EXHIBIT 10.3
AMENDMENT TO NOTE AND EQUITY PURCHASE AGREEMENT
AMENDMENT TO NOTE AND EQUITY PURCHASE AGREEMENT dated as of April 14,
2003, by and between Montauk Battery Realty LLC, a New York limited liability
company (the "Company"), and New Valley Real Estate Corporation, a Delaware
corporation ("New Valley"), and The Prudential Real Estate Financial Services of
America, Inc., a California corporation ("PREFSA" and together with New Valley,
the "Purchasers").
RECITALS
The Company and the Purchasers entered into a Note and Equity Purchase
Agreement dated as of March 14, 2003 (the "Loan Agreement"), pursuant to which
certain financial accommodations were made available to the Company.
The parties hereto have agreed by separate agreement dated March 14,
2003 to modify the representations, warranties and covenants of the Company
contained in the Loan Agreement to be identical to those of the Company
contained in the PREFSA Loan Agreement upon and subject to the following terms
and conditions.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and promises exchanged herein, the parties hereto mutually agree as follows:
Section 1. Definitions. Except as otherwise defined in this
Amendment, terms defined in the Loan Agreement are used herein as defined
therein.
Section 2. Amendments. The Loan Agreement shall be amended as
follows:
2.1 Representations and Warranties:
(a) Section 3.7 of the Loan Agreement is hereby deleted in its entirety and
the following is substituted therefore:
"3.7 TITLE; LIENS AND ENCUMBRANCES. The Company and the
Company Subsidiaries either own or hold under leases all of
the material properties used by its business. Each of the
Company and the Company Subsidiaries has good, indefeasible
and marketable title to all of its property (reflected in the
balance sheets described in Section 3.5), free and clear of
all security interests, liens, encumbrances, restrictions and
other burdens, except as set forth on Schedule 3.7 and as
permitted by Section 7.2(d). Except as set forth on Schedule
3.7, no financing statement (other than any which may have
been filed on behalf of PREFSA) covering any of the Collateral
is on file in any public office applicable thereto
(collectively, "Applicable Public Offices"), which offices are
listed on Schedule 3.7. Except for (i) those financing
statements naming PREFSA as secured party, (ii) those
financing
statements naming PREA as secured party filed with respect to
the Franchise Term Note and (iii) any financing statements
naming NFB as secured party filed with respect to the NFB
Loan, each of the financing statements listed in Schedule 3.7
evidence a lien on specific equipment of B&H given to secure
B&H's obligations under an equipment lease or in connection
with equipment lease financing."
2.2 Covenants
(a) Section 7.1(c)(i) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefor:
"(c) Tax Obligations.
(i) The Company shall, and shall cause each Subsidiary
to, file all Tax Returns required by and prepared in
accordance with Applicable Law and shall pay or cause to be
paid all Taxes assessed against the Company or any Subsidiary,
or payable by such the Company or any Subsidiary, at such
times and in such manner as to prevent any penalty from
accruing or any Lien or charge from attaching to property of
the Company or any Subsidiary, provided that the Company and
each Subsidiary shall have the right to contest in good faith,
by an appropriate proceeding promptly initiated and diligently
conducted, the validity, amount or imposition of any such Tax,
and upon good faith contest to delay or refuse payment
thereof, provided, that (A) in the case of a delay or refusal
of payment the proceedings shall cause the suspension of the
collection of the applicable amount from the Company, any
Subsidiary or the Collateral, (B) the contest shall have the
effect of staying or postponing any sale, forfeiture or loss
of the Collateral, (C) the Company or Subsidiary shall have
set aside on its books adequate reserves with respect thereto,
and shall have furnished whatever security is reasonably
requested by Agent including a letter of credit, title
insurance or bond and (D) the contest does not have a Material
Adverse Effect."
(b) Section 7.1(k) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefor:
"(k) Life Insurance Assignment. Upon payment in full of
the Superior Debt Obligations, the Company shall use its best
efforts to obtain the life insurance described in the
definition of Life Insurance Assignment, and to deliver to
Agent a fully-executed original of the Life Insurance
Assignment in a form satisfactory to the Agent."
(c) Section 7.2 (c) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefore:
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"(c) Indebtedness. The Company and its Subsidiaries shall
not incur, create, suffer to exist or assume, or permit any of
their Subsidiaries (if any) to incur, create, allow to exist
or assume, any Indebtedness or sell or discount with recourse
any accounts receivable or any debt instruments owned by them,
or enter into any other arrangement which has the effect of
guaranteeing a represented result or assuring a creditor of a
Person against loss (including arrangements to purchase or
repurchase property or obligations, pay for property, goods or
services whether or not delivered or rendered, maintain
working capital, equity capital or other financial statement
condition of, or lend or contribute to or invest in, any
Person), except the following:
(i) the Subordinated Obligations incurred
hereunder
(ii) the Superior Debt;
(iii) liability arising from the endorsement of
negotiable instruments for deposit and
collection received in the ordinary course
of the Company's or such Subsidiary's
business;
(iv) capital leases and/or financing for Capital
Expenditures not to exceed $1,500,000 at any
one time in the aggregate;
(v) the PREA Secured Obligations;
(vi) the NFB Loan;
(vii) accounts payable incurred in the ordinary
course of the Company's and its
Subsidiaries' business. For purposes hereof,
the term "accounts payable" shall in no
event include any Indebtedness arising from
the borrowing of money;
(viii) auto leases or auto financing entered into
in the ordinary course of the Company and
its Subsidiaries' business; provided,
however, that the monthly payments due under
such obligations shall not exceed $15,000
per month in the aggregate;
(ix) Indebtedness for business acquisitions not
to exceed $500,000 in the aggregate at any
time (provided, that Indebtedness for
business acquisitions consented to in
writing by PREFSA under the PREFSA Loan
Agreement and, after the payment in full of
the Superior Debt Obligations, the Agent
hereunder, shall not count towards said
$500,000 limit);
(x) Intercompany Loans;
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(xi) the existing $494,656 loan from DTHY to
Montauk Battery, which loan constitutes a
Member Loan (as defined in the Montauk
Battery Operating Agreement) and which loan
shall not be amended or modified after the
date hereof;
(xii) the Manhattan Franchise Note; or
(xiii) miscellaneous other Indebtedness not to
exceed $100,000 in the aggregate at any
time."
(d) Section 7.2(h) of the Loan Agreement is hereby amended by deleting
clauses (iv) and (v) in their entirety and substituting the following therefore:
"(iv) loans to its real estate agents as an advance against
commissions owed to any such agent, but only to the extent
made in the ordinary course of Borrowers' business and not to
exceed $700,000 (exclusive of advances made to its real estate
agents in the ordinary course for the purpose of paying
premiums for their errors and omissions (E&O) insurance
coverage) outstanding in the aggregate at any time (at least
half of which shall be for advances against commissions owed
under real estate contracts in escrow), (v) loans to its
employees (other than any principal of DTHY or New Valley)
made in the ordinary course of Borrowers' business and not to
exceed $50,000 outstanding in the aggregate at any time"
(e) Section 7.2(j) is hereby amended by adding the following as the
last sentence thereof:
"Notwithstanding anything herein to the contrary, in no event
shall the Xxxxxx Employment Agreement be amended, modified or
replaced without the prior written consent of the Purchasers."
(f) Section 7.2(k) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefore:
"(k) Capital Expenditures. The Company and its
Subsidiaries shall not make Capital Expenditures in the
aggregate for all of them, either by purchase or lease, in any
Fiscal Year in excess of the amount set forth below opposite
such Fiscal Year:
Fiscal Year Amount of Capital Expenditures
----------- ------------------------------
2003 $2,400,000
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2004 and each
Fiscal Year thereafter 105% of the amount of capital expenditures
permitted in the previous Fiscal Year
(without consideration of any carryover from
prior years); provided, that if the Company
and its Subsidiaries incur capital
expenditures during any previous Fiscal Year
in an amount less than the permitted capital
expenditures for such year, the difference
between such amount and that Fiscal Year's
limit shall be added to the amount of
permitted capital expenditures for the
current Fiscal Year; and provided, further,
that in no event shall such additional
amount exceed $500,000.
Notwithstanding the foregoing, the Company and its
Subsidiaries may make Capital Expenditures, in the aggregate,
of up to $1,000,000 for each new real estate brokerage office
opened by the Company and its Subsidiaries with the prior
written approval of Agent, and, if so approved by Agent, said
Capital Expenditures shall not count towards the Capital
Expenditure limits set forth in the table above."
(g) Section 7.2(o) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefore:
"(o) Trade Credit. The Company and its Subsidiaries shall
not allow, in the aggregate, more than the Trade Credit Limit of trade accounts
payable (net of commissions due) to be more than 60 days past due at any time.
For purposes hereof, the "Trade Credit Limit" shall mean (i) during the months
from January through July (inclusive), $300,000, and (ii) during the months from
August through December (inclusive), $150,000."
(h) Section 7.2(p) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefore:
"(p) Business Acquisitions. Upon the satisfaction in full
of the Superior Debt Obligations, the Agent's prior written
consent shall be required in connection with any acquisition
of a business by the Company or any Subsidiary; provided,
however, that the Company may acquire a business without such
consent if both (i) the acquisition price for the acquisition
of such business is less than $250,000, and (ii) no portion of
the acquisition of such business is being financed with
proceeds from the Loans."
(i) Section 7.2(q) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefore:
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"(q) Leases. Without Agent's prior written consent, the
Company and its Subsidiaries shall not, enter into, renew,
replace or extend any lease for any real or personal property
if such action would cause the aggregate lease obligations of
the Company and its Subsidiaries (excluding the lease at 000
Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx) on a consolidated basis to
exceed the aggregate lease obligations of the Company and its
Subsidiaries (excluding the lease at 000 Xxxxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx) (giving effect to the acquisition contemplated
by the Purchase Agreement on a pro forma basis as if IRG and
IDE had been Subsidiaries as of December 31, 2002) on a
consolidated basis existing as of December 31 of the prior
Fiscal Year by more than ten percent (10%). For purposes of
this Section 7.2(q), the term "lease obligations" shall mean
the aggregate rental payments due under all leases during the
applicable Fiscal Year."
(j) A new Section 7.2(t) is hereby added:
"(t) The Company and its Subsidiaries shall not open any new
real estate brokerage offices without the prior written
approval of Agent."
(k) Section 7.3 of the Loan Agreement is hereby deleted in its entirety
and the following is substituted therefor:
"7.3 Financial Covenants. From and after the time that the
Superior Debt is paid in full and continuing as long as any of
the Subordinated Obligations remains unpaid (provided that,
solely for purposes of determining whether the financial
covenants set forth in Sections 7.3(d) and (e) below have been
satisfied, all operations in the Borough of Manhattan shall be
excluded from consideration (as if they did not exist) (i.e.,
the acquisition contemplated by the Purchase Agreement shall
be treated as if it never happened) and the PREFSA Loan and
the Loans shall be treated as if they were never made and the
Long Island Facilities had been left in place in completing
the calculations necessary to make such determination):
(a) Minimum Fixed Charges Coverage Ratio. The
Company and its Subsidiaries will not permit the ratio of (x)
EBITA for the period set forth below ending as of the date of
determination to (y) the sum of all payments of principal
(excluding Excess Cash Flow payments under Section 2.4(a) of
the PREFSA Loan Agreement and under Section 3.3 of the Notes)
and interest under the PREFSA Loans, the Loans and the NFB
Loan for the period set forth below ending as of the date of
determination, as determined at the end of each Fiscal Quarter
of the Company and its Subsidiaries, commencing with the
quarter ending March 31, 2004, to be less than the ratio shown
below for the period ending as of the date of determination.
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Period Ending as of Date of Determination Minimum Ratio
--------------------------------------------------------------------------------
12-month period ending as of the end of each 1.25:1.0
Fiscal Quarter in Fiscal Year 2004
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12-month period ending as of the end of each 1.35:1.0
Fiscal Quarter in Fiscal Year 2005
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12-month period ending as of the end of each 1.60:1.0
Fiscal Quarter thereafter
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(b) Maximum Debt to EBITA. Beginning with the Fiscal
Quarter ending March 31, 2004 and as of the end of each Fiscal
Quarter thereafter, the Company and its Subsidiaries will not
permit their Consolidated Debt Ratio at such time to exceed
the amount set forth below:
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Date of Determination Maximum Consolidated Debt Ratio
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2004 5.5:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2005 5.25:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2006 4.75:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2007 3.5:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2008 3.0:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2009 2.5:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter thereafter 2.0:1.0
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(c) Minimum Interest Coverage Ratio. The Company and its
Subsidiaries will not permit the ratio of (x) EBITA for the
period set forth below ending as of the date of determination
to (y) Consolidated Interest Charges for the period set forth
below ending as of the date of determination, as determined at
the end of each Fiscal Quarter of the Company and its
Subsidiaries, commencing with the quarter ending March 31,
2004, to be less than the ratio shown below for the period
ending as of the date of determination:
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Period Ending as of Date of Determination Minimum Ratio
--------------------------------------------------------------------------------
12-month period ending as of the end of each 1.8:1.0
Fiscal Quarter in Fiscal Year 2004
--------------------------------------------------------------------------------
12-month period ending as of the end of each 1.8:1.0
Fiscal Quarter in Fiscal Year 2005
--------------------------------------------------------------------------------
12-month period ending as of the end of each 2.25:1.0
Fiscal Quarter in Fiscal Year 2006
--------------------------------------------------------------------------------
12-month period ending as of the end of each 3.0:1.0
Fiscal Quarter in Fiscal Year 2007
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12-month period ending as of the end of each 4.0:1.0
Fiscal Quarter in Fiscal Year 2008
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12-month period ending as of the end of each 5.0:1.0
Fiscal Quarter in Fiscal Year 2009
--------------------------------------------------------------------------------
12-month period ending as of the end of each 7.0:1.0
Fiscal Quarter thereafter
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(d) 2003 Minimum Fixed Charges Coverage Ratio. The
Company and its Subsidiaries will not permit the ratio of (x)
EBITA for the period set forth below ending as of the date of
determination to (y) the sum of all payments of principal
(excluding Excess Cash Flow payments under Section 2.4(a) of
the PREFSA Agreement) and interest under the Loans and the NFB
Loan for the period set forth below ending as of the date of
determination, as determined at the end of each Fiscal Quarter
of the Company, commencing with the quarter ending March 31,
2003, to be less than the ratio shown below for the period
ending as of the date of determination.
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Period Ending as of Date of Determination Minimum Ratio
--------------------------------------------------------------------------------
12-month period ending as of the end of each 1.5:1.0
Fiscal Quarter in Fiscal Year 2003
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(e) 2003 Maximum Debt to EBITA. Beginning with the Fiscal
Quarter ending March 31, 2003 and as of the end of each Fiscal
Quarter thereafter in Fiscal Year 2003, the Company and its
Subsidiaries will not permit their Consolidated Debt Ratio at
such time to exceed the amount set forth below:
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Date of Determination Maximum Consolidated Debt Ratio
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2003 4.0:1.0
--------------------------------------------------------------------------------
(f) Minimum EBITA for IDE and IRG. The Company and its
Subsidiaries will not permit the EBITA of IDE and IRG for the
12-month period ending as of December 31, 2003 to be less than
$10,000,000. For purposes of the foregoing sentence, EBITA
shall be determined as if IDE and IRG was the Company."
Section 3. Representations and Warranties. The Company and its
Subsidiaries represent and warrant to the Purchasers that the representations
and warranties set forth herein and in the Loan Agreement are true and complete
on the date hereof and as if made on and as of the date hereof (or, if such
representation warranty is expressly stated to have been made as of a specific
date, as of such specific date) and that no Default or Event of Default has
occurred and is continuing.
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Section 4. Governing Law; Execution in Counterparts. Except as herein
provided, the Loan Agreement shall remain unchanged and in full force and
effect. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same amendatory instrument and
any of the parties hereto may execute this Amendment by signing any such
counterpart. This Amendment shall be governed by, and construed in accordance
with, the internal laws of the State of New York (without regard to New York
conflicts of laws principles).
Section 5. Expenses, etc. The Company agrees to pay or reimburse the
Purchasers for all reasonable out-of-pocket costs and expenses of the Purchasers
in connection with the negotiation, preparation, execution and delivery of this
Amendment and the transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Loan Agreement to be duly executed and delivered by their duly authorized
officers, all as of the day and year first above written.
Company:
MONTAUK BATTERY REALTY LLC
By: /s/ Xxxxxxx Xxxxxx
---------------------------------
Xxxxxxx Xxxxxx
President
Purchasers:
NEW VALLEY REAL ESTATE CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------
Xxxxxxx X. Xxxxxx
Executive Vice President
THE PRUDENTIAL REAL ESTATE
FINANCIAL SERVICES OF AMERICA, INC.
By: /s/ Xxxxx Ghoroghchi
---------------------------------
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