<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________________ to_________________________
Commission file number: 1-8356
DVL, Inc.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2892858
- -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
24 River Road, Bogota, New Jersey 07603
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (201) 487-1300
--------------
- -----------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes: X No:
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class Outstanding at November 12, 1997
- ----------------------------- --------------------------------
Common Stock, $.01 par value 16,232,450
DVL, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.'s
----------
Consolidated Balance Sheets -
September 30, 1997 (unaudited) and December 31, 1996 1-2
Consolidated Statements of Operations -
Three Months Ended September 30, 1997 (unaudited)
and 1996 (unaudited) 3
Nine Months Ended September 30, 1997 (unaudited)
and 1996 (unaudited) 4
Consolidated Statement of Shareholders' Equity for
the nine months ended September 30, 1997 (unaudited) 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 (unaudited)
and 1996 (unaudited) 6-7
Notes to Consolidated Financial Statements (unaudited) 8-12
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-18
Part II. Other Information:
Item 1 - Legal Proceedings 19
Item 2 - Changes in Securities 19
Item 5 - Other Information 19
Item 6 - Exhibits and Reports on Form 8-K 19
<PAGE>
Part I - Financial Information
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
------
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
Loans receivable, including amounts maturing
after one year - principally pledged
Affiliates:
Wrap around and other mortgages due from
affiliated partnerships (net of underlying
liens of $45,449 and $49,749, respectively) $ 31,215 $ 42,163
Unearned interest (8,303) (12,325)
-------- --------
Net mortgage loans receivable from affiliated
partnerships (including $2,781 and $5,104 of
non-performing loans, respectively) 22,912 29,838
Others:
Non-performing loans collateralized by limited
partnership interests due from limited partners 2,424 3,066
-------- --------
Total loans receivable 25,336 32,904
Allowance for loan losses (10,842) (12,854)
-------- --------
Net loans receivable 14,494 20,050
Cash (including restricted cash of $77 for 1997
and 1996) 455 355
Due from affiliated partnerships (net of an allowance
for loss of $1,727 for 1997 and 1996) 161 114
Investments
Real estate at cost - pledged (net of an allowance
for loss of $208 for 1997 and 1996) 289 289
Real estate lease interests 1,609 1,965
Affiliated limited partnerships (net of an allowance
for loss of $1,528 and $1,342, respectively) 952 2,221
Other investments (net of an allowance for loss
of $400 for 1997 and 1996) 667 667
Other assets 983 973
-------- --------
Total assets $ 19,610 $ 26,634
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
1
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
Liabilities:
Long-term debt - NPM Capital LLC $ 5,245 $ 7,502
Long-term debt - Other 2,117 6,203
Notes payable - litigation settlement 7,493 6,635
Convertible subordinated debentures - 334
Accrued liability for indebtedness of Kenbee
Management, Inc. and affiliates - 115
Accounts payable and accrued liabilities 1,837 1,942
-------- --------
Total liabilities 16,692 22,731
-------- --------
Deferred credits 321 321
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock $10.00 par value, authorized -
100 shares, issued 100 shares 1 1
Common stock, $.01 par value, authorized -
40,000,000 shares, issued and outstanding -
15,679,450 and 15,479,450, respectively 157 155
Additional paid-in capital 95,174 95,146
Deficit (92,735) (91,720)
-------- --------
Total shareholders' equity 2,597 3,582
-------- --------
Total liabilities and shareholders'
equity $ 19,610 $ 26,634
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
2
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
(unaudited)
Three Months Ended
September 30,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Income from affiliates
Interest on mortgage loans $ 199 $ 239
Partnership management fees 95 111
Transaction and other fees from partnerships 157 114
Rent income 9 10
Other income - 2
Income from others
Interest on mortgage loans - 27
Other interest 2 6
Other income 2 220
---------- ----------
464 729
---------- ----------
Operating expenses
Provision for losses - 9
General and administrative 383 448
Asset servicing fee - NPO Management LLC 150 156
Legal and professional fees 66 99
Interest expense
NPM Capital LLC 229 -
Others 391 587
---------- ----------
1,219 1,299
---------- ----------
(Loss) before extraordinary gain (755) (570)
Extraordinary gain on the settlement of
indebtedness - 6,419
---------- ----------
Net (loss) income $ (755) $ 5,849
========== ==========
Earnings (loss) per share:
(Loss) before extraordinary gain $ (.05) $ (.04)
Extraordinary gain on the settlement of
indebtedness - .45
---------- ----------
Net (loss) income $ (.05) $ .41
========== ==========
Weighted average shares outstanding 15,679,450 14,386,977
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
3
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
(unaudited)
Nine Months Ended
September 30,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Income from affiliates
Interest on mortgage loans $ 794 $ 781
Partnership management fees 307 328
Transaction and other fees from partnerships 423 283
Rent income 50 28
Other income - 28
Income from others
Interest on mortgage loans - 83
Interest on loans to limited partners
collateralized by limited partnership interests - 14
Other interest 6 14
Other income 38 260
---------- ----------
1,618 1,819
---------- ----------
Operating expenses
Provision for losses - 65
General and administrative 1,127 1,342
Asset servicing fee - NPO Management LLC 450 306
Legal and professional fees 178 235
Interest expense
NPM Capital LLC 704 -
Others 1,278 1,904
---------- ----------
3,737 3,852
---------- ----------
(Loss) before extraordinary gain (2,119) (2,033)
Extraordinary gain on the settlement of
indebtedness 1,104 8,274
---------- ----------
Net (loss) income $ (1,015) $ 6,241
========== ==========
Earnings (loss) per share:
(Loss) before extraordinary gain $ (.13) $ (.14)
Extraordinary gain on the settlement of
indebtedness .07 .58
---------- ----------
Net (loss) income $ (.06) $ .44
========== ==========
Weighted average shares outstanding 15,679,450 14,126,052
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
4<PAGE>
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands except share data)
(unaudited)
Preferred Stock Common Stock Additional
--------------- -------------------- paid-in
Shares Amount Shares Amount capital Deficit Total
-------- ------ ----------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-January 1, 1997 100 $ 1 15,479,450 $ 155 $ 95,146 $(91,720) $ 3,582
Issuance of common stock in satisfaction
of certain claims 50,000 1 7 8
Issuance of common stock in connection
with the Loan from NPM Capital LLC 150,000 1 21 22
Net loss (1,015) (1,015)
-------- ------ ---------- ------- -------- -------- -------
Balance-September 30, 1997 100 $ 1 15,679,450 $ 157 $ 95,174 $(92,735) $ 2,597
======== ====== ========== ======= ======== ======== =======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
5
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net (loss) before extraordinary gain $ (2,119) $ (2,033)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities
Provision for losses - 65
Accrued interest added to indebtedness 284 289
Amortization of unearned interest on
loan receivable (104) (10)
Amortization of deferred charges 146 299
Imputed interest on notes and debentures 858 737
Amortization of debt discount 158 -
Net (increase) in other assets (156) (467)
Net (increase) in due from affiliated
partnerships (47) -
Net (decrease) increase in accounts payable
and accrued liabilities (53) 204
-------- --------
Net cash (used in) operating activities (1,033) (916)
-------- --------
Cash flows from investing activities
Collections on loans receivable (net of
payments on underlying loans) 5,660 8,572
Net reductions in real estate lease
interests 356 277
Distributions received on affiliated
limited partnership interests and
other investments 1,269 204
Proceeds for common stock and preferred
stock issues - 201
-------- --------
Net cash provided by investing
activities $ 7,285 $ 9,254
-------- --------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
6
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
(continued)
Nine Months Ended
September 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from financing activities
Proceeds from new borrowings $ 2,625 $ -
Repayment of indebtedness (8,328) (8,509)
Payments on subordinated debentures (334) -
Payments on guaranteed indebtedness (115) (152)
-------- --------
Net cash (used in) financing activities (6,152) (8,661)
-------- --------
Net increase (decrease) in cash 100 (323)
Cash - beginning of year 355 1,042
-------- --------
Cash - end of period $ 455 $ 719
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest,
excluding amounts paid on underlying loans $ 488 $ 758
======== ========
Cash paid for income taxes $ 11 $ -
======== ========
Supplemental disclosure of non-cash
investing and financing activities:
Investments in affiliated partnerships
transferred to settle litigation claims $ - $ 108
======== ========
Net reduction in indebtedness pursuant
to creditor settlements $ 1,104 $ 8,274
======== ========
Reduction in accrued liabilities upon
issuance of common stock $ 22 $ 49
======== ========
Common stock issued in creditor settlement $ 8 $ 50
======== ========
Increase in other assets upon issuance
of common stock $ - $ 46
======== ========
Reduction in limited partners' loans upon
receipt of investments in affiliated
partnerships $ - $ 19
======== ========
Net loans transferred to settle debts $ - $ 250
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
7
DVL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Financial Condition
(A) In the opinion of DVL, Inc. ("DVL"), the accompanying financial
statements contain all adjustments (consisting of only normal accruals)
necessary for a fair presentation of the financial position and the results
of operations for the periods presented. The results of operations for the
nine months ended September 30, 1997 should not be regarded as necessarily
indicative of the results that may be expected for the full year. Certain
amounts from the three and nine months ended September 30, 1996 have been
reclassified to conform to the three and nine months ended September 30, 1997
presentation.
(B) DVL continues to experience liquidity problems primarily as a result of
the limited cash flow generated by its restructured mortgage portfolio, as the
mortgage debt service is used to pay senior liens before cash flow on such
mortgages is available to DVL. DVL's cash flow provided by current operations
is insufficient to meet its cash requirements, and DVL continues to liquidate
and/or refinance its assets in order to meet its operating cash flow
deficiency. There can be no assurance that the cash flow generated by DVL's
potential asset liquidations or refinancings will be sufficient to meet any
future operating cash flow deficiencies or future mandatory debt repayments.
DVL's ability to continue as a going concern is dependent upon (1) the
sale or refinancing of certain assets to improve its cash position to meet
operating expenses and mandatory debt payments, (2) the realization of the
estimated value of its loan portfolio over an extended period of time rather
than the value of the assets on a liquidation basis, (3) the return to
profitable operations and (4) availability of additional borrowings. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
2. Loans Receivable/Long Term Debt
(A) In January 1997, DVL, refinanced four underlying mortgages and generated
$821,000 in proceeds in excess of the existing underlying mortgage loans. The
excess proceeds were used to repay the NPM Loan, as required by the NPM loan
agreement.
(B) In February 1997, DVL repaid a creditor $1,474,000 in full satisfaction
of a loan which had a principal amount due of $1,901,000. This repayment
resulted in an extraordinary gain of approximately $406,000 in the first
quarter of 1997. The payment was made by refinancing that creditor's
collateral with a new unaffiliated lender in the principal sum of $2,000,000.
The new loan requires monthly payments of principal and interest equal to cash
flow, as defined, from the loan's collateral. Interest on the outstanding
balance of the loan shall accrue at 12% per annum. The principal amount of
the loan, and all accrued interest, is due February 27, 2000. The loan may
8
be prepaid prior to maturity, with certain prepayment penalties. From this
loan refinancing, DVL remitted approximately $406,000 to NPM to repay the NPM
Loan, as required by the NPM loan agreement. In July 1997, a portion of this
loan was prepaid (See Note 2(k)).
(C) In February 1997, DVL settled a creditor claim, which resulted in an
extraordinary gain of $47,000, in the quarter ended March 31, 1997.
(D) During the three months ended March 31, June 30 and September 30, 1997,
NPM advanced aggregate amounts of approximately $250,000, $87,500 and $87,500,
respectively, to pay certain creditors of DVL, as required by the NPM loan
agreement.
(E) In March and April 1997, NPM advanced DVL an aggregate of $200,000.
These advances, which were not required under the original NPM loan documents,
bear interest at 15% per annum and will be paid pari passu with the original
NPM loan.
(F) In April and September 1997, DVL paid approximately $358,000 and
$7,000, respectively, including principal and interest, in satisfaction of its
subordinated debenture obligations, as required by the terms thereof.
(G) In May 1997, DVL, as the general partner of a certain limited
partnership, negotiated the sale of the partnership's property which resulted
in net proceeds of approximately $625,000 to DVL in satisfaction of the
partnership's mortgage indebtedness. All of the proceeds were used to pay
interest and principal on the NPM Loan, as required by the NPM loan agreement.
(H) In June 1997, DVL repaid a creditor $1,037,335 in cash and transferred
its rights and economic interests in two mortgage loan receivables from
affiliated limited partnerships, as well as its ownership interest in a
limited partnership, in exchange for full satisfaction of its long-term debt
obligation to this creditor in the amount of $2,173,000. This transaction
resulted in an extraordinary gain of approximately $650,000 in the second
quarter ended June 30, 1997. The source of the cash payment was the sale of
a partnership property in which DVL held a 55% limited partnership interest.
(I) In July 1997, DVL received net proceeds of approximately $210,000 in
satisfaction of a partnership's mortgage indebtedness to DVL.
(J) In July 1997, DVL realized net cash proceeds of approximately $372,000
in full satisfaction of a certain limited partnership's mortgage indebtedness.
In connection therewith, as a result of a prior settlement agreement, an
affiliate of DVL released all of its rights under a certain master lease
agreement. From these cash proceeds, DVL repaid a long-term creditor
approximately $219,000.
(K) In July 1997, DVL as the general partner of a certain limited
partnership, negotiated the sale of the partnership's property. The sale
resulted in net cash proceeds of $1,075,000 to DVL in satisfaction of the
partnership's mortgage indebtedness to DVL. All of these proceeds were paid
to one of DVL's long-term creditors, as required.
9
(L) In September 1997, DVL, as the general partner of three separate
limited partnerships, negotiated the sales of each of these partnerships'
properties. From two of the sales, DVL received an aggregate amount of
$1,168,500 in satisfaction of mortgage indebtedness to DVL. All of the
proceeds were used to pay interest and principal on the NPM Loan, as required
by the NPM loan agreement. There was no partnership mortgage indebtedness due
DVL on the third partnership property sold.
3. Shareholders' Equity
In January 1997, DVL issued 150,000 shares of stock to an investment
banker for services rendered in connection with the NPM loan transaction and
issued 50,000 shares of stock to certain unrelated individuals in exchange for
100,000 warrants which such individuals received in connection with a prior
transaction with DVL.
See Notes 4(A) and 5(A) as to issuances of 500,000 shares of stock in the
settlement of the LEVY litigation, and 325,000 shares of stock to the Lender
in connection with the debt tender offer, which occurred in October 1997,
subsequent to the quarter ended September 30, 1997. In an unrelated
transaction, 272,000 shares were retired. Thus, the number of outstanding
shares of common stock increased by the net amount of 553,000, and as of
November 12, 1997, there are 16,232,450 shares outstanding. All of the shares
of newly issued stock constitute "restricted securities", within the meaning
of Rule 144 under the Securities Act of 1933, and were issued pursuant to the
exemption afforded by Section 4(2) of said Act for transactions by an issuer
not involving a public offering.
4. Legal Proceedings
(A) A suit entitled DONALD LEVY, ET AL. V. ROGER D. STERN, ET AL. ("LEVY"),
originally filed in New Castle County, Delaware on February 13, 1991, on
behalf of certain individual shareholders alleged breaches of fiduciary duty
of care and candor. As of June 1997, the parties to the action agreed to the
terms of a settlement, and the implementing documents were executed in
September 1997. Pursuant to the settlement, DVL delivered 500,000 shares of
common stock to the plaintiffs and their attorneys in October 1997.
(B) Federal Insurance Company ("Federal"), which carried DVL's directors and
officers insurance policy, declined to cover DVL for any legal costs or
liability. DVL commenced an action against its insurance broker and Federal
entitled DEL-VAL FINANCIAL CORPORATION, ET AL. V. FEDERAL INSURANCE COMPANY
ET AL. ("FEDERAL INSURANCE") on September 23, 1991 in the Supreme Court of the
State of New York, County of New York in which DVL alleged negligence against
its broker and sought declaratory and injunctive relief against Federal. The
New York Court in this matter has held that the Settling Defendants' insurance
excluded coverage of these matters. DVL has filed a notice of appeal of that
decision. DVL and the broker have agreed to the terms of a settlement
pursuant to which DVL will receive, after legal fees and other costs,
approximately $24,000.
10
(C) DVL was named in an action entitled VANGUARD CAPITAL V. KENBEE
MANAGEMENT, INC. ET AL. ("VANGUARD"), which was filed in 1994 in the Superior
Court of the State of California, in which Vanguard sought contractual
indemnity, equitable indemnity and declaratory relief on certain matters filed
against Vanguard in the Superior Court, State of California, by an investor.
This action is based on complaints by an investor with a $350,000 investment
in an affiliated limited partnership who alleged that the investor's broker
sold to her unsuitable investments. DVL defended the case and Vanguard
voluntarily dismissed the action without prejudice. On March 22, 1996, the
investor in the underlying matter against VANGUARD filed in the Superior Court
of Los Angeles, a motion to vacate an NASD Arbitration award made in July 1995
in favor of VANGUARD and has named DVL as an additional respondent in that
Petition.
5. Subsequent Events
(A) On October 27, 1997, DVL commenced a cash tender offer (the "Offer") for
any and all of its 10% Redeemable Promissory Notes due December 31, 2005 (the
"Notes"), at a price of $0.12 per $1.00 principal amount of Notes. The Offer
is scheduled to expire on December 1, 1997. The Notes were originally issued
in December 1995 in conjunction with the settlement of a shareholder class
action. Approximately $11,425,000 aggregate face amount of Notes were
outstanding as of the commencement of the Offer.
The Offer is intended to retire the Notes, effecting a reduction in DVL's
long-term debt, and eliminating the dilutive effect that would otherwise
result from redemption of the Notes for shares of common stock. DVL has the
option to redeem the Notes at any time after January 1, 1999 by issuing
additional shares of common stock with a market value, as of the date of
redemption, equal to 110% of the face value of the Notes.
DVL has entered into a financing arrangement with an unaffiliated entity
(the "Lender"), permitting DVL to borrow up to $1,760,000 (the "Loan") to fund
the purchase of Notes, and to pay related costs and expenses. The financing
arrangement is being implemented pursuant to an agreement dated as of October
20, 1997 (the "Fourth Amendment") among DVL, the Lender, and the NPM Parties
(as defined below), which amends the Amended and Restated Loan Agreement dated
as of March 27, 1996, as amended, between DVL and NPM Capital LLC (as amended
by the Fourth Amendment, the "Amended Loan Agreement").
Pursuant to the Fourth Amendment, DVL's obligations under the Loan are
secured by all of the assets of DVL currently pledged to NPM Capital LLC
("NPM") and NPO Management LLC ("NPO") under the Amended Loan Agreement and
the other documents executed in connection therewith (NPM and NPO are
collectively referred to as the "NPM Parties"). The Loan will be senior to
all indebtedness of DVL other than indebtedness owing to the NPM Parties and,
with respect to individual assets, the related secured lender. The Loan will
mature on September 30, 2002 and will bear interest at the rate of 12% per
annum. Interest payable in connection with the Loan will be payable in kind
until DVL satisfies all of its obligations owing to the NPM Parties.
Thereafter, interest and principal will be paid from 100% of the proceeds then
available to DVL from the mortgage collateral held as security for the Loan.
11
As further consideration for the Lender's providing DVL with the Loan,
DVL (i) upon the execution of the Fourth Amendment issued to the Lender
325,000 shares of DVL common stock and (ii) agreed to issue to the Lender, at
the expiration date of the Offer, additional shares of common stock, under
certain circumstances.
(B) In November 1997, DVL, as the general partner of a certain limited
partnership, refinanced an underlying mortgage and generated net proceeds of
$136,000 in excess of the existing underlying mortgage loan. The excess
proceeds were used to pay the expenses of the refinancing, and to repay the
NPM Loan as required by the NPM Loan Agreement.
6. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS
#128 Earnings Per Share. SFAS #128 is effective for the Company's fiscal year
ended December 31, 1997 and provides for the restatement of the historical
EPS. The Company believes that SFAS #128 will not have a material effect on
its financial statements.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DVL continues to experience liquidity problems principally as a result
of the reduced cash flow received on the restructured and non-performing
portions of its loan portfolio. Although the limited partner settlement
substantially reduced the non-performing portion of DVL's loan portfolio, this
reclassification has not resulted, nor is it expected to result, in
significant income or cash flow on the majority of the restructured mortgages,
as the mortgage debt service is used to pay liens senior to DVL's.
To enable DVL to meet its short-term operating needs, DVL must continue
to augment its cash flow with the proceeds from the sale or refinancing of
assets and borrowings. There is a risk that DVL may not be able to raise the
necessary funds with which to continue operations.
DVL's ability to continue as a going concern is dependent upon (1) the
sale or refinancing of certain assets to improve its cash position to meet
operating expenses and mandatory debt payments; (2) the realization of the
estimated value of the assets collateralizing its loan portfolio over an
extended period of time rather than the value of the assets on a liquidation
basis; (3) the return to profitable operations and (4) availability of
additional borrowings.
Results of Operations
- ---------------------
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
- ----------------------------------------------------------------------------
DVL realized a net loss of $755,000 for the three months ended September
30, 1997, compared to net income of $5,849,000 for the corresponding 1996
period, a change of $6,604,000. DVL had operating losses in both periods
which increased by $185,000 in 1997. The income in 1996 was a result of the
extraordinary gains realized upon DVL's prepayments to creditors, offsetting
the continued operating losses. The effects of these items and the other
factors contributing to the net income are as follows:
Interest income on mortgage loans due from affiliates decreased from 1996
to 1997, due to the satisfaction of certain loans to affiliated partnerships
upon the sale of partnership properties. This decrease was offset by a
corresponding decrease in interest expense on the underlying debt obligations.
Also, the income reflects adjustments to unearned interest resulting from loan
payoffs, refinancings, etc.
Transaction and other fees from partnerships aggregating $157,000 in 1997
and $114,000 in 1996 principally represent the fees received upon the sale of
certain partnership properties.
Interest income on non-affiliate mortgage loans decreased due to the fact
that as of December 31, 1996 the mortgage loan matured that generated this
income.
13
Other income decreased from 1996 to 1997 primarily as a result of final
monies collected by DVL from the sale of FMF during 1996.
General and administrative expenses decreased by $65,000, primarily as a
result of a decrease in payroll and operating costs incurred in 1997.
Legal and professional fees decreased by $33,000 as a result of decreased
legal, accounting and other professional costs as compared to the same period
of the prior year.
Interest expense for the quarter ended September 30, 1997 aggregated
$620,000 compared to $587,000 for the same period in 1996. During 1997 and
1996, there was a significant amount of refinancings and restructurings of
existing debt, which resulted in substantial reductions in long-term debt
obligations. However, this is offset by $60,000 of amortization expense on
the long-term debt discount, that arose from the issuance of the NPM warrants.
Also, included in the other interest expense, is interest on the notes issued
in connection with the shareholder class action litigation settlement of
approximately $298,000. Interest is payable annually and, at the Company's
option, may be paid by the issuance of additional notes.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
- -------------------------------------------------------------------------
DVL realized a net loss of $1,015,000 for the nine months ended September
30, 1997, as compared to net income of $6,241,000 for the corresponding 1996
period, a change of $7,256,000. The loss in 1997 was a result of an operating
loss of $2,119,000 offset by extraordinary gains realized upon the
restructuring of indebtedness which aggregated $1,104,000. The income in 1996
was primarily a result of the extraordinary gains of $8,274,000 realized upon
DVL's prepayments to a creditor and the discount received upon the payoff of
indebtedness to another creditor partially offset by DVL's continued operating
losses including a reduction in transaction fees. The operating loss increased
by $86,000 in 1997. The effects of these items and the other factors
contributing to the loss are as follows:
Interest income on mortgage loans due from affiliates increased slightly
from 1996 to 1997. The increase in income is attributable to adjustments to
unearned interest resulting from loan payoffs, refinancing, etc. There was
a reduction in the amount of interest income on loans to affiliated
partnerships due to the satisfaction of certain loans upon the sale of
partnership properties. However, this decrease was offset by a corresponding
decrease in interest expense on the underlying debt obligations.
Transaction and other fees from partnerships aggregating $423,000 in 1997
and $283,000 in 1996 principally represent the fees received upon the sale of
certain partnership properties.
Rent income from affiliated partnerships increased from 1996 to 1997,
primarily as a result of the collection of old amounts due DVL that were not
accrued for in the prior year.
14
Interest income on non-affiliate mortgage loans decreased due to the fact
that as of December 31, 1996 the mortgage loan matured that generated this
income.
Other income decreased from 1996 to 1997 primarily as a result of final
monies collected by DVL from the sale of FMF during 1996.
General and administrative expenses decreased by $215,000 primarily as
a result of a decrease in payroll and operating costs incurred in 1997.
Asset Servicing fee increased by $144,000 from 1996 to 1997 since the NPO
Management agreement began March 27, 1996.
Legal and professional fees decreased by $57,000 primarily as a result
of decreased legal, accounting and other professional costs as compared to the
same period of the prior year.
Interest expense for the nine months ended September 30, 1997 aggregated
$1,982,000 compared to $1,904,000 for the same period in 1996. During 1997
and 1996, there was a significant amount of refinancings and restructurings
of existing debt, which resulted in substantial reductions in long-term debt
obligations. However, this is offset by $158,000 of amortization expense on
the long-term debt discount, that arose from the issuance of the NPM warrants.
Also, included in the other interest expense, is interest on the notes issued
in connection with the shareholder class action litigation settlement of
approximately $858,000. Interest is payable annually and, at the Company's
option, may be paid by the issuance of additional notes.
Liquidity and Capital Resources
- -------------------------------
DVL continues to experience liquidity problems and its cash flow provided
by operations is not sufficient to meet its operating needs. DVL is
attempting to augment its cash flow with the proceeds from the sale or
refinancing of assets. There is a risk that DVL may not be able to raise the
necessary funds with which to continue operations.
DVL has the right to refinance a number of mortgage loans underlying its
wrap-around mortgages due from affiliated partnerships and arrange senior
financing secured by properties on which it holds first or second mortgage
loans by subordinating its mortgage position. During the quarter ended March
31, 1997, DVL refinanced four underlying mortgages and generated $821,000 in
proceeds in excess of the existing underlying mortgage loans. The excess
proceeds were used to repay the NPM loan as required by the NPM loan
agreement. The amounts obtained from these refinancings were primarily based
on the value of the base rents during the period of the base lease term
subsequent to the payoff of the existing first mortgages. As a result of
DVL's prior and current refinancings, DVL's asset base available for future
refinancings has diminished. No additional mortgage loans were refinanced in
the quarters ended June 30 or September 30, 1997.
15
In the quarter ended March 31, 1997, DVL entered into a new loan for an
initial principal amount of $2,000,000. From the proceeds of this financing,
DVL repaid an existing creditor $1,474,000 in full satisfaction of a loan
which had a principal amount due of $1,901,000. This payment resulted in an
extraordinary gain, net of other amounts, of approximately $406,000 in the
first quarter of 1997. DVL used the $406,000 of excess proceeds to pay
interest and principal on the NPM loan, as required by the NPM Loan Agreement.
For the six months ended June 30, 1997, DVL borrowed $200,000 from NPM.
These advances were not required by the original NPM Loan Agreement. In
addition, NPM made aggregate advances, as required by the NPM Loan Agreement,
in the amount of $425,000 during the nine months ended September 30, 1997.
In the quarters ended June 30 and September 30, 1997, DVL paid aggregate
amounts of approximately $358,000 and $7,000, respectively, including
principal and interest, in satisfaction of its subordinated debenture
obligations, as required by the terms thereof.
In May 1997, DVL, as the general partner of a certain limited partnership,
negotiated the sale of the partnership's property which resulted in net
proceeds of approximately $625,000 to DVL in satisfaction of the partnership's
mortgage indebtedness. All of the proceeds were used to pay interest and
principal on the NPM loan to NPM, as required by the NPM loan agreement. In
addition, DVL earned approximately $82,000 in fees on the sale transaction.
In June 1997, DVL repaid a creditor $1,037,000 in cash and transferred its
rights and economic interest in two mortgage loan receivables from affiliated
limited partnerships, as well as its ownership interest in a limited
partnership, in exchange for full satisfaction of its long-term debt
obligation to this creditor. This transaction resulted in an extraordinary
gain of approximately $651,000 in the second quarter ended June 30, 1997. The
source of the cash payment was the sale of a partnership's property in which
DVL held a 55% limited partnership interest. In addition, DVL realized fees
on the sale of this property of approximately $153,000.
In July 1997, DVL received net proceeds of approximately $210,000 in
satisfaction of a partnership's mortgage indebtedness to DVL. In addition,
DVL earned approximately $23,000 in fees from the sale.
In July 1997, DVL realized net cash proceeds of approximately $372,000
in full satisfaction of a certain limited partnership's mortgage indebtedness.
In connection therewith, as a result of a prior settlement agreement, an
affiliate of DVL released all its rights under a certain master lease
agreement. From these cash proceeds, DVL repaid a long-term creditor
approximately $219,000.
In July 1997, DVL as the general partner of a certain limited partnership,
negotiated the sale of the partnership's property. The sale resulted in net
cash proceeds of $1,075,000 to DVL, in satisfaction of the partnership's
mortgage indebtedness. All of these proceeds were paid to one of DVL's long-
term creditors, as required. In addition, DVL earned approximately $45,000
in fees from this sale.
16
In September 1997, DVL, as the general partner of three separate limited
partnerships, negotiated the sales of each of these partnerships' properties.
From two of the sales, DVL received an aggregate amount of $1,168,500 in
satisfaction of mortgage indebtedness to DVL. All of the proceeds were used
to pay interest and principal on the NPM Loan, as required by the NPM loan
agreement. There was no partnership mortgage indebtedness on the sale of the
third partnership property. In addition, DVL earned approximately $89,000 in
aggregate fees from these three sales.
The following transactions occurred subsequent to the quarter ended
September 30, 1997:
On October 27, 1997, DVL commenced a cash tender offer (the "Offer") for
any and all of its 10% Redeemable Promissory Notes due December 31, 2005 (the
"Notes"), at a price of $0.12 per $1.00 principal amount of Notes. The Offer
is scheduled to expire on December 1, 1997. The Notes were originally issued
in December 1995 in conjunction with the settlement of a shareholder class
action. Approximately $11,425,000 aggregate face amount of Notes were
outstanding as of the commencement of the Offer.
The Offer is intended to retire the Notes, effecting a reduction in DVL's
long-term debt, and eliminating the dilutive effect that would otherwise
result from redemption of the Notes for shares of common stock. DVL has the
option to redeem the Notes at any time after January 1, 1999 by issuing
additional shares of common stock with a market value, as of the date of
redemption, equal to 110% of the face value of the Notes.
DVL has entered into a financing arrangement with an unaffiliated entity
(the "Lender"), permitting DVL to borrow up to $1,760,000 (the "Loan") to fund
the purchase of Notes, and to pay related costs and expenses. The financing
arrangement is being implemented pursuant to an agreement dated as of October
20, 1997 (the "Fourth Amendment") among DVL, the Lender, and the NPM Parties
(as defined below), which amends the Amended and Restated Loan Agreement dated
as of March 27, 1996, as amended, between DVL and NPM Capital LLC (as amended
by the Fourth Amendment, the "Amended Loan Agreement").
Pursuant to the Fourth Amendment, DVL's obligations under the Loan are
secured by all of the assets of DVL currently pledged to NPM Capital LLC
("NPM") and NPO Management LLC ("NPO") under the Amended Loan Agreement and
the other documents executed in connection therewith (NPM and NPO are
collectively referred to as the "NPM Parties"). The Loan will be senior to
all indebtedness of DVL other than indebtedness owing to the NPM Parties and,
with respect to individual assets, the related secured lender. The Loan will
mature on September 30, 2002 and will bear interest at the rate of 12% per
annum. Interest payable in connection with the Loan will be payable in kind
until DVL satisfies all of its obligations owing to the NPM Parties.
Thereafter, interest and principal will be paid from 100% of the proceeds then
available to DVL from the mortgage collateral held as security for the Loan.
As further consideration for the Lender's providing DVL with the Loan,
DVL (i) upon the execution of the Fourth Amendment issued to the Lender
325,000 shares of DVL common stock and (ii) agreed to issue to the Lender, at
the expiration date of the Offer, additional shares of common stock, under
certain circumstances.
17
In November 1997, DVL, as the general partner of a certain limited
partnership, refinanced an underlying mortgage and generated $186,000 in
proceeds in excess of the existing underlying mortgage loan. The excess
proceeds were used to pay the expenses of the refinancing, and to repay the
NPM Loan as required by the NPM Loan Agreement.
18
Part II - Other Information
Item 1. Legal Proceedings
-----------------
The information set forth in Note 4(A) [Legal Proceedings] of the
Notes to the Financial Statements included in Part I of this Report, regarding
the completion of the settlement of the LEVY litigation, is incorporated by
reference herein in response to this Item 1.
Item 2. Change in Securities
--------------------
The information set forth in Note 3 [Shareholders' Equity], 4(A)
[Legal Proceedings] and 5(A) [Subsequent Events] of the Notes to the Financial
Statements, regarding issuances of stock in October 1997, in the settlement
of the LEVY litigation, and to the Lender in connection with the debt tender
offer, is incorporated by reference herein in response to this Item 2.
Item 5. Other Information
-----------------
The information set forth in Note 5A [Subsequent Events] of the Notes
to the Financial Statements, regarding the commencement by DVL, in October
1997, of a cash tender offer for its 10% Redeemable Promissory Notes due
December 31, 2005, is incorporated by reference herein in response to this
Item 5.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(A) There were no reports on Form 8-K filed during the three months ended
September 30, 1997.
(B) Exhibits:
10.1 - Fourth Amendment, dated as of October 20, 1997, among
DVL, Bridge Capital, LLC (the "Lender"), NPM Capital
LLC ("NPM") and NPO Management LLC ("NPO"), to Amended
and Restated Loan Agreement, dated as of March 27,
1997, as amended, between DVL and NPM.
10.2 - Promissory Note dated as of October 20, 1997, in the
original principal amount of $1,760,000 from DVL to
Lender.
10.3 - Subordination Agreement, dated as of October 20, 1997,
among DVL, the Lender, NPM and NPO.
The Schedules to Exhibits 10.1 and 10.3, which are identified
therein, have been omitted and will be furnished supplementally
to the Commission upon request.
27 - Financial Data Schedule
19
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DVL, INC.
By: /s/ Gary Flicker
------------------------------
Gary Flicker, Vice President
and Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
November 12, 1997
20
EXHIBIT 10.1
------------
FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (the
"Fourth Amendment") is made and entered into as of this 20th day of October,
1997, by and among DVL, Inc., a Delaware corporation having an office at 24
River Road, Bogota, New Jersey 07603 (the "Borrower"), NPM Capital LLC, a
Delaware limited liability company with an address c/o Pembroke Companies,
Inc., 1400 Colorado Street, No. C, Boulder City, Nevada 89005 (the "Lender"),
and Bridge Capital, LLC, a limited liability company organized under the laws
of the State of Delaware having an office at 450 Park Avenue, New York, New
York 10017 ("Bridge Capital Lender").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrower and Lender are parties to an Amended and Restated
Loan Agreement dated as of March 27, 1996, as amended by Amendments thereto
dated as of July 10, 1996, September 27, 1996 and March 6, 1997 (the Amended
and Restated Loan Agreement, as so amended, being referred to herein as the
"Loan Agreement"), pursuant to which, among other things, Lender acquired
approximately $7.5 million of outstanding indebtedness of Borrower and
advanced additional sums to Borrower (the "Loan"); and
WHEREAS, concurrently with the execution of the Loan Agreement,
Borrower, NPO Management LLC, a Delaware limited liability company ("NPO; the
Lender and NPO sometimes hereinafter collectively referred to as the "NPM
Parties"), and certain other parties entered into an Asset Servicing Agreement
(the "Servicing Agreement") pursuant to which, among other things, Borrower
engaged NPO to assist Borrower to perform certain services with respect to the
ownership, sale, financing and asset management of certain of Borrower's
assets; and
WHEREAS, Borrower's obligations to the NPM Parties arising out of and
relating to the Loan Agreement and the Servicing Agreement, respectively, are,
among other things, secured by the pledge by Borrower to the NPM Parties of
certain of Borrower's assets, all as more specifically set forth in certain
Security, Pledge and Guaranty Agreements and Stock Pledge and Guaranty
Agreements entered into by Borrower and the NPM Parties concurrently with the
execution of the Loan Agreement; and
WHEREAS, Borrower is desirous of Bridge Capital Lender advancing up
to $1,760,000 (the "Bridge Capital Loan") in order to finance Borrower's
acquisition, together with related costs and expenses (the "Debt Tender
Offer"), of Borrower's outstanding 10% Redeemable Promissory Notes due
December 31, 2005 (the "Redeemable Notes"); and
WHEREAS, Bridge Capital Lender desires to advance Borrower the Bridge
Capital Loan in order to permit Borrower to pursue the Debt Tender Offer, all
in accordance with the terms and conditions set forth herein; and
WHEREAS, Borrower, NPM and Bridge Capital Lender desire to memorialize
the Bridge Capital Loan by modifying the Loan Agreement to give effect to the
Bridge Capital Loan as follows.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Capitalized terms used and not otherwise defined herein shall have
the meanings ascribed to them in the Loan Agreement.
2
2. The Loan Agreement is hereby amended to add the words "or Bridge
Capital Lender, as the case may be," immediately after the term "Lender" and
the words "or Bridge Capital Lender's, as the case may be," immediately after
the term "Lender's" each time the terms "Lender" and "Lender's" appear
throughout the Loan Agreement as follows:
a. In Article 1, "Definitions", the amendment contemplated by this
paragraph 2 shall be effective with respect to all defined terms other than
(i) A.I. Credit Loan Transfer Documents, (ii) Closing Date, (iii) Collateral
Assignments, (iv) CRT Loan Transfer Documents, (v) Existing Lenders, (vi)
Indebtedness, (vii) Lender, (viii) Lender Default, (ix) Lender Entities, (x)
Lender Expenses, (xi) Lender Litigation Expenses, (xii) Lender Transaction
Expenses, (xiii) Mortgage, (xiv) Security Agreement, (xv) Stock Pledge
Agreement and (xvi) Westrock Loan Transfer Documents, each of which shall
retain the definition given it in the Loan Agreement without giving effect to
this Fourth Amendment.
b. In Article 2, "Terms of Acquisition of Existing Loans...", the
amendment contemplated by this paragraph 2 shall be effective only with
respect to Sections 2.12, 2.14, 2.15 and 2.16. All other Sections of Article
2 shall remain as set forth currently in the Loan Agreement without giving
effect to this Fourth Amendment.
c. The amendment contemplated by this paragraph 2 shall not affect
Article 3, "Conditions Precedent", of the Loan Agreement, which Article 3
shall remain as set forth currently in the Loan Agreement without giving
effect to this Fourth Amendment.
d. In Article 4, "Representations and Warranties", the amendment
contemplated by this paragraph 2 shall be effective with respect to all
Sections of Article 4 other than the preamble to Article 4 and Sections 4.26
and 4.29 thereto, which preamble and two Sections shall remain as set forth
currently in the Loan Agreement without giving effect to this Fourth
Amendment.
e. In Article 5, "Financial Statements and Information", the amendment
contemplated by this paragraph 2 shall be effective with respect to all
Sections of Article 5.
f. In Article 6, "Affirmative Covenants", the amendment contemplated
by this paragraph 2 shall be effective with respect to all Sections of Article
6 other than Sections 6.14(b) and 6.18, which two Sections shall remain as set
forth currently in the Loan Agreement without giving effect to this Fourth
Amendment.
g. In Article 7, "Negative Covenants", the amendment contemplated by
this paragraph 2 shall be effective with respect to all Sections of Article
7.
3
h. In Article 8, "Events of Default...", the amendment contemplated
by this paragraph 2 shall be effective with respect to all Sections of Article
8.
i. In Article 9, "Miscellaneous", the amendment contemplated by this
paragraph 2 shall be effective with respect to all Sections of Article 9 other
than Sections 9.1(c), 9.1(d), 9.10, 9.12 and 9.16, which five Sections shall
remain as set forth currently in the Loan Agreement without giving effect to
this Fourth Amendment.
3. The Loan Agreement is hereby amended by adding to Section 1 thereto
the following defined terms:
a. "Bridge Capital Lender" shall mean Bridge Capital, LLC, a Delaware
limited liability company.
b. "Bridge Capital Loan" shall mean that certain loan by Bridge Capital
Lender to Borrower in the aggregate maximum principal amount of $1,760,000
being made in order to finance Borrower's acquisition, together with
Borrower's costs and expenses related to said acquisition and the Bridge
Capital Loan, of Borrower's Redeemable Notes pursuant to the Debt Tender
Offer, all as contemplated by the Fourth Amendment.
c. "Debt Tender Offer" shall mean Borrower's proposed offer to purchase
any and all outstanding Redeemable Notes of Borrower, all as more fully set
forth in the draft of Borrower's Offer to Purchase dated October 20, 1997, as
such offer may be amended and modified from time to time.
d. "Permitted Working Capital Advances" shall mean advances or other
loans from time to time made by Lender to Borrower following the date hereof
in the maximum aggregate principal amount of $300,000. All Permitted Working
Capital Advances shall be on terms separately negotiated by Lender and
Borrower.
e. "Redeemable Notes" shall mean Borrower's 10% Redeemable Promissory
Notes due December 31, 2005, together with all other promissory notes of
Borrower issued in satisfaction of Borrower's interest obligations under such
Redeemable Notes.
f. "Subordination Agreement" shall mean that certain Subordination
Agreement dated as of the date of this Fourth Amendment among Borrower,
Lender, NPO and Bridge Capital Lender, as the same may be amended, modified
or supplemented from time to time.
4. The definition of "Loan Documents" set forth in Section 1 of the Loan
Agreement is hereby further amended to read in its entirety as follows:
"Loan Documents" shall mean the collective reference to this
Agreement, as amended, the Note, the Second Note, the Bridge Capital Note, the
Collateral Documents, the Subordination Agreement, any instrument or other
4
document evidencing any Permitted Working Capital Advance and all other
agreements, instruments, documents and certificates, including, without
limitation, pledges, powers of attorney, consents, assignments, contracts,
notices, and all other written matter whether heretofore, now or hereafter
executed by or on behalf of Borrower or any of its Affiliates, or any employee
of Borrower or any of its Affiliates, and delivered to Lender or Bridge
Capital Lender in connection with this Agreement, as amended, the Note, the
Second Note, the Bridge Capital Note, the Collateral Documents, the
Subordination Agreement, any Permitted Working Capital Advance or the
transactions contemplated hereby or thereby, together with all amendments,
modifications and supplements to such Loan Documents."
5. The definition of "Obligations" set forth in Section 1 of the Loan
Agreement is hereby further amended to include within the definition of
"Obligations" the indebtedness evidenced by the Bridge Capital Note and any
Permitted Working Capital Advances.
6. The definition of "Senior Debt" set forth in Section 1 of the Loan
Agreement is hereby further amended to read in its entirety as follows:
"'Senior Debt' shall mean the collective reference to all principal
of, interest on, and all other amounts of any nature whatsoever owing in
respect of, the Loan Documents and the Servicing Agreement, specifically
excluding, however, obligations of Borrower arising under the Bridge Capital
Note or the Fourth Amendment."
7. The Loan Agreement is hereby amended by adding a new Section 2.17
thereto as follows:
"2.17 BRIDGE CAPITAL LOAN.
(a) Contemporaneously with the execution of this Fourth Amendment,
Borrower is executing and delivering to Bridge Capital Lender a single
promissory note evidencing the Bridge Capital Loan in the form attached to
this Fourth Amendment as Exhibit A (the "Bridge Capital Note"). The original
principal amount of the Bridge Capital Note shall be $1,760,000. All
outstanding principal of, and then due accrued interest on, the Bridge Capital
Note shall become due and payable in cash, without notice or demand, on
September 30, 2002 or such earlier date pursuant to the terms of the Loan
Agreement, subject, however, at all times, to the terms of the Subordination
Agreement. Notwithstanding the foregoing, commencing with the date that is
30 months following the date of this Fourth Amendment, Borrower shall remit
to Bridge Capital Lender, in the form of prepayments of principal under the
Bridge Capital Note, 15% of all proceeds that, but for the provisions of this
Section 2.17, would otherwise have been remitted to either or both of the NPM
Parties pursuant to this Loan Agreement as a consequence of the sale or other
disposition by Borrower of any Primary Collateral (the "Prepayments"). All
5
Prepayments shall be remitted to Bridge Capital Lender simultaneously with the
delivery to either or both of the NPM Parties of their allocable share of the
proceeds from the sale or other disposition of any Primary Collateral.
Interest on the outstanding principal balance of the Bridge Capital Note shall
accrue at the rate of 12% per annum on a year of 360 days for the actual
number of days elapsed, and shall be payable annually on each anniversary of
this Fourth Amendment (i) while obligations of Borrower remain outstanding to
either of the NPM Parties, by the issuance of promissory notes of Borrower
similar in form and substance, including interest rate and maturity date, to
the Bridge Capital Note (the "PIK Notes"), except that the principal amount
of such PIK Notes shall be the amount of accrued interest then payable, and
(ii) after all obligations of Borrower to either of the NPM Parties are
satisfied, in cash directly from 100% of the proceeds then available to
Borrower from the mortgage collateral held as security for the Senior Debt.
(b) Borrower hereby acknowledges that (i) up to $1,700,000 of the
principal amount of the Bridge Capital Loan is being made in order to
facilitate Borrower's purchase of Redeemable Notes pursuant to the terms of
the Debt Tender Offer and to fund Borrower's costs and expenses related to the
purchase of said Notes and the Bridge Capital Loan and (ii) the remaining
$60,000 principal amount of the Bridge Capital Loan represents the commitment
fee payable by Borrower to Bridge Capital Lender concurrently with the
execution of this Agreement, as further contemplated by subparagraph 7(g)
below.
(c) Bridge Capital Lender's maximum commitment pursuant to the Bridge
Capital Loan shall be $1,760,000, to be advanced to Borrower from time to time
as follows. Each advance under the Bridge Capital Loan shall be in an
integral multiple of $1,000 and not less than $50,000. Each advance shall be
made on written notice or telephonic notice from an authorized officer of
Borrower to the person designated by Bridge Capital Lender prior to or on the
day of borrowing, which shall be a business day, and shall be promptly
confirmed by Bridge Capital Lender, and which shall include a certification
as to (i) the principal amount of Redeemable Notes which have been properly
tendered pursuant to the Debt Tender Offer and which Borrower intends to
purchase with the proceeds of the requested portion of the Bridge Capital Loan
and/or (ii) the costs and expenses related to the Debt Tender Offer or the
Bridge Capital Loan which Borrower intends to pay with the requested portion
of the Bridge Capital Loan. Each notice shall contain wire transfer
instructions for the advance and otherwise specify the date and amount of such
advance and confirm the outstanding principal balance of the Bridge Capital
Loan subsequent to such advance and shall be effective upon receipt, provided
that any notice received after 3:00 p.m., New York City time, may be deemed
by Bridge Capital Lender, in its sole discretion, effective as of the next
succeeding business day. Whenever any payment to be made under the Bridge
Capital Note shall be stated to be due on a day which is not a business day,
the day for such payment shall be extended to the next succeeding business
day, and such extension of time shall be included in the computation of
interest.
6
(d) Borrower shall have the right at any time, subject to the
Subordination Agreement, to voluntarily prepay all or any portion of the
Bridge Capital Note, without premium or penalty. Each prepayment shall be
accompanied by the payment of accrued and unpaid interest on the amount being
prepaid, through the date of prepayment. All prepayments shall be applied
first to accrued and unpaid interest with the remainder applied to principal.
(e) Borrower hereby acknowledges and agrees that concurrently with
the execution of this Fourth Amendment and the delivery to Bridge Capital
Lender of the Bridge Capital Note, Borrower, for the purpose of securing its
obligations to Bridge Capital Lender under the Bridge Capital Note, has
granted to Bridge Capital Lender a Lien covering all Collateral previously
pledged by Borrower to the NPM Parties to secure Borrower's obligations to the
NPM Parties pursuant to the Loan Agreement and the other Loan Documents and
the Servicing Agreement. Notwithstanding anything to the contrary set forth
in the Fourth Amendment or any other Loan Document or the Servicing Agreement,
the Lien hereby granted to Bridge Capital shall, at all times, be subordinate
to the Liens previously granted by Borrower to the NPM Parties pursuant to the
Loan Agreement and the other Loan Documents and the Servicing Agreement, all
in accordance with the Subordination Agreement, but otherwise senior to all
other Liens which may be granted by Borrower with respect to the Collateral,
except as set forth on Schedule A hereto. Borrower hereby covenants that it
has obtained the written consent of the NPM Parties and any other relevant
senior creditor to the granting to Bridge Capital Lender of the Lien
contemplated by this subparagraph 7(e), subject, at all times, to the
Subordination Agreement.
(f) Notwithstanding anything to the contrary set forth in this Fourth
Amendment or the other Loan Documents or the Servicing Agreement,
simultaneously with the time that all obligations of Borrower owing to each
of the NPM Parties pursuant to the Loan Agreement and the other Loan Documents
and the Servicing Agreement (other than any obligations arising solely from
the indemnification provisions set forth in the Servicing Agreement) are
satisfied in their entirety, (i) Borrower shall execute and deliver all
assignments, financing statements, mortgages, deeds of trust and any other
documents reasonably requested by Bridge Capital Lender in order for Bridge
Capital Lender to perfect its Lien with respect to the Collateral and (ii)
each of the NPM Parties shall execute and deliver, without recourse and
without representation or warranty (express or implied), all assignments to
relevant financing statements, mortgages and deeds of trust previously filed
by the NPM Parties with respect to the Collateral, all as may reasonably be
requested by Bridge Capital Lender.
(g) As further consideration for Bridge Capital Lender's making the
Bridge Capital Loan to Borrower, Borrower hereby (i) pays to Bridge Capital
Lender, in accordance with the terms of the Bridge Capital Note, a commitment
fee in the amount of $60,000, such commitment fee being evidenced by a portion
of the principal amount of the Bridge Capital Note, (ii) issues and delivers
to Bridge Capital Lender a certificate representing 325,000 shares of Common
Stock of Borrower (the "Shares"), and (iii) agrees to issue and deliver to
Bridge Capital Lender, at the Expiration Date (as defined) of the Debt Tender
Offer, a second certificate representing an additional number of shares of
Common Stock of Borrower (the "Debt Tender Shares") equal to the product of
7
(A) 328,000 MULTIPLIED BY (B) the fraction, the numerator of which shall be
the aggregate principal amount of Redeemable Notes purchased by Borrower in
the Debt Tender Offer (up to a maximum numerator of $3,998,000) and the
denominator of which shall be $3,998,000. Borrower represents to Bridge
Capital Lender that the issuance of the Shares and the Debt Tender Shares has
been duly authorized by Borrower and that the Shares and Debt Tender Shares,
when issued and delivered in accordance with the Fourth Amendment, will be
validly issued, fully paid and non-assessable. Bridge Capital Lender
represents to Borrower that it is acquiring the Shares and the Debt Tender
Shares for its own account for investment, and not with a view to any
distribution thereof. Bridge Capital Lender acknowledges that the
certificates representing the Shares and the Debt Tender Shares will contain
a legend restricting transfer thereof pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), and that the Shares and the Debt Tender
Shares may not be sold, transferred or otherwise disposed of unless pursuant
to an effective registration statement under the Securities Act or pursuant
to an exemption therefrom."
8. Section 2.4 of the Loan Agreement is hereby further amended to
read in its entirety as follows:
"2.4 LOAN. The Senior Debt and all of the other obligations of
Borrower arising under this Agreement, the Fourth Amendment, the Note, the
Second Note, the Bridge Capital Note, any instruments or documents evidencing
the Permitted Working Capital Advances and the other Loan Documents shall
constitute general obligations and loans of Borrower secured by all of the
Collateral."
9. Section 2.12 of the Loan Agreement is hereby further amended to
read in its entirety as follows:
"2.12 NO ADVANCES. Except as set forth in SECTION 2.1.e of the Loan
Agreement and Permitted Working Capital Advances, Borrower acknowledges and
agrees that Lender or Bridge Capital Lender shall not be obligated to advance
any additional funds under the Note, the Second Note, the Bridge Capital Note,
the Loan Agreement, any of the other Loan Documents or otherwise."
10. To induce Lender and Bridge Capital Lender to execute and deliver
this Fourth Amendment, Borrower hereby makes the representations and
warranties set forth in Sections 4.1 through 4.25, 4.27 and 4.28 and 4.30
through 4.38 of the Loan Agreement to Lender and Bridge Capital Lender, each
and all of which shall be true and accurate in all material respects as of the
date of execution and delivery of this Fourth Amendment, other than any
inaccuracy that would not otherwise result in, or otherwise cause Borrower to
8
experience, a Material Adverse Effect, and other than as set forth on the
Supplemental Schedule annexed hereto. Notwithstanding the foregoing or
anything to the contrary set forth herein, the representations and warranties
hereby being made by Borrower to Lender and Bridge Capital Lender shall
specifically not include, and there shall be omitted from such representations
and warranties, all references and information pertaining or otherwise
relating to any of the real properties or related mortgages, notes, Affiliated
Partnerships or Limited Partnership Interests set forth on Schedule B to this
Fourth Amendment, each of which item of real property has been disposed by
Borrower in the ordinary course of its business during the period commencing
as of the date of the Loan Agreement (without giving effect to any amendments)
and ending as of the date of this Fourth Amendment. Further, each of Lender
and Bridge Capital Lender acknowledge and agree that the representations and
warranties made by Borrower in this paragraph 10 do not cover the matters set
forth in Sections 4.26 and 4.29 of the Loan Agreement, for which no
representations or warranties are being made.
11. Article 6 of the Loan Agreement, "Affirmative Covenants", is
hereby further amended to provide that so long as any obligations of Borrower
remain outstanding to either of the NPM Parties (other than obligations
arising solely from the indemnification provisions set forth in of the
Servicing Agreement), Lender shall have the sole right to take (or not take)
any and all actions to be taken (or not taken) by either or both of Lender or
Bridge Capital Lender or to give (or refuse) any and all consents to be given
(or refused) by either or both of Lender or Bridge Capital Lender, pursuant
9
to this Article 6, and such actions so taken (or not taken) or consents so
given (or refused) by Lender shall be effective and binding upon Borrower as
if both Lender and Bridge Capital Lender had so acted.
12. Article 7 of the Loan Agreement, "Negative Covenants", is hereby
further amended to provide that so long as any obligations of Borrower remain
outstanding to either of the NPM Parties (other than obligations arising
solely from the indemnification provisions set forth in the Servicing
Agreement), Lender shall have the sole right to take (or not take) any and all
actions to be taken (or not taken) by either or both of Lender or Bridge
Capital Lender (or to give (or refuse) any and all consents to be given (or
refused) by either or both of Lender or Bridge Capital Lender, pursuant to
this Article 7, and such actions so taken (or not taken) or consents so given
(or refused) by Lender shall be effective and binding upon Borrower as if both
Lender and Bridge Capital Lender had so acted.
13. Clause a.(ii) of Section 7.3 of the Loan Agreement is hereby
further amended to read in its entirety as follows:
"(ii) the Note, the Second Note, the Bridge Capital Note or any
instrument or document evidencing any Permitted Working Capital Advance,"
14. The first sentence of Section 7.5 of the Loan Agreement is hereby
further amended to read in its entirety as follows:
"Borrower shall not, and shall not permit any Subsidiary of Borrower
to, issue or agree to issue any of their respective authorized but not
outstanding shares of Stock (including treasury shares) except (a) the Shares,
(b) the Debt Tender Shares, and (c) as permitted by the Permitted Stockholder
Documents."
15. The first sentence of Section 7.16a. of the Loan Agreement is
hereby further amended to read in its entirety as follows:
"Borrower shall not, and shall not permit any of its Subsidiaries to,
make any payments on, or with respect to any Restricted Debt, including any
payments in redemption or repurchase thereof, except (i) as contemplated by
10
the Debt Tender Offer and (ii) mandatory payments of principal, interest, fees
and expenses required by the terms of the agreement governing or instrument
evidencing such Indebtedness."
16. Section 7.18 of the Loan Agreement is hereby further amended by
adding a new sentence directly at the end of Section 7.18 as follows:
"Notwithstanding anything in this Section 7.18 or elsewhere in the
Loan Agreement to the contrary, the maximum amount of permitted Capital
Expenditures during each calendar year of Borrower shall be increased from
$10,000 per year to $25,000 per year commencing with the calendar year during
which all obligations of Borrower to each of the NPM Parties (other than
obligations arising solely from the indemnification provisions set forth in
the Servicing Agreement) have been satisfied in full."
17. Section 7.25 of the Loan Agreement is hereby further amended by
adding a new sentence directly at the end of Section 7.25 as follows:
"Notwithstanding anything in this Section 7.25 or elsewhere in the
Loan Agreement to the contrary, the maximum aggregate compensation amount
payable by Borrower and its Subsidiaries to their respective employees during
each calendar year of Borrower commencing with the calendar year during which
all obligations of Borrower to each of the NPM Parties (other than obligations
arising solely from the indemnification provisions set forth in the Servicing
Agreement) have been satisfied in full shall be $1,000,000 (exclusive of
amounts payable under the Servicing Agreement)."
18. Section 8.1a. of the Loan Agreement is hereby further amended to
read in its entirety as follows:
"a. Borrower shall fail to make any payment of principal of, or
interest on or any other amount owing in respect of, the Note, the Second
Note, the Bridge Capital Note, any instrument or document evidencing any
Permitted Working Capital Advance or any of the other Obligations when due and
payable or declared due and payable, EXCEPT THAT (1) with respect to any
mandatory payment of principal or interest owing under SECTION 2.6 or SECTION
2.8 of this Agreement, such failure shall have remained unremedied for a
period of ten (10) days after notice by Lender or Bridge Capital Lender to
Borrower (provided that Lender or Bridge Capital Lender shall only be required
to send two such notices to Borrower in any calendar year, and after two such
notices in such calendar year, merely the passage of ten days shall be
required to cause the occurrence of an Event of Default during such calendar
year), and (2) with respect to any other amount payable to Lender or Bridge
Capital Lender under any Loan Document, such failure to pay shall have
remained unremedied for a period of fifteen (15) days after Borrower has
received notice of such failure from Lender or Bridge Capital Lender. For
purposes of this Section 8.1a., and notwithstanding anything to the contrary
set forth in the Loan Agreement, so long as any obligations of Borrower remain
11
outstanding to either of the NPM Parties (other than obligations arising
solely from the indemnification provisions set forth in the Servicing
Agreement), Lender shall have the sole right to give (or not give) any notice
to be given (or not given) by either or both of Lender or Bridge Capital
Lender pursuant to this Section 8.1, and the giving (or not giving) of any
such notice by Lender shall be effective and binding upon Borrower as if both
Lender and Bridge Capital Lender had so acted."
19. Section 8.2 of the Loan Agreement is hereby further amended to
provide that, notwithstanding anything to the contrary set forth in the Loan
Agreement, so long as any obligations of Borrower remain outstanding to either
of the NPM parties (other than obligations arising solely from the
indemnification provisions set forth in the Servicing Agreement), Lender shall
have the sole right to take (or not taken) any and all actions to be taken (or
not taken) by either or both of Lender or Bridge Capital Lender pursuant to
this Section 8.2, and such actions so taken (or not taken) by Lender shall be
effective and binding upon Borrower as if both Lender and Bridge Capital
Lender had so acted.
20. The Loan Agreement is hereby amended by adding a new Section 8.4
thereto as follows:
"8.4 RIGHT TO DECLARE DEFAULT AND PURSUE REMEDIES. Notwithstanding
anything to the contrary set forth in the Loan Agreement, Lender, so long as
any obligations of Borrower remain outstanding to either of the NPM Parties
(other than any obligations arising solely from the indemnification provisions
set forth in the Servicing Agreement), Lender shall have the sole right to
declare an Event of Default under the Loan Agreement and pursue remedial
actions thereunder, and the taking and pursuing (or failure to take or pursue)
any such actions by Lender shall be effective and biding upon Borrower as if
both Lender and Bridge Capital Lender had so acted."
21. Section 9.1e. of the Loan Agreement is hereby further amended to
read in its entirety as follows:
"e. No amendment or waiver of any provision of this Agreement, the
Note, the Second Note, the Bridge Capital Note, any instrument or document
evidencing any Permitted Working Capital Advance or any other Loan Document,
nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by Lender or Bridge
Capital Lender, and then such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given,
12
provided, however, that, notwithstanding anything to the contrary set forth
in the Loan Agreement, so long as any obligations of Borrower remain
outstanding to either of the NPM Parties (other than obligations arising
solely from the indemnification provisions set forth in the Servicing
Agreement), Lender shall have the sole right to take (or not take) any and all
actions to be taken (or not taken) by either or both of Lender or Bridge
Capital Lender or to give (or refuse) any and all amendments, waivers or
consents to be given (or refused) by either or both of Lender or Bridge
Capital Lender, pursuant to this Section 9.1e., and such actions so taken (or
not taken) or amendments, waivers or consents so given (or refused) by Lender
shall be effective and binding upon Borrower as if both Lender and Bridge
Capital Lender had so acted; provided, further, that, Lender may not
unilaterally amend the Bridge Capital Note or the Loan Agreement without the
prior written consent of Bridge Capital Lender".
22. Section 9.3 of the Loan Agreement is hereby further amended to
provide that, notwithstanding anything to the contrary set forth in the Loan
Agreement, so long as any obligations of Borrower remain outstanding to either
of the NPM Parties, other than obligations arising solely under the
indemnification provisions of the Servicing Agreement), Lender shall have the
sole right to take (or not take) any and all actions to be taken (or not
taken) by either or both of Lender or Bridge Capital Lender or to give (or
refuse) any and all consents to be given (or refused) by either or both of
Lender or Bridge Capital Lender, pursuant to this Section 9.3, and such
actions so taken (or not taken) or consents so given (or refused) by Lender
shall be effective and binding upon Borrower as if both Lender and Bridge
Capital Lender had so acted.
23. Section 9.8 of the Loan Agreement is hereby further amended to
provide that as between Lender and Bridge Capital Lender, if any provision in
the Loan Agreement is in conflict with, or inconsistent with, any provision
in any of the other Loan Documents, including the Subordination Agreement, the
provision contained in the Subordination Agreement shall govern and control.
24. Section 9.10 of the Loan Agreement is hereby further amended to
add the following Subsection c. thereto as follows:
13
" c. If to Bridge Capital, at:
Bridge Capital, LLC
450 Park Avenue
New York, New York 10017
with a copy to:
Skadden Arps Slate Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: Patrick Foye, Esq."
25. Section 9.20 of the Loan Agreement is hereby further amended to
(a) add the phrase "Subject to the Subordination Agreement," at the beginning
of each sentence in this Section.
26. To induce Bridge Capital Lender to enter into this Fourth
Amendment, Borrower hereby represents, warrants and covenants to Bridge
Capital Lender that:
(a) the execution and delivery of this Fourth Amendment and any other
documents or instruments executed and delivered in connection herewith,
including, without limitation, the Bridge Capital Note, do not violate (i) any
provision of Borrower's charter or by-laws, (ii) any agreement or undertaking
to which Borrower is a party or by which Borrower or any of its assets is
bound or (iii) any Law affecting Borrower or its operations;
(b) each of this Fourth Amendment and the Bridge Capital Note has been
approved by all necessary corporate action on the part of Borrower and each
constitutes the legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, except to the extent that such
validity, binding effect and enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium and other Laws affecting
creditors' rights generally from time to time in effect and by general
equitable principles;
(c) Schedule C hereto sets forth all Liens currently encumbering any
of the Collateral. With the exception of the Liens set forth on Schedule C
hereto, Borrower owns the Collateral free and clear of all Liens and other
encumbrances, other than Permitted Encumbrances;
(d) Schedule D hereto sets forth all documents and instruments
evidencing any obligations owing by Borrower to the NPM Parties as of the date
of this Fourth Amendment; correct and complete copies of all such documents
having been made available by Borrower to Bridge Capital Lender; and
14
(e) Schedule E hereto sets forth all other obligations of Borrower
(other than those owing to the NPM Parties) as of September 30, 1997.
27. As a further inducement for Bridge Capital Lender to enter into
this Fourth Amendment, Borrower hereby covenants that at any time while any
obligations of Borrower are owing to Bridge Capital Lender, Borrower will not,
without the prior written consent of Bridge Capital Lender (i) enter into any
transaction (except as otherwise contemplated by the Loan Agreement and the
Servicing Agreement) with any Affiliate of Borrower or (ii) increase the
principal amount of, or interest rate (or default interest rate) charged with
respect to, or extend the stated maturity date of, any Senior Debt.
28. As a condition to Bridge Capital Lender's entering into this
Fourth Amendment, Borrower shall cause its counsel (which may be Borrower's
in-house General Counsel) to deliver an opinion to Bridge Capital Lender
covering the matters enumerated in subparagraphs 26(a) and 26(b) hereof.
29. (a) Bridge Capital Lender hereby acknowledges that Lender is not
acting as Bridge Capital Lender's agent with respect to the consummation of
the transactions contemplated by this Fourth Amendment or with respect to
enforcing Bridge Capital Lender's rights under this Fourth Amendment or any
other Loan Document.
(b) Notwithstanding any provision to the contrary elsewhere in
this Agreement, Lender shall not have any express or implied duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with Bridge Capital Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against Lender or NPO.
(c) Neither Lender nor any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates (other than Borrower) shall be (i)
liable to Bridge Capital Lender for any action lawfully taken or omitted to
be taken by it or such Person under or in connection with this Agreement or
any other Loan Document or (ii) responsible in any manner to Bridge Capital
Lender for any recitals, statements, representations or warranties made by
Borrower or any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred
to or provided for in, or received by Lender under or in connection with, this
Agreement or any other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement,
15
the Bridge Capital Note or any other Loan Document or for any failure of
Borrower to perform its obligations hereunder or thereunder. Lender shall not
be under any obligation to Bridge Capital Lender to ascertain or to inquire
as to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of Borrower.
(d) Except for notices, reports and other documents expressly
required to be furnished to Bridge Capital Lender by Lender hereunder, Lender
shall not have any duty or responsibility (express or implied) to provide
Bridge Capital Lender with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects
or creditworthiness of Borrower which may come into the possession of Lender,
NPO or any of their respective officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
(e) Bridge Capital Lender acknowledges that it has made its own
independent credit and legal analyses and decision to enter into this Fourth
Amendment and is not relying on any representations or warranties made by
Lender in entering into this Agreement. Bridge Capital Lender (i)
acknowledges that it has received copies of the Loan Documents, together with
copies of the most current financial statements of Borrower, and such other
documents and information as it has deemed appropriate to make its own
independent credit and legal analyses and decision to enter into this
Agreement; and (ii) agrees that it will, independently and without reliance
upon Lender or NPO and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit and legal
decisions in taking or not taking action under the Loan Documents.
30. So long as no Event of Default has occurred and is continuing
under the Loan Agreement, Bridge Capital Lender agrees to respond
expeditiously to the reasonable request of Lender and/or Borrower (or any
title company retained by Lender or Borrower), and to give its consent to the
release of the Lien granted hereunder by Borrower to Bridge Capital Lender
with respect to any Collateral that Borrower desires to sell or otherwise
dispose of in the ordinary course of its business and as otherwise
contemplated in the Loan Agreement, so that Borrower may sell, transfer,
assign or otherwise deal with such Collateral or any part thereof free of the
Lien granted hereunder to Bridge Capital Lender.
16
31. (a) Nothing in this Fourth Amendment, express or implied, shall
give to any Person, other than the parties to this Fourth Amendment and their
successors and assigns hereunder, any benefit or any legal or equitable right,
power, remedy or claim under this Agreement, except to the extent specified
in subparagraph 31(b) below.
(b) Notwithstanding any provision herein to the contrary, the
parties to this Fourth Amendment agree that is appropriate, in furtherance of
the intent of such parties as set forth herein, that NPO receive the benefits
of this Fourth Amendment as an intended third party beneficiary of this Fourth
Amendment. Consequently, Borrower and Bridge Capital Lender shall have the
same obligations to NPO under this Fourth Amendment as if NPO were a party to
this Fourth Amendment.
32. Notwithstanding any provision herein to the contrary, Bridge
Capital Lender, on behalf of itself and its successors and assigns, hereby
covenants that neither it nor they will, directly or indirectly, sell,
negotiate, pledge or otherwise transfer or assign (collectively, a
"Disposition") any portion of the Bridge Capital Note or any of Bridge Capital
Lender's rights or privileges under the Loan Agreement to any person,
PROVIDED, HOWEVER, that a Disposition of all or any portion of the Bridge
Capital Note or Bridge Capital Lender's rights or privileges under the Loan
Agreement shall be permitted if disposed (i) to a Person which is controlled,
directly or indirectly, by Messrs. Ronald Kravit and/or Jeffrey Citrin or (ii)
as a part of the sale of all or substantially all of the assets or capital
stock of Bridge Capital Lender.
33. Except as otherwise expressly modified or amended herein or in
any other document or agreement concurrently executed by Borrower, Bridge
Capital Lender and/or the NPM Parties, the Loan Agreement, the other Loan
Documents and the Servicing Agreement are hereby ratified, confirmed and
affirmed in all respects.
17
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed by their respective officers and partners thereunto
duly authorized, as of the date first above written.
DVL, INC.
By: /s/ Daniel Baldwin
______________________________
Name: Daniel Baldwin
Title: Vice President and
General Counsel
NPM CAPITAL LLC
By: Pembroke Capital LLC, its Manager
By: /s/ Lawrence J. Cohen
______________________________
Name: Lawrence J. Cohen
Title: General Manager
NPO MANAGEMENT LLC
By: Omni Partnership Capital, Inc.
By: /s/ Jay Chazanoff
______________________________
Name: Jay Chazanoff
Title: President
BRIDGE CAPITAL, LLC
By: /s/ Ronald Kravit
______________________________
Name: Ronald Kravit
Title: Manager
18
EXHIBIT 10.2
------------
PROMISSORY NOTE
$1,760,000 New York, New York
October 20, 1997
FOR VALUE RECEIVED, DVL INC., a Delaware corporation ("Borrower"),
hereby promises to pay to the order of BRIDGE CAPITAL, LLC ("Lender"), the
principal sum of ONE MILLION SEVEN HUNDRED SIXTY THOUSAND DOLLARS
(1,760,000.00), or such lesser amount which remains outstanding under this
Note, on September 30, 2002.
The unpaid principal shall bear interest from the date hereof until
paid at an annual rate, computed on the basis of a 360-day year, as provided
in the Fourth Amendment to Loan Agreement (as defined below). Interest
accrued on the outstanding principal balance shall be payable annually on each
anniversary date of the Fourth Amendment to Loan Agreement while any principal
balance remains outstanding under this Note, such interest to be payable in
the manner set forth in the Fourth Amendment to Loan Agreement.
Payments of principal, interest and other amounts due hereunder are
to be made in lawful money of the United States of America to Lender at 450
Park Avenue, New York, New York 10019, Attention: Ronald Kravit or at such
other place as Lender shall designate in writing to Borrower.
Borrower hereby agrees to pay all reasonable fees and expenses incurred
by Lender, including the reasonable fees of counsel, in connection with the
protection and enforcement of the rights of Lender under this Note and with
respect to the Collateral (as defined in the Fourth Amendment to Loan
Agreement), including, without limitation, the collection of any amounts due
under this Note and the protection and enforcement of such rights in any
bankruptcy, reorganization or insolvency proceeding involving Borrower.
This Note constitutes the Bridge Capital Note referenced in and issued
pursuant to that certain Fourth Amendment, dated October 20, 1997, to the
Amended and Restated Loan Agreement dated as of March 27, 1996, as previously
amended as of July 10, 1996, September 27, 1996 and March 6, 1997, by and
between Borrower and NPM Capital LLC (the "Fourth Amendment to Loan
Agreement"), and that certain Subordination Agreement, dated October 20, 1997,
by and among NPM Capital LLC, NPO Management LLC, Lender and Borrower (the
"Subordination Agreement"), to which Fourth Amendment to Loan Agreement and
Subordination Agreement reference is hereby made for a statement of the terms
and conditions under which the loans evidenced hereby may be made or assigned
and a description of the terms and conditions upon which this Note may be paid
or prepaid in whole or in part. In case an Event of Default, as defined in
the Fourth Amendment to Loan Agreement, shall occur, the entire unpaid
principal and accrued interest hereunder may be automatically due and payable
or may be declared due and payable as provided in the Fourth Amendment to Loan
Agreement, subject, however, at all times, to the terms and conditions set
forth in the Subordination Agreement.
BORROWER HEREBY EXPRESSLY WAIVES PRESENTMENT FOR PAYMENT, DEMAND,
PROTEST, NOTICE OF PROTEST, NOTICE OF DISHONOR, NOTICE OF OCCURRENCE OF AN
EVENT OF DEFAULT, NOTICE OF ACCELERATION AND NOTICE OF NON-PAYMENT HEREOF.
BORROWER HEREBY VOLUNTARILY AND KNOWINGLY WAIVES THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
PROMISSORY NOTE.
This Note shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York applicable to contracts
made and wholly performed within such state.
DVL, INC.
By: /s/ Daniel Baldwin
-----------------------------
Name: Daniel Baldwin
Title: Vice President and
General Counsel
EXHIBIT 10.3
------------
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (the "Agreement") is made as of the 20th
day of October, 1997, by and among NPM Capital LLC, a Delaware limited
liability company with an address c/o Pembroke Companies, Inc., 1400 Colorado
Street, No. C, Boulder City, Nevada 89005 ("NPM"), NPO Management LLC, a
Delaware limited liability company with an address c/o Millennium Financial
Services, Inc., 70 East 55th Street, 6th Floor, New York, New York 10022
("NPO"; NPM and NPO are sometimes hereinafter collectively referred to as the
"Senior Creditor"), Bridge Capital, LLC, a Delaware limited liability company
having an office at 450 Park Avenue, New York, New York 10017 (the "Junior
Creditor"), and DVL, Inc., a Delaware corporation having an office at 24 River
Road, Bogota, New Jersey 07603 (the "Borrower").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, NPM and the Borrower are parties to an Amended and Restated
Loan Agreement dated as of March 27, 1996, as the same has been amended as of
July 10, 1996, September 27, 1996 and March 6, 1997 (the "Loan Agreement"),
pursuant to which, among other things, NPM acquired approximately $7.5 million
of outstanding indebtedness of the Company and advanced additional sums to the
Company (the "NPM Loan"); and
WHEREAS, concurrently with the execution of the Loan Agreement, NPO,
the Borrower and certain other parties entered into an Asset Servicing
Agreement (the "Servicing Agreement") pursuant to which, among other things,
the Borrower engaged NPO to assist the Borrower to perform certain services
with respect to the ownership, sale, financing and asset management of certain
of the Borrower's assets; and
WHEREAS, the Borrower's obligations to NPM arising out of and relating
to the Loan Agreement are, among other things, secured by the pledge by the
Borrower of, and the grant by the Borrower to NPM of a first priority
perfected security interest in, certain of the Borrower's assets (the
"Collateral"), all as more specifically set forth in that certain Security,
Pledge and Guaranty Agreement and Stock Pledge and Guaranty Agreement entered
into by the Borrower and NPM concurrently with the execution of the Loan
Agreement; and
WHEREAS, the Borrower's obligations to NPO arising out of and relating
to the Servicing Agreement are, among other things, secured by the pledge by
the Borrower of, and the grant by the Borrower to NPO of a perfected security
interest in, the Collateral (the "NPO Security Interest"), all as more
specifically set forth in that certain Security Pledge and Guaranty Agreement
and Stock Pledge and Guaranty Agreement entered into by the Borrower and NPO
concurrently with the execution of the Servicing Agreement; and
WHEREAS, the NPO Security Interest in the Collateral is subordinate
to the lien in such Collateral granted by the Borrower to NPM, but otherwise
senior to all other liens which may be granted by the Borrower with respect
to the Collateral except as otherwise set forth on Schedule A hereto; and
WHEREAS, concurrently with the execution of this Agreement, the
Borrower, the Junior Creditor and NPM are entering into a Fourth Amendment to
Loan Agreement (the "Amendment") pursuant to which, among other things, the
Loan Agreement is being further amended to (i) include the Junior Creditor as
a Lender thereunder and (ii) provide for the loan by the Junior Creditor to
the Borrower of up to $1,760,000 (the "Subordinated Loan") for the express
purpose of financing the Borrower's acquisition, together with related costs
and expenses, of the Borrower's outstanding 10% Redeemable Promissory Notes
due December 31, 2005 (the Loan Agreement, as further amended by the
Amendment, being hereinafter referred to as the "Amended Loan Agreement"); and
WHEREAS, the Borrower's obligations to the Junior Creditor arising
out of and relating to the Subordinated Loan are secured by the pledge by the
Borrower to the Junior Creditor of, and the grant by the Borrower to the
Junior Creditor of a security interest in, the Collateral; and
WHEREAS, the Senior Creditor and the Junior Creditor desire to set
forth their relative rights with respect to the Borrower's obligations due
them pursuant to the Amended Loan Agreement and the Servicing Agreement and
the Collateral securing such obligations as follows.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
(a) Any capitalized term which is used herein but is not otherwise
defined shall have the meaning given to it in the Amended Loan Agreement.
(b) In addition to the terms defined elsewhere herein, as used
herein, the following capitalized terms shall have the meanings indicated:
(i) "BANKRUPTCY PROCEEDING" shall mean any voluntary or
involuntary bankruptcy, insolvency, reorganization, receivership, liquidation,
or similar proceeding, whether commenced or continued under applicable
federal, state or local law.
(ii) "ENFORCEMENT ACTION" shall mean, with respect to the
Senior Debt or the Subordinated Debt, any action to collect all or any portion
of the Senior Debt or the Subordinated Debt or to enforce any of the material
rights and remedies of the holder of the Senior Debt or the Subordinated Debt,
2
including, but not limited to: (i) commencing or pursuing legal proceedings
to collect any amounts owed with respect to the Senior Debt or the
Subordinated Debt; (ii) executing upon, or otherwise enforcing, any judgment
obtained with respect to amounts owed on the Senior Debt or the Subordinated
Debt; (iii) commencing or pursuing any judicial or nonjudicial proceedings to
foreclose upon, acquire any interest in, or to acquire title in lieu of
foreclosure as to, all or any portion of the Collateral; or (iv) taking
possession of, seeking the appointment of a receiver for, or taking any other
action to realize upon, all or any portion of the Collateral.
(iii) "NPM NOTES" shall mean (a) that certain promissory note of the
Borrower in the original principal amount of $8,360,000 issued by the Borrower
to NPM on September 27, 1996 and evidencing the Borrower's monetary
obligations to NPM pursuant to the Amended Loan Agreement as of that time, (b)
that certain promissory note of the Borrower in the original principal amount
of $200,000 issued by the Borrower to NPM as of March 6, 1997 and evidencing
the Borrower's further monetary obligations to NPM as of the date of issuance
of such $200,000 note pursuant to the Loan Agreement and (c) any promissory
notes or other instruments evidencing any Permitted Working Capital Advances,
as such NPM Notes may be amended, extended, renewed, refinanced, increased,
supplemented or assigned from time to time.
(iv) "SENIOR DEBT" shall mean all of the following: (A) the aggregate
principal indebtedness under the NPM Notes outstanding from time to time; (B)
all interest accrued and accruing on the aggregate principal outstanding under
the NPM Notes from time to time; (C) all amounts payable by Borrower to NPO
pursuant to the Servicing Agreement; (D) all costs actually incurred by the
Senior Creditor in commencing or pursuing any Enforcement Action(s) with
respect to the amounts described in clauses (A), (B) and (C), including,
without limitation, reasonable attorneys' fees and disbursements; (E) any
advances made by the Senior Creditor to protect the Collateral or the rights
of the Senior Creditor with respect to the Collateral; and (F) subject to the
next sentence, all other indebtedness, monetary liabilities and monetary
obligations from time to time owed by the Borrower to the Senior Creditor
under any of the Loan Documents, PROVIDED, HOWEVER, that following the
satisfaction, in their entirety, of all obligations of Borrower under the NPM
Notes and the Servicing Agreement (other than obligations arising solely from
the indemnification provisions set forth in the Servicing Agreement), Senior
Debt shall not include any indebtedness, monetary liabilities or monetary
obligations arising solely from the indemnification provisions set forth in
the Servicing Agreement. For purposes of this Agreement, "Senior Debt" shall
not include, however, any Subordinated Debt.
(v) "STANDSTILL NOTICE" shall mean a written notice from the Senior
Creditor to the Junior Creditor indicating that an Event of Default has
occurred and is continuing under and as defined in the Amended Loan Agreement.
(vi) "STANDSTILL PERIOD" shall mean that period of time commencing
upon the delivery of a Standstill Notice from the Senior Creditor to the
Junior Creditor and expiring on that date which is the earliest to occur of
(A) that date upon which the Event of Default(s) described in the Standstill
Notice and any other Events of Default arising thereafter have been cured in
3
full, (B) that date upon which all of the Senior Debt has been repaid in full
and discharged or (C) that date which is 180 days following the date of
delivery of a Standstill Notice, PROVIDED, HOWEVER, that the Senior Creditor
shall not be permitted to deliver to the Junior Creditor more than one
Standstill Notice during any 365-day period.
(vii) "SUBORDINATED DEBT" shall mean all of the following: (A) the
aggregate principal indebtedness under the Subordinated Note outstanding from
time to time; (B) all interest accrued and accruing on the aggregate principal
outstanding under the Subordinated Note from time to time; (C) the aggregate
principal indebtedness under all other promissory notes of the Borrower issued
from time to time to the Junior Creditor in satisfaction of the Borrower's
interest obligations under the Subordinated Note, together with all interest
accrued and accruing on the aggregate principal outstanding under such other
notes from time to time; (D) all costs actually incurred by the Senior
Creditor in commencing or pursuing any Enforcement Action(s) with respect to
the amounts described in clauses (A), (B) and (C), including, without
limitation, reasonable attorneys' fees and disbursements; (E) any advances
made by the Junior Creditor to protect the Collateral or the rights of the
Junior Creditor with respect to the Collateral and (F) all other indebtedness,
monetary liabilities and monetary obligations from time to time owed by the
Borrower to the Junior Creditor.
(viii) "SUBORDINATED NOTE" shall mean that certain promissory note
of the Borrower in the original principal amount of $1,760,000 issued by the
Borrower to the Junior Creditor concurrently with the execution of the
Amendment.
2. SUBORDINATED DEBT SUBORDINATED TO SENIOR DEBT.
(a) The Borrower covenants and agrees for itself and its successors
and assigns, and the Junior Creditor covenants and agrees for itself and its
successors and assigns, that, to the extent and in the manner hereinafter set
forth in this Section, the payment of Subordinated Debt is hereby expressly
made subordinate and subject in right of payment to the prior payment in full
in cash, cash equivalents, securities or other property of all Senior Debt.
So long as the Senior Debt is not paid in full in cash or cash equivalents,
the Borrower shall not make any payment on account of the Subordinated Debt,
provided, however, that so long as no Event of Default (as defined in each of
the Amended Loan Agreement and the Servicing Agreement) exists or is
continuing, the Borrower shall pay to the Junior Creditor when due and owing
pursuant to the terms of the Amendment, any Prepayments and the PIK Notes of
the Borrower (as defined in the Amendment) in satisfaction of the Borrower's
then owing interest obligations to the Junior Creditor pursuant to the
Amendment. The provisions of this Section 2 shall constitute a continuing
offer to all persons who, in reliance upon such provisions, become holders of
or continue to hold, Senior Debt, and such provisions are made for the benefit
of the holders of Senior Debt, and each such holder is hereby made an obligee
hereunder the same as if its name were written herein as such and is entitled
to enforce the provisions of this Section 2, subject to provisions hereof,
without any act or notice of acceptance hereof or reliance hereon.
4
3. STANDSTILL PERIOD; RESTRICTIONS ON PAYMENT AND ENFORCEMENT OF
SUBORDINATED DEBT.
(a) The Junior Creditor acknowledges that, notwithstanding anything
to the contrary set forth herein, the Junior Creditor's right to pursue any
Enforcement Action against the Borrower independent of the Senior Creditor at
any time while Senior Debt remains outstanding shall be limited to the
circumstance where the Borrower fails to (i) remit any Prepayments pursuant
to the Amendment to the Junior Creditor or (ii) issue to the Junior Creditor
the PIK Notes pursuant to the Amendment in satisfaction of the Borrower's then
owing interest obligations to the Junior Creditor.
(b) Following receipt by the Junior Creditor of a Standstill Notice
that the Senior Creditor is entitled to send, and during the pendency of any
Standstill Period, the Junior Creditor shall not accelerate, demand, sue for,
commence or pursue any Enforcement Action or other proceeding, nor take,
receive, accept or retain any payment or distribution of any character
(whether in cash, securities or other property) on account of the principal,
interest or other charges owed on or with respect to any of the Subordinated
Debt until all of the Senior Debt shall have been paid in full.
(c) If the Junior Creditor has commenced an Enforcement Action or
taken any other steps prohibited by the terms of this Section 3 prior to the
receipt by it of a Standstill Notice from the Senior Creditor, then, upon
receipt of a Standstill Notice, the Junior Creditor shall take no further
actions except that the Junior Creditor shall take all of those actions
necessary or appropriate to cease, delay or suspend (to the fullest extent
practicable) all ongoing or pending actions of the type prohibited by the
terms of Section 3(b) above.
(d) Concurrently with the delivery of a Standstill Notice to the
Junior Creditor, the Senior Creditor shall deliver a copy of such Standstill
Notice to the Borrower. The Borrower shall not make, cause to be made, or
permit to be made, any payments on account of any of the Subordinated Debt in
violation of the restrictions set forth in this Agreement.
(e) Notwithstanding the prohibitions imposed by Section 3, the Junior
Creditor shall be entitled to appear in, join, intervene or otherwise become
involved in, any pending Enforcement Action undertaken by the Senior Creditor
to the extent reasonably necessary or appropriate to protect and defend the
rights of the Junior Creditor with respect to the Subordinated Debt or the
Collateral, subject, however, to the priority accorded to the Senior Creditor
under the terms of this Agreement.
4. CHANGES TO SUBORDINATED DEBT. While this Agreement remains in
effect, the Junior Creditor and the Borrower covenant and agree with the
Senior Creditor that neither the Junior Creditor nor the Borrower will do any
of the following without the prior written consent of the Senior Creditor,
which consent may be withheld for any reason whatsoever, in the Senior
Creditor's sole discretion: (a) make additional advances or otherwise
increase the maximum amount of indebtedness permitted under the Subordinated
Note; (b) enter into any new notes (other than the PIK Notes), loan agreements
or other arrangements for the borrowing of money from the Junior Creditor to
5
the Borrower; (c) modify, amend, supplement, consolidate or recast the
Subordinated Note or any of the terms or conditions of the Subordinated Note
or the Subordinated Debt (including the PIK Notes) in order to increase the
maximum principal amount due thereunder or to increase the applicable interest
rate (or default interest rate); or (d) assign any of the rights of the Junior
Creditor or delegate any of the duties or obligations of the Junior Creditor
under the Subordinated Note or Subordinated Debt to any other party or
parties, except as otherwise expressly permitted in the Amendment.
5. PAYMENTS DURING BANKRUPTCY PROCEEDINGS. In the event of the
institution of and in connection with any Bankruptcy Proceedings relative to
the Borrower or any property of the Borrower or any proceedings to liquidate,
dissolve, wind-up or terminate the Borrower (whether or not involving any
Bankruptcy Proceedings):
(a) All Senior Debt shall be paid in full first before any payment
or distribution of any character, whether in cash, securities or other
property, shall be made on account of any of the Subordinated Debt; and
(b) Any payment or distribution of any character, whether in cash,
securities or other property, which would otherwise (but for the terms hereof)
be payable or deliverable on account of any of the Subordinated Debt shall be
paid or delivered directly to the Senior Creditor, until all of the Senior
Debt shall have been paid in full, and the Junior Creditor hereby irrevocably
authorizes, empowers and directs all receivers, trustees, liquidators,
conservators and others having authority to effect all such payments and
deliveries.
6. FURTHER ASSURANCES. The Junior Creditor shall execute and
deliver to the Senior Creditor all such further instruments confirming the
authorization referred to in Section 5(b) above and all such other powers of
attorney, proofs of claim, assignments of claim and other instruments, and
shall take all such other actions as may be reasonably requested by the Senior
Creditor in order to enable the Senior Creditor to enforce all of its rights
hereunder and all claims of the Senior Creditor upon or with respect to the
Subordinated Debt, and failing execution of such instruments or taking of such
actions by the Junior Creditor, the Senior Creditor is hereby authorized and
empowered to execute and perform same on behalf of the Junior Creditor. The
provisions of Section 5 above and this Section 6 shall not be construed as a
waiver by the Junior Creditor of its right to vote upon or participate in any
plan of reorganization involving the Borrower.
7. PAYMENTS RECEIVED BY THE JUNIOR CREDITOR. Any payments or
distributions received by the Junior Creditor from or on behalf of the
Borrower, whether in cash, securities or other property, in contravention of
the terms of this Agreement prior to the payment in full of all of the Senior
Debt shall: (a) be held by the Junior Creditor as trustee of an express trust
for the benefit of the Senior Creditor as sole beneficiary; and (b) be paid
over to the Senior Creditor for application by the Senior Creditor to all
Senior Debt remaining unpaid until such time as the Senior Debt shall have
been paid in full. The Junior Creditor hereby assigns to the Senior Creditor
all rights of the Junior Creditor to any such payments or distributions and
6
agrees to provide the Senior Creditor with prompt written notice of the
receipt of the same. The Senior Creditor may exercise all rights to such
payments or distributions in the Senior Creditor's name or in the name of the
Junior Creditor. The Junior Creditor covenants and agrees to execute and
deliver such instruments and to take such actions as may be reasonably
required by the Senior Creditor to enable the Senior Creditor to enforce its
claims thereto. Any payments or distributions received by the Senior Creditor
from the Junior Creditor in excess of the amount sufficient to pay all of the
Senior Debt in full shall be returned by the Senior Creditor to the Junior
Creditor.
8. SUBORDINATED NOTE AND OTHER INSTRUMENTS. Each of the Subordinated
Note, the PIK Notes and any other instrument constituting a portion of the
Subordinated Debt shall indicate conspicuously on the face thereof that such
Note is subject to the terms of this Agreement.
9. COLLATERAL PRIORITY. Notwithstanding anything to the contrary
contained in any other instrument or document delivered in connection with the
Subordinated Debt or otherwise (including, but not limited to, any prior
perfection of a security interest or Lien), any Liens or security interests
now or hereafter held by the Junior Creditor in any Collateral for any portion
of the Subordinated Debt shall be junior and subordinate to any Liens and
security interests now or hereafter held by the Senior Creditor in the same
Collateral, and the Junior Creditor hereby expressly subordinates all of such
Junior Creditor's Liens, mortgages, and security interests in and to the
Collateral to the Liens, mortgages, and security interests of the Senior
Creditor in the same Collateral. So long as the Senior Debt remains unpaid,
the Senior Creditor may, at all times, in its sole discretion, exercise any
and all rights, remedies and powers which it now has or may hereafter acquire
with respect to any of the Collateral securing the Senior Debt, all without
the necessity of obtaining any consent or approval of the Junior Creditor.
In furtherance of the provisions of this Section 9, the Junior Creditor
covenants and agrees to execute, acknowledge and deliver to the Senior
Creditor such additional instruments or documents as may be reasonably
necessary to confirm the foregoing.
10. SECURITY INTEREST DOCUMENTATION. Notwithstanding anything to the
contrary set forth herein, simultaneously with the time that all of the Senior
Debt is satisfied in its entirety, (i) Borrower shall execute and deliver all
assignments, financing statements, mortgages, deeds of trust and any other
documents reasonably requested by the Junior Creditor in order for the Junior
Creditor to perfect its Lien with respect to the Collateral and (ii) the
Senior Creditor shall execute and deliver, without recourse and without
representation or warranty (express or implied), all assignments to relevant
financing statements, mortgages and deeds of trust previously filed by the
Senior Lender with respect to the Collateral, all as may reasonably be
requested by the Junior Lender.
11. REPRESENTATIONS AND WARRANTIES OF THE JUNIOR CREDITOR. The Junior
Creditor hereby represents and warrants to the Senior Creditor as follows: (a)
attached hereto as Exhibit "A" is a true, correct and complete copy of the
Subordinated Note held by the Junior Creditor; (b) the Subordinated Note has
not been modified, amended or rescinded and remains in full force and effect;
7
(c) as of the date hereof, no other promissory notes, agreements or other
documents or instruments evidencing the Subordinated Debt exist other than the
Subordinated Note and the Amended Loan Agreement; (d) the Junior Creditor has
full power and authority to enter into this Agreement and to perform in
accordance with its terms and conditions; (e) upon execution and delivery of
this Agreement by the Junior Creditor, this Agreement shall constitute the
valid and binding obligation of the Junior Creditor, enforceable against the
Junior Creditor in accordance with its terms, subject to the customary
qualifications involving equitable principles and bankruptcy; and (f) neither
the execution and delivery of this Agreement, nor the performance by the
Junior Creditor of this Agreement in accordance with its terms, will violate
any applicable laws or regulations nor constitute a default under, or breach
of, any agreement to which the Junior Creditor is a party or by which the
Junior Creditor or any of the assets or properties of the Junior Creditor is
bound; provided, however, that no representation or warranty is made with
respect to any agreement to which the Borrower is a party or by which any of
the assets or properties of the Borrower is bound.
12. REPRESENTATIONS AND WARRANTIES OF EACH SENIOR CREDITOR. Each
Senior Creditor hereby represents and warrants to the Junior Creditor as
follows: (a) attached hereto as Exhibit "B" are true, correct and complete
copies of the NPM Notes held by the Senior Creditor; (b) the NPM Notes have
not been modified, amended or rescinded and remain in full force and effect;
(c) as of the date hereof, no other promissory notes, agreements or other
documents or instruments evidencing the Senior Debt exist other than the NPM
Notes, the Amended Loan Agreement, the Servicing Agreement and the other Loan
Documents; (d) each Senior Creditor has full power and authority to enter into
this Agreement and to perform in accordance with its terms and conditions; (e)
upon execution and delivery hereof by each Senior Creditor, this Agreement
shall constitute the valid and binding obligation of each Senior Creditor,
enforceable against each Senior Creditor in accordance with its terms, subject
to the customary qualifications involving equitable principles and bankruptcy;
and (f) neither the execution and delivery of this Agreement, nor the
performance by each Senior Creditor in accordance with its terms, will violate
any applicable laws or regulations nor constitute a default under, or breach
of, any agreement to which each Senior Creditor is a party or by which each
Senior Creditor or any of its assets or properties are bound.
13. CONTINUING SUBORDINATION. This Agreement is a continuing
agreement of subordination; it shall apply to, and the Subordinated Debt shall
remain subordinated to, any and all modifications, amendments, extensions,
renewals and refinancings of the Senior Debt or any portion thereof.
14. ACTIONS BY SENIOR CREDITOR. The Junior Creditor hereby
consents and agrees that the Senior Creditor may, at any time, and from time
to time, without further consent from the Junior Creditor, either with or
without consideration, and without impairing or affecting any of the Senior
Creditor's rights under this Agreement, take any of the following actions:
(a) surrender any property or other security of any kind or nature whatsoever
held by the Senior Creditor or by anyone else on behalf of the Senior
Creditor, that secures any or all of the Senior Debt; (b) substitute for any
Collateral so held by the Senior Creditor, other collateral of like kind, or
8
of any kind; or (c) modify, amend or supplement the terms of any or all of the
Loan Documents, provided, however, that no such modification, amendment or
supplement shall have the intended effect of impairing or otherwise adversely
affecting the existing rights of the Junior Creditor with respect to the
Subordinated Debt. No such action which the Senior Creditor shall take or
fail to take shall release the Junior Creditor from any of its obligations
hereunder, affect this Agreement in any way, or afford the Junior Creditor any
recourse against the Senior Creditor.
15. BORROWER'S OBLIGATIONS NOT LIMITED. Subject to the provisions of
this Agreement and the rights of the Senior Creditor hereunder, as between the
Borrower and the Junior Creditor, nothing contained herein shall impair the
unconditional and absolute obligation of the Borrower to the Junior Creditor
to pay the Subordinated Debt as such Subordinated Debt shall become due and
payable in accordance with the terms of the Subordinated Note and nothing
shall prevent or impair the Junior Creditor from exercising all rights and
remedies with respect thereto provided by the terms of the Subordinated Note
and the Amended Loan Agreement.
16. REINSTATEMENT. If, at any time, any payment in respect of Senior
Debt is rescinded or must otherwise be restored or returned by the holder of
such Senior Debt in connection with any Bankruptcy Proceeding or Enforcement
Action, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Borrower or any
substantial part of the Borrower's property, the obligations of the holders
of Subordinated Debt under this Agreement shall continue to be effective, or
be reinstated as of the time such payment in respect of Senior Debt is so
rescinded or must otherwise be restored, as the case may be, all as though
such payment has not then been made.
17. WAIVER BY THE JUNIOR CREDITOR. To the extent not otherwise
inconsistent with the terms of this Agreement, the Junior Creditor hereby
waives any and all notices (other than a Standstill Notice or any other
notices expressly contemplated under this Agreement) with respect to the
subject matter of this Agreement, including, but not limited to, notice of
acceptance of this Agreement, notice of the making of investments in, or loans
or advances to, the Borrower, notices of any extensions, renewals,
refinancings or modifications of all or any portion of the Senior Debt (to the
extent permitted by this Agreement), notices of any releases of Collateral or
guarantors or other indulgences of any character, or notices of the occurrence
or declaration of any default or the taking of any Enforcement Action.
18. SUBROGATION. After repayment in full of all of the Senior Debt and
prior to repayment in full of the Subordinated Debt, the Junior Creditor shall
be subrogated to the rights of the Senior Creditor to the extent that
distributions otherwise payable to the Junior Creditor have been applied to
the payment of the Senior Debt in accordance with the provisions of this
Agreement. The Senior Creditor shall not have any obligation or duty to
protect the Junior Creditor's rights of subrogation arising pursuant to this
Agreement or under any applicable law, nor shall the Senior Creditor be liable
for any loss to, or impairment of, any subrogation rights held by the Junior
Creditor.
9
19. NO ORAL MODIFICATIONS OR WAIVERS; GOVERNING LAW. This Agreement
may not be modified orally nor any of its provisions waived, but only in a
writing signed by the party against whom such modification or waiver is sought
to be enforced. This Agreement shall be governed by the laws of the State of
New York, without regard to its principles of conflicts of law.
20. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced
or impaired by any act or failure to act on the part of the Borrower or by any
act or failure to act by any such holder, or by any noncompliance by the
Borrower with the terms, provisions and covenants respecting the Subordinated
Debt contained in the Loan Documents, regardless of any knowledge thereof any
such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing, the holders
of Senior Debt may, at any time and from time to time and in their absolute
discretion, without incurring duties or other obligations to any holders of
Subordinated Debt and without impairing or releasing the subordination and
other benefits provided in this Agreement or the obligations of the holders
of the Subordinated Debt to the holders of the Senior Debt, do any one or more
of the following, all without notice to or assent from the holders of the
Subordinated Debt and even if any right of reimbursement or subrogation or
other right or remedy of any such holder is affected, impaired or extinguished
thereby:
(a) change the manner, place or terms of payment or change or extend
the time of payment of, or renew, exchange, amend or alter, the terms of any
Senior Debt, any security therefor or guarantee thereof or any liability of
the Borrower or any other guarantor to such holder, or any liability incurred
directly or indirectly in respect thereof, or otherwise amend, renew,
exchange, modify or supplement in any manner Senior Debt or any instrument
evidencing or guaranteeing or securing the same or any agreement under which
Senior Debt is outstanding; provided, however, that the holders of the Senior
Debt may not, without the prior written consent of the holders of the
Subordinated Debt, (i) increase the interest rate (or default interest rate)
charged with respect to any, (ii) shorten the Scheduled Maturity date of any
or (iii) accelerate the required rate of amortization of any, Senior Debt.
The prohibitions contained in clauses (i), (ii) and (iii) of the immediately
preceding stance shall not in any way, however, limit or otherwise restrict
the mandatory payments of principal and accrued interest due the Senior
Creditor pursuant to Article 2 of the Amended Loan Agreement.
(b) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and any order any property pledged,
mortgaged or otherwise securing Senior Debt or any liability of the Borrower
or any other guarantor to such holder, or any liability incurred directly or
indirectly in respect thereof;
10
(c) settle or compromise any Senior Debt or any other liability of
the Borrower or any other guarantor of the Senior Debt to such holder or any
security therefor or any liability incurred directly or indirectly in respect
thereof and apply any sums by whomsoever paid and however realized to any
liability (including, without limitation, Senior Debt) in any manner or order;
and
(d) fail to take or to record or otherwise perfect, for any reason
or for no reason, any lien or security interest securing Senior Debt by
whomsoever granted, exercise or delay in or refrain from exercising any right
or remedy against the Borrower or any security or any other guarantor or any
other person, elect any remedy and otherwise deal freely with the Borrower and
any security and any other guarantor of the Senior Debt or any liability of
the Borrower or any other guarantor to such holder or any liability incurred
directly or indirectly in respect thereof.
21. SEVERABILITY; CAPTIONS. If any provision hereof shall be deemed
to be invalid by any court, such invalidity shall not affect the remainder of
this Agreement, which shall be deemed severable. The captions and paragraph
headings herein shall not be considered part of this Agreement.
22. ENTIRE AGREEMENT. This Agreement constitutes and expresses the
entire understanding between the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, whether express or implied, oral
or written.
23. PARTIES. This Agreement shall inure to the benefit of the Senior
Creditor and its respective successors and assigns. This Agreement shall be
binding upon the Borrower and the Junior Creditor and each of their respective
successors and assigns, provided, however, as an express condition to any
permitted assignment by the Junior Creditor of any of its obligations
hereunder, the Junior Creditor shall be required to deliver to the Senior
Creditor a written acknowledgement executed by the assignee of the Junior
Creditor whereby such assignee acknowledges that the obligations of the Junior
Creditor hereunder shall be binding upon, and enforceable against, such
assignee with the same force and effect as if such assignee were an original
party to this Subordination Agreement.
24. WAIVER OF TRIAL BY JURY. Each party to this Agreement agrees that
any suit, action or proceeding, whether claim, defense or counterclaim,
brought or instituted by any party hereto or any successor or assign of any
party on or with respect to this Agreement or which in any way relates,
directly or indirectly, to any event, transaction or occurrence arising out
of or in any way connected with this Agreement or the dealings of the parties
with respect thereto, shall be tried only by a court and not by a jury. EACH
PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT,
ACTION OR PROCEEDING, AND ACKNOWLEDGES THAT THIS IS A WAIVER OF A LEGAL RIGHT
AND THAT IT MAKES THIS WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION
WITH, OR THE OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS CHOICE.
11
25. VENUE; PERSONAL JURISDICTION; FULL FAITH AND CREDIT; PERSONAL
SERVICE.
(a) Venue for the adjudication of any claim or dispute arising out
of this Agreement shall be proper only in the state or federal courts of the
State of New York, and all parties to this Agreement hereby consent to such
venue;
(b) Each of the parties hereto intends and agrees that the courts
of the jurisdictions in which such party is formed and in which such party
conducts its business should afford full faith and credit to any judgment
rendered by a court of the State of New York against any of the other parties
hereto, and each of the parties hereto intends and agrees that such courts
should hold that the New York courts have jurisdiction to enter a valid, IN
PERSONAM judgment against any such party, as the case may be;
(c) Each of the parties hereto agrees that service of any summons
and complaint, and other process which may be served in any suit, action or
other proceeding, may be made by mailing via U.S. certified or registered mail
or by hand delivering a copy of such process to the party so served (as
applicable) at its address specified in Section 25 of this Agreement; and
(d) Each of the parties hereto expressly acknowledges and agrees
that the provisions of this Section 25 are reasonable and made for the express
benefit of the Senior Creditor.
26. NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement or by law shall be in writing and
given to the parties by any of the following methods: (a) by certified U.S.
mail, return receipt requested, postage prepaid; (b) by facsimile transmission
(provided confirmation of the receipt thereof is obtained); (c) by recognized
overnight courier service (e.g, Federal Express); or (d) by hand delivery.
All notices or communications under this Agreement shall be delivered to the
following addresses (or to such other address as shall at any time be
designated by any party in writing to the other parties):
If to NPM: NPM Capital LLC
c/o Pembroke Companies, Inc.
1400 Colorado Street, No. C
Boulder City, Nevada 89005
Attention: Lawrence J. Cohen
With a copy to: Herbert T. Weinstein, Esq.
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
If to NPO: NPO Management LLC
c/o Millennium Financial Services, Inc.
70 East 55th Street, 6th Floor
New York, New York 10022
Attention: Jay Chazanoff
12
With a copy to: Herbert T. Weinstein, Esq.
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
If to the Bridge Capital, LLC
Junior Creditor: 450 Park Avenue
New York, NY 10019
Attention: Ronald Kravit, Manager
With a copy to: Patrick J. Foye, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
If to the Borrower: DVL, Inc.
24 River Road
Bogota, NJ 07603
Attention: Daniel Baldwin, Esq.
With a copy to: Leonard Gubar, Esq.
Reid & Priest LLP
40 West 57th Street
New York, NY 10019
Rejection or other refusal to accept, or the inability to deliver
because of a changed address of which no notice was given, shall not affect
the effectiveness or the date of delivery for any notice sent in accordance
with the foregoing provisions. Each such notice, request or other
communication shall be deemed sufficiently given, served, sent and received
for all purposes at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the affidavit of the messenger or the
answer back being deemed conclusive (but not exclusive) evidence of such
delivery) or at such time as delivery is refused by addressee upon
presentation.
13<PAGE>
IN WITNESS WHEREOF, the undersigned have duly caused this
Subordination Agreement to be executed and delivered as of the date first
above written.
NPM CAPITAL LLC
By: Pembroke Capital LLC, its Manager
By: /s/ Lawrence J. Cohen
______________________________
Name: Lawrence J. Cohen
Title: General Manager
NPO MANAGEMENT LLC
By: Omni Partnership Capital, Inc.
By: /s/ Jay Chazanoff
______________________________
Name: Jay Chazanoff
Title: President
BRIDGE CAPITAL, LLC
By: /s/ Ronald Kravit
______________________________
Name: Ronald Kravit
Title: Manager
DVL, INC.
By: ______________________________
Name: Daniel Baldwin
Title: Vice President and
General Counsel
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 455
<SECURITIES> 0
<RECEIVABLES> 25,336
<ALLOWANCES> 10,842
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,610
<CURRENT-LIABILITIES> 0
<BONDS> 14,855
<COMMON> 157
0
1
<OTHER-SE> 2,439
<TOTAL-LIABILITY-AND-EQUITY> 19,610
<SALES> 0
<TOTAL-REVENUES> 1,618
<CGS> 0
<TOTAL-COSTS> 1,755
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,982
<INCOME-PRETAX> (2,119)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,119)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,104
<CHANGES> 0
<NET-INCOME> (1,015)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
