Exhibit 10.6
 

SENIOR SUBORDINATED NOTE
 
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
 
PALI-HOLLOWAY, LLC
 
SENIOR SUBORDINATED NOTE
 
$19,000,000.00 
Issuance Date; As of June 24, 2013

 
FOR VALUE RECEIVED, the undersigned, Pali-Holloway, LLC, a California limited
liability company (“Pali-Holloway” or the “Borrower”), hereby promises to pay to
the order of NORe Capital LLC, a British Virgin Islands limited liability
company (“NORe”), or its registered assigns (collectively with NORe, the
“Holder”), the principal sum of NINETEEN MILLION AND NO/100 DOLLARS
($19,000,000.00).
 
 
Unless accelerated or subject to a mandatory Prepayment Event, as set forth in
Section 3(a) below, the entire principal amount of this Senior Subordinated Note
(this “Note”) and all Interest (at the Interest Rate) accrued hereon (as such
principal amount and Interest are modified in accordance with the terms of
Section 2 below) shall be due and payable on a date which shall be June 30,
2020, being seven (7) years from the Issuance Date (the “Maturity Date”).
 
1.             Definitions.  As used herein, the following terms shall have the
meanings set forth below.
 
(a)           Available Cash Flow shall mean, as of any date in question, the
net income of the Borrower after payment of all (i) scheduled payments of the
principal amount of and accrued interest on all Senior Indebtedness, (ii)
scheduled management fees payable to Pali-Holloway Management LLC (not to exceed
4% of revenues from operation of the Pali-Holloway Residence, (iii) all
scheduled capital expenditures set forth in a budget approved by the holder of
Senior Indebtedness and the Holder of this Note, (iv) all scheduled taxes
payable by the Borrower or the Pali-Holloway Residence; and (v) all other
amounts required to pay accounts payable and other accrued expenses of the
Borrower incurred in the ordinary course of business; provided, that such
Available Cash Flow shall be permitted to be paid to the Holder of this Note
pursuant to the Subordination Agreement.
 
(b)           Brosh Membership Interest means as at the date of this Agreement,
a sixty-two (62.0%) percent Membership Interest in Pali-Holloway owned by Avi
Brosh or any of his affilaites.
 
 
 

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(c)          East West Bank Deed of Trust shall mean the deed of trust in
$17,980,000 original principal amount, dated August 1, 2005, issued by Borrower
in favor of East-West Bank, and representing Senior Indebtedness.
 
(d)          Pali-Holloway Residence. means the Palihouse Residence located at
8465 Holloway Drive, West Hollywood, California.
 
(e)          Pali-Holloway Second Deed of Trust and Note means the secured
second deed of trust and mezzanine promissory note dated April 18, 2008,
executed by the Borrower and certain of its Affiliates in favor of Pali-Funding,
LLC (“Pali-Funding”) in original $43,862,500 principal amount, which was
assigned to Development Property Holdings, Inc. (“DPH”) on September 4, 2001,
and further assigned by DPH to Camden Fund on November 5, 2012, and which
presently has an indicative face amount, including accrued interest fees and
penalties, of $19.0 million.
 
(f)           Pali-Holloway Operating Agreement means the operating agreement of
Pali-Holloway, dated May 1, 2004.
 
(g)          Sale of Control means the sale of all or substantially all of the
assets of the Borrower, whether by sale of the Pali-Holloway Residence or the
sale of a majority of the outstanding membership interests of Pali-Holloway, in
either case, to any individual, corporation, limited liability company,
partnership or other entity (each a “Person”) that is not an affiliate of Avi
Brosh.

(h)          Senior Indebtedness shall mean the East-West Bank Deed of Trust or
any other first mortgage or deed of trust issued by another lender that
constitutes a first priority lien and security interest on the assets and
properties of Pali-Holloway and the Pali-Holloway Residence.
 
(i)           Subordination Agreement shall mean collective reference to the
subordination provisions contained in the Pali-Holloway Second Deed of Trust and
Note or any related subordination agreement between East-West Bank or any
subsequent holder of Senior Indebtedness and the Holder or any subsequent Holder
of this Note.
 
2.             Prior Note and Loan Documents.
 
(a)           NORe and the Borrower hereby acknowledge that this Note:
 
(i)           has been purchased by NORe from Camden Real Estate Opportunity
Fund I, LLC, a California limited liability company (the “Camden Fund”) and
evidences all Indebtedness formerly owed by the Borrower to Camden Fund,
 
(ii)          amends and restates in its entirety replaces and supersedes in its
entirety all Indebtedness of the Borrower under the Pali-Holloway Second Deed of
Trust and Note; and
 
(iii)         terminates all obligations of any Person, other than the Borrower,
guaranteeing any payment or performance obligation related to the indebtedness
of Borrower under the Prior Note.
 
(b)           This Note is being entered into in connection with, among other
documents (i) the appointment by Palisades General Contracting Company, a
California corporation wholly-owned by Avi Brosh (“Palisades”) of Pali-Holloway
Management LLC, a California limited liability company (to be owned 75% by
Palisades, and 25% by Lucas Mann) as the “Manager Affiliate” and
successor-in-interest to Palisades, as the sole Manager of the Palihouse
Residence under the Pali-Holloway Operating Agreement (the “Manager Affiliate
Appointment”), (ii) an operating agreement of Pali-Holloway Management LLC in
form and content acceptable to the Holder (the “Pali-Holloway Management
Operating Agreement”), (iii) an assignment of the Prior Note from Camden Fund to
NORe, pursuant to an assignment agreement in form and content acceptable to NORe
(the “Prior Note Assignment”), and (iv) if and to the extent required by the
holder of any Senior Indebtedness, an amended and restated Subordination
Agreement.  This Note, the Manager Affiliate Appointment, the Pali-Holloway
Operating Agreement, the Prior Note Assignment and (if required) the
Subordination Agreement are collectively referred to as the “Loan Documents”.
 
 
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3.             Interest.  The Borrower promises to pay interest (the “Interest”)
on the outstanding principal amount of this Note (the “Principal Amount”) at the
annual rate of ten percent (10%) per annum (the “Interest Rate”).  Until July 1,
2016, interest on the Principal Amount shall accrue at the Interest Rate and be
added to the Principal Amount of this Note, to be paid on the Maturity
Date.  Following July 1, 2016, interest shall be payable quarterly on the then
outstanding Principal Amount of this Note out of Available Cash Flow, on the
last business day of each September, December, March and June, until June 30,
2020, when the entire unpaid Principal Amount of this Note and all interest
accrued hereon shall be due and payable.
 
4.             Prepayment.
 
(a)           Mandatory Prepayments. Subject at all times to payment in full of
all Senior Indebtedness, or the prior written consent or waiver of the holder(s)
of such Senior Indebtedness, in the event that there shall occur prior to the
Maturity Date of this Note:  (i) any Sale of Control; (ii) the liquidation of
the Borrower; or (iii) the sale of the Brosh Pali-Holloway Membership Interests
to any Person not an affiliate of Avi Brosh, (each a “Prepayment Event”), the
Borrower shall prepay all or any portion of the unpaid Principal Amount of and
accrued Interest on this Note.
 
(b)           Optional Prepayment. In addition to (but not in lieu of) the
mandatory prepayments set forth in Section 4(a) above, the Borrower may, at its
option, prepay all or any portion of this Note at any time or from time to time,
without penalty or premium of any kind.
 
5.             Collateral. The Indebtedness of the Borrower under this Note and
the obligations of the Borrower under the Borrower Guaranty are secured by an
assignment from Camden Fund to NORe of the second secured deed of trust on the
Pali-Holloway Residence, subject only to a priority senior deed of trust, lien
and security interest on the same assets granted to holder(s) of Senior
Indebtedness,
 
6.             Subordination.  This Note shall be subject, subordinate and
junior in right of payment to all Senior Indebtedness of the Borrower, and
subject to all of the provisions of the Subordination Agreement.
 
7.             Events of Default.  The occurrence and continuation of any the
following events shall constitute an “Event of Default”:

(a)           the Borrower’s failure to pay to the Holder any amount of this
Note that is required to be paid hereunder, on the Maturity Date, which default
shall not be cured within five (5) Business Days of its occurrence;

(b)           the failure of Borrower to make any one or more Mandatory
Prepayment of this Note, as and when any one or more Prepayment Event shall
occur, which default shall not be cured within five (5) Business Days of its
occurrence;
 
 
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(c)           the Borrower shall commit and shall fail to cure any default or
event of default, beyond any applicable notice and cure period, under any Senior
Indebtedness;

(d)           Avi Brosh or his affiliate Archelle Holdings, Inc. shall own less
than a majority of the membership interests in the Borrower;

(e)           unless otherwise consented to in writing by the Holder, any of the
annual percentage management fees payable to the Manager or any Manager
Affiliate under the Borrower’s operating agreement shall be increased;

(f)            unless otherwise consented to in writing by the Holder, any of
the Loan Documents shall be amended, modified or terminated or otherwise cease
being in full force and effect;
.
(f)           the Borrower, pursuant to or within the meaning of Title 11, U.S.
Code, or any similar Federal, foreign or state law for the relief of debtors
(collectively, “Bankruptcy Law”), (A) commences a voluntary case, (B) consents
to the entry of an order for relief against it in an involuntary case, (C)
consents to the appointment of a receiver, trustee, assignee, liquidator or
similar official (a “Custodian”), (D) makes a general assignment for the benefit
of its creditors, or (E) admits in writing that it is generally unable to pay
its debts as they become due;

(g)           a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that (A) is for relief against the Borrower, the Borrower in
an involuntary case, (B) appoints a Custodian of the Borrower, the Borrower, or
(C) orders the liquidation of the Borrower; or
 
(h)           any material damage to, or loss or destruction of the
Pali-Holloway Residence,  which causes, for more than thirty (30) consecutive
days, the cessation or substantial curtailment of revenue producing activities
of the Borrower, unless the Borrower maintains insurance in amounts required by
its lenders for the repair or replacement of any such damage, loss, or
destruction.
 
8.             Remedies upon Default.
 
(a)           Upon the occurrence and during the continuation of an Event of
Default, the Holder may require the Borrower to pay and redeem all or any
portion of this Note by delivering written notice thereof (the “Default Notice”)
to the Borrower, which Default Notice.
 
(b)           Upon the occurrence of any one or more Events of Default, the
Holder of this Note may, during the continuation thereof, proceed to protect and
enforce its rights hereunder by suit in equity, action at law or by other
appropriate proceeding, whether for the specific performance of any covenant or
agreement of the Borrower contained in this Note, or of the Borrower contained
in the Pali-Holloway Management Agreement or any other Loan Document, or in aid
of the exercise of any power granted in this Note, any Loan Document or the
Pali-Holloway Management Agreement, or may proceed to enforce the payment of
this Note, or to enforce any other legal or equitable right of the Holder of
this Note.
 
9.             Remedies Cumulative.  No remedy conferred upon the Holder herein
or in the other Loan Documents is intended to be exclusive of any other remedy
and each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder, under any of the Loan Documents, and any
other remedy now or hereafter existing at law or in equity or by statute or
otherwise.
 
 
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10.           Transfer. This Note may be transferred or assigned, in whole or in
part, by the Holder at any time.  The term “Holder” as used herein shall also
include any transferee of this Note.  Each transferee of this Note acknowledges
that this Note has not been registered under the Securities Act, and may be
transferred only pursuant to an effective registration under the Securities Act
or pursuant to an applicable exemption from the registration requirements of the
Securities Act.

11.           Replacement of Note.  On receipt by the Borrower of an affidavit
of an authorized representative of the Holder stating the circumstances of the
loss, theft, destruction or mutilation of this Note (and in the case of any such
mutilation, on surrender and cancellation of such Note), the Borrower, at their
own expense, will promptly execute and deliver, in lieu thereof, a new Note of
like tenor.  Such Holder must provide a reasonable indemnity agreement in
connection with any such replacement, acknowledging potential liability in the
event of a claim for payment under this Note that is not in accord with the
terms of the Forbearance Agreement.
 
12.           Covenants Bind Successors and Assigns.  All the covenants,
stipulations, promises and agreements in this Note by or on behalf of the
Borrower shall bind its successors and assigns, whether so expressed or not.
 
13.           GOVERNING LAW.  THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
 
14.           Severability.  In case any provision in or obligation under this
Note shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdictions,
shall not in any way be affected or impaired thereby.
 
15.           Waivers.  Demand, presentment, protest, notice of protest and
notice of dishonor are hereby waived by all parties bound hereon.
 
16.           Headings.  The headings in this Note are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

[Signature Page Follows]
 
 
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IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of the
date first written above.
 

BORROWER:
PALI-HOLLOWAY, LLC
a California limited liability company
         
 
By:
      Name: Avi Brosh     Title: Manager and Member          

 
 
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