard M. Lorber Director, President and
- ---------------------------- Chief Operating Officer
Howard M. Lorber
/s/ Gerald E. Sauter Director, Vice President,
- ---------------------------- Treasurer, and Chief Financial Officer
Gerald E. Sauter (Principal Financial Officer and Principal
Accounting Officer)
/s/ Henry C. Beinstein Director
- ----------------------------
Henry C. Beinstein
<PAGE> 76
40
/s/ Arnold I. Burns Director
- ----------------------------
Arnold I. Burns
/s/ Ronald J. Kramer Director
- ----------------------------
Ronald J. Kramer
/s/ Paul L. McDermott Director
- ----------------------------
Paul L. McDermott
/s/ Richard S. Ressler Director
- ----------------------------
Richard S. Ressler
/s/ Barry W. Ridings Director
- ----------------------------
Barry W. Ridings
<PAGE> 77
EXHIBIT INDEX
Exhibit No. Description
---------- -----------
* (2)(a) Joint Plan (incorporated by reference to Exhibit 2 in the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994).
* (b) Plan Amendment (incorporated by reference to Exhibit 2 in the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994).
* (c) Notice of Modification to the First Amended Joint Chapter 11 Plan
of Reorganization (incorporated by reference to Exhibit 2 in the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994).
* (3)(a) Restated Certificate of Incorporation of the Company, as amended
to date (incorporated by reference to Exhibit 3(a) in the
Company's Form 10-K for the fiscal year ended December 31, 1994).
* (b) By-laws of the Company, as amended to date (incorporated by
reference to Exhibit (3)(b) in Amendment No. 4 to the Company's
Registration Statement No. 33-28883).
* (4)(a) First Mortgage, Security Agreement, Assignment of Leases and
Rents and Fixture Filing dated January 10, 1996 by the Company,
as Mortgagor, and Jared Associates, L.P., as Mortgagee (Westgate
I) (incorporated by reference to Exhibit 4.1 in the Company's
Current Report on Form 8-K dated January 25, 1996).
* (b) Secured Promissory Note of the Company dated January 10, 1996 in
favor of Jared Associates, L.P. (Westgate I) (incorporated by
reference to Exhibit 4.2 in the Company's Current Report on Form
8-K dated January 25, 1996).
* (c) Loan and Security Agreement dated January 11, 1996 by and between
AP Century III, L.P., AP Century IV, L.P., AP Century V, L.P., AP
Century VI, L.P. and AP Century VIII, L.P., as Lenders, and the
Company, as Borrower (the Properties) (incorporated by reference
to Exhibit 4.3 in Amendment No. 1 to the Company's Current Report
on Form 8-K dated January 25, 1996, as amended).
* (10)(a) 1987 Stock Option Plan of the Company, as amended to date
(incorporated by reference to Exhibit 10(b) in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1991.
(b)(A)(i) Employment Agreement dated as of June 1, 1995, as amended,
effective as of January 1, 1996, between the Company and Bennett
S. LeBow.
(ii) Employment Agreement dated as of June 1, 1995, as amended,
effective as of January 1, 1996, between the Company and Howard
M. Lorber.
* (iii) Employment Agreement dated September 22, 1995, between the
Company and Richard J. Lampen (incorporated by reference to
Exhibit 10(c) in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1995).
* (iv) Letter Agreement between New Valley Holdings, Inc. ("NV
Holdings"), the Company and Robert J. Amman, dated December 7,
1994 (incorporated by reference to Exhibit (c)(13) in the
Company's Issuer Tender Offer Statement on Schedule 13E-4 dated
January 20, 1995).
* (v) Irrevocable Proxy, dated December 7, 1994, granted by Robert J.
Amman to NV Holdings (incorporated by reference to Exhibit
(c)(14) in the Company's Issuer Tender Offer Statement on
Schedule 13E-4 dated January 20, 1995).
* (vi) Amendment No. 1 to the Purchase Agreement, dated November 14,
1994, between FFMC and the Company (incorporated by reference to
Exhibit 10(b) in the Company's Current Report on Form 8-K dated
November 1, 1994).
* (h)(i) Services Agreement, dated November 15, 1994, by and among the
Company, DSI and FSI (incorporated by reference to Exhibit 10(c)
in the Company's Current Report on Form 8-K dated November 1,
1994).
* (ii) Consulting Services Agreement, dated November 15, 1994, between
the Company and FSI (incorporated by reference to Exhibit 10(d)
in the Company's Current Report on Form 8-K dated November 1,
1994).
* (iii) Pension and Retiree Benefits Administration Services Agreement,
dated November 1, 1994, between the Company and FSI (incorporated
by reference to Exhibit 10(e) in the Company's Current Report on
Form 8-K dated November 1, 1994).
* (iv) Trademark License Agreement, dated November 15, 1994, by and
among the Company, as licensor, and FFMC and FSI, as licensees
(incorporated by reference to Exhibit 10(f) in the Company's
Current Report on Form 8-K dated November 1, 1994).
* (v) Trademark License Agreement, dated November 15, 1994, by and
among FFMC and FSI as licensors, and the Company and DSI, as
licensees (incorporated by reference to Exhibit 10(g) in the
Company's Current Report on Form 8-K dated November 1, 1994.
* (vi) Service Mark License Agreement, dated November 15, 1994, by and
among the Company, DSI and FSI (incorporated by reference to
Exhibit 10(h) in the Company's Current Report on Form 8-K dated
November 1, 1994).
* (vii) Sales and Marketing Services Agreement, dated November 15, 1994,
by and among the Company, DSI and FSI (incorporated by reference
to Exhibit 10(i) in the Company's Current Report on Form 8-K
dated November 1, 1994).
* (viii) Escrow Agreement, dated November 15, 1994, by and among the
Company, FFMC and NationsBank of Georgia, National Association
(incorporated by reference to Exhibit 10(j) in the Company's
Current Report on Form 8-K dated November 1, 1994).
* (ix) Settlement Agreement dated October 19, 1994 among the Company,
the Statutory Committee of Unsecured Creditors, the Official
Committee of Secured Noteholders, FSI, FFMC and the Pension
Benefit Guaranty Corporation (incorporated by reference to
Exhibit 10(c) in the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1994).
* (x) Stipulation dated October 20, 1994 among the Western Union
Employee Benefit Committee, the Company and the Pension Benefit
Guaranty Corporation (incorporated by reference to Exhibit 10(d)
in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1994).
* (xi) Settlement Agreement, Stipulation and Order dated October 28,
1994 among the Company, BGLS, NV Holdings, the Statutory
Committee of Unsecured Creditors, the Official Committee of
Secured Noteholders and the Official Committee of Equity Security
Holders, the Preferred A Stockholders' Sub- Committee of the
Equity Committee and certain beneficial holders of Series A
Preferred Stock of the Company (incorporated by reference to
Exhibit 10(b) in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1994).
* (i) Purchase Agreement dated January 10, 1996 by and among the
Company, Bellemead Michigan, Inc., and Jared Associates, L.P.
(incorporated by reference to Exhibit 2.1 in the Company's
Current Report on Form 8-K dated January 25, 1996).
* (j) Purchase Agreement dated January 11, 1996 between the Company and
AP Century I, L.P., AP Century II, L.P., AP Century III, L.P., AP
Century IV, L.P, A.P. Century V, L.P., A.P. Century VI, L.P.,
A.P. Century VIII, L.P. and AP Century IX, L.P. (incorporated by
reference to Exhibit 2.2 in the Company's Current Report on Form
8-K dated January 25, 1996, as amended).
(k)(i) Indemnity Agreement, dated January 11, 1996, from Apollo Real
Estate Investment to the Company regarding loan document
discrepancies.
(ii) Indemnity Agreement, dated January 11, 1996, from Apollo Real
Estate Investment to the Company regarding existing lender
consents.
(iii) Environmental Indemnity Agreement, dated January 11, 1996, from
Apollo to the Company regarding University Place Property.
(iv) Environmental Indemnity Agreement, dated January 11, 1996, from
the Company to Apollo regarding post-closing contamination.
* (l) Expense Sharing Agreement made and entered into as of January 18,
1995, by and between Brooke and the Company (incorporated by
reference to Exhibit 10(a) in the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1995).
* (m) Asset Purchase Agreement dated September 30, 1995 among the
Company, DSI and FFMC (incorporated by reference to Exhibit 10(b)
in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1995).
* (n) Agreement among the Company, ALKI and High River, dated October
17, 1995 (incorporated by reference to Exhibit 10(d) in the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1995).
* (o) Letter Amendment, dated October 17, 1995, to the Agreement among
the Company, ALKI and High River, dated October 17, 1995
(incorporated by reference to Exhibit 10(e) in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995).
* (p) Letter Amendment, dated November 5, 1995, to the Agreement among
the Company, ALKI, and High River, dated October 17, 1995
(incorporated by reference to Exhibit 10(f) in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995).
(q) Amended and Restated Plan and Agreement of Merger by and among
Thinking Machines, OTMC Corporation and TMC Acquisition Corp.,
dated as of January 9, 1996.
(r) TMC Investment Partnership Agreement dated as of February 2,
1996, between Ladenburg Thalmann Capital Corp. and Levin-A
Limited Partnership.
* (s) Form of Margin Agreement dated September 12, 1995, between ALKI
and Bear Stearns & Co. (incorporated by reference to Exhibit 2 in
the Schedule 13D filed by, among others, the Company with the SEC
on March 11, 1996, as amended, with respect to the common stock
of RJR Nabisco Holdings Corp. (the "Schedule 13D")).
* (t) Agreement, dated December 28, 1995, between Jefferies, Brooke,
the Company and Liggett (incorporated by reference to Exhibit 7
in the Schedule 13D).
* (u) Letter Amendment, dated February 28, 1996, to the Agreement
between Jefferies, Brooke, the Company and Liggett, dated
February 27, 1996 (incorporated by reference to Exhibit 7 in the
Schedule 13D).
* (v) Agreement, dated December 27, 1995, between Brooke and the
Company (incorporated by reference to Exhibit 8 in the Schedule
13D).
* (w) International Swap Dealers Association Master Agreement (and the
schedules and annexes thereto) and Confirmation, dated February
28, 1996, between the Company and Internationale Nederlanden
(U.S.) Capital Markets, Inc. (incorporated by reference to
Exhibit 10 in the Schedule 13D).
* (x) Agreement and Plan of Merger by and between the Company and
Ladenburg dated March 31, 1995 (schedules omitted) (incorporated
by reference to Exhibit 99(a) in the Company's Current Report on
Form 8-K dated April 4, 1995).
(y) Release and Termination Agreement, dated September 30, 1995,
among the Company, FSI, DSI and FFMC, which agreement terminated
certain agreements among such parties in connection with the sale
of DSI.
(11) Statement re computation of per share earnings.
* (16)(a) Letter from Price Waterhouse LLP, dated March 13, 1995.
(incorporated by reference to Exhibit 4.1 in the Company's
Current Report on Form 8-K dated March 8, 1995).
* (b) Letter from Price Waterhouse LLP, dated April 5, 1995
(incorporated by reference to Exhibit 4.2 in Amendment No. 1 to
the Company's Current Report on Form 8-K dated March 8, 1995).
(21) Subsidiaries of the Company.
(27) Financial Data Schedule (for SEC use only).
* (99)(a) Order confirming First Amended Joint Chapter 11 Plan of
Reorganization for the Company entered by the United States
Bankruptcy Court for the District of New Jersey on November 1,
1994 (incorporated by reference to Exhibit 99(b) in the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1994).
* (b) Order Authorizing Sale of Shares and Related Assets entered by
the United States Bankruptcy Court for the District of New Jersey
on November 1, 1994 (incorporated by reference to Exhibit 99(a)
in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1994).
- --------------
* Incorporated by reference.
<PAGE> 1
Exhibit (10)(b)(A)(i)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of June 1, 1995, as amended effective as
of January 1, 1996, by and between New Valley Corporation, a New York
corporation (the "Company"), and Bennett S. LeBow (the "Executive").
WITNESSETH:
A. WHEREAS, the Company and the Executive entered into an employment
agreement dated as of June 1, 1995; and
B. WHEREAS, the Company and the Executive are desirous of amending said
agreement to provide for the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the Company and the Executive hereby agree as follows:
1. EMPLOYMENT AND TERM.
(a) The Company hereby employs the Executive, and the Executive accepts
employment by the Company, as Chairman of the Board of Directors (the "Board")
and Chief Executive Officer of the Company upon the terms and conditions set
forth herein.
(b) Subject to paragraphs (c) and (d) of this Section 1 and the provisions
for termination hereinafter provided, the term of the Executive's employment
hereunder shall be from January 18, 1995 (the "Effective Date") through and
including the day immediately preceding the third anniversary of the Effective
Date (the "Initial Period").
-1-
<PAGE> 2
(c) On the first anniversary of the Effective Date (the "Renewal Date") and
on each subsequent anniversary of such date, the term of this Agreement shall
automatically be extended by one additional calendar year (the "Extension
Period") unless either party shall have provided notice to the other within the
sixty-day period prior to such anniversary that such party does not desire to
extend the term of this Agreement, in which case no further extension of the
term of this Agreement shall occur pursuant hereto but all previous extensions
of the term shall continue to be given full force and effect.
(d) For purposes of this Agreement, the term "Employment Period" means the
Initial Period, if the term of this Agreement has not been extended pursuant to
Section 1(c); otherwise, the period beginning on the Effective Date and ending
with the last day of the most recently arising Extension Period.
2. DUTIES.
(a) Throughout the Employment Period, the Executive shall be Chairman of
the Board and Chief Executive Officer of the Company and shall report to the
Board. The Executive shall at all times comply with Company policies as
established by the Board.
(b) Throughout the Employment Period, the Executive shall devote
substantial services to the Company, including such time as is necessary to
perform his duties under this Employment Agreement fully, diligently and
faithfully, and shall use his best efforts to promote the interests of the
Company and its subsidiaries and affiliates.
-2-
<PAGE> 3
(c) Anything herein to the contrary notwithstanding, nothing shall preclude
the Executive from (i) serving on the boards of directors of a reasonable number
of other business entities, trade associations and/or charitable organizations,
(ii) engaging in charitable activities and community affairs, (iii) managing his
personal investments and affairs, and (iv) any other activities approved by the
Board; provided, however, that such activities do not materially interfere with
the proper performance of his duties and responsibilities specified in paragraph
(b) of this Section 2.
3. COMPENSATION.
Subject to Section 15 hereof, as full compensation to the Executive for his
performance of the services hereunder and for his acceptance of the
responsibilities described herein, the Company agrees to pay the Executive, and
the Executive agrees to accept, the following compensation and other benefits:
(a) BASE SALARY. During the Employment Period, the Company shall pay the
Executive a salary (the "Base Salary") at the rate of $2,000,000 per annum
retroactive to January 18, 1995, payable in equal installments at such payment
intervals as are the usual custom of the Company, but not less often than
monthly. The Board shall periodically review such Base Salary and may increase
(but not decrease) it from time to time, in its sole discretion.
(b) BENEFIT PLANS. During the Employment Period and as otherwise provided
herein, the Executive shall be entitled to participate in any and all employee
welfare and health benefit plans (including, but not limited to life insurance,
health and medical, dental and disability plans) and other employee benefit
plans, including but not limited to qualified pension plans, established
-3-
<PAGE> 4
by the Company from time to time for the general and overall benefit of
executives of the Company. Nothing herein contained shall be construed as
requiring the Company to establish or continue any particular benefit plan in
discharge of its obligations hereunder.
(c) DEFERRED COMPENSATION. Notwithstanding any other provision of this
Employment Agreement, the Executive shall have the right to request the receipt
of any portion of his Base Salary by any lawful means (including, without
limitation, any non-qualified deferred compensation arrangement(s) requested by
the Executive), and the Company shall reasonably cooperate with the Executive to
grant such request, provided that the granting of such request does not
represent inequitable treatment as concerns other senior employees or executives
(in the Company's sole judgment) and does not impose additional costs on the
Company other than insignificant administrative costs.
4. VACATION AND OTHER BENEFITS.
The Executive shall be entitled to not less than five (5) weeks of paid
vacation each year of his employment hereunder, as well as to such other
employment benefits extended or provided to executives of comparable status,
including, but not limited to, payment or reimbursement of all reasonable
expenses incurred by the Executive in the performance of his responsibilities
and the promotion of the Company's businesses, including, without limitation,
first-class air travel and lodging, an automobile and related expenses, cellular
phone charges, club memberships and dues, and travel expenses of the Executive's
spouse when accompanying him on business-related trips. The Executive shall
submit to the Company periodic statements of all expenses so incurred. Subject
-4-
<PAGE> 5
to such audits as the Company may deem necessary, the Company shall reimburse
the Executive the full amount of any such expenses advanced by him promptly in
the ordinary course.
5. EXECUTIVE COVENANTS.
Provided that the Company is not in material default to the Executive on
any of its obligations under this Agreement, the Executive agrees as follows:
(a) Except with the consent of or as directed by the Board, or except if
compelled by judicial or legal authorities, the Executive shall keep
confidential and not divulge to any other person, during the Employment Period
or thereafter, any business secrets and other confidential information regarding
the Company, its subsidiaries and affiliates, except for information which is or
becomes publicly available other than as a result of disclosure by the
Executive.
(b) All papers, books and records of every kind and description relating to
the business and affairs of the Company, its subsidiaries and affiliates,
whether or not prepared by the Executive are the exclusive property of the
Company, and the Executive shall surrender them to the Company, at any time upon
request, during or after the Employment Period.
(c) During the Employment Period and during any Severance Period (as
hereinafter defined), the Executive shall not, without the prior written consent
of the Board, compete, directly or indirectly, with the Company, its
subsidiaries or affiliates or participate as a director, officer, employee,
agent, representative, stockholder, or partner, or have any direct or indirect
financial interest as a creditor, in any business which directly or indirectly
competes with the Company, its subsidiaries or affiliates; provided, however,
that this paragraph (c) shall not restrict the Executive
-5-
<PAGE> 6
from holding up to 5% of the publicly traded securities of any entity which so
competes with the Company.
(d) During the Employment Period and during any Severance Period (as
hereinafter defined), the Executive shall not, without the prior written consent
of the Board, either for his own account or for any person, firm or company (i)
solicit any customers of the Company, its subsidiaries or affiliates, or (ii)
solicit or endeavor to cause any employee of the Company, its subsidiaries or
affiliates to leave its employment or induce or attempt to induce any such
employee to breach any employment agreement with the Company, its subsidiaries
or affiliates, or otherwise interfere with the employment of any employee by the
Company, its subsidiaries or affiliates.
(e) Without limiting any other provision of this Employment Agreement, the
Executive hereby agrees to be bound by and to comply with any obligations known
to the Executive and imposed on the Company, its subsidiaries or affiliates, by
law, rule, regulation, ordinance, order, decree, instrument, agreement,
understanding or other restriction of any kind.
(f) The Executive hereby agrees to provide reasonable cooperation to the
Company, its subsidiaries and affiliates during the Employment Period and any
Severance Period in any litigation between the Company, its subsidiaries or
affiliates, and third parties.
(g) The parties agree that the Company shall, in addition to other remedies
provided by law, have the right and remedy to have the provisions of this
Section 5 specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any breach or threatened breach of the
provisions of this Section 5 will cause irreparable injury to the Company and
that
-6-
<PAGE> 7
money damages will not provide an adequate remedy to the Company. Nothing
contained herein shall be construed as prohibiting the Company from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of damages from the Executive.
6. TERMINATION OF EMPLOYMENT PERIOD AND SEVERANCE.
(a) TERMINATION BY THE COMPANY WITHOUT CAUSE. If for any reason the Company
wishes to terminate the Employment Period and the Executive's employment
hereunder (including by not extending the term of this Agreement pursuant to
Section 1(c)), the Company shall give a written notice to the Executive stating
such intention, and the Employment Period shall terminate, and a severance
period shall commence, upon the Renewal Date or anniversary thereof next
following receipt of such notice (such period, the "Severance Period"). The
Severance Period shall continue for thirty-six months. During the Severance
Period, the Executive shall continue to receive the Base Salary and benefits
under Sections 3(a) and 3(b) (including any benefits under the Company's long
term disability and life insurance plans) of this Employment Agreement as if the
Employment Period continued throughout the Severance Period.
(b) DEATH. If the Executive dies during the Employment Period, the
Employment Period shall automatically terminate, the Severance Period described
in Section 6(a) hereof shall immediately commence and the duties, rights,
benefits and other matters during such Severance Period shall be as set forth in
Section 6(a), except that the Executive's heirs, beneficiaries, and estate shall
be paid and receive all compensation and benefits which the Executive would have
received during the Severance Period. If the Executive dies during the Severance
Period, his heirs,
-7-
<PAGE> 8
beneficiaries and estate shall continue to receive compensation and benefits
that the Executive would have otherwise received during the remainder of the
Severance Period without any offset or reduction and without any duty or
obligation by such heirs, beneficiaries or estate.
(c) DISABILITY. If the Executive becomes disabled (as hereinafter defined)
during the Employment Period, the Company shall be entitled to terminate his
employment upon written notice to the Executive from the Company. In the event
of such termination, the Executive shall be released from any duties hereunder,
and the Severance Period described in Section 6(a) hereof shall immediately
commence. The duties, rights, benefits and other matters during such Severance
Period shall be as set forth in Section 6(a), and the Executive shall be
entitled to all compensation and benefits during the Severance Period without
any offset or reduction except by such amounts, if any, as are paid to the
Executive in lieu of compensation for services under any applicable disability
or other insurance policies of the Company (or by the Company under any self
insurance plan). For purposes of this Employment Agreement, "Disability" shall
mean mental or physical impairment or incapacity rendering the Executive
substantially unable to perform his duties under this Employment Agreement for
more than 180 days out of any 360-day period during the Employment Period. A
determination of Disability shall be made by the Board in its sole discretion
upon its own initiative or upon request of the Executive or a person acting on
his behalf. The Employment Period shall cease upon the making of a determination
of Disability. If the Executive becomes disabled during a Severance Period, he
shall continue to receive the compensation and benefits of this Employment
Agreement during the entire Severance Period without any offset or reduction,
-8-
<PAGE> 9
except by such amounts, if any, as are paid to the Executive in lieu of
compensation for services under any applicable disability or other insurance
policies of the Company (or by the Company under any self insurance plan).
(d) TERMINATION BY THE COMPANY FOR CAUSE. The Company, by written notice to
the Executive, shall have the right to terminate the Employment Period in the
event of any of the following (any of which shall constitute "Cause"):
(i) The Executive's intentional refusal to perform such duties as are
consistent with his positions, as described above, with the Company (other than
as a result of Disability);
(ii) The Executive's fraud, dishonesty, or deliberate injury to the
Company in the performance of his duties;
(iii) The Executive's breach of any provision of this Agreement which
is materially damaging to the financial position of the Company and its
subsidiaries and affiliates taken as a whole; provided, however, that the
Executive may not be terminated under any of the foregoing clauses (i) through
(iii) unless he shall have first received thirty days' prior written notice from
the Board advising him of the specific acts or omissions alleged to constitute
the basis for such termination and the Executive (and his representative) shall
have been afforded an opportunity to appear before the Board to explain why the
Executive believes that cause did not occur, and, with respect to any acts or
omissions alleged to constitute a refusal to perform duties described in clause
(i), or a material breach described in clause (iii), such acts or omissions
continue after the Executive shall have had a reasonable opportunity to correct
the acts or omissions cited in the notice.
-9-
<PAGE> 10
Any termination under this Section 6(d) shall not be followed by a
Severance Period and shall be without damages or liability to the Company for
compensation and other benefits which otherwise would have accrued to the
Executive hereunder, but any unpaid compensation, benefits and reimbursements
accrued through the date of such termination, including Base Salary, shall be
paid to the Executive at the times normally paid by the Company.
(e) VOLUNTARY TERMINATION BY THE EXECUTIVE. In the event of the voluntary
termination of employment by the Executive, the terms of the last paragraph of
Section 6(d) shall apply, except in the event that such voluntary termination
occurs within ninety days of (i) a material diminution of the Executive's duties
and responsibilities provided in Section 2, (ii) a reduction of the Executive's
base salary or any other material breach of any provision of this Agreement by
the Company, or (iii) relocation of the Executive's office from the New York
City or Miami metropolitan areas, in which case the provisions of Section 6(a)
shall apply.
(f) TERMINATION FOLLOWING A CHANGE IN CONTROL. For purposes of this
Agreement, a "Change in Control" shall occur if or upon the occurrence of:
(i) Any "Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act")) acquires "Beneficial Ownership" (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of any
securities of the Company or of Brooke Group Ltd. ("Brooke") which
generally entitles the holder thereof to vote for the election of
directors of the Company or Brooke, as the case may be (the "Voting
Securities"), which, when added to the Voting Securities then
"Beneficially Owned" by such person, would result in such Person
"Beneficially Owning" forty percent (40%) or more of the combined
voting power of the Company's or Brooke's, as the case may be, then
outstanding Voting Securities; provided, however, that for purposes of
this paragraph (i), a Person shall not be deemed to have made an
acquisition of Voting Securities if such Person: (a) acquires Voting
Securities as a result of a stock split, stock dividend or other
corporate restructuring in which all
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<PAGE> 11
stockholders of the class of such Voting Securities are treated on a
pro rata basis: (b) acquires the Voting Securities directly from the
Company or Brooke, as the case may be; (c) becomes the Beneficial Owner
of more than the permitted percentage of Voting Securities solely as a
result of the acquisition of Voting Securities by the Company or
Brooke, as the case may be, which, by reducing the number of Voting
Securities outstanding, increases the proportional number of shares
Beneficially Owned by such Person; (d) is the Company or Brooke, as the
case may be, or any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is owned
directly or indirectly by the Company or Brooke, as the case may be (a
"Controlled Entity"); or (e) acquires Voting Securities in connection
with a "Non-Control Transaction" (as defined in paragraph (iii) below);
or
(ii) The individuals who, as of June 5, 1995, are members of the
Board (the "Incumbent Board") or the Board of Directors of Brooke (the
"Brooke Incumbent Board"), cease for any reason to constitute at least
two-thirds of the Incumbent Board or the Brooke Incumbent Board, as the
case may be; provided, however, that if either the election of any new
director or the nomination for election of any new director was
approved by a vote of more than two-thirds of the Incumbent Board or
the Brooke Incumbent Board, as the case may be, such new director shall
be considered as a member of the Incumbent Board or the Brooke
Incumbent Board, as the case may be; provided further, however, that no
individual shall be considered a member of the Incumbent Board or the
Brooke Incumbent Board, as the case may be, if such individual
initially assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board or Board of
Directors of Brooke, as the case may be (a "Proxy Contest"), including
by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest; or
(iii) Shareholder approval of:
(a) A merger, consolidation or reorganization involving
the Company or Brooke (a "Business Combination"), unless
(1) the stockholders of the Company or Brooke, as the
case may be, immediately before the Business Combination, own, directly
or indirectly immediately following the Business Combination, at least
fifty-one percent (51%) of the combined voting power of the outstanding
Voting Securities of the corporation resulting from the Business
Combination (the "Surviving
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Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before the Business Combination,
and
(2) the individuals who were members of the Incumbent
Board or the Brooke Incumbent Board, as the case may be, immediately
prior to the execution of the agreement providing for the Business
Combination constitute at least a majority of the members of the Board
of Directors of the relevant Surviving Corporation, and
(3) no Person (other than the Company, Brooke or any
Controlled Entity, a trustee or other fiduciary holding securities
under one or more employee benefit plans or arrangements (or any trust
forming a part thereof) maintained by the Company or Brooke, as the
case may be, the Surviving Corporation or any Controlled Entity, or any
Person who, immediately prior to the Business Combination, had
Beneficial Ownership of forty percent (40%) or more of the then
outstanding Voting Securities) has Beneficial Ownership of forty
percent (40%) or more of the combined voting power of the Surviving
Corporation's then outstanding voting securities (a transaction
described in this subparagraph (a) shall be referred to as a
"Non-Control Transaction");
(b) A complete liquidation or dissolution of the Company;
or
(c) The sale or other disposition of all or substantially
all of the assets of the Company or Brooke to any Person (other than a
transfer to a Controlled Entity).
Notwithstanding the foregoing, (x) a Change in Control shall not be
deemed to occur solely because forty percent (40%) or more of the then
outstanding Voting Securities is Beneficially Owned by (A) a trustee or
other fiduciary holding securities under one or more employee benefit
plans or arrangements (or any trust forming a part thereof) maintained
by the Company or Brooke, as the case may be, or any Controlled Entity
or (B) any corporation which, immediately prior to its acquisition of
such interest, is owned directly or indirectly by the stockholders of
the Company or Brooke, as the case may be, in the same proportion as
their ownership of stock in the Company or Brooke, as the case may be,
immediately prior to such acquisition; and (y) if the Executive ceases
to be an employee of the Company and the Executive reasonably
demonstrates that such termination (A) was at the request of a third
party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change
in Control or (B) otherwise occurred in connection with, or in
anticipation of, a Change in Control which actually occurs, then for
all purposes hereof, the date of a Change in Control
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with respect to the Executive shall mean the date immediately prior to
the date of such termination of employment.
If within two years of a Change in Control, the Employment Period is
terminated by the Company without Cause (other than for reason of Death or
Disability) or by the Executive for any (or all) of the reasons set forth in
Sections 6(e)(i), (ii) or (iii), the Company shall pay the Executive in cash in
a lump sum to be paid as soon as practicable following termination, an amount
equal to 2.99 times the amount of the annual Base Salary of the Executive
immediately prior to such termination. The Executive shall also be entitled to
continue to participate in all employee benefit plans in which he was
participating on the date of termination of his employment until the earlier of
(x) the end of the Employment Period or (y) the date he receives equivalent
coverage and benefits under the plans and programs of a subsequent employer. In
addition, for a thirty-six month period after such termination, the Company
shall arrange to provide the Executive, at the Company's expense, with life,
disability, accident, and health and medical insurance benefits substantially
similar to those which the Executive was receiving immediately prior to such
termination; but benefits otherwise receivable by the Executive pursuant to this
sentence shall be reduced to the extent comparable benefits are actually
received by him during such period following such termination, and any such
benefits actually received by the Executive shall be reported to the Company.
There shall be no Severance Period following a termination under this Section
6(f), and upon such a termination the Executive shall no longer be bound by the
provisions of Section 5 of this Employment Agreement.
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7. GROSS-UP PAYMENT.
If it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive pursuant to this Agreement (a "Base
Payment") would be subject to the excise tax (the "Excise Tax") imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then
the Executive shall be entitled to receive an additional payment (the "Gross-Up
Payment") in an amount such that the net amount retained by him, after the
calculation and deduction of any Excise Tax on the Base Payment and any federal,
state, and local income taxes and Excise Tax on the Gross-Up Payment, shall be
equal to the Base Payment. In determining this amount, the amount of the
Gross-Up Payment attributable to federal income taxes shall be reduced by the
maximum reduction in federal income taxes that could be obtained by the
deduction of the portion of the Gross-Up Payment attributable to state and local
income taxes. Additionally, the Gross-Up Payment shall be reduced by income or
excise tax withholding payments made by the Company to any federal, state, or
local taxing authority with respect to the Gross-Up Payment that were not
deducted from compensation payable to the Executive.
All determinations required to be made under this Section 7, including
whether and when a Gross-Up Payment is required, the amount of such Gross-Up
Payment, and the assumptions to be utilized in arriving at such determination,
except as specified above, shall be made by the Company's independent auditor
(the "Accounting Firm"), which shall provide detailed supporting calculations
both to the Company and the Executive within fifteen business days after the
receipt of notice from the Executive that there should be a Gross-Up Payment.
The determination of tax
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liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and if said tax advisor does not agree with the
determination reached by the Accounting Firm, then the Accounting Firm and said
tax advisor shall jointly designate a nationally recognized public accounting
firm, which shall make the determination. All fees and expenses of the
accountants and tax advisors retained by either the Executive or the Company
shall be borne by the Company. Any Gross-Up Payment shall be paid by the Company
to the Executive within five days after the receipt of the determination. Any
determination by a jointly designated public accounting firm shall be binding
upon the Company and the Executive.
As a result of uncertainty in the application of Section 4999 of the Code
at the time of the initial determination hereunder, it is possible that Gross-Up
Payments shall not have been made by the Company that should have been made
consistent with the calculations required to be made hereunder ("Underpayment").
In the event that the Executive thereafter is required to make a payment of any
Excise Tax, any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive. In the event that the Gross-Up Payment exceeds
the amount subsequently determined to be due, such excess shall constitute a
loan from the Company payable on the fifth day after demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
8. NO MITIGATION OF DAMAGES.
In the event the employment of the Executive under this Agreement is
terminated by the Company, the Executive shall not be required to seek
comparable employment so as to minimize
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any obligation of the Company to compensate him for any damages he may suffer by
reason of such wrongful termination.
9. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by applicable law with respect to any acts or non-acts he may have
committed while he was an officer, director, employee, agent or fiduciary (i) of
the Company or its affiliated entities, or (ii) at the request of the Company,
of any other entity. The Executive shall have legal fees and other expenses paid
to him in advance of final disposition of a proceeding provided he executes an
undertaking to repay such amounts if, and to the extent, required to do so by
applicable law.
(b) The Company agrees to maintain for the Executive a directors' and
officers' liability insurance policy not less favorable than any policy that the
Company or any subsidiary or affiliate thereof maintains for its directors and
executive officers in general.
(c) This Section 9 establishes contract rights which shall be binding upon,
and shall inure to the benefit of the heirs, executors, personal and legal
representatives, successors and assigns of the Executive. The obligations set
forth in this Section 9 shall survive any termination of this Agreement.
10. CONFLICTING AGREEMENTS.
The Executive hereby represents and warrants to the Company that his
entering into his Employment Agreement, and the obligations and duties
undertaken by him hereunder, will not conflict with, constitute a breach of, or
otherwise violate the terms of any other employment or
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other agreement to which he is a party. The Company represents and warrants that
it is a corporation duly organized and existing under the laws of the State of
New York and that execution and delivery of this Employment Agreement has been
duly authorized by all necessary corporate action.
11. ASSIGNMENT.
(a) BY THE EXECUTIVE. This Employment Agreement and any obligations
hereunder shall not be assigned, pledged, alienated, sold, attached, encumbered
or transferred in any way by the Executive and any attempt to do so shall be
void.
(b) BY THE COMPANY. Provided the substance of the Executive's duties set
forth in Section 2 shall not change, and provided that the Executive's
compensation as set forth in Section 3 shall not be adversely affected, the
Company may, after obtaining the prior written consent of the Executive, assign
or otherwise transfer this Employment Agreement to any succeeding entity without
limitation, which entity shall assume all rights and obligations hereunder.
12. ARBITRATION.
(a) Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in the City of New York,
New York before a panel of three (3) arbitrators in accordance with the rules of
the American Arbitration Association then pertaining in the City of New York. In
any such arbitration, one arbitrator shall be selected by each of the parties,
and the third arbitrator shall be selected by the first two arbitrators. The
arbitration award shall be final and binding upon the parties and judgment
thereon may be entered in any court
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having jurisdiction thereof. The arbitrators shall be deemed to possess the
powers to issue mandatory orders and restraining orders in connection with such
arbitration; provided, however, that nothing in this Section 12 shall be
construed so as to deny the Company the right and power to seek and obtain
injunctive relief in a court of equity for any breach or threatened breach of
the Executive of any of his covenants contained in Section 5 hereof.
(b) All costs, fees and expenses of any arbitration or litigation in
connection with this Agreement, including, without limitation, attorneys' fees
of the Executive and the Company, shall be borne by, and be the obligation of,
the Company. The obligations of the Company under this Section 12 shall survive
the termination of this Agreement (whether such termination is by the Company,
the Executive, upon the expiration of this Agreement, or otherwise).
13. NOTICES.
All notices, requests, demands and other communications hereunder must be
in writing and shall be deemed to have been duly given if delivered by hand or
mailed within the continental United States by first class, registered mail,
return receipt requested, postage and registry fees prepaid, to the applicable
party and addressed as follows:
(a) if to the Company:
New Valley Corporation
100 S.E. Second Street
Miami, Florida 33131
Attn: Executive Vice President
and General Counsel
(b) if to the Executive:
Bennett S. LeBow
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<PAGE> 19
5203 Fisher Island Drive
Fisher Island, Florida 33109
Addresses may be changed by notice in writing signed by the addressee.
14. MISCELLANEOUS.
(a) If any provision of this Employment Agreement shall, for any reason, be
adjudicated by any court of competent jurisdiction to be invalid or
unenforceable, such judgment shall not effect, impair or invalidate the
remainder of this Employment Agreement but shall be confined in its operation to
the jurisdiction in which made and to the provisions of this Employment
Agreement directly involved in the controversy in which such judgment shall have
been rendered.
(b) No course of dealing and no delay on the part of any party hereto in
exercising any right, power or remedy under or relating to this Employment
Agreement shall operate as a waiver thereof or otherwise prejudice such party's
rights, power and remedies. No single or partial exercise of any rights, powers
or remedies under or relating to this Employment Agreement shall preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
(c) This Employment Agreement may be executed by the parties hereto in
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument, and all
signatures need not appear on any one counterpart.
(d) All payments required to be made to the Executive by the Company
hereunder shall be subject to any applicable withholding under any applicable
Federal, state, or local tax laws. Any such withholding shall be based upon the
most recent form W-4 filed by the Executive with the Company, and the Executive
may from time to time revise such filing.
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(e) This Employment Agreement embodies the entire understanding, and
supersedes all other oral or written agreements or understandings, between the
parties regarding the subject matter hereof. No change, alteration or
modification hereof may be made except in writing signed by both parties hereto.
The headings in this Employment Agreement are for convenience of reference only
and shall not be considered part of this Employment Agreement or limit or
otherwise affect the meaning hereof. This Employment Agreement and the rights
and obligations of the parties hereunder shall be construed in accordance with
and governed by the laws of the state of New York (disregarding any choice of
law rules which might look to the laws of any other jurisdiction).
15. GENERAL LIMITATION.
Notwithstanding anything in this Employment Agreement to the contrary,
payments hereunder in excess of $2 million in any year in the aggregate, if any,
shall be subject to those limitations and prohibitions contained in the First
Amended Joint Chapter 11 Plan of Reorganization of the Company, as amended, and
that certain Indenture, dated as of January 1, 1996, between BGLS Inc. and Fleet
National Bank of Massachusetts, as Trustee, relating to the 15.75% Series A
Senior Secured Notes due 2001 and the 15.75% Series B Senior Secured Notes due
2001, which limit or purport to limit the amount of compensation, expense
reimbursements or other payments which may be made by the Company or any of its
affiliates to the Executive or any of his affiliates. Payments due hereunder
which are not made by virtue of such limitations or prohibitions shall be made
at the earliest possible time in such a manner so as not to violate such
limitations or prohibitions. To the extent any payment hereunder is made in
violation of such
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limitations or prohibitions, the Executive shall hold the amount of such payment
in trust for the Company and shall return it to the Company upon a final,
non-appealable determination by a court of competent jurisdiction that the
payment of such amount, if retained by the Executive, would violate such
limitations or prohibitions.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Employment Agreement as of the day and year first written above.
NEW VALLEY CORPORATION
By: /s/ Howard M. Lorber
--------------------
Title: President
-----------------
/s/ Bennett S. LeBow
------------------------
BENNETT S. LEBOW
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Exhibit (10)(b)(A)(ii)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of June 1, 1995, as amended
effective as of January 1, 1996, by and between New Valley Corporation, a New
York corporation (the "Company"), and Howard M. Lorber (the "Executive").
WITNESSETH
A. WHEREAS, the Company and the Executive entered into an
employment agreement dated as of June 1, 1995; and
B. WHEREAS, the Company and the Executive are desirous of
amending said agreement to provide for the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein, the Company and the Executive hereby agree as
follows:
1. EMPLOYMENT AND TERM.
(a) The Company hereby employs the Executive, and the Executive accepts
employment by the Company, as President and Chief Operating Officer of the
Company upon the terms and conditions set forth herein.
(b) Subject to paragraphs (c) and (d) of this Section 1 and the
provisions for termination hereinafter provided, the term of the Executive's
employment hereunder shall be from January 18, 1995 (the "Effective Date")
through and including the day immediately preceding the third anniversary of the
Effective Date (the "Initial Period").
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(c) On the first anniversary of the Effective Date (the "Renewal Date")
and on each subsequent anniversary of such date, the term of this Agreement
shall automatically be extended by one additional calendar year (the "Extension
Period") unless either party shall have provided notice to the other within the
sixty-day period prior to such anniversary that such party does not desire to
extend the term of this Agreement, in which case no further extension of the
term of this Agreement shall occur pursuant hereto but all previous extensions
of the term shall continue to be given full force and effect.
(d) For purposes of this Agreement, the term "Employment Period" means
the Initial Period, if the term of this Agreement has not been extended pursuant
to paragraph 1(c); otherwise, the period beginning on the Effective Date and
ending with the last day of the most recently arising Extension Period.
2. DUTIES.
(a) Throughout the Employment Period, the Executive shall be the
President and Chief Operating Officer of the Company and shall report to the
Chief Executive Officer of the Company. The Executive shall at all times comply
with Company policies as established by the Board of Directors of the Company
(the "Board").
(b) Throughout the Employment Period, the Executive shall devote
substantial services to the Company, including such time as is necessary to
perform his duties under this Employment Agreement fully, diligently and
faithfully, and shall use his best efforts to promote the interests of the
Company and its subsidiaries and affiliates.
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(c) Anything herein to the contrary notwithstanding, nothing shall
preclude the Executive from (i) serving on the boards of directors of a
reasonable number of other business entities, trade associations and/or
charitable organizations, (ii) engaging in charitable activities and community
affairs, (iii) managing his personal investments and affairs, and (iv) any other
activities approved by the Board; provided, however, that such activities do not
materially interfere with the proper performance of his duties and
responsibilities specified in paragraph (b) of this Section 2.
3. COMPENSATION.
As full compensation to the Executive for his performance of the
services hereunder and for his acceptance of the responsibilities described
herein, the Company agrees to pay the Executive, and the Executive agrees to
accept, the following compensation and other benefits:
(a) BASE SALARY.
During the Employment Period, the Company shall pay the
Executive:
(i) A salary (the "Base Salary") at the rate of $1,000,000 per
annum through the period ending December 31, 1995 and, commencing January 1,
1996, at the rate of $1,250,000 per annum, payable in equal installments at such
payment intervals as are the usual custom of the Company, but not less often
than monthly. The Base Salary shall be increased, as of January 1 of each year
commencing January 1, 1997, by a cost of living adjustment determined by
reference to the Consumer Price Index, All Urban Consumers for New York-Northern
New Jersey, All Items (1982-1984 = 100) (the "Index"), or, if publication of the
Index is terminated, any substantially equivalent successor thereto. The Base
Salary for any year (the "Current Year") following the year
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that includes the Effective Date shall be determined by multiplying the Base
Salary for the year first preceding the Current Year (the "Prior Year") by the
percentage obtained by dividing the Index for the month of December of the Prior
Year by the Index for the month of December of the year first preceding the
Prior Year. In addition to the foregoing, the Board shall periodically review
such Base Salary and may increase (but not decrease) it from time to time, in
its sole discretion.
(ii) An annual bonus (the "Bonus Amount") to be determined by
the Board, in consultation with the Chief Executive Officer of the Company, by
reference to the performance and activities of the Company and its subsidiaries
and the Executive's contribution thereto, including a cash bonus of $500,000 in
December 1995.
(b) BENEFIT PLANS.
During the Employment Period and as otherwise provided herein,
the Executive shall be entitled to participate in any and all employee welfare
and health benefit plans (including, but not limited to life insurance, health
and medical, dental and disability plans) and other employee benefit plans,
including but not limited to qualified pension plans, established by the Company
from time to time for the general and overall benefit of executives of the
Company. Nothing herein contained shall be construed as requiring the Company to
establish or continue any particular benefit plan in discharge of its
obligations hereunder.
(c) DEFERRED COMPENSATION.
Notwithstanding any other provision of this Employment
Agreement, the Executive shall have the right to request the receipt of any
portion of his Base Salary by any lawful means
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(including, without limitation, any non-qualified deferred compensation
arrangement(s) requested by the Executive), and the Company shall reasonably
cooperate with the Executive to grant such request, provided that the granting
of such request does not represent inequitable treatment as concerns other
senior employees or executives (in the Company's sole judgment) and does not
impose additional costs on the Company other than insignificant administrative
costs.
4. VACATION AND OTHER BENEFITS.
The Executive shall be entitled to not less than five (5) weeks of paid
vacation each year of his employment hereunder, as well as to such other
employment benefits extended or provided to executives of comparable status,
including, but not limited to, payment or reimbursement of all reasonable
expenses incurred by the Executive in the performance of his responsibilities
and the promotion of the Company's businesses, including, without limitation,
first-class air travel and lodging, an automobile and related expenses, cellular
phone charges, club memberships and dues, and travel expenses of the Executive's
spouse when accompanying him on business-related trips. The Executive shall
submit to the Company periodic statements of all expenses so incurred. Subject
to such audits as the Company may deem necessary, the Company shall reimburse
the Executive the full amount of any such expenses advanced by him promptly in
the ordinary course.
5. EXECUTIVE COVENANTS.
Provided that the Company is not in material default to the Executive
on any of its obligations under this Agreement, the Executive agrees as follows:
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(a) Except with the consent of or as directed by the Board, or except
if compelled by judicial or legal authorities, the Executive shall keep
confidential and not divulge to any other person, during the Employment Period
or thereafter, any business secrets and other confidential information regarding
the Company, its subsidiaries and affiliates, except for information which is or
becomes publicly available other than as a result of disclosure by the
Executive.
(b) All papers, books and records of every kind and description
relating to the business and affairs of the Company, its subsidiaries and
affiliates, whether or not prepared by the Executive are the exclusive property
of the Company, and the Executive shall surrender them to the Company, at any
time upon request, during or after the Employment Period.
(c) During the Employment Period and during any Severance Period (as
hereinafter defined), the Executive shall not, without the prior written consent
of the Board, compete, directly or indirectly, with the Company, its
subsidiaries or affiliates or participate as a director, officer, employee,
agent, representative, stockholder, or partner, or have any direct or indirect
financial interest as a creditor, in any business which directly or indirectly
competes with the Company, its subsidiaries or affiliates; provided, however,
that this paragraph (c) shall not restrict the Executive from holding up to 5%
of the publicly traded securities of any entity which so competes with the
Company.
(d) During the Employment Period and during any Severance Period (as
hereinafter defined), the Executive shall not, without the prior written consent
of the Board, either for his own account or for any person, firm or company (i)
solicit any customers of the Company, its
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subsidiaries or affiliates, or (ii) solicit or endeavor to cause any employee of
the Company, its subsidiaries or affiliates to leave its employment or induce or
attempt to induce any such employee to breach any employment agreement with the
Company, its subsidiaries or affiliates, or otherwise interfere with the
employment of any employee by the Company, its subsidiaries or affiliates.
(e) Without limiting any other provision of this Employment Agreement,
the Executive hereby agrees to be bound by and to comply with any obligations
known to the Executive and imposed on the Company, its subsidiaries or
affiliates, by law, rule, regulation, ordinance, order, decree, instrument,
agreement, understanding or other restriction of any kind.
(f) The Executive hereby agrees to provide reasonable cooperation to
the Company, its subsidiaries and affiliates during the Employment Period and
any Severance Period in any litigation between the Company, its subsidiaries or
affiliates, and third parties.
(g) The parties agree that the Company shall, in addition to other
remedies provided by law, have the right and remedy to have the provisions of
this Section 5 specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any breach or threatened breach of the
provisions of this Section 5 will cause irreparable injury to the Company and
that money damages will not provide an adequate remedy to the Company. Nothing
contained herein shall be construed as prohibiting the Company from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of damages from the Executive.
6. TERMINATION OF EMPLOYMENT PERIOD AND SEVERANCE.
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(a) TERMINATION BY THE COMPANY WITHOUT CAUSE. If for any reason the
Company wishes to terminate the Employment Period and the Executive's employment
hereunder (including by not extending the term of this Agreement pursuant to
Section 1(c)) the Company shall give a written notice to the Executive stating
such intention, and the Employment Period shall terminate, and a severance
period shall commence, upon the Renewal Date or anniversary thereof next
following receipt of such notice (such period, the "Severance Period"). The
Severance Period shall continue for thirty-six months. During the Severance
Period, the Executive shall continue to receive the Base Salary and benefits
under Sections 3(a) and 3(b) (including any benefits under the Company's long
term disability and life insurance plans) of this Employment Agreement as if the
Employment Period continued throughout the Severance Period.
(b) DEATH. If the Executive dies during the Employment Period, the
Employment Period shall automatically terminate, the Severance Period described
in Section 6(a) hereof shall immediately commence and the duties, rights,
benefits and other matters during such Severance Period shall be as set forth in
Section 6(a), except that the Executive's heirs, beneficiaries, and estate shall
be paid and receive all compensation and benefits which the Executive would have
received during the Severance Period. If the Executive dies during the Severance
Period, his heirs, beneficiaries and estate shall continue to receive
compensation and benefits that the Executive would have otherwise received
during the remainder of the Severance Period without any offset or reduction and
without any duty or obligation by such heirs, beneficiaries or estate.
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(c) DISABILITY. If the Executive becomes disabled (as hereinafter
defined) during the Employment Period, the Company shall be entitled to
terminate his employment upon written notice to the Executive from the Company.
In the event of such termination, the Executive shall be released from any
duties hereunder, and the Severance Period described in Section 6(a) hereof
shall immediately commence. The duties, rights, benefits and other matters
during such Severance Period shall be as set forth in Section 6(a), and the
Executive shall be entitled to all compensation and benefits during the
Severance Period without any offset or reduction except by such amounts, if any,
as are paid to the Executive in lieu of compensation for services under any
applicable disability or other insurance policies of the Company (or by the
Company under any self insurance plan). For purposes of this Employment
Agreement, "Disability" shall mean mental or physical impairment or incapacity
rendering the Executive substantially unable to perform his duties under this
Employment Agreement for more than 180 days out of any 360-day period during the
Employment Period. A determination of Disability shall be made by the Board in
its sole discretion upon its own initiative or upon request of the Executive or
a person acting on his behalf. The Employment Period shall cease upon the making
of a determination of Disability. If the Executive becomes disabled during a
Severance Period, he shall continue to receive the compensation and benefits of
this Employment Agreement during the entire Severance Period without any offset
or reduction, except by such amounts, if any, as are paid to the Executive in
lieu of compensation for services under any applicable disability or other
insurance policies of the Company (or by the Company under any self insurance
plan).
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(d) TERMINATION BY THE COMPANY FOR CAUSE. The Company, by written
notice to the Executive, shall have the right to terminate the Employment Period
in the event of any of the following (any of which shall constitute "Cause"):
(i) The Executive's intentional refusal to perform such duties
as are consistent with his positions, as described above, with the Company
(other than as a result of Disability);
(ii)The Executive's fraud, dishonesty, or deliberate injury to
the Company in the performance of his duties;
(iii) The Executive's breach of any provision of this
Agreement which is materially damaging to the financial position of the Company
and its subsidiaries and affiliates taken as a whole; provided, however, that
the Executive may not be terminated under any of the foregoing clauses (i)
through (iii) unless he shall have first received thirty days' prior written
notice from the Board advising him of the specific acts or omissions alleged to
constitute the basis for such termination and the Executive (and his
representative) shall have been afforded an opportunity to appear before the
Board to explain why the Executive believes that cause did not occur, and, with
respect to any acts or omissions alleged to constitute a refusal to perform
duties described in clause (i), or a material breach described in clause (iii),
such acts or omissions continue after the Executive shall have had a reasonable
opportunity to correct the acts or omissions cited in the notice.
Any termination under this Section 6(d) shall not be followed
by a Severance Period and shall be without damages or liability to the Company
for compensation and other benefits
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which otherwise would have accrued to the Executive hereunder, but any unpaid
compensation, benefits and reimbursements accrued through the date of such
termination, including Base Salary and any unpaid Bonus Amount, shall be paid to
the Executive at the times normally paid by the Company.
(e) VOLUNTARY TERMINATION BY THE EXECUTIVE. In the event of the
voluntary termination of employment by the Executive, the terms of the last
paragraph of Section 6(d) shall apply, except in the event that such voluntary
termination occurs within ninety days of (i) a material diminution of the
Executive's duties and responsibilities provided in Section 2, (ii) a reduction
of the Executive's base salary or any other material breach of any provision of
this Agreement by the Company, or (iii) relocation of the Executive's office
from the New York City or Miami metropolitan areas, in which case the provisions
of Section 6(a) shall apply.
(f) TERMINATION FOLLOWING A CHANGE IN CONTROL. For purposes of this
Agreement, a "Change in Control" shall occur if or upon the occurrence of:
(i) Any "Person" (as the term person is used for
purposes of Section 13(d) or 14(d) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"))
acquires "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of any securities of
the Company or of Brooke Group Ltd. ("Brooke") which generally
entitles the holder thereof to vote for the election of
directors of the Company or Brooke, as the case may be (the
"Voting Securities"), which, when added to the Voting
Securities then "Beneficially Owned" by such person, would
result in such Person "Beneficially Owning" forty percent
(40%) or more of the combined voting power of the Company's or
Brooke's, as the case may be,then outstanding Voting
Securities; provided, however, that for purposes of this
paragraph (i), a Person shall not be deemed to have made an
acquisition of Voting Securities if such Person: (a) acquires
Voting Securities as a result of a stock split, stock dividend
or other corporate restructuring in which all stockholders of
the class of such Voting Securities are treated on a pro rata
basis: (b) acquires the Voting Securities directly from the
Company or Brooke, as the case
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<PAGE> 12
may be; (c) becomes the Beneficial Owner of more than the
permitted percentage of Voting Securities solely as a result of
the acquisition of Voting Securities by the Company or Brooke, as
the case may be, which, by reducing the number of Voting
Securities outstanding, increases the proportional number of
shares Beneficially Owned by such Person; (d) is the Company or
Brooke, as the case may be, or any corporation or other Person of
which a majority of its voting power or its equity securities or
equity interest is owned directly or indirectly by the Company or
Brooke, as the case may be (a "Controlled Entity"); or (e)
acquires Voting Securities in connection with a "Non-Control
Transaction" (as defined in paragraph (iii) below); or
(ii) The individuals who, as of June 5, 1995, are members
of the Board (the "Incumbent Board") or the Board of Directors of
Brooke (the "Brooke Incumbent Board"), cease for any reason to
constitute at least two-thirds of the Incumbent Board or the
Brooke Incumbent Board, as the case may be; provided, however,
that if either the election of any new director or the nomination
for election of any new director was approved by a vote of more
than two-thirds of the Incumbent Board or the Brooke Incumbent
Board, as the case may be, such new director shall be considered
as a member of the Incumbent Board or the Brooke Incumbent Board,
as the case may be; provided further, however, that no individual
shall be considered a member of the Incumbent Board or the Brooke
Incumbent Board, as the case may be, if such individual initially
assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated under
the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board or Board of Directors of Brooke, as the case may be (a
"Proxy Contest"), including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(iii) Shareholder approval of:
(a) A merger, consolidation or reorganization
involving the Company or Brooke (a "Business Combination"),
unless
(1) the stockholders of the Company or
Brooke, as the case may be, immediately before the Business
Combination, own, directly or indirectly immediately following
the Business Combination, at least fifty-one percent (51%) of the
combined voting power of the outstanding Voting Securities of the
corporation resulting from the Business Combination (the
"Surviving Corporation") in substantially the same proportion as
their ownership of the Voting Securities immediately before the
Business Combination, and
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<PAGE> 13
(2) the individuals who were members of the
Incumbent Board or the Brooke Incumbent Board, as the case may
be, immediately prior to the execution of the agreement providing
for the Business Combination constitute at least a majority of
the members of the Board of Directors of the relevant Surviving
Corporation, and
(3) no Person (other than the Company,
Brooke or any Controlled Entity, a trustee or other fiduciary
holding securities under one or more employee benefit plans or
arrangements (or any trust forming a part thereof) maintained by
the Company or Brooke, as the case may be, the Surviving
Corporation or any Controlled Entity, or any Person who,
immediately prior to the Business Combination, had Beneficial
Ownership of forty percent (40%) or more of the then outstanding
Voting Securities) has Beneficial Ownership of forty percent
(40%) or more of the combined voting power of the Surviving
Corporation's then outstanding voting securities (a transaction
described in this subparagraph (a) shall be referred to as a
"Non-Control Transaction");
(b) A complete liquidation or dissolution of the
Company; or
(c) The sale or other disposition of all or
substantially all of the assets of the Company or Brooke to any
Person (other than a transfer to a Controlled Entity).
Notwithstanding the foregoing, (x) a Change in Control shall not
be deemed to occur solely because forty percent (40%) or more of
the then outstanding Voting Securities is Beneficially Owned by
(A) a trustee or other fiduciary holding securities under one or
more employee benefit plans or arrangements (or any trust forming
a part thereof) maintained by the Company or Brooke, as the case
may be, or any Controlled Entity or (B) any corporation which,
immediately prior to its acquisition of such interest, is owned
directly or indirectly by the stockholders of the Company or
Brooke, as the case may be, in the same proportion as their
ownership of stock in the Company or Brooke, as the case may be,
immediately prior to such acquisition; and (y) if the Executive
ceases to be an employee of the Company and the Executive
reasonably demonstrates that such termination (A) was at the
request of a third party who has indicated an intention or taken
steps reasonably calculated to effect a Change in Control and who
effectuates a Change in Control or (B) otherwise occurred in
connection with, or in anticipation of, a Change in Control which
actually occurs, then for all purposes hereof, the date of a
Change in Control with respect to the Executive shall mean the
date immediately prior to the date of such termination of
employment.
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<PAGE> 14
If within two years of a Change in Control, the Employment Period
is terminated by the Company without Cause (other than for reason of Death or
Disability) or by the Executive for any (or all) of the reasons set forth in
Sections 6(e)(i), (ii) or (iii), the Company shall pay the Executive in cash in
a lump sum to be paid as soon as practicable following termination, an amount
equal to 2.99 times the sum of (a) the annual Base Salary of the Executive
immediately prior to such termination and (b) the Bonus Amounts earned by him
for the twelve-month period ending with the last day of the month immediately
preceding the month in which such termination occurs. The Executive shall also
be entitled to continue to participate in all employee benefit plans in which he
was participating on the date of termination of his employment until the earlier
of (x) the end of the Employment Period or (y) the date he receives equivalent
coverage and benefits under the plans and programs of a subsequent employer. In
addition, for a thirty-six month period after such termination, the Company
shall arrange to provide the Executive, at the Company's expense, with life,
disability, accident, and health and medical insurance benefits substantially
similar to those which the Executive was receiving immediately prior to such
termination; but benefits otherwise receivable by the Executive pursuant to this
sentence shall be reduced to the extent comparable benefits are actually
received by him during such period following such termination, and any such
benefits actually received by the Executive shall be reported to the Company.
There shall be no Severance Period following a termination under this Section
6(f), and upon such a termination the Executive shall no longer be bound by the
provisions of Section 5 of this Employment Agreement.
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<PAGE> 15
7. GROSS-UP PAYMENT. If it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive pursuant to
this Agreement (a "Base Payment") would be subject to the excise tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), then the Executive shall be entitled to receive an
additional payment (the "Gross-Up Payment") in an amount such that the net
amount retained by him, after the calculation and deduction of any Excise Tax on
the Base Payment and any federal, state, and local income taxes and Excise Tax
on the Gross-Up Payment, shall be equal to the Base Payment. In determining this
amount, the amount of the Gross-Up Payment attributable to federal income taxes
shall be reduced by the maximum reduction in federal income taxes that could be
obtained by the deduction of the portion of the Gross-Up Payment attributable to
state and local income taxes. Additionally, the Gross-Up Payment shall be
reduced by income or excise tax withholding payments made by the Company to any
federal, state, or local taxing authority with respect to the Gross-Up Payment
that were not deducted from compensation payable to the Executive.
All determinations required to be made under this Section 7, including
whether and when a Gross-Up Payment is required, the amount of such Gross-Up
Payment, and the assumptions to be utilized in arriving at such determination,
except as specified above, shall be made by the Company's independent auditor
(the "Accounting Firm"), which shall provide detailed supporting calculations
both to the Company and the Executive within fifteen business days after the
receipt of notice from the Executive that there should be a Gross-Up Payment.
The determination of tax
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<PAGE> 16
liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and if said tax advisor does not agree with the
determination reached by the Accounting Firm, then the Accounting Firm and said
tax advisor shall jointly designate a nationally recognized public accounting
firm, which shall make the determination. All fees and expenses of the
accountants and tax advisors retained by either the Executive or the Company
shall be borne by the Company. Any Gross-Up Payment shall be paid by the Company
to the Executive within five days after the receipt of the determination. Any
determination by a jointly designated public accounting firm shall be binding
upon the Company and the Executive.
As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination hereunder, it is possible that
Gross-Up Payments shall not have been made by the Company that should have been
made consistent with the calculations required to be made hereunder
("Underpayment"). In the event that the Executive thereafter is required to make
a payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. In the event that the Gross-Up
Payment exceeds the amount subsequently determined to be due, such excess shall
constitute a loan from the Company payable on the fifth day after demand by the
Company (together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
8. NO MITIGATION OF DAMAGES. In the event the employment of the Executive
under this Agreement is terminated by the Company, the Executive shall not be
required to seek comparable
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<PAGE> 17
employment so as to minimize any obligation of the Company to compensate him for
any damages he may suffer by reason of such wrongful termination.
9. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by applicable law with respect to any acts or non-acts he may have
committed while he was an officer, director, employee, agent or fiduciary (i) of
the Company or its affiliated entities, or (ii) at the request of the Company,
of any other entity. The Executive shall have legal fees and other expenses paid
to him in advance of final disposition of a proceeding provided he executes an
undertaking to repay such amounts if, and to the extent, required to do so by
applicable law.
(b) The Company agrees to maintain for the Executive a directors' and
officers' liability insurance policy not less favorable than any policy that the
Company or any subsidiary or affiliate thereof maintains for its directors and
executive officers in general.
(c) This paragraph 9 establishes contract rights which shall be binding
upon, and shall inure to the benefit of the heirs, executors, personal and legal
representatives, successors and assigns of the Executive. The obligations set
forth in this paragraph 9 shall survive any termination of this Agreement.
10. CONFLICTING AGREEMENTS.
The Executive hereby represents and warrants to the Company that his
entering into his Employment Agreement, and the obligations and duties
undertaken by him hereunder, will not conflict with, constitute a breach of, or
otherwise violate the terms of any other employment or
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<PAGE> 18
other agreement to which he is a party. The Company represents and warrants that
it is a corporation duly organized and existing under the laws of the State of
New York and that execution and delivery of this Employment Agreement has been
duly authorized by all necessary corporate action.
11. ASSIGNMENT.
(a) BY THE EXECUTIVE. This Employment Agreement and any obligations
hereunder shall not be assigned, pledged, alienated, sold, attached, encumbered
or transferred in any way by the Executive and any attempt to do so shall be
void.
(b) BY THE COMPANY. Provided the substance of the Executive's duties set
forth in Section 2 shall not change, and provided that the Executive's
compensation as set forth in Section 3 shall not be adversely affected, the
Company may, after obtaining the prior written consent of the Executive, assign
or otherwise transfer this Employment Agreement to any succeeding entity without
limitation, which entity shall assume all rights and obligations hereunder.
12. ARBITRATION.
(a) Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in the City of
New York, New York before a panel of three (3) arbitrators in accordance with
the rules of the American Arbitration Association then pertaining in the City of
New York. In any such arbitration, one arbitrator shall be selected by each of
the parties, and the third arbitrator shall be selected by the first two
arbitrators. The arbitration award shall be final and binding upon the parties
and judgment thereon may be entered in any court
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<PAGE> 19
having jurisdiction thereof. The arbitrators shall be deemed to possess the
powers to issue mandatory orders and restraining orders in connection with such
arbitration; provided, however, that nothing in this Section 12 shall be
construed so as to deny the Company the right and power to seek and obtain
injunctive relief in a court of equity for any breach or threatened breach of
the Executive of any of his covenants contained in paragraph 5 hereof.
(b) All costs, fees and expenses of any arbitration or litigation in
connection with this Agreement, including, without limitation, attorneys' fees
of the Executive and the Company, shall be borne by, and be the obligation of,
the Company. The obligations of the Company under this Section 12 shall survive
the termination of this Agreement (whether such termination is by the Company,
the Executive, upon the expiration of this Agreement, or otherwise).
13. NOTICES.
All notices, requests, demands and other communications hereunder must
be in writing and shall be deemed to have been duly given if delivered by hand
or mailed within the continental United States by first class, registered mail,
return receipt requested, postage and registry fees prepaid, to the applicable
party and addressed as follows:
(a) if to the Company:
New Valley Corporation
100 S.E. Second Street
Miami, Florida 33131
Attn: Executive Vice President
and General Counsel
(b) if to the Executive:
Howard M. Lorber
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<PAGE> 20
70 East Sunrise Highway
Suite 411
Valley Stream, New York 11581
Addresses may be changed by notice in writing signed by the addressee.
14. MISCELLANEOUS.
(a) If any provision of this Employment Agreement shall, for any reason,
be adjudicated by any court of competent jurisdiction to be invalid or
unenforceable, such judgment shall not effect, impair or invalidate the
remainder of this Employment Agreement but shall be confined in its operation to
the jurisdiction in which made and to the provisions of this Employment
Agreement directly involved in the controversy in which such judgment shall have
been rendered.
(b) No course of dealing and no delay on the part of any party hereto in
exercising any right, power or remedy under or relating to this Employment
Agreement shall operate as a waiver thereof or otherwise prejudice such party's
rights, power and remedies. No single or partial exercise of any rights, powers
or remedies under or relating to this Employment Agreement shall preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
(c) This Employment Agreement may be executed by the parties hereto in
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument, and all
signatures need not appear on any one counterpart.
(d) All payments required to be made to the Executive by the Company
hereunder shall be subject to any applicable withholding under any applicable
Federal, state, or local tax laws. Any
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<PAGE> 21
such withholding shall be based upon the most recent form W-4 filed by the
Executive with the Company, and the Executive may from time to time revise such
filing.
(e) This Employment Agreement embodies the entire understanding, and
supersedes all other oral or written agreements or understandings, between the
parties regarding the subject matter hereof. No change, alteration or
modification hereof may be made except in writing signed by both parties hereto.
The headings in this Employment Agreement are for convenience of reference only
and shall not be considered part of this Employment Agreement or limit or
otherwise affect the meaning hereof. This Employment Agreement and the rights
and obligations of the parties hereunder shall be construed in accordance with
and governed by the laws of the state of New York (disregarding any choice of
law rules which might look to the laws of any other jurisdiction).
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Employment Agreement as of the day and year first written above.
NEW VALLEY CORPORATION
By: /s/ Bennett S. LeBow
--------------------------
Title: Chief Executive Officer
-----------------------
/s/ Howard M. Lorber
------------------------------
HOWARD M. LORBER
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<PAGE> 1
EXHIBIT 10(k)(i)
INDEMNITY AGREEMENT
RE: LOAN DOCUMENT DISCREPANCIES
INDEMNITY AGREEMENT (this "Indemnity Agreement"), executed and
delivered on January 11, 1996, by APOLLO REAL ESTATE INVESTMENT FUND, L.P., a
Delaware limited partnership, having an office at c/o Apollo Real Estate
Advisors, L.P., 1301 Avenue of the Americas, New York, New York 10019 (the
"Indemnitor"), in favor of NEW VALLEY CORPORATION, a New York corporation,
having an office at 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131
(the "Indemnitee").
W I T N E S S E T H:
WHEREAS, AP Century III, L.P., AP Century IV, L.P., AP CENTURY
V, L.P., AP CENTURY VI, L.P., and AP CENTURY VIII, L.P. (collectively,
"AP-Century") each have ownership interests in certain real property as more
particularly described on "Schedule A" attached hereto and made a part hereof
(the "Properties");
WHEREAS, pursuant to that certain Purchase and Sale Agreement,
dated as of the date hereof, by and between AP-Century, and others, as sellers,
and the Indemnitee, as purchaser (the "Purchase Agreement"), AP-Century is
transferring its respective ownership interests to the Indemnitee;
WHEREAS, pursuant to that certain Loan and Security Agreement
and other financing documents (collectively, in each case as the same may be
modified, amended or restated the "GECC Financing Documents"), dated January 31,
1995, AP-Century provided financing to the Indemnitee;
WHEREAS, pursuant to that certain Loan and Security Agreement,
dated as of date hereof, by and between AP-Century, as lenders, and the
Indemnitee, as borrower (the "Loan Agreement"), AP-Century is providing purchase
money financing (the "Loan") to the Indemnitee to be secured by among other
things, the Financing Documents (all definitions in the Loan Agreement shall
apply in this Indemnity Agreement except where this Indemnity Agreement provides
for some other definition of a capitalized term);
WHEREAS, there exists certain discrepancies (the
"Discrepancies") between the GECC Financing Documents and the Financing
Documents;
WHEREAS, the Indemnitor wishes to execute and deliver to the
Indemnitee this Indemnity Agreement to induce the Indemnitee to consummate the
transactions contemplated under the Purchase Agreement and the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual
agreements hereinafter set forth, and other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Indemnitor hereby agrees
with the Indemnitee as follows:
SECTION 1. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
(a) Representations and Warranties. The Indemnitor represents
and warrants to the Indemnitee as follows:
<PAGE> 2
(i) The execution, delivery and performance by the
Indemnitor of this Indemnity Agreement do not and will not contravene any law or
governmental rule, regulation or order which is applicable to the Indemnitor,
and no authorization, approval or other action by, and no notice to or filing
with, any of the United States of America, the States in which the Properties
are located , any political subdivision of any of the foregoing, any agency,
department, commission, board, bureau or instrumentality of any of them, or any
quasi-public agency established by any of the foregoing including, without
limitation, any insurance rating organization or board of fire underwriters
which exercises jurisdiction over the Properties (collectively, "Governmental
Authority") is required for the due execution, delivery and performance by the
Indemnitor of this Indemnity Agreement.
(ii) The execution, delivery and performance by the
Indemnitor of this Indemnity Agreement do not and will not contravene any
contractual restriction which is binding upon or which affects the Indemnitor,
and do not and will not result in or require the creation of any lien, security
interest or other charge or encumbrance upon or with respect to any properties
of the Indemnitor.
(iii) The execution, delivery and performance by the
Indemnitor of this Agreement has been duly authorized and this Agreement has
been duly executed and delivered by Indemnitor.
(iv) The Indemnitor is a limited partnership duly
formed, validly existing and in good standing under the laws of the State of
Delaware and has full partnership power and authority to enter into and perform
its obligations under this Indemnity Agreement.
(v) This Indemnity Agreement is a legal, valid and
binding obligation of the Indemnitor, enforceable against the Indemnitor in
accordance with its terms, subject to applicable bankruptcy, insolvency and
other laws affecting generally the enforcement of creditors' rights and to
general principles of equity.
(vi) There is no action, suit or proceeding pending
against or otherwise affecting the Indemnitor before any court, arbitrator or
Governmental Authority, which would,if adversely determined to Indemnitor,
materially adversely affect the financial ability of the Indemnitor to perform
the Indemnitor's obligations under this Indemnity Agreement.
(b) Indemnities. The Indemnitor shall indemnify, save harmless
and defend the Indemnitee from and against any and all claims, damages, losses,
liabilities, demands, suits, proceedings, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) which Indemnitee may
suffer or incur by reason of any Discrepancy which GECC asserts.
SECTION 2. DEFENSE OF CLAIMS
(a) Notice of Claim. The Indemnitee shall notify the
Indemnitor, to the extent the Indemnitee has received such notice, of any
written claim ("Claim") asserted by GECC alleging a default by, or liability of,
the Indemnitee which may result in a claim for indemnification pursuant to this
Indemnification Agreement.
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<PAGE> 3
(b) Defense of Claim. The Indemnitor shall defend such claim
regardless of the Indemnitor's receipt of notice thereof, at its sole cost and
expense and by legal counsel of the Indemnitor's own choosing.
SECTION 3. NOTICES, ETC.
Unless otherwise provided for herein, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given (a) when delivered, if sent by registered or
certified mail (return receipt requested), (b) when delivered, if delivered
personally, or (c) on the following Business Day, if sent by overnight mail or
overnight courier, in each case to the parties at the following addresses (or at
such other addresses as shall be specified by like notice):
If to the Indemnitor, at:
c/o Apollo Real Estate Advisors, L.P.
1301 Avenue of the Americas, 38th Floor
New York, New York 10019
Attention: William S. Benjamin
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Lester M. Bliwise, Esq.
If to Indemnitee, at:
New Valley Corporation
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
Attention: Richard J. Lampen, Esq.
with copy to:
c/o Dreyer and Traub LLP
101 Park Avenue
New York, New York 10178
Attention: Gerald N. Schrager, Esq.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication within any corporation or firm to the persons designated to
receive copies thereof shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
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<PAGE> 4
SECTION 4. MISCELLANEOUS.
(a) Payment. The Indemnitor shall make any payment required to
be made hereunder in lawful money of the United States of America and in same
day funds to the Indemnitee at its address specified in Section 3 hereof.
(b) Modification. No provision of this Indemnity Agreement may
be waived, changed, amended, modified or discharged without an agreement in
writing and signed by the Indemnitor and the Indemnitee, and no waiver of, or
consent to, any departure by the Indemnitor from any provision of this Indemnity
Agreement shall be effective unless it is in writing and signed by the party
against which enforcement of such waiver or consent is sought, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
(c) Severability. Any provision of this Indemnity Agreement
which is prohibited or unenforceable in any jurisdiction or prohibited or
unenforceable as to any Person shall, as to such jurisdiction or Person, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction or as to any other
Person.
(d) Binding Effect; Assignment; Non-Recourse; No Reliance.
This Indemnity Agreement shall (i) be binding upon the Indemnitor and its
successors and assigns, and (ii) inure, together with all rights and remedies of
the Indemnitee hereunder, to the benefit of the Indemnitee. The parties hereto
may not assign or otherwise transfer all or any portion of its rights and
obligations under this Indemnity Agreement, to any other person, without the
prior written consent of the nonassigning party, which consent must expressly
reference this Indemnity Agreement, which may be unreasonably withheld, and any
such purported assignment without such prior written consent shall be void and
of no effect whatsoever; provided, however, Indemnitee may assign its rights and
obligations hereunder to a New Valley Permitted Transferee without the prior
written consent of Indemnitor. Notwithstanding anything to the contrary,
Indemnitor shall not be liable for any indemnified matter (or any claims
thereof) arising after five years from the date hereof. The Indemnitee
acknowledges and agrees that the Indemnitor's obligations hereunder do not
extend to and the Indemnitee does not have and will not have any claims or
causes of action in connection with this Indemnity Agreement against any
disclosed or undisclosed officer, director, employee, trustee, shareholder,
partner, principal, parent, subsidiary or other affiliate of the Indemnitor.
Nothing contained in this Indemnity Agreement, expressed or implied, is intended
to confer on any person or entity other than the parties hereto (and their
permitted assigns) any rights, obligations, liabilities, or remedies.
(e) Venue. The Indemnitor hereby irrevocably and
unconditionally (i) submits for itself and its property in any legal action or
proceeding relating to this Indemnity Agreement, or for recognition and
enforcement of any judgment in respect thereof, to the exclusive general
jurisdiction of the courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
thereof, (ii) consents that any such action
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<PAGE> 5
or proceeding may be brought in such courts and waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in any such
court including, without limitation, any objection that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same, (iii) agrees not to commence any legal action or proceeding relating
to this Indemnity Agreement in any jurisdiction other than those set forth in
clause (i) above, (iv) agrees to service of any and all process in any such
action or proceeding to the address set forth in Section 3 hereof, (v) agrees
that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other
jurisdiction and (vi) agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
(f) Headings. The title of this document and the captions used
herein are inserted only as a matter of convenience and for reference and shall
in no way define, limit or describe the scope or the intent of this Indemnity
Agreement or any of the provisions hereof.
(g) Governing Law. This Indemnity Agreement shall be governed
by, and construed and interpreted in accordance with, the internal laws of the
State of New York applicable to contracts made and to be performed in the State
of New York.
IN WITNESS WHEREOF, the Indemnitor has duly executed this
Indemnity Agreement as of the date first written above.
\\
APOLLO REAL ESTATE INVESTMENT FUND,
L.P., a Delaware limited partnership
By: Apollo Real Estate Advisors, L.P.,
a Delaware limited partnership, its
general partner
By: Apollo Real Estate Management,
Inc., a Delaware corporation,
its general partner
By: /s/ Lee Neibart
---------------------------
Lee Neibart, Vice President
\\
-5-
<PAGE> 6
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On January 11, 1996 before me personally came Richard J.
Lampen, to me known to be the individual who executed the foregoing instrument
and, who, being duly sworn by me, did depose and say that he is the Executive
Vice President of NEW VALLEY CORPORATION, a New York corporation, and that he
executed the foregoing instrument in the name of said corporation and that he
had the authority to sign the same, and acknowledged that he executed the same
as the act and deed of said corporation.
/s/ Notary Public
------------------------
Notary Public
-6-
<PAGE> 7
SCHEDULE A TO INDEMNITY AGREEMENT
LEGAL DESCRIPTIONS OF
HOLLY FARM SHOPPING CENTER PROPERTY
MARATHON SHOPPING CENTER PROPERTY
MARYSVILLE TOWNE CENTER PROPERTY
KANAWHA MALL PROPERTY
ROYAL PLAZA PROPERTY
-7-
<PAGE> 8
SCHEDULE B TO INDEMNITY AGREEMENT
DESCRIPTIONS OF MORTGAGES HELD BY
AID ASSOCIATION FOR LUTHERANS
NATWEST BANK, N.A.
UNION LABOR LIFE INSURANCE COMPANY
NATIONAL BANK OF COMMERCE
-8-
<PAGE> 1
EXHIBIT 10(k)(ii)
INDEMNITY AGREEMENT
RE: CONSENTS
INDEMNITY AGREEMENT (this "Indemnity Agreement"), executed and
delivered on January 11, 1996, by APOLLO REAL ESTATE INVESTMENT FUND, L.P., a
Delaware limited partnership, having an office at c/o Apollo Real Estate
Advisors, L.P., 1301 Avenue of the Americas, New York, New York 10019 (the
"Indemnitor"), in favor of NEW VALLEY CORPORATION, a New York corporation,
having an office at 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131
(the "Indemnitee").
W I T N E S S E T H:
WHEREAS, AP Century I, L.P. ("AP-I"), AP Century II, L.P. ("AP-II") and
AP Century IX, L.P. ("AP-IX"; together with AP-I and AP-II, collectively,
"AP-Century") each have ownership interests in certain real property as more
particularly described on "Schedule A" attached hereto and made a part hereof
(the "Properties");
WHEREAS, the real property interest owned by (i) AP-I is currently
encumbered by a mortgage/deed of trust (the "Lutheran Mortgage") held by Aid
Association for Lutherans (the "Lutheran Lender"), (ii) AP-II is currently
encumbered by a mortgage/deed of trust (the "NatWest Mortgage") held by NatWest
Bank, N.A. ("NatWest") and (iii) AP-IX is currently encumbered by (a) a
mortgage/deed of trust (the "ULLIC Mortgage") held by Union Labor Life Insurance
Company ("ULLIC") and (b) a mortgage/deed of trust (the "Commerce Bank
Mortgage"; together with the Lutheran Mortgage, the NatWest Mortgage and the
ULLIC Mortgage, collectively, the "Senior Mortgages", or individually, each a
"Senior Mortgage"), held by National Bank of Commerce ("Commerce Bank"; together
with the Lutheran Lender, NatWest and ULLIC, collectively, the "Senior
Mortgagees", or individually, each a Senior Mortgagee"), as each such Mortgage
is more particularly described on "Schedule B" attached hereto and made a part
hereof;
WHEREAS, pursuant to that certain Purchase and Sale Agreement, dated as
of the date hereof, by and between AP-Century, and others, as sellers, and the
Indemnitee, as purchaser (the "Purchase Agreement"), AP-Century is transferring
its respective ownership interests to the Indemnitee subject to the First
Mortgages (the "Conveyance");
WHEREAS, pursuant to that certain Loan and Security Agreement, dated as
of date hereof, by and between AP-Century, and others, as lenders, and the
Indemnitee, as borrower (the "Loan Agreement"), AP-Century is providing purchase
money financing (the "Loan") to the Indemnitee to be secured by among other
things, the Financing Documents (all definitions in the Loan Agreement shall
apply in this Indemnity Agreement except where this Indemnity Agreement provides
for some other definition of a capitalized term);
WHEREAS, the Indemnitor wishes to execute and deliver to the Indemnitee
this Indemnity Agreement to induce the Indemnitee to consummate the transactions
contemplated under the Purchase Agreement and the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual
agreements hereinafter set forth, and other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Indemnitor hereby agrees
with the Indemnitee as follows:
<PAGE> 2
SECTION 1. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
(a) Representations and Warranties. The Indemnitor represents and
warrants to the Indemnitee as follows:
(i) The execution, delivery and performance by the Indemnitor
of this Indemnity Agreement do not and will not contravene any law or
governmental rule, regulation or order which is applicable to the Indemnitor,
and no authorization, approval or other action by, and no notice to or filing
with, any of the United States of America, the States in which the Properties
are located , any political subdivision of any of the foregoing, any agency,
department, commission, board, bureau or instrumentality of any of them, or any
quasi-public agency established by any of the foregoing including, without
limitation, any insurance rating organization or board of fire underwriters
which exercises jurisdiction over the Properties (collectively, "Governmental
Authority") is required for the due execution, delivery and performance by the
Indemnitor of this Indemnity Agreement.
(ii) The execution, delivery and performance by the Indemnitor
of this Indemnity Agreement do not and will not contravene any contractual
restriction which is binding upon or which affects the Indemnitor, and do not
and will not result in or require the creation of any lien, security interest or
other charge or encumbrance upon or with respect to any properties of the
Indemnitor.
(iii) The execution, delivery and performance by the
Indemnitor of this Agreement has been duly authorized and this Agreement has
been duly executed and delivered by Indemnitor.
(iv) The Indemnitor is a limited partnership duly formed,
validly existing and in good standing under the laws of the State of Delaware
and has full partnership power and authority to enter into and perform its
obligations under this Indemnity Agreement.
(v) This Indemnity Agreement is a legal, valid and binding
obligation of the Indemnitor, enforceable against the Indemnitor in accordance
with its terms, subject to applicable bankruptcy, insolvency and other laws
affecting generally the enforcement of creditors' rights and to general
principles of equity.
(vi) There is no action, suit or proceeding pending against or
otherwise affecting the Indemnitor before any court, arbitrator or Governmental
Authority, which would, if adversely determined to Indemnitor, materially
adversely affect the financial ability of the Indemnitor to perform the
Indemnitor's obligations under this Indemnity Agreement.
-2-
<PAGE> 3
(b) Indemnities. As to each First Mortgage, from and after the date
hereof until the date upon which a First Mortgagee delivers to Indemnitee a
written and unconditional (or, if conditional such conditions are satisfied by
Indemnitor) consent (and otherwise in form and substance reasonably acceptable
to Indemnitee) to the Conveyance, and to the Loan regarding the encumbered
property ("Consent"), the Indemnitor shall indemnify, save harmless and defend
the Indemnitee from and against any and all damages, losses, liabilities,
claims, demands, suits, proceedings, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) in connection with any
First Mortgagee's exercise or threatened (in writing) exercise of (i) any right
to acceleration of payment of principal under its respective First Mortgage and
(ii) any rights under a due on sale or due on further encumbrancing clause, if
any, contained in its respective First Mortgage, which exercise arises out of
the Indemnitee's and AP-Century's consummation of the transactions contemplated
under the Purchase Agreement and/or the Loan Agreement, and which exercise or
threatened exercise occurs on or after the date hereof and before delivery to
the Indemnitee of a Consent. In the event of any such exercise or threatened
exercise, Indemnitor shall defend Indemnitee against such claim and, without
limiting Indemnitor's obligations, if any foreclosure of the First Mortgage
shall appear imminent, Indemnitor shall immediately satisfy or refinance the
First Mortgage (which refinancing shall comply with the Refinancing conditions
set forth in the Senior Mortgage(s).
SECTION 2. DEFENSE OF CLAIMS
(a) Notice of Claim. The Indemnitee shall notify the Indemnitor, to the
extent the Indemnitee has received such notice, of any written claim ("Claim")
of legal process asserted by a First Mortgagee alleging wrongdoing by, or
liability of, the Indemnitee which may result in a claim for indemnification
pursuant to this Indemnification Agreement.
(b) Defense of Claim. The Indemnitor shall defend such Claim,
regardless of the Indemnitor's receipt of notice thereof, at its sole cost and
expense and by legal counsel of the Indemnitor's own choosing. The Indemnitee
shall cooperate fully in the defense of such Claim and shall make available to
the Indemnitor and its legal counsel all pertinent information under the
Indemnitee's control relating to the defense of such Claim and/or in the
assertion of counterclaims by the Indemnitor.
SECTION 3. NOTICES, ETC.
Unless otherwise provided for herein, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given (a) when delivered, if sent by registered or
certified mail (return receipt requested), (b) when delivered, if delivered
personally, or (c) on the following Business Day, if sent by overnight mail or
overnight courier, in each case to the parties at the following addresses (or at
such other addresses as shall be specified by like notice):
If to the Indemnitor, at:
c/o Apollo Real Estate Advisors, L.P.
1301 Avenue of the Americas, 38th Floor
New York, New York 10019
Attention: William S. Benjamin
-3-
<PAGE> 4
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Lester M. Bliwise, Esq.
If to Indemnitee, at:
New Valley Corporation
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
Attention: Richard J. Lampen, Esq.
with copy to:
c/o Dreyer and Traub LLP
101 Park Avenue
New York, New York 10178
Attention: Gerald N. Schrager, Esq.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication within any corporation or firm to the persons designated to
receive copies thereof shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
SECTION 4. MISCELLANEOUS.
(a) Payment. The Indemnitor shall make any payment required to be made
hereunder in lawful money of the United States of America and in same day funds
to the Indemnitee at its address specified in Section 3 hereof.
(b) Modification. No provision of this Indemnity Agreement may be
waived, changed, amended, modified or discharged without an agreement in writing
and signed by the Indemnitor and the Indemnitee, and no waiver of, or consent
to, any departure by the Indemnitor from any provision of this Indemnity
Agreement shall be effective unless it is in writing and signed by the party
against which enforcement of such waiver or consent is sought, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
(c) Severability. Any provision of this Indemnity Agreement which is
prohibited or unenforceable in any jurisdiction or prohibited or unenforceable
as to any Person shall, as to such jurisdiction or Person, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction or as to any other Person.
(d) Binding Effect; Assignment; Non-Recourse; No Reliance. This
Indemnity Agreement shall (i) be binding upon the Indemnitor and its successors
and assigns, and (ii) inure,
-4-
<PAGE> 5
together with all rights and remedies of the Indemnitee hereunder, to the
benefit of the Indemnitee, its directors, officers, employees and agents. The
parties hereto may not assign or otherwise transfer all or any portion of their
rights and obligations under this Indemnity Agreement, to any other person,
without the prior written consent of the nonassigning party, which consent must
expressly reference this Indemnity Agreement, which may be unreasonably
withheld, and any such purported assignment without such prior written consent
shall be void and of no effect whatsoever; provided, however, that no consent
shall be required for an assignment or other transfer by Indemnitee to a New
Valley Permitted Transferee. Notwithstanding anything in this Indemnity
Agreement to the contrary, Indemnitor shall not be liable for and shall be
released hereunder from any indemnified matter (or any claims thereof) arising
after (a) five years from the date hereof; or (b) Consent is received with
respect to the Properties (for each Consent received the applicable Indemnitor
shall be released from the indemnified matters). The Indemnitee acknowledges and
agrees that the Indemnitor's obligations hereunder do not extend to and the
Indemnitee does not have and will not have any claims or causes of action in
connection with this Indemnity Agreement against any disclosed or undisclosed
officer, director, employee, trustee, shareholder, partner, principal, parent,
subsidiary or other affiliate of the Indemnitor. Nothing contained in this
Indemnity Agreement, expressed or implied, is intended to confer on any person
or entity other than the parties hereto (and their permitted assigns) any
rights, obligations, liabilities, or remedies.
(e) Venue. The Indemnitor hereby irrevocably and unconditionally (i)
submits for itself and its property in any legal action or proceeding relating
to this Indemnity Agreement, or for recognition and enforcement of any judgment
in respect thereof, to the exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States of America for the Southern
District of New York, and appellate courts thereof, (ii) consents that any such
action or proceeding may be brought in such courts and waives any objection that
it may now or hereafter have to the venue of any such action or proceeding in
any such court including, without limitation, any objection that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same, (iii) agrees not to commence any legal action or proceeding relating
to this Indemnity Agreement in any jurisdiction other than those set forth in
clause (i) above, (iv) agrees to service of any and all process in any such
action or proceeding to the address set forth in Section 3 hereof, (v) agrees
that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other
jurisdiction and (vi) agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
(f) Headings. The title of this document and the captions used herein
are inserted only as a matter of convenience and for reference and shall in no
way define, limit or describe the scope or the intent of this Indemnity
Agreement or any of the provisions hereof.
(g) Governing Law. This Indemnity Agreement shall be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
New York applicable to contracts made and to be performed in the State of New
York.
(h) Indemnitee covenants and agrees to cooperate reasonably and in good
faith and without cost or expense to Indemnitee in the Lenders' efforts to
obtain the consent of each Senior Mortgagee to the Conveyance.
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<PAGE> 6
IN WITNESS WHEREOF, the Indemnitor has duly executed this Indemnity
Agreement as of the date first written above.
APOLLO REAL ESTATE INVESTMENT FUND, L.P., a
Delaware limited partnership
By: Apollo Real Estate Advisors, L.P., a Delaware limited
partnership, its general partner
By: Apollo Real Estate Management, Inc., a Delaware
corporation, its general partner
By: /s/ Lee Neibart
---------------------------------------------
Lee Neibart, Vice President
-6-
<PAGE> 7
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On January 11, 1996 before me personally came Richard J.
Lampen, to me known to be the individual who executed the foregoing instrument
and, who, being duly sworn by me, did depose and say that he is the Executive
Vice President of NEW VALLEY CORPORATION, a New York corporation, and that he
executed the foregoing instrument in the name of said corporation and that he
had the authority to sign the same, and acknowledged that he executed the same
as the act and deed of said corporation.
/s/ Notary Public
------------------------------
Notary Public
<PAGE> 8
SCHEDULE A TO INDEMNITY AGREEMENT
LEGAL DESCRIPTIONS OF
WASHINGTON PLAZA
CORONADO SHOPPING CENTER
UNIVERSITY PLACE SHOPPING CENTER
<PAGE> 9
SCHEDULE B TO INDEMNITY AGREEMENT
DESCRIPTIONS OF MORTGAGES HELD BY
AID ASSOCIATION FOR LUTHERANS
NATWEST BANK, N.A.
UNION LABOR LIFE INSURANCE COMPANY
NATIONAL BANK OF COMMERCE
<PAGE> 1
Exhibit 10(k)(iii)
ENVIRONMENTAL INDEMNITY AGREEMENT RE: UNIVERSITY PLACE PROPERTY
INDEMNITY AGREEMENT (this "Indemnity Agreement"), executed and
delivered on January 11, 1996, by APOLLO REAL ESTATE INVESTMENT FUND, L.P., a
Delaware limited partnership, having an office at c/o Apollo Real Estate
Advisors, L.P., 1301 Avenue of the Americas, New York, New York 10019 (the
"Indemnitor"), in favor of NEW VALLEY CORPORATION, a New York corporation,
having an office at 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131
(the "Indemnitee").
W I T N E S S E T H:
WHEREAS, AP Century IX, L.P. ("AP-Century") has ownership interests in
certain real property as more particularly described on "Schedule A" attached
hereto and made a part hereof (the "Property");
WHEREAS, pursuant to that certain Purchase and Sale Agreement, dated as
of the date hereof, by and between AP-Century, and others, as sellers, and the
Indemnitee, as purchaser (the "Purchase Agreement"), AP-Century is transferring
its ownership interests in the Property to the Indemnitee;
WHEREAS, pursuant to that certain Loan and Security Agreement, dated as
of date hereof, by and between AP-Century, and others, as lenders, and the
Indemnitee, as borrower (the "Loan Agreement"), AP-Century is providing purchase
money financing (the "Loan") to the Indemnitee to be secured by among other
things, the Financing Documents (all definitions in the Loan Agreement shall
apply in this Indemnity Agreement except where this Indemnity Agreement provides
for some other definition of a capitalized term);
WHEREAS, the Indemnitor wishes to execute and deliver to the Indemnitee
this Indemnity Agreement to induce the Indemnitee to consummate the transactions
contemplated under the Purchase Agreement and the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual
agreements hereinafter set forth, and other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Indemnitor hereby agrees
with the Indemnitee as follows:
SECTION 1. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
(a) Representations and Warranties. The Indemnitor represents and
warrants to the Indemnitee as follows:
(i) The execution, delivery and performance by the Indemnitor
of this Indemnity Agreement do not and will not contravene any law or
governmental rule, regulation or order which is applicable to the Indemnitor,
and no authorization, approval or other action by, and no notice to or filing
with, any of the United States of America, the States in which the Property is
located , any political subdivision of any of the foregoing, any agency,
department, commission, board, bureau or instrumentality of any of them, or any
quasi-public agency established by any of the foregoing including, without
limitation, any insurance rating organization or board of fire
<PAGE> 2
underwriters which exercises jurisdiction over the Properties (collectively,
"Governmental Authority") is required for the due execution, delivery and
performance by the Indemnitor of this Indemnity Agreement.
(ii) The execution, delivery and performance by the Indemnitor
of this Indemnity Agreement do not and will not contravene any contractual
restriction which is binding upon or which affects the Indemnitor, and do not
and will not result in or require the creation of any lien, security interest or
other charge or encumbrance upon or with respect to any properties of the
Indemnitor.
(iii) The execution, delivery and performance by the
Indemnitor of this Agreement has been duly authorized and this Agreement has
been duly executed and delivered by Indemnitor.
(iv) The Indemnitor is a limited partnership duly formed,
validly existing and in good standing under the laws of the State of Delaware
and has full partnership power and authority to enter into and perform its
obligations under this Indemnity Agreement.
(v) This Indemnity Agreement is a legal, valid and binding
obligation of the Indemnitor, enforceable against the Indemnitor in accordance
with its terms, subject to applicable bankruptcy, insolvency and other laws
affecting generally the enforcement of creditors' rights and to general
principles of equity.
(vi) There is no action, suit or proceeding pending against or
otherwise affecting the Indemnitor before any court, arbitrator or Governmental
Authority, which would, if adversely determined to Indemnitor, materially
adversely affect the financial ability of the Indemnitor to perform the
Indemnitor's obligations under this Indemnity Agreement.
(b) Indemnities. From and after the date hereof, the Indemnitor shall
indemnify, save harmless and defend the Indemnitee from and against any and all
damages, losses, liabilities, obligation, penalties, defenses, judgments, suits,
proceedings, penalties, expenditures, costs, disbursement or expenses
(including, without limitation, all costs of investigation, monitoring, clean
up, remediation, removal, restoration, court costs and attorneys' and experts'
fees and expenses provided same is performed in accordance with the terms and
provisions of Section 3) in connection with any remedial action(s) ordered by a
Governmental Authority or pursuant to a private cost recovery or equitable or
other legal action or proceeding, or required by a prospective purchaser of the
Property or a prospective Lender refinancing a permitted loan secured by the
Mortgaged Property provided, that, with respect to a prospective purchaser or
prospective Lender, it is commercially prudent to undertake such remedial action
(hereinafter called an "Environmental Action") for the tetrachloroethane
discharge on the northwestern portion of the Property designated as MW-2 in the
Huntingdon Report (as defined below) prior to the date hereof and as described
more particularly in the Huntingdon Report (the foregoing indemnity hereafter
refined referred to as the "Indemnified Environmental Matter"). The "Huntingdon
Report" shall mean that certain Limited Phase II Environmental Assessment Report
dated January 9, 1995 (Job No. 6205-95-045) prepared by Huntingdon Engineering
and Environmental, Inc.
-2-
<PAGE> 3
SECTION 2. DISCLOSURE AND DEFENSE OF CLAIMS
(a) Disclosure The Indemnitee agrees to refrain from submitting or
disclosing information about the environmental condition of the Property
relating to any Indemnified Environmental Matter to any Government Authority or
third party unless affirmatively required by law to do so or unless necessary or
desirable or commercially reasonable in connection with any third party
transaction. If Indemnitee concludes that it is required by law or that it is
necessary, desirable or commercially reasonable to disclose such information,
Indemnitee shall immediately notify Indemnitor of: (i) the basis for such
conclusion, and (ii) any proposed disclosures or submittals it intends to make.
Indemnitee shall provide Indemnitor with a reasonable time period, not to exceed
10 days, to review and comment upon such proposed submittal or disclosure.
Indemnitee shall incorporate any reasonably requested modifications by
Indemnitor prior to making such submittal or disclosure. Failure to respond
shall constitute consent by the Indemnitor to such submittal or disclosure.
Notwithstanding the foregoing, Indemnitor's consent or approval shall not be
required for the Indemnitee to furnish a copy of the Huntingdon Report to a
prospective purchaser or lender.
SECTION 3. REMEDIATION.
(a) If any Environmental Action is commenced or threatened in writing
against the Indemnitee for any Indemnified Environmental Matter, Indemnitee
shall provide Indemnitor with written notice of the service of a summons or
complaint or other written notice, demand or letter within three (3) days of
receipt (the "Indemnity Demand") and Indemnitor shall have the right to assume
the responsibility for such Environmental Action including the employment of
legal counsel satisfactory to Indemnitor and reasonably satisfactory to
Indemnitee. Indemnitee shall furnish Indemnitor with information pertaining to
the Environmental Action and otherwise cooperate with the Indemnitor in the
response to such Environmental Action. If Indemnitor fails to notify Indemnitee
within twenty (20) days of the Indemnity Demand, or as otherwise extended by
mutual agreement of the parties, that it elects to exercise its rights to assume
the defense of the Environmental Action as aforesaid, Indemnitee shall have the
right to retain legal counsel satisfactory to Indemnitee and reasonably
satisfactory to the Indemnitor and to provide a response to the Environmental
Action. If Indemnitor declines to respond to the Environmental Action,
Indemnitor shall reimburse the Indemnitee for all costs of Remediation including
reasonable attorney fees, costs and disbursements incurred by Indemnitee's legal
counsel to reply to such Environmental Action. If Indemnitor subsequently agrees
to respond to or assume the responsibility of the Environmental Action,
Indemnitor shall pay or reimburse the Indemnitee for all remediation costs
including reasonable attorneys fees, costs and disbursements incurred by
Indemnitee prior to the assumption date that Indemnitor agreed to respond to the
Environmental Action covered by the indemnity within 30 days of receipt of a
reimbursement request.
(b) If Indemnitor assumes the responsibility for response or agrees to
respond to an Environmental Action pursuant to this indemnity, then Indemnitee,
in coordination and cooperation with Indemnitor, and with Indemnitor's
reasonable consent, shall develop and prepare a Remediation Action Plan (RAP)
for the presence of Hazardous Substances at levels that require remediation
under standards established and required under Environmental Laws (hereinafter
referred to as an "Environmental Condition") acceptable to the governmental
agency or reasonably acceptable to the third party initiating the private action
or proceeding for the remediation. Subject to Indemnitor's indemnity obligation,
the Indemnitee shall then be
-3-
<PAGE> 4
responsible to implement and execute the approved plan of remediation as
provided in Section 3(c).
(c) If there is an Environmental Condition that is an Indemnified
Environmental Matter, then, subject to Indemnitor's indemnity obligation, the
Indemnitee shall develop, implement and execute the remedial actions for the
remediation required under Environmental Laws in accordance with the following
procedures:
(i) The Indemnitee shall select and retain an environmental engineer to
perform the remedial actions by soliciting a Request for Proposal ("RFP") from
at least three qualified and reputable environmental engineering firms who are
reasonably satisfactory to the Indemnitor.
(ii) Indemnitee shall review the bids received in response to the RFP
with the Indemnitor and shall select the winning bid in consultation with the
Indemnitor and with the Indemnitor's consent, not to be unreasonably withheld or
delayed or conditioned.
(iii) Indemnitee will provide Indemnitor with copies of any draft
remediation plans or reports for Indemnitor to review and comment on or before
submission to the appropriate governmental agency. Indemnitee shall incorporate
Indemnitor's comments into such plans or reports but shall not be required to
incorporate Indemnitor's suggestions or requested modifications which are
unreasonable or inconsistent with Environmental Law.
(iv) Unless a Remedial Action Plan (RAP) has been developed, prepared
and approved by the appropriate governmental agency as provided in Section 3(b),
after Indemnitee selects the environmental engineering firm, the Indemnitee
shall direct such firm to develop and prepare a RAP for approval by the
appropriate governmental agency. The RAP shall be based on the most
cost-effective remedy that would be acceptable to the appropriate governmental
agency. After government approval of the RAP, Indemnitee shall perform the
remediation, subject to Indemnitor's indemnity obligation, to the satisfaction
of the appropriate governmental agency.
(v) Indemnitee shall use good faith efforts or arrange for the
environmental engineering firm to provide the Indemnitor, at Indemnitor's
expense, with monthly progress reports regarding performance of the RAP in form
and content reasonably satisfactory to Indemnitor, the cumulative itemized
reimbursable costs subject to Indemnitor's indemnity, the estimated date of
completion and description of meetings with governmental authorities and
resulting decisions or required actions agreed. Indemnitor shall be given
reasonable advance notice of any meeting with the representatives of the
appropriate governmental agency and shall be given an opportunity to attend such
meetings and participate in the negotiations.
(vi) Subject to and in accordance with the Indemnity provided in this
Agreement, Indemnitor shall be responsible to pay all reasonable contract costs
and expenses incurred by Indemnitee in performance of the remediation and shall
reimburse Indemnitee for such within 30 days of an itemized invoice.
-4-
<PAGE> 5
SECTION 4. NOTICES, ETC.
Unless otherwise provided for herein, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given (a) when delivered, if sent by registered or
certified mail (return receipt requested), (b) when delivered, if delivered
personally, or (c) on the following Business Day, if sent by overnight mail or
overnight courier, in each case to the parties at the following addresses (or at
such other addresses as shall be specified by like notice):
If to the Indemnitor, at:
c/o Apollo Real Estate Advisors, L.P.
1301 Avenue of the Americas, 38th Floor
New York, New York 10019
Attention: William S. Benjamin
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Lester M. Bliwise, Esq.
If to Indemnitee, at:
New Valley Corporation
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
Attention: Richard J. Lampen, Esq.
with copy to:
c/o Dreyer and Traub LLP
101 Park Avenue
New York, New York 10178
Attention: Gerald N. Schrager, Esq.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication within any corporation or firm to the persons designated to
receive copies thereof shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
SECTION 5. MISCELLANEOUS.
(a) Payment. The Indemnitor shall make any payment required to be made
hereunder in lawful money of the United States of America and in same day funds
to the Indemnitee at its address specified in Section 4 hereof.
-5-
<PAGE> 6
(b) Modification. No provision of this Indemnity Agreement may be
waived, changed, amended, modified or discharged without an agreement in writing
and signed by the Indemnitor and the Indemnitee, and no waiver of, or consent
to, any departure by the Indemnitor from any provision of this Indemnity
Agreement shall be effective unless it is in writing and signed by the party
against which enforcement of such waiver or consent is sought, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
(c) Severability. Any provision of this Indemnity Agreement which is
prohibited or unenforceable in any jurisdiction or prohibited or unenforceable
as to any Person shall, as to such jurisdiction or Person, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction or as to any other Person.
(d) Binding Effect; Assignment; Non-Recourse; No Reliance. This
Indemnity Agreement shall (i) be binding upon the Indemnitor and its successors
and assigns, and (ii) inure, together with all rights and remedies of the
Indemnitee hereunder, to the benefit of the Indemnitee, its directors, officers,
employees and agents. Indemnitor may not assign or otherwise transfer all or any
portion of its obligations under this Indemnity Agreement, to any other person,
without the prior written consent of Indemnitee, which consent may be
unreasonably withheld, and any such purported assignment without such prior
written consent shall be void and of no effect whatsoever. The Indemnitor shall
not be liable hereunder for any Environmental Action (or any claims thereof)
arising after five years from the date hereof. The Indemnitee acknowledges and
agrees that the Indemnitor's obligations hereunder do not extend to and the
Indemnitee does not have and will not have any claims or causes of action in
connection with this Indemnity Agreement against any disclosed or undisclosed
officer, director, employee, trustee, shareholder, partner, principal, parent,
subsidiary or other affiliate of the Indemnitor. Nothing contained in this
Indemnity Agreement, expressed or implied, is intended to confer on any person
or entity other than the parties hereto (and their permitted assigns) any
rights, obligations, liabilities, or remedies.
(e) Venue. The Indemnitor hereby irrevocably and unconditionally (i)
submits for itself and its property in any legal action or proceeding relating
to this Indemnity Agreement, or for recognition and enforcement of any judgment
in respect thereof, to the exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States of America for the Southern
District of New York, and appellate courts thereof, (ii) consents that any such
action or proceeding may be brought in such courts and waives any objection that
it may now or hereafter have to the venue of any such action or proceeding in
any such court including, without limitation, any objection that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same, (iii) agrees not to commence any legal action or proceeding relating
to this Indemnity Agreement in any jurisdiction other than those set forth in
clause (i) above, (iv) agrees to service of any and all process in any such
action or proceeding to the address set forth in Section 4 hereof, (v) agrees
that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other
jurisdiction and (vi) agrees that a
-6-
<PAGE> 7
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(f) Headings. The title of this document and the captions used herein
are inserted only as a matter of convenience and for reference and shall in no
way define, limit or describe the scope or the intent of this Indemnity
Agreement or any of the provisions hereof.
(g) Governing Law. This Indemnity Agreement shall be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
New York applicable to contracts made and to be performed in the State of New
York.
IN WITNESS WHEREOF, the Indemnitor has duly executed this Indemnity
Agreement as of the date first written above.
\\
APOLLO REAL ESTATE INVESTMENT FUND, L.P., a
Delaware limited partnership
By: Apollo Real Estate Advisors, L.P., a Delaware limited
partnership, its general partner
By: Apollo Real Estate Management, Inc., a Delaware
corporation, its general partner
By: /s/ Lee Neibart
--------------------------------------------
Lee Neibart, Vice President
\\
-7-
<PAGE> 8
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On January 11, 1996 before me personally came Richard J.
Lampen, to me known to be the individual who executed the foregoing instrument
and, who, being duly sworn by me, did depose and say that he is the Executive
Vice President of NEW VALLEY CORPORATION, a New York corporation, and that he
executed the foregoing instrument in the name of said corporation and that he
had the authority to sign the same, and acknowledged that he executed the same
as the act and deed of said corporation.
/s/ Lee Neibart
------------------------------
Notary Public
<PAGE> 9
SCHEDULE A TO INDEMNITY AGREEMENT
LEGAL DESCRIPTIONS OF
UNIVERSITY PLACE SHOPPING CENTER
<PAGE> 1
Exhibit 10(k)(iv)
ENVIRONMENTAL INDEMNITY AGREEMENT
ENVIRONMENTAL INDEMNITY AGREEMENT ("Indemnity Agreement"), executed and
delivered on January 11, 1996, by NEW VALLEY CORPORATION, a New York
corporation, having an office at 100 S.E. Second Street, 32nd Floor, Miami,
Florida 33131 (the "Indemnitor") in favor of AP CENTURY I, L.P., AP CENTURY II.,
AP CENTURY III, L.P., AP CENTURY IV, L.P., AP CENTURY V, L.P., AP CENTURY VI,
L.P., AP CENTURY VIII, L.P. and AP CENTURY IX, L.P., all of which are limited
partnerships organized and existing under the laws of the State of Delaware and
all of which have an office at c/o Apollo Real Estate Advisors, L.P., 1301
Avenue of the Americas, New York, New York 10019 (each, individually, and all,
collectively, as the context may require, "AP-Century").
WITNESSETH:
WHEREAS, the Indemnitor is the owner of certain real property as more
particularly described on Schedule A attached hereto and made a part hereof (the
"Properties");
WHEREAS, AP-Century is providing purchase money financing (the "Loan")
to the Indemnitor to be secured by among other things, the Financing Documents
(as such term is defined in the Loan and Security Agreement, dated the date
hereof, between AP-Century, as lenders, and Indemnitor, as borrower (the "Loan
Agreement") (all definitions in the Loan Agreement shall apply in this Indemnity
Agreement except where this Indemnity Agreement provides for some other
definition of a term);
WHEREAS, AP-Century requires, as a condition to providing the purchase
money financing as evidenced by the Note, that the Indemnitor execute and
deliver to AP-Century this Indemnity Agreement;
WHEREAS, the Indemnitor wishes to execute and deliver to AP-Century
this Indemnity Agreement to induce AP-Century to provide the purchase money
financing as evidenced by the Note;
NOW, THEREFORE, in consideration of the foregoing, the mutual
agreements hereinafter set forth, and other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Indemnitor hereby agrees
with AP-Century as follows:
SECTION 1. Representations, Warranties, Covenants and Indemnities.
(a) Representations and Warranties Relating to the Properties. The
Indemnitor hereby represents and warrants to AP-Century that except as disclosed
in the environmental reports listed on attached Schedule I (the "Reports"), to
Indemnitor's knowledge, the Properties are free of Contamination.
(b) General Representations and Warranties. The Indemnitor further
represents and warrants to AP-Century as follows:
(i) the execution, delivery and performance by the Indemnitor
of this Indemnity Agreement do not and will not contravene any law or
governmental rule, regulation or order which is applicable to the Indemnitor,
and no authorization, approval or other action by, and no notice to or filing
with, any Governmental Authority is required for the due execution, delivery and
performance by the Indemnitor of this Indemnity Agreement.
(ii) the execution, delivery and performance by the Indemnitor
of this Indemnity Agreement do not and will not contravene any contractual
restriction which is binding upon or which affects the
<PAGE> 2
Indemnitor, and do not and will not result in or require the creation of any
lien, security interest or other charge or encumbrance upon or with respect to
any properties of the Indemnitor.
(iii) The Indemnitor is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, and has
full corporate power and authority to enter into and perform its obligations
under this Indemnity Agreement and each other Financing Document to which the
Indemnitor is a party;
(iv) This Indemnity Agreement is a legal, valid and binding
obligation of the Indemnitor, enforceable against the Indemnitor in accordance
with its terms, subject to applicable bankruptcy, insolvency and other laws
affecting generally the enforcement of creditors' rights and to general
principles of equity.
(v) There is no action, suit or proceeding pending against or
otherwise affecting the Indemnitor before any court, arbitrator or Governmental
Authority, which would, if adversely determined to Indemnitor, materially
adversely affect the financial ability of the Indemnitor to perform the
Indemnitor's obligations under this Indemnity Agreement.
(c) Covenants Relating to the Properties. The Indemnitor hereby
covenants and agrees as follows:
(i) that, except to the extent remediation is required to be
undertaken or paid for by Apollo Real Estate Investment Fund, L.P. pursuant to
separate indemnity dated the date hereof with respect to the University Place
Property, the Indemnitor shall (1) comply with any and all Environmental Laws
that apply to the Properties, but Indemnitor's liability to AP-Century hereunder
for such compliance shall be limited to instances where the need for such
compliance arises from Post-Closing Contamination; (2) pay immediately when due
the costs required to comply with any Environmental Laws to the extent such
costs of compliance arise from Post-Closing Contamination; and (3) keep the
Properties free of any lien imposed pursuant to any Environmental Laws to the
extent such lien arises from Post-Closing Contamination.
(ii) that AP-Century shall have the right, but not the
obligation, at any time and from time to time, upon AP-Century's reasonable
belief that there has been a discharge of Hazardous Substances at the Properties
after the Closing Date, to conduct an environmental audit of the Properties, at
the Indemnitor's sole cost and expense, and the Indemnitor hereby covenants to
cooperate in the conduct of any such environmental audit.
(iii) that the Indemnitor shall give AP-Century and its agents
and employees reasonable access to the Properties to monitor the Indemnitor's
compliance with its obligations under this Indemnity Agreement, provided,
however, that AP-Century shall make reasonable efforts to not materially
interfere with the conduct of any tenant's business.
(iv) that if the Indemnitor shall fail to comply with its
obligations hereunder, under the Loan Agreement and/or any Financing Document
relating to any Hazardous Substances or the curing of any violation of any
Environmental Laws prior to the earlier of (1) the expiration of the applicable
cure periods under the Loan Agreement or any Financing Document, as applicable
(if any), or (2) the expiration of the cure period permitted under applicable
law, regulation or order, AP-Century shall have the right, but not the
obligation, to do whatever AP-Century, in its absolute discretion, deems to be
necessary to comply with the applicable law, regulation or order, and the costs
thereof shall be added to the obligations of the Indemnitor under this Indemnity
Agreement.
(d) Indemnities. From and after the date hereof, the Indemnitor shall
indemnify, save harmless and defend AP-Century from and against any and all
damages, losses, liabilities, obligations, penalties, claims,
<PAGE> 3
demands, defenses, judgments, suits, proceedings, penalties, expenditures,
costs, disbursements or expenses (including, without limitation, all costs of
investigations, monitoring, clean-up, remediation, removal, restoration, court
costs and attorneys' and experts' fees and expenses) of any kind or nature
whatsoever (collectively, the "Indemnified Matters") which may, at any time or
from time to time, be imposed upon, incurred by or asserted or awarded against
AP-Century, by reason of, or arising from or out of any of the foregoing
(collectively the "Post-Closing Contamination"):
(i) Contamination as a result of Hazardous Substances
introduced by Indemnitor or arising after the date hereof (other than as a
result of or attributable to a pre-existing Contamination) on, in, above, under
or affecting all or any portion of the Properties, without regard to the source
or origin of such discharge.
(ii) Contamination as a result of the discharge of any
Hazardous Substances from the Properties after the date hereof into or onto any
lands, surface waters, ground waters or air space adjacent to or in the vicinity
of the Properties, which discharge is in violation of any Environmental Laws,
except to the extent such discharge is the result of or attributable to
preexisting Contamination.
(iii) Contamination of the Properties after the date hereof as
a result of the discharge of Hazardous Substances thereon from properties in the
vicinity of any of the Properties.
(iv) Contamination as a result of Hazardous Substances
introduced into the Properties after the date thereof by any tenants of any
Property.
(v) The breach of any representation or warranty made by the
Indemnitor in Section (a) or Section (b) hereof or the breach of any covenant
made by the Indemnitor in Section (c) hereof; or
(vi) AP-Century's enforcement (or attempted enforcement) of
any of the provisions of this Indemnity Agreement or the assertion by the
Indemnitor of any defense to its obligations hereunder (if such enforcement
prevails or such defense is rejected, in a court of law).
(e) Termination of Indemnities. Indemnitor shall not be liable
hereunder for any Contamination occurring after full repayment of the Loan or a
Sale (as defined below) to an unaffiliated third party or a Lender Take-Back and
none of Indemnitor's indemnities shall continue in respect of any such
subsequent Contamination, but any such repayment, Sale, or Take-Back shall not
discharge Indemnitor from liabilities hereunder theretofore accrued.
SECTION 2. Indemnitor's Obligations Unconditional.
(a) The Indemnitor hereby agrees that its obligations hereunder will be
paid strictly in accordance with the terms of this Indemnity Agreement,
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the Financing Documents or affecting
any of the rights of AP-Century with respect thereto. The obligations of the
Indemnitor hereunder shall be absolute and unconditional irrespective of: (i)
the validity, regularity or enforceability of the Financing Documents or any
other instrument or document executed or delivered in connection therewith; (ii)
any alteration, amendment, modification, release, termination or cancellation of
any Financing Document, or any change in the time, manner or place of payment
of, or in any other term in respect of, all or any of the obligations of the
Indemnitor contained in any Financing Document; (iii) any extension of the
maturity of the Loan or any waiver of, or consent to any departure from, any
provision contained in any Financing Document; (iv) any exchange, addition,
subordination or release of, or non-perfection of any lien on or security
interest in, any collateral for the Loan; (v) insolvency or bankruptcy of the
signatories of this Indemnity Agreement; (vi) subject to Section l(e), any sale,
transfer, grant, conveyance or assignment of any interest in the Properties or
any part thereof ("Sale"); (vii) any other circumstance
<PAGE> 4
which might otherwise constitute a defense (legal, equitable or otherwise)
available to, or a discharge of, any party to one or more of the Financing
Documents; (viii) AP-Century or any affiliate thereof at any time or in any
manner participating in the management or control of, taking possession of
(whether personally, by agent or by appointment of a receiver), or taking title
to, the Properties or any portion thereof, whether by foreclosure, deed in lieu
of foreclosure, sale under power of sale pursuant to the Mortgage or otherwise
("Lender Take-Back"); or (ix) any change, between the date hereof and the date
on which all of the obligations hereunder are paid in full, in any laws with
respect to Hazardous Substances, the effect of which may be to make a lender or
mortgagee liable in respect of any of such obligations, notwithstanding the fact
that no event, circumstance or condition of the nature described in clause
(viii) above ever occurred.
(b) Subject to Section 1 (e), this Indemnity Agreement is a continuing
indemnity and shall remain in full force and effect notwithstanding any transfer
or assignment of the Loan or any of the Financing Documents or the payment in
full of the Loan or the release or other extinguishment of the Mortgage or any
other security for the Loan.
SECTION 3. Waiver.
The Indemnitor hereby waives (i) promptness and diligence; (ii) notice
of acceptance and notice of the incurrence of any obligation by the Indemnitor;
(iii) notice of any actions taken by AP-Century, the Indemnitor or any
interested party under any Financing Document or any other agreement or
instrument relating thereto; and (iv) all other notices, demands and protests,
and all other formalities of every kind in connection with the enforcement of
the obligations of the Indemnitor hereunder the omission of or delay in which,
but for the provisions of this Section 3, might constitute grounds for relieving
the Indemnitor of its Obligations hereunder; (v) the right to a trial by jury of
any dispute arising under, or relating to, this Indemnity Agreement or the
Financing Documents; (vi) any requirement that AP-Century protect, secure,
perfect or insure any security interest or lien in or on any property subject
thereto or exhaust any right or take any action against the Indemnitor or any
other person or any collateral as a pre-condition to AP-Century's right to
enforce this Indemnity Agreement in accordance with its terms. Without limiting
the generality of the foregoing, the Indemnitor hereby waives any defense which
may arise by reason of (A) the incapacity, lack of authority, death or
disability of, or revocation hereof by, any person or persons, (B) the failure
of AP-Century to file or enforce any claim against the estate (in probate,
bankruptcy or any other proceedings) of any person or persons, or (C) any
defense based upon an election of remedies by AP-Century.
SECTION 4. Notices, Etc.
Unless otherwise provided for herein, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given (a) when delivered, if sent by registered or
certified mail (return receipt requested), (b) when delivered, if delivered
personally, or (c) on the following Business Day, if sent by overnight mail or
overnight courier, in each case to the parties at the following addresses (or at
such other addresses as shall be specified by like notice, but Indemnitor shall
at all times and in all cases have the same address and the same designated
notice recipient(s), all of which may be changed simultaneously by appropriate
notice):
If to AP-Century, at:
c/o Apollo Real Estate Advisors, L.P.
1301 Avenue of the Americas, 38th Floor
New York, New York 10019
Attention: William S. Benjamin
<PAGE> 5
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Lester M. Bliwise, Esq.
If to Indemnitor, at:
New Valley Corporation
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
Attention: Richard J. Lampen, Esq.
with copy to:
c/o Dreyer and Traub LLP
101 Park Avenue
New York, New York 10178
Attention: Gerald N. Schrager, Esq.
The giving of any notice required hereunder may be waived in writing by
the party entitled to receive such notice. Failure or delay in delivering copies
of any notice, demand, request, consent, approval, declaration or other
communication within any corporation or firm to the persons designated to
receive copies thereof shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
SECTION 5. Miscellaneous.
(a) The Indemnitor shall make any payment required to be made hereunder
in lawful money of the United States of America and in same day funds to
AP-Century at its address specified in Section 4 hereof.
(b) In the event that any amount payable hereunder by the Indemnitor to
AP-Century is not paid when due, the Indemnitor shall pay interest on such
amount at the Default Rate until such time as such amount, together with any
accrued interest thereon, shall have been paid in full to AP-Century.
(c) No provision of this Indemnity Agreement may be waived, changed,
amended, modified or discharged without an agreement in writing and signed by
the Indemnitor and AP-Century, and no waiver of, or consent to, any departure by
the Indemnitor from any provision of this Indemnity Agreement shall be effective
unless it is in writing and signed by AP-Century, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given and, notwithstanding anything contained to the contrary
herein, all such waivers and modifications may be given or withheld in the sole
judgment of AP-Century. The Indemnitor hereby irrevocably waives any right to
claim that any provision of this Indemnity Agreement, including the provisions
set forth in this subsection, have been waived orally or by the acts or
omissions of AP-Century.
(d) AP-Century may take or release other security for the payment of
the Loan, may release any party primarily or secondarily liable therefor and may
apply any other security held by it to the reduction or satisfaction of the Loan
without prejudice to any of its rights under this Indemnity Agreement.
<PAGE> 6
(e) No failure on the part of AP-Century to exercise, and no delay in
exercising, any right hereunder or under any other Financing Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of AP-Century provided herein and in the
Financing Documents are cumulative and are in addition to, and not exclusive of,
any rights or remedies provided by law. The rights of AP-Century under any
Financing Document against any party thereto are not conditional or contingent
upon any attempt by AP-Century to exercise any of its rights under any other
Financing Document against such party or against any other person or
(f) Any provision of this Indemnity Agreement which is prohibited or
unenforceable in any jurisdiction or prohibited or unenforceable as to any
Person shall, as to such jurisdiction or Person, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provisions
in any other jurisdiction or as to any other Person.
(g) This Indemnity Agreement shall be binding upon the Indemnitor and
its successors and assigns, and shall inure to the benefit of AP-Century and its
successors and assigns. No assignment of the rights or obligations of the
Indemnitor hereunder shall release Indemnitor from its obligations or impair its
rights hereunder. None of the obligations of the Indemnitor hereunder may be
delegated without the prior written consent of the Indemnitee provided, however,
that no consent shall be required for a delegation to a New Valley Permitted
Transferee. AP-Century acknowledges and agrees that Indemnitor's obligations
hereunder do not extend to and AP-Century does not have and will not have any
claims or causes of action in connection with this Indemnity Agreement against
any disclosed or undisclosed officer, director, employee, trustee, shareholder,
partner, principal, parent, subsidiary or other affiliate of the Indemnitor.
Nothing contained in this Indemnity Agreement, express or implied, is intended
to confer on any person or entity other than the parties hereto (and their
permitted assigns) any rights, obligations, liabilities, or remedies.
(h) The Indemnitor hereby irrevocably and unconditionally (i) submits
for itself and its property in any legal action or proceeding relating to this
Indemnity Agreement or any other Financing Document to which it is a party, or
for recognition and enforcement of any judgment in respect thereof, to the
exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts thereof, (ii) consents that any such action or proceeding
may be brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any such court
including, without limitation, any objection that such action or proceeding was
brought in an inconvenient court and agrees not to plead or claim the same,
(iii) agrees not to commence any legal action or proceeding relating to this
Indemnity Agreement in any jurisdiction other than those set forth in clause (i)
above, (iv) agrees to service of any and all process in any such action or
proceeding to the address set forth in Section 6 hereof, (v) agrees that nothing
herein shall affect the right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any other jurisdiction and
(vi) agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(i) The Indemnitor acknowledges and agrees that its Obligations under
this Indemnity Agreement are in addition to any and all legal liabilities,
obligations and responsibilities (under common law, statute, rule, regulation or
order) imposed on them, or any of them, by any applicable Environmental Laws.
(j) The title of this document and the captions used herein are
inserted only as a matter of convenience and for reference and shall in no way
define, limit or describe the scope or the intent of this Indemnity Agreement or
any of the provisions hereof.
<PAGE> 7
(k) This Indemnity Agreement shall be governed by, and construed and
interpreted in accordance with, the internal laws of the State of New York
applicable to contracts made and to be performed in the State of New York.
IN WITNESS WHEREOF, the Indemnitor has duly executed this Indemnity
Agreement as of the date first written above.
NEW VALLEY CORPORATION
By: /s/ Richard J. Lampen
-----------------------------
Richard J. Lampen
Executive Vice President
<PAGE> 1
Exhibit (10)(q)
Amended and Restated
Plan and Agreement of Merger
by and among
Thinking Machines Corporation, a Delaware corporation,
OTMC Corporation, a Delaware corporation,
and
TMC Acquisition Corp., a Delaware corporation,
dated as of
January 9, 1996
<PAGE> 2
Exhibit 10(q)
AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER
THIS AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER (the
"Agreement") is executed as of January 9, 1996 by and among Thinking Machines
Corporation, a Delaware corporation and a debtor-in-possession under the
Bankruptcy Code (together with its subsidiaries, as applicable, "RTMC"), OTMC
Corporation, a newly-formed Delaware corporation (together with its
subsidiaries, as applicable, "OTM") and TMC Acquisition Corp., a Delaware
corporation ("TMCA Co.").
RECITALS
A. Pursuant to or in connection with the plan of reorganization of RTMC
filed jointly by RTMC and the Official Committee of Unsecured Creditors of
Thinking Machines Corporation (the "Creditors Committee") on or about November
8, 1995 with the United States Bankruptcy Court for the District of
Massachusetts and to be filed in an amended form with such court on or about
January 9, 1996 (the "Plan"), RTMC intends to reorganize and to restructure its
equity capitalization, in part by transferring all of its operating assets,
subject to certain associated liabilities, to OTM, which will succeed to certain
portions of the business of RTMC from and after the Effective Date of the Plan.
B. In connection with the consummation of the Plan, RTMC desires to
raise an aggregate of $10,000,000 for OTM, by a new investment from TMCA Co.
C. The parties hereto have determined to effect such reorganization and
financing through a tax-free merger of TMCA Co. with and into OTM pursuant to
Section 368(a) of the Code (as hereinafter defined).
D. Prior to the consummation of the merger, OTM and TMCA Co. will
execute the Certificate of Merger to effectuate the merger of TMCA Co. into OTM.
The transaction described in this Agreement and the Certificate of Merger is
referred to in this Agreement as the "Merger."
E. TMCA Co., as borrower, and Ladenburg Thalmann Capital Corp., a
Delaware corporation, as lender ("Lender"), have entered into that certain
Bridge Loan and Security Agreement dated as of even date herewith ("Loan
Agreement") pursuant to which, inter alia, the Lender has provided TMCA Co. with
financing to meet its obligations hereunder and TMCA Co. has provided the Lender
with certain collateral security and equity conversion rights.
F. RTMC, OTM and TMCA Co. desire to make certain representations and
warranties and other agreements in connection with the Merger.
-2-
<PAGE> 3
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto, intending to be legally bound, do hereby agree as
follows:
Article I. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliate" has the meaning ascribed to it in Section (a)(1) of Rule
144 promulgated under the Securities Act.
"Associated Liabilities" shall have the meaning set forth
in Appendix 1 to the Plan.
"Audited Financials" has the meaning set forth in Section
3.5(a) hereof.
"Bankruptcy Case" shall mean the case under Title 11, United States
Code, of Thinking Machines Corporation pending in the United States Bankruptcy
Court for the District of Massachusetts (Case No. 94-15405-WCH).
"Bankruptcy Code" means Title 11, Section 101 et seq. of the United
States Code titled "Bankruptcy," as amended from time to time, and any successor
statute thereto.
"Bankruptcy Court" means the United States Bankruptcy Court for the
District of Massachusetts.
"Benefit Plan" means each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance or termination pay,
hospitalization or other medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement or arrangement sponsored, maintained or contributed to or required to
be contributed to by RTMC for the benefit of any employee or former employee of
RTMC.
"By-Laws" means the amended and restated by-laws of OTM in effect on
the Closing Date, substantially in the form of Exhibit C to this Agreement.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of OTM, filed with the Secretary of State of
Delaware on the Closing Date, substantially in the form of Exhibit B to this
Agreement.
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"Certificate of Merger" means the certificate of merger to be filed
with the Secretary of State of Delaware in the form attached hereto as Exhibit A
to effectuate the merger of TMCA Co. into OTM.
"Class A Warrant" means a warrant of OTM exercisable for shares of
Common Stock at a purchase price of $3.01 per share until December 31, 2000, in
the form of Exhibit D1 to this Agreement, issued to the Stockholders pursuant to
the Merger.
"Class B Warrant" means a warrant of OTM exercisable for shares of
Common Stock at a purchase price of $3.01 per share until December 31, 2000, in
the form of Exhibit D2 to this Agreement, issued to the Holders of Allowed
Claims pursuant to the Plan.
"Class C Warrant" shall have the meaning set forth in Section 8.20 of
this Agreement.
"Closing" shall have the meaning set forth in Section 2.3
of this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Stock" means the common stock, $.001 par value, of OTM which
will issue to the Stockholders pursuant to the Merger and to various other
parties.
"Confirmation Hearing" shall mean the Bankruptcy Court
hearing on confirmation of the Plan.
"Confirmation Order" means the order entered by the Bankruptcy Court
confirming the Plan pursuant to Section 1129 of the Bankruptcy Code.
"Confirmed Plan" shall mean the plan of reorganization of RTMC, in the
form confirmed by the Bankruptcy Court.
"Creditors Committee" has the meaning set forth in Recital
A of this Agreement.
"Disclosure Statement" means the Disclosure Statement For the Joint
Plan of Reorganization dated January 16, 1996 of RTMC filed with and approved by
the Bankruptcy Court.
"Due Inquiry" shall mean such inquiry of responsible employees of the
corporate entity in question as well as appropriate internal and external
follow-up on
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the responses received from such employees as is reasonable in light of the
facts and circumstances.
"Effective Date" shall have the meaning ascribed to such
term in the Plan.
"Effective Time of the Merger" shall have the meaning set forth in
Section 2.1 of this Agreement.
"Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened release of Materials of
Environmental Concern (as hereinafter defined), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
"Equity Committee" shall have the meaning set forth in
Appendix 1 to the Plan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with the rules and regulations promulgated thereunder.
"Escrow Agent" shall mean State Street Bank and Trust
Company.
"Escrow Agreement" shall have the meaning set forth in
Section 7.1 of this Agreement.
"Excluded Patents" shall have the meaning set forth under the
definition "Patents" in Appendix 1 to the Plan.
"Final Order" shall have the meaning set forth in Appendix
1 to the Plan.
"Financial Statements" shall mean the audited and unaudited financial
statements of RTMC, more fully described in Section 3.5 hereof.
"GAAP" means generally accepted accounting principles in the United
States as in effect from time to time, applied on a consistent basis.
"Governmental Entity" means any federal, state, local or foreign
legislative body, court, government, department or instrumentality, or
governmental, administrative or regulatory authority or agency.
"Governmental Rule" shall mean any statute, law, regulation, ordinance,
rule, judgment, order, decree, permit, concession, grant, franchise, license,
agreement, directive, guideline, policy, requirement, or other governmental
restriction or any
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<PAGE> 6
similar form of decision of or determination by, or any interpretation or
administration of any of the foregoing by, any Government Entity, whether now or
hereafter in effect.
"Holders of Allowed Claims" and "Holders of Allowed Interests" shall
mean certain of the creditors and equity holders of RTMC, as further described
in the Plan.
"Holders of Claims" shall mean all holders of Claims, as defined in the
Plan, which are in excess of Two Thousand Dollars ($2,000).
"Immaterial Noncompliance" has the meaning set forth in Section 4.11
hereof.
"Intellectual Property Rights" has the meaning set forth in Section
3.12 hereof.
"Lender" shall mean Ladenburg Thalmann Capital Corp. or its assignee.
"Liens" has the meaning set forth in Section 3.10 hereof.
"Loan Agreement" shall mean that certain Bridge Loan and Security
Agreement dated as of January __, 1996 between TMCA Co. and the Lender.
"Material Adverse Effect" means any change or effect that, individually
or in the aggregate, is, or could reasonably be expected to be, materially
adverse to the business, results of operations, properties (including intangible
properties), condition (financial or otherwise), assets or liabilities of the
entity; provided, however, that with respect to RTMC, neither (i) a decrease of
twenty percent (20%) or less in net income before reorganization items, income
taxes and extraordinary credit reflected in the Projected Financial and
Operating Results - Consolidated Statements Of Operations PreConfirmation of
RTMC for its fiscal year ending December 31, 1995 attached to the Disclosure
Statement as Exhibit 2 (subject to reduction as a result of adjustment of the
revenues projected for the anticipated fourth quarter sale to Lockheed Corp.)
nor (ii) any increase or decrease in any other line item from the corresponding
line item in such projected financials shall be deemed a Material Adverse
Effect.
"Material Contracts" has the meaning set forth in Section 3.13 hereof.
"Materials of Environmental Concern" means hazardous substances as
defined under the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section9601 et seq. and hazardous wastes as defined
under the Resource Conservation and Recovery Act, 52 U.S.C. Section6901, et seq.
and petroleum and petroleum products and such other chemicals, materials or
substances as are listed as "hazardous wastes", "hazardous materials", "toxic
substances", or words of similar import under any similar federal, state, local
or foreign laws.
"Merger" shall mean the merger of TMCA Co. into OTM effected pursuant
to this Agreement.
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<PAGE> 7
"Net Offering Proceeds" shall mean the cash proceeds received by TMCA
Co. in the TMCA Co. Placement after payment of all associated commissions, costs
and expenses incurred by TMCA Co.
"Operating Assets" shall have the meaning set forth in Appendix 1 to
the Plan.
"OTM" has the meaning set forth in the first paragraph of this
Agreement.
"OTM Management" shall mean Robert L. Doretti, Robert J. LaBossiere,
Jacek Myczkowski and S. Grady Putnam.
"Partnership" shall have the meaning ascribed to such term in the Loan
Agreement or , if no such Partnership is formed as provided for in the Term
Sheet (as defined in the Loan Agreement), then Partnership means the Lender.
"Patent Entity" shall mean TM Patents, L.P., a Delaware limited
partnership to be created pursuant to the Plan, to which will be transferred (i)
the Excluded Patents and (ii) the Software Patents, subject to transfer of the
Software Patents to OTM at such time as the full amount due to TM Patents from
OTM under the TM Patents Financing has been paid.
"Patent License" shall mean that certain license of the Excluded
Patents from the Patent Entity to OTM, as described in the Plan.
"Plan" means the Joint Plan of Reorganization of RTMC, dated November
8, 1995, as filed with the Bankruptcy Court.
"Pro Formas" has the meaning set forth in Section 3.5(b) hereof.
"Property" or "Properties" means any right or interest in or to
property of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible but expressly excluding Excluded Patents and Software
Patents.
"Registration Rights Agreement" means the Transfer, Registration and
Other Rights Agreement to be entered into on the Closing Date among OTM, the
Stockholders (as hereinafter defined), the Holders of Allowed Claims, the
Partnership and the Patent Entity, substantially in the form negotiated by the
parties hereto, the Lender and the Creditors Committee on or before Janaury 10,
1996, which (i) shall not contain any lockups or other transfer restrictions on
the transferability of the Class A Warrant, Class B Warrant, shares of Series A
Preferred Stock, or shares of the Common Stock issued in connection with the
Plan or the Merger or in connection with the exercise of Class A Warrants, Class
B Warrants, Class C Warrant or the conversion of Series A Preferred Stock,
except those in favor of an underwriter for the Common Stock, which restrictions
shall be equally applicable to all holders of Common Stock (other than employees
who shall be
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<PAGE> 8
subject to a different set of restrictions), (ii) shall provide for demand and
"piggyback" registration rights for the Stockholders (other than OTM Management)
and the Lender, and (iii) shall provide for "piggyback" registration rights for
OTM Management, the Holders of Allowed Claims and the Patent Entity and shall
require that all such holders be included on a pari passu basis with any and all
holders of Common Stock selling in such registered offering.
"Related Agreements" has the meaning set forth in Section 3.3 hereof.
"Remedies Exception" shall mean (i) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and transfer and other similar
laws of general application, heretofore or hereafter enacted or in effect,
affecting the rights and remedies of creditors generally, and (ii) the exercise
of judicial or administrative discretion in accordance with general equitable
principles, particularly as to the availability of the remedy of specific
performance or other injunctive relief.
"Representative" shall mean George G. Levin, the representative of the
Stockholders (as hereinafter defined).
"Required Net Offering Proceeds" shall mean Ten Million Dollars
($10,000,000) in proceeds to be raised by TMCA Co. after payment of all
associated commissions, costs and expenses incurred by TMCA Co. and after
setting aside the reserves required by Section 9.8.
"Restructuring" means all of the material transactions contemplated by,
or in connection with, the Plan, as described in the Disclosure Statement,
including, but not limited to, (i) the transfer of all of the Operating Assets ,
subject to Associated Liabilities, to OTM and of the Patents and Software
Patents to the Patent Entity, subject to a subsequent transfer of the Software
Patents to OTM if and when the TM Patents Financing is completed, (ii) the
filing of the Certificate of Incorporation with the Secretary of State of
Delaware, (iii) the Merger and associated issuance by OTM of 4,150,000 shares of
Common Stock and 1,250,000 Class A Warrants to the Stockholders (as hereinafter
defined), and (iv) the TM Patents Financing.
"RTMC" shall have the meaning set forth in the first paragraph of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Software Patent License" shall mean the exclusive license of the
Software Patents from the Patent Entity to OTM, which shall contain a provision
as to
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<PAGE> 9
automatic transfer of the Software Patents to OTM at the completion of the
TM Patents Financing.
"Software Patents" shall have the meaning set forth" in Appendix 1 to
the Plan.
"Stockholder" means a stockholder of TMCA Co..
"Subsidiaries" means, with respect to any person, any corporation,
partnership, joint venture or other legal entity of which such person (either
alone or through or together with any Subsidiaries) owns, directly or
indirectly, 50% or more of the outstanding stock or other equity interest, the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
"Tax Return" means any report, return, information statement or other
information required to be supplied to any federal, state, local or foreign
taxing authority in connection with Taxes.
"Taxes" means all taxes, charges, fees, levies, duties or other
assessments, including without limitation all net income, gross income, gross
receipts, franchise, value added, sales, use, property, ad valorem, transfer,
withholding, profits, license, employee, payroll, social security, unemployment,
excise, estimated, severance and any other taxes, duties, withholdings, fees,
assessments or charges of any kind whatsoever, including any interest, penalties
or additional amounts attributable thereto, imposed by any federal, state, local
or foreign taxing authority.
"Termination Date" shall mean the later of March 31, 1996 or 60
calendar days after the Termination of the Appeal Period, provided that the
Termination of the Appeal Period shall have occurred on or before February 28,
1996, unless either such date has been extended by the written agreement of the
parties hereto and the Lender.
"Termination of the Appeal Period" has the meaning set forth in Section
8.2 hereof.
"TM Patents Financing" shall mean the Two Million Dollar ($2,000,000)
payment from OTM to the Patent Entity in consideration for the Patent License,
as further described in the Plan.
"TM Patents Note" shall have the meaning set forth in Appendix 1 to the
Plan.
"TMCA Co." has the meaning set forth in the first paragraph of this
Agreement.
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<PAGE> 10
"TMCA Co. Class A Warrants" means the Class A warrants of TMCA Co.
issued to certain Stockholders prior to the Merger.
"TMCA Co. Loan" shall mean the loan from the Lender to TMCA Co.
pursuant to the Loan Agreement.
"TMCA Co. Stock" shall mean the common stock, $.001 par value, of TMCA
Co. issued to the Stockholders prior to the Merger.
"Unaudited Financials" has the meaning set forth in Section 3.5(a)
hereof.
Article II. PLAN OF REORGANIZATION; CLOSING.
2.1 Effective Time of the Merger. Subject to the conditions of this
Agreement, as of the Closing Date TMCA Co. and OTM shall execute and file the
Certificate of Merger with the Secretary of State of the State of Delaware. The
term "Effective Time of the Merger" as used herein shall mean the later of the
date of the filing of such Certificate of Merger with the Secretary of the State
of Delaware or the date of the Closing under Section 2.3 hereof.
2.2 Merger of TMCA Co. into OTM. At the Effective Time of the Merger
and on the terms and subject to the conditions contained herein, TMCA Co. shall
be merged into OTM, which shall be the surviving corporation.
(a) Conversion of TMCA Co. Common Stock. As of the Effective
Time of the Merger, by virtue of the Merger and without any action on the part
of any holder thereof, each outstanding share of TMCA Co. Stock shall be
exchanged for and converted into one share of Common Stock.
(b) Conversion of TMCA Co. Class A Warrants. As of the
Effective Time of the Merger, by virtue of the Merger and without any action on
the part of any holder thereof, each outstanding TMCA Co. Class A Warrant shall
be exchanged for and converted into a Class A Warrant exercisable for the same
number of shares of Common Stock as the number of shares of TMCA Co. Stock for
which the TMCA Co. Class A Warrant was exercisable.
(c) Conversion of TMCA Co. Loan. As of the Effective Time of
the Merger, by virtue of the Merger and without any action on the part of the
Lender or TMCA Co., the TMCA Co. Loan shall be converted into and exchanged for
3,325,000 shares of Common Stock, Class A Warrants exercisable for 980,000
shares of Common Stock and the Class C Warrant.
(d) Issuance and Delivery of Common Stock and Warrants to the
Stockholders. OTM shall reserve from its authorized Common Stock a sufficient
number of shares to provide for all issuances of Common Stock at the Closing and
upon exercise of the Class A Warrants and the Class C Warrant issued at the
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Closing pursuant to this Agreement. As soon as practicable after the Closing,
OTM shall deliver (i) to each Stockholder, certificates representing the
aggregate number of shares of Common Stock into which such Stockholder's shares
of TMCA Co. Stock have been converted pursuant to Section 2.2(a), (ii) to each
holder of TMCA Co. Class A Warrants, a Class A Warrant exercisable for the
number of shares of Common Stock as determined pursuant to Section 2.2(b), upon
surrender by the Stockholder and the holder of such Warrants to OTM of one or
more certificates for the Stockholder's shares of TMCA Co. Stock and/or TMCA Co.
Class A Warrants, as the case may be, for cancellation and (iii) to the Lender,
upon conversion of the TMCA Loan, a stock certificate for 3,325,000 shares of
Common Stock, a Class A Warrant exercisable for 980,000 shares of Common Stock
and the Class C Warrant exercisable for up to 681,181 shares of Common Stock in
accordance with Section 8.20 hereof.
(e) Structure of Surviving Corporation. From and after the
Effective Time of the Merger until duly amended or changed:
(i) The Certificate of Incorporation of OTM on
and as of the Effective Time of the Merger
shall be the Certificate of Incorporation
of the surviving corporation.
(ii) The By-Laws of OTM on and as of the
Effective Time of the Merger shall be the
By-Laws of the surviving corporation.
(iii) The name of the surviving corporation
shall be Thinking Machines Corporation.
2.3 The Closing. The closing of the transactions contemplated hereby
(the "Closing") will take place as promptly as practicable following the
satisfaction or waiver of the conditions set forth in Articles VIII and IX
hereof at the offices of Hill & Barlow, One International Place, Boston, MA
02110 or such other place as the parties may mutually agree.
Article III. REPRESENTATIONS AND WARRANTIES OF RTMC AND OTM.
As a material inducement to TMCA Co. to enter into and perform this
Agreement and to the Lender to enter into and perform the Loan Agreement, RTMC
hereby represents and warrants (provided, however, that each of the following
representations and warranties made with respect to the Subsidiaries shall be
deemed a misrepresentation only to the extent that the failure of such
representation or warranty to be true and accurate with respect to a Subsidiary
would have a Material Adverse Effect on RTMC (prior to the Effective Date) or
OTM (on or after
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the Effective Date)) on and as of the date hereof and OTM hereby represents on
and as of the date hereof and on and as of the Closing Date that:
3.1 RTMC's and OTM's Organization and Corporate Authority. Each of RTMC
and OTM is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Subject to the jurisdiction of the
Bankruptcy Court, RTMC: (i) has full power and authority to own or lease and use
its properties and assets and to carry on its business as such business is now
conducted and (ii) is duly qualified to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary, except such
jurisdictions in which the failure to qualify would not have a Material Adverse
Effect. On the Closing Date, OTM will: (i) have full power and authority to own
or lease and use its properties and assets and to carry on its business as such
business is now conducted and (ii) be duly qualified to do business and in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
necessary, except such jurisdictions in which the failure to qualify would not
have a Material Adverse Effect. RTMC maintains its principal place of business
in Bedford, Massachusetts. At the Closing Date, OTM will maintain its principal
place of business in Bedford, Massachusetts. OTM will conduct no business prior
to the Effective Date without the consent of TMCA Co. and the Lender, which
consent will not be unreasonably withheld.
3.2 Charter and By-Laws. On the Closing Date, the charter documents of
OTM shall be in the form of the Certificate of Incorporation and By-Laws which
shall contain no anti-takeover provisions and which shall provide that OTM may
redeem the Series A Preferred Stock at any time after the earlier of (i) 18
months from the Effective Date, or (ii) the effective date of a registration
statement for the Initial Primary Offering of OTM (as defined in Section 5(a) of
the Certificate of Incorporation).
3.3 No Violation. Neither the execution and delivery by RTMC or OTM of
this Agreement or any other agreement or instruments required by the provisions
of this Agreement, including, without limitation, the Escrow Agreement
(collectively, the "Related Agreements") to which RTMC or OTM may be a party,
nor consummation of the transactions herein or therein contemplated, nor
compliance with the terms, conditions and provisions hereof or thereof will,
except as set forth on Schedule 3.3 hereto: (i) conflict with or violate the
charter or the by-laws of RTMC or OTM, as the case may be, (ii) subject to
Bankruptcy Court approval, result in a material violation of any Governmental
Rule binding on RTMC or OTM or any of their respective Properties or (iii)
result in a material violation of any agreement or instrument to which RTMC or
OTM, as the case may be, is a party or by which RTMC or OTM is bound or to which
RTMC or OTM is subject, or constitute a default thereunder or result in the
imposition of any Lien upon any of the Properties of RTMC or OTM
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pursuant to the terms of any such agreement or instrument (except as
contemplated by this Agreement).
3.4 Capitalization.
(a) On the Closing Date, after giving effect to the Plan, the
Restructuring and the Merger, the authorized capital stock of OTM will consist
of 20,000,000 shares of Common Stock and 3,000,000 shares of blank check
preferred stock, of which 350,000 shares shall have been designated Series A
Preferred Stock, $10.00 par value, and of which (i) 825,000 shares of Common
Stock and Class A Warrants exercisable for 270,000 shares of Common Stock will
be issued to the Stockholders in exchange for all of the issued and outstanding
TMCA Co. Stock and TMCA Co. Class A Warrants (of which 400,000 shares of Common
Stock shall be issued to Stockholders comprising OTM Management), (ii) 3,250,000
shares of Common Stock and Class A Warrants exercisable for 980,000 shares of
Common Stock will be issued to Lender upon conversion of the TMCA Co. Loan,
(iii) 875,000 shares of Common Stock and Class B Warrants exercisable for
125,000 shares of Common Stock will be issued to Holders of Allowed Claims under
the Plan, (iv) 375,000 shares of Common Stock will be issued to the Patent
Entity pursuant to the Plan, (v) 350,000 shares of Series A Preferred Stock will
be issued to Holders of Allowed Claims under the Plan, (vi) an aggregate of
350,000 shares of Common Stock will be reserved for other employee issuances
and/or option grants after the Closing Date, (vii) an aggregate of up to 19,000
shares of Common Stock will be issued to the employees of OTM (in increments of
100 shares per employee) pursuant to the Plan, (viii) a sufficient number of
shares of Common Stock will be reserved for issuance upon conversion of the
Series A Preferred Stock and (ix) a Class C Warrant exercisable for up to
681,181 shares of Common Stock will be issued to Lender. All shares of Common
Stock to be issued to the Stockholders pursuant to the Merger and issuable upon
exercise of the Class A Warrants will be duly reserved for issuance on and prior
to the Closing Date. When issued to the Stockholders as contemplated by this
Agreement, the 4,150,000 shares of Common Stock, and the 1,250,000 shares of
Common Stock issuable upon exercise of the Class A Warrants and payment therefor
will be validly issued, fully paid and non-assessable.
(b) On the Closing Date, after giving effect to the Plan, the
Restructuring and the Merger, except as set forth in Section 3.4(a) above, OTM
will not have outstanding any capital stock or securities convertible into or
exchangeable for any shares of capital stock and there will be no options,
warrants or other rights, agreements, arrangements or commitments of any
character to which OTM is a party or otherwise obligating OTM to issue or sell,
or entitling any person to acquire from OTM, and OTM will not be a party to any
agreement, arrangement or commitment obligating it to repurchase, redeem or
otherwise acquire, any shares of its capital stock or securities convertible
into or exchangeable for any of its capital stock.
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(c) Upon delivery to the Stockholders and the Lender, as the
case may be, of (i) the certificate(s) representing the Common Stock upon
conversion of the TMCA Co. Stock or conversion of the TMCA Co. Loan, as the case
may be, and (ii) the Class A Warrant certificates upon conversion of the TMCA
Co. Class A Warrants pursuant to the Merger in accordance with the terms of this
Agreement or conversion of the TMCA Co. Loan, as the case may be, OTM will
transfer to each Stockholder and the Lender, as the case may be, good and valid
title to the Common Stock and/or to the Class A Warrants, as the case may be,
being issued to each such Stockholder, and the Lender, as the case may be, free
and clear of any adverse claim or Lien, other than adverse claims or Liens, if
any, created by such Stockholder and the Lender, as the case may be.
3.5 Financial Statements.
(a) RTMC has delivered to TMCA Co. an audited balance sheet of
RTMC as at the close of its fiscal year ended December 31, 1992, together with
related audited statements of income, stockholders' equity and cash flows for
the year then ended, certified by independent public accountants, all of which
financial statements (including the notes thereto) for such one-year period are
called the "Audited Financials" and are attached hereto as Exhibit F.
RTMC has also delivered to TMCA Co. unaudited balance sheets
as of December 31, 1993 and 1994 and October 1, 1995, together with related
statements of income, stockholders' equity and cash flows for the twelve and
six-month periods, respectively, then ended, certified by the principal
financial and accounting officer of RTMC, all of which financial statements
(including the notes thereto) are referred to collectively as the "Unaudited
Financials" and are or will prior to the Closing be attached hereto as Exhibit
G. The Audited Financials and the Unaudited Financials are hereinafter sometimes
collectively referred to as the "Financial Statements."
The Financial Statements, when delivered in accordance with
this Section, will fairly present, in all material respects, the financial
position and results of operations of RTMC on the dates and for the fiscal
periods then ended in accordance with GAAP.
The audit of the 1993 and 1994 Unaudited Financials pursuant
to Section 8.17 hereof will not reveal any Material Adverse Effect from the
financial condition of RTMC reflected in the Unaudited Financials and the report
issued in connection with the audit shall not contain any qualifications, other
than a going concern qualification and a qualification with respect to any
adjustments required as a result of the Confirmed Plan, that are not acceptable
to TMCA Co. and the Lender in the reasonable exercise of its sole discretion.
(b) OTM shall deliver to TMCA Co. and the Lender on or before
the Effective Date a pro forma unaudited balance sheet as of the end of the
month next
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preceding the Effective Date by at least 15 business days, assuming
that all events described in the Plan to have occurred on or before the
Effective Date, including but not limited to the Restructuring, have occurred
(the "Pro Formas").
The Pro Formas, when delivered in accordance with this
Section, will fairly present, in all material respects, the financial position
of OTM on the Effective Date in accordance with GAAP.
(c) Except as described in the Disclosure Statement, RTMC
owes, and on the Closing Date OTM will owe, no claims (including, but not
limited to, any claims as defined in Section 101(5) of the Bankruptcy Code),
liabilities or obligations of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due) that would be required
to be reflected or reserved against on the respective balance sheets of RTMC or
OTM or disclosed in footnotes thereto, all in accordance with GAAP, except for
claims, liabilities or obligations reflected or reserved against in the
Financial Statements or in the Pro Formas, as the case may be, or disclosed in
footnotes thereto.
3.6 No Adverse Change. Except (a) as set forth in Schedule 3.6 or (b)
as set forth in the Disclosure Statement or (c) for such changes contemplated by
or provided for in the Plan, since October 1, 1995 with respect to RTMC and
since its incorporation with respect to OTM, (i) each of RTMC and OTM has
conducted its business, operations and affairs in the ordinary course of
business consistent with past practice; and (ii) there has not been any change,
condition or event that, individually or in the aggregate, has had or will have
a Material Adverse Effect with respect to either RTMC or OTM.
3.7 Subsidiaries. RTMC has no Subsidiaries and at the Closing Date OTM
will have no Subsidiaries except as set forth on Schedule 3.7 hereto, which
lists each Subsidiary, the capital structure of such Subsidiary, and its
jurisdiction and date of incorporation. Neither RTMC nor OTM owns, directly or
indirectly, other than for investment purposes, any of the capital stock of any
other corporation, association, trust or similar entity, any interest in the
equity of any partnership or similar entity, any share in any joint venture, or
any other equity or proprietary interest in any entity or enterprise, however
organized and however such interest may be denominated or evidenced. Each of the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state or country of its jurisdiction.
3.8 Taxes. RTMC has filed all federal, state, local and other Tax
Returns which are required to be filed by it and which were due prior to the
date of this Agreement. Except as set forth in Schedule 3.8 hereto, RTMC has
paid or caused to be paid in full or has made or has caused to be made adequate
provision for on its books and records (in accordance with GAAP) all Taxes shown
to be due on such Tax Returns (in accordance with GAAP), for all Taxes payable
by RTMC. All federal, state, local and other Taxes accruable since the end of
the respective
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periods covered by such returns and up to the date hereof and the Closing Date
have or will have been paid or accrued on the books of RTMC or OTM, as the case
may be.
No federal income Tax Returns of RTMC have been audited by the Internal
Revenue Service, and RTMC has granted no power of attorney to any person to
represent it before the Internal Revenue Service. No federal or state tax
liabilities have been assessed or proposed which remain unpaid other than
assessments for Taxes that in the aggregate would not have a Material Adverse
Effect. RTMC is not aware of any basis upon which any assessment for a material
amount of additional Taxes could be made. No state excise or business and
occupation tax returns of RTMC have been audited, and no state tax liabilities
have been assessed or proposed which remain unpaid.
All current Taxes which RTMC or OTM is required by law to withhold or
collect have been withheld or collected and have been paid over to the proper
Governmental Entities or are properly held by RTMC or OTM, as the case may be,
for such payment, and all withholdings, collections or other payments payable in
connection therewith as of October 1, 1995 are fully reflected or disclosed in
the Balance Sheet as at such date. All such Taxes are and will be so withheld,
collected, paid over or held for payment as of the date of this Agreement and
the Closing. No waivers of statutes of limitations with respect to any Tax
Returns of RTMC nor extensions of time for the assessment of any Tax have been
given which are now in effect.
3.9 Interests of Officers. Except for normal advances for business
expenses incurred in the ordinary course of business, no officer, director, or,
to the best knowledge of RTMC or OTM after Due Inquiry, 10% or greater
stockholder of RTMC or OTM nor any Affiliate of any of the foregoing parties has
any loan or other obligation outstanding to or from RTMC or OTM, as the case may
be, or for which RTMC or OTM, as the case may be, is or may be liable under
guaranty or otherwise, or has any interest (other than a less than 1% interest
in a publicly traded company) in any firm, person or entity with which RTMC has
entered into any contract or lease, or with which RTMC or OTM, as the case may
be, does business and which would influence that person in doing business with
RTMC, other than as disclosed in Schedule 3.9.
3.10 Property. On the Closing Date after giving effect to the Plan and
the Restructuring, OTM will have good and valid and in the case of real
property, marketable title to all material Properties and assets which it
purports to own (real, personal and mixed, tangible and intangible, including
all forms of intellectual property and intellectual property rights but
expressly excluding Excluded Patents and Software Patents), including, without
limitation, all the material Properties and assets reflected on the Balance
Sheet, but expressly excluding Excluded Patents and Software Patents, and all
material Properties and assets purchased by RTMC or by OTM since the date of the
Balance Sheet, except for Properties or assets
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disposed of since such date in the ordinary course of business consistent with
RTMC's past practice. All material Properties and assets of OTM will be free and
clear of all liens, mortgages, claims (including, but not limited to, any claims
as defined in Section 101(5) of the Bankruptcy Code), interests, charges,
security interests or other encumbrances or adverse interests of any nature
whatsoever and other title or interest retention arrangements ("Liens"), except
(a) as reflected on the Financial Statements, (b) statutory Liens of carriers,
warehousemen, mechanics, workmen and materialmen for liabilities and obligations
incurred in the ordinary course of business consistent with past practice that
are not yet delinquent or are being contested in good faith, (c) such defects,
irregularities, encumbrances and other imperfections of title as normally exist
with respect to property similar in character and that, individually or in the
aggregate together with all other such exceptions, do not and would not have or
result in a Material Adverse Effect, and (d) Liens for accrued but unpaid Taxes
for which payment is not yet due.
3.11. Insurance. All current primary, excess and umbrella policies of
insurance owned by, or held by or on behalf of, or providing insurance coverage
to RTMC are in full force and effect, are listed on Schedule 3.11 hereto and
will, unless otherwise stated in Schedule 3.11, be transferred to OTM on and as
of the Effective Date and shall be in full force and effect for the benefit of
OTM on the Closing Date. With respect to all such insurance policies providing
insurance coverage to RTMC, no premiums are in arrears, no notice of
cancellation or termination has been received with respect to any such policy,
other than notices of cancellation or termination routinely sent at the end of a
policy term, and all such insurance policies are valid, outstanding, collectible
and enforceable policies. To the best knowledge of RTMC after Due Inquiry, the
insurance coverage of RTMC is consistent with the coverage maintained by
corporations of similar size and engaged in similar lines of business.
3.12 Intellectual Property. Set forth on Schedule 3.12 is a true and
complete list of all material trademarks, service marks, trademark and service
mark applications, trade names, copyright registrations and licenses presently
used by RTMC or necessary for the conduct of RTMC's business as conducted, as
well as any agreement under which RTMC has access to any confidential
information used by RTMC in its business (the "Intellectual Property Rights").
RTMC owns, or has the right to use under the agreements or upon the terms
described in Schedule 3.12, and on the Closing Date OTM will own, or have such
right to use, all of the Intellectual Property Rights.
3.13 Material Contracts. Set forth on Schedule 3.13(a) is a list of
each note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation of RTMC, that (i) either (a) involves payments or
receipts by RTMC in excess of $50,000 in the aggregate per agreement (except
that service contracts need not be disclosed unless they involve payments to or
from RTMC in excess of $100,000 in the aggregate per agreement), (b) relates to
the borrowing of money by, or any extension of credit to RTMC (other than
ordinary course extensions of credit
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by vendors not exceeding 60 days), (c) is a material license to or from others
of Intellectual Property Rights or (d) is otherwise not in the ordinary course
of business and is material to the business or financial condition of RTMC (a
contract meeting the requirements of (a), (b), (c) or (d) above, a "Material
Contract") and (ii) will be assigned to and assumed by OTM on the Effective
Date. Set forth on Schedule 3.13(b) is a list of each Material Contract, other
than those listed on Schedule 3.13(a), to which OTM will be a party on and as of
the Closing Date. Except as set forth on Schedule 3.13(c), after giving effect
to the Plan and the Restructuring, (i) each such contract of RTMC which is being
assumed pursuant to the Plan will be in full force and effect and will
constitute a legal, valid and binding obligation of RTMC and, to the best
knowledge of RTMC, each other party thereto, and will be enforceable against the
parties thereto in accordance with its terms as modified, if applicable, under
the Plan or pursuant to Bankruptcy Court order, and except to the extent that
such enforceability is limited by the Remedies Exception and (ii) all such
agreements shall have been assumed pursuant to Section 365 of the Bankruptcy
Code prior to the Closing Date. Except as set forth on Schedule 3.13(c), on the
Closing Date each Material Contract to which OTM is a party will be in full
force and effect and will constitute a legal, valid and binding obligation of
OTM and, to the best knowledge of OTM after Due Inquiry, each other party
thereto, and will be enforceable against the parties thereto in accordance with
its terms as modified, if applicable, under the Plan or pursuant to Bankruptcy
Court order, and except to the extent that such enforceability is limited by the
Remedies Exception. Set forth in Schedule 3.13(d) is a list of each Material
Contract not being assigned to and assumed by OTM.
3.14 Litigation. Except as set forth on Schedule 3.14, there are no
actions, suits, proceedings or investigations of any kind pending or, to the
knowledge of RTMC or OTM, threatened before any Governmental Entity against RTMC
or OTM, or its respective businesses or properties, and neither RTMC nor OTM is
the subject of any order or decree that will not be discharged in bankruptcy.
3.15 Finder's Fee. Neither RTMC nor OTM has incurred any obligation of
any kind whatsoever to any party for a finder's fee in connection with the
transactions contemplated by this Agreement.
3.16. Employee Benefit Plans. Schedule 3.16 attached hereto lists all
Benefit Plans maintained by RTMC or with respect to which contributions are made
by RTMC. True and complete copies of all Benefit Plans, including any insurance
contracts under which benefits are provided, as currently in effect have been
provided to TMCA Co. TMCA Co. has also been provided with a true and complete
copy of the summary plan description, if any was required by ERISA to be
prepared and distributed to participants, for each Benefit Plan. Except as set
forth in Schedule 3.16:
(a) RTMC has made all payments to all Benefit Plans as
required by the terms of each such plan. Except as disclosed on Schedule 3.16,
RTMC has
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funded or will fund each Benefit Plan in accordance with its terms through the
Closing, including the payment of applicable premiums on any insurance contract
funding a Benefit Plan for coverage provided through the Closing.
(b) Each Benefit Plan is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code,
including but not limited to the satisfaction of all applicable reporting and
disclosure requirements under ERISA and the Code. RTMC has filed or caused to be
filed with the Internal Revenue Service annual reports on Form 5500 or 5500C/R,
as applicable, for each Benefit Plan for all years and periods for which such
reports were required.
(c) To the best of RTMC's knowledge after Due Inquiry, no
"prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of
the Code, has occurred in respect of any Benefit Plan which could give rise to
any liability or tax under ERISA or the Code on the part of RTMC, and no civil
or criminal action brought pursuant to part 5 of Title I of ERISA is pending or,
to RTMC's knowledge, is threatened in writing or orally against any fiduciary of
any such plan.
(d) The Internal Revenue Service has issued a letter for each
employee pension benefit plan (as defined in Section 3(2) of ERISA) determining
that such plan is a qualified plan under Section 401(a) of the Code and is
exempt from Federal income tax under Section 501(a) of the Code, and there has
been no occurrence since the date of any such determination letter which has
adversely affected such qualification.
(e) Each Benefit Plan that provides medical benefits has been
operated in compliance with all requirements of Sections 601 through 609 of
ERISA and Section 4980B of the Code and regulations thereunder relating to the
continuation of coverage under certain circumstances in which coverage would
otherwise cease.
(f) There are no pending nor, to the knowledge of RTMC, are
there any threatened or anticipated, claims with respect to any of the Benefit
Plans by any employee or beneficiary covered under any such Benefit Plan (other
than routine claims for benefits).
(g) To the best knowledge of RTMC after Due Inquiry, no
condition exists which would justify the attachment of any liens to the assets
of RTMC or, after the Effective Date, OTM as a result of the funding or
administration of any Benefit Plans.
3.17 Disclosure. To the best of RTMC's and OTM's knowledge after Due
Inquiry, neither the representations and warranties made by RTMC or OTM in this
Agreement nor any statements made by them in any of the Exhibits or Schedules
hereto contain any untrue statement of a material fact or omit to state a
material fact
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necessary in order to make any such representation, warranty or statement, in
the light of the circumstances under which they were made, not misleading.
3.18 Authorization.
(a) Subject to the entry of the Confirmation Order by the
Bankruptcy Court, each of RTMC and OTM has full corporate power and authority to
execute and deliver this Agreement and the Related Agreements and to consummate
the transactions contemplated hereby and thereby in accordance with the terms
hereof and thereof and otherwise pursuant to the Restructuring. Except for the
approval of the Bankruptcy Court, no other corporate proceedings on the part of
RTMC or OTM are necessary to approve and authorize the execution and delivery of
this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby in accordance with the terms hereof
and thereof and otherwise pursuant to the Restructuring. Upon the approval by
the Bankruptcy Court, each of this Agreement and the Related Agreements will
constitute a valid and binding agreement of OTM, enforceable against OTM, in
accordance with its terms, subject to the Remedies Exception.
(b) RTMC has or on the Effective Date will have full corporate
power and authority to effect the Restructuring in accordance with the terms
thereof and otherwise pursuant to the Plan and to execute and deliver each
agreement, instrument and document required to be executed by it in connection
therewith and to consummate the transactions contemplated thereby. Pursuant to
Section 303 of the Delaware General Corporation Law, no corporate proceedings on
the part of RTMC will be necessary to approve and authorize the consummation of
the Restructuring or the execution and delivery of the agreements, instruments
and documents contemplated thereby in accordance with their terms. As of their
respective dates of execution and delivery, each agreement required to be
executed by RTMC, subject to approval by the Bankruptcy Court, or OTM in
connection with the Restructuring will constitute a valid and binding agreement
of RTMC or OTM as the case may be, enforceable against RTMC or OTM, as the case
may be, in accordance with its terms, subject to the Remedies Exception.
3.19 Environmental and Safety Laws. To the best of its knowledge after
Due Inquiry (provided, however, that it is expressly agreed for purposes of this
Section 3.19 that Due Inquiry shall not require environmental audits,
assessments or other reviews by outside consultants or professionals), neither
RTMC nor OTM is in violation of any Environmental Laws or any applicable
statute, law or regulation relating to occupational health and safety, and to
the best of its knowledge after Due Inquiry, no material expenditures are or
will be required in order to comply with any such existing statute, law or
regulation.
3.20 Disclosure Statement. The Disclosure Statement and any supplements
thereto taken as a whole will, upon approval of the Bankruptcy Court, comply
with the requirements of Section 1125 of the Bankruptcy Code.
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3.21 Reorganization Case. Neither RTMC nor OTM has taken any action, or
failed to take any action, which action or failure would prevent, materially
impede or result in the revocation of (i) entry of the Confirmation Order (as
provided in Section 1129 of the Bankruptcy Code), (ii) a full and complete
discharge of all material debts of RTMC to the fullest extent possible under
Section 1141(d) of the Bankruptcy Code and (iii) the vesting upon the entry of
the Confirmation Order of the Properties of RTMC in OTM, free and clear of all
Liens in accordance with Section 1141(b) and (c) of the Bankruptcy Code.
3.22 Compliance with Applicable Law. The business of each of RTMC and
OTM is not being conducted in violation of any material Governmental Rule. RTMC
possesses, and on the Closing Date OTM will possess, all domestic and foreign
governmental licenses, permits, authorizations and approvals and has made all
registrations and given all notifications required under federal, state, local
or foreign law to carry on in all respects its business as currently conducted,
except as set forth on Schedule 3.22 hereto and except to the extent that not
having such items would not result in a Material Adverse Effect.
3.23 Approvals. No approval, authorization, order, license or consent
of or registration, qualification or filing with any Governmental Entity other
than the Bankruptcy Court and no approval or consent by any other person or
entity is required in connection with the execution, delivery or performance by
RTMC or OTM of this Agreement and the Related Agreements, other than as
contemplated by Schedule 3.23.
3.24 Transfer of Assets; Assumption of Liabilities. In connection with
the Restructuring, RTMC will transfer to OTM the Operating Assets, subject to
the Associated Liabilities. The list of Operating Assets to be transferred to
OTM and Associated Liabilities to be assumed by OTM attached hereto as Schedule
3.24 is true and complete in all material respects.
3.25 Product Liability. Except as set forth in Schedule 3.25, neither
RTMC nor OTM has any knowledge of any liability arising out of any injury to
persons or property as a result of the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by RTMC or OTM.
3.26 Inventory. The inventory of RTMC consists of raw materials and
supplies, manufactured and purchased parts, goods in process, and finished
goods, and, except as set forth in Schedule 3.26, all of such inventory is
merchantable and none of it is obsolete, damaged, or defective, subject only to
the reserve for inventory writedown set forth in the October 1, 1995 Unaudited
Financials, as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of RTMC.
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3.27 Product Warranty. To the best of RTMC's knowledge after Due
Inquiry, each product manufactured, sold, leased, or delivered by RTMC has been
in conformity with all applicable contractual commitments and all express and
implied warranties, and RTMC has no liability for replacement or repair thereof
or other damages in connection therewith, except as specified in Schedule 3.27.
Schedule 3.27 includes copies of the standard terms and conditions of sale for
RTMC (containing applicable guaranty, warranty, and indemnity provisions) with
respect to Material Contracts.
Article IV. REPRESENTATIONS OF TMCA CO.
As a material inducement to RTMC to enter into and perform this
Agreement, TMCA Co. represents and warrants that:
4.1 Organization of TMCA Co. and Corporate Authority. TMCA Co. is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full power and authority to own or lease and use
its properties and assets, to carry on its business as such business is now
conducted, to execute and deliver this Agreement and to carry out the
transactions contemplated hereby.
4.2 No Violation. Neither the execution and delivery by TMCA Co. of
this Agreement or any of the Related Agreements to which TMCA Co. may be a
party, nor consummation of the transactions herein or therein contemplated, nor
compliance with the terms, conditions and provisions hereof or thereof will
conflict with or violate any provision of law or the Certificate of
Incorporation or By-Laws of TMCA Co., or result in a violation or default in any
material Governmental Rule or of any material agreement or instrument to which
TMCA Co. is a party or by which TMCA Co. is bound or to which TMCA Co. is
subject, or constitute a default thereunder or result in the imposition of any
Lien upon any of TMCA Co.'s assets pursuant to the terms of any such agreement
or instrument.
4.3 Finder's and Placement Fee . TMCA Co. has not incurred any
obligation of any kind whatsoever to any party for a finder's placement,
management, advisory, investment banking or other similar fee in connection with
the transactions contemplated by this Agreement which will not have been paid or
reserved for in full at the Effective Time of the Merger.
4.4 Charter, By-Laws and Resolutions. The copies of the Certificate of
Incorporation of TMCA Co. certified by the Secretary of State of Delaware; of
the By-Laws of TMCA Co. as certified by its Secretary; and of resolutions of
TMCA Co.'s Board of Directors and Stockholders relating to the transactions
contemplated by this Agreement, furnished by TMCA Co. to RTMC, are true, correct
and complete copies thereof.
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4.5 Financial Statements of TMCA Co. TMCA Co. has delivered to RTMC an
unaudited balance sheet of TMCA Co. as at October 31, 1995 attached hereto as
Exhibit H.
The balance sheet fairly presents in all material respects the
financial position of TMCA Co. as at October 31, 1995.
4.6 Litigation. There are no actions, suits, proceedings or
investigations of any kind pending or, to the knowledge of its responsible
officers, threatened against TMCA Co. before any Government Entity.
4.7 Disclosure. To the best of its knowledge after Due Inquiry, the
representations and warranties made by TMCA Co. in this Agreement and any
statements made by it in any of the Exhibits or Schedules hereto do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make such representations, warranties or statements, in
light of the circumstances under which they were made, not misleading.
4.8 TMCA Co.'s Authority. TMCA Co. has full right, power and authority
to execute, deliver and perform this Agreement and the Related Agreements to
which it may be a party, all proper corporate actions authorizing the execution,
delivery and performance hereof and thereof having been taken. This Agreement
has been duly executed and delivered by TMCA Co. and constitutes, and the
Related Agreements to which it may be a party will be duly executed and
delivered and, when executed and delivered, will constitute, valid and legally
binding obligations of TMCA Co., enforceable in accordance with their respective
terms, subject to the Remedies Exception.
4.9 Approvals. No approval, authorization, order, license or consent of
or registration, qualification or filing with any Governmental Entity and no
approval or consent by any other person or entity is required in connection with
the execution, delivery or performance by TMCA Co. of this Agreement and the
Related Agreements, other than as set forth in Schedule 4.9 attached hereto.
4.10 Capitalization of TMCA Co. TMCA Co. has authorized 6,000,000
shares of common stock, $.001 par value, of which 825,000 shares are currently
outstanding and 270,000 shares are reserved for issuance upon exercise of TMCA
Co. Class A Warrants. Of such outstanding shares, 425,000 are owned of record by
the affiliates of the Representative and 400,000 are owned of record by OTM
Management. All of the TMCA Co. Class A Warrants are held of record by the
affiliates of the Representative. On and as of the Closing Date, 825,000 shares
will be issued and outstanding and 270,000 shares will be reserved for issuance
upon exercise of the TMCA Co. Class A Warrants. All outstanding shares of TMCA
Co. Stock will be duly and validly authorized for issuance by all necessary
corporate action of TMCA Co. and, when issued to the Stockholders against
payment therefor, will be fully paid and non-assessable.
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4.11 TMCA Co. Placement. TMCA Co. shall issue the TMCA Co. Stock and
TMCA Co. Class A Warrants in compliance with the Securities Act and all
applicable state securities laws and regulations, except for any noncompliance
which by itself or in addition to all other instances or conditions of
noncompliance, would not (i) have a Material Adverse Effect, (ii) prohibit
either TMCA Co., on the one hand, or RTMC or OTM, on the other hand, from using
Regulation D under the Securities Act for any offerings in connection with the
Merger or (iii) be reasonably likely to give rise to any liability under any
anti-fraud provisions of the Securities Act or the Securities Exchange Act
("Immaterial Noncompliance").
4.12 Compliance with Applicable Law. The operations of TMCA Co. are not
being conducted in violation of any material Governmental Rule.
4.13 Organization of Lender and Corporate Authority. Lender is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full power and authority to own or lease and use
its properties and assets, to carry on its business as such business is now
conducted and to execute and deliver this Agreement and the Related Agreements
and to carry out the transactions contemplated by this Agreement.
4.14 No Violation. Neither the execution or delivery of this Agreement
or any of the Related Agreements to which Lender may be a party, nor
consummation of the transactions herein or therein contemplated, nor compliance
with the terms, conditions and provisions hereof or thereof will conflict with
or violate any provision of law or the Certificate of Incorporation or By-Laws
of Lender, or result in a violation or default in any material Governmental Rule
or of any material agreement or instrument to which Lender is a party or by
which Lender is bound or to which Lender is subject, or constitute a default
thereunder or result in the imposition of any Lien upon any of Lender's assets
pursuant to the terms of any such agreement or instrument.
4.15 Finder's and Placement Fee. Lender has not incurred any obligation
of any kind whatsoever to any party for a finder's placement, management,
advisory, investment banking or other similar fee in connection with the
transactions contemplated by this Agreement which will not have been paid or
reserved for in full at the Effective Time of the Merger.
4.16 Charter, By-Laws and Resolutions. The copies of the Certificate of
Incorporation of Lender certified by the Secretary of State of Delaware; of the
By-Laws of Lender as certified by its Secretary; and of resolutions of Lender's
Board of Directors and Stockholders relating to the transactions contemplated by
this Agreement, furnished by Lender to RTMC, are true, correct and complete
copies thereof.
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4.17 Litigation. There are no actions, suits, proceedings or
investigations of any kind pending or, to the knowledge of its responsible
officers, threatened against Lender before any Government Entity which would be
likely to materially affect Lender's obligations under the Loan Agreement.
4.18 Disclosure. To the best of its knowledge after Due Inquiry, the
representations and warranties made by Lender in this Agreement and any
statements made by it in any of the Exhibits or Schedules hereto do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make such representations, warranties or statements, in
light of the circumstances under which they were made, not misleading.
4.19 Lender's Authority. Lender has full right, power and authority to
execute, deliver and perform this Agreement and the Related Agreements to which
it may be a party, all proper corporate actions authorizing the execution,
delivery and performance hereof and thereof having been taken. This Agreement
has been duly executed and delivered by Lender and constitutes, and the Related
Agreements to which it may be a party will be duly executed and delivered and,
when executed and delivered, will constitute, valid and legally binding
obligations of Lender, enforceable in accordance with their respective terms,
subject to the Remedies Exception.
4.20 Approvals. No approval, authorization, order, license or consent
of or registration, qualification or filing with any Governmental Entity and no
approval or consent by any other person or entity is required in connection with
the execution, delivery or performance by Lender of this Agreement and the
Related Agreements, other than a filing under the Hart-Scott-Rodino Act.
4.21 Compliance with Applicable Law. The operations of Lender are not
being conducted in violation of any material Governmental Rule.
4.22 No Creditors. Lender does not have, and does not in good faith
foresee having, any other creditors in connection herewith or with the Loan
Agreement.
Article V. TAX MATTERS.
The parties agree that from and after the date hereof:
5.1 Tax Returns. The parties hereto shall cooperate with one another to
prepare and file all requisite federal, state and local tax returns disclosing
the consummation of the transactions contemplated hereunder in a consistent
manner and as a tax-free reorganization under the Code.
5.2 Taxes on Merger. Massachusetts and Delaware transfer or excise
taxes payable by reason of the Merger, if any, shall be paid by OTM. Any income
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taxes and any transfer or excise taxes (other than those imposed by
Massachusetts or Delaware) payable by reason of the Merger will be paid by the
party against whom such tax is assessed.
Article VI. PRE-CLOSING COVENANTS.
6.1 Closing Conditions. Each of RTMC and OTM shall use
its best efforts to cause the satisfaction of all conditions
precedent to TMCA Co.'s obligations hereunder set forth in
Article VIII. TMCA Co. shall use its best efforts to cause
the satisfaction of all conditions precedent to RTMC's or
OTM's obligations hereunder set forth in Article IX.
6.2 Conduct Of RTMC's and OTM's Business Prior To The
Closing Date.
Except as contemplated by this Agreement or the Plan or as described in
the Disclosure Statement, (i) RTMC covenants and agrees that, during the period
between the date of this Agreement and through and including the Effective Date
and (ii) OTM covenants and agrees that, during the period between the date of
this Agreement and through and including the Closing Date, unless TMCA Co. and
the Lender shall otherwise agree in writing, which agreement shall not be
unreasonably withheld:
(a) No change shall be made in their respective
certificates of incorporation or by-laws;
(b) No change shall be made in the number of shares of their
authorized or issued capital stock, nor shall either grant or make any option,
warrant, call, commitment, right or agreement of any character relating to its
authorized or issued capital stock;
(c) No dividend shall be declared or paid or other
distribution or payment declared, made or paid in respect of their capital stock
either in cash or property;
(d) No increase shall be made in the rate of compensation
payable or to become payable by OTM or RTMC to any director, officer, employee
or agent, and no bonus shall be paid to such persons; no person shall be elected
an officer and no change shall be made in the office of any officer or the
responsibility of any such officer except as occasioned by the death,
resignation or disablement of any officer; and neither shall enter into or
materially change any collective bargaining agreement, bonus, stock option,
profit-sharing, compensation, pension, welfare, retirement or other similar
arrangement, or employment contract;
(e) They shall conduct their business in the ordinary course,
and in a manner consistent with past practice or otherwise in connection with
the Restructuring, and, subject to the applicable provisions of the Bankruptcy
Code and
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orders of the Bankruptcy Court and the Plan, shall use their reasonable
efforts to preserve substantially intact their business organization, to keep
available the services of their present employees and to preserve their present
relationships with customers, suppliers and other persons with which either has
significant business relations;
(f) Each shall not agree or otherwise commit to take any of
the actions described in the foregoing paragraphs (a) through (e);
(g) RTMC shall consent to OTM's taking the corporate name
"Thinking Machines Corporation" and RTMC shall amend its certificate of
incorporation to change its name to TMC Corporation (or such other name that is
not confusingly similar to Thinking Machines Corporation) effective as of the
Effective Date;
(h) Each shall afford to TMCA Co. and its representatives
reasonable access upon reasonable notice and at reasonable times to its
Properties and records in order that TMCA Co. may have full opportunity to make
such investigation as it shall desire of its affairs for purposes consistent
with this Agreement and shall cooperate, and shall have its employees and agents
cooperate, with TMCA Co. and its representatives. TMCA Co. will cause all
information so obtained which is not in the public domain to be held
confidential except as otherwise required for compliance with federal and state
securities laws, and will cause all documents obtained during such investigation
to be returned promptly to RTMC or OTM, as the case may be, in the event of the
termination of this Agreement. Any such furnishing of such information to TMCA
Co. or any investigation by TMCA Co. shall not affect TMCA Co.'s right to rely
on any representations and warranties made in this Agreement or in connection
herewith or pursuant hereto. The foregoing covenant is made to, and may be
enforced by, the Lender to the same extent as TMCA Co. and compliance therewith
may be waived by TMCA Co. or the Lender only upon the written consent of the
other, which consent shall not be unreasonably withheld;
(i) RTMC shall provide TMCA Co. with an unaudited balance sheet as of
the end of each of any additional quarter or month next preceding the Closing
Date by at least fifteen (15) business days, together with unaudited statements
of income, stockholders' equity and cash flows of RTMC for the post-October 1,
1995 period then ended, certified by the principal financial and accounting
officer of RTMC. If the Closing Date occurs on or after March 1, 1996, then RTMC
shall provide TMCA Co. with audited financial statements for the year ended
December 31, 1995. At all times after such respective deliveries, the definition
of Financial Statements shall be deemed to include all audited or unaudited
financial statements delivered pursuant to this subsection. The foregoing
covenant is made to, and may be enforced by, the Lender to the same extent as
TMCA Co. and compliance therewith may be waived by TMCA Co. or the Lender only
upon the written consent of the other, which consent shall not be unreasonably
withheld; and
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(j) As soon as reasonably practicable after the execution of this
Agreement, RTMC shall provide TMCA Co. with a list of all RTMC Material
Contracts that (i) will not be assumed and assigned pursuant to Section 365 of
the Bankruptcy Code and (ii) require consent to assignment. The foregoing
covenant is made to, and may be enforced by, the Lender to the same extent as
TMCA Co. and compliance therewith may be waived by TMCA Co. or the Lender only
upon the written consent of the other, which consent shall not be unreasonably
withheld.
6.3 Restructuring; Bankruptcy Case. Each of RTMC and OTM shall use
reasonable good faith efforts to effect the transactions contemplated hereby and
the Restructuring. Without limiting the foregoing, (i) RTMC shall comply in all
material respects with the Bankruptcy code and other laws, rules, regulations,
decrees and orders promulgated thereunder and (ii) subject to (i) above, RTMC
shall use its reasonable and good faith efforts to obtain, and shall refrain
from knowingly taking any action that would be likely to prevent, materially
impede or result in the revocation of, (A) a full and complete discharge of all
debt of RTMC (to the fullest extent possible under Section 1141(d) of the
Bankruptcy Code) in accordance with the Plan, (B) the vesting upon the
occurrence of the Effective Date of the property of RTMC in OTM, free and clear
of all Liens in accordance with Sections 1141(b) and (c) of the Bankruptcy Code,
except as specifically set forth in the Plan, and free and clear of all transfer
Taxes in accordance with Section 1146(c) of the Bankruptcy Code and (C) the
issuance of the Common Stock to Holders of Claims in accordance with the
exemption provided by Section 1145 of the Bankruptcy Code.
6.4 Transfer to OTM.
(a) RTMC will provide TMCA Co. with all agreements and
documents (in addition to the Plan) prepared in connection with the following
actions to be taken on and as of the Effective Date: (i) the organization of
OTM, (ii) the transfer of (A) all of the Operating Assets of RTMC to OTM,
subject to Associated Liabilities, all as further specified in all material
respects in Schedule 3.24 hereto, and (B) shares of capital stock of RTMC which
represent 20% of the outstanding RTMC common stock and 20% of the outstanding
RTMC preferred stock on the Effective Date in exchange for all of the then
issued and outstanding capital stock and Class A Warrants of OTM, and (iii) the
distribution of RTMC's equity interest in OTM to the Holders of Allowed Claims
and the Patent Entity pursuant to the Plan. The foregoing covenant is made to,
and may be enforced by, the Lender to the same extent as TMCA Co. and compliance
therewith may be waived by TMCA Co. or the Lender only upon the written consent
of the other, which consent shall not be unreasonably withheld;
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(b) In connection with the Restructuring, OTM shall assume, in
addition to certain operating liabilities associated with the Operating Assets
being transferred to it by RTMC and specified in Schedule 3.24 hereto, the
following liabilities of RTMC: (i) all post-petition administrative expenses
incurred in the ordinary course of business and (ii) any alternative minimum tax
incurred by RTMC for 1995 attributable to (A) the gain, if any, on the transfer
of all Operating Assets to OTM or (B) the taxable income, if any, of RTMC for
1995. RTMC shall reserve sufficient cash, based on reasonable assumptions of
management, to pay all other post-petition administrative expenses, including
but not limited to all professional fees and expenses and all administrative
expenses not incurred in the ordinary course of business, whether disputed or
undisputed. To the extent that there is a residual in this reserve after all
such claims are paid, RTMC shall transfer any such residual to OTM; to the
extent that insufficient funds exist to pay such claims, OTM agrees to pay, or
to transfer sufficient cash to RTMC to pay, such claims on the later of the
Effective Date or seven (7) days after a final order of the Bankruptcy Court to
pay such claims. RTMC shall also reserve an additional $50,000 to fund RTMC
operations after the Effective Date and shall have no obligation to pay any of
such amount to OTM. Schedule 6.4(b) sets forth the known and/or good faith
estimates of the alternative minimum tax liability described in subsection (ii)
above and the post-petition administrative expenses not incurred in the ordinary
course of business. Schedule 6.4(b) shall be updated prior to the Closing Date
and shall, on or before the Closing Date, also include a list of known and/or
good faith estimates of RTMC's post-petition administrative expenses incurred in
the ordinary course of business.
6.5 Notification of Certain Matters.
(a) Each of RTMC and OTM shall give prompt written notice to
TMCA Co., and TMCA Co. shall give prompt written notice to RTMC and OTM, of (i)
the occurrence or non-occurrence of any event the occurrence or non-occurrence
of which would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate (including, but not limited to, any
notice of default or cancellation with respect to a Material Contract) and (ii)
any failure of RTMC, OTM or TMCA Co., as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder;
(b) Each of RTMC and OTM shall give prompt written notice to
TMCA Co. of (i) the occurrence or existence of any Material Adverse Effect, and
any event, occurrence, fact, condition, change or effect that has had or would
reasonably be expected to have or resulted in a Material Adverse Effect or (ii)
of any event, occurrence or state of facts that would cause any Schedule or any
other written disclosure provided to TMCA Co. by RTMC or OTM on or prior to the
date hereto to not be true and correct in any material respect as of the Closing
Date, provided that no such written notice shall affect the rights of TMCA Co.
or the obligations of RTMC or OTM in respect of the representations, warranties
or covenants of RTMC or OTM contained in or made pursuant to this Agreement.
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(c) The delivery of any notice pursuant to this Section 6.5
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
(d) RTMC shall promptly notify TMCA Co. of its receipt of a
written offer to purchase capital stock or assets of RTMC (other than in the
ordinary course of business).
(e) RTMC shall provide TMCA Co. with copies of all filings
that it makes with the Bankruptcy Court.
The foregoing covenants are made to, and may be enforced by, the Lender
to the same extent as TMCA Co. and compliance therewith may be waived by TMCA
Co. or the Lender only upon the written consent of the other, which consent
shall not be unreasonably withheld.
6.6 Board Visitation Rights. A representative of TMCA Co. shall be
entitled to attend all meetings of RTMC's and OTM's respective boards of
directors and to receive all materials provided to RTMC's and OTM's respective
boards of directors during the period between the execution of this Agreement
and the Closing Date; provided, however, that both RTMC and OTM shall be
entitled to hold special meetings of its board of directors solely to discuss
matters pertaining to this Agreement and to alternatives to the Merger, about
which meetings TMCA Co. shall receive no notification and which meetings the
TMCA Co. representative shall not be entitled to attend. The foregoing covenant
is made to, and may be enforced by, the Lender to the same extent as TMCA Co.
and compliance therewith may be waived by TMCA Co. or the Lender only upon the
written consent of the other, which consent shall not be unreasonably withheld.
6.7 Conduct Of TMCA Co.'s Business Prior To The Closing Date.
Except as contemplated by this Agreement, TMCA Co. covenants and agrees
that, during the period between the date of this Agreement and through and
including the Closing Date, unless RTMC and the Lender shall otherwise agree in
writing, which agreement shall not be unreasonably withheld:
(a) No change shall be made in its certificate of
incorporation or by-laws.
(b) No change shall be made in the number of shares of
authorized or issued capital stock or TMCA Co. Class A Warrants of TMCA Co., nor
shall any option, warrant, call, commitment, right or agreement of any character
be granted or made by RTMC relating to its authorized or issued capital stock.
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(c) No dividend shall be declared or paid or other
distribution or payment declared, made or paid in respect of the capital stock
of TMCA Co. either in cash or property.
(d) TMCA Co. shall not borrow any funds, incur any
liabilities, claims or obligations of any nature whatsoever (whether absolute,
accrued, contingent or otherwise and whether due or to become due) or make any
expenditures, individually or any group of related expenditures in the
aggregate, in excess of $10,000 without notifying RTMC as soon thereafter as is
reasonably practicable; and shall promptly furnish to RTMC, with copies to the
Creditors Committee, all copies of contracts and paid bills relating to any such
expenses or liabilities.
(e) TMCA Co. shall not agree or otherwise commit to take any
of the actions described in the foregoing paragraphs (a) through (c).
6.8 [Intentionally Deleted]
6.9 Monthly Certificates as to Liabilities. TMCA Co. shall provide
RTMC, the Lender and OTM with a certificate signed by a duly authorized officer
of TMCA Co. dated as of the 10th day of every month or partial month prior to
the Closing Date (and delivered by the 15th day of every month) certifying as to
all liabilities, claims or obligations of any nature whatsoever of TMCA Co.
(whether absolute, accrued, contingent or otherwise and whether due or to become
due) as of the date of such certificate.
6.10 Security Interest. The Lender hereby grants to OTM and RTMC a
security interest in Lender's contractual rights to recover the Escrow Fund (as
defined in the Escrow Agreement) set forth in the Escrow Agreement to secure the
payment to OTM and RTMC of all or any portion of the Escrow Fund due to them in
accordance with subsection 4(b) of the Escrow Agreement (to the extent that no
contrary notice has been provided by Lender or TMCA Co.) or as determined by a
Final Decision (as defined in the Escrow Agreement) to be due to RTMC and OTM.
Lender shall execute such Uniform Commercial Code Form 1's as are reasonably
requested by OTM and RTMC to perfect their security interest in such rights.
6.11 Registration Rights Agreement. The Lender, OTM, TMCA Co. and the
Creditors Committee shall negotiate a Registration Rights Agreement in form
reasonably acceptable to all parties thereto by January16, 1996, which shall
become Exhibit E to this Agreement.
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Article VII. ESCROW OF REQUIRED NET OFFERING PROCEEDS; NO-SHOP.
7.1 Escrow of Required Net Offering Proceeds.
On the date of this Agreement, Lender, on behalf of TMCA Co.,
shall deliver Ten Million Six Hundred Thousand Dollars ($10,600,000) to and
deposit such funds with the Escrow Agent pursuant to an Escrow Agreement in the
form set forth as Exhibit M to this Agreement. Should the Bankruptcy Court fail
to enter orders approving this Merger Agreement, as amended, and the Disclosure
Statement, in the forms attached to the Escrow Agreement or otherwise in form
and substance satisfactory to the Lender, on or before January 12, 1996, at
Lender's option, the Escrow Fund shall be returned to Lender, and no party shall
have any obligation or liability hereunder, under the Escrow Agreement under the
Loan Agreement or otherwise. At the Closing, first the Required Net Offering
Proceeds shall be paid from the Escrow Fund (as defined in the Escrow Agreement)
to OTM, second, up to $600,000 from the Escrow Fund shall be paid to and on
behalf of TMCA Co. for payment of TMCA Co.'s costs and expenses associated with
the Merger as designated by the Lender and the Representative jointly and third
the balance of the Escrow Fund, if any, shall be paid to the Lender. If the
Closing does not occur, the Escrow Fund shall be disbursed in accordance with
the Escrow Agreement.
7.2 No Shop. Each of RTMC and OTM agrees that it will not offer to
sell, engage in any negotiations with third parties, or entertain any offers
from third parties regarding (i) an investment in either entity or (ii) the
acquisition of all or any portion of the equity securities, business or assets
of either entity, unless TMCA Co. has materially breached any representation,
warranty, covenant or agreement in this Agreement (and Lender or TMCA Co. has
failed to cure such breach within seven (7) calendar days after written notice
thereof has been given to them) or has not met one or more closing conditions
set forth in Article IX by the Termination Date.
7.3 Confirmation of the Plan Each of OTM and RTMC shall (i) actively
cooperate and participate in obtaining (a) the necessary voted acceptances for
confirmation of the Plan and (b) confirmation by the Bankruptcy Court of the
Plan, (ii) take no actions inconsistent with confirmation of the Plan and (iii)
not participate in any discussions or negotiations with any third party with
respect to any transaction that might conflict or compete with confirmation of
the Plan.
Article VIII. CONDITIONS PRECEDENT TO TMCA CO.'S OBLIGATIONS.
TMCA Co.'s obligation to close the Merger under this Agreement is
subject to the fulfillment and satisfaction, prior to or at the Closing, of each
of the following
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conditions, any one or more of which may be waived by TMCA Co. upon the written
consent to Lender:
8.1 Approval of Merger. All actions required by RTMC and OTM to approve
and effectuate the Merger shall have been duly and validly taken.
8.2 Confirmation of the Plan and Entry of the Confirmation Order. The
Plan, in form and substance reasonably satisfactory to TMCA Co. and satisfactory
to the Lender, shall have been confirmed by the Bankruptcy Court and the
Confirmation Order, in form and substance reasonably satisfactory to TMCA Co.
and satisfactory to the Lender, shall have been entered. On the date upon which
all other conditions precedent set forth in this Article VIII have been
satisfied or waived, (x) any motion for rehearing or reconsideration of the
Confirmation Order shall have been denied or withdrawn and (y) no request for
revocation of the Confirmation Order under Section 1144 of the Bankruptcy Code
shall have been made or, if made, shall remain pending. The time allowed for
appeals (including the time to seek review or rehearing) of the Confirmation
Order shall have expired without any appeal having been taken or, if the
Confirmation Order shall have been appealed, either (i) the parties hereto shall
have filed with the Bankruptcy Court a statement that such parties will
consummate the transactions contemplated herein notwithstanding such appeal,
(ii) no stay of the Confirmation Order shall be in effect, (iii) such appeal
shall have been dismissed with prejudice, or (iv) if such a stay has been
granted by the Bankruptcy Court, then (A) the stay shall have been dissolved or
(B) a final order of the district court having jurisdiction to hear such appeal
(or, in the case of a request for review or rehearing, the Bankruptcy Court )
shall have affirmed the Confirmation Order and the time allowed to appeal from
such affirmation or to seek review or rehearing thereof shall have expired and
no further hearing, appeal or petition for certiorari can be taken or granted
(the "Termination of the Appeal Period"). The Confirmation Order shall not have
been modified or amended or have been dissolved, revoked or rescinded, shall be
in full force and effect on the Closing Date and, without the necessity of any
further action or proceedings by RTMC, shall have (x) as of the date of the
Confirmation Order and as of the Closing Date, effected a full and complete
discharge and release of, and thereby extinguished, all debts of RTMC (to the
fullest extent possible under Section 1141(d)(1) of the Bankruptcy Code) except
as specifically set forth in the Plan and (y) vested the property of RTMC in
OTM, free and clear of all Liens, to the extent contemplated by the Plan. Lender
acknowledges and agrees that the Plan attached to the Merger Agreement as
Exhibit N is satisfactory in form and substance to Lender.
8.3 Contents of Confirmed Plan.
The Confirmed Plan shall contain no material modification from the
Plan, except any such modifications approved in writing by TMCA Co. and the
Lender, which approval shall not be unreasonably withheld with respect to any
such modifications except for those modifications which will have or are
reasonably likely
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to have a Material Adverse Effect on OTM or a material adverse effect on an
equity holder's interest in OTM subject to such modifications approved in
writing by TMCA Co. and the Lender, which approval shall not be unreasonably
withheld except as noted above in this Section 8.3.
8.4 Representations and Warranties True at the Closing Date;
Performance of Covenants on or before Closing Date. The representations and
warranties of each of RTMC and OTM contained in this Agreement shall be true in
all material respects at and as of the Closing Date as though newly made at and
as of that time and RTMC or OTM, as the case may be, shall have performed or
complied, in all material respects, with all agreements and covenants contained
in this Agreement and in any certificate or agreement of RTMC or OTM delivered
pursuant hereto or thereto to be performed or complied with by RTMC or OTM at or
before the Closing. Each of RTMC and OTM shall have delivered to TMCA Co. a
certificate in the form of Exhibit I hereto, dated as of the Closing Date and
signed by a duly authorized officer of RTMC or OTM, as the case may be,
certifying as to the truth and accuracy of the representations and warranties
and the performance of the obligations required to be performed by RTMC or OTM.
8.5 Organization Documents.
(a) OTM shall have delivered to TMCA Co.: (i) a copy of the
Certificate of Incorporation of OTM as in effect on the Closing Date, certified
by the Secretary of the State of Delaware, and (ii) a certificate as to the good
standing of, payment of franchise taxes by and charter documents filed by OTM
from the Secretary of State of Delaware, dated as of a recent date.
(b) RTMC shall have delivered to TMCA Co.: (i) a copy of the
certificate of incorporation of RTMC as in effect on the Closing Date, certified
by the Secretary of the State of Delaware, and (ii) a certificate as to the good
standing of, payment of franchise taxes by and charter documents filed by RTMC
from the Secretary of State of Delaware, dated as of a recent date.
8.6 Secretary's Certificate.
(a) OTM shall have delivered to TMCA Co. and the Lender a
certificate of the Secretary of OTM, dated as of the Closing Date, certifying
(A) that attached thereto is a true and complete copy of the By-Laws of OTM as
in effect on the date of such certificate; (B) that there have been no
amendments or other modifications to the Certificate of Incorporation or
By-Laws; and (C) as to the name, incumbency and specimen signature of each
officer of OTM executing this Agreement and each other document to be delivered
by OTM in connection therewith.
(b) RTMC shall have delivered to TMCA Co. and the Lender a
certificate of the Secretary of RTMC, dated as of the Closing Date, certifying
(A) that
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attached thereto is a true and complete copy of the by-laws of RTMC as in effect
on the date of such certificate; (B) that there have been no amendments or other
modifications to the certificate of incorporation or by-laws; and (C) as to the
name, incumbency and specimen signature of each officer of RTMC executing this
Agreement and each other document to be delivered by RTMC in connection
therewith.
8.7 Approvals. Any consent, approval, authorization or order of any
Governmental Entity or other person or entity required for the consummation of
the transactions contemplated by this Agreement shall have been obtained and
shall be in effect on the Closing Date.
8.8 Registration Rights Agreement. The Registration Rights Agreement
shall have been duly executed and delivered by OTM.
8.9 Opinion of Counsel for RTMC. OTM shall have delivered to TMCA Co.
an opinion from Hill & Barlow, counsel for OTM, as to (i) corporate good
standing of each corporation, (ii) due execution, delivery and performance and
(iii) enforceability of this Agreement and the Related Agreements to which
either corporation is a party, in form and substance reasonably satisfactory to
TMCA Co. and the Lender.
8.10 Material Adverse Change. No change, condition or event shall have
occurred that has had, or would be reasonably likely to have, a Material Adverse
Effect with respect to RTMC or OTM.
8.11 Approval of Documentation. The form and substance of all opinions,
certificates, and other documents required under this Agreement or under the
Plan shall be reasonably satisfactory in all respects to TMCA Co. and the Lender
and their respective counsel.
8.12 Hart-Scott-Rodino Filing. The provisions of 15 U.S.C. Section
18a(a) and (b) (the "Hart-Scott-Rodino Act") shall have been complied with to
the satisfaction of TMCA Co. and the Lender or, in TMCA Co.'s and the Lender's
judgment, an exemption from the requirements of such section shall be available
for the transactions contemplated by this Agreement.
8.13 Payment to TM Patents for Patent License and Interest in RTMC. OTM
shall have made the first One Million Dollar ($1,000,000) payment to the Patent
Entity and shall have agreed to pay an additional One Million Dollars
($1,000,000) to the Patent Entity, all upon such terms as are specified in the
Plan. OTM shall have received an equity interest in RTMC representing twenty
percent (20%) of the outstanding RTMC common stock and twenty percent (20%) of
the outstanding RTMC preferred stock as of the Effective Date, upon terms and
conditions set forth in the Plan.
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8.14 Authority of Reorganized Company. All corporate action required to
be taken by or on the part of OTM to authorize the execution, delivery and
performance of this Agreement by OTM and the consummation of the transactions
contemplated hereunder shall have been duly and validly taken.
8.15 Patent License and Software Patent License. OTM and the Patent
Entity shall have entered into each of the Patent License, in substantially the
form attached hereto as Exhibit K, and the Software Patent License, in
substantially the form attached hereto as Exhibit L, on the Effective Date.
8.16 Name Change. RTMC shall have changed its name from Thinking
Machines Corporation to TMC Corporation or such other name that is not
confusingly similar to Thinking Machines Corporation.
8.17 Financial Statements. RTMC and OTM shall have provided to TMCA Co.
and the Lender as soon as practically possible after they are available, but in
no event later than January 15, 1996 an opinion of a certified public accounting
firm that RTMC's financial statements for the years ended December 31, 1993 and
1994 (and, if the Closing Date occurs on or after March 1, 1996, for the year
ended December 31, 1995, also), are maintained and presented in accordance with
GAAP, applied on a consistent basis, and in accordance with Regulation S-X
applicable for certain filings under the Securities Act and the Securities
Exchange Act, which opinion must be sufficient to allow such financial
statements to be filed in any registration statement or other filing required to
be filed with the Securities and Exchange Commission and shall not contain any
qualifications, other than a going concern qualification and a qualification
with respect to any adjustments required as a result of the Confirmed Plan, that
are not acceptable to TMCA Co. and the Lender in the reasonable exercise of its
sole discretion, and (ii) a consent of such accounting firm to use such opinion
on such financial statements in any filing required to be filed with the
Securities and Exchange Commission. If RTMC's 1993 or 1994 certified financial
statements are materially different from the unaudited financial information for
such year, then TMCA Co. shall resolicit the Lender. The determination by the
Lender that it no longer wishes to make the Bridge Loan (as defined in the Loan
Agreement) based on such material differences shall be deemed a failure of a
closing condition by OTM including for purposes of Section 4(b) of the Escrow
Agreement.
8.18 Employment Agreement Amendments. Each of Robert L. Doretti and S.
Grady Putnam shall have entered into an amendment to his employment agreement
with RTMC dated January 15, 1995 and March 13, 1995, respectively, to delete in
its entirety the section therein entitled "Options to Purchase Common Stock"
(Section 15 in Mr. Doretti's contract and Section 13 in Mr. Putnam's contract).
8.19 Certificate as to Information Provided by RTMC. RTMC shall have
executed and delivered a certificate certifying as to the written information it
has provided to Lender in connection with Lender's proposed investment in OTM.
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8.20 Issuance of Class C Common Stock Warrant. OTM shall issue a
warrant to the Lender, the purpose of which shall be to ensure Lender's majority
control of OTM under the circumstances set forth in the warrant (the "Class C
Warrant"). The Class C Warrant (i) shall not be exercisable until such time as
the holders of Series A Preferred Stock have begun to convert their Series A
Preferred Stock into Common Stock in such number that Lender's Percentage
Ownership (as defined below) falls below 50.1% and thereafter shall be
exercisable only to the extent necessary to retain Lender's Percentage Ownership
at 50.1%, (ii) shall be exercisable for a maximum of 681,181 shares of Common
Stock (subject to adjustment for any stock splits, stock dividends or similar
recapitalizations) and (iii) shall terminate on the earliest of (A) any time
that the Lender (or its affiliated entities holding any OTM capital stock) sell
or otherwise transfer for value less than all of their shares of OTM capital
stock or Class A Warrants or (B) the date on which no shares of Series A
Preferred Stock are issued and outstanding or (C) any time that OTM completes an
issuance of equity securities (other than employee stock or option issuances) in
which the Lender has not purchased a sufficient amount of the equity issued in
such offering to maintain its percentage interest in OTM prior to the issuance.
The warrant exercise price at any time shall be the weighted average conversion
price of the Series A Preferred Stock for those shares of Series A Preferred
Stock converted during the period commencing on the last date on which any
portion of the Class C Warrant was exercised (or, if such warrant has not yet
been exercised, commencing with the first conversion of the Series A Preferred
Stock) and terminating on the date of exercise of the Class C Warrant. The Class
C Warrant shall be transferable only to a purchaser who acquires all of the
Common Stock and Class A Warrants owned by the Lender and any of its affiliated
entities.
For purposes of this Section 8.20, Lender's Percentage
Ownership shall be a fraction, the numerator of which is (i) 2,705,000, plus
(ii) 797,260, and the denominator of which is the number of issued and
outstanding shares of Common Stock, on a fully diluted basis assuming the
exercise of all warrants and the conversion of all convertible securities,
except as follows: (i) none of the Class A Warrants issued to the affiliates of
the Representative shall be included in such denominator until such time as they
have been exercised by such affiliates, (ii) none of the shares of Series A
Preferred Stock shall be included in such denominator until they have been
converted into Common Stock and (iii) no shares of Common Stock issued to
employees or directors of or consultants to OTM or options exercisable for such
shares shall be included in such denominator except for the 400,000 shares of
Common Stock issued to OTM Management and the 19,000 shares of Common Stock
issued to employees of OTM in connection with the Plan. All share numbers in the
calculation of Lender's Percentage Ownership shall be subject to adjustment to
reflect any stock splits, stock dividends or similar recapitalizations of OTM.
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Article IX. CONDITIONS PRECEDENT TO RTMC'S AND OTM'S OBLIGATIONS.
RTMC's and OTM's obligations to close under this Agreement are subject
to the fulfillment and satisfaction, prior to or on the Closing Date, of each of
the following conditions, any one or more of which may be waived by RTMC or OTM:
9.1 Opinion of TMCA Co.'s Counsel. TMCA Co. shall have furnished to OTM
an opinion dated as of the Closing Date of Broad and Cassel, counsel to TMCA
Co., as to (i) corporate good standing, (ii) due execution, delivery and
performance and(iii) enforceability of this Agreement and the Related Agreements
to which TMCA Co. is a party, in form and substance reasonably satisfactory to
OTM.
9.2 Representations and Warranties True at the Closing Date;
Performance of Covenants. Except as expressly contemplated by this Agreement,
the representations and warranties of TMCA Co. contained in this Agreement shall
be true in all material respects at and as of the Closing Date as though newly
made at and as of that time and TMCA Co. shall have performed or complied, in
all material respects, with all agreements and covenants contained in this
Agreement and in any certificate or agreement of TMCA Co. delivered pursuant
hereto to be performed or complied with at or before the Closing Date. TMCA Co.
shall have delivered to RTMC a certificate in the form of Exhibit J hereto,
dated as of the Closing Date and signed by a duly authorized officer of TMCA
Co., certifying as to the truth and accuracy of the representations and
warranties and the performance of all of the obligations required to be
performed by TMCA Co. under this Agreement.
9.3 Authority of TMCA Co. All corporate action required to be taken by
or on the part of TMCA Co. to authorize the execution, delivery and performance
of this Agreement by TMCA Co. and the consummation of the transactions
contemplated hereunder shall have been duly and validly taken.
9.4 Approval of Documentation. The form and substance of all opinions,
certificates and other documents hereunder shall be reasonably satisfactory in
all respects to OTM and its counsel.
9.5 Organizational Documents. A copy of the Certificate of
Incorporation in effect on the Closing Date, certified by the Secretary of State
of Delaware, and a certificate as to the good standing of, payment of franchise
taxes by and charter documents filed by TMCA Co. from such Secretary of State,
dated as of a recent date, shall have been delivered to OTM.
9.6 Officer's Certificate. A certificate of the Secretary of TMCA Co.
dated the Closing Date and certifying (A) that attached thereto is a true and
complete copy of the by-laws of TMCA Co. as in effect on the date of such
certificate, (B) that attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors of TMCA Co. and by the
Stockholders ratifying the execution, delivery and performance of this
Agreement, and that such resolutions have not
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been modified, rescinded or amended and are in full force and effect, (C) that
the certificate of incorporation and by-laws of TMCA Co. have not been amended
since the date of the certification thereto furnished pursuant to this section
and Section 9.5 above, and (D) as to the name, incumbency and specimen signature
of each officer of TMCA Co. executing this Agreement and each other document to
be delivered by TMCA Co. from time-to-time in connection therewith.
9.7 Consummation of TMCA Co. Placement and TMCA Co. Financial
Condition. OTM shall have received copies of the unaudited balance sheet of TMCA
Co. immediately prior to the consummation of the Merger, together with a
certificate dated as of the Closing Date from an authorized officer of TMCA Co.
to the effect that: (A) such balance sheet is complete and correct and fairly
presents, in all material respects, the financial condition of the company as at
the Closing Date, all in accordance with GAAP; (B) TMCA Co. has received the
Required Net Offering Proceeds; (C) the list of Stockholders, including each
such Stockholder's TMCA Co. Stock holdings as of the Closing Date and the list
of holders of TMCA Co. Class A Warrants and each such holder's warrant holdings,
attached to such certificate are true, complete and correct; (D) TMCA Co. has no
liabilities, claims or obligations of any nature (whether absolute, accrued,
contingent or otherwise and whether due or to become due) that would be required
to be reflected or reserved against on its Closing Date balance sheet or
disclosed in the footnotes thereto in accordance with GAAP, except for such
claims, liabilities or obligations as are so disclosed, and (E) the total assets
of TMCA Co. in cash or cash equivalents net of liabilities, claims or
obligations of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due) immediately prior to the
consummation of the Merger is at least equal to the Required Net Offering
Proceeds.
9.8 Estoppel Letters and Cash Reserve(s). With respect to all
liabilities in excess of $10,000 reflected either in the closing certificate
specified in Section 9.7 hereof or in one or more monthly certificates specified
in Section 6.12 hereof, TMCA Co. shall provide OTM with copies of either (i)
paid bills or (ii) an estoppel letter quantifying the obligation owed by OTM to
each such third party. TMCA Co. shall have established sufficient cash reserves
to cover the maximum contracted amount of any TMCA Co. obligation not paid as of
the Closing either because such amount is in dispute or because it has not been
finally determined by TMCA Co. and the applicable third party. TMCA Co. shall
have provided OTM a certificate dated as of the Closing Date of an authorized
officer specifying any TMCA Co. obligation covered by cash reserves as of the
Closing Date.
9.9 Registration Rights Agreement. Each of the Stockholders and the
Partnership shall have executed the Registration Rights Agreement.
9.10 Securities Law Certificate. TMCA Co. shall have executed and
delivered a certificate certifying as to the following: (i) it has offered and
sold the bridge loan note to the Lender under a valid exemption from the
Securities Act and
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(ii) TMCA Co. has provided only the written materials described on an attachment
thereto regarding the Merger, RTMC and/or OTM to the Lender.
9.11 Patent License and Software Patent License. OTM and the Patent
Entity shall have entered into the Patent License in substantially the form
attached hereto as Exhibit K and the Software Patent License in substantially
the form attached hereto as Exhibit L on the Effective Date.
9.12 Representations and Warranties True at the Closing Date;
Performance of Covenants. Except as expressly contemplated by this Agreement,
the representations and warranties of Lender contained in this Agreement shall
be true in all material respects at and as of the Closing Date as though newly
made at and as of that time and Lender shall have performed or complied, in all
material respects, with all agreements and covenants contained in this Agreement
and in any certificate or agreement of Lender delivered pursuant hereto to be
performed or complied with at or before the Closing Date. Lender shall have
delivered to RTMC a certificate in the form of Exhibit J hereto, dated as of the
Closing Date and signed by a duly authorized officer of Lender, certifying as to
the truth and accuracy of the representations and warranties and the performance
of all of the obligations required to be performed by Lender under this
Agreement.
9.13 Authority of Lender. All corporate action required to be taken by
or on the part of Lender to authorize the execution, delivery and performance of
this Agreement by Lender and the consummation of the transactions contemplated
hereunder shall have been duly and validly taken.
9.14 Organizational Documents. A copy of the Certificate of
Incorporation in effect on the Closing Date, certified by the Secretary of State
of Delaware, and a certificate as to the good standing of, payment of franchise
taxes by and charter documents filed by Lender from such Secretary of State,
dated as of a recent date, shall have been delivered to OTM.
9.15 Officer's Certificate. A certificate of the Secretary of Lender
dated the Closing Date and certifying (A) that attached thereto is a true and
complete copy of the by-laws of Lender as in effect on the date of such
certificate, (B) that attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors of Lender and by the
Stockholders ratifying the execution, delivery and performance of this
Agreement, and that such resolutions have not been modified, rescinded or
amended and are in full force and effect, (C) that the certificate of
incorporation and by-laws of Lender have not been amended since the date of the
certification thereto furnished pursuant to this section and Section 9.5 above,
and (D) as to the name, incumbency and specimen signature of each officer of
Lender executing this Agreement and
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each other document to be delivered by Lender from time-to-time in connection
therewith.
9.16 Confirmation of TMCA Co. Securities Certificate. Lender shall
provide a certificate to RTMC and OTM confirming the material that it has
received from TMCA Co. in connection with the Merger, OTM or RTMC and any other
facts reasonably requested by OTM in order to establish the validity of the
exemption from the Securities Act being relied upon by TMCA Co. in the bridge
loan financing.
Article X. POST-CLOSING COVENANTS.
10.1 Further Assurances. From time to time after the Closing at the
request of the Representatives or Partnership and without further consideration,
RTMC and OTM shall execute and deliver any further instruments and take such
other action as the Representatives may reasonably require to consummate the
transactions contemplated hereby.
10.2 Use of Proceeds. OTM will use the Net Offering Proceeds acquired
by reason of the Merger for working capital purposes and such other purposes as
are approved by OTM's Board of Directors.
10.3 Employee Incentives. OTM and TMCA Co. agree that OTM shall reserve
350,000 shares of its authorized Common Stock as of the Closing Date for
employee stock issuances.
Article XI. TERMINATION.
11.1 Termination. This Agreement may be terminated, or, in the case of
clause (b) below, will be terminated, and the transactions contemplated hereby
abandoned at any time prior to the Closing Date,
(a) by written agreement of TMCA Co. and the Lender on the one
hand, and of both RTMC and OTM, on the other hand, duly authorized by their
respective Boards of Directors with respect to TMCA Co. and the Lender, and by
the Bankruptcy Court, with respect to RTMC and OTM;
(b) automatically and without any further action on the part
of TMCA Co., on the one hand, or RTMC and OTM, on the other hand, if the Closing
Date shall not have occurred on the later of March 31, 1996 or within 60 days of
the Termination of the Appeal Period, provided that the Termination of the
Appeal Period shall have occurred on or before February 28, 1996, unless either
such date has been extended by written agreement of the parties hereto and the
Lender;
(c) by either TMCA Co. and the Lender on the one hand, or RTMC
and OTM, on the other hand, if there has been a material breach of any
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representation, warranty, covenant or agreement or failure to satisfy any
condition to close contained in this Agreement on the part of the other party
and such breach of a representation, warranty, covenant or agreement or failure
to close has not been promptly cured;
(d) by either TMCA Co. and the Lender on the one hand, or RTMC
and OTM, on the other hand, if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity which would render TMCA Co. and the Lender
or RTMC unable to consummate the Merger, except for any waiting period
provisions; or
11.2 Effect of Termination.
(a) In the event of termination of this Agreement pursuant to
Section 11.1 hereof, this Agreement shall forthwith become void and have no
further effect except for the agreements contained in Sections 12.3 and 12.7
hereof and, except as set forth in Section 11.2(b), there shall be no liability
on the part of any party hereto.
(b) Notwithstanding any other provision of this Agreement
(including Section 11.2(a)), no termination of this Agreement shall release any
party hereto from liability for any breach of any of its representations,
warranties, covenants and agreements set forth in this Agreement.
Article XII. GENERAL.
12.1 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument or certificate delivered pursuant to this Agreement shall be deemed
to be conditions to the Merger and shall not survive the Merger, except for the
agreements contained in Article X, and Sections 12.2, 12.3 and 12.7 of this
Agreement.
12.2 Public Announcements. Except as may be otherwise required by law,
TMCA Co. and RTMC shall consult with each other and the Lender before issuing
any press release or otherwise making any public statements with respect to this
Agreement and shall not issue any such press release or make any such public
statement prior to such consultation.
12.3 Confidentiality. TMCA Co. and the Lender shall cause all
information obtained by it or its representatives pursuant to this Agreement or
in connection with the negotiation hereof to be treated as confidential and
shall not, except as otherwise required for compliance with applicable federal
and state securities laws, use, nor permit others to use, any such information
for any purpose other than the consummation of the transactions contemplated
hereby or, if the Closing is consummated, its participation in the conduct of
the business of OTM following the
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Closing; and, in such event, shall not use or permit others to use any such
information in a manner detrimental to RTMC, except as otherwise required by
applicable federal and state securities laws. In the event the Closing is not
consummated, TMCA Co. and the Lender shall immediately return to RTMC all such
information and documents and materials containing any such information,
including all documents and materials supplied by RTMC or its agents or
representatives.
12.4 Entire Agreement. All Exhibits and Schedules hereto shall be
deemed to be incorporated into and made part of this Agreement. This Agreement,
together with the Exhibits and Schedules hereto, contains the entire agreement
among the parties and there are no agreements, representations, or warranties by
any of the parties hereto which are not set forth herein. This Agreement may not
be amended or revised except by a writing signed by all parties hereto and the
Lender.
12.5 Separate Counterparts. This Agreement may be executed in several
identical counterparts, all of which when taken together shall constitute but
one instrument, and it shall not be necessary in any court of law to introduce
more than one fully executed counterpart in proving this Agreement.
12.6 Consistent Accounting. The parties to this Agreement shall consult
with each other for the purpose of arriving at consistent accounting, tax and
reporting treatment, whether public or private, of the transaction contemplated
hereby.
12.7 Transaction Costs. Except as may be otherwise expressly set forth
herein, each party to this Agreement shall be responsible for his, her or its
own legal, accounting and other expenses, if any, attendant to the negotiation
and drafting of this Agreement and to the transactions contemplated by this
Agreement.
12.8. Notices, etc. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered or sent in
person, by confirmed facsimile, courier service or by certified or registered
mail, postage prepaid, addressed as follows:
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if to TMCA Co. or the Representatives:
TMCA Co. Inc.
c/o George G. Levin
100 Bay Colony Lane
Fort Lauderdale, FL 33308
with a copy to:
Ira C. Hatch, Jr., Esq.
Ira C. Hatch, Jr., P.A.
Suite 300
1600 Southeast 17th Street
Fort Lauderdale, FL 33316
and
James S. Cassel, P.A./William C. Phillippi, P.A.
Broad and Cassel
Miami Center, Suite 3000
201 South Biscayne Blvd.
Miami, FL 33131
if to RTMC or OTM:
Thinking Machines Corporation
Attention: Robert L. Doretti, President
14 Crosby Drive
Bedford, MA 01730
with a copy to:
Charles R. Dougherty, Esq.
Hill & Barlow, a Professional
Corporation
One International Place
Boston, MA 02110
if to the Creditors Committee:
Gerald Wedell
United States Steel and Carnegie Pension Fund
767 Fifth Avenue, 9th Floor
New York, New York 10153
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<PAGE> 45
with a copy to:
James F. Wallack, Esq. and
Lester J. Fagen, Esq.
Goulston & Storrs
400 Atlantic Avenue
Boston, Massachusetts 02110
if to Lender:
Ronald Kramer
Ladenburg Thalmann Capital Corp.
540 Madison Avenue
New York, NY 10022
with a copy to:
Richard Lampen, Esq.
New Valley Corporation
International Place
100 S.E. 2nd Street
Miami, FL 33131
and:
David M. Friedman, Esq.
Kasowitz, Benson, Torres & Friedman LLP
875 Third Avenue
New York, NY 10022
or to such other address of a party of which such party has given notice to the
other parties pursuant to this Section. Any such notice or communication shall
be deemed to have been duly given on the date of receipt if delivered by hand or
overnight courier service or sent by telex, graphic scanning or other
telegraphic communications equipment of the sender, or on the date two business
days after dispatch by certified or registered mail, if mailed, in each case
delivered, sent or mailed (properly addressed) to such party as provided in this
Section or in accordance with the latest unrevoked direction from such party
given in accordance with this Section.
12.9 Severability. The provisions of this Agreement are severable and
the invalidity of any provision shall not affect the validity of any other
provision, provided that the invalidity of such provision does not violate or
materially affect the overall business transaction between the parties hereto.
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12.10 Captions. The captions herein have been inserted solely for
convenience of reference and in no way define, limit or describe the scope or
substance of any provision of this Agreement.
12.11 Gender. All pronouns used herein shall include the masculine,
feminine and neuter gender, as the context requires.
12.12 No Third-Party Beneficiaries. The Parties hereto have entered
into this Agreement for their own benefit and do not intend to benefit any other
person or entity thereby, other than the Creditors Committee and the Lender (it
being understood that the Lender and the Creditors Committee are intended to be
beneficiaries of this Agreement), which shall receive notice of any amendment to
this Agreement and the consent of which shall be required for any material
amendment to this Agreement, which consent shall not be unreasonably withheld.
12.13 Governing Law. The execution, interpretation, and performance of
this Agreement shall be governed by the laws of The Commonwealth of
Massachusetts which apply to contracts executed and performed solely in
Massachusetts.
12.14 Lender's Right to Enforce Remedies. The parties to this Agreement
acknowledge and agree that, in order to induce the Lender to make available the
financing necessary to consummate the transactions contemplated hereby, the
Lender has requested and the parties hereto expressly agree that the Lender may
enforce any and all of the TMCA Co.'s rights or remedies hereunder regardless of
whether TMCA Co. consents thereto or is itself enforcing such rights or
remedies.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a document under seal as of the date first above written.
THINKING MACHINES CORPORATION
By: /s/ Robert L. Doretti
------------------------------------------
Robert L. Doretti, President
OTMC CORPORATION
by: /s/ Robert L. Doretti
------------------------------------------
Robert L. Doretti, President
TMC ACQUISITION CORP.
By: /s/ George Levin
------------------------------------------
Title:
The undersigned hereby:
(1) consents and agrees to this Amended and Restated Merger Agreement; and
(2) from and after the date on which the Required Net Offering Proceeds
have been deposited into the Escrow Fund pursuant to the Escrow
Agreement,
(i) agrees that it will not offer to sell, engage in any
negotiations with third parties, or entertain any offers from third
parties regarding an investment in either OTM or RTMC or the
acquisition of all or any portion of the equity securities, business or
assets of either entity, unless TMCA Co. has materially breached any
representation, warranty, covenant or agreement in the Merger Agreement
(and Lender or TMCA Co. has failed to cure such breach within seven (7)
calendar days after written notice thereof has been given to it) or has
not met one or more closing conditions set forth in Article IX of the
Merger Agreement by the Termination Date; and
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(ii) agrees to (x) actively cooperate and participate in
obtaining the necessary voted acceptances for confirmation of the Plan
and confirmation by the Bankruptcy Court of the Plan, (y) take no
actions inconsistent with confirmation of the Plan and (z) not
participate in any discussions or negotiations with any third party
with respect to any transaction that might conflict or compete with
confirmation of the Plan.
Official Committee of Unsecured Creditors of Thinking Machines Corporation
By: /s/ Gerald W. Wedell Date: January 10, 1996
------------------------------------------ ------------------
Title: Chairman
The above covenants shall terminate upon the termination of the Merger
Agreement.
The undersigned hereby agrees to undertake (i) the representations and
warranties set forth in Sections 4.13 through 4.22 of this Amended and Restated
Merger Agreement, (ii) the covenant set forth in Section 6.11 of this Amended
and Restated Merger Agreement, (iii) the closing conditions set forth in
Sections 9.12 through 9.16 of this Amended and Restated Merger Agreement and
(iv) the grant of security interest set forth in Section 6.10 of this Amended
and Restated Merger Agreement.
Ladenburg Thalmann Capital Corp.
By: /s/ Ronald J. Kramer Date: January 9, 1996
------------------------------------------ ------------------
Title: Chairman
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Exhibits
Exhibit A - Certificate of Merger
Exhibit B - Amended and Restated Certificate of Incorporation
Exhibit C - Amended and Restated By-Laws
Exhibit D1 - Class A Warrant
Exhibit D2 - Class B Warrant
Exhibit E - Registration Rights Agreement
Exhibit F - Audited Financials
Exhibit G - Unaudited Financials
Exhibit H - TMCA Co. Unaudited Financial
Exhibit I - Thinking Machines Closing Certificates
Exhibit J - TMCA Co. Closing Certificate
Exhibit K - Patent License
Exhibit L - Software Patent License
Exhibit M - Escrow Agreement
Exhibit N - Plan
(i)
<PAGE> 50
Schedules
Schedule 3.3 - No Violation
Schedule 3.6 - No Adverse Change
Schedule 3.7 - Subsidiaries
Schedule 3.9 - Interest of Officers
Schedule 3.11 - Insurance
Schedule 3.12 - Intellectual Property
Schedule 3.13(a) - RTMC Material Contracts
Schedule 3.13(b) - OTM Material Contracts
Schedule 3.13(c) - OTM Material Contracts Not In Full Force, etc.
Schedule 3.13(d) - RTMC Material Contracts Not Being Assigned
Schedule 3.14 - Litigation
Schedule 3.16 - Employee Benefit Plans
Schedule 3.22 - Compliance with Applicable Law
Schedule 3.23 - Required Approvals
Schedule 3.24 - List of Assets and Assumed Liabilities
Schedule 3.25 - Product Liability
Schedule 3.26 - Inventory
Schedule 3.27 - Product Warranty
Schedule 4.3 - Finder's and/or Placement Fee
Schedule 4.9 - Required Approvals
Schedule 6.2 - Conduct of RTMC prior to the Closing
Schedule 6.4(b) - Certain Associated Liabilities
(ii)
<PAGE> 1
Exhibit(10)(r)
TMC INVESTMENT PARTNERSHIP
PARTNERSHIP AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I FORMATION OF PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV CAPITAL CONTRIBUTIONS; BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Contributions of Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.3 Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.4 Additional Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V PARTNERSHIP MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1 Rights and Powers of Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.2 Withdrawal from Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.3 Additional Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.4 Certain Warranties and Commitments
of the Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI ADMINISTRATIVE POWERS AND LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.2 Self-Dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Limitation of Partners' Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VII CAPITAL ACCOUNTS; PROFITS AND LOSSES;
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.2 Profits and Losses Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.3 Profits and Losses Prior to
Partnership Interest Cross-Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.4 Distributions Prior To Partnership
Interest Cross-Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.5 Profits and Losses After Partnership
Interest Cross-Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.6 Distributions After Partnership
Interest Cross-Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.7 Conformance with Treasury Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VIII TERM OF PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1 Commencement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Termination 9
ARTICLE IX SPECIAL PURCHASE OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1 LTC Option to Purchase Levin
Partnership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Levin Liquidation Cross-Purchase Option . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.3 Partnership Interest Cross-Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE X APPLICATION OF ASSETS UPON PARTNERSHIP
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE XI DETERMINATION OF FAIR MARKET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.1 Investment Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.3 Books of Account; Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.4 Bank Accounts and Investment of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.5 Accounting Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.6 Federal Income Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.9 Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
12.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
12.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
12.13 Florida Law to Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
(ii)
<PAGE> 4
TMC INVESTMENT PARTNERSHIP
PARTNERSHIP AGREEMENT
THIS PARTNERSHIP AGREEMENT (the "Agreement") is made at Miami, Florida, as
of February 2, 1996, between LADENBURG THALMANN CAPITAL CORP., a Delaware
corporation ("LTC"), and LEVIN-A LIMITED PARTNERSHIP, a Nevada limited
partnership ("Levin") (LTC and Levin are jointly referred to as the "Partners").
ARTICLE I
FORMATION OF PARTNERSHIP
The parties hereby form a general partnership (the "Partnership") pursuant
to the provisions of Sections 620.81002, et seq., Florida Statutes, known as the
Florida Revised Uniform Partnership Act, and this Agreement. The name of the
Partnership shall be "TMC Investment Partnership", and its office shall be
located in Miami, Florida, or such other place as the Partners mutually
determine from time to time.
ARTICLE II
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Act" means the Florida Revised Uniform Partnership Act, Sections 620.81002,
et seq., Florida Statutes.
"Affiliate" means any person or entity which directly or indirectly through
one or more intermediaries controls, is controlled by, or is under common
control with, a Partner.
"Book Value" means with respect to any asset, the asset's adjusted basis for
federal income tax purposes, except as follows:
(a) the initial Book Value of any asset contributed (or deemed contributed)
to the Partnership shall be such asset's gross fair market value at the
time of such contribution. For this purpose, the assets deemed
contributed by LTC at the formation of the Partnership shall have a
Book Value of $10,600,000;
(b) the Book Value of all Partnership assets shall be adjusted to equal
their respective gross fair market values at the times specified in
Treasury Regulations under Code Section 704(b), but the Book Value of
any Partnership asset shall not be adjusted from its adjusted basis for
federal income tax purposes unless the
<PAGE> 5
Partnership so elects with the consent of both Partners; and
(c) if the Book Value of an asset has been determined pursuant to clause
(a) or (b), such Book Value shall thereafter be adjusted in the same
manner as would the asset's adjusted basis for federal income tax
purposes except that depreciation deductions shall be computed as
provided under Section 7.2(d).
"Capital Contributions" means the amount of cash or the fair market value of
other property contributed to the Partnership or which a Partner is required to
contribute to the Partnership.
"Code" means the Internal Revenue Code of 1986, as amended.
"Daily Rate of Preferred Return" is a daily interest rate that, compounded
daily, is equivalent to 25% per annum, compounded quarterly;
"Fiscal Year" of the Partnership, and its taxable year for Federal income
tax purposes, shall be the calendar year.
"LTC Cumulative Preferred Return" means, with respect to any day beginning
on or after January 10, 1996, and prior to the date, if any, that Levin
exercises the Partnership Interest Cross-Purchase, a preferred return determined
by summing, for all days beginning on January 9, 1996, up though and including
such day, the Daily Rate of Preferred Return times the sum of the daily balances
of: (a) the sum of (i) $10,600,000, (ii) all cumulative capital contributions by
LTC in excess of $10,600,000 and (iii) the LTC Cumulative Preferred Return for
the preceding day (so that the LTC Cumulative Preferred Return shall compound on
itself daily); minus (b) all cumulative partnership distributions made to LTC.
However, the LTC Cumulative Preferred Return shall in no event be less than
zero. Moreover, if Levin exercises the Partnership Interest Cross-Purchase, the
LTC Cumulative Preferred Return shall thereafter be zero.
"LTC Unallocated Preferred Return" determined at the end of each fiscal
year, means the cumulative excess, if any, of (a) the LTC Cumulative Preferred
Return at the end of such year over (b) the excess (if any) of (i) allocations
of Profits (if any) made by the Partnership to LTC for all previous fiscal years
under Section 7.3(a)(iv) over (ii) allocations of Loss (if any) made by the
Partnership to LTC for all previous fiscal years under Section 7.3(b)(ii).
"Partnership Interest Cross-Purchase" refers to Levin's option, but not
obligation, to purchase from LTC an interest in the Partnership as described in
Section 9.3 herein.
2
<PAGE> 6
"TMC" refers to Thinking Machines Corporation, formerly known as OTMC
Corporation, a Delaware corporation.
All references to statutory provisions of the Act or Code shall be deemed to
include reference to corresponding provisions of subsequent law.
ARTICLE III
PURPOSE
The Partnership is organized for the purpose of acquiring, owning, holding,
voting, investing in and disposing of securities of TMC and to carry on any
activities necessary, incidental or related to the foregoing purpose (the
"Investment Program"). The Partnership activities, obligations, undertakings and
other business matters shall be limited to the Investment Program, and no
Partner need afford the Partnership or any other Partner the opportunity of
acquiring or investing in any other project or enterprise that would not be
deemed an opportunity of the Partnership. Acquiring, owning, holding, voting,
investing in and disposing of securities of TMC, other than those held by the
Partnership at its inception or received by the Partnership thereafter with
respect to such securities upon any stock split, stock dividend, combination or
similar recapitalization, and to carry on any activities necessary, incidental
or related to such activities shall not be deemed to be to an opportunity of the
Partnership, and either Partner or any Affiliates may acquire, hold, vote,
invest in or dispose of securities of TMC, other than those held by the
Partnership at its inception or so received by the Partnership, and carry on any
activities necessary, incidental or related thereto without the consent of the
other Partner.
ARTICLE IV
CAPITAL CONTRIBUTIONS; BORROWINGS
4.1 Contributions of Partners. The Partners shall contribute to the capital
of the Partnership the property set forth in Exhibit A.
4.2 Withdrawals. Except as provided in this Agreement, no Partner shall be
entitled to withdraw any portion of its capital account until termination of the
Partnership.
4.3 Borrowings. Subject to the conditions and terms of this Agreement, the
Partnership may borrow sums for Partnership purposes from any source, including
any Partner, provided that such borrowing is not prohibited by any applicable
law, regulation or agreement.
3
<PAGE> 7
4.4 Additional Capital Contributions. If the Partners unanimously determine
that the Partnership requires additional capital, the Managing Partner may (with
the consent of all of the other Partners) call for additional capital
contributions by the Partners, to be provided in the proportions of 81.353% by
LTC and 18.647% by Levin.
ARTICLE V
PARTNERSHIP MANAGEMENT
5.1 Rights and Powers of Partners. The Partners shall be general partners
within the meaning of the Act. Subject to the other provisions of this
Agreement, the Partners shall have all the rights, powers, liabilities and
restrictions of partners in a partnership without limited partners.
5.2 Withdrawal from Partnership. Except as provided in this Agreement, no
Partner may withdraw from the Partnership. A Partner who withdraws from the
Partnership in violation of this Agreement shall not be entitled to receive the
value of its interest or any distributions or compensation to which it would
have been entitled through the date of withdrawal. A Partner who withdraws in
violation of this Agreement shall remain liable to creditors and the Partners as
if he were a Partner but shall no longer have the rights and powers of a
Partner. In addition, a Partner who withdraws shall be liable to the Partnership
as provided in the Act and the Partnership shall have any claims or other rights
provided for therein.
5.3 Additional Partners. The names and addresses of all the Partners are set
forth in Exhibit A. Additional Partners may be admitted to the Partnership from
time to time, subject, however, to the following provisions: (1) the admission
of an additional Partner shall be approved in writing by all of the existing
Partners; (2) the additional Partner shall contribute to the capital of the
Partnership such amounts, and upon such terms, as all of the existing Partners
deem proper, taking into account the needs of the Partnership, the net value of
the Partnership's assets, the Partnership's financial condition and the benefits
projected to be realized by the additional Partner; and (3) the additional
Partner shall execute and deliver such documents as are necessary or desirable
to effect such admission and to confirm the agreement of the additional Partner
to be bound by all of the provisions of this Agreement as they may have been
amended.
5.4 Certain Warranties and Commitments of the Partners. The Partners
represent and warrant to, and agree with each other, that:
(i) To the best of their knowledge and belief, there are no pending or
threatened actions, suits, or proceedings before any court, government
instrumentality, agency, body or any arbitration
4
<PAGE> 8
tribunal against either of them that will materially and adversely affect the
Investment Program;
(ii) All properties and funds acquired in the name of the Partnership
or in the course of the Investment Program or otherwise (whether by direct title
or as nominee, agent or other capacity) shall be deemed Partnership property or
otherwise held for the exclusive benefit of the Partnership. Partnership
property so owned or otherwise held shall be used or disposed of solely for
Partnership purposes, and not for the personal benefit of any Partner or
Affiliate; and
(iii) All Partnership funds shall be deposited in Partnership bank
accounts exclusively for the use and benefit of the Partnership and shall not be
used or held for the personal account or benefit of any Partner or Affiliate.
ARTICLE VI
ADMINISTRATIVE POWERS AND LIABILITY
6.1 Powers.
(a) The Managing Partner shall be LTC, which shall manage and control
the conduct of the Partnership's day-to-day and other ministerial affairs. Any
actions or decisions involving matters not ministerial or outside the ordinary
course of the Investment Program shall require the consent of all Partners. The
Managing Partner shall have the authority, on behalf of the Partnership and
without the consent of any other Partner, to do all things appropriate to the
accomplishment of the purposes of the Investment Program, including (but not
limited to): (1) exercising warrants held by the Partnership to purchase shares
of TMC common stock; (2) selling shares of TMC common stock or warrants to
purchase same held by the Partnership; (3) voting TMC securities held by the
Partnership; (4) executing contracts in the ordinary course of business for the
sale of shares of TMC common stock or warrants to purchase same; (5) transacting
the Partnership's business under an assumed name and filing a Partnership
Registration Statement with the Florida Department of State; (6) accepting
service of process on the Partnership; and (7) doing such other acts as may
facilitate the Managing Partner's exercise of its powers.
(b) Subject to the provisions of Section 6.1(a) of this Agreement, any
of the following actions or decisions shall require the prior written
authorization of all Partners:
(i) All decisions that cause a fundamental change in the
Investment Program;
5
<PAGE> 9
(ii) Any decision or action described in this Agreement requiring
the consent, agreement or action of all Partners, including without limitation,
decisions and actions described in Section 6.1(a) above that are not in the
ordinary course of the Partnership's business;
(iii) Payments of Partnership funds to Affiliates or use of
Partnership assets by Affiliates, other than the reimbursement by the
Partnership of reasonable out-of-pocket expenses incurred by Managing Partner or
Affiliates in the ordinary course of Partnership business;
(iv) Federal income tax elections which would affect any of the
Partners; and
(v) Any other decision or action substantially affecting the
Investment Program or the rights and obligations of any Partner.
(c) The Managing Partner shall also act as tax matters partner of the
Partnership, as defined in Code Section 6231(a)(7).
6.2 Self-Dealing. Any Partner and any Affiliate of a Partner may deal with
the Partnership, directly or indirectly, as lender, vendor, purchaser, employee,
agent or otherwise. No contract or other act of the Partnership shall be
voidable or affected in any manner by the fact that a Partner or its Affiliate
is directly or indirectly interested in such contract or other act apart from
its interest as a Partner, nor shall any Partner or its Affiliate be accountable
to the Partnership or the other Partner in respect of any profits directly or
indirectly realized by him by reason of such contract or other act, and such
interested Partner shall be eligible to vote or take any other action as a
Partner in respect of such contract or other act as he would be entitled were he
or its affiliate not interested therein. Notwithstanding the foregoing
provisions of this Section 6.2, any direct or indirect interest of a Partner or
its Affiliate in any contract or other act of the Partnership, other than its
interest as a Partner, shall be disclosed to all other Partners, and the terms
of such contract or other act shall be fair and reasonable to the Partnership.
6.3 Limitation of Partners' Liability. No Partner shall be liable to the
Partnership or to any other Partner for any loss or damage, unless caused by its
own gross negligence or willful misconduct, arising out of the performance or
omission of any act in the good faith belief that it was acting within the scope
of its authority pursuant to this Agreement on behalf of the Partnership or in
furtherance of the Partnership's interests.
6.4 Indemnification. The Partnership shall indemnify each Partner against
any claim, loss, expense or liability incurred by it in connection with any act
or omission to act on behalf of the
6
<PAGE> 10
Partnership, unless caused by its own gross negligence or willful misconduct;
provided, however, that this provision shall not be construed as relieving the
Partners of personal liability to creditors once the Partnership assets have
been exhausted; and provided further, that this indemnity obligation shall be
limited to the value of the Partnership's assets after satisfying claims of
other creditors.
ARTICLE VII
CAPITAL ACCOUNTS; PROFITS AND LOSSES; DISTRIBUTIONS
7.1 Capital Accounts. A capital account shall be maintained for each
Partner, to which contributions and profits shall be credited and against which
distributions and losses shall be charged. Capital accounts shall be maintained
in accordance with the accounting principles of Code Section 704 and the
regulations thereunder. If Levin makes the Partnership Interest Cross-Purchase,
then Levin's Capital Account shall be increased, and LTC's Capital Account shall
be decreased, in such a way that (i) the combined Capital Accounts of LTC and
Levin shall equal their combined Capital Accounts immediately prior to the
Partnership Interest Cross-Purchase; and (ii) the Capital Accounts of Levin and
LTC shall be in the ratio of 81.353% to 18.647% immediately following such
cross-purchase.
7.2 Profits and Losses Defined. The profits and losses ("Profits and
Losses") of the Partnership means the Partnership's taxable income or loss for
each Fiscal Year (or other period) determined in accordance with the accounting
methods followed by the Partnership for federal income tax purposes utilizing
the accrual method of accounting (for this purpose all items of income, gain,
loss or deduction required to be separately stated pursuant to Code Section
703(a)(1) shall be included in taxable income or loss) as determined by the
accountants employed by the Partnership, with the following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits and Losses
pursuant to this Section 7.2 shall be added to such taxable income or loss;
(b) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures under Code
Section 704(b) and not otherwise taken into account in computing Profits and
Losses pursuant to this Section 7.2, shall be subtracted from such taxable
income or loss;
(c) Any gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of such property
rather than its
7
<PAGE> 11
adjusted tax basis, with any difference between Book Value and adjusted tax
basis being accounted for under Code Section 704(c) and Code Section 704(b) and
the regulations thereunder;
(d) Allocations of income, gain, loss and deduction for federal, state,
and local income tax purposes shall be allocated in the same manner as the
corresponding items are allocated between the Partners for book purposes;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing taxable income or loss, there shall
be taken into account Depreciation for such Fiscal Year or other period.
7.3 Profits and Losses Prior to Partnership Interest Cross-Purchase. On or
prior to the date, if any, at which Levin makes the Partnership Interest
Cross-Purchase, Profits and Losses shall be allocated as follows:
(a) The Profits (if any) shall be allocated as follows: (i) first, to
LTC to the extent of the Losses (if any) previously allocated to LTC under
Section 7.3(b)(v); (ii) second, to LTC and Levin, in proportion to and to the
extent of the Losses (if any) previously allocated to LTC and Levin under
Section 7.3(b)(iv); (iii) third, to LTC to the extent of the Losses (if any)
previously allocated to LTC under Section 7.3(b)(iii); (iv) fourth, to LTC to
the extent of the LTC Unallocated Preferred Return; and (v) fifth, any remaining
profits shall be allocated as follows: 81.353% to LTC, and 18.647% to Levin.
(b) The Losses (if any) shall be allocated as follows: (i) first,
81.353% to LTC, and 18.647% to Levin to the extent of the Profits (if any)
previously allocated to LTC and Levin under Section 7.3(a)(v) herein; (ii)
second, to LTC to the extent of the cumulative allocations of Profits previously
made to LTC under Section 7.3(a)(iv); (iii) third, to LTC, to the extent of
$10,600,000; (iv) fourth, to LTC and to Levin, in proportion to any subsequent
capital contributions they made to the Partnership under Section 4.4; and (v)
fifth, to LTC.
7.4 Distributions Prior To Partnership Interest Cross-Purchase. On or prior
to the date, if any, at which Levin makes the Partnership Interest
Cross-Purchase, distributions other than in liquidation shall be made as
follows: All distributions other than in liquidation shall be made in cash and
shall be made to LTC until such time as cumulative Partnership distributions to
LTC equal the LTC Cumulative Preferred Return plus $10,600,000. Then
distributions shall be made in the proportion of 81.353% to LTC and 18.647% to
Levin.
7.5 Profits and Losses After Partnership Interest Cross-Purchase. After the
date, if any, on which Levin makes the
8
<PAGE> 12
Partnership Interest Cross-Purchase, Profits and Losses shall be allocated as
follows: 81.353% to LTC and 18.647% to Levin.
7.6 Distributions After Partnership Interest Cross-Purchase. After the date,
if any, on which Levin makes the Partnership Interest Cross-Purchase,
distributions shall be made as follows: 81.353% to LTC and 18.647% to Levin.
7.6 Conformance with Treasury Regulations. In the event the Partnership
borrows any sums, the allocation of Profits and Losses in connection with such
borrowings shall be made in accordance with Section 704(b) of the Code and the
Treasury Regulations thereunder, in any reasonable manner selected by the
Managing Partner.
ARTICLE VIII
TERM OF PARTNERSHIP
8.1 Commencement. The term of the Partnership shall commence upon the
signing of this Agreement.
8.2 Termination. The term of the Partnership shall end on the first to occur
of the following:
(a) December 31, 2011;
(b) The sale or other disposition of all of the TMC common stock and
warrants (collectively, the "TMC Securities") held by the Partnership and the
distribution to the creditors and Partners of the net proceeds thereof; and
(c) The withdrawal, dissolution or insolvency of a Partner; provided,
however, the Partners agree not to voluntarily dissolve the Partnership prior to
the date that is two years after the date of this Agreement.
ARTICLE IX
SPECIAL PURCHASE OPTIONS
9.1 LTC Option to Purchase Levin Partnership Interest. On any date that is
at least 24 months but not more than 30 months after the date of this Agreement,
Levin has the right, upon 90 calendar days' prior written notice to LTC, to
request that LTC purchase the partnership interest of Levin (the "Call
Trigger"). If Levin exercises the Call Trigger, LTC shall have the option, but
shall not be required, to purchase the partnership interest of Levin. If LTC
chooses to purchase the partnership interest of Levin, LTC shall pay the
purchase price 28% in cash at closing of the purchase and the balance in three
equal annual installments with interest at a variable rate equal to the prime
rate of Citibank, N.A. The purchase price shall be equal to the fair
9
<PAGE> 13
market value of the partnership interest of Levin as of the date on which LTC
elects to purchase it, as determined in accordance with the provisions of
Article XI of this Agreement. LTC shall have a period of ten business days after
its receipt of the exercise notice from Levin in which to exercise such purchase
option by written notice to Levin. If LTC does exercise the purchase option, the
closing shall occur on a mutually agreeable date and at a mutually agreeable
location within 30 calendar days after LTC's exercise of the purchase option. If
LTC does not exercise the purchase option, then the Partnership shall
immediately be liquidated.
9.2 Levin Liquidation Cross-Purchase Option. If the Partnership is
liquidated at a time when (i) the Partnership Interest Cross-Purchase has not
occurred, (ii) the Partnership still beneficially owns some TMC Securities and
(iii) the valuation of the partnership interest of LTC does not result in LTC's
receipt of $10,600,000 plus the LTC Cumulative Preferred Return to the date of
liquidation, then LTC shall give Levin written notice of the liquidation date
with five business days after its occurrence and Levin shall have the option,
but not the obligation, upon written notice to LTC within 10 business days after
Levin's receipt of the liquidation date notice from LTC, to purchase from LTC,
for a cash purchase price equal to the appropriate portion of the exercise price
described in Section 9.3 of this Agreement calculated as of the liquidation
date, all or part of such portion of the TMC Securities held by the Partnership
immediately before the liquidation (the "Liquidation Date TMC Securities") so
that, immediately following the liquidation of the Partnership and the exercise
of this cross-purchase right, Levin's ownership of Liquidation Date TMC
Securities shall equal the corresponding portion of 18.647% of each type of TMC
Securities comprising the Liquidation Date TMC Securities.
9.3 Partnership Interest Cross-Purchase. Levin shall have the option, but
not the obligation, to purchase, for cash, a portion of LTC's capital interest
and a portion of LTC's profits interest in the Partnership. The option may be
exercised at any time on or before the date that is 30 months after the date of
this Agreement on 30 calendar days' prior written notice to LTC. The exercise
price shall equal 18.647% of (x) the sum of (a) $10,600,000 and (b) the LTC
Cumulative Preferred Return up to the date of such Partnership Interest
Cross-Purchase minus (y) the amount of cumulative Partnership distributions to
LTC to such date, but shall never be less than zero. In the event that Levin
exercises such cross purchase, then: (a) Levin's Capital Account shall be
increased, and LTC's Capital Account shall be decreased, in such a way that (i)
the combined Capital Accounts of LTC and Levin shall equal their combined
Capital Accounts immediately prior to the Partnership Interest Cross-Purchase;
and (ii) the Capital Accounts of Levin and LTC shall be in the ratio of 81.353%
to 18.647% immediately following such Partnership Interest Cross-Purchase; (b)
10
<PAGE> 14
the LTC Cumulative Preferred Return shall be decreased to zero; (c) all
non-liquidating and liquidating Partnership distributions shall thereafter be
made in the ratio of 81.353% to LTC and 18.647% to Levin; and (d) all Profits
and Losses shall thereafter be allocated 81.353% to LTC and 18.647% to Levin.
ARTICLE X
APPLICATION OF ASSETS UPON PARTNERSHIP TERMINATION
Upon termination of the Partnership, the Partnership's assets shall be
distributed in accordance with positive Capital Accounts of the Partners. Unless
the Partners unanimously agree otherwise, all Partnership assets shall be valued
at their respective fair market values as of the date of Partnership termination
for purposes of valuing Capital Accounts at the time of the Liquidation. Unless
the Partners unanimously agree otherwise, all assets shall be distributed in
kind. If, upon a distribution, and giving effect to a revaluation to reflect
unrealized gains or losses on distributed Partnership assets, any Partner's
capital account is negative, such Partner shall restore that deficit in its
capital account within ninety (90) days for the benefit of the Partner's
creditors and any other Partner with a positive capital account.
By way of illustration only, suppose hypothetically there have been no
further capital contributions, distributions, or profits or losses of the
Partnership between the date of the formation of the Partnership and the date of
its liquidation, at the choice of Levin, in 1999. Suppose further that Levin
does not make the Partnership Interest Cross-Purchase. Also suppose that, at
that time, the Partnership's sole assets consist of the TMC Securities the
Partnership held at its formation plus the $100 contributed by Levin, and that
the Partnership has no liabilities. Then, at the time of liquidation, the TMC
Securities shall be valued at their fair market value. Any unrealized
appreciation or depreciation on the TMC Securities relative to their $10,600,000
cost to the Partnership shall be allocated based on the rules in Section 7.3.
Thus, under Section 7.3(a)(iv) and (v), any unrealized appreciation on the TMC
Securities shall be allocated to LTC until LTC is allocated an amount of such
appreciation equal to the LTC Unallocated Preferred Return, and any remaining
appreciation shall be allocated 81.353% to LTC and 18.647% to Levin. Any
unrealized depreciation of the value of the TMC Securities below their
$10,600,000 fair market value shall be allocated under Section 7.3(b)(iii)
entirely to LTC.
Under Section 7.1 and Treasury Regulation 1.704-1(b), any net unrealized
appreciation shall be credited to the capital account of LTC (and, if there is
appreciation in excess of the pre-liquidation LTC Unallocated Preferred Return,
to Levin) in the amount in which such unrealized appreciation would be allocated
under Section
11
<PAGE> 15
7.3(a)(iv) and (v); and any net unrealized depreciation shall be debited to the
capital account of LTC. Therefore, if, for example, the fair market value of the
TMC Securities upon liquidation of the Partnership does not exceed $10,600,000
plus the LTC Unallocated Preferred Return immediately preceding the liquidation,
and does exceed $100, then LTC's capital account shall equal its value of the
TMC Securities, and Levin's capital account at the time of liquidation of the
Partnership will remain at $100. In that case, LTC will receive all the TMC
Securities on liquidation of the Partnership, and Levin shall receive the
Partnership's $100 in cash, subject to Levin's liquidation cross-purchase option
described in Section 9.2 of this Agreement.
By way of further illustration, suppose Levin makes the Partnership Interest
Cross-Purchase, and suppose there are no further capital contributions to the
Partnership. In accordance with Sections 7.1, 7.5, 7.6, and 9.3, the Capital
Accounts immediately after such cross-purchase, and all subsequent allocations
of Profits and Losses and non-liquidating distributions will be in the ratio of
81.353% to LTC and 18.647% to Levin. Therefore, under Section 7.1, immediately
prior to the liquidation, the Capital Accounts will likewise be in the ratio of
81.353% to LTC and 18.647% to Levin. Similarly, under Section 7.5 and Treasury
Regulation 1.704-1(b), any unrealized gain or loss will be allocated in the
ratio of 81.353% to LTC and 18.647% to Levin. Therefore, Capital Accounts, for
purposes of determining liquidating distributions, and thus the liquidating
distributions themselves, will be in the ratio of 81.353% to LTC and 18.647% to
Levin.
ARTICLE XI
DETERMINATION OF FAIR MARKET VALUE
For purposes of Sections 9.1 and 9.2 of this Agreement, the valuation of the
respective partnership interests of the Partners shall be on the basis that the
Partnership had sold on the valuation date all of the TMC Securities then held
by it at their respective "fair market values" and that the value of each
Partner's partnership interest shall be deemed to be such Partner's capital
account immediately following such sale. For such purpose, the "fair market
value" of the TMC common stock shall be, if the TMC common stock is then
publicly traded, the average closing bid price if the TMC common stock is then
traded on a national securities exchange, the Nasdaq National Market System or
the Nasdaq Small-Cap Market, or the average of the closing bid and asked prices,
if the TMC common stock is then traded in the over-the-counter market, for the
last 20 trading days upon which the shares of the TMC common stock actually
traded prior to the valuation date. If the TMC common stock is not then publicly
traded, it will be valued by a mutually acceptable, nationally recognized
investment banking firm. The "fair market value" of the TMC warrants held by the
Partnership shall be the difference
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<PAGE> 16
between the value determined for the TMC common stock and the exercise price for
the warrants.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Investment Representation. The Partners represent to each other and to
the Partnership that they are acquiring their respective interests in the
Partnership for their own personal accounts, and without a view to transferring
or distributing their interests.
12.2 Amendments. This Agreement may be amended only by written agreement of
all Partners.
12.3 Books of Account; Reports. The Managing Partner shall keep true and
complete books of account and records of all Partnership transactions. The books
of account and records shall be kept at the principal office of the Partnership.
The Partnership shall maintain at such office: (i) copies of the Partnership's
federal, state and local income tax returns and reports for the six (6) most
recent Fiscal Years; (ii) copies of the Partnership's effective Partnership
Agreement; and (iii) copies of the financial statements of the Partnership for
the six (6) most recent Fiscal Years. Such Partnership records shall be
available to any Partner or its designated representative during ordinary
business hours at the reasonable request and expense of such Partner.
12.4 Bank Accounts and Investment of Funds. All funds of the Partnership
shall be deposited in its name in such checking accounts, savings accounts, time
deposits, or certificates of deposit or shall be invested in such other manner,
as shall be designated in writing by the Managing Partner from time to time.
Withdrawals shall be made upon such signature or signatures only as the Managing
Partner may designate in writing.
12.5 Accounting Decisions. All decisions as to accounting matters, except as
specifically provided to the contrary herein, shall be made by the Managing
Partner in accordance with accounting methods agreed upon by all Partners in
writing. Such decisions shall be acceptable to the accountants retained by the
Partnership, and the Partners may rely upon the advice of the accountants as to
whether such decisions are in accordance with applicable law.
12.6 Federal Income Tax Elections. The Partnership shall, to the extent
permitted by applicable law and regulations and upon obtaining any necessary
approval of the Commissioner of Internal Revenue, elect to use such methods of
depreciation, and make all other Federal income tax elections in such manner, as
the Partners determine in writing to be most favorable to the Partners. The
13
<PAGE> 17
Partners may rely upon the advice of the accountants retained by the Partnership
as to the availability and effect of all such elections.
12.7 Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and may be modified only as provided herein. No
representations or oral or implied agreements have been made by any party hereto
or its agent, and no party to this Agreement relies upon any representation or
agreement not set forth in it.
12.8 Notices. Any notice, writing, or other matter, and any distribution, to
be delivered hereunder shall be deemed delivered when deposited in the United
States mail with postage prepaid and addressed to the Partnership at the
Partnership's principal offices, or to a Partner at its address as set forth in
Exhibit A; provided, that a Partner may change its address by written notice to
the Partnership.
12.9 Benefits. This Agreement shall inure to the benefit of and shall bind
the Partners, their successors and permitted assigns. None of the provisions of
this Agreement shall be construed as for the benefit of or as enforceable by any
creditor of the Partnership or the Partners or any other person not a party to
this Agreement.
12.10 Severability. The invalidity or unenforceability of any provision of
this Agreement in a particular respect shall not affect the validity and
enforceability of any other provision of this Agreement or of the same provision
in any other respect.
12.11 Captions. All captions are for convenience only, do not form a
substantive part of this Agreement and shall not restrict or enlarge any
substantive provisions of this Agreement.
12.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one instrument. The Partners shall have custody of counterparts
executed in the aggregate by all Partners.
12.13 Florida Law to Control. The validity and interpretation of, and the
sufficiency of performance under, this Agreement shall be governed by Florida
law.
14
<PAGE> 18
The parties have executed this Agreement as of the date first above written.
LTC:
LADENBURG THALMANN
CAPITAL CORP.
By: /s/ Ronald J. Kramer
---------------------------------------
LEVIN:
LEVIN-A LIMITED PARTNERSHIP
By: Levin A-Management Corp.
By: /s/ Gayla Sue Levin
----------------------------------
Gayla Sue Levin, President
15
<PAGE> 19
EXHIBIT A
<TABLE>
<CAPTION>
TOTAL
CAPITAL
NAME AND ADDRESS CONTRIBUTION
- ---------------- ------------
PARTNER
<S> <C>
Ladenburg Thalmann Capital Corp. 3,325,000 shares of TMC common stock and warrants
540 Madison Avenue to purchase 980,000 shares of such stock with an
New York, New York 10022 aggregate cost basis of $10,6000,000
Attention: Ronald Kramer
Levin-A Limited Partnership $100
100 Bay Colony Lane
Fort Lauderdale, Florida 33308
Attention: Gayla Sue Levin
</TABLE>
A-1
<PAGE> 1
Exhibit 10(y)
RELEASE AND TERMINATION AGREEMENT
RELEASE AND TERMINATION AGREEMENT (this "Agreement") entered into as of
September 30, 1995, by and among First Financial Management Corporation, a
Georgia corporation ("FFMC"), Western Union Financial Services, Inc., a Delaware
corporation ("FSI"), New Valley Corporation, a New York corporation ("New
Valley") and Western Union Data Services Company, Inc., a Delaware corporation
("DSC").
RECITALS:
A. FFMC and New Valley entered into a Purchase Agreement dated as of
October 20, 1994, as amended by Amendment No. 1 thereto dated as of November 14,
1994 (as so amended, the "1994 Purchase Agreement") with respect to the
acquisition by FFMC from New Valley of all of the issued and outstanding shares
of common stock of FSI, and all other assets of New Valley and its affiliates
relating to the business of providing domestic and international money transfer
services, bill payment services, telephone cards, money orders and bank card
services.
B. By order dated November 1, 1994, the United States Bankruptcy Court
for the District of New Jersey (the "Bankruptcy Court"), in the case entitled
"In re New Valley Corporation, Debtor", Case No. 91-27704 NW (the "Bankruptcy
Proceedings"), approved the 1994 Purchase Agreement.
C. Pursuant to the terms and conditions of the 1994 Purchase Agreement,
at the closing of the transactions thereunder, FFMC, as purchaser, deposited
$45,000,000, representing a portion of the purchase price under the Purchase
Agreement, with NationsBank of Georgia, National Association, as Escrow Agent
(the "Escrow Agent"), pursuant to the terms and conditions of the Escrow
Agreement dated as of November 15, 1995 by and among FFMC, New Valley and the
Escrow Agent (the "Escrow Agreement").
D. In connection with the procedures for adjusting the Purchase Price
(as defined in the 1994 Purchase Agreement) under Section 2.1(b) of the 1994
Purchase Agreement, FFMC disputed the accuracy of the Pro Forma Balance Sheet
(as defined in the 1994 Purchase Agreement).
E. FFMC and New Valley have agreed to settle such dispute and
conclusively effect all adjustments to the Purchase Price through the transfer
of certain Escrow Funds (as defined in the Escrow Agreement) to FFMC provided in
Section 1.02 hereof.
<PAGE> 2
2
F. Pursuant to the Procedures Order (as defined in the 1994 Purchase
Agreement) issued by the Bankruptcy Court, New Valley is required to reimburse
FFMC for certain expenses incurred by FFMC in connection with the public auction
and sale of the capital stock and related assets of FSI and its business, in an
amount not to exceed $3 million.
G. FFMC and New Valley desire to settle the total amount of expenses
owed by New Valley to FFMC in connection with the Procedures Order, the 1994
Purchase Agreement or otherwise in connection with the Bankruptcy Proceedings
for the amount of $3 million (collectively, the "Bankruptcy Expenses") through
the transfer of certain Escrow Funds to FFMC as provided in Section 1.02 hereof.
H. In connection with the transactions contemplated by the 1994
Purchase Agreement, FFMC, New Valley, and/or certain of their respective
affiliates have entered into: (A)(i) the Services Agreement dated as of November
15, 1994 among FSI, DSC and New Valley (the "Services Agreement"); (ii) the
Trademark License Agreement dated as of November 15, 1994 among FFMC and FSI, as
licensors, and DSC and New Valley, as licensees (the "Trademark Agreement");
(iii) the Sales and Marketing Services Agreement dated as of November 15, 1994
among New Valley, DSC and FSI (the "Marketing Agreement"); (iv) the Service Mark
License Agreement dated as of November 15, 1994 among New Valley, DSC and FSI
(the "Service Mark Agreement"); and (v) the Sublease Agreement (attached as
Exhibit A to the Services Agreement) dated as of dated as of November 4, 1994
between FSI and New Valley (the "Sublease" and together with the Services
Agreement, the Trademark Agreement, the Marketing Agreement and the Service Mark
Agreement, the "Ancillary Agreements"), each of which agreements the parties
wish to terminate as provided in Section 1.03 hereof; and (B) the Consulting
Services Agreement dated as of November 15, 1994 between FSI and New Valley (the
"Consulting Agreement") and the Pension and Retiree Benefits Administration
Services Agreement dated as of November 15, 1994 between FSI and New Valley (the
"Pension Agreement"), which agreements shall remain in full force and effect
pursuant to the terms thereof.
I. Pursuant to the Trademark Agreement, New Valley granted to FFMC the
right to purchase, and FFMC granted to New Valley the right to cause FFMC to
purchase, all of the capital stock of DSC (the "DSC Shares") during the period
January 1, 1996 through March 31, 1996 (the "Option Period") on such other terms
and conditions specified therein (the "Option").
J. FFMC and New Valley desire to revise certain terms and conditions of
the Option, and pursuant to the Asset Purchase Agreement dated as of the date
hereof among FFMC, New Valley and DSC (the "Asset Purchase Agreement"), New
Valley and DSC desire
<PAGE> 3
3
to sell, and FFMC desires to purchase, the Assets (as defined in the Asset
Purchase Agreement), and New Valley and DSC desire to transfer, and FFMC desires
to assume, the Assumed Liabilities (as defined in the Asset Purchase Agreement),
prior to the commencement of the Option Period on the terms and conditions
specified in the Asset Purchase Agreement.
K. In connection with the consummation of the transactions under the
Asset Purchase Agreement, FFMC and New Valley desire, pursuant to this
Agreement, to (i) effect certain purchase price adjustments under the 1994
Purchase Agreement; (ii) effect the payment in full of all Bankruptcy Expenses
payable to FFMC; (iii) cause the release of certain Escrow Funds pursuant to the
Escrow Agreement to New Valley and FFMC in settlement of such adjustments; and
(iv) effect the termination of the Ancillary Agreements and cancellation and
waiver of certain Payments (as defined below) thereunder except to the extent
otherwise provided herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements of the parties herein and in the Asset Purchase Agreement, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
OPERATIVE PROVISIONS
1.01 Effective Time of Agreement. This Agreement shall become effective
(the "Effective Time") upon (i) consummation of the transactions under the Asset
Purchase Agreement and (ii) the payment of certain Escrow Funds by the Escrow
Agent to FFMC and New Valley as specified in Section 1.02 hereof.
1.02 Settlement of Purchase Price Adjustments and Bankruptcy Expenses;
Release of Certain Escrow Funds. In connection with the final settlement of any
and all adjustments to the Purchase Price under the 1994 Purchase Agreement and
the payment in full of the Bankruptcy Expenses to FFMC, (a) FFMC and New Valley
have, contemporaneously herewith, directed the Escrow Agent, by joint notice in
the form of Exhibit A hereto, to release certain Escrow Funds at the Effective
Time, as follows: (i) $6 million to New Valley; (ii) $13.5 million to FFMC
(which amount includes the Bankruptcy Expenses); and (iii) $500,000 to FSI, on
behalf of FFMC; and (b) FFMC and New Valley agree that payment to each of them
as provided in clauses (a) above shall constitute payment and settlement in full
of (x) any and all claims with respect to adjustments to the Purchase Price and
any
<PAGE> 4
4
and all Bankruptcy Expenses, whether of principal or interest, now or in the
future and (y) any and all claims pursuant to Section 2.7(a) of the Escrow
Agreement. Upon payment as specified in clause (a) above, (i) the Pro Forma
Balance Sheet previously delivered by New Valley to FFMC, as modified by the
above payments in settlement of all disputes regarding amounts recorded in such
Pro Forma Balance Sheet, shall be deemed to be the Audited Pro Forma Balance
Sheet solely for purposes of Section 2.1(b)(3) of the 1994 Purchase Agreement
and (ii) neither FFMC nor New Valley shall have any further rights or
obligations whatsoever under Section 2.7(a) of the Escrow Agreement.
1.03 Termination of Ancillary Agreements. At the Effective Time:
(a) Except as otherwise specifically provided in this Section 1.03 and
in the Asset Purchase Agreement, each Ancillary Agreement shall be
terminated, and no further services shall be provided, no payments shall be
payable (whether fixed or contingent, payable now or in the future,
including without limitation, quarterly or other periodic fees, licensing
fees, royalties, agent network maintenance fees, rental payments, payments
in respect of taxes, service charges, expenses and costs and any payment
otherwise payable in connection with any termination or expiration of such
agreement (collectively, "Payments")), and no other performance shall be
rendered, thereunder; provided, however, that, without limiting the
generality of the foregoing, the parties agree that (i) each of the
remaining $1 million royalty and agent network fees, pursuant to Section 5
of the Trademark Agreement and (ii) each of the remaining $900,000
nonrefundable quarterly fees, pursuant to Section 7 of the Services
Agreement, shall in each case be cancelled, and are hereby waived by
Purchaser.
(b) Notwithstanding any provision hereof, under the Services Agreement,
FSI shall, and FFMC shall cause FSI to, provide all services to New Valley
of the type specified in Section 6(A)(3) thereof, that are not also provided
by FSI pursuant to the Pension Agreement, until December 31, 1995 (the
"Service Termination Date"), it being understood that no Payments under the
Services Agreement shall be payable at any time after the Effective Time. On
the Service Termination Date, the Services Agreement shall be terminated,
and no further services shall be provided, no Payments shall be payable, and
no performance shall be rendered, thereunder.
1.04 Payments In Respect of the Ancillary Agreements. FFMC and New
Valley agree that, as of the Effective Time, and after giving effect to the
transactions specified in Section
<PAGE> 5
1.02, 1.03(a) and Article II of the Asset Purchase Agreement, no amounts are due
and payable to FFMC or FSI (or any of their affiliates) under any of the
Ancillary Agreements (except as otherwise provided in Section 1.03(d)).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.01 Representations and Warranties. Each of New Valley and DSC jointly
and severally represents to FFMC and FSI, and each of FFMC and FSI jointly and
severally represents to New Valley and DSC, that:
(i) it is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation; (ii) it has
full power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby; (iii) the execution,
delivery and performance of this Agreement by such party have been duly and
validly authorized, no other corporate action on the part of such party or
its shareholders being necessary; (iv) the execution, delivery and
performance of this Agreement do not and will not conflict with or result in
a violation or breach of any of the terms, conditions or provisions of the
certificate of incorporation or by-laws (or other comparable corporate
charter documents) of such party; (v) this Agreement has been duly and
validly executed and delivered by such party and constitutes a legal, valid
and binding obligation of such party enforceable against such party in
accordance with its terms, except to the extent that (x) such enforcement
may be subject to bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
and (y) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought; and (vi)
the execution, delivery and performance by such party of this Agreement do
not and will not (x) conflict with or result in a violation or breach of any
law applicable to such party or (y) conflict with or result in a breach or
default under any material contract to which such party is a party or by
which it is bound.
<PAGE> 6
6
ARTICLE III
MISCELLANEOUS PROVISIONS
3.01 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally (including by
courier), 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 if sent by facsimile transmission, when transmission is
confirmed, or, if mailed, when received, as follows:
(i) if to FFMC, to:
First Financial Management Corporation
5600 New Northside Drive
Atlanta, Georgia 30329
Attention: John C. Walters, Esq.
Telephone: (770) 857-0001
Telecopier: (770) 857-0403
(ii) if to New Valley, to:
New Valley Corporation
100 S.E. Second Street
32nd Floor
Miami, Florida 33131
Attention: Marc N. Bell, Esq.
Telephone: (305) 579-8000
Telecopier: (305) 579-8016
Any party may, by notice given in accordance with this Section 3.01 to the other
party, designate another address or person for receipt of notices hereunder.
3.02. Entire Agreement. This Agreement, together with the Asset
Purchase Agreement (including all schedules and exhibits thereto), constitutes
the entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior discussions, agreements and
undertakings, written or oral, of any and every nature with respect thereto.
3.03 Governing Law. This Agreement shall be governed in all respects,
including validity, construction, interpretation and effect, by the laws of the
State of New York (without regard to principles of conflicts of law).
3.04 Binding Effect; No Assignment; No Third Party Beneficiary. This
Agreement shall be binding upon and inure to
<PAGE> 7
7
the benefit of the parties and their respective successors and permitted
assigns, and is not assignable without the prior written consent of each of the
parties hereto. This Agreement does not create any rights, claims or benefits
inuring to any person that is not a party hereto or create or establish any
third party beneficiary hereto.
3.05 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts which together shall constitute one and the same
instrument.
<PAGE> 8
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NEW VALLEY CORPORATION
By /s/ Marc N. Bell
--------------------------------
Name: Marc N. Bell
Title: Counsel and Secretary
WESTERN UNION DATA SERVICES
COMPANY, INC.
By /s/ Richard W. Gooding
--------------------------------
Name: Richard W. Gooding
Title: President
FIRST FINANCIAL MANAGEMENT
CORPORATION
By /s/ John C. Walters
--------------------------------
Name: John C. Walters
Title: Executive Vice President
WESTERN UNION FINANCIAL
SERVICES, INC.
By /s/ John C. Walters
--------------------------------
Name: John C. Walters
Title: Executive Vice President
<PAGE> 1
EXHIBIT 11
NEW VALLEY CORPORATION
EARNINGS (LOSS) PER SHARE COMPUTATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Primary:
Income (loss) before discontinued operations
and extraordinary item
Preferred dividends (undeclared) (a) $ 1,374 $ (15,265) $(10,965)
Excess of carrying value of redeemable (72,303) (80,037) (68,706)
preferred shares over cost of shares
purchased 40,342 -- --
------- --------- ------
Loss before discontinued operations and
extraordinary item applicable to primary
earnings per Common Share (30,587) (95,302) (79,671)
Discontinued operations 16,873 1,135,706 38,368
Extraordinary item -- (110,500) 8,417
------- --------- ------
Net loss applicable to primary earnings
per Common Shares $(13,714) $ 929,904 $(32,886)
======= ========= =======
Fully diluted:
Loss before discontinued operations and
extraordinary item applicable to primary
earnings per Common Share $(30,587) $ (95,302) $(79,671)
Add: Dividends on convertible preferred
shares (undeclared) 18,482 16,402 14,558
Add: Interest at 5.25% convertible debenture -- -- --
------- --------- -------
Loss before discontinued operations and
extraordinary item applicable to fully
diluted earnings per Common Share (12,105) (78,900) (65,113)
Discontinued operations 16,873 1,135,706 38,368
Extraordinary item -- (110,550) 8,417
------- --------- -------
Net income (loss) applicable to fully diluted
earnings per Common Share $ 4,768 $ 946,306 $(18,328)
======= ========= =======
Weighted average number of shares:
Primary: (b)
Weighted average number of Common
Shares outstanding 191,086 188,298 187,723
======= ========= =======
Weighted average number of common and
equivalent shares for primary computation 191,086 188,298 187,723
======= ========= =======
Fully diluted:
Weighted average number of Common
Shares outstanding 191,086 188,298 187,723
Assumed conversion of preferred shares
and convertible debentures:
5.25% Debentures -- -- 420
Class B Preferred Shares 23,260 23,260 23,624
------- --------- -------
Weighted average number of common
and common equivalent shares for
fully diluted computation 214,346 211,558 211,767
======= ========= =======
</TABLE>
<PAGE> 2
EXHIBIT 11-(CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Earnings (loss) per common and common
equivalent share
Primary:
Loss before discontinued operations
and extraordinary item $ (.16) $ (.50) $ (.42)
Discontinued operations .09 6.03 .20
Extraordinary item -- (.59) .04
---- --------- -------
Net income (loss) $ (.07) $ 4.94 $ (.18)
====== ========= =======
Fully diluted: (c)
Loss before discontinued operations
and extraordinary item $ (.06) $ (.37) $ (.31)
Discontinued operations .08 5.36 .18
Extraordinary item -- (.52) .04
---- --------- -------
Net income (loss) $ .02 $ 4.47 $ (.09)
====== ========= =======
</TABLE>
- ----------------
(a) Represents undeclared preferred dividends, including accretion of original
issue discount on Class A Senior Preferred Shares.
(b) Common share equivalents for 1994 and 1993 are excluded because their
inclusion would have an anti-dilutive effect on primary earnings per share
(i.e., the loss per share would be decreased). There were no common share
equivalents for 1995.
(c) This calculation for 1995, 1994 and 1993 is submitted in accordance with
Regulation S-K Item 601(b)(11) even though it produces an anti-dilutive
result in 1995 and 1993.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following is a list of the active subsidiaries of the Company, as of
March 29, 1996, indicating the jurisdiction of incorporation of each, and the
names under which such subsidiaries conduct business. In the case of each
subsidiary which is indented, its immediate parent owns beneficially all of the
capital stock.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
- ------------------ ----------------------------
<S> <C>
Ladenburg, Thalmann Group, Inc. Delaware
Ladenburg, Thalmann & Co. Inc. Delaware
</TABLE>
Not included above are other subsidiaries which, if considered in the
aggregate as a single subsidiary, would not constitute a significant subsidiary,
as such term is defined by Rule 1-02(w) of Regulation S-X.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 51,742
<SECURITIES> 264,445
<RECEIVABLES> 13,752
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 333,485
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 385,822
<CURRENT-LIABILITIES> 177,920
<BONDS> 0
226,396
279
<COMMON> 1,916
<OTHER-SE> (32,656)
<TOTAL-LIABILITY-AND-EQUITY> 385,822
<SALES> 0
<TOTAL-REVENUES> 67,730
<CGS> 0
<TOTAL-COSTS> 66,064
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,666
<INCOME-TAX> 292
<INCOME-CONTINUING> 1,374
<DISCONTINUED> 16,873
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,247
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
