XXXXX & WOLLENSKY RESTAURANT GROUP, INC.
0000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
November 3, 2004
Xxxxxx Xxxxxxx Xxxx Xxxxxx
Commercial Financial Services, Inc.
0000 Xxxxxxxxxxx Xxxxxx, 0 XX
Xxxxxxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
Reference is made to (1) the Term Loan Agreement dated August 23, 2002
("First Loan Agreement"), among S&W of Las Vegas, LLC ("Borrower"), Xxxxx &
Wollensky Restaurant Group, Inc. ("Company") and Xxxxxx Xxxxxxx Xxxx Xxxxxx
Commercial Financial Services, Inc. ("Lender"), (2) the Term Loan Agreement
dated December 24, 2002 ("Second Loan Agreement"; and together with the First
Loan Agreement, the "Term Loan Agreements"), among Borrower, Company, Dallas
S&W, L.P. ("Dallas") and Lender, (3) a secured Line of Credit Agreement dated
January 30, 2004 among Borrower, Company and Lender and a secured Line of Credit
Agreement dated July 21 2004 among Borrower, Company, Xxxxx & Wollensky of
Boston, LLC and Lender (collectively, the "Line of Credit Agreements), and (4) a
certain Covenants Agreement and Amendment to Term Loan Agreements dated as of
January 30, 2004, among Borrower, Company, Dallas and Lender (the "Covenants
Agreement"), pursuant to which Covenants Agreement the financial covenants
previously set forth in the Term Loan Agreements, and otherwise applicable to
loans made to Borrower by Lender, are now set forth.
A. Borrower and Company hereby represent to Lender the following:
1) On October 29, 2004, the Company and KPMG LLP ("KPMG"), the
Company's predecessor independent registered public accounting
firm, determined that the accounting treatment for the Second
Amendment to Lease dated April 29, 2003 (the "Amendment") with
respect to the Borrower's Las Vegas, Nevada premises was
inaccurately reflected in the Company's financial statements
included in the Form 10-K filing for the period ending December 29,
2003, which was audited by KPMG, and the Form 10-Q filings for the
respective quarterly periods ending June 30, 2003, September 29,
2003 and March 29, 2004, all of which were previously reviewed by
KPMG, and that, therefore, a restatement should be made to prevent
future reliance on those filings.
On October 29, 2004, the Company informed BDO Xxxxxxx, LLP ("BDO"),
the Company's current independent registered public accounting
firm, of the foregoing. BDO and the Company concluded that the
accounting treatment for the Amendment also was inaccurately
reflected in the Company's financial statements included in the
Form 10-Q filings for the quarterly period ending June 28, 2004,
which was reviewed by BDO. As a result, BDO advised the Company
that a restatement should be made to prevent future reliance on
this filing.
2) The restatement will have the effect of reducing the value of the
land included on the Company's balance sheet as of April 28, 2003
by $1.9 million and reducing the deferred rent liability included
on the Company's balance sheet as of April 28, 2003 by
approximately $1.9 million. This restatement also would require the
Company to eliminate non-cash income derived from the amortization
of the deferred rent liability ("Deferred Rent Adjustment"). The
impact of this restatement on the statement of operations will be
approximately $62,000 for the quarter ending June 30, 2003 and
approximately $93,000 for each of the quarters ending September 29,
2003, December 29, 2003, March 29, 2004 and June 28, 2004. The
impact of this restatement on the statement of operations for the
fiscal year ending December 29, 2003 will be approximately
$248,000.
3) The restatement is a non-cash accounting adjustment that had no
impact on the cash flow of Borrower or the Company.
B. In reliance upon the foregoing, Borrower and Company request that
Lender confirm the following with reference to the financial covenants of
Borrower and Company set forth in the Covenants Agreement:
a. The Deferred Rent Adjustment may be excluded from the
calculations of (i) EBITDA in determining the Debt Service
Coverage Ratio; (ii) EBITDA for purposes of the determining
the Senior Leverage Ratio; and (iii) EBIT in determining the
Interest Coverage Ratio, all as set forth in Paragraph 2 of
the Covenants Agreement.
b. Neither Borrower nor Company shall be deemed to be out of
compliance with any of the financial covenants set forth in
paragraph 2(a) above for the quarterly periods ended June 30,
2003, September 29, 2003, December 29, 2003, March 29, 2004
and June 28, 2004 by reason of the treatment of the Deferred
Rent Adjustment prior to its exclusion from the calculation of
such financial covenants.
C. Borrower, Company, Dallas and Lender shall enter into a formal
amendment to the Covenants Agreement which will reflect the foregoing treatment
of the Deferred Rent Adjustment and such reasonable refinements thereof as
Lender shall require.
Please confirm our understanding with regard to the foregoing by signing
a counterpart of this letter and returning it to the undersigned.
Very truly yours,
/s/ Xxxxxx Xxxxxxxxxx
Xxxxxx Xxxxxxxxxx
Assistant Secretary
In reliance upon the representations set forth in paragraph A above, Lender
confirms its agreement with respect to the foregoing financial covenants and the
exclusion of the Deferred Rent Adjustment from the financial covenants as
described in paragraph B above:
XXXXXX XXXXXXX XXXX XXXXXX
COMMERCIAL FINANCIAL SERVICES, INC.
By: /s/ Xxxxxxxx X. Xx
------------------
Name: Xxxxxxxx X. Xx
Title: Vice President
