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EXHIBIT 99(A)
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EXECUTION COPY
October 4, 1993
BGLS Inc.
Brooke Group Ltd.
c/o Brooke Group Ltd.
100 S.E. Second Street
Miami, Florida 33131
Re: Exchange, Purchase, Acceptable New Valley
Reorganization and Related Transactions
(Amended and Restated)
Ladies and Gentlemen:
When this letter agreement is countersigned by you, the letter
agreement dated as of October 4, 1993 among the parties hereto entitle "Re:
Exchange, Purchase, Acceptable New Valley Reorganization and Related
Transactions" is hereby amended and restated in its entirety to read as
follows:
This letter agreement, when countersigned by you, shall
constitute a binding letter of intent with respect to the transactions
described below, subject, as applicable, to the conditions described below. As
set forth below in more detailed provisions (which more detailed provisions
shall govern), (i) New Valley Class A Preferred Shares and New Valley Common
Shares shall be acquired by the Apollo Holder (which may be Newco) and, if they
so elect, other holders of BGLS Debt, such acquisition to be made from BGLS
and, in certain circumstances, Brooke in consideration for BGLS Debt, cash and
Interest Settlement paid by such holders, (ii) such holders shall as a result
thereof receive Equity Ownership of Newco in the reorganization of New Valley,
(iii) Newco shall acquire 100% of the Equity Ownership of Reorganized New
Valley for cash and Equity Ownership of Newco and (iv) the New Valley Class A
Preferred Shares and New Valley Common Shares of old New Valley shall be
converted pursuant to a merger transaction or another business combination into
Equity Ownership of Newco (the class of New Valley Class A Preferred Shares
being the only class of Equity Ownership of New Valley that receives any
distribution in the reorganization of New Valley).
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October 4, 1993
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I. Defined Terms Used Herein
Acceptable New Valley A plan of reorganization of New
Reorganization Valley under chapter 11 of the
federal Bankruptcy Code pursuant to
which except as waived by the Apollo
Holder:
(i) Newco shall have acquired
beneficial ownership of 100% of the
Equity Ownership of Reorganized New
Valley in the following
circumstances: (A) a cash investment
in Reorganized New Valley of not
more than $60,000,000 (which shall
represent an Equity Ownership of
Reorganized New Valley of not less
than 30%), (B) issuance of 30.345%
of the Equity Ownership of Newco in
connection with a merger transaction
or another business combination
between New Valley and a subsidiary
of Newco pursuant to the plan of
reorganization whereby the BGLS
Portion of the Equity Ownership of
New Valley is converted into the
right to receive 30.345% of the
Equity Ownership of Newco (it being
understood that such 30.345% of the
Equity Ownership of Newco and a
nominal amount of cash shall be
distributed to the Participating
Holders in respect of their
acquisition of Equity Ownership of
New Valley from BGLS pursuant to the
Exchange or from BGLS or Brooke
pursuant to the Purchase in
connection with such merger
transaction or other business
combination) and (C) issuance of
39.6555% of the Equity Ownership of
Newco and delivery of a nominal
amount of cash in connection with
such merger transaction or other
business combination to the other
holders of Equity Ownership in New
Valley (except any holders of
classes of equity interests which
are to receive nothing pursuant to
the plan of reorganization) in
exchange for such remaining Equity
Ownership;
(ii) Newco shall have issued
not more than a 7.5% Equity
Ownership of Newco to Electronic
Data Systems Corporation or another
investor acceptable to the Apollo
Holder in its sole discretion for
cash of at least
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$15,000,000 and shall have issued 22.5%
Equity Ownership of Newco to the Apollo
Holder for cash of not more than
$45,000,000;
(iii) the consolidated Debt of
Reorganized New Valley and Newco at
the effective date of such plan does not
exceed the sum of (x) $225,000,000 for
Debt other than letter of credit
reimbursement obligations and (y)_ up to
$20,000,000 in letter of credit
reimbursement obligations for letters of
credit to secure ordinary course
performance of obligations of
Reorganized New Valley and its
subsidiaries;
(iv) any Debt (except Debt
described in the next clause (v)) issued
in connection with the reorganization of
New Valley shall (A) have a final
maturity of not less than eight years
and no mandatory redemption or other
repurchase or other retirement
obligation before six years, (B) have a
blended average annual interest rate of
not more than 10.5% and (C) have
financial covenants and other terms and
conditions reasonably acceptable to the
Apollo Holder;
(v) any Debt issued or other
payments made in exchange for tax claims
against New Valley shall (A) have an
amortization schedule requiring not
not fewer than six equal annual
installments (subject to such earlier
amortization as shall be required by the
Federal Bankruptcy Code), (B) be
unsecured and (C) have financial
covenants (if any) and other terms and
conditions reasonably acceptable to the
Apollo Holder;
(vi) the only class of Equity
Ownership of New Valley that receives
any distribution in respect of the
reorganization is the class of New
Valley Class A Preferred Shares; and
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(vii) all other terms and
conditions of the Plan shall be
satisfactory to the Apollo Holder.
Such plan shall also be consummated
in circumstances in which the
applicable conditions to the
obligation of the Apollo Holder to
participate in the Exchange and
Purchase as set forth in Section
II.C.2 are satisfied or waived.
Affiliate or affiliate Of any specified Person means any
other Person directly or indirectly
controlling, controlled by or under
common control with such specified
Person. For the purposes of this
definition, "control" (including,
with correlative meanings, the terms
"controlled by" and "under common
control with"), as applied to any
Person, means the possession,
directly or indirectly, of the power
to direct or cause the direction of
the management or policies of such
Person, whether through the
ownership of voting securities, by
agreement or otherwise.
Apollo Holder AIF II, L.P. and/or Artemis Finance
SNC, as the context requires, and/or
one or more related entities that at
a time referred to herein by reason
of a transfer shall hold any BGLS
Debt now held by the Apollo Holder
and shall have executed a supplement
hereto (to the extent that this
letter agreement is at the time in
effect) and has otherwise become a
party to the applicable Definitive
Documents. Such transfer shall not
relieve the original Apollo Holder
from liability for failure of the
transferee to perform the Apollo
Holder's obligations hereunder.
Associate or associate Of any specified Person means an
"associate" of such Person within
the meaning of Rule 12b-2 under the
Securities Exchange Act of 1934, as
in effect on the date hereof.
BGLS BGLS Inc., a Delaware corporation.
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BGLS 14-1/2% Debt 14.500% Subordinated Debentures due
1998 of BGLS.
BGLS 16-1/8% Debt 13.500% Senior Subordinated Reset
Notes due 1997 of BGLS, the annual
interest rate on which has been
reset to 16-1/8%.
BGLS Debt The BGLS 14-1/2% Debt and/or the
BGLS 16-1/8% Debt, as the context
requires.
BGLS Portion of The portion of the Equity Ownership
the Equity Ownership of New Valley held by BGLS on the
of New Valley date hereof.
Brooke Brooke Group Ltd., a Delaware
corporation.
Brooke Parties BGLS and Brooke
Closing Date The date of closing of the Exchange
and Purchase, which shall be on the
effective date of an Acceptable New
Valley Reorganization.
CVR Obligation As defined in Section III.B.1.
Debt Indebtedness for borrowed money or
that would appear as indebtedness on
a balance sheet prepared in
accordance with generally accepted
accounting principles, guaranties of
indebtedness, conditional sales and
capitalized lease obligations and
indebtedness issued in connection
with an Acceptable New Valley
Reorganization in satisfaction of
claims of the New Valley 19-1/4%
Senior Secured Notes and unsecured
claims including tax claims against
New Valley, but excluding any PBGC
liabilities.
Definitive Documents As defined in Section II.C.2.b.
EBITDAP Test As defined in Section II.C.2.f.
Equity Ownership With respect to any corporation,
fully diluted equity ownership of
such corporation, the amount or
percentage of which shall be
calculated on the basis of economic
and voting power, on a fully diluted
basis, of such corporation, but, in
the case of Newco, without giving
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effect to the economic or voting
power attributable to the Newco
Preferred Shares.
Exchange The exchange of Equity Ownership of
New Valley by BGLS for BGLS 16-1/8%
Debt, cash and Interest Settlement
described in Sections II.A.1 and
II.C, including participation in the
related Interest Transaction.
Exchange Agent As defined in Section II.A.1.
Exchange Agreement As defined in Section II.A.1.c.
Indemnification Agreement As defined in Section II.A.3.a.
Interest Loans The loans (including, as applicable,
the related notes) to be made to
BGLS by the Participating Holders
relating to the October Interest
Installments, as described in
Section II.A.2.
Interest Settlement Assignment to BGLS of Interest
Loans. The amount Interest
Settlement shall be calculated by
reference to the original principal
amount of the related Interest
Loans, but the assignment of any
Interest Settlement shall include
the related interest accrued
thereon.
Interest Transaction As defined in Section II.A.2, the
making of the Interest Loans
relating to the October Interest
Installments.
Interest Loan The documents relating to the
Documents Interest Transaction, as described
in Section II.A.
LeBow Bennett LeBow and (i) any Person,
other than Brooke, or any Person
controlled by Brooke, in which he
shall own more than a 10% economic
interest or control more than 10% of
the voting power or (ii) his spouse
and any of his descendants or (iii)
any trust created by him or with
regard to which he serves as a
trustee or co-trustee.
New Valley New Valley Corporation, a New York
corporation.
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New Valley Class A $15 Class A Increasing Rate
Preferred Shares Cumulative Senior Preferred
Shares, par value $0.01 per share,
of New Valley.
New Valley Class B $3.00 class B Cumulative Convertible
Preferred Shares Preferred Shares of New Valley.
New Valley Common Common Shares, par value $0.01 per
Shares share, of New Valley.
New Valley 19-1/4% 19-1/4% Senior Secured Notes due
Senior Secured Notes December 15, 1992 of New Valley
Newco A corporation to be organized for
purposes of acquiring the Equity
Ownership of Reorganized New Valley,
which corporation shall be
capitalized as set forth in the
definition of Acceptable New Valley
Reorganization and in the definition
of Newco Preferred Shares.
Newco Preferred Shares of non-voting,
Shares non-convertible preferred stock of
Newco having an aggregate
liquidation preference of $1,000,000
and other terms reasonably
acceptable to the Apollo Holder to
be sold in connection with the
Acceptable New Valley Reorganization
to an investor reasonably acceptable
to the Apollo Holder pursuant to a
contract entered into before the
Closing Date on terms reasonably
acceptable to the Apollo Holder.
October Interest The installments of interest due on
Installments October 1, 1993 with respect to the
BGLS Debt to be exchanged in the
Exchange or purchased in the
Purchase.
Participating Holders The holders of BGLS Debt that
participate in the Exchange and, if
applicable, the Purchase.
Person or person An individual, partnership,
corporation, limited liability
company, business trust, joint stock
company, trust, unincorporated
association, joint venture,
governmental authority or other
entity of whatever nature.
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Purchase The purchase of Equity Ownership of
New Valley from Brooke for BGLS
14-1/2% Debt and from BGLS for cash
and Interest Settlement described in
Sections II.A.1 and II.C.
Reorganized New Valley New Valley as reorganized pursuant
to the Acceptable New Valley
Reorganization.
Termination Event As defined in Section III.B.1.
Withdrawing Holder As defined in Section II.A.1.d(i)(a).
II. The Transactions
A. Exchange and Purchase; Interest Transaction; Certain Other
Documents Delivered in Connection Herewith and with the
Execution and Delivery of the Exchange Agreements and the
Purchase Agreements; Amendment of BGLS Debt Indentures and
Certain Actions
1. Exchange and Purchase. As promptly as practicable after
the date hereof, BGLS shall propose the following transactions to the holders
(other than Brooke, BGLS or any affiliate or associate thereof or any such
holder than BGLS with the concurrence of the Apollo Holder shall exclude
therefrom because of uncertainty as to the nature and qualifications of such
holder), ("Eligible 16-1/8% Holders") of BGLS 16-1/8% Debt as of September 30,
1993 ("Record Date"):
a. Exchange. Each Eligible 16-1/8% Holder shall be
entitled to exchange with, or pay to, BGLS, as the case may
be, on the Closing Date (i) (x) BGLS 16-1/8% Debt held by
such Eligible 16-1/8% Holder as of the Record Date (y) cash
and (z) Interest Settlement for (ii) Equity Ownership of New
Valley. The basis of such exchange shall be as set forth in
Section II.,A.1.c. Each Eligible 16-1/8% Holder shall be
entitled to participate in the Exchange with respect to all
but not less than all the BGLS 16-1/8% Debt held by such
Eligible 16-1/8% Holder as of the Record Date, subject to the
cutback described in Section II.A.1.c.ii (any such Eligible
16-1/8% Holder that elects to participate, "Participating
16-1/8% Holder").
b. Purchase. If Participating 16-1/8% Holders hold
less than $88,900,000 aggregate principal amount of BGLS
16-1/8% Debt, each Participating 16-1/8% Holder that also
holds BGLS 14-1/2% Debt as of the Record Date ("Eligible
14-1/2% Holder") shall be entitled to
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purchase on the Closing Date additional Equity Ownership of
New Valley (x) from Brooke, in consideration for the transfer
to Brooke of BGLS 14-1/2% Debt held by such Eligible 14-1/2%
Holder as of the Record Date, and (y) from BGLS, in
consideration for cash paid and Interest Settlement assigned
by such Eligible 14-1/2% Holder to BGLS. The basis of each
such purchase shall be as set forth in Section II.A.1.c. Each
Eligible 14-1/2% Holder shall be entitled to participate in
the Purchase with respect to all or any portion of the BGLS
14-1/2% Debt held by such Eligible 14-1/2% Holder as of the
Record Date, subject to the cutback described in Section
II.A.1.c.iii (any such Eligible 14-1/2% Holder that elects to
participate, "Participating 14-1/2% Holder").
c. Determination of Basis of Participation in
Exchange and Purchase. The basis of each Participating
Holder's participation in the Exchange and Purchase shall be
determined ("Determinations") as follows:
i. Basis Expressed in "Units"; "Indications"
of Participations. The basis of participation in the
Exchange and Purchase shall, as to Equity Ownership
of New Valley, be expressed in Units. A "Unit" shall
mean a unit of one New Valley Class A Preferred Share
and 121.986077 New Valley Common Shares. As used in
this Section II.A.1, the term "indicate" and
correlative terms shall, as applied to a
Participating Holder, refer to the indication that a
Participating Holder shall make as to the amount of
BGLS Debt held by it that it wishes to include in the
Exchange and Purchase in its response to the
solicitation by BGLS of participation in the Exchange
and the Purchase.
ii. Determination of Participation in
Exchange Among Participating 16-1/8% Holders. The
amount of BGLS 16-1/8% Debt with respect to any
Participating 16-1/8% Holder that shall be exchanged
in the Exchange (its "Accepted 16-1/8% Amount") and
the amount of cash and Interest Settlement that shall
be exchange in the Exchange by such Participating
16-1/8% Holder shall be determined as follows:
(i)(a) if the aggregate of all amounts
of BGLS 16-1/8% Debt indicated for
participation by all Participating 16-1/8%
Holders (with respect to each Participating
16-1/8% Holder, its "Indicated 16-1/8%
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Amount") does not exceed $88,900,000, each
Participating 16-1/8% Holder's Accepted
16-1/8% Amount shall equal its Indicated
16-1/8% Amount: and
(b) otherwise, each Participating
16-1/8% Holder's Accepted 16-1/8% Amount
shall equal its Indicated 16-1/8% Amount
multiplied by $88,900,000 divided by the
aggregate of all Indicated 16-1/8% Amounts;
(ii) the amount of cash that shall be
exchanged in the Exchange by such
Participating 16-1/8% Holder shall equal
$15,000,000 multiplied by the Accepted
16-1/8% Amount of such Participating 16-1/8%
Holder divided by $88,900,000; and
(iii) the amount of Interest
Settlement that shall be exchanged in the
Exchange by such Participating 16-1/8% Holder
shall equal the amount of the Interest Loans
corresponding to the October Interest
Installments payable on the Accepted 16-1/8%
Amount of such Participating Holder.
iii. Determination of Participation in
Purchase Among Eligible 14-1/2% Holders. The amount
of BGLS 14-1/2% Debt with respect to any
Participating 14-1/2% Holder in consideration of
which such Participating 14-1/2% Holder shall
purchase Units in the Purchase (its "Accepted
14-1/2% Amount") and the ammount of cash and Interest
Participating Settlement in consideration of which
such 14-1/2% Holder shall purchase Units in the
Purchase shall be determined as follow:
(i) (a) an amount ("Spread Amount")
equal to the excess, if any, of (x)
$88,900,000 over (y) the aggregate of all
Accepted 16-1/8% Amounts shall be determined;
and
(b) each Participating 14-1/2%
Holder's Accepted 14-1/2% Amount shall equal
the lesser of (x) the amount indicated by
such Participating 14-1/2% Holder and (y) (A)
the Spread Amount multiplied by (B) such
Participating 14-1/2% Holder's Accepted
16-1/8% Amount divided by (C) the aggregate
of all Accepted 16-1/8% Amounts; provided,
however, that, if, as a result of the
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foregoing, the aggregate Accepted 14-1/2%
Amounts of all Participating 14-1/2% Holders
is less than the Spread Amount, the Accepted
14-1/2% Amount of the Apollo Holder shall be
increased by the excess of the Spread Amount
over the aggregate of all Accepted 14-1/2%
Amounts (including for this purpose the
Accepted 14-1/2% Amount of the Apollo Holder
determined before application of this
proviso) so that the aggregate of all
Accepted 14-1/2% Amounts equals the Spread
Amount;
(ii) the amount of cash in
consideration of which such Participating
14-1/2% Holder shall purchase Units in the
Purchase shall equal $15,000,000 multiplied
by the Accepted 14-1/2% Amount of such
Participating 14-1/2% Holder divided by
$88,900,000; and
(iii) the amount of Interest
Settlement in consideration of which such
Participating 14-1/2% Holder shall purchase
Units in the Purchase shall equal the amount
of the Interest Loans corresponding to the
October Interest Installments payable on the
Accepted 14-1/2% Amount of such Participating
Holder.
iv. Determination of Number of 16-1/8% Cash
Units. The number of Units that shall be allocable
to the cash component of the Exchange ("16-1/8% Cash
Units") shall equal, for each Participating 16-1/8%
Holder, 160,867 multiplied by its Accepted 16-1/8%
Amount divided by $88,900,000.
v. Determination of Number of 16-1/8%
Interest Units. The number of Units allocable to the
Interest Settlement component of the Exchange
("16-1/8% Interest Units") shall equal, for each
Participating 16-1/8% Holder, the original principal
amount of Interest Loans related to the BGLS 16-1/8%
Debt comprising the Accepted 16-1/8% Amount of such
Participating 16-1/8% Holder divided by $93.24456995.
vi. Determination of Number of 14-1/2% Cash
Units. The number of Units that shall be allocable
to the cash component of the Purchase ("14-1/2% Cash
Units") shall equal, for each Participating 14-1/2%
Holder, 160,867 multiplied
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by the Accepted 14-1/2% Amount of such Participating
14-1/2% Holder divided by $88,900,000.
vii. Determination of Number of 14-1/2%
Interest Units. The number of Units allocable to the
Interest Settlement component of the Purchase
("14-1/2% Interest Units") shall equal, for each
Participating 14-1/2% Holder, the original principal
amount of Interest Loans related to the BGLS 14-1/2%
Debt comprising the Accepted 14-1/2% Amount of such
Participating 14-1/2% Holder divided by $93.24456995.
viii. Determination of Number of 14-1/2%
Debt Units. The number of Units that shall be
allocable to the BGLS 14-1/2% Debt component of the
Purchase ("14-1/2% Debt Units") shall equal, for each
Participating 14-1/2% Holder, the Accepted 14-1/2%
Amount of such Participating 14-1/2% Holder
multiplied by $0.30 divided by $93.24456995.
ix. Determination of Number of 16-1/8% Debt
Units. The aggregate number of Units that shall be
allocable to the BGLS 16-1/8% Debt component of the
Exchange ("16-1/8 Debt Units") shall equal, for each
Participating 16-1/8% Holder, the product of (A) (x)
650,869 minus (y) the sum of (i) the aggregate number
of 16-1/8% Cash Units, (ii) the aggregate number of
16-1/8% Interest Units, (iii) the aggregate number of
14-1/2% Cash Units, (iv) the aggregate number of
14-1/2% Interest Units and (v) the aggregate number
of 14-1/2% Debt Units and (B) such Participating
16-1/8% Holder's Accepted 16-1/8% Amount divided by
(C) the aggregate of all Accepted 16-1/8% Amounts.
x. Redetermination of Basis of Exchange and
Purchase in Certain Circumstances. If any
Participating Holder becomes or is deemed to become a
Withdrawing Holder, the Determinations made pursuant
to this Section II.A.1.a shall be made again as if
such Participating Holder had indicated that it did
not wish to include any BGLS Debt held by it in the
Exchange and Purchase but with the effect that (i)
the Accepted 16-1/8% Amounts and the Accepted 14-1/2%
Amounts of the Participating Holders other than the
Apollo Holder shall not change, and (ii) with respect
to the Apollo Holder, first, the Apollo Holder's
Accepted 14-1/2% Amount (together with associated
cash
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payments and Interest Settlement) shall be increased
to the extent necessary to cause the entire BGLS
Portion of the Equity Ownership of New Valley to be
subject to the Exchange and Purchase and second, if
the increase pursuant to the preceding clause "first"
does not cause the entire BGLS portion of the Equity
Ownership of New Valley to be subject to the Exchange
and Purchase, the Apollo Holder's Accepted 16-1/8%
Amount (together with associated cash payments and
Interest Settlement) shall also be so increased to
the extent necessary to cause the entire BGLS Portion
of the Equity Ownership of New Valley to be subject
to the Exchange and Purchase. The Definitive
Documents shall also contain comparable provisions
requiring the Determinations to be made again if any
Participating Holder fails to perform its obligation
to participate in the Exchange and Purchase.
d. Exchange Agreement; Purchase Agreement;
Withdrawal Rights; Timing; Standstill Agreement; Interest
Transaction; Disclosure. On or before October 28, 1993, (x)
BGLS and each Participating 16-1/8% Holder shall execute and
deliver an agreement and related documentation ("Exchange
Agreement") and (y) if applicable, Brooke and each
Participating 14-1/2% Holder shall execute and deliver an
agreement and related documentation ("Purchase Agreement")
relating to that portion of the Purchase in which BGLS 14-1/2%
Debt is being sold to Brooke, and BGLS and such Participating
14-1/2% Holder shall execute and deliver another Purchase
Agreement relating to that portion of the Purchase in which
cash is being paid and Interest Settlement is being assigned
to BGLS. The Exchange Agreement and Purchase Agreements shall
contain such terms and conditions consistent with the
provisions of this letter agreement as shall be reasonably
acceptable to the Apollo Holder, BGLS and, if applicable,
Brooke and shall include the following:
(i)(a) each Participating 16-1/8% Holder and
each Participating 14-1/2% Holder (in either case,
"Participating Holder"), other than the Apollo
Holder, shall be entitled to withdraw in whole but
not in part from participation in the Exchange and
Purchase by notice given to the parties to the
Exchange Agreement and Purchase Agreements no more
than five business days after the confirmation date
of the Acceptable New Valley Reorganization (any such
Participating Holder that elects to withdraw, in
whole but not in part "Withdrawing
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Holder"), and (b) each Participating Holder's
participation in the Exchange and Purchase shall be
otherwise irrevocable (subject to fulfillment of the
conditions applicable thereto); and
(ii) such Participating Holder shall agree
(A) not to bring any action challenging the validity
of the Exchange or Purchase or of this letter
agreement or the consummation of the transactions
contemplated hereby or in the Exchange Agreement or
Purchase Agreement or alleging any default as a
result thereof under the indentures pursuant to which
the BGLS Debt was issued; provided, however, that
such agreement shall not prevent any such
Participating Holder from objecting to the terms of
the proposed disposition of any claim or interest
that it may have with regard to New Valley, (B) to
participate in the Interest Transaction on the basis
described in Section II.A.2 with respect to the
October Interest Installments allocable to the BGLS
Debt owned by such Participating Holder as of the
Record Date and (C) in the case of the Apollo Holder,
to cooperate reasonably in connection with the
consummation of the Exchange, the Purchase and an
Acceptable New Valley Reorganization; the foregoing
agreements in clauses (A) and (B) shall continue even
if a Participating Holder becomes a Withdrawing
Holder.
As promptly as practicable after the date hereof; the
Apollo Holder shall cause counsel for the Apollo Holder to
prepare and deliver drafts of the Exchange Agreement and
Purchase Agreements and related documentation; and BGLS shall
cause counsel for BGLS to prepare and deliver drafts of
appropriate disclosure documentation (attaching certain
Definitive Documentation) relating to the Exchange and
Purchase so that such transactions shall comply with all
securities laws applicable to each component thereof. The
Apollo Holder, with respect to the disclosure documentation,
shall have the right to review and comment on any disclosure
relating to the Apollo Holder, related persons and the
participation of the Apollo Holder and related persons in the
transactions contemplated hereby. From the time of
dissemination of such disclosure documentation, Eligible
16-1/8% Holders shall have until 5:00 p.m. eastern time
October 27, 1993 to decide whether to participate in Exchange
and Purchase.
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e. Interest Accrued on BGLS Debt Surrendered in the
Exchange and Purchase. Each Participating Holder shall be
entitled to offset all interest accrued for periods subsequent
to the interest period to which the October Interest
Installments relate on BGLS Debt exchanged or transferred by
such Participating Holder against any cash payment otherwise
due by such Participating Holder to BGLS in connection with
the Exchange or Purchase.
f. Distribution of Equity Ownership in the Exchange
and Purchase; Exchange Agent; Free and Clear Deliveries of
Equity Ownership and BGLS Debt. Equity Ownership of New
Valley otherwise delivered to Participating Holders in the
Exchange or Purchase shall be delivered to an exchange agent
("Exchange Agent") that shall exchange such Equity Ownership
of New Valley for Equity Ownership of Newco and a nominal
amount of cash pursuant to the applicable provisions of the
Acceptable New Valley Reorganization, and such Equity
Ownership of Newco and cash shall thereafter be distributed
to the Participating Holders. All deliveries of Equity
Ownership by BGLS or Brooke and all deliveries of BGLS Debt
and Interest Settlement by Participating Holders shall be free
and clear of all liens, security interests or other charges
("Liens"), options, warrants or other rights of others.
g. Closing Date. The Exchange and Purchase shall be
consummated on the Closing Date as described in Section
II.C.1.
h. Brooke and BGLS Participation. Neither Brooke
nor BGLS nor any affiliate thereof shall be entitled to
participate as a Participating Holder with respect to any BGLS
Debt which it might hold at any time.
All other terms of the Exchange and Purchase shall be reasonably acceptable to
the Apollo Holder, BGLS and, if applicable, Brooke.
2. Interest Transaction. Each Participating Holder shall
agree as follows pursuant to the Exchange Agreement and Purchase Agreement with
respect to the October Interest Installments allocable to the BGLS Debt to be
exchanged or transferred by such Participating Holder in the Exchange or
Purchase:
a. Making of Interest Loans. Each participating
Holder shall make to BGLS, immediately following the payment
of the October Interest Installment to which such
Participating Holder is entitled, Interest Loans
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October 4, 1993
Page 16
in an aggregate amount equal to the October Interest
Installments paid to such Participating Holder, against
delivery to the applicable Participating Holder of one or more
promissory notes evidencing the Interest Loans executed by
BGLS, security documents and related documents (such
promissory notes, security documents and related documents,
"Interest Loan Documents") having the terms set forth in the
Summary of Terms attached hereto. Each Participating Holder
shall pay, to an escrow agent to be selected by Brooke and the
Apollo Holder, on or before noon eastern time on October
28, 1993 the maximum amount of Interest Loans which such
Participating Holder would be required to make if all its BGLS
16-1/8% Debt and all BGLS 14-1/2% Debt which such
Participating Holder has indicated that it wishes to transfer
were accepted for exchange or purchase before any proration
with regard to Participating Holders. In the event that after
compliance with the provisions of this Section II.A.2 by all
Participating Holders the amount of BGLS Debt indicated for
participation in the Exchange and Purchase exceeds the amount
that may participate therein after giving effect to Section
II.A.1, the escrow agent shall refund to each Participating
Holder any amounts with respect to which such Participating
Holder is ultimately not required to make an Interest Loan.
b. Terms of Interest Loans. The Interest Loans
shall have terms as set forth on the Summary of Terms attached
hereto.
3. Certain Other Documents Delivered in Connection Herewith
and with the Exchange and Purchase Agreement.
a. Immediately prior to the execution and delivery
of this letter agreement, Brooke shall have entered into an
indemnification agreement with the Apollo Holder
("Indemnification Agreement").
b. Concurrently with the execution and delivery of
this letter agreement, BGLS shall deliver, or cause there to
be delivered, to the Apollo Holder a favorable opinion of
Mudge Rose Guthrie Alexander and Ferdon ("Mudge Rose") as to
the inapplicability of Section 912 of the New York Business
Corporation Law ("BCL 912") to New Valley.
c. Prior to the making of any Interest Loan by any
Participating Holder, BGLS shall deliver, or cause there to be
delivered, to the other signatories thereto:
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October 4, 1993
Page 17
(i) a favorable opinion acceptable to the
Apollo Holder of Mudge Rose as to the inapplicability
of BCL 912 to New Valley:
(ii) a favorable opinion acceptable to the
Apollo Holder of Milbank, Tweed, Hadley & McCloy
("Milbank Tweed") as to such matters as the Apollo
Holder shall reasonably request;
(iii) favorable opinions acceptable to the
Apollo Holder of other counsel for Brooke, BGLS and
New Valley as to such matters as the Apollo Holder
shall reasonably request; and
(iv) such certificates and other documents
relating to the foregoing and other customary matters
as to which parties receive assurances at closings
which the Apollo Holder shall reasonably request.
d. As a condition to the obligations of the Apollo
Holder to execute and deliver the Exchange Agreement and of
the Participating Holders to make the Interest Loans relating
thereto, the Apollo Holder shall be satisfied that
satisfactory progress has been make with regard to development
of a plan for an Acceptable New Valley Reorganization.
e. As a condition to the obligations of the Apollo
Holder to execute and deliver the Purchase Agreements and of
the Participating Holders to make the Interest Loans relating
thereto:
(i) the Apollo Holder shall be satisfied
that satisfactory progress has been made with regard
to development of a plan for an Acceptable New Valley
Reorganization; and
(ii) the Exchange Agreement shall have been
executed and delivered by the parties thereto and the
Participating Holders shall have substantially
contemporaneously made the Interest Loans relating
thereto.
f. Concurrently with the execution and delivery of
the Exchange Agreement and the Purchase Agreements, the
Participating Holders shall deliver, or cause there to be
delivered, to the other signatories thereto, such opinions of
counsel and other closing documents as shall be reasonably
specified therein.
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October 4, 1993
Page 18
4. Agreement to Participate in Exchange and Purchase by
Apollo Holder. Subject to the terms and conditions hereof, the Apollo Holder
shall execute an Exchange Agreement with regard to all 16-1/8% BGLS Debt held
by it on the date hereof and execute Purchase Agreements with regard to all
14-1/2% BGLS Debt held by it on the date hereof. In the event any
Participating Holder shall become a Withdrawing Holder, the Apollo Holder shall
be required to participate in a Purchase with respect to an additional
principal amount of BGLS 14-1/2% Debt equal to the principal amount of the BGLS
Debt withdrawn by the Withdrawing Holder. In addition, on the Closing Date,
the Apollo Holder shall make an Interest Loan to BGLS in an amount equal to the
October Interest Installments with respect to such additional BGLS 14-1/2% Debt
held by the Apollo Holder. If clause "second" of Section II.A.1.c.x(ii) shall
apply, such additional participation shall also include an additional Exchange
by the Apollo Holder and a corresponding additional Interest Loan.
5. Agreement to Amend BGLS Debt Indentures and Take Certain
Actions. Subject to the terms and conditions hereof, BGLS agrees to take such
steps as shall be required to effect the following as of the Closing Date:
a. The indentures pursuant to which the BGLS Debt is
issued ("the Indentures") shall be amended (the "Amendments")
in a manner satisfactory to the Apollo Holder, in its sole
discretion, in the following respects:
i. To prohibit loans or advances as
described below and the payment of dividends or other
distributions on (other than dividends payable solely
in shares of common stock of BGLS), and the purchase,
redemption or other acquisition or retirement for
value of, directly or indirectly, capital stock (or
options or other rights to acquire capital stock or
the settlement of any such options or rights) of BGLS
("Restricted Payments") to the extent that such
Restricted Payments would exceed the lesser of:
(a) (i) for the 12-month period beginning
on the Closing Date, an aggregate amount of
$8,000,000; (ii) for the 18-month period beginning
on the Closing Date, an aggregate amount of
$12,000,000 (including any amount paid pursuant to
clause (i)); and (iii) for the 24-month period
beginning on the Closing Date an aggregate amount of
$19,500,000 (including any amount paid pursuant to
clauses (i) and (ii) ); and
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October 4, 1993
Page 19
(b) amounts, if any, which would otherwise
be permitted under the Indentures as in effect on the
date hereof.
Any loan or advance, or any payments on existing
loans and advances, by BGLS or its subsidiaries to Brooke or
any affiliate or associate of Brooke (other than to BGLS or
subsidiaries of BGLS) shall for the 24-month period beginning
on the Closing Date be considered as a Restricted Payment in
application of the foregoing test.
Notwithstanding the foregoing limitations on
Restricted Payments, the following shall be permitted to the
extent consistent with the existing Indentures and shall not
be Restricted Payments hereunder:
(a) any distribution of securities of New
Valley constituting part of an Acceptable New Valley
Reorganization or otherwise contemplated hereunder;
(b) Any Restricted Payment to the extent
such Restricted Payment is immediately applied to
repurchase BGLS Debt held by persons other than
Brooke or its affiliates or associates and such BGLS
Debt is immediately thereafter contributed to BGLS
for cancellation or pledged as collateral under
appropriate instruments in support of the BGLS Debt
consistent with the terms of the Indentures; and
(c) Any Restricted Payment in an amount
necessary to permit Brooke to pay the dividend on its
Series F Preferred Stock in the amount of $30,058,125
as described in the SkyBox International Inc. Form
10, provided that the proceeds of such Restricted
Payment are immediately applied to repay amounts due
from the recipients of the Series F Preferred Stock
dividend or their Affiliates or Associates to BGLS or
are otherwise contributed to the capital of BGLS.
ii. To require that prior to making any Restricted
Payment during the 24-month period beginning on the Closing
Date, except for certain de minimis payments to be defined in
the Amendments, BGLS receive an opinion as to the solvency of
BGLS after making the Restricted Payment in a form to be
mutually agreed between BGLS and the Apollo Holder prior to
the Closing Date from an independent evaluation firm of
recognized
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October 4, 1993
Page 20
national standing not reasonably objected to by either of the
Indenture Trustees under the Indentures (the "Indenture
Trustee(s)"); and
iii. To render inapplicable for the 24-month period
beginning on the Closing Date provisions of the existing
Indentures which permit Restricted Payments except as provided
in Section II.5.a and to provide that, subsequent to such
24-month period, no unused amounts of Unrestricted Payments as
defined in the Indentures created by virtue of the fact that
Restricted Payments during the 24-month period were limited as
provided herein shall thereafter be permitted pursuant to the
Indentures.
b. BGLS shall deposit with an independent escrow
agent for application to the interest installments due April
1, 1994 with respect to the BGLS Debt, the lesser of (i) the
$15,000,000 cash payment received by it pursuant to Section
II.A, which amount may be reduced to the extent of any accrued
interest offset by a Participating Holder pursuant to Section
II.A.1.e against such cash payment an (ii) the amount of such
interest installments after giving effect to the transactions
contemplated hereby.
c. BGLS shall enter into a pledge and security
agreement with an independent collateral agent to secure
payment of the interest installments due October 1, 1994 with
respect to the BGLS Debt, pursuant to which BGLS shall
maintain deposited with such collateral agent at all times
from and after the Closing Date until payment thereof cash,
SkyBox Preferred Stock and/or marketable securities (as
defined in the Interest Loan Documents) with an aggregate
Collateral Value at least equal to the maximum amount from
time to time of such interest installments. For the purposes
hereof: (A) "SkyBox Preferred Stock" will mean shares of the
Series A Preferred Stock of SkyBox International, Inc. (as in
effect on the date hereof); and (B) "Collateral Value" will
mean as of any time (i) the amount of any cash or government
securities with a maturity on or before October 1, 1994 on
deposit at such time, plus (ii) if the aggregate market value
of the outstanding common stock of SkyBox International, Inc.
at such time is at least equal to the aggregate liquidation
preference (excluding accrued but unpaid dividends) of the
SkyBox Preferred Stock then outstanding, 50% of the aggregate
liquidation preference (excluding accrued but unpaid
dividends) of any shares of SkyBox Preferred Stock on deposit
at such time, otherwise 33% of the aggregate
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October 4, 1993
Page 21
liquidation preference (excluding accrued but unpaid
dividends) of such shares of SkyBox Preferred Stock and plus
(iii) 50% of the aggregate market value of any marketable
securities on deposit at such time.
B. Acquisition of New Valley Shares by Brooke; Transfer of
Non-BGLS Assets by Brooke to BGLS and Pledge of Purchased BGLS
Debt by Brooke and Certain Affiliate Transactions.
1. Transfer of Shares and Non-BGLS Assets. If any BGLS
14-1/2% Debt is to be purchased by Brooke, immediately before consummation of
the Purchase, Brooke shall acquire the Equity Ownership of New Valley that will
be delivered to the Exchange Agent in the Purchase in respect of BGLS 14-1/2%
Debt so purchased. In addition, at such time (and regardless of whether or not
any such Equity Ownership of New Valley is to be acquired by Brooke), Brooke
shall transfer to BGLS all assets then held by Brooke other than its Equity
Ownership of BGLS and approximately [$17,000,000] principal amount of note(s)
owed by LeBow to Brooke issued previously hereto (the "Non-BGLS Assets"). To
the extent that the fair market value of the Non-BGLS Assets transferred to
BGLS equals or exceeds the fair market value of the Equity Ownership of New
Valley transferred to Brooke, the Non-BGLS assets shall be deemed to have been
transferred to BGLS in consideration for the transfer of such Equity Ownership
of New Valley to the extent of the fair market value of the latter, with any
excess of the fair market value of such Non-BGLS Assets over the fair market
value of such Equity Ownership of New Valley being deemed to constitute a
capital contribution by Brooke to BGLS. To the extent that the fair market
value of the Equity Ownership of New Valley transferred to Brooke exceeds the
fair market value of the Non-BGLS Assets transferred to BGLS, such excess shall
be deemed to constitute a dividend from BGLS to Brooke. Anything to the
contrary contained herein notwithstanding, to the extent that the provisos
contained in the first paragraph of Section 5.05 of the Indentures shall not
have been complied with insofar as any such transactions are concerned, the
fair market value of the Equity Ownership of New Valley transferred to Brooke
shall be deemed to constitute a dividend from BGLS to Brooke. For the purposes
of this paragraph all references to "fair market value" shall mean the fair
market value of the Non-BGLS Assets or the Equity Ownership of New Valley as
determined by one or more appraisers selected by the Brooke Parties and
reasonably acceptable to the Apollo Holder. Notwithstanding the above
exclusion of t [$17,000,000] principal amount of note(s) owed by LeBow to
Brooke, Brooke shall contribute any proceeds of such note(s) to BGLS when
received after the Closing and if such note(s) remain outstanding at December
31, 1994 shall contribute the note(s) to BGLS.
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October 4, 1993
Page 22
2. Covenants Relating to Non-BGLS Assets. Brooke will use
its best efforts to obtain any consents or approvals of any person required for
the transfer of the Non-BGLS Assets to BGLS, including, without limitation the
approval of its stockholders, if required (and Bennett LeBow, by his execution
hereof, irrevocably agrees to vote or cause to be voted in favor of such
approval any Equity Ownership of Brooke with respect to which he directly or
indirectly has the power to exercise voting control.)
3. Effect of Transfers on Indenture Covenants. No transfer
or payment whether before dr after the Closing Date by Brooke or its Affiliates
or Associates to BGLS, as contemplated in this Letter Agreement, and whether or
not considered a contribution to capital, including without limitation as
contemplated by II.B.1., II.B.4 and II.A.5, shall increase the amount of
Restricted Payments or Unrestricted Payments (as defined in the Indentures)
which might be made from time to time pursuant to the Indentures.
4. Certain Affiliate Transactions.
a. During the 24-month period following the Closing Date, if
BGLS or a subsidiary of BGLS (the "BGLS Owners") owns directly or indirectly a
security which is also owned directly or indirectly by Brooke or LeBow
(the"Brooke Owners"), Brooke will not, to the extent within its control, cause
or permit a transaction or series of transactions with the issuer of the
subject security to occur whereby the BGLS Owners are afforded different rights
than the Brooke Owners.
b. Prior to the Closing Date, Brooke will not (i) make loans
or advances, or pay any existing loans or advances, other than advances in the
ordinary course of business, to LeBow or (ii) declare or pay any dividend or
make any other distribution on any of Brook's capital stock (other than
dividends or distributions payable in common stock of Brooke) or (iii)
purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, any capital stock of Brooke (or options or other rights to acquire
capital stock or settle such options or rights) (all of the foregoing, "Brooke
Restricted Payments") if the aggregate of such Brooke Restricted Payments would
exceed the greater of (i) $2,000,000 and (ii) the product of $8,000,000
multiplied by a fraction represented by the number of days from October 1, 1993
to the payment date over 365. Notwithstanding the foregoing limitations on
Brooke Restricted Payments, there shall not be considered a Brooke Restricted
Payment any divided or distribution in an amount necessary to permit Brooke to
pay the dividend on its Series F Preferred Stock in the amount of $30,058,125
as described in the SkyBox International Inc. Form 10, provided that the
proceeds of such dividend or distribution are immediately applied to repay
amounts due to BGLS or Brooke by
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October 4, 1993
Page 23
the recipients of the dividend or their Affiliates or Associates or otherwise
contributed to the capital of BGLS.
c. Prior to the Closing Date, Brooke shall not, directly or
indirectly, sell lease, transfer or otherwise dispose of any of its properties
or assets to, or purchase any property or assets from, or enter into any
contract or understanding with regard to its properties or assets for the
benefit, of,
(i) LeBow or
(ii) any person except in the ordinary course of business to
the extent such action could reasonably be expected to result in
Brooke's inability to transfer assets to BGLS as contemplated in
Section II.B.1 in an amount of which the fair market value equals or
exceeds the fair market value of Equity Ownership of New Valley which
BGLS will be required to transfer to Brooke on the Closing Date
other than (x) transactions which do not involve in the aggregate more than
$500,000; or (y) pursuant to the terms of contracts or agreements as in
existence on the date hereof. Notwithstanding the foregoing, nothing in this
Section II.B.4.c shall be construed to limit the payment of compensation and
reimbursement of expenses in the ordinary course of business.
5. Pledge of Purchased BGLS Debt. Subject to satisfaction of
the terms and conditions hereof in favor of Brooke or BGLS, with respect to any
BGLS 14-1/2% Debt purchased by Brooke from Participating Holders pursuant
hereto, immediately after the Closing Date, Brooke shall execute and deliver to
the trustee under the BGLS 16-1/8% Debt Indenture a non-recourse guaranty of
the remaining BGLS 16-1/8% Debt until such Debt shall be paid in full secured
by a first lien on such BGLS 14-1/2% Debt, which shall be deposited with such
trustee under an appropriate agreement (and under such agreement, in the
absence of a default, BGLS shall receive the interest payable on such BGLS
14-1/2% Debt). In addition, Brooke shall agree to deposit with such Trustee as
a part of such security interest any BGLS Debt it may acquire thereafter.
C. Closing of the Exchange and Purchase
1. Closing of the Exchange and Purchase. On the Closing
Date, immediately before giving effect to the Acceptable New Valley
Reorganization, the following transactions shall be consummated substantially
contemporaneously by the Participating Holders, BGLS and, if a Purchase is to
occur, Brooke:
a. Exchange. The Participating 16-1/8% Holders shall deliver
to BGLS the applicable amounts of BGLS Debt (all
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October 4, 1993
Page 24
duly endorsed for transfer with appropriate signature guaranties),
cash and Interest Settlement described in Section II.A.1, and BGLS
shall deliver to the Exchange Agent on behalf of the Participating
16-1/8% Holders the amount of Equity Ownership of New Valley held by
BGLS described in Section II.A.1.
b. Purchase. If a Purchase is to occur, the Participating
14-1/2% Holders shall deliver to Brooke the applicable amounts of BGLS
Debt (all duly endorsed for transfer with appropriate signature
guaranties) described in Section II.A.1 and to BGLS the applicable
amounts of cash and Interest Settlement, and Brooke shall deliver to
the Exchange Agent on behalf of the Participating 14-1/2% Holders the
amount of the Equity Ownership of New Valley required to be sold
pursuant to Section II.A.1 to the Participating 14-1/2% Holders and
BGLS shall deliver to the Exchange Agent on behalf of the
Participating 14- 1/2% Holders the amount of Equity Ownership of New
Valley required to be sold in exchange for the cash paid and Interest
Settlement assigned to BGLS pursuant to Section II.A.1.
c. New Valley Class A Preferred Shares Held by Exchange
Agent. As a result of the deliveries referred to in Sections II.C.1.a
and b, the Exchange Agent shall hold 650,869 New Valley Class A
Preferred Shares and 79,754 Common Shares.
d. Closing Documents. The Brooke Parties shall deliver, or
cause to be delivered, closing documents, in form and substance
reasonably satisfactory to the Apollo Holder, comparable to those
referred to in Section II.A.3, together with such other closing
documents as the Apollo Holder shall reasonably request. Such closing
documents shall include opinions of counsel reasonably acceptable to
the Apollo Holder comparable to the opinions referred to in Section
IIA.3 and a letter satisfactory to the Apollo Holder in its sole
discretion from an independent evaluation firm satisfactory to the
Apollo Holder in its sole discretion addressed to the Apollo Holder
and BGLS as to the solvency of BGLS after giving effect to the
acquisition of New Valley Class A Preferred Shares and New Valley
Common Shares by Brooke pursuant to Section II.B.1, and the Exchange
and Purchase.
e. Interest Transaction. The terms of the Interest
Transaction shall be applicable to the October Interest Installments.
2. Conditions to Exchange and Purchase. The obligations of
the Participating Holders to participate in the
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October 4, 1993
Page 25
Exchange and Purchase shall be subject to compliance by the Brooke Parties to
make, or cause to be made, the deliverises referred to in Section II.C.1.d and
to the following additional conditions precendent as well as any additional
conditions in their favor contained in the Definitive Documents:
a. Acceptable New Valley Reorganization; Date. An Acceptable
New Valley Reorganization shall be effective on or before March 31,
1994.
b. Definitive Documents. Execution and delivery of
appropriate defininitive documentation relating to the Exchange and
Purchase ("Definitive Documents", which term shall include the
Indemnification Agreement and this letter agreement, as the context
requires).
c. Absence of Litigation. As set forth in the Definitive
Documentation, absence of certain pending or threatned litigation or
claims with respect to the Exchange and Purchase or New Valley.
d. Compliance with Legal Requirements. As set forth in the
Definitive Documentation, compliance with all legal and regulatory
requirements relating to the Exchange and Purchase.
e. Accuracy of Representations; Compliance with Covenants.
As set forth in the Definitive Documentation, the continuing accuracy
in all material respects of al lrepresentations and warranties herein
and therein and compliance in all material respects with all covenants
herein and therein of BGLS and Brooke.
f. EBITDAP Test. New Valley shall have satisfied the EBITDAP
Test. The "EBITDAP Test" shall be satisfied if, for the 12-month
period ending on the last day of any month, the consolidated net
income of New Valley and its subsidiaries, excluding interest income
and non-recurring income or loss items plus interest expense, income
taxes, depreciation and income amortization and pension charges,
(calculated in the same manner as calculated in the Long Range
Business Forecase of New Valley as provided to its creditors'
committee in July, 1993) ("EBITDAP") shall exceed (i) $75,000,000 for
any applicable period ending on or before November 30, 1993; and (ii)
$78,000,000 for the period ending on December 31, 1993; and (iii)
$80,000,000 for any applicable period ending thereafter. BGLS shall
cause New Valley to prepare and deliver to the Apollo Holder no later
than 30 days after the end of each month an income statement of New
Valley in Sufficient detail to determine whether New Valley is in
compliance with the EBITDAP Test and a computation of EBITDAP for each
period, together with a
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October 4, 1993
Page 26
certificate of the most senior financial officer of New Valley stating
that such income statement has been prepared in accordance with
generally accepted accounting principles consistently applied and that
such computation has been properly derived from such income statement.
BGLS shall cause New Valley to afford the Apollo Holder and its
independent certified public accountants access to its books and
records and to its independent certified public accountants in order
to verify the accuracy of such income statement and computation. On
or before March 15, 1994, BGLS shall also cause New Valley to provide
the Apollo Holder with audited financial statements for the year ended
December 31, 1993 certified by its independent certified public
accountants as having been prepared in accordance with generally
accpeted accounting principles consistently applied.
g. Absence fo Material Adverse Changes. Absence of material
adverse changes since the date hereof to the business, assets,
financial condition, operations or prospects of New Valley.
h. Pension Plan. Since the date hereof, New Valley's
obligations in respect of the Western Union Pension Plan ("Pension
Plan"), including obligations to the Pension Benefit Guaranty
Corporation ("PBGC"), shall not have been altered or modified in any
material respect, including the amount due and timing of any required
payments to the PBGC or funding of the Penbsion Plan, nor shall any
additional material commitments or assurances have been extended to
the PBGC or any other governmental agency in respect thereof, nor
shall any legislation have been passed by either house of Congress or
any regulation proposed which could reasonably be expected materially
to increase the amount or materially accelerate the timing of any such
payment or funding.
i. Tax Representations; Tax Basis. Continuing accuracy of
the representations set forth in Section III.C.2.b; in addition, the
Apollo Holder shall not have notified BGLS that it has reason to
believe that New Valley's taxable income (other than "alternative
minimum taxable income" within the meaning of Section 55 of the
Internal Revenue Code of 1986, as amended ("Tax Code")) (Computed
without regard to any deduction for net operating losses) for the
period from January 1, 1993 through the Closing Date , including any
such income which arises by reason of consummation of the Acceptable
New Valley Reorganization and the making of an election under Section
338 of the Tax Code, will exceed the net operating losses of New
Valley which are deductible against such income or that the tax basis
of Reorganized New Valley's assets for federal
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October 4, 1993
Page 27
income tax purposes will not equal or exceed the fair market value of
those assets as of the day after the Closing Date.
j. Sale of Newco Preferred Shares. The Newco Preferred
Shares shall have been sold in accordance with the definition thereof.
k. Corporate Governance of Newco. The Apollo Holder shall be
satisfied as to the composition of the board of directors of Newco (at
least a majority of the members of which shall have been approved by
the Apollo Holder) and other matters relating to the corporate
governance of Newco.
l. Employee Incentive Arrangements. The plans, agreemtns and
other arrangements for the incentive compensation (whether or not
equity-linked) of employees and consultants of Newco, Reorganized New
Valley and their subsidiaries ahsll be reasonably acceptable to the
Apollo Holder.
m. CVR Obligation; Litigation. The CVR Obligation shall have
been discharged and satisfied in full and the status of any
litigation with regard to alleged defaults under the CVR Obligation or
actions taken by Brooke or BGLS (including without limitation the
SkyBox transaction) in connection with or related to the CVR
Obligations shall be reasonably satisfactory to the Apollo Holder.
Any of the foregoing conditions to the Exchange or Purchase
may be waived by the Apollo Holder in its sole discretion without regard to the
wishes of any Participating Hodler; provided, however, that no Participating
Holder shall be required to complete its Exchange or Purchase if a condition
material to such Participating Holder has been waived without its consent and,
in the event of such non-completion, the Apollo Holder shall be obligated to
complete the Exchange or Purchase as to such non-consenting Participating
Holder as if such non-consenting Participating Holder were a Withdrawing
Holder.
The obligations of BGLS and, if applicable, Brooke to
participate in the Exchange and Purchase shall be subject to the following
conditions precedent as well as any additional conditions contained in the
Definitive Documents:
a. Definitive Documents. Execution and delivery of
Definitive Documents.
b. Absence of Litigation. As set forth in the Definitive
Documents, absence of certain final judgments or orders restraining
consummation of the transactions contemplated hereby.
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October 4, 1993
Page 28
c. Compliance with Legal Requirements. As set forth in the
Definitive Documents, compliance with all legal and regulatory
requirements relating to the Exchange and Purchase.
d. Accuracy of Representations; Compliance with Covenants.
As set forth in the Definitive Documents, the continuing accuracy in
all material respects of all representations and warranties herein and
therein and compliance in all material respects with all covenants
herein and therein of the Participating Holders.
3. Definitive Documents. The Definitive Documents shall
contain provisions appropriate for transactions of this kind, including
representations and warranties relating to, among other things, the matters
covered by the closing documents described in Section II.A.3 and appropriate
covenants, conditions and indemnities in connection therewith. The parties
hereto shall negotiate in good faith the terms of the Definitive Documents.
III. Certain Other Matters
A. Ownership of New Valley by BGLS and Brooke; Proposals for
Other New Valley Plans of Reorganization; Due Diligence;
Financial Informaiton
1. Ownership of New Valley and BGLS Dept by BGLS and Brooke;
Proposals for Other New Valley Plans of Reorganization; BCL 912. Brooke and
BGLS covenant and agree that, until the termination of this letter agreement,
they shall not, directly, or indirectly, except as required by the bankruptcy
court administering New Valley's case, (i) take any action except as
contemplated hereby (nor shall they, directly or indirectly, cause or, to the
extent within their power, cause or permit New Valley or any affiliate or
associate of Brooke or BGLS to take any action) that would cause or permit the
Equity Ownership of BGLS or Brooke in New Valley (x) to change from the Equity
Ownership of such person in effect on the date hereof (any such change,
"Capital Event") or (y) to be subjected ("Lien Imposition") to any Lien, (ii)
acquire or dispose of (nor to the extent within their power cause or permit an
affiliate or associate to acquire or dispose of) any BGLS Debt ("Debt Event"),
(iii) propose, or directly or indirectly cause or solicit any other person to
propose, a plan of reorganization of New Valley other than an Acceptable New
Valley Reorganization (any such proposition, causation or solicitation, "Other
Plan Proposal") or (iv) cause or, to the extent within their power, permit new
Valley to take any action so that BCL 912 shall become applicable to it. As
used in clause (i) of the preceding sentence, "action" includes without
limition entering into any agreement,
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October 4, 1993
Page 29
arrangement or understading or soliciting or etertaining any proposals, in each
case whether or not in writing and whether or not subject to conditions. BGLS
and Brooke shall immediately notify the Apollo Holder of the occurrence of any
Capital Event, any Lien Iposition, any Debt Event and the applicability of BCL
912 to New Valley, and any approach or offer that it may receive with respect
to any Capital Event, Lien Imposition, Debt Event or Other Plan Proposal.
2. Brooke/BGLS Diligence. BGLS shall cooperate with and
afford the Apollo Holder and its representatives with an opportunity to conduct
such diligence (subject to reasonable confidentiality measures) with regard to
the affairs of Brooke and BGLS as the Apollo Holder shall reasonabley request
in connection with the transactions contemplated hereby including access and
copies of all relevant Debt instruments of Brooke and BGLS and unconsolidated
and consolidating financial statements of Brooke, BGLS and their affiliates.
3. New Valley Due Diligence. BGLS and Brooke shall use their
best efforts to cause New Valley to afford immediately upon execution hereof
the Apollo Holder the right to conduct due diligence (directly or through
representative) with respect to New Valley, inclucing the historical tax
attributes thereof.
4. Financial Information. For so long as the Apollo Holder
continues to hold any BGLS Debt or any Interest Loans, BGLS shall provide to
the Apollo Holder in a timely manner audited annual and unaudited quarterly
consolidated financial statements for BGLS and its subsidiaries in such scope
as regularly required to be provided the Indenture Trustees pursuant to
Section 5.10 of the Indentures.
B. Termination
1. Termination Events. The Apollo Holder may, by notice to
BGLS and Brooke, terminate this letter agreement and its participation in the
Exchange and Puchase, (i) on November 27, 1993, unless New Valley shall have
filed with the bankruptcy court administering its case a plan that is
consistent, in the reasonable judgment of the Apollo Holder, with the
substantive elements of an Acceptabel New Valley Reorganizaiton described in
the definition thereof, (ii) on March 31, 1994, unless before such date an
Acceptable New Valley Reorganization shall have become effective, (iii) upon
the occurrence of a Capital Event, (iv) upon the occurrence of a Lien
Imposition, (v) upon the occurrence of a Debt Event, (vi) upon the occurrence
of an Other Plan Proposal, (vii) during the continuance of a "Default" (other
than the current continuing Default related to the Octover Interest
Installments) or an "Event of Default" under the indenture relating ot either
series of BGLS Debt, including without limitation any event of
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October 4, 1993
Page 30
insolvency or bankruptcy with regard to BGLS as described therein, (viii)
during the continuacne of a "Default" or an "Event of Default" described in the
Interest Loan Documents, (ix) during the continuance of a material adverse
change since the date hereof to the business, assets, financial condition,
operations or prospects of New Valley, (x) if, as of the end of any month after
the date hereof, New Valley shall not have satisfied the EBITDAP Test, (xi)
upon the expiraion or other termination of the period during which New Valley
shall have the exclusive right to propose a plan of reorganization with respect
to its case, (xii) if an event of the nature described as an Event of Default
in Section 8.01 of the Indenture dated as of Aril 1, 1988 under which the BGLS
16-1/8% Debt has been issued shall occur and be continuing with respect to an
obligation of Brooke as if Brooke were the Issuer thereunder, including without
limitation any event of insolvency or bankruptcy of Brooke as described in
subsection 8.01(5) or (6), (xiii) during the continuance of a "Default" or
"Event of Default" under the Contingent Value Rights Agreement from Brooke to
Ameritrust Company National Associateion, dated as of Novermber 19, 1990, as
amended (the obligations relating thereto, "CVR Obligation"), (xiv) if (a)
any action shall be finally adjudicated in a manner adverse to BGLS, Brooke or
New Valley challenging the validity of or seeking to enjoin consummation of any
of the transactions contemplated by this letter agreement or the Exchange
Agreement or either Purchase Agreement or (b) any injunction or temporary
restraining order shall be entered by a court having jurisdiction over Brooke
restraining consummation of the SkyBox transaction, (xv) upon the failure of
any representation or warranty of BGLS or Brooke herein to continue to be
accurate in all material respects or upon the failure of BGLS or Brooke to
comply with all its convenants herein in all material repsects or (xvi) the
conditions set forth in Section II.A.3.d shall fail to have been satisfied or
waived as of ther time set forth therein (each such satisfied or waived as of
the time set forth therein (each such event or date referred to in clause (i)
through (xvi), "Termination Event"). BGLS and/or Brooke shall immediately
notify the Apollo Holder of the occurrence of any Termination Event upon
obtaining knowledge thereof. BGLS may, by notice to the Apollo Holder,
terminate this letter agreement and the participation by BGLS and Brooke in the
Exchange and Purchase (i) upon the occurrence of the Termination Event describe
in clause (xiv) (a) of the first sentence of this Section III.B.1, (ii) if the
Interest Loans are not made as required hereunder by the Participating Holders
accompanied by the documents specified in the Exchange Agreement and Purchase
Agreement or (iii) on June 30, 1994, unless before such date an Acceptabel New
Valley Reorganizaiton shall have become effective.
2. Effect of Termination. Upon any such termination, (i) any
Interest Loans shall become immediately due and payable and (ii) the rights an
obligaitons of the parties hereunder shall terminate, except for any rights of
the Apollo Holder in
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October 4, 1993
Page 31
the event of a breach by BGLS or Brooke of the convenants set forth in Section
III.A, for the rights of the Apollo Holder under Section III.D and for the
rights of the beneficiaries of the Indemnification Agreement, all of which
shall survive any such termination.
C. Representation and Warranties
1. Representation and Warranties of Each Party.
Each party hereto represents and warrants as follows:
a. Authorization and Non-Contravention. It has duly
authorized by all necessary action the execution, delivery and
performance of each of this letter agreement and, if
applicable, the Indemnification Agreement ("Current
Documents") to which it is a party, and neither its execution
and delivery thereof nor its consummation of the transactions
contemplated thereby nor its compliance therewith does or will
(i) require any approval of its stockholders or any approval
or consent of any trustee or holders of any of its debt or
obligations, except such as have been duly obtained, (ii)
contravene any government rule applicable to or binding on it
or any of its properties if such contravention would have a
material adverse effect on its financial condition, business,
operations or prospects or its ability to perform any of its
material obligations under any such document, (iii) contravene
or result in any breach of or constitute any default under, or
result in the creation of any Lien (except as contemplated
hereby) upon any of its property under, any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales
contract, loan or credit agreement, charter, by-law or other
agreement or document to which it is a party or by which it or
any of its properties are bound or affected or (iv) require
the taking of any action by or in respect of any governmental
authority or any private party, except such as have been duly
obtained, made or taken.
b. Enforceability. It has duly executed and
delivered each of the Current Documents to which it is a
party, and each such Current Document constitutes its legal,
valid and binding obligation, enforceable against it in
accordance with its terms.
2. Representations and Warranties of BGLS and Brooke.
BGLS and Brooke each represents and warrants as follows with repsect to itself:
a. Ownership of New Valley Capital Stock. BGLS owns
650,869 of the New Valley Class A Preferred Shares and
79,399,254 of the New Valley Common Shares and neither Brooke
nor BGLS has any other Equity Ownership with regard
33
October 4, 1993
Page 32
to New Valley. There are outstanding as of the date hereof 1,501,411
New Valley Class A Preferred Sharees, and there were outstanding as of
June 30, 1993, 188,112,409 New Valley Common Shares and 2,791,304 New
Valley Class B preferred Shares, and no material change has ocurred
since June 30, 1993 in the equity capitalization (including without
limitation options, warrants or rights (including without limitation
convertible and exchangeable securities) to acquire equity securities)
of New Valley from that described in the Form 10-Q of new Valley for
the period ended on such date. Upon consummation of the Exchange,
none of Brooke, BGLS, any subsidiary of either thereof and, to the
knowledge of Brooke or BGLS, any affiliate of either thereof shall
legally or beneficially own any capital stock of New Valley or any
options, warrants or rights (including without limitation convertible
and exchangeable securities) to acquire such capital stock.
b. Tax Representations.
(i) At December 31, 1992, New Valley had a
net operation loss carryover, within the meaning of Section
172 of the Tax Code, of at least $1,090,000,000 of which no
more than $360,000,000 was subject to the limitations imposed
on the deduction of net operating losses by section 382 of the
Tax Code.
(ii) At the time of each "ownership change",
within the meaning of Section 382 of the Tax Code of New Valley
during 1987, the fair market value of New Valley's assets
exceeded New Valley's tax basis for such assets for federal
income tax pruposes.
(iii) At no time during any consecutive
three-year period beginning on January 1, 1988 and ending on
the Closing Datge (without giving effect to the Echange and
Purchase or the Accepatable New Valley Reorganization) has
there been or will there have been an ownership change,
within the meaning of Section 382 of the Tax Code, of New
Valley.
(iv) For the period from December 31, 1992
to the Closing Date, New Valley will not have taxable income
within the meaning of Section 63 of the Tax Code in excess of
$90,000,000.
(v) If New Valley were to sell all of its
assets on the Closing Date, no more than 5% of any income from
such a sale would be allocable to the State of California.
34
October 4, 1993
Page 33
(vi) For any period prior to January 1,
1993, New Valley has never been liable for the alternative
minimum tax imposed by section 55 of the Tax Code or any
predecessor provision.
The tax representations set forth in this Section III.C.2.b shall not
survive the Closing Date.
c. Debt Schedule. As of the date hereof, the Debt
for money borrowed or guaranteed of BGLS and Brooke consists of those
instruments and agreements to be described in a Debt Schedule to be
delivered to the Apollo Holder concurrently with the execution and
delivery hereof, which shall also describe (i) the collateral or
guaranties by which any such Debt is secured and (ii) certain
repurchases, retirements and ownership by Brooke, BGLS and affiliates
thereof of BGLS Debt.
d. Absence of Brooke and BGLS Debt Defaults. There
is not continuing (i) an "Event of Default" under the indenture
relating to either series of BGLS Debt, and none of BGLS and each
other current and predecessor obligor under such indenture has
previously received any notice of default from any holder of such BGLS
Debt and (ii) no material default has occurred and is continuing under
the CVR Obligation (including any "Default" or "Event of Default"
with respect thereto) or any other Brooke Debt instrument.
e. Financial Statements. Brooke and BGLS have each
previously delivered to the Apollo Holder copies of its individual and
consolidating financial statements for the annual periods ending
December 31, 1992 and 1991 and quarterly statements for each calendar
quarter of 1993 which have been prepared in accordance with generally
accepted accounting principles consistently applied.
f. Accuracy of Information. All information
furnished and to be furnished to the Apollo Holder by Brooke or BGLS
in connection with its evaluation of the transactions contemplated
hereby is and shall be true and correct in all material respects.
3. Representations and Warranties of Apollo Holder. The
Apollo Holder represents and warrants that (i) AIF II, L.P. owns $29,650,000
aggregate principal amount of 16-1/8% Debt and $20,250,000 aggregate principal
amount of BGLS 14-1/2% Debt, (ii) Artemis Finance SNC owns $18,750,000
aggregate principal amount of BGLS 16-1/8% Debt and $20,250,000 aggregate
principal amount of 14-1/2% Debt, in each case free and clear of any Lien (and
the Apollo Holder covenants that it shall not sell, transfer any of its BGLS
Debt if the transferee does not concurrently become an
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October 4, 1993
Page 34
"Apollo Holder" as defined herein), and (iii) the Apollo Holder will be
acquiring any securities to be acquired pursuant to the Definitive Documents
for its own account and not with a present view of any distribution thereof in
violation of the Securities Act of 1933, and the Apollo Holder is an
"accredited investor" within the meaning of regulation D thereunder.
D. Expenses
Brooke covenants and agrees to reimburse the Apollo Holder,
promptly after demand, for all out-of-pocket expenses, including without
limitation all fees and disbursements of attorneys and accountants, reasonably
incurred by or on behalf of the Apollo Holder which are directly related to the
Purchase or Exchange and are not otherwise reimbursed.
E. Publicity
No party hereto, directly or indirectly, shall make any press
release or other public announcement relating to the transactions contemplated
hereby until the closing Date without affording the other parties hereto a
reasonable opportunity to comment thereon.
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October 4, 1993
Page 35
F. Miscellaneous
This letter agreement and the Definitive Documents shall be
governed by and construed in accordance with the laws of the State of New York
without regard to the principles governing conflicts of laws. This letter
agreement embodies the entire agreement and understanding between you and us
and supersedes any prior agreements and understandings relating to the subject
matter hereof. This letter agreement shall be binding upon and shall inure to
the benefit of the successors and assigns of the parties hereto and not any
other person; it being understood that other Participating Holders are not
deemed to be parties hereto. This letter agreement may be executed in multiple
counterparts.
Very truly yours,
AIF II, L.P.
By APOLLO ADVISORS, L.P.
Managing General Partner
By APOLLO CAPITAL MANAGEMENT, INC.
General Partner
By /s/ Peter P. Copsew
------------------------
Peter P. Copsew
Vice President
ARTEMIS FINANCE SNC
By LION ADVISORS, L.P.
Attorney-in-Fact
By LION CAPITAL MANAGEMENT, INC.
General Partner
By /s/ Peter P. Copsew
-------------------------
Peter P. Copsew
Vice President
37
October 4, 1993
Page 36
The terms of the foregoing letter
agreement are accepted as of the
date first set forth above.
BGLS INC.
By /s/ Bennett S. LeBow
--------------------
Bennett S. LeBow
Chairman and President
BROOKE GROUP LTD.
By /s/ Bennett S. LeBow
--------------------
Bennett S. LeBow
Chairman and President
(also signing in his individual
capacity for purposes of
Section II.B.2)
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October 4, 1993
Page 37
Summary of Terms for Interest Loans
The terms of the Interest Loans shall include without
limitation the following:
1. The Interest Loans shall be senior secured obligations of
BGLS.
2. The collateral for the Interest Loans shall be a
first-priority perfected security interest in (a) 100% of the capital stock of
Liggett Group, Inc., a Delaware corporation, other than the one share of Series
A Preferred Stock pledged to Brooke ("Liggett Stock Collateral") and (b) for so
long as either (i) any Series A Preferred Stock of Liggett remains outstanding
or (ii) any litigation challenging in any respect the manner in which the CVR
Obligation has been discharged has not been finally resolved, (A) SkyBox
Preferred Stock, (B) cash, (C) marketable securities, (D) U.S. government
securities maturing not later than March 31, 1994, or (E) any combination of
(A) through (D), with an aggregate Collateral Value (as determined pursuant to
the provisions of Section II.C.5.c of the foregoing letter agreement) equal to
the aggregate amount of principal and accrued interest under the Interest Loans
(the "SkyBox Collateral" and, together with the Liggett Collateral, the
"Interest Loan Collateral").
3. The Interest Loans shall be due and payable in any of the
following circumstances: (i) on March 31, 1994, unless such Interest Loans
have been assigned to BGLS; (ii) on the date on which the letter agreement
relating to the Exchange and Purchase has been terminated pursuant to Section
III.B thereof; (iii) upon acceleration of the BGLS Debt; and (iv) following
acceleration upon the occurrence of an "Event of Default" under the Interest
Loan Documents.
4. Interest will accrue on the Interest Loans at the rate of
12.500% per annum.
5. The Interest Loan Documents shall contain appropriate
covenants of BGLS relating to the maintenance of the Interest Loan Collateral
and the following matters: (i) payment existence and regulation of fundamental
events and (iv) such other matters (other than financial covenants) as are
customary in agreements of such type and mutually acceptable to the Apollo
Holder and the Brooke Parties.
6. On the date on which and Acceptable New Valley
Reorganization has become effective, and Interest Loans held by a Participating
Holder shall be exchanged for Equity Ownership of New Valley pursuant to the
Exchange and Purchase unless the holder thereof shall have become a Withdrawing
Holder, in which case such Interest Loans shall be due and payable.