<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): FEBRUARY 20, 1998
NEW VALLEY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
1-2493 13-5482050
(Commission File Number) (I.R.S. Employer Identification No.)
100 S.E. SECOND STREET, MIAMI, FLORIDA 33131
(Address of principal executive offices) (Zip Code)
(305) 579-8000
(Registrant's telephone number, including area code)
(NOT APPLICABLE)
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 20, 1998, New Valley Corporation (the "Company") and Apollo
Real Estate Investment Fund III, L.P. ("Apollo") organized Western Realty
Development LLC ("Western Realty") 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 to Western Realty the real estate assets of
its subsidiary BrookeMil Ltd. ("BML") and Apollo agreed to contribute up to $58
million.
BML is a real estate development company in Russia that is currently
developing a three-phase complex on 2.2 acres of land in downtown Moscow. The
first phase of the project, Ducat Place I, a 46,500 sq. ft. Class-A office
building, was successfully built and leased in 1993, and sold to a tenant in
April 1997. In 1997, BML completed construction of Ducat Place II, a premier
150,000 sq. ft. office building. Ducat Place II has been leased to a number of
leading international companies including Motorola, Conoco, Lukoil-Arco and
Morgan Stanley. The third phase, Ducat Place III, is planned as a 350,000 sq.
ft. mixed-use complex, with construction set to begin in 1999. The real estate
assets of BML to be contributed to Western Realty by the Company include Ducat
Place II and the site for Ducat Place III.
Under the terms of the agreement governing Western Realty (the "LLC
Agreement"), the ownership and voting interests in Western Realty will be held
equally by Apollo and the Company. Apollo will be entitled to a preference on
distributions of cash from Western Realty to the extent of its investment,
together with a 15% annual rate of return, and the Company will then be entitled
to a return of $10 million 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
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 will generally require the unanimous consent of
the Board of Managers. Accordingly, the Company will account for its interest in
Western Realty on the equity method. See Item 7.
The organization of Western Realty was effected pursuant to the LLC
Agreement. Such transaction was negotiated on an arm's-length basis between the
Company and Apollo, which is not affiliated with the Company or any of its
affiliates, or any director or officer of the Company, or any affiliate or
associate of any such director or officer. On January 11, 1996, the Company
acquired from an affiliate of Apollo eight shopping centers for $72.5 million.
As of February 20, 1998, the Company and pension plans sponsored by BGLS Inc.
("BGLS"), a wholly-owned subsidiary of Brooke Group Ltd. ("BGL"), had invested
in investment partnerships managed by an affiliate of Apollo. As of February 20,
1998, an affiliate of Apollo owned a substantial amount of debt securities of
BGLS. BGL and BGLS directly and indirectly hold common and preferred stock of
the Company representing in the aggregate approximately 42% of the voting power
of the Company. For additional information concerning certain relationships and
related transactions between the Company and BGL and its subsidiaries, see the
Company's Proxy
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<PAGE> 3
Statement dated August 15, 1997 as filed with the Securities and Exchange
Commission on that date.
Western Realty will seek to make additional real estate and other
investments in Russia. The Company and Apollo have agreed to invest, through
Western Realty or another entity, up to $25 million in the aggregate for the
potential development of a real estate project in Moscow. In addition, Western
Realty has agreed to invest $20 million for a 30% interest in a company
organized by Brooke (Overseas) Ltd., a wholly-owned subsidiary of BGLS, which
will, among other things, acquire an interest in an industrial site and
manufacturing facility being constructed on the outskirts of Moscow by a
subsidiary of Brooke (Overseas) Ltd.
On February 27, 1998, at an initial closing under the LLC Agreement,
Apollo made a $11 million loan (the "Loan") to Western Realty. The Loan, which
bears interest at the rate of 15% per annum and is due September 30, 1998, is
secured by a pledge of the Company's shares of BML. Upon completion of the
transfer of Ducat Place II and the satisfaction of other conditions under the
LLC Agreement, the Loan and the accrued interest thereon will be converted into
a capital contribution by Apollo to Western Realty and the BML pledge released.
The foregoing summary of the formation of Western Realty is qualified
in its entirety by reference to the text of the LLC Agreement and related
agreements and the Company's and BGL's Press Release dated March 2, 1998, which
are attached hereto as exhibits and are incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(b) Pro Forma Financial Information.
In February 1998, the Company and Apollo organized Western Realty to
make real estate and other investments in Russia. In connection with the
formation of Western Realty, the Company will contribute to Western Realty the
real estate assets of its subsidiary BML. Under the terms of the LLC Agreement
governing Western Realty, the Company and Apollo will each own 50% of the
ownership and voting interests in Western Realty, and the approval of all
material corporate transactions will generally require the unanimous consent of
Apollo's and the Company's representatives on Western Realty's Board of
Managers. Accordingly, the Company will account for its non-controlling interest
in Western Realty on the equity method.
The Unaudited Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1997 present the results of operations of the Company
assuming the formation of Western Realty had been consummated as of the
beginning of the period presented.
The Unaudited Pro Forma Consolidated Balance Sheet as of December 31,
1997 reflects the assets, liabilities and capitalization of the Company after
giving effect to the elimination of the assets and liabilities of BML to be
contributed to Western Realty.
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The pro forma information does not purport to be indicative of the
results of operations or the financial position which would have actually been
obtained if the formation of Western Realty had been consummated as of the
beginning of the periods presented or at December 31, 1997. In addition, the pro
forma financial information does not purport to be indicative of results of
operations or financial position which may be obtained in the future.
The pro forma financial information should be read in conjunction with
the Company's historical Consolidated Financial Statements and Notes thereto
contained in the Company's 1996 Annual Report on Form 10-K and the Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997.
NEW VALLEY CORPORATION & SUBSIDIARIES
PRO-FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
PRO-FORMA
HISTORICAL ADJUSTMENTS PRO-FORMA
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,606 $ (129)(A) $ 11,477
Investment securities available for sale 52,230 52,230
Trading securities owned 49,988 49,988
Receivable from clearing brokers 1,205 1,205
Restricted assets 232 232
0ther current assets 3,213 (190)(A) 3,023
--------- -------- ---------
Total current assets 118,474 (319) 118,155
--------- -------- ---------
Investment in real estate, net 256,712 (85,093)(A) 171,619
Furniture & Equipment, net 12,127 (66)(A) 12,061
Restricted assets 5,484 5,484
Long-term investments, net 6,043 6,043
Investment in Joint Venture - 61,964 (A) 61,964
Other Assets 48,187 (11,445)(A) 36,742
--------- -------- ---------
Total assets $ 447,027 $(34,959) $ 412,068
========= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 54,292 $(14,177)(A) 40,115
Prepetition claims and restructuring accruals 12,016 12,016
Income taxes 17,541 17,541
Securities sold, not yet purchased 27,858 27,858
Margin loan payable 13,012 13,012
Current portion of notes payable and long-term
obligations 10,000 10,000
--------- ---------
Total current liabilities 134,719 (14,177)(A) 120,542
--------- -------- ---------
Notes Payable 174,574 (20,078)(A) 154,496
Other long-term obligations 11,029 (704)(A) 10,325
Redeemable preferred shares 254,653 254,653
SHAREHOLDERS' EQUITY (DEFICIT)
Cumulative preferred shares; liquidation
preference of $69,769; dividends in arrears,
$139,411 279 279
Common shares, $.01 par value; 850,000,000
shares authorized; 9,577,624 shares
outstanding 96 96
Additional paid in-capital 600,137 600,137
Accumulated deficit (736,240) (736,240)
Unearned compensation on stock options (158) (158)
Unrealized gain on investment securities 7,938 7,938
--------- ---------
Total shareholders' equity (deficit) (127,948) - (127,948)
--------- --------- ---------
Total liabilities and shareholders'
equity (deficit) $ 447,027 $ (34,959) $ 412,068
========= ========= =========
</TABLE>
(A) - To record contribution of assets to Western Realty.
NEW VALLEY CORPORATION & SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
PRO-FORMA
HISTORICAL ADJUSTMENTS PRO-FORMA
<S> <C> <C> <C>
REVENUES:
Principal transactions, net 16,754 $ 16,754
Commissions 16,728 16,728
Real estate leasing 27,416 $(3,839)(A) 23,577
Interest and dividends 9,197 9,197
Gain on Sale of Investments 18,679 18,679
Loss from Joint Venture - (5,458)(A) (5,458)
Other income 17,971 17,971
-------- --------
Total revenues 106,745 $(9,297) $ 97,448
-------- ------- --------
COSTS AND EXPENSES:
Operating, general and administrative 112,238 (7,835)(A) 104,403
Interest 16,988 (1,462)(A) 15,526
Provision for loss on long-term investment 3,796 3,796
-------- --------
Total costs and expenses 133,022 (9,297)(A) 123,725
-------- ------- --------
Loss from continuing operations before
income taxes and minority interest (26,277) - (26,277)
Income tax provision (benefit) 3 3
Minority interests in loss from
continuing operations (5,251) (5,251)
-------- --------
Loss from continuing operations (21,029) - (21,029)
======== ========
Loss per common share (Basic and Diluted):
Continuing operations $ (2.20) $ - $ (2.20)
======== ======= =========
Number of shares used in computation 9,578 9,578 9,578
======== ======= =========
</TABLE>
(A) - To record contribution of assets to Western Realty.
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(c) The following Exhibits are provided in accordance with the
provisions of Item 601 of Regulation S-K and are filed herewith unless otherwise
noted.
EXHIBIT INDEX
2.1 Amended and Restated Limited Liability Company Agreement dated as of
February 20, 1998 by and among Western Realty, the Company, BML and
Apollo.
10.1 Non-Negotiable Promissory Note of Western Realty dated February 27,
1998 in favor of Apollo.
10.2 Pledge Agreement dated as of February 27, 1998 by and between Apollo
and the Company.
99.1 Press Release of the Company and BGL dated March 2, 1998.
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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 hereunto duly authorized.
NEW VALLEY CORPORATION
By: /s/ J. Bryant Kirkland III
------------------------------------------
J. Bryant Kirkland III
Vice President and Chief Financial Officer
Date: March 6, 1998
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<PAGE> 1
EXHIBIT 2.1
AMENDED AND RESTATED
WESTERN REALTY DEVELOPMENT LLC
LIMITED LIABILITY COMPANY AGREEMENT
<PAGE> 2
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
--------------------------------------------------------
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT 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 Company has been formed to act as a holding company and to own
(i) 100% of the interests of Western Realty Investments LLC, a Delaware limited
liability company (the "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 Moscow, Russia located at
Ul. Gasheka 6 ("Ducat Place III") and 7 ("Ducat Place II") and (ii) 30% (after
giving effect to the transactions described below) of the interests in Western
Tobacco Investments LLC, a Delaware limited liability company ("Joint
Venture-II");
WHEREAS, BrookeMil currently holds rights with respect to Ducat Place II
and Ducat Place III and will transfer such rights, together with associated
assets and liabilities, to the Russian LLC;
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WHEREAS, the parties hereto have agreed that a separate limited liability
company agreement (the "Joint Venture-II Agreement") shall be entered into among
the Company, Joint Venture-II and Brooke (Overseas) Ltd., a Delaware corporation
("Brooke (Overseas)"), substantially in the form annexed hereto as Exhibit 1;
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;
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; and
WHEREAS, the Members hereby amend and restate the Western Realty
Development LLC Limited Liability Company Agreement among the Company, Apollo,
New Valley and BrookeMil dated as of February 20, 1998;
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.
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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 the Delaware LLC-2 and Joint
Venture-II, Ducat Place II, Ducat Place III and other real estate as provided in
the first, second and third "WHEREAS" clauses hereof. The purpose of the Company
can be modified as provided in Section 14.4 hereof or otherwise by 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 $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(c). 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 and to the Company
all of its interest in the Russian LLC, except for a 1% interest, as set forth
in Section 2.4(d). 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>
<S> <C> <C> <C>
APOLLO:
- -------
Type of Interests Number of Interests Contribution Value of Contribution
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(c)
and Cash
Total: 1,400 $ 10,000,000
</TABLE>
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<TABLE>
<S> <C> <C> <C>
BROOKEMIL:
- ----------
Type of Interests Number of Interests Contribution Value of Contribution
Class C 6,381 Interests $ 45,980,553
Interests in the Russian LLC
(for Ducat Place II)
2,219 Interests $ 15,985,954
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
shall issue (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 shall be as follows:
<TABLE>
<S> <C> <C> <C>
APOLLO:
- -------
Type of Interests Number of Interests Contribution Value of Contribution
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>
At the Initial Closing, Apollo shall also make a loan of $11,000,000 to the
Company (the "Apollo Loan") which shall be represented by a promissory note in
favor of Apollo substantially in the form annexed hereto as Exhibit 2 (the
"Promissory Note") which Promissory Note shall be secured by the pledge of 99.1%
of the outstanding shares of the capital stock of BrookeMil. The Company shall
submit to Apollo wire instructions for the disbursement of the Apollo Loan no
later than the day preceding the Initial Closing Date. The entire amount of the
Apollo Loan shall be disbursed to the Company or to its order by wire transfer
in immediately available funds to the account specified in such wire
instructions on the Initial Closing Date. 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, in the event of, and 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 or
interest shall be due thereon.
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(c) From time to time after the Initial 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
Subsequent Closings described in Section 12.6 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(b) hereof. Upon ten (10) Business Days' 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 since March 1, 1997 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, 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. 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 12.6 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.
(d) BrookeMil shall make its entire capital contribution hereunder by
means of transferring, as soon as practicable hereafter, (i) to the Russian LLC,
the assets and assumed liabilities listed in Schedule 2.4(d) (the "Assets" and
the "Assumed Liabilities," respectively) related to Ducat Place II, and to the
Company (or to another entity as the Company may designate), its entire interest
in the Russian LLC, less a 1% interest, in return for 6,381 Class C Interests,
and (ii) to the Russian LLC, the Assets and the Assumed Liabilities listed in
Schedule 2.4(d) related to Ducat Place III, and to the Company (or to another
entity as the Company may designate) its entire interest (as it has been
increased as a result of such transfer) in the Russian LLC, other than the 1%
interest referred to in Section 2.4(d)(i) above, 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.
(e) 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,
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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 provisions 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 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 otherwise.
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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 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.
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<PAGE> 9
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 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.
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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 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. The
parties agree that Apollo shall appoint the manager to the Board of Managers
under the Joint Venture-II Agreement to be appointed by the Company under the
terms thereof.
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 (or, during the period that the Apollo Loan is outstanding,
with respect to subparagraph (c) below, for New Valley, in its capacity as a
majority shareholder of BrookeMil), 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,
including but not limited to the Joint Venture-II Agreement, or to waive any
provisions hereof or 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)
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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;
(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 (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;
(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 the Delaware LLC-2, the
Russian LLC and Joint Venture-II,
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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 1,000 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 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;
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(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) 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;
(t) to retain any officer subject to mandatory dismissal as provided in
Section 5.1(c); and
(u) to waive any breach of covenants set forth in Section 11.4.
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 Joint Venture-II Agreement shall include provisions requiring the
Company's approval (directly or indirectly) of the issues set forth in this
Section 2.9.
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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 Joint Venture-II Agreement shall provide that 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
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, the New Factory, Joint Venture-II,
Delaware LLC-2 and Russian LLC, provided that (x) the cash price payable for all
the assets 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(e) 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
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<PAGE> 15
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 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, the New Factory, Joint Venture-II,
Delaware LLC-2 and the Russian LLC, 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 Joint Venture-II shall have the same rights with respect to
the New Factory as it had prior to the occurrence of the Loan Default,
respectively.
(vi) In the event (A) an Event of Default (as such term is defined in
the Pledge Agreement) has occurred with respect to the Apollo Loan or (B) Apollo
has terminated this Agreement in accordance with Section 14.2(a)(iii) and
neither the Company nor the New
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Valley Parties have paid to Apollo the principal, accrued interest and all
amounts due on the Apollo Loan as provided in Section 14(b), 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, but excluding any interests in Joint
Venture-II or 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 Company or the New Valley Parties
shall not have cured the Event of Default or the grounds for such termination by
Apollo under Section 14.2(a)(iii) shall not have been eliminated, respectively.
(vii) In the event Apollo has terminated this Agreement in accordance
with Section 14.2(a)(iv), 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, Joint Venture-II and
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(a)(iv)
shall not have been eliminated.
(viii) The proceeds of the sales of any assets pursuant to this Section
2.10(a) shall be distributed in the following manner:
FIRST, to Apollo in respect of the Apollo Loan, to the extent any
amounts are due thereon and have not been converted into the Class A Interests,
and
SECOND, in accordance with the distribution provisions set forth in
Section 2.7 and Section 2.8 of this Agreement.
(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
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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 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.
(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 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
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provisions of any agreement for the sale of Interests or any assets of the
Company 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 assets of the Company 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, APOLLO LOAN 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 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 12.8; and (ii) $20,000,000 will be
contributed to Joint Venture-II to finance the construction of the New Factory
and the acquisition of related equipment, and to reimburse Brooke (Overseas) for
expenditures incurred by Brooke in connection therewith since March 1, 1997, as
shall be specified in the Joint Venture-II 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 USE OF APOLLO LOAN. The Apollo Loan shall be used to make a
contribution to Joint Venture-II and shall be used by Joint Venture-II as shall
be specified in the Joint Venture-II Agreement.
3.3 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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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 initial officers of the
Company will be as follows:
President - Ronald J. Bernstein
Chief Financial Officer - Roger Wills
Secretary - Richard J. Lampen.
The initial General Director of the Russian LLC shall be Ronald J. Bernstein.
The initial Chairman of the Board of Managers of Joint Venture-II shall be
Bennett S. LeBow.
The initial officers of Joint Venture-II shall be:
President - Ronald J. Bernstein
Chief Financial Officer - Stewart Hainsworth
Secretary - Richard J. Lampen.
The initial General Director of Liggett-Ducat shall be Ronald J. Bernstein.
The initial General Director of LD Tobacco shall be Ronald J. Bernstein.
(b) Apollo shall have the right to approve (i) replacements of any of
the initial 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 emloyees 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, Roger Wills 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 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
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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.
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 Joint Venture-II 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.
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(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 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 the structure of the Affiliated Entities
contemplated under the Joint Venture-II Agreement will be modified as set forth
therein, and that such modification may involve, without limitation,
transactions in which (i) Brooke (Overseas) would transfer, directly or
indirectly, the underlying real property interests with respect to the New
Factory to Joint Venture-II (or a subsidiary thereof) and enter into a lease
agreement (the "Potential Lease") with Joint Venture-II (or its subsidiary) or
(ii) Joint Venture-II (or a subsidiary thereof) would extend a secured loan (the
"Potential Loan") to Brooke (Overseas) (or a subsidiary thereof) secured by the
underlying real property interests with respect to the New Factory; provided
that either the Potential Lease or the Potential Loan, as the case may be, would
carry a "participation" feature tied to the corresponding operating business
with appropriate guaranties and/or security interests supporting such Potential
Lease or Potential Loan, and in either case, reflecting the economic interests
of the parties hereto in Joint-Venture-II.
(d) 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(d)(ii) hereof, unless the Members
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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 THE DELAWARE LLC-2 AND THE RUSSIAN LLC.
7.1 ESTABLISHMENT OF THE DELAWARE LLC-2.
(a) The parties acknowledge that the 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 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, and that the
Russian LLC is currently owned 99.97% by BrookeMil and 0.03% by Delaware LLC-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(d), 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
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(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
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 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
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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 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
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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 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
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this Agreement, including but not limited to the Joint Venture-II 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 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,
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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.
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 is the owner of the building and is the lessee of the
land plot located at Ducat Place II (to the extent it is has not completed the
process of transferring such building and land lease rights to the Russian LLC)
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 (the "Ducat II
Land Lease"), and applicable law, and, to the knowledge of the New Valley
Parties, there are no encumbrances on, or rights of third parties to, Ducat
Place II other than the Assumed Liabilities.
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(b) BrookeMil is the owner of the buildings and is the lessee of the
land plot located at Ducat Place III 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 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. BrookeMil has received the permission of the District Commission on
Granting Land Plots and Regulation of Urban Construction in the Central
Administrative District of Moscow to purchase the land lease rights at Ducat
Place III for the rouble sum equal to $1,100,000 (at the official rate of the
Russian Central Bank for foreign exchange transactions on the day preceding the
payment).
(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 following leases: the
Ducat II Land Lease and the Ducat III Land Lease. LD Tobacco is the current
tenant under the New Factory Land Lease. (The Ducat II Land Lease, 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 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
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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.
(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
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(Overseas) to Belgrave Limited and Vladimir Tumentsev to secure the payment
obligations of Brooke (Overseas) for 8% of the outstanding shares of
Liggett-Ducat and liens to be released prior to the Subsequent Closing under the
Joint Venture-II Agreement; (iii) Brooke (Overseas) owns 95.9% of the
outstanding shares of Liggett-Ducat, other shareholders of Liggett-Ducat own
4.1% of the outstanding shares of Liggett-Ducat, and Liggett-Ducat owns 100% of
the outstanding shares of LD Tobacco; and (iv) 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, except for
options to be terminated prior to the Subsequent Closing under the Joint
Venture-II Agreement.
(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 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
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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.
(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,
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valid and binding agreements of the landlord thereunder enforceable in
accordance with their terms and are in full force and effect, 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), 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. 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. Upon consummation of the transactions contemplated by this
Agreement, the Russian LLC will continue to be entitled to all of the rights and
privileges to which BrookeMil was previously entitled under such Ducat II
Leases.
(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.
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(n) 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 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 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
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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.
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 purchase of the interests by the Company in
Joint Venture-II does not violate the provisions of ERISA.
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11. COVENANTS OF THE NEW VALLEY PARTIES.
11.1 CONTRIBUTION OF DUCAT PLACE II TO THE RUSSIAN LLC. As soon as
practicable following the date hereof, BrookeMil shall contribute 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
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.
11.4 RESTRICTIONS ON THE OPERATION OF DUCAT PLACE II. From the date hereof
until BrookeMil shall have transferred to the Company all of the Assets and
Assumed Liabilities as
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provided for in Sections 11.1 and 11.2, BrookeMil shall, unless the unanimous
consent of the Board of Managers has been obtained:
(a) conduct the business and operations relating to Ducat Place II (the
"Ducat II Operations") in the ordinary course consistent with past practice;
(b) use its best efforts to preserve the Ducat II Operations,
including, without limitation, relationships with tenants, employees, and other
persons who have business dealings with Ducat Place II;
(c) maintain (i) all of the assets and properties relating to the Ducat
II Operations in their current condition, ordinary wear and tear excepted and
(ii) insurance on all of such assets and properties 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); and
(d) use its best efforts to (i) maintain the books, accounts and
records of the Ducat II Operations 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; and
(e) use the proceeds from any new financings in accordance with the
Budget.
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") shall
take 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, or on such other date
and time and at such other place as shall be mutually agreed by
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<PAGE> 38
the parties hereto (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 the Initial Closing or any Subsequent 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.
(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 the Initial Closing or
any Subsequent 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
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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.
(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 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 and the Pledge Agreement by New
Valley, the organization of the Company, and such other matters as may be
reasonably requested by it.
(b) Apollo's counsel shall have 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 shall have issued the Promissory Note.
(d) New Valley shall have pledged 99.1% of the outstanding shares of
BrookeMil to Apollo as security for the Apollo Loan under a pledge agreement
between Apollo and New Valley substantially in the form annexed hereto as
Exhibit 3 (the "Pledge Agreement").
(e) The Company, Joint Venture-II and Brooke (Overseas) shall have
entered into the Joint Venture-II Agreement contemplated by the third "WHEREAS"
clause
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hereof on terms unanimously approved by the Members, which approval shall not be
unreasonably withheld or delayed by any Member.
12.5 FUNDING AND ADVANCE OF APOLLO LOAN AT INITIAL CLOSING. Upon
satisfaction of all conditions to the Initial Closing, (i) each of Apollo and
the New Valley Parties shall fund their initial contributions to the Company as
set forth in Section 2.4(b) and (ii) Apollo shall advance the Apollo Loan to the
Company.
12.6 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, subsequent
closings (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 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.
12.7 DATE, TIME AND PLACE OF INITIAL SUBSEQUENT CLOSING. The first
Subsequent Closing (the "Initial Subsequent Closing") shall take place as soon
as practicable after the conditions set forth in Section 12.9 have been
satisfied 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 Subsequent Closing Date").
12.8 TRANSACTIONS AT INITIAL SUBSEQUENT CLOSING. Upon the satisfaction
and/or waiver of the conditions to the Initial Subsequent Closing, (i) the
Apollo Loan shall be converted into Class A Interests; (ii) the Promissory Note
shall be cancelled; (iii) the Pledge Agreement shall be terminated; (iv) the
parties shall make additional capital contributions as set forth in Sections
2.4(c) and 2.4(d)(i); and (v) 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(c) 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 for such expenditures in excess of $10,000,000 (to the extent the New
Valley Parties
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provide to Apollo proper documentation substantiating such expenditures).
Conditions to the obligations of Apollo at the Initial Subsequent Closing shall
be deemed waived if Apollo has not terminated this Agreement on or before June
10, 1998 in accordance with Section 14.2(a)(iii).
12.9 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 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 Ducat II Land Lease.
(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 11.5(b) of the Joint Venture-II
Agreement, as in effect on the date hereof, have been satisfied, unless
otherwise agreed by the parties to the Joint Venture-II Agreement.
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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
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
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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
(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.
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.
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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.
(a) This Agreement will continue in full force and effect until the
earlier of (i) termination by mutual consent of the parties hereto, (ii) the
dissolution of the Company, (iii) termination on or before June 10, 1998 by
Apollo, in its sole discretion, by providing written notice to the other
Members, if the Initial Subsequent Closing has not occurred by June 1, 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 satisfy all
conditions precedent to the Initial Subsequent Closing and shall have not taken
any actions impeding or delaying the satisfaction of any conditions precedent to
the Initial Subsequent Closing, or (iv) termination on or before October 10,
1998 by Apollo, in its sole discretion, by providing 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 99% of 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.
(b) Notwithstanding any provision herein to the contrary, New Valley
shall not have the right to terminate this Agreement prior to the time when the
Apollo Loan is either repaid in full (including all principal, interest and
other amounts due thereon) or is
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converted into the Class A Interests as contemplated by Section 2.4(b). In the
event of termination of this Agreement under Section 14.2(a)(iii), the Company
or, at the election of the New Valley Parties, the New Valley Parties, shall,
within sixty (60) days thereafter, pay to Apollo the principal, accrued interest
and all other amounts due on the Apollo Loan. Upon payment in full of all the
amounts due under the Apollo Loan as provided in the preceding sentence, the
Pledge Agreement shall be terminated and all of Apollo's Interests in the
Company shall be transferred to New Valley in exchange for $20,000. In the event
of termination of this Agreement by Apollo, the provisions of Sections
2.10(a)(v), (vi) and (vii) (and of Sections 2.7 and 2.8 and 2.10(a)(viii) to the
extent necessary to implement such provisions) shall survive the termination of
this Agreement.
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
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<PAGE> 46
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, 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
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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
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 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
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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,
"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 form 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 on such capital compounded quarterly;
(ii) the New Valley Entities will be entitled to a return of their capital
invested plus a 20% rate of return on such capital compounded quarterly, and
(iii) remaining distribution will be made 50% to each of Apollo, on the one
hand, and the New Valley Entities, on the other.
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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: New Valley Corporation,
its Manager
By: /s/ Bennett S. Lebow
--------------------------------------
Name: Bennett S. LeBow
Title: Chairman of the Board and
Chief Executive Officer
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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(c) 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 12.8(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.
"Affiliated Entity" shall mean the Russian LLC, Delaware LLC-2, any other
direct or indirect wholly-owned subsidiary of the Company, Joint Venture-II,
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.
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"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(d) hereof.
"Assumed Liabilities" shall have the meaning ascribed thereto in Section
2.4(d) 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 third
"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.
"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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"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 first
"WHEREAS" clause hereof.
"Dissolving Member" shall have the meaning ascribed thereto in Section 9.4
hereof.
"Ducat II Land Lease" shall have the meaning ascribed thereto in Section
10.3(a) hereof.
"Ducat II Leases" shall have the meaning ascribed thereto in Section
10.3(l) hereof.
"Ducat II Operations" shall have the meaning ascribed thereto in Section
11.4(a) 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 first
"WHEREAS" clause hereof.
"Ducat Place III" shall have the meaning ascribed thereto in the first
"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.
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<PAGE> 53
"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 12.7 hereof.
"Initial Subsequent Closing Date" shall have the meaning ascribed thereto
in Section 12.7 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.
"Joint Venture-II" shall have the meaning ascribed thereto in the first
"WHEREAS" clause hereof.
"Joint Venture-II Agreement" shall have the meaning ascribed thereto in the
third "WHEREAS" clause hereof.
"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(e) 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.
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<PAGE> 54
"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.
"Payment Default" shall have the meaning ascribed thereto in Section 2.4(e)
hereof.
"Pledge Agreement" shall have the meaning ascribed thereto in Section
12.4(d) hereof.
"Potential Lease" shall have the meaning ascribed thereto in Section 6.5(c)
hereof.
"Potential Loan" shall have the meaning ascribed thereto in Section 6.5(c)
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 first
"WHEREAS" clause hereof.
"Russian Opportunities" shall have the meaning ascribed thereto in Section
14.13(a).
"Subsequent Closings" shall have the meaning ascribed thereto in
Section 12.6 hereof.
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<PAGE> 1
Exhibit 10.1
NON-NEGOTIABLE PROMISSORY NOTE
------------------------------
$11,000,000 February 27, 1998
FOR VALUE RECEIVED, Western Realty Development LLC, a Delaware limited
liability company ("Maker"), hereby unconditionally promises to pay to Apollo
Real Estate Investment Fund III, L.P., a Delaware limited partnership ("Payee"),
in lawful money of the United States of America, the principal sum of Eleven
Million Dollars ($11,000,000), together with interest in arrears accruing from
the date hereof on the unpaid principal balance at an annual rate equal to 15%,
in the manner provided below. Interest shall be calculated on the basis of a
year of 365 or 366 days, as applicable, and charged for the actual number of
days elapsed.
This Note has been executed and delivered pursuant to and in accordance
with the terms and conditions of the Amended and Restated Western Realty
Development LLC Limited Liability Company Agreement (the "LLC Agreement"), dated
as of February 20, 1998, among Maker, Payee, New Valley Corporation, a Delaware
corporation ("New Valley"), and BrookeMil Ltd., a Cayman Islands company
("BrookeMil").
1. PAYMENTS
1.1 PRINCIPAL AND INTEREST
The principal amount of this Note shall be due and payable on the
earlier of (i) September 30, 1998 or (ii) the date on which amounts hereunder
are declared due and payable pursuant to Section 2.3 (such earlier date, the
"Maturity Date"). Interest on this Note shall be due and payable on the Maturity
Date.
1.2 MANNER OF PAYMENT
All payments of principal and interest on this Note shall be made by
wire transfer in immediately available funds in U.S. Dollars to an account
designated by Payee in writing. If any payment of principal or interest on this
Note is due on a day which is not a Business Day, such payment shall be due on
the next succeeding Business Day, and such extension of time shall be taken into
account in calculating the amount of interest payable under this Note. "Business
Day" means any day other than a Saturday, Sunday or legal holiday in the State
of New York.
1.3 PREPAYMENT
Maker may, without premium or penalty, at any time and from
time to time, prepay all or any portion of the outstanding principal balance due
under this Note, provided that each such prepayment is accompanied by accrued
interest on the amount of principal prepaid calculated to the date of such
prepayment.
<PAGE> 2
2. DEFAULTS
2.1 EVENTS OF DEFAULT
The occurrence of any one or more of the following events with respect
to Maker shall constitute an event of default hereunder ("Event of Default"):
(a) If Maker shall fail to pay when due any payment of
principal or interest on this Note or any amount due pursuant to the Pledge
Agreement dated as of the date hereof (the "Pledge Agreement") between New
Valley, Payee and BrookeMil and such failure continues for 10 days after Payee
notifies Maker in writing; or
(b) If, pursuant to or within the meaning of the United States
Bankruptcy Code or any other federal or state law relating to insolvency or
relief of debtors (a "Bankruptcy Law"), Maker, New Valley, Brooke Group Ltd.,
BGLS Inc., Liggett Group Inc., Brooke (Overseas) Ltd. or Western Tobacco
Investments LLC shall (i) commence a voluntary case or proceeding; (ii) consent
to the entry of an order for relief against it in an involuntary case; (iii)
consent to the appointment of a trustee, receiver, assignee, liquidator or
similar official; (iv) make an assignment for the benefit of its creditors; or
(v) admit in writing its inability to pay its debts as they become due; or
(c) If a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (i) is for relief against Maker or New
Valley in an involuntary case; (ii) appoints a trustee, receiver, assignee,
liquidator or similar official for Maker or New Valley or substantially all of
Maker's or New Valley's properties; or (iii) orders the liquidation of Maker or
New Valley, and in each case the order or decree is not dismissed within 120
days; or
(d) If at any time Payee shall cease to have a perfected first
priority lien in the Collateral (as defined in the Pledge Agreement); or
(e) If Payee shall have terminated the LLC Agreement in
accordance with Section 14(a)(iii) thereof.
2.2 Notice by Maker
Maker shall notify Payee in writing within five days after the
occurrence of any Event of Default of which Maker acquires knowledge.
2.3 Remedies
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<PAGE> 3
Upon the occurrence of an Event of Default hereunder (unless all Events
of Default have been cured or waived in writing by Payee), Payee may, at its
option, (i) by written notice to Maker, declare the entire unpaid principal
balance of this Note, together with all accrued interest thereon, immediately
due and payable regardless of any prior forbearance, and (ii) exercise any and
all rights and remedies available to it under applicable law, including, without
limitation, the right to collect from Maker all sums due under this Note and
exercise all rights and remedies of a secured party pursuant to the Pledge
Agreement. Maker shall pay all costs and expenses incurred by or on behalf of
Payee in connection with Payee's exercise of any or all of its rights and
remedies under this Note and/or the Pledge Agreement, including, without
limitation, reasonable attorneys' fees.
3. MISCELLANEOUS
3.1 WAIVER
The rights and remedies of Payee under this Note shall be cumulative
and not alternative. No waiver by Payee of any right or remedy under this Note
or under the Pledge Agreement shall be effective unless in a writing signed by
Payee. Neither the failure nor any delay in exercising any right, power or
privilege under this Note or under the Pledge Agreement will operate as a waiver
of such right, power or privilege and no single or partial exercise of any such
right, power or privilege by Payee will preclude any other or further exercise
of such right, power or privilege or the exercise of any other right, power or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right of Payee arising out of this Note can be discharged by Payee, in whole or
in part, by a waiver or renunciation of the claim or right unless in a writing,
signed by Payee; (b) no waiver that may be given by Payee will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on Maker will be deemed to be a waiver of any obligation of Maker or of
the right of Payee to take further action without notice or demand as provided
in this Note. Maker hereby waives presentment, demand, protest and notice of
dishonor and protest.
3.2 NOTICES
Any notice required or permitted to be given hereunder shall be given
in accordance with Section 13.1 of the LLC Agreement.
3.3 SEVERABILITY
If any provision in this Note is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Note will remain
in full force and effect. Any provision of this Note held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
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<PAGE> 4
3.4 GOVERNING LAW; JURISDICTION
This Note will be governed by the laws of the State of New York without
regard to its conflict of laws principles.
Maker agrees that any legal action or proceedings arising out of or in
connection with this Agreement may be brought in any court of the State of New
York located in New York County or the United States District Court for the
Southern District of New York, and, by execution and delivery of this Note,
Maker hereby submits to and accepts with regard to any such action or
proceeding, for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts and waives any
objection which such party may now or hereafter have to any such court as the
venue for any such proceeding on the ground that it may constitute any forum
non-conveniens. The agreement set forth in this Section 3.4 is given solely for
the benefit of Payee and its permitted assigns and such agreement is not
intended to and shall not inure to the benefit of any other person.
3.5 NON-NEGOTIABILITY; PARTIES IN INTEREST
This Note shall bind Maker and its successors and assigns; provided,
however, that (i) Maker's obligations hereunder may not be assigned without the
prior written consent of Payee and (ii) THIS NOTE IS NON-NEGOTIABLE AND SHALL
NOT BE ASSIGNED OR TRANSFERRED BY PAYEE WITHOUT THE EXPRESS PRIOR WRITTEN
CONSENT OF MAKER, EXCEPT BY OPERATION OF LAW, provided that (x) such consent
shall not be unreasonably withheld by Maker in the event of an assignment of
this Note to an affiliate of Payee, and (y) in the event of the occurrence of an
Event of Default, this Note shall be fully transferable.
3.6 TERMINATION
This Note shall be cancelled upon on the earlier to occur of (i) the
date on which payment of any and all amounts due and payable by Maker under this
Note and by New Valley under the Pledge Agreement is made to Payee and (ii) the
date on which this Note (including the interest accrued thereon) is converted,
in accordance with Section 12.8 of the LLC Agreement, into Class A Interests (as
defined therein) issued to Payee.
3.7 SECTION HEADINGS; CONSTRUCTION
The headings of Sections in this Note are provided for convenience only
and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Note unless otherwise specified.
-4-
<PAGE> 5
All words used in this Note will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
words "hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific Section or subsection hereof.
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first stated above.
Western Realty Development LLC
By:
----------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.2
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT, dated as of February 27, 1998, is entered into
by and between APOLLO REAL ESTATE INVESTMENT FUND III, L.P., a Delaware limited
partnership ("Apollo"), and NEW VALLEY CORPORATION, a Delaware corporation ("New
Valley").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, on the date hereof, the parties thereto have entered into the
Amended and Restated Western Realty Development LLC Limited Liability Company
Agreement (the "LLC Agreement"), dated as of February 20, 1998, by and among
Western Realty Development LLC, a Delaware limited liability company (the
"Delaware LLC"), Apollo, New Valley and BrookeMil Ltd., a Cayman Islands company
(the "Company");
WHEREAS, on the date hereof, Apollo has made a loan (the "Loan") of
$11,000,000 to the Delaware LLC pursuant to a Promissory Note dated February 27,
1998 (the "Note");
WHEREAS, to secure the payment obligations of the Delaware LLC under
the Note, Apollo has requested that New Valley pledge to it the 10,483 shares of
Common Stock (the "Shares") of the Company owned by New Valley, which Shares
constitute 99.1% of the outstanding Common Stock of the Company; and
WHEREAS, Apollo would be unwilling to extend the Loan absent the pledge
to it of the Shares and other items of Collateral described below, and New
Valley and the Delaware LLC will derive direct and indirect benefits from the
transactions contemplated by the LLC Agreement and the Note;
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. SECURITY AGREEMENT
1.1 SECURITY INTEREST IN THE COLLATERAL
(a) In order to secure the due and punctual payment (whether
at maturity or by acceleration) of any amount that the Delaware LLC is obligated
to pay under the Note, New Valley hereby pledges, assigns, transfers, sets over
and delivers to Apollo and grants for the benefit of Apollo a security interest
in and to all of the following in which New Valley may now or hereafter have any
right, title or interest:
<PAGE> 2
(i) the Shares;
(ii) all certificates and instruments representing
the Shares identified on Annex 1 hereto and
all other shares of capital stock of the
Company now or hereafter owned by New Valley;
(iii) all cash, securities, distributions and other
property at any time and from time to time
received, receivable or otherwise distributed
in respect of or in exchange for any or all
of the foregoing; and
(iv) all proceeds of any of the property of New
Valley described in clauses (i-iii) above
(all of the property described in the
foregoing clauses (i)-(iv) is hereinafter
referred to as the "Collateral").
(b) The Shares and all certificates and instruments
representing such Shares and all other property constituting Collateral pledged
by New Valley hereunder shall be forthwith transferred and delivered by New
Valley to Apollo Real Estate Advisors III, L.P., the general partner of Apollo
(the "Representative"), located at Two Manhattanville Road, Purchase, New York
10577 duly endorsed in blank or accompanied by undated stock powers duly
executed in blank in accordance with the provisions of Section 8-106(b)(1) of
the Uniform Commercial Code as in effect in the State of New York (the "UCC").
In addition, on the date of execution of this Pledge Agreement, the Company
hereby acknowledges notice of this Pledge Agreement and the Company agrees to
make a notation on its Register of Members of this Pledge Agreement, and New
Valley agrees to take such other action as Apollo shall deem reasonably
necessary or appropriate to duly record the lien created hereunder in the
Collateral. In addition, at the request of Apollo, New Valley shall give,
execute, deliver, file and/or record any financing statement, notice,
instrument, document, agreement, or other papers that may be necessary or
desirable (in the reasonable judgment of Apollo) to create, preserve, perfect or
validate the security interest and lien granted pursuant hereto or to enable
Apollo to exercise and enforce its rights hereunder. All securities and other
certificated property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for the Shares or other items
of Collateral (collectively with the Shares, the "Property"), shall also be
transferred and delivered to the Representative when received.
1.2 VOTING RIGHTS; DISTRIBUTIONS; ETC.
(a) So long as no Event of Default (as defined below) shall
have occurred and be continuing Apollo agrees that:
(i) Except as set forth in paragraph (b) below, New
Valley shall be solely and exclusively entitled to
exercise any and all voting, consensual and other
rights and powers relating or pertaining to the
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<PAGE> 3
Collateral or any part thereof that New Valley may
now or hereafter have as the owner of the Shares for
any purpose not inconsistent with the terms of this
Agreement, provided that for purposes of Section
8-106 of the UCC Apollo shall exercise such rights at
the direction of New Valley; and
(ii) New Valley shall be solely and exclusively entitled
to receive and retain dividends and other
distributions payable upon the Shares.
(b) Upon the occurrence and during the continuance of an Event
of Default, all rights of New Valley to direct Apollo in the exercise of the
voting, consensual and other rights and powers which New Valley is entitled to
exercise pursuant to subparagraph (i) of paragraph (a) above and to receive the
dividends and other distributions which New Valley is authorized to receive and
retain pursuant to subparagraph (ii) of paragraph (a) above shall cease and
Apollo shall have the sole and exclusive right and authority to exercise such
voting, consensual and other rights and powers and to receive such dividends and
other distributions, and any such dividends and other distributions received by
New Valley shall immediately be paid over to Apollo. Any and all money and other
property paid over to or received by Apollo pursuant to the provisions of this
paragraph (b) shall be retained by Apollo as part of the Collateral and be
applied in accordance with the provisions hereof.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1 TITLE TO SHARES
New Valley hereby represents and warrants that it owns good and
marketable title to the Shares, free and clear of any liens, charges,
encumbrances or security interests of any kind whatsoever, and that the Shares
are not subject to any restriction on alienation or transfer, in each case,
other than this Agreement. New Valley covenants to defend the right, title and
interest of New Valley in and to the Shares against the claims and demands of
all persons whatsoever. New Valley hereby represents, warrants and covenants
that New Valley is currently, or shall be, the only owner of the Shares and that
New Valley does not, and will not have, outstanding rights, options, warrants,
conversion rights or other commitments or agreements for the purchase or
acquisition of the Shares.
2.2 NO TRANSFER
New Valley covenants not to sell, assign, transfer or otherwise dispose
of, or grant any option with respect to, or pledge or otherwise encumber (other
than the lien created hereby), any of the Shares, other Collateral or any
interest therein, unless (i) it obtains the prior written consent of Apollo, or
(ii) the Note Termination Date (as hereinafter defined) has occurred, as
specified in the Note Termination Notice (as hereinafter defined) sent to the
Company. In
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<PAGE> 4
furtherance of the foregoing, the Company acknowledges and agrees that it will
not cause or permit any transfer of the Shares to any person, other than Apollo
or a person designated by Apollo upon a foreclosure of the pledge and security
interest granted hereby, without the prior written consent of Apollo until such
time as the Note Termination Notice has been delivered to it.
2.3 CORPORATE ORGANIZATION AND AUTHORITY
New Valley represents and warrants that:
(a) it is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, has full corporate
power and authority to own its assets and to transact its business as now
conducted, is in good standing under the laws of those jurisdictions in which
the business conducted or the assets owned or leased by it makes qualification
to do business as a foreign corporation necessary and has its "chief executive
office" (within the meaning of Section 9-103 of the UCC) at 100 S.E. Second
Street, 32nd Floor, Miami, Florida;
(b) this Agreement has been duly executed and delivered by New
Valley and constitutes a legal, valid and binding obligation of New Valley,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity;
(c) the execution, delivery and performance by New Valley of
this Agreement (i) will not violate any provision of any law applicable to New
Valley or to any of its assets, (ii) will not violate any provisions of the
Restated Certificate of Incorporation or By-laws of New Valley, and (iii) will
not violate any provisions of, or constitute a default under, or result in the
creation or imposition of any lien (other than the lien created hereby) on any
of the properties, revenues or assets of New Valley pursuant to the provisions
of any applicable law, contract, agreement or other undertaking to which New
Valley is a party or which purports to be binding upon New Valley or upon any of
its assets; and
(d) no consent or authorization of, or other act by or in
respect of, any governmental authority, and no consent of any person is required
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement or the perfection of the security interest
granted hereunder.
2.4 INDEBTEDNESS AND OTHER OBLIGATIONS OF BROOKEMIL
During the effectiveness of this Agreement, New Valley will not permit
BrookeMil to incur indebtedness, issue guarantees or assume any contingent
obligations to pay money in an
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<PAGE> 5
amount which exceeds $100,000 in the aggregate outstanding at any given time
without the prior written consent of Apollo.
3. EVENT OF DEFAULT
For purposes of this Agreement an "Event of Default" shall exist
hereunder on the tenth (10) Business Day after Apollo shall have given New
Valley written notice of the occurrence of an Event of Default under Section
2.1(a) of the Note (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body or otherwise); provided, however,
that no Event of Default shall occur for purposes of this Agreement if, during
such ten (10) Business Day period, the Delaware LLC or New Valley shall have
cured such Event of Default (for the avoidance of doubt, no payment of the
principal amount of the Note which has become due solely as a result of such
Event of Default shall be required to cure an Event of Default).
4. REMEDIES UPON DEFAULT
4.1 RIGHTS UNDER THE UNIFORM COMMERCIAL CODE
If any Event of Default shall have occurred and be continuing, Apollo
shall have the right to exercise any and all rights and remedies of a secured
party upon default under the UCC.
4.2 SALE OF THE COLLATERAL
(a) In addition to the aforesaid rights and remedies under the Uniform
Commercial Code, upon the occurrence and during the continuance of an Event of
Default, Apollo may, to the extent permitted by law, sell the Collateral, or any
part thereof, at any public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery, as Apollo
shall deem appropriate. Apollo shall be authorized at any such sale (to the
extent it deems it advisable to do so, in its sole discretion) to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing the Collateral then being sold for their own account for
investment and not with a view to the distribution or resale thereof, and upon
consummation of any such sale Apollo shall have the right to assign, transfer
and deliver to the purchaser or purchasers thereof the Collateral so sold. Each
such purchaser at any such sale shall hold the property sold absolutely and free
from any claim or right on the part of New Valley. At any such sale Apollo may
bid for or purchase, free from any right of redemption on the part of New Valley
(all said rights being also hereby waived and released), all or any part of the
Collateral offered for sale, and Apollo may, upon compliance with the terms of
the sale, hold, retain and dispose of such property without further
accountability therefor.
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<PAGE> 6
(b) Apollo shall give New Valley at least ten (10) days' written notice
of the intention of Apollo to make any such public or private sale or sale at
any broker's board or on any securities exchange. Such notice, in case of public
sale, shall state the time and place fixed for such sale and, in the case of
sale at a broker's board or on a securities exchange, shall state the board or
exchange at which such sale is to be made and the day on which the Collateral,
or portion thereof, will first be offered for sale at such board or exchange.
(c) Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Apollo may fix in the
notice of such sale.
(d) At any such public or private sale, the Collateral or part thereof
to be sold may be sold in one lot as an entirety or in separate parcels, as
Apollo may in its sole discretion determine.
(e) Apollo shall not be obligated to make any sale of Collateral if it
shall determine not to do so, regardless of the fact that notice of sale of
Collateral may have been given. Apollo may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may
without further notice be made at the time and place to which the same shall
have been so adjourned.
(f) As an alternative to exercising its rights under the Uniform
Commercial Code or the power of sale herein conferred upon it, Apollo may
proceed by a suit or suits at law or in equity to foreclose on and to sell the
Collateral or any portion thereof pursuant to a judgment decree of a court or
courts of competent jurisdiction.
4.3 APPLICATION OF PROCEEDS OF SALE AND OTHER CASH RECEIVED
The proceeds of sale of Collateral sold pursuant to Section 4.2 and
cash constituting Collateral received under Section 1.2(b) shall be applied by
Apollo as follows:
FIRST: to the payment of the costs and expenses of such sale, including
the out-of-pocket expenses of Apollo and the fees and out-of-pocket expenses of
legal advisers employed by Apollo in connection therewith, and to the payment of
all advances made by Apollo hereunder and the payment of all reasonable costs
and expenses incurred by Apollo in connection with the administration and
enforcement of this Agreement;
SECOND: to the payment in full of the Note; and
THIRD: the balance (if any) of such proceeds to New Valley, the
successors or assigns of New Valley, or as a court of competent jurisdiction may
direct.
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<PAGE> 7
5. OTHER PROVISIONS
5.1 TERMINATION
The parties hereto agree that, on the earlier to occur of (i) the date
on which payment of any and all amounts due and payable by the Delaware LLC
under the Note is made to Apollo and (ii) the date on which the Note is
converted, in accordance with Section 2.4(b) of the LLC Agreement, into the
Class A Interests (as defined therein) issued to Apollo (such earlier date, the
"Note Termination Date"), the Collateral shall be released from the pledge of
this Agreement and returned to the possession of New Valley and no longer
constitute Collateral under this Agreement. On the Note Termination Date, or
immediately thereafter, Apollo shall (x) reassign and redeliver, or cause to be
reassigned or redelivered, without recourse to or warranty by Apollo and at the
expense of New Valley and together with appropriate instruments of reassignment
and release, to New Valley, against receipt, such of the Collateral (if any) as
shall not have been sold or otherwise applied by Apollo pursuant to the terms
hereof and not theretofore reassigned and redelivered to New Valley or such
person or persons as New Valley may have designated, which Collateral (if any)
shall not have been encumbered by Apollo, and (y) deliver to each of New Valley
and the Company a notice stating that the Note has been cancelled, the Note
Termination Date under this Agreement has occurred, and that the Collateral has
been released from the security interest under this Agreement (the "Note
Termination Notice").
5.2 FURTHER ASSURANCES
New Valley agrees to do such further acts and things, and to execute
and deliver such additional conveyances, assignments, agreements and instruments
as Apollo may at any time reasonably request in connection with the
administration or enforcement of this Agreement or related to the Collateral or
any part thereof or in order better to assure and confirm onto Apollo its
rights, powers and remedies hereunder.
5.3 CERTAIN WAIVERS, ETC.
(a) No delay on the part of Apollo in exercising any power of sale,
lien, option or other right hereunder, and no notice or demand which may be
given to or made upon the Delaware LLC with respect to any power of sale, lien,
option or other right hereunder, shall constitute a waiver thereof, or limit or
impair the right of Apollo to take any action or to exercise any power of sale,
lien, option or any other right under this Agreement or otherwise, nor shall any
single or partial exercise thereof, or the exercise of any power, lien, option
or any other right under this Agreement, or otherwise, preclude any other or
further exercise thereof all without notice or demand, nor shall any of the same
prejudice Apollo's rights against the Delaware LLC in any respect.
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(b) Each and every remedy of Apollo shall, to the extent permitted
by law, be cumulative and shall be in addition to any other remedy given
hereunder or now or hereafter existing at law or in equity or by statute.
(c) Apollo shall have no duty or obligation to satisfy the
indebtedness secured hereby out of any other property, or pursuant to any other
pledge, undertaking or security relating to such indebtedness and may realize on
the Collateral and/or any other security available to it in such order or
concurrently as it may see fit and Apollo will not be required to take any
recourse against the Delaware LLC or any other person or persons before
realizing on the Collateral.
5.4 EXPENSES
New Valley shall pay Apollo on a full indemnity basis all costs and
expenses (a) incurred by Apollo in realizing upon any of the Collateral and (b)
paid or incurred by Apollo in enforcing or attempting to enforce its rights
hereunder, which costs and expenses shall include the reasonable fees and
expenses of legal advisers and counsel to Apollo. The obligation of New Valley
hereunder to make such payments to Apollo shall constitute obligations secured
by the Collateral.
5.5 ENTIRE AGREEMENT; AMENDMENT
This Agreement, the Note, the LLC Agreement and the documents referred
to herein and therein constitute the entire agreement of the parties with
respect to the subject matter hereof and shall supersede any prior expressions
of intent or understanding with respect to this transaction. In the event of any
conflict or inconsistency between this Agreement and any other agreement
governing or otherwise relating to the Shares, the terms of this Agreement shall
control. This Agreement may be amended but only by an instrument in writing
signed by the party or parties to be bound or burdened by such amendment.
5.6 ASSIGNMENT, SUCCESSORS AND ASSIGNS
No assignment of this Agreement or any right or obligation hereunder
whatsoever shall be made by Apollo or New Valley.
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5.7 APPLICABLE LAW
The provisions of this Agreement and all rights and obligations
hereunder shall be governed by and construed in accordance with the laws of the
State of New York, United States of America, without reference to its conflict
of laws rules.
5.8 JURISDICTION
Apollo and New Valley agree that any legal action or proceedings
arising out of or in connection with this Agreement may be brought in any court
of the State of New York located in New York County or the United States
District Court for the Southern District of New York, and, by execution and
delivery of this Agreement, Apollo and New Valley hereby submit to and accept
with regard to any such action or proceeding, each for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts and waive any objection which such party may now or hereafter have to any
such court as the venue for any such proceeding on the ground that it may
constitute any forum non-conveniens. The agreement set forth in this Section 5.8
is given solely for the benefit of the parties hereto and such agreement is not
intended to and shall not inure to the benefit of any other person.
5.9 NOTICES
Any notice, communication or demand to be given or made by or to New
Valley or Apollo pursuant to this Agreement shall be in writing and shall be
deemed to have been duly given or made as of the date of receipt and shall be
delivered personally or mailed by registered or certified mail (postage prepaid,
return receipt requested), sent by overnight courier or sent by telecopy, to New
Valley or Apollo at the following addresses or telecopy numbers (or at such
other address or telecopy number for New Valley or Apollo as shall be specified
by like notice):
(a) if to Apollo:
Apollo Real Estate Investment Fund III, L.P.
c/o Apollo Real Estate Advisors III, L.P.
Two Manhattanville Road
Purchase, New York 10577
Telecopy: 212-261-3301
Attention: John J. Hannan
(b) if to New Valley:
New Valley Corporation
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
9
<PAGE> 10
Telecopy: 305-579-8004
Attention: J. Bryant Kirkland, III
Vice President and
Chief Financial Officer
5.10 INVALIDITY
Any provision hereof prohibited by or unlawful or unenforceable under
any applicable law of any jurisdiction shall as to such jurisdiction be
ineffective without affecting or impairing the remaining provisions of this
Agreement which shall remain in full force and effect. In the event that any
provision of this Agreement or of any document executed pursuant hereto shall be
deemed to be invalid or become invalid, the parties hereto shall substitute for
such invalid provision a new provision which serves the purpose of the invalid
provision to the best possible extent.
5.11 HEADINGS AND COUNTERPARTS
The headings of this Agreement are for the purpose of reference only,
and shall not limit or otherwise affect any of the terms hereof. This Agreement
may be executed in counterparts and any single counterpart or set of
counterparts signed, in either case, by all the parties thereto shall be deemed
to be an original, and all such counterparts when taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
APOLLO REAL ESTATE INVESTMENT NEW VALLEY CORPORATION
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 By: /s/ Richard J. Lampen
----------------------------- ---------------------------
Name: Stuart Koenig Name: Richard J. Lampen
Title: Vice President Title: Executive Vice President
10
<PAGE> 11
Acknowledged and agreed this 27th day of February, 1998.
BROOKEMIL LTD.
By: /s/ Richard J. Lampen
--------------------------------------
Name: Richard J. Lampen
Title: Executive Vice President
11
<PAGE> 12
ANNEX A TO THE PLEDGE AGREEMENT
Certificate No. 5 Representing 10,483 Ordinary Shares of BrookeMil Ltd.
12
<PAGE> 1
EXHIBIT 99.1
PRESS RELEASE
BROOKE GROUP AND NEW VALLEY TO INVEST IN REAL ESTATE IN RUSSIA
WITH APOLLO FUND
- --------------------------------------------------------------------------------
MIAMI, FL, March 2, 1998 -- Brooke Group Ltd. (NYSE: BGL) and New
Valley Corporation (OTC: NVYL) announced today that New Valley has entered into
a joint venture with Apollo Real Estate Investment Fund III, L.P. to form
Western Realty Development LLC to develop real estate in Moscow, Russia.
Pursuant to the agreement, the contributions of New Valley to Western Realty
will include the assets of its BrookeMil Ltd. subsidiary, a real estate
development company in Russia that owns a major office project in Moscow. Apollo
will contribute up to $58 million to Western Realty.
BrookeMil is currently developing a three-phase complex on 2.2 acres of
land in downtown Moscow. The first phase of the project, Ducat Place I, a 46,500
sq. ft. Class-A office building, was successfully built and leased in 1993 and
sold to a tenant in April, 1997. In 1997, BrookeMil completed construction of
Ducat Place II, a premier 150,000 sq. ft. office building. Ducat Place II has
been leased to a number of leading international companies, including Motorola,
Conoco, Lukoil-Arco and Morgan Stanley. The third phase, Ducat Place III, is
planned as a 350,000 sq. ft. mixed-use complex, with construction set to begin
in 1999.
"The formation of Western Realty with Apollo will allow us to
significantly expand our real estate business in Russia, where we are already
very well positioned," said Bennett S. LeBow, Chairman and CEO of Brooke Group
and New Valley. LeBow added, "Ducat Place is the leading western-style
commercial complex in Moscow, with a host of blue-chip tenants, and we believe
that Ducat Place III has even greater potential."
"We are pleased to be working with New Valley - which has developed
some of Moscow's finest existing properties - and we are confident that we will
find many exciting future opportunities together," said Lee Neibart, a principal
of Apollo.
Western Realty will seek to make additional real estate and other
investments in Russia. New Valley and Apollo have agreed to invest, through
Western Realty or another entity, up to $25 million in the aggregate for the
potential development of a real estate project in Moscow. In addition, Western
Realty has agreed to invest $20 million for a 30% interest in a company
organized by Brooke (Overseas) Ltd., a wholly-owned subsidiary of Brooke Group,
which will, among other things, acquire an interest in an industrial site and
manufacturing facility being constructed on the outskirts of Moscow by a
subsidiary of Brooke (Overseas) Ltd.
<PAGE> 2
Brooke Group is a holding company which owns Liggett Group Inc. and
Liggett-Ducat Ltd. and holds 42% of the voting power in New Valley. New Valley
is principally engaged in investment banking and brokerage through Ladenburg,
Thalmann & Co. Inc., in real estate development in Russia through BrookeMil, and
in ownership and management of commercial real estate through its New Valley
Realty division.
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