Exhibit (d)(3)
HX INVESTORS, L.P.
000 Xxxxxxx Xxxxxxxxxx
Xxxxx 000
Xxxxxxx, Xxx Xxxx 00000
August 1, 2002
The Boards of Directors of
Shelbourne Properties I, Inc.
Shelbourne Properties II, Inc.
Shelbourne Properties III, Inc.
000 Xxxxxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Gentlemen:
Reference is made to that certain Settlement Agreement and Mutual
Release, dated July 1, 2002, among HX Investors, L.P., Shelbourne Properties I,
Inc., Shelbourne Properties II, Inc., Shelbourne Properties III, Inc.,
Shelbourne Management LLC and Presidio Capital Investment Company, LLC (the
"Settlement Agreement") and the Stock Purchase Agreements dated July 1, 2002
entered into in connection therewith (the "Stock Purchase Agreements").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed thereto in the Settlement Agreements or the
applicable Stock Purchase Agreement.
You have advised us that a group led by Xxxx X. Xxxxx (the "Icahn
Group") has proposed to Shelbourne Properties I, Inc., Shelbourne Properties II,
Inc. and Shelbourne Properties III, Inc. (collectively, the "Companies") to
enter into an agreement with the Companies on the same terms and conditions as
those set forth in the Settlement Agreement and the Stock Purchase Agreements
except that (i) the offer price with respect to the tender offers will be at a
price equal to the price set forth in the Stock Purchase Agreements plus
approximately 10% and (ii) clause (ii) of Paragraph 6 of the Plans of
Liquidation attached as Annex C to the Stock Purchase Agreements will be amended
to provide that the 25% payment (the "Incentive Payment") will be reduced to
15%. You have further advised us that you plan to withdraw your recommendation
with respect to our offer and recommend the Icahn Group's offer to stockholders
of the Companies.
Please be advised that HX Investors, L.P. ("HX Investors") (i) will
increase its offer prices to $59.00 for shares in Shelbourne Properties I, Inc.,
$69.00 for shares in Shelbourne Properties II, Inc. and $54.50 for shares in
Shelbourne Properties III, Inc., which prices are in excess of the Icahn Group
prices and (ii) agrees to amend Paragraph 6 of the Plans of Liquidation to
provide that the additional amounts payable to HX Investors will be a fee of 15%
of the excess of the Net Proceeds over the Base Amount.
Our offer as modified above is more favorable to the shareholders of
the Companies for the following reasons: (i) the per share price is in excess of
that offered by the Icahn Group; (ii) the agreement by our affiliate, Kestrel
Management, L.P., that it will waive any termination fees payable to it is
personal to HX Investors; and (iii) the termination fees under Section 7.03 of
the Stock Purchase Agreements ($1.5 million in the aggregate) are not payable if
our offer is consummated. Notwithstanding that our offer is superior to the
Icahn Group's offer for the aforesaid reasons, HX Investors will agree to amend
the Stock Purchase Agreements to include the following undertakings and
covenants which constitute additional benefits for the stockholders of the
Companies:
1. The Equity Amount for each Company will be modified to equal the
greater of (i) the current Equity Amount as set forth in the Plan
of Liquidation or (ii) the revised tender offer price multiplied
by the current outstanding number of shares in such Company.
2. No independent director of the Board of Directors of the
Companies nominated by HX Investors will have any prior or
current affiliation with the executive officers of the Companies,
HX Investors or there respective affiliates, or will have served
or will serve on a board of a public company with any other
director of a Company including another independent director.
3. HX Investors will agree not to acquire or have one of its
affiliates acquire any property of the Companies or support a
sale of any property of a Company to Northstar Capital Investment
Company or its affiliates.
4. HX Investors' non-independent nominees to the Board of Directors
of the Companies will, subject to their fiduciary duties and
existing Company obligations, support and recommend the
implementation of the following distribution policy for the
Companies:
o The Companies will make quarterly distributions of all
operating cash flow in excess of budgeted capital
expenditures, anticipated corporate expenses and a
reserve of 2% of the current appraised value of the
applicable properties.
o 80% of each Company's current excess net cash will be
used to retire existing debt and/or make a distribution
to stockholders on or before 90 days following the
election of nominees of HX Investors as directors of
such Company.
5. The Plans of Liquidation to be submitted for stockholder approval
will be drafted to provide that:
o All excess refinancing proceeds, if any, will be
distributed within the earlier of 30 days following the
quarter in which such refinancing occurs or 90 days
following the refinancing.
2
o All net property sale proceeds, if any, will be
distributed within the earlier of 30 days following the
quarter in which such refinancing occurs or 90 days
following the refinancing.
6. The Plans of Liquidation to be submitted for stockholder approval
will be drafted to provide that, unless otherwise approved by
stockholders not affiliated with HX Investors and so long as a
majority of the Boards of Directors consist of members nominated
by HX Investors, or by persons nominated by such nominees, the
failure to observe the distribution policy set forth in Paragraph
5 above shall result in each of the following:
o Permanent elimination of the Incentive Payment.
o Elimination of any service fees payable to affiliates
of HX Investors by the Companies during the period in
which the distribution was delayed.
o Elimination of any fees payable to directors (other
than those of objecting directors) of the Companies
during the period in which the distribution was
delayed.
7. Cash reserves of each Company in excess of $500,000 will be
invested only in short term U.S. Treasuries or other short term
federally insured obligations.
8. If prior to December 31, 2004, stockholders shall not have
received aggregate distributions equal on a per share basis to
Shelbourne Properties I, Inc. $48.00
Shelbourne Properties II, Inc. $56.00
Shelbourne Properties III, Inc. $44.00
then HX Investors will vote its shares at the next annual meeting
of stockholders for the applicable Company(ies) in proportion to
the stockholders not affiliated with HX Investors on all matters
properly brought before the meeting and the applicable
Company(ies) will endeavor to cause such meeting to be held not
later than May 30, 2005.
9. If the applicable Company's Plan of Liquidation is approved and
the assets of that Company are not fully liquidated by October
31, 2007, HX Investors will vote its shares on any shareholder
proposal in accordance with the majority of the shares voted by
the stockholders of the Company not affiliated with HX Investors.
10. If any of the Plans of Liquidation are not approved after being
subject to stockholder vote, subject to their fiduciary duty, the
nominees of HX Investors will use commercially reasonable efforts
to market and sell the property located at 000 Xxxxxxxx, Xxx
Xxxx, New York and to distribute the proceeds therefrom within
the earlier of 30 days following the quarter in which such
refinancing occurs or 90 days following the sale.
3
11. The Plan of Liquidation will be drafted to provide that the
management service fee of $200,000 payable to an affiliate of HX
Investors will not be subject to increase after the expiration of
the three year period presently provided.
12. To the extent required, the Plan of Liquidation will be drafted
to incorporate the items set forth in our letter to stockholders
dated July 29, 2002 as filed with the Securities and Exchange
Commission including, without limitation, the description of the
timing, computation and manner of payment of the Incentive
Payment.
We await your prompt response.
Very truly yours,
HX Investors, L.P.
By: Exeter Capital Corporation
General Partner
By: /s/ Xxxxxxx X. Xxxxxx
----------------------
Xxxxxxx X. Xxxxxx
President
