<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
Commission File Number 1-2493
New Valley Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-5482050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
(Address of principal executive offices) (Zip Code)
(305) 579-8000
(Registrant's telephone number, including area code)
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 (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 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
--- -----
As of August 14, 1998, there were outstanding 9,577,624 of the registrant's
Common Shares, $.01 par value.
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NEW VALLEY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of June 30,
1998 and December 31, 1997.................................... 3
Condensed Consolidated Statements of Operations for the
three months and six months ended June 30, 1998 and 4
1997..........................................................
Condensed Consolidated Statement of Changes in
Shareholders' Deficiency for the six months ended
June 30, 1998................................................. 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and 1997............... 6
Notes to the Condensed Quarterly Consolidated Financial
Statements .................................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 20
Item 3. Defaults Upon Senior Securities................................... 20
Item 6. Exhibits and Reports on Form 8-K.................................. 20
SIGNATURE........................................................................... 21
</TABLE>
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<PAGE> 3
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
---------------- ------------------
1998 1997
---------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 5,606 $ 11,606
Investment securities available for sale...................... 33,856 51,993
Trading securities owned...................................... 42,701 49,988
Restricted assets............................................. 4,448 232
Receivable from clearing brokers.............................. 1,609 1,205
Other current assets.......................................... 2,302 3,618
--------- ---------
Total current assets..................................... 90,522 118,642
--------- ---------
Investment in real estate, net.................................... 185,916 256,645
Furniture and equipment, net...................................... 11,275 12,194
Restricted assets................................................. 5,640 5,484
Long-term investments, net........................................ 23,725 27,224
Investment in joint venture....................................... 59,682 --
Other assets...................................................... 10,712 21,202
--------- ---------
Total assets............................................. $ 387,472 $ 441,391
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Margin loans payable.......................................... $ 12,374 $ 13,012
Current portion of notes payable and other long-term
obligations 668 760
Accounts payable and accrued liabilities...................... 34,929 57,722
Prepetition claims and restructuring accruals................. 12,402 12,611
Income taxes.................................................. 18,736 18,413
Securities sold, not yet purchased............................ 22,826 25,610
--------- ---------
Total current liabilities................................ 101,935 128,128
-------- -------
Notes payable..................................................... 153,557 173,814
Other long-term obligations....................................... 15,852 11,210
Redeemable preferred shares....................................... 285,932 258,638
Commitments and Contingencies..................................... -- --
Shareholders' deficiency:
Cumulative preferred shares; liquidation preference of
$69,769; dividends in arrears, $152,166 and $139,412....... 279 279
Common Shares, $.01 par value; 850,000,000 shares authorized;
9,577,624 shares outstanding............................... 96 96
Additional paid-in capital.................................... 578,238 604,215
Accumulated deficit........................................... (748,266) (742,427)
Unearned compensation on stock options........................ (51) (158)
Accumulated other comprehensive income........................ (100) 7,596
--------- ---------
Total shareholders' deficiency........................... (169,804) (130,399)
--------- ---------
Total liabilities and shareholders' deficiency........... $ 387,472 $ 441,391
========= =========
</TABLE>
See accompanying Notes to Condensed Quarterly Consolidated Financial Statements
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<PAGE> 4
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Principal transactions, net................................ $ 2,443 $ 3,227 $ 8,336 $ 5,726
Commissions................................................ 7,477 3,431 14,153 6,824
Corporate finance fees..................................... 1,044 3,515 4,282 4,647
Gain on sale of investments, net........................... 2,966 3,358 8,562 7,052
Loss in joint venture...................................... (158) -- (487) --
Real estate leasing........................................ 5,945 6,303 13,721 12,585
Interest and dividends..................................... 2,542 2,582 5,391 4,123
Computer sales and service................................. 46 357 459 3,680
Other income............................................... 2,967 4,322 4,695 5,311
---------- ---------- ---------- ----------
Total revenues......................................... 25,272 27,095 59,112 49,948
---------- ---------- ---------- ----------
Cost and expenses:
Operating, general and administrative...................... 29,257 28,591 59,357 54,537
Interest................................................... 3,452 4,043 7,612 7,905
Provision for loss on long-term investment................. -- -- -- 3,796
---------- ---------- ---------- ----------
Total costs and expenses............................... 32,709 32,634 66,969 66,238
---------- ---------- ---------- ----------
Loss from continuing operations before income taxes
and minority interests..................................... (7,437) (5,539) (7,857) (16,290)
Income tax provision............................................ 15 45 21 95
Minority interests in loss from continuing operations
of consolidated subsidiaries............................... 576 555 1,159 1,015
---------- ---------- ---------- ----------
Loss from continuing operations................................. (6,876) (5,029) (6,719) (15,370)
Discontinued operations:
Gain on disposal of discontinued operations................ 880 880
---------- ---------- ---------- ----------
-- --
Income from discontinued operations........................ 880 880
---------- ---------- ---------- ----------
-- --
Net loss........................................................ (5,996) (5,029) (5,839) (15,370)
Dividend requirements on preferred shares....................... (19,758) (16,750) (38,590) (32,730)
---------- ---------- ---------- ----------
Net loss applicable to Common Shares............................ $ (25,754) $ (21,779) $ (44,429) $ (48,100)
========== ========== ========== ==========
Loss per Common Share (basic and diluted):
Continuing operations...................................... $ (2.78) $ (2.27) $ (4.73) $ (5.02)
Discontinued operations.................................... .09 -- .09 --
---------- ---------- ---------- ----------
Net loss per Common Share.................................. $ (2.69) $ (2.27) $ (4.64) $ (5.02)
========== ========== ========== ==========
Number of shares used in computation............................ 9,578,000 9,578,000 9,578,000 9,578,000
========= ========= ========= =========
</TABLE>
See accompanying Notes to Condensed Quarterly Consolidated Financial Statements
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<PAGE> 5
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' DEFICIENCY
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Unearned Accumulated
Class B Compensation Other
Preferred Common Paid-In Accumulated on Stock Comprehensive
Shares Shares Capital Deficit Options Income
--------- ------ ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997.......... $279 $96 $604,215 $(742,427) $ (158) $ 7,596
Net loss......................... (5,839)
Undeclared dividends and
accretion on redeemable
preferred shares............... (25,836)
Unrealized loss on
investment securities.......... (7,696)
Adjustment to unearned
compensation on
stock options.................. (129) 129
Other, net....................... (12)
Compensation expense
on stock option grants......... (22)
---- --- -------- --------- -------- --------
Balance, June 30, 1998.............. $279 $96 $578,238 $(748,266) $ (51) $ (100)
==== === ======== ========= ======== ========
</TABLE>
See accompanying Notes to Condensed Quarterly Consolidated Financial Statements
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<PAGE> 6
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1998 1997
------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................ $ (5,839) $ (15,370)
Adjustments to reconcile net loss to net cash used for operating
activities:
Income from discontinued operations................................... (880) --
Loss in joint venture................................................. 487 --
Depreciation and amortization......................................... 3,884 3,945
Provision for loss on long-term investment............................ -- 3,796
Stock based compensation expense...................................... 1,436 1,601
Changes in assets and liabilities, net of effects of dispositions and
acquisitions:
Decrease in receivables and other assets........................ 5,725 16,659
Increase in income taxes........................................ 430 61
Decrease in accounts payable and accrued liabilities............ (11,590) (11,460)
---------- ---------
Net cash used for continuing operations.................................... (6,347) (768)
Net cash provided from discontinued operations............................. 880 --
---------- ---------
Net cash used for operating activities..................................... (5,467) (768)
---------- ---------
Cash flows from investing activities:
Sale or maturity of investment securities............................. 16,259 24,138
Purchase of investment securities..................................... (8,677) (15,851)
Sale or liquidation of long-term investments.......................... 8,269 2,807
Purchase of long-term investments..................................... (1,714) (8,357)
Purchase of real estate............................................... (17,317) (45)
Sale of other assets.................................................. 1,056 5,561
Purchase of furniture and fixtures.................................... (100) (1,142)
Payment of prepetition claims......................................... (653) --
Return of prepetition claims paid..................................... -- 1,396
(Increase) decrease in restricted assets.............................. (4,372) 2,697
Cash transferred to joint venture..................................... (487) --
Other................................................................. (949) --
--
Payment for acquisitions, net of cash acquired........................ -- (20,014)
---------- ---------
Net cash used for investing activities..................................... (8,685) (8,810)
---------- ---------
Cash flows from financing activities:
Decrease in margin loans payable, net................................. (638) --
Proceeds from participating loan...................................... 9,000 --
Sale of subsidiary's common stock..................................... -- 5,417
Prepayment of notes payable........................................... (210) (21,708)
Repayment of other obligations........................................ -- (9,894)
---------- ---------
Net cash provided from (used for) financing activities..................... 8,152 (26,185)
---------- ---------
Net decrease in cash and cash equivalents.................................. (6,000) (35,763)
Cash and cash equivalents, beginning of period............................. 11,606 57,282
---------- ---------
Cash and cash equivalents, end of period................................... $ 5,606 $ 21,519
========== =========
</TABLE>
See accompanying Notes to Condensed Quarterly Consolidated Financial Statements
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<PAGE> 7
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED QUARTERLY CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1. Principles of Reporting
The consolidated financial statements include the accounts of New Valley
Corporation and Subsidiaries (the "Company"). The consolidated financial
statements as of June 30, 1998 presented herein have been prepared by the
Company without an audit. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present
fairly the financial position as of June 30, 1998 and the results of
operations and cash flows for all periods presented have been made.
Results for the interim periods are not necessarily indicative of the
results for an entire year.
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.
These financial statements should be read in conjunction with the
consolidated financial statements in the Company's Annual Report on Form
10-K, as amended, for the year ended December 31, 1997 as filed with the
Securities and Exchange Commission (Commission File No. 1-2493).
Certain reclassifications have been made to prior interim period financial
information to conform with current year presentation.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). The Statement, which the Company adopted in the first
quarter of 1998, establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. Where applicable, earlier periods have been restated
to conform to the standards established by SFAS No. 130. The adoption of
SFAS 130 did not have a material impact on the Company's financial
statements.
For transactions entered into in fiscal years beginning after December 15,
1997, the Company adopted and is reporting in accordance with SOP 97-2,
"Software Revenue Recognition". The adoption of SOP 97-2 did not have a
material impact on the Company's financial statements.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
provides guidance that the carrying value of software developed or
obtained for internal use is assessed based upon an analysis of estimated
future cash flows on an undiscounted basis and before interest charges.
SOP 98-1 is effective for transactions entered into in fiscal years
beginning after December 15, 1998. The Company believes that adoption of
SOP 98-1 will not have a material impact on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which establishes standards for
the way that public business enterprises report information about
operating segments. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997. The Company is currently
reviewing its operating segment disclosures and will adopt SFAS No. 131 in
the fourth quarter of 1998.
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NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED QUARTERLY CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
In June, 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS
133 requires that all derivative instruments be recorded on the balance
sheet at fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending
on whether a derivative is designated as part of a hedge transaction and,
if it is, the type of hedge transaction. The Company has not yet
determined the impact that the adoption of SFAS 133 will have on its
earnings or statement of financial position.
2. Western Realty
On January 31, 1997, the Company entered into a stock purchase agreement
with Brooke (Overseas) Ltd. ("Brooke (Overseas)"), a wholly-owned
subsidiary of Brooke Group Ltd. ("Brooke"), an affiliate of the Company,
pursuant to which the Company acquired 10,483 shares (the "BML Shares") of
the common stock of BrookeMil Ltd. ("BML") from Brooke (Overseas) for a
purchase price of $55,000, consisting of $21,500 in cash and a $33,500 9%
promissory note of the Company (the "Note"). The BML Shares comprise 99.1%
of the outstanding shares of BML, a real estate development company in
Russia. The Note, which was collateralized by the BML Shares, was paid
during 1997.
Western Realty Development LLC
In February 1998, the Company and Apollo Real Estate Investment Fund III,
L.P. ("Apollo") organized Western Realty Development LLC ("Western Realty
Ducat") to make real estate and other investments in Russia. In connection
with the formation of Western Realty, the Company agreed, among other
things, to contribute the real estate assets of BML, including Ducat Place
II and the site for Ducat Place III, to Western Realty and Apollo agreed
to contribute up to $58,750, including the investment in Western Realty
Repin discussed below. Through June 30, 1998, Apollo had funded $27,900 of
its investment in Western Realty Ducat.
The ownership and voting interests in Western Realty Ducat will be held
equally by Apollo and the Company. Apollo will be entitled to a preference
on distributions of cash from Western Realty Ducat to the extent of its
investment ($40,000), together with a 15% annual rate of return, and the
Company will then be entitled to a return of $10,000 of BML-related
expenses incurred by the Company since March 1, 1997, together with a 15%
annual rate of return; subsequent distributions will be made 70% to the
Company and 30% to Apollo. Western Realty Ducat will be managed by a Board
of Managers consisting of an equal number of representatives chosen by
Apollo and the Company. All material corporate transactions by Western
Realty Ducat will generally require the unanimous consent of the Board of
Managers. Accordingly, the Company has accounted for its non-controlling
interest in Western Realty Ducat using the equity method of accounting.
The Company recorded its basis in the investment in the joint venture in
the amount of $60,169 based on the carrying value of assets less
liabilities transferred. There was no difference between the carrying
value of the investment and the Company's proportionate interest in the
underlying value of net assets of the joint venture.
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<PAGE> 9
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED QUARTERLY CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Western Realty Ducat will seek to make additional real estate and other
investments in Russia. Western Realty Ducat has made a $20,000
participating loan to, and payable out of a 30% profits interest in, a
company organized by Brooke (Overseas) which, among other things, owns an
industrial site and manufacturing facility being constructed on the
outskirts of Moscow by a subsidiary of Brooke (Overseas).
Western Realty Repin LLC
In June 1998, the Company and Apollo organized Western Realty Repin LLC
("Western Realty Repin") to make a $25,000 participating loan (the "Repin
Loan") to BML. The proceeds of the loan will be used by BML for the
acquisition and preliminary development of two adjoining sites totaling
10.25 acres (the "Kremlin Sites") located in Moscow across the Moscow
River from the Kremlin. BML, which is planning the development of a 1.1
million sq. ft. hotel, office, retail and residential complex on the
Kremlin Sites, owned 92.8% of one site and 52% of the other site at June
30, 1998. Apollo will be entitled to a preference on distributions of cash
from Western Realty Repin to the extent of its investment ($18,750),
together with a 20% annual rate of return, and the Company will then be
entitled to a return of its investment ($6,250), together with a 20%
annual rate of return; subsequent distributions will be made 50% to the
Company and 50% to Apollo. Western Realty Repin will be managed by a Board
of Managers consisting of an equal number of representatives chosen by
Apollo and the Company. All material corporate transactions by Western
Realty Repin will generally require the unanimous consent of the Board of
Managers.
On June 18, 1998, Western Realty Repin made a $9,000 first advance (funded
by Apollo) under the Repin Loan to BML, which is classified in other
long-term obligations on the condensed consolidated balance sheet at June
30, 1998. The Repin Loan, which bears no fixed interest, is payable only
out of 100% of the distributions, if made, by the entities owning the
Kremlin Sites to BML. Such distributions shall be applied first to pay the
principal of the Repin Loan and then as contingent participating interest
on the Repin Loan. Any rights of payment on the Repin Loan are subordinate
to the rights of all other creditors of BML. Apollo funded an additional
advance of $5,300 under the Repin Loan on July 2, 1998. BML used the
proceeds to repay the Company for certain expenditures on the Kremlin
Sites previously incurred. The Repin Loan is due and payable upon the
dissolution of BML and is collateralized by a pledge of the Company's
shares of BML.
As of June 30, 1998, BML had invested $14,423 in the Kremlin Sites and
held $4,165, in cash, which was restricted for future investment. In
connection with the acquisition of its interest in one of the Kremlin
Sites, BML has agreed with the City of Moscow to invest an additional
$6,000 in 1998 and $22,000 in 1999 in the development of the property.
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NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED QUARTERLY CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
3. Investment Securities Available For Sale
Investment securities classified as available for sale are carried at fair
value, with net unrealized gains included as a separate component of
shareholders' deficiency. The Company had realized gains on sales of
investment securities available for sale of $946 and $5,534 for the three
and six months ended June 30, 1998, respectively.
The components of investment securities available for sale at June 30,
1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gain Loss Value
---- ---------- ---------- -----
<S> <C> <C> <C> <C>
Short-term investments......................... $ 91 $ -- $ -- $ 91
Marketable equity securities................... 30,180 506 5,060 25,626
Marketable warrants............................ -- 6,488 -- 6,488
Marketable debt securities .................... 3,684 500 2,534 1,651
------- -------- -------- -------
Investment securities.......................... $33,955 $ 7,494 $ 7,594 $33,856
======= ======== ======== =======
</TABLE>
4. Long-Term Investments
At June 30, 1998, long-term investments consisted primarily of investments
in limited partnerships of $23,725. The Company is required under certain
limited partnership agreements to make additional investments of up to an
aggregate of $7,900 at June 30, 1998. The Company believes the fair value
of the limited partnerships exceeds its carrying amount by approximately
$6,500 based on the indicated market values of the underlying investment
portfolio provided by the partnerships. The Company recognized gains of
$2,020 and $3,228 on liquidations of investments of certain limited
partnerships for the three and six months ended June 30, 1998,
respectively. The Company's investments in limited partnerships are
illiquid and the ultimate realizations of these investments are subject to
the performance of the underlying partnership and its management by the
general partners. The Company may sell or liquidate certain limited
partnership interests in the future. Any sale of such interests would be
subject to the approval of the general partner.
In the first quarter of 1997, the Company determined that an other than
temporary impairment in the value of its investment in a joint venture had
occurred and wrote down this investment to zero with a charge to
operations of $3,796 for the three month period. The Company's estimates
of the fair value of its long-term investments are subject to judgment and
are not necessarily indicative of the amounts that could be realized in
the current market.
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<PAGE> 11
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED QUARTERLY CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
5. Real Estate
The Company is currently engaged in negotiations to sell its four office
buildings in the third quarter of 1998. At June 30, 1998, the buildings
had a carrying value of $106,012 and are encumbered by mortgage notes
totaling $99,106. The Company may seek to dispose of other U.S. real
estate holdings in the future.
6. Redeemable Preferred Shares
At June 30, 1998, the Company had authorized and outstanding 2,000,000 and
1,071,462, respectively, of its Class A Senior Preferred Shares. At June
30, 1998 and December 31, 1997, respectively, the carrying value of such
shares amounted to $285,932 and $258,638, including undeclared dividends
of $189,729 and $163,302 or $177.07 and $152.41 per share. As of June 30,
1998, the unamortized discount on the Class A Senior Preferred Shares was
$7,319.
For the three and six months ended June 30, 1998, the Company recorded
$745 and $1,458 in compensation expense, respectively, related to certain
Class A Senior Preferred Shares awarded to an officer of the Company in
1996. At June 30, 1998, the balance of the deferred compensation and the
unamortized discount related to these award shares was $3,624 and $2,697,
respectively.
7. Preferred Shares Not Subject to Redemption Requirements
The undeclared dividends, as adjusted for conversions of Class B Preferred
Shares into Common Shares, cumulatively amounted to $152,166 and $139,412
at June 30, 1998 and December 31, 1997, respectively. These undeclared
dividends represent $54.52 and $49.95 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.
8. Contingencies
Litigation
On or about March 13, 1997, a shareholder derivative suit was filed
against the Company, as a nominal defendant, its directors and Brooke in
the Delaware Chancery Court, by a shareholder of the Company. The suit
alleges that the Company's purchase of the BML Shares constituted a
self-dealing transaction which involved the payment of excessive
consideration by the Company. The plaintiff seeks (i) a declaration that
the Company's directors breached their fiduciary duties, Brooke aided and
abetted such breaches and such parties are therefore liable to the
Company, and (ii) unspecified damages to be awarded to the Company. The
Company's time to respond to the complaint has not yet expired. The
Company believes that the allegations were without merit. Although there
can be no assurances, management is of the opinion, after consultation
with counsel, that the ultimate resolution of this matter will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
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,
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<PAGE> 12
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED QUARTERLY CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or cash flows.
Prepetition Claims Under Chapter 11 and Restructuring Accruals
The prepetition claims remaining as of June 30, 1998 of $12,402 may be
subject to future adjustments depending on pending discussions with the
various parties and the decisions of the Bankruptcy Court.
-12-
<PAGE> 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
Introduction
The Company's Consolidated Financial Statements include the accounts of
Ladenburg Thalmann & Co. Inc. ("Ladenburg"), BrookeMil Ltd. ("BML"), Thinking
Machines Corporation ("Thinking Machines") and other subsidiaries.
On January 19, 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 provided for, among other things, the sale of the
Company's money transfer business and the payment of all allowed claims.
Western Realty Ducat. In February 1998, the Company and Apollo Real Estate
Investment Fund III, LP ("Apollo") organized Western Realty Development LLC
("Western Realty Ducat") to make real estate and other investments in Russia. In
connection with the formation of Western Realty Ducat, the Company agreed, among
other things, to contribute the real estate assets of BML, including Ducat Place
II and the site for Ducat Place III, to Western Realty Ducat and Apollo agreed
to contribute up to $58,750, including the investment in Western Realty Repin
discussed below. See Note 2 to the Condensed Quarterly Consolidated Financial
Statements.
The Kremlin Sites. BML is planning the development of two adjoining sites
totaling 10.25 acres (the "Kremlin Sites") located in Moscow across the Moscow
River from the Kremlin. BML, which is planning to develop a 1.1 million sq. ft.
hotel, office, retail and residential complex on the Kremlin Sites, owned 92.8%
of one site and 52% of the other site at June 30, 1998. In June 1998, the
Company and Apollo organized Western Realty Repin LLC ("Western Realty Repin")
to make a $25,000 participating loan to BML. The proceeds of the loan will be
used by BML for the acquisition and preliminary development of the Kremlin Sites
(see Note 2 to the Condensed Quarterly Consolidated Financial Statements). As of
June 30, 1998, BML had invested $14,423 in the Kremlin Sites and held $4,165, in
cash, which was restricted for future investment.
New Accounting Pronouncements. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income." The Statement, which the Company adopted in
the first quarter of 1998, establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. Where applicable, earlier periods have been restated to
conform to the standards established by SFAS No. 130. The adoption of SFAS 130
did not have a material impact on the Company's financial statements.
For transactions entered into in fiscal years beginning after December 15, 1997,
the Company adopted and is reporting in accordance with SOP 97-2, "Software
Revenue Recognition". The adoption of SOP 97-2 did not have a material impact on
the Company's financial statements.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance
that the carrying value of software developed or obtained for internal use is
assessed based upon an analysis of estimated future cash flows on an
undiscounted basis and before interest charges. SOP 98-1 is effective for
transactions entered into in fiscal years beginning after December 15, 1998. The
Company believes that adoption of SOP 98-1 will not have a material impact on
the Company's financial statements.
-13-
<PAGE> 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Dollars in Thousands, Except Per Share Amounts)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes standards for the way
that public business enterprises report information about operating segments.
SFAS No. 131 is effective for financial statements for fiscal years beginning
after December 15, 1997. The Company is currently reviewing its operating
segment disclosures and will adopt SFAS No. 131 in the fourth quarter of 1998.
In June, 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at fair value. Changes
in the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. The
Company has not yet determined the impact that the adoption of SFAS 133 will
have on its earnings or statement of financial position.
The SEC recently issued new rules which will require the Company, commencing
with filings which include financial statements for fiscal year 1998, to provide
disclosure of quantitative and qualitative information relating to derivative
financial instruments, derivative commodity instruments and other financial
instruments. These disclosures are intended to provide investors with
information relating to market risk exposure, including the Company's
objectives, strategies and instruments used to manage exposures. The disclosures
are required to be presented outside of, and not incorporated into, the
Company's consolidated financial statements. This disclosure requirement will be
applicable principally to the Company's Ladenburg broker-dealer subsidiary. The
impact of the implementation of this new disclosure requirement is not yet
determinable.
Year 2000 Costs. The Company is in the process of completing a Year 2000 risk
analysis to determine the Company's need to modify or replace a significant
portion of its software so that its computer systems will properly utilize dates
beyond December 31, 1999. Although such costs may be a factor in describing
changes in operating profit for one or more of the Company's business segments
in any given reporting period, the Company currently does not believe that the
anticipated costs of year 2000 systems conversions will have a material impact
on its future consolidated results of operations. However, due to the
interdependent nature of computer systems, the Company may be adversely impacted
in the year 2000 depending on whether it or entities not affiliated with the
Company have addressed this issue successfully.
Results of Operations
Consolidated total revenues were $59,112 for the six months ended June 30, 1998
versus $49,948 for the same period last year. The increase in revenues of $9,164
is attributable primarily to the increase in revenues of Ladenburg as a result
of increases in commissions ($7,329), principal transactions ($2,589) and other
revenues ($3,484).
For the three months and six months ended June 30, 1998 and 1997, the results of
continuing operations of the Company's primary operating units, which include
Ladenburg (broker-dealer), the Company's U.S. office buildings and shopping
centers and BML (real estate), and Thinking Machines (computer software), were
as follows:
-14-
<PAGE> 15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Broker-dealer:
Revenues.......................... $15,833 $13,144 $35,258 $21,856
Expenses.......................... 19,317 14,041 39,966 26,832
------- ------- ------- -------
Operating loss before taxes
and minority interests......... $(3,484) $ (897) $(4,708) $(4,976)
======= ======= ======= =======
Real estate:
Revenues.......................... $ 5,945 $ 6,303 $13,721 $12,585
Expenses.......................... 6,740 8,848 14,536 16,717
------- ------- ------- -------
Operating loss before taxes
and minority interests......... $ (795) $(2,545) $ (815) $(4,132)
======= ======= ======= =======
Computer software:
Revenues.......................... $ 46 $ 357 $ 459 $ 3,680
Expenses.......................... 1,649 3,240 3,311 7,841
------- ------- ------- -------
Operating loss before taxes
and minority interests......... $(1,603) $(2,883) $(2,852) $(4,161)
======= ======= ======= =======
Corporate and other:
Revenues.......................... $ 3,448 $ 7,291 $ 9,674 $11,827
Expenses.......................... 5,003 6,505 9,156 14,848
------- ------- ------- -------
Operating loss before taxes
and minority interests......... $(1,555) $ 786 $ 518 $(3,021)
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
Ladenburg's revenues for the second quarter of 1998 increased $2,689 as compared
to revenues for the second quarter of 1997 primarily as a result of an increase
in commissions ($4,046) offset by decrease in corporate finance fees ($2,471)
and principal transactions ($804). Ladenburg's expenses for the second quarter
of 1998 increased $5,276 as compared to expenses for the second quarter of 1997
due primarily to increases in compensation expense of $4,589. Compensation
expense increased due to both an increase in personnel and performance-based
compensation.
Revenues from the real estate operations for the second quarter of 1998
decreased $358 from the second quarter of 1997. The decline was primarily due to
the disposal of one shopping center in the fourth quarter of 1997 and the
absence of revenues from BML in 1998 ($332 in the second quarter of 1997) due to
the sale of Ducat Place I in the second quarter of 1997. Expenses of the real
estate operations decreased $2,108 due primarily to the absence of significant
expenses from BML ($2,885 in the second quarter of 1997 versus $443 in the 1998
period) resulting from its contribution of Ducat Place II and Ducat Place III to
Western Realty. The 1998 BML expenses were primarily associated with the
acquisition of the Kremlin Sites.
Thinking Machines has had only minimal revenues from continuing operations to
date. Thinking Machines is developing and marketing a data mining software
product. Operating expenses of Thinking Machines consisted of cost of revenues,
selling, general and administrative and research and development of $198, $655
and $796, respectively, for the second quarter of 1998 as compared to $618,
$1,680 and $942, respectively, for the second quarter of 1997.
-15-
<PAGE> 16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Dollars in Thousands, Except Per Share Amounts)
For the second quarter of 1998, the Company's revenues of $3,448 related to
corporate and other activities consisted primarily of net gains on investments
of $2,966 and interest and dividend income of $582 as compared to $3,358 and
$1,563, respectively, for the same period in the prior year.
Corporate and other expenses of $5,003 for the second quarter of 1998 consisted
primarily of employee compensation and benefits of $2,585 and expenses of
certain non-significant subsidiaries of $758. Corporate and other expenses for
the second quarter of 1997 consisted primarily of employee compensation and
benefits of $2,277.
Income tax expense for the second quarter of 1998 was $15 versus $45 for the
second quarter of 1997. The income tax expense relates principally to state
income taxes of Ladenburg. The effective tax rate does not bear a customary
relationship with pre-tax accounting income principally as a consequence of the
change in the valuation allowance relating to deferred tax assets.
The Company recorded a gain on disposal of discontinued operations of $880 in
the 1998 period related to the settlement of a lawsuit originally initiated by
the Company's predecessor, Western Union Telegraph Company.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Ladenburg's revenues for the first six months of 1998 increased $13,402 as
compared to revenues for the first six months of 1998 primarily due to increases
in commissions ($7,329), principal transactions ($2,589) and other revenues
($3,484). Ladenburg's expenses for the first six months of 1998 increased
$13,134 as compared to expenses for the first six months of 1997 due primarily
to an increase in compensation expense of $8,754. Compensation expense increased
due to both an increase in personnel and performance-based compensation.
Revenues from the real estate operations for the first six months of 1998
increased $1,136 primarily due to an increase of $1,052 in revenues associated
with BML. Expenses of the real estate operations decreased $2,181 due primarily
to lower expenses ($2,246) of BML resulting from its contribution of Ducat Place
II and Ducat Place III to Western Realty Ducat.
Operating expenses of Thinking Machines consisted of costs of sales of $383,
selling, general and administrative expenses of $1,316 and research and
development expenses of $1,612 for the six months ended June 30, 1998. Operating
expenses of Thinking Machines in the 1997 period consisted of costs of sales of
$702, selling, general and administrative expenses of $5,278 and research and
development expenses of $1,861.
For the first six months of 1998, the Company's revenues of $9,674 related to
corporate and other activities consisted primarily of net gains on investments
of $8,562 and interest and dividend income of $1,177, partially offset by a loss
in joint venture of $487. For the first six months of 1997, the Company's
revenues of $11,827 related to corporate and other activities consisted
primarily of net gains on investments of $7,052 and interest and dividend income
of $2,316.
Corporate and other expenses of $9,156 for the first six months of 1998
consisted primarily of employee compensation and benefits of $4,051 and expenses
of certain non-significant subsidiaries of $2,031. Corporate and other expenses
of $14,848 for the first six months of 1997 consisted primarily of employee
compensation and benefits of $5,014, the $3,796 provision for loss on a
long-term investment and expenses related to certain non-significant
subsidiaries of $1,208.
-16-
<PAGE> 17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Dollars in Thousands, Except Per Share Amounts)
Income tax expense for the first six months of 1998 was $21 versus $95 for the
first six months of 1997. The effective tax rate does not bear a customary
relationship with pre-tax accounting income principally as a consequence of the
change in the valuation allowance relating to deferred tax assets.
The Company recorded a gain on disposal of discontinued operations of $880 in
the 1998 period related to the settlement of a lawsuit originally began by the
Company's predecessor, Western Union Telegraph Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net working capital deficit increased to $11,413 at June 30, 1998
from $9,486 at December 31, 1997 primarily as a result of changes in the
Company's unrealized loss on marketable securities and the net sale of $7,582 of
marketable securities. The amount was offset by the net liquidation of long term
investments of $6,555 and the contribution of Ducat Place II and Ducat Place III
(and the liabilities associated therewith) to Western Realty Ducat.
The Company is required under certain limited partnership agreements to make
additional investments for an aggregate of $7,900 at June 30, 1998. The Company
may sell or liquidate certain limited partnership interests in the future. Any
sale of such interests would be subject to the approval of the general partner.
During the first half of 1998, the Company's cash and cash equivalents decreased
from $11,606 to $5,606 due primarily to capital expenditures of $17,317 and
increases in restricted assets of $4,372, offset by net sales of investments of
$14,137.
The capital expenditures related principally to the development of the Kremlin
Sites ($14,423 at June 30, 1998). BML also held $4,165, in restricted cash, at
June 30, 1998, which is restricted for future investment in the Kremlin Sites.
In connection with the acquisition of its interest in one of the Kremlin Sites,
BML has agreed with the City of Moscow to invest an additional $6,000 in 1998
and $22,000 in 1999 in the development of the property.
In June 1998, the Company and Apollo organized Western Realty Repin to make a
$25,000 participating loan to BML (the "Repin Loan"). The proceeds from the
Repin Loan will be used by BML for the acquisition and preliminary development
of the Kremlin Sites. On June 18, 1998, Western Realty Repin made a $9,000 first
advance (funded by Apollo) under the Repin Loan to BML. The Repin Loan, which
bears no fixed interest, is payable only out of 100% of distributions, if made,
by the entities owning the Kremlin Sites to BML. Such distributions will be
applied first to pay the principal of the Repin Loan and then as contingent
participating interest on the Repin Loan. Any rights of payment on the loan are
subordinate to the rights of all other creditors of BML. Apollo funded an
additional advance of $5,300 under the Repin Loan on July 2, 1998. BML used the
proceeds to repay the Company for certain expenditures on the Kremlin Sites
previously incurred. The Company is actively pursuing various financing
alternatives for the development of Ducat Place III and the Kremlin Sites,
although no assurance can be given that such financing can be obtained on
satisfactory terms.
The Company is currently engaged in negotiations to sell its four office
buildings in the third quarter. At June 30, 1998, the buildings have a carrying
value of $106,012 and are encumbered by mortgage notes totaling $99,106. The
Company may seek to dispose of other U.S. real estate holdings in the future.
Cash used for operating activities for the six months ended June 30, 1998
increased to $5,467 as compared to $768 from the prior year. The difference is
primarily due to the increase of Ladenburg's receivable from clearing broker of
$404 in 1998 versus a $9,707 decrease in the 1997 period and a
-17-
<PAGE> 18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Dollars in Thousands, Except Per Share Amounts)
$7,287 decrease in Ladenburg's net trading securities owned for the 1998 period
versus an $12,524 decrease for the 1997 period. These amounts were offset by an
decrease in net loss of $9,531 and the non-cash charge to operations of $3,796
in the 1997 period relating to the write down of a long-term investment.
Cash flows used for investing activities for the six months ended June 30, 1998
were $8,685 compared to cash flows used for investing activities of $8,810 for
the six months ended June 30, 1997. The difference is primarily attributable to
the $20,014 used to acquire the BML stock in the 1997 period offset primarily
due to capital expenditures of $17,317, increases in restricted assets of
$4,372, and greater net sales of investments in the 1998 period.
Cash flows provided from financing activities increased to $8,152 for the six
months ended June 30, 1998 from cash flows used for financing activities of
$26,185 in the 1998 period and for the six months ended June 30, 1997. The
difference consisted of the initial funding of the Repin Loan in the 1998 period
and the payment of $21,708 of notes payable and $9,894 of other obligations in
the 1997 period.
The Company expects that its available working capital will be sufficient to
fund its currently anticipated cash requirements for 1998 and currently
anticipated cash requirements of its operating businesses, investments,
commitments, and payments of principal and interest on its outstanding
indebtedness.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company and its representatives may from time to time make oral or written
"forward-looking statements" within the meaning of the Private Securities Reform
Act of 1995 (the "Reform Act"), including any statements that may be contained
in the foregoing "Management's Discussion and Analysis of Financial Condition
and Results of Operations", in this report and in other filings with the
Securities and Exchange Commission and in its reports to shareholders, which
represent the Company's expectations or beliefs with respect to future events
and financial performance. These forward-looking statements are subject to
certain risks and uncertainties and, in connection with the "safe-harbor"
provisions of the Reform Act, the Company is hereby identifying important
factors that could cause actual results to differ materially from those
contained in any forward-looking statements made by or on behalf of the Company.
Each of the Company's operating businesses, Ladenburg, New Valley Realty, BML
and Thinking Machines and its interests in Western Realty Ducat and Western
Realty Repin ("Western Realty") are subject to intense competition, changes in
consumer preferences, and local economic conditions. Ladenburg is further
subject to uncertainties endemic to the securities industry including, without
limitation, the volatility of domestic and international
financial, bond and stock markets, governmental regulation and litigation. The
operations of BML and Western Realty in Russia are also subject to a high level
of risk in light of Russia's substantial political transformation from a
centrally controlled economy under communist rule to the early stages of a
pluralist market-oriented democracy. In connection therewith, Russia has
experienced dramatic political, social and economic reform although there is no
assurance that further reforms necessary to complete such transformation will
occur. The Russian economy remains characterized by, among others, significant
inflation, declining industrial productions, rising unemployment and
underemployment, and an unstable currency. In addition to the foregoing, BML and
Western Realty may be affected unfavorably by political or diplomatic
developments, regional tensions, currency repatriation restrictions, foreign
exchange fluctuations, a relatively untested judicial system, a still evolving
taxation system subject to constant changes which may be retroactive in effect,
and other developments in the law or regulations in Russia and, in particular,
the risks of expropriation, nationalization and confiscation of assets and
changes in legislation relating to foreign ownership. In addition, the system of
commercial laws, including the laws governing registration of interests in real
-18-
<PAGE> 19
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(Dollars in Thousands, Except Per Share Amounts)
estate and the establishment and enforcement of security interests, is not well
developed and, in certain circumstances, inconsistent and adds to the risk of
investment in the real estate development business in Russia. In addition, the
uncertainties in Russia may effect BML's and Western Realty's ability to
consummate planned financing and investing activities. Western Realty and the
Company are additionally subject to the uncertainties relating to the real
estate business, including, without limitation, required capital improvements to
facilities, local real estate market conditions and federal, state, city and
municipal laws and regulations concerning, among others, zoning and
environmental matters. Thinking Machines is also subject to uncertainties
relating to, without limitation, the development and marketing of computer
products, including customer acceptance and required funding, technological
changes, capitalization, and the ability to utilize and exploit its intellectual
property and propriety software technology. Uncertainties affecting the Company
generally include, without limitation, the effect of market conditions on the
salability of the Company's investment securities, the uncertainty of other
potential acquisitions and investments by the Company, the effects of
governmental regulation on the Company's ability to target and/or consummate any
such acquisitions and the effects of limited management experience in areas in
which the Company may become involved.
Results actually achieved may differ materially from expected results included
in these statements as a result of these or other factors. Due to such
uncertainties and risks, readers are cautioned not to place undue reliance on
such forward-looking statements, which speak only as of the date on which such
statements are made. The Company does not undertake to update any
forward-looking statement that may be made from time to time on behalf of the
Company.
-19-
<PAGE> 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8 to the "Notes to the Condensed Quarterly Consolidated
Financial Statements" in Part I, Item 1 to this Report.
Item 3. Defaults Upon Senior Securities
See Notes 6 and 7 to the "Notes to the Condensed Quarterly Consolidated
Financial Statements" in Part I, Item 1 to this Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Limited Liability Company Agreement (Second
Restatement), dated as of February 20, 1998, by and among
Western Realty Development LLC, Apollo Real Estate Fund III,
L.P., New Valley Corporation and BrookeMil Ltd.
10.2 Participating Loan Agreement, dated as of April 28, 1998, by and
between Western Realty Development LLC, Western Tobacco
Investments LLC and Brooke (Overseas) Ltd.
10.3 Limited Liability Company Agreement, dated as of June 18, 1998,
by and among Western Realty Repin LLC, Apollo Real Estate Fund
III, L.P., and New Valley Corporation.
10.4 Participating Loan Agreement, dated as of June 18, 1998, by and
between Western Realty Repin LLC and BrookeMil Ltd.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
-20-
<PAGE> 21
SIGNATURE
Pursuant to the requirements 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)
Date: August 14, 1998 By: /s/ J. Bryant Kirkland III
-------------------------------
J. Bryant Kirkland III
Vice President, Treasurer
and Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer)
-21-
<PAGE> 1
Exhibit 10.1
------------------------------------------
AMENDED AND RESTATED
WESTERN REALTY DEVELOPMENT LLC
LIMITED LIABILITY COMPANY AGREEMENT
(SECOND RESTATEMENT)
------------------------------------------
<PAGE> 2
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
(SECOND RESTATEMENT)
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (SECOND
RESTATEMENT), dated as of February 20, 1998, by and among Western Realty
Development LLC, a Delaware limited liability company with offices at 103
Springer Building, 3411 Silverside Road, Wilmington, Delaware 19103 (the
"Company"), Apollo Real Estate Investment Fund III, L.P., a Delaware limited
partnership with offices at 1301 Avenue of the Americas, New York, New York
("Apollo"), New Valley Corporation, a Delaware corporation with offices at 100
S.E. Second Street, 32nd Floor, Miami, Florida ("New Valley"), and BrookeMil
Ltd., a Cayman Islands company with offices at P.O. Box 219, Fifth Floor,
Butterfield House, George Town, Grand Cayman, B.W.I. ("BrookeMil") (New Valley
and BrookeMil are sometimes hereinafter referred to collectively as the "New
Valley Parties," and Apollo and the New Valley Parties are sometimes hereinafter
referred to collectively as the "Members" and individually as a "Member").
W I T N E S S E T H :
WHEREAS, the parties hereto have entered into the Amended and Restated
Western Realty Development LLC Limited Liability Company Agreement, dated as of
February 20, 1998, and, on April 28, 1998, hereby further amend and restate such
Agreement;
WHEREAS, the Company has been formed to act as a holding company and
(i) to own 100% of the interests of Western Realty Investments LLC, a Delaware
limited liability company ("Delaware LLC-2"), which in turn will own 99% of
Western Realty LLC, a Russian limited liability company (the "Russian LLC"),
created to hold the rights to, develop and manage properties in
<PAGE> 3
Moscow, Russia located at Ul. Gasheka 6 ("Ducat Place III") and 7 ("Ducat Place
II") and (ii) to lend money (after giving effect to the transactions described
below) to Western Tobacco Investments LLC, a Delaware limited liability company
("Delaware LLC-3"), under the Participating Loan Agreement (as hereinafter
defined);
WHEREAS, BrookeMil has transferred its rights with respect to Ducat
Place II, together with associated assets and liabilities, to the Russian LLC;
WHEREAS, BrookeMil currently holds rights with respect to Ducat Place
III and will transfer such rights, together with associated assets and
liabilities, to the Russian LLC;
WHEREAS, the parties hereto have agreed that the Western Tobacco
Investments LLC Limited Liability Company Agreement entered into among the
Company, Delaware LLC-3 and Brooke (Overseas) Ltd., a Delaware corporation
("Brooke (Overseas)"), dated as of February 27, 1998, shall be terminated and
that the Participating Loan Agreement substantially in the form annexed hereto
as Exhibit A (the "Participating Loan Agreement") contemplating a $20,000,000
loan from the Company to Delaware LLC-3 (the "Participating Loan") shall be
entered into among the Company, Delaware LLC-3 and Brooke (Overseas);
WHEREAS, each Member has agreed to subscribe for and to purchase
interests in the Company in return for the contributions to the Company
described below; and
WHEREAS, the Members wish to set forth their respective rights and
obligations as Members of the Company and to confirm the principles that will
govern the management of the Company and its Affiliated Entities;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
-2-
<PAGE> 4
1. Defined Terms.
Capitalized terms not otherwise defined herein shall have the meanings
set forth on Schedule A.
2. Organization; Interests.
2.1 Certificate of Formation. The parties acknowledge that the
Company was formed on October 27, 1997 and that the Certificate of Formation of
the Company is currently in the form annexed hereto as Schedule 2.1. The parties
hereby agree that the rights and liabilities of the Members shall be as provided
in the Act, except as provided herein. The parties acknowledge that the original
Limited Liability Company Agreement of the Company dated November 4, 1997 has
been terminated and superseded by the present Agreement.
2.2 Purpose. The Company was formed for the purpose of
investing, developing and operating, through its interests in Delaware LLC-2 and
through the Participating Loan to Delaware LLC-3, Ducat Place II, Ducat Place
III and other real estate interests as provided herein. The purpose of the
Company can be modified as provided in Section 14.4 hereof or otherwise by
agreement of the Members.
-3-
<PAGE> 5
2.3 Principal Office. The principal office of the Company
shall be located at 103 Springer Building, 3411 Silverside Road, Wilmington,
Delaware 19103.
2.4 Subscription for Interests.
(a) Apollo hereby subscribes for interests (the
"Class A Interests"), to be issued by the Company for an aggregate subscription
price of $40,000,000, to be contributed in cash as provided below. New Valley
hereby subscribes for interests (the "Class B Interests"), to be issued by the
Company for an aggregate subscription price of $10,000,000, to be contributed in
cash and expenditures as set forth in Section 2.4(d). BrookeMil hereby
subscribes for interests (the "Class C Interests"), to be issued by the Company
for an aggregate subscription price of $61,966,507, to be contributed by
transferring to the Russian LLC its interests in Ducat II and Ducat III, to
Delaware LLC-2 all of its interest in the Russian LLC, except for a 1% interest,
in exchange for promissory notes, and contributing such promissory notes to the
Company, as set forth in Section 2.4(e). The Class A Interests, the Class B
Interests and the Class C Interests are hereinafter collectively referred to as
the "Interests." The subscriptions shall be made as follows:
<TABLE>
<CAPTION>
Apollo:
- -------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class A 10,000 Cash $40,000,000
Interests
Total: 10,000 $40,000,000
New Valley:
- ----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
Class B 1,400 Expenditures
Interests as set forth $10,000,000
in Section 2.4(d)
and Cash
Total: 1,400 $10,000,000
</TABLE>
-4-
<PAGE> 6
<TABLE>
<CAPTION>
BrookeMil:
- ----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class C 6,381 Promissory Note $ 45,980,553
Interests for Interests
in the Russian LLC
(for Ducat Place II)
2,219 Promissory Note $ 15,985,954
for Interests
in the Russian LLC
(for Ducat Place III)
Total: 8,600 $ 61,966,507
Total for all
- -------------
Members: 20,000 $111,966,507
- -------
</TABLE>
(b) At the Initial Closing (as defined in Section
12.1) the Company issued (i) five (5) of its Class A Interests, at a price of
$4,000 per interest and (ii) five (5) of its Class B Interests, at a price of
$1,000 per interest. The contributions of the Members to the Company and the
amounts and types of Interests issued to them at the Initial Closing were as
follows:
<TABLE>
<CAPTION>
Apollo:
- -------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class A 5 Cash $20,000
Interests
New Valley:
- -----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
Class B 5 Expenditures $ 5,000
Interests
Total Interests Issued: 10 $25,000
</TABLE>
-5-
<PAGE> 7
At the Initial Closing, Apollo made a loan of $11,000,000 to the Company (the
"Apollo Loan") which was represented by a promissory note in favor of Apollo
dated February 27, 1998 (the "Promissory Note") which Promissory Note was
secured by the pledge of 99.1% of the outstanding shares of the capital stock of
BrookeMil under a pledge agreement between Apollo and New Valley dated as of
February 27, 1998 (the "Pledge Agreement"). The entire amount of the Apollo Loan
was disbursed to the order of the Company by wire transfer in immediately
available funds to the account specified in such wire instructions on the
Initial Closing Date.
(c) At the Initial Subsequent Closing (as defined in
Section 12.6) the Company shall issue (i) seven thousand eighty-one (7,081) of
its Class A Interests, at a price of $2,824.46 per interest, (ii) seven hundred
(700) of its Class B Interests, at a price of $7,142.85 per interest, and (iii)
six thousand three hundred eighty-one (6,381) of its Class C Interests, at a
price of $7,205.85 per interest. The contributions of the Members to the Company
and the amounts and types of Interests to be issued to them at the Initial
Subsequent Closing shall be as follows:
<TABLE>
<CAPTION>
Apollo:
- -------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class A 3,186 $9,000,000 in Cash $9,000,000
Interests
3,895 Conversion of $11,000,000
Apollo Loan
Total Since 7,086 $20,020,000
Initial Closing:
</TABLE>
-6-
<PAGE> 8
<TABLE>
<CAPTION>
New Valley:
- -----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class B 700 Expenditures $5,000,000
Interests as set forth
in Section 2.4(d)
Total Since 705 $5,005,000
Initial Closing:
BrookeMil:
- ----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
Class C 6,381 Promissory Note $45,980,553
Interests for Interests
in the Russian LLC
(for Ducat Place II)
Total Since 6,381 $45,980,553
Initial Closing:
Total for All
- -------------
Members Since 14,172 $71,005,553
- -------------
Initial Closing:
- ---------------
</TABLE>
The entire amount of the Apollo Loan (including the principal and any interest
accrued thereon) shall be converted into the Class A Interests at the Initial
Subsequent Closing, to be credited as a contribution by Apollo in the amount of
$11,000,000 towards the aggregate subscription amount set forth in Section
2.4(a), which contribution, upon such conversion, shall be considered made for
the purposes of this Agreement as of the Initial Closing Date. For the avoidance
of doubt, upon the conversion of the Apollo Loan into the Class A Interests as
set forth herein, the Apollo Loan shall be terminated and no payment of
principal, interest or any other amounts shall be due thereon.
-7-
<PAGE> 9
(d) At the Initial Subsequent Closing, at the Second
Subsequent Closing and from time to time after the Second Subsequent Closing and
on or before the fifth anniversary of the Initial Closing Date, Apollo and New
Valley shall complete their subscribed contributions to the Company in
accordance with the Other Subsequent Closings described in Section 12.10 hereof,
up to the subscription amounts set forth in Section 2.4(a), in return for which
additional Class A Interests shall be issued to Apollo and additional Class B
Interests shall be issued to New Valley at the same price per Interest as set
forth in Section 2.4(c) hereof. Upon ten (10) Business Days' notice by the
Company to each of Apollo and New Valley (or, in case of the Initial Subsequent
Closing, on the Initial Subsequent Closing Date, and, in case of the Second
Subsequent Closing, on May 6, 1998), such additional contributions shall be made
by Apollo in cash and by New Valley in expenditures incurred since March 1,
1997, including those expenditures incurred through the date hereof and set
forth in Schedule 2.4(d), and, after such expenditures have been contributed and
to the extent they do not cover the subscribed amount, in cash, and such
contributions shall be made in such manner so as to maintain the ratio of $4.00
contributed by Apollo for every $1.00 in value contributed by New Valley, and
Apollo shall at all times have the number of interests equal to the number of
interests owned by New Valley and BrookeMil together. New Valley shall be deemed
to have made contributions to the Company in the form of the expenditures
referred to in the preceding sentence only on the due date determined for
additional contributions to the Company at a Subsequent Closing (and then only
to the extent that such expenditures are actually made as of the date of such
Subsequent Closing) as provided in Section 12.10 hereof (and New Valley shall
not be entitled to any interest thereon from the date such expenditures were
incurred to the date of such Subsequent Closing) regardless
-8-
<PAGE> 10
of the date such expenditures were incurred, and any expenditures that are to be
counted as New Valley's contributions but that are not set forth in Schedule
2.4(d) or that do not constitute items on the approved Budget shall be
unanimously approved by the Board of Managers. To the extent the sum of the
amount of expenditures of the New Valley Parties with respect to Ducat II and
Ducat III incurred since March 1, 1997 and set forth in Schedule 2.4(d) and of
expenditures incurred by them after the Initial Closing Date on items set forth
in the approved Budget exceeds $10,000,000, the New Valley Parties shall be
reimbursed by the Company from the proceeds of Subsequent Closings for such
expenditures in excess of $10,000,000 (to the extent the New Valley Parties
provide to Apollo proper documentation substantiating such expenditures).
(e) BrookeMil (i) has made part of its capital
contribution hereunder by means of transferring (x) to the Russian LLC the
assets and assumed liabilities listed in Schedule 2.4(e) (the "Assets" and the
"Assumed Liabilities," respectively) related to Ducat Place II, (y) to Delaware
LLC-2 its entire interest in the Russian LLC, less a 1% interest, in exchange
for a promissory note, and (z) to the Company such promissory note in return for
6,381 Class C Interests; and (ii) shall make the remaining part of its capital
contribution by means of transferring, as soon as practicable hereafter (x) to
the Russian LLC, the Assets and the Assumed Liabilities listed in Schedule
2.4(e) related to Ducat Place III, (y) to Delaware LLC-2 its entire interest (as
it has been increased as a result of such transfer) in the Russian LLC at the
time of such transfer, less a 1% interest, in exchange for a promissory note,
and (z) to the Company such promissory note in return for 2,219 Class C
Interests. Upon the completion of the transfers contemplated in clauses (i) and
(ii) of the preceding sentence, BrookeMil shall have no further liability for
capital contributions to the Company hereunder.
(f) In the event any Member shall fail to make any
portion of its
-9-
<PAGE> 11
contribution to the Company when due for any reason, other than an Event of
Force Majeure, then, beginning on the fourth Business Day after the due date for
such contribution, the Company shall charge such non-paying Member interest on
the unpaid amount of such contribution at the rate equal to the lesser of (i)
10% over the base (prime) rate quoted by the Chase Manhattan Bank in New York,
New York (or its successor) at the close of business on the date on which such
payment was due, or (ii) the maximum rate as allowed by applicable law,
calculated from the date such contribution was due until the date of payment
compounded quarterly and based on a 360-day year ("Late Payment Interest"). Late
Payment Interest shall be distributed to the Members who made their
contributions in full on the due date therefor, pro rata in accordance with the
proportion that the aggregate contributions of each paying Member bear to the
aggregate contributions of all paying Members. In the event that such failure to
pay shall continue uncured for a period of one hundred and twenty (120) days
after notice thereof, such non-payment shall be deemed a payment default (a
"Payment Default"). Upon the occurrence and continuation of a Payment Default,
Late Payment Interest shall continue to accrue and Members who have made their
contributions in full on the due date therefor shall have the right to require
the sale of Ducat Place II and the New Factory as set forth in Section
2.10(a)(iv). Notwithstanding any other provision of this Agreement to the
contrary, the portion of the proceeds from the sale of Ducat Place II and/or the
New Factory to which the non-paying Member or Members would otherwise be
entitled shall be subject to reduction for any portion of such unpaid
contribution and any Late Payment Interest thereon and such amounts shall be
paid to the non-defaulting Members in proportion to their Interests in the
Company.
2.5 Payment of Cash Contributions by Members. The Members
shall effect their cash contributions to the Company by wire transfer in
immediately available funds to such
-10-
<PAGE> 12
bank account of the Company as shall be specified in a notice by the Company to
the Members sent at least one Business Day prior to the date of any Closing (as
defined in Section 12 hereof).
2.6 Restrictions on Subscriptions for Interests. The Company
shall not issue any Interests other than to the Members who are a party hereto,
unless the Members unanimously agree
2.7 Rights of Class A Interests.
(a) The Class A Interests shall be entitled to
receive (i) 100% of any amounts distributed by the Company (including
liquidating distributions) until such time as the aggregate amount of
distributions made with respect to Class A Interests equals the total
consideration paid for such Class A Interests plus a 15% annual cumulative rate
of return on such consideration compounded quarterly (such aggregate amount of
distributions is hereinafter referred to as the "Class A Distribution Amount"
and the period required to make such distributions with respect to Class A
Interests in full is hereinafter referred to as the "Class A Distribution
Period"); and (ii) after completion of the Class A Distribution Period and the
Class B Distribution Period (as hereinafter defined), further distributions by
the Company, if any, in an amount equal to 30% of the distribution. The
distribution rights of the Class A Interests are set forth in more detail in
Section A.11 of Schedule 4 annexed hereto.
(b) Upon the liquidation of the Company, the holders
of the Class A Interests shall be entitled to receive the Adjusted Realized
Equity Value of such Class A Interests (the "Class A Liquidation Preference")
before any assets of the Company may be distributed to the holders of the Class
B Interests; provided, however, that the Class A Interests shall be entitled to
such Class A Liquidation Preference only in the event such liquidation takes
place before the completion of the Class A Distribution Period and then only to
the extent that such
-11-
<PAGE> 13
Adjusted Realized Equity Value does not exceed the Class A Distribution Amount.
After the completion of the Class A Distribution Period and the Class B
Distribution Period and upon the liquidation of the Company, the holders of the
Class A Interests shall be entitled to receive distributions in accordance with
Section 2.7(a)(ii) hereof. Notwithstanding the foregoing provisions of this
Section 2.7(b), the rights of the Class A Interests to receive distributions in
liquidation of the Company are subject to the provisions of Section A.12 of
Schedule 4 annexed hereto.
(c) The holders of Class A Interests shall have one
vote in the aggregate.
2.8 Rights of Class B and Class C Interests.
(a) Upon completion of the Class A Distribution
Period, the Class B Interests shall be entitled to receive 100% of any amounts
distributed by the Company (including liquidating distributions) until such time
as the aggregate amount of distributions made with respect to the Class B
Interests equals the total consideration paid for such Class B Interests
pursuant to Section 2.4 plus a 15% annual cumulative rate of return on such
consideration paid for such Class B Interests compounded quarterly (such
aggregate amount of distributions is hereinafter referred to as the "Class B
Distribution Amount" and the period required to make such distributions with
respect to the Class B Interests in full is hereinafter referred to as the
"Class B Distribution Period").
(b) Upon the liquidation of the Company, the holders
of the Class B Interests shall be entitled to receive the Adjusted Realized
Equity Value of such Class B Interests (the "Class B Liquidation Preference")
before any assets of the Company may be distributed to the Members on a pro-rata
basis; provided, however, that the Class B Interests shall be entitled to
-12-
<PAGE> 14
such Class B Liquidation Preference only in the event such liquidation takes
place after the completion of the Class A Distribution Period but before the
completion of the Class B Distribution Period and then only to the extent that
such Adjusted Realized Equity Value does not exceed the Class B Distribution
Amount. After the completion of the Class B Distribution Period and upon the
liquidation of the Company, the holders of the Class B Interests shall be
entitled to receive distributions in accordance with Section 2.8(c) hereof.
Notwithstanding the foregoing provisions of this Section 2.8(b), the rights of
the Class B Interests to receive distributions in liquidation of the Company are
subject to the provisions of Section A.12 of Schedule 4 annexed hereto.
(c) After completion of the Class A Distribution
Period and the Class B Distribution Period, the Class B Interests and the Class
C Interests shall be entitled to further distributions by the Company, if any,
in an amount equal to 70% of the distribution. The distribution rights of the
Class B Interests and the Class C Interests are set forth in more detail in
Section A.11 of Schedule 4 annexed hereto.
(d) The holders of the Class B Interests and the
Class C Interests shall have one vote in the aggregate.
2.9 Management of the Company. Except to the extent that the
authority to conduct day-to-day operations of the Company shall be delegated to
the President as provided herein, the management of the Company shall be vested
in a managing board (the "Board" or the "Board of Managers"), which shall
consist of an even number of managers, but not less than two (2) or more than
six (6). An equal number of managers shall be appointed to the Board (and
subject to removal and replacement) by Apollo on the one hand and by the New
Valley Parties on
-13-
<PAGE> 15
the other hand. Meetings of the Board shall be held periodically (but in no
event less frequently than annually) and upon the request of any manager. The
Board may also take action by unanimous written consent without a meeting.
Except as otherwise provided herein, the actions of the Board shall be by
majority vote, which majority shall include the vote of at least one (1) manager
appointed by each of Apollo and the New Valley Parties. Bennett S. LeBow or such
other person designated by the New Valley Parties (who shall count as one of the
appointments of the New Valley Parties) shall be the Chairman of the Board of
Managers.
Notwithstanding the foregoing, the unanimous decision of the Board of
Managers of the Company shall be required in order for the Company itself, or in
its capacity as a direct or indirect shareholder, member or participant of any
Affiliated Entity, to vote or otherwise approve a decision:
(a) to amend this Agreement or the constituent
documents of the Company and to adopt or amend the constituent documents of any
Affiliated Entity, or to waive any provisions hereof or thereof, and to amend
the Participating Loan Agreement or to waive any provisions thereof;
(b) unless specified in the approved Budget (as
hereinafter defined), to sell, transfer, assign, grant a right to use, a right
of first refusal, an option or a similar right, or otherwise dispose of (i) any
of the Properties, or any rights thereto or interests therein (including but not
limited to ownership rights, leasehold interests (whether as landlord or
tenant), rights to use or easements) or (ii) any asset (or group of assets in a
transaction or series of transactions) the cost or fair market value (whichever
is greater) of which exceeds $100,000 individually or $500,000 in the aggregate
in any given year, except as permitted by Section 2.10 and except for
transactions between the Russian LLC and Delaware LLC-2;
-14-
<PAGE> 16
(c) unless specified in the approved Budget, to
borrow, issue guarantees or assume other contingent obligations to pay money in
an amount which exceeds $100,000 in the aggregate outstanding at any given time,
except for transactions between the Russian LLC and Delaware LLC-2;
(d) unless specified in the approved Budget, to grant
a security interest or otherwise encumber (i) any of the Properties or any
rights thereto or interests therein (including but not limited to ownership
rights, leasehold interests (whether as landlord or tenant), rights to use or
easements), or (ii) any asset (or group of assets in a transaction or series of
transactions) the cost, fair market value or value assigned in such
transaction(s) (whichever is greater) of which exceeds $100,000 at any one time
or $500,000 in the aggregate in any given year;
(e) to take any actions regarding registration of the
Interests in the Company or any Affiliated Entity necessary for a public
offering;
(f) to merge, reorganize or consolidate the Company
or any Affiliated Entity with any other corporation or entity unless the
surviving entity shall be the Company or such other Affiliated Entity,
respectively, or the Company or other Affiliated Entity is merged, reorganized
or consolidated with an Affiliate thereof;
(g) to dissolve voluntarily the Company or any
Affiliated Entity or to revoke voluntary dissolution proceedings or to
terminate, liquidate or wind up the Company or Affiliated Entity;
(h) to change materially the principal businesses
conducted by the Company or any Affiliated Entity or to make any expenditures
with respect to Ducat Place III except as may be specified in the approved
Budget;
-15-
<PAGE> 17
(i) to approve the annual budget and business plan,
including capital expenditures, of the Company (collectively, the "Budget"),
which Budget shall incorporate the annual budgets and business plans of Delaware
LLC-2, the Russian LLC and Delaware LLC-3, as well as any contributions or
resources to be made available by the Company to any other Affiliated Entity;
(j) unless specified in the approved Budget, to make
or incur, or to enter into a contractual commitment to make or incur
expenditures or financial obligations which exceed $250,000 individually or
$1,000,000 in the aggregate in any calendar year;
(k) unless specified in the approved Budget, to
purchase ownership interests, leasehold interests, rights to use, easements or
other rights to or interests in the Properties or elsewhere for the price
exceeding $100,000 in each particular transaction or exceeding $500,000 in the
aggregate in any given year, including approval of agreements with respect to
acquiring such rights, or to waive any rights of first refusal, preemptive or
similar rights relating to the purchase of any such rights to or interest in
such Properties or elsewhere;
(l) to enter into, modify, renew, terminate or grant
any material waiver relating to any significant leases and other material
contracts other than contracts in the ordinary course of business with trade
counterparties or customary real estate leases involving no more than 1000
square meters as approved by the President; provided that real estate lease
agreements with Members or any of their Affiliates exceeding 500 square meters
shall be considered significant for purposes of this clause;
(m) to enter into any transaction with a party that
is related to any Member or Affiliate, excluding transactions in the ordinary
course of business of the Company or an Affiliated Entity on an arm's-length
basis involving amounts which shall not exceed $250,000
-16-
<PAGE> 18
per transaction or series of transactions and excluding transactions in the
ordinary course of business of Liggett-Ducat involving Liggett Group Inc. on an
arm's-length basis; provided that written notice of all such transactions or
series of transactions involving more than $100,000, together with a description
of the material terms thereof, shall be promptly furnished to Apollo;
(n) to commence or settle any litigation, arbitration
or other dispute, the result of which could have a material adverse effect on
the business, financial condition or prospects of the Company or any Affiliated
Entity;
(o) to resolve tax or other governmental proceedings
or disputes relating to the Company or any Affiliated Entity or to approve any
action of New Valley as tax matters partner of the Company;
(p) to establish, acquire, dispose of or transfer any
subsidiary or any interest in any subsidiary or other entity (whether or not
incorporated) or make any investment in any business venture or enterprise
(whether or not incorporated), other than as contemplated in the approved
Budget;
(q) to change the outside accountants of the Company
or any Affiliated Entity;
(r) to issue, sell, transfer, assign or otherwise
dispose of any shares, capital stock, securities or interests of or owned by the
Company or any Affiliated Entity, or change the ownership structure of the
Company or any Affiliated Entity;
(s) unless specified in the approved Budget or in
this Agreement, to make a decision not to distribute all available cash (to the
extent such distributions are permitted by applicable law) of (i) the Company to
the Members, or (ii) an Affiliated Entity to its shareholders, members or
participants, as applicable; and
-17-
<PAGE> 19
(t) to retain any officer subject to mandatory
dismissal as provided in Section 5.1(c).
All figures set forth in this Section 2.9 shall be determined on a
consolidated basis in accordance with U.S. generally accepted accounting
principles, consistently applied. To the extent that any amounts or payments are
incurred in any currency other than U.S. dollars, such amounts or payments
shall, for purposes of such calculation, be converted into U.S. dollars on the
date of the conclusion of the transaction at the official exchange rate of such
country (which, for purposes of the ruble, shall be considered to be the MICEX
rate at the opening of business in Moscow on such date). The Parties hereby
agree that the Participating Loan Agreement shall include provisions requiring
the Company's approval (directly or indirectly) of the issues set forth in this
Section 2.9 and that Apollo shall be authorized to grant the approvals to be
granted by the Company under Section 5.1 of the Participating Loan Agreement.
2.10 Sale of Interests in the Company and Its Assets.
(a) Sale of Assets.
(i) At any time after at least 80% of the net
leasable space of Ducat Place III has been leased to tenants, the New Valley
Parties shall have the right to sell, or cause to be sold, Ducat Place III
without the consent of Apollo, provided that (x) the cash price payable in one
lump sum at the closing of such sale shall be no less than $175,000,000; (y)
Ducat Place III is sold to one or more purchasers through an auction process
conducted by an internationally recognized investment bank or real estate
brokerage firm; and (z) construction of Ducat Place III has been completed.
(ii) The Participating Loan Agreement shall provide
that at any time
-18-
<PAGE> 20
after the completion of the construction of the New Factory, Brooke (Overseas)
shall have the right to sell, or cause to be sold, the New Factory without
Apollo's consent, provided that (x) the cash price payable in one lump sum at
the closing of such sale shall be no less than $175,000,000; and (y) the New
Factory is sold to one or more purchasers through an auction process conducted
by an internationally recognized investment bank or real estate brokerage firm.
(iii) At any time after February 20, 2005, Apollo
shall have the right to require the sale, without the consent of the New Valley
Parties, of all of the assets of the Company, directly and indirectly held,
including but not limited to Ducat Place II, Ducat Place III, Delaware LLC-2 and
Russian LLC, and, through the Company's interest in the Participating Loan
Agreement, all the assets of Delaware LLC-3, including the New Factory, provided
that (x) the cash price payable for all the assets of the Company and Delaware
LLC-3 in one lump sum at the closing of such sale shall be no less than
$430,000,000; and (y) all assets are sold to one or more purchasers through an
auction process conducted by an internationally recognized investment bank or
real estate brokerage firm.
(iv) In the event of (A) a Payment Default by a
Member as set forth in Section 2.4(f) or (B) a material breach by the New Valley
Parties with respect to the provisions of Section 2.9 hereof, which material
breach remains uncured 60 days after receipt by the New Valley Parties of
written notice from Apollo setting forth in detail the alleged default, then, in
each such instance, the non-defaulting Members shall have the right to require
the sale of Ducat Place II, provided that (x) the cash price payable in one lump
sum at the closing of such sale shall be no less than $75,000,000, and (y) Ducat
Place II is sold to one or more purchasers through an auction process conducted
by an internationally recognized investment bank or real estate brokerage firm.
In the event that such sale of Ducat Place II and the distribution of the
proceeds
-19-
<PAGE> 21
therefrom to the non-defaulting Members shall not exceed the Adjusted Realized
Equity Value of the Interests of such non-defaulting Members, such
non-defaulting Members shall have the right to require the sale of the New
Factory, provided that (x) the cash price payable in one lump sum at the closing
of such sale shall be no less than $165,000,000, and (y) the New Factory is sold
to one or more purchasers through an auction process conducted by an
internationally recognized investment bank or real estate brokerage firm.
(v) In the event of (A) the failure of Brooke
(Overseas) to secure or provide the Russian Bank Loan or to arrange other
financing, each on terms that shall not differ materially from those set forth
on Schedule 2.10(v) by July 1, 1998 or (B) a payment default under the Russian
Bank Loan which default results in the acceleration of all amounts due
thereunder or the commencement of enforcement proceedings by the bank against
Liggett-Ducat under the Russian Bank Loan (a "Loan Default"), then, in each such
instance, Apollo shall have the right to require the sale, without the consent
of the New Valley Parties, of all of the assets of the Company, directly or
indirectly held, including but not limited to, Ducat Place II, Ducat Place III,
Delaware LLC-2 and the Russian LLC, and, through the Company's interest in the
Participating Loan Agreement, all the assets of Delaware LLC-3, including the
New Factory, provided that (x) the sale shall be on commercially reasonable
terms and (y) prior to entering into a definitive agreement with respect to any
such sale, Brooke (Overseas) shall not have secured or provided the Russian Bank
Loan or arranged other financing on terms that shall not differ materially from
those set forth on Schedule 2.10(v), or Liggett-Ducat or Brooke (Overseas) shall
not have cured the Loan Default, whether by payment, purchase or refinancing of
the Russian Bank Loan or otherwise, provided the Loan Default can be cured at
any time as long as after it has been cured Delaware LLC-3 shall have the same
rights with respect to the New Factory as it had prior to the occurrence of the
Loan Default, respectively.
-20-
<PAGE> 22
(vi) In the event Apollo has terminated this
Agreement in accordance with Section 14.2(c), then Apollo shall have the right
to require the sale, without the consent of the New Valley Parties, of all of
the assets of the Company, directly or indirectly held, including but not
limited to, Ducat Place II, Ducat Place III, Delaware LLC-2 and the Russian LLC,
and, through the Company's interest in the Participating Loan Agreement, all the
assets of Delaware LLC-3, including the New Factory, provided that (x) the sale
shall be on commercially reasonable terms and (y) prior to entering into a
definitive agreement with respect to any such sale, the grounds for such
termination by Apollo under Section 14.2(c) shall not have been eliminated.
(b) Sale of Interests.
(i) Sale of Interests by New Valley. Notwithstanding
the provisions of Section 9 hereof, at any time after at least 80% of the net
leasable space of Ducat Place III has been leased to tenants and the
construction of Ducat Place III has been completed, the New Valley Parties shall
have the right to sell all of their Interests in the Company without the consent
of Apollo, provided that (x) the cash price payable in one lump sum at the
closing of the sale of all the Interests in the Company shall be no less than
$430,000,000; and (y) the Interests of New Valley are sold to one or more
purchasers through an auction process conducted by an internationally recognized
investment bank or real estate brokerage firm. In the event the New Valley
Parties elect to exercise such right to sell all of their Interests in the
Company, they shall send to Apollo a written notice of such election at least
sixty (60) days prior to the closing of such sale, and Apollo shall have the
right and, at the request of the New Valley Parties, Apollo shall be obligated,
to sell all of its Interests within sixty (60) days of receipt of such notice to
the
-21-
<PAGE> 23
same purchaser or group of purchasers as the New Valley Parties on the same
terms and conditions as the New Valley Parties.
(ii) Sale of Interests by Apollo. At any time after
February 20, 2005, Apollo shall have the right to sell all of its Interests in
the Company without the consent of the New Valley Parties, provided that (x) the
cash price payable in one lump sum at the closing of the sale of all the
Interests in the Company shall be no less than $430,000,000; and (y) the
Interests of Apollo are sold to one or more purchasers through an auction
process conducted by an internationally recognized investment bank or real
estate brokerage firm. In the event Apollo elects to exercise such right to sell
all of its Interests in the Company, it shall send the New Valley Parties a
written notice of such election at least sixty (60) days prior to the closing of
such sale, and the New Valley Parties shall have the right and, at the request
of Apollo, the New Valley Parties shall be obligated, to sell all of their
Interests within sixty (60) days of receipt of such notice to the same purchaser
or group of purchasers as Apollo on the same terms and conditions as Apollo.
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(c) Notwithstanding anything to the contrary in this
Agreement, (i) a partial sale of Interests by any Member shall not be permitted,
(ii) all sales of Interests or assets of the Company or Delaware LLC-3 shall be
on a cash basis in U.S. Dollars, and (iii) no Member shall be entitled to
pledge, create a lien against, mortgage or otherwise encumber any Interests
owned by it or any distributions that such Member would be entitled to hereunder
as a result of owning such Interests. Each of the New Valley Parties and Apollo
shall retain the right to approve any provisions of any agreement for the sale
of Interests or any assets of the Company or Delaware LLC-3 with respect to
indemnification or other post-closing contingent liabilities or price
adjustments. It shall be a condition to any transfer under Section 2.10(b) that
the transferee becomes a party to this Agreement.
(d) Notwithstanding any provision of this Section
2.10 to the contrary, no sales of the assets of the Company or Delaware LLC-3 or
Interests shall be permitted by any Member to any of its Affiliates without the
prior written consent of the other Members.
3. Use of Contributions and Financing.
3.1 Use of Contributions.
(a) The contributions in cash and, in the case of New
Valley, expenditures as set forth in Section 2.4(d), received by the Company
from the Members shall be used as follows: (i) $30,000,000 will be used as
specified in the approved Budget for financing the construction, operation and
development of Ducat Place II, Ducat Place III and such other projects as may be
approved in the Budget, and to reimburse the New Valley Parties for the
expenditures in excess of $10,000,000 as set forth in Section 2.4(d); and (ii)
$20,000,000 will be loaned to Delaware LLC-3 in accordance with the
Participating Loan Agreement to finance the construction of the New Factory and
the acquisition of related equipment, and to reimburse
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Brooke (Overseas) for expenditures incurred by Brooke in connection therewith
since March 1, 1997, as shall be specified in the Participating Loan Agreement.
(b) At the time of any capital call, the purpose for
which funds are being called shall be set forth in an approved Budget.
3.2 Financing. The Company may obtain additional working
capital or other funds required for the business of the Company through
borrowings on the basis of its own credit rating from commercial banks or other
institutional lenders, subject to the Budget or the unanimous approval of the
Board of Managers as set forth in Section 2.9. Although the Members will not be
required to guarantee any such borrowings, the Members shall use good faith
efforts to assist the Company in obtaining such funds on the most favorable
commercial terms.
4. Allocations of Income and Loss. The Company's net taxable income and
loss shall be allocated among the Members as set forth in Schedule 4 hereto.
5. Officers, Principal Office and Independent Accountants.
5.1 Chairman and Corporate Officers.
(a) Except as otherwise provided herein, the officers
of the Company and the Russian LLC and the Chairman of the Board of Managers of
the Company shall be appointed and removed by New Valley. The initial Chairman
of the Board of Managers of the Company will be Bennett S. LeBow. The officers
of the Company will be as follows:
President - Michael Capaccio;
Vice President - Ronald J. Bernstein; and
Secretary - Richard J. Lampen.
The officers of Delaware LLC-2 shall be as follows:
President - Michael Capaccio;
Vice President - Ronald J. Bernstein; and
Secretary - Richard J. Lampen.
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The officers of the Russian LLC shall be as follows:
General Director - Ronald J. Bernstein, to be replaced by
Michael Capaccio as soon as practicable hereafter;
Deputy General Director - Ronald J. Bernstein (upon such replacement);
and
Deputy General Director - Olga N. Grigorieva.
The Chairman of Delaware LLC-3 shall be Bennett S. LeBow. The officers of
Delaware LLC-3 shall be:
President - Ronald J. Bernstein;
Chief Financial Officer - Stewart Hainsworth; and
Secretary - Richard J. Lampen.
The General Director of Liggett-Ducat shall be Ronald J. Bernstein.
The General Director of LD Tobacco shall be Ronald J. Bernstein.
(b) Apollo shall have the right to approve (i)
replacements of any of the officers set forth in this Section 5.1; and (ii) the
appointment of any senior executive officer of an Affiliated Entity. Such
approval shall not be unreasonably withheld or delayed.
(c) Any officer of the Company or any Affiliated
Entity shall be subject to mandatory dismissal for fraud, bad faith, gross
negligence, criminal conviction or plea, and a final, non-appealable finding of
or consent to injunction with respect to violations of antifraud or
antimanipulative provisions of securities, commodities or banking laws by a
court of competent jurisdiction, unless retention is approved unanimously by the
Board of Managers as provided in Section 2.9.
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(d) Subject to Section 2.9(o) hereof, New Valley
shall be the tax matters partner for the Company.
5.2 Responsibilities of the President. The President of the
Company shall execute the decisions of the Board of Managers and have all
authority to conduct the day-to-day operations of the Company except as
otherwise provided herein.
5.3 Salaries to Employees.
(a) The parties agree that neither the Company nor
any Affiliated Entity shall pay any salaries to employees of Apollo or New
Valley, other than to the employees involved in day-to-day business operations
in Russia (the latter category including, among others, Ronald J. Bernstein ,
Michael Capaccio and Stewart Hainsworth).
(b) The salaries of the officers of the Company and
each Affiliated Entity shall be approved in the Budget or as determined from
time to time by the Board of Managers.
5.4 Independent Accountants. The independent certified public
accountants of the Company and each Affiliated Entity shall be a firm of
internationally recognized accountants selected by unanimous vote of the Board
of Managers as set forth in Section 2.9, and initially shall be Coopers &
Lybrand LLP.
6. Operation and Management of the Company.
6.1 Books and Records; Audited Financial Statements. Each of
the Members acknowledges and agrees that the Company and the Russian LLC shall
each be treated as a partnership of which the Members are partners for income
tax purposes, and further agrees to cooperate to achieve and maintain such
treatment. In this regard, an election will be filed with
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the U.S. Internal Revenue Service under Treasury Regulations Section 301.7701-3
on behalf of the Russian LLC to elect treatment of the Russian LLC as a
partnership for U.S. tax purposes, effective as of the date of its initial
formation. The Company's books of account shall be maintained on a basis
consistent with such treatment and on the same basis used in preparing the
Company's United States federal income tax return. The year-end balance sheet,
statement of operations and statement of change in financial position shall be
audited each year by the independent certified public accountants of the
Company, whose written report shall be provided to each of the Members no later
than 60 days after the end of each fiscal year.
6.2 Other Reports. In addition to annual audited financial
statements, each fiscal quarter the President shall prepare and distribute to
each Member of the Company a report providing for each Member its allocable
share of income, gain, loss, deduction and credit and such other general reports
as determined by the Members, which shall include unaudited quarterly financial
statements.
6.3 Access. Each of the Members, together with their lawful
agents, attorneys and representatives, shall have access to the books and
records and facilities and senior management of the Company during all normal
business hours.
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6.4 Business Plan and Budget. The Company shall provide to
each of the Members a proposed annual Budget, which shall include information
with respect to the operation of the business to be conducted by each Affiliated
Entity for each fiscal year, at least thirty (30) days before the beginning of
such fiscal year. Such Budget shall include estimates of anticipated capital
calls. The initial Budget of the Company, for the year 1998, is annexed hereto
as Schedule 6.4. The Members of the Company shall approve the Budget as provided
in Section 2.9 hereof. The day-to-day operations of the Company and each
Affiliated Entity shall be conducted by the officers of the Company within 10%
variances from the Budget agreed upon by the Members. The Budget shall be
designed to ensure that the Company shall at all times qualify as a "real estate
operating company" under the provisions of ERISA.
6.5 Limitations on Activities.
(a) Except as provided by the Board of Managers or as
contemplated in the approved Budget or the Participating Loan Agreement, (i) no
part of Ducat Place II, Ducat Place III, the New Factory or any other Property
shall be used as collateral for the purpose of any development other than its
own development and (ii) no sale, refinancing or other capital proceeds from
Ducat Place II, Ducat Place III, the New Factory or any other Property may be
used other than for budgeted capital expenditures involving the same property
that generated such proceeds.
(b) For ERISA purposes only, the Company shall
maintain its status as a "real estate operating company" at all times. If Apollo
or its counsel shall reasonably determine at any time that the Company may not
qualify for such status, Apollo and the New Valley Parties shall reorganize the
corporate structure of the Company and its Affiliates or take such other
necessary action in order to permit the Company to so qualify, unless the reason
that
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the Company may not qualify as a "real estate operating company" is due to a
breach by Apollo of the provisions of this Agreement or actions of Apollo
unrelated to the assets or business of the Company or any of its Affiliates, in
which case Apollo and the New Valley Parties shall be required to use only
reasonable efforts to reorganize the corporate structure of the Company and its
Affiliates or take such other reasonably necessary action in order to permit the
Company to so qualify, giving due consideration to the relative economic and tax
benefits anticipated by the parties to this Agreement.
(c) The Members agree that, after the execution of
this Agreement, a new entity may be formed by Delaware LLC-2 and the Assets
relating to Ducat Place III may be transferred thereto, provided, however, that
BrookeMil shall contribute the Assets relating to Ducat Place III to the Russian
LLC as set forth in Section 2.4(e)(ii) hereof, unless the Members agree that
such new entity shall be formed prior to such transfer and that BrookeMil should
make its contribution directly to such new entity.
7. Establishment of Delaware LLC-2 and the Russian LLC.
7.1 Establishment of Delaware LLC-2.
(a) The parties acknowledge that Delaware LLC-2 was
formed on October 27, 1997 and that the Certificate of Formation of Delaware
LLC-2 is currently in the form the English translation of which is annexed
hereto as Schedule 7.1(a).
(b) The Limited Liability Company Agreement with
respect to
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Delaware LLC-2 shall be substantially in the form annexed hereto as Schedule
7.1(b).
7.2 Establishment of the Russian LLC. The parties acknowledge
that the Russian LLC has been established on December 15, 1997, that the
Certificate of Registration of the Russian LLC is annexed hereto as Schedule
7.2. The Members shall cause the Company to use all best efforts to obtain all
registrations, listings and filings and take all other actions required for its
operation under Russian law. Notwithstanding anything in this Agreement to the
contrary, no additional approval of the Board of Managers or any Member shall be
required for BrookeMil, the Russian LLC or the Company to complete the
transactions contemplated by Section 2.4(e), Sections 11.1 and 11.2 and this
Section 7.
8. Operation and Management of Affiliated Entities.
8.1 Management of Affiliated Entities. In addition to
management rights with respect to the Company as set forth in this Agreement,
Apollo shall have the following management rights with respect to each
Affiliated Entity:
(a) Apollo shall have the right to be kept informed,
consult with and advise management of each Affiliated Entity with regard to any
material developments in or affecting each Affiliated Entity's business; to
discuss business operations, properties and the financial or other condition of
each Affiliated Entity with its officers, employees and any relevant management
committee; to consult with and advise management on significant business issues;
and to meet regularly with management for such consultation and advice; and
(b) Apollo shall have the right to appoint one (1)
member of the management committee or board of directors, as applicable, of each
Affiliated Entity and shall have the right to dismiss and replace such member at
any time.
8.2 Books and Records; Audited Financial Statements. The
Company shall
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cause each Affiliated Entity, in addition to maintaining its books and accounts
in accordance with the law of the applicable jurisdiction, to prepare its
financial statements in accordance with U.S. generally accepted accounting
principles, consistently applied. The year-end balance sheet, statement of
operations and statement of change in financial position shall be audited each
year by Coopers & Lybrand LLP or another firm of independent certified public
accountants selected in accordance with Section 5.4 hereof, and the Company
shall provide the written report of such accountants to each of the Members. The
Company shall cause each Affiliated Entity to prepare all tax returns as soon as
practicable after the end of each fiscal year and, in any event, shall supply
the Members with reasonable estimates of the taxable income of each Affiliated
Entity within forty-five (45) days of the end of each fiscal year.
8.3 Access. The Company shall ensure that each of the Members,
at the cost of such Member, together with their lawful agents, attorneys and
representatives, shall have access to the books and records, facilities and
senior management of each Affiliated Entity during all normal business hours.
Apollo shall have access in Moscow, Russia and Miami, Florida to the books and
records of each Affiliated Entity.
9. Restrictions on Transfers of Interests.
9.1 Limitations on Members' Right to Sell Interests. Except as
contemplated by Section 2.10, Section 9.2 and Section 9.4, each of the Members
agrees not to transfer all or any of its Interests in the Company, and each
Member shall hold its Interests and, by accepting the same upon original issue,
upon distributions or upon subsequent transfer, agrees for itself, its
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successors, legal representatives and assigns that the Interests shall not be
sold, transferred, assigned, pledged, hypothecated or otherwise encumbered,
whether voluntarily or involuntarily, by operation of law, legal proceedings or
otherwise, other than as provided in this Section 9 or in Section 2.10. In the
event an involuntary lien or encumbrance is placed on the Interests, the
affected Member shall not be in violation of this provision if it discharges or
causes to be discharged such lien or encumbrance within a period of sixty (60)
days from the placement or occurrence thereof.
9.2 Transfers to Affiliates. Any Member may transfer its
Interests in the Company to an Affiliate, except where prohibited by applicable
laws or where in the reasonable judgment of any other Member such transfer would
have a material adverse effect on the business of the Company or such other
Member. Any Member wishing to transfer its Interests to an Affiliate under this
Section 9.2 shall first notify the other Members in writing of such proposed
transfer. Each such other Member shall make its determination as to whether such
transfer would have a material adverse effect on the business of the Company or
such other Member within ten (10) days of receiving such notice and shall notify
such first Member in writing of its determination. It is a condition of any such
transfer that the transferee become a signatory to this Agreement and agree to
perform all of the obligations of the transferor hereunder.
9.3 Change in Control. In the event of a change in control of
a Member, such Member thereupon shall cease to have any voting rights, and the
remaining Members shall have the right to purchase, or to cause the Company to
purchase, such first Member's Interests at a price equal to the Adjusted
Realized Equity Value of such Interests, which right may be exercised by the
remaining Members for a period of sixty (60) days after such event constituting
a change in control. For purposes of this Agreement, a change in control shall
be deemed to occur when a
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person or entity that was not, at the time of the Initial Closing, an Affiliate
of a Member becomes the beneficial owner, directly or indirectly, of securities
or ownership interests representing 40% or more of the combined voting power of
all outstanding securities or ownership interests of such Member. A change of
control shall not be deemed to occur due to a reconfiguration of the ownership
or changes of the ownership of the limited partnership interests of Apollo or
any of the New Valley Parties, as the case may be, provided that Apollo Real
Estate Management III, L.P. or its Affiliates remain the owners, directly or
indirectly, of the Interests previously owned by Apollo, or Brooke Group Ltd.,
Bennett S. LeBow or their Affiliates remain the owners, directly or indirectly,
of the Interests previously owned by the New Valley Parties, respectively.
9.4 Dissolution of a Member. In the event of the bankruptcy,
reorganization, liquidation, winding-up or dissolution of a Member (the
"Dissolving Member"), the Dissolving Member shall notify the other Members in
writing within five (5) days of such event. The Interests owned by the
Dissolving Member shall first be offered for purchase by the other Members
within ninety (90) days of the date of such notice for the then existing
Adjusted Realized Equity Value of such Interests. In the event that such other
Members decline to purchase such additional Interests, such unpurchased
Interests may be offered by the Company to third parties for purchase on terms
and conditions to be determined by the Members, and the Dissolving Member shall
sell its Interests in accordance with the provisions of this Section 9.4.
9.5 Termination of the Provisions Restricting the Sale of
Interests. The provisions restricting the sale of Interests contained in this
Section 9 shall automatically terminate upon the happening of any of the
following events:
(a) the adjudication of the Company as a bankrupt,
the execution by the Company of an assignment for
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the benefit of creditors, or the appointment of a receiver for all or
substantially all of its properties; or
(b) the voluntary or involuntary dissolution of the
Company.
10. Representations and Warranties.
10.1 The Company. The Company represents and warrants as
follows:
(a) The Company is a limited liability company duly
formed under the laws of the State of Delaware, with full power and authority to
enter into this Agreement and to consummate the transactions contemplated
herein.
(b) The execution and delivery by the Company of this
Agreement and the consummation by it of the transactions contemplated herein
will not violate its constituent documents, any law or any contract to which the
Company is a party, and no approval, authorization, consent, or order or filing
with, any third party, court, administrative agency or other governmental
authority is required for the execution and delivery by the Company of this
Agreement or any other agreements to be entered into by the parties hereto in
accordance with this Agreement, including but not limited to the Participating
Loan Agreement and all agreements and documents relating to the asset transfers
contemplated by this Agreement, or the consummation by it of the transactions
contemplated herein.
(c) This Agreement is the legal, valid and binding
obligation of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and similar laws of general application
affecting the rights and remedies of creditors.
(d) There exists no litigation pending or threatened
in writing (or any basis therefor) against the Company that (i) might adversely
affect the operations, business or business prospects of the Company, (ii) might
impede, delay or adversely affect the transactions
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contemplated by this Agreement, or (iii) has not been disclosed to Apollo. There
are no valid, effective and enforceable orders, injunctions or decrees of any
court or arbitral body with respect to the Company that might adversely affect
the operations, business or business prospects of the Company.
10.2 Members. Each Member represents and warrants as follows:
(a) The Member is a corporation or a partnership, as
the case may be, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or establishment, as the case may be,
with full power and authority to enter into this Agreement and to consummate the
transactions contemplated herein.
(b) The execution and delivery by the Member of this
Agreement and the consummation by it of the transactions contemplated herein
have been authorized by the board of directors of the Member or other management
authority of the Member and will not violate its constituent documents, any law
or any contract to which the Member is a party, and no approval, authorization,
consent or order of, or filing with, any third party, court, administrative
agency, or governmental authority is required for the execution and delivery by
the Member of this Agreement or the consummation by it of the transactions
contemplated herein (except as may be required for BrookeMil to consummate the
transactions contemplated herein).
(c) This Agreement is the legal, valid and binding
obligation of the Member enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and similar laws of general application
affecting the rights and remedies of creditors.
(d) The Member is acquiring the Interests of the
Company for investment purposes for its own account and not with a view to any
distribution of the same, and
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shall not dispose of any of the Interests except in compliance with applicable
securities laws and the terms of this Agreement. The Member acknowledges that
the Interests have not been registered under the securities laws or regulations
of any jurisdiction and that the Interests may not be sold on a public market
without proper registration. The Member is sophisticated in making investments
and represents that it has the knowledge and experience to evaluate its
investment in the Interests and is not relying on any representation or warranty
made by the Company or any of its representatives or agents.
(e) The individual signing this Agreement on behalf
of the Member is a duly authorized officer or representative of the Member and
is empowered to execute this Agreement on behalf of the Member.
(f) No agent, broker, investment banker, person or
firm acting on behalf of the Member or under the authority of the Member is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee from any of the parties hereto in connection with the transactions
contemplated hereby.
10.3 Additional Representations by the New Valley Parties. In
addition to the representations made by the New Valley Parties in Section 10.2
above, each of the New Valley Parties represents and warrants as follows:
(a) BrookeMil has transferred its ownership of the
building and the leasehold rights to the land plot located at Ducat Place II to
the Russian LLC. The Russian LLC is the owner of the buildings and is the lessee
of the land plot located at Ducat Place II and is entitled to dispose of such
rights at its own discretion, subject to compliance with the terms of the Land
Lease Agreement, dated July 1, 1997, between the Government of the City of
Moscow, as landlord, and BrookeMil, as tenant, demising the land at Ducat Place
II, as amended to date and
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assigned to the Russian LLC (the "Ducat II Land Lease"), and applicable law, and
there are no encumbrances on, or rights of third parties to, Ducat Place II
other than the Assumed Liabilities.
(b) BrookeMil is the owner of the buildings and is
the lessee of the land plot located at Ducat Place III and is entitled to
dispose of such rights at its own discretion, subject to compliance with the
terms of the Land Lease Agreement, dated October 30, 1992, between the
Government of the City of Moscow, as landlord, and BrookeMil, as tenant,
demising the land at Ducat Place III, as amended to date (the "Ducat III Land
Lease"), and applicable law, and there are no encumbrances on, or rights of
third parties to, Ducat Place III other than the Assumed Liabilities.
(c) LD Tobacco is the owner of the buildings and is
the lessee of the land plot located at the site of the New Factory and, upon
purchase of the land lease rights, will be entitled to dispose of such rights at
its own discretion, subject to compliance with the terms of the Land Lease
Agreement, dated March 27, 1996, between the Government of the City of Moscow,
as landlord, and LD Tobacco, as tenant, demising the land at the site of the New
Factory, as amended to date (the "New Factory Land Lease") and applicable law,
and there are no encumbrances on, or rights of third parties to, the New
Factory.
(d) BrookeMil is the current tenant under the Ducat
III Land Lease. LD Tobacco is the current tenant under the New Factory Land
Lease. (The Ducat III Land Lease and New Factory Land Lease, including all
amendments, protocols and other documents and agreements relating thereto, are
herein occasionally referred to collectively as the "Land Leases").
(e) (i) The New Valley Parties have provided to
Apollo access to complete and correct copies of all amendments, protocols and
other documents and agreements
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relating to the Land Leases; (ii) each of the Land Leases has been duly
authorized, executed and delivered by the tenant and is the legal, valid and
binding agreement of the tenant thereunder, and, to the knowledge of the New
Valley Parties, of the landlord thereunder, enforceable in accordance with its
terms; (iii) each of the Land Leases is in full force and effect without default
by either the tenant or, to the knowledge of the New Valley Parties, the
landlord thereunder, and, to the knowledge of the New Valley Parties, no
condition exists and no event has occurred that would result in, either after
notice thereof or a lapse of time or both, a breach, termination or default
under any of the Land Leases; (iv) the tenant under each Land Lease is current
in the payment of all rent and other amounts due and has fulfilled all other
obligations under the terms of such leases as of the date hereof; (v) except in
connection with the Assumed Liabilities and the Use Agreement, dated as of
January 31, 1997, between BrookeMil and Liggett-Ducat, neither BrookeMil nor LD
Tobacco has subleased, assigned or pledged any of its interests in the Land
Leases; and (vi) to the knowledge of the New Valley Parties, each of the Land
Leases covers the entire estate that it purports to cover, and upon consummation
of the transactions contemplated by this Agreement, the Russian LLC will
continue to be entitled to the use, occupancy and possession of the real
property as contemplated herein.
(f) Each of Liggett-Ducat and LD Tobacco was duly
incorporated as a closed joint stock company and is validly existing as a legal
entity registered under the laws of the Russian Federation as of August 5, 1993,
and December 29, 1995, respectively; the Russian LLC has been duly incorporated
as a limited liability company and is validly existing as a legal entity
registered under the laws of the Russian Federation; and each of Liggett-Ducat,
LD Tobacco and the Russian LLC has full power and authority required to carry on
its business as it is currently being conducted and/or as described in the
business plans, and to own, lease and operate its properties.
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(g) All of the outstanding shares of capital stock of
each of Liggett-Ducat and LD Tobacco (i) have been duly authorized and validly
issued and are fully paid; (ii) are not subject to any preemptive or similar
rights granted by Liggett-Ducat or LD Tobacco, respectively (except as may be
established in Russian law and/or set forth in the respective charters of
Liggett- Ducat and LD Tobacco), and were properly registered with the
appropriate authorities competent for registration of the issuance of such
shares and to the extent owned by Brooke (Overseas) and Liggett-Ducat,
respectively, are free and clear of any security interest, claim, lien, or
encumbrance of any nature, except with respect to those shares pledged by Brooke
(Overseas) to Belgrave Limited and Vladimir Tumentsev to secure the payment
obligations of Brooke (Overseas) for 6.8% of the outstanding shares of
Liggett-Ducat; (iii) Brooke (Overseas) has transferred 95.8% of the outstanding
shares of Liggett-Ducat to Delaware LLC-3; (iv) Liggett-Ducat owns 100% of the
outstanding shares of LD Tobacco; and (v) there is no existing option, warrant,
call, right, commitment or other agreement of any character to which
Liggett-Ducat is a party requiring, and there are no securities of Liggett-Ducat
outstanding which upon conversion, exercise or exchange would require, the
issuance, sale or transfer of any additional shares of capital stock or other
securities of Liggett-Ducat to its employees or any other person.
(h) Neither Liggett-Ducat nor LD Tobacco is in
violation of its respective charter.
(i) (i) Each of BrookeMil and each Affiliated Entity
has such licenses, permits and approvals as are necessary to conduct its
respective business as described to Apollo, except where the failure to have
such license, permit or approval would not have a material adverse effect on
such entity; (ii) each of BrookeMil and each Affiliated Entity has fulfilled and
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performed all of its obligations with respect to such licenses, permits and
approvals except any obligation which the failure to fulfill or perform would
not have a material adverse effect on such Affiliated Entity; and (iii) no event
has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results, or after notice or lapse of time
would result, in any other material impairment of the rights of the holder of
such license, permit or approval.
(j) Subject to Schedule 10.3(l), there exists no
litigation pending or, to the knowledge of the New Valley Parties, threatened in
writing (or any basis therefor) against BrookeMil, the Affiliated Entities, any
of their ventures, Assets and/or Properties that might (i) detrimentally affect
the ownership, value, use or operation of the Assets and/or Properties for their
intended purposes; (ii) adversely affect the operations, business or business
prospects of BrookeMil or any Affiliated Entity; or (iii) impede, delay or
adversely affect the transactions contemplated by this Agreement. There are no
valid, effective and enforceable orders, injunctions or decrees of any court or
arbitral body with respect to BrookeMil, the Affiliated Entities, any of their
ventures, Assets and/or Properties that might (x) detrimentally affect the
value, use, ownership or operation of the Assets and/or Properties for their
intended purposes; (y) adversely affect the operations, business or business
prospects of BrookeMil or any Affiliated Entity; or (z) impede, delay or
adversely affect the transactions contemplated by this Agreement. To the
knowledge of the New Valley Parties, there are no material impediments to
BrookeMil obtaining all necessary approvals for BrookeMil's planned development
of Ducat Place III. Neither BrookeMil nor any of the Affiliated Entities or
their ventures has filed, nor been the subject of any filing of, a petition
under bankruptcy laws, insolvency laws, laws for the composition of
indebtedness, or laws for the reorganization of debtors.
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(k) There are no material physical or mechanical
defects with respect to the buildings (other than the existing cigarette factory
at Ul. Gasheka 6) and/or the other improvements comprising the Assets and/or
Properties (including, but not limited to, the structural and load-bearing
components, the roofs and the plumbing, heating, ventilation, air conditioning,
electrical and life safety systems of the improvements) or to the knowledge of
the New Valley Parties, the land, and all of such items (to the extent installed
or constructed on the date hereof, with respect to the building at Ducat Place
II) are in good operating condition and repair and in compliance in all material
respects with all applicable laws and zoning requirements. To the knowledge of
the New Valley Parties, Ducat Place II and Ducat Place III will have access, on
the basis generally provided to businesses in the City of Moscow, to available
water, sewer and power utilities. BrookeMil has not received, and has no
knowledge of, any notice or request from any governmental agency requesting or
requiring the performance of any work or alteration in respect of the land, the
buildings (other than the Old Factory) and/or the other improvements comprising
the Assets and/or Properties.
(l) The Schedule of Leases with respect to Ducat
Place II annexed hereto as Schedule 10.3(l) (the "Ducat II Leases") is complete
and correct in all respects. The Ducat II Leases have been duly authorized,
executed and delivered by the landlord, are the legal, valid and binding
agreements of the landlord thereunder enforceable in accordance with their terms
and are in full force and effect, as assigned by BrookeMil to the Russian LLC,
subject to Schedule 10.3(l). Other than as part of the Assumed Liabilities,
there are no free rent allowances, prepaid rents or other prepaid charges. The
Ducat II Leases are bona-fide in all respects, and were entered into by
BrookeMil and the respective tenants thereunder on an arm's-length basis and in
the ordinary course of BrookeMil's business. Subject to Schedule 10.3(l),
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there is no default by BrookeMil under the terms of any of the Ducat II Leases
(including, but not limited to, any such default that has or might give rise to
any offset, defense, claim, or counterclaim to the payment of the rents and/or
other charges payable by the tenant thereunder), nor, to the knowledge of the
New Valley Parties, are there any material defaults by the tenants thereunder;
and, to the knowledge of the New Valley Parties, no condition exists and no
event has occurred that would result in, either after notice thereof or a lapse
of time or both, a breach, termination or default under any of the Ducat II
Leases. All the Ducat II Leases have been assigned by BrookeMil to the Russian
LLC, and the Russian LLC continues to be entitled to all of the rights and
privileges to which BrookeMil was previously entitled under such Ducat II
Leases. Subject to Schedule 10.3(l), none of the Ducat II Leases nor the rents
payable thereunder have been subleased, assigned or pledged. All tenants are
current with their rent obligations.
(m) To the knowledge of the New Valley Parties, the
business of BrookeMil and the Affiliated Entities is not being, nor has it in
the past been, conducted in violation of any law or any governmental order
applicable to BrookeMil or any of its assets or properties, including, without
limitation, the Foreign Corrupt Practices Act of 1977, as amended, except for
possible violations which individually or in the aggregate would not have a
material adverse effect on BrookeMil, the Company or the Affiliated Entities. To
the knowledge of the New Valley Parties, BrookeMil, the Company and the
Affiliated Entities are in compliance with all applicable environmental laws and
have not received any communication from any governmental authority that alleges
that BrookeMil, the Company or the Affiliated Entities are not in compliance
with applicable environmental laws where such noncompliance would have a
material adverse effect on BrookeMil or the Affiliated Entities.
(n) All material tax returns and reports required to
be filed by
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BrookeMil prior to the date hereof or with respect to taxable periods ending
prior to the date hereof have been or will be filed with the appropriate
governmental authorities prior to the date hereof or by the due date thereof
including extensions. Such tax returns and reports correctly reflect (and as to
returns not filed as of the date hereof, will correctly reflect) all material
tax liabilities of BrookeMil required to be shown thereon. To the knowledge of
the New Valley Parties, all material tax returns and reports required to be
filed by the Affiliated Entities prior to the date hereof or with respect to
taxable periods ending prior to the date hereof have been or will be filed with
the appropriate governmental authorities prior to the date hereof or by the due
date thereof including extensions. Such tax returns and reports correctly
reflect (and as to returns not filed as of the date hereof, will correctly
reflect) all material tax liabilities of the respective Affiliated Entities
required to be shown thereon. To the knowledge of the New Valley Parties, there
are no pending tax investigations or outside audits of BrookeMil or of any
Affiliated Entity being conducted and, except as set forth in Schedule 10.3(n),
neither BrookeMil nor any Affiliated Entity has any outstanding tax penalties
against it. BrookeMil shall remain liable for the payment of profits taxes due
to the conduct of BrookeMil's business for the periods prior to the Initial
Closing Date.
(o) The New Valley Parties have identified to Apollo
and have provided to Apollo complete and correct copies of all material
employment agreements or employee benefit plans covering present and former
employees of BrookeMil or their beneficiaries.
(p) A schedule of the material contracts of BrookeMil
and the status of each is annexed hereto as Schedule 10.3(p) (the "Material
Contracts"). (i) The Material Contracts have been duly authorized, executed and
delivered by the New Valley Parties party
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thereto and are legal, valid and binding agreements of the New Valley Parties
party thereto enforceable against such New Valley Parties in accordance with
their respective terms; (ii) BrookeMil has fully performed all obligations
required to be performed under each of the Material Contracts including but not
limited to the payment of all amounts due and owing thereunder; (iii) neither
BrookeMil nor, to the knowledge of the New Valley Parties, any other party is in
default under any of the Material Contracts; and (iv) to the knowledge of the
New Valley Parties, no condition exists and no event has occurred that would
result in, either after notice of or lapse of time or both, in a breach,
termination or default under any of the Material Contracts. BrookeMil has not
assigned any of its interests in the Material Contracts, and upon consummation
of the transactions contemplated herein, the Russian LLC will continue to be
entitled to the rights and privileges to which BrookeMil was previously
entitled.
(q) The unaudited financial statements of BrookeMil
and the audited financial statements of Liggett-Ducat Ltd. for the years ended
December 31, 1995 and 1996 furnished to Apollo have been prepared in accordance
with U.S. generally accepted accounting principles consistently applied and
fairly present the matters set forth therein.
(r) A schedule of all material related party
obligations relating to the Company and its Affiliates that will be outstanding
as of the date of the Initial Closing is annexed hereto as Schedule 10.3(r).
(s) That certain Use Agreement, dated as of January
31, 1997, between BrookeMil and Liggett-Ducat, is in full force and effect.
(t) Liggett-Ducat has all necessary authority and
approvals to operate the Old Factory.
(u) The previously existing intercompany loan from
Brooke (Overseas) to Liggett-Ducat has been cancelled.
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10.4 Additional Representations by Apollo. In addition to the
representations made by Apollo in Section 10.2 above, Apollo represents and
warrants that the purchase of the Interests does not violate any provisions of
ERISA and that the contemplated Participating Loan does not violate the
provisions of ERISA.
11. Covenants of the New Valley Parties.
11.1 Contribution of Ducat Place II to the Russian LLC.
BrookeMil has contributed the Assets and Assumed Liabilities related to Ducat
Place II to the Russian LLC.
11.2 Contribution of Ducat Place III to the Russian LLC. As
soon as practicable following the purchase of all the buildings and land lease
rights at Ducat Place III, BrookeMil shall contribute the Assets and Assumed
Liabilities related to Ducat Place III to the Russian LLC.
11.3 Beneficial Ownership. Except for a one percent (1%)
interest to be retained indirectly by BrookeMil through BrookeMil's ownership in
the Russian LLC, as of the Initial Closing, and until the legal title to the
Assets shall have been transferred to the Russian LLC and a 99% interest in the
Russian LLC is owned by Delaware LLC-2, the Assets shall be beneficially owned
by the Company and, as such, the Company shall be entitled to participate in the
earnings, appreciation in value and management of the Assets, and BrookeMil
hereby designates the Company as attorney-in-fact and agent for BrookeMil, to
act, in the name of BrookeMil or otherwise, as may be deemed appropriate by the
Board of Managers of the Company, in order to obtain for the Company the
economic benefits derived from the ownership of such property, asset, contract,
lease or other instrument, document or agreement constituting the Assets, and,
as evidence thereof, BrookeMil shall execute a power of attorney in favor of the
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Company substantially in the form annexed hereto as Exhibit 4. Notwithstanding
the foregoing, any property or asset of BrookeMil constituting an Asset and any
contract, lease or other instrument, document or agreement to be assigned or
otherwise transferred to the Russian LLC hereunder, the assignment or other
transfer, or the attempted assignment or other transfer of which would be
invalid or ineffective, unless the consent or approval of another person or
entity to such assignment or other transfer shall have first been obtained,
shall not be assigned or otherwise transferred under this Agreement, and the
provisions of this Agreement shall not constitute an attempt to assign or
transfer, unless and until such consents or approvals shall have been obtained.
12. Closings. Subject to the terms and conditions set forth in Section
2.4 hereof, the closings (each, a "Closing," the date of a Closing being
referred to herein as a "Closing Date") of the transactions contemplated herein
shall occur as follows:
12.1 Date, Time and Place of Initial Closing. The closing of
the transactions contemplated in Section 2.4(b) hereof (the "Initial Closing")
took place on February 26, 1998 at 10:00 a.m. at the offices of Coudert
Brothers, 1114 Avenue of the Americas, New York, NY 10036 (the date and time of
the Initial Closing being referred to herein as the "Initial Closing Date").
12.2 Conditions to Obligations of the New Valley Parties. The
obligations of the New Valley Parties hereunder are subject to the fulfillment,
prior to or at any Closing, of each of the following conditions:
(a) All authorizations, consents, orders and
approvals of regulatory authorities and third parties, if any, necessary for the
performance by the Company, Apollo and the New Valley Parties of this Agreement
shall have been obtained.
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(b) The representations and warranties of Apollo
contained in this Agreement shall be true and correct in all material respects
at the date hereof and at and as of such Closing, with the same force and effect
as if made at and as of such Closing Date (except that representations and
warranties that by their terms speak as of such Closing Date shall be true and
correct as of such date); and Apollo shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to such Closing.
(c) No action shall have been commenced in a court of
competent jurisdiction or by or before any governmental authority against any of
the Company, Apollo or the New Valley Parties seeking to prohibit the
transactions contemplated by this Agreement.
12.3 Conditions to Obligations of Apollo. The obligations of
Apollo hereunder are subject to the fulfillment, prior to or at any Closing, of
each of the following conditions:
(a) Except as set forth in Section 10.2(b), all
authorizations, consents, orders and approvals of regulatory authorities and
third parties, if any, necessary for the performance by the Company and the New
Valley Parties of their obligations under this Agreement shall have been
obtained.
(b) The representations and warranties of the New
Valley Parties contained in this Agreement shall be true and correct in all
material respects at the date hereof and at and as of such Closing, with the
same force and effect as if made at and as of such Closing Date (except that
representations and warranties that by their terms speak as of such Closing Date
shall be true and correct as of such date); and the New Valley Parties shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them on
or prior to such Closing.
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(c) No action shall have been commenced in a court of
competent jurisdiction or by or before any governmental authority against either
the Company, Apollo or any of the New Valley Parties seeking to prohibit the
transactions contemplated by this Agreement.
(d) There shall not have been any material adverse
change in the financial condition of the New Valley Parties since the date
hereof.
(e) There shall not have occurred an event or events
that has or have a material adverse effect on the operations of Ducat Place II
or the New Factory or the ability of any Member to perform its obligations with
respect to such Closing.
(f) Expenditures for the New Factory and Ducat Place
III are within a 10% variance from the Budget.
12.4 Additional Conditions to Obligations of Apollo Satisfied
at Initial Closing.
(a) Apollo received a legal opinion from Coudert
Brothers, special New York counsel to New Valley, in form and substance
reasonably satisfactory to it, with respect to the due organization and good
standing of New Valley, the due execution of this Agreement and the Pledge
Agreement by New Valley, the organization of the Company, and such other matters
as have been reasonably requested by it.
(b) Apollo's counsel received a legal opinion from
Coudert Brothers, special New York counsel to New Valley, with respect to the
beneficial ownership of the Assets by the Company pending their transfer to the
Russian LLC.
(c) The Company issued the Promissory Note.
(d) New Valley pledged 99.1% of the outstanding
shares of BrookeMil to Apollo as security for the Apollo Loan under the Pledge
Agreement.
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(e) The Company, Delaware LLC-3 and Brooke (Overseas)
entered into the Western Tobacco Investments LLC Limited Liability Company
Agreement on terms unanimously approved by the Members.
12.5 Funding and Advance of Apollo Loan at Initial Closing. At
the Initial Closing, (i) each of Apollo and the New Valley Parties funded their
initial contributions to the Company as set forth in Section 2.4(b), and (ii)
Apollo advanced the Apollo Loan to the Company.
12.6 Date, Time and Place of Initial Subsequent Closing. The
closing of the transactions set forth in Section 2.4(c) hereof (the "Initial
Subsequent Closing") shall take place on April 28, 1998 at the offices of
Coudert Brothers, 1114 Avenue of the Americas, New York, NY 10036, or on such
other date and time and at such other place as shall be mutually agreed by the
parties hereto (the date and time of the Initial Subsequent Closing being
referred to herein as the "Initial Subsequent Closing Date").
12.7 Transactions at Initial Subsequent Closing. Upon the
satisfaction and/or waiver of the conditions to the Initial Subsequent Closing,
(a) the Apollo Loan shall be converted into Class A Interests as set forth in
Section 2.4(c); (b) the Promissory Note shall be cancelled; (c) the Pledge
Agreement shall be terminated; and (d) the parties shall make additional capital
contributions and shall be issued additional Interests as set forth in Section
2.4(c).
12.8 Additional Conditions to Obligations of Apollo at Initial
Subsequent Closing.
(a) The Russian LLC shall have received a certificate
of ownership of Ducat Place II building from the Moscow Property Management
Committee (or the state authorities that shall have assumed its functions with
respect to issuing such certificates or
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equivalent documents) and shall have entered into a land lease agreement with
the Moscow Land Committee (or the state authorities that shall have assumed its
functions with respect to entering into such land lease agreements) with respect
to land at Ducat Place II on essentially the same terms as the Land Lease
Agreement, dated July 1, 1997, between the Government of the City of Moscow, as
landlord, and BrookeMil, as tenant, demising the land at Ducat Place II.
(b) BrookeMil shall have entered into an agreement
with the Company to transfer to the Company or an entity designated by it all of
BrookeMil's interest in the Russian LLC, except for such part of its interest
that shall be redeemed by the Russian LLC in accordance with an agreement
between the Russian LLC and BrookeMil entered into before the Initial Subsequent
Closing or simultaneously with it, and less a 1% interest.
(c) The conditions set forth in Section 95.8 (h) and
(i) of the Participating Loan Agreement, as in effect on the date hereof, have
been satisfied, unless otherwise agreed by the parties to the Participating Loan
Agreement.
12.9 Second Subsequent Closing. The second Subsequent Closing
(the "Second Subsequent Closing") shall take place on May 6, 1998. At the Second
Subsequent Closing, Apollo shall contribute to the Company $7,900,000 in cash in
exchange for 200 Class A Interests to be issued to Apollo and New Valley shall
contribute $1,975,000 in expenditures as set forth in Section 2.4(d) in exchange
for 200 Class B Interests to be issued to New Valley. At the Second Subsequent
Closing, to the extent the sum of the amount of expenditures of the New Valley
Parties with respect to Ducat Place II and Ducat Place III incurred since March
1, 1997 and set forth in Schedule 2.4(d)
and of expenditures incurred by them after the Initial Closing Date on items set
forth in the approved Budget exceeds $10,000,000, the New Valley Parties shall
be reimbursed by the Company from the proceeds of the Initial Subsequent Closing
for such
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expenditures in excess of $10,000,000 (to the extent the New Valley Parties
provide to Apollo proper documentation substantiating such expenditures).
12.10 Subsequent Closings. Upon written notice by the Board of
Managers to each of Apollo and New Valley as set forth in Section 2.4(d) hereof,
other subsequent closings (the "Other Subsequent Closings"; the Initial
Subsequent Closing, the Second Subsequent Closing and the Other Subsequent
Closings are collectively referred to herein as the "Subsequent Closings") shall
be scheduled for purposes of funding additional contributions by each of Apollo
and New Valley to the Company. At each of the Other Subsequent Closings, Apollo
and New Valley shall fund additional contributions to the Company as set forth
in Section 2.4 on the dates and in the amounts set forth in the written notice
by the Board of Managers.
13. Notices and Account Information for Distributions.
13.1 Notices. All notices required to be given hereunder shall
be in writing and shall be deemed to have been properly given if sent by
registered or certified mail, postage prepaid, or by telecopy, addressed as
follows:
(a) If to the Company:
Western Realty Development LLC
103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware 19103
Attention: Richard J. Lampen
Telephone: 305-579-8000
Telecopy: 305-579-8009
(b) If to Apollo:
Apollo Real Estate
Investment Fund III, L.P.
c/o Apollo Real Estate Management III, L.P.
1301 Avenue of the Americas
New York, NY 10019
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Attention: John J. Hannan
Telephone: (212) 261-4000
Telecopy: (212) 261-3301
Copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue, 20th Floor
New York, New York, 10022
Attention: Stephen M. Vine
Telephone: (212) 872-1030
Telecopy: (212) 872-1002
(c) If to New Valley:
New Valley Corporation
100 S.E. Second Street, 32nd Floor
Miami, FL 33131
Attention: Bennett S. LeBow
Telephone: 305-579-8000
Telecopy: 305-579-8009
Copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York, 10036
Attention: Clyde E. Rankin, III
Telephone: (212) 626-4740
Telecopy: (212) 626-4120
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(d) If to BrookeMil:
BrookeMil Ltd.
P.O. Box 219
Fifth Floor
Butterfield House
George Town, Grand Cayman, B.W.I.
Attention: Bennett S. LeBow, Chairman
Telecopy: (345) 949-4590
Copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York, 10036
Attention: Clyde E. Rankin, III
Telephone: (212) 626-4740
Telecopy: (212) 626-4120
Such notices shall be deemed to have been received five (5) days after deposit
in the mail or within twenty-four (24) hours after transmission by telecopy. Any
party may change the address to which notices shall be sent by notice in writing
to the other parties as provided herein.
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13.2 Account Information for Distributions. All distributions
to the Members by the Company shall be made to the accounts of the Members as
may be specified from time to time in a notice from the Members to the Company
in accordance with Section 13.1.
14. Miscellaneous.
14.1 Further Assurances. The parties will, in a timely manner
and as required from time to time, take all such actions as may be necessary or
appropriate to cause their Affiliates, the Company and the Affiliated Entities
to implement the transactions contemplated by this Agreement and to ensure that
such entities take all such actions as may be necessary to give full effect to
the provisions of this Agreement and to refrain from taking any actions which
would contravene the intent or the provisions of this Agreement.
14.2 Term of Agreement. This Agreement will continue in full
force and effect until the earlier of (a) termination by mutual consent of the
parties hereto, (b) the dissolution of the Company, or (c) termination by
Apollo, in its sole discretion, on or before October 10, 1998, by written notice
to the other Members, if the amendments to the foundation documents of the
Russian LLC shall not have been registered with the State Registration Chamber
of the Ministry of Economy of the Russian Federation and the Moscow Registration
Chamber, or the state authorities that shall have assumed the registration
functions currently performed by the above Registration Chambers, to reflect the
ownership by Delaware LLC-2 of all the interests in the Russian LLC, less a 1%
interest retained by BrookeMil and less any treasury interests owned by the
Russian LLC, by September 30, 1998, provided that Apollo shall have complied, in
all material respects, with the terms of this Agreement and shall have
cooperated, in good faith, with the New Valley Parties, the Company and the
Russian LLC in order to complete such registrations and shall have not taken any
actions impeding or delaying such registrations.
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14.3 Assignment. Except as provided in Section 9.2 hereof,
this Agreement shall not be assigned by any party hereto without the prior
written consent of the other parties hereto. This Agreement shall inure to the
benefit of the parties hereto and shall be binding upon the successors and
assigns of the parties hereto.
14.4 Amendment, Modification and Waiver. This Agreement shall
be amended to include any person who acquires any Interests in the Company,
provided that such person acquires such Interest in accordance with Section 2.6
hereof. This Agreement may be further modified, amended and supplemented only
upon the unanimous approval of the Board of Managers as provided in Section 2.9
and the unanimous mutual written agreement of the parties hereto. Each party may
waive any term, provision or condition intended for its benefit, provided that
such waiver be in writing and be signed by the party so waiving.
14.5 Severability. If any one or more of the provisions of
this Agreement shall be held invalid, illegal or unenforceable under applicable
law, the validity, legality and enforceability of the remaining provisions shall
not be affected or impaired thereby.
14.6 Entire Agreement; Headings. This Agreement, including the
schedules hereto, constitutes the entire agreement of the parties with respect
to the subject matter hereof and may not be changed, terminated or discharged
orally. The headings appearing in this Agreement have been inserted solely for
the convenience of the parties and shall be of no force or effect in the
construction of the provisions of this Agreement.
14.7 Indemnification. Each party to this Agreement agrees to
indemnify, defend and hold the other party free and harmless from and against,
and to reimburse the other party on a current basis for, all claims, damages,
expenses and liabilities of such other party arising from any breach of such
indemnifying party of the terms of this Agreement, including,
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without limitation, reasonable legal expenses and attorneys' fees paid or
incurred by the indemnified party in defense of any proceedings brought against
such indemnified party individually or against such indemnified party and such
indemnifying party (jointly or severally) arising out of any of the foregoing.
The provisions of this Section 14.7 shall survive the termination of this
Agreement and the representations and warranties given by the parties shall
survive for the applicable statute of limitations.
14.8 Governing Law. This Agreement shall be governed by
Delaware law, without regard to its conflict of laws principles, except with
respect to the provisions establishing beneficial ownership of the Assets in
favor of the Company, which shall be governed by New York law, without regard to
its conflict of laws principles.
14.9 Arbitration. Any dispute, controversy or claim arising
out of or relating to this Agreement or to the business and affairs of the
Company or the rights and obligations of any of the Members shall be finally
settled by binding arbitration to be conducted in New York, New York in
accordance with the rules then in force of the American Arbitration Association,
including the rules governing the appointment of arbitrators. Any final decision
in any such arbitration proceeding shall be final and non-appealable and shall
be binding on the parties thereto and enforceable in courts of competent
jurisdiction without a further review on the merits.
14.10 Confidentiality. By executing this Agreement, each
Member expressly agrees, at all times during the term of this Agreement, to
maintain the confidentiality of, and not to disclose to any person not a party
hereto, any information relating to the business, financial structure, financial
position or financial results, clients or affairs of the Company, its Affiliates
or Affiliated Entities that shall not be generally known to the public, except
as otherwise required by applicable law or by any regulatory organization having
jurisdiction. Except as provided by law,
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no press releases, announcements or other public disclosures related to this
Agreement or the transactions contemplated herein will be issued or made,
without the joint approval of Apollo and New Valley. Nothing in this Section
shall be deemed to prohibit Apollo from making any disclosures regarding this
Agreement or the transactions contemplated herein to any of its partners.
14.11 Counterparts. This Agreement may be executed by the
parties in one or more counterparts, each of which shall be deemed an original
but all of which taken together shall constitute one and the same instrument.
14.12 Fees and Expenses. All fees and expenses incurred in the
negotiation, preparation and execution of this Agreement, including all exhibits
hereto and all related documents shall be for the account of and payable by the
party incurring them.
14.13 Future Business Opportunities.
(a) If any Member or any of its Affiliates (an
"Offering Party") has the opportunity to engage in any other business in Russia
or to purchase or invest in any other business interests in Russia ("Russian
Opportunities"), it shall promptly notify the other Members of such opportunity
and the Members shall decide whether such opportunity shall be conducted by the
Company or through a separate entity owned by the Members on a commercially
reasonable basis substantially consistent with the terms of this Agreement, to
be negotiated in good faith. The New Valley Parties hereby agree that, except as
provided herein with respect to the Kremlin Sites (as defined below), with
respect to Russian Opportunities in which any of the New Valley Parties or their
respective Affiliates are the Offering Party, Apollo shall have the option to
participate in any such Russian Opportunities on a commercially reasonable basis
that is substantially consistent with this Agreement with respect to Apollo's
percentage ownership
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interests in any venture formed by the Offering Party to invest in or develop
such Russian Opportunity, to be negotiated in good faith. The Offering Party
shall provide from time to time all material information relating to such
Russian Opportunity (the "Information") that it has in its possession to the
other Members, provided that such Members enter into any confidentiality
arrangement as may be required by third parties. Each Member receiving such
notice shall have the right to participate in such Russian Opportunity if it has
responded within thirty (30) days of the receipt of the notice (the "Notice
Period"); provided, however, that in the event of a material change in the
Information, including, without limitation, with respect to the terms and/or
governmental approvals regarding such Russian Opportunity, the Notice Period
shall recommence with respect to such Russian Opportunity for an additional
thirty (30) day period as of the date of the event of such material change.
Apollo shall be considered an Offering Party only with respect to real estate
opportunities originated by Apollo or its Affiliates.
(b) The New Valley Parties hereby agree that with
respect to BrookeMil's investment in two adjoining plots at Repin Square
(Bolotnaya), Moscow (the "Kremlin Sites"), subject to the execution of mutually
acceptable documentation, Apollo will co-invest with BrookeMil or any Affiliates
of the New Valley Parties that may invest in and develop the Kremlin Sites
(collectively, the "New Valley Entities") such that Apollo and the New Valley
Entities will make an investment on a 75% and 25% basis, respectively, up to an
aggregate amount of $25,000,000 in the venture or ventures that will be formed
to invest in and develop the Kremlin Sites, and with respect to any
distributions from such venture or ventures, Apollo and the New Valley Entities
will agree to the following order of priority: (i) Apollo shall be entitled to a
return of its capital invested plus a 20% rate of return
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compounded quarterly; (ii) the New Valley Entities will be entitled to a return
of their capital invested plus a 20% rate of return compounded quarterly, and
(iii) any remaining distribution will be made 50% to Apollo, on the one hand,
and the New Valley Entities, on the other.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have duly executed or
caused their duly authorized officers to execute this Agreement as of the date
and year first above written.
APOLLO REAL ESTATE
INVESTMENT FUND III, L.P.
By: Apollo Real Estate Advisors III, L.P.,
its General Partner
By: Apollo Real Estate Capital Advisors
III, Inc., its General Partner
By: /s/ Stuart Koenig
--------------------------------------------
Name: Stuart Koenig
Title: Vice President
NEW VALLEY CORPORATION
By: /s/ Bennett S. LeBow
--------------------------------------------
Name: Bennett S. LeBow
Title: Chairman of the Board and
Chief Executive Officer
BROOKEMIL LTD.
By: /s/ Bennett S. LeBow
--------------------------------------------
Name: Bennett S. LeBow
Title: Chairman of the Board
WESTERN REALTY
DEVELOPMENT LLC
By: /s/ Bennett S. LeBow
--------------------------------------------
Name: Bennett S. LeBow
Title: Chairman of the Board
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Schedule A
To Western Realty Development LLC
Limited Liability Company Agreement
The following terms shall have the following definitions:
"Act" shall mean the Delaware Limited Liability Company Act, as in
effect on the date hereof, and as amended from time to time, or any successor
law.
"Adjusted Realized Equity Value" shall mean, with respect to any
Interest, the capital contribution received by the Company for such Interest in
cash or expenditures (provided, however, that for the purposes of this
definition (i) all the expenditures set forth in Schedule 2.4(d) and (ii) any
additional expenditures incurred by the New Valley Parties after the Initial
Closing Date on items set forth in the approved Budget, to the extent the New
Valley Parties (x) provide to Apollo proper documentation substantiating such
additional expenditures and (y) have not been reimbursed for such expenditures
in accordance with Section 12.7(v), will be deemed to have been contributed by
New Valley to the Company at the time of the Initial Closing, irrespective of
whether they are considered actually contributed for any other purposes) plus a
15% annual cumulative rate of return on such contribution compounded on a
quarterly basis, less distributions or dividends in cash or the fair market
value of distributions of property or in-kind distributions received by the
Member in respect of such Interest as of the date such Adjusted Realized Equity
Value is calculated.
"Affiliate" shall mean, with respect to any person, a person or entity
which directly or indirectly controls, is controlled by, or is under common
control with, such person.
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<PAGE> 63
"Affiliated Entity" shall mean the Russian LLC, Delaware LLC-2, any
other direct or indirect wholly-owned subsidiary of the Company, Delaware LLC-3,
Liggett-Ducat, LD Tobacco and any other entity (whether or not incorporated) in
which any of the foregoing entities or the Company has or hereafter acquires a
controlling interest.
"Apollo" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Apollo Loan" shall have the meaning ascribed thereto in Section 2.4(b)
hereof.
"Assets" shall have the meaning ascribed thereto in Section 2.4(e)
hereof.
"Assumed Liabilities" shall have the meaning ascribed thereto in
Section 2.4(e) hereof.
"Board" or "Board of Managers" shall have the meaning ascribed thereto
in Section 2.9 hereof.
"Brooke" shall mean Brooke (Overseas) Ltd. or any of its Affiliates.
"Brooke (Overseas)" shall have the meaning ascribed thereto in the
fifth "WHEREAS" clause hereof.
"BrookeMil" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Budget" shall have the meaning ascribed thereto in Section 2.9(i)
hereof.
"Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks are authorized by law to close in New York City or
Moscow.
"Class A Distribution Amount" shall have the meaning ascribed thereto
in Section 2.7(a) hereof.
"Class A Distribution Period" shall have the meaning ascribed thereto
in Section 2.7(a) hereof.
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<PAGE> 64
"Class A Interests" shall have the meaning ascribed thereto in Section
2.4(a) hereof.
"Class A Liquidation Preference" shall have the meaning ascribed
thereto in Section 2.7(b) hereof.
"Class B Distribution Amount" shall have the meaning ascribed thereto
in Section 2.8(a) hereof.
"Class B Distribution Period" shall have the meaning ascribed thereto
in Section 2.8(a) hereof.
"Class B Interests" shall have the meaning ascribed thereto in Section
2.4(a) hereof.
"Class B Liquidation Preference" shall have the meaning ascribed
thereto in Section 2.8(b) hereof.
"Class C Interests" shall have the meaning ascribed thereto in Section
2.4(a) hereof.
"Closing" shall have the meaning ascribed thereto in Section 12 hereof.
"Closing Date" shall have the meaning ascribed thereto in Section 12
hereof.
"Company" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Delaware LLC-2" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"Delaware LLC-3" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"Dissolving Member" shall have the meaning ascribed thereto in Section
9.4 hereof.
"Ducat II Leases" shall have the meaning ascribed thereto in Section
10.3(l) hereof.
"Ducat III Land Lease" shall have the meaning ascribed thereto in
Section 10.3(b) hereof.
"Ducat Place II" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
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<PAGE> 65
"Ducat Place III" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974,
as amended and as hereafter amended, or any successor law.
"Event of Force Majeure" means any unforeseeable event as a result of
which a Member shall be rendered unable in whole or in part to carry out any
covenant, agreement, obligation or undertaking hereunder to be kept or performed
by such party. The term "force majeure" shall include acts of God, governmental
action (whether in its sovereign or contractual capacity), fire, flood, or other
catastrophes, national emergencies (including political and economic
emergencies), insurrections, riots, wars, strikes, labor disputes or actions or
other similar causes, not within the control of the party claiming force majeure
and which by the commercially reasonable exercise of due diligence or the
commercially reasonable payment of money such party is unable to overcome.
"Initial Closing" shall have the meaning ascribed thereto in Section
12.1 hereof.
"Initial Closing Date" shall have the meaning ascribed thereto in
Section 12.1 hereof.
"Initial Subsequent Closing" shall have the meaning ascribed thereto in
Section 12.6 hereof.
"Initial Subsequent Closing Date" shall have the meaning ascribed
thereto in Section 12.6 hereof.
"Information" shall have the meaning ascribed thereto in Section
14.13(a) hereof.
"Interests" shall have the meaning ascribed thereto in Section 2.4(a)
hereof.
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<PAGE> 66
"Kremlin Sites" shall have the meaning ascribed thereto in Section
14.13(b)
"Land Leases" shall have the meaning ascribed thereto in Section
10.3(d) hereof.
"Late Payment Interest" shall have the meaning ascribed thereto in
Section 2.4(f) hereof.
"LD Tobacco" shall mean Liggett-Ducat Tobacco Ltd., a Russian closed
joint stock company.
"Liggett-Ducat" shall mean Liggett-Ducat Ltd., a Russian joint stock
company.
"Loan Default" shall have the meaning ascribed thereto in Section
2.10(a) hereof.
"Material Contracts" shall have the meaning ascribed thereto in Section
10.3(p) hereof.
"Member" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"New Factory" shall mean a new cigarette factory to be located at
Kashirskoye Shosse, Moscow, Russian Federation, to be constructed by LD Tobacco.
"New Factory Land Lease" shall have the meaning ascribed thereto in
Section 10.3(c) hereof.
"New Valley" shall have the meaning ascribed thereto in the
introductory paragraph hereof.
"New Valley Entities" shall have the meaning ascribed thereto in
Section 14.13(b) hereof.
"New Valley Parties" shall have the meaning ascribed thereto in the
introductory paragraph hereof.
"Notice Period" shall have the meaning ascribed thereto in Section
14.13(a) hereof.
"Offering Party" shall have the meaning ascribed thereto in Section
14.13(a) hereof.
"Old Factory" shall mean the existing cigarette factory located in
Moscow at Ul. Gasheka 6.
"Other Subsequent Closings" shall have the meaning ascribed thereto in
Section 12.10 hereof.
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<PAGE> 67
"Participating Loan Agreement" shall have the meaning ascribed thereto
in the fifth "WHEREAS" clause hereof.
"Payment Default" shall have the meaning ascribed thereto in Section
2.4(f) hereof.
"Pledge Agreement" shall have the meaning ascribed thereto in Section
2.4(b) hereof.
"Promissory Note" shall have the meaning ascribed thereto in Section
2.4(b) hereof.
"Properties" shall mean Ducat Place II, Ducat Place III, the New
Factory and any other property to which the Company or any Affiliated Entity has
or hereafter acquires rights.
"Russian Bank Loan" shall mean a loan from a Russian bank for the
construction of the New Factory in the principal amount of $20,000,000, to be
secured by the shares and assets of Liggett- Ducat and LD Tobacco and guaranteed
by Brooke.
"Russian LLC" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"Russian Opportunities" shall have the meaning ascribed thereto in
Section 14.13(a).
"Second Subsequent Closing" shall have the meaning ascribed thereto in
Section 12.9 hereof.
"Subsequent Closings" shall have the meaning ascribed thereto in
Section 12.10 hereof.
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<PAGE> 1
Exhibit 10.1
------------------------------------------
AMENDED AND RESTATED
WESTERN REALTY DEVELOPMENT LLC
LIMITED LIABILITY COMPANY AGREEMENT
(SECOND RESTATEMENT)
------------------------------------------
<PAGE> 2
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
(SECOND RESTATEMENT)
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (SECOND
RESTATEMENT), dated as of February 20, 1998, by and among Western Realty
Development LLC, a Delaware limited liability company with offices at 103
Springer Building, 3411 Silverside Road, Wilmington, Delaware 19103 (the
"Company"), Apollo Real Estate Investment Fund III, L.P., a Delaware limited
partnership with offices at 1301 Avenue of the Americas, New York, New York
("Apollo"), New Valley Corporation, a Delaware corporation with offices at 100
S.E. Second Street, 32nd Floor, Miami, Florida ("New Valley"), and BrookeMil
Ltd., a Cayman Islands company with offices at P.O. Box 219, Fifth Floor,
Butterfield House, George Town, Grand Cayman, B.W.I. ("BrookeMil") (New Valley
and BrookeMil are sometimes hereinafter referred to collectively as the "New
Valley Parties," and Apollo and the New Valley Parties are sometimes hereinafter
referred to collectively as the "Members" and individually as a "Member").
W I T N E S S E T H :
WHEREAS, the parties hereto have entered into the Amended and Restated
Western Realty Development LLC Limited Liability Company Agreement, dated as of
February 20, 1998, and, on April 28, 1998, hereby further amend and restate such
Agreement;
WHEREAS, the Company has been formed to act as a holding company and
(i) to own 100% of the interests of Western Realty Investments LLC, a Delaware
limited liability company ("Delaware LLC-2"), which in turn will own 99% of
Western Realty LLC, a Russian limited liability company (the "Russian LLC"),
created to hold the rights to, develop and manage properties in
<PAGE> 3
Moscow, Russia located at Ul. Gasheka 6 ("Ducat Place III") and 7 ("Ducat Place
II") and (ii) to lend money (after giving effect to the transactions described
below) to Western Tobacco Investments LLC, a Delaware limited liability company
("Delaware LLC-3"), under the Participating Loan Agreement (as hereinafter
defined);
WHEREAS, BrookeMil has transferred its rights with respect to Ducat
Place II, together with associated assets and liabilities, to the Russian LLC;
WHEREAS, BrookeMil currently holds rights with respect to Ducat Place
III and will transfer such rights, together with associated assets and
liabilities, to the Russian LLC;
WHEREAS, the parties hereto have agreed that the Western Tobacco
Investments LLC Limited Liability Company Agreement entered into among the
Company, Delaware LLC-3 and Brooke (Overseas) Ltd., a Delaware corporation
("Brooke (Overseas)"), dated as of February 27, 1998, shall be terminated and
that the Participating Loan Agreement substantially in the form annexed hereto
as Exhibit A (the "Participating Loan Agreement") contemplating a $20,000,000
loan from the Company to Delaware LLC-3 (the "Participating Loan") shall be
entered into among the Company, Delaware LLC-3 and Brooke (Overseas);
WHEREAS, each Member has agreed to subscribe for and to purchase
interests in the Company in return for the contributions to the Company
described below; and
WHEREAS, the Members wish to set forth their respective rights and
obligations as Members of the Company and to confirm the principles that will
govern the management of the Company and its Affiliated Entities;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
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<PAGE> 4
1. Defined Terms.
Capitalized terms not otherwise defined herein shall have the meanings
set forth on Schedule A.
2. Organization; Interests.
2.1 Certificate of Formation. The parties acknowledge that the
Company was formed on October 27, 1997 and that the Certificate of Formation of
the Company is currently in the form annexed hereto as Schedule 2.1. The parties
hereby agree that the rights and liabilities of the Members shall be as provided
in the Act, except as provided herein. The parties acknowledge that the original
Limited Liability Company Agreement of the Company dated November 4, 1997 has
been terminated and superseded by the present Agreement.
2.2 Purpose. The Company was formed for the purpose of
investing, developing and operating, through its interests in Delaware LLC-2 and
through the Participating Loan to Delaware LLC-3, Ducat Place II, Ducat Place
III and other real estate interests as provided herein. The purpose of the
Company can be modified as provided in Section 14.4 hereof or otherwise by
agreement of the Members.
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<PAGE> 5
2.3 Principal Office. The principal office of the Company
shall be located at 103 Springer Building, 3411 Silverside Road, Wilmington,
Delaware 19103.
2.4 Subscription for Interests.
(a) Apollo hereby subscribes for interests (the
"Class A Interests"), to be issued by the Company for an aggregate subscription
price of $40,000,000, to be contributed in cash as provided below. New Valley
hereby subscribes for interests (the "Class B Interests"), to be issued by the
Company for an aggregate subscription price of $10,000,000, to be contributed in
cash and expenditures as set forth in Section 2.4(d). BrookeMil hereby
subscribes for interests (the "Class C Interests"), to be issued by the Company
for an aggregate subscription price of $61,966,507, to be contributed by
transferring to the Russian LLC its interests in Ducat II and Ducat III, to
Delaware LLC-2 all of its interest in the Russian LLC, except for a 1% interest,
in exchange for promissory notes, and contributing such promissory notes to the
Company, as set forth in Section 2.4(e). The Class A Interests, the Class B
Interests and the Class C Interests are hereinafter collectively referred to as
the "Interests." The subscriptions shall be made as follows:
<TABLE>
<CAPTION>
Apollo:
- -------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class A 10,000 Cash $40,000,000
Interests
Total: 10,000 $40,000,000
New Valley:
- ----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
Class B 1,400 Expenditures
Interests as set forth $10,000,000
in Section 2.4(d)
and Cash
Total: 1,400 $10,000,000
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
BrookeMil:
- ----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class C 6,381 Promissory Note $ 45,980,553
Interests for Interests
in the Russian LLC
(for Ducat Place II)
2,219 Promissory Note $ 15,985,954
for Interests
in the Russian LLC
(for Ducat Place III)
Total: 8,600 $ 61,966,507
Total for all
- -------------
Members: 20,000 $111,966,507
- -------
</TABLE>
(b) At the Initial Closing (as defined in Section
12.1) the Company issued (i) five (5) of its Class A Interests, at a price of
$4,000 per interest and (ii) five (5) of its Class B Interests, at a price of
$1,000 per interest. The contributions of the Members to the Company and the
amounts and types of Interests issued to them at the Initial Closing were as
follows:
<TABLE>
<CAPTION>
Apollo:
- -------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class A 5 Cash $20,000
Interests
New Valley:
- -----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
Class B 5 Expenditures $ 5,000
Interests
Total Interests Issued: 10 $25,000
</TABLE>
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<PAGE> 7
At the Initial Closing, Apollo made a loan of $11,000,000 to the Company (the
"Apollo Loan") which was represented by a promissory note in favor of Apollo
dated February 27, 1998 (the "Promissory Note") which Promissory Note was
secured by the pledge of 99.1% of the outstanding shares of the capital stock of
BrookeMil under a pledge agreement between Apollo and New Valley dated as of
February 27, 1998 (the "Pledge Agreement"). The entire amount of the Apollo Loan
was disbursed to the order of the Company by wire transfer in immediately
available funds to the account specified in such wire instructions on the
Initial Closing Date.
(c) At the Initial Subsequent Closing (as defined in
Section 12.6) the Company shall issue (i) seven thousand eighty-one (7,081) of
its Class A Interests, at a price of $2,824.46 per interest, (ii) seven hundred
(700) of its Class B Interests, at a price of $7,142.85 per interest, and (iii)
six thousand three hundred eighty-one (6,381) of its Class C Interests, at a
price of $7,205.85 per interest. The contributions of the Members to the Company
and the amounts and types of Interests to be issued to them at the Initial
Subsequent Closing shall be as follows:
<TABLE>
<CAPTION>
Apollo:
- -------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class A 3,186 $9,000,000 in Cash $9,000,000
Interests
3,895 Conversion of $11,000,000
Apollo Loan
Total Since 7,086 $20,020,000
Initial Closing:
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
New Valley:
- -----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class B 700 Expenditures $5,000,000
Interests as set forth
in Section 2.4(d)
Total Since 705 $5,005,000
Initial Closing:
BrookeMil:
- ----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
Class C 6,381 Promissory Note $45,980,553
Interests for Interests
in the Russian LLC
(for Ducat Place II)
Total Since 6,381 $45,980,553
Initial Closing:
Total for All
- -------------
Members Since 14,172 $71,005,553
- -------------
Initial Closing:
- ---------------
</TABLE>
The entire amount of the Apollo Loan (including the principal and any interest
accrued thereon) shall be converted into the Class A Interests at the Initial
Subsequent Closing, to be credited as a contribution by Apollo in the amount of
$11,000,000 towards the aggregate subscription amount set forth in Section
2.4(a), which contribution, upon such conversion, shall be considered made for
the purposes of this Agreement as of the Initial Closing Date. For the avoidance
of doubt, upon the conversion of the Apollo Loan into the Class A Interests as
set forth herein, the Apollo Loan shall be terminated and no payment of
principal, interest or any other amounts shall be due thereon.
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<PAGE> 9
(d) At the Initial Subsequent Closing, at the Second
Subsequent Closing and from time to time after the Second Subsequent Closing and
on or before the fifth anniversary of the Initial Closing Date, Apollo and New
Valley shall complete their subscribed contributions to the Company in
accordance with the Other Subsequent Closings described in Section 12.10 hereof,
up to the subscription amounts set forth in Section 2.4(a), in return for which
additional Class A Interests shall be issued to Apollo and additional Class B
Interests shall be issued to New Valley at the same price per Interest as set
forth in Section 2.4(c) hereof. Upon ten (10) Business Days' notice by the
Company to each of Apollo and New Valley (or, in case of the Initial Subsequent
Closing, on the Initial Subsequent Closing Date, and, in case of the Second
Subsequent Closing, on May 6, 1998), such additional contributions shall be made
by Apollo in cash and by New Valley in expenditures incurred since March 1,
1997, including those expenditures incurred through the date hereof and set
forth in Schedule 2.4(d), and, after such expenditures have been contributed and
to the extent they do not cover the subscribed amount, in cash, and such
contributions shall be made in such manner so as to maintain the ratio of $4.00
contributed by Apollo for every $1.00 in value contributed by New Valley, and
Apollo shall at all times have the number of interests equal to the number of
interests owned by New Valley and BrookeMil together. New Valley shall be deemed
to have made contributions to the Company in the form of the expenditures
referred to in the preceding sentence only on the due date determined for
additional contributions to the Company at a Subsequent Closing (and then only
to the extent that such expenditures are actually made as of the date of such
Subsequent Closing) as provided in Section 12.10 hereof (and New Valley shall
not be entitled to any interest thereon from the date such expenditures were
incurred to the date of such Subsequent Closing) regardless
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<PAGE> 10
of the date such expenditures were incurred, and any expenditures that are to be
counted as New Valley's contributions but that are not set forth in Schedule
2.4(d) or that do not constitute items on the approved Budget shall be
unanimously approved by the Board of Managers. To the extent the sum of the
amount of expenditures of the New Valley Parties with respect to Ducat II and
Ducat III incurred since March 1, 1997 and set forth in Schedule 2.4(d) and of
expenditures incurred by them after the Initial Closing Date on items set forth
in the approved Budget exceeds $10,000,000, the New Valley Parties shall be
reimbursed by the Company from the proceeds of Subsequent Closings for such
expenditures in excess of $10,000,000 (to the extent the New Valley Parties
provide to Apollo proper documentation substantiating such expenditures).
(e) BrookeMil (i) has made part of its capital
contribution hereunder by means of transferring (x) to the Russian LLC the
assets and assumed liabilities listed in Schedule 2.4(e) (the "Assets" and the
"Assumed Liabilities," respectively) related to Ducat Place II, (y) to Delaware
LLC-2 its entire interest in the Russian LLC, less a 1% interest, in exchange
for a promissory note, and (z) to the Company such promissory note in return for
6,381 Class C Interests; and (ii) shall make the remaining part of its capital
contribution by means of transferring, as soon as practicable hereafter (x) to
the Russian LLC, the Assets and the Assumed Liabilities listed in Schedule
2.4(e) related to Ducat Place III, (y) to Delaware LLC-2 its entire interest (as
it has been increased as a result of such transfer) in the Russian LLC at the
time of such transfer, less a 1% interest, in exchange for a promissory note,
and (z) to the Company such promissory note in return for 2,219 Class C
Interests. Upon the completion of the transfers contemplated in clauses (i) and
(ii) of the preceding sentence, BrookeMil shall have no further liability for
capital contributions to the Company hereunder.
(f) In the event any Member shall fail to make any
portion of its
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<PAGE> 11
contribution to the Company when due for any reason, other than an Event of
Force Majeure, then, beginning on the fourth Business Day after the due date for
such contribution, the Company shall charge such non-paying Member interest on
the unpaid amount of such contribution at the rate equal to the lesser of (i)
10% over the base (prime) rate quoted by the Chase Manhattan Bank in New York,
New York (or its successor) at the close of business on the date on which such
payment was due, or (ii) the maximum rate as allowed by applicable law,
calculated from the date such contribution was due until the date of payment
compounded quarterly and based on a 360-day year ("Late Payment Interest"). Late
Payment Interest shall be distributed to the Members who made their
contributions in full on the due date therefor, pro rata in accordance with the
proportion that the aggregate contributions of each paying Member bear to the
aggregate contributions of all paying Members. In the event that such failure to
pay shall continue uncured for a period of one hundred and twenty (120) days
after notice thereof, such non-payment shall be deemed a payment default (a
"Payment Default"). Upon the occurrence and continuation of a Payment Default,
Late Payment Interest shall continue to accrue and Members who have made their
contributions in full on the due date therefor shall have the right to require
the sale of Ducat Place II and the New Factory as set forth in Section
2.10(a)(iv). Notwithstanding any other provision of this Agreement to the
contrary, the portion of the proceeds from the sale of Ducat Place II and/or the
New Factory to which the non-paying Member or Members would otherwise be
entitled shall be subject to reduction for any portion of such unpaid
contribution and any Late Payment Interest thereon and such amounts shall be
paid to the non-defaulting Members in proportion to their Interests in the
Company.
2.5 Payment of Cash Contributions by Members. The Members
shall effect their cash contributions to the Company by wire transfer in
immediately available funds to such
-10-
<PAGE> 12
bank account of the Company as shall be specified in a notice by the Company to
the Members sent at least one Business Day prior to the date of any Closing (as
defined in Section 12 hereof).
2.6 Restrictions on Subscriptions for Interests. The Company
shall not issue any Interests other than to the Members who are a party hereto,
unless the Members unanimously agree
2.7 Rights of Class A Interests.
(a) The Class A Interests shall be entitled to
receive (i) 100% of any amounts distributed by the Company (including
liquidating distributions) until such time as the aggregate amount of
distributions made with respect to Class A Interests equals the total
consideration paid for such Class A Interests plus a 15% annual cumulative rate
of return on such consideration compounded quarterly (such aggregate amount of
distributions is hereinafter referred to as the "Class A Distribution Amount"
and the period required to make such distributions with respect to Class A
Interests in full is hereinafter referred to as the "Class A Distribution
Period"); and (ii) after completion of the Class A Distribution Period and the
Class B Distribution Period (as hereinafter defined), further distributions by
the Company, if any, in an amount equal to 30% of the distribution. The
distribution rights of the Class A Interests are set forth in more detail in
Section A.11 of Schedule 4 annexed hereto.
(b) Upon the liquidation of the Company, the holders
of the Class A Interests shall be entitled to receive the Adjusted Realized
Equity Value of such Class A Interests (the "Class A Liquidation Preference")
before any assets of the Company may be distributed to the holders of the Class
B Interests; provided, however, that the Class A Interests shall be entitled to
such Class A Liquidation Preference only in the event such liquidation takes
place before the completion of the Class A Distribution Period and then only to
the extent that such
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<PAGE> 13
Adjusted Realized Equity Value does not exceed the Class A Distribution Amount.
After the completion of the Class A Distribution Period and the Class B
Distribution Period and upon the liquidation of the Company, the holders of the
Class A Interests shall be entitled to receive distributions in accordance with
Section 2.7(a)(ii) hereof. Notwithstanding the foregoing provisions of this
Section 2.7(b), the rights of the Class A Interests to receive distributions in
liquidation of the Company are subject to the provisions of Section A.12 of
Schedule 4 annexed hereto.
(c) The holders of Class A Interests shall have one
vote in the aggregate.
2.8 Rights of Class B and Class C Interests.
(a) Upon completion of the Class A Distribution
Period, the Class B Interests shall be entitled to receive 100% of any amounts
distributed by the Company (including liquidating distributions) until such time
as the aggregate amount of distributions made with respect to the Class B
Interests equals the total consideration paid for such Class B Interests
pursuant to Section 2.4 plus a 15% annual cumulative rate of return on such
consideration paid for such Class B Interests compounded quarterly (such
aggregate amount of distributions is hereinafter referred to as the "Class B
Distribution Amount" and the period required to make such distributions with
respect to the Class B Interests in full is hereinafter referred to as the
"Class B Distribution Period").
(b) Upon the liquidation of the Company, the holders
of the Class B Interests shall be entitled to receive the Adjusted Realized
Equity Value of such Class B Interests (the "Class B Liquidation Preference")
before any assets of the Company may be distributed to the Members on a pro-rata
basis; provided, however, that the Class B Interests shall be entitled to
-12-
<PAGE> 14
such Class B Liquidation Preference only in the event such liquidation takes
place after the completion of the Class A Distribution Period but before the
completion of the Class B Distribution Period and then only to the extent that
such Adjusted Realized Equity Value does not exceed the Class B Distribution
Amount. After the completion of the Class B Distribution Period and upon the
liquidation of the Company, the holders of the Class B Interests shall be
entitled to receive distributions in accordance with Section 2.8(c) hereof.
Notwithstanding the foregoing provisions of this Section 2.8(b), the rights of
the Class B Interests to receive distributions in liquidation of the Company are
subject to the provisions of Section A.12 of Schedule 4 annexed hereto.
(c) After completion of the Class A Distribution
Period and the Class B Distribution Period, the Class B Interests and the Class
C Interests shall be entitled to further distributions by the Company, if any,
in an amount equal to 70% of the distribution. The distribution rights of the
Class B Interests and the Class C Interests are set forth in more detail in
Section A.11 of Schedule 4 annexed hereto.
(d) The holders of the Class B Interests and the
Class C Interests shall have one vote in the aggregate.
2.9 Management of the Company. Except to the extent that the
authority to conduct day-to-day operations of the Company shall be delegated to
the President as provided herein, the management of the Company shall be vested
in a managing board (the "Board" or the "Board of Managers"), which shall
consist of an even number of managers, but not less than two (2) or more than
six (6). An equal number of managers shall be appointed to the Board (and
subject to removal and replacement) by Apollo on the one hand and by the New
Valley Parties on
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the other hand. Meetings of the Board shall be held periodically (but in no
event less frequently than annually) and upon the request of any manager. The
Board may also take action by unanimous written consent without a meeting.
Except as otherwise provided herein, the actions of the Board shall be by
majority vote, which majority shall include the vote of at least one (1) manager
appointed by each of Apollo and the New Valley Parties. Bennett S. LeBow or such
other person designated by the New Valley Parties (who shall count as one of the
appointments of the New Valley Parties) shall be the Chairman of the Board of
Managers.
Notwithstanding the foregoing, the unanimous decision of the Board of
Managers of the Company shall be required in order for the Company itself, or in
its capacity as a direct or indirect shareholder, member or participant of any
Affiliated Entity, to vote or otherwise approve a decision:
(a) to amend this Agreement or the constituent
documents of the Company and to adopt or amend the constituent documents of any
Affiliated Entity, or to waive any provisions hereof or thereof, and to amend
the Participating Loan Agreement or to waive any provisions thereof;
(b) unless specified in the approved Budget (as
hereinafter defined), to sell, transfer, assign, grant a right to use, a right
of first refusal, an option or a similar right, or otherwise dispose of (i) any
of the Properties, or any rights thereto or interests therein (including but not
limited to ownership rights, leasehold interests (whether as landlord or
tenant), rights to use or easements) or (ii) any asset (or group of assets in a
transaction or series of transactions) the cost or fair market value (whichever
is greater) of which exceeds $100,000 individually or $500,000 in the aggregate
in any given year, except as permitted by Section 2.10 and except for
transactions between the Russian LLC and Delaware LLC-2;
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(c) unless specified in the approved Budget, to
borrow, issue guarantees or assume other contingent obligations to pay money in
an amount which exceeds $100,000 in the aggregate outstanding at any given time,
except for transactions between the Russian LLC and Delaware LLC-2;
(d) unless specified in the approved Budget, to grant
a security interest or otherwise encumber (i) any of the Properties or any
rights thereto or interests therein (including but not limited to ownership
rights, leasehold interests (whether as landlord or tenant), rights to use or
easements), or (ii) any asset (or group of assets in a transaction or series of
transactions) the cost, fair market value or value assigned in such
transaction(s) (whichever is greater) of which exceeds $100,000 at any one time
or $500,000 in the aggregate in any given year;
(e) to take any actions regarding registration of the
Interests in the Company or any Affiliated Entity necessary for a public
offering;
(f) to merge, reorganize or consolidate the Company
or any Affiliated Entity with any other corporation or entity unless the
surviving entity shall be the Company or such other Affiliated Entity,
respectively, or the Company or other Affiliated Entity is merged, reorganized
or consolidated with an Affiliate thereof;
(g) to dissolve voluntarily the Company or any
Affiliated Entity or to revoke voluntary dissolution proceedings or to
terminate, liquidate or wind up the Company or Affiliated Entity;
(h) to change materially the principal businesses
conducted by the Company or any Affiliated Entity or to make any expenditures
with respect to Ducat Place III except as may be specified in the approved
Budget;
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<PAGE> 17
(i) to approve the annual budget and business plan,
including capital expenditures, of the Company (collectively, the "Budget"),
which Budget shall incorporate the annual budgets and business plans of Delaware
LLC-2, the Russian LLC and Delaware LLC-3, as well as any contributions or
resources to be made available by the Company to any other Affiliated Entity;
(j) unless specified in the approved Budget, to make
or incur, or to enter into a contractual commitment to make or incur
expenditures or financial obligations which exceed $250,000 individually or
$1,000,000 in the aggregate in any calendar year;
(k) unless specified in the approved Budget, to
purchase ownership interests, leasehold interests, rights to use, easements or
other rights to or interests in the Properties or elsewhere for the price
exceeding $100,000 in each particular transaction or exceeding $500,000 in the
aggregate in any given year, including approval of agreements with respect to
acquiring such rights, or to waive any rights of first refusal, preemptive or
similar rights relating to the purchase of any such rights to or interest in
such Properties or elsewhere;
(l) to enter into, modify, renew, terminate or grant
any material waiver relating to any significant leases and other material
contracts other than contracts in the ordinary course of business with trade
counterparties or customary real estate leases involving no more than 1000
square meters as approved by the President; provided that real estate lease
agreements with Members or any of their Affiliates exceeding 500 square meters
shall be considered significant for purposes of this clause;
(m) to enter into any transaction with a party that
is related to any Member or Affiliate, excluding transactions in the ordinary
course of business of the Company or an Affiliated Entity on an arm's-length
basis involving amounts which shall not exceed $250,000
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per transaction or series of transactions and excluding transactions in the
ordinary course of business of Liggett-Ducat involving Liggett Group Inc. on an
arm's-length basis; provided that written notice of all such transactions or
series of transactions involving more than $100,000, together with a description
of the material terms thereof, shall be promptly furnished to Apollo;
(n) to commence or settle any litigation, arbitration
or other dispute, the result of which could have a material adverse effect on
the business, financial condition or prospects of the Company or any Affiliated
Entity;
(o) to resolve tax or other governmental proceedings
or disputes relating to the Company or any Affiliated Entity or to approve any
action of New Valley as tax matters partner of the Company;
(p) to establish, acquire, dispose of or transfer any
subsidiary or any interest in any subsidiary or other entity (whether or not
incorporated) or make any investment in any business venture or enterprise
(whether or not incorporated), other than as contemplated in the approved
Budget;
(q) to change the outside accountants of the Company
or any Affiliated Entity;
(r) to issue, sell, transfer, assign or otherwise
dispose of any shares, capital stock, securities or interests of or owned by the
Company or any Affiliated Entity, or change the ownership structure of the
Company or any Affiliated Entity;
(s) unless specified in the approved Budget or in
this Agreement, to make a decision not to distribute all available cash (to the
extent such distributions are permitted by applicable law) of (i) the Company to
the Members, or (ii) an Affiliated Entity to its shareholders, members or
participants, as applicable; and
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(t) to retain any officer subject to mandatory
dismissal as provided in Section 5.1(c).
All figures set forth in this Section 2.9 shall be determined on a
consolidated basis in accordance with U.S. generally accepted accounting
principles, consistently applied. To the extent that any amounts or payments are
incurred in any currency other than U.S. dollars, such amounts or payments
shall, for purposes of such calculation, be converted into U.S. dollars on the
date of the conclusion of the transaction at the official exchange rate of such
country (which, for purposes of the ruble, shall be considered to be the MICEX
rate at the opening of business in Moscow on such date). The Parties hereby
agree that the Participating Loan Agreement shall include provisions requiring
the Company's approval (directly or indirectly) of the issues set forth in this
Section 2.9 and that Apollo shall be authorized to grant the approvals to be
granted by the Company under Section 5.1 of the Participating Loan Agreement.
2.10 Sale of Interests in the Company and Its Assets.
(a) Sale of Assets.
(i) At any time after at least 80% of the net
leasable space of Ducat Place III has been leased to tenants, the New Valley
Parties shall have the right to sell, or cause to be sold, Ducat Place III
without the consent of Apollo, provided that (x) the cash price payable in one
lump sum at the closing of such sale shall be no less than $175,000,000; (y)
Ducat Place III is sold to one or more purchasers through an auction process
conducted by an internationally recognized investment bank or real estate
brokerage firm; and (z) construction of Ducat Place III has been completed.
(ii) The Participating Loan Agreement shall provide
that at any time
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after the completion of the construction of the New Factory, Brooke (Overseas)
shall have the right to sell, or cause to be sold, the New Factory without
Apollo's consent, provided that (x) the cash price payable in one lump sum at
the closing of such sale shall be no less than $175,000,000; and (y) the New
Factory is sold to one or more purchasers through an auction process conducted
by an internationally recognized investment bank or real estate brokerage firm.
(iii) At any time after February 20, 2005, Apollo
shall have the right to require the sale, without the consent of the New Valley
Parties, of all of the assets of the Company, directly and indirectly held,
including but not limited to Ducat Place II, Ducat Place III, Delaware LLC-2 and
Russian LLC, and, through the Company's interest in the Participating Loan
Agreement, all the assets of Delaware LLC-3, including the New Factory, provided
that (x) the cash price payable for all the assets of the Company and Delaware
LLC-3 in one lump sum at the closing of such sale shall be no less than
$430,000,000; and (y) all assets are sold to one or more purchasers through an
auction process conducted by an internationally recognized investment bank or
real estate brokerage firm.
(iv) In the event of (A) a Payment Default by a
Member as set forth in Section 2.4(f) or (B) a material breach by the New Valley
Parties with respect to the provisions of Section 2.9 hereof, which material
breach remains uncured 60 days after receipt by the New Valley Parties of
written notice from Apollo setting forth in detail the alleged default, then, in
each such instance, the non-defaulting Members shall have the right to require
the sale of Ducat Place II, provided that (x) the cash price payable in one lump
sum at the closing of such sale shall be no less than $75,000,000, and (y) Ducat
Place II is sold to one or more purchasers through an auction process conducted
by an internationally recognized investment bank or real estate brokerage firm.
In the event that such sale of Ducat Place II and the distribution of the
proceeds
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therefrom to the non-defaulting Members shall not exceed the Adjusted Realized
Equity Value of the Interests of such non-defaulting Members, such
non-defaulting Members shall have the right to require the sale of the New
Factory, provided that (x) the cash price payable in one lump sum at the closing
of such sale shall be no less than $165,000,000, and (y) the New Factory is sold
to one or more purchasers through an auction process conducted by an
internationally recognized investment bank or real estate brokerage firm.
(v) In the event of (A) the failure of Brooke
(Overseas) to secure or provide the Russian Bank Loan or to arrange other
financing, each on terms that shall not differ materially from those set forth
on Schedule 2.10(v) by July 1, 1998 or (B) a payment default under the Russian
Bank Loan which default results in the acceleration of all amounts due
thereunder or the commencement of enforcement proceedings by the bank against
Liggett-Ducat under the Russian Bank Loan (a "Loan Default"), then, in each such
instance, Apollo shall have the right to require the sale, without the consent
of the New Valley Parties, of all of the assets of the Company, directly or
indirectly held, including but not limited to, Ducat Place II, Ducat Place III,
Delaware LLC-2 and the Russian LLC, and, through the Company's interest in the
Participating Loan Agreement, all the assets of Delaware LLC-3, including the
New Factory, provided that (x) the sale shall be on commercially reasonable
terms and (y) prior to entering into a definitive agreement with respect to any
such sale, Brooke (Overseas) shall not have secured or provided the Russian Bank
Loan or arranged other financing on terms that shall not differ materially from
those set forth on Schedule 2.10(v), or Liggett-Ducat or Brooke (Overseas) shall
not have cured the Loan Default, whether by payment, purchase or refinancing of
the Russian Bank Loan or otherwise, provided the Loan Default can be cured at
any time as long as after it has been cured Delaware LLC-3 shall have the same
rights with respect to the New Factory as it had prior to the occurrence of the
Loan Default, respectively.
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(vi) In the event Apollo has terminated this
Agreement in accordance with Section 14.2(c), then Apollo shall have the right
to require the sale, without the consent of the New Valley Parties, of all of
the assets of the Company, directly or indirectly held, including but not
limited to, Ducat Place II, Ducat Place III, Delaware LLC-2 and the Russian LLC,
and, through the Company's interest in the Participating Loan Agreement, all the
assets of Delaware LLC-3, including the New Factory, provided that (x) the sale
shall be on commercially reasonable terms and (y) prior to entering into a
definitive agreement with respect to any such sale, the grounds for such
termination by Apollo under Section 14.2(c) shall not have been eliminated.
(b) Sale of Interests.
(i) Sale of Interests by New Valley. Notwithstanding
the provisions of Section 9 hereof, at any time after at least 80% of the net
leasable space of Ducat Place III has been leased to tenants and the
construction of Ducat Place III has been completed, the New Valley Parties shall
have the right to sell all of their Interests in the Company without the consent
of Apollo, provided that (x) the cash price payable in one lump sum at the
closing of the sale of all the Interests in the Company shall be no less than
$430,000,000; and (y) the Interests of New Valley are sold to one or more
purchasers through an auction process conducted by an internationally recognized
investment bank or real estate brokerage firm. In the event the New Valley
Parties elect to exercise such right to sell all of their Interests in the
Company, they shall send to Apollo a written notice of such election at least
sixty (60) days prior to the closing of such sale, and Apollo shall have the
right and, at the request of the New Valley Parties, Apollo shall be obligated,
to sell all of its Interests within sixty (60) days of receipt of such notice to
the
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same purchaser or group of purchasers as the New Valley Parties on the same
terms and conditions as the New Valley Parties.
(ii) Sale of Interests by Apollo. At any time after
February 20, 2005, Apollo shall have the right to sell all of its Interests in
the Company without the consent of the New Valley Parties, provided that (x) the
cash price payable in one lump sum at the closing of the sale of all the
Interests in the Company shall be no less than $430,000,000; and (y) the
Interests of Apollo are sold to one or more purchasers through an auction
process conducted by an internationally recognized investment bank or real
estate brokerage firm. In the event Apollo elects to exercise such right to sell
all of its Interests in the Company, it shall send the New Valley Parties a
written notice of such election at least sixty (60) days prior to the closing of
such sale, and the New Valley Parties shall have the right and, at the request
of Apollo, the New Valley Parties shall be obligated, to sell all of their
Interests within sixty (60) days of receipt of such notice to the same purchaser
or group of purchasers as Apollo on the same terms and conditions as Apollo.
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(c) Notwithstanding anything to the contrary in this
Agreement, (i) a partial sale of Interests by any Member shall not be permitted,
(ii) all sales of Interests or assets of the Company or Delaware LLC-3 shall be
on a cash basis in U.S. Dollars, and (iii) no Member shall be entitled to
pledge, create a lien against, mortgage or otherwise encumber any Interests
owned by it or any distributions that such Member would be entitled to hereunder
as a result of owning such Interests. Each of the New Valley Parties and Apollo
shall retain the right to approve any provisions of any agreement for the sale
of Interests or any assets of the Company or Delaware LLC-3 with respect to
indemnification or other post-closing contingent liabilities or price
adjustments. It shall be a condition to any transfer under Section 2.10(b) that
the transferee becomes a party to this Agreement.
(d) Notwithstanding any provision of this Section
2.10 to the contrary, no sales of the assets of the Company or Delaware LLC-3 or
Interests shall be permitted by any Member to any of its Affiliates without the
prior written consent of the other Members.
3. Use of Contributions and Financing.
3.1 Use of Contributions.
(a) The contributions in cash and, in the case of New
Valley, expenditures as set forth in Section 2.4(d), received by the Company
from the Members shall be used as follows: (i) $30,000,000 will be used as
specified in the approved Budget for financing the construction, operation and
development of Ducat Place II, Ducat Place III and such other projects as may be
approved in the Budget, and to reimburse the New Valley Parties for the
expenditures in excess of $10,000,000 as set forth in Section 2.4(d); and (ii)
$20,000,000 will be loaned to Delaware LLC-3 in accordance with the
Participating Loan Agreement to finance the construction of the New Factory and
the acquisition of related equipment, and to reimburse
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Brooke (Overseas) for expenditures incurred by Brooke in connection therewith
since March 1, 1997, as shall be specified in the Participating Loan Agreement.
(b) At the time of any capital call, the purpose for
which funds are being called shall be set forth in an approved Budget.
3.2 Financing. The Company may obtain additional working
capital or other funds required for the business of the Company through
borrowings on the basis of its own credit rating from commercial banks or other
institutional lenders, subject to the Budget or the unanimous approval of the
Board of Managers as set forth in Section 2.9. Although the Members will not be
required to guarantee any such borrowings, the Members shall use good faith
efforts to assist the Company in obtaining such funds on the most favorable
commercial terms.
4. Allocations of Income and Loss. The Company's net taxable income and
loss shall be allocated among the Members as set forth in Schedule 4 hereto.
5. Officers, Principal Office and Independent Accountants.
5.1 Chairman and Corporate Officers.
(a) Except as otherwise provided herein, the officers
of the Company and the Russian LLC and the Chairman of the Board of Managers of
the Company shall be appointed and removed by New Valley. The initial Chairman
of the Board of Managers of the Company will be Bennett S. LeBow. The officers
of the Company will be as follows:
President - Michael Capaccio;
Vice President - Ronald J. Bernstein; and
Secretary - Richard J. Lampen.
The officers of Delaware LLC-2 shall be as follows:
President - Michael Capaccio;
Vice President - Ronald J. Bernstein; and
Secretary - Richard J. Lampen.
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The officers of the Russian LLC shall be as follows:
General Director - Ronald J. Bernstein, to be replaced by
Michael Capaccio as soon as practicable hereafter;
Deputy General Director - Ronald J. Bernstein (upon such replacement);
and
Deputy General Director - Olga N. Grigorieva.
The Chairman of Delaware LLC-3 shall be Bennett S. LeBow. The officers of
Delaware LLC-3 shall be:
President - Ronald J. Bernstein;
Chief Financial Officer - Stewart Hainsworth; and
Secretary - Richard J. Lampen.
The General Director of Liggett-Ducat shall be Ronald J. Bernstein.
The General Director of LD Tobacco shall be Ronald J. Bernstein.
(b) Apollo shall have the right to approve (i)
replacements of any of the officers set forth in this Section 5.1; and (ii) the
appointment of any senior executive officer of an Affiliated Entity. Such
approval shall not be unreasonably withheld or delayed.
(c) Any officer of the Company or any Affiliated
Entity shall be subject to mandatory dismissal for fraud, bad faith, gross
negligence, criminal conviction or plea, and a final, non-appealable finding of
or consent to injunction with respect to violations of antifraud or
antimanipulative provisions of securities, commodities or banking laws by a
court of competent jurisdiction, unless retention is approved unanimously by the
Board of Managers as provided in Section 2.9.
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(d) Subject to Section 2.9(o) hereof, New Valley
shall be the tax matters partner for the Company.
5.2 Responsibilities of the President. The President of the
Company shall execute the decisions of the Board of Managers and have all
authority to conduct the day-to-day operations of the Company except as
otherwise provided herein.
5.3 Salaries to Employees.
(a) The parties agree that neither the Company nor
any Affiliated Entity shall pay any salaries to employees of Apollo or New
Valley, other than to the employees involved in day-to-day business operations
in Russia (the latter category including, among others, Ronald J. Bernstein ,
Michael Capaccio and Stewart Hainsworth).
(b) The salaries of the officers of the Company and
each Affiliated Entity shall be approved in the Budget or as determined from
time to time by the Board of Managers.
5.4 Independent Accountants. The independent certified public
accountants of the Company and each Affiliated Entity shall be a firm of
internationally recognized accountants selected by unanimous vote of the Board
of Managers as set forth in Section 2.9, and initially shall be Coopers &
Lybrand LLP.
6. Operation and Management of the Company.
6.1 Books and Records; Audited Financial Statements. Each of
the Members acknowledges and agrees that the Company and the Russian LLC shall
each be treated as a partnership of which the Members are partners for income
tax purposes, and further agrees to cooperate to achieve and maintain such
treatment. In this regard, an election will be filed with
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the U.S. Internal Revenue Service under Treasury Regulations Section 301.7701-3
on behalf of the Russian LLC to elect treatment of the Russian LLC as a
partnership for U.S. tax purposes, effective as of the date of its initial
formation. The Company's books of account shall be maintained on a basis
consistent with such treatment and on the same basis used in preparing the
Company's United States federal income tax return. The year-end balance sheet,
statement of operations and statement of change in financial position shall be
audited each year by the independent certified public accountants of the
Company, whose written report shall be provided to each of the Members no later
than 60 days after the end of each fiscal year.
6.2 Other Reports. In addition to annual audited financial
statements, each fiscal quarter the President shall prepare and distribute to
each Member of the Company a report providing for each Member its allocable
share of income, gain, loss, deduction and credit and such other general reports
as determined by the Members, which shall include unaudited quarterly financial
statements.
6.3 Access. Each of the Members, together with their lawful
agents, attorneys and representatives, shall have access to the books and
records and facilities and senior management of the Company during all normal
business hours.
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6.4 Business Plan and Budget. The Company shall provide to
each of the Members a proposed annual Budget, which shall include information
with respect to the operation of the business to be conducted by each Affiliated
Entity for each fiscal year, at least thirty (30) days before the beginning of
such fiscal year. Such Budget shall include estimates of anticipated capital
calls. The initial Budget of the Company, for the year 1998, is annexed hereto
as Schedule 6.4. The Members of the Company shall approve the Budget as provided
in Section 2.9 hereof. The day-to-day operations of the Company and each
Affiliated Entity shall be conducted by the officers of the Company within 10%
variances from the Budget agreed upon by the Members. The Budget shall be
designed to ensure that the Company shall at all times qualify as a "real estate
operating company" under the provisions of ERISA.
6.5 Limitations on Activities.
(a) Except as provided by the Board of Managers or as
contemplated in the approved Budget or the Participating Loan Agreement, (i) no
part of Ducat Place II, Ducat Place III, the New Factory or any other Property
shall be used as collateral for the purpose of any development other than its
own development and (ii) no sale, refinancing or other capital proceeds from
Ducat Place II, Ducat Place III, the New Factory or any other Property may be
used other than for budgeted capital expenditures involving the same property
that generated such proceeds.
(b) For ERISA purposes only, the Company shall
maintain its status as a "real estate operating company" at all times. If Apollo
or its counsel shall reasonably determine at any time that the Company may not
qualify for such status, Apollo and the New Valley Parties shall reorganize the
corporate structure of the Company and its Affiliates or take such other
necessary action in order to permit the Company to so qualify, unless the reason
that
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the Company may not qualify as a "real estate operating company" is due to a
breach by Apollo of the provisions of this Agreement or actions of Apollo
unrelated to the assets or business of the Company or any of its Affiliates, in
which case Apollo and the New Valley Parties shall be required to use only
reasonable efforts to reorganize the corporate structure of the Company and its
Affiliates or take such other reasonably necessary action in order to permit the
Company to so qualify, giving due consideration to the relative economic and tax
benefits anticipated by the parties to this Agreement.
(c) The Members agree that, after the execution of
this Agreement, a new entity may be formed by Delaware LLC-2 and the Assets
relating to Ducat Place III may be transferred thereto, provided, however, that
BrookeMil shall contribute the Assets relating to Ducat Place III to the Russian
LLC as set forth in Section 2.4(e)(ii) hereof, unless the Members agree that
such new entity shall be formed prior to such transfer and that BrookeMil should
make its contribution directly to such new entity.
7. Establishment of Delaware LLC-2 and the Russian LLC.
7.1 Establishment of Delaware LLC-2.
(a) The parties acknowledge that Delaware LLC-2 was
formed on October 27, 1997 and that the Certificate of Formation of Delaware
LLC-2 is currently in the form the English translation of which is annexed
hereto as Schedule 7.1(a).
(b) The Limited Liability Company Agreement with
respect to
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Delaware LLC-2 shall be substantially in the form annexed hereto as Schedule
7.1(b).
7.2 Establishment of the Russian LLC. The parties acknowledge
that the Russian LLC has been established on December 15, 1997, that the
Certificate of Registration of the Russian LLC is annexed hereto as Schedule
7.2. The Members shall cause the Company to use all best efforts to obtain all
registrations, listings and filings and take all other actions required for its
operation under Russian law. Notwithstanding anything in this Agreement to the
contrary, no additional approval of the Board of Managers or any Member shall be
required for BrookeMil, the Russian LLC or the Company to complete the
transactions contemplated by Section 2.4(e), Sections 11.1 and 11.2 and this
Section 7.
8. Operation and Management of Affiliated Entities.
8.1 Management of Affiliated Entities. In addition to
management rights with respect to the Company as set forth in this Agreement,
Apollo shall have the following management rights with respect to each
Affiliated Entity:
(a) Apollo shall have the right to be kept informed,
consult with and advise management of each Affiliated Entity with regard to any
material developments in or affecting each Affiliated Entity's business; to
discuss business operations, properties and the financial or other condition of
each Affiliated Entity with its officers, employees and any relevant management
committee; to consult with and advise management on significant business issues;
and to meet regularly with management for such consultation and advice; and
(b) Apollo shall have the right to appoint one (1)
member of the management committee or board of directors, as applicable, of each
Affiliated Entity and shall have the right to dismiss and replace such member at
any time.
8.2 Books and Records; Audited Financial Statements. The
Company shall
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cause each Affiliated Entity, in addition to maintaining its books and accounts
in accordance with the law of the applicable jurisdiction, to prepare its
financial statements in accordance with U.S. generally accepted accounting
principles, consistently applied. The year-end balance sheet, statement of
operations and statement of change in financial position shall be audited each
year by Coopers & Lybrand LLP or another firm of independent certified public
accountants selected in accordance with Section 5.4 hereof, and the Company
shall provide the written report of such accountants to each of the Members. The
Company shall cause each Affiliated Entity to prepare all tax returns as soon as
practicable after the end of each fiscal year and, in any event, shall supply
the Members with reasonable estimates of the taxable income of each Affiliated
Entity within forty-five (45) days of the end of each fiscal year.
8.3 Access. The Company shall ensure that each of the Members,
at the cost of such Member, together with their lawful agents, attorneys and
representatives, shall have access to the books and records, facilities and
senior management of each Affiliated Entity during all normal business hours.
Apollo shall have access in Moscow, Russia and Miami, Florida to the books and
records of each Affiliated Entity.
9. Restrictions on Transfers of Interests.
9.1 Limitations on Members' Right to Sell Interests. Except as
contemplated by Section 2.10, Section 9.2 and Section 9.4, each of the Members
agrees not to transfer all or any of its Interests in the Company, and each
Member shall hold its Interests and, by accepting the same upon original issue,
upon distributions or upon subsequent transfer, agrees for itself, its
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successors, legal representatives and assigns that the Interests shall not be
sold, transferred, assigned, pledged, hypothecated or otherwise encumbered,
whether voluntarily or involuntarily, by operation of law, legal proceedings or
otherwise, other than as provided in this Section 9 or in Section 2.10. In the
event an involuntary lien or encumbrance is placed on the Interests, the
affected Member shall not be in violation of this provision if it discharges or
causes to be discharged such lien or encumbrance within a period of sixty (60)
days from the placement or occurrence thereof.
9.2 Transfers to Affiliates. Any Member may transfer its
Interests in the Company to an Affiliate, except where prohibited by applicable
laws or where in the reasonable judgment of any other Member such transfer would
have a material adverse effect on the business of the Company or such other
Member. Any Member wishing to transfer its Interests to an Affiliate under this
Section 9.2 shall first notify the other Members in writing of such proposed
transfer. Each such other Member shall make its determination as to whether such
transfer would have a material adverse effect on the business of the Company or
such other Member within ten (10) days of receiving such notice and shall notify
such first Member in writing of its determination. It is a condition of any such
transfer that the transferee become a signatory to this Agreement and agree to
perform all of the obligations of the transferor hereunder.
9.3 Change in Control. In the event of a change in control of
a Member, such Member thereupon shall cease to have any voting rights, and the
remaining Members shall have the right to purchase, or to cause the Company to
purchase, such first Member's Interests at a price equal to the Adjusted
Realized Equity Value of such Interests, which right may be exercised by the
remaining Members for a period of sixty (60) days after such event constituting
a change in control. For purposes of this Agreement, a change in control shall
be deemed to occur when a
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person or entity that was not, at the time of the Initial Closing, an Affiliate
of a Member becomes the beneficial owner, directly or indirectly, of securities
or ownership interests representing 40% or more of the combined voting power of
all outstanding securities or ownership interests of such Member. A change of
control shall not be deemed to occur due to a reconfiguration of the ownership
or changes of the ownership of the limited partnership interests of Apollo or
any of the New Valley Parties, as the case may be, provided that Apollo Real
Estate Management III, L.P. or its Affiliates remain the owners, directly or
indirectly, of the Interests previously owned by Apollo, or Brooke Group Ltd.,
Bennett S. LeBow or their Affiliates remain the owners, directly or indirectly,
of the Interests previously owned by the New Valley Parties, respectively.
9.4 Dissolution of a Member. In the event of the bankruptcy,
reorganization, liquidation, winding-up or dissolution of a Member (the
"Dissolving Member"), the Dissolving Member shall notify the other Members in
writing within five (5) days of such event. The Interests owned by the
Dissolving Member shall first be offered for purchase by the other Members
within ninety (90) days of the date of such notice for the then existing
Adjusted Realized Equity Value of such Interests. In the event that such other
Members decline to purchase such additional Interests, such unpurchased
Interests may be offered by the Company to third parties for purchase on terms
and conditions to be determined by the Members, and the Dissolving Member shall
sell its Interests in accordance with the provisions of this Section 9.4.
9.5 Termination of the Provisions Restricting the Sale of
Interests. The provisions restricting the sale of Interests contained in this
Section 9 shall automatically terminate upon the happening of any of the
following events:
(a) the adjudication of the Company as a bankrupt,
the execution by the Company of an assignment for
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the benefit of creditors, or the appointment of a receiver for all or
substantially all of its properties; or
(b) the voluntary or involuntary dissolution of the
Company.
10. Representations and Warranties.
10.1 The Company. The Company represents and warrants as
follows:
(a) The Company is a limited liability company duly
formed under the laws of the State of Delaware, with full power and authority to
enter into this Agreement and to consummate the transactions contemplated
herein.
(b) The execution and delivery by the Company of this
Agreement and the consummation by it of the transactions contemplated herein
will not violate its constituent documents, any law or any contract to which the
Company is a party, and no approval, authorization, consent, or order or filing
with, any third party, court, administrative agency or other governmental
authority is required for the execution and delivery by the Company of this
Agreement or any other agreements to be entered into by the parties hereto in
accordance with this Agreement, including but not limited to the Participating
Loan Agreement and all agreements and documents relating to the asset transfers
contemplated by this Agreement, or the consummation by it of the transactions
contemplated herein.
(c) This Agreement is the legal, valid and binding
obligation of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and similar laws of general application
affecting the rights and remedies of creditors.
(d) There exists no litigation pending or threatened
in writing (or any basis therefor) against the Company that (i) might adversely
affect the operations, business or business prospects of the Company, (ii) might
impede, delay or adversely affect the transactions
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contemplated by this Agreement, or (iii) has not been disclosed to Apollo. There
are no valid, effective and enforceable orders, injunctions or decrees of any
court or arbitral body with respect to the Company that might adversely affect
the operations, business or business prospects of the Company.
10.2 Members. Each Member represents and warrants as follows:
(a) The Member is a corporation or a partnership, as
the case may be, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or establishment, as the case may be,
with full power and authority to enter into this Agreement and to consummate the
transactions contemplated herein.
(b) The execution and delivery by the Member of this
Agreement and the consummation by it of the transactions contemplated herein
have been authorized by the board of directors of the Member or other management
authority of the Member and will not violate its constituent documents, any law
or any contract to which the Member is a party, and no approval, authorization,
consent or order of, or filing with, any third party, court, administrative
agency, or governmental authority is required for the execution and delivery by
the Member of this Agreement or the consummation by it of the transactions
contemplated herein (except as may be required for BrookeMil to consummate the
transactions contemplated herein).
(c) This Agreement is the legal, valid and binding
obligation of the Member enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and similar laws of general application
affecting the rights and remedies of creditors.
(d) The Member is acquiring the Interests of the
Company for investment purposes for its own account and not with a view to any
distribution of the same, and
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shall not dispose of any of the Interests except in compliance with applicable
securities laws and the terms of this Agreement. The Member acknowledges that
the Interests have not been registered under the securities laws or regulations
of any jurisdiction and that the Interests may not be sold on a public market
without proper registration. The Member is sophisticated in making investments
and represents that it has the knowledge and experience to evaluate its
investment in the Interests and is not relying on any representation or warranty
made by the Company or any of its representatives or agents.
(e) The individual signing this Agreement on behalf
of the Member is a duly authorized officer or representative of the Member and
is empowered to execute this Agreement on behalf of the Member.
(f) No agent, broker, investment banker, person or
firm acting on behalf of the Member or under the authority of the Member is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee from any of the parties hereto in connection with the transactions
contemplated hereby.
10.3 Additional Representations by the New Valley Parties. In
addition to the representations made by the New Valley Parties in Section 10.2
above, each of the New Valley Parties represents and warrants as follows:
(a) BrookeMil has transferred its ownership of the
building and the leasehold rights to the land plot located at Ducat Place II to
the Russian LLC. The Russian LLC is the owner of the buildings and is the lessee
of the land plot located at Ducat Place II and is entitled to dispose of such
rights at its own discretion, subject to compliance with the terms of the Land
Lease Agreement, dated July 1, 1997, between the Government of the City of
Moscow, as landlord, and BrookeMil, as tenant, demising the land at Ducat Place
II, as amended to date and
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assigned to the Russian LLC (the "Ducat II Land Lease"), and applicable law, and
there are no encumbrances on, or rights of third parties to, Ducat Place II
other than the Assumed Liabilities.
(b) BrookeMil is the owner of the buildings and is
the lessee of the land plot located at Ducat Place III and is entitled to
dispose of such rights at its own discretion, subject to compliance with the
terms of the Land Lease Agreement, dated October 30, 1992, between the
Government of the City of Moscow, as landlord, and BrookeMil, as tenant,
demising the land at Ducat Place III, as amended to date (the "Ducat III Land
Lease"), and applicable law, and there are no encumbrances on, or rights of
third parties to, Ducat Place III other than the Assumed Liabilities.
(c) LD Tobacco is the owner of the buildings and is
the lessee of the land plot located at the site of the New Factory and, upon
purchase of the land lease rights, will be entitled to dispose of such rights at
its own discretion, subject to compliance with the terms of the Land Lease
Agreement, dated March 27, 1996, between the Government of the City of Moscow,
as landlord, and LD Tobacco, as tenant, demising the land at the site of the New
Factory, as amended to date (the "New Factory Land Lease") and applicable law,
and there are no encumbrances on, or rights of third parties to, the New
Factory.
(d) BrookeMil is the current tenant under the Ducat
III Land Lease. LD Tobacco is the current tenant under the New Factory Land
Lease. (The Ducat III Land Lease and New Factory Land Lease, including all
amendments, protocols and other documents and agreements relating thereto, are
herein occasionally referred to collectively as the "Land Leases").
(e) (i) The New Valley Parties have provided to
Apollo access to complete and correct copies of all amendments, protocols and
other documents and agreements
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relating to the Land Leases; (ii) each of the Land Leases has been duly
authorized, executed and delivered by the tenant and is the legal, valid and
binding agreement of the tenant thereunder, and, to the knowledge of the New
Valley Parties, of the landlord thereunder, enforceable in accordance with its
terms; (iii) each of the Land Leases is in full force and effect without default
by either the tenant or, to the knowledge of the New Valley Parties, the
landlord thereunder, and, to the knowledge of the New Valley Parties, no
condition exists and no event has occurred that would result in, either after
notice thereof or a lapse of time or both, a breach, termination or default
under any of the Land Leases; (iv) the tenant under each Land Lease is current
in the payment of all rent and other amounts due and has fulfilled all other
obligations under the terms of such leases as of the date hereof; (v) except in
connection with the Assumed Liabilities and the Use Agreement, dated as of
January 31, 1997, between BrookeMil and Liggett-Ducat, neither BrookeMil nor LD
Tobacco has subleased, assigned or pledged any of its interests in the Land
Leases; and (vi) to the knowledge of the New Valley Parties, each of the Land
Leases covers the entire estate that it purports to cover, and upon consummation
of the transactions contemplated by this Agreement, the Russian LLC will
continue to be entitled to the use, occupancy and possession of the real
property as contemplated herein.
(f) Each of Liggett-Ducat and LD Tobacco was duly
incorporated as a closed joint stock company and is validly existing as a legal
entity registered under the laws of the Russian Federation as of August 5, 1993,
and December 29, 1995, respectively; the Russian LLC has been duly incorporated
as a limited liability company and is validly existing as a legal entity
registered under the laws of the Russian Federation; and each of Liggett-Ducat,
LD Tobacco and the Russian LLC has full power and authority required to carry on
its business as it is currently being conducted and/or as described in the
business plans, and to own, lease and operate its properties.
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(g) All of the outstanding shares of capital stock of
each of Liggett-Ducat and LD Tobacco (i) have been duly authorized and validly
issued and are fully paid; (ii) are not subject to any preemptive or similar
rights granted by Liggett-Ducat or LD Tobacco, respectively (except as may be
established in Russian law and/or set forth in the respective charters of
Liggett- Ducat and LD Tobacco), and were properly registered with the
appropriate authorities competent for registration of the issuance of such
shares and to the extent owned by Brooke (Overseas) and Liggett-Ducat,
respectively, are free and clear of any security interest, claim, lien, or
encumbrance of any nature, except with respect to those shares pledged by Brooke
(Overseas) to Belgrave Limited and Vladimir Tumentsev to secure the payment
obligations of Brooke (Overseas) for 6.8% of the outstanding shares of
Liggett-Ducat; (iii) Brooke (Overseas) has transferred 95.8% of the outstanding
shares of Liggett-Ducat to Delaware LLC-3; (iv) Liggett-Ducat owns 100% of the
outstanding shares of LD Tobacco; and (v) there is no existing option, warrant,
call, right, commitment or other agreement of any character to which
Liggett-Ducat is a party requiring, and there are no securities of Liggett-Ducat
outstanding which upon conversion, exercise or exchange would require, the
issuance, sale or transfer of any additional shares of capital stock or other
securities of Liggett-Ducat to its employees or any other person.
(h) Neither Liggett-Ducat nor LD Tobacco is in
violation of its respective charter.
(i) (i) Each of BrookeMil and each Affiliated Entity
has such licenses, permits and approvals as are necessary to conduct its
respective business as described to Apollo, except where the failure to have
such license, permit or approval would not have a material adverse effect on
such entity; (ii) each of BrookeMil and each Affiliated Entity has fulfilled and
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performed all of its obligations with respect to such licenses, permits and
approvals except any obligation which the failure to fulfill or perform would
not have a material adverse effect on such Affiliated Entity; and (iii) no event
has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results, or after notice or lapse of time
would result, in any other material impairment of the rights of the holder of
such license, permit or approval.
(j) Subject to Schedule 10.3(l), there exists no
litigation pending or, to the knowledge of the New Valley Parties, threatened in
writing (or any basis therefor) against BrookeMil, the Affiliated Entities, any
of their ventures, Assets and/or Properties that might (i) detrimentally affect
the ownership, value, use or operation of the Assets and/or Properties for their
intended purposes; (ii) adversely affect the operations, business or business
prospects of BrookeMil or any Affiliated Entity; or (iii) impede, delay or
adversely affect the transactions contemplated by this Agreement. There are no
valid, effective and enforceable orders, injunctions or decrees of any court or
arbitral body with respect to BrookeMil, the Affiliated Entities, any of their
ventures, Assets and/or Properties that might (x) detrimentally affect the
value, use, ownership or operation of the Assets and/or Properties for their
intended purposes; (y) adversely affect the operations, business or business
prospects of BrookeMil or any Affiliated Entity; or (z) impede, delay or
adversely affect the transactions contemplated by this Agreement. To the
knowledge of the New Valley Parties, there are no material impediments to
BrookeMil obtaining all necessary approvals for BrookeMil's planned development
of Ducat Place III. Neither BrookeMil nor any of the Affiliated Entities or
their ventures has filed, nor been the subject of any filing of, a petition
under bankruptcy laws, insolvency laws, laws for the composition of
indebtedness, or laws for the reorganization of debtors.
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(k) There are no material physical or mechanical
defects with respect to the buildings (other than the existing cigarette factory
at Ul. Gasheka 6) and/or the other improvements comprising the Assets and/or
Properties (including, but not limited to, the structural and load-bearing
components, the roofs and the plumbing, heating, ventilation, air conditioning,
electrical and life safety systems of the improvements) or to the knowledge of
the New Valley Parties, the land, and all of such items (to the extent installed
or constructed on the date hereof, with respect to the building at Ducat Place
II) are in good operating condition and repair and in compliance in all material
respects with all applicable laws and zoning requirements. To the knowledge of
the New Valley Parties, Ducat Place II and Ducat Place III will have access, on
the basis generally provided to businesses in the City of Moscow, to available
water, sewer and power utilities. BrookeMil has not received, and has no
knowledge of, any notice or request from any governmental agency requesting or
requiring the performance of any work or alteration in respect of the land, the
buildings (other than the Old Factory) and/or the other improvements comprising
the Assets and/or Properties.
(l) The Schedule of Leases with respect to Ducat
Place II annexed hereto as Schedule 10.3(l) (the "Ducat II Leases") is complete
and correct in all respects. The Ducat II Leases have been duly authorized,
executed and delivered by the landlord, are the legal, valid and binding
agreements of the landlord thereunder enforceable in accordance with their terms
and are in full force and effect, as assigned by BrookeMil to the Russian LLC,
subject to Schedule 10.3(l). Other than as part of the Assumed Liabilities,
there are no free rent allowances, prepaid rents or other prepaid charges. The
Ducat II Leases are bona-fide in all respects, and were entered into by
BrookeMil and the respective tenants thereunder on an arm's-length basis and in
the ordinary course of BrookeMil's business. Subject to Schedule 10.3(l),
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there is no default by BrookeMil under the terms of any of the Ducat II Leases
(including, but not limited to, any such default that has or might give rise to
any offset, defense, claim, or counterclaim to the payment of the rents and/or
other charges payable by the tenant thereunder), nor, to the knowledge of the
New Valley Parties, are there any material defaults by the tenants thereunder;
and, to the knowledge of the New Valley Parties, no condition exists and no
event has occurred that would result in, either after notice thereof or a lapse
of time or both, a breach, termination or default under any of the Ducat II
Leases. All the Ducat II Leases have been assigned by BrookeMil to the Russian
LLC, and the Russian LLC continues to be entitled to all of the rights and
privileges to which BrookeMil was previously entitled under such Ducat II
Leases. Subject to Schedule 10.3(l), none of the Ducat II Leases nor the rents
payable thereunder have been subleased, assigned or pledged. All tenants are
current with their rent obligations.
(m) To the knowledge of the New Valley Parties, the
business of BrookeMil and the Affiliated Entities is not being, nor has it in
the past been, conducted in violation of any law or any governmental order
applicable to BrookeMil or any of its assets or properties, including, without
limitation, the Foreign Corrupt Practices Act of 1977, as amended, except for
possible violations which individually or in the aggregate would not have a
material adverse effect on BrookeMil, the Company or the Affiliated Entities. To
the knowledge of the New Valley Parties, BrookeMil, the Company and the
Affiliated Entities are in compliance with all applicable environmental laws and
have not received any communication from any governmental authority that alleges
that BrookeMil, the Company or the Affiliated Entities are not in compliance
with applicable environmental laws where such noncompliance would have a
material adverse effect on BrookeMil or the Affiliated Entities.
(n) All material tax returns and reports required to
be filed by
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BrookeMil prior to the date hereof or with respect to taxable periods ending
prior to the date hereof have been or will be filed with the appropriate
governmental authorities prior to the date hereof or by the due date thereof
including extensions. Such tax returns and reports correctly reflect (and as to
returns not filed as of the date hereof, will correctly reflect) all material
tax liabilities of BrookeMil required to be shown thereon. To the knowledge of
the New Valley Parties, all material tax returns and reports required to be
filed by the Affiliated Entities prior to the date hereof or with respect to
taxable periods ending prior to the date hereof have been or will be filed with
the appropriate governmental authorities prior to the date hereof or by the due
date thereof including extensions. Such tax returns and reports correctly
reflect (and as to returns not filed as of the date hereof, will correctly
reflect) all material tax liabilities of the respective Affiliated Entities
required to be shown thereon. To the knowledge of the New Valley Parties, there
are no pending tax investigations or outside audits of BrookeMil or of any
Affiliated Entity being conducted and, except as set forth in Schedule 10.3(n),
neither BrookeMil nor any Affiliated Entity has any outstanding tax penalties
against it. BrookeMil shall remain liable for the payment of profits taxes due
to the conduct of BrookeMil's business for the periods prior to the Initial
Closing Date.
(o) The New Valley Parties have identified to Apollo
and have provided to Apollo complete and correct copies of all material
employment agreements or employee benefit plans covering present and former
employees of BrookeMil or their beneficiaries.
(p) A schedule of the material contracts of BrookeMil
and the status of each is annexed hereto as Schedule 10.3(p) (the "Material
Contracts"). (i) The Material Contracts have been duly authorized, executed and
delivered by the New Valley Parties party
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thereto and are legal, valid and binding agreements of the New Valley Parties
party thereto enforceable against such New Valley Parties in accordance with
their respective terms; (ii) BrookeMil has fully performed all obligations
required to be performed under each of the Material Contracts including but not
limited to the payment of all amounts due and owing thereunder; (iii) neither
BrookeMil nor, to the knowledge of the New Valley Parties, any other party is in
default under any of the Material Contracts; and (iv) to the knowledge of the
New Valley Parties, no condition exists and no event has occurred that would
result in, either after notice of or lapse of time or both, in a breach,
termination or default under any of the Material Contracts. BrookeMil has not
assigned any of its interests in the Material Contracts, and upon consummation
of the transactions contemplated herein, the Russian LLC will continue to be
entitled to the rights and privileges to which BrookeMil was previously
entitled.
(q) The unaudited financial statements of BrookeMil
and the audited financial statements of Liggett-Ducat Ltd. for the years ended
December 31, 1995 and 1996 furnished to Apollo have been prepared in accordance
with U.S. generally accepted accounting principles consistently applied and
fairly present the matters set forth therein.
(r) A schedule of all material related party
obligations relating to the Company and its Affiliates that will be outstanding
as of the date of the Initial Closing is annexed hereto as Schedule 10.3(r).
(s) That certain Use Agreement, dated as of January
31, 1997, between BrookeMil and Liggett-Ducat, is in full force and effect.
(t) Liggett-Ducat has all necessary authority and
approvals to operate the Old Factory.
(u) The previously existing intercompany loan from
Brooke (Overseas) to Liggett-Ducat has been cancelled.
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10.4 Additional Representations by Apollo. In addition to the
representations made by Apollo in Section 10.2 above, Apollo represents and
warrants that the purchase of the Interests does not violate any provisions of
ERISA and that the contemplated Participating Loan does not violate the
provisions of ERISA.
11. Covenants of the New Valley Parties.
11.1 Contribution of Ducat Place II to the Russian LLC.
BrookeMil has contributed the Assets and Assumed Liabilities related to Ducat
Place II to the Russian LLC.
11.2 Contribution of Ducat Place III to the Russian LLC. As
soon as practicable following the purchase of all the buildings and land lease
rights at Ducat Place III, BrookeMil shall contribute the Assets and Assumed
Liabilities related to Ducat Place III to the Russian LLC.
11.3 Beneficial Ownership. Except for a one percent (1%)
interest to be retained indirectly by BrookeMil through BrookeMil's ownership in
the Russian LLC, as of the Initial Closing, and until the legal title to the
Assets shall have been transferred to the Russian LLC and a 99% interest in the
Russian LLC is owned by Delaware LLC-2, the Assets shall be beneficially owned
by the Company and, as such, the Company shall be entitled to participate in the
earnings, appreciation in value and management of the Assets, and BrookeMil
hereby designates the Company as attorney-in-fact and agent for BrookeMil, to
act, in the name of BrookeMil or otherwise, as may be deemed appropriate by the
Board of Managers of the Company, in order to obtain for the Company the
economic benefits derived from the ownership of such property, asset, contract,
lease or other instrument, document or agreement constituting the Assets, and,
as evidence thereof, BrookeMil shall execute a power of attorney in favor of the
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Company substantially in the form annexed hereto as Exhibit 4. Notwithstanding
the foregoing, any property or asset of BrookeMil constituting an Asset and any
contract, lease or other instrument, document or agreement to be assigned or
otherwise transferred to the Russian LLC hereunder, the assignment or other
transfer, or the attempted assignment or other transfer of which would be
invalid or ineffective, unless the consent or approval of another person or
entity to such assignment or other transfer shall have first been obtained,
shall not be assigned or otherwise transferred under this Agreement, and the
provisions of this Agreement shall not constitute an attempt to assign or
transfer, unless and until such consents or approvals shall have been obtained.
12. Closings. Subject to the terms and conditions set forth in Section
2.4 hereof, the closings (each, a "Closing," the date of a Closing being
referred to herein as a "Closing Date") of the transactions contemplated herein
shall occur as follows:
12.1 Date, Time and Place of Initial Closing. The closing of
the transactions contemplated in Section 2.4(b) hereof (the "Initial Closing")
took place on February 26, 1998 at 10:00 a.m. at the offices of Coudert
Brothers, 1114 Avenue of the Americas, New York, NY 10036 (the date and time of
the Initial Closing being referred to herein as the "Initial Closing Date").
12.2 Conditions to Obligations of the New Valley Parties. The
obligations of the New Valley Parties hereunder are subject to the fulfillment,
prior to or at any Closing, of each of the following conditions:
(a) All authorizations, consents, orders and
approvals of regulatory authorities and third parties, if any, necessary for the
performance by the Company, Apollo and the New Valley Parties of this Agreement
shall have been obtained.
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(b) The representations and warranties of Apollo
contained in this Agreement shall be true and correct in all material respects
at the date hereof and at and as of such Closing, with the same force and effect
as if made at and as of such Closing Date (except that representations and
warranties that by their terms speak as of such Closing Date shall be true and
correct as of such date); and Apollo shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to such Closing.
(c) No action shall have been commenced in a court of
competent jurisdiction or by or before any governmental authority against any of
the Company, Apollo or the New Valley Parties seeking to prohibit the
transactions contemplated by this Agreement.
12.3 Conditions to Obligations of Apollo. The obligations of
Apollo hereunder are subject to the fulfillment, prior to or at any Closing, of
each of the following conditions:
(a) Except as set forth in Section 10.2(b), all
authorizations, consents, orders and approvals of regulatory authorities and
third parties, if any, necessary for the performance by the Company and the New
Valley Parties of their obligations under this Agreement shall have been
obtained.
(b) The representations and warranties of the New
Valley Parties contained in this Agreement shall be true and correct in all
material respects at the date hereof and at and as of such Closing, with the
same force and effect as if made at and as of such Closing Date (except that
representations and warranties that by their terms speak as of such Closing Date
shall be true and correct as of such date); and the New Valley Parties shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them on
or prior to such Closing.
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(c) No action shall have been commenced in a court of
competent jurisdiction or by or before any governmental authority against either
the Company, Apollo or any of the New Valley Parties seeking to prohibit the
transactions contemplated by this Agreement.
(d) There shall not have been any material adverse
change in the financial condition of the New Valley Parties since the date
hereof.
(e) There shall not have occurred an event or events
that has or have a material adverse effect on the operations of Ducat Place II
or the New Factory or the ability of any Member to perform its obligations with
respect to such Closing.
(f) Expenditures for the New Factory and Ducat Place
III are within a 10% variance from the Budget.
12.4 Additional Conditions to Obligations of Apollo Satisfied
at Initial Closing.
(a) Apollo received a legal opinion from Coudert
Brothers, special New York counsel to New Valley, in form and substance
reasonably satisfactory to it, with respect to the due organization and good
standing of New Valley, the due execution of this Agreement and the Pledge
Agreement by New Valley, the organization of the Company, and such other matters
as have been reasonably requested by it.
(b) Apollo's counsel received a legal opinion from
Coudert Brothers, special New York counsel to New Valley, with respect to the
beneficial ownership of the Assets by the Company pending their transfer to the
Russian LLC.
(c) The Company issued the Promissory Note.
(d) New Valley pledged 99.1% of the outstanding
shares of BrookeMil to Apollo as security for the Apollo Loan under the Pledge
Agreement.
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(e) The Company, Delaware LLC-3 and Brooke (Overseas)
entered into the Western Tobacco Investments LLC Limited Liability Company
Agreement on terms unanimously approved by the Members.
12.5 Funding and Advance of Apollo Loan at Initial Closing. At
the Initial Closing, (i) each of Apollo and the New Valley Parties funded their
initial contributions to the Company as set forth in Section 2.4(b), and (ii)
Apollo advanced the Apollo Loan to the Company.
12.6 Date, Time and Place of Initial Subsequent Closing. The
closing of the transactions set forth in Section 2.4(c) hereof (the "Initial
Subsequent Closing") shall take place on April 28, 1998 at the offices of
Coudert Brothers, 1114 Avenue of the Americas, New York, NY 10036, or on such
other date and time and at such other place as shall be mutually agreed by the
parties hereto (the date and time of the Initial Subsequent Closing being
referred to herein as the "Initial Subsequent Closing Date").
12.7 Transactions at Initial Subsequent Closing. Upon the
satisfaction and/or waiver of the conditions to the Initial Subsequent Closing,
(a) the Apollo Loan shall be converted into Class A Interests as set forth in
Section 2.4(c); (b) the Promissory Note shall be cancelled; (c) the Pledge
Agreement shall be terminated; and (d) the parties shall make additional capital
contributions and shall be issued additional Interests as set forth in Section
2.4(c).
12.8 Additional Conditions to Obligations of Apollo at Initial
Subsequent Closing.
(a) The Russian LLC shall have received a certificate
of ownership of Ducat Place II building from the Moscow Property Management
Committee (or the state authorities that shall have assumed its functions with
respect to issuing such certificates or
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equivalent documents) and shall have entered into a land lease agreement with
the Moscow Land Committee (or the state authorities that shall have assumed its
functions with respect to entering into such land lease agreements) with respect
to land at Ducat Place II on essentially the same terms as the Land Lease
Agreement, dated July 1, 1997, between the Government of the City of Moscow, as
landlord, and BrookeMil, as tenant, demising the land at Ducat Place II.
(b) BrookeMil shall have entered into an agreement
with the Company to transfer to the Company or an entity designated by it all of
BrookeMil's interest in the Russian LLC, except for such part of its interest
that shall be redeemed by the Russian LLC in accordance with an agreement
between the Russian LLC and BrookeMil entered into before the Initial Subsequent
Closing or simultaneously with it, and less a 1% interest.
(c) The conditions set forth in Section 95.8 (h) and
(i) of the Participating Loan Agreement, as in effect on the date hereof, have
been satisfied, unless otherwise agreed by the parties to the Participating Loan
Agreement.
12.9 Second Subsequent Closing. The second Subsequent Closing
(the "Second Subsequent Closing") shall take place on May 6, 1998. At the Second
Subsequent Closing, Apollo shall contribute to the Company $7,900,000 in cash in
exchange for 200 Class A Interests to be issued to Apollo and New Valley shall
contribute $1,975,000 in expenditures as set forth in Section 2.4(d) in exchange
for 200 Class B Interests to be issued to New Valley. At the Second Subsequent
Closing, to the extent the sum of the amount of expenditures of the New Valley
Parties with respect to Ducat Place II and Ducat Place III incurred since March
1, 1997 and set forth in Schedule 2.4(d)
and of expenditures incurred by them after the Initial Closing Date on items set
forth in the approved Budget exceeds $10,000,000, the New Valley Parties shall
be reimbursed by the Company from the proceeds of the Initial Subsequent Closing
for such
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expenditures in excess of $10,000,000 (to the extent the New Valley Parties
provide to Apollo proper documentation substantiating such expenditures).
12.10 Subsequent Closings. Upon written notice by the Board of
Managers to each of Apollo and New Valley as set forth in Section 2.4(d) hereof,
other subsequent closings (the "Other Subsequent Closings"; the Initial
Subsequent Closing, the Second Subsequent Closing and the Other Subsequent
Closings are collectively referred to herein as the "Subsequent Closings") shall
be scheduled for purposes of funding additional contributions by each of Apollo
and New Valley to the Company. At each of the Other Subsequent Closings, Apollo
and New Valley shall fund additional contributions to the Company as set forth
in Section 2.4 on the dates and in the amounts set forth in the written notice
by the Board of Managers.
13. Notices and Account Information for Distributions.
13.1 Notices. All notices required to be given hereunder shall
be in writing and shall be deemed to have been properly given if sent by
registered or certified mail, postage prepaid, or by telecopy, addressed as
follows:
(a) If to the Company:
Western Realty Development LLC
103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware 19103
Attention: Richard J. Lampen
Telephone: 305-579-8000
Telecopy: 305-579-8009
(b) If to Apollo:
Apollo Real Estate
Investment Fund III, L.P.
c/o Apollo Real Estate Management III, L.P.
1301 Avenue of the Americas
New York, NY 10019
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Attention: John J. Hannan
Telephone: (212) 261-4000
Telecopy: (212) 261-3301
Copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue, 20th Floor
New York, New York, 10022
Attention: Stephen M. Vine
Telephone: (212) 872-1030
Telecopy: (212) 872-1002
(c) If to New Valley:
New Valley Corporation
100 S.E. Second Street, 32nd Floor
Miami, FL 33131
Attention: Bennett S. LeBow
Telephone: 305-579-8000
Telecopy: 305-579-8009
Copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York, 10036
Attention: Clyde E. Rankin, III
Telephone: (212) 626-4740
Telecopy: (212) 626-4120
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(d) If to BrookeMil:
BrookeMil Ltd.
P.O. Box 219
Fifth Floor
Butterfield House
George Town, Grand Cayman, B.W.I.
Attention: Bennett S. LeBow, Chairman
Telecopy: (345) 949-4590
Copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York, 10036
Attention: Clyde E. Rankin, III
Telephone: (212) 626-4740
Telecopy: (212) 626-4120
Such notices shall be deemed to have been received five (5) days after deposit
in the mail or within twenty-four (24) hours after transmission by telecopy. Any
party may change the address to which notices shall be sent by notice in writing
to the other parties as provided herein.
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13.2 Account Information for Distributions. All distributions
to the Members by the Company shall be made to the accounts of the Members as
may be specified from time to time in a notice from the Members to the Company
in accordance with Section 13.1.
14. Miscellaneous.
14.1 Further Assurances. The parties will, in a timely manner
and as required from time to time, take all such actions as may be necessary or
appropriate to cause their Affiliates, the Company and the Affiliated Entities
to implement the transactions contemplated by this Agreement and to ensure that
such entities take all such actions as may be necessary to give full effect to
the provisions of this Agreement and to refrain from taking any actions which
would contravene the intent or the provisions of this Agreement.
14.2 Term of Agreement. This Agreement will continue in full
force and effect until the earlier of (a) termination by mutual consent of the
parties hereto, (b) the dissolution of the Company, or (c) termination by
Apollo, in its sole discretion, on or before October 10, 1998, by written notice
to the other Members, if the amendments to the foundation documents of the
Russian LLC shall not have been registered with the State Registration Chamber
of the Ministry of Economy of the Russian Federation and the Moscow Registration
Chamber, or the state authorities that shall have assumed the registration
functions currently performed by the above Registration Chambers, to reflect the
ownership by Delaware LLC-2 of all the interests in the Russian LLC, less a 1%
interest retained by BrookeMil and less any treasury interests owned by the
Russian LLC, by September 30, 1998, provided that Apollo shall have complied, in
all material respects, with the terms of this Agreement and shall have
cooperated, in good faith, with the New Valley Parties, the Company and the
Russian LLC in order to complete such registrations and shall have not taken any
actions impeding or delaying such registrations.
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14.3 Assignment. Except as provided in Section 9.2 hereof,
this Agreement shall not be assigned by any party hereto without the prior
written consent of the other parties hereto. This Agreement shall inure to the
benefit of the parties hereto and shall be binding upon the successors and
assigns of the parties hereto.
14.4 Amendment, Modification and Waiver. This Agreement shall
be amended to include any person who acquires any Interests in the Company,
provided that such person acquires such Interest in accordance with Section 2.6
hereof. This Agreement may be further modified, amended and supplemented only
upon the unanimous approval of the Board of Managers as provided in Section 2.9
and the unanimous mutual written agreement of the parties hereto. Each party may
waive any term, provision or condition intended for its benefit, provided that
such waiver be in writing and be signed by the party so waiving.
14.5 Severability. If any one or more of the provisions of
this Agreement shall be held invalid, illegal or unenforceable under applicable
law, the validity, legality and enforceability of the remaining provisions shall
not be affected or impaired thereby.
14.6 Entire Agreement; Headings. This Agreement, including the
schedules hereto, constitutes the entire agreement of the parties with respect
to the subject matter hereof and may not be changed, terminated or discharged
orally. The headings appearing in this Agreement have been inserted solely for
the convenience of the parties and shall be of no force or effect in the
construction of the provisions of this Agreement.
14.7 Indemnification. Each party to this Agreement agrees to
indemnify, defend and hold the other party free and harmless from and against,
and to reimburse the other party on a current basis for, all claims, damages,
expenses and liabilities of such other party arising from any breach of such
indemnifying party of the terms of this Agreement, including,
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<PAGE> 57
without limitation, reasonable legal expenses and attorneys' fees paid or
incurred by the indemnified party in defense of any proceedings brought against
such indemnified party individually or against such indemnified party and such
indemnifying party (jointly or severally) arising out of any of the foregoing.
The provisions of this Section 14.7 shall survive the termination of this
Agreement and the representations and warranties given by the parties shall
survive for the applicable statute of limitations.
14.8 Governing Law. This Agreement shall be governed by
Delaware law, without regard to its conflict of laws principles, except with
respect to the provisions establishing beneficial ownership of the Assets in
favor of the Company, which shall be governed by New York law, without regard to
its conflict of laws principles.
14.9 Arbitration. Any dispute, controversy or claim arising
out of or relating to this Agreement or to the business and affairs of the
Company or the rights and obligations of any of the Members shall be finally
settled by binding arbitration to be conducted in New York, New York in
accordance with the rules then in force of the American Arbitration Association,
including the rules governing the appointment of arbitrators. Any final decision
in any such arbitration proceeding shall be final and non-appealable and shall
be binding on the parties thereto and enforceable in courts of competent
jurisdiction without a further review on the merits.
14.10 Confidentiality. By executing this Agreement, each
Member expressly agrees, at all times during the term of this Agreement, to
maintain the confidentiality of, and not to disclose to any person not a party
hereto, any information relating to the business, financial structure, financial
position or financial results, clients or affairs of the Company, its Affiliates
or Affiliated Entities that shall not be generally known to the public, except
as otherwise required by applicable law or by any regulatory organization having
jurisdiction. Except as provided by law,
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<PAGE> 58
no press releases, announcements or other public disclosures related to this
Agreement or the transactions contemplated herein will be issued or made,
without the joint approval of Apollo and New Valley. Nothing in this Section
shall be deemed to prohibit Apollo from making any disclosures regarding this
Agreement or the transactions contemplated herein to any of its partners.
14.11 Counterparts. This Agreement may be executed by the
parties in one or more counterparts, each of which shall be deemed an original
but all of which taken together shall constitute one and the same instrument.
14.12 Fees and Expenses. All fees and expenses incurred in the
negotiation, preparation and execution of this Agreement, including all exhibits
hereto and all related documents shall be for the account of and payable by the
party incurring them.
14.13 Future Business Opportunities.
(a) If any Member or any of its Affiliates (an
"Offering Party") has the opportunity to engage in any other business in Russia
or to purchase or invest in any other business interests in Russia ("Russian
Opportunities"), it shall promptly notify the other Members of such opportunity
and the Members shall decide whether such opportunity shall be conducted by the
Company or through a separate entity owned by the Members on a commercially
reasonable basis substantially consistent with the terms of this Agreement, to
be negotiated in good faith. The New Valley Parties hereby agree that, except as
provided herein with respect to the Kremlin Sites (as defined below), with
respect to Russian Opportunities in which any of the New Valley Parties or their
respective Affiliates are the Offering Party, Apollo shall have the option to
participate in any such Russian Opportunities on a commercially reasonable basis
that is substantially consistent with this Agreement with respect to Apollo's
percentage ownership
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interests in any venture formed by the Offering Party to invest in or develop
such Russian Opportunity, to be negotiated in good faith. The Offering Party
shall provide from time to time all material information relating to such
Russian Opportunity (the "Information") that it has in its possession to the
other Members, provided that such Members enter into any confidentiality
arrangement as may be required by third parties. Each Member receiving such
notice shall have the right to participate in such Russian Opportunity if it has
responded within thirty (30) days of the receipt of the notice (the "Notice
Period"); provided, however, that in the event of a material change in the
Information, including, without limitation, with respect to the terms and/or
governmental approvals regarding such Russian Opportunity, the Notice Period
shall recommence with respect to such Russian Opportunity for an additional
thirty (30) day period as of the date of the event of such material change.
Apollo shall be considered an Offering Party only with respect to real estate
opportunities originated by Apollo or its Affiliates.
(b) The New Valley Parties hereby agree that with
respect to BrookeMil's investment in two adjoining plots at Repin Square
(Bolotnaya), Moscow (the "Kremlin Sites"), subject to the execution of mutually
acceptable documentation, Apollo will co-invest with BrookeMil or any Affiliates
of the New Valley Parties that may invest in and develop the Kremlin Sites
(collectively, the "New Valley Entities") such that Apollo and the New Valley
Entities will make an investment on a 75% and 25% basis, respectively, up to an
aggregate amount of $25,000,000 in the venture or ventures that will be formed
to invest in and develop the Kremlin Sites, and with respect to any
distributions from such venture or ventures, Apollo and the New Valley Entities
will agree to the following order of priority: (i) Apollo shall be entitled to a
return of its capital invested plus a 20% rate of return
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compounded quarterly; (ii) the New Valley Entities will be entitled to a return
of their capital invested plus a 20% rate of return compounded quarterly, and
(iii) any remaining distribution will be made 50% to Apollo, on the one hand,
and the New Valley Entities, on the other.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have duly executed or
caused their duly authorized officers to execute this Agreement as of the date
and year first above written.
APOLLO REAL ESTATE
INVESTMENT FUND III, L.P.
By: Apollo Real Estate Advisors III, L.P.,
its General Partner
By: Apollo Real Estate Capital Advisors
III, Inc., its General Partner
By: /s/ Stuart Koenig
--------------------------------------------
Name: Stuart Koenig
Title: Vice President
NEW VALLEY CORPORATION
By: /s/ Bennett S. LeBow
--------------------------------------------
Name: Bennett S. LeBow
Title: Chairman of the Board and
Chief Executive Officer
BROOKEMIL LTD.
By: /s/ Bennett S. LeBow
--------------------------------------------
Name: Bennett S. LeBow
Title: Chairman of the Board
WESTERN REALTY
DEVELOPMENT LLC
By: /s/ Bennett S. LeBow
--------------------------------------------
Name: Bennett S. LeBow
Title: Chairman of the Board
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Schedule A
To Western Realty Development LLC
Limited Liability Company Agreement
The following terms shall have the following definitions:
"Act" shall mean the Delaware Limited Liability Company Act, as in
effect on the date hereof, and as amended from time to time, or any successor
law.
"Adjusted Realized Equity Value" shall mean, with respect to any
Interest, the capital contribution received by the Company for such Interest in
cash or expenditures (provided, however, that for the purposes of this
definition (i) all the expenditures set forth in Schedule 2.4(d) and (ii) any
additional expenditures incurred by the New Valley Parties after the Initial
Closing Date on items set forth in the approved Budget, to the extent the New
Valley Parties (x) provide to Apollo proper documentation substantiating such
additional expenditures and (y) have not been reimbursed for such expenditures
in accordance with Section 12.7(v), will be deemed to have been contributed by
New Valley to the Company at the time of the Initial Closing, irrespective of
whether they are considered actually contributed for any other purposes) plus a
15% annual cumulative rate of return on such contribution compounded on a
quarterly basis, less distributions or dividends in cash or the fair market
value of distributions of property or in-kind distributions received by the
Member in respect of such Interest as of the date such Adjusted Realized Equity
Value is calculated.
"Affiliate" shall mean, with respect to any person, a person or entity
which directly or indirectly controls, is controlled by, or is under common
control with, such person.
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"Affiliated Entity" shall mean the Russian LLC, Delaware LLC-2, any
other direct or indirect wholly-owned subsidiary of the Company, Delaware LLC-3,
Liggett-Ducat, LD Tobacco and any other entity (whether or not incorporated) in
which any of the foregoing entities or the Company has or hereafter acquires a
controlling interest.
"Apollo" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Apollo Loan" shall have the meaning ascribed thereto in Section 2.4(b)
hereof.
"Assets" shall have the meaning ascribed thereto in Section 2.4(e)
hereof.
"Assumed Liabilities" shall have the meaning ascribed thereto in
Section 2.4(e) hereof.
"Board" or "Board of Managers" shall have the meaning ascribed thereto
in Section 2.9 hereof.
"Brooke" shall mean Brooke (Overseas) Ltd. or any of its Affiliates.
"Brooke (Overseas)" shall have the meaning ascribed thereto in the
fifth "WHEREAS" clause hereof.
"BrookeMil" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Budget" shall have the meaning ascribed thereto in Section 2.9(i)
hereof.
"Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks are authorized by law to close in New York City or
Moscow.
"Class A Distribution Amount" shall have the meaning ascribed thereto
in Section 2.7(a) hereof.
"Class A Distribution Period" shall have the meaning ascribed thereto
in Section 2.7(a) hereof.
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"Class A Interests" shall have the meaning ascribed thereto in Section
2.4(a) hereof.
"Class A Liquidation Preference" shall have the meaning ascribed
thereto in Section 2.7(b) hereof.
"Class B Distribution Amount" shall have the meaning ascribed thereto
in Section 2.8(a) hereof.
"Class B Distribution Period" shall have the meaning ascribed thereto
in Section 2.8(a) hereof.
"Class B Interests" shall have the meaning ascribed thereto in Section
2.4(a) hereof.
"Class B Liquidation Preference" shall have the meaning ascribed
thereto in Section 2.8(b) hereof.
"Class C Interests" shall have the meaning ascribed thereto in Section
2.4(a) hereof.
"Closing" shall have the meaning ascribed thereto in Section 12 hereof.
"Closing Date" shall have the meaning ascribed thereto in Section 12
hereof.
"Company" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Delaware LLC-2" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"Delaware LLC-3" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"Dissolving Member" shall have the meaning ascribed thereto in Section
9.4 hereof.
"Ducat II Leases" shall have the meaning ascribed thereto in Section
10.3(l) hereof.
"Ducat III Land Lease" shall have the meaning ascribed thereto in
Section 10.3(b) hereof.
"Ducat Place II" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
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"Ducat Place III" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974,
as amended and as hereafter amended, or any successor law.
"Event of Force Majeure" means any unforeseeable event as a result of
which a Member shall be rendered unable in whole or in part to carry out any
covenant, agreement, obligation or undertaking hereunder to be kept or performed
by such party. The term "force majeure" shall include acts of God, governmental
action (whether in its sovereign or contractual capacity), fire, flood, or other
catastrophes, national emergencies (including political and economic
emergencies), insurrections, riots, wars, strikes, labor disputes or actions or
other similar causes, not within the control of the party claiming force majeure
and which by the commercially reasonable exercise of due diligence or the
commercially reasonable payment of money such party is unable to overcome.
"Initial Closing" shall have the meaning ascribed thereto in Section
12.1 hereof.
"Initial Closing Date" shall have the meaning ascribed thereto in
Section 12.1 hereof.
"Initial Subsequent Closing" shall have the meaning ascribed thereto in
Section 12.6 hereof.
"Initial Subsequent Closing Date" shall have the meaning ascribed
thereto in Section 12.6 hereof.
"Information" shall have the meaning ascribed thereto in Section
14.13(a) hereof.
"Interests" shall have the meaning ascribed thereto in Section 2.4(a)
hereof.
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"Kremlin Sites" shall have the meaning ascribed thereto in Section
14.13(b)
"Land Leases" shall have the meaning ascribed thereto in Section
10.3(d) hereof.
"Late Payment Interest" shall have the meaning ascribed thereto in
Section 2.4(f) hereof.
"LD Tobacco" shall mean Liggett-Ducat Tobacco Ltd., a Russian closed
joint stock company.
"Liggett-Ducat" shall mean Liggett-Ducat Ltd., a Russian joint stock
company.
"Loan Default" shall have the meaning ascribed thereto in Section
2.10(a) hereof.
"Material Contracts" shall have the meaning ascribed thereto in Section
10.3(p) hereof.
"Member" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"New Factory" shall mean a new cigarette factory to be located at
Kashirskoye Shosse, Moscow, Russian Federation, to be constructed by LD Tobacco.
"New Factory Land Lease" shall have the meaning ascribed thereto in
Section 10.3(c) hereof.
"New Valley" shall have the meaning ascribed thereto in the
introductory paragraph hereof.
"New Valley Entities" shall have the meaning ascribed thereto in
Section 14.13(b) hereof.
"New Valley Parties" shall have the meaning ascribed thereto in the
introductory paragraph hereof.
"Notice Period" shall have the meaning ascribed thereto in Section
14.13(a) hereof.
"Offering Party" shall have the meaning ascribed thereto in Section
14.13(a) hereof.
"Old Factory" shall mean the existing cigarette factory located in
Moscow at Ul. Gasheka 6.
"Other Subsequent Closings" shall have the meaning ascribed thereto in
Section 12.10 hereof.
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"Participating Loan Agreement" shall have the meaning ascribed thereto
in the fifth "WHEREAS" clause hereof.
"Payment Default" shall have the meaning ascribed thereto in Section
2.4(f) hereof.
"Pledge Agreement" shall have the meaning ascribed thereto in Section
2.4(b) hereof.
"Promissory Note" shall have the meaning ascribed thereto in Section
2.4(b) hereof.
"Properties" shall mean Ducat Place II, Ducat Place III, the New
Factory and any other property to which the Company or any Affiliated Entity has
or hereafter acquires rights.
"Russian Bank Loan" shall mean a loan from a Russian bank for the
construction of the New Factory in the principal amount of $20,000,000, to be
secured by the shares and assets of Liggett- Ducat and LD Tobacco and guaranteed
by Brooke.
"Russian LLC" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"Russian Opportunities" shall have the meaning ascribed thereto in
Section 14.13(a).
"Second Subsequent Closing" shall have the meaning ascribed thereto in
Section 12.9 hereof.
"Subsequent Closings" shall have the meaning ascribed thereto in
Section 12.10 hereof.
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Exhibit 10.2
U.S.$20,000,000
PARTICIPATING LOAN AGREEMENT
Among
WESTERN REALTY DEVELOPMENT LLC,
WESTERN TOBACCO INVESTMENTS LLC
and
BROOKE (OVERSEAS) LTD.
Dated as of April 28, 1998
<PAGE> 69
PARTICIPATING LOAN AGREEMENT
THIS PARTICIPATING LOAN AGREEMENT is entered into as of April 28, 1998,
by and among Western Realty Development LLC, a Delaware limited liability
company with offices at 103 Springer Building, 3411 Silverside Road, Wilmington,
Delaware 19103 (the "Lender"), Western Tobacco Investments LLC, a Delaware
limited liability company with offices at 103 Springer Building, 3411 Silverside
Road, Wilmington, Delaware 19103 (the "Borrower"), and Brooke (Overseas) Ltd., a
Delaware corporation with offices at 100 S.E. Second Street, 32nd Floor, Miami,
Florida ("Brooke (Overseas)").
W I T N E S S E T H :
WHEREAS, the Lender, Apollo Real Estate Investment Fund III, L.P., a
Delaware limited partnership ("Apollo"), New Valley Corporation, a Delaware
corporation ("New Valley"), and BrookeMil Ltd., a Cayman Islands company
("BrookeMil"), have entered into that certain Amended and Restated Western
Realty Development LLC Limited Liability Company Agreement (Second Restatement),
dated as of February 20, 1998 (the "Joint Venture-I Agreement"), and Apollo, New
Valley and BrookeMil are members of the Lender;
WHEREAS, the Lender, Brooke (Overseas) and the Borrower have entered
into that certain Western Tobacco Investments LLC Limited Liability Company
Agreement, dated as of February 27, 1998 (the "Joint Venture-II Agreement"), and
the Lender was issued 16,500 interests in the Borrower and Brooke (Overseas) was
issued 38,500 interests in the Borrower (each such interest, an "Interest");
WHEREAS, the Joint Venture-I Agreement contemplates the execution of
this Agreement;
<PAGE> 70
WHEREAS, the Borrower wishes to borrow from the Lender and the Lender
wishes to lend to the Borrower $9,000,000 as part of the facility extended
hereunder; and
WHEREAS, the parties wish to convert the 16,500 Interests in the
Borrower held by the Lender into a portion of the loan hereunder and to
terminate the Lender's membership in the Borrower and the existing Joint
Venture-II Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms.
Capitalized terms not otherwise defined herein shall have the
meanings set forth on Schedule A.
2. Loan.
2.1 Agreement to Lend. Subject to the satisfaction of the
conditions set forth in Section 4.3, the Lender agrees to extend a loan (the
"Loan") to the Borrower in the aggregate principal amount of Twenty Million
Dollars (U.S.$20,000,000), consisting of the First Advance (as hereinafter
defined) and the Second Advance (as hereinafter defined). The Loan shall bear no
fixed interest. The Loan shall bear contingent participating interest equal to
30% of all distributions made by the Borrower to Brooke (Overseas), starting
from the time when the principal amount of the Loan has been repaid. Subject to
Schedule 2.1, the principal of the Loan, and, after the payment of the
principal, the contingent participating interest, shall be payable in
installments at such times as distributions, if any, are made by the Borrower to
Brooke (Overseas), in the amount of 30% of such distributions (with Brooke
(Overseas) retaining 70% of such distributions). Solely for the purpose of
calculating the amount of each such payment of principal or the contingent
participating interest, as the case may be, of the Loan under this Section 2.1,
any debt service payments with respect to the Russian Bank Loan (as hereinafter
defined) shall be counted as distributions to Brooke (Overseas) from the
Borrower. However, no
2
<PAGE> 71
payments under the Loan shall be due until actual
distributions (other than debt service payments under the Russian Bank Loan)
have been made to Brooke (Overseas). The debt service payments under the Russian
Bank Loan shall be debited against the amounts of distributions to be retained
by Brooke (Overseas). The Loan shall become due and payable upon the dissolution
of the Borrower (the "Maturity Date").
2.2 Subordination of Loan. Any rights of the Lender and
payments from the Borrower to the Lender hereunder shall be subordinate to the
rights of any and all other creditors of the Borrower and, except as provided in
Section 7.2(c), shall be equal in priority with any payments made to Brooke
(Overseas) as a member of the Borrower.
2.3 First Advance. At the Closing, 16,500 Interests in the
Borrower owned by the Lender shall be converted into a portion of the Loan in
the principal amount of $11,000,000 (such portion of the Loan, the "First
Advance"). Upon such conversion, the First Advance shall be deemed disbursed,
all the Interests of the Lender in the Borrower shall be deemed cancelled, the
Joint Venture-II Agreement shall be terminated and replaced by the Western
Realty Tobacco LLC Limited Liability Company Agreement dated as of the date
hereof in the form attached hereto as Exhibit A, and Brooke (Overseas) shall
become the sole member of the Borrower.
2.4 Disbursement of Second Advance. At the Closing, the
remaining portion of the Loan in the amount of $9,000,000 (the "Second Advance")
shall be disbursed by wire transfer in immediately available funds to such bank
account of the Borrower and/or Brooke (Overseas) as shall be specified in a
notice from the Borrower to the Lender delivered at least one Business Day prior
to the Closing Date.
2.5 Payments. Payment of all sums under this Agreement by the
Borrower to the Lender shall be made to the account of the Lender as may be
specified from time to time in a notice from the Lender to the Borrower in
accordance with Section 10.
2.6 Proceeds. The proceeds from the Loan hereunder shall be
used as follows: (i) the proceeds shall be first applied to pay to Brooke
(Overseas) the amount
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of the expenditures incurred by Brooke (Overseas) since
March 1, 1997 through the date of the Closing in connection with the
construction of the New Factory (the "Reimbursement Amount"), limited to (x) the
amount of expenditures incurred through the date of this Agreement set forth in
Schedule 2.6 and (y) the amount of other expenditures incurred after the date of
this Agreement, provided that such expenditures that are not set forth on
Schedule 2.6 or that do not constitute items on the approved Budget shall be
subject to approval by the Lender; the Reimbursement Amount shall be paid to
Brooke (Overseas) or to its order by wire transfer in immediately available
funds to the account specified in the wire instructions, which wire instructions
shall have been submitted to the Borrower by Brooke (Overseas) no later than one
Business Day prior to the Closing Date; and (ii) only if, and after the
Reimbursement Amount has been paid in full to Brooke (Overseas), the remaining
amount shall be used for the construction of the New Factory, purchase of land
lease rights for the New Factory and acquisition of related equipment.
3. Pledge Agreement.
Obligations of the Borrower and Brooke (Overseas) under
Section 8.8 of this Agreement shall be secured by a pledge agreement between
Brooke (Overseas) and the Lender, acknowledged by the Borrower, substantially in
the form attached hereto as Exhibit B (the "Pledge Agreement"), granting the
Lender a security interest in 84% of the Interests owned by Brooke (Overseas).
4. Closing.
4.1 Date, Time and Place of Closing. The closing of the
transactions contemplated herein (the "Closing," the date of the Closing being
referred to herein as the "Closing Date") shall take place on April 28, 1998 at
10:00 a.m. at the offices of Coudert Brothers, 1114 Avenue of the Americas, New
York, NY 10036, or on such other date and time and at such other place as shall
be mutually agreed by the parties hereto.
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4.2 Conditions to Obligations of Lender. The obligations of
the Lender hereunder are subject to the fulfillment, prior to or at the Closing,
of each of the following conditions:
(a) All authorizations, consents, orders and
approvals of regulatory authorities and third parties, if any, necessary for the
performance by the Borrower and Brooke (Overseas) of their obligations under
this Agreement shall have been obtained.
(b) The representations and warranties of the
Borrower and Brooke (Overseas) contained in this Agreement shall be true and
correct in all material respects at the date hereof and at and as of the
Closing, with the same force and effect as if made at and as of the Closing Date
(except that representations and warranties that by their terms speak as of the
Closing Date shall be true and correct as of such date); and Brooke (Overseas)
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by it
on or prior to the Closing.
(c) No action shall have been commenced in a court of
competent jurisdiction or by or before any governmental authority against either
the Borrower, the Lender or Brooke (Overseas) seeking to prohibit the
transactions contemplated by this Agreement.
(d) There shall not have been any material adverse
change in the financial condition of the Borrower or Brooke (Overseas) since the
date hereof.
(e) There shall not have occurred an event or events
that has or have a material adverse effect on the operations of the New Factory.
(f) Expenditures for the New Factory are within a 10%
variance from the Budget.
(g) Conditions to the obligations of Apollo at the
Initial Subsequent Closing under the Joint Venture-I Agreement shall have been
satisfied.
(h) Brooke (Overseas) shall have contributed 95.8% of
the shares of Liggett-Ducat to the Borrower.
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(i) The Pledge Agreement shall have been entered into
by the parties thereto.
4.3 Transactions at Closing. Upon satisfaction of all the
conditions to the Closing set forth in Section 4.2, the transactions described
in Sections 2.3 and 2.4 hereof shall take place.
5. Covenants.
5.1 Approval by Lender. Without the consent of the Lender,
neither Brooke (Overseas), in its capacity as the sole member of the Borrower,
nor the Borrower, in its capacity as a direct or indirect shareholder, member or
participant of any Affiliated Entity, shall vote or otherwise approve a decision
to:
(a) amend the constituent documents of the Borrower
and adopt or amend the constituent documents of any Affiliated Entity or waive
any provisions hereof or thereof;
(b) unless specified in the approved Budget (as
hereinafter defined) and except as otherwise provided herein, sell, transfer,
assign, grant a right to use, a right of first refusal, an option or a similar
right, or otherwise dispose of (i) any of the Properties, or any rights thereto
or interests therein (including but not limited to ownership rights, leasehold
interests (whether as landlord or tenant), rights to use or easements) or (ii)
any asset (or group of assets in a transaction or series of transactions) the
cost or fair market value (whichever is greater) of which exceeds $100,000
individually or $500,000 in the aggregate in any given year, except as permitted
by Section 7;
(c) unless specified in the approved Budget, borrow,
issue guarantees or assume other contingent obligations to pay money in an
amount which exceeds in the aggregate $100,000 outstanding at any given time;
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(d) unless specified in the approved Budget, grant a
security interest or otherwise encumber (i) any of the Properties or any rights
thereto or interests therein (including but not limited to ownership rights,
leasehold interests (whether as landlord or tenant), rights to use or
easements), or (ii) any asset (or group of assets in a transaction or series of
transactions) the cost, fair market value or value assigned in such
transaction(s) (whichever is greater) of which exceeds $100,000 at any one time
or $500,000 in the aggregate in any given year;
(e) take any actions regarding registration of the
Interests in the Borrower or interests in any Affiliated Entity necessary for a
public offering;
(f) merge, reorganize or consolidate the Borrower or
any Affiliated Entity with any other corporation or entity unless the surviving
entity shall be the Borrower or such other Affiliated Entity, respectively, or
the Borrower or other Affiliated Entity is merged, reorganized or consolidated
with an Affiliate thereof;
(g) dissolve voluntarily the Borrower or any
Affiliated Entity or revoke voluntary dissolution proceedings or terminate,
liquidate or wind up the Borrower or any Affiliated Entity;
(h) change materially the principal businesses
conducted by the Borrower or any Affiliated Entity;
(i) approve the annual budget and business plan,
including capital expenditures, of the Borrower (collectively, the "Budget"),
which Budget shall incorporate the annual budgets and business plans of
Liggett-Ducat and LD Tobacco, as well as any contributions or resources to be
made available by the Borrower to any other Affiliated Entity;
(j) unless specified in the approved Budget, make or
incur, or enter into a contractual commitment to make or incur expenditures or
financial obligations which exceed $250,000 individually or $1,000,000 in the
aggregate in any calendar year;
(k) unless specified in the approved Budget, purchase
ownership interests, leasehold interests, rights to use, easements or other
rights to or
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interests in the Properties or elsewhere for the price exceeding $100,000 in
each particular transaction or exceeding $500,000 in the aggregate in any given
year, including approval of agreements with respect to acquiring such rights, or
waive any rights of first refusal, preemptive or similar rights relating to the
purchase of any such rights to or interest in such Properties or elsewhere;
(l) enter into, modify, renew, terminate or grant any
material waiver relating to any significant leases and other material contracts
other than contracts in the ordinary course of business with trade
counterparties;
(m) enter into any transaction with a party that is
related to Brooke (Overseas) or its Affiliate, excluding transactions in the
ordinary course of business of the Borrower or an Affiliated Entity on an
arm's-length basis involving amounts which shall not exceed $250,000 per
transaction or series of transactions and excluding transactions in the ordinary
course of business of Liggett-Ducat involving Liggett Group Inc. on an
arm's-length basis; provided that written notice of all such transactions or
series of transactions involving more than $100,000, together with a description
of the material terms thereof, shall be promptly furnished to the Lender and
Apollo;
(n) commence or settle any litigation, arbitration or
other dispute, the result of which could have a material adverse effect on the
business, financial condition or prospects of the Borrower or any Affiliated
Entity;
(o) resolve tax or other governmental proceedings or
disputes relating to the Borrower or any Affiliated Entity;
(p) establish, acquire, dispose of or transfer any
subsidiary or any interest in any subsidiary or other entity (whether or not
incorporated) or make any investment in any business venture or enterprise
(whether or not incorporated), other than as contemplated in the approved
Budget;
(q) change the outside accountants of the Borrower or
any Affiliated Entity (the Lender agrees that the initial outside accountants of
the Borrower shall be Coopers & Lybrand LLP);
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(r) issue, sell, transfer, assign or otherwise
dispose of any shares, capital stock, securities or interests of or owned by the
Borrower or any Affiliated Entity, or change the ownership structure of the
Borrower or any Affiliated Entity;
(s) make a decision not to distribute all available
cash (to the extent such distributions are permitted by applicable law) of (i)
the Borrower to Brooke (Overseas), with a corresponding payment under the Loan
as set forth in Section 2.1, or (ii) an Affiliated Entity to its shareholders,
members or participants, as applicable, except as permitted under Sections 2.6
and 6;
(t) except as contemplated in the approved Budget or
as set forth herein, use any part of the New Factory or any other Property as
collateral for the purpose of any development other than its own development, or
use the proceeds from refinancing or sale with respect to the New Factory or any
other Property other than for budgeted capital expenditures involving the same
Property that generated such proceeds;
(u) retain any officer of the Borrower or any
Affiliated Entity notwithstanding fraud, bad faith, gross negligence, criminal
conviction or plea, and a final, non-appealable finding of or consent to
injunction with respect to violations of antifraud or antimanipulative
provisions of securities, commodities or banking laws by a court of competent
jurisdiction;
(v) unless specified in the approved Budget, use the
proceeds of the Loan other than as set forth in Section 2.6;
(w) replace the Chairman of the Board of Managers of
the Borrower (the Lender agrees that Bennett S. LeBow is currently the Chairman)
or any of the following officers of the Borrower: the President, the Chief
Financial Officer and the Secretary (the Lender agrees that Ronald J. Bernstein
is currently the President, Stewart Hainsworth is the Chief Financial Officer
and Richard J. Lampen is the Secretary of the Borrower);
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(x) appoint any senior executive officer of an
Affiliated Entity (the Lender agrees that currently Ronald J. Bernstein is the
General Director of LD Tobacco and of Liggett-Ducat);
(y) unless specified in the approved Budget, pay any
salaries to employees of Brooke (Overseas), other than to the employees involved
in day-to-day business operations in Russia (the latter category including,
among others, Ronald J. Bernstein and Stewart Hainsworth); and
(z) unless specified in the approved Budget, pay the
salaries of the officers of the Borrower and each Affiliated Entity.
The approval of the Lender with respect to any
matters set forth in this Section 5.1 shall not be unreasonably withheld or
delayed.
All figures set forth in this Section 5.1 shall be
determined on a consolidated basis in accordance with U.S. generally accepted
accounting principles, consistently applied. To the extent that any amounts or
payments are incurred in any currency other than U.S. dollars, such amounts or
payments shall, for purposes of such calculation, be converted into U.S. dollars
on the date of the conclusion of the transaction at the official exchange rate
of such country (which, for purposes of the ruble, shall be considered to be the
MICEX rate at the opening of business in Moscow on such date).
5.2 Books and Records; Audited Financial Statements. (a) The
year-end balance sheet, statement of operations and statement of change in
financial position shall be audited each year by the independent certified
public accountants of the Borrower, whose written report shall be provided to
the Lender no later than sixty (60) days after the end of each fiscal year.
(b) The Borrower shall cause each Affiliated Entity,
in addition to maintaining its books and accounts in accordance with the law of
the applicable jurisdiction, to prepare its financial statements in accordance
with U.S. generally accepted accounting principles, consistently applied. The
year-end balance sheet, statement of operations and statement of change in
financial position shall be audited
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each year by Coopers & Lybrand LLP or another firm of independent certified
public accountants selected subject to the provision of Section 5.1(q), and the
Borrower shall provide the written report of such accountants to the Lender. The
Borrower shall cause each Affiliated Entity to prepare all tax returns as soon
as practicable after the end of each fiscal year.
5.3 Other Reports. In addition to annual audited financial
statements, each fiscal quarter the President of the Borrower shall prepare and
distribute to the Lender a report including unaudited quarterly financial
statements.
5.4 Access. (a) The Borrow shall provide to the Lender, at the
cost of the Lender, together with its lawful agents, attorneys and
representatives access to the books and records and facilities and senior
management of the Borrower and each Affiliated Entity during all normal business
hours. The Lender and Apollo shall have access in Miami, Florida to the books
and records of the Borrower and in Moscow, Russia and Miami, Florida to the
books and records of each Affiliated Entity.
(b) The Borrower shall permit the Lender and Apollo
to be kept informed, consult with and advise management of each Affiliated
Entity with regard to any material developments in or affecting each Affiliated
Entity's business; to discuss business operations, properties and the financial
or other condition of each Affiliated Entity with its officers, employees and
any relevant management committee; to consult with and advise management on
significant business issues; and to meet regularly with management for such
consultation and advice.
(c) The Borrower shall permit the Lender, upon the
Lender's written request and subject to the provisions of applicable law, to
appoint one (1) member of the management committee or board of directors, as
applicable, of each Affiliated Entity, and to dismiss and replace such member at
any time.
5.5 Business Plan and Budget. The Borrower shall provide to
the Lender a proposed annual Budget, which shall include information with
respect to the operation of the business to be conducted by each Affiliated
Entity for each fiscal year, at least thirty (30) days before the beginning of
such fiscal year. Such Budget
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shall include estimates of anticipated capital calls. The initial Budget, for
the year 1998, is annexed hereto as Schedule 5.5. The Lender shall approve the
Budget as provided in Section 5.1 hereof. The day-to-day operations of the
Borrower and each Affiliated Entity shall be conducted by the officers of the
Borrower within 10% variances from the Budget approved by the Lender.
5.6 Restrictions on Operations of Old Factory. The Borrower
shall ensure that, from the date hereof until the construction of the New
Factory is completed and the New Factory is operational, during the contemplated
period of operation of the Old Factory, unless specified in the Budget or
otherwise, each of Liggett-Ducat and LD Tobacco, as the case may be, shall:
(a) conduct the operations of the Old Factory in the
ordinary course of business consistent with past practice, including without
limitation maintaining inventory and supplies;
(b) use its best efforts to (i) preserve its present
business operations, organization (including, without limitation, management and
sales force) and goodwill and (ii) preserve its present relationship with
persons with whom it has business dealings;
(c) maintain (i) all of its assets and Properties in
their current condition, ordinary wear and tear excepted, and (ii) insurance
upon all of its Properties and assets in such amounts and of such kinds
comparable to that in effect on the date of this Agreement (with insurers of
substantially the same or better financial condition);
(d) (i) maintain its books, accounts, and records in
the ordinary course of business consistent with past practice, (ii) continue to
collect accounts receivable and pay accounts payable utilizing normal business
practices for the collection and payment thereof and (iii) continue to comply
with all its contractual and other obligations;
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(e) refrain from (i) directly or indirectly,
redeeming, purchasing or otherwise acquiring any of its capital stock or other
equity securities (including, without limitation, warrants, options and other
rights to acquire such capital stock or other equity securities); or (ii) except
as expressly contemplated herein, authorizing, issuing or entering into any
agreement providing for the issuance (contingent or otherwise) of (1) any notes
or debt securities containing equity features (including, without limitation,
any notes or debt securities convertible into or exchangeable for capital stock
or other equity securities, issued in connection with the issuance of capital
stock or other equity securities or containing profit participation features) or
(2) any capital stock or other equity securities (or any securities convertible
into or exchangeable for any capital stock or other equity securities);
(f) refrain from acquiring any interest in any
company or business (whether by a purchase of assets, purchase of stock, merger
or otherwise), or entering into any joint venture; and
(g) refrain from entering into the ownership, active
management or operation of any business other than the business conducted in
connection with the Old Factory.
6. Arrangement of Russian Bank Loan. Brooke (Overseas) shall arrange a
loan from a Russian bank on terms that shall not differ materially from those
set forth on Schedule 6 (the "Russian Bank Loan") for construction of the New
Factory in the principal amount of $20,000,000, to be secured by the shares and
assets of Liggett-Ducat and LD Tobacco, no later than July 1, 1998, it being
agreed that neither Western Realty Development LLC nor Western Realty
Investments LLC shall be the primary obligor under the Russian Bank Loan. Any
cash revenues generated by the operations of Liggett-Ducat and LD Tobacco
payable or distributable to the Borrower and payable to the Lender hereunder
shall be used first to make any payments due under the Russian Bank Loan.
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7. Sale of Assets of Borrower and Sale of Interests.
7.1 Sale of Assets.
(a) At any time after the completion of the
construction of the New Factory, Brooke (Overseas) shall have the right to sell,
or cause to be sold, the New Factory without the consent of the Lender or
Apollo, provided that (x) the cash price payable in one lump sum at the closing
of such sale shall be no less than $175,000,000; and (y) the New Factory is sold
to one or more purchasers through an auction process conducted by an
internationally recognized investment bank or real estate brokerage firm.
(b) At any time after February 20, 2005, Apollo shall
have the right to require the sale, without the consent of the Borrower or
Brooke (Overseas), of the New Factory, provided that (x) the cash price payable
in one lump sum at the closing of such sale shall be no less than $175,000,000;
and (y) the New Factory is sold to one or more purchasers through an auction
process conducted by an internationally recognized investment bank or real
estate brokerage firm.
(c) In the event of a material breach by Brooke
(Overseas) with respect to the provisions of Section 2.1 or Section 5.1(a)-(u)
hereof, which material breach remains uncured sixty (60) days after receipt by
Brooke (Overseas) of written notice from the Lender setting forth in detail the
alleged default, then the Lender shall have the right to require the sale of the
New Factory, provided that (x) the cash price payable in one lump sum at the
closing of such sale shall be no less than $165,000,000; and (y) the New Factory
is sold to one or more purchasers through an auction process conducted by an
internationally recognized investment bank or real estate brokerage firm.
(d) In the event of (A) the failure of Brooke
(Overseas) to secure or provide the Russian Bank Loan or to arrange other
financing on terms that shall not differ materially from those set forth on
Schedule 6 by July 1, 1998 or (B) a payment default by Liggett-Ducat and Brooke
(Overseas), as guarantor, under the
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Russian Bank Loan which default results in the acceleration of all amounts due
thereunder or the commencement of enforcement proceedings by the bank against
Liggett-Ducat under the Russian Bank Loan (a "Russian Loan Default"), then, in
each such instance, Apollo shall have the right to require the sale, without the
consent of the Borrower or Brooke (Overseas), of all of the assets of the
Borrower, directly or indirectly held, including but not limited to, the New
Factory, Liggett-Ducat and LD Tobacco, provided that (x) the sale shall be on
commercially reasonable terms; and (y) prior to entering into a definitive
agreement with respect to any such sale, Brooke (Overseas) shall not have
secured or provided the Russian Bank Loan or arranged other financing on terms
that shall not differ materially from those set forth on Schedule 6, or
Liggett-Ducat or Brooke (Overseas) shall not have cured the Russian Loan
Default, whether by payment, purchase or refinancing of the Russian Bank Loan or
otherwise, provided the Russian Loan Default can be cured at any time as long as
after it has been cured the Borrower shall have the same ownership rights and
use of the New Factory as it had prior to the occurrence of the Russian Loan
Default.
(e) In the event Apollo has terminated the Joint
Venture-I Agreement in accordance with Section 14.2(c) thereof, then Apollo
shall have the right to require the sale, without the consent of Brooke
(Overseas), of all of the assets of the Borrower, directly or indirectly held,
including but not limited to, the New Factory, Liggett-Ducat and LD Tobacco,
provided that (x) the sale shall be on commercially reasonable terms; and (y)
prior to entering into a definitive agreement with respect to any such sale, the
grounds for such termination by Apollo under such Section 14.2(c) of the Joint
Venture-I Agreement shall not have been eliminated.
(f) Subject to Schedule 2.1 and to the prior
repayment in full of the Russian Bank Loan, in the event of the sale (or other
cash distribution as a result of a substantial refinancing) of the New Factory,
whether under this Section 7.1 or otherwise, the Lender shall be entitled to
receive an amount equal to the Adjusted Realized Value of the Loan before any
proceeds shall be distributed to Brooke
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(Overseas), and thereafter 70% of the remaining proceeds shall be distributed to
Brooke (Overseas) and 30% to the Lender.
7.2 Sale of Interests.
(a) Notwithstanding any provisions of this Agreement
to the contrary, at any time after the completion of the construction of the New
Factory, Brooke (Overseas) shall have the right to sell all of its Interests in
the Borrower without the consent of the Lender or Apollo, provided that (x) the
cash price payable in one lump sum at the closing of the sale of all the
Interests in the Borrower shall be no less than $175,000,000; and (y) the
Interests of Brooke (Overseas) are sold to one or more purchasers through an
auction process conducted by an internationally recognized investment bank or
real estate brokerage firm. In the event Brooke (Overseas) elects to exercise
such right to sell all of its Interests in the Company, it shall send to the
Lender and Apollo a written notice of such election at least sixty (60) days
prior to the closing of such sale, and the Lender shall have the right
(exercisable by Apollo without the consent of any other member of the Lender)
and, at the request of Brooke (Overseas), the Lender shall be obligated, to sell
all of the Lender's Rights (as hereinafter defined) within sixty (60) days of
receipt of such notice to the same purchaser or group of purchasers as Brooke
(Overseas) on the same terms and conditions as Brooke (Overseas).
(b) In the event Apollo has terminated the Joint
Venture-I Agreement in accordance with Section 14.2(c) thereof, then Apollo
shall have the right to require the sale, without the consent of the Borrower or
Brooke (Overseas), of all of the Interests in the Borrower and all the Lender's
Rights, provided that (x) the sale shall be on commercially reasonable terms;
and (y) prior to entering into a definitive agreement with respect to any such
sale, the grounds for such termination by Apollo under such Section 14.2(c) of
the Joint Venture-I Agreement shall not have been eliminated.
(c) Subject to Schedule 2.1 and to the prior
repayment in full of the Russian Bank Loan, in the event of the sale (or other
cash distribution as a
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result of a substantial refinancing) of all the Interests in the Borrower and
the Lender's Rights, under this Section 7.2 or otherwise, the Lender shall be
entitled to receive the Adjusted Realized Value of the Loan before any proceeds
shall be distributed to Brooke (Overseas), and thereafter 70% of the remaining
proceeds shall be distributed to Brooke (Overseas) and 30% to the Lender.
7.3 Limitations on Right to Sell Interests. Except as
contemplated by this Section 7 and Section 8 and except for pledges of
Interests, Brooke (Overseas) agrees not to transfer all or any of its Interests
in the Borrower, and Brooke (Overseas) shall hold its Interests and, by
accepting the same upon original issue, upon distributions or upon subsequent
transfer, agrees for itself, its successors, legal representatives and assigns
that the Interests shall not be sold, transferred, assigned, pledged,
hypothecated or otherwise encumbered, whether voluntarily or involuntarily, by
operation of law, legal proceedings or otherwise, other than as provided in this
Section 7 and Section 8. In the event an involuntary lien or encumbrance is
placed on the Interests, Brooke (Overseas) shall not be in violation of this
provision if it discharges or causes to be discharged such lien or encumbrance
within a period of sixty (60) days from the placement or occurrence thereof.
7.4 Transfers to Affiliates. Brooke (Overseas) may transfer
its Interests in the Borrower to an Affiliate, except where prohibited by
applicable laws or where in the reasonable judgment of the Lender such transfer
would have a material adverse effect on the business of the Borrower or the
Lender. In the event Brooke (Overseas) wishes to transfer its Interests to an
Affiliate under this Section 7.4, it shall first notify the Lender in writing of
such proposed transfer. The Lender shall make its determination as to whether
such transfer would have a material adverse effect on the business of the
Borrower or the Lender within ten (10) days of receiving such notice and shall
notify Brooke (Overseas) in writing of its determination. It is a condition to
any such transfer that the transferee become a signatory to this Agreement and
agree to perform all of the obligations of the transferor hereunder.
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7.5 Change of Control. In the event of a change in control of
Brooke (Overseas), the Lender shall have the right to adopt all the management
decisions with respect to the Borrower instead of Brooke (Overseas) and to
purchase all the Interests of Brooke (Overseas) at a price equal to the Adjusted
Realized Value of such Interests, which right may be exercised by the Lender for
a period of sixty (60) days after such event constituting a change in control.
For purposes of this Agreement, a change in control shall be deemed to occur
when a person or entity that is not, at the time of the Initial Closing, an
Affiliate of Brooke (Overseas) becomes the beneficial owner, directly or
indirectly, of securities or ownership interests representing 40% or more of the
combined voting power of all outstanding securities or ownership interests of
Brooke (Overseas). A change of control shall not be deemed to occur due to a
reconfiguration of the ownership or changes of the ownership of Brooke
(Overseas), provided that Brooke Group Ltd., Bennett S. LeBow or their
Affiliates remain the owners, directly or indirectly, of the Interests owned by
Brooke (Overseas) as of the date hereof.
7.6 Dissolution of Brooke (Overseas). In the event of the
bankruptcy, reorganization, liquidation, winding-up or dissolution of Brooke
(Overseas), Brooke (Overseas) shall notify the Lender in writing within five (5)
days of such event. The Interests owned by Brooke (Overseas) shall first be
offered for purchase by the Lender within ninety (90) days of the date of such
notice for the then existing Adjusted Realized Value of such Interests. In the
event that the Lender declines to purchase such Interests, such unpurchased
Interests may be offered by the Borrower to third parties for purchase on terms
and conditions to be determined by the Lender and Brooke (Overseas), and Brooke
(Overseas) shall sell its Interests in accordance with the provisions of this
Section 7.6.
7.7 Partial Sales Prohibited. Notwithstanding anything to the
contrary in this Agreement, a partial sale of Interests shall not be permitted
and all sales of Interests or assets of the Borrower to the extent permitted
hereunder shall be on a cash basis. Each of Brooke (Overseas) and the Lender
shall retain the right to approve any
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provisions of any agreement for the sale of Interests or any assets of the
Borrower with respect to indemnification or other post-closing contingent
liabilities or price adjustments.
7.8 Termination of Provisions Restricting Sale of Interests.
The provisions restricting the sale of Interests contained in this Section 7
shall automatically terminate upon the happening of any of the following events:
(a) the adjudication of the Borrower as a bankrupt,
the execution by the Borrower of an assignment for the benefit of creditors, or
the appointment of a receiver for all or substantially all of its Properties; or
(b) the voluntary or involuntary dissolution of the
Borrower.
8. Transfer of Loan.
8.1 Transfer of Loan. Except as contemplated by Section 7 or
this Section 8, the Lender agrees not to assign, transfer, sell or otherwise
dispose of any or all of the Loan or any or all of its rights hereunder
(collectively, the "Lender's Rights"), and the Lender agrees for itself, its
successors, legal representatives and assigns that the Lender's Rights shall not
be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered,
whether voluntarily or involuntarily, by operation of law, legal proceedings or
otherwise, other than as provided in Section 7 or this Section 8. In the event
an involuntary lien or encumbrance is placed on the Lender's Rights, the Lender
shall not be in violation of this provision if it discharges or causes to be
discharged such lien or encumbrance within a period of sixty (60) days from the
placement or occurrence thereof.
8.2 Sale of Lender's Rights after February 20, 2005. At any
time after February 20, 2005, Apollo shall have the right to sell all of the
Lender's Rights without the consent of Brooke (Overseas), provided that (x) the
cash price payable in one lump sum at the closing of the sale of the Lender's
Rights shall be no less than $175,000,000; and (y) the Lender's Rights are sold
to one or more purchasers through an auction process conducted by an
internationally recognized investment bank or real estate brokerage firm. In the
event Apollo elects to exercise such right to sell all of
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<PAGE> 88
the Lender's Rights, it shall send Brooke (Overseas) a written notice of such
election at least sixty (60) days prior to the closing of such sale, and Brooke
(Overseas) shall have the right and, at the request of Apollo, Brooke (Overseas)
shall be obligated, to sell all of its Interests within sixty (60) days of
receipt of such notice to the same purchaser or group of purchasers as the
Lender on the same terms and conditions as the Lender.
8.3 Transfers to Affiliates. The Lender may transfer the
Lender's Rights to an Affiliate, except where prohibited by applicable laws or
where in the reasonable judgment of the Borrower or Brooke (Overseas) such
transfer would have a material adverse effect on the business of the Borrower or
Brooke (Overseas). In the event the Lender wishes to transfer the Lender's
Rights to an Affiliate under this Section 8.3, it shall first notify the
Borrower and Brooke (Overseas) in writing of such proposed transfer. The
Borrower and Brooke (Overseas) shall make their determination as to whether such
transfer would have a material adverse effect on the business of the Borrower or
Brooke (Overseas) within ten (10) days of receiving such notice and shall notify
the Lender in writing of their determination. It is a condition to any such
transfer that the transferee become a signatory to this Agreement and agree to
perform all of the obligations of the transferor hereunder.
8.4 Change of Control. In the event of a change in control of
the Lender, the Borrower and Brooke (Overseas) shall have the right to take all
actions set forth in Section 5.1 without Lender's approval and to prepay the
Loan at a price equal to the Adjusted Realized Value of the Loan, which right
may be exercised by the Borrower or Brooke (Overseas) for a period of sixty (60)
days after such event constituting a change in control. For purposes of this
Agreement, a change in control shall be deemed to occur when a person or entity
that is not, at the time of the Closing, an Affiliate of the Lender, becomes the
beneficial owner, directly or indirectly, of securities or ownership interests
representing 40% or more of the combined voting power of all outstanding
securities or ownership interests of the Lender. A change of control shall not
be deemed to occur due to a reconfiguration of
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<PAGE> 89
the ownership or changes in the ownership of the limited partnership interests
of Apollo, provided that Apollo remains the owner, directly or indirectly, of
the Class A Interests in Joint Venture-I (as defined therein) owned by it as of
the date hereof.
8.5 Dissolution of Lender. In the event of the bankruptcy,
reorganization, liquidation, winding-up or dissolution of the Lender, the Lender
shall notify the Borrower and Brooke (Overseas) in writing within five (5) days
of such event. The Lender shall offer to the Borrower and Brooke (Overseas) to
prepay the Loan within ninety (90) days of the date of such notice for the then
existing Adjusted Realized Value of the Loan. In the event that the Borrower and
Brooke (Overseas) decline to prepay the Loan, the Lender's Rights may be offered
by the Borrower to third parties for purchase on terms and conditions to be
determined by the Borrower, the Lender and Brooke (Overseas), and the Lender
shall sell its Lender's Rights in accordance with the provisions of this Section
8.5.
8.6 Effect of Prepayment; Partial Sales Prohibited. In the
event of a prepayment of the Loan by the Borrower or by Brooke (Overseas) as set
forth in Section 8.4 or 8.5 hereof, this Agreement shall terminate and the
Borrower and Brooke (Overseas) shall have no further obligations to the Lender.
Notwithstanding anything to the contrary in this Agreement, a partial sale of
the Lender's Rights shall not be permitted and all sales of the Lender's Rights
shall be on a cash basis. Each of the Borrower, Brooke (Overseas) and the Lender
shall retain the right to approve any provisions of any agreement for the sale
of the Lender's Rights with respect to indemnification or other post-closing
contingent liabilities or price adjustments.
8.7 Termination of Provisions Restricting Transfer of Lender's
Rights. The provisions restricting the transfer of Lender's Rights contained in
this Section 8 shall automatically terminate upon the happening of any of the
following events:
(a) the adjudication of the Borrower as a bankrupt,
the execution by the Borrower of an assignment for the benefit of creditors, or
the appointment of a receiver for all or substantially all of its Properties; or
(b) the voluntary or involuntary dissolution of the
Borrower.
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<PAGE> 90
8.8 Assurances with Respect to Sections 7 and 8. Upon (a) the
occurrence of the conditions that give rise to the right of the Lender or Brooke
(Overseas) (such party, the "Seller") to sell, or require the sale of, the
assets of the Borrower, the Interests and/or the Lender's Rights under Sections
7 or 8 of this Agreement and (b) the written request of the Seller, then the
other parties hereto shall take any action specified in such request reasonably
necessary to enable the Seller to exercise its rights under Sections 7 or 8 of
this Agreement.
9. Representations and Warranties.
9.1 Borrower. The Borrower represents and warrants as follows:
(a) The Borrower is a limited liability company duly
formed under the laws of the State of Delaware, with full power and authority to
enter into this Agreement and to consummate the transactions contemplated
herein.
(b) The execution and delivery by the Borrower of
this Agreement and the consummation by it of the transactions contemplated
herein will not violate its constituent documents, any law or any contract to
which the Borrower is a party, and no approval, authorization, consent, or order
or filing with, any third party, court, administrative agency or other
governmental authority is required for the execution and delivery by the
Borrower of this Agreement or any other agreements to be entered into by the
parties hereto in accordance with this Agreement and all agreements and
documents relating to the asset transfers contemplated by this Agreement, or the
consummation by it of the transactions contemplated herein.
(c) This Agreement is the legal, valid and binding
obligation of the Borrower enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and similar laws of general application
affecting the rights and remedies of creditors.
(d) There exists no litigation pending or threatened
in writing (or any basis therefor) against the Borrower that (i) might adversely
affect the operations, business or business prospects of the Borrower, (ii)
might impede, delay or adversely affect the transactions contemplated by this
Agreement, or (iii) has not
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<PAGE> 91
been disclosed to Apollo. There are no valid, effective and enforceable orders,
injunctions or decrees of any court or arbitral body with respect to the
Borrower that might adversely affect the operations, business or business
prospects of the Borrower.
9.2 Lender and Brooke (Overseas). Each of the Lender and
Brooke (Overseas) represents and warrants as follows:
(a) Such party is a corporation or a limited
liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
establishment, as the case may be, with full power and authority to enter into
this Agreement and to consummate the transactions contemplated herein.
(b) The execution and delivery by such party of this
Agreement and the consummation by it of the transactions contemplated herein
have been authorized by the board of directors of such party or other management
authority of such party and will not violate its constituent documents, any law
or any contract to which such party hereto is a party, and no approval,
authorization, consent or order of, or filing with, any third party, court,
administrative agency, or governmental authority is required for the execution
and delivery by such party of this Agreement or the consummation by it of the
transactions contemplated herein.
(c) This Agreement is the legal, valid and binding
obligation of such party enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and similar laws of general application
affecting the rights and remedies of creditors.
(d) The individual signing this Agreement on behalf
of such party is a duly authorized officer or representative of such party and
is empowered to execute this Agreement on behalf of such party.
(e) No agent, broker, investment banker, person or
firm acting on behalf of such party or under the authority of such party is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee from any of the parties hereto in connection with the transactions
contemplated hereby.
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<PAGE> 92
9.3 Additional Representations by Borrower and Brooke
(Overseas). In addition to the representations made by the Borrower and Brooke
(Overseas) in Sections 9.1 and 9.2, respectively, the Borrower and Brooke
(Overseas) represent and warrant as follows:
(a) LD Tobacco is the owner of the buildings and is
the lessee of the land plot located at the site of the New Factory and, upon
purchase of the land lease rights, will be entitled to dispose of such rights at
its own discretion, subject to compliance with the terms of the Land Lease
Agreement, dated March 27, 1996, between the Government of the City of Moscow,
as landlord, and LD Tobacco, as tenant, demising the land at the site of the New
Factory, as amended to date (the "New Factory Land Lease"), and applicable law,
and there are no encumbrances on, or rights of third parties to, the New
Factory.
(b) LD Tobacco is the current tenant under the New
Factory Land Lease.
(c) (i) Brooke (Overseas) has provided to the Lender
and Apollo access to complete and correct copies of all amendments, protocols
and other documents and agreements relating to the New Factory Land Lease; (ii)
the New Factory Land Lease has been duly authorized, executed and delivered by
the tenant and is the legal, valid and binding agreement of the tenant
thereunder, and, to the knowledge of Brooke (Overseas), of the landlord
thereunder, enforceable in accordance with its terms; (iii) the New Factory Land
Lease is in full force and effect without default by either the tenant or, to
the knowledge of Brooke (Overseas), the landlord thereunder, and, to the
knowledge of Brooke (Overseas), no condition exists and no event has occurred
that would result in, either after notice thereof or a lapse of time or both, a
breach, termination or default under the New Factory Land Lease; (iv) the tenant
under the New Factory Land Lease is current in the payment of all rent and other
amounts due and has fulfilled all other obligations under the terms of such New
Factory Land Lease as of the date hereof; (v) LD Tobacco has not subleased,
assigned or pledged any of its interests in the New Factory Land Lease; and (vi)
to the knowledge
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<PAGE> 93
of the Brooke Parties, the New Factory Land Lease covers the entire estate that
it purports to cover.
(d) Each of Liggett-Ducat and LD Tobacco was duly
incorporated as a closed joint stock company and is validly existing as a legal
entity registered under the laws of the Russian Federation as of August 5, 1993
and December 29, 1995, respectively, and each of Liggett-Ducat and LD Tobacco
has full power and authority required to carry on its business as it is
currently being conducted as described in the business plans, and to own, lease
and operate its Properties.
(e) All of the outstanding shares of capital stock of
each of Liggett-Ducat and LD Tobacco (i) have been duly authorized and validly
issued and are fully paid; (ii) are not subject to any preemptive or similar
rights granted by Liggett-Ducat or LD Tobacco, respectively (except as may be
required by Russian law and/or set forth in the respective charters of
Liggett-Ducat and LD Tobacco), and were properly registered with the appropriate
authorities competent for registration of the issuance of such shares and to the
extent owned by Brooke (Overseas) and Liggett-Ducat, respectively, are free and
clear of any security interest, claim, lien, or encumbrance of any nature,
except with respect to those shares pledged by Brooke (Overseas) to Belgrave
Limited and Vladimir Tumentsev to secure the payment obligations of Brooke
(Overseas) for 6.8% of the outstanding shares of Liggett-Ducat; (iii) Brooke
(Overseas) has transferred 95.8% of the outstanding shares of Liggett-Ducat to
the Company; (iv) Liggett-Ducat owns 100% of the outstanding shares of LD
Tobacco; and (v) there is no existing option, warrant, call, right, commitment
or other agreement of any character to which Liggett-Ducat is a party requiring,
and there are no securities of Liggett-Ducat outstanding which upon conversion,
exercise or exchange would require, the issuance, sale or transfer of any
additional shares of capital stock or other securities of Liggett-Ducat to its
employees or any other person.
(f) Neither Liggett-Ducat nor LD Tobacco is in
violation of its respective charter.
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(g) Each of Liggett-Ducat and LD Tobacco has such
licenses, permits and approvals as are necessary to conduct its respective
business as described to Lender, except where the failure to have such license,
permit or approval would not have a material adverse effect on such entity; (ii)
each of Liggett-Ducat and LD Tobacco has fulfilled and performed all of its
obligations with respect to such licenses, permits and approvals except any
obligation which the failure to fulfill or perform would not have a material
adverse effect on such Affiliated Entity; and (iii) no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
thereof or results, or after notice or lapse of time would result, in any other
material impairment of the rights of the holder of such license, permit or
approval.
(h) There exists no litigation pending or threatened
in writing (or any basis therefor) against Liggett-Ducat, LD Tobacco and/or
Properties that might (i) detrimentally affect the ownership, value, use or
operation of the Properties for their intended purposes; (ii) adversely affect
the operations, business or business prospects of Liggett-Ducat or LD Tobacco;
or (iii) impede, delay or adversely affect the transactions contemplated by this
Agreement. There are no valid, effective and enforceable orders, injunctions or
decrees of any court or arbitral body with respect to Liggett-Ducat and/or
Properties that might (x) detrimentally affect the ownership, value, use or
operation of the Properties for their intended purposes; (y) adversely affect
the operations, business or business prospects of Liggett-Ducat or LD Tobacco;
or (z) impede, delay or adversely affect the transactions contemplated by this
Agreement. To the knowledge of Brooke (Overseas), there are no material
impediments to LD Tobacco obtaining all necessary approvals for LD Tobacco's
planned construction of the New Factory. Neither Liggett-Ducat nor LD Tobacco
has filed, nor been the subject of any filing of, a petition under bankruptcy
laws, insolvency laws, laws for the composition of indebtedness, or laws for the
reorganization of debtors.
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(i) The business of Liggett-Ducat and LD Tobacco is
not being, nor has it in the past been, conducted in violation of any law or any
governmental order applicable to Liggett-Ducat or LD Tobacco or any of their
assets or Properties, including, without limitation, the Foreign Corrupt
Practices Act of 1977, as amended, except for possible violations which
individually or in the aggregate would not have a material adverse effect on
Liggett-Ducat, LD Tobacco or the Borrower. Liggett-Ducat, LD Tobacco and the
Borrower are in compliance with all applicable environmental laws and have not
received any communication from any governmental authority that alleges that
Liggett-Ducat, LD Tobacco or the Borrower is not in compliance with applicable
environmental laws where such noncompliance would have a material adverse effect
on Liggett-Ducat or LD Tobacco.
(j) All material tax returns and reports required to
be filed by Liggett-Ducat and LD Tobacco prior to the date hereof or with
respect to taxable periods ending prior to the date hereof have been or will be
filed with the appropriate governmental authorities prior to the date hereof or
by the due date thereof including extensions. Such tax returns and reports
correctly reflect (and as to returns not filed as of the date hereof, will
correctly reflect) all material tax liabilities of Liggett-Ducat and LD Tobacco
required to be shown thereon. To the knowledge of Brooke (Overseas), all
material tax returns and reports required to be filed by Liggett-Ducat and LD
Tobacco prior to the date hereof or with respect to taxable periods ending prior
to the date hereof have been or will be filed with the appropriate governmental
authorities prior to the date hereof or by the due date thereof including
extensions. Such tax returns and reports correctly reflect (and as to returns
not filed as of the date hereof, will correctly reflect) all material tax
liabilities of Liggett-Ducat and LD Tobacco required to be shown thereon. To the
knowledge of Brooke (Overseas), there are no pending tax investigations or
outside audits of Liggett-Ducat or LD Tobacco being conducted and, except as set
forth in Schedule 9.3(j), neither Liggett-Ducat nor LD Tobacco has any
outstanding tax penalties against it.
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(k) Brooke (Overseas) has identified to the Lender
and Apollo and has provided to the Lender and Apollo complete and correct copies
of all material employment agreements or employee benefit plans covering present
and former employees of Liggett-Ducat and LD Tobacco or their beneficiaries.
(l) A schedule of the material contracts of LD
Tobacco and the status of each is annexed hereto as Schedule 9.3(l) (the
"Material Contracts"). (i) The Material Contracts have been duly authorized,
executed and delivered by LD Tobacco and are legal, valid and binding agreements
of LD Tobacco enforceable against it in accordance with their respective terms;
(ii) LD Tobacco has fully performed all obligations required to be performed
under each of the Material Contracts including but not limited to the payment of
all amounts due and owing thereunder; (iii) neither LD Tobacco nor, to the
knowledge of Brooke (Overseas), any other party is in default under any of the
Material Contracts; and (iv) to the knowledge of Brooke (Overseas), no condition
exists and no event has occurred that would result in, either after notice of or
lapse of time or both, in a breach, termination or default under any of the
Material Contracts. LD Tobacco has not assigned any of its interests in the
Material Contracts.
(m) The unaudited financial statements of LD Tobacco
and the audited financial statements of Liggett-Ducat for the years ended
December 31, 1995 and 1996 furnished to the Lender and Apollo have been prepared
in accordance with U.S. generally accepted accounting principles consistently
applied and fairly present the matters set forth therein.
(n) A schedule of all material related party
obligations relating to Liggett-Ducat and LD Tobacco that will be outstanding as
of the Closing Date is annexed hereto as Schedule 9.3(n).
(o) Liggett-Ducat has all necessary authority and
approvals to operate the Old Factory.
(p) The previously existing intercompany loan from
Brooke (Overseas) to Liggett-Ducat has been cancelled.
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10. Notices. All notices required to be given hereunder shall be in
writing and shall be deemed to have been properly given if sent by registered or
certified mail, postage prepaid, or by telecopy, addressed as follows:
(a) If to the Borrower:
Western Tobacco Investments LLC
103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware 19103
Attention: Richard J. Lampen
Telephone: 305-579-8000
Telecopy: 305-579-8009
(b) If to the Lender:
Western Realty Development LLC
103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware 19103
Attention: Richard J. Lampen
Telephone: 305-579-8000
Telecopy: 305-579-8009
Copy to:
Apollo Real Estate
Investment Fund III, L.P.
1301 Avenue of the Americas
New York, NY 10019
Attention: John J. Hannan
Telephone: 212-261-4000
Telecopy: 212-261-3301
Copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue, 20th Floor
New York, New York, 10022
Attention: Stephen M. Vine
Telephone: 212-872-1030
Telecopy: 212-872-1002
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Copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York, 10036
Attention: Clyde E. Rankin, III
Telephone: 212-626-4740
Telecopy: 212-626-4120
(c) If to Brooke (Overseas):
Brooke (Overseas) Ltd.
100 S.E. Second Street, 32nd Floor
Miami, FL 33131
Attention: Bennett S. LeBow
Telephone: 305-579-8000
Telecopy: 305-579-8009
Copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York, 10036
Attention: Clyde E. Rankin, III
Telephone: 212-626-4740
Telecopy: 212-626-4120
Such notices shall be deemed to have been received five (5) days after deposit
in the mail or within twenty-four (24) hours after transmission by telecopy. Any
party may change the address to which notices shall be sent by notice in writing
to the other parties as provided herein.
11. Miscellaneous.
11.1 Further Assurances. The parties will, in a timely manner
and as required from time to time, take all such actions as may be necessary or
appropriate to cause their Affiliates, the Borrower and the Affiliated Entities
to implement the transactions contemplated by this Agreement and to ensure that
such entities take all such actions as may be necessary to give full effect to
the provisions of this Agreement and to refrain from taking any actions which
would contravene the intent or the provisions of this Agreement.
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<PAGE> 99
11.2 Term of Agreement. This Agreement will continue in full
force and effect until the earlier of (a) termination by mutual consent of the
parties hereto, (b) the dissolution of the Borrower, or (c) the prepayment of
the Loan under Section 8.4 or 8.5.
11.3 No Acceleration. The Lender expressly acknowledges that
no breach of this Agreement by any party hereto or any other cause or event
shall cause the Loan or any part thereof to become due and payable or shall give
the Lender a right to declare the Loan or any part thereof due and payable.
11.4 Assignment. Except as provided in Section 7 or 8 hereof,
this Agreement shall not be assigned by any party hereto without the prior
written consent of the other parties hereto. This Agreement shall inure to the
benefit of the parties hereto and shall be binding upon the successors and
assigns of the parties hereto.
11.5 Amendment, Modification and Waiver. This Agreement may be
modified, amended and supplemented only upon the unanimous mutual written
agreement of the parties hereto. Each party may waive any term, provision or
condition intended for its benefit, provided that such waiver be in writing and
be signed by the party so waiving.
11.6 Severability. If any one or more of the provisions of
this Agreement shall be held invalid, illegal or unenforceable under applicable
law, the validity, legality and enforceability of the remaining provisions shall
not be affected or impaired thereby.
11.7 Entire Agreement; Headings. This Agreement, including the
schedules hereto, constitutes the entire agreement of the parties with respect
to the subject matter hereof and may not be changed, terminated or discharged
orally. The headings appearing in this Agreement have been inserted solely for
the convenience of the parties and shall be of no force or effect in the
construction of the provisions of this Agreement.
11.8 Indemnification. Each party to this Agreement agrees to
indemnify, defend and hold the other party free and harmless from and against,
and to
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reimburse the other party on a current basis for, all claims, damages,
expenses and liabilities of such other party arising from any breach of such
indemnifying party of the terms of this Agreement, including, without
limitation, reasonable legal expenses and attorneys' fees paid or incurred by
the indemnified party in defense of any proceedings brought against such
indemnified party individually or against such indemnified party and such
indemnifying party (jointly or severally) arising out of any of the foregoing.
The provisions of this Section 11.8 shall survive the termination of this
Agreement and the representations and warranties given by the parties shall
survive for the applicable statute of limitations.
11.9 Governing Law. This Agreement shall be governed by New
York law, without regard to its conflict of laws principles.
11.10 Arbitration. Any dispute, controversy or claim arising
out of or relating to this Agreement or to the business and affairs of the
Borrower or the rights and obligations of any of the parties hereto shall be
finally settled by binding arbitration to be conducted in New York, New York in
accordance with the rules then in force of the American Arbitration Association,
including the rules governing the appointment of arbitrators. Any final decision
in any such arbitration proceeding shall be final and non-appealable and shall
be binding on the parties thereto and enforceable in courts of competent
jurisdiction without a further review on the merits.
11.11 Confidentiality. By executing this Agreement, each party
hereto expressly agrees, at all times during the term of this Agreement, to
maintain the confidentiality of, and not to disclose to any person not a party
hereto, any information relating to the business, financial structure, financial
position or financial results, clients or affairs of the Borrower, its
Affiliates or Affiliated Entities that shall not be generally known to the
public, except as otherwise required by applicable law or by any regulatory
organization having jurisdiction. Except as provided by law, no press releases,
announcements or other public disclosures related to this Agreement or the
transactions contemplated herein will be issued or made, without the joint
approval of Apollo and Brooke (Overseas). Nothing in this Section shall be
deemed to prohibit
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Apollo from making any disclosures regarding this Agreement or the transactions
contemplated herein to any of its partners.
11.12 Counterparts. This Agreement may be executed by the
parties in one or more counterparts, each of which shall be deemed an original
but all of which taken together shall constitute one and the same instrument.
11.13 Rights of Apollo. Any rights Apollo may have hereunder
are conditioned upon Apollo being a member in the Lender and shall terminate
upon Apollo ceasing to be a member of the Lender.
11.14 Liability of Brooke (Overseas). Nothing in this
Agreement shall be interpreted to imply that Brooke (Overseas) is liable for the
repayment of the Loan as an obligor, guarantor or otherwise.
11.15 Fees and Expenses. All fees and expenses incurred in the
negotiation, preparation and execution of this Agreement, including all exhibits
hereto and all related documents shall be for the account of and payable by the
party incurring them.
[The remainder of this page is intentionally left blank.]
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<PAGE> 102
IN WITNESS WHEREOF, the parties hereto have duly executed or caused
their duly authorized officers to execute this Agreement as of the date and year
first above written.
WESTERN TOBACCO
INVESTMENTS LLC
By: Brooke (Overseas) Ltd.,
-------------------------------
its Manager
By: /s/ Richard J. Lampen
-------------------------------
Name: Richard J. Lampen
Title: Executive Vice President
WESTERN REALTY
DEVELOPMENT LLC
By: /s/ Bennett S. LeBow
-------------------------------
Name: Bennett S. LeBow
Title: Chairman
BROOKE (OVERSEAS) LTD.
By: /s/ Richard J. Lampen
-------------------------------
Name: Richard J. Lampen
Title: Executive Vice President
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Schedule A
to Participating Loan Agreement
The following terms shall have the following definitions:
"Adjusted Realized Value" shall mean (i) with respect to any Interest,
the capital contribution received by the Borrower for such Interest in cash plus
a 15% annual cumulative rate of return on such contribution compounded on a
quarterly basis, less distributions or dividends in cash or the fair market
value of distributions of property or in-kind distributions received by Brooke
(Overseas) in respect of such Interest as of the date such Adjusted Realized
Value is calculated or (ii) with respect to the Loan, the amount advanced to the
Borrower as a Loan in cash plus a 15% annual cumulative rate of return on such
advance compounded on a quarterly basis, less payments in cash made to the
Lender hereunder or the fair market value of payments in-kind made to the Lender
in respect of the Loan as of the date such Adjusted Realized Value is
calculated, provided that for the purposes of this definition the amount of the
First Advance shall be considered advanced in cash to the Borrower by the Lender
on February 27, 1998.
"Affiliate" shall mean, with respect to any person, a person or entity
which directly or indirectly controls, is controlled by, or is under common
control with, such person.
"Affiliated Entity" shall mean Liggett-Ducat, LD Tobacco and any other
direct or indirect wholly-owned subsidiary of the Borrower and any other entity
(whether or not incorporated) in which any of the foregoing entities or the
Borrower has or hereafter acquires a controlling interest.
"Apollo" shall have the meaning ascribed thereto in the first "WHEREAS"
clause hereof.
"Borrower" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
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<PAGE> 104
"Brooke (Overseas)" shall have the meaning ascribed thereto in the
introductory paragraph hereof.
"BrookeMil" shall have the meaning ascribed thereto in the first
"WHEREAS" clause hereof.
"Budget" shall have the meaning ascribed thereto in Section 5.1(i)
hereof.
"Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks are authorized by law to close in New York City or
Moscow.
"Closing" shall have the meaning ascribed thereto in Section 4.1
hereof.
"Closing Date" shall have the meaning ascribed thereto in Section 4.1
hereof.
"First Advance" shall have the meaning ascribed thereto in Section 2.3
hereof.
"Interests" shall have the meaning ascribed thereto in second "WHEREAS"
clause hereof.
"Joint Venture-I Agreement" shall have the meaning ascribed thereto in
the first "WHEREAS" clause hereof.
"Joint Venture-II Agreement" shall have the meaning ascribed thereto in
the second "WHEREAS" clause hereof.
"Lender" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Lender's Rights" shall have the meaning ascribed thereto in Section
8.1 hereof.
"LD Tobacco" shall mean Liggett-Ducat Tobacco Ltd., a Russian closed
joint stock company.
"Liggett-Ducat" shall mean Liggett-Ducat Ltd., a Russian closed joint
stock company.
"Loan" shall have the meaning ascribed thereto in Section 2.1 hereof.
"Material Contracts" shall have the meaning ascribed thereto in Section
9.3(l) hereof.
"Maturity Date" shall have the meaning ascribed thereto in Section 2.1
hereof.
36
<PAGE> 105
"New Factory" shall mean a new cigarette factory to be located at
Kashirskoye Shosse, Moscow, Russian Federation, to be constructed and operated
by LD Tobacco.
"New Factory Land Lease" shall have the meaning ascribed thereto in
Section 9.3(a) hereof.
"New Valley" shall have the meaning ascribed thereto in the first
"WHEREAS" clause hereof.
"Old Factory" shall mean the existing cigarette factory located in
Moscow at Ul. Gasheka 6 operated by Liggett-Ducat.
"Pledge Agreement" shall have the meaning ascribed thereto in Section 3
hereof.
"Properties" shall mean the New Factory and any other property to which
the Company or any Affiliated Entity has or hereafter acquires rights.
"Reimbursement Amount" shall have the meaning ascribed thereto in
Section 2.6 hereof.
"Russian Bank Loan" shall have the meaning ascribed thereto in Section
6 hereof.
"Russian Loan Default" shall have the meaning ascribed thereto in
Section 7.1(d) hereof.
"Second Advance" shall have the meaning ascribed thereto in Section 2.4
hereof.
"Seller" shall have the meaning ascribed thereto in Section 8.8 hereof.
37
<PAGE> 1
Exhibit 10.3
WESTERN REALTY REPIN LLC
LIMITED LIABILITY COMPANY AGREEMENT
<PAGE> 2
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT is entered into as of June 18,
1998, by and among Western Realty Repin LLC, a Delaware limited liability
company with offices at 103 Springer Building, 3411 Silverside Road, Wilmington,
Delaware 19103 (the "Company"), Apollo Real Estate Investment Fund III, L.P., a
Delaware limited partnership with offices at 1301 Avenue of the Americas, New
York, New York ("Apollo"), and New Valley Corporation, a Delaware corporation
with offices at 100 S.E. Second Street, 32nd Floor, Miami, Florida ("New
Valley") (Apollo and New Valley are sometimes hereinafter referred to
collectively as the "Members" and individually as a "Member").
W I T N E S S E T H :
WHEREAS, the Company has been formed to lend money, under the
Participating Loan Agreement (as hereinafter defined), to BrookeMil Ltd., a
Cayman Islands company ("BrookeMil"), which through its ownership of
approximately 92.8% of the shares in VNIIkholodmash-Holding, a Russian open
joint stock company ("Kremlin Entity-I"), and 52% of the shares in Kamennyi
Most, a Russian open joint stock company ("Kremlin Entity-II"), will hold the
rights to, develop, improve, maintain, repair, operate, lease and manage
properties located at Repin Square (Bolotnaya) 14, Moscow, Russia 109072
("Kremlin Site-I"), and Sofiiskaya Naberezhnaya 4 (building 1), 6 (building 1,
2-6a and 7-9), 8 (building 1 and 3-4) and 10 (buildings 4, 5 and 6), Moscow,
Russia 109072 ("Kremlin Site-II") (Kremlin Entity-I and Kremlin Entity-II are
collectively referred to hereafter as the "Kremlin Entities" and Kremlin Site-I
and Kremlin Site-II are collectively referred to hereafter as the "Kremlin
Sites"), and engage in all activities incidental thereto;
<PAGE> 3
WHEREAS, the parties hereto have agreed that the Participating Loan
Agreement substantially in the form annexed hereto as Exhibit A (the
"Participating Loan Agreement") authorizing a $25,000,000 loan from the Company
to BrookeMil (the "Participating Loan") shall be entered into by and between the
Company and BrookeMil;
WHEREAS, each Member has agreed to subscribe for and to purchase
interests in the Company in return for the contributions to the Company
described below; and
WHEREAS, the Members wish to set forth their respective rights and
obligations as Members of the Company and to confirm the principles that will
govern the management of the Company and the Affiliated Entities;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms.
Capitalized terms not otherwise defined herein shall have the meanings
set forth on Schedule A.
2. Organization; Interests.
2.1 Certificate of Formation. The parties acknowledge that the
Company was formed in the State of Delaware on June 15, 1998 and that the
Certificate of Formation of the Company is currently in the form annexed hereto
as Schedule 2.1. The parties hereby agree that the rights and liabilities of the
Members shall be as provided in the Act, except as provided herein.
2.2 Purpose. The Company was formed for the purpose of
investing, developing, improving, maintaining, repairing, operating, leasing and
managing, through the
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<PAGE> 4
Participating Loan to BrookeMil, the Kremlin Sites, and for any other activities
incidental thereto. The purpose of the Company can be modified as provided in
Section 12.4 hereof or otherwise by written agreement of the Members.
2.3 Principal Office. The principal office of the Company
shall be located at 103 Springer Building, 3411 Silverside Road, Wilmington,
Delaware 19103.
2.4 Subscription for Interests.
(a) Apollo hereby subscribes for interests (the
"Class A Interests"), to be issued by the Company for an aggregate subscription
price of $18,750,000, to be contributed in cash as provided below. New Valley
hereby subscribes for interests (the "Class B Interests"), to be issued by the
Company for an aggregate subscription price of $6,250,000, to be contributed in
cash and expenditures as set forth in Section 2.4(c). The Class A Interests and
the Class B Interests are hereinafter collectively referred to as the
"Interests." The subscriptions shall be made as follows:
<TABLE>
<CAPTION>
Apollo:
- -------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class A 10,000 Cash $18,750,000
Interests
New Valley:
- -----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
Class B 10,000 Expenditures $6,250,000
Interests as set forth
in Section 2.4(c)
and Cash
Total for all
Members: 20,000 $25,000,000
- -------
</TABLE>
-3-
<PAGE> 5
(b) At the Initial Closing (as defined in Section
10.1) the Company shall issue (i) 4,800 of its Class A Interests, at a price of
$1,875 per interest, and (ii) 4,800 of its Class B Interests, at a price of $625
per interest. The contributions of the Members to the Company and the amounts
and types of Interests to be issued to them at the Initial Closing shall be as
follows:
<TABLE>
<CAPTION>
Apollo:
- -------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
<S> <C> <C> <C>
Class A 4,800 Cash $9,000,000
Interests
New Valley:
- -----------
Type of Interests Number of Interests Contribution Value of Contribution
- ----------------- ------------------- ------------ ---------------------
Class B 4,800 Expenditures $3,000,000
Interests as set forth
in Section 2.4(c)
Total for All
- -------------
Members 9,600 $12,000,000
- -------
</TABLE>
(c) At the Initial Subsequent Closing (as defined in
Section 10.6), and from time to time thereafter and on or before the fifth
anniversary of the Initial Closing Date, Apollo and New Valley shall complete
their subscribed contributions to the Company in accordance with the Subsequent
Closings described in Section 10.7 hereof, up to the subscription amounts set
forth in Section 2.4(a), in return for which additional Class A Interests shall
be issued to Apollo and additional Class B Interests shall be issued to New
Valley at the price per
-4-
<PAGE> 6
Interest set forth in Section 2.4(b). Such additional contributions shall be
made in such manner so as to maintain the ratio of $3.00 contributed by Apollo
for every $1.00 in value contributed by New Valley. Upon ten (10) Business Days'
written notice by the Company to each of Apollo and New Valley, such additional
contributions shall be made by Apollo in cash and by New Valley in expenditures
incurred with respect to the Kremlin Sites and the Kremlin Entities, including
those expenditures incurred through the date hereof and set forth in Schedule
2.4(c), and, after such expenditures have been contributed and to the extent
they do not cover the subscribed amount, thereafter in cash. New Valley shall be
deemed to have made contributions to the Company in the form of the expenditures
referred to in the preceding sentence only on the due date determined for
additional contributions to the Company at a Subsequent Closing (and then only
to the extent that such expenditures are actually made as of the date of such
Subsequent Closing) as provided in Section 10.7 hereof (and New Valley shall not
be entitled to any interest thereon from the date such expenditures were
incurred to the date of such Subsequent Closing) regardless of the date such
expenditures were incurred, and any expenditures that are to be counted as New
Valley's contributions but that are not set forth in Schedule 2.4(c) or that do
not constitute items on the approved Budget shall be unanimously approved by the
Board of Managers. To the extent the sum of the amount of expenditures incurred
by New Valley with respect to the Kremlin Sites and the Kremlin Entities and set
forth in Schedule 2.4(c) and of additional expenditures incurred by it before or
after the Initial Closing Date on items set forth in the approved Budget exceeds
25% of the total contributions by Apollo and New Valley, New Valley shall be
reimbursed by the Company from the proceeds of Subsequent Closings for such
expenditures in excess of such amount (to the extent New Valley provides to
Apollo proper documentation substantiating such expenditures).
-5-
<PAGE> 7
(d) In the event any Member shall fail to make any
portion of its contribution to the Company when due for any reason, other than
an Event of Force Majeure, then, beginning on the fourth Business Day after the
due date for such contribution, the Company shall charge such non-paying Member
interest on the unpaid amount of such contribution at the rate equal to the
lesser of (i) 10% over the base (prime) rate quoted by the Chase Manhattan Bank
in New York, New York (or its successor) at the close of business on the date on
which such payment was due, or (ii) the maximum rate as allowed by applicable
law, calculated from the date such contribution was due until the date of
payment compounded quarterly and based on a 360-day year ("Late Payment
Interest"). Late Payment Interest shall be distributed to the Members who made
their contributions in full on the due date therefor, pro rata in accordance
with the proportion that the aggregate contributions of each paying Member bea
to the aggregate contributions of all paying Members.
2.5 Payment of Cash Contributions by Members. The Members
shall effect their cash contributions to the Company by wire transfer in
immediately available funds to such bank account of the Company as shall be
specified in a notice by the Company to the Members sent by telecopy at least
one Business Day prior to the date of any Closing (as defined in Section 10
hereof).
2.6 Restrictions on Subscriptions for Interests. The Company
shall not issue any Interests other than to the Members who are a party hereto,
unless the Members unanimously agree otherwise.
2.7 Rights of Class A Interests.
-6-
<PAGE> 8
(a) The holders of the Class A Interests shall be
entitled to receive (i) 100% of any amounts distributed by the Company
(including liquidating distributions) until such time as the aggregate amount of
distributions made with respect to Class A Interests equals the total
consideration paid for such Class A Interests plus a 20% annual cumulative rate
of return on such consideration compounded quarterly (such aggregate amount of
distributions is hereinafter referred to as the "Class A Distribution Amount"
and the period required to make such distributions with respect to Class A
Interests in full is hereinafter referred to as the "Class A Distribution
Period"); and (ii) after completion of the Class A Distribution Period and the
Class B Distribution Period (as hereinafter defined), further distributions by
the Company, if any, in an amount equal to 50% of the distribution. The
distribution rights of the Class A Interests are set forth in more detail in
Section A.11 of Schedul 4 annexed hereto.
(b) Upon the liquidation of the Company, the holders
of the Class A Interests shall be entitled to receive the Adjusted Realized
Equity Value of such Class A Interests (the "Class A Liquidation Preference")
before any assets of the Company may be distributed to the holders of the Class
B Interests; provided, however, that the holders of the Class A Interests shall
be entitled to such Class A Liquidation Preference only in the event such
liquidation takes place before the completion of the Class A Distribution Period
and then only to the extent that such Adjusted Realized Equity Value does not
exceed the Class A Distribution Amount. After the completion of the Class A
Distribution Period and the Class B Distribution Period and upon the liquidation
of the Company, the holders of the Class A Interests shall be entitled to
receive distributions in accordance with Section 2.7(a)(ii) hereof.
Notwithstanding the foregoing provisions of this Section 2.7(b), the rights of
the holders of the Class A Interests to receive
-7-
<PAGE> 9
distributions in liquidation of the Company are subject to the provisions of
Section A.12 of Schedule 4 annexed hereto.
(c) The holders of the Class A Interests shall have
one vote in the aggregate.
2.8 Rights of Class B Interests.
(a) Upon completion of the Class A Distribution
Period, the holders of the Class B Interests shall be entitled to receive (i)
100% of any amounts distributed by the Company (including liquidating
distributions) until such time as the aggregate amount of distributions made
with respect to the Class B Interests equals the total consideration paid for
such Class B Interests pursuant to Section 2.4 plus a 20% annual cumulative rate
of return on such consideration paid for such Class B Interests compounded
quarterly (such aggregate amount of distributions is hereinafter referred to as
the "Class B Distribution Amount" and the period required to make such
distributions with respect to the Class B Interests in full is hereinafter
referred to as the "Class B Distribution Period"); and (ii) after completion of
the Class A Distribution Period and the Class B Distribution Period, further
distributions by the Company, if any, in an amount equal to 50% of the
distribution. The distribution rights of the Class B Interests are set forth in
more detail in Section A.11 of Schedule 4 annexed hereto.
(b) Upon the liquidation of the Company, the holders
of the Class B Interests shall be entitled to receive the Adjusted Realized
Equity Value of such Class B Interests (the "Class B Liquidation Preference")
before any assets of the Company may be distributed to the Members on a pro-rata
basis; provided, however, that the holders of the Class B Interests shall be
entitled to such Class B Liquidation Preference only in the event such
liquidation takes
-8-
<PAGE> 10
place after the completion of the Class A Distribution Period but before the
completion of the Class B Distribution Period and then only to the extent that
such Adjusted Realized Equity Value does not exceed the Class B Distribution
Amount. After the completion of the Class B Distribution Period and upon the
liquidation of the Company, the holders of the Class B Interests shall be
entitled to receive distributions in accordance with Section 2.8(a)(ii) hereof.
Notwithstanding the foregoing provisions of this Section 2.8(b), the rights of
the holders of the Class B Interests to receive distributions in liquidation of
the Company are subject to the provisions of Section A.12 of Schedule 4 annexed
hereto.
(c) The holders of the Class B Interests shall have
one vote in the aggregate.
2.9 Management of the Company. Except to the extent that the
authority to conduct day-to-day operations of the Company shall be delegated to
the President as provided herein, the management of the Company shall be vested
in a managing board (the "Board" or the "Board of Managers"), which shall
consist of an even number of managers, but not less than two (2) managers or
more than six (6) managers. An equal number of managers shall be appointed to
the Board (and subject to removal and replacement) by Apollo on the one hand and
by New Valley on the other hand. Meetings of the Board shall be held
periodically (but in no event less frequently than annually) and upon the
request of any manager. The Board may also take action by unanimous written
consent without a meeting. Except as otherwise provided herein, the actions of
the Board shall be by majority vote, which majority shall include the vote of at
least one (1) manager appointed by each of Apollo and New Valley. Bennett S.
LeBow or such other person designated by New Valley (who shall count as one of
the appointments of New Valley) shall be the Chairman of the Board of Managers.
-9-
<PAGE> 11
Notwithstanding the foregoing, the unanimous decision of the Board of
Managers of the Company shall be required in order for the Company itself, or in
its capacity as a direct or indirect shareholder, member or participant of any
Affiliated Entity, to vote or otherwise approve a decision:
(a) to amend this Agreement or the constituent
documents of the Company and to adopt or amend the constituent documents of any
Affiliated Entity; to grant a consent required hereunder or thereunder or waive
any provisions hereof or thereof on behalf of the Company or any Affiliated
Entity; to amend the Participating Loan Agreement; or to grant a consent
required thereunder or waive any provisions thereof on behalf of the Company;
(b) unless specified in the approved Budget (as
hereinafter defined), to sell, transfer, assign, grant a right to use, grant a
right of first refusal, grant an option or a similar right, or otherwise dispose
of (i) any of the Properties, or any rights thereto or interests therein
(including but not limited to ownership rights, leasehold interests (whether as
landlord or tenant), rights to use or easements) or (ii) any asset (or group of
assets in a transaction or series of transactions) the cost or fair market value
(whichever is greater) of which exceeds $100,000 individually or $200,000 in the
aggregate in any given year;
(c) unless specified in the approved Budget, to
borrow, issue guarantees or assume other contingent obligations to pay money in
an amount which exceeds $100,000 in the aggregate outstanding at any given time;
(d) unless specified in the approved Budget, to grant
a security interest or otherwise encumber (i) any of the Properties or any
rights thereto or interests therein
-10-
<PAGE> 12
(including but not limited to ownership rights, leasehold interests (whether as
landlord or tenant), rights to use or easements), or (ii) any asset (or group of
assets in a transaction or series of transactions) the cost, fair market value
or value assigned in such transaction(s) (whichever is greater) of which exceeds
$100,000 at any one time or $200,000 in the aggregate in any given year;
(e) to take any actions regarding registration of the
Interests in the Company or any Affiliated Entity necessary for a public
offering;
(f) to merge, reorganize or consolidate the Company
or any Affiliated Entity with any other corporation or entity unless the
surviving entity shall be the Company or such other Affiliated Entity,
respectively, or the Company or other Affiliated Entity is merged, reorganized
or consolidated with an Affiliate thereof, except that domestication of
BrookeMil in the State of Delaware shall not be subject to this Section 2.9;
(g) to dissolve voluntarily the Company or any
Affiliated Entity or to revoke voluntary dissolution proceedings or to
terminate, liquidate or wind up the Company or Affiliated Entity;
(h) to change materially the principal businesses
conducted by the Company or any Affiliated Entity, except as contemplated
herein;
(i) to approve or amend the annual budget and
business plan, including capital expenditures, of the Company (collectively, the
"Budget"), which Budget shall incorporate the annual budgets and business plan
of the Kremlin Division of BrookeMil, as well as any contributions or resources
to be made available by the Company to any other Affiliated Entity;
-11-
<PAGE> 13
(j) unless specified in the approved Budget, to make
or incur, or to enter into a contractual commitment to make or incur
expenditures or financial obligations which exceed $100,000 individually or
$250,000 in the aggregate in any 12 month period;
(k) unless specified in the approved Budget, to
purchase ownership interests, leasehold interests, rights to use, easements or
other rights to or interests in the Properties or elsewhere for a purchase price
exceeding $100,000 in each particular transaction or exceeding $200,000 in the
aggregate in any 12 month period, including approval of agreements with respect
to acquiring such rights, or to waive any rights of first refusal, preemptive or
similar rights relating to the purchase of any such rights to or interest in
such Properties or elsewhere;
(l) to enter into, modify, renew, terminate or grant
any material waiver relating to any significant leases and other material
contracts other than contracts in the ordinary course of business with trade
counterparties;
(m) unless specified in the approved Budget, to enter
into any transaction with a party that is related to any Member or Affiliate,
excluding transactions in the ordinary course of business of the Company or an
Affiliated Entity on an arm's-length basis involving amounts which shall not
exceed $100,000 per transaction or series of transactions in any 12 month
period;
(n) to commence or settle any litigation, arbitration
or other dispute, the result of which could have a material adverse effect on
the business, financial condition or prospects of the Company or any Affiliated
Entity;
(o) to resolve tax or other governmental proceedings
or disputes relating to the Company or any Affiliated Entity or to approve any
action of New Valley as tax matters partner of the Company;
-12-
<PAGE> 14
(p) to establish, acquire, dispose of or transfer any
subsidiary or any interest in any subsidiary or other entity (whether or not
incorporated) or make any investment in any business venture or enterprise
(whether or not incorporated), other than as contemplated in the approved
Budget;
(q) to change the outside accountants of the Company
or any Affiliated Entity;
(r) to issue, sell, transfer, assign or otherwise
dispose of any shares, capital stock, securities or interests of or owned by the
Company or any Affiliated Entity, or change the ownership structure of the
Company or any Affiliated Entity;
(s) unless specified in the approved Budget or in
this Agreement, to make a decision not to distribute all available cash (to the
extent such distributions are permitted by applicable law or this Agreement)
from (i) the Company to the Members, or (ii) an Affiliated Entity to its
shareholders, members or participants, as applicable; and
(t) to retain any officer subject to mandatory
dismissal as provided in Section 5.1(c).
All figures set forth in this Section 2.9 shall be
determined on a consolidated basis in accordance with U.S. generally accepted
accounting principles, consistently applied. To the extent that any amounts or
payments are incurred in any currency other than U.S. dollars, such amounts or
payments shall, for purposes of such calculation, be converted into U.S. dollars
on the date of the conclusion of the transaction at the official exchange rate
of such country (which, for purpose of the ruble, shall be considered to be the
MICEX rate at the
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<PAGE> 15
opening of business in Moscow on such date). The Parties hereby agree that the
Participating Loan Agreement shall include provisions requiring the Company's
approval (directly or indirectly) of the issues set forth in this Section 2.9
and that Apollo shall be authorized to grant the approvals to be granted by the
Company under Section 5.1 of the Participating Loan Agreement.
3. Use of Contributions and Financing.
3.1 Use of Contributions.
(a) The contributions in cash and, in the case of New
Valley, expenditures as set forth in Section 2.4(c), received by the Company
from the Members shall be (i) advanced to BrookeMil under the Participating Loan
Agreement to be used as specified in the approved Budget and the Participating
Loan Agreement for financing the acquisition, repair, construction, improvement,
operation, management and development of the Kremlin Sites and such other
projects as may be approved in the Budget or in the Participating Loan
Agreement, and (ii) transferred to New Valley as reimbursement for the
expenditures in excess of 25% of the total contributions by Apollo and New
Valley as set forth in Section 2.4(c).
(b) At the time of any capital call, the purpose for
which funds are being called shall be set forth in an approved Budget.
3.2 Financing. The Company may obtain additional working
capital or other funds required for the business of the Company through
borrowings on the basis of its own credit rating from commercial banks or other
institutional lenders, subject to the Budget or the unanimous approval of the
Board of Managers as set forth in Section 2.9. Although the Members will not be
required to guarantee any such borrowings, the Members shall use good
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<PAGE> 16
faith efforts to assist the Company in obtaining such funds on the most
favorable commercial terms.
4. Allocations of Income and Loss. The Company's net taxable income and
loss shall be allocated among the Members as set forth in Schedule 4 annexed
hereto.
5. Officers, Employees and Independent Accountants.
5.1 Chairman and Corporate Officers.
(a) Except as otherwise provided herein, the officers
of the Company and BrookeMil and the Chairman of the Board of Managers of the
Company and BrookeMil shall be appointed and removed by New Valley. The initial
Chairman of the Board of Managers of the Company will be Bennett S. LeBow. The
initial officers of the Company will be as follows:
President - Michael Capaccio;
Vice President - Ronald J. Bernstein;
Vice President - Richard J. Lampen; and
Secretary - Marc N. Bell.
The Chairman of BrookeMil shall be Bennett S. LeBow. The officers of BrookeMil
shall be:
President - Michael Capaccio;
Executive Vice President and Director - Richard J. Lampen;
Secretary - Sentinel Corporation; and
Assistant Secretaries - Marc N. Bell and J. Bryant Kirkland III.
(b) Apollo shall have the right to approve
replacements of any of the officers set forth in this Section 5.1. Such approval
shall not be unreasonably withheld or delayed.
(c) Any officer of the Company or any Affiliated
Entity shall be
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<PAGE> 17
subject to mandatory dismissal for fraud, bad faith, gross negligence, criminal
conviction or plea, and a final, non-appealable finding of or consent to
injunction with respect to violations of antifraud or antimanipulative
provisions of securities, commodities, banking or other laws by a court of
competent jurisdiction, unless retention is approved unanimously by the Board of
Managers as provided in Section 2.9.
(d) Subject to Section 2.9(o) hereof, New Valley
shall be the tax matters partner for the Company.
5.2 Responsibilities of the President. The President of the
Company shall execute the decisions of the Board of Managers and have all
authority to conduct the day-to-day operations of the Company, subject to the
provisions of this Agreement.
5.3 Salaries to Employees.
(a) The parties agree that neither the Company nor
any Affiliated Entity shall pay any salaries to employees of Apollo or New
Valley, other than to the employees involved in day-to-day business operations
in Russia (the latter category including, among others, Ronald J. Bernstein,
Michael Capaccio and Stewart Hainsworth).
(b) The salaries of the officers of the Company and
each Affiliated Entity shall be approved in the Budget or as determined from
time to time by the Board of Managers.
5.4 Independent Accountants. The independent certified public
accountants of the Company and each Affiliated Entity shall be a firm of
internationally recognized accountants selected by unanimous vote of the Board
of Managers as set forth in Section 2.9, and initially shall be Coopers &
Lybrand LLP.
6. Operation of the Company.
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<PAGE> 18
6.1 Books and Records; Audited Financial Statements. Each of
the Members acknowledges and agrees that the Company shall be treated as a
partnership of which the Members are partners for income tax purposes, and
further agrees to cooperate to achieve and maintain such treatment. The
Company's books of account shall be maintained on a basis consistent with such
treatment and on the same basis used in preparing the Company's United States
federal income tax return. The year-end balance sheet, statement of operations
and statement of change in financial position shall be audited each year by the
independent certified public accountants of the Company, whose written report
shall be provided to each of the Members no later than 60 days after the end of
each fiscal year. The Company shall prepare its financial statements in
accordance with U.S. generally accepted accounting principles, consistently
applied.
6.2 Other Reports. In addition to annual audited financial
statements, each fiscal quarter the President shall prepare and distribute to
each Member of the Company a report prepared in accordance with U.S. generally
accepted accounting principles, providing for each Member its allocable share of
income, gain, loss, deduction and credit and such other general reports as
determined by the Members, which shall include unaudited quarterly financial
statements.
6.3 Access. Each of the Members, together with their lawful
agents, attorneys and representatives, shall have access to the books and
records and facilities and senior management of the Company during all normal
business hours.
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<PAGE> 19
6.4 Business Plan and Budget. The Company shall provide to
each of the Members a proposed annual Budget, which shall include information
with respect to the operation of the business to be conducted by the Kremlin
Division of BrookeMil and each Affiliated Entity for each fiscal year, at least
30 days before the beginning of such fiscal year. Such Budget shall include
estimates of anticipated capital calls. The initial Budget of the Company, for
the year 1998, is annexed hereto as Schedule 6.4. The Members of the Company
shall approve the Budget as provided in Section 2.9 hereof. The day-to-day
operations of the Company and each Affiliated Entity shall be conducted by the
officers of the Company within 10% variances from the Budget agreed upon by the
Members. The Budget shall be designed to ensure that the Company shall at all
times qualify as a "real estate operating company" under the provisions of
ERISA.
6.5 Limitations on Activities.
(a) Except as provided by the Board of Managers or as
contemplated in the approved Budget or the Participating Loan Agreement, (i) no
part of the Kremlin Sites or any other Property shall be used as collateral for
the purpose of any development other than its own development, and (ii) no sale,
refinancing or other capital proceeds from the Kremlin Sites or any other
Property may be used other than for budgeted capital expenditures involving the
same property that generated such proceeds, provided that for the purposes of
this Section 6.5(a) the Kremlin Sites together shall be considered one Property.
(b) The Company is intended to be a "real estate
operating company" (a "REOC") as this term is defined in 29 C.R.F. Section
2510.3-101(e). The Members shall conduct the affairs and operations of the
Company in such manner that the Company will qualify as a REOC. If Apollo or its
counsel shall reasonably determine at any time that the Company
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may not qualify for such status, Apollo and New Valley shall reorganize the
corporate structure of the Company and its Affiliates or take such other
necessary action in order to permit the Company to so qualify, giving due
consideration to the relative economic and tax benefits anticipated by the
parties to this Agreement.
(c) The parties hereto hereby agree that the Company
and the Affiliated Entities shall conduct their activities in compliance with
applicable laws. The parties further agree that the Company and the Affiliated
Entities shall at all times conform and limit their activities in accordance
with, among other things, certain U.S. laws and regulations that impose
comprehensive U.S. embargoes or other sanctions against certain countries. Such
embargoes and sanctions generally prohibit U.S. entities and individuals from
participating in, supporting or facilitating any transactions, trade, investment
or financing activities of any kind related to such countries. At this time, a
variety of U.S. sanctions and embargoes are in place against various countries,
including Cuba, Iran, Iraq, Libya, North Korea and Sudan. The United States also
generally bars U.S. entities from financing transactions associated with the
governments of India and Pakistan. Accordingly, neither the Company nor the
Affiliated Entities shall knowingly engage in any business activities associated
with any of the foregoing countries, for so long as such country is subject to
any such sanction or embargo, or with any other country subject to applicable
U.S. trade or transaction restrictions.
(d) The parties further agree that as soon as
permitted under the privatization laws they shall use their best efforts to
divest the scientific research operations of Kremlin Entity-I to a separate
entity not owned, directly or indirectly, by the Company. Prior to such time,
the business of Kremlin Entity-I unrelated to real estate operations shall be
limited to that described in the letter from the General Director of Kremlin
Entity-I dated June 17, 1998
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<PAGE> 21
previously furnished to Apollo, and the ability of the current General Director
of Kremlin Entity-I to execute contracts on behalf of Kremlin Entity-I and to
expend money shall be limited by the board of directors of Kremlin Entity-I the
majority of which shall be elected by BrookeMil.
6.6 Purchase of Additional Shares in Kremlin Entity-I. New
Valley agrees to use its best efforts to cause BrookeMil to purchase on the
secondary market 5% of the shares of the Kremlin Entity-I that will be
distributed by the Moscow Property Fund to the existing and former employees of
Kremlin Entity-I from the "FARP" fund formed in the process of the privatization
of Kremlin Entity-I, and thereby increase BrookeMil's interest in Kremlin
Entity-I to approximately 97.8% of the shares
6.7 Approvals from the Russian Authorities. New Valley agrees
to use its best efforts to cause BrookeMil and the Kremlin Entities, as
applicable, to (i) obtain the approval of the appropriate Russian antimonopoly
authorities with respect to BrookeMil's purchase of approximately 2.8% of the
shares in Kremlin Entity-I not covered by the existing approval authorizing the
purchase of 90% of the shares in Kremlin Entity-I by BrookeMil; (ii) obtain
ownership certificates in favor of Kremlin Entity-II with respect to the
following buildings at Kremlin Site-II: Sofiiskaya Naberezhnaya 6 (buildings
2-6a and 7-9) and 8 (building 3-4); (iii) amend the charter of Kremlin Entity-I
in accordance with the Russian Law on Joint Stock Companies; and (iv) register
the issuance of the shares of Kremlin Entity-I with the appropriate authorities
competent to register the issuance of such shares.
7. Operation and Management of Affiliated Entities.
7.1 Management of Affiliated Entities. In addition to
management rights with respect to the Company as set forth in this Agreement,
Apollo shall have the following direct management rights with respect to each
Affiliated Entity:
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(a) Apollo shall have the right to be kept informed,
consult with and advise management of each Affiliated Entity with regard to any
material developments in or affecting each Affiliated Entity's business; to
discuss business operations, properties and the financial or other condition of
each Affiliated Entity with its officers, employees and any relevant management
committee; to consult with and advise management on business issues; and to meet
regularly with management fo such consultation and advice; and
(b) Apollo shall have the right to appoint one (1)
member of the board of directors of BrookeMil and shall have the right to
dismiss and replace such member at any time.
7.2 Books and Records; Audited Financial Statements. The
Company shall cause each Affiliated Entity, in addition to maintaining its books
and accounts in accordance with the law of the applicable jurisdiction, to
prepare its financial statements in accordance with U.S. generally accepted
accounting principles, consistently applied. The year-end balance sheet,
statement of operations and statement of change in financial position shall be
audited each year by Coopers & Lybrand LLP o another firm of independent
certified public accountants selected in accordance with Section 5.4 hereof, and
the Company shall provide the written report of such accountants to each of the
Members. The Company shall cause each Affiliated Entity to prepare all tax
returns as soon as practicable after the end of each fiscal year and, in any
event, shall supply the Members with reasonable estimates of the taxable income
of each Affiliated Entity within 45 days of the end of each fiscal year.
7.3 Access. The Company shall ensure that each of the Members,
at the cost of such Member, together with their lawful agents, attorneys and
representatives, shall have access to the books and records, facilities and
senior management of each Affiliated Entity during
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all normal business hours. Apollo shall have access in Moscow, Russia and Miami,
Florida to the books and records of each Affiliated Entity.
8. Restrictions on Transfers of Interests.
8.1 Limitations on Members' Right to Sell Interests. Except as
contemplated by Section 8.2 and Section 8.4, each of the Members agrees not to
transfer all or any of its Interests in the Company, and each Member shall hold
its Interests and, by accepting the same upon original issue, upon distributions
or upon subsequent transfer, agrees for itself, its successors, legal
representatives and assigns that the Interests shall not be sold, transferred,
assigned, pledged, hypothecated or otherwise encumbered, whether voluntarily or
involuntarily, by operation of law, legal proceedings or otherwise, other than
as provided in this Section 8. In the event an involuntary lien or encumbrance
is placed on the Interests, the affected Member shall not be in violation of
this provision if it discharges or causes to be discharged such lien or
encumbrance within a period of 60 days from the placement or occurrence thereof.
8.2 Transfers to Affiliates. Any Member may transfer its
Interests in the Company to an Affiliate, except where prohibited by applicable
laws or where in the reasonable judgment of any other Member such transfer would
have a material adverse effect on the business of the Company or such other
Member. Any Member wishing to transfer its Interests to an Affiliate under this
Section 8.2 shall first notify the other Members in writing of such proposed
transfer. Each such other Member shall make its determination as to whether such
transfer would have a material adverse effect on the business of the Company or
such other Member within 10 days of receiving such notice and shall notify such
first Member in writing of its determination. It is a condition of any such
transfer that the transferee become a signatory to this Agreement and agree to
perform all of the obligations of the transferor hereunder.
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<PAGE> 24
8.3 Change in Control. In the event of a change in control of
a Member, such Member thereupon shall cease to have any voting rights, and the
remaining Members shall have the right to purchase, or to cause the Company to
purchase, such first Member's Interests at a price equal to the Adjusted
Realized Equity Value of such Interests, which right may be exercised by the
remaining Members for a period of 60 days after such event constituting a change
in control. For purposes of this Agreement, a change in control shall be deemed
to occur when a person or entity that was not, at the time of the Initial
Closing, an Affiliate of a Member becomes the beneficial owner, directly or
indirectly, of securities or ownership interests representing 40% or more of the
combined voting power of all outstanding securities or ownership interests of
such Member. A change of control shall not be deemed to occur due to a
reconfiguration of the ownership or changes of the ownership of the limited
partnership interests of Apollo or New Valley, as the case may be, provided that
Apollo Real Estate Management III, L.P. or its Affiliates remain the owners,
directly or indirectly, of the Interests previously owned by Apollo, or Brooke
Group Ltd., Bennett S. LeBow or their Affiliates remain the owners, directly or
indirectly, of the Interests previously owned by New Valley, respectively.
8.4 Dissolution of a Member. In the event of the bankruptcy,
reorganization, liquidation, winding-up or dissolution of a Member (the
"Dissolving Member"), the Dissolving Member shall notify the other Members in
writing within five days after such event occurs. The Interests owned by the
Dissolving Member shall first be offered for purchase by the other Members
within 90 days after the date of such notice for the then existing Adjusted
Realized Equity Value of such Interests. In the event that such other Members
decline to purchase such additional Interests, such unpurchased Interests may be
offered by the Company to third parties for purchase on terms and conditions to
be determined by the Members, and the Dissolving Member shall sell its Interests
in accordance with the provisions of this Section 8.4.
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8.5 Termination of the Provisions Restricting the Sale of
Interests. The provisions restricting the sale of Interests contained in this
Section 8 shall automatically terminate upon the happening of any of the
following events:
(a) the adjudication of the Company as a bankrupt,
the execution by the Company of an assignment for the benefit of creditors, or
the appointment of a receiver for all or substantially all of its properties; or
(b) the voluntary or involuntary dissolution of the
Company.
9. Representations and Warranties.
9.1 The Company. The Company represents and warrants as
follows:
(a) The Company is a limited liability company duly
formed under the laws of the State of Delaware, with full power and authority to
enter into this Agreement and to consummate the transactions contemplated
herein.
(b) The execution and delivery by the Company of this
Agreement and the consummation by it of the transactions contemplated herein
will not violate its constituent documents, any law or any contract to which the
Company is a party, and no approval, authorization, consent, or order or filing
with, any third party, court, administrative agency or other governmental
authority is required for the execution and delivery by the Company of this
Agreement or any other agreements to be entered into by the parties hereto in
accordance with this Agreement, including but not limited to the Participating
Loan Agreement and all agreements
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<PAGE> 26
and documents relating to the asset transfers contemplated by this Agreement,
or the consummation by it of the transactions contemplated herein.
(c) This Agreement is the legal, valid and binding
obligation of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
application affecting the rights and remedies of creditors and, with respect to
equitable remedies, subject to the discretion of the court.
(d) There exists no litigation pending or threatened
in writing (or any basis therefor) against the Company that (i) might adversely
affect the operations, business or business prospects of the Company, (ii) might
impede, delay or adversely affect the transactions contemplated by this
Agreement, or (iii) has not been disclosed to Apollo. There are no valid,
effective and enforceable orders, injunctions or decrees of any court or
arbitral body with respect to the Company that might adversely affect the
operations, business or business prospects of the Company.
9.2 Members. Each Member represents and warrants as follows:
(a) The Member is a corporation or a partnership, as
the case may be, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or establishment, as the case may be,
with full power and authority to enter into this Agreement and to consummate the
transactions contemplated herein.
(b) The execution and delivery by the Member of this
Agreement and the consummation by it of the transactions contemplated herein
have been authorized by the board of directors of the Member or other management
authority of the Member and will not violate its constituent documents, any law
or any contract to which the Member is a party, and no
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<PAGE> 27
approval, authorization, consent or order of, or filing with, any third party,
court, administrative agency, or governmental authority is required for the
execution and delivery by the Member of this Agreement or the consummation by it
of the transactions contemplated herein.
(c) This Agreement is the legal, valid and binding
obligation of the Member enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and similar laws of general application
affecting the rights and remedies of creditors.
(d) The Member is acquiring the Interests of the
Company for investment purposes for its own account and not with a view to any
distribution of the same, and shall not dispose of any of the Interests except
in compliance with applicable securities laws and the terms of this Agreement.
The Member acknowledges that the Interests have not been registered under the
securities laws or regulations of any jurisdiction and that the Interests may
not be sold on a public market without proper registration. The Member is
sophisticated in making investments and represents that it has the knowledge and
experience to evaluate its investment in the Interests and is not relying on any
representation or warranty made by the Company or any of its representatives or
agents.
(e) The individual signing this Agreement on behalf
of the Member is a duly authorized officer or representative of the Member and
is empowered to execute this Agreement on behalf of the Member.
(f) No agent, broker, investment banker, person or
firm acting on behalf of the Member or under the authority of the Member is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee from any of the parties hereto in connection with the transactions
contemplated hereby.
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<PAGE> 28
9.3 Additional Representations by New Valley. In addition to
the representations made by New Valley in Section 9.2 above, New Valley
represents and warrants as follows:
(a) To the knowledge of New Valley, Kremlin Entity-I
is the lessee of the land plot located at Kremlin Site-I in accordance with the
terms of the Land Lease Agreement, dated October 7, 1995, between the Government
of the City of Moscow, as landlord, and Kremlin Entity-I, as tenant (the
"Kremlin-I Land Lease"), demising the land at Kremlin Site-I, and is the owner
of the building located at Repin Square (Bolotnaya) 14 (buildings 1, 2, 3, 4, 5,
6, 7, 8, 9-12, 10, 13, 14 and 15).
(b) To the knowledge of New Valley, Kremlin Entity-I
(i) is the tenant under the existing unregistered lease agreement for the land
plot at Kremlin Site-II dated May 23, 1991 that may, because of its unregistered
status, no longer be valid, (ii) is expected to be granted leasehold rights with
respect to the land plot located at Kremlin Site-II in accordance with Prefect
Order No. 330-r MKZ dated March 4, 1995 and the Government of the City of Moscow
Decree No. 156 dated March 3, 1998, and New Valley has no reasons to believe
that a new land lease agreement with respect to Kremlin Site-II will not be
entered into between Kremlin Entity-II and the Government of the City of Moscow
as set forth in the above-mentioned documents; (iii) is the owner of the
buildings located at Sofiiskaya Naberezhnaya 4 (building 1), 6 (building 1), 8
(building 1) and 10 (buildings 4, 5 and 6), and therefore is entitled to the use
of land underlying the buildings; and (iv) is the successor in interest,
including any and all rights associated with land and buildings at Kremlin
Site-II, to the previously existing Joint Venture Kamennyi Most.
(c) (i) New Valley has provided to Apollo access to
complete and correct copies of all amendments, protocols and other documents and
agreements in its
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possession relating to the Kremlin-I Land Lease and to the granting of land
rights for Kremlin Site-II; (ii) to the knowledge of New Valley, the Kremlin-I
Land Lease has been duly authorized, executed and delivered and is the legal,
valid and binding agreement, enforceable in accordance with its terms; (iii) to
the knowledge of New Valley, the tenant under the Kremlin-I Land Lease is not in
default, except with respect to the preparation of feasibility study and the
payment of approximately $2,700,000 for the purchase of land lease rights,
however, to the knowledge of New Valley, Kremlin Entity-I has not received any
notice of default, imposition of penalties, termination or suspension of the
Kremlin-I Land Lease from the landlord thereunder and BrookeMil does not have
reasons to believe that such default would result in termination of the
Kremlin-I Land Lease and intends to make the payment for the purchase of land
lease rights in full without delay upon the Initial Closing, and,; and (iv) to
the knowledge of New Valley, Kremlin Entity-I has not subleased, assigned or
pledged any of its interests in the Kremlin-I Land Lease.
(d) To the knowledge of New Valley and subject to the
requirements of the Russian Law on Joint Stock Companies to amend the charter in
accordance with such Law, Kremlin Entity-I was duly incorporated as an open
joint stock company, is validly existing as a legal entity registered under the
laws of the Russian Federation as of May 26, 1994, and has full corporate power
and authority required to carry on its business as it is currently being
conducted and/or as described in the business plans, and to own, lease and
operate its properties. To the knowledge of New Valley, Kremlin Entity-II was
duly incorporated initially as a joint venture as of February 25, 1991, was
reorganized into an open joint stock company as of May 21, 1998, is validly
existing as a legal entity registered under the laws of the Russian Federation,
and has full corporate power and authority required to carry on its business as
it is currently being conducted and/or as described in the business plans, an to
own, lease and operate its properties.
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<PAGE> 30
(e) BrookeMil is a company duly organized, validly
existing and in good standing under the laws of Cayman Islands, with full power
and authority to consummate the transactions contemplated by this Agreement. All
of the outstanding shares of BrookeMil have been duly authorized and validly
issued and are fully paid and non-assessable. New Valley owns 99.1% of the
issued and outstanding shares of BrookeMil free and clear of any security
interest, claim, lien, or encumbrance. There are no outstanding options,
preemptive or similar rights granted by New Valley with respect to the shares of
BrookeMil. BrookeMil has no active subsidiaries except for the Kremlin Entities,
Western Realty LLC and Western Realty Development LLC. To the knowledge of New
Valley, open joint stock company Kholodmashinvest is the only subsidiary of
Kremlin Entity-I. Kremlin Entity-I also owns a minority interest in open joint
stock company Scientific Technical Experimental Center for Refrigeration
Industry, a subsidiary of BrookeMil. To the knowledge of New Valley, Kremlin
Entity-II has no subsidiaries. Open joint stock company Kholodmashinvest and
open joint stock company Scientific Technical Experimental Center for
Refrigeration Industry have been created for the purposes of scientific research
but are inactive. BrookeMil owns approximately 92.8% of the outstanding shares
of Kremlin Entity-I and 52% of the outstanding shares of Kremlin Entity-II.
BrookeMil has received all approvals and filed all notices necessary for its
acquisition of such shares in the Kremlin Entities, except that no approval was
received from the Russian antimonopoly authorities with respect to the
acquisition of 2.98% out of 92.8% of the shares in Kremlin Entity-I owned by
BrookeMil. To the knowledge of New Valley, (i) all of the outstanding shares of
capital stock of Kremlin Entity-I have been duly authorized, validly issued,
properly registered with the appropriate authorities competent for registration
of the issuanc of such shares, and are fully paid, (ii) all of the outstanding
shares of capital stock of Kremlin Entity-II have been duly authorized and are
fully paid; and (iii) except as may be established in Russian law and/or set
forth in the respective charters of the Kremlin Entities, the outstanding shares
of capital stock of the Kremlin Entities are not subject to any preemptive or
similar rights granted by them, and to the extent owned by BrookeMil, are free
and clear of any security interest, claim, lien, or encumbrance of any nature.
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<PAGE> 31
(f) (i) BrookeMil and, to the knowledge of New
Valley, without any independent investigation, each Affiliated Entity has such
licenses, permits and approvals as are necessary to conduct its business as
described to Apollo, except where the failure to have such license, permit or
approval would not have a material adverse effect on the operations of BrookeMil
or such Affiliated Entity; (ii) BrookeMil and, to the knowledge of New Valley,
without any independent investigation, each Affiliated Entity has fulfilled and
performed all of its obligations with respect to such licenses, permits and
approvals except any obligation which the failure to fulfill or perform would
not have a material adverse effect on the operations of BrookeMil or such
Affiliated Entity; and (iii) no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results, or
after notice or lapse of time would result, in any other material impairment of
the rights of the holder of such license, permit or approval.
(g) Subject to Schedule 9.3(g), there are no
litigations pending or, to the knowledge of New Valley, threatened in writing
against BrookeMil, or, to the knowledge of New Valley, the Affiliated Entities,
any of their ventures and/or Properties that might (i) detrimentally affect the
ownership, value, use or operation of the Properties for their intended
purposes; (ii) adversely affect the operations, business or business prospects
of BrookeMil or any
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<PAGE> 32
Affiliated Entity; or (iii) impede, delay or adversely affect the transactions
contemplated by this Agreement. There are no valid, effective and enforceable
orders, injunctions or decrees of any court or arbitral body with respect to
BrookeMil, or, to the knowledge of New Valley, the Affiliated Entities, any of
their ventures and/or Properties that might (x) detrimentally affect the value,
use, ownership or operation of the Properties for their intended purposes; (y)
adversely affect the operations, business or business prospects of BrookeMil or
any Affiliated Entity; or (z) impede, delay or adversely affect the transactions
contemplated by this Agreement. Neither BrookeMil nor, to the knowledge of New
Valley, any of the Affiliated Entities or their ventures has filed, nor been the
subject of any filing of, a petition under bankruptcy laws, insolvency laws,
laws for the composition of indebtedness, or laws for the reorganization of
debtors, except for a special administrative insolvency procedure with respect
to Kremlin Entity-I.
(h) To the knowledge of New Valley, the Kremlin Sites
will have access, on the basis generally provided to businesses in the City of
Moscow, to available water, sewer and power utilities.
(i) To the knowledge of New Valley, the business of
BrookeMil is not being, nor has it in the past been, conducted in violation of
any law or any governmental order applicable to BrookeMil or any of its assets
or properties, including, without limitation, the Foreign Corrupt Practices Act
of 1977, as amended, except for possible violations which individually or in the
aggregate would not have a material adverse effect on BrookeMil or the Company.
To the knowledge of New Valley, BrookeMil and the Company are in compliance with
all applicable environmental laws and have not received any communication from
any governmental authority that alleges that BrookeMil or the Company is not in
compliance with applicable environmental laws where such noncompliance would
have a material adverse effect
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<PAGE> 33
on BrookeMil or the Affiliated Entities. To the knowledge of New Valley, the
business of BrookeMil is not being, nor has it in the past been, conducted in
violation of Russian antimonopoly law, except for possible violations which
individually or in the aggregate would not have a material adverse effect on
BrookeMil or the Company, or on the validity of BrookeMil's interest in the
Affiliated Entities. To the knowledge of New Valley, each of BrookeMil and the
Affiliated Entities is in compliance with all applicable environmental laws and
has not received any communication from any governmental authority that alleges
that it is not in compliance with applicable environmental law where such
noncompliance would have a material adverse effect on the operations of
BrookeMil or such Affiliated Entity.
(j) All material tax returns and reports required to
be filed by BrookeMil prior to the date hereof or with respect to taxable
periods ending prior to the date hereof have been or will be filed with the
appropriate governmental authorities prior to the date hereof or by the due date
thereof including extensions. Such tax returns and reports correctly reflect
(and as to returns not filed as of the date hereof, will correctly reflect) all
material tax liabilities of BrookeMi required to be shown thereon. To the
knowledge of New Valley, there are no pending tax investigations or outside
audits of BrookeMil being conducted and, except as set forth in Schedule 9.3(j),
BrookeMil does not have any outstanding tax penalties against it. To the
knowledge of New Valley, all material tax returns and reports required to be
filed by Kremlin Entity-I prior to the date hereof or with respect to taxable
periods ending prior to the date hereof have been or will be filed with the
appropriat governmental authorities prior to the date hereof or by the due date
thereof including extensions. To the knowledge of New Valley, there are no
outstanding tax liabilities with respect to Kremlin Entity-II, except for
contingent tax liabilities the amount of which does not exceed the amount
deposited in escrow in accordance with the
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<PAGE> 34
Escrow Agreement among BrookeMil, Austreal Consult Immobilienverwertung
Ges.m.b.H. and U.S. Bank Trust National Association, dated April 3, 1998, for
the purposes of indemnifying BrookeMil in accordance with the Share Purchase and
Sale Agreement between BrookeMil and Austreal Consult Immobilienverwertung
Ges.m.b.H., dated April 2, 1998.
(k) New Valley has identified to Apollo and has
provided to Apollo complete and correct copies of all material employment
agreements or employee benefit plans covering present and former employees of
BrookeMil or their beneficiaries. To the knowledge of New Valley, there are no
material employment agreements or employee benefit plans with respect to the
employees of the Kremlin Entities.
(l) A schedule of the material contracts of BrookeMil
relating to the Kremlin Entities and of the material contracts of the Kremlin
Entities related to the Kremlin Operations of which New Valley is aware is
annexed hereto as Schedule 9.3(l) (the "Material Contracts"). To the knowledge
of New Valley and except as set forth on Schedule 9.3(l), (i) the Material
Contracts have been duly authorized, executed and delivered by BrookeMil or a
Kremlin Entity party thereto and are legal, valid and binding agreements of
BrookeMil or such Kremlin Entity, as the case may be, enforceable against it in
accordance with their respective terms; (ii) BrookeMil or a Kremlin Entity, as
the case may be, has fully performed all its obligations required to be
performed under each of the Material Contracts including but not limited to the
payment of all amounts due and owing thereunder; (iii) neither BrookeMil, nor
any Kremlin Entity, nor, to the knowledge of New Valley, without independent
investigation, any other party is in default under any of the Material
Contracts; and (iv) no condition exists and no event has occurred that would
result in, either after notice of or lapse of time or both, in a breach,
termination or default under any of the Material Contracts. Neither BrookeMil
nor any of the Kremlin Entities assigned any of its interests in the Material
Contracts.
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<PAGE> 35
(m) The unaudited financial statements of BrookeMil
for the years ended December 31, 1996 and 1997 furnished to Apollo have been
prepared in accordance with U.S. generally accepted accounting principles
consistently applied and fairly present the matters set forth therein. The
balance sheets of the Kremlin Entities received by BrookeMil from the Kremlin
Entities, prepared, to the knowledge of BrookeMil, without independent
investigation, in accordance with Russian accounting principles, are attached
hereto as Schedule 9.3(m).
(n) A schedule of all material related party
obligations relating to the Company and its Affiliates that will be outstanding
as of the date of the Initial Closing is annexed hereto as Schedule 9.3(n).
(o) To the knowledge of New Valley, the operations of
the Kremlin Entities have not been conducted in violation of the restrictions
set forth in Section 6.5(c) and (d) hereof.
(p) To the knowledge of New Valley, there are no
material liabilities of the Affiliated Entities other than those set forth in
Schedule 9.3(g) hereof or otherwise disclosed to Apollo in writing.
9.4 Additional Representations by Apollo. In addition to the
representations made by Apollo in Section 9.2 above, Apollo represents and
warrants that, to the best of its knowledge, the purchase of the Interests does
not violate any provisions of ERISA and that the contemplated Participating Loan
does not violate the provisions of ERISA.
10. Closings. Subject to the terms and conditions set forth in Section
2.4 hereof, the closings (each, a "Closing," the date of a Closing being
referred to herein as a "Closing Date") of the transactions contemplated herein
shall occur as follows:
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10.1 Date, Time and Place of Initial Closing. The closing of
the transactions set forth in Section 2.4(b) hereof (the "Initial Closing")
shall take place on June 18, 1998 at the offices of Coudert Brothers, 1114
Avenue of the Americas, New York, NY 10036, or on such other date and time and
at such other place as shall be mutually agreed by the parties hereto (the date
and time of the Initial Closing being referred to herein as the "Initial Closing
Date").
10.2 Conditions to Obligations of New Valley. The obligations
of New Valley hereunder are subject to the fulfillment, prior to or at any
Closing, of each of the following conditions:
(a) All authorizations, consents, orders and
approvals of regulatory authorities and third parties, if any, necessary for the
performance by the Company, Apollo and New Valley of this Agreement shall have
been obtained.
(b) The representations and warranties of Apollo
contained in this Agreement shall be true and correct in all material respects
at the date hereof and at and as of such Closing, with the same force and effect
as if made at and as of such Closing Date (except that representations and
warranties that by their terms speak as of such Closing Date shall be true and
correct as of such date); and Apollo shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to such Closing.
(c) No action shall have been commenced in a court of
competent jurisdiction or by or before any governmental authority against any of
the Company, Apollo or New Valley seeking to prohibit the transactions
contemplated by this Agreement.
10.3 Conditions to Obligations of Apollo. The obligations of
Apollo hereunder are subject to the fulfillment, prior to or at any Closing, of
each of the following conditions:
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<PAGE> 37
(a) All authorizations, consents, orders and
approvals of regulatory authorities and third parties, if any, necessary for the
performance by the Company and New Valley of their obligations under this
Agreement shall have been obtained.
(b) The representations and warranties of New Valley
contained in this Agreement shall be true and correct in all material respects
at the date hereof and at and as of such Closing, with the same force and effect
as if made at and as of such Closing Date (except that representations and
warranties that by their terms speak as of such Closing Date shall be true and
correct as of such date); and New Valley shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by them on or prior to such Closing.
(c) No action shall have been commenced in a court of
competent jurisdiction or by or before any governmental authority against either
the Company, Apollo, New Valley or any of the Affiliated Entities seeking to
prohibit the transactions contemplated by this Agreement.
(d) There shall not have been any material adverse
change in the financial condition of New Valley or any of the Affiliated
Entities since the date hereof.
(e) There shall not have occurred an event or events
that has or have a material adverse effect on the operations of the Affiliated
Entities or the ability of any Member to perform its obligations with respect to
such Closing.
(f) Expenditures for the Kremlin Sites are within a
10% variance from the Budget.
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<PAGE> 38
10.4 Additional Conditions to Obligations of Apollo Satisfied
at Initial Closing.
(a) Apollo shall have received a legal opinion from
Coudert Brothers, special New York counsel to New Valley, in form and substance
reasonably satisfactory to it, with respect to the due organization and good
standing of New Valley, the due execution of this Agreement by New Valley and
the organization of the Company.
(b) Apollo shall have received a legal opinion from
W.S. Walker & Co, special Cayman Islands counsel to BrookeMil, in form and
substance reasonably satisfactory to it, with respect to the due organization of
BrookeMil and the validity of the choice of New York law in the Pledge Agreement
(as defined in the Participating Loan Agreement).
(c) The Company and BrookeMil shall have entered into
the Participating Loan Agreement and the Pledge Agreement (as defined therein),
and all the conditions for the Initial Closing under the Participating Loan
Agreement shall have been satisfied.
10.5 Funding and Advance of Apollo Loan at Initial Closing. At
the Initial Closing, (i) each of Apollo and New Valley shall fund their initial
contributions to the Company as set forth in Section 2.4(b), and (ii) the
Company shall make an advance to BrookeMil under the Participating Loan
Agreement.
10.6 Initial Subsequent Closing. The initial Subsequent
Closing (the "Initial Subsequent Closing") shall take place on June 30, 1998 or
on such other date as shall be mutually agreed by the parties hereto. At the
Initial Subsequent Closing, Apollo shall contribute to the Company $5,300,000 in
cash in exchange for 2,826 Class A Interests to be issued to Apollo, and New
Valley shall contribute $1,766,666 in expenditures as set forth in Section
2.4(c) in exchange for 2,826 Class B Interests to be issued to New Valley. At
the Initial Subsequent Closing, New
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<PAGE> 39
Valley shall be reimbursed by the Company from the proceeds of the Initial
Subsequent Closing for expenditures with respect to the Kremlin Sites and the
Kremlin Entities set forth in Schedule 2.4(c) and for other expenditures
incurred by it before or after the Initial Closing Date on items set forth in
the approved Budget, to the extent such expenditures exceed 25% of the total
contributions by Apollo and New Valley.
10.7 Subsequent Closings. Upon written notice by the Board of
Managers to each of Apollo and New Valley as set forth in Section 2.4(c) hereof,
other subsequent closings (the "Other Subsequent Closings"; the Initial
Subsequent Closing and the Other Subsequent Closings are collectively referred
to herein as the "Subsequent Closings") shall be scheduled for purposes of
funding additional contributions by each of Apollo and New Valley to the
Company. At each of the Other Subsequent Closings, Apollo and New Valley shall
fund additional contributions to the Company as set forth in Section 2.4 on the
dates and in the amounts set forth in the written notice by the Board of
Managers.
11. Notices and Account Information for Distributions.
11.1 Notices. All notices required to be given hereunder shall
be in writing and shall be deemed to have been properly given if sent by
registered or certified mail, postage prepaid, or by telecopy, addressed as
follows:
(a) If to the Company:
Western Realty Repin LLC
103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware 19103
Attention: Richard J. Lampen
Telephone: 305-579-8000
Telecopy: 305-579-8009
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<PAGE> 40
(b) If to Apollo:
Apollo Real Estate
Investment Fund III, L.P.
c/o Apollo Real Estate Management III, L.P.
1301 Avenue of the Americas
New York, NY 10019
Attention: John J. Hannan
Telephone: (212) 261-4000
Telecopy: (212) 261-3301
Copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue, 20th Floor
New York, New York, 10022
Attention: Robert G. Koen
Telephone: (212) 872-1000
Telecopy: (212) 872-1002
(c) If to New Valley:
New Valley Corporation
100 S.E. Second Street, 32nd Floor
Miami, FL 33131
Attention: Bennett S. LeBow
Telephone: 305-579-8000
Telecopy: 305-579-8009
Copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York, 10036
Attention: Clyde E. Rankin, III
Telephone: (212) 626-4740
Telecopy: (212) 626-4120
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<PAGE> 41
Such notices shall be deemed to have been received five (5) days after deposit
in the mail or within twenty-four (24) hours after transmission by telecopy. Any
party may change the address to which notices shall be sent by notice in writing
to the other parties as provided herein.
11.2 Account Information for Distributions. All distributions
to the Members by the Company shall be made to the accounts of the Members as
may be specified from time to time in a notice from the Members to the Company
in accordance with Section 11.1.
12. Miscellaneous.
12.1 Further Assurances. The parties will, in a timely manner
and as required from time to time, take all such actions as may be necessary or
appropriate to cause their Affiliates, the Company and the Affiliated Entities
to implement the transactions contemplated by this Agreement and to ensure that
such entities take all such actions as may be necessary to give full effect to
the provisions of this Agreement and to refrain from taking any actions which
would contravene the intent o the provisions of this Agreement.
12.2 Term of Agreement. This Agreement will continue in full
force and effect until the earlier of (a) termination by mutual consent of the
parties hereto or (b) the dissolution of the Company.
12.3 Assignment. Except as provided in Section 8.2 hereof,
this Agreement shall not be assigned by any party hereto without the prior
written consent of the other parties hereto. This Agreement shall inure to the
benefit of the parties hereto and shall be binding upon the successors and
assigns of the parties hereto.
12.4 Amendment, Modification and Waiver. This Agreement shall
be amended to include any person who acquires any Interests in the Company,
provided that such person
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<PAGE> 42
acquires such Interest in accordance with Section 2.6
hereof. This Agreement may be further modified, amended and supplemented only
upon the unanimous approval of the Board of Managers as provided in Section 2.9
and the unanimous mutual written agreement of the parties hereto. Each party may
waive any term, provision or condition intended for its benefit, provided that
such waiver be in writing and be signed by the party so waiving.
12.5 Severability. If any one or more of the provisions of
this Agreement shall be held invalid, illegal or unenforceable under applicable
law, the validity, legality and enforceability of the remaining provisions shall
not be affected or impaired thereby.
12.6 Entire Agreement; Headings. This Agreement, including the
schedules hereto, constitutes the entire agreement of the parties with respect
to the subject matter hereof and may not be changed, terminated or discharged
orally. The headings appearing in this Agreement have been inserted solely for
the convenience of the parties and shall be of no force or effect in the
construction of the provisions of this Agreement.
12.7 Indemnification. Each party to this Agreement agrees to
indemnify, defend and hold the other party free and harmless from and against,
and to reimburse the other party on a current basis for, all claims, damages,
expenses and liabilities of such other party arising from any material breach of
such indemnifying party of the terms of this Agreement or any material
misrepresentation hereunder, including, without limitation, reasonable legal
expenses and attorneys' fees paid or incurred by the indemnified party in
defense of any proceedings brought against such indemnified party individually
or against such indemnified party and such indemnifying party (jointly or
severally) arising out of any of the foregoing. The provisions of this Section
12.7 shall survive the termination of this Agreement and the representations and
warranties given by the parties shall survive for the applicable statute of
limitations.
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<PAGE> 43
12.8 Governing Law. This Agreement shall be governed by
Delaware law, without regard to its conflict of laws principles.
12.9 Arbitration. Any dispute, controversy or claim arising
out of or relating to this Agreement or to the business and affairs of the
Company or the rights and obligations of any of the Members shall be finally
settled by binding arbitration to be conducted in New York, New York in
accordance with the rules then in force of the American Arbitration Association,
including the rules governing the appointment of arbitrators. Any final decision
in any such arbitration proceeding shall be final and non-appealable and shall
be binding on the parties thereto and enforceable in courts of competent
jurisdiction without a further review on the merits.
12.10 Confidentiality. By executing this Agreement, each
Member expressly agrees, at all times during the term of this Agreement, to
maintain the confidentiality of, and not to disclose to any person not a party
hereto, any information relating to the business, financial structure, financial
position or financial results, clients or affairs of the Company, its Affiliates
or Affiliated Entities that shall not be generally known to the public, except
as otherwise required by applicable law or by any regulatory organization having
jurisdiction. Except as provided by law, no press releases, announcements or
other public disclosures related to this Agreement or the transactions
contemplated herein will be issued or made, without the joint approval of Apollo
and New Valley. Nothing in this Section 12.10 shall be deemed to prohibit Apollo
from making any disclosures regarding this Agreement or the transactions
contemplated herein to any of its partners.
12.11 Counterparts. This Agreement may be executed by the
parties in one or more counterparts, each of which shall be deemed an original
but all of which taken together shall constitute one and the same instrument.
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<PAGE> 44
12.12 Fees and Expenses. All fees and expenses incurred in the
negotiation, preparation and execution of this Agreement, including all exhibits
hereto and all related documents shall be for the account of and payable by the
party incurring them.
[The remainder of this page is intentionally left blank.]
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<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have duly executed or
caused their duly authorized officers to execute this Agreement as of the date
and year first above written.
APOLLO REAL ESTATE
INVESTMENT FUND III, L.P.
By: Apollo Real Estate Advisors III,
L.P., its General Partner
By: Apollo Real Estate Capital Advisors III,
Inc., its General Partner
By: /s/ Stuart Koenig
---------------------------------------
Name: Stuart Koenig
Title: Vice President
NEW VALLEY CORPORATION
By: /s/ Richard J. Lampen
---------------------------------------
Name: Richard J. Lampen
Title: Executive Vice President
WESTERN REALTY REPIN LLC
By: /s/ Richard J. Lampen
---------------------------------------
Name: Richard J. Lampen
Title: Vice President
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<PAGE> 46
Schedule A
To Western Realty Repin LLC
Limited Liability Company Agreement
The following terms shall have the following definitions:
"Act" shall mean the Delaware Limited Liability Company Act, as in
effect on the date hereof, and as amended from time to time, or any successor
law.
"Adjusted Realized Equity Value" shall mean, with respect to any
Interest, the capital contribution received by the Company for such Interest in
cash or expenditures (provided, however, that for the purposes of this
definition (i) all the expenditures set forth in Schedule 2.4(c) and (ii) any
additional expenditures incurred by New Valley before or after the Initial
Closing Date on items set forth in the approved Budget, to the extent New Valley
(x) provides to Apollo proper documentation substantiating such additional
expenditures and (y) has not been reimbursed for such expenditures in accordance
with Section 3.1, will be deemed to have been contributed by New Valley to the
Company at the time of the Initial Closing, irrespective of whether they are
considered actually contributed for any other purposes) plus a 20% annual
cumulative rate of return on such contribution compounded on a quarterly basis,
less distributions or dividends in cash or the fair market value of
distributions of property or in-kind distributions received by the Member in
respect of such Interest as of the date such Adjusted Realized Equity Value is
calculated.
"Affiliate" shall mean, with respect to any person, a person or entity
which directly or indirectly controls, is controlled by, or is under common
control with, such person.
"Affiliated Entity" shall mean the Kremlin Division of BrookeMil, the
Kremlin Entities any other direct or indirect wholly-owned subsidiary of the
Company or the foregoing entities and any other entity (whether or not
incorporated) in which any of the foregoing entities or the Company has or
hereafter acquires a majority interest.
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<PAGE> 47
"Apollo" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Board" or "Board of Managers" shall have the meaning ascribed thereto
in Section 2.9 hereof.
"BrookeMil" shall have the meaning ascribed thereto in the first
"WHEREAS" clause hereof.
"Budget" shall have the meaning ascribed thereto in Section 2.9(i)
hereof.
"Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks are authorized by law to close in New York City or
Moscow.
"Class A Distribution Amount" shall have the meaning ascribed thereto
in Section 2.7(a) hereof.
"Class A Distribution Period" shall have the meaning ascribed thereto
in Section 2.7(a) hereof.
"Class A Interests" shall have the meaning ascribed thereto in Section
2.4(a) hereof.
"Class A Liquidation Preference" shall have the meaning ascribed
thereto in Section 2.7(b) hereof.
"Class B Distribution Amount" shall have the meaning ascribed thereto
in Section 2.8(a) hereof.
"Class B Distribution Period" shall have the meaning ascribed thereto
in Section 2.8(a) hereof.
"Class B Interests" shall have the meaning ascribed thereto in Section
2.4(a) hereof.
"Class B Liquidation Preference" shall have the meaning ascribed
thereto in Section 2.8(b) hereof.
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<PAGE> 48
"Closing" shall have the meaning ascribed thereto in Section 10 hereof.
"Closing Date" shall have the meaning ascribed thereto in Section 10
hereof.
"Company" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Dissolving Member" shall have the meaning ascribed thereto in Section
8.4 hereof.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974,
as amended and as hereafter amended, or any successor law.
"Event of Force Majeure" means any unforeseeable event as a result of
which a Member shall be rendered unable in whole or in part to carry out any
covenant, agreement, obligation or undertaking hereunder to be kept or performed
by such party. The term "force majeure" shall include acts of God, governmental
action (whether in its sovereign or contractual capacity), fire, flood, or other
catastrophes, national emergencies (including political and economic
emergencies), insurrections, riots, wars, strikes, labor disputes or actions or
other similar causes, not within the control of the party claiming force majeure
and which by the commercially reasonable exercise of due diligence or the
commercially reasonable payment of money such party is unable to overcome.
"Initial Closing" shall have the meaning ascribed thereto in Section
10.1 hereof.
"Initial Closing Date" shall have the meaning ascribed thereto in
Section 10.1 hereof.
"Initial Subsequent Closing" shall have the meaning ascribed thereto in
Section 10.6 hereof.
"Initial Subsequent Closing Date" shall have the meaning ascribed
thereto in Section 12.6 hereof.
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<PAGE> 49
"Interests" shall have the meaning ascribed thereto in Section 2.4(a)
hereof.
"Kremlin-I Land Lease" shall have the meaning ascribed thereto in
Section 9.3(a) hereof.
"Kremlin Division" shall mean the division of the Borrower that
conducts the Kremlin Operations.
"Kremlin Entity-I" shall have the meaning ascribed thereto in the first
"WHEREAS" clause hereof.
"Kremlin Entity-II" shall have the meaning ascribed thereto in the
first "WHEREAS" clause hereof.
"Kremlin Entities" shall have the meaning ascribed thereto in the first
"WHEREAS" clause hereof.
"Kremlin Operations" shall mean any activities of BrookeMil related to
the Kremlin Entities or the Kremlin Sites.
"Kremlin Site-I" shall have the meaning ascribed thereto in the first
"WHEREAS" clause hereof.
"Kremlin Site-II" shall have the meaning ascribed thereto in the first
"WHEREAS" clause hereof.
"Kremlin Sites" shall have the meaning ascribed thereto in the first
"WHEREAS" clause hereof.
"Late Payment Interest" shall have the meaning ascribed thereto in
Section 2.4(d) hereof.
"Material Contracts" shall have the meaning ascribed thereto in Section
9.3(l) hereof.
"Member" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"New Valley" shall have the meaning ascribed thereto in the
introductory paragraph hereof.
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<PAGE> 50
"Other Subsequent Closings" shall have the meaning ascribed thereto in
Section 10.7 hereof.
"Participating Loan Agreement" shall have the meaning ascribed thereto
in the second "WHEREAS" clause hereof.
"Participating Loan" shall have the meaning ascribed thereto in the
second "WHEREAS" clause hereof.
"President" shall have the meaning ascribed thereto in Sections 5
hereof.
"Properties" shall mean the Kremlin Sites and any other property to
which the Company or any Affiliated Entity has or hereafter acquires rights.
"REOC" shall have the meaning ascribed thereto in Section 6.5(b)
hereof.
"Subsequent Closings" shall have the meaning ascribed thereto in
Section 10.7 hereof.
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<PAGE> 1
Exhibit 10.4
----------------------------------------
U.S.$25,000,000
PARTICIPATING LOAN AGREEMENT
Between
WESTERN REALTY REPIN LLC
and
BROOKEMIL LTD.
Dated as of June 18, 1998
----------------------------------------
<PAGE> 2
PARTICIPATING LOAN AGREEMENT
THIS PARTICIPATING LOAN AGREEMENT is entered into as of June 18, 1998,
by and between Western Realty Repin LLC, a Delaware limited liability company
with offices at 103 Springer Building, 3411 Silverside Road, Wilmington,
Delaware 19103 (the "Lender"), and BrookeMil Ltd., a Cayman Islands company with
offices at P.O. Box 219, Fifth Floor, Butterfield House, George Town, Grand
Cayman, B.W.I. (the "Borrower").
W I T N E S S E T H :
WHEREAS, the Lender, Apollo Real Estate Investment Fund III, L.P., a
Delaware limited partnership ("Apollo"), and New Valley Corporation, a Delaware
corporation ("New Valley"), have entered into that certain Western Realty Repin
LLC Limited Liability Company Agreement, dated as of June 18, 1998 (the "Joint
Venture Agreement"), and Apollo and New Valley are members of the Lender;
WHEREAS, the Borrower, through its ownership of approximately
92.8-97.8% of the shares in VNIIkholodmash-Holding, a Russian open joint stock
company ("Kremlin Entity-I"), and its ownership of 52% of the shares in Kamennyi
Most, a Russian open joint stock company ("Kremlin Entity-II"), will hold the
rights to, develop, improve, maintain, repair, operate, lease and manage
properties located at Repin Square (Bolotnaya) 14, Moscow, Russia 109072
("Kremlin Site-I"), and Sofiiskaya Naberezhnaya 4 (building 1), 6 (building 1),
8 (building 1) and 10 (buildings 4, 5 and 6), Moscow, Russia 109072 ("Kremlin
Site-II") (Kremlin Entity-I and Kremlin Entity-II are collectively referred to
hereafter as the "Kremlin Entities" and Kremlin Site-I and Kremlin Site-II are
collectively referred to hereafter as the "Kremlin Sites");
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<PAGE> 3
WHEREAS, New Valley owns 99.1% of the issued and outstanding shares of
the Borrower;
WHEREAS, the Joint Venture Agreement contemplates the execution of this
Agreement; and
WHEREAS, the Borrower wishes to borrow from the Lender and the Lender
wishes to lend to the Borrower $25,000,000 as part of the facility extended
hereunder;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms.
Capitalized terms not otherwise defined herein shall have the meanings
set forth on Schedule A.
2. Loan.
2.1 Agreement to Lend. Subject to the satisfaction of the
conditions set forth in Section 4.2, the Lender agrees to extend a loan (the
"Loan") to the Borrower in the aggregate principal amount of Twenty Five Million
Dollars (U.S. $25,000,000), consisting of the First Advance (as hereinafter
defined) and the Subsequent Advances (as hereinafter defined). The Loan shall
bear no fixed interest. The Loan shall bear contingent participating interest
equal to 100% of all distributions from, and only from, the Kremlin Division as
and when made by the Borrower to its shareholders, commencing when the principal
amount of the Loan has been repaid. The principal of the Loan, and, after the
payment of the principal, the contingent participating interest, shall be
payable in installments at such times as distributions from the Kremlin Division
of the Borrower, if any, are made by the Borrower to its shareholders. However,
no payments under the Loan shall be due until actual distributions have been
made by one or more of the Kremlin Entities to the Borrower. The Loan shall
become due and payable upon the dissolution of the Borrower (the "Maturity
Date").
2.2 Subordination of Loan. Any rights of the Lender and
payments from the Borrower to the Lender hereunder shall be subordinate to the
rights of any and all other creditors of the Borrower.
2.3 First Advance. At the Initial Closing, $9,000,000 (the
"First Advance") shall be disbursed by wire transfer in immediately available
funds to such bank account of the Borrower as shall be specified in a written
notice from the Borrower to the Lender sent by telecopy at least one Business
Day prior to the Initial Closing Date.
2.4 Subsequent Advances. Subsequent advances (the "Subsequent
Advances"), in the aggregate not to exceed the principal amount of the Loan,
shall be made by the Lender upon a one Business Day written notice from the
Borrower, provided that the Lender shall be under no obligation to make an
advance to the Borrower if upon making such advance the aggregate amount of the
principal of the Loan outstanding will exceed the funds in cash that the Lender
has received as contributions from its members and has not paid as reimbursement
to New Valley under the Joint Venture Agreement.
2.5 Payments. Payment of all sums under this Agreement by the
Borrower to the Lender shall be made when due to the account of the Lender as
may be specified from time to time in a notice from the Lender to the Borrower
in accordance with Section 7.
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<PAGE> 4
2.6 Proceeds. The proceeds from the Loan hereunder shall be
used to relocate the existing scientific organization from Kremlin Site-I,
purchase land lease rights, pay consulting fees and related expenses, and for
construction and development and other purposes related to the Kremlin Entities
and Kremlin Sites.
3. Pledge Agreement.
Obligations of the Borrower under this Agreement shall be secured by a
pledge of the shares of the Borrower pursuant to the pledge agreement between
New Valley and the Lender, acknowledged by the Borrower, substantially in the
form attached hereto as Exhibit A (the "Pledge Agreement"), granting the Lender
a security interest in all the shares of the Borrower owned by New Valley.
4. Initial Closing.
4.1 Date, Time and Place of Initial Closing. The closing of
the transactions contemplated in Section 2.3 hereof (the "Initial Closing," the
date of the Initial Closing being referred to herein as the "Initial Closing
Date") shall take place on June 18, 1998 at 10:00 a.m. at the offices of Coudert
Brothers, 1114 Avenue of the Americas, New York, NY 10036, or on such other date
and time and at such other place as shall be mutually agreed by the parties
hereto.
4.2 Conditions to Obligations of Lender. The obligations of
the Lender hereunder are subject to the fulfillment, prior to or at the Initial
Closing, of each of the following conditions:
(a) All authorizations, consents, orders and
approvals of regulatory authorities and third parties, if any, necessary for the
performance by the Borrower of its obligations under this Agreement shall have
been obtained.
4
<PAGE> 5
(b) The representations and warranties of the
Borrower contained in this Agreement
shall be true and correct in all material respects at the date hereof and at and
as of the Initial Closing, with the same force and effect as if made at and as
of the Initial Closing Date (except that representations and warranties that by
their terms speak as of the Initial Closing Date shall be true and correct as of
such date) and the Borrower shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Initial Closing.
(c) No action shall have been commenced in a court of
competent jurisdiction or by
or before any governmental authority against the Borrower, the Lender or the
Affiliated Entities seeking to prohibit the transactions contemplated by this
Agreement.
(d) There shall not have been any material adverse
change in the financial condition of the Borrower or the Affiliated Entities
since the date hereof.
(e) Conditions to the obligations of Apollo at the
Initial Closing under the Joint Venture Agreement shall have been satisfied.
(f) The Pledge Agreement shall have been entered into
by the parties thereto.
4.3 Transactions at Initial Closing. Upon satisfaction of all
the conditions to the Initial Closing set forth in Section 4.2, the transactions
described in Section 2.3 hereof shall take place.
5. Covenants.
5.1 Approval by Lender. Without the consent of the Lender, the
Borrower shall not, and in its capacity as a direct or indirect shareholder,
member or participant of any Affiliated Entity, shall not vote or otherwise
approve a decision to:
5
<PAGE> 6
(a) amend the constituent documents of the Borrower
and to adopt or amend the constituent documents of any Affiliated Entity; to
grant a consent required thereunder or waive any provisions thereof on behalf of
the Company or any Affiliated Entity.
(b) unless specified in the approved Budget (as
hereinafter defined) and except as otherwise provided herein, sell, transfer,
assign, grant a right to use, grant a right of first refusal, grant an option or
a similar right, or otherwise dispose of (i) any of the Kremlin Sites, or any
rights thereto or interests therein (including but not limited to ownership
rights, leasehold interests (whether as landlord or tenant), rights to use or
easements) or (ii) any asset (or group of assets in a transaction or series of
transactions) the cost or fair market value (whichever is greater) of which
exceeds $100,000 individually or $200,000 in the aggregate in any given year;
(c) unless specified in the approved Budget, borrow,
issue guarantees or assume other contingent obligations to pay money in an
amount which exceeds in the aggregate $100,000 outstanding at any given time;
(d) unless specified in the approved Budget, grant a
security interest or otherwise encumber (i) any of the Kremlin Sites or any
rights thereto or interests therein (including but not limited to ownership
rights, leasehold interests (whether as landlord or tenant), rights to use or
easements), or (ii) any asset (or group of assets in a transaction or series of
transactions) the cost, fair market value or value assigned in such
transaction(s) (whichever is greater) of which exceeds $100,000 at any one time
or $200,000 in the aggregate in any given year;
6
<PAGE> 7
(e) take any actions regarding registration of the
shares of the Borrower or interests in any Affiliated Entity necessary for a
public offering;
(f) merge, reorganize or consolidate the Borrower or
any Affiliated Entity with any other corporation or entity unless the surviving
entity shall be the Borrower or such other Affiliated Entity, respectively, or
the Borrower or other Affiliated Entity is merged, reorganized or consolidated
with an Affiliate thereof, except that domestication of the Borrower in the
State of Delaware shall not be subject to this Section 5.1(f);
(g) dissolve voluntarily the Borrower or any
Affiliated Entity or revoke voluntary dissolution proceedings or terminate,
liquidate or wind up the Borrower or any Affiliated Entity;
(h) change materially the principal businesses
conducted by the Borrower or any Affiliated Entity;
(i) approve the annual budget and business plan,
including capital expenditures, of the Kremlin Division of the Borrower
(collectively, the ?Budget?), which Budget shall incorporate the annual budgets
and business plans of the Kremlin Division of the Borrower as well as any
contributions or resources to be made available by the Borrower to any other
Affiliated Entity;
(j) unless specified in the approved Budget, make or
incur, or enter into a contractual commitment to make or incur expenditures or
financial obligations which exceed $100,000 individually or $250,000 in the
aggregate in any 12 month period;
(k) unless specified in the approved Budget, purchase
ownership interests, leasehold interests, rights to use, easements or other
rights to or interests in the Kremlin
7
<PAGE> 8
Sites or elsewhere for a purchase price exceeding $100,000 in each particular
transaction or exceeding $200,000 in the aggregate in any 12 month period,
including approval of agreements with respect to acquiring such rights, or waive
any rights of first refusal, preemptive or similar rights relating to the
purchase of any such rights to or interest in the Kremlin Sites or elsewhere;
(l) enter into, modify, renew, terminate or grant any
material waiver relating to any significant leases and other material contracts
other than contracts in the ordinary course of business;
(m) unless specified in the approved Budget, enter
into any transaction with a party that is related to New Valley or its
Affiliates, excluding transactions in the ordinary course of business of the
Borrower or an Affiliated Entity on an arm's-length basis involving amounts
which shall not exceed $100,000 per transaction or series of transactions in any
12 month period;
(n) commence or settle any litigation, arbitration or
other dispute, the result of which could have a material adverse effect on the
business, financial condition or prospects of the Borrower or any Affiliated
Entity;
(o) resolve tax or other governmental proceedings or
disputes relating to the Borrower or any Affiliated Entity;
(p) establish, acquire, dispose of or transfer any
subsidiary or any interest in any subsidiary or other entity (whether or not
incorporated) or make any investment in any business venture or enterprise
(whether or not incorporated), other than as contemplated in the approved
Budget;
(q) change the outside accountants of the Borrower or
any Affiliated Entity (the Lender agrees that the initial outside accountants of
the Borrower shall be Coopers & Lybrand LLP);
8
<PAGE> 9
(r) issue, sell, transfer, assign or otherwise
dispose of any shares, capital stock, securities or interests of or owned by the
Borrower or any Affiliated Entity, or change the ownership structure of the
Borrower or any Affiliated Entity;
(s) make a decision not to distribute all available
cash from the Kremlin Operations (to the extent such distributions are permitted
by applicable law or this Agreement) from (i) the Borrower to its shareholders,
with a corresponding payment under the Loan as set forth in Section 2.1, or (ii)
an Affiliated Entity to its shareholders, members or participants, as
applicable;
(t) except as contemplated in the approved Budget or
as set forth herein, use any Property as collateral for the purpose of any
development other than its own development, or use the proceeds from refinancing
or sale with respect to any Property other than for budgeted capital
expenditures involving the same Property that generated such proceeds, provided
that for the purposes of this Section 5.1(t) the Kremlin Sites together shall be
considered one Property;
(u) retain any officer of the Borrower or any
Affiliated Entity notwithstanding fraud, bad faith, gross negligence, criminal
conviction or plea, and a final, non-appealable finding of or consent to
injunction with respect to violations of antifraud or antimanipulative
provisions of securities, commodities or banking laws by a court of competent
jurisdiction;
(v) unless specified in the approved Budget, use the
proceeds of the Loan other than as set forth in Section 2.6;
9
<PAGE> 10
(w) replace the Chairman of the Board of Directors,
the President or the Chief Financial Officer;
(x) appoint any senior executive officer of an
Affiliated Entity; and
(y) unless specified in the approved Budget, pay any
salaries to employees of New Valley, other than to the employees involved in
day-to-day business operations in Russia (the latter category including, among
others, Michael Capaccio, Ronald J. Bernstein and Stewart Hainsworth).
The approval of the Lender with respect to any
matters set forth in this Section 5.1 shall not be unreasonably withheld or
delayed.
All figures set forth in this Section 5.1 shall be
determined on a consolidated basis in accordance with U.S. generally accepted
accounting principles, consistently applied. To the extent that any amounts or
payments are incurred in any currency other than U.S. dollars, such amounts or
payments shall, for purposes of such calculation, be converted into U.S. dollars
on the date of the conclusion of the transaction at the official exchange rate
of such country (which, for purposes of the ruble, shall be considered to be the
MICEX rate at the opening of business in Moscow on such date).
5.2 Books and Records; Audited Financial Statements. The
Borrower shall maintain separate financial books and records of profits and
losses and financial operations of the Kremlin Division. The year-end balance
sheet, statement of operations and statement of change in financial position of
the Kremlin Division shall be audited each year by the independent certified
public accountants of the Borrower, whose written report shall be provided to
the Lender no later than 60 days after the end of each fiscal year.
10
<PAGE> 11
5.3 Other Reports. In addition to the annual audited financial
statements of the Kremlin Division, each fiscal quarter the President of the
Borrower shall prepare and distribute to the Lender a report including unaudited
quarterly financial statements of the Kremlin Division.
5.4 Access. (a) The Borrower shall provide to the Lender, at
the cost of the Lender, together with its lawful agents, attorneys and
representatives access to the books and records and facilities and senior
management of the Borrower and each Affiliated Entity during all normal business
hours. The Lender and Apollo shall have access in Miami, Florida to the books
and records of the Kremlin Division of the Borrower and in Moscow, Russia and
Miami, Florida to the books and records of each Affiliated Entity.
(b) The Borrower shall permit the Lender and Apollo
to be kept informed, consult with and advise management of each Affiliated
Entity with regard to any material developments in or affecting each Affiliated
Entity's business; to discuss business operations, properties and the financial
or other condition of each Affiliated Entity with its officers, employees and
any relevant management committee; to consult with and advise management on
significant business issues; and to meet regularly with management for such
consultation and advice.
(c) The Borrower shall permit the Lender, upon the
Lender's written request and subject to the provisions of applicable law, to
appoint one member of the board of directors of the Borrower.
5.5 Business Plan and Budget. The Borrower shall provide to
the Lender a proposed annual Budget, which shall include information with
respect to the operation of the
11
<PAGE> 12
business to be conducted by each Affiliated Entity for each fiscal year, at
least 30 days before the beginning of such fiscal year. Such Budget shall
include estimates of anticipated capital calls. The initial Budget, for the year
1998, is annexed hereto as Schedule 5.5. The Lender shall approve the Budget as
provided in Section 5.1 hereof. The day-to-day operations of the Borrower and
each Affiliated Entity shall be conducted by the officers of the Borrower within
10% variances from the Budget approved by the Lender.
5.6 Event of Default. A material breach by the Borrower with
respect to the provisions hereof, which material breach remains uncured thirty
(30) days after receipt by the Borrower of written notice from the Lender
setting forth in detail the alleged default, shall constitute an Event of
Default hereunder.
6. Representations and Warranties.
6.1 Borrower. The Borrower represents and warrants as follows:
(a) The Borrower is a company duly formed and in good
standing under the laws of Cayman Islands, with full power and authority to
enter into this Agreement and to consummate the transactions contemplated
herein, and has full power and authority required to carry on its business as it
is currently being conducted and/or as described in the business plans, and to
own, lease and operate its properties.
(b) The execution and delivery by the Borrower of
this Agreement and the consummation by it of the transactions contemplated
herein will not violate its constituent documents, any law or any contract to
which the Borrower is a party, and no approval, authorization, consent, or order
or filing with, any third party, court, administrative agency or other
governmental authority is required for the execution and delivery by the
Borrower of this Agreement.
12
<PAGE> 13
(c) This Agreement is the legal, valid and binding
obligation of the Borrower enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and similar laws of general application
affecting the rights and remedies of creditors.
(d) There is no litigation pending or threatened in
writing (or any basis therefor) against the Borrower that (i) might adversely
affect the operations, business or business prospects of the Borrower, (ii)
might impede, delay or adversely affect the transactions contemplated by this
Agreement, or (iii) has not been disclosed to Apollo. There are no valid,
effective and enforceable orders, injunctions or decrees of any court or
arbitral body with respect to the Borrower that might adversely affect the
operations, business or business prospects of the Borrower.
(e) All the representations made by New Valley under
Section 9.3 of the Joint Venture Agreement are hereby incorporated herein by
reference, as if the Borrower has made such representations in its own name in
full herein.
6.2 Lender. The Lender represents and warrants as follows:
(a) The Lender is a limited liability company duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or establishment, as the case may be, with full
power and authority to enter into this Agreement and to consummate the
transactions contemplated herein.
(b) The execution and delivery by the Lender of this
Agreement and the consummation by it of the transactions contemplated herein
have been authorized by
13
<PAGE> 14
the board of managers of the Lender or other management authority of the Lender
and will not violate its constituent documents, any law or any contract to which
the Lender is a party, and no approval, authorization, consent or order of, or
filing with, any third party, court, administrative agency, or governmental
authority is required for the execution and delivery by the Lender of this
Agreement or the consummation by it of the transactions contemplated herein.
(c) This Agreement is the legal, valid and binding
obligation of the Lender enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and similar laws of general application
affecting the rights and remedies of creditors.
(d) The individual signing this Agreement on behalf
of the Lender is a duly authorized officer or representative of the Lender and
is empowered to execute this Agreement on behalf of the Lender.
(e) No agent, broker, investment banker, person or
firm acting on behalf of the Lender or under the authority of the Lender is or
will be entitled to any broker?s or finder?s fee or any other commission or
similar fee from any of the parties hereto in connection with the transactions
contemplated hereby.
7. Notices. All notices required to be given hereunder shall be in
writing and shall be deemed to have been properly given if sent by registered or
certified mail, postage prepaid, or by telecopy, addressed as follows:
(a) If to the Borrower:
BrookeMil Ltd.
P.O. Box 219
Fifth Floor
Butterfield House
George Town, Grand Cayman, B.W.I.
Attention: Bennett S. LeBow, Chairman
Telecopy: (345) 949-4590
14
<PAGE> 15
Copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York, 10036
Attention: Clyde E. Rankin, III
Telephone: (212) 626-4740
Telecopy: (212) 626-4120
(b) If to the Lender:
Western Realty Repin LLC
103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware 19103
Attention: Richard J. Lampen
Telephone: 305-579-8000
Telecopy: 305-579-8009
Copy to:
Apollo Real Estate
Investment Fund III, L.P.
1301 Avenue of the Americas
New York, NY 10019
Attention: John J. Hannan
Telephone: 212-261-4000
Telecopy: 212-261-3301
15
<PAGE> 16
Copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue, 20th Floor
New York, New York, 10022
Attention: Robert G. Koen
Telephone: 212-872-1000
Telecopy: 212-872-1002
Copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York, 10036
Attention: Clyde E. Rankin, III
Telephone: 212-626-4740
Telecopy: 212-626-4120
Such notices shall be deemed to have been received five days after deposit in
the mail or within 24 hours after transmission by telecopy. Any party may change
the address to which notices shall be sent by notice in writing to the other
parties as provided herein.
8. Miscellaneous
8.1 Further Assurances. The parties will, in a timely manner
and as required from time to time, take all such actions as may be necessary or
appropriate to cause their Affiliates, the Borrower and the Affiliated Entities
to implement the transactions contemplated by this Agreement and to ensure that
such entities take all such actions as may be necessary to give full effect to
the provisions of this Agreement and to refrain from taking any actions which
would contravene the intent or the provisions of this Agreement.
16
<PAGE> 17
8.2 Term of Agreement. This Agreement will continue in full
force and effect until the earlier of (a) termination by mutual consent of the
parties hereto or (b) the dissolution of the Borrower.
8.3 No Acceleration. The Lender expressly acknowledges that no
breach of this Agreement by any party hereto or any other cause or event shall
cause the Loan or any part thereof to become due and payable or shall give the
Lender a right to declare the Loan or any part thereof due and payable.
8.4 Assignment. This Agreement shall not be assigned by any
party hereto without the prior written consent of the other parties hereto. This
Agreement shall inure to the benefit of the parties hereto and shall be binding
upon the successors and assigns of the parties hereto.
8.5 Amendment, Modification and Waiver. This Agreement may be
modified, amended and supplemented only upon the unanimous mutual written
agreement of the parties hereto. Each party may waive any term, provision or
condition intended for its benefit, provided that such waiver be in writing and
be signed by the party so waiving.
8.6 Severability. If any one or more of the provisions of this
Agreement shall be held invalid, illegal or unenforceable under applicable law,
the validity, legality and enforceability of the remaining provisions shall not
be affected or impaired thereby.
8.7 Entire Agreement; Headings. This Agreement, including the
schedules hereto, constitutes the entire agreement of the parties with respect
to the subject matter hereof and may not be changed, terminated or discharged
orally. The headings appearing in this Agreement have been inserted solely for
the convenience of the parties and shall be of no force or effect in the
construction of the provisions of this Agreement.
17
<PAGE> 18
8.8 Indemnification. Each party to this Agreement agrees to
indemnify, defend and hold the other party free and harmless from and against,
and to reimburse the other party on a current basis for, all claims, damages,
expenses and liabilities of such other party arising from any breach of such
indemnifying party of the terms of this Agreement, including, without
limitation, reasonable legal expenses and attorneys' fees paid or incurred by
the indemnified party in defense of any proceedings brought against such
indemnified party individually or against such indemnified party and such
indemnifying party (jointly or severally) arising out of any of the foregoing.
The provisions of this Section 8.8 shall survive the termination of this
Agreement and the representations and warranties given by the parties shall
survive for the applicable statute of limitations.
8.9 Governing Law. This Agreement shall be governed by New
York law, without regard to its conflict of laws principles.
8.10 Arbitration. Any dispute, controversy or claim arising
out of or relating to this Agreement or to the business and affairs of the
Borrower or the rights and obligations of any of the parties hereto shall be
finally settled by binding arbitration to be conducted in New York, New York in
accordance with the rules then in force of the American Arbitration Association,
including the rules governing the appointment of arbitrators. Any final decision
in any such arbitration proceeding shall be final and non-appealable and shall
be binding on the parties thereto and enforceable in courts of competent
jurisdiction without a further review on the merits.
8.11 Confidentiality. By executing this Agreement, each party
hereto expressly agrees, at all times during the term of this Agreement, to
maintain the confidentiality of, and not to disclose to any person not a party
hereto, any information relating to the business, financial
18
<PAGE> 19
structure, financial position or financial results, clients or affairs of the
Borrower, its Affiliates or Affiliated Entities that shall not be generally
known to the public, except as otherwise required by applicable law or by any
regulatory organization having jurisdiction. Except as provided by law, no press
releases, announcements or other public disclosures related to this Agreement or
the transactions contemplated herein will be issued or made, without the joint
approval of the Lender and the Borrower.
8.12 Counterparts. This Agreement may be executed by the
parties in one or more counterparts, each of which shall be deemed an original
but all of which taken together shall constitute one and the same instrument.
8.13 Rights of Apollo. Any rights Apollo may have hereunder
are conditioned upon Apollo being a member of the Lender and shall terminate
upon Apollo ceasing to be a member of the Lender.
8.14 Liability of New Valley and Borrower. Nothing in this
Agreement shall be interpreted to imply that New Valley is liable for the
repayment of the Loan as an obligor, guarantor or otherwise. Liability of the
Borrower under this Loan shall be limited to the assets of its Kremlin Division.
8.15 Fees and Expenses. All fees and expenses incurred in the
negotiation, preparation and execution of this Agreement, including all exhibits
hereto and all related documents shall be for the account of and payable by the
party incurring them.
[The remainder of this page is intentionally left blank.]
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have duly executed or
caused their duly authorized officers to execute this Agreement as of the date
and year first above written.
WESTERN REALTY REPIN LLC
By: /s/ Richard J. Lampen
---------------------------------
Name: Richard J. Lampen
Title: Vice President
BROOKEMIL LTD.
By: /s/ Richard J. Lampen
---------------------------------
Name: Richard J. Lampen
Title: Executive Vice President
20
<PAGE> 21
Schedule A
to Participating Loan Agreement
The following terms shall have the following definitions:
"Affiliate" shall mean, with respect to any person, a person or entity
which directly or indirectly controls, is controlled by, or is under common
control with, such person.
"Affiliated Entity" shall mean VNIIkholodmash-Holding and Joint Venture
Kamennyi Most and any other direct or indirect wholly-owned subsidiary of the
Borrower and any other entity (whether or not incorporated) in which any of the
foregoing entities or the Borrower has or hereafter acquires a controlling
interest, to the extent such subsidiary or other entity is involved in the
Kremlin Operations.
"Apollo" shall have the meaning ascribed thereto in the first "WHEREAS"
clause hereof.
"Borrower" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Budget" shall have the meaning ascribed thereto in Section 5.1(i)
hereof.
"Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks are authorized by law to close in New York City or
Moscow.
"First Advance" shall have the meaning ascribed thereto in Section 2.3
hereof.
"Initial Closing" shall have the meaning ascribed thereto in Section
4.1 hereof.
"Initial Closing Date" shall have the meaning ascribed thereto in
Section 4.1 hereof.
"Joint Venture Agreement" shall have the meaning ascribed thereto in
the first "WHEREAS" clause hereof.
21
<PAGE> 22
"Kremlin Division" shall mean the division of the Borrower that
conducts the Kremlin Operations.
"Kremlin Entity-I" shall have the meaning ascribed thereto in the
second "WHEREAS" clause hereof.
"Kremlin Entity-II" shall have the meaning ascribed thereto in the
second "WHEREAS" clause hereof. "Kremlin Entities" shall have the meaning
ascribed thereto in the second "WHEREAS" clause hereof.
"Kremlin Operations" shall mean the interest in, and the development or
other investments or activities directly related to, the Kremlin Entities or the
Kremlin Sites.
"Kremlin Site-I" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"Kremlin Site-II" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"Kremlin Sites" shall have the meaning ascribed thereto in the second
"WHEREAS" clause hereof.
"Lender" shall have the meaning ascribed thereto in the introductory
paragraph hereof.
"Loan" shall have the meaning ascribed thereto in Section 2.1 hereof.
"Maturity Date" shall have the meaning ascribed thereto in Section 2.1
hereof.
"New Valley" shall have the meaning ascribed thereto in the first
"WHEREAS" clause hereof.
"Pledge Agreement" shall have the meaning ascribed thereto in Section 3
hereof.
"Subsequent Advance" shall have the meaning ascribed thereto in Section
2.4 hereof.
22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUN-30-1998
<PERIOD-END> JAN-01-1998
<CASH> 5,606
<SECURITIES> 76,557
<RECEIVABLES> 1,609
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 90,522
<PP&E> 209,990
<DEPRECIATION> 12,799
<TOTAL-ASSETS> 387,472
<CURRENT-LIABILITIES> 101,935
<BONDS> 153,557
285,932
279
<COMMON> 96
<OTHER-SE> (170,179)
<TOTAL-LIABILITY-AND-EQUITY> 387,472
<SALES> 0
<TOTAL-REVENUES> 59,112
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 59,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,612
<INCOME-PRETAX> (7,857)
<INCOME-TAX> 21
<INCOME-CONTINUING> (6,719)
<DISCONTINUED> 880
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,839)
<EPS-PRIMARY> (4.64)
<EPS-DILUTED> (4.64)
</TABLE>
