SECURED PROMISSORY NOTE
"Principal Amount" (as defined in Dated: February 14, 2002
paragraph 2 below) New York, New York
FOR VALUE RECEIVED, Shelbourne Properties III, L.P., a Delaware limited
partnership ("Borrower"), hereby promises to pay to Shelbourne Management LLC, a
Delaware limited liability company ("Lender"), the Principal Amount, together
with interest thereon all as provided in this Secured Promissory Note (this
"Note"). Certain capitalized terms used and not otherwise defined in this Note
have the respective meaning ascribed to them in the Purchase and Contribution
Agreement, dated as of the date hereof, by and among Lender, certain Affiliates
of Lender, Borrower and certain Affiliates of Borrower.
1. Payment of Interest. Interest on the unpaid balance of the Principal
Amount ("Interest") shall accrue at the rate per annum equal to the "Effective
Rate" (as defined below in this paragraph 1) borne by the Refinancing
Indebtedness incurred by Borrower to repay this Note (or if this Note is not
repaid from third party indebtedness, at eight percent (8%) per annum), payable
on the Maturity Date (as defined in paragraph 2 below) or earlier repayment of
any portion of this Note by Borrower. In the event that this Note is not repaid
in full at or prior to the Maturity Date or an Event of Default has occurred,
the rate of interest shall increase by 200 basis points per annum over the
interest rate otherwise applicable on the unpaid balance of the Principal
Amount. Interest shall be calculated on the basis of a 365-day year and the
actual number of days elapsed from the date of this Note through the date on
which Interest is due and shall be applied against the Principal Amount as in
effect at the Repayment Date. Notwithstanding any other provision of this Note,
interest paid or becoming due hereunder shall in no event exceed the maximum
rate permitted by applicable Law. For purposes of this paragraph 1, the
"Effective Rate" shall equal the rate of interest per annum initially borne by
the Refinancing Indebtedness incurred to repay this Note, as increased to
reflect the cost per annum of any commitment, funding or similar fees, provided,
that, if there are more than one tranches of such Refinancing Indebtedness
bearing different rates of interest or fees, the Effective Rate shall be
determined as the weighted average of the Effective Rates determined for each
such tranche.
2. Payment of Principal and Interest. Xxxxxxxx agrees to pay in full
the entire outstanding balance of the Principal Amount, together with any
accrued and unpaid Interest thereon, on August 14, 2002 (the "Maturity Date").
The "Principal Amount" is $15,665,421 except that (a) if this Note is repaid in
full on or prior to April 30, 2002, the Principal Amount shall be reduced to
$14,589,936, and (b) if this Note is repaid in full after April 30, 2002 and on
or prior to May 15, 2002, the Principal Amount shall be reduced to $14,858,807.
3. Security Agreement. This Note is the Note referred to in, and the
holder hereof is entitled to the benefits of, (a) the Security Agreement, dated
as of the
date hereof (as amended or otherwise modified from time to time, the "Security
Agreement"), by and between Borrower and Lender, and (b) any and all "Mortgages"
(as defined in the Security Agreement).
4. Place of Payment. Both principal and interest are payable in lawful
money of the United States of America in immediately available funds to Lender
at its office located at 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx
00000 or at such other office as the Lender from time to time may designate.
5. Prepayment. Borrower may prepay this Note in whole or in part at any
time.
6. Events of Default. If any of the following events (each an "Event of
Default"), whatever the reason for such event and whether it shall be voluntary
or involuntary, or within or without the control of the Borrower, or be effected
by operation of law or pursuant to any judgment or order of any court or any
order, rule or regulation of any governmental or nongovernmental body, shall
occur:
(a) Borrower shall fail to pay any installment of Interest or the Principal
Amount when the same shall have become due and payable under this Note;
(b) Borrower shall, for more than ten days after Lender shall have provided
in writing notice thereof, fail or refuse to cure any material breach
of any representation or warranty made by Borrower in the Security
Agreement or in any writing delivered by Borrower pursuant to the
Security Agreement and as a result thereof Xxxxxx's ability to
foreclose on this Note or exercise its remedies under any of the Loan
Documents to have and possess its security interests in the Collateral
(as defined in the Security Agreement) free and clear of any Lien is
adversely affected;
(c) Borrower shall, for more than ten days after Lender shall have provided
in writing notice thereof, fail or refuse to comply with, in any
material respect, any of the covenants contained in the Loan Documents,
on its part to be observed or performed, or to make provision
satisfactory to Lender for such compliance, and as a result thereof
Lender's ability to foreclose on this Note or exercise its remedies
under the Loan Documents or to have and possess its security interests
in the Collateral free and clear of any Lien is adversely affected;
(d) The entry of a decree or order by a court having jurisdiction in the
premises for relief in respect of Borrower under any bankruptcy,
insolvency or similar act, law or statute now or hereafter in effect,
or adjudging Borrower a bankrupt or insolvent, or approving a petition
seeking reorganization, adjustment or composition of or in respect of
Borrower under Title XI of the United States of America Code, as now
constituted or hereafter in effect, or under any other applicable
Federal or
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State bankruptcy law or other similar law, or the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar
official) of Borrower or of any substantial part of its property, or
the entry of an order for the winding up or liquidation of its affairs
and the continuance of any such decree or order unstayed and in effect
for a period of sixty (60) consecutive days;
(e) The filing by Borrower of any petition, application, answer or consent
to or for liquidation, reorganization, arrangement or any other relief
under any Chapter of Title XI of the United States of America Code or
any applicable State or Federal law or statute, as now or hereafter in
effect, or the consent, or the failure to contest in a timely and
appropriate manner, by Borrower to the filing of any such petition or
application for the relief requested therein, or the consent, or the
failure to contest in a timely and appropriate manner, by Xxxxxxxx to
the appointment or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official)
of Borrower or of any substantial part of its property, or the making
by Borrower of an assignment for the benefit of creditors, or the
admission by Borrower in writing of its inability to pay its debts
generally as they become due, or the failure of Borrower generally to
pay its debts as such debts become due, or the taking of lawful action
by Borrower or any of its officers, directors or stockholders in
furtherance of any such action;
(f) The occurrence of any Event of Default under the promissory note dated
the date hereof issued by Shelbourne Properties II, L.P. to Lender or
by Shelbourne Properties III, L.P. to Lender;
(g) The failure of Borrower to make any payment when due under the Purchase
Agreement or any breach by Shelbourne Properties III, Inc. ("Parent")
or Borrower of any payment obligation or any other material obligation
under any of the Transaction Agreements other than the Loan Documents;
or
(h) The occurrence of any of the following events: (i) the acquisition by
any Person or group of Persons acting in concert of more than 15% of
the outstanding common stock of Parent, (ii) the acquisition by any
Person other than Parent or Shelbourne Properties III GP, Inc.
("General Partner") of partnership interests in Borrower (other than
the Preferred Units), (iii) the acquisition by any Person other than
Parent of interests in General Partner, or (iv) the election to the
Board of Directors of Parent of any individuals either (A) not approved
by a majority of the members of such Board of Directors as of the date
of this Note or (B) not approved by the members of such Board of
Directors approved by a majority of the members of such Board of
Directors as of the date this Note, in each case after giving effect to
the transactions contemplated by the Purchase Agreement.
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7. Effect of Event of Default. In the case of an Event of Default other
than one referred to in clause (d) or (e) of Section 6, Lender may, by notice to
Xxxxxxxx, declare the Principal Amount then outstanding of, and the accrued
Interest on, this Note and all other amounts payable under this Note to be
forthwith due and payable, whereupon such amounts shall be immediately due and
payable without presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by Xxxxxxxx. In the case of the
occurrence of an Event of Default referred to in clause (d) or (e) of Section 6,
the Principal Amount then outstanding of, and the accrued interest on, this Note
and all other amounts payable under this Note automatically shall become
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by Borrower.
8. Waivers. Borrower hereby waives notice of dishonor, protest and
notice of protest. Should any indebtedness represented by this Note be collected
at law or in equity or in bankruptcy or other proceedings after demand therefore
has been made, or should this Note be placed in the hands of attorneys for
collection after default, the undersigned agrees to pay, in addition to the
amount of indebtedness for which demand has been made and interest due and
payable thereon, all costs of collection or attempting to collect the same,
including reasonable attorney's fees and expenses (including those incurred in
connection with any appeal).
9. Governing Law. This Note and the legality, validity and performance
of the terms hereof shall be governed by and enforced, determined and construed
in accordance with the laws of the State of New York, applicable to contracts,
transactions and obligations entered into and to be performed wholly in New
York.
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Successors and Assigns. This Note shall be binding upon Xxxxxxxx and
Xxxxxxxx's successors and assigns.
"Borrower"
SHELBOURNE PROPERTIES III, L.P.
By: SHELBOURNE PROPERTIES III GP,
Inc., as General Partner
By: /s/ Xxxxxxx X. Xxxxx
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Name: Xxxxxxx X. Xxxxx
Title:
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