As filed with the Securities and Exchange Commission on June 27, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TERREMARK FORTUNE HOUSE #2, LTD.
(Exact Name of Registrant as specified in its Governing Instruments)
2601 SOUTH BAYSHORE DRIVE
SUITE 900
MIAMI, FL. 33133
(305)856-3200
(Address of Principal Executive Offices)
ROBERT I. FINVARB
TERREMARK FORTUNE HOUSE #2, LTD.
2601 SOUTH BAYSHORE DRIVE
SUITE 900
MIAMI, FL. 33133
(305)856-3200
(Name and Address of Agent for Service)
Copies to:
DENNIS J. OLLE, ESQ.
NIBALDO J. CAPOTE, ESQ.
ADORNO & ZEDER, P.A.
2601 SOUTH BAYSHORE DRIVE
SUITE 1600
MIAMI, FL. 33133
(305)858-5555
----------------------
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the Registration Statement becomes
effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE*
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TITLE OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED AGGREGATE OFFERING REGISTRATION FEE
PRICE
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Condominium Units coupled with mandatory $95,000,000 $25,080
rental pool....
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* Calculated pursuant to Rule 457(o) of the Rules and Regulations under the
Securities Act of 1933.
The registrant hereby amends this registration statement on any date or
dates that may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on the date the Commission acting pursuant to said Section 8(a), may
determine.
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Fortune House-Fort Lauderdale Beach
278 Hotel Investment Units
(Condominiums Coupled with a Mandatory Rental Pool)
We are offering for sale 278 condominiums as hotel investment units in
a hotel called Fortune House-Fort Lauderdale Beach. Each owner will own his
unit, which includes an undivided interest in the common areas of the hotel.
Each unit is subject to a mandatory Hotel Operating and Rental Pool Agreement
that appoints Terremark Hospitality Services, Inc. as the hotel operator. The
mandatory rental pool provides for the pooling of both revenue, adjusted for
personal usage, and expenses. Distributions are based on the assigned percentage
interest of a unit.
The units sell for between $190,000 and $1,700,000, depending on the
size and location within the hotel. The hotel will consist of one-bedroom
suites, junior suites with kitchenettes, penthouses, a lobby, retail shops,
restaurants, a rooftop pool, a fitness center and spa, beach club service and
meeting facilities.
See "Risk Factors" on page 7 for a discussion of factors relevant to
the purchase of units including:
o The hotel is not built and is not expected to open before
March 1, 2003. Investors funds will be held in escrow in an
amount equal to the first 10% of the unit's purchase price as
a deposit for the purchase of a unit, and investors will not
have the use of those funds. The hotel industry may change
before the hotel is open.
o If the assumptions underlying the projected results turn out
to be incorrect, investors may not receive a return on their
investment.
o Terremark Hospitality will be responsible for the payment of
operating and capital deficits if the funds from the hotel
operations are not sufficient to cover expenses, but only
while they are the hotel operator. Owners will be personally
liable for tort and contract claims.
o We may change the price of the units if market conditions
change.
o There can be no assurance that there will be an organized
resale market for the units and owners may not be able to
readily resell their units. Investors will be able to offer
their units for resale personally or through their securities
broker.
o Should the hotel management agreement terminate or expire,
owners of units will be responsible for the operation of the
hotel in the event a replacement hotel operator cannot be
found. Unit owners may have little or no hotel operating
experience.
These are speculative securities.
We will pay commissions and fees of up to a total of 5% of the gross
sales price of a unit to the principal distributor and broker-dealers selected
by us to participate in the offering.
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The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
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The date of this prospectus is June 27, 2000
The information in this prospectus is not complete and may be amended. We may
not sell these securities until the registration statement filed with the
Commission is effective. This prospectus is not an offer to sell nor is it
seeking an offer to buy these securities in any state where the offer or sale is
not permitted.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS.............................................................................................1
SUMMARY...........................................................................................................2
RISK FACTORS......................................................................................................5
Absence of operating history of Terremark Fortune House..................................................5
Hotel revenue may not cover expenses.....................................................................5
The forecasts used to predict future operating results may be innaccurate................................6
The industry data used to predict future operating results may be innaccurate............................6
The success of the hotel will depend to a great extent on the hotel operator.............................6
The Condo Association directors will have little experience in operating a hotel.........................6
There are many operating uncertainties we may face.......................................................6
Potential liability you may be exposed to as a unit owner. ..............................................7
There may be a limited market for the resale of the units................................................7
Unit owners may suffer adverse effects from Hurricane activity. .........................................7
We may not sell the minimum number of units required to complete construction of the hotel. .............7
Cash shortfalls may require owners to cover operating losses of the hotel................................7
Conflicts of interest....................................................................................7
THE HOTEL.........................................................................................................8
The Units................................................................................................8
Conference Facilities....................................................................................8
Other Facilities.........................................................................................8
Recreational Amenities...................................................................................8
Additional Benefits to Owners............................................................................9
Commercial/retail Development............................................................................9
THE HOTEL INDUSTRY................................................................................................9
Hotel Terminology........................................................................................9
Florida.................................................................................................10
The Fort Lauderdale Market..............................................................................10
Fort Lauderdale................................................................................10
Market Overview................................................................................10
Competition....................................................................................12
Unsatisfied Demand.............................................................................14
Market Demand..................................................................................14
Individual Leisure......................................................................................14
Group Market............................................................................................14
Future Demand Growth...........................................................................15
Estimated Performance for the Hotel.....................................................................15
Market Penetration.............................................................................15
Individual Tourist and Leisure Demand...................................................................16
Group Demand............................................................................................16
Occupancy......................................................................................16
Average Daily Rate.............................................................................17
Conclusion.....................................................................................17
BASIS FOR FORECASTS AND SUMMARY OF SELECTED
FINANCIAL PERFORMANCE...................................................................................18
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THE HOTEL OPERATOR...............................................................................................19
Terremark Hospitality Services, Inc....................................................................19
MANAGEMENT OF THE HOTEL AND THE RENTAL POOL......................................................................19
Management of the Rental Pool...........................................................................19
Mandatory Participation in the Rental Pool.....................................................19
Owners' Use of Units....................................................................................20
Allocation of Revenue and Expenses......................................................................20
Direct Expenses of Owners...............................................................................21
Rental Pool Reports.....................................................................................22
Distributions from Rental Pool..........................................................................22
Reserves................................................................................................23
Shortfalls..............................................................................................23
Management and Maintenance of the Hotel.................................................................23
Fees Paid to Hotel Operator.............................................................................24
Termination of Hotel Operator...........................................................................24
Removal of the Hotel Operator's Brand...................................................................25
Sale of a Unit by an Owner..............................................................................25
SUMMARY OF DECLARATION AND RELATED DOCUMENTS.....................................................................25
The Association.........................................................................................25
Voting Rights..................................................................................26
Meetings.......................................................................................27
Board of Directors; Officers...................................................................27
Use Restrictions........................................................................................28
Development Rights......................................................................................28
Insurance...............................................................................................29
Enforcement of Declaration..............................................................................29
TERREMARK FORTUNE HOUSE #2, LTD..................................................................................29
Management..............................................................................................29
Development of the Hotel................................................................................31
Prior Developments of Terremark Worldwide, Inc..........................................................31
CONFLICTS........................................................................................................32
DETERMINATION OF PURCHASE PRICE..................................................................................32
USE OF PROCEEDS..................................................................................................32
PLAN OF DISTRIBUTION ............................................................................................32
HOW TO PURCHASE..................................................................................................32
MATERIAL FEDERAL AND STATE INCOME TAX ASPECTS....................................................................33
Entity Classification of Rental Pool and Taxation of Ownership of Units.................................34
Classification as a Partnership.........................................................................34
Tax Consequences of Rental Pool to Owners...............................................................35
Rental Pools...................................................................................35
Section 183....................................................................................35
Section 280a...................................................................................36
Income and Losses from Passive Activities......................................................36
Application of At-risk Limitations.............................................................37
Limitation on Interest Deductions..............................................................37
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Depreciation/amortization......................................................................38
Sale of a Unit.................................................................................38
Administrative and Compliance Matters...................................................................39
Audit Risk.....................................................................................39
Resolution of Disputes Involving Rental Pool Items.............................................39
Possible Changes in Federal Tax Laws....................................................................39
Investment by Foreign Persons...........................................................................39
Corporate Investors.....................................................................................40
State and Local Taxes...................................................................................40
LEGAL MATTERS....................................................................................................40
EXPERTS..........................................................................................................40
OTHER............................................................................................................40
SUMMARY OF PROMOTIONAL AND SALES MATERIALS.......................................................................41
ADDITIONAL INFORMATION...........................................................................................41
FORECASTS....................................................................................................F1 - 4
FINANCIAL STATEMENTS...........................................................................................FS-1
ANNEX A - SCHEDULE OF PURCHASE PRICES OF UNITS
ANNEX B - HOTEL OPERATING AND RENTAL POOL AGREEMENT
ANNEX C - PERCENTAGE INTEREST SCHEDULE
ANNEX D1 - PURCHASE CONTRACTS FOR THE FIRST NINETY-NINE UNITS
ANNEX D2 - PURCHASE CONTRACTS FOR THE REMAINDER OF THE UNITS
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QUESTIONS AND ANSWERS
Q: What is a hotel investment unit?
A: A hotel investment unit is a condominium, together with an undivided
interest in the common areas of the hotel, which will be operated with
other condominiums as a hotel under a mandatory rental pool. Each
condominium is a hotel suite. The mandatory rental pool provides for
the pooling of hotel room revenue, adjusted for personal usage, and
expenses.
Q: Who is going to manage the hotel?
A: The hotel will be managed by Terremark Hospitality Services, Inc., a
Florida corporation, an affiliate of ours, under the Rental Pool
Agreement. The hotel operator will provide hotel services and amenities
to unit owners and guests of the hotel.
Q: What happens if Terremark Hospitality is terminated or quits?
A: The board of directors of the Condo Association will be responsible for
selecting another hotel operator. In the unlikely event that a
replacement operator cannot be found immediately, the Condo Association
will be responsible for running the hotel. The board of directors will
probably have little or no experience in managing a hotel.
Q: What is our involvement after the offering?
A: We will not have a role in managing the hotel. To the extent that any
unit(s) remain unsold, we will be treated as an owner of such
unit(s)and be subject to the terms of the Rental Pool Agreement.
Q: How often can I use my unit?
A: You are guaranteed the use of your unit for a maximum of 120 days per
year. In order to reserve the use of your unit or another unit you must
follow the procedures set forth in the Rental Pool Agreement.
Q: How does the Rental Pool Agreement work?
A: The hotel operator will rent the units to hotel guests and pool the
revenue for the owners. The hotel operator will receive a flat fee of
$250,000 per year for managing the hotel. After paying all of the
expenses associated with running the hotel, the hotel operator will
distribute the balance, if any to the owners. Under the terms of the
Rental Pool Agreement the hotel operator may earn additional fees for
managing the hotel under a management incentive program. You will not
share in the revenue of the hotel for any day you use your unit, but
will still be obligated for your share of the expenses.
Q: Will there be any debt on the hotel property?
A: No; following the closing of a sufficient number of units which
generate proceeds to payoff and satisfy the construction loan made to
us in connection with the construction of the hotel, there will not
remain any additional debt on the hotel property.
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Q: What payments will I make as an owner of a unit?
A: You will have to make payments on any loan you obtained to buy your
unit, the real property taxes on your unit and your share of Condo
Association fees and expenses. Based on current estimates, real estate
taxes together with Condo Association expenses are expected to range
from approximately $8,322 per year to $9,084 per year. Debt service
will depend on the particular terms of any individual loan.
Q: What if we get into financial difficulty and cannot complete
construction of the hotel?
A: We will maintain all deposits collected from purchasers of units in
accordance with the requirements of the Florida Condominium Act and
take the necessary actions required by law in the event that we cannot
complete construction of the hotel.
Q: Do I own the contents in my unit?
A: Yes; however, you may not alter or remove any of the furnishings or
fixtures.
Q: May I sell my unit?
A: You may sell your unit at any time as long as the purchaser signs the
Rental Pool Agreement. You may sell your unit yourself or through a
securities broker-dealer. You may not sell your unit exclusively
through a real estate broker, but a real estate broker may assist in
the sale if supervised by a securities broker-dealer.
Q: Are there risks involved in purchasing a unit?
A: Yes; there are inherent risks in any investment. While we have tried to
present as realistic a picture as possible, the hotel may not perform
as well as anticipated. Conditions that today are favorable to the
hotel industry may change substantially before the hotel opens. Even
though we believe our analysis points to the hotel being successful, we
cannot assure that this will be the case.
SUMMARY
This Summary highlights selected information from this prospectus and
may not contain all of the information that is important to you. To understand
what ownership of a unit means and for a more complete description of the legal
terms involved, you should read carefully this entire prospectus including the
documents in the Annex.
Seller The seller of the units is Terremark Fortune House #2, Ltd., a
Florida limited partnership, and an affiliate of Terremark
Real Estate Group, Inc., a real estate development company.
Terremark Real Estate Group, a Florida corporation, operates
in South Florida, where it has developed numerous condominiums
developments and approximately 10 million square feet of
commercial space. You will not acquire any interest in
Terremark Real Estate Group if you buy a unit.
The Units We are offering three types of units: one-bedroom suites,
junior suites with kitchenettes, and penthouses. Each unit
also includes an undivided interest in the common areas of the
hotel and is subject to a mandatory rental pool agreement.
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The Hotel The beachfront hotel is called Fortune House-Fort
Lauderdale Beach and is located in the city of Fort
Lauderdale, Florida. The hotel will be a luxury condo-hotel,
jointly owned by individual condominium owners. Construction
of the hotel begins July 1, 2000, and is anticipated to be
completed by December 31, 2002. The hotel will contain 278
condo-hotel units, a lobby, retail shops, restaurants, a
rooftop pool, a fitness center and spa, beach club service and
meeting facilities.
The Hotel Site The project is located on Fort Lauderdale Beach, Florida,
directly on North Fort Lauderdale Beach Boulevard between
Riomar and Viramar Streets. The site is surrounded by retail,
restaurants and entertainment, starting at Las Olas Boulevard
and continuing east over the Intracoastal Waterway to North
Fort Lauderdale Beach Boulevard. The project is directly north
of the Beach Place retail/entertainment complex, and within
minutes of the Las Olas shopping and entertainment district.
Once construction begins, we expect that it will take us
twenty-four months to complete the hotel.
The Hotel The Rental Pool Agreement requires the pooling of all revenue
Operating and expenses of all of the units operated as part of the
and Rental hotel. Each unit must participate at least 245 days of the
Pool Agreement year in the pool; subject to this limitation your unit will be
in the rental pool unless you reserve your unit for your own
use. You will not share in the revenue for any day that you
use your unit but you will be obligated to pay your full share
of expenses. Our affiliate, Terremark Hospitality, will be the
initial hotel operator under the Rental Pool Agreement. The
initial term of the agreement is ten years and the agreement
contains four ten-year renewal options.
Terremark The initial hotel operator will be Terremark Hospitality, a
Hospitality subsidiary of Terremark Real Estate Group, Inc. Terremark
Services, Inc. Hospitality provides hotel services and amenities to the
owners and guests of the "Fortune House" hotel programs as
well as hotels developed and owned by other companies.
Development of The proceeds of the offering are not being used to finance
the Hotel construction of the hotel. All of the net proceeds of the
offering representing the purchase price of the units will be
paid to us upon completion of the hotel and will not be
available to fund our operations. The total estimated
acquisition, construction, development (including funding of
the obligation for a break-even cash flow for the first year),
marketing costs, financing costs (including a return on
internally generated funds), and overhead costs in connection
with the project are estimated to be $70,000,000. Actual costs
may vary depending on final design, control of construction
costs, the length of time to construct and market the project
and unforeseen factors such as labor and material shortages.
Assuming all of the units are sold at the prices set forth in
Annex A, we will receive gross revenue of $25,000,000. The
total revenue less the above total costs represent our pre-tax
profit and will be available to pay management fees to our
parent, dividends to affiliated companies and income taxes.
Personal Use You are guaranteed the use of your unit for a maximum of 120
days per year. Terremark Fortune House, Terremark Hospitality,
and the Condo Association will not have liability for any tax
consequences of your personal usage.
Reserves At the closing of the purchase of your unit, you will be
required to contribute your share of an operating cash reserve
of $250,000. This reserve will be available to the hotel
operator for working capital purposes commencing in the second
year of hotel operations.
Shortfalls If at any time the funds from hotel operations are not
sufficient to pay the expenses of
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operating the hotel, to maintain reserves, or to make capital
expenditures in excess of the established reserves, Terremark
Hospitality will make up the shortfall so long as they are the
hotel operators. Owners will also be obligated to make the
payments on any loan obtained by an owner to purchase a unit,
pay association expenses and real estate taxes, regardless of
whether or not the hotel operations generate sufficient cash
to cover these expenses.
Risks of Terremark Fortune House has no operating history on which to
Forecasts rely. Therefore, the anticipated performance of the hotel is
based on forecasts. While we believe that we have considered
all factors that might affect the hotel's overall economic
performance, there are inherent risks in relying on forecasts.
The evaluation of factors that are considered in the
preparation of a forecast is highly subjective. Factors such
as occupancy are based on numerous variables including the
hotel facilities, the impact of new supply, the level and type
of demand and overall market conditions. The same data can
lead to different interpretations and conclusions. Actual
results can differ materially from results forecasted if the
assumptions underlying the forecasts prove to be incorrect.
Adverse consequences can occur if forecasted results are not
achieved.
Timing of The hotel operator will prepare monthly reports on the
Distributions operation of the hotel and distribute any rental pool income
to owners by the 20th day following the end of the month. The
hotel operator may choose to make distributions of income
based on an estimate of the annual amount distributable to
owners, less an amount not to exceed 20%, and make
distributions in twelve equal monthly installments with the
balance, if any, paid no later than 75 days following the end
of the operating year. Prior to making distributions of rental
pool income, the hotel operator will adjust your share of the
income to take into account your use of your unit.
Price of Units We have established the initial purchase prices of the units;
however, we are not required to maintain the initial purchase
price schedule, and we may change the purchase price of any
unit in response to market conditions and demand. Adjustments
may not be uniformly applied to all units of the same type.
The price of a unit cannot be changed once a purchase contract
has been executed for the unit. The schedule of purchase
prices for each unit designated by type and location are set
forth in Annex A. The percentage interest for a unit
determines the share of revenue and expenses for that unit and
is set forth in Annex C. The percentage interest of any unit
will not change even if prices of units are changed in the
future.
Purchase Price To purchase a unit you must execute an irrevocable purchase
contract. Upon execution of a purchase contract, you are
required to make a down payment in the amount of 10% of the
purchase price of your unit. The initial 10% down payment will
be held in escrow for your benefit and will not be available
for distribution to us until the completion of construction
which is estimated to be no later than December 31, 2002. Any
additional deposits that are required to be made under your
purchase contract may be used by us for construction purposes.
The down payment is non-refundable if you breach the contract.
The down payment is refundable if we do not complete the hotel
or otherwise fail to perform our obligations under the
purchase contract. Upon completion of the hotel, the purchase
of all units under the contract will be completed and the
balance of the purchase price together with any closing costs,
including a contribution to the operating cash reserve fund
shall be due and payable. Additional closings will occur as
units are sold. No minimum number of units must be sold before
we can close the sale of the units.
Financing Prospective purchasers may obtain financing from any available
source. We may make referrals for financing to purchasers on
terms that will vary based on market conditions. Each
prospective purchaser will be required to qualify for
financing based on the
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requirements of the particular lender. Prospective purchasers
shall not have the right to cancel a purchase contract if they
are rejected for a loan.
Tax The rental pool will be treated as a partnership for federal
Considerations income tax purposes. You must therefore report your share of
the rental pool's taxable income and loss on your own federal
income tax return. You will be entitled to any available
deductions associated with ownership of the unit for federal
income tax purposes, including deductions for property taxes,
investment interest expense and depreciation.
If you use your unit for more than the greater of (i) 14 days,
or (ii) 10% of the total number of days during the year that
your unit is rented for fair value, you may deduct your share
of expenses from the rental pool, but only up to the amount of
your share of income from the rental pool for that given year.
In addition, your personal use increases the portion of any
expenses that will be non-deductible as personal expenses;
however, your personal use in excess of 14 days may permit you
to deduct interest on any financing used to acquire a unit as
qualified residence, or home mortgage, interest if the unit is
treated as a second residence.
You are encouraged to consult your own tax advisors concerning
your particular situation and the impact that your
participation in the hotel may have on your federal income tax
liability and any state and local income and other tax laws
liability.
Condominium When you purchase your unit, you will automatically become a
Association member of the Fortune House- Fort Lauderdale Beach Condominium
Association. The Condo Association will supervise the
maintenance and management of the units, will enter into and
monitor the Rental Pool Agreement and will levy, collect and
enforce the assessments of the Condo Association. The Condo
Association assessments, after taking into account hotel
revenues and expenses, are currently budgeted at a total of
$50,000 for the first year and are intended to cover fees for
professional services and administrative expenses incurred by
the Condo Association. The unit owners will elect a board of
directors who will be responsible for managing the Condo
Association, reviewing the performance of the hotel operator
and acting on behalf of the owners; however, we will control
the Condo Association after the hotel has commenced operations
until we are required to turn over control of the Condo
Association to unit owners in accordance with the Florida
Condominium Act. See "Summary of Declaration and Related
Documents" on page 25.
RISK FACTORS
You should carefully consider the following risks together with the
other information contained in this Prospectus before making any investment
decision. We believe that the risks described below are the most significant
factors that make your investment in a Unit speculative and risky.
Absence of operating history of Terremark Fortune House. Terremark
Fortune House is a recently formed Florida limited partnership and has no
operating history. Our anticipated operations and business plan are subject to
all of the risks inherent in the establishment of a new enterprise in a
competitive and volatile industry such as the hotel industry in Florida.
Hotel revenue may not cover expenses. If the hotel fails to reach the
level of occupancy anticipated and room rates are not as high as expected, the
hotel may not generate enough income to cover its operating expenses. In
addition, if operating costs exceed those forecasted, there can be no assurance
that revenue will increase sufficiently to cover the increases. There can be no
assurance that the rental pool income payable to an owner in any year will
exceed the owner's share of hotel operating costs, reserves and potential
capital expenditures in excess of the reserves for that year and the payments on
any loan obtained by an owner to purchase a unit.
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If a significant number of owners default on assessments made to cover
hotel operating costs, the Condo Association may have insufficient funds to pay
maintenance and operating costs, which could result in the loss of the ability
to operate the property as a hotel. In this event, while the defaulting owners
will not be relieved from their obligation to pay delinquent assessments, an
increased regular assessment or a special assessment, which requires a
two-thirds vote of all unit owners, except delinquent owners whose voting rights
have been suspended, may be levied against all units in order to defray the
operating shortfall.
The forecasts used to predict future operating results may be
innaccurate. The hotel has no operating history; therefore the anticipated
performance is based on forecasts. While we believe we have considered all
factors that might affect the overall economic performance, there are inherent
risks in relying on forecasts. The evaluation of the factors that are considered
in the preparation of a forecast is highly subjective. Actual results can differ
materially from results forecasted if the assumptions underlying the forecasts
prove to be incorrect. Factors that can cause actual performance to vary with
that of a forecast include, among others, occupancy rate achieved, actual
average daily rate, restaurant performance, the effects of competition,
including the impact of new supply, strength of the tourist sector of the
economy and assumptions regarding the effects of inflation. No assurance can be
given that assumptions will prove correct or that actual results will not differ
from the results forecasted. Adverse consequences can occur if forecasted
results are not achieved, including the need to pay additional funds, to make
payments of real estate taxes and payments on any loan obtained by an owner.
The industry data used to predict future operating results may be
innaccurate. We have obtained various industry data set forth in this prospectus
regarding the hotel industry from Smith Travel Research and other recognized
industry sources. Industry information on the hotel industry as a whole or on
specific markets may not be indicative of the results that can be achieved in
the Fort Lauderdale market or by the subject hotel. We have not independently
verified the hotel industry data contained in the national studies cited. These
hotel consultants are not affiliated with us or associated in any way with this
offering.
The success of the hotel will depend to a great extent on the hotel
operator. The Rental Pool Agreement appoints Terremark Hospitality as the
manager of the rental pool and the bookings of the units for a term of ten
years, unless earlier terminated. Success of the hotel will depend to a great
extent on the efforts and abilities of the hotel operator. The loss of its
services could have a material adverse effect on the hotel's business and
results of operation. The hotel operator may terminate its appointment upon 60
days prior notice for any reason whatsoever.
If the hotel operator is terminated or resigns, it may be difficult to
contract with another party to immediately provide replacement services at
comparable costs, termination could result in cancellations of reservations,
reduced maintenance, loss of operating licenses such as liquor licenses, loss of
staff and delays in transferring operations to a new hotel operator. The hotel
could experience lower occupancy and thus reduced revenue during a transition.
If the Condo Association is required to operate the hotel for an interim period,
the Condo Association may be at a disadvantage without the benefits of an
advanced reservation booking system and national advertising provided by a hotel
operator.
The Condo Association directors will have little experience in
operating a hotel. Following relinquishment of control of the Condo Association
by us, the Condo Association will be governed by a board of directors, all of
whom will be unit owners. These directors may have little or no experience in
operating a hotel or a rental pool. While the directors may hire an independent
management company, management agent, or an executive director to assist the
directors in performing their duties to oversee and review the services and
operational results of the hotel operator, the hotel operating inexperience of
the directors may result in the directors not being able to recognize or take
corrective action to remedy operating deficiencies by the hotel operator.
There are many operating uncertainties we may face. The value the hotel
will depend upon the ability of the hotel operator to maintain or increase gross
revenue sufficient to cover operating expenses and generate a reasonable return
for its owners. Income from the hotel may be adversely affected by a range of
factors in addition to increased competition, including increases in operating
costs as a result of inflation and other factors, which the hotel operator may
determine cannot be offset by increased revenues; strikes and other labor
disturbances of hotel employees; increases in energy costs and other expenses of
travel; change in demand from tour operators due to
6
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fluctuations in foreign currency exchange rates; weather conditions; and adverse
effects on general and local economic conditions. Due to minimal commercial
activity and limited access to the Fort Lauderdale area, the hotel is
particularly dependent upon individual leisure travelers, group bookings and
tourism; occupancy by commercial travelers is expected to be minimal. All of
these factors could reduce the hotel's ability to generate revenue.
Potential liability you may be exposed to as a unit owner. Included in
you share of hotel operating costs will be a share of the insurance premiums for
property damage coverage, public liability, fire and other hazard insurance
carried by the hotel. There can be no assurance, however, that the amount of
insurance carried by the hotel will be sufficient or adequate for its purposes
or that material risks, which may be uninsurable, can be purchased on terms
favorable to the hotel. In the event this insurance is unavailable to the hotel
for any reason whatsoever, the hotel will be compelled to self-insure all or
part of any potential losses, or seek coverage at higher rates from alternative
carriers.
You may personally have joint and several liability for tort and
contract claims as a result of ownership of your unit or participation in the
rental pool. Insurance coverage maintained by the Condo Association is expected
to include coverage for these claims; however, you are urged to consult an
insurance advisor or attorney with respect to the nature and extent of this
personal liability and to determine what additional liability insurance
coverage, if any, may be necessary or appropriate for your particular
circumstances.
There may be a limited market for the resale of the units. There can be
no assurance that there will be a resale market for the sale of your unit as the
units will not be listed on a publicly traded exchange. Your resale ability
could be further diminished if the hotel's performance does not reach
expectations. You, therefore, may not be able to sell your unit quickly in an
emergency. Consequently, the purchase of a unit should be considered only as a
long-term investment.
Unit owners may suffer adverse effects from Hurricane activity. Fort
Lauderdale receives a substantial number of hurricane warnings and threats that
may require residents and tourists to evacuate the beach area. If evacuations
occur, the hotel may lose substantial revenues. In addition, if a hurricane
actually strikes in or near the area, the hotel may incur substantial property
loss or be completely destroyed. If there is substantial property loss or
destruction, the hotel operator may, in its sole discretion, elect to terminate
the Rental Pool Agreement. If there is damage or destruction, we cannot assure
you that the hotel will continue to operate as a hotel or that it would be
rebuilt after substantial loss or destruction. If the hotel ceases to operate as
a hotel, the owners will have limited options available for the use of the
property.
We may not sell the minimum number of units required to complete
construction of the hotel. If we do not sell 140 units within five months from
the date of the sale of the first unit, we may elect, in our sole discretion, to
terminate our contracts with the unit purchasers. If this occurs your deposit is
refundable and you will have no further remedies. If we do not terminate our
contracts with unit purchasers, we must deliver all units sold within two years
from the date the first unit is sold, except for the first ninety-nine units
sold. If we terminate the contracts with unit purchasers after the 180 day
period or fail to deliver the units within the two-year period, your deposit is
refundable and you will have no further remedies, except if you purchased one of
the first 99 units sold, in which event, the developer shall have more than two
years to complete construction before you have the ability to terminate your
contract and receive back a refund of your deposit.
Cash shortfalls may require owners to cover operating losses of the
hotel. If at any time the funds from hotel operations are not sufficient to pay
the expenses of operating the hotel, to maintain reserves, or to make capital
expenditures in excess of the established reserves, Terremark Hospitality will
fund the shortfall, which obligation shall be valid only while Terremark
Hospitality is the hotel operator. Owners will be obligated to make the payments
on any loan obtained by an owner to purchase a unit, pay association expenses
and real estate taxes, regardless of whether or not the hotel operations
generate sufficient cash to cover these expenses.
Conflicts of interest. Terremark Fortune House #2 Ltd., Terremark
Fortune House #2, Inc., Terremark Real Estate Group, Inc., and Terremark
Hospitality Services, Inc., are affiliated parties. Therefore, a conflict of
interest exists in that the developer/manager and sales agent of the units are
related affiliates. However, we believe
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that the ability of these related parties to work together to construct and
operate the hotel will be a benefit to prospective purchasers and owners.
THE HOTEL
The hotel will consist of 278 suites housed in a 22-story oceanfront
tower that will rise on A1A, a few blocks North of Las Olas Boulevard. The hotel
will have a lobby, over 12,000 square feet of ballroom and meeting facilities,
recreational amenities, swimming pool, whirlpool, spa facility and retail space.
The hotel will offer food and beverage service from the restaurant, room
service, and the catering facilities. The restaurant will offer all day full
service and room service targeted to the mid to upper-scale price range. The
hotel will be located in the resort section of Fort Lauderdale Beach. We believe
that the hotel will fill a void in the Fort Lauderdale market for a full service
hotel facility, and that the resort environment plus the commercial uses within
the Fort Lauderdale Beach area are an ideal setting for the proposed
development.
THE UNITS.
The hotel will comprise a mix of one-bedroom suites, junior suites with
kitchenettes, and penthouses. All units include a patio or balcony and offer
scenic views of the beach and/or the Fort Lauderdale shopping district. Several
one-bedroom plans, junior suite plans and two penthouse plans have been
designed; the layout of a unit will depend upon its location within the hotel.
All the units will have the same furnishings, except for the penthouse suites.
One-bedroom units will include a separate living/sleeping area and a full
kitchen. The junior suites will have a living/sleeping area and a kitchenette.
Most of the junior suites will be adjacent to a one-bedroom suite, allowing a
one-bedroom unit and a junior suite to be rented as a two-bedroom suite. Each
penthouse will be equipped for small meetings with a conference table and full
kitchen.
Currently, none of the hotel properties in the Fort Lauderdale market
offers either comparable suites or similar amenity packages. In response to our
market studies, we have determined that a mix of one-bedroom units, junior suite
units and two penthouses will best serve the combination of individual and group
travel.
CONFERENCE FACILITIES.
We believe that there is a significant need for additional quality
conference facilities in the Fort Lauderdale market. Conference facilities
planned for the hotel will include an 8,000 square foot ballroom and 4,000
square feet of meeting space, several breakout conference rooms and hospitality
suites, and pre-function, storage and kitchen spaces. We believe that the
hotel's planned meeting space will be one of the most modern, upscale and
flexible facilities available in the Fort Lauderdale area.
OTHER FACILITIES.
The hotel will include a full-service restaurant, a lobby lounge, an outdoor
swimming pool and whirlpool spa, and an additional restaurant on the first floor
with outdoor tables catering to the public at large.
RECREATIONAL AMENITIES.
We believe that access to beach activities is an important factor for a
successful hotel. It will require entering into an agreement with a vendor
referred by the City of Fort Lauderdale which will grant owners and guests of
the hotel preferential service and a discount on the umbrella and lounge chair
rentals arranged through the hotel. Owners will not participate in any revenue
from the beach operations. An agreement with these vendors would permit the
hotel to reserve a percentage of the total number of lounge chairs and beach
umbrellas. In addition, the spa and full-service private health facility located
within the hotel will allow guests of the hotel to use its facilities at a
discount. The services planned to be offered by the spa include massage therapy,
facials, manicure, body wraps,
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pedicure, sauna and steam room facilities, tanning booth, full service pro shop,
juice and snack bar. The hotel expects to sport a state-of-the-art fitness
center, aerobic room, outdoor heated lap pool, whirlpool spa and a social lounge
with courtyard seating.
ADDITIONAL BENEFITS TO OWNERS.
For the first five years of operations, each owner will receive a 25%
discount off their food tab, excluding beverages, when they dine in the
restaurant. This discount will apply regardless of whether the owner has
reserved his unit for use at the time. Each owner will also have privileges with
other hotels in North America managed or operated by Terremark Hospitality or
its parent company at a 20% discount off the published rate subject to
availability. In addition, each owner will be entitled to participate in a
privilege program, which is a guest recognition program offering complimentary
additional services and conveniences for the frequent traveler. These privileges
will include one-minute check-in, express checkout and room upgrades when
available.
COMMERCIAL/RETAIL DEVELOPMENT.
The master plan for the hotel also includes neighborhood/tourist retail and food
and beverage development, to be located at the lobby level of the hotel.
THE HOTEL INDUSTRY
The hotel industry is very cyclical and profitability is determined by
the availability of hotel room supply in relation to actual hotel room demand.
Demand is closely linked to the strength of the economy. The growth of hotel
room supply, however, is closely linked to the availability of capital, which
may lag behind an increase in demand for hotel room supply. Accordingly,
historical supply growth has not always matched demand successfully.
According to published industry sources, demand for lodging
accommodations rose significantly from 1995 to 1999, while only a limited amount
of new hotels were constructed resulting in improved operating performance. In
1999, annual average occupancy levels reached 68.1%. As occupancy levels in the
U.S. increased, hotel operators were able to raise room rates. In addition to
increased occupancy and room rates, the hotel industry has benefited from
technological advances. Hotels operating in today's environment are more labor
efficient, energy efficient, and generally more cost effective when compared to
those operating as recently as ten years ago. Improvements in hotel management
and lower interest rates have also contributed to the hotel industry's overall
performance. The U.S. hotel industry generated $22 billion in pretax hotel
profits in 1999, according to Smith Travel Research in Nashville, Tennessee.
That same figure for the year 2000 is projected at $24 billion. All of the above
factors have contributed to increased profitability, which in turn has increased
the attractiveness of hotel investment for both current and potential owners.
The performance of the U.S. industry as a whole may not be indicative
of results that can be achieved in a specific geographic area. Factors that
would not necessarily have a material effect on the national industry because it
is geographically diverse may have a significant impact on a smaller market.
Individual hotel markets may under perform or outperform the industry as a
whole.
HOTEL TERMINOLOGY.
The hotel industry uses common terms to describe hotels and their
performance. The following are a few of those terms used throughout this
prospectus:
o "Full service" hotels are described as generally mid-price,
upscale or luxury hotels with a restaurant, lounge facilities
and meeting space as well as minimum service levels often
including bell service and room service.
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o "Limited service" hotels include hotels with rooms-only
operations (i.e., without food and beverage service) or hotels
that offer a bedroom and bathroom for the night, but very few
other services and amenities. These hotels are often in the
budget or economy group.
o "Average daily rate" is determined by dividing the actual
annual room revenue by the annual occupied room nights.
o "Revenue per available room" is determined by dividing total
actual annual room revenue by the total number of rooms.
FLORIDA.
Tourism is Florida's first largest industry and plays a significant
economic role throughout the state. The growth of the tourism industry in
Florida is based on the following:
o Favorable climate
o Natural beauty
o More leisure time
o Number and quality of hotels
o Development of new tourist attractions
o Low airfare structure
o Expansion of sporting events
o Shopping
o Healthy economy
o Aggressive tourism development
THE FORT LAUDERDALE MARKET.
Fort Lauderdale.
Greater Fort Lauderdale, right in the center of Florida's Gold Coast,
stretches along 23 miles of coastline, and is midway between Miami and Palm
Beach, each of which is about forty miles away. Sprawling across 1,200 square
miles that include 505,600 acres of the Everglades on its western edge, the
region is home to 28 cities and 1.4 million people. Fort Lauderdale, the largest
city and the county seat, has about 150,000 residents. With 300 miles of
navigable waterways, the region is referred to as the yachting capital of the
world. The temperature in Fort Lauderdale averages about 77(degree)F
(25(degree)C) year round and 3,000 hours of sunshine are recorded every year.
Winter temperatures average 66(degree)F (19(degree)C) and summer temperatures
average around 84(degree)F (29(degree)C). January is the coolest month of the
year and August is the warmest. The heaviest rainfalls occur during August and
September.
Market Overview.
According to the Fort Lauderdale Chamber of Commerce, Greater Fort
Lauderdale includes all of Broward County, totaling 1197 square miles (766,016
acres) and 29 municipalities, including Coral Springs, Dania Beach,
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Davie, Deerfield Beach, the city of Fort Lauderdale, Hallandale, Hollywood,
Lauderdale-By-The-Sea, Pompano Beach, and Sunrise.
CITY OF FORT LAUDERDALE HOTEL DEVELOPMENT ACTIVITY
================================================================================
PROPERTY DEVELOPMENT STATUS NO. OF ROOMS
================================================================================
COMPLETED NEW HOTELS
Best Western Inn: Opened JUN 1997 50
1221 State Road 84
Amerisuites Opened AUG 1997 128
1851 SE 10th Ave.
Marriott Beach Place Towers Opened SEP 1997 208
21 S. Atlantic Blvd.
Holiday Inn Express Opened DEC 1997 78
1500 SW 17th ST.
Extended Stay America Opened MAR 1998 108
5851 N. Andrews Ave.
Fairfield Inns Opened OCT 1998 162
5727 N. Federal Hwy.
Crossland (ESA) Opened MAR 1999 129
3031 W. Commercial Blvd.
Studio Plus (ESA) Opened APR 1999 72
6001 NW 6th Way
Extended Stay America - CC Opened JUL 1999 117
1450 SE 17th St. Causeway
TownePlace Suites by Marriott Opened SEP 1999 95
3100 Prospect Road
----
Total 1147
================================================================================
================================================================================
PROPERTY DEVELOPMENT STATUS NO. OF ROOMS
================================================================================
EXPANSION
Hyatt Regency Sixty - Six Expanded 388
2301 SE 17th St.
================================================================================
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================================================================================
PROPERTY DEVELOPMENT STATUS NO. OF ROOMS
================================================================================
UNDER DEVELOPMENT
Marriott Renaissance Open NOV 2000 233
17th St. Causeway (Quay)
E. Banks of Las Olas Open JUN 2000 160
Birch St. / Las Olas Blvd.
N/A
Convention Center Hotel Open DEC 2001
17th S. Causeway
Marquis (Turtle Beach Resort) Completion TBD 120
A1A at Terramar St.
Sunrise Harbor Completion TBD 25
2701 Sunrise Blvd. ---
Total Rooms Under Development 538
================================================================================
Competition.
We believe that five properties in the Fort Lauderdale market are
directly competitive with the hotel. These are the Doubletree Oceanfront Hotel,
the Fort Lauderdale Marina Marriott, the Radisson Bahia Mar, the Sheraton Yankee
Trader and Hyatt Regency Sixty-Six. The following chart sets forth the
characteristics of these properties, which constitute the competitive supply.
================================================================================
PROPERTY YEAR NO. OF FACILITIES AMENITIES
OPENED ROOMS
================================================================================
Doubletree Oceanfront 1995 230 Panoramic views from conference
Hotel rooms, room service, full service
440 Seabreeze Blvd. hotel, no transportation to/from
airport, rooms were just renovated in
October 1999, two restaurants,
largest sundeck in Fort Lauderdale,
close to shops, attached to
riverfront, movie theaters, live
music on weekends.
Fort Lauderdale Marina 1981 580 Three miles from the airport, next
Marriott door to Broward County Convention
1881 SE 17th St. Center, one mile from the beach,
waterfront restaurant, outdoor pool
bar, work desks with data ports and
voice mail in every room, 15 meeting
rooms, 17 suites, no pets, parking
available for a fee.
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Radisson Bahia Mar 1966 300 Recently renovated rooms some of
801 Seabreeze Blvd. which are non-smoking, stocked
Servi-Bar, coffee makers, in-room
safe, marina views, guests can rent
wave runners and Hobie Cats or boats,
roller blades or bicycles available
to rent, four complimentary tennis
courts (lighted for night playing),
new fitness center, hotel is close to
six golf courses, 8,200 sq. foot
ballroom, tropical gardens, ocean
view restaurant.
Sheraton Yankee Trader 1964 460 15 suites, beachfront, skywalk to
321 N. Fort Lauderdale beach, Non- smoking and disabled
Beach Blvd. facilities, 25" TVS with On Command
Video, room service, in- room safe,
iron/ironing board, hair dryer,
coffee-maker, dataport, voice mail,
Don Shula's All-Star Cafe, 24-Hour
Deli, 2 lounges, pool bar, live
entertainment and happy hour nightly,
2 heated outdoor swimming pools,
exercise room, 3 tennis courts,
business center, daily recreation
program, golf and sportfishing
nearby, gift shop, guest laundromat
and valet service, tour desk, car
rental on premise.
Hyatt Regency Sixty-Six 388 Recent redecoration of rooms and
2301 SE 17th St. hallways, property on 22 acres, 3
miles from airport, walking distance
from Broward County Convention Center
and beaches, electronic oversized
in-room safes, individual climate
controls, voice mail, in-room pay
movies, cable movie channels, video
check-out, turndown available upon
request, 32" color televisions,
coffee maker, three telephones with
two separate lines for modem hookup,
beauty salon, fitness center, spa, 24
hour room service, transportation to
Galleria Mall and Sawgrass Mills
Mall.
================================================================================
-----
TOTAL NUMBER OF ROOMS 1,958
OF COMPETITIVE SUPPLY =====
================================================================================
The factors considered in determining this competitive supply included:
o The number of rooms and amount and quality of meeting space
o Quality and value of overall facilities and amenities
o Character and style of the hotel
o Rate structure and market position
o Location factors such as surrounding land uses.
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HISTORICAL PERFORMANCE OF COMPETITIVE HOTEL SUPPLY
1995 THROUGH 1999
NUMBER AVERAGE REVENUE PER
YEAR OF ROOMS OCCUPANCY ROOM RATE AVAILABLE ROOM
---- -------- --------- --------- --------------
1995 28,800 66.9% $69.35 $36.20
1996 28,862 69.2% $72.06 $39.12
1997 28,184 70.8% $80.74 $43.93
1998 28,565 88.2% $82.38 $44.54
1999 28,780 69.7% $84.53 $45.85
Unsatisfied Demand.
As a result of significant tourist activity, Fort Lauderdale
experiences high levels of unsatisfied demand during certain times of the year.
Unsatisfied demand is that demand which is not able to be accommodated in the
direct market area due to facility size or capacity constraints and exists
whenever a market experiences periods of 100% occupancy. As a result of
seasonality, unsatisfied demand can exist even though the average annual
occupancy for the market is less than 100%. The level of unsatisfied demand is
extremely important when considering the potential support for new hotel
development in a particular area.
Market Demand.
The overall demand for hotel accommodations in the Fort Lauderdale area
is generated primarily by two market segments: individual leisure and group
meetings or tours.
INDIVIDUAL LEISURE.
The individual leisure market segment consists of tours requiring
accommodations in the area for general sightseeing, weekend get-aways, cultural
activities and a variety of recreational and special events throughout the year.
The demand segment is strongest in the Winter, Spring and Fall. Individual
leisure demand is characterized by multiple occupancy. Based on information
obtained from Broward County Conventions Bureau, it is estimated that this
market segment accounted for approximately 78% of the total rooms rented in the
competitive supply in Fort Lauderdale in 1999. We believe that individual
leisure travelers generally select accommodations based on the following
factors:
o Aesthetic appeal of surrounding area
o Proximity to area attractions
o Overall quality of the facilities
o Quality and variety of recreational facilities
o Value offered
o Name identity/ affiliation and/ or reputation
GROUP MARKET.
Group market demand is typically comprised of smaller regional or state
associations, corporations and state government. Corporate meeting business
consists primarily of executive and incentive retreats and conferences.
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Group demand in Fort Lauderdale typically peaks during January-March and
October-November. Based on information obtained from interviews with Hilton
Hotel Operators, it is estimated that this market segment accounted for
approximately 20% of the total rooms rented in the competitive supply in Fort
Lauderdale in 1999. We believe that the following factors contribute to group
use of a particular facility:
o Image and reputation
o Quality, flexibility, and size of meeting facilities
o Quality of support services provided to group meeting planners and
their attendees
o Distance/travel time to airport
o Convenience of access to shopping, restaurants services, attractions
and recreational facilities
Future Demand Growth.
We estimate that demand will increase at approximately 2.5% percent
annually starting in 1999. This growth is consistent with the demand growth
experienced by the competitive supply between 1995 and 1998.
We also anticipate that the new additions to the competitive supply,
specifically the subject hotel, will induce demand into the market. Induced
demand is new demand that enters a market as a direct result of the introduction
of a new hotel product. This demand is over and above the normal demand growth
experienced by the marketplace. As a result of their more unique physical
attributes, variety of amenities, and ability to cater to all demand segments,
the hotel possesses the ability to induce new demand into the marketplace.
ESTIMATED PERFORMANCE FOR THE HOTEL.
Market Penetration.
Our estimates of operating results are based on a number of assumptions
relating to the physical and locational characteristics of the hotel. These
assumptions include the overall facilities program and preferential dock
privileges at the Radisson Bahia Mar Hotel. Additionally, we considered the
following factors in estimating the hotel's future performance:
o The estimated future performance of the overall competitive hotel
market
o The advantages and disadvantages of the hotel relative to the existing
and future competitive market (assuming its location and overall
facilities)
o The estimated mix of different types of demand for the hotel
o The estimated rate structure for the hotel
o The impact of potential new hotel supply in the competitive market
Market penetration serves as a basis for our estimates of future occupancy
performance for the hotel. Market penetration is a measurement of the level of
demand captured by a given hotel in relation to its fair market share based on
the number of hotel rooms it has relative to the number of hotel rooms in the
market. Market penetration is expressed as a percentage, with a hotel capturing
its fair market share having a market penetration rate of 100%. Our analysis
considered the hotel's competitive advantages and disadvantages in order to
determine prospective future penetration of the group and individual tourist and
leisure segments. Our analysis breaks market penetration down into individual,
commercial travelers, and group demand segments, as is discussed in the
following paragraphs.
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INDIVIDUAL TOURIST AND LEISURE DEMAND.
As discussed under "Market Demand," individual leisure demand for the
competitive supply accounted for approximately 78% of the total occupied rooms
in 1999. We estimate that the leisure market will account for approximately 59%
of the occupied rooms in the hotel during a stabilized year of operations, which
is 19% less than that experienced by the competitive supply. The remaining
demand will be filled by the commercial traveler and group market.
Factors that contribute to the hotel's ability to attract leisure
travelers include the following:
o Unsatisfied demand within the competitive supply during the peak season
o The accessibility of the Fort Lauderdale coast and beaches
o A competitive rate structure
o The full service nature of the hotel
GROUP DEMAND.
The group market is estimated to account for 30% of the occupied rooms
in the hotel upon stabilization. This is lower than the 35% experienced by the
competitive supply in 1999. We believe that the hotel will be well positioned to
capture this proportion of the group demand for the following reasons:
o The hotel's modern meeting facilities should be superior to those
offered by any of the properties in the competitive supply
o The hotel's suite orientation
o The hotel will provide a variety of recreational amenities
Based on the above factors, we believe that the unique combination of
factors offered by the hotel will be able to induce new demand into the market
along with accommodating unsatisfied demand that currently exists. Further,
given the hotel's facilities and recreational amenities, we believe that the
hotel will have a competitive advantage over the existing and future competitive
supply.
Occupancy.
As indicated in the following table, we estimate that the hotel's
occupancy will increase from 56% percent in year one to 72% percent in year
three of operations. Beyond year three, the hotel is estimated to operate at a
more stabilized level of 73% to 74%. We believe the hotel will open with a
market penetration rate slightly above its fair market share. The market
penetration rate is heavily impacted by the timing of new supply entering the
market. Because the hotel is competing in a growing market, occupancy can
increase without significantly impacting market penetration.
This initial year disparity in occupancy is typical of a new hotel
entering a market. The period between when a hotel opens and when it reaches
stabilization can vary dramatically based on the type of hotel, its physical and
locational characteristics, its market mix, and prevailing market conditions. It
generally takes a longer period of time to effectively penetrate the group
market given the exposure and recognition a hotel will need to establish with
meeting planners, both locally and nationally, as well as the fact that group
business is typically booked well in advance. As a result, we believe the vast
majority of the hotel's demand growth will be within the group market during
years one through three.
The determination of the occupancy upon opening and the period
necessary to reach stabilization is subjective and is based on all of the
factors discussed herein regarding the hotel facilities, the impact of new
supply, including
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the impact of the subject hotel, the mix between leisure, commercial and group,
and market conditions. No one factor is determinative and no particular weight
is assigned to any one factor.
The following table sets forth the resulting occupancy estimates for
the hotel during its first five years of operation:
ESTIMATED OCCUPIED ROOMS AND OCCUPANCY FOR THE HOTEL
================================================================================
Estimated Estimated
Occupied Occupied Total Estimated
Room Room Estimated Occupancy
Nights: Nights: Occupied Rate
Leisure Group Room for the
Year Sector Sector Nights Hotel
================================================================================
Year 1 ending Dec. 31, 2002* 14,921 4,209 19,130 56%
Year 2 ending Dec. 31, 2003 50,221 14,165 64,386 63%
Year 3 ending Dec. 31, 2004 57,396 16,188 73,584 72%
Year 4 ending Dec. 31, 2005 58,193 16,413 74,606 73%
Year 5 ending Dec. 31, 2006 59,787 16,863 76,650 75%
================================================================================
* Year 1 begins September 1, 2002, based upon the estimated opening date.
Average Daily Rate
The average daily rate in the competitive supply has escalated at a
consistent pace since 1998. Properties in the upper tier achieved an average
daily rate in the $195 to $340 range and properties in the lower tier achieved
an average daily rate in the $95 to $165 in 1999. The anticipated quality,
proposed facilities and amenities, and the access to the area beaches should
allow the hotel to be positioned well above the mid-range established by the
upper and lower competitive properties. The average daily rate for all
properties in the competitive supply was $84 in 1999. We are targeting the
average daily rate for the hotel at approximately $225 (in 1999 dollars) during
the first year of operations. This rate is below the average daily rate
currently being achieved by the competitive supply in 1999. We believe the
targeted average daily rate is appropriately based on the mix of group, leisure
and commercial utilization.
Conclusion.
We believe that the Fort Lauderdale hotel market will experience
continued growth into the foreseeable future. Factors contributing to the
strength of the market and its overall potential growth are:
o Projected growth of tourism throughout the South Florida region
o Local municipal commitment to aggressively market tourism
o Positive economic trends within the State of Florida
o Continued interest in South Florida as a premiere hotel destination
o Proposed expansion projects in the South Florida region
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<PAGE>
o Continued growth in slow season demand
We believe that the hotel's variety of three different types of units
will provide an attractive alternative to the more standard guest rooms offered
by the majority of the competitive hotels. The hotel's conference facilities
will also serve as an important amenity to guests. Further, the hotel's access
to the Fort Lauderdale coast and its beaches will make it attractive to any
consumer market. We believe that the hotel's anticipated quality, proposed
meeting space, recreational amenities and its access to the coast and the
beaches will position the hotel to attract individual leisure and group
travelers and create additional demand for lodgings in the Fort Lauderdale
market. The hotel will represent the newest full service hotel addition to the
competitive supply since 1981.
Based on all of the factors discussed above, we believe the hotel is
well positioned to perform as indicated in the forecasts appearing on page F-1.
BASIS FOR FORECASTS AND SUMMARY OF SELECTED
FINANCIAL PERFORMANCE
The forecasts attached below include ten year forecasts of the
financial performance of the hotel. We have prepared the forecasts based upon
our inquiry as set forth and based upon the stated assumptions, which we believe
are reasonable. While we believe we have taken into consideration all factors
that can affect the overall economic performance of the hotel, there are a
number of critical factors that can cause actual performance, especially when
related to the hotel industry, to vary with that of a forecast. These factors
include, but are not limited to:
o Projected occupancy rate
o Projected average daily room rate
o Projected restaurant performance
o The effect of competition
o General economic environment
o Strength of the tourist sector of the economy
o Assumptions regarding the effects of inflation on both revenue and
expenses
The ten year forecasts attached below, contain the following two
different scenarios of average daily rates for comparable hotel properties in
the South Florida area.
--------------------------------------------------------------------------------
SCENARIO #1 (1)
--------------------------------------------------------------------------------
Period Average Daily Rates Yearly Increase Cash on Cash Return
--------------------------------------------------------------------------------
Year 1 $250 3% 5.30%
--------------------------------------------------------------------------------
Year 2 (2) $258 3% 5.82% (3)
--------------------------------------------------------------------------------
-------------------
(1) These projections are based upon the current existing inventory of
hotel rooms located within properties that are comparable in nature to
the hotel.
(2) Anticipated first year of stabilized operations.
(3) These figures assume that an owner has not financed the purchase of the
unit.
18
<PAGE>
--------------------------------------------------------------------------------
SCENARIO # 2 (1)
--------------------------------------------------------------------------------
Period Average Daily Rates Yearly Increase Cash on Cash Return
--------------------------------------------------------------------------------
Year 1 $350 3% 8.66%
--------------------------------------------------------------------------------
Year 2 (2) $361 3% 9.41% (3)
--------------------------------------------------------------------------------
-------------------
(1) These projections are based upon expected published room rates to be
charged by similar properties that are currently in development within
the South Florida area and are expected to be included within the
competitive set of hotel properties with the hotel.
(2) Anticipated first year of stabilized operations.
(3) These figures assume that an owner has not financed the purchase of the
unit.
FORTUNE HOUSE II
HOTEL PROJECTIONS
$250 ROOM RATE
<TABLE>
<CAPTION>
1 2 3
Years ending: 31-Mar-04 31-Mar-05 31-Mar-06
Amount % Amount % Amount %
--------------------- --------------------- -------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms $16,742,550 70.00% 17,767,397 70.00% 18,838,667 69.00%
Food and beverage total: 5,261,944 22.00% 5,330,219 21.00% 6,006,531 22.00%
Telephone 358,769 1.50% 380,730 1.50% 546,048 2.00%
Valet/Parking 562,550 2.35% 511,701 2.02% 542,554 1.99%
Other Income 992,116 4.15% 1,391,949 5.48% 1,368,615 5.01%
--------------------- --------------------- -------------------
TOTAL REVENUE 23,917,929 100.00% 25,381,996 100.00% 27,302,415 100.00%
DEPARTMENTAL EXPENSES
Rooms 3,850,787 23.00% 4,086,501 23.00% 4,238,700 22.50%
Food and beverage 4,262,175 81.00% 4,264,175 80.00% 4,745,160 79.00%
Telephone 197,825 55.14% 209,934 55.14% 301,091 55.14%
Valet/Parking 225,020 40.00% 204,680 40.00% 217,021 40.00%
Other expenses 396,846 40.00% 556,779 40.00% 547,446 40.00%
--------------------- --------------------- -------------------
TOTAL DEPARTMENTAL EXPENSES 8,932,653 37.35% 9,322,071 36.73% 10,049,418 36.81%
--------------------- --------------------- -------------------
GROSS PROFIT (Departmental)
Rooms 12,891,764 77.00% 13,680,896 77.00% 14,599,967 77.50%
Food & Beverage 999,769 19.00% 1,066,044 20.00% 1,261,372 21.00%
Telephone 160,944 44.86% 170,795 44.86% 244,957 44.86%
Valet/Parking 337,530 60.00% 307,021 60.00% 325,532 60.00%
Other 595,269 60.00% 835,169 60.00% 821,169 60.00%
--------------------- --------------------- -------------------
TOTAL GROSS PROFIT 14,985,276 62.65% 16,059,925 63.27% 17,252,997 63.19%
INCOME BEFORE OPERATING EXPENSES 14,985,276 62.65% 16,059,925 63.27% 17,252,997 63.19%
OPERATING EXPENSES
Administrative and general 2,391,793 10.00% 2,538,200 10.00% 2,457,217 9.00%
Sales and marketing 2,391,793 10.00% 2,538,200 10.00% 2,457,217 9.00%
Utilities 1,267,650 5.30% 1,324,940 5.22% 1,419,726 5.20%
Repairs & Maintenance 717,538 3.00% 888,370 3.50% 1,092,097 4.00%
Operating Reserve 250,000 1.05% 250,000 0.98% 250,000 0.92%
Real EstateTaxes 2,280,000 9.53% 2,302,800 9.07% 2,325,828 8.52%
Management Fee 250,000 1.05% 257,500 1.01% 265,225 0.97%
Property insurance 165,000 0.69% 173,250 0.68% 181,913 0.67%
Leases 239,179 1.00% 253,820 1.00% 273,024 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
--------------------- --------------------- -------------------
TOTAL OPERATING EXPENSES 9,952,953 41.61% 10,527,079 41.47% 10,722,247 39.27%
--------------------- --------------------- -------------------
NET OPERATING INCOME 5,032,323 21.04% 5,532,846 21.80% 6,530,750 23.92%
===================== ===================== ===================
Cash On Cash Return 5.30% 5.82% 6.87%
Dollar Return Per Typical Unit 18,102 19,902 23,492
Management / Units Split 0 0 0
Financial Information
Total Number of Rooms 278 278 278
Annual Number of Available Rooms 101,470 101,470 101,470
Annual Occupied Rooms 66,970 69,000 71,029
Annual Average Occupancy Percent 66.00% 68.00% 70.00%
Average Daily Room Rate $250 $258 $265
Average Daily Parking Rate $12.00 $12.36 $12.73
Room Rate & Management Fee increased 3.00% Per Year
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 18,102. First year
management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
<PAGE>
<TABLE>
<CAPTION>
4 5 6
Years ending: 31-Mar-07 31-Mar-08 31-Mar-09
Amount % Amount % Amount %
---------------------- -------------------- --------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms 19,958,222 69.00% 21,127,995 69.00% 21,761,835 69.00%
Food and beverage total: 6,363,491 22.00% 6,736,462 22.00% 6,938,556 22.00%
Telephone 578,499 2.00% 612,406 2.00% 630,778 2.00%
Valet/Parking 574,797 1.99% 608,486 1.99% 626,741 1.99%
Other Income 1,449,950 5.01% 1,534,934 5.01% 1,580,982 5.01%
---------------------- -------------------- --------------------
TOTAL REVENUE 28,924,959 100.00% 30,620,283 100.00% 31,538,891 100.00%
DEPARTMENTAL EXPENSES
Rooms 4,490,600 22.50% 4,753,799 22.50% 4,896,413 22.50%
Food and beverage 4,963,523 78.00% 5,187,076 77.00% 5,342,688 77.00%
Telephone 318,984 55.14% 337,680 55.14% 347,811 55.14%
Valet/Parking 229,919 40.00% 243,395 40.00% 250,696 40.00%
Other expenses 579,980 40.00% 613,973 40.00% 632,393 40.00%
---------------------- -------------------- --------------------
TOTAL DEPARTMENTAL EXPENSES 10,583,006 36.59% 11,135,923 36.37% 11,470,001 36.37%
---------------------- -------------------- --------------------
GROSS PROFIT (Departmental)
Rooms 15,467,622 77.50% 16,374,196 77.50% 16,865,422 77.50%
Food & Beverage 1,399,968 22.00% 1,549,386 23.00% 1,595,868 23.00%
Telephone 259,515 44.86% 274,725 44.86% 282,967 44.86%
Valet/Parking 344,878 60.00% 365,092 60.00% 376,045 60.00%
Other 869,970 60.00% 920,960 60.00% 948,589 60.00%
---------------------- -------------------- --------------------
TOTAL GROSS PROFIT 18,341,953 63.41% 19,484,360 63.63% 20,068,890 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 18,341,953 63.41% 19,484,360 63.63% 20,068,890 63.63%
Administrative and general 2,603,246 9.00% 2,755,825 9.00% 2,838,500 9.00%
Sales and marketing 2,458,621 8.50% 2,449,623 8.00% 2,523,111 8.00%
Utilities 1,498,313 5.18% 1,580,007 5.16% 1,621,099 5.14%
Repairs & Maintenance 1,156,998 4.00% 1,224,811 4.00% 1,261,556 4.00%
Operating Reserve 250,000 0.86% 250,000 0.82% 250,000 0.79%
Real EstateTaxes 2,349,086 8.12% 2,372,577 7.75% 2,396,303 7.60%
Management Fee 273,182 0.94% 281,377 0.92% 289,819 0.92%
Property insurance 191,008 0.66% 200,559 0.65% 210,586 0.67%
Leases 289,250 1.00% 306,203 1.00% 315,389 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
---------------------- -------------------- --------------------
TOTAL OPERATING EXPENSES 11,069,705 38.27% 11,420,982 37.30% 11,706,363 37.12%
---------------------- -------------------- --------------------
NET OPERATING INCOME 7,272,248 25.14% 8,063,378 26.33% 8,362,527 26.51%
====================== ====================== ====================
Cash On Cash Return 7.65% 8.49% 8.80%
Dollar Return Per Typical Unit 26,159 29,005 30,081
Management / Units Split 0 0 0
Financial Information
Total Number of Rooms 278 278 278
Annual Number of Available Rooms 101,470 101,470 101,470
Annual Occupied Rooms 73,058 75,088 75,088
Annual Average Occupancy Percent 72.00% 74.00% 74.00%
Average Daily Room Rate $ 273 $ 281 $ 290
Average Daily Parking Rate $ 13.11 $ 13.51 $ 13.91
Room Rate & Management Fee increased
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 18,102. First year
management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
<PAGE>
<TABLE>
<CAPTION>
7 8 9
Years ending: 31-Mar-10 31-Mar-11 31-Mar-12
Amount % Amount % Amount %
-------------------- ------------------- --------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms 22,717,591 69.00% 23,399,119 69.00% 24,422,440 69.00%
Food and beverage total: 7,243,290 22.00% 7,460,589 22.00% 7,786,865 22.00%
Telephone 658,481 2.00% 678,235 2.00% 707,897 2.00%
Valet/Parking 654,267 1.99% 673,895 1.99% 703,366 1.99%
Other Income 1,650,417 5.01% 1,699,929 5.01% 1,774,273 5.01%
-------------------- ------------------- --------------------
TOTAL REVENUE 32,924,045 100.00% 33,911,767 100.00% 35,394,841 100.00%
DEPARTMENTAL EXPENSES
Rooms 5,111,458 22.50% 5,264,802 22.50% 5,495,049 22.50%
Food and beverage 5,577,333 77.00% 5,744,653 77.00% 5,995,886 77.00%
Telephone 363,086 55.14% 373,979 55.14% 390,334 55.14%
Valet/Parking 261,707 40.00% 269,558 40.00% 281,347 40.00%
Other expenses 660,167 40.00% 679,972 40.00% 709,709 40.00%
-------------------- ------------------- --------------------
TOTAL DEPARTMENTAL EXPENSES 11,973,751 36.37% 12,332,963 36.37% 12,872,325 36.37%
-------------------- ------------------- --------------------
GROSS PROFIT (Departmental)
Rooms 17,606,133 77.50% 18,134,317 77.50% 18,927,391 77.50%
Food & Beverage 1,665,957 23.00% 1,715,935 23.00% 1,790,979 23.00%
Telephone 295,395 44.86% 304,256 44.86% 317,563 44.86%
Valet/Parking 392,560 60.00% 404,337 60.00% 422,020 60.00%
Other 990,250 60.00% 1,019,957 60.00% 1,064,564 60.00%
-------------------- ------------------- --------------------
TOTAL GROSS PROFIT 20,950,294 63.63% 21,578,803 63.63% 22,522,516 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 20,950,294 63.63% 21,578,803 63.63% 22,522,516 63.63%
Administrative and general 2,963,164 9.00% 3,052,059 9.00% 3,185,536 9.00%
Sales and marketing 2,633,924 8.00% 2,712,941 8.00% 2,831,587 8.00%
Utilities 1,692,296 5.14% 1,743,065 5.14% 1,819,295 5.14%
Repairs & Maintenance 1,316,962 4.00% 1,356,471 4.00% 1,415,794 4.00%
Operating Reserve 250,000 0.76% 250,000 0.74% 250,000 0.71%
Real EstateTaxes 2,420,266 7.35% 2,444,469 7.21% 2,468,913 6.98%
Management Fee 298,513 0.91% 307,468 0.91% 316,693 0.89%
Property insurance 221,116 0.67% 232,172 0.68% 243,780 0.69%
Leases 329,240 1.00% 339,118 1.00% 353,948 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
-------------------- ------------------- --------------------
TOTAL OPERATING EXPENSES 12,125,481 36.83% 12,437,762 36.68% 12,885,546 36.41%
-------------------- ------------------- --------------------
NET OPERATING INCOME 8,824,814 26.80% 9,141,041 26.96% 9,636,970 27.23%
==================== =================== ====================
Cash On Cash Return 9.29% 9.62% 10.07%
Dollar Return Per Typical Unit 31,744 32,881 34,418
Management / Units Split 0 0 68,485
Financial Information
Total Number of Rooms 278 278 278
Annual Number of Available Rooms 101,470 101,470 101,470
Annual Occupied Rooms 76,103 76,103 77,117
Annual Average Occupancy Percent 75.00% 75.00% 76.00%
Average Daily Room Rate $ 299 $ 307 $ 317
Average Daily Parking Rate $ 14.33 $ 14.76 $ 15.20
Room Rate & Management Fee increased
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 18,102. First year
management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
<PAGE>
<TABLE>
<CAPTION>
10
Years ending: 31-Mar-13
Amount %
-------------------
REVENUE:
<S> <C> <C>
Rooms 25,486,102 69.00%
Food and beverage total: 8,126,004 22.00%
Telephone 738,728 2.00%
Valet/Parking 734,000 1.99%
Other Income 1,851,547 5.01%
-------------------
TOTAL REVENUE 36,936,380 100.00%
DEPARTMENTAL EXPENSES
Rooms 5,734,373 22.50%
Food and beverage 6,257,023 77.00%
Telephone 407,334 55.14%
Valet/Parking 293,600 40.00%
Other expenses 740,619 40.00%
-------------------
TOTAL DEPARTMENTAL EXPENSES 13,432,949 36.37%
-------------------
GROSS PROFIT (Departmental)
Rooms 19,751,729 77.50%
Food & Beverage 1,868,981 23.00%
Telephone 331,393 44.86%
Valet/Parking 440,400 60.00%
Other 1,110,928 60.00%
-------------------
TOTAL GROSS PROFIT 23,503,431 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 23,503,431 63.63%
Administrative and general 3,324,274 9.00%
Sales and marketing 2,954,910 8.00%
Utilities 1,898,530 5.14%
Repairs & Maintenance 1,477,455 4.00%
Operating Reserve 250,000 0.68%
Real EstateTaxes 2,493,602 6.75%
Management Fee 326,193 0.88%
Property insurance 255,969 0.69%
Leases 369,364 1.00%
Terremark Hospitality Recoveries 0 0.00%
-------------------
TOTAL OPERATING EXPENSES 13,350,298 36.14%
-------------------
NET OPERATING INCOME 10,153,133 27.49%
===================
Cash On Cash Return 10.34%
Dollar Return Per Typical Unit 35,347
Management / Units Split 326,566
Financial Information
Total Number of Rooms 278
Annual Number of Available Rooms 101,470
Annual Occupied Rooms 78,132
Annual Average Occupancy Percent 77.00%
Average Daily Room Rate $ 326
Average Daily Parking Rate $ 15.66
Room Rate & Management Fee increased
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 18,102. First year
management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
<PAGE>
FORTUNE HOUSE II
HOTEL PROJECTIONS
$350 ROOM RATE
<TABLE>
<CAPTION>
1 2 3
Years ending: 31-Mar-04 31-Mar-05 31-Mar-06
Amount % Amount % Amount %
--------------------- -------------------- -------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms $ 23,439,570 70.00% 24,874,356 70.00% 26,374,133 69.00%
Food and beverage total: 7,366,722 22.00% 7,462,307 21.00% 8,409,144 22.00%
Telephone 502,277 1.50% 533,022 1.50% 764,468 2.00%
Valet/Parking 562,550 1.68% 511,701 1.44% 542,554 1.42%
Other Income 1,613,982 4.82% 2,153,409 6.06% 2,133,083 5.58%
--------------------- -------------------- -------------------
TOTAL REVENUE 33,485,100 100.00% 35,534,794 100.00% 38,223,381 100.00%
DEPARTMENTAL EXPENSES
Rooms 5,391,101 23.00% 5,721,102 23.00% 5,934,180 22.50%
Food and beverage 5,967,045 81.00% 5,969,845 80.00% 6,643,224 79.00%
Telephone 276,955 55.14% 293,908 55.14% 421,527 55.14%
Valet/Parking 225,020 40.00% 204,680 40.00% 217,021 40.00%
Other expenses 645,593 40.00% 861,363 40.00% 853,233 40.00%
--------------------- -------------------- -------------------
TOTAL DEPARTMENTAL EXPENSES 12,505,714 37.35% 13,050,899 36.73% 14,069,186 36.81%
--------------------- -------------------- -------------------
GROSS PROFIT (Departmental)
Rooms 18,048,469 77.00% 19,153,254 77.00% 20,439,953 77.50%
Food & Beverage 1,399,677 19.00% 1,492,461 20.00% 1,765,920 21.00%
Telephone 225,321 44.86% 239,114 44.86% 342,940 44.86%
Valet/Parking 337,530 60.00% 307,021 60.00% 325,532 60.00%
Other 968,389 60.00% 1,292,045 60.00% 1,279,850 60.00%
--------------------- -------------------- -------------------
TOTAL GROSS PROFIT 20,979,386 62.65% 22,483,895 63.27% 24,154,196 63.19%
INCOME BEFORE OPERATING EXPENSES 20,979,386 62.65% 22,483,895 63.27% 24,154,196 63.19%
OPERATING EXPENSES
Administrative and general 3,348,510 10.00% 3,553,479 10.00% 3,440,104 9.00%
Sales and marketing 3,348,510 10.00% 3,553,479 10.00% 3,440,104 9.00%
Utilities 1,774,710 5.30% 1,854,916 5.22% 1,987,616 5.20%
Repairs & Maintenance 1,004,553 3.00% 1,243,718 3.50% 1,528,935 4.00%
Operating Reserve 250,000 0.75% 250,000 0.70% 250,000 0.65%
Real EstateTaxes 2,280,000 6.81% 2,302,800 6.48% 2,325,828 6.08%
Management Fee 250,000 0.75% 257,500 0.72% 265,225 0.69%
Property insurance 165,000 0.49% 173,250 0.49% 181,913 0.48%
Leases 334,851 1.00% 355,348 1.00% 382,234 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
--------------------- -------------------- -------------------
TOTAL OPERATING EXPENSES 12,756,134 38.09% 13,544,491 38.12% 13,801,959 36.11%
--------------------- -------------------- -------------------
NET OPERATING INCOME 8,223,252 24.56% 8,939,404 25.16% 10,352,237 27.08%
===================== ==================== ===================
Cash On Cash Return 8.66% 9.41% 10.45%
Dollar Return Per Typical Unit 29,580 32,156 35,705
Management / Units Split 0 0 426,118
Financial Information
Total Number of Rooms 278 278 278
Annual Number of Available Rooms 101,470 101,470 101,470
Annual Occupied Rooms 66,970 69,000 71,029
Annual Average Occupancy Percent 66.00% 68.00% 70.00%
Average Daily Room Rate $ 350 $ 361 $ 371
Average Daily Parking Rate $ 12.00 $ 12.36 $ 12.73
Room Rate and Management Fee increased 3.00% Per Year
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 29,580.
First year management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
<PAGE>
<TABLE>
<CAPTION>
4 5 6
Years ending: 31-Mar-07 31-Mar-08 31-Mar-09
Amount % Amount % Amount %
---------------------- -------------------- --------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms 27,941,510 69.00% 29,579,193 69.00% 30,466,569 69.00%
Food and beverage total: 8,908,887 22.00% 9,431,047 22.00% 9,713,979 22.00%
Telephone 809,899 2.00% 857,368 2.00% 883,089 2.00%
Valet/Parking 574,797 1.42% 608,486 1.42% 626,741 1.42%
Other Income 2,259,849 5.58% 2,392,301 5.58% 2,464,070 5.58%
---------------------- -------------------- --------------------
TOTAL REVENUE 40,494,942 100.00% 42,868,396 100.00% 44,154,448 100.00%
---------------------- -------------------- --------------------
DEPARTMENTAL EXPENSES
Rooms 6,286,840 22.50% 6,655,318 22.50% 6,854,978 22.50%
Food and beverage 6,948,932 78.00% 7,261,906 77.00% 7,479,763 77.00%
Telephone 446,578 55.14% 472,753 55.14% 486,935 55.14%
Valet/Parking 229,919 40.00% 243,395 40.00% 250,696 40.00%
Other expenses 903,940 40.00% 956,921 40.00% 985,628 40.00%
---------------------- -------------------- --------------------
TOTAL DEPARTMENTAL EXPENSES 14,816,209 36.59% 15,590,292 36.37% 16,058,001 36.37%
GROSS PROFIT (Departmental)
Rooms 21,654,670 77.50% 22,923,875 77.50% 23,611,591 77.50%
Food & Beverage 1,959,955 22.00% 2,169,141 23.00% 2,234,215 23.00%
Telephone 363,321 44.86% 384,615 44.86% 396,154 44.86%
Valet/Parking 344,878 60.00% 365,092 60.00% 376,045 60.00%
Other 1,355,910 60.00% 1,435,381 60.00% 1,478,442 60.00%
---------------------- -------------------- --------------------
TOTAL GROSS PROFIT 25,678,734 63.41% 27,278,103 63.63% 28,096,446 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 25,678,734 63.41% 27,278,103 63.63% 28,096,446 63.63%
Administrative and general 3,644,545 9.00% 3,858,156 9.00% 3,973,900 9.00%
Sales and marketing 3,442,070 8.50% 3,429,472 8.00% 3,532,356 8.00%
Utilities 2,097,638 5.18% 2,212,009 5.16% 2,269,539 5.14%
Repairs & Maintenance 1,619,798 4.00% 1,714,736 4.00% 1,766,178 4.00%
Operating Reserve 250,000 0.62% 250,000 0.58% 250,000 0.57%
Real EstateTaxes 2,349,086 5.80% 2,372,577 5.53% 2,396,303 5.43%
Management Fee 273,182 0.67% 281,377 0.66% 289,819 0.66%
Property insurance 191,008 0.47% 200,559 0.47% 210,586 0.48%
Leases 404,949 1.00% 428,684 1.00% 441,544 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
---------------------- -------------------- --------------------
TOTAL OPERATING EXPENSES 14,272,276 35.24% 14,747,569 34.40% 15,130,225 34.27%
---------------------- -------------------- --------------------
NET OPERATING INCOME 11,406,458 28.17% 12,530,534 29.23% 12,966,221 29.37%
====================== ==================== ====================
Cash On Cash Return 11.00% 11.60% 11.82%
Dollar Return Per Typical Unit 37,601 39,623 40,406
Management / Units Split 953,229 1,515,267 1,733,111
Financial Information
Total Number of Rooms
Annual Number of Available Rooms 278 278 278
Annual Occupied Rooms 101,470 101,470 101,470
Annual Average Occupancy Percent 73,058 75,088 75,088
Average Daily Room Rate 72.00% 74.00% 74.00%
Average Daily Parking Rate $ 382 $ 394 $ 406
Room Rate and Management Fee increased $ 13.11 $ 13.51 $ 13.91
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 29,580.
First year management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
<PAGE>
<TABLE>
<CAPTION>
7 8 9
Years ending: 31-Mar-10 31-Mar-11 31-Mar-12
Amount % Amount % Amount %
-------------------- ------------------- --------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms 31,804,628 69.00% 32,758,767 69.00% 34,191,417 69.00%
Food and beverage total: 10,140,606 22.00% 10,444,824 22.00% 10,901,611 22.00%
Telephone 921,873 2.00% 949,529 2.00% 991,056 2.00%
Valet/Parking 654,267 1.42% 673,895 1.42% 703,366 1.42%
Other Income 2,572,290 5.58% 2,649,459 5.58% 2,765,328 5.58%
-------------------- ------------------- --------------------
TOTAL REVENUE 46,093,663 100.00% 47,476,473 100.00% 49,552,778 100.00%
DEPARTMENTAL EXPENSES
Rooms 7,156,041 22.50% 7,370,722 22.50% 7,693,069 22.50%
Food and beverage 7,808,267 77.00% 8,042,515 77.00% 8,394,241 77.00%
Telephone 508,321 55.14% 523,571 55.14% 546,468 55.14%
Valet/Parking 261,707 40.00% 269,558 40.00% 281,347 40.00%
Other expenses 1,028,916 40.00% 1,059,783 40.00% 1,106,131 40.00%
-------------------- ------------------- --------------------
TOTAL DEPARTMENTAL EXPENSES 16,763,251 36.37% 17,266,149 36.37% 18,021,255 36.37%
-------------------- ------------------- --------------------
GROSS PROFIT (Departmental)
Rooms 24,648,586 77.50% 25,388,044 77.50% 26,498,348 77.50%
Food & Beverage 2,332,339 23.00% 2,402,310 23.00% 2,507,371 23.00%
Telephone 413,552 44.86% 425,959 44.86% 444,588 44.86%
Valet/Parking 392,560 60.00% 404,337 60.00% 422,020 60.00%
Other 1,543,374 60.00% 1,589,675 60.00% 1,659,197 60.00%
-------------------- ------------------- --------------------
TOTAL GROSS PROFIT 29,330,412 63.63% 30,210,324 63.63% 31,531,523 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 29,330,412 63.63% 30,210,324 63.63% 31,531,523 63.63%
Administrative and general 4,148,430 9.00% 4,272,883 9.00% 4,459,750 9.00%
Sales and marketing 3,687,493 8.00% 3,798,118 8.00% 3,964,222 8.00%
Utilities 2,369,214 5.14% 2,440,291 5.14% 2,547,013 5.14%
Repairs & Maintenance 1,843,747 4.00% 1,899,059 4.00% 1,982,111 4.00%
Operating Reserve 250,000 0.54% 250,000 0.53% 250,000 0.50%
Real EstateTaxes 2,420,266 5.25% 2,444,469 5.15% 2,468,913 4.98%
Management Fee 298,513 0.65% 307,468 0.65% 316,693 0.64%
Property insurance 221,116 0.48% 232,172 0.49% 243,780 0.49%
Leases 460,937 1.00% 474,765 1.00% 495,528 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
-------------------- ------------------- --------------------
TOTAL OPERATING EXPENSES 15,699,715 34.06% 16,119,223 33.95% 16,728,010 33.76%
-------------------- ------------------- --------------------
NET OPERATING INCOME 13,630,697 29.57% 14,091,101 29.68% 14,803,513 29.87%
==================== =================== ====================
Cash On Cash Return 12.17% 12.42% 12.79%
Dollar Return Per Typical Unit 41,601 42,429 43,711
Management / Units Split 2,065,349 2,295,550 2,651,756
Financial Information
Total Number of Rooms 278 278 278
Annual Number of Available Rooms 101,470 101,470 101,470
Annual Occupied Rooms 76,103 76,103 77,117
Annual Average Occupancy Percent 75.00% 75.00% 76.00%
Average Daily Room Rate $ 418 $ 430 $ 443
Average Daily Parking Rate $ 14.33 $ 14.76 $ 15.20
Room Rate and Management Fee increased
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 29,580.
First year management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
<PAGE>
<TABLE>
<CAPTION>
10
Years ending: 31-Mar-13
Amount %
-------------------
REVENUE:
<S> <C> <C>
Rooms 35,680,543 69.00%
Food and beverage total: 11,376,405 22.00%
Telephone 1,034,219 2.00%
Valet/Parking 734,000 1.42%
Other Income 2,885,765 5.58%
-------------------
TOTAL REVENUE 51,710,932 100.00%
DEPARTMENTAL EXPENSES
Rooms 8,028,122 22.50%
Food and beverage 8,759,832 77.00%
Telephone 570,268 55.14%
Valet/Parking 293,600 40.00%
Other expenses 1,154,306 40.00%
-------------------
TOTAL DEPARTMENTAL EXPENSES 18,806,128 36.37%
GROSS PROFIT (Departmental)
Rooms 27,652,421 77.50%
Food & Beverage 2,616,573 23.00%
Telephone 463,950 44.86%
Valet/Parking 440,400 60.00%
Other 1,731,459 60.00%
-------------------
TOTAL GROSS PROFIT 32,904,803 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 32,904,803 63.63%
Administrative and general 4,653,984 9.00%
Sales and marketing 4,136,875 8.00%
Utilities 2,657,942 5.14%
Repairs & Maintenance 2,068,437 4.00%
Operating Reserve 250,000 0.48%
Real EstateTaxes 2,493,602 4.82%
Management Fee 326,193 0.63%
Property insurance 255,969 0.50%
Leases 517,109 1.00%
Terremark Hospitality Recoveries 0 0.00%
-------------------
TOTAL OPERATING EXPENSES 17,360,112 33.57%
-------------------
NET OPERATING INCOME 15,544,692 30.06%
===================
Cash On Cash Return 13.18%
Dollar Return Per Typical Unit 45,044
Management / Units Split 3,022,346
Financial Information
Total Number of Rooms 278
Annual Number of Available Rooms 101,470
Annual Occupied Rooms 78,132
Annual Average Occupancy Percent 77.00%
Average Daily Room Rate $ 457
Average Daily Parking Rate $ 15.66
Room Rate and Management Fee increased
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 29,580.
First year management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
<PAGE>
Investors should recognize that there can be no assurance that the
assumptions will prove correct or that actual results will not differ from the
results forecasted. Actual results may vary materially because events and
circumstances frequently do not occur as expected. Investors are encouraged to
consult with their own advisors with respect to the assumptions upon which the
forecasts are based and are encouraged to review the discussion of risk factors
regarding the hotel and its operations set forth under the heading "Risk
Factors" on page 5.
The forecasts included below were not prepared or examined by Kaufman
Rossin & Co., and they assume no responsibility for them.
THE HOTEL OPERATOR
TERREMARK HOSPITALITY SERVICES, INC.
Terremark Hospitality, a wholly owned subsidiary of Terremark Real
Estate Group, whose parent is Terremark Worldwide, Inc., a publicly traded
company on the American Stock Exchange which trades under the symbol TWW, will
serve as the initial hotel operator pursuant to the Rental Pool Agreement. Based
in Florida, Terremark Hospitality provides hotel services and amenities to the
owners and guests of the Fortune House hotel program as well as hotels developed
and owned by other companies. The Terremark Hospitality management team combines
over fifty years of experience in the hospitality industry. The field experience
of team members comes from such respected names as Hilton Hotels International,
the Continental Companies/Carnival Hotel and Casinos, Interstate Hotels, and
Provident Biscayne Resorts/Coastal Hotel Group. Their experience expands into
all facets of the hotel industry, such as, airport properties, resort and
convention hotels, luxury hotels, and condominium hotels. Additionally, they
possess an extensive background in assisting in the design, renovation, and
grand opening, of some of these properties. Team members have held top positions
at such hotels as the Miami Airport Hilton, Fontainebleau Hilton Resort and Spa,
Fort Lauderdale Airport Hilton, Sheraton at Fort Lauderdale Airport, Orlando
Airport Marriott, Grand Bay Hotel, Mayfair House Hotel, and the Mutiny
Condominium Hotel. See "TERREMARK FORTUNE HOUSE #2, LTD. - - MANAGEMENT."
Terremark Real Estate Group is a diversified real estate and investment
firm with over twenty years experience in the diverse disciplines of real
estate, including development, management, sales, leasing and mortgage
brokerage, construction, consulting, and hospitality services. Terremark Real
Estate Group's scope of services has extended from retail to high-rise office
complex to condominiums and condominium hotels, to high technology and
manufacturing facilities. In addition, Terremark Real Estate Group has
significant expertise in the regulated areas of high-density multi-purpose
projects and government assisted housing.
MANAGEMENT OF THE HOTEL AND THE RENTAL POOL
The hotel operator will manage the hotel and the rental pool, and
maintain the hotel on behalf of the owners pursuant to the Rental Pool
Agreement. The following discussion of all material terms of the Rental Pool
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Rental Pool Agreement together with all attachments and
exhibits to the Rental Pool Agreement, which are set forth in Annex B hereto.
19
<PAGE>
MANAGEMENT OF THE RENTAL POOL
Mandatory Participation in the Rental Pool
Participation for all unit owners in the rental pool in accordance with
the Rental Pool Agreement is mandatory. In addition, any units that have not
been sold by us will be placed in the rental pool. Along with any of our
affiliates that purchase units, we will be treated the same as any other owner
and will receive our share of revenue and bear our share of expenses for the
units. A unit will automatically be placed in the rental pool when the unit is
not reserved for use by the owner. Each owner appoints the hotel operator as his
exclusive agent for management of the rental pool and the bookings of the
owner's unit and agrees to honor and be bound by the rental booking of his unit
made by the hotel operator in accordance with the Rental Pool Agreement. Units
may not be used for any purpose other than as hotel suites in accordance with
the Rental Pool Agreement, the Condo Declaration and other condominium documents
governing the hotel. The hotel operator has complete discretion to establish
unit rental rates including offering the use of units at low promotional rental
rates and offering units on a complimentary basis from time to time to guests of
the hotel.
The initial operating period of the rental pool will commence on the
date that the hotel is opened by Terremark Hospitality for business as a hotel
in Terremark Hospitality's hotel system and will conclude on December 31 of that
year. Thereafter, operating periods for the rental pool will run 12 months based
on the calendar year.
OWNERS' USE OF UNITS
An owner is guaranteed to be able to use his unit for a total of 120
days per calendar year, which use shall be further limited to a maximum of 60
days within the period extending between December 15 and April 30 of each year.
If an owner reserves the use of his unit for a stay which commences at or after
2:00 p.m. on a Friday or a Saturday, the owner must reserve the unit for a
minimum two night stay. An owner may use his unit no more than four times a year
with respect to two or three night stays that commence at or after 2:00 p.m. on
a Friday or a Saturday. If an owner reserves the use of his unit by written
notice to the hotel operator no less than two months prior to the date the owner
intends to use the unit, the owner is guaranteed to be able to use his unit.
Additionally, an owner may be permitted to use his unit for a total of up to an
additional 14 days if the owner reserves the use of his unit by written notice
to the hotel operator no more than 15 days prior to the date the owner intends
to use his unit and, at the time the owner gives notice to the hotel operator,
(i) the unit is not subject to a prior reservation for any of the requested
time, and (ii) the hotel is less than 80% reserved for any of the requested
time. If an owner does not use all of his allotted days in a calendar year, the
owner will not be entitled to accumulate the unused days for use in any
subsequent year.
Furthermore, if an owner reserves the use of his unit, but does not
actually use the unit at the reserved time, the owner will nonetheless be deemed
to have used the unit unless the owner has canceled the reservation with the
approval of the hotel operator no less than 30 days prior to the owner's
scheduled use or five days if the use is pursuant to the 15 day notice
requirement and the unit is made available for rental to the public. So long as
an owner is deemed to have used his unit, regardless of whether the owner
actually uses the unit and regardless of whether the unit is later rented to
hotel guests during that time, the unit will not be deemed to be in the rental
pool. However, any revenues generated from the rental of the unit to hotel
guests during the time that had been reserved by the unit owner will be for the
benefit of other owners whose units are in the rental pool at that time.
An owner will pay the standard charges established by the hotel
operator for, among other amenities, long distance telephone calls, movie
rentals, room service and restaurant usage, and the purchase of other goods and
services at the hotel. All of the furniture, fixtures and equipment located in
and around the hotel, excluding any items located in a unit, will be owned
collectively by the owners. Any furniture, fixtures and equipment located within
a unit will be owned by the owner of the unit but cannot be removed or changed
except as set forth in the Rental Pool Agreement.
20
<PAGE>
ALLOCATION OF REVENUE AND EXPENSES
The Rental Pool Agreement describes the manner in which income from
unit rentals is divided among the owners. For each day that a unit is in the
rental pool, the owner of that unit will be entitled to share in the gross
revenue from the operation of the hotel, regardless of whether the owner's unit
generated rental income on that particular date. "Gross revenue" consists of all
revenue of any kind derived directly or indirectly from the operation of the
hotel and specifically includes (i) revenue from the use and enjoyment of the
hotel by guests and owners such as, for example, room revenue, revenue generated
by the conference center, and any use of the recreational facilities,
housekeeping charges, revenue from movie rentals, mini-bar and telephone usage,
and (ii) parking revenue, proceeds from business interruption insurance, revenue
from other hotel amenities, such as vending machines, and fees from
concessionaires operating at the hotel. Gross revenue does not include most
taxes, capital gains, condemnation awards, rebates or discounts, proceeds from
most types of insurance and gratuities paid to hotel employees. An owner's
allocable share of the gross revenue will be determined based on the percentage
interest of the unit. The percentage interest of a unit will be determined
according to the following formula as provided in the Condo Declaration:
Seller's initial value of a unit as determined
Percentage interest by Terremark Fortune House
of a unit = ----------------------------------------------
$95,000,000
An owner's allocable share of gross revenue for a day in which the
owner's unit is in the rental pool will be determined according to the following
formula:
Gross revenues from Percentage interest of a unit
the operation of the X ------------------------------------------
hotel total percentage interests of all units in
the rental pool on that day
An owner's allocable share of all hotel expenses and other costs
attributable to the owners under the Rental Pool Agreement will be determined
according to the following formula:
Total hotel expenses
and other costs X Percentage interest of a unit
An owner will be responsible for his allocable share of the costs
attributable to the owners for each day that the hotel is operating, regardless
of whether the owner's unit is in the rental pool on any particular day. The
owners bear all of the costs and expenses of operating, maintaining and
repairing the hotel, the hotel grounds and the contents of the hotel. These
costs include, for example:
o Repair and maintenance of hotel buildings, grounds, furniture, fixtures
and equipment located at the hotel
o Purchasing all supplies including food, beverages, linens, and cleaning
products necessary for the operation of the hotel
o Costs associated with hiring, firing and compensating employees
necessary to staff the hotel
o Fees paid to the hotel operator
o Utilities and insurance
o Marketing and promotion expenses, reservation fees and travel agent
commissions
21
<PAGE>
DIRECT EXPENSES OF OWNERS
Each owner will be personally responsible for the payment of all taxes
applicable to the owner arising out of the ownership of a unit, amounts owed
under any financing of the unit, and all assessments made by the Condo
Association. The amount of property taxes to be paid by each owner will be
determined annually by the Broward County Assessor's Office. Property taxes will
be assessed against each owner as of the date the unit is purchased by the
owner. Our estimate of taxes is based on application of 1999 tax rates to the
property and is set forth in the forecasts on F-1. The amounts for the first
year approximate $8,000. The actual tax may differ from the projected amount
when actually assessed. Subsequent transfers of one or more units may cause
further reassessments of one or more units and tax increases. Property taxes may
increase for all owners even in years in which no reassessment from any sale or
transfer occurs.
The assessments payable by an owner to the Condo Association and the
method of billing and collecting are more fully described in the section
entitled Summary of Declaration and Related Documents. The amount of each annual
assessment initially is based upon the annual projected operating budget
prepared by the hotel operator. If any estimated budget understates net cash
flow, the Condo Association may amend the budget and increase the annual
assessments against all units, based upon each unit's allocable share. The
estimated Condo Association budget for the first operational year for the hotel,
after taking into account hotel revenue and expenses, is $50,000, which is
intended to cover fees for professional services and administrative expenses
incurred by the Condo Association. Each unit will be assessed its share of these
budgeted amounts based on the percentage interest for the unit, which amounts
range from $189 to $227 per year. The assessments for future years will depend
upon hotel revenues and expenses for those years.
If a unit owner fails to pay property taxes, the taxing authorities may
place a tax lien on the delinquent owner's unit and foreclose the tax lien if
the delinquent tax is not paid prior to the tax sale. If a unit owner fails to
pay any financing of the unit, the lender may elect to pursue collection of the
debt against the delinquent owner with or without foreclosing any mortgage lien
against the delinquent owner's unit given to secure the financing. If a unit
owner fails to pay its assessments to the Condo Association, the Condo
Association may elect to pursue collection of the delinquent assessment with or
without foreclosing the assessment lien which the Condo Association has against
the delinquent owner's unit.
RENTAL POOL REPORTS
For each calendar month, the hotel operator will prepare detailed
statements of operations that describe, among other things, the gross revenue
from the hotel, hotel operating expenses, capital expenditures, reserves, and
the amount of cash flow, if any, distributable to an owner for that month. A
summary of these statements of operations will be mailed to each owner no later
than the 20th day following the end of each calendar month. In addition, the
hotel operator will provide each owner with a monthly statement for the previous
month that describes how many days in that month the unit was occupied and how
many days the unit was in the rental pool. The hotel operator will also prepare
and mail to each owner within 75 days after the end of an operating year
statements of operations for the entire operating year and individual statements
relative to each owner's unit. The individual statements will serve as the basis
for reporting to the IRS and other appropriate taxing authorities.
DISTRIBUTIONS FROM RENTAL POOL
The amount distributable to an owner will be computed each month by
subtracting the following amounts from the owner's share of gross revenue from
hotel operations:
o The owner's share of hotel operating expenses
o The owner's share of amounts necessary to fund or replenish operating
and capital expenditure reserves, make capital lease payments and pay
the hotel operator's incentive fee
o The owner's share of capital expenditures exceeding amounts paid out of
the appropriate reserve
22
<PAGE>
o Any assessment payable by the owner pursuant to the Condo Declaration
o Expenses associated with an owner's personal use of the hotel (for
example, the cleaning charge)
o Bed taxes and other similar taxes imposed or collected in connection
with the use of the hotel by the hotel patrons
o Withholding taxes, if applicable
o Any other amounts payable by the owner to the hotel operator pursuant
to the Rental Pool Agreement
The deductions from gross revenue resulting in distributable cash flow
representing expenses, fees and reserves plus association expenses and real
property taxes payable directly by owners are set forth on page F-1 for the
hotel as a whole.
The amount distributable to an owner, if any, will be sent to the owner
with the monthly financial summary. Alternatively, the hotel operator may
prepare a reasonable estimate of the amount distributable to the owners on an
annual basis and distribute to the owners the estimated amount, less an amount
(not to exceed 20%) established by the hotel operator for seasonal working
capital requirements, in twelve equal monthly installments. If the hotel
operator elects to distribute an estimated amount, at the end of the operating
year the hotel operator will calculate the actual amount distributable to each
owner and pay to each owner the balance of the amount, if any, distributable for
that operating year. This last payment will be sent 75 days after the end of the
operating year with the annual financial statements.
RESERVES
An operating cash reserve in the amount of $250,000 will be established
when the hotel commences operations. Upon the closing of the purchase of a unit,
the unit owner will be required to contribute to the operating cash reserve an
amount equal to the percentage interest of the unit being purchased multiplied
by $250,000 (see Annex C), which amounts range from $946 to $1,186. This reserve
will be available to the hotel operator for working capital in connection with
the operation of the hotel commencing in the second year of operations.
SHORTFALLS
If at any time the funds derived from the operations of the hotel,
including the established reserves, are not sufficient to pay when due all
expenses incurred in connection with the operation of the hotel, capital
expenditures and other amounts for which the owners are liable that may occur
from time to time as a result of, among other causes, seasonal fluctuations in
the use of the hotel by owners and other patrons, the hotel operator shall pay
such shortfall out of its own funds. The hotel operators obligation to pay for
any shortfalls will only apply while Terremark Hospitality is operating the
hotel.
MANAGEMENT AND MAINTENANCE OF THE HOTEL
The hotel operator will perform, on an exclusive basis, all duties and
obligations within the scope of the management, maintenance, and marketing of
the hotel, including the restaurant and conference facilities. The hotel
operator will, among other things:
o Use all reasonable efforts to maintain and operate the hotel as a
full-service hotel
o Market and sell the rental use of the units and other facilities of the
hotel
o Furnish bookkeeping, inventory control, reservations, marketing and
advertising services
o Direct, in consultation with the board of directors, litigation in
respect of the hotel
o Supervise the use of the hotel by guests and owners
23
<PAGE>
o Hire, train, terminate and perform other managerial functions with
respect to the staff necessary to the operation of the hotel
o Obtain for itself or on behalf of the owners all insurance, licenses
and permits necessary to the operation of the hotel.
The hotel operator may make, at the owners' expense, but subject to the
then current approved operating plan and budget and other limitations,
reasonable changes to the hotel.
The hotel operator will prepare, on or before December 1 of each year,
an annual operating plan and budget for the operation of the hotel during the
following operating year. The annual operating plan and budget will be sent to
all owners of units but the owners will not have the right to approve or
disapprove the annual operating plans and budget.
The hotel operator will obtain and maintain, as an operating expense of
the hotel, public liability, fire and casualty, business interruption, workmen's
compensation and other insurance reasonably necessary to the operation of the
hotel, naming the owners, the hotel operator and the Condo Association as
insureds.
Under the Rental Pool Agreement, the hotel operator may, in its
discretion, assign all or a portion of its rights and obligations under the
Rental Pool Agreement to an affiliate of the hotel operator or any successor in
interest to the hotel operator.
FEES PAID TO HOTEL OPERATOR.
As a compensation for its services provided under the Rental Pool
Agreement, the hotel operator will be paid various fees. The hotel operator's
fees will be paid out of the gross revenue of the hotel. The hotel operator will
receive a base fee of $250,000 per year for the twelve month period following
the opening of the hotel. The base fee will be payable in monthly installments.
In addition, the hotel operator will be paid an incentive fee based on a tiered
scale if the hotel operator achieves set performance standards in respect of the
operations of the hotel based on net hotel return. Net hotel return is computed
as follows:
----
| expenses of the operation of the hotel
| +
| amount contributed to reserve for
Net hotel return = gross revenue minus | replacement of furniture, fixtures and
| equipment and capital improvements
| +
| real property taxes
----
Depending upon the performance of the hotel, the incentive fee payable
to the hotel operator may range from 0% of net hotel return (if net hotel return
is less than $250,000) to 2.5% of the amount by which net hotel return exceeds
$1 million in the first full operating year. The incentive fee is equal to 1% of
gross revenue if for any operating year during the term, the net hotel return is
greater than $250,000 but less than $1 million, and 2.5% of gross revenues in
excess of $1 million if for any operating year during the term the net hotel
return exceeds $1 million.
If the term of the Rental Pool Agreement is renewed the incentive fee
will be computed in the same manner as in year ten.
The hotel operator will also receive reimbursement for marketing and
reservations system costs incurred in connection with the operation of the
hotel. In addition, the hotel operator will be entitled to be reimbursed for
costs incurred by the hotel operator in connection with special promotional
programs, training materials, travel by head office personnel and others on
matters directly involving the hotel, and other similar expenses.
24
<PAGE>
TERMINATION OF HOTEL OPERATOR.
The appointment of the hotel operator under the Rental Pool Agreement
will run continuously from the date that the hotel is opened by the hotel
operator for business, as a hotel in the hotel operator's hotel system, until
the tenth anniversary of the opening, unless earlier terminated. The appointment
of the hotel operator will be automatically renewed for four additional terms of
ten years each, provided the following conditions have been satisfied:
o The hotel operator has not defaulted under the Rental Pool Agreement in
accordance with Section 14.1
o The hotel operator has not elected to terminate its own appointment in
accordance with Section 14.3 of the Rental Pool Agreement
o The appointment of the hotel operator has been extended for all prior
periods
The hotel operator may terminate its appointment under the Rental Pool
Agreement at any time and for any reason upon 60 days' prior notice to the board
of directors of the Condo Association. The appointment of the hotel operator
under the Rental Pool Agreement may be terminated in accordance with Section
14.2 of the agreement.
If the appointment of the hotel operator is terminated, the hotel
operator will be paid the amount of its fees that have accrued or been earned up
to the date of termination. Fees that are computed on an annual or other
periodic basis will be amortized and prorated based on the date of termination.
In addition, upon termination the hotel operator, or its affiliates, will convey
Unit C-3 (as defined in the Condo Declaration) to the Condo Association in
accordance with the terms of the Condo Declaration and any shortfalls
experienced thereafter from the operation of the hotel shall be the
responsibility of the owners in accordance with the owner's allocable share of
the shortfall as determined by multiplying the total amount of the shortfall by
the owners percentage interest of a unit. The formula for determining the
percentage interest of a unit is described in the section entitled "Allocation
of Revenues and Expenses."
To the extent that we, or any of our affiliates, own units, with
respect to any vote of the owners to terminate the hotel operator, the hotel
operator for itself and on behalf of its affiliates irrevocably appoints the
president of the Condo Association as its proxy for the limited purpose of
casting the hotel operator's and its affiliates votes as abstentions on such
matters. Furthermore, for purpose of determining whether the required number of
units have voted to terminate the hotel operator, votes recorded as abstentions
shall not be counted toward a quorum or as having been entitled to vote on these
matters.
REMOVAL OF THE HOTEL OPERATOR'S BRAND
Pursuant to the Condo Declaration, which constitutes a recorded
restriction on the hotel and each unit, all of the units must, at all times, be
subject to the Rental Pool Agreement. Unless the Rental Pool Agreement is
amended to remove this requirement, any existing unit will automatically be
subject to the Rental Pool Agreement. Should the hotel operator cease to manage
and operate the hotel at any time and the hotel would no longer be operated as
part of Terremark Hospitality, the name of the hotel would be changed to remove
references to Fortune House, and alternate reservation and marketing services
would have to be arranged by the board of directors.
SALE OF A UNIT BY AN OWNER
There are a number of conditions that must be satisfied in connection
with the sale of a unit by an owner. Prior to entering into an agreement for the
sale of a unit, the selling owner must provide the proposed purchaser with a
copy of the Rental Pool Agreement and must notify the proposed purchaser of any
proposed bookings of the unit by the selling owner. In addition, the purchaser
must, as a condition of the purchase, ratify the Rental Pool Agreement, appoint
the hotel operator as its exclusive agent for the management and rental of the
hotel and the unit, and expressly assume the obligations of an owner pursuant to
a form acceptable to the hotel operator. The Rental Pool Agreement does not
terminate upon the death or the attempted withdrawal of an owner or upon the
sale or transfer of a unit by an owner.
25
<PAGE>
SUMMARY OF DECLARATION AND RELATED DOCUMENTS
The Condo Declaration, the Articles of Incorporation and the Bylaws of
the Condo Association impose a number of covenants, conditions, and restrictions
on the units and unit owners. See Exhibits 10.1, 10.2, and 10.3.
THE ASSOCIATION.
The Condo Association will be formed as a Florida not for profit
corporation to perform various functions pertaining to the running of the Condo
Association. The Condo Declaration, which has been established by Terremark
Fortune House #2, Ltd. as declarant, is recorded against title to the property.
An owner of a unit automatically becomes a member of the Condo Association.
Membership in the Condo Association may not be transferred or retained
separately from any unit.
The Condo Association will supervise and perform any and all necessary
maintenance, repair or replacement of any common element or of any portion of a
unit which is maintained by the Condo Association pursuant to the Condo
Declaration or as necessary to prevent damage to the common elements or to a
unit or units. The hotel operator under the Rental Pool Agreement is responsible
for the maintenance, management, repair and administration of the hotel,
including the units and all of the furniture, fixtures, equipment and other
items located around the hotel pursuant to the terms of the Rental Pool
Agreement. The Condo Association may receive the preliminary annual operating
plan and budget prepared by the hotel operator; however, the Condo Association
will have no rights to approve or reject the operating plan and budget submitted
by the hotel operator. If the hotel operator defaults in its obligations under
the Rental Pool Agreement or if the Rental Pool Agreement terminates and is not
concurrently replaced with a new hotel operator and a new Rental Pool Agreement,
the Condo Association shall be responsible for managing and operating the hotel.
The Condo Association will levy annual assessments against each unit
based on its estimate of the cost to operate the Condo Association and perform
its obligations under the Condo Declaration. The assessment against each unit
shall consist of the total estimated common expenses set forth in the budget
adopted by the board of directors of the Condo Association multiplied by the
allocable share attributable to each unit. If the board of directors determines
during any fiscal year that available Condo Association funds are or will become
inadequate to meet common expenses of the Condo Association for any reason, the
board of directors may increase and reallocate common expense assessments for
that fiscal year. Initially, and for the foreseeable future, the common expenses
of the Condo Association are expected to only cover the cost of an errors and
omissions insurance policy for the board of directors and annual corporate
filing fees levied by the State of Florida in connection with keeping the Condo
Association in good standing.
In addition to common expense assessments, the Condo Association may
levy special assessments for the purposes of defraying the cost of any
construction, repair or replacement of capital improvements to Condo Association
property and/or common elements.
If any common expenses are caused by the negligence or other misconduct
of any particular owner, the Condo Association shall assess that common expense
exclusively against the owner, to the extent not covered by insurance.
Assessments shall either be payable in whole or in installments, as
established by the board of directors. The Condo Association is responsible for
enforcement and collection of the assessments. Delinquent assessments shall
accrue interest and may be subject to other late fees. The Condo Association has
the right to enforce all other rights and remedies to collect assessments,
including but not limited to foreclosing any assessment lien against a
defaulting owner's unit.
Voting Rights.
All voting rights are vested exclusively in the members of the Condo
Association. We, as the declarant have the right to appoint all of the members
of the board of directors until unit owners other than us own 15% or more of the
units. The board members and officers are not required to be owners. When unit
owners other than us own 15% or more of the units, the unit owners other than us
shall be entitled to elect not less than one-third (1/3) of the members
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of the board of directors. Unit owners other than us are entitled to elect a
majority of the members of the board of directors whenever any of the following
conditions occur:
o Three years after 50% of the units that will be operated ultimately by
the Condo Association have been conveyed to purchasers
o Three months after 90% of the units that will be operated ultimately by
the Condo Association have been conveyed to the purchasers
o When all of the units that will be operated ultimately by the Condo
Association have been completed, some of them have been conveyed to
purchasers, and none of the others are being offered for sale by us in
the ordinary course of business
o When some of the units have been conveyed to purchasers, and none of
the others are being constructed or offered for sale by us in the
ordinary course of business
o seven (7) years after recordation of the Declaration of Condominium in
the public records.
The Condo Declaration provides that within ninety days after unit owners other
than us elect a majority of the members of the board of directors, we shall
relinquish control of the Condo Association. After termination of the period of
Condo Declaration control, each member will be entitled to cast one vote for
each unit owned by the member in all meetings of the members of the Condo
Association. Only a single vote may be cast for each unit, regardless of how
title is held.
The Condo Declaration may only be amended or modified by an affirmative
vote of not less than 66-2/3% of the residential unit owners, except in cases
involving our exercise of development rights, reconstruction or repair after
fire or other casualty, occupancy restrictions for the property, relocation of
common elements or boundaries between units, subdivision of units, or
termination of the condominium. In addition, the approval of 51% of the holders
of first priority mortgage liens with respect to the units is required in
connection with certain acts of the Condo Association.
Meetings.
The Condo Association is required to hold annual meetings. Special
meetings of the Condo Association may be called by the President or may be
called by a majority of the board of directors of the Condo Association, and
must be called by the President or Secretary upon the written request from a
majority of the members of the Condo Association. All Condo Association meetings
will be held pursuant to the posting and mailing of notice to the members not
less than fourteen days nor more than sixty days prior to the date of the
meeting. Members of the Condo Association, in person or by proxy, entitled to
cast in excess of 33-1/3% of the total authorized votes of members will
constitute a quorum. If a quorum is not present at any meeting, the members who
are present at the meeting, either in person or by proxy, may adjourn the
meeting until a quorum is present, provided notice of the newly scheduled
meeting is given in the manner required for giving notice of a meeting.
Board of Directors; Officers.
Unless the Condo Declaration and other condominium documents or
applicable law require a vote of the members, approvals or actions to be given
by the Condo Association will be valid if given or taken by the board of
directors. The board of directors will consist of not less than three nor more
than five directors, who, except during the period of our control, must be
members of the Condo Association. Following the period of our control, directors
will be elected for staggered year terms. Except with respect to the directors
we appoint, any director may be removed with or without cause by a majority of
the votes of all the voting interests at a special meeting of the members of the
Condo Association.
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The board of directors is responsible for the control and management of
the Condo Association and the disposition of its funds and properties. The
responsibilities of the board of directors include, but are not limited to:
o Maintaining bank accounts on behalf of the Condo Association
o Enforcing by legal means the provisions of the Condo Declaration and
other condominium documents
o Preparing and adopting an annual budget for the Condo Association prior
to the commencement of each fiscal year
o Exercising for the Condo Association all powers, duties, and authority
vested in or delegated to the Condo Association and not reserved to the
membership by other provisions of the Condo Declaration or other
condominium documents
o Supervising all officers, agents and employees of the Condo Association
and seeing that their duties are properly performed
o Levying, collecting, and enforcing the payment of assessments in
accordance with the provisions of the Condo Declaration
o Causing to be procured and maintained adequate insurance as required by
the Condo Declaration; and engaging providers of professional services
including attorneys, accountants and property managers, to render
services to the Condo Association
Officers of the Condo Association will include a president,
vice-president, secretary, and treasurer to be elected by the board of
directors. The board of directors from time to time shall elect other officers
and designate their powers and duties as the board of directors shall deem
necessary or appropriate to manage the affairs of the Condo Association.
USE RESTRICTIONS
Restrictions on the use of the residential units appear in the Condo
Declaration and other documents. The use restrictions include, but are not
limited to, the following:
o The units must be used only for commercial rental/ transient purposes
by the hotel operator. They shall be used by the public for tourist,
visitor and transient accommodations
o A unit owner may not individually lease his residential until or
directly or indirectly charge rent or any form of consideration for the
use of the owner's unit except in accordance with the terms and
conditions of the Rental Pool Agreement
o The use of the units is subject to the requirements of the Condo
Declaration, the Rental Pool Agreement, the Articles of Incorporation,
Bylaws and the other condominium documents
o The Residential unit owners are permitted to make use of the common
elements in accordance with the terms and conditions of the Condo
Declaration and the Rental Pool Agreement
o An owner may use his unit for up to a maximum of 120 days per year,
which use shall be subject to additional restrictions contained in the
Rental Pool Agreement
o No animals are allowed in the units or in other areas of the hotel
except for physical impairment assistive animals to the extent that
they are required by persons at the hotel
o No owner may remove, replace, substitute, alter, repair or add to any
part of the hotel (including the owner's unit) or any of the furniture,
fixture or equipment located in and around the hotel (including in
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any unit) without the prior written approval of the hotel operator and,
if required, architects and engineers
DEVELOPMENT RIGHTS
During the period of our control, we retain development rights that
enable us to do, among other things, the following:
o Create units, easements or common elements
o Subdivide units, convert units into common elements, or convert common
elements into units
o Amend the Condo Declaration to correct errors or to comply with
applicable law provided that the amendment does not adversely affect
the rights of any owner and to comply with the rules and requirements
of applicable governmental and quasi-governmental agencies.
INSURANCE
The Condo Association shall use its best efforts to maintain insurance
coverage, which covers property damage, public liability, fire, flood and other
hazard insurance coverage with respect to the common elements and Condo
Association property. The amount of the insurance will be based on the full
replacement cost. In addition, the Condo Association shall use its best efforts
to obtain insurance against loss or liability due to property damage, personal
injury or death of persons while located at the hotel, and which policy will
have limits required by the board of directors, but in no event less than a
combined single liability limit of $1,000,000.00 per occurrence. The Condo
Association will also use its best efforts to maintain worker's compensation
insurance to the extent necessary to meet applicable legal requirements, and
director's and officer's liability insurance in those amounts as may be
determined by the board of directors. The Condo Association may maintain other
insurance affording additional coverage with any applicable limits as the board
of directors may determine. All insurance policies shall name the Condo
Association, individually, and as agent for the owners of units covered by the
policy, without naming them, and as agent for their mortgagees, without naming
them, as insured.
The Condo Association shall obtain and maintain adequate fidelity
bonding on all persons who control or disburse funds of the Condo Association in
an amount not less than the minimum sum required by the statute.
Each owner shall obtain and maintain at all times, individual casualty
and general liability policies insuring the property lying within the boundaries
of their unit and for their personal liability arising in the use of their own
unit and other areas of the common elements for which they have exclusive use.
ENFORCEMENT OF DECLARATION
The Condo Association will do all things necessary to enforce each
owner's obligations under the Condo Declaration, including, without limitation,
with respect to non-payment of assessments, the filing and foreclosure of liens,
and the bringing of an action at law against the owner personally. All unpaid
assessments will constitute a lien on a unit superior to all other liens except
for tax and special assessment liens and unpaid sums under a first mortgage.
TERREMARK FORTUNE HOUSE #2, LTD.
MANAGEMENT
Terremark Fortune House #2, Ltd., a Florida limited partnership, is
comprised of Terremark Fortune House # 2, Inc., a Florida corporation, which its
general partner, and Terremark Real Estate Group, Inc. (formerly known as
Terremark Group, Inc.), a Florida corporation, which is its limited partner.
Both Terremark Fortune House #2, Ltd. and Terremark Real Estate Group, Inc. are
subsidiaries of Terremark Worldwide, Inc., a Delaware corporation which is
publicly traded on the American Stock Exchange under the symbol "TWW." The
management of Terremark Fortune House #2, Ltd. is made up of the following:
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<TABLE>
Terremark Fortune House # 2, Inc. Terremark Real Estate Group, Inc.
(General Partner) (Limited Partner)
--------------------------------------- ----------------------------------------
<S> <C> <C>
Michael L. Katz President and Director President and Director
Brian K. Goodkind Executive Vice President, Secretary and Executive Vice President, Secretary
Director and Director
William J. Biondi Vice President and Director Vice President and Director
Edward P. Jacobsen Vice President and Director Vice President and Director
Irving A. Padron Vice President, Treasurer and Director Vice President, Treasurer and Director
Robert I. Finvarb Vice President Vice President
</TABLE>
Michael L. Katz, President and Chief Operating Officer - Terremark Real Estate
Group, Inc.; President - Terremark Development, Inc.
Mr. Katz has served as president and COO of Terremark Real Estate
Group, Inc. with primary responsibility for supervising all operations of
Terremark Real Estate Group, Inc. and all its subsidiaries since the merger of
KB Commercial Real Estate Group in 1998. Mr. Katz co-founded KB Commercial and
served as its Chairman from 1987 to 1997. KB Commercial provided a full range of
real estate services, primarily focused on asset management, and all of its
disciplines for its institutional clients. From 1976 to 1987, Mr. Katz served as
President and CEO of Modular Development Corp., which provided development and
general contracting services through its affiliate BEC Construction, for its own
account and that of its clients. Mr. Katz has been a member of The Florida Bar
since 1974.
Brian K. Goodkind, Executive Vice President and Chief Operating Officer -
Terremark Worldwide, Inc.
Mr. Goodkind has served as Vice-Chairman and Executive Vice President
of Terremark Worldwide, Inc. since 1998. In this capacity, Mr. Goodkind oversees
the operations, office management, risk management, development of systems,
human resources, and legal matters for Terremark Worldwide. Mr. Goodkind has
been a member of The Florida Bar since 1982, and was in private practice from
1982 to 1998, specializing in commercial litigation, employment law,
international transactions, and real estate. His experience includes over 11
years as one of two founding partners of a seventy-attorney full-service law
firm, for which he served as managing partner for over five years. Among Mr.
Goodkind's clients in private practice were several U.S. based publicly traded
companies, trading companies with operations throughout Latin America, and South
Florida based real estate development companies, including Terremark Worldwide.
William J. Biondi, President - Terremark Management Services, Inc., Terremark
Realty, Inc., and Terremark Financial Services, Inc.
Mr. Biondi joined the senior management of Terremark Group upon the
merger of KB Commercial Real Estate Group in 1998. With over 25 years of
commercial real estate experience in the South Florida marketplace, Bill Biondi
adds in-depth market and product knowledge, experience and know-how to the team.
This experience includes positions as President, CEO and Co-founder of
Clark-Biondi Company from 1975 to 1985, President and CEO of Grubb & Ellis of
Florida from 1985 to 1987, and President and CEO of KB Commercial Real Estate
Group from 1987 to 1998. Having earned the prestigious CCIM and CPM
designations, Mr. Biondi has a solid background in all aspects of office
building development, rehab, sales, leasing and day-to-day portfolio management.
As President of Terremark Management Services, Inc., Terremark Realty,
Inc., and Terremark Financial Services, Inc., which are all subsidiaries of
Terremark Worldwide, Inc., Mr. Biondi oversees the management, brokerage, and
leasing activities of these three divisions, as well as business generation.
Today, Terremark Management successfully manages approximately one and a half
million square feet of commercial office space, while Terremark
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Realty's commercial sales & leasing division handles third party transactions
for foreign and domestic, institutional and entrepreneurial clients worldwide.
Edward P. Jacobsen, President - Terremark Construction Services, Inc.
Mr. Jacobsen joined Terremark Worldwide, Inc. in 1991 to help establish
offices and manage post-war construction projects in Kuwait and Saudi Arabia. In
1993, he returned to Terremark Worldwide's corporate headquarters in Miami to
assume managerial responsibility of all development, construction, and property
management operations. Mr. Jacobsen currently serves as President of Terremark
Construction Services, Inc., a subsidiary of Terremark Worldwide, where he
administers all construction operations for the company. This role includes
research and analysis of potential development opportunities, as well as
feasibility, construction, and budget analysis. Mr. Jacobsen holds licenses as a
professional engineer, general contractor, and real estate salesperson in the
State of Florida.
Irving A. Padron, Jr., CPA, Senior Vice President, Chief Financial Officer -
Terremark Worldwide, Inc.
Mr. Padron joined Terremark Worldwide in 1997 after having held the
position of Manager with KPMG Peat Marwick's financial service practice in
Miami, focusing on the development of that firm's real estate practice. Mr.
Padron was with KPMG Peat Marwick from 1992 to 1997. As Senior Vice President
and Chief Financial Officer, Mr. Padron is responsible for the financial
operations of Terremark Group and its subsidiaries. His specific duties include
supervision over the accounting, financial reporting, and tax functions, as well
as budgeting, financial planning and forecasting, cash management, and financial
analysis. Mr. Padron also participates as a member of senior management in
corporate strategic planning, as well as the targeting and due diligence of
potential investments.
Robert I. Finvarb, Vice President and General Counsel - Terremark Real Estate
Group, Inc.
Mr. Finvarb has served as Vice President and General Counsel of
Terremark Real Estate Group since January 1, 2000. His responsibilities include
overseeing all of the legal matters of Terremark Group and all of the
subsidiaries. Mr. Finvarb has been a member of the Florida Bar since 1993 and
was in private practice from 1993 to 1998, specializing in complex real estate
and corporate transactions. From 1998 to 2000, Mr. Finvarb served as Vice
President and General Counsel for Williams Island Associates, a leading luxury
residential condominium developer in Aventura, Florida. Mr. Finvarb received a
B.S. in Accounting from the University of Florida and a J.D. from Georgetown
University Law Center.
DEVELOPMENT OF THE HOTEL.
Terremark Fortune House #2, Ltd. formed on November 17, 1999, has been
formed solely to design, develop, finance, construct and market the hotel.
Terremark Fortune House #2, Ltd. will finance the construction of the hotel
through third-party construction financing. The total estimated acquisition,
construction, development, marketing costs, financing costs (including a return
on internally generated funds), and overhead costs in connection with the
project are estimated to be $70,000,000. Actual costs may vary depending on
final design, control of the construction costs, the length of time to construct
and market the project and unforseen factors such as labor and material
shortages. Management of Terremark Fortune House #2, Ltd. includes members of
management of Terremark Fortune House # 2, Inc., which is its general partner
and Terremark Real Estate Group, Inc., which is its limited partner.
PRIOR DEVELOPMENTS OF TERREMARK WORLDWIDE, INC.
Terremark Worldwide has created various local and international
projects including CocoWalk, a 143,000 square foot specialty retail center and
winner of the Urban Land Institute Project of the Year, Terremark Centre, a
300,000 square foot Class "A" office building, and Fortune House - Miami, a
296-unit condo-hotel. Its extensive experience in the South Florida market
includes the development of Grove Hill, an 80-unit luxury residential
condominium and Banco Santander Center, winner of the 1992 BOMA Building of the
Year/Modernized Building. Current
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developments include the 278-unit Fortune House-Fort Lauderdale Beach
condo-hotel, as well as the 1.5 million square foot Four Seasons Hotel & Tower
and Brickell Village, which will include nearly 3 million square feet of retail
and entertainment, residential and office space. Terremark Worldwide also
currently manages over 2 million square feet of prime commercial and residential
real estate in South Florida.
CONFLICTS
Terremark Fortune House #2, Ltd. and Terremark Hospitality are
affiliated parties and have not engaged in arms- length negotiations when
arriving at the terms under which Terremark Hospitality will provide services to
the hotel. We are confident, however, that the terms arrived at are fair and
reasonable for the related services which will be provided by them.
DETERMINATION OF PURCHASE PRICE
The initial purchase price of the units has been determined by us
solely on the basis of our subjective evaluation of marketing considerations. No
independent valuations have been obtained for purposes of determining the value
of the units. We may increase or decrease the purchase price in response to
market conditions and demand based on configuration, view or location within the
hotel. Adjustments could be applied in different amounts to the same type of
units based on location and may not be uniformly applied to all units of the
same type. The price of a unit cannot be changed once a purchase contract has
been executed for the unit. There can be no assurance that units can be resold
at or in excess of the purchase price. No organized market for the trading of
units is expected to develop as a result of this offering. Units may be offered
for resale personally or through securities broker-dealers.
USE OF PROCEEDS
Assuming that all of the units offered hereby are sold, the gross
proceeds from the sale of the units will be approximately $95,000,000 exclusive
of offering expenses (estimated at $100,580, and sales commissions of
$6,712,500). All of the net proceeds of this offering will be paid to Terremark
Fortune House #2, Ltd. except for amounts paid in addition to the purchase price
for closing costs that are payable to third parties. None of the net proceeds
representing the purchase price of the units will be available to fund
operations of the hotel. The total revenue less the total estimated costs of
$70,000,000 represent Terremark Fortune House #2, Ltd.'s pre-tax profit and are
available to pay management fees to its parent and distributions to partners and
income taxes. Terremark Fortune House #2, Ltd. will deliver the units free and
clear of any and all liens.
PLAN OF DISTRIBUTION
The units are being offered on a best efforts basis by Southeastern
Securities Inc, a broker-dealer affiliated with Terremark Fortune House as
principal distributor. The minimum subscription is one unit. Broker-dealers
including the principal distributor will receive a commission of up to 5% of the
sales price of a unit for each unit sold. The principal distributor will also
receive a fee of 1% of the total purchase price of the units for acting as
principal distributor and for expenses incurred in connection with coordinating
sales efforts and performing wholesaling activities.
The closing on the sale of units will not occur until the hotel is
completed and ready for operation. No minimum number of units must be sold
before Terremark Fortune House can close on the units. Subsequent closings will
occur upon the sale of each unit. The offering will terminate upon the earlier
of the sale of all the units in the offering or two years from the effective
date of this prospectus.
Retirement plans and individual retirement accounts may not purchase
the units. No sales will be made to discretionary accounts without prior written
approval of the prospective investor.
Terremark Fortune House and each broker-dealer participating in the
offering have agreed to indemnify each other against material liabilities
including liabilities under the Securities Act of 1933, the Securities Exchange
Act of 1934, and any and all applicable Florida securities laws.
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HOW TO PURCHASE
To purchase a unit, a prospective owner must execute a purchase
contract in the form appearing in Annex D and agree to be bound to its terms and
the terms of the Rental Pool Agreement, the Condo Declaration and Condo
Association Bylaws. All purchasers are subject to the review, approval and
acceptance by Terremark Fortune House, whose decision shall be final. Upon
executing a purchase contract, a down payment must be paid of at least 10% of
the purchase price of the unit acquired. Checks must be made payable to Broad &
Cassel, as escrow agent for Terremark Fortune House. Upon completion of the
hotel, the owner will be required to pay Terremark Fortune House the balance of
the purchase price and closing costs and to contribute an amount equal to the
percentage interest of the unit being purchased multiplied by $250,000 to the
operating cash reserve of the hotel. (See Annex A for exact amounts.) Upon
payment of the balance of the purchase price, the title company will record a
deed to the owner from Terremark Fortune House and disburse the purchase
proceeds to Terremark Fortune House, net of all closing costs. The title company
will also record the lien securing any loan that an owner may obtain to finance
the unit. The hotel, including all units, must be completed within two (2) years
of the date of the first purchase contract is executed, except for the first 99
contracts signed, which can be completed more than two (2) years following
execution of the first 99 contracts.
Funds deposited as down payments will be held by Broad & Cassel, as
escrow agent, for the benefit of purchasers until the initial closing. In the
event the hotel is not completed as a result of the default of Terremark Fortune
House, all funds held in escrow, including interest, if any, will be refunded.
Amounts held in escrow are non-refundable if the purchaser breaches the purchase
contract. Upon completion of the hotel, funds will be released from escrow to
the title company to facilitate the closing of the units.
In addition to setting forth the purchase price of a unit and terms of
payment, the purchase contract grants each a prospective owner, provided that
owner is not one of the first 99 people to sign a contract, certain rights and
remedies if the hotel is not completed within twenty four months following the
date the prospective owner executes the purchase contract.
Purchasers may procure financing from any available source and will be
required to qualify for financing based on the requirements of the particular
lender. All financing costs in excess of the closing costs paid by the seller as
set forth above will be the obligation of individual purchasers who elect to
finance the purchase of a unit. If a prospective owner is rejected for a loan,
the prospective owner must otherwise proceed to close and shall not have any
right to cancel the contract.
MATERIAL FEDERAL AND STATE INCOME TAX ASPECTS
Set forth below is a summary of the material federal income tax
considerations related to the offering, but does not address all tax
considerations that may apply to a particular owner. This summary of the tax
aspects is based on the Internal Revenue Code of 1986, on existing Treasury
Department Regulations, and on administrative rulings and judicial decisions
interpreting the Internal Revenue Code. Legislative amendments, administrative
changes and judicial decisions could modify or change completely the statements
expressed below about the federal income tax consequences of the purchase of a
unit and participation in the rental pool. Additionally, the interpretation of
existing law and regulations described here may be challenged by the IRS during
an audit of the rental pool's information return or an owner's individual
return. Moreover, a successful challenge of the rental pool's information return
would likely result in an adjustment to an owner's individual return.
The following summary of tax aspects generally assumes that the
investor is an individual and is a United States citizen or resident. The
following discussion is only a summary and is limited to those areas of federal
income tax law that we consider likely to be most important to individual
investors owning interests in rental pools. Although the hotel will furnish the
owners with the information regarding the hotel as is required for income tax
purposes, each owner will be responsible for preparing and filing his or her own
tax returns. Accordingly, prospective investors are urged to consult, and must
depend upon, their tax advisors regarding their individual circumstances,
especially if the prospective investor is not an individual, and the federal,
state, local and other tax consequences arising out of their participation as
owners.
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Unless otherwise noted, the discussion in this section represents the
opinion of Adorno & Zeder, P.A., Miami, Florida, which is counsel for Terremark
Fortune House. Adorno & Zeder's opinions expressed in the following discussion
are only opinions that the tax law results described are more likely than not to
be the tax law results that should occur, subject to any conditions stated in
the particular section of this discussion that states any tax law conclusions.
Although Adorno & Zeder's opinions represent its best judgment as of the date of
this prospectus and are based on legal authorities published, and available in
Miami, Florida, as of that date, those opinions do not bind the IRS or in any
way constitute an assurance that the IRS will agree with the federal income tax
consequences described. Further, no rulings have been requested from the IRS
with respect to the matters discussed in this section and we do not intend to
obtain any rulings.
ENTITY CLASSIFICATION OF RENTAL POOL AND TAXATION OF OWNERSHIP OF UNITS.
Under Section 301.7701-2 of the Regulations, an arrangement is
classified as an organization if there are (1) associates, and (2) an objective
to carry on business for joint profit. Pursuant to the provisions of the Rental
Pool Agreement, the hotel operator will rent the unit of each owner on behalf of
the owner. Profits from the rental of units will be shared proportionately by
the owners of the units. Adorno & Zeder believes that the sum of the
relationships created by the Rental Pool Agreement causes the owners to be
associates. Furthermore, Adorno & Zeder believes that there is a common profit
motive between the owners because net profits are shared proportionately by the
owners. Therefore, although each owner will be the legal owner of a separate
unit, because of provisions in the Rental Pool Agreement relating to the sharing
of income and expenses of the property, the owners likely will be treated as
participants in an association taxable as either a partnership or a corporation
for federal income tax purposes.
If, consistent with tax counsel's opinion, an association is created by
the sum of the contractual relationships between the owners of the units, the
federal income tax consequences to the owner of a unit will depend upon the
association's classification for federal income tax purposes. If the association
is classified as a partnership for federal income tax purposes and is not a
"publicly traded partnership," it will not be subject to any federal income tax.
Instead, an owner will be subject to tax on his or her allocable share of the
partnership's income and gain, and may be entitled to claim his or her allocable
share of the partnership's losses. However, deduction of an owner's allocable
share of loss from a partnership is subject to many important limitations, some
of which are discussed below. A detailed explanation of these limitations is
beyond the scope of this general discussion. Prospective owners should consult,
and must depend on, their own tax advisor's advice concerning detailed
application of partnership tax rules to their specific tax situations.
If the arrangement created by the Rental Pool Agreement is classified
as an association taxable as a corporation or as a "publicly traded
partnership," owners will be treated as shareholders of a corporation, and (1)
the taxable income of the organization will be subject to the federal income tax
imposed on corporations, (2) items of income, gain, loss and deduction will not
flow through to the owners to be accounted for on their individual federal
income tax returns, and (3) distributions, if any, will be treated as corporate
distributions to owners, some or all of which may be taxable as dividends.
PARTNERSHIP ANTI-ABUSE RULE
Regulation Sec. 1.701-2, gives the IRS broad authority to disregard a
partnership in whole or in part, to refuse to treat a partner as a partner, to
adjust a partnership's methods of accounting, or to alter or disregard
partnership allocations in the case of a partnership which the IRS determines to
have been formed or availed of with a principal purpose of substantially
reducing the present value of the partners' aggregate federal tax liability in a
manner which, even though in compliance with the literal language of the
Internal Revenue Code or regulations, the IRS determines to be "inconsistent
with the intent of subchapter K" of the Internal Revenue Code. While Adorno &
Zeder does not believe that the anti-abuse rule has any application to the
rental pool and its operations as presently contemplated, the IRS is given very
broad power under the regulation. Tax advisors can only speculate as to how such
power might be used and how it may be applied to future facts. Accordingly,
Adorno & Zeder has not given an opinion on this matter.
34
<PAGE>
CLASSIFICATION AS A PARTNERSHIP.
In Adorno & Zeder's opinion, the rental pool and the arrangements for
sharing of rental income and payment of related rental pool expenses more likely
than not will be treated as an association taxable as a partnership for federal
income tax purposes. Moreover, the rental pool will elect to be taxed as a
partnership pursuant to Treasury Regulations referred to as "check-the-box"
regulations. These regulations generally permit an entity to choose its
classification for federal income tax purposes. A partnership incurs no federal
income tax liability. Instead, each partner is required to take into account an
allocable share of the partnership's net income or loss and an allocable share
of specially characterized items (e.g., capital gains and losses) in computing
his income tax liability. Distributions by a partnership to a partner generally
are not taxable unless the distributions exceed the partner's adjusted basis in
his partner interest.
Owners in the rental pool for any year will be required to report on
their own federal income tax return their share of partnership income allocated
to them under the Rental Pool Agreement. The rental pool will file an annual
partnership information return, and each owner will be provided with the
information required for the preparation of the owner's respective federal
income tax return.
The discussion that follows is based upon the assumption that the
owners will be treated for tax purposes as the owners of their unit and their
undivided share of the hotel common areas and that the rental pool will be
classified as a partnership and not as a corporation for federal income tax
purposes. Owners will be considered partners who have contributed the use of a
unit, not its ownership, to the rental pool, so that each participating owner
will report separately items of expense or deduction relating to the ownership
of a unit, including interest and depreciation subject to the limitations
described below.
TAX CONSEQUENCES OF RENTAL POOL TO OWNERS.
Rental Pools.
No federal income tax is paid by a partnership as an entity. Instead,
each partner is required to report on his income tax return his distributive
share of a partnership's income, gain, loss, deduction or credit (and items of
tax preference), regardless of whether any actual distribution is made to that
partner during his taxable year. Consequently, a partner's share of the
partnership's taxable income may exceed the cash, if any, actually distributed
to that partner. Conversely, actual (or constructive) distributions of money
from a partnership will be taxable only to the extent that the distributions
exceed the adjusted basis of the partner's interest in the partnership,
regardless of whether the partnership has current income. The characterization
of an item of income or loss generally will be the same for the partners as it
is for the partnership.
The rental pool's items of income, gain, loss, deduction or credit will
be allocated proportionately between the owners. Each owner will be required to
report his allocable share of rental pool income on his individual return. In
addition, to the extent Terremark Hospitality contributes cash to the rental
pool to ensure a break even cash flow after an implied debt service for the
first year of operations, that cash will be treated as income by the rental pool
and each owner will be required to report his allocable share of the income on
his individual return. This income is treated the same for tax purposes as
though the hotel had received revenue from the rental of hotel suites.
The extent to which an owner may deduct his or her distributive share
of the rental pool's expenses will depend upon:
o Whether the rental activity engaged in is with the intent of making a
profit (Section 183)
o whether the unit constitutes a "dwelling unit" (Section 280A)
o whether the rental activity is a "passive activity" (Section 469)
o whether the taxpayer is "at risk" with respect to the activity (Section
465)
o the limitations on interest deductions.
35
<PAGE>
Additional provisions of the Internal Revenue Code may also limit a specific
taxpayer's deductions. Moreover, to the extent that an owner's share of rental
pool losses exceeds the basis of his unit, these excess losses cannot be
utilized in that year by that owner for any purpose, but are allowed as a
deduction (subject to the limitations described above) when that owner's
adjusted basis for his units at the end of any year exceeds zero (before
reduction by the suspended loss).
Section 183.
Section 183 of the Internal Revenue Code provides that, in the case of
an activity engaged in by an individual or an S corporation, deductions
attributable to the activity will be limited to the gross income generated by
the activity if the activity is not engaged in for profit. Losses disallowed
under Section 183 are not merely suspended but are permanently denied. The
Regulations under Section 183 provide a three-tier system of permitted
deductions up to a maximum of the gross income from the activity. The
Regulations also provide rules for allocation of expenses to the specific tiers.
Section 1.183-2 of the Regulations provides that all facts and
circumstances are to be taken into account and no one factor or combination of
factors is determinative. The Regulations list nine factors that will generally
be considered, but caution that other factors may also be relevant. Because the
presence or absence of a profit objective is in part a factual issue which
depends upon the individual circumstances of each owner, it is impossible to
presently predict, and impossible for Adorno & Zeder to opine, with accuracy
whether a particular owner will be able to establish that he or she has a profit
objective.
Section 183 creates a presumption in favor of the determination that
the activity is engaged in for profit if a profit (without regard to operating
loss carry forwards) is realized in three out of five consecutive years. To
allow the presumption to work, an owner is given an election to postpone the
determination of whether the presumption applies until the end of the fourth
taxable year following the taxable year in which he first purchased his unit and
engaged in rental activity. An owner should make an election as prescribed in
the Regulations to preserve the ability to take advantage of this presumption
and the delay in determining its application. An owner should note that we make
no assurances or representations concerning whether an owner can expect a profit
from the rental pool within four years, however, we believe that the rental pool
will more likely than not be considered an activity engaged in for profit.
Section 280A.
The Section 280A home business expense disallowance rule applies to any
"dwelling unit" used by the taxpayer as a residence. Taxpayers include
individuals, partnerships, trusts, estates, and S corporations. Section 280A
does not apply to a regular corporation, except in its capacity as a member of a
partnership or S corporation or as a beneficiary of a trust or estate. A
dwelling unit includes a house, apartment, condominium, mobile home, boat or
other similar property that provides basic living accommodations. The
Regulations provide an objective standard for determining whether a taxpayer's
use of a dwelling unit causes it to be considered a residence. The Internal
Revenue Code and Regulations impose a gross income limitation upon deductions
for any owner whose unit is used by the owner for personal use for a number of
days during a taxable year which exceeds the greater of (i) 14 days, or (ii) 10%
of the number of days during the year for which the unit is rented for fair
value. Personal use includes use by the taxpayer, use by the taxpayer's family,
use by an individual pursuant to a reciprocal arrangement that permits the
taxpayer use of another unit, days on which the unit is rented for less than
fair rental, use by other owners in a time sharing arrangement or use by the
taxpayer of other units in a rental pool, and use of the unit as a result of a
charitable donation by the taxpayer. If an owner's use exceeds the greater of
(i) 14 days or (ii) 10% of the number of days during the year for which the unit
is rented for fair value, the Section 280A gross income limitation will apply
and an owner's use of the available deductions from the rental pool will be
limited to the owner's share of rental pool income.
Section 280A also establishes an expense allocation fraction to be used
in apportioning deductions between personal and business use of a property to
which Section 280A applies. The expense allocation formula permits deduction of
the fraction of expenses associated with the property, other than those expenses
that are otherwise
36
<PAGE>
deductible even if a property is used for personal use such as mortgage interest
and real estate taxes, of which the numerator is the days the property is
actually used for business and the denominator of which is the total of the days
the property is actually used (either for business or personal use). With
respect to time sharing arrangements, all owners usage is aggregated in
determining the numerator and denominator of the fraction. This allocation
formula applies if a property is used for personal use for even one day. If a
unit is a dwelling unit, it is possible that units held by other owners could be
aggregated with the unit held by a particular owner, with the result that even
an owner that never used a unit for personal purposes could, nevertheless, have
otherwise deductible expenses reduced pursuant to Section 280A. Because a unit
will more likely than not be considered a dwelling unit, it is Adorno & Zeder's
opinion that the expense allocation fraction will apply to the rental of the
unit. Based upon the expense allocation requirement, an owner will be able to
deduct expenses (other than mortgage interest and real estate taxes) and
depreciation attributable to the rental pool only to the extent allocable to
business use and then only to the extent that the income from the rental pool
exceeds the portion of real estate taxes and mortgage interest allocable to
business use.
Income and Losses from Passive Activities.
The Internal Revenue Code characterizes a number of activities as
producing either passive or portfolio income and loss. Deductions of passive
activity losses incurred by an individual, estate, trust, or personal service
corporation or, with modifications, closely held corporations, may not be used
to offset non-passive activity income. In general, passive activity losses can
be used only to offset passive income, not wages or portfolio income (such as
dividends, interest, annuities and royalties).
In general, a passive activity, is one which: is a trade or business
activity in which the taxpayer does not materially participate, or is a rental
activity. In the opinion of Adorno & Zeder, it is very unlikely that an owner
will be treated as materially participating in the rental pool because, under
the terms of the Rental Pool Agreement, sole authority for the management and
operation of the hotel resides in the hotel operator.
Investments in rental activities generally produce passive income and
loss. Rental activities are treated as passive without regard to whether they
involve the conduct of trade or business or whether the taxpayer materially
participates. The Regulations provide that where the actual or prospective
customer's payments are principally for the use of tangible property, the
activity is a rental activity, even if payments are made pursuant to a service
contract or other arrangement that is not denominated as a lease. There are
several exceptions provided by the Regulations to treatment as a rental
activity, however, Adorno & Zeder does not believe that any of the exceptions
apply to the rental pool. Therefore, it is Adorno & Zeder's opinion that income
from the rental pool will be passive income.
To the extent that an owner has passive losses from other activities,
he should be able to offset those passive losses against his allocable share of
the rental pool's income and profits. Losses and credits disallowed by the
passive activity rules are suspended and may be carried forward and treated as
losses and credits from passive activities in each successive taxable year until
offset by income from passive activities or allowed against other income as a
result of the complete disposition of the taxpayer's interest in that activity.
When a taxpayer's entire interest in an activity is disposed of in a taxable
transaction (other than to a related party), any remaining suspended loss
incurred in connection with that specific activity is allowed in full, first
against income or gain from the activity during the year of disposition, second
against net income or gain from all other passive activities, and thereafter
against income from all sources, including active income. A disposition can
occur through a partner's disposition of his entire partnership interest.
Application of At-Risk Limitations.
Generally, Internal Revenue Code section 465 limits losses that a
taxpayer can claim in real estate and other enumerated activities to the amount
that the taxpayer has at risk with respect to the activities. Losses that are
disallowed in any year because of the at-risk limitations are carried over to
succeeding years and can be used in those years to the extent that the partner's
at-risk amount has increased. A taxpayer is considered at risk in any activity
with respect to:
o The net amount of money and the adjusted basis of property contributed
by the taxpayer to the activity
37
<PAGE>
o any amount with respect to the activity if the taxpayer is considered
personally liable for the repayment of that amount
o the taxpayer's proportionate share of any amount borrowed with respect
to the activity if the lender is an institutional lender and the loan
is secured by real property used in the activity.
A taxpayer is not considered to be at risk to the extent he or she is protected
against loss through nonrecourse financing, guarantees, stop loss agreements or
similar agreements. A taxpayer's at-risk amount is increased by profits earned
in the activity and decreased by losses occurring in the activity. In
determining the amount of loss, if any, disallowed under Section 465, Sections
183 and 280A are applied prior to the application of Section 465, and Section
469 is applied after any limitation under Section 465 is determined.
Limitation on Interest Deductions.
The deductibility of any interest expense incurred by an owner in
purchasing a unit may be limited by the Code. Generally, investment interest may
be deducted to the extent of a taxpayer's net investment income. Investment
interest expense does not include any interest expense which is taken into
account in determining the income or loss from a passive activity, but does
include interest on indebtedness incurred or continued to purchase or carry
property held for investment, a partnership's interest expense attributable to
portfolio income under the passive loss rules, and the portion of interest
expense incurred or continued to purchase or carry an interest in a passive
activity to the extent attributable to portfolio income (within the meaning of
the passive loss rules). Net investment income includes gross income from
property held for investment, gain attributable to the disposition of property
held for investment, and amounts treated as gross portfolio income pursuant to
the passive loss rules less deductible expenses (other than interest) directly
connected with the production of investment income. Investment interest
deductions which are disallowed may be carried forward and deducted in
subsequent years to the extent of net investment income in these years.
In addition, interest expense associated with the purchase and finance
of a unit may qualify as qualified residence interest if an owner's personal use
of a unit exceeds 14 days in any year, the unit is treated as the owner's second
residence, and the loan is secured by the unit.
Owners who intend to finance the purchase of their units with borrowed
funds should consult their own tax advisors before borrowing the funds and
should maintain careful records of any debt they incur to carry or acquire their
units, because the interest on the debt may be investment interest to the extent
the rental pool does not engage in a passive activity or to the extent of any
portfolio income received from the rental pool.
Depreciation/Amortization.
Each owner of a unit used for rental purposes will separately determine
the applicable allowance for depreciation with respect to the unit and any
tangible personal property associated with the unit for any year, subject to the
limitations described above. Section 179 of the Internal Revenue Code allows a
taxpayer (other than trusts, estates and non-corporate lessors) to expense
depreciable business assets in the year of acquisition by electing to treat the
cost of new property as an expense rather than as a capital expenditure subject
to depreciation. The deductions for which the election are made are allowed for
the tax year in which the Section 179 property is placed in service and are in
lieu of a depreciation deduction. Generally, a taxpayer may elect to expense
only tangible personal property under Section 179.
Depreciation deductions available to an owner may not exceed the
taxable income allocation to an owner from the rental pool. Therefore, an owner
should be prepared to pay tax on all or a portion of the income allocated to the
owner from the rental pool. Each owner should consult with his tax advisor to
determine the availability of depreciation deductions based upon unit ownership.
Sale of a Unit.
If a unit is held solely for business purposes for more than one year
by an owner who is not a dealer with respect to the unit, gain or loss realized
on the sale of the unit generally will be considered gain or loss from the sale
of a
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<PAGE>
Section 1231 asset and will be so taken into account in computing the taxpayer's
net Section 1231 gain or loss for the taxable year. A net Section 1231 gain
generally is treated as a long-term capital gain, while a net Section 1231 loss
is treated as an ordinary loss. If any gain on the sale of a unit represents
recapture of depreciation of personal property, that portion of the gain will be
taxable as ordinary income.
No loss will be allowed in connection with the sale of a unit held for
personal use. Any gain realized on the sale of a unit held for personal use will
be a long-term or a short-term capital gain, depending upon whether the unit was
held for more than one year. If a unit is held partly for personal use and
partly for business use, an apportionment of the gain or loss will be required
and each portion will be reported in accordance with the principles stated
above.
To the extent that distributions from the rental pool represent a
return of capital, rather than a distribution of operating proceeds, these
distributions will reduce an owner's basis in his unit. Upon a subsequent sale
of the unit, the owner could therefore recognize a greater taxable gain based
upon the reduced basis.
In the event of an owner's sale or other transfer of a unit, the
distributive share of rental pool income, gain, loss, deduction or credit for
the entire year allocable to the unit generally will be allocated between the
transferor and the transferee, based upon the period of time during the taxable
year that each owned the unit, notwithstanding the timing or amounts of any
rental pool distributions.
ADMINISTRATIVE AND COMPLIANCE MATTERS.
Audit Risk.
The IRS has adopted a policy of auditing, selectively, a large number
of partnership information returns. In view of the IRS's audit programs, the
rental pool's information return may be selected for audit. If the IRS audits
and adjusts the rental pool's information return, it is likely that the IRS will
make corresponding adjustments to the owners' income tax returns. It is also
more likely that the owners' returns also will be audited. It is not expected
that the rental pool will make cash distributions to owners to assist them in
paying a tax liability resulting therefrom.
Resolution of Disputes Involving Rental Pool Items.
The rental pool will be treated as a separate entity for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of partnership items of income,
gain, loss, deduction and credit are determined at the partnership level in a
unified partnership proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code provides for one partner to be designated as
the Tax Matters Partner for these purposes. The board of directors will be
responsible for selecting the Tax Matters Partner for the rental pool.
The Tax Matters Partner is entitled to make a number of elections on
behalf of the rental pool and owners and can extend the statute of limitations
for assessment of tax deficiencies against owners with respect to rental pool
items. The Tax Matters Partner may bind to a settlement with the IRS any owners
with less than a one percent profit interest in the rental pool unless the
owners elect by filing a statement with the Secretary of the Treasury not to
give the authority to the Tax Matters Partner. The Tax Matters Partner may seek
judicial review (to which all the owners are bound) of a final rental pool
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, the review may be sought by any owners having in the aggregate at least
a 5 % profits interest. Only one action for judicial review will go forward,
however, and owners with an interest in the outcome may participate.
The owners generally will be required to treat rental pool items on
their personal federal income tax returns consistent with the treatment of the
items on the rental pool's information return. In general, this consistency
requirement is waived if an owner files a statement with the IRS identifying the
inconsistency. Failure to satisfy the consistency requirement, if not waived,
will result in an adjustment to conform the owner's treatment of the item with
his treatment on the rental pool's information return. Even if the consistency
requirement is waived, adjustments to an owner's tax liability with respect to
rental pool items may result from an audit of the rental pool's or the owner's
tax return. Intentional or negligent disregard of the consistency requirement
may subject an owner to substantial penalties.
39
<PAGE>
POSSIBLE CHANGES IN FEDERAL TAX LAWS.
The Internal Revenue Code is subject to change by Congress, and
interpretations of the Internal Revenue Code may be modified or affected by
judicial decisions, by the Treasury Department through changes in Regulations
and by the IRS through its audit policy, announcements, and published and
private rulings. Any changes may be retroactive. Accordingly, the ultimate
effect on an owner's tax situation may be governed by laws, regulations or
interpretations of laws or regulations which have not yet been proposed, passed
or made, as the case may be. Although significant changes historically have been
given prospective application, no assurance can be given that any changes made
in the tax law affecting an investment in the rental pool would be limited to
prospective effect.
INVESTMENT BY FOREIGN PERSONS.
The rules governing the federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
investors are complex, and no attempt has been made herein to discuss these
rules. Potential investors that are foreign persons should consult with their
tax advisors to fully determine the impact on them of U.S. federal, state and
local income tax laws.
It should be noted, however, that there is imposed a withholding
requirement on dispositions of a U.S. real property interest which includes U.S.
real estate and interests in entities, such as partnerships, holding U.S. real
estate. Therefore, disposition of the property or disposition of a unit will
give rise to a withholding requirement.
CORPORATE INVESTORS.
Section 183 does not apply to corporate owners. Section 280A does not
apply to corporations that are not electing S corporations. Section 469 applies
only to some closely held C corporations and personal service corporations.
However, deduction of expenses associated with the acquisition and ownership of
a unit by a corporation may be disallowed or restricted under other Internal
Revenue Code sections. Corporations that purchase units should consult their own
tax advisor regarding the application of Section 274 of the Internal Revenue
Code, which prohibits the deduction of a number of expenses incurred with
respect to facilities used for entertainment, amusement or recreation. There are
numerous issues involved in corporate ownership, and corporations should obtain
tax advice from their own counsel before purchasing a unit.
STATE AND LOCAL TAXES.
The rental pool's activities will be carried on within the state of
Florida and the rental pool will be considered to be domiciled in the state of
Florida. Florida's income tax law applies to C corporations and does not apply
to partnerships or to individuals.
Owners who are not Florida residents may be subject to taxation by
their state of residence as well as Florida with respect to income derived from
the rental pool. Depending upon applicable state and local laws, Florida
nonresidents may find that some deductions that are available to the owners for
federal income tax purposes may not be available for state or local income tax
purposes. Furthermore, the tax treatment of particular items under other state
or local income tax laws may vary materially from federal income tax treatment.
In addition, owners may be subject to income, gift, estate or inheritance taxes
in the state or locality of their residence or domicile, as well as in the state
of Florida. Prospective owners are urged to consult their tax advisors
concerning those matters.
LEGAL MATTERS
Adorno & Zeder, P.A., Miami, Florida, has passed on tax matters as
described under "Material Federal and State Income Tax Aspects." Prospective
owners should not consider Adorno & Zeder to be their legal counsel with respect
to this offering or any other related matter and are strongly encouraged to seek
the advice of qualified and independent legal counsel with respect to entering
any of the agreements or contracts contemplated by this offering and any other
related matters, including the tax implications of the purchase of a unit.
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EXPERTS
The balance sheet of Terremark Fortune House dated as of March 15, 2000
appearing in this prospectus and registration statement has been audited by
Kaufman Rossin & Co. CPA's, independent auditors, as described in their report
appearing on page FS-1, and is included in reliance upon the report given upon
the authority of the firm as experts in accounting and auditing. The forecasts
included in this prospectus were not prepared or examined by Kaufman Rossin &
Co., and they assume no responsibility for them.
OTHER
The table set forth on page 14 setting forth the historical performance
of the competitive hotel supply for 1995 through 1999 has been obtained for
Terremark Fortune House by the Greater Fort Lauderdale Convention and Visitors
Bureau. The Greater Fort Lauderdale Convention and Visitors Bureau has expressed
no opinion on the information presented and has neither provided any analysis
with respect thereto nor conducted any audit or other procedure to independently
verify the information. The conclusions contained in this prospectus regarding
the information presented are those of Terremark Fortune House. The Greater Fort
Lauderdale Convention and Visitors Bureau is not affiliated with Terremark
Fortune House or associated in any way with this offering.
SUMMARY OF PROMOTIONAL AND SALES MATERIALS
Sales materials may be used in connection with this offering only when
accompanied or preceded by the delivery of this prospectus. Sales materials may
include a booklet, slides, films, video, disk fact sheets, articles,
publications, and brochures describing the offering, Terremark Fortune House #2,
Ltd. and the hotel. The offering is made only by means of the Prospectus.
ADDITIONAL INFORMATION
Terremark Fortune House #2, Ltd. has filed with the Commission a
registration statement under the Securities Act with respect to the units
offered by this prospectus. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits thereto.
For further information with respect to the units offered by this prospectus,
reference is made to the registration statement, including the exhibits thereto.
The registration statement, together with exhibits thereto, may be inspected at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, without charge and copies of the materials
contained therein may be obtained at prescribed rates from the Commission's
public reference facilities in Washington, D.C. The Commission also maintains a
Web site that contains reports, proxy and information statements and other
materials that are filed through the Commission's Electronic Data Gathering,
Analysis, and Retrieval system. This Web site can be accessed at http://
www.sec.gov.
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FORECASTS
FORTUNE HOUSE II
HOTEL PROJECTIONS
$250 ROOM RATE
<TABLE>
<CAPTION>
1 2 3
Years ending: 31-Mar-04 31-Mar-05 31-Mar-06
Amount % Amount % Amount %
--------------------- --------------------- -------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms $16,742,550 70.00% 17,767,397 70.00% 18,838,667 69.00%
Food and beverage total: 5,261,944 22.00% 5,330,219 21.00% 6,006,531 22.00%
Telephone 358,769 1.50% 380,730 1.50% 546,048 2.00%
Valet/Parking 562,550 2.35% 511,701 2.02% 542,554 1.99%
Other Income 992,116 4.15% 1,391,949 5.48% 1,368,615 5.01%
--------------------- --------------------- -------------------
TOTAL REVENUE 23,917,929 100.00% 25,381,996 100.00% 27,302,415 100.00%
DEPARTMENTAL EXPENSES
Rooms 3,850,787 23.00% 4,086,501 23.00% 4,238,700 22.50%
Food and beverage 4,262,175 81.00% 4,264,175 80.00% 4,745,160 79.00%
Telephone 197,825 55.14% 209,934 55.14% 301,091 55.14%
Valet/Parking 225,020 40.00% 204,680 40.00% 217,021 40.00%
Other expenses 396,846 40.00% 556,779 40.00% 547,446 40.00%
--------------------- --------------------- -------------------
TOTAL DEPARTMENTAL EXPENSES 8,932,653 37.35% 9,322,071 36.73% 10,049,418 36.81%
--------------------- --------------------- -------------------
GROSS PROFIT (Departmental)
Rooms 12,891,764 77.00% 13,680,896 77.00% 14,599,967 77.50%
Food & Beverage 999,769 19.00% 1,066,044 20.00% 1,261,372 21.00%
Telephone 160,944 44.86% 170,795 44.86% 244,957 44.86%
Valet/Parking 337,530 60.00% 307,021 60.00% 325,532 60.00%
Other 595,269 60.00% 835,169 60.00% 821,169 60.00%
--------------------- --------------------- -------------------
TOTAL GROSS PROFIT 14,985,276 62.65% 16,059,925 63.27% 17,252,997 63.19%
INCOME BEFORE OPERATING EXPENSES 14,985,276 62.65% 16,059,925 63.27% 17,252,997 63.19%
OPERATING EXPENSES
Administrative and general 2,391,793 10.00% 2,538,200 10.00% 2,457,217 9.00%
Sales and marketing 2,391,793 10.00% 2,538,200 10.00% 2,457,217 9.00%
Utilities 1,267,650 5.30% 1,324,940 5.22% 1,419,726 5.20%
Repairs & Maintenance 717,538 3.00% 888,370 3.50% 1,092,097 4.00%
Operating Reserve 250,000 1.05% 250,000 0.98% 250,000 0.92%
Real EstateTaxes 2,280,000 9.53% 2,302,800 9.07% 2,325,828 8.52%
Management Fee 250,000 1.05% 257,500 1.01% 265,225 0.97%
Property insurance 165,000 0.69% 173,250 0.68% 181,913 0.67%
Leases 239,179 1.00% 253,820 1.00% 273,024 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
--------------------- --------------------- -------------------
TOTAL OPERATING EXPENSES 9,952,953 41.61% 10,527,079 41.47% 10,722,247 39.27%
--------------------- --------------------- -------------------
NET OPERATING INCOME 5,032,323 21.04% 5,532,846 21.80% 6,530,750 23.92%
===================== ===================== ===================
Cash On Cash Return 5.30% 5.82% 6.87%
Dollar Return Per Typical Unit 18,102 19,902 23,492
Management / Units Split 0 0 0
Financial Information
Total Number of Rooms 278 278 278
Annual Number of Available Rooms 101,470 101,470 101,470
Annual Occupied Rooms 66,970 69,000 71,029
Annual Average Occupancy Percent 66.00% 68.00% 70.00%
Average Daily Room Rate $250 $258 $265
Average Daily Parking Rate $12.00 $12.36 $12.73
Room Rate & Management Fee increased 3.00% Per Year
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 18,102. First year
management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
F-1
<PAGE>
<TABLE>
<CAPTION>
4 5 6
Years ending: 31-Mar-07 31-Mar-08 31-Mar-09
Amount % Amount % Amount %
---------------------- -------------------- --------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms 19,958,222 69.00% 21,127,995 69.00% 21,761,835 69.00%
Food and beverage total: 6,363,491 22.00% 6,736,462 22.00% 6,938,556 22.00%
Telephone 578,499 2.00% 612,406 2.00% 630,778 2.00%
Valet/Parking 574,797 1.99% 608,486 1.99% 626,741 1.99%
Other Income 1,449,950 5.01% 1,534,934 5.01% 1,580,982 5.01%
---------------------- -------------------- --------------------
TOTAL REVENUE 28,924,959 100.00% 30,620,283 100.00% 31,538,891 100.00%
DEPARTMENTAL EXPENSES
Rooms 4,490,600 22.50% 4,753,799 22.50% 4,896,413 22.50%
Food and beverage 4,963,523 78.00% 5,187,076 77.00% 5,342,688 77.00%
Telephone 318,984 55.14% 337,680 55.14% 347,811 55.14%
Valet/Parking 229,919 40.00% 243,395 40.00% 250,696 40.00%
Other expenses 579,980 40.00% 613,973 40.00% 632,393 40.00%
---------------------- -------------------- --------------------
TOTAL DEPARTMENTAL EXPENSES 10,583,006 36.59% 11,135,923 36.37% 11,470,001 36.37%
---------------------- -------------------- --------------------
GROSS PROFIT (Departmental)
Rooms 15,467,622 77.50% 16,374,196 77.50% 16,865,422 77.50%
Food & Beverage 1,399,968 22.00% 1,549,386 23.00% 1,595,868 23.00%
Telephone 259,515 44.86% 274,725 44.86% 282,967 44.86%
Valet/Parking 344,878 60.00% 365,092 60.00% 376,045 60.00%
Other 869,970 60.00% 920,960 60.00% 948,589 60.00%
---------------------- -------------------- --------------------
TOTAL GROSS PROFIT 18,341,953 63.41% 19,484,360 63.63% 20,068,890 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 18,341,953 63.41% 19,484,360 63.63% 20,068,890 63.63%
Administrative and general 2,603,246 9.00% 2,755,825 9.00% 2,838,500 9.00%
Sales and marketing 2,458,621 8.50% 2,449,623 8.00% 2,523,111 8.00%
Utilities 1,498,313 5.18% 1,580,007 5.16% 1,621,099 5.14%
Repairs & Maintenance 1,156,998 4.00% 1,224,811 4.00% 1,261,556 4.00%
Operating Reserve 250,000 0.86% 250,000 0.82% 250,000 0.79%
Real EstateTaxes 2,349,086 8.12% 2,372,577 7.75% 2,396,303 7.60%
Management Fee 273,182 0.94% 281,377 0.92% 289,819 0.92%
Property insurance 191,008 0.66% 200,559 0.65% 210,586 0.67%
Leases 289,250 1.00% 306,203 1.00% 315,389 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
---------------------- -------------------- --------------------
TOTAL OPERATING EXPENSES 11,069,705 38.27% 11,420,982 37.30% 11,706,363 37.12%
---------------------- -------------------- --------------------
NET OPERATING INCOME 7,272,248 25.14% 8,063,378 26.33% 8,362,527 26.51%
====================== ====================== ====================
Cash On Cash Return 7.65% 8.49% 8.80%
Dollar Return Per Typical Unit 26,159 29,005 30,081
Management / Units Split 0 0 0
Financial Information
Total Number of Rooms 278 278 278
Annual Number of Available Rooms 101,470 101,470 101,470
Annual Occupied Rooms 73,058 75,088 75,088
Annual Average Occupancy Percent 72.00% 74.00% 74.00%
Average Daily Room Rate $ 273 $ 281 $ 290
Average Daily Parking Rate $ 13.11 $ 13.51 $ 13.91
Room Rate & Management Fee increased
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 18,102. First year
management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
F-2
<PAGE>
<TABLE>
<CAPTION>
7 8 9
Years ending: 31-Mar-10 31-Mar-11 31-Mar-12
Amount % Amount % Amount %
-------------------- ------------------- --------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms 22,717,591 69.00% 23,399,119 69.00% 24,422,440 69.00%
Food and beverage total: 7,243,290 22.00% 7,460,589 22.00% 7,786,865 22.00%
Telephone 658,481 2.00% 678,235 2.00% 707,897 2.00%
Valet/Parking 654,267 1.99% 673,895 1.99% 703,366 1.99%
Other Income 1,650,417 5.01% 1,699,929 5.01% 1,774,273 5.01%
-------------------- ------------------- --------------------
TOTAL REVENUE 32,924,045 100.00% 33,911,767 100.00% 35,394,841 100.00%
DEPARTMENTAL EXPENSES
Rooms 5,111,458 22.50% 5,264,802 22.50% 5,495,049 22.50%
Food and beverage 5,577,333 77.00% 5,744,653 77.00% 5,995,886 77.00%
Telephone 363,086 55.14% 373,979 55.14% 390,334 55.14%
Valet/Parking 261,707 40.00% 269,558 40.00% 281,347 40.00%
Other expenses 660,167 40.00% 679,972 40.00% 709,709 40.00%
-------------------- ------------------- --------------------
TOTAL DEPARTMENTAL EXPENSES 11,973,751 36.37% 12,332,963 36.37% 12,872,325 36.37%
-------------------- ------------------- --------------------
GROSS PROFIT (Departmental)
Rooms 17,606,133 77.50% 18,134,317 77.50% 18,927,391 77.50%
Food & Beverage 1,665,957 23.00% 1,715,935 23.00% 1,790,979 23.00%
Telephone 295,395 44.86% 304,256 44.86% 317,563 44.86%
Valet/Parking 392,560 60.00% 404,337 60.00% 422,020 60.00%
Other 990,250 60.00% 1,019,957 60.00% 1,064,564 60.00%
-------------------- ------------------- --------------------
TOTAL GROSS PROFIT 20,950,294 63.63% 21,578,803 63.63% 22,522,516 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 20,950,294 63.63% 21,578,803 63.63% 22,522,516 63.63%
Administrative and general 2,963,164 9.00% 3,052,059 9.00% 3,185,536 9.00%
Sales and marketing 2,633,924 8.00% 2,712,941 8.00% 2,831,587 8.00%
Utilities 1,692,296 5.14% 1,743,065 5.14% 1,819,295 5.14%
Repairs & Maintenance 1,316,962 4.00% 1,356,471 4.00% 1,415,794 4.00%
Operating Reserve 250,000 0.76% 250,000 0.74% 250,000 0.71%
Real EstateTaxes 2,420,266 7.35% 2,444,469 7.21% 2,468,913 6.98%
Management Fee 298,513 0.91% 307,468 0.91% 316,693 0.89%
Property insurance 221,116 0.67% 232,172 0.68% 243,780 0.69%
Leases 329,240 1.00% 339,118 1.00% 353,948 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
-------------------- ------------------- --------------------
TOTAL OPERATING EXPENSES 12,125,481 36.83% 12,437,762 36.68% 12,885,546 36.41%
-------------------- ------------------- --------------------
NET OPERATING INCOME 8,824,814 26.80% 9,141,041 26.96% 9,636,970 27.23%
==================== =================== ====================
Cash On Cash Return 9.29% 9.62% 10.07%
Dollar Return Per Typical Unit 31,744 32,881 34,418
Management / Units Split 0 0 68,485
Financial Information
Total Number of Rooms 278 278 278
Annual Number of Available Rooms 101,470 101,470 101,470
Annual Occupied Rooms 76,103 76,103 77,117
Annual Average Occupancy Percent 75.00% 75.00% 76.00%
Average Daily Room Rate $ 299 $ 307 $ 317
Average Daily Parking Rate $ 14.33 $ 14.76 $ 15.20
Room Rate & Management Fee increased
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 18,102. First year
management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
F-3
<PAGE>
<TABLE>
<CAPTION>
10
Years ending: 31-Mar-13
Amount %
-------------------
REVENUE:
<S> <C> <C>
Rooms 25,486,102 69.00%
Food and beverage total: 8,126,004 22.00%
Telephone 738,728 2.00%
Valet/Parking 734,000 1.99%
Other Income 1,851,547 5.01%
-------------------
TOTAL REVENUE 36,936,380 100.00%
DEPARTMENTAL EXPENSES
Rooms 5,734,373 22.50%
Food and beverage 6,257,023 77.00%
Telephone 407,334 55.14%
Valet/Parking 293,600 40.00%
Other expenses 740,619 40.00%
-------------------
TOTAL DEPARTMENTAL EXPENSES 13,432,949 36.37%
-------------------
GROSS PROFIT (Departmental)
Rooms 19,751,729 77.50%
Food & Beverage 1,868,981 23.00%
Telephone 331,393 44.86%
Valet/Parking 440,400 60.00%
Other 1,110,928 60.00%
-------------------
TOTAL GROSS PROFIT 23,503,431 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 23,503,431 63.63%
Administrative and general 3,324,274 9.00%
Sales and marketing 2,954,910 8.00%
Utilities 1,898,530 5.14%
Repairs & Maintenance 1,477,455 4.00%
Operating Reserve 250,000 0.68%
Real EstateTaxes 2,493,602 6.75%
Management Fee 326,193 0.88%
Property insurance 255,969 0.69%
Leases 369,364 1.00%
Terremark Hospitality Recoveries 0 0.00%
-------------------
TOTAL OPERATING EXPENSES 13,350,298 36.14%
-------------------
NET OPERATING INCOME 10,153,133 27.49%
===================
Cash On Cash Return 10.34%
Dollar Return Per Typical Unit 35,347
Management / Units Split 326,566
Financial Information
Total Number of Rooms 278
Annual Number of Available Rooms 101,470
Annual Occupied Rooms 78,132
Annual Average Occupancy Percent 77.00%
Average Daily Room Rate $ 326
Average Daily Parking Rate $ 15.66
Room Rate & Management Fee increased
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 18,102. First year
management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
F-4
<PAGE>
FORTUNE HOUSE II
HOTEL PROJECTIONS
$350 ROOM RATE
<TABLE>
<CAPTION>
1 2 3
Years ending: 31-Mar-04 31-Mar-05 31-Mar-06
Amount % Amount % Amount %
--------------------- -------------------- -------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms $ 23,439,570 70.00% 24,874,356 70.00% 26,374,133 69.00%
Food and beverage total: 7,366,722 22.00% 7,462,307 21.00% 8,409,144 22.00%
Telephone 502,277 1.50% 533,022 1.50% 764,468 2.00%
Valet/Parking 562,550 1.68% 511,701 1.44% 542,554 1.42%
Other Income 1,613,982 4.82% 2,153,409 6.06% 2,133,083 5.58%
--------------------- -------------------- -------------------
TOTAL REVENUE 33,485,100 100.00% 35,534,794 100.00% 38,223,381 100.00%
DEPARTMENTAL EXPENSES
Rooms 5,391,101 23.00% 5,721,102 23.00% 5,934,180 22.50%
Food and beverage 5,967,045 81.00% 5,969,845 80.00% 6,643,224 79.00%
Telephone 276,955 55.14% 293,908 55.14% 421,527 55.14%
Valet/Parking 225,020 40.00% 204,680 40.00% 217,021 40.00%
Other expenses 645,593 40.00% 861,363 40.00% 853,233 40.00%
--------------------- -------------------- -------------------
TOTAL DEPARTMENTAL EXPENSES 12,505,714 37.35% 13,050,899 36.73% 14,069,186 36.81%
--------------------- -------------------- -------------------
GROSS PROFIT (Departmental)
Rooms 18,048,469 77.00% 19,153,254 77.00% 20,439,953 77.50%
Food & Beverage 1,399,677 19.00% 1,492,461 20.00% 1,765,920 21.00%
Telephone 225,321 44.86% 239,114 44.86% 342,940 44.86%
Valet/Parking 337,530 60.00% 307,021 60.00% 325,532 60.00%
Other 968,389 60.00% 1,292,045 60.00% 1,279,850 60.00%
--------------------- -------------------- -------------------
TOTAL GROSS PROFIT 20,979,386 62.65% 22,483,895 63.27% 24,154,196 63.19%
INCOME BEFORE OPERATING EXPENSES 20,979,386 62.65% 22,483,895 63.27% 24,154,196 63.19%
OPERATING EXPENSES
Administrative and general 3,348,510 10.00% 3,553,479 10.00% 3,440,104 9.00%
Sales and marketing 3,348,510 10.00% 3,553,479 10.00% 3,440,104 9.00%
Utilities 1,774,710 5.30% 1,854,916 5.22% 1,987,616 5.20%
Repairs & Maintenance 1,004,553 3.00% 1,243,718 3.50% 1,528,935 4.00%
Operating Reserve 250,000 0.75% 250,000 0.70% 250,000 0.65%
Real EstateTaxes 2,280,000 6.81% 2,302,800 6.48% 2,325,828 6.08%
Management Fee 250,000 0.75% 257,500 0.72% 265,225 0.69%
Property insurance 165,000 0.49% 173,250 0.49% 181,913 0.48%
Leases 334,851 1.00% 355,348 1.00% 382,234 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
--------------------- -------------------- -------------------
TOTAL OPERATING EXPENSES 12,756,134 38.09% 13,544,491 38.12% 13,801,959 36.11%
--------------------- -------------------- -------------------
NET OPERATING INCOME 8,223,252 24.56% 8,939,404 25.16% 10,352,237 27.08%
===================== ==================== ===================
Cash On Cash Return 8.66% 9.41% 10.45%
Dollar Return Per Typical Unit 29,580 32,156 35,705
Management / Units Split 0 0 426,118
Financial Information
Total Number of Rooms 278 278 278
Annual Number of Available Rooms 101,470 101,470 101,470
Annual Occupied Rooms 66,970 69,000 71,029
Annual Average Occupancy Percent 66.00% 68.00% 70.00%
Average Daily Room Rate $ 350 $ 361 $ 371
Average Daily Parking Rate $ 12.00 $ 12.36 $ 12.73
Room Rate and Management Fee increased 3.00% Per Year
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 29,580.
First year management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
F-5
<PAGE>
<TABLE>
<CAPTION>
4 5 6
Years ending: 31-Mar-07 31-Mar-08 31-Mar-09
Amount % Amount % Amount %
---------------------- -------------------- --------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms 27,941,510 69.00% 29,579,193 69.00% 30,466,569 69.00%
Food and beverage total: 8,908,887 22.00% 9,431,047 22.00% 9,713,979 22.00%
Telephone 809,899 2.00% 857,368 2.00% 883,089 2.00%
Valet/Parking 574,797 1.42% 608,486 1.42% 626,741 1.42%
Other Income 2,259,849 5.58% 2,392,301 5.58% 2,464,070 5.58%
---------------------- -------------------- --------------------
TOTAL REVENUE 40,494,942 100.00% 42,868,396 100.00% 44,154,448 100.00%
---------------------- -------------------- --------------------
DEPARTMENTAL EXPENSES
Rooms 6,286,840 22.50% 6,655,318 22.50% 6,854,978 22.50%
Food and beverage 6,948,932 78.00% 7,261,906 77.00% 7,479,763 77.00%
Telephone 446,578 55.14% 472,753 55.14% 486,935 55.14%
Valet/Parking 229,919 40.00% 243,395 40.00% 250,696 40.00%
Other expenses 903,940 40.00% 956,921 40.00% 985,628 40.00%
---------------------- -------------------- --------------------
TOTAL DEPARTMENTAL EXPENSES 14,816,209 36.59% 15,590,292 36.37% 16,058,001 36.37%
GROSS PROFIT (Departmental)
Rooms 21,654,670 77.50% 22,923,875 77.50% 23,611,591 77.50%
Food & Beverage 1,959,955 22.00% 2,169,141 23.00% 2,234,215 23.00%
Telephone 363,321 44.86% 384,615 44.86% 396,154 44.86%
Valet/Parking 344,878 60.00% 365,092 60.00% 376,045 60.00%
Other 1,355,910 60.00% 1,435,381 60.00% 1,478,442 60.00%
---------------------- -------------------- --------------------
TOTAL GROSS PROFIT 25,678,734 63.41% 27,278,103 63.63% 28,096,446 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 25,678,734 63.41% 27,278,103 63.63% 28,096,446 63.63%
Administrative and general 3,644,545 9.00% 3,858,156 9.00% 3,973,900 9.00%
Sales and marketing 3,442,070 8.50% 3,429,472 8.00% 3,532,356 8.00%
Utilities 2,097,638 5.18% 2,212,009 5.16% 2,269,539 5.14%
Repairs & Maintenance 1,619,798 4.00% 1,714,736 4.00% 1,766,178 4.00%
Operating Reserve 250,000 0.62% 250,000 0.58% 250,000 0.57%
Real EstateTaxes 2,349,086 5.80% 2,372,577 5.53% 2,396,303 5.43%
Management Fee 273,182 0.67% 281,377 0.66% 289,819 0.66%
Property insurance 191,008 0.47% 200,559 0.47% 210,586 0.48%
Leases 404,949 1.00% 428,684 1.00% 441,544 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
---------------------- -------------------- --------------------
TOTAL OPERATING EXPENSES 14,272,276 35.24% 14,747,569 34.40% 15,130,225 34.27%
---------------------- -------------------- --------------------
NET OPERATING INCOME 11,406,458 28.17% 12,530,534 29.23% 12,966,221 29.37%
====================== ==================== ====================
Cash On Cash Return 11.00% 11.60% 11.82%
Dollar Return Per Typical Unit 37,601 39,623 40,406
Management / Units Split 953,229 1,515,267 1,733,111
Financial Information
Total Number of Rooms
Annual Number of Available Rooms 278 278 278
Annual Occupied Rooms 101,470 101,470 101,470
Annual Average Occupancy Percent 73,058 75,088 75,088
Average Daily Room Rate 72.00% 74.00% 74.00%
Average Daily Parking Rate $ 382 $ 394 $ 406
Room Rate and Management Fee increased $ 13.11 $ 13.51 $ 13.91
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 29,580.
First year management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
F-6
<PAGE>
<TABLE>
<CAPTION>
7 8 9
Years ending: 31-Mar-10 31-Mar-11 31-Mar-12
Amount % Amount % Amount %
-------------------- ------------------- --------------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rooms 31,804,628 69.00% 32,758,767 69.00% 34,191,417 69.00%
Food and beverage total: 10,140,606 22.00% 10,444,824 22.00% 10,901,611 22.00%
Telephone 921,873 2.00% 949,529 2.00% 991,056 2.00%
Valet/Parking 654,267 1.42% 673,895 1.42% 703,366 1.42%
Other Income 2,572,290 5.58% 2,649,459 5.58% 2,765,328 5.58%
-------------------- ------------------- --------------------
TOTAL REVENUE 46,093,663 100.00% 47,476,473 100.00% 49,552,778 100.00%
DEPARTMENTAL EXPENSES
Rooms 7,156,041 22.50% 7,370,722 22.50% 7,693,069 22.50%
Food and beverage 7,808,267 77.00% 8,042,515 77.00% 8,394,241 77.00%
Telephone 508,321 55.14% 523,571 55.14% 546,468 55.14%
Valet/Parking 261,707 40.00% 269,558 40.00% 281,347 40.00%
Other expenses 1,028,916 40.00% 1,059,783 40.00% 1,106,131 40.00%
-------------------- ------------------- --------------------
TOTAL DEPARTMENTAL EXPENSES 16,763,251 36.37% 17,266,149 36.37% 18,021,255 36.37%
-------------------- ------------------- --------------------
GROSS PROFIT (Departmental)
Rooms 24,648,586 77.50% 25,388,044 77.50% 26,498,348 77.50%
Food & Beverage 2,332,339 23.00% 2,402,310 23.00% 2,507,371 23.00%
Telephone 413,552 44.86% 425,959 44.86% 444,588 44.86%
Valet/Parking 392,560 60.00% 404,337 60.00% 422,020 60.00%
Other 1,543,374 60.00% 1,589,675 60.00% 1,659,197 60.00%
-------------------- ------------------- --------------------
TOTAL GROSS PROFIT 29,330,412 63.63% 30,210,324 63.63% 31,531,523 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 29,330,412 63.63% 30,210,324 63.63% 31,531,523 63.63%
Administrative and general 4,148,430 9.00% 4,272,883 9.00% 4,459,750 9.00%
Sales and marketing 3,687,493 8.00% 3,798,118 8.00% 3,964,222 8.00%
Utilities 2,369,214 5.14% 2,440,291 5.14% 2,547,013 5.14%
Repairs & Maintenance 1,843,747 4.00% 1,899,059 4.00% 1,982,111 4.00%
Operating Reserve 250,000 0.54% 250,000 0.53% 250,000 0.50%
Real EstateTaxes 2,420,266 5.25% 2,444,469 5.15% 2,468,913 4.98%
Management Fee 298,513 0.65% 307,468 0.65% 316,693 0.64%
Property insurance 221,116 0.48% 232,172 0.49% 243,780 0.49%
Leases 460,937 1.00% 474,765 1.00% 495,528 1.00%
Terremark Hospitality Recoveries 0 0.00% 0 0.00% 0 0.00%
-------------------- ------------------- --------------------
TOTAL OPERATING EXPENSES 15,699,715 34.06% 16,119,223 33.95% 16,728,010 33.76%
-------------------- ------------------- --------------------
NET OPERATING INCOME 13,630,697 29.57% 14,091,101 29.68% 14,803,513 29.87%
==================== =================== ====================
Cash On Cash Return 12.17% 12.42% 12.79%
Dollar Return Per Typical Unit 41,601 42,429 43,711
Management / Units Split 2,065,349 2,295,550 2,651,756
Financial Information
Total Number of Rooms 278 278 278
Annual Number of Available Rooms 101,470 101,470 101,470
Annual Occupied Rooms 76,103 76,103 77,117
Annual Average Occupancy Percent 75.00% 75.00% 76.00%
Average Daily Room Rate $ 418 $ 430 $ 443
Average Daily Parking Rate $ 14.33 $ 14.76 $ 15.20
Room Rate and Management Fee increased
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 29,580.
First year management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
F-7
<PAGE>
<TABLE>
<CAPTION>
10
Years ending: 31-Mar-13
Amount %
-------------------
REVENUE:
<S> <C> <C>
Rooms 35,680,543 69.00%
Food and beverage total: 11,376,405 22.00%
Telephone 1,034,219 2.00%
Valet/Parking 734,000 1.42%
Other Income 2,885,765 5.58%
-------------------
TOTAL REVENUE 51,710,932 100.00%
DEPARTMENTAL EXPENSES
Rooms 8,028,122 22.50%
Food and beverage 8,759,832 77.00%
Telephone 570,268 55.14%
Valet/Parking 293,600 40.00%
Other expenses 1,154,306 40.00%
-------------------
TOTAL DEPARTMENTAL EXPENSES 18,806,128 36.37%
GROSS PROFIT (Departmental)
Rooms 27,652,421 77.50%
Food & Beverage 2,616,573 23.00%
Telephone 463,950 44.86%
Valet/Parking 440,400 60.00%
Other 1,731,459 60.00%
-------------------
TOTAL GROSS PROFIT 32,904,803 63.63%
INCOME BEFORE OPERATING EXPENSES
OPERATING EXPENSES 32,904,803 63.63%
Administrative and general 4,653,984 9.00%
Sales and marketing 4,136,875 8.00%
Utilities 2,657,942 5.14%
Repairs & Maintenance 2,068,437 4.00%
Operating Reserve 250,000 0.48%
Real EstateTaxes 2,493,602 4.82%
Management Fee 326,193 0.63%
Property insurance 255,969 0.50%
Leases 517,109 1.00%
Terremark Hospitality Recoveries 0 0.00%
-------------------
TOTAL OPERATING EXPENSES 17,360,112 33.57%
-------------------
NET OPERATING INCOME 15,544,692 30.06%
===================
Cash On Cash Return 13.18%
Dollar Return Per Typical Unit 45,044
Management / Units Split 3,022,346
Financial Information
Total Number of Rooms 278
Annual Number of Available Rooms 101,470
Annual Occupied Rooms 78,132
Annual Average Occupancy Percent 77.00%
Average Daily Room Rate $ 457
Average Daily Parking Rate $ 15.66
Room Rate and Management Fee increased
</TABLE>
Footnotes
Average price per unit $ 341,726.
First Year Return $ $ 29,580.
First year management fee is $ 250,000 plus,
% increase after unit owners receive an
Equivalent 10% all cash return.
F-8
<PAGE>
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
TERREMARK FORTUNE HOUSE #2, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
PERIOD FROM INCEPTION (NOVEMBER 19, 1999)
THROUGH MARCH 15, 2000
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
C O N T E N T S
Page
-------------------------------------------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations and Partners' Deficiency 3
Statement of Cash Flows 4
Notes to Financial Statements 5 - 7
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
Board of Directors and Partners
Terremark Fortune House #2, Ltd.
Miami, Florida
We have audited the accompanying statement of balance sheet of Terremark Fortune
House #2, Ltd. (a development stage enterprise) as of March 15, 2000, and the
related statements of operations and partners' deficiency and cash flows for the
period from inception (November 19, 1999) through March 15, 2000. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Terremark Fortune House #2,
Ltd. as of March 15, 2000, and the results of its operations, and cash flows for
the period from inception (November 19, 1999) through March 15, 2000, in
conformity with generally accepted accounting principles.
KAUFMAN, ROSSIN & CO.
Miami, Florida
March 21, 2000
FS-1
<PAGE>
<TABLE>
<CAPTION>
TERREMARK FORTUNE HOUSE #2, LTD.
BALANCE SHEET
MARCH 15, 2000
-------------------------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------------------------
<S> <C>
REAL ESTATE UNDER DEVELOPMENT $8,377,920
PROPERTY AND EQUIPMENT, NET (NOTE 2) 32,237
OTHER ASSETS 377,083
--------------------------------------------------------------------------------------------
$8,787,240
============================================================================================
LIABILITIES AND PARTNERS' DEFICIENCY
--------------------------------------------------------------------------------------------
NOTE PAYABLE (NOTE 3) $8,331,775
TRADE PAYABLES AND OTHER LIABILITIES 29,989
INTEREST PAYABLE 5,421
DUE TO AFFILIATE (NOTE 4) 554,077
PARTNERS' DEFICIENCY:
Partner contributions 7,500
Deficit accumulated during the development stage (141,522) (134,022)
--------------------------------------------------------------------------------------------
$8,787,240
============================================================================================
</TABLE>
See accompanying notes.
FS-2
<PAGE>
<TABLE>
<CAPTION>
TERREMARK FORTUNE HOUSE #2, LTD.
STATEMENT OF OPERATIONS AND PARTNERS' DEFICIENCY
PERIOD FROM INCEPTION (NOVEMBER 19, 1999) THROUGH MARCH 15, 2000
----------------------------------------------------------------------------------------------------
<S> <C>
OPERATING EXPENSES, REPRESENTING NET LOSS AND DEFICIT
ACCUMULATED DURING THE DEVELOPMENT STAGE ($141,522)
CASH CONTRIBUTIONS FROM PARTNERS, NOVEMBER 19, 1999 7,500
-----------------------------------------------------------------------------------------------------
PARTNERS' DEFICIENCY ($134,022)
=====================================================================================================
</TABLE>
See accompanying notes.
FS-3
<PAGE>
TERREMARK FORTUNE HOUSE #2, LTD.
STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION (NOVEMBER 19, 1999) THROUGH MARCH 15, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss ($ 141,522)
-----------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 96
Capitalized amortization of loan costs 5,023
Changes in operating assets and liabilities:
Other assets (20,417)
Trade payables and other liabilities 29,989
Interest payable 5,421
-----------------------------------------------------------------------------------------------
Total adjustments 20,112
-----------------------------------------------------------------------------------------------
Net cash used in operating activities (121,410)
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (32,333)
Real estate under development (8,377,920)
-----------------------------------------------------------------------------------------------
Net cash used in investing activities (8,410,253)
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Other assets (361,689)
Borrowings on revolving promissory note 8,331,775
Advances from affiliate 554,077
Contributions from partners 7,500
Net cash provided by financing activities 8,531,663
-----------------------------------------------------------------------------------------------
CASH - ENDING $ --
===============================================================================================
Supplemental Disclosures:
-----------------------------------------------------------------------------------------------
Interest paid $ --
===============================================================================================
Income taxes paid $ --
===============================================================================================
</TABLE>
See accompanying notes.
FS-4
<PAGE>
TERREMARK FORTUNE HOUSE #2, LTD.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Organization
Terremark Fortune House #2, Ltd. (the "Partnership") is a
limited partnership organized under the laws of the State of
Florida to purchase, own, develop, lease, manage, mortgage,
sell, and otherwise deal in real estate. The general partner
is Terremark Fortune House #2, Inc. and the limited partner is
Terremark Group, Inc. The Partnership is a development stage
enterprise as planned operations have not commenced.
Income and losses of the Partnership are allocated 1% to the
general partner and 99% to the limited partner.
Accounting Method
The Partnership is on the accrual method of accounting.
Real Estate Under Development
Costs related to the acquisition, development and construction
of a real estate project located in Fort Lauderdale, Florida
are capitalized, including real estate taxes and insurance.
Interest costs are capitalized while development is in
progress. Interest amounting to $5,421 was capitalized for the
period from inception (November 19, 1999) through March 15,
2000.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for
major betterments and additions are charged to the asset
accounts while replacements, maintenance and repairs which do
not improve or extend the lives of the respective assets are
charged to expense currently.
Depreciation and Amortization
Depreciation is computed using the straight-line method based
upon the estimated useful lives of the assets, which are as
follows:
Furniture and fixtures 7 years
Office equipment 5 years
Selling Costs
Selling costs directly related to real estate under
development are deferred and recorded as prepaid expenses and
charged to expense when related revenue is recognized. Other
selling costs are charged to expense when incurred.
FS-5
<PAGE>
--------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------------------------------
Loan Costs
Loan costs incurred in connection with the revolving
promissory note are deferred and amortized over the life of
the loan, which is 1 year. Amortization amounted to $5,023 for
the period since inception (November 19, 1999) through March
15, 2000 and is included as capitalized interest cost. Loan
costs are included in the accompanying balance sheet as other
assets.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Income Taxes
These financial statements contain no provision for income
taxes since all income tax liabilities and/or benefits of the
partnership are passed through to the partners.
Year 2000 Uncertainties
Although the Partnership has not identified any computer
system or program problems, there is still a possibility that
at some time during the Year 2000 their computer systems and
programs, as well as equipment that uses embedded computer
chips, may be unable to distinguish between the years 1900 and
2000. This may create system errors and failures resulting in
the disruption of normal business operations. Although it is
unlikely, there may be some third parties, such as
governmental agencies, utilities, telecommunication companies,
vendors and customers that at times may not be able to
continue business with the Partnership due to their own Year
2000 problems.
--------------------------------------------------------------------------------
NOTE 2. PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------
At March 15, 2000, property and equipment consisted of the
following:
Furniture and fixtures $ 29,084
Office equipment 3,249
--------------------------------------------- --------
$ 32,333
Less: accumulated depreciation (96)
--------------------------------------------- --------
$ 32,237
============================================= ========
Depreciation expense for the period since inception (November
19, 1999) through March 15, 2000 amounted to $96.
FS-6
<PAGE>
--------------------------------------------------------------------------------
NOTE 3. NOTE PAYABLE
--------------------------------------------------------------------------------
On March 6, 2000, the Partnership entered into a revolving
promissory note facility, expiring March 1, 2001, with a bank,
providing for maximum borrowings of $15,000,000 subject to
certain conditions established in the credit agreement, with
interest at the bank's prime rate plus 1%. At March 15, 2000,
the effective interest rate on the line of credit was 9.75%.
The borrowings are guaranteed by Terremark Holdings, Inc.,
Terremark Group, Inc., and other related entities. The note is
secured by 510,214 shares of common stock held in Terremark
Holdings, Inc., real estate and any and all improvements made
to the real estate.
--------------------------------------------------------------------------------
NOTE 4. DUE TO AFFILIATE
--------------------------------------------------------------------------------
Due to affiliate represents unsecured advances made by
Terremark Development, Inc., an entity related by virtue of
common ownership and control. These advances have no set
repayment terms.
FS-7
<PAGE>
ANNEX A
Fortune House II
Availability Price List
<TABLE>
<CAPTION>
01 02 03 04 05 06 07 08 09
A A B B C C D D B
FLOOR 663 S.F. 663 S.F. 582 S.F. 582 S.F. 1,056 S.F. 1,056 S.F. 991 S.F. 991 S.F. 582 S.F.
----- -------- -------- -------- -------- --------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7 259,585 253,795 219,055 209,405 404,335 404,335 393,720 393,720 248,970
8 264,410 258,620 223,880 214,230 408,195 408,195 399,510 399,510 253,795
9 269,235 263,445 228,705 219,055 413,020 413,020 403,370 403,370 258,620
10 274,060 268,270 233,530 223,880 417,845 417,845 408,195 408,195 263,445
11 278,885 273,095 238,355 228,705 422,670 422,670 411,090 411,090 268,270
12 283,710 277,920 243,180 233,530 426,530 426,530 415,915 415,915 273,095
14 288,535 282,745 248,005 238,355 430,390 430,390 420,740 420,740 277,920
15 293,360 287,570 252,830 243,180 435,215 435,215 423,635 423,635 282,745
16 298,185 292,395 257,655 248,005 440,040 440,040 427,495 427,495 287,570
17 303,010 297,220 262,480 252,830 444,865 444,865 432,320 432,320 292,395
18 307,835 302,045 267,305 257,655 448,725 448,725 437,145 437,145 297,220
19 312,660 306,870 272,130 262,480 453,550 453,550 441,005 441,005 302,045
20 317,485 311,695 276,955 267,305 458,375 458,375 444,865 444,865 306,870
FLOOR A A B B C C D D B
----- - - - - - - - - -
21 322,310 316,520 281,780 272,130 463,200 463,200 448,725 448,725 311,695
22 327,135 321,345 286,605 276,955 468,025 468,025 452,585 452,585 316,520
FLOOR A A B B C C D D B
----- - - - - - - - - -
23 348,365 345,470 305,905 295,290 465,130 465,130 454,515 454,515 333,890
<CAPTION>
10 11 12 13 14 15 16 17 18
B E E F F E E G G
FLOOR 582 S.F. 460 S.F. 460 S.F. 667 S.F. 667 S.F. 460 S.F. 460 S.F. 1,000 S.F. 1,000 S.F.
----- -------- -------- -------- -------- -------- -------- -------- ---------------------
7 219,055 196,860 186,245 279,850 279,850 216,160 193,965 524,960 533,645
8 223,880 201,685 191,070 284,675 284,675 220,985 198,790 529,785 537,505
9 228,705 206,510 195,895 289,500 289,500 225,810 203,615 534,610 543,295
10 233,530 211,335 200,720 294,325 294,325 230,635 208,440 539,435 547,155
11 238,355 216,160 205,545 299,150 299,150 235,460 213,265 544,260 552,945
12 243,180 220,985 210,370 303,975 303,975 240,285 218,090 549,085 556,805
14 248,005 225,810 215,195 308,800 308,800 245,110 222,915 553,910 562,595
15 252,830 230,635 220,020 313,625 313,625 249,935 227,740 558,735 566,455
16 257,655 235,460 224,845 318,450 318,450 254,760 232,565 563,560 572,245
17 262,480 240,285 229,670 323,275 323,275 259,585 237,390 568,385 576,105
18 267,305 245,110 234,495 328,100 328,100 264,410 242,215 573,210 581,895
19 272,130 249,935 239,320 332,925 332,925 269,235 247,040 578,035 585,755
20 276,955 254,760 244,145 337,750 337,750 274,060 251,865 582,860 591,545
FLOOR B E E E E PENTHOUSE
----- - - - - - ---------
21 281,780 259,585 248,970 273,095 253,795 UNIT PH 2100 - 1,500,000
22 286,605 264,410 253,795 276,955 257,655 UNIT PH 2200 - 2,500,000
FLOOR B E E E E
----- - - - - -
23 305,905 276,955 272,130 300,115 280,815
</TABLE>
<PAGE>
ANNEX B
FORTUNE HOUSE - FORT LAUDERDALE BEACH
CONDOMINIUM HOTEL OPERATING AND RENTAL POOL AGREEMENT
This Agreement dated for reference ___________________, 2000.
BETWEEN:
TERREMARK FORTUNE HOUSE #2, LTD.("Fortune House"), a Florida limited
partnership
- and -
THE OWNERS OF THE UNITS from time to time, who are parties to this
Agreement in accordance with ARTICLE 15 hereof
(collectively, the "Owners." Fortune House shall only be included in
the definition of "Owners" to the extent that it is the owner of an
unsold unit(s). Upon the sale of all of the units, Fortune House
shall not have any further obligation as an "owner" hereunder.)
AND:
TERREMARK HOSPITALITY SERVICES, INC., a Florida corporation
("Terremark Hospitality")
WHEREAS:
A. The Owners are the owners of the Units;
B. Terremark Hospitality is knowledgeable in the operation of Hotels and
Terremark Hospitality has performed such functions in another property in
the South Florida market;
C. The Owners desire to engage Terremark Hospitality to act as the Owners'
exclusive manager for the operation of the Hotel in accordance with the
terms and conditions set out in this Agreement; and
D. Terremark Hospitality agrees to perform such services for the Owners in
accordance with this Agreement.
THEREFORE, the parties agree as follows:
1
<PAGE>
ANNEX B
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. The following terms as used in this Agreement have the
following meanings, except as otherwise expressly provided or unless the context
otherwise requires:
(1) "AFFILIATE" means, with respect to any person:
(a) any person which is Controlled by that particular person; or
(b) any person which Controls that particular person, whether such
Control be direct or indirect;
(2) "ANNUAL STATEMENT" has the meaning set forth in SECTION 7.2(b);
(3) "ARM'S LENGTH" means characteristic of a transaction negotiated by
unrelated parties each acting in its own best interests;
(4) "ASSESSMENT" means a Common Expense Assessment or a Special
Assessment levied against a Unit pursuant to the Condominium
Documents;
(5) "ASSOCIATION" means the Fortune House - Fort Lauderdale Beach
Condominium Association, Inc., a Florida not-for-profit corporation;
(6) "ASSOCIATION EXPENSES" means expenditures made by or on behalf of
the Association for professional services rendered by accountants,
attorneys, consultants and any manager engaged by the Association
who performs any services other than those required to be performed
by Terremark Hospitality under this Agreement;
(7) "BASE FEE" means the fee payable to Terremark Hospitality
established and paid pursuant to SECTION 6.1;
(8) "BOARD OF DIRECTORS" means the duly elected board of directors of
the Association, or its authorized agent;
(9) "BUSINESS DAY" means any day which is not a Saturday, Sunday, or a
statutory state or federal holiday in the State of Florida;
(10) "CAPITAL EXPENDITURES" means all expenditures of the Hotel of a
capital nature which are not expenses, as determined in accordance
with Generally Accepted Hotel Accounting Principles;
2
<PAGE>
ANNEX B
(11) "CERTIFIED PUBLIC ACCOUNTANTS" means the firm of certified public
accountants selected by Terremark Hospitality.
(12) "COMMENCEMENT DATE" means the date that the Hotel (including the
parking areas and conference facilities contained therein) is opened
by Terremark Hospitality for business as a "Fortune House" hotel;
(13) "COMMON ELEMENTS" shall have the meaning ascribed to such term in
the Declaration.
(14) "CONDOMINIUM ACT" means the Florida Condominium Act, F.S.ss.718, et
seq., as amended from time to time.
(15) "CONDOMINIUM DOCUMENTS" means the Declaration, the Articles of
Incorporation and the Bylaws of the Association.
(16) "CONTROL" means:
(a) the right to exercise a majority of the votes which may be put
at a meeting of the shareholders of a corporation, the
partners of a partnership, or the members of a limited
liability company; and
(b) the right to elect or appoint, directly or indirectly, a
majority of the directors of a corporation or the manager of a
limited liability company or other persons who have the right
to manage or supervise the management of the affairs and
business of a person;
(17) "DECLARATION" means the Declaration of Condominium of Fortune House
- Fort Lauderdale Beach Condominium Hotel, a Condominium, dated
________________, ____, by Terremark Fortune House #2, Ltd., a
Florida limited partnership, as Declarant, which Declaration of
Condominium has been recorded in Official Records Book _______, at
Page _____, of the Public Records of Broward County, Florida, and
any amendments, supplements or corrections thereto;
(18) "EMPLOYEES" means the employees of the Hotel hired by Terremark
Hospitality pursuant to SECTION 8.6;
(19) "ESCALATION FACTOR" means the fraction (which may be greater than,
equal to or less than one) of which:
(a) the numerator is the Consumer Price Index for all Urban
Consumers (CPI-U) U.S. City Average (1982-84 = 100), issued by
3
<PAGE>
ANNEX B
the United States Department of Labor, Bureau of Labor
Statistics (the "Consumer Price Index") as of the date that
the Escalation Factor is to be determined; and
(b) the denominator is the Price Index as of the prior date to
which the date of the determination of the Escalation Factor
is being compared,
expect that if at any time to Bureau of Labor Statistics no longer
published the Consumer Price Index or is no longer operated by the United
States government, the Escalation Factor will be determined by Terremark
Hospitality in its reasonable discretion;
(20) "FRINGE BENEFITS" means those benefits normally given from time to
time to employees or personnel at any hotel within Terremark
Hospitality, including without limitation, pension, medical, health
and life insurance and similar employee plans, bonus or gain sharing
plan participation, the benefits of any housing loan and relocation
costs;
(21) "FURNITURE, FIXTURES AND EQUIPMENT" means all furniture, equipment,
fixtures and furnishings necessary for the proper operation of the
Hotel and wherever situated in the Hotel Premises, whether or not
located in a Unit or in Unit C-3 (as said term is defined in the
Declaration), including, without limitation, office equipment and
furniture, computers and computer systems, conference facility
equipment, laundry equipment, telephones and telephone systems,
video machines, mini bars, refrigerators, stoves, kitchen equipment,
food service and dining equipment, carpeting, rugs and other floor
coverings, draperies, curtains, tapestries, screens, works of art,
pictures, paintings, prints, beds, mattresses, bedspreads, pillows,
radios and television sets, including such items bearing the Fortune
House name or identifying characteristics as Terremark Hospitality,
acting reasonably, considers appropriate. In no event shall any
items of furniture , equipment, fixtures and furnishings located
within the Commercial Units (other than Unit C-3) be considered to
be furniture, equipment, fixtures and furnishings for definitional
purposes hereunder;
(22) "GENERALLY ACCEPTED HOTEL ACCOUNTING PRINCIPLES" means
generally accepted accounting principles observed by certified
public accountants in the United States and as supplemented by the
Uniform System of Accounts for Hotels published by the Hotel
Association of New York City, Inc.;
(23) "GROSS REVENUE" means all room charges revenue, restaurant revenue,
room service revenue, mini-bar revenue and catering revenue derived
directly from the operation of the Hotel, excluding, however, all of
the following:
4
<PAGE>
ANNEX B
(a) applicable excise, sales, income, hotel, room, entertainment
and use taxes or similar government charges collected directly
from Hotel Guests and Owners or as part of the sales price of
any goods or services;
(b) gains arising from the sale or other disposition of capital
assets or unwanted inventory;
(c) revenue from condemnation awards or sales or other transfers
in lieu of and under the threat of condemnation;
(d) proceeds of any insurance;
(e) rebates, discounts or credits of a similar nature (other than
credit card discounts, which will be included as an item of
revenue and considered a Hotel Expense);
(f) gratuities paid to Employees; and
(g) payments received at the Hotel for accommodation, goods or
services to be provided at other hotels.
(24) "HOTEL" means the Hotel Premises and the hotel operation known as
"Fortune House - Fort Lauderdale Beach Condominium Hotel" managed by
Terremark Hospitality for the Owners in respect of the Hotel
Premises pursuant to this Agreement;
(25) "HOTEL BANK ACCOUNT" means the bank account established pursuant to
SECTION 7.1;
(26) "HOTEL EXPENSES" means all expenses properly incurred in accordance
with Generally Accepted Hotel Accounting Principles and the terms
and conditions set out in this Agreement in connection with the
earning of the Gross Revenue and chargeable to the Owners in
accordance with this Agreement, including, without limitation:
(a) the Base Fee;
(b) the Incentive Fee;
(c) the Terremark Hospitality Marketing and Sales Expenses;
(d) the Terremark Hospitality Recoveries;
5
<PAGE>
ANNEX B
(e) any amount payable to and in respect of the Employees in
accordance with this Agreement, including hiring costs and
expenses, Fringe Benefits, withholding amounts and costs of
termination;
(f) utility costs and charges;
(g) the cost of the Operating Supplies and Expendables;
(h) expenses in connection with the maintenance and repair of the
Hotel Premises and the maintenance and repair of any
Furniture, Fixtures and Equipment;
(i) the cost of operating and maintaining any parking facility at
the Hotel;
(j) travel agent commissions and credit card commissions;
(k) insurance premiums (which does not include coverage for items
stored in owner closets in each of such Unit(s), which shall
be insured by Unit Owners);
(l) deductibles paid in connection with claims on insurance
policies required to be maintained under ARTICLE 12;
(m) the cost of filing any tax returns and reports in regards to
the taxes described in SECTION 5.10(a);
(n) capital lease payments;
(o) the operating cash reserve;
(p) Capital Expenditures; and
(q) the amount contributed to a reserve for capital expenditures
for the repair and replacement of the Hotel Premises and for
the repair and replacement of any furniture, fixtures and
equipment;
but excluding the following:
(r) the Association Expenses;
(s) depreciation and amortization;
6
<PAGE>
ANNEX B
(t) any taxes personal to the Owners, including but not limited to
income taxes, real property taxes and capital gains taxes; and
(u) debt service payments payable by the Owners;
(27) "HOTEL GUESTS" means the users and occupants of the Hotel from time
to time including the Owners, other than the Owners using the Hotel
in accordance with Schedule B and persons claiming under the Owners
pursuant to Schedule B;
(28) "HOTEL PREMISES" means the real property located in Broward County,
Florida, together with the buildings and other improvements located
thereon and more particularly described as the "Condominium" in the
Declaration;
(29) "INCENTIVE FEE" means the fee payable to Terremark Hospitality
established and paid pursuant to SECTION 6.2;
(30) "INITIAL TERM" has the meaning set forth in SECTION 2.2;
(31) "IN THE RENTAL POOL" has the meaning set forth in SECTION 5.3;
(32) "NET HOTEL RETURN" means Gross Revenue less the aggregate of all of
the following:
(a) the Hotel Expenses; and
(b) real property taxes;
(33) "OPERATING CASH RESERVE" means the reserve to be established
pursuant to SECTION 5.6;
(34) "OPERATING PLAN AND BUDGET" means the marketing and operating plan
and budget for the operations of the Hotel for any Operating Year
established pursuant to the terms of SECTIONS 4.1 and 4.2;
(35) "OPERATING SUPPLIES AND EXPENDABLES" means any operating supplies
used by Terremark Hospitality in the operation of the Hotel in
accordance with this Agreement, including the terms of any Operating
Plan and Budget, including, without limitation, laundry supplies,
linens, housekeeping supplies, engineering supplies, accounting
supplies, miscellaneous general supply items, uniforms, food and
beverage inventories, inventories, paper supplies and other such
items that when used once are considered to be disposed of and all
other similar items necessary or appropriate for the operation of
the Hotel as contemplated by this Agreement;
7
<PAGE>
ANNEX B
(36) "OPERATING YEAR" means:
(a) firstly, the period from the Commencement Date to and
including December 31 in the year after the year in which the
Commencement Date occurs; and
(b) thereafter, each period of 12 months from and including the
first day of January to and including the last day of
December, or the portion thereof in the case of the last year
of the Term;
(37) "OWNER-SELLER" means Terremark Fortune House #2, Ltd., a Florida
limited partnership;
(38) "PERCENTAGE INTEREST" means the fraction which has as its numerator
the initial list price for a particular Unit and as its denominator
the aggregate of the initial list prices for all of the Units within
the Hotel;
(39) "PERSON" means any individual, corporation, body corporate, limited
liability company, partnership, joint venture, trust, unincorporated
organization or other entity, government or governmental or
regulatory authority, however constituted, or any trustee, executor,
administrator or other legal representative;
(40) "RELATED PERSON" means, with respect to any person:
(a) any Affiliate of such person;
(b) any person who is not at Arm's Length to such person or any
Affiliate of such person; and
(c) any person who is a director, officer, employee or agent of
such person or any Affiliate of such person or any spouse,
parent, child or relative (including by marriage) of any of
the foregoing;
(41) "RENTAL POOL" means the rental management arrangement in respect of
the Hotel undertaken by Terremark Hospitality on behalf of the
Owners pursuant to this Agreement;
(42) "SECURITY" has the meaning set forth in SECTION 15.5;
(43) "SECURITY HOLDER" has the meaning set forth in SECTION 15.5;
(44) "SPECIAL RESOLUTION" means a resolution passed at a meeting of the
Owners properly convened in accordance with the Condominium
Documents passed by Owners present or represented by proxy and
8
<PAGE>
ANNEX B
representing not less than 75% of the Owners entitled to vote
thereon provided, however, that Owners who, in person or by proxy,
cast their votes as abstentions shall not be considered to be
entitled to vote on such matters;
(45) "TERREMARK HOSPITALITY" means Terremark Hospitality Services, Inc.,
a Florida corporation;
(46) "TERREMARK HOSPITALITY MARKETING AND SALES EXPENSES" has the
meaning set forth in SECTION 6.3;
(47) "TERREMARK HOSPITALITY RECOVERIES" has the meaning set forth in
SECTION 6.5;
(48) "UNIT REVENUE SHARE" has the meaning set forth in SECTION 5.2;
(49) "UNIT" means the "Residential Unit" as defined in the Declaration.
1.2 INTERPRETATION. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) "this Agreement" means this Hotel Operating and Rental Pool
Agreement, as it may from time to time be supplemented or amended by
one or more agreements between the parties in accordance with the
terms hereof;
(b) except where otherwise specifically stated, all references in this
Agreement to designated "Articles", "sections" and other
subdivisions are to be designated Articles, sections and other
subdivisions of this Agreement;
(c) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole or not to any
particular Article, section or other subdivision;
(d) the headings are for convenience only and do not form a part of this
Agreement and they will not be used to interpret, define or limit
the scope, extent or intent of this Agreement or any provision
hereof;
(e) the word "including", when following any general statement, term or
matter, will not be construed to limit such general statement, term
or matter to the specific items or matters set forth immediately
following such word or to similar items or matters, whether or not
non-limiting language (such as "without limitation", "without
limiting the generality of the foregoing", or "but not limited to"
or words of similar import) is used with reference thereto, but
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ANNEX B
rather will be deemed to refer to all other items or matters that
could reasonably fall within the broadest possible scope of such
general statement, term or matter;
(f) words importing the neuter gender include the masculine or feminine
gender and words in the singular include the plural, and vice versa.
1.3 APPLICABLE LAW. This Agreement will be governed by and construed and
enforced in accordance with the laws of the State of Florida (without giving
effect to the principles thereof relating to conflicts of law) which will be
deemed to be the proper law hereof, and the courts of the State of Florida or of
the United States of America for the Southern District of Florida will have
exclusive jurisdiction in connection with all matters under this Agreement and
the interpretation and enforceability hereof.
1.4 STATUTES. Any reference in this Agreement to any statute means such statute
and any statute or law enacted to supersede or replace such statute.
ARTICLE 2
COMMENCEMENT DATE, TERM OF AGREEMENT
2.1 COMMENCEMENT DATE. This Agreement will be a binding agreement and bind the
Hotel Premises, Terremark Hospitality and all of the Owners upon the execution
and delivery hereof by the Owner-Seller and Terremark Hospitality. The duties
and obligations of the parties under this Agreement will come into full force
and effect upon the Commencement Date except that Terremark Hospitality's
obligation to prepare an Operating Plan and Budget for the first Operating Year
will come into full force and effect upon execution of this Agreement by all of
the parties hereto.
2.2 INITIAL TERM. The initial term of the appointment of Terremark Hospitality
as the Owners' manager under this Agreement will be a period commencing on the
Commencement Date and terminating at midnight at the end of the day which is the
tenth anniversary of the Commencement Date ( the "Initial Term"). For purposes
of this Agreement, the word "Term" means the Initial Term and any extensions
thereof pursuant to SECTION 2.3.
2.3 RENEWALS BY TERREMARK HOSPITALITY. Following the Initial Term, the
appointment of Terremark Hospitality as the Owners' manager pursuant to this
Agreement will be automatically renewed (without the requirement for notice by
either the Owner or Terremark Hospitality) for four successive periods of ten
years each (each called a "Renewal Term"), provided that:
(a) the Owners have not, prior to the end of the Initial Term or any
Renewal Term, elected to terminate the appointment of Terremark
Hospitality as manager under this Agreement pursuant to SECTION
14.2;
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ANNEX B
(b) Terremark Hospitality has not, prior to the end of the Initial Term
or any Renewal Term, elected to terminate the appointment of
Terremark Hospitality as manager under this Agreement for any reason
whatsoever pursuant to SECTION 14.3;
(c) the Initial Term has been extended for all prior periods; and
(d) Terremark Hospitality, in its sole discretion, has not given the
Board of Directors written notice of its election not to so renew
such appointment on or before the end of the then existing Initial
Term or Renewal Term, as the case may be.
2.4 RENEWAL - BY AGREEMENT AND SPECIAL RESOLUTION BY OWNERS. In
addition to renewals pursuant to SECTION 2.3, the parties may agree to renew the
appointment of Terremark Hospitality as the Owners' manager pursuant to this
Agreement for a Renewal Term or Renewal Terms for such period or periods and
upon such terms and conditions as may be approved by both, as evidenced by an
agreement in writing signed by Terremark Hospitality and both Terremark
Hospitality and all of the Owners will be bound by any such renewal.
ARTICLE 3
HOTEL RENTAL MANAGEMENT
3.1 MANAGEMENT OF HOTEL RENTAL POOL. The Owners hereby appoint Terremark
Hospitality as their exclusive manager to manage the operation of the Hotel and
the Rental Pool in respect thereof in accordance with the terms and conditions
set out in this Agreement and to undertake on an exclusive basis, on behalf of
and for the account of the Owners, all duties and obligations coming within the
scope of the management and marketing of the Hotel Premises, including those
specific services as set forth herein. The parties acknowledge and agree that
noting contained herein or elsewhere in this Agreement shall operate to prohibit
Terremark Hospitality from managing and/or operating other hotel or
condominium-hotel properties.
3.2 HOTEL RENTAL POOL. Terremark Hospitality will manage the rental of the Units
in accordance with this Agreement. Each of the Owners hereby irrevocably
covenants and agrees to be bound by the rental bookings of its Unit made by
Terremark Hospitality in accordance with this Agreement.
3.3 USE. The Units will be used only as hotel units/suites and only in
accordance with the Declaration, this Agreement and the Rental Pool and will not
be used for any other purpose without the prior written consent of the Owners
and Terremark Hospitality. Any use of the Units will comply with the
Declaration, all applicable laws, bylaws, rules and regulations and any other
Condominium Documents.
3.4 RESTRICTIONS RE: CONDOMINIUM DOCUMENTS. No Owner will vote in favor of any
amendment or modification of, or addition to, the Condominium Documents which,
in the sole opinion of Terremark Hospitality, conflicts with a term or condition
set out in this Agreement.
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ANNEX B
3.5 MONITORING USE BY OWNERS. Terremark Hospitality will maintain such books and
records as may be necessary to monitor use of the Units by Owners to ensure that
no Owner uses its Unit more than is permitted by this Agreement.
ARTICLE 4
OPERATING PLAN AND BUDGET
4.1 OPERATING PLAN AND BUDGET.
(a) For the first Operating Year, the Operating Plan and Budget will be
prepared by Terremark Hospitality prior to the Commencement Date.
Such Operating Plan and Budget will be mailed to each of the Owners.
(b) After the first Operating Year, on or before December 1 of each
year, Terremark Hospitality will prepare and deliver the Operating
Plan and Budget for the following Operating Year to each of the
Owners. Nothing herein contained shall be deemed to grant to any of
the Owners the right to approve or reject the Operating Plan and
Budget submitted by Terremark Hospitality on an annual basis.
(c) Terremark Hospitality makes no assurances that actual performance of
the Hotel will correspond to such estimates contained in the
Operating Plan and Budget. However, Terremark Hospitality agrees to
use its good faith and reasonable efforts to operate the Hotel in
accordance with the Operating Plan and Budget. The Owners
acknowledge that notwithstanding Terremark Hospitality's experience
and expertise in relation to the operation of hotels, the
projections contained in each Operating Plan and Budget are subject
to and may be affected by changes in financial, economic and other
conditions and circumstances beyond Terremark Hospitality's control.
In any event, Terremark Hospitality shall be granted the flexibility
to deviate from the Operating Plan and Budget during any Operating
Year without being required to obtain the prior consent from the
Owners, provided that such deviation occurs in the ordinary course
of Terremark Hospitality's operation of the Hotel.
4.2 INCLUSIONS IN OPERATING PLAN AND BUDGET. The Operating Plan and Budget
will be a reasonably detailed budget of revenue and expenses in connection with
the operation of the Hotel, and will include the following:
(a) the projected Gross Revenue;
(b) the budgeted Hotel Expenses, by major expense category, together
with information and background as to how the various projections
have been determined;
(c) the projected Unit Revenue Share for each Unit;
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<PAGE>
ANNEX B
(d) the marketing strategy and plan for the Hotel;
(e) any recommended Capital Expenditures for capital improvements to be
made to the Hotel Premises; and
(f) the basis upon which the Terremark Hospitality Marketing and Sales
Expenses and Terremark Hospitality Recoveries will be charged.
4.3 BUDGET SUMMARY. Terremark Hospitality will mail to each of the Owners a
summary of each Operating Plan and Budget once it is prepared in accordance with
this ARTICLE 4.
ARTICLE 5
OWNERS' REVENUES AND DISTRIBUTIONS TO OWNERS
5.1 CALCULATIONS BY TERREMARK HOSPITALITY. For each calendar month during the
Term, Terremark Hospitality will prepare or cause to be prepared reasonably
detailed financial statements, prepared in accordance with Generally Accepted
Hotel Accounting Principles and for each such period Terremark Hospitality will
calculate:
(a) the Gross Revenue;
(b) the Hotel Expenses;
(c) the Capital Expenditures, if any;
(d) the FF&E Reserve;
(e) the Operating Cash Reserve;
(f) the Incentive Fee, if any;
(g) capital lease payments, if any;
(h) the Unit Revenue Share for each Unit, determined in accordance with
SECTION 5.2.; and
(i) the number of days in the month the Unit was in the Rental Pool.
No later than the 20th day following the end of each calendar month during the
Term, Terremark Hospitality will
(i) deliver such financial statements to the Owners; and
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<PAGE>
ANNEX B
(ii) mail to each of the Unit Owners a written summary statement
the "Monthly Statement"), setting out the amounts set out in
SECTIONS 5.1(a) through 5.1(i) above, and the calculations
thereof, in reasonable detail.
5.2 CALCULATIONS OF UNIT REVENUE SHARE. The Owners and Terremark Hospitality
agree that:
(a) for each day that a Unit is In the Rental Pool, the Owner of such
Unit will be entitled to share in the Gross Revenue earned on such
day, as calculated by multiplying the Gross Revenue earned on such
day by the fraction which has as its numerator the Percentage
Interest of such Unit and as its denominator the aggregate of the
Percentage Interests of all of the Units In the Rental Pool on such
day;
(b) each Owner will be responsible for the payment of all Hotel Expenses
and Incentive Fees payable for all days (whether or not the Unit is
In the Rental Pool), as calculated by multiplying the relevant Hotel
Expenses and Incentive Fees by the Percentage Interest; and
(c) each Owner will be responsible for the Operating Cash Reserve in
accordance with SECTION 5.6 and the FF&E Reserve in accordance with
Section 5.7, as calculated by multiplying each of the Operating Cash
Reserve and the FF&E Reserve by the Percentage Interest.
For the purposes of this Agreement, the "Unit Revenue Share" for any Unit in
respect of any period means the amount allocated to such Unit in accordance with
SECTION 5.2(a) for such period less the amounts allocated to such Unit in
accordance with SECTIONS 5.2(b) and 5.2(c).
5.3 "IN THE RENTAL POOL". For the purposes of this Agreement, a Unit will be
considered to be "In the Rental Pool" on a particular day only if it is not
booked by the Owner for use by the Owner in accordance with ARTICLE 9 (unless
the Owner complies with the requirements of SECTION 9.6 and Terremark
Hospitality, acting reasonably, determines that the Unit is In the Rental Pool).
5.4 PAYMENTS TO OWNERS. Concurrently with the mailing of the Monthly Statement,
Terremark Hospitality will deliver to each Owner by check, wire transfer,
automatic credit or direct deposit, drawn upon the Hotel Bank Account, in the
amount equal to the Owner's Unit Revenue Share for the month for which the
Monthly Statement applies less the following amounts:
(a) any unpaid amount then payable by the Owner to Terremark Hospitality
pursuant to SECTION 5.8; and
(b) any amount deductible therefrom pursuant to SECTIONS 5.9, 5.10 or
9.2; and
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<PAGE>
ANNEX B
(c) any other amount payable by the Owner to Terremark Hospitality
pursuant to this Agreement; and
(d) withholding tax, if applicable.
Notwithstanding the foregoing, Terremark Hospitality may at any time prepare a
reasonable estimate of the annual Unit Revenue Share payable to each of the
Owners pursuant to this SECTION 5.4 and distribute to the Owners concurrently
with the mailing of the monthly statements the amount of such estimate, less a
percentage (not to exceed 20%) established by Terremark Hospitality for seasonal
working capital requirements in 12 equal monthly payments, in which case at the
end of such Operating Year Terremark Hospitality will calculate or cause to be
calculated the actual Unit Revenue Share payable to each of the Owners in
accordance with this Agreement and include such calculation in the Annual
Statement as set out in SECTION 7.2(b) and at such time Terremark Hospitality
will pay to each Owner the balance of his or her Unit Revenue Share payable for
such Operating Year. To the extent that the estimated payments of Unit Reserve
Share payable to an Owner for a particular Operating Year exceed the actual Unit
Reserve Share generated in a particular year for such Owner, such excess amount
shall be refunded to Terremark Hospitality within ten (10) business days
following receipt of notice from Terremark Hospitality of such excess payment to
Owner(s).
5.5 MAINTENANCE AND REPAIR OF UNITS. Terremark Hospitality will, for and on
behalf of the Owners, keep the Units in substantially the same condition they
were in as of the Commencement Date, reasonable wear and tear excepted, and the
cost thereof will be a Hotel Expense. The Owners acknowledge and agree that the
cost of maintaining and repairing the Units will be shared by all of the Owners
during the Term in accordance with pro rata shares based on Percentage
Interests.
5.6 OPERATING CASH RESERVE. A reserve in the amount of $250,000 will be
established for and on behalf of the Owners, for use by Terremark Hospitality on
behalf of the Owners, as working capital in connection with the operation of the
Hotel. The Operating Cash Reserve will be initially established with funds paid
by each Owner in accordance with the Percentage Interest of a Unit at the time
of settlement of the Owner's purchase of its Unit. If, 12 months after the
Commencement Date, there have not been a sufficient number of purchases of Units
to fund the Operating Cash Reserve in the amount of $250,000, Owner-Seller may
contribute such amounts as are necessary to fully fund the Operating Cash
Reserve. Owner-Seller shall be reimbursed for the amount so contributed out of
closing proceeds as and when remaining Units are purchased. Commencing 12 months
after the Commencement Date, Terremark Hospitality will at all times be
authorized to withhold each month from the Owners' Unit Revenue Shares
sufficient funds in order to replenish the Operating Cash Reserve throughout the
Term. The Operating Cash Reserve will be held in the Hotel Bank Account and,
commencing 12 months after the Commencement Date, Terremark Hospitality may
withdraw funds from the Operating Cash Reserve to pay any Hotel Expenses.
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<PAGE>
ANNEX B
5.7 CAPITAL LEASE PAYMENTS, INCENTIVE FEE AND FF&E RESERVE. During the 12 month
period following the Commencement Date, Owner-Seller shall provide to Terremark
Hospitality such funds as may be necessary for the payment of Hotel Expenses,
Capital Lease Payments and Incentive Fees to the extent that there are
inadequate funds derived from the operations of the Hotel to pay such amounts.
The Operating Cash Reserve, at all times during the Term and after termination
or expiry of this Agreement, shall remain the property of the Owners. [In
addition, Terremark Hospitality shall establish, for and on behalf of the Owners
a reserve in the amount of 2% - 5% (expressed as a percentage of Gross Revenue
in a particular year), as a reserve for Capital Expenditures for the repair and
replacement of the Hotel Premises and for the repair and replacement of any
Furniture, Fixtures and Equipment. The Owners acknowledge and agree that the
FF&E Reserve will be for the benefit of all of the Units collectively and not
for each individual Unit separately and that the cost of maintaining and
replacing the Furniture, Fixtures and Equipment will be shared by all of the
Owners during the Term in accordance with prorata shares based on their
Percentage Interests. The FF&E Reserve, at all times during the Term and after
termination or expiration of this Agreement, shall remain the property of the
Owners.
5.8 SHORTFALLS. If at any time the funds in the Hotel Bank Account are not
sufficient to pay when due any Hotel Expenses, Capital Lease Payments or
Incentive Fees payable under this Agreement, then Terremark Hospitality shall
(such as in the case of seasonal operating shortfalls), pay any such amount out
of its own funds which obligation shall continue for as long as it is operating
the Hotel. Upon expiration of this Agreement or earlier termination of Terremark
Hospitality's management of the Hotel, Terremark Hospitality or its affiliate,
as applicable, shall convey Unit C-3 (as defined in the Declaration) to the
Association in accordance with the terms of the Declaration and any shortfalls
shall thereafter be the responsibility of the Owners in accordance with their
respective allocable shares thereof, as determined by multiplying the total
amount of the shortfall by the Percentage Interest of a Unit Owner.
5.9 PAYMENT OF UNIT EXPENSES BY OWNERS. Each of the Owners will promptly pay
when due all taxes personal to the Owners in respect of such Owner's Unit and
personal property, including income taxes and capital gains taxes, and all
amounts owing under any financing of the Owner's Unit arranged by such Owner. In
addition, each of the Owners will promptly pay the Owner's pro rata share of
Assessments.
5.10 OTHER TAXES. The parties agree that:
(a) Terremark Hospitality will, as agent for and on behalf of the
Owners, collect and remit to any applicable taxing authority, within
the required time for the remittance thereof, any tax, hotel tax,
transient lodging tax, bed tax and other tax imposed or collected in
connection with the use of the Hotel Premises by Hotel Guests and
Owners, and make any necessary filings and reports in respect
thereof; and
(b) Terremark Hospitality may withhold from any of the Owners and remit
to any relevant taxing authority any amount required to be withheld
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<PAGE>
ANNEX B
or remitted in respect of withholding tax or any other applicable
statutory tax, charge or levy which Terremark Hospitality is
required to withhold or remit.
5.11 NO SEPARATE REVENUE FOR TERREMARK HOSPITALITY. Except as specifically set
out in this Agreement or any other agreement in writing between or among
Terremark Hospitality, the Owners or the Association, neither Terremark
Hospitality nor any person Related to Terremark Hospitality will receive any
other revenue, profit or reward of any kind or nature from or in respect of the
Hotel Premises or the Hotel or any portion thereof. Notwithstanding the
foregoing, Terremark Hospitality and any person Related to Terremark Hospitality
will be entitled to receive any amount payable to Terremark Hospitality or such
person pursuant to this Agreement as an Owner of any Unit. Except as otherwise
provided herein, to the extent Terremark Hospitality or any person Related to
Terremark Hospitality owns any Units, Terremark Hospitality or such person
Related to Terremark Hospitality shall be entitled to all of the rights,
benefits and privileges, and shall be subject to all of the burdens, obligations
and liabilities of an Owner hereunder.
5.12 FOREIGN OWNERS. Owners that are non-resident aliens or foreign corporations
agree to file such tax returns and make such tax elections with, and provide
such information to, all applicable taxing authorities located in the United
States as may be required to avoid the necessity for withholding income tax on
distributions. In addition, Owners that are non-resident aliens or foreign
corporations agree to pay all income taxes for which withholding would otherwise
be required because of such Owners' status as non-resident aliens or foreign
corporations. Each Owner that is a non-resident alien or foreign corporation
shall notify Terremark Hospitality, in writing, of its status as such and shall
advise Terremark Hospitality whether it is subject to income tax on withholding
or is exempt therefrom. Each Owner that is a non-resident alien or foreign
corporation shall indemnify and hold harmless all other Owners, Owner-Seller and
Terremark Hospitality, for, from and against any and all liability, including
liability for taxes, penalties and interest, arising out of or in connection
with such Owner's failure to fulfill its obligations under this Section 5.12.
ARTICLE 6
MANAGEMENT AND OTHER FEES AND REIMBURSABLE EXPENSES
6.1 BASE FEE. The Owners and Terremark Hospitality agree that during the Term,
Terremark Hospitality shall be paid a base management fee (the "Base Fee") of
$250,000 per year, which shall be payable monthly as a Hotel Expense. Such fee
shall be reflected on the Monthly Statements delivered to Owners.
6.2 INCENTIVE FEE. The Owners and Terremark Hospitality agree that:
(a) Performance Criteria. (i) If for any Operating Year during the Term
the Net Hotel Return is greater than $250,000 but less than
$1,000,000, the Owners will pay to Terremark Hospitality an
Incentive Fee for such Operating Year equal to one percent (1%) of
the Gross Revenues generated during such Operating Year; and (ii) if
for any Operating Year during the Term, the Net Hotel Return exceeds
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<PAGE>
ANNEX B
$1,000,000, the Owners will pay to Terremark Hospitality an
Incentive Fee for such Operating Year equal to two and one-half
percent (2.5%) of the Gross Revenues in excess of $1,000,000 which
are generated during such Operating Year;
(b) For purposes of computing the Incentive Fee, the first Operating
Year shall be deemed to commence on the Commencement Date and end on
the first anniversary of the Commencement Date;
(c) The Incentive Fee in respect of each Operating Year, will be payable
to Terremark Hospitality thirty (30) days after the mailing of the
Annual Statement;
(d) During the Renewal Term, the Incentive Fee shall be computed in the
same manner as provided for herein.
6.3 SALES, RESERVATIONS, ADVERTISING AND MARKETING EXPENSES. For the
services provided by Terremark Hospitality pursuant to ARTICLE 8, including,
without limitation, the Terremark Hospitality advertising and marketing programs
and sales and reservation systems the Owners will, pay to Terremark Hospitality
the fees and charges set forth in SECTION 8.8, (net of any applicable credits)
(collectively called "Terremark Hospitality's Marketing and Sales Expenses").
The Owners acknowledge that the basis and method of allocation of Terremark
Hospitality's Marketing and Sales Expenses may change during the Term and the
Owners agree to any such change provided it is in accordance with SECTION 6.4.
6.4 LIMITATION ON TERREMARK HOSPITALITY'S MARKETING AND SALES
EXPENSES. Terremark Hospitality agrees that it will exercise its reasonable
efforts to ensure that none of Terremark Hospitality's Marketing and Sales
Expenses will be allocated by a method other than that set out in the then
current Operating Plan and Budget.
6.5 TERREMARK HOSPITALITY RECOVERIES. The Owners agree that all reasonable costs
incurred by Terremark Hospitality for the Owners' account in the ordinary course
of business, shall be treated as Hotel Expenses, including, without limitation,
the following:
(a) the daily per diem rate for those personnel of Terremark Hospitality
assigned to special projects, which will be based upon each
individual's rate of pay and Fringe Benefits (such special projects
will include, but not be limited to, special sales or marketing
programs, training and installation of capital purchases and
reasonable travel and out-of-pocket expenses will be included); and
(b) reasonable travel and out-of-pocket expenses incurred directly in
connection with the operation of the Hotel by personnel which are
based in Terremark Hospitality's corporate office ("Head Office
Personnel").
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ANNEX B
ARTICLE 7
HOTEL BANK ACCOUNT AND BOOKS AND RECORDS
7.1 HOTEL BANK ACCOUNT. Terremark Hospitality will have the right to designate
the United States bank having a branch reasonably convenient to the Hotel with
which the Hotel will conduct its various banking affairs, and all funds received
in the operation of the Hotel will be deposited into an account bearing the name
of the Hotel in such bank. The Hotel Bank Account will be under the control of
Terremark Hospitality. Checks and other documents of withdrawal will be signed
only by persons authorized by Terremark Hospitality. All funds in the Hotel Bank
Account will belong to the Owners and will be dealt with in accordance with this
Agreement. Terremark Hospitality is hereby authorized to pay all Hotel Expenses
and Association Expenses incurred in accordance with this Agreement and all
amounts repayable to the Owner-Seller pursuant to SECTION 5.6 from funds in the
Hotel Bank Account.
7.2 BOOKS, RECORDS, FINANCIAL STATEMENTS.
(a) Terremark Hospitality agrees on behalf of the Owners, to keep on the
Hotel Premises proper books of account and other records relating to
or reflecting the results of the operations of the Hotel in
accordance with this Agreement. All books of account and other
records are the property of the Owners and will be available to the
Board of Directors at all reasonable times for examination, audit,
inspection and copying. Upon any termination of this Agreement, all
financial books and records and a list of the Hotel's individual
guests who stayed at the Hotel during the preceding two years (with
their names and addresses and the dates of their arrivals and
departures) will be turned over forthwith to the Board of Directors
to ensure the orderly continuance of the operation of the Hotel. All
books and records will thereafter be available to Terremark
Hospitality at the Hotel, at all reasonable times, for inspection,
audit, examination and copying. Any costs and expenses incurred in
providing books and records to Terremark Hospitality after
termination will be paid by Terremark Hospitality.
(b) Within 75 days after the end of each Operating Year, Terremark
Hospitality agrees to cause to be prepared and mailed to all of the
Owners, reasonably detailed financial statements in accordance with
Generally Accepted Hotel Accounting Principles, together with an
annual statement setting out the items referred to in SECTIONS
5.1(a) to (i) and the calculation of each of them (collectively
called the "Annual Statement") and any other reports or information
as may be reasonably required by the Owners for tax purposes. Unless
otherwise agreed by the Board of Directors in advance, the Annual
Statement will be audited by the Certified Public Accountants and
will contain a certification by the Certified Public Accountants to
the effect that all of such items have been calculated in accordance
with the terms of this Agreement.
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ANNEX B
ARTICLE 8
SERVICES TO BE RENDERED BY TERREMARK HOSPITALITY
8.1 MANAGEMENT SERVICES. Terremark Hospitality will:
(a) use all reasonable efforts to sell room nights in respect of the
Units to Hotel Guests;
(b) carry out and perform all such acts and things as are reasonably
necessary or desirable in connection with the operation of the Hotel
in accordance with this Agreement;
(c) procure and maintain any licenses and permits which may be required
in connection with the carrying out of its duties and obligations
under this Agreement;
(d) observe and abide by the terms and conditions set out in the
Declaration; and
(e) diligently and faithfully perform its duties and obligations under
this Agreement as would a reasonably prudent hotel manager.
8.2 GENERAL MANAGEMENT. Subject to the terms and conditions of this Agreement
and any Operating Plan and Budget, Terremark Hospitality agrees to perform on
behalf of and for the account of the Owners, all appropriate and necessary
management services in connection with the operation of the Hotel, including but
not limited to:
(a) the general organization of the Hotel;
(b) the development and implementation of sales, advertising, personnel,
employment, purchasing and maintenance programs consistent with the
provisions of this Agreement;
(c) the implementation of administrative accounting, budgeting, and
operational policies and practices of Terremark Hospitality. Such
policies and practices will be deemed to be in compliance with
Terremark Hospitality's obligations hereunder and the Owners will
accept such policies and practices so long as they do not conflict
in any material respect with any term or condition of this Agreement
or any Operating Plan and Budget;
(d) the review of the conduct of hotel operations at the Hotel from time
to time in accordance with the management practices and policies of
Terremark Hospitality;
(e) the establishment and supervision of Terremark Hospitality's
standard accounting and inventory control systems which are normally
used for the hotels within the Terremark group which are comparable
to the Hotel;
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ANNEX B
(f) the arrangement for the provision to the Hotel of all goods and
services as are necessary for the proper operation and maintenance
of the Hotel as contemplated by this Agreement;
(g) the establishment of all prices, charges and rates, and in
connection therewith, the supervision and control of the collection,
receipt and giving of receipts for all goods or services provided or
revenue of any nature derived from the operations of the Hotel;
(h) the determination of the Hotel's purchasing policy, including the
selection of the merchandise, supplies and materials and
establishment and maintenance of all inventories required for the
proper operation of the Hotel, and the selection of the suppliers
and negotiation of supply contracts in order to assure that all
purchases are made on the best available terms;
(i) the negotiation and execution of contracts which are normally
entered into within the scope of hotel operations and preparation of
the corresponding legal documents;
(j) the determination of credit practices applicable to suppliers and to
the Hotel's clientele and negotiation of arrangements with credit
organizations, in particular those issuing credit cards;
(k) instituting in the name of the Hotel any lawsuits or other legal
actions having a direct link with the operations of the Hotel and
deemed necessary or advisable by Terremark Hospitality; and
(l) the supervision and control of the activities of Owners while in
occupancy of a Unit, Hotel Guests and any tenants, concessionaires
and holders of privileges in respect of any portion of the Hotel
Premises and their employees, including the dispossession of Hotel
Guests, Owners and tenants for nonpayment of rent or any other
proper cause, or the termination of the rights of concessionaires or
licensees for proper cause.
8.3 MAINTENANCE. Terremark Hospitality agrees for the account of the Owners, to
cause the Hotel Premises and the Furniture, Fixtures and Equipment to be
maintained in good operating condition and repair, normal wear and tear
excepted, and Terremark Hospitality will replace, at the expense of the Owners,
such items of the Furniture, Fixtures and Equipment and Operating Supplies and
Expendables as from time to time may be appropriate in substantial accordance
with the then current Operating Plan and Budget. All items of Furniture,
Fixtures and Equipment not located within a Unit, forthwith upon acquisition and
receipt by Terremark Hospitality of any payment therefor, will become, without
further act, the property of the Owners and will be owned collectively in
accordance with their pro rata shares based on Percentage Interest. Upon
completion of reconstruction of any change or addition to the Hotel, Terremark
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ANNEX B
Hospitality will furnish to the Board of Directors any guarantees and warranties
relating to any portions of the Hotel or the Furniture, Fixtures and Equipment
and Operating Supplies and Expendables, Terremark Hospitality agrees to
cooperate with the Owners to enforce the provisions of such guarantees and
warranties.
8.4 CHANGES AND ALTERATIONS. From time to time during the Term, Terremark
Hospitality may make, at the Owners' expense, but subject to the terms of this
Agreement and the then current Operating Plan and Budget, reasonable changes and
alterations to the Hotel Premises, or any part thereof, subject however in all
cases to the following:
(a) no change or alteration will be made which would:
(i) materially change the general character or description of the
Hotel;
(ii) involve the excavation of any portion of the Hotel Premises;
(iii) include alteration of, or result in increasing the burden upon
the foundation of the Hotel Premises; or
(iv) materially reduce the size of any Unit;
without the prior consent of the Owners by Special Resolution;
(b) all permits, licenses and authorizations required to be procured in
connection with any change or alteration will be procured (or caused
to be procured) by Terremark Hospitality, and the cost of the same
will be a Hotel Expense;
(c) any change or alteration will be made promptly in a good and
workmanlike manner and in compliance with all applicable laws,
rules, regulations and permits and insurance requirements;
(d) the cost of any change or alteration will be promptly paid (or
caused to be paid) so that the Hotel Premises will at all times be
free from any lien, encumbrance, mortgage, chattel mortgage,
conditional sales agreement, title retention agreement or other
charge for labor, services or material supplied or claimed to have
been supplied to the Hotel Premises;
8.5 CAPITAL EXPENDITURES. Terremark Hospitality is authorized to make Capital
Expenditures in substantial accordance with the terms of the then current
Operating Plan and Budget, except where required in an emergency to preserve
property or the safety of persons in or about the Hotel Premises.
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ANNEX B
8.6 PERSONNEL AND EMPLOYEES.
(a) The selection and employment of the general manager and all such
other employees and personnel necessary for the proper operation of
the Hotel is the responsibility of Terremark Hospitality and all
such persons will be employed by Terremark Hospitality as employees
of Terremark Hospitality. The hiring, promoting and discharging of
the general manager and any other employees and personnel and the
terms of their employment, including compensation, will be at the
sole discretion of Terremark Hospitality, acting reasonably and in
the best interest of the Owners.
(b) Terremark Hospitality may delegate to the general manager of the
Hotel, who in turn may delegate to others, the selection and hiring
of all employees and personnel required for the operation of the
Hotel.
(c) The general manager may, during the Term be replaced by Terremark
Hospitality, and likewise the employment of any other Employee may
be terminated by Terremark Hospitality or the general manager or by
the person or persons to whom the general manager will delegate such
authority. The decision in regard to any such discharge, whether
directly or through the general manager of the Hotel, will be at the
sole discretion of Terremark Hospitality, acting reasonably.
(d) The Owners agree that all costs and expenses incurred by Terremark
Hospitality, acting reasonably and prudently, in connection with the
employment of the Employees (including any hiring costs and
expenses, Fringe Benefits, withholding amounts and termination costs
payable, including the costs of terminating Employees at the end of
the Term or earlier termination of the appointment of Terremark
Hospitality under this Agreement), will be Hotel Expenses, payable
by the Owners pursuant to this Agreement.
8.7 MARKETING AT THE HOTEL.
(a) Terremark Hospitality will carry out on behalf of the Hotel all
operational marketing activities.
(b) Marketing at the Hotel level will be established and carried out by
Terremark Hospitality for the market where the Hotel is located and
other markets which Terremark Hospitality reasonably believes
relevant considering the nature of the Hotel.
(c) Terremark Hospitality agrees to establish for the Hotel, as part of
the Operating Plan and Budget, an annual marketing plan for each
Operating Year, including, but not limited to:
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ANNEX B
(i) the determination of the sales policy of the Hotel;
(ii) the determination of yearly and long-term objectives regarding
occupancy rates, revenues and clientele;
(iii) the establishment of all Hotel rates (including the rates for
any lounge, bar, restaurant or conference facilities contained
in the Hotel);
(iv) the setting of any special sales terms;
(v) the determination of credit practices;
(vi) the establishment of sales methods and procedures relating to
the various clientele segments; and
(vii) the analysis of results and permanent control.
(d) Terremark Hospitality agrees to perform appropriate advertising and
promotion services at the Hotel level including:
(i) the definition of the Hotel policy regarding advertising and
promotion;
(ii) the preparation of advertising documents and brochures.
(e) Terremark Hospitality agrees to make its central sales office
available to the Hotel for marketing action intended for specific
territories, Terremark Hospitality will assist the Hotel in reaching
specific market segments through the drafting of potential clientele
lists, the visiting of selected travel agencies, tour operators and
corporations and the following up of such activities in the
processing of sales orders.
(f) Terremark Hospitality agrees to integrate the Hotel in the various
trade shows and exhibitions attended by Terremark Hospitality or
recommended for the Hotel.
(g) The Owners consent to the integration of the Hotel's guest list and
client list into Terremark Hospitality's guest history and client
listing data base, which may be used by hotels in the Terremark
group.
8.8 RESERVATION AND SALES SYSTEMS.
(a) The Owners agree to honor all reservations made by Terremark
Hospitality in accordance with this Agreement, including those made
for the 24 month period after the termination of the appointment of
Terremark Hospitality under this Agreement.
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ANNEX B
(b) The Hotel will be entitled to benefit from the sales and promotional
activities planned for groups undertaken at the national or
international level and intended for travel agents, tour operators,
incentive groups, conventions, corporations, governmental agencies,
international associations and airline companies. These activities
will be performed by or through Head Office Personnel.
(c) Terremark Hospitality agrees to distribute to all sales outlets as
determined by Terremark Hospitality, the following:
(i) information on services and facilities offered by the Hotel
and advertising literature published by the Hotel; and
(ii) the individual and group rates established annually by the
Hotel, and if necessary, any special rates offered for
specific markets.
(d) The Owners will pay to Terremark Hospitality its annual advertising
and marketing charge for the Hotel Premises, (the method of
allocation of which will be set out in the Operating Plan and
Budget).
(e) The Owners agree that the Hotel will abide by all commission
agreements negotiated and established by Terremark Hospitality in
good faith with third parties who are not Related to Terremark
Hospitality.
8.9 PERFORMANCE OF TERREMARK HOSPITALITY'S SERVICES.
(a) In its management of the Hotel and to provide the Hotel with the
benefits of volume purchasing, market research in the development of
new and used equipment and supplies and design, decorating and other
services, Terremark Hospitality may purchase goods, supplies and
services from or through Terremark Hospitality or any of its
Affiliates, so long as the prices and terms are competitive with the
prices and terms of goods and services of equal quality available
from others.
(b) Terremark Hospitality may pay to any of its Affiliates a reasonable
fee for the negotiation of contracts for the direct purchase by
Terremark Hospitality from independent suppliers of goods, supplies
and services so long as the prices and terms thereof when added to
the fee are competitive.
(c) Terremark Hospitality may retain an Affiliate or division as a
consultant and to perform technical services in connection with any
substantial remodeling, repairs, construction or other capital
improvement to the Hotel and the Affiliate or division will be
reasonably compensated for its services.
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ANNEX B
ARTICLE 9
USE OF UNITS BY OWNERS
9.1 USE OF UNITS BY OWNERS. The parties agree that the terms and conditions set
out in Schedule B are binding upon all the Owners, all persons claiming under
the Owner pursuant to Schedule B, and Terremark Hospitality and are hereby
incorporated into this Agreement. Each Owner and each person claiming under the
Owner will be permitted to use its Unit in accordance with Schedule B and in no
other manner whatsoever. If any Owner proposes to book the use of his or her
Unit in accordance with Schedule B, Terremark Hospitality will not be
responsible if the Unit has been otherwise booked, provided that Terremark
Hospitality has complied with Schedule B. Notwithstanding anything contained in
Schedule B (including the definition of "Day"), the Owners will be bound by and
comply with the check-in and check-out times established by Terremark
Hospitality for the use of the Units.
9.2 FEES AND CHARGES. Terremark Hospitality may change any of such fees and
charges in any Operating Plan and Budget, in its reasonable discretion. In
addition, the Owners and those using the Units with the permission of the Owners
in accordance with Schedule B will pay the standard charges established by
Terremark Hospitality for the following:
(a) long distance calls;
(b) movie rentals;
(c) vending machine charges;
(d) charges for use of any recreational facilities at the Hotel Premises
or off the Hotel Premises pursuant to agreement with third parties;
and
(e) purchases of other goods and services offered by Terremark
Hospitality.
If any Owner or person claiming under any Owner does not pay any fee or charge
set out in this SECTION 9.2, Terremark Hospitality may deduct such amount from
the Owner's Unit Revenue Share. All of the fees and charges set out in this
SECTION 9.2 received by Terremark Hospitality will be included in the Gross
Revenue.
9.3 NO CHARGE FOR COMMON PROPERTY OR COMMON FACILITIES. Except as set
out in SECTION 9.2, Terremark Hospitality will not charge any Owner or any
person claiming under the Owner pursuant to Schedule B for the use or enjoyment
of its Unit or any portion of the Hotel Premises (including parking), provided
that such use is in accordance with this ARTICLE 9 and Schedule B.
9.4 OWNER ELECTION NOT TO USE. The Owner will forthwith notify Terremark
Hospitality in writing if the Owner determines or discovers at any time that the
Owner or any person claiming under such Owner will not use the Unit on any of
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ANNEX B
the days for which the Owner gave notice of the Owners use thereof pursuant to
Schedule B and Terremark Hospitality may then rent out the Owner's Unit to Hotel
Guests on such days.
9.5 USE BY OR ON BEHALF OF OWNER. No Owner will use or permit any person to use
the Owner's Unit or the Common Elements except in accordance with this ARTICLE 9
or with the prior written consent of Terremark Hospitality in its sole
discretion. The Owner will be responsible for any use of its Unit by the Owner
or any person claiming under the Owner in accordance with this ARTICLE 9 and any
amount payable from any Owner in respect of such use of such Owner's Unit to
Terremark Hospitality hereunder. Under no circumstances will the Owner during
the Term directly or indirectly charge rent or accept any form of consideration
for the use of the Owner's Unit except in accordance with this Agreement.
9.6 PROMOTIONAL USE BY OWNER-SELLER. Notwithstanding any other provision in this
Agreement to the contrary, until Owner-Seller has sold all of the Units to
another Owner, Owner- Seller shall have the right to use Units reasonably
designated by Terremark Hospitality as models for the promotion and sale of the
remaining unsold Units, Terremark Hospitality shall also provide, at no cost to
Owner-Seller, an office on the Hotel Premises with telephone facilities for use
in connection with the promotion and sale of the unsold Units, Owner-Seller
shall be liable for operating costs in connection with the use of the office on
the Hotel Premises (e.g. telephone).
9.7 COMPLIMENTARY ROOMS. Notwithstanding any other provision in this Agreement
to the contrary, the Owners agree that Terremark Hospitality shall have the
right to offer travel agents, tour operators and other third parties,
complimentary rooms in the Hotel in connection with the marketing and promotion
efforts that it is undertaking for the Hotel.
ARTICLE 10
COVENANTS, REPRESENTATIONS AND WARRANTIES
10.1 COVENANTS. All of the terms and provisions of this Agreement will be deemed
and construed to be "covenants" to be performed by the respective parties as
though words specifically expressing or importing covenants and conditions were
used in each separate term and provision hereof.
10.2 REPRESENTATIONS AND WARRANTIES OF TERREMARK HOSPITALITY.
Terremark Hospitality represents and warrants, as representations and warranties
that are true as of the date hereof and will be true at all times during the
Term, as follows:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida and is duly
qualified to do business in Florida.
(b) it has full corporate power, authority and legal right to operate
the Hotel and to perform and observe the provisions of this
Agreement; and
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ANNEX B
(c) this Agreement constitutes a binding obligation of Terremark
Hospitality enforceable in accordance with its terms; and
covenants that it will, during the Term, preserve and keep in effect, at its own
expense and not as a Hotel Expense, its corporate existence, rights and licenses
as required to carry on business in the State of Florida.
10.3 REPRESENTATIONS AND WARRANTIES OF OWNERS. Each of the Owners represents
and warrants, as representations and warranties that are true as of the date
hereof and will be true at all during the Term, as follows:
(a) if such Owner is a corporation, it is a corporation duly authorized
to do business under the laws of the State of Florida;
(b) it has full power, authority and legal right to own real property in
the State of Florida and to execute and deliver, and to perform and
observe the provisions of this Agreement;
(c) this Agreement constitutes the valid and binding obligations of the
Owner enforceable in accordance with its terms; and
covenants that if such Owner is a corporation, it will, during the term of this
Agreement, preserve and keep in effect, at its own expense, its corporate
existence, rights and licenses to carry on business in the State of Florida.
ARTICLE 11
TRADEMARKS
11.1 TRADEMARKS. The parties agree that:
(a) Subject to SECTION 11.2. during the Term, the Hotel will at all
times be known and designated as follows:
Fortune House - Fort Lauderdale Beach Condominium Hotel
or such other name as may be determined by Terremark Hospitality.
It is, however, agreed between the parties hereto that the names
"Fortune House" and "Terremark", when used alone or in conjunction
with some other work or words, is and will remain the exclusive
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ANNEX B
property of Terremark Fortune House #2, Ltd., a Florida limited
partnership, and Terremark Hospitality Services, Inc., a Florida
corporation, respectively, which have all rights to the names
"Fortune House," "Terremark," "Terremark Hotels," "Terremark Hotels
& Resorts" and "Terremark Suite Hotels"; and
(2) upon termination of this Agreement for any reason whatsoever or
Owner-Seller or Terremark Hospitality removing the "Fortune House"
or the "Terremark" brands pursuant to SECTION 11.2, the Owners will
remove the names "Fortune House," "Terremark," "Terremark Hotels,"
"Terremark Hotels & Resorts" and "Terremark Suite Hotels" from all
locations within the Hotel and from all advertising or other
materials used by the Hotel, and will cease absolutely the use of
the names "Fortune House," "Terremark," "Terremark Hotels,"
"Terremark Hotels & Resorts" and "Terremark Suite Hotels" in any
trademark thereof with respect to the Hotel. The Owners hereby give
to both Owner-Seller and Terremark Hospitality a power of attorney
to cancel any license agreement granted hereunder for the use of
such names.
11.2 REMOVAL OF THE "FORTUNE HOUSE" OR THE "TERREMARK" BRAND. If at any
time during the Term, 5 or more Units are not subject to this Agreement (except
where such Units are temporarily not subject to this Agreement because of damage
resulting from fire, flood or other casualty), then Owner-Seller and/or
Terremark Hospitality may, at its option, cease to operate or identify the Hotel
as part of the Fortune House and/or the Terremark Hospitality group in which
case:
(a) Terremark Hospitality may carry out its duties and obligations
hereunder through a subsidiary or assign this Agreement to a
subsidiary; and
(b) Owner-Seller will change the name of the Hotel to remove any
references to "Fortune House" and/or "Terremark."
ARTICLE 12
INSURANCE
12.1 INSURANCE. Terremark Hospitality will, for itself and the Owners at the
sole cost and expense of the Owners, as a Hotel Expense, take out and maintain
at all times during the Term:
(a) insurance in respect of the Hotel Premises and all the Furniture,
Fixtures and Equipment, including those in the Units, against loss
or damage by fire and all other reasonably insurable perils included
in the broad form extended coverage endorsement available under fire
policies in an amount not less than the actual replacement cost;
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ANNEX B
(b) comprehensive public, products and innkeepers' liability and
property damage insurance against claims for personal and bodily
injury or death and property damage occurring in or about the Hotel
Premises, with a single limit of not less than $__________ per
occurrence, wherever practicable, or such higher amount as the Board
of Directors and Terremark Hospitality may agree, acting prudently;
(c) reasonable levels of business interruption insurance, as determined
by Terremark Hospitality, acting reasonably;
(d) worker's compensation insurance to the extent necessary to meet the
requirements of the laws of Florida;
(e) employer's liability insurance, with a minimum liability limit of
$___________;
(f) reasonable levels of boiler and machinery insurance; and
(g) such insurance coverages as are required of the Owners and the
Owner-Seller under the Declaration with limits no less than are
required under the Declaration.
in all cases to the extent that such insurance is available.
12.2 PARTIES INSURED. All insurance policies provided for in SECTION 12.1 will,
to the extent reasonably possible, include the Owners, the Owner-Sellers and
Terremark Hospitality as parties insured as their interests may appear. All
insurance policies referred to in SECTION 12.1 will provide that the same may
not be canceled or materially modified until at least 10 days after prior notice
to Terremark Hospitality.
12.3 INSURANCE BY TERREMARK HOSPITALITY. The cost of furnishing any insurance
pursuant to SECTION 12.1 will be borne by the Owners and charged by Terremark
Hospitality to the Owners as a Hotel Expense.
12.4 SCHEDULES OF INSURANCE. At least once during each Operating Year, Terremark
Hospitality will furnish to the Owners a schedule of insurance, listing the
number of the policies of insurance obtained by Terremark Hospitality then
outstanding and in force with respect to the Hotel Premises, or any part
thereof, the names of the companies issuing such policies, or dates of such
policies and the risks covered thereby.
ARTICLE 13
TITLE
13.1 TITLE. Each Owner represents, warrants, covenants and agrees that:
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ANNEX B
(a) it has, and that throughout the Term it will maintain, full
ownership of the Owner's Unit and the Furniture, Fixtures and
Equipment therein, free and clear of all non- consensual liens and
encumbrances except any Security and any other liens or encumbrances
which do not materially affect the operation of the Hotel by
Terremark Hospitality, and those hereafter approved in writing by
Terremark Hospitality;
(b) the Owner will not remove, and will not permit any person claiming
under the Owner to remove, any item of Furniture, Fixtures and
Equipment in the Owner's Unit except in accordance with this
Agreement; and
(c) Terremark Hospitality, in the course of fulfilling its duties and
obligations herein, will and may peaceably and quietly possess,
manage and operate the Owner's Unit and the Furniture, Fixtures and
Equipment therein during the Term.
Each Owner will, at its own expense, undertake and prosecute any appropriate
action, judicial or otherwise, to assure peaceful and quiet possession of such
Owner's Unit by Terremark Hospitality. Each Owner further agrees that throughout
the Term it will observe and perform all terms, covenants, conditions, duties
and obligations required under any law, mortgage, or other agreement creating a
lien on the Owner's Unit and the Furniture, Fixtures and Equipment therein and
pay all property taxes and other charges levied with the property taxes.
ARTICLE 14
DEFAULT, OBLIGATIONS ON TERMINATION
14.1 EVENTS OF DEFAULT. The following will constitute events of default on the
part of Terremark Hospitality:
(a) the filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by Terremark
Hospitality;
(b) the consent to an involuntary petition in bankruptcy or the failure
to vacate within 90 days from the date of entry thereof any order
approving an involuntary petition by Terremark Hospitality; and
(c) the entering of an order, judgement, or decree by any court of
competent jurisdiction, on the application of a creator,
adjudicating Terremark Hospitality a bankrupt or insolvent or
approving a petition seeking reorganization or appointing a
receiver, trustee or liquidator of all or a substantial part of such
party's assets, and such order, judgment or decree will continue
unstayed and in effect for a period of 120 consecutive days.; and
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ANNEX B
(d) the failure of Terremark Hospitality to perform, keep or fulfill any
of its covenants, undertakings, obligations or conditions set forth
in this Agreement in a material respect.
14.2 REMEDIES FOR OWNERS. If Terremark Hospitality is in default pursuant to
SECTION 14.1, the Board of Directors may give to Terremark Hospitality notice of
its intention to call a meeting of the Owners to terminate the appointment of
Terremark Hospitality under this Agreement after the expiration of a period of
sixty (60) days from the date of such notice. Notwithstanding the foregoing,
with respect to events of default referred to in SECTION 14.1(d), upon receipt
of such notice Terremark Hospitality, promptly and with all due diligence, will
proceed to cure the default referred to in such section, or if such default is
not susceptible of being cured within a 30 day period, Terremark Hospitality
will take and continue action to cure such default with all due diligence until
the same is cured, such additional period not to exceed 120 days from such
notice. Once a cure has been effected the notice will be of no effect. If,
following the expiration of such period such default has not been cured, the
Owners may, by Special Resolution, terminate the appointment of Terremark
Hospitality pursuant to this Agreement. The remedies granted in this SECTION
14.2 will not be in substitution for, but will be in addition to any rights and
remedies otherwise available for breach of contract or otherwise.
14.3 TERMINATION BY TERREMARK HOSPITALITY. Terremark Hospitality may terminate
its appointment as manager under this Agreement at any time upon sixty (60) days
written notice to the Board of Directors for any reason whatsoever.
Any termination by Terremark Hospitality pursuant to this SECTION 14.3 is
without prejudice to any other rights that Terremark Hospitality might otherwise
have against the Owners or any of them.
14.4 REMEDIES FOR TERREMARK HOSPITALITY. The Owners acknowledge and agree that
if any Owner or Owners are in breach of any of their duties or obligations under
this Agreement Terremark Hospitality may seek an injunction or the specific
performance by such Owner or Owners of such duties or obligations, instead of or
in addition to seeking damages against such Owner or Owners.
14.5 OBLIGATIONS ON TERMINATION. Upon termination or expiry of the appointment
of Terremark Hospitality under this Agreement, the following will apply:
(a) Terremark Hospitality and the Owners will cooperate with respect to
all matters relating to the transition of the Management of the
Hotel;
(b) all fees and payments payable to Terremark Hospitality in accordance
with this Agreement, other than those referred to in SUBSECTION
14.5(c) will be paid to Terremark Hospitality when due, provided
that Terremark Hospitality will not be entitled to any Terremark
Hospitality Marketing and Sales Expenses or Terremark Hospitality
Recoveries for any period following such termination or expiry;
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ANNEX B
(c) all fees and payments due to Terremark Hospitality in accordance
with this Agreement which are computed on an annual or other
periodic basis will be annualized, prorated and paid within 30 days
after termination of the appointment of Terremark Hospitality under
this Agreement, including all deferred, accrued and unpaid fees;
(d) Terremark Hospitality will peacefully vacate the Hotel Premises and
surrender the management of the Hotel to or to the order of the
Owners; and
(e) Terremark Hospitality will deliver to the Owners all the Owners'
books and records respecting the Hotel in the custody and control of
Terremark Hospitality, and assign and transfer to or to the order of
the Owners all of Terremark Hospitality's right, title and interest
in and to all licenses and permits, if any, used by Terremark
Hospitality in the operation of the Hotel, provided that if
Terremark Hospitality has expended any of its own funds in the
acquisition of such licenses or permits, the Owners will reimburse
Terremark Hospitality therefor if the Owners request assignment and
transfer of such licenses and permits.
ARTICLE 15
OWNER-SELLER, UNITS, DISPOSITIONS
15.1 INITIAL AGREEMENT BY OWNER-SELLER. The parties acknowledge and agree that
this Agreement is initially entered into with the Owner-Seller, as the owner of
all of the Units. The Owner-Seller has entered into this Agreement on behalf of
all subsequent owners of the Units and each such subsequent owners of the Units
will be bound by the terms and conditions of this Agreement insofar as this
Agreement relates to such Owner's Unit as though such Owner was a signatory
hereto. This Agreement will run with each of the Units and bind the Owners from
time to time of all of the Units and all of the Units will continue to be in the
Rental Pool in accordance with the terms and conditions of this Agreement.
Forthwith upon the completion of the sale of each Unit by the Owner-Seller,
Owner-Seller will provide to Terremark Hospitality the assignment and assumption
agreement in the form of Schedule A, duly executed by the Owner-Seller and the
purchaser.
15.2 LIMITATION OF OWNERS' LIABILITY. Notwithstanding anything contained in this
Agreement, the duties, obligations and liabilities of each Owner pursuant to
this Agreement will be limited to:
(a) with respect to the duties and obligations relating directly to the
Units, to such Owner's duties and obligations arising directly in
respect of any Unit owned by such Owner; and
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<PAGE>
ANNEX B
(b) with respect to duties and obligations of the Owners collectively
under this Agreement, to such Owner's proportionate share of such
duties and obligations, as calculated in accordance with the
Percentage Interest,
and without limiting the generality of the foregoing:
(c) Terremark Hospitality will not look to any Owner for the payment of
any amount in connection with this Agreement except as is expressly
set out herein; and
(d) no Owner will be liable for any act or omission of any other Owner.
The duties and obligations of the Owners are several only and not joint duties
or obligations.
15.3 SALE OF UNIT BY ANY OWNER. The Owners and Terremark Hospitality agree that
if at any time any Owner wishes to sell, lease or otherwise directly or
indirectly dispose of its Unit or any interest therein to any person (in this
SECTION 15.3 called a "Transferee") (other than by way of financing to any
Security Holder):
(a) prior to entering into any contract or agreement with any
Transferee, the Owner will notify the proposed Transferee of the
existence and substance of this Agreement and the fact that the
ownership and use of the Unit are subject to the rights of Terremark
Hospitality and any bookings of the Unit by the Selling Owner
pursuant to this Agreement and the Declaration, notify the proposed
Transferee of any bookings of the Unit by the Owner pursuant to
ARTICLE 9 and provide the proposed Transferee with a true copy of
this Agreement;
(b) the Owner will not directly or indirectly sell, lease or otherwise
directly or indirectly dispose of the Unit or any interest therein
unless prior to the completion of such transaction the proposed
Transferee covenants pursuant to an agreement in writing in favor of
Terremark Hospitality, in the form and content of Schedule A
(modified to change the name of the Owner-Seller to the name of the
vendor of such Unit), to fully assume and be bound by this Agreement
insofar as it relates to such Unit, and Terremark Hospitality will
provide the Owner and the Transferee with copies of such agreement,
duly executed by Terremark Hospitality, as soon as reasonably
possible thereafter;
(c) upon written request from the Owner, Terremark Hospitality will
provide any prospective Transferee therein with details of any
bookings of the Unit by the Owner pursuant to ARTICLE 9;
(d) the Owner or the Transferee will notify Terremark Hospitality of the
completion of the sale, lease or other disposition of the Unit and
provide Terremark Hospitality with reasonable evidence thereof,
together with the assignment and assumption
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<PAGE>
ANNEX B
agreement in the form of Schedule A, duly executed by the Owner and
the Transferee;
(e) Terremark Hospitality will not be required to make any adjustments
as between the Owner and any Transferee and Terremark Hospitality
will be deemed to have fully discharged its obligations hereunder if
Terremark Hospitality pays the Unit Revenue Share payable to such
Owner in accordance with SECTION 5.4 to or to the order of the
person who was, according to the records of Terremark Hospitality,
the registered owner of the Unit on the days such Unit Revenue Share
is payable to such Owner in accordance with SECTION 5.4; and
(f) subject to Terremark Hospitality's approval, acting reasonably, the
Transferee may upon not less than 30 days' notice to Terremark
Hospitality, reschedule the use by the Transferee pursuant to
ARTICLE 9.
15.4 ASSUMPTION AND RELEASE. Upon the execution and delivery of the assignment
and assumption agreement in the form of Schedule A by the vendor (including the
Owner-Seller as vendor) and purchaser of any Unit and the transfer of title of
such Unit to the purchaser thereof:
(a) the vendor of such Unit will be released from its duties and
obligations under this Agreement insofar as such duties and
obligations relate to such Unit for the period from and including
the date of such transfer of title, provided that the vendor of such
Unit will not be released from any of its duties or obligations
under this Agreement in respect of any other Unit owned by such
vendor; and
(b) the purchaser of such Unit will be responsible for all duties and
obligations under this Agreement insofar as such duties and
obligations relate to such Unit for the period from and including
the date of such transfer of title.
15.5 FINANCING OF UNITS. If title to any Unit is at any time to be subject to
any mortgage, assignment of rents or other security registered or to be
registered by any Owner against title to its Unit, including any renewals,
modifications, replacements or extensions thereof (collectively called the
"Security"), then:
(a) prior to granting any Security, the Owner of such Unit will notify
the proposed holder of such Security (the "Security Holder") of the
existence and substance of this Agreement and the fact that the
ownership and use of the Unit are subject to the rights of Terremark
Hospitality and the Hotel Guests pursuant to this Agreement and the
Owner will provide the Security Holder with a true copy of this
Agreement; and
(b) if the Security Holder in respect of such Security does not agree to
the priority of the Declaration and this Agreement over the
Security, the Declaration and this Agreement will be subordinate to
35
<PAGE>
ANNEX B
such Security and Terremark Hospitality will, upon request of the
Owner, execute any instrument of postponement or in confirmation of
the subordination of the Declaration and this Agreement pursuant to
this SECTION 15.5(b) and in such case the Owner will use its best
efforts to obtain a non- disturbance agreement in a form acceptable
to Terremark Hospitality.
15.6 ESTOPPEL CERTIFICATES. Terremark Hospitality will, from time to time, upon
not less than 10 days' prior notice by any Owner or any Security Holder, execute
and deliver to such Owner or Security Holder, a certificate in writing
certifying that this Agreement is unmodified and in force (or, if there have
been modifications, that the same is in force as modified and stating the
modifications), stating such facts as to this Agreement as such Owner or
Security Holder reasonably requires, and stating whether or not to the best
knowledge of the signer of such certificate, there exists any default in the
performance of any duty or obligation contained in this Agreement, and, if so,
specifying each such default of which the signer may have knowledge. Any
certificate so delivered may be relied upon by such Owner and by any such
Security Holder or prospective Security Holder, Terremark Hospitality, upon
similar notice, will be entitled to a similar certificate from each Owner.
15.7 ATTORNMENT BY TERREMARK HOSPITALITY. Terremark Hospitality agrees to attorn
to and become the manager, in accordance with this Agreement, of any purchaser,
mortgagee or trustee who becomes entitled to possession of any Unit in
accordance with any requirements set out in this ARTICLE 15.
ARTICLE 16
ASSIGNMENT BY TERREMARK HOSPITALITY
Terremark Hospitality has the right to assign its rights under this
Agreement as security to its bankers, provided prior thereto the assignee agrees
to be liable hereunder for the obligations of Terremark Hospitality to the
Owners upon any enforcement by the assignee of its security comprising Terremark
Hospitality's rights under this Agreement. Terremark Hospitality has the further
right, so long as it is not then in default under this Agreement, to assign its
rights under this Agreement:
(a) to an Affiliate of Terremark Hospitality; or
(b) to any successor assignee of Terremark Hospitality which may result
from any merger, transfer, consolidation or reorganization,
36
<PAGE>
ANNEX B
ARTICLE 17
MISCELLANEOUS
17.1 COOPERATION. Subject to the terms and conditions set out in this Agreement,
the parties will at all times during the Term act in good faith, cooperate and
act reasonably in respect of all matters within the scope of this Agreement.
17.2 UNITED STATES FUNDS. Unless otherwise noted, all amounts payable by either
party to the other hereunder will be paid in funds of the United States.
17.3 NO WAIVER OF BREACH. No failure by Terremark Hospitality or the Owners to
insist upon the strict performance of any covenant, agreement, term or condition
of this Agreement, or to exercise any right or remedy consequent upon a breach,
will constitute a waiver of any such breach or any subsequent breach of such
Covenant, agreement, term or condition. No waiver of any breach will affect or
alter this Agreement, but each and every Covenant, agreement, term and condition
of this Agreement will continue in full force and effect with respect to any
other then existing or subsequent breach.
17.4 SEVERABILITY OF PROVISIONS. If any provision of this Agreement or the
application thereof to any person or circumstance will, to any extent, be
invalid or unenforceable, the remainder of this Agreement and the application of
such provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, as the case may be, will not be affected thereby,
and each provision of this Agreement will be valid and enforceable to the
fullest extent permitted by law.
17.5 NOTICES. All notices, requests, approvals, demands and other communications
required or permitted to be given under this Agreement will be in writing and
addressed to the parties as follows:
(a) if to Terremark Hospitality:
Terremark Hospitality Services, Inc.
2601 South Bayshore Drive
Ninth Floor
Miami, Florida 33133
Attention: Rafael Villa, President
Fax No.: (305) 856-8190
and:
37
<PAGE>
ANNEX B
(b) if to the Owners:
(i) in the case of the Owner-Seller:
Terremark Fortune House #2, Ltd.
2601 South Bayshore Drive
Ninth Floor
Miami, Florida 33133
Attention: Robert Finvarb, General Counsel
Fax No.: (305) 856-8190
(ii) in the case of any other Owner, to the address of such Owner
as notified by such Owner to Terremark Hospitality,
or, in any case, at such other address as the party to whom the notice is sent
will have designated in accordance with the provision of this SECTION 17.5. All
notices will be delivered personally, transmitted by fax or mailed by postage
prepaid mail (provided that in the event of a disruption in mail services,
notices will be delivered personally or transmitted by fax). Notices will be
deemed to be received:
(c) on the date of delivery or transmittal thereof if delivered
personally or sent by fax; or
(d) on the fifth Business Day after the mailing thereof, if sent by
mail.
17.6 SUCCESSORS AND ASSIGNS. Subject to SECTION 15.4, this Agreement will enure
to the benefit of and will be binding upon the heirs, executors, successors,
legal representatives and permitted assigns of the parties.
17.7 COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which will be an original, but all of which will constitute but one and the
same instrument.
17.8 WAIVER. No provision of this Agreement may be changed orally, but only by
an instrument in writing signed by the party against which the enforcement of
the change is sought.
17.9 INDEPENDENT CONTRACTOR; NO PARTNERSHIP OR JOINT VENTURE. For all
purposes of this Agreement, Terremark Hospitality and its affiliates shall be
and act as independent contractors. Nothing contained in this Agreement will
constitute or be deemed to create a partnership or joint venture between the
Owners and Terremark Hospitality or its Affiliates.
17.10 APPROVALS. Except as expressly set out herein, whenever any party hereto
is requested to give its approval to any matter, such approval will not be
withheld or delayed unreasonably. If a party will desire the approval of the
other party hereto to any matter, such party will give notice to such other
party that it requests such approval, specifying in such notice the matter (in
reasonable detail) as to which such approval is requested.
17.11 FORCE MAJEURE. If a party is prevented or delayed from performing any of
the obligations on its part to be performed hereunder by reason of Act of God,
strike, labor dispute, lockout, threat of imminent strike, fire, flood,
interruption or delay in transportation, war, insurrection or mob violence,
requirement or regulation of government, or statute, unavoidable
38
<PAGE>
ANNEX B
casualties, shortage of labor, equipment or materials, economic or market
conditions, plant breakdown or failure of operation equipment or any disabling
cause to other than lack of funds), without regard to the foregoing enumeration,
beyond the control of either party or which cannot be overcome by the means
normally employed in performance, then and in every such event, any such
prevention or delay will not be deemed to be a breach of this Agreement but
performance of any of the said obligations or requirements will be suspended
during such period or disability and the period of all such delays resulting
from any such thing required or permitted by either party to be done is to be
done hereunder, it being understood and agreed that the time within which
anything is to be done, or made pursuant hereto will be extended by the total
period of all such delays.
39
<PAGE>
ANNEX B
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TERREMARK HOSPITALITY SERVICES, INC.,
a Florida corporation
By:___________________________________
Its:__________________________________
Terremark Fortune House #2, Ltd., a Florida limited
partnership
By:Terremark Fortune House #2, Inc., a Florida corporation,
its General Partner
By:___________________________________
Print Name:___________________________
Title:________________________________
Terremark Fortune House #2, Ltd., a Florida limited
partnership, on behalf of the Owners
By:Terremark Fortune House #2, Inc., a Florida corporation,
its General Partner
By:____________________________________
Print Name:____________________________
Title:_________________________________
40
<PAGE>
ANNEX B
SCHEDULE A
ASSIGNMENT AND ASSUMPTION OF HOTEL OPERATING
AND RENTAL POOL AGREEMENT
"Terremark Hospitality" Terremark Hospitality Services, Inc.
2601 South Bayshore Drive
Ninth Floor
Miami, Florida 33133
Fax: (305) 856-8190
"SELLER" Name:
_______________________________
Address:_______________________
_______________________________
_______________________________
_______________________________
Phone:_________________________
Fax:___________________________
"PURCHASER" Name:
_______________________________
Address:
_______________________________
_______________________________
_______________________________
Phone:_________________________
Fax:___________________________
Name:
_______________________________
Address:
_______________________________
_______________________________
_______________________________
Phone:_________________________
Fax:___________________________
1
<PAGE>
ANNEX B
"UNIT" Fortune House - Fort Lauderdale Beach
Unit # ______
"SALE DATE" ______________, ____
WHEREAS:
A. Seller is the owner of the Unit.
B. Seller and Purchaser have entered into a contract for the sale of
the Unit from Seller to Purchaser on the Sale Date.
C. Seller and Terremark Hospitality are parties to a Hotel Operating and
Rental Pool Agreement dated as of ___________________, 2000, among Terremark
Hospitality, Terremark Fortune House #2, Ltd., and the Owners of the Units (as
defined therein), as amended by the amendments, if any, described in Section 5
below (collectively, the "RENTAL POOL AGREEMENT") in respect of the Fortune
House - Fort Lauderdale Beach Condominium Hotel.
D. The parties are required to enter into this Agreement in accordance
with the Rental Pool Agreement.
THEREFORE, in consideration of the transfer of the Unit from Seller to
Purchaser on the Sale date, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by all of the parties,
the parties agree as follows:
1. Assignment to Purchaser. Effective as of the Sale Date, Seller hereby
absolutely assigns, transfers and conveys, effective from and including the Sale
Date, all of Seller's right, title and interest in and to the Rental Pool
Agreement insofar as they arise from ownership of and related to the Unit, and
all rights and benefits to be derived thereunder (including any amounts payable
to Seller thereunder) insofar as such rights and benefits arise from ownership
of and related to the Unit.
2. Direction to Pay. Seller and Purchaser hereby direct Terremark
Hospitality to pay any amounts payable under the Rental Pool Agreement in
respect to the Unit from and including the Sale Date to Purchaser at the address
set out above
3. Assumption and Indemnity by Purchaser. Purchaser hereby assumes, from
and including the Sale Date, all of the duties and obligations of Seller under
the Rental Pool Agreement insofar as such duties and obligations arise from
ownership of and relate to the Unit, and covenants and agrees with Seller and
Terremark Hospitality to perform and observe all of such duties and obligations
from and including the Sale Date, and ratifies the Rental Pool Agreement in all
respects.
2
<PAGE>
ANNEX B
4. Other Units Excluded. This Agreement relates only to the Unit and
not to any other units in the Development.
5. Amendments to Rental Management Agreement. Seller represents to
Purchaser that the Rental Pool Agreement has not been amended except as follows
[none if not completed]:
6. Miscellaneous. If either Seller or Purchaser is comprised of more than
one person, the covenants and agreements of Seller or Purchaser, as the case may
be, are joint and several covenants and agreements. This Agreement will be
binding upon and inure to the benefit of the heirs, executors, successors, legal
and personal representatives, and assigns of the parties, as applicable.
7. Purchaser's Acknowledgment. Purchaser acknowledges that Purchaser
has received a copy of and has been given an opportunity to read the Rental Pool
Agreement (including any amendments set out in Section 5 above).
Dated: ________________, ____.
SELLER:
_______________________________
a(n)___________________________
By:____________________________
Name:__________________________
Its:___________________________
PURCHASER:
_______________________________
a(n)___________________________
By:____________________________
Name:__________________________
Its:___________________________
_______________________________
Name:
_______________________________
Name:
3
<PAGE>
ANNEX B
CONSENT OF TERREMARK HOSPITALITY
Terremark Hospitality hereby agrees that Seller is hereby released from
all of Seller's duties and obligations under the Rental Pool Agreement arising
from and including the Sale Date, insofar as such duties and obligations arise
from ownership of or relate to the Unit.
Dated: ______________, ____.
TERREMARK HOSPITALITY SERVICES, INC.,
a Florida corporation
By:________________________________
Name:______________________________
Title:_____________________________
4
<PAGE>
ANNEX B
SCHEDULE B
FORTUNE HOUSE - FORT LAUDERDALE BEACH CONDOMINIUM HOTEL
USE OF UNITS BY OWNERS
1. DEFINITIONS. For the purposes of this SCHEDULE B:
(a) capitalized terms used in this SCHEDULE B and not defined herein
have the meanings ascribed to such terms in the Hotel Operating and
Rental Pool Agreement;
(b) "Day" means any period of 24 consecutive hours, commencing at 2:00
p.m. on any day and ending at 2:00 p.m. on the immediately following
day;
(c) "Hotel Operating and Rental Pool Agreement" means the hotel
operating and rental pool agreement to which this Schedule B is
attached.
(d) "Hotel Operator" means the entity appointed by the Unit Owners under
the Hotel Operating and Rental Pool Agreement as the Unit Owners'
exclusive manager to manage the Hotel and the Rental Pool.
(e) "Public" means all persons other than the Unit Owner;
(f) "Registered Owner" means the person shown in the Official Records of
Broward County, Florida as owner in fee simple of the Unit;
(g) "Unit Owner" means the Registered Owner and the spouse, children and
parents of such Registered Owner and the parents of the Registered
Owner's spouse; and where there is more than one Registered Owner,
all the Registered Owners and their spouses, children, parents and
the parents of their spouses will together constitute the "Unit
Owner" for the Unit and, where the Registered Owner is a corporation
or corporations, all directors, officers, shareholders and employees
and the spouses, children and parents of corporations constitute the
"Unit Owner" for the Unit; and "Unit Owner" will include any person
permitted by any of the foregoing to Use the Unit free of charge,
including an Exchange Program User;
(h) "Use" includes the purpose to which the Unit is put, and includes
reside, sleep, inhabit, or otherwise occupy;
(i) "Year" means a calendar year.
1
<PAGE>
ANNEX B
2. TWO MONTH ADVANCE RESERVATIONS.
(a) A Unit Owner (other than an Exchange Program User) may reserve and
Use its Unit for up to a maximum of 120 days per Year, which use
shall be further limited to a maximum of 60 days within the period
extending between December 15 and April 30 of each year during the
term hereof, provided that the Registered Owner (or any other person
permitted by the Hotel Operator, in its sole discretion, to reserve
the use of the Unit on behalf of the Registered Owner) first
reserves the Use of the Unit by a notice in writing to the Hotel
Operator at least two months prior to the commencement of the period
in which the Unit Owner wishes to Use the Unit.
(b) If a Unit is reserved for a stay which commences at or after 2:00
p.m. on a Friday or a Saturday, the Unit must be reserved for Use
for a minimum of 2 Days. A Unit Owner may Use the Unit no more than
4 times per Year (including any Use pursuant to Paragraph 3 below)
with respect to 2 or 3 Day stays that commence at or after 2:00 p.m.
on a Friday or a Saturday.
(c) If the Unit Owner (or any other person permitted by the Hotel
Operator, in its sole discretion, to reserve the Use of the Unit on
behalf of the Registered Owner) reserves the Use of the Unit
pursuant to this Paragraph 2, the Unit Owner shall be entitled to
Use such Unit during the period or periods so reserved regardless of
whether the Hotel Operator has accepted a reservation from the
Public for the Use of the Unit for the period or periods reserved by
the Registered Owner and Use shall be in accordance with the
applicable provisions of the Hotel Operating and Rental Pool
Agreement, including Section 9.2 of the Hotel Operating and Rental
Pool Agreement regarding payment for any services used by the Unit
Owner and payment of any restocking/cleaning charges. For purposes
of determining whether the Registered Owner participates in any
rental pool provided for in the Hotel Operating and Rental Pool
Agreement (or as operated by the Association, if no Hotel Operating
and Rental Pool Agreement is in effect), a Registered Owner will be
deemed to have Used the Unit during the period or periods so
reserved, whether or not the Unit Owner actually Uses or occupies
the Unit during such period or periods unless the Unit is available
for rental to the Public and at least 30 Days prior to the Unit
Owner's scheduled Use of the Unit the Unit Owner cancels such
reservation, with the approval of the Hotel Operator, acting
reasonably.
(d) If the Unit Owner does not Use the Unit for the full 120 Days
permitted to be Used by the Unit Owner pursuant to this Paragraph 2
in any Year, the Unit Owner will not be entitled to accumulate or
otherwise use the unused Days in any future Year.
(e) The Unit may only be reserved and Used for a total of 120 Days per
Year pursuant to this Paragraph 2, regardless of the number of
Registered Owners of the Unit or Unit Owners during such Year.
2
<PAGE>
ANNEX B
3. FIFTEEN DAY ADVANCE RESERVATION. In addition to the reservation and
Use rights set forth in Paragraph 2 above, a Unit Owner may reserve
and Use the Unit for an additional ___ days in a Year under the
following terms and conditions:
(a) The Unit Owner (other than an Exchange Program User) may
request that the Hotel Operator reserve the Unit for Use by
the Unit Owner no more than 15 Days prior to the date of
requested use.
(b) If the Hotel is less than 80% booked for all Days requested as
of the date the reservation is requested and the Unit has not
been reserved for use by a Guest, the Unit shall be reserved
for Use by the Unit Owner.
(c) Use shall be in accordance with the applicable provisions of
the Hotel Operating and Rental Pool Agreement, including
Section 10.2 of the Hotel Operating and Rental Pool Agreement
regarding payment for any services and payment of any
restocking/cleaning charges.
(d) If a Unit is reserved for a stay which commences at or after
2:00 p.m. on a Friday or a Saturday, the Unit must be reserved
for use for a minimum of 2 Days. A Unit Owner may Use the Unit
no more than 4 times per Year (including any use pursuant to
Paragraph 2 above) with respect to 2 or 3 Day stays that
commence at or after 2:00 p.m. on a Friday or a Saturday.
(e) For purposes of determining whether the Registered Owner
participates in any rental pool provided for in the Hotel
Operating and Rental Pool Agreement (or as operated by the
Association, if no Hotel Operating and Rental Pool Agreement
is in effect), the Registered Owner will be deemed to have
Used the Unit for the Days so reserved whether or not the Unit
Owner actually Uses or occupies the Unit during such Days
unless, at least 5 Days prior to the Unit Owner's scheduled
Use of the Unit, the Unit Owner cancels such reservation with
the approval of the Hotel Operator.
(f) The Unit may only be reserved and Used for a total of 120 Days
per Year pursuant to this Paragraph 3, regardless of the
number of Registered Owners of the Unit or Unit Owners during
such Year.
(g) If the Unit Owner does not Use the Unit for the full 120 Days
permitted to be Used by the Unit Owner pursuant to this
Paragraph 3 in any Year, the Unit Owner will not be entitled
to accumulate or otherwise Use the unused Days in any future
Year.
4. Subject to the Use by the Unit Owners pursuant to this SCHEDULE B,
the Unit will be available at all times for rental to the Public;
the Hotel Operator may accept
3
<PAGE>
ANNEX B
reservations from the Public for the Use of the Unit for any future
Day or Days, unless the Registered Owner has already reserved that
Day or those Days pursuant to section 2 or 3 hereof.
THERE ARE TAX CONSEQUENCES TO A REGISTERED OWNER (SOME OF
WHICH MAY BE ADVERSE) THAT RESULT FROM THE USE OF A UNIT BY A
UNIT OWNER, THE REGISTERED OWNER SHOULD CONSULT ITS TAX
ADVISOR REGARDING HOW THE USE OF THE UNIT MAY AFFECT THE
REGISTERED OWNER'S TAX SITUATION.
THE REGISTERED OWNER IS RESPONSIBLE FOR MONITORING THE IMPACT ANY USE OF ITS
UNIT MAY HAVE ON THE REGISTERED OWNER'S TAXES, NEITHER TERREMARK FORTUNE HOUSE
#2, LTD., A FLORIDA LIMITED PARTNERSHIP, NOR THE HOTEL OPERATOR SHALL HAVE ANY
LIABILITY OR RESPONSIBILITY FOR THE TAX CONSEQUENCES TO A REGISTERED OWNER
RESULTING FROM THE USE OF THE REGISTERED UNIT OWNER BY A UNIT OWNER.
4
<PAGE>
ANNEX B
SCHEDULE C
INITIAL PRICE LIST OF UNITS
AT
FORTUNE HOUSE - FORT LAUDERDALE BEACH
CONDOMINIUM HOTEL
5
<PAGE>
ANNEX C
<TABLE>
<CAPTION>
01 02 03 04 05 06 07 08 09
A A B B C C D D B
FLOOR 663 S.F. 663 S.F. 582 S.F. 582 S.F. 1,056 S.F. 1,056 S.F. 991 S.F. 991 S.F. 582 S.F.
----- -------- -------- -------- -------- --------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7 0.2732% 0.2672% 0.2306% 0.2204% 0.4256% 0.4256% 0.4144% 0.4144% 0.2621%
8 0.2783% 0.2722% 0.2357% 0.2255% 0.4297% 0.4297% 0.4205% 0.4205% 0.2672%
9 0.2834% 0.2773% 0.2407% 0.2306% 0.4348% 0.4348% 0.4246% 0.4246% 0.2722%
10 0.2885% 0.2824% 0.2458% 0.2357% 0.4398% 0.4398% 0.4297% 0.4297% 0.2773%
11 0.2936% 0.2875% 0.2509% 0.2407% 0.4449% 0.4449% 0.4327% 0.4327% 0.2824%
12 0.2986% 0.2925% 0.2560% 0.2458% 0.4490% 0.4490% 0.4378% 0.4378% 0.2875%
14 0.3037% 0.2976% 0.2611% 0.2509% 0.4530% 0.4530% 0.4429% 0.4429% 0.2925%
15 0.3088% 0.3027% 0.2661% 0.2560% 0.4581% 0.4581% 0.4459% 0.4459% 0.2976%
16 0.3139% 0.3078% 0.2712% 0.2611% 0.4632% 0.4632% 0.4500% 0.4500% 0.3027%
17 0.3190% 0.3129% 0.2763% 0.2661% 0.4683% 0.4683% 0.4551% 0.4551% 0.3078%
18 0.3240% 0.3179% 0.2814% 0.2712% 0.4723% 0.4723% 0.4602% 0.4602% 0.3129%
19 0.3291% 0.3230% 0.2865% 0.2763% 0.4774% 0.4774% 0.4642% 0.4642% 0.3179%
20 0.3342% 0.3281% 0.2915% 0.2814% 0.4825% 0.4825% 0.4683% 0.4683% 0.3230%
FLOOR A A B B C C D D B
----- - - - - - - - - -
21 0.3393% 0.3332% 0.2966% 0.2865% 0.4876% 0.4876% 0.4723% 0.4723% 0.3281%
22 0.3444% 0.3383% 0.3017% 0.2915% 0.4927% 0.4927% 0.4764% 0.4764% 0.3332%
FLOOR A A B B C C D D B
23 0.3667% 0.3637% 0.3220% 0.3108% 0.4896% 0.4896% 0.4784% 0.4784% 0.3515%
10 11 12 13 14 15 16 17 18
B E E F F E E G G
FLOOR 582 S.F. 460 S.F. 460 S.F. 667 S.F. 667 S.F. 460 S.F. 460 S.F. 1,000 S.F. 1,000 S.F.
----- -------- -------- -------- -------- -------- -------- -------- ---------------------
7 0.2306% 0.2072% 0.1960% 0.2946% 0.2946% 0.2275% 0.2042% 0.5526% 0.5617%
8 0.2357% 0.2123% 0.2011% 0.2997% 0.2997% 0.2326% 0.2093% 0.5577% 0.5658%
9 0.2407% 0.2174% 0.2062% 0.3047% 0.3047% 0.2377% 0.2143% 0.5627% 0.5719%
10 0.2458% 0.2225% 0.2113% 0.3098% 0.3098% 0.2428% 0.2194% 0.5678% 0.5760%
11 0.2509% 0.2275% 0.2164% 0.3149% 0.3149% 0.2479% 0.2245% 0.5729% 0.5820%
12 0.2560% 0.2326% 0.2214% 0.3200% 0.3200% 0.2529% 0.2296% 0.5780% 0.5861%
14 0.2611% 0.2377% 0.2265% 0.3251% 0.3251% 0.2580% 0.2346% 0.5831% 0.5922%
15 0.2661% 0.2428% 0.2316% 0.3301% 0.3301% 0.2631% 0.2397% 0.5881% 0.5963%
16 0.2712% 0.2479% 0.2367% 0.3352% 0.3352% 0.2682% 0.2448% 0.5932% 0.6024%
17 0.2763% 0.2529% 0.2418% 0.3403% 0.3403% 0.2732% 0.2499% 0.5983% 0.6064%
18 0.2814% 0.2580% 0.2468% 0.3454% 0.3454% 0.2783% 0.2550% 0.6034% 0.6125%
19 0.2865% 0.2631% 0.2519% 0.3504% 0.3504% 0.2834% 0.2600% 0.6085% 0.6166%
20 0.2915% 0.2682% 0.2570% 0.3555% 0.3555% 0.2885% 0.2651% 0.6135% 0.6227%
FLOOR B E E E E PENTHOUSE
----- - - - - - ---------
21 0.2966% 0.2732% 0.2621% 0.2875% 0.2672% UNIT PH 2100 - 1,500,000 = 1.58 %
22 0.3017% 0.2783% 0.2672% 0.2915% 0.2712% UNIT PH 2200 - 2,500,000 = 2.63 %
FLOOR B E E E E
----- - - - - -
23 0.3220% 0.2915% 0.2865% 0.3159% 0.2956%
</TABLE>
<PAGE>
ANNEX D-1
CONDOMINIUM SALE AND PURCHASE AGREEMENT
FORTUNE HOUSE - FORT LAUDERDALE BEACH CONDOMINIUM HOTEL
AGREEMENT ("Agreement" or "Contract") by and between TERREMARK FORTUNE HOUSE #2,
LTD., a Florida limited partnership ("Seller" or "Developer") whose address is
2601 South Bayshore Drive, Ninth Floor, Miami, Florida 33133, and
____________________________________________ ("Buyer") whose local address is
_______________________; whose permanent address is _______________________;
Residential Telephone Number: ______________________; Office Telephone Number:
_________________; Facsimile Number: _______________________; Social Security
Number: __________________________.
ORAL REPRESENTATIONS CANNOT BE RELIED UPON AS CORRECTLY
STATING THE REPRESENTATIONS OF THE DEVELOPER. FOR
CORRECT REPRESENTATIONS, REFERENCE SHOULD BE MADE TO
THIS CONTRACT AND THE DOCUMENTS REQUIRED BY SECTION
718.503, FLORIDA STATUTES, TO BE FURNISHED BY A DEVELOPER TO
BUYER OR LESSEE.
ANY PAYMENT IN EXCESS OF TEN PERCENT OF THE PURCHASE
PRICE MADE TO DEVELOPER PRIOR TO CLOSING PURSUANT TO THIS
AGREEMENT MAY BE USED FOR CONSTRUCTION PURPOSES BY THE
DEVELOPER.
In consideration of the terms and conditions hereafter set forth,
Seller agrees to sell and Buyer agrees to purchase the following described real
property ("Unit" or "Condominium Unit") located in Fort Lauderdale, Broward
County, Florida:
Condominium Unit No. _______________ of FORTUNE HOUSE - FORT LAUDERDALE
BEACH CONDOMINIUM HOTEL ("Condominium") according to the Declaration of
Condominium thereof, to be recorded in the Public Records of Broward County,
Florida, together with an undivided share in the common elements appurtenant
thereto.
THE PURCHASE OF THE UNIT INCLUDES PARTICIPATION BY BUYER
IN A MANDATORY RENTAL POOL FOR THE CONDOMINIUM AS MORE
FULLY DESCRIBED IN THE PROSPECTUS WHICH HAS BEEN
DELIVERED TO THE BUYER.
Buyer Initials
--------
1. PURCHASE AND SALE. Buyer agrees to buy and Seller agrees to sell (on
the terms and conditions contained in this Agreement) the above-mentioned Unit.
The Total Purchase Price for the Unit is $______________, payable in United
States dollars as follows:
1
<PAGE>
ANNEX D-1
<TABLE>
<CAPTION>
PAYMENT DUE DATE AMOUNT
------- -------- ------
<S> <C> <C>
Initial Deposit Upon execution of this Agreement $ ______________
Second Deposit Upon commencement of construction $ ______________
Third Deposit Upon topping off of the building $ ______________
Balance At Closing $ ______________
TOTAL PURCHASE PRICE $.
==============
</TABLE>
Deposits may be made by personal check (subject to clearance) or wire
transfer of funds. The balance due at closing must be paid by cashier's check,
certified check or wire transfer of federal funds. All payments must be made in
United States funds and all checks must be payable on a bank located in
Miami-Dade, Broward or Palm Beach County, Florida.
Buyer understands that Buyer will be obligated to pay all cash at
closing under this Agreement and that Buyer's obligation under this Agreement to
purchase the Unit will not depend on obtaining a mortgage from any lender or any
conditions imposed by such lender. Buyer will be solely responsible for making
Buyer's own financial arrangements. The fact that Seller may arrange for the
availability of mortgage loans for purchasers of units will not in any way
affect this obligation. Seller is under no obligation to arrange for the
availability of a mortgage loan to the Buyer. Seller agrees, however, to provide
information to the lender and to coordinate closing with it, but only if the
lender meets Seller's closing schedule and pays the proceeds of its mortgage at
closing. In the event that the lender does not pay Seller these proceeds at
closing, then the closing shall not be deemed to have occurred until Seller
actually receives the funds, and they have cleared.
Although Seller does not have to do so, if Seller agrees to delay
closing upon Buyer's request, or until the lender is ready to close, or to wait
for full or partial funding from lender, Buyer agrees to pay Seller a late
funding charge equal to interest at the then applicable highest lawful rate for
all sums due Seller which have not been paid to Seller (or which have not then
cleared) from the date Seller originally scheduled closing to the date of actual
payment (and clearance). This late funding charge may be estimated and charged
by Seller at closing. Seller's estimate will be adjusted after closing based on
actual funding and clearance dates upon either Seller or Buyer's written
request. Without limiting the generality of Paragraph 23 of this Agreement, the
foregoing sentence will continue to be effective after closing.
2. SELLER'S FINANCING. Seller may borrow money from lenders to
construct the Condominium or otherwise with regard to Seller's ownership of the
Condominium. Buyer agrees that any lender advancing funds or who has previously
advanced funds to Seller for Seller's use in connection with the Condominium
and/or otherwise with regard to Seller's acquisition and/or ownership of the
Condominium will have a prior mortgage on the Unit and the Condominium until
closing. At that time, Seller may use all the proceeds of Buyer's purchase which
are necessary to release the Unit from the then applicable mortgages for the
purpose of obtaining those releases. Neither this Agreement, nor Buyer's payment
of deposits, will give Buyer any lien or claim against the Unit or the
Condominium. Without limiting the generality of the foregoing, Buyer's rights
under this Agreement will be subordinate to all mortgages (and all
2
<PAGE>
ANNEX D-1
modifications made to those mortgages) that secure the advance of construction
funds or otherwise, whether made or recorded before or after the date of this
Agreement.
3. CONSTRUCTION. The following provisions will apply if the
construction, furnishing and landscaping of the Unit and the Condominium in
which the Unit is located are not substantially complete on the date of this
Agreement (if the Unit is now completed, the Buyer hereby acknowledges having
inspected and approved it, and that Buyer is buying the Unit "As Is" except as
indicated on any addendum):
(a) Construction. Seller agrees to construct the Unit in
substantial conformance with the plans and specifications on file in Seller's
office ("Seller's Plans and Specifications"), which Buyer can inspect upon
reasonable notice. Buyer acknowledges that the Seller's Plans and Specifications
for the Unit and Condominium have been made available by Seller for inspection
at the sales office. Buyer understands that the Unit may be the reverse or
mirror image of the floor plan of any model or that shown on Seller's sales
brochures or other materials. Buyer understands dimensions shown in Seller's
Plans and Specifications, and in any sales brochure, are approximate and may
change due to field conditions. Buyer understands the Total Purchase Price only
includes the construction of Buyer's Unit pursuant to Seller's Plans and
Specifications, standard items specified in Seller's sales brochures, and those
items of furniture and furnishings in a list attached to this Agreement as
Exhibit "B". Seller reserves the right, without liability to Buyer, to make any
modifications, changes or omissions to the Unit or Condominium common elements
as long as they do not substantially and adversely affect Buyer, or if they are
required by any governmental authority, and to substitute materials, equipment,
cabinets, fixtures, appliances, and/or floor coverings with items of similar or
better quality. Buyer understands and agrees that the dimensions of rooms and
balconies and the location of telephone, electric, cable TV and other utility
outlets, windows, doors, walls, partitions, fighting fixtures, electric panel
boxes and the general layout of the Unit are subject to change by Seller in its
sole discretion. Buyer understands that materials used in the construction such
as brick, wood, paint, tile, marble, and the like, are subject to shading and
gradation and may vary from samples, models or color charts, and from piece to
piece, and Seller will not be liable for such variation. Seller will have
complete discretion in "finishing details," including, but not limited to, the
exterior of the building, landscaping, amenities, and beautification of the
Condominium. Buyer further agrees and understands that trees and landscaping
which are located on portions of the Condominium property may be removed to
permit construction. Seller does not guaranty the survival of any trees or
landscaping which are left or planted on any portion of the Condominium
property.
Buyer acknowledges and agrees that it is a widely observed
construction industry practice for pre-construction plans and specifications for
any unit or building to be changed and adjusted from time to time in order to
accommodate ongoing "in the field" construction needs. These changes and
adjustments are essential in order to permit all components of the units and the
building to be integrated into a well-functioning and aesthetically pleasing
product in an expeditious manner. Because of the foregoing, Buyer acknowledges
and agrees that it is to its benefit to allow Seller to make such changes to the
Unit and the Condominium.
Buyer fully understands that the Seller's Plans and Specifications
for the Condominium and the Unit describe "proposed improvements" to be
3
<PAGE>
ANNEX D-1
constructed, and that the realities of construction are such that the final
building and improvements will, in all likelihood, contain variations and minor
deviations from the aforementioned plans and specifications. Buyer agrees that
his execution of this Agreement, and closing on the Unit, are not made in
reliance upon the aforementioned Seller's Plans and Specifications.
Buyer further acknowledges and agrees that (i) the plans and
specifications for the Unit and the Condominium on file with applicable
governmental authorities may not, initially, be identical in detail to Seller's
Plans and Specifications, and (ii) because of the day-to-day nature of the
changes described in this Paragraph 3, the plans and specifications on file with
the local governmental authorities may not include some or any of the changes
(there being no legal requirement to file all changes with such authorities).
As a result of the foregoing, Buyer and Seller both acknowledge and
agree:
THE UNIT AND THE CONDOMINIUM MAY NOT BE CONSTRUCTED IN
ACCORDANCE WITH THE PLANS AND SPECIFICATIONS ON FILE WITH
APPLICABLE GOVERNMENTAL AUTHORITIES. WITHOUT LIMITING
THE GENERALITY OF PARAGRAPH 8 BELOW, SELLER DISCLAIMS
AND BUYER WAIVES ANY AND ALL EXPRESS OR IMPLIED
WARRANTIES THAT CONSTRUCTION WILL BE ACCOMPLISHED IN
COMPLIANCE WITH ANY PARTICULAR PLANS AND SPECIFICATIONS.
SELLER HAS NOT GIVEN AND BUYER HAS NOT RELIED ON OR
BARGAINED FOR ANY SUCH WARRANTIES.
(b) Buyer's Selections. If Seller allows Buyer to select certain
colors and/or materials in the Unit (which Seller is not obligated to do), Buyer
understands and agrees that Buyer must submit their selections to Seller in
writing within ten (10) days of the date the list of selections, if any, is made
available to Buyer. If the selections, if any, are not delivered to Seller in
writing within the time-frame stated above, then it is agreed and understood
that the choices will be made by Seller in its discretion.
(c) Completion Date. Buyer understands that Seller cannot guarantee
completion by a specific date. Seller will not be liable for any delays and
Seller will not have to make, provide or compensate Buyer for any accommodations
or costs as a result of any delays in completion, and any delays will not permit
Buyer to cancel, amend, or diminish any of Buyer's obligations. Seller estimates
that the recreational facilities which are part of the Condominium will be
completed by [date]. Such date may be extended by acts recognized as
constituting justification for legal impossibility under the laws of the State
of Florida or an act of God.
(d) Interference with Construction. Prior to the closing, Buyer will
not enter into or upon the Unit or Condominium or interfere with the progress of
construction or with workmen, and Buyer will not cause such entry or
interference by others. Seller will not be liable for any injury resulting from
Buyer's breach of this paragraph. Notwithstanding anything herein to the
contrary, Buyer may enter the Unit for the purpose of making one pre-closing
4
<PAGE>
ANNEX D-1
inspection and preparation of a "punch list" of items of workmanship or
materials (only within the boundaries of the Unit itself) which Seller may agree
to correct within a reasonable time subsequent to closing. The pre-closing
inspection shall be made by appointment with Seller's representative prior to
closing, and shall be scheduled on the date and at the time set by Seller. Both
Buyer and Seller's representative shall sign the punchlist which is prepared at
the pre-closing inspection. Seller shall only be required to correct those items
of workmanship and materials which should be corrected in order to conform
construction of the Unit to the prevailing standards of construction of similar
units in Broward County within a reasonable time after closing. Notwithstanding
the preparation of a punchlist, Seller's obligation to correct any items will
not be grounds for deferring the closing, nor imposing any condition on closing,
and there shall be no postponement of closing, holdbacks of closing funds, or
escrow of sums due to punchlist items.
(e) Completion. The issuance of a temporary, partial or permanent
Certificate of Occupancy or the equivalent for Buyer's Unit, the floor where
Buyer's Unit is located or the building in which the Unit is located will
conclusively establish completion of Buyer's Unit and Buyer's unconditional
obligation to close. If some items are not finished at closing, Buyer will not
hold back any funds or object to a final non-escrow closing. The Common Elements
and other portions of the Condominium Property need not then have certificates
of occupancy, nor be completed.
4. CLOSING. Upon the completion of the Unit as defined in Paragraph
3(e) above, the closing shall take place upon notification from the Seller to
the Buyer, which notice shall set forth the time, date and place of closing (the
"Closing Date"). The Closing Date specified in the notice shall be set by Seller
and shall not be less than three (3) nor more than ten (10) days from the date
of such notice. No extension of the Closing Date shall be effective unless given
in writing by the Seller. The date set forth in the notice shall be the date
utilized for calculation of all prorations and adjustments required by this
Agreement. Notwithstanding the foregoing, the Seller may and is authorized to
postpone the closing for any reason and Buyer agrees to close on the date Seller
specifies in its notice of postponement. A change of time or place of closing
only (one not involving a change of date) shall not require any additional
notice period. Any notice of closing, postponement or rescheduling may be given
orally, by telephone, telegraph, telex, facsimile, mail or other means of
communication at Seller's option. All of these notices will be sent or directed
to the address, or given by use of the telephone or telex or facsimile number
specified on Page 1 of this Agreement, unless Seller has received written notice
from Buyer of any change prior to the date the notice is given. Any notice
described above will be deemed effective on the date given or mailed. An
affidavit of one of Seller's employees or agents that notice was given to Buyer
will be conclusive for the purpose of proving that notice was given.
If Buyer fails to receive any notice because Buyer failed to advise
Seller of any change of address or telephone, telex or facsimile number, or
because Buyer failed to pick up a letter when Buyer had been advised of all
attempted delivery, or for any other reason, Buyer will not be relieved of
Buyer's obligation to close on the scheduled date unless Seller agrees in
writing to postpone the scheduled date. Buyer understands that Seller is not
required to reschedule or to permit a delay in closing.
5
<PAGE>
ANNEX D-1
In the event the Buyer fails to close this transaction on the Closing
Date for any reason other than for a delay desired, requested or caused by
Seller (including the Buyer's failure to obtain or procure any document or
instrument required at closing), the Buyer shall further be required to pay to
the Seller, at the time of closing, a sum equal to the highest applicable lawful
interest rate per annum calculated on a daily basis on the outstanding balance
of the purchase price, from the Closing Date through and including the date of
the actual closing. The provisions of Paragraph 10 of this Agreement relating to
default shall be considered paramount and shall prevail over the provisions of
this paragraph at the option of Seller. The acceptance by Buyer of the deed of
conveyance shall be conclusive that Seller has performed all of its obligations
under this Agreement.
5. DEED; TITLE TO UNIT. Seller and Buyer agree that Buyer is purchasing
the Unit subject to those items more particularly set forth in this paragraph,
and that title to the Unit which the Buyer will acquire according to the terms
and conditions of this Agreement will be good and insurable, and subject to the
"Permitted Exceptions" (as defined below). Seller will convey title to the Unit
by special warranty deed, subject only to (i) real estate taxes, drainage
district taxes and any other taxes and assessments imposed by other taxing
authorities for the year of the closing and subsequent years; (ii) conditions,
covenants, restrictions, agreements, limitations, reservations, declarations,
dedications, and easements of record or common to Fortune House - Fort
Lauderdale Beach Condominium Hotel or subsequently placed of record by Seller in
connection with replatting or development of the Condominium property including,
without limitation the Rental Pool Agreement (as defined in Paragraph 37 of this
Agreement); (iii) existing, zoning ordinances, publicly dedicated rights-
of-way, easements and other matters of public record, including, but not limited
to, utility agreements of record, and any other restrictions upon the use of the
Property or other requirements by governmental authorities having jurisdiction;
(iv) any state of facts which an accurate survey of the Unit and Condominium
would disclose; (v) any mortgage executed by the Buyer encumbering the Unit;
(vi) the Declaration of Condominium and Exhibits thereto, including but not
limited to the Bylaws and Articles of Incorporation and Rules and Regulations of
the Condominium Association and any amendments to the foregoing; (vii) standard
exceptions for waterfront property and for artificially filled in land in what
was formerly navigable waters and for similar property, if applicable; (viii)
the standard printed exceptions contained in an ALTA owner's policy of title
insurance; (ix) Chapter 718, Florida Statutes and all other laws, ordinances and
rules and regulations of all governmental agencies; (x) pending governmental
liens for public improvements as of closing (Seller will be responsible for
certified governmental liens for public improvements as of closing); and (xi)
any other matters not described herein for which affirmative title coverage may
be given. Seller hereby reserves the right to grant any and all easements over,
upon, under and across the Condominium (including the Unit) which may be
necessary or desirable in order to furnish utility service to the Condominium or
any portion thereof or otherwise required in connection with the development,
construction or operation of the Condominium and Buyer's title shall be subject
to any such easements. The foregoing exceptions shall hereinafter be referred to
as the "Permitted Exceptions."
If Seller cannot provide the quality of title described above, Seller
will have a reasonable period of time (at least 90 days) to correct any defects
in title, but Seller is not obligated to do so. If Seller cannot, or elects not
to, correct the title defects, Buyer will have two options:
6
<PAGE>
ANNEX D-1
(a) Buyer can accept title in the condition Seller offers it (with
defects) and pay the full purchase price for the Unit, waiving any right Buyer
may have against Seller because of the defects in title: or
(b) Buyer can cancel this Agreement and receive a full refund of
Buyer's deposit, whereupon both Seller and Buyer shall be relieved of all
obligations under this Agreement.
Buyer must exercise either option set forth in Paragraph 5(a) or
5(b) by Buyer's delivery to Seller of written notice, which must be received by
Seller within no later than three (3) business days from the date that Seller
delivers written notice to Buyer that Seller cannot or will not correct the
title defects. If Seller does not receive Buyer's notice within the three (3)
day period set forth above, Buyer shall be deemed to have exercised the option
contained in Paragraph 5(a) and the parties shall proceed to close this
transaction in accordance with the terms of this Agreement.
6. CLOSING DOCUMENTS AND COSTS; PRORATIONS. In addition to the Total
Purchase Price, at closing, Buyer shall pay to Seller a sum equal to one and
one-half percent (1-1/2%) of the Total Purchase Price of the Unit and of any
charges for options or extras now or hereafter contracted for which are not
included in the Total Purchase Price, from which sum Seller shall pay the cost
of recording and documentary stamp tax on the special warranty deed and the
premium for issuance of an owner's title insurance policy in the amount of the
Total Purchase Price, which policy shall be subject to those Permitted
Exceptions set forth in Paragraph 5. The amount referred to as the Total
Purchase Price in Paragraph 1 shall be subject to adjustment by closing costs,
charges to Buyer, if any, prorations, and monthly maintenance assessments
required at closing. Buyer shall also pay any and all amounts required to be
paid at closing pursuant to the terms of the Rental Pool Agreement (as defined
in Paragraph 37 of this Agreement). Buyer shall reimburse Seller for any utility
deposits, hook-up and/or connection fees which Seller may have advanced prior to
closing for the Unit. Seller's acknowledgement that it is prepared to deliver,
at Buyer's cost in accordance with the terms of this Agreement, an owner's title
insurance policy subject only to the Permitted Exceptions set forth in Paragraph
5 above shall be conclusive that title is good, marketable and/or insurable.
Taxes, insurance premiums, Condominium maintenance assessments, government
assessments and other proratable items such as utility charges (other than
deposits) shall be prorated as of closing. If closing occurs in a year in which
taxes on the Condominium Property are assessed in a single tax bill on the
Condominium Property as a whole rather than on a unit-by-unit basis, Buyer will
pay to Seller Buyer's prorata share of taxes and Seller will pay the taxes for
that year. If closing occurs in a year in which taxes are assessed on an
individual Unit basis, Buyer will, upon presentation of the tax bill to Seller,
be reimbursed for Seller's prorata share of taxes, based upon the maximum
discount available (November amount). Any costs incurred in connection with
Buyer obtaining a mortgage loan on the Unit and the fees, points, prepayments,
expenses, and mortgagee title policy of and relating to such mortgage loan shall
be paid by Buyer and each party shall bear the costs of its own attorney's fees,
if any. Buyer shall also pay the cost of any increase in the Florida documentary
stamp tax and the minimum risk rate for title insurance promulgated by the
Insurance Commissioner of the State of Florida over the rate in effect on the
date hereof.
7
<PAGE>
ANNEX D-1
7. BILL OF SALE AND MECHANIC'S LIEN AFFIDAVIT. Buyer shall also receive
at closing: (i) a bill of sale for any appliances and personal property included
in the Unit, and (ii) Seller's form of owner's affidavit ("No Lien"), protecting
Buyer against mechanic's liens except for those resulting from any of Buyer's
work.
8. WARRANTY AND DISCLAIMER. Specimen copies of all manufacturer's
warranties which will be passed through to Buyer at closing, without recourse to
Seller, and which are not expressly warranted by Seller have been made readily
available for Buyer's review in the "Binder" located in the sales office and by
its execution of this Agreement Buyer acknowledges disclosure of such warranties
and the location thereof by Seller. Buyer, to the extent permitted by law, is
purchasing the Unit and its interest in the recreational facilities and common
elements "as is" and should undertake whatever inspections of the Unit, common
elements and recreational facilities Buyer so desires in order to assure Buyer
as to the quality and condition of the building and improvements.
EXCEPT FOR THE WARRANTIES CONTAINED IN THE DEED OF CONVEYANCE AND ANY
WRITTEN WARRANTIES DELIVERED AT CLOSING, NO WARRANTIES, EXPRESSED OR IMPLIED,
REPRESENTATIONS, UNDERSTANDINGS, GUARANTIES OR PROMISES HAVE BEEN MADE TO OR
RELIED UPON BY BUYER IN MAKING THE DETERMINATION TO EXECUTE AND CLOSE PURSUANT
TO THIS AGREEMENT AND, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL WARRANTIES,
INCLUDING IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE,
MERCHANTABILITY AND HABITABILITY, AND ALL WARRANTIES IMPOSED BY STATUTE (EXCEPT
TO THE EXTENT THEY CANNOT BE DISCLAIMED) ARE DISCLAIMED.
As to any implied warranties which cannot be disclaimed either in whole
or in part, incidental, special and consequential damages are disclaimed and
Seller shall have no responsibility for any incidental, special or consequential
damages, including, but not limited to, any claims for personal injury, property
damage or emotional distress. No warranties or guaranties are given as to
consumer products as defined in 15 U.S.C. Section 230 1. et seq. (Magnuson-Moss
Warranty Act). Seller has not given and Buyer has not relied on or bargained for
any such warranties.
The provisions of this paragraph 8 shall survive the closing of this
transaction.
9. ESCROW OF DEPOSITS. Seller has established an escrow account with
Broad and Cassel ("Escrow Agent"), with offices located at 7777 Glades Road,
Suite 300, Boca Raton, Florida 33434 and all deposits shall be held and
disbursed pursuant to and in accordance with the terms of this Agreement,
Chapter 718, Florida Statutes, and an Escrow Agreement (Exhibit "C" to the
Prospectus). Seller and Buyer hereto agree to be bound by the terms, conditions,
provisions and agreements of said Escrow Agreement. The Buyer may obtain a
receipt for any and all escrow deposits from the Escrow Agent upon request.
Seller may change escrow agents (as long as the new escrow agent is authorized
to be an escrow agent under applicable Florida law), in which case Buyer's
deposit (and any interest actually earned on them) may be transferred to the new
escrow agent at Seller's discretion. At closing, all deposits not previously
disbursed to Seller (and any interest actually earned) will be released to
8
<PAGE>
ANNEX D-1
Seller. If Buyer defaults, Seller is entitled to retain all deposits (and any
interest actually earned on them). If Buyer properly terminates this Agreement
in the manner allowed in this Agreement or by applicable law, all deposits (and
any interest actually earned on them) will be returned to Buyer within thirty
(30) days of the effective date of Buyer's cancellation (or date Buyer's deposit
check(s) clear, if later). In this Agreement, reference to deposits will be
considered to automatically include all interest actually earned on the deposits
so that the party who/which becomes entitled to receive the deposits will also
receive any interest earned thereon, provided that Buyer will be entitled to a
credit against the Total Purchase Price for the Unit for any interest earned
(subject to a reduction for any amount withheld and remitted to the Internal
Revenue Service for the payment of any income taxes if the Buyer has not
provided Buyer's social security number or completed the necessary tax forms
required under applicable law to exempt the Buyer from withholding of funds for
the payment of income tax due on such interest). Interest on deposits will be
governed by the following: (1) no interest will be deemed earned on deposits
unless it actually accrues and is paid by the applicable bank or other
institution; (2) Seller is not required to place (or cause to be placed)
deposits in an account which bears interest at all or at any particular rate;
and (3) if Seller is obligated to pay Buyer interest on Buyer's deposits, said
interest shall be earned at the passbook rate of the depository institution
chosen by the Escrow Agent and the amount of such interest will be computed as
stated above. Buyer recognizes that if Seller uses all or any portion of the
deposits in construction, or if all or any portion of the deposits are retained
in non-interest bearing accounts, no interest will be earned or deemed to be
earned (even if Seller indirectly benefits from any such use or retention). If
Seller does place the deposits in an interest bearing account, Seller may select
the kind of account (low-yielding or otherwise) in its sole discretion. Any
deposits made by Buyer in excess of ten percent (10%) of the Total Purchase
Price may be used by Seller for paying construction costs of the Condominium as
provided by Florida Law. Nothing contained herein shall be deemed a waiver of
any right or remedy Seller or Buyer may have at law or in equity.
10. DEFAULT. Should Buyer fail to do any and all acts and execute any
and all instruments necessary to close this transaction on the designated
Closing Date or should Buyer fail to perform any covenant, promise or obligation
required to be performed hereunder, Seller as its sole and exclusive remedy
shall terminate this Agreement and retain, or if not then paid by Buyer, Buyer
will pay to Seller, all of Buyer's deposits then made or which would have been
made or required had Buyer not defaulted, and all interest which was, or would
have been, earned on them, as liquidated and agreed upon damages; it being the
agreement of the parties that such damages are incapable of ascertainment and
that such sum is fair and reasonable compensation to Seller for removing the
Unit from the market and is not a penalty, and all parties hereto shall be
released from their obligations hereunder. The Escrow Agent, upon being notified
of Buyer's default, shall pay Buyer's deposits and interest thereon to Seller
and Escrow Agent shall be under no obligation to make any independent
investigation or confirmation of the alleged default. In the event Seller shall
fail to perform any of its obligations hereunder, Buyer shall give Seller
written notice specifying such default and if Seller, within 30 days subsequent
to receipt of said notice, fails to take such action which would cure the
default within a reasonable time after notice, and if Buyer has performed all of
Buyer's obligations under this Agreement, Buyer may request the return of
Buyer's deposits, together with all interest earned thereon, whereupon all
parties hereto shall be released from their obligations hereunder and this
Agreement shall be terminated, or Buyer may have the right to specifically
enforce this Agreement or to have such other remedies as may be available under
applicable law.
9
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ANNEX D-1
11. CONDOMINIUM DOCUMENTS. Buyer hereby acknowledges receipt of copies
of those instruments and documents listed on Exhibit "A" attached hereto and by
this reference made a part hereof, the floor plans of the Condominium Unit, and
all other documents required to be furnished pursuant to Chapter 718, Florida
Statutes (the "Condominium Documents"). The Buyer agrees that occupancy of the
Unit shall at all times be subject to the provisions of the Condominium
Documents. Seller has delivered to Buyer a full set of the Condominium
Documents, and Buyer shall execute a receipt in the form of Exhibit "A"
therefor. The Seller reserves the right, in its sole discretion, to amend any of
the Condominium Documents, provided that a copy of such amendment is transmitted
to the Buyer. Notwithstanding anything to the contrary contained herein, upon
recordation of the Condominium Documents, Seller shall only have the right to
amend the Condominium Documents in accordance with the Condominium Act. If this
Agreement is cancelled for any reason, Buyer will return to Seller all of the
Condominium Documents delivered to Buyer in the same condition received,
reasonable wear and tear excepted, or Buyer shall pay to Seller $50.00 if Buyer
fails to return same to Seller.
12. NON-ASSIGNABILITY. Buyer shall not, and has no right to, assign,
sell or transfer Buyer's interest in this Agreement without Seller's prior
written consent, which consent may be arbitrarily or unreasonably withheld, in
Seller's sole discretion. If Buyer is a corporation, partnership, other business
entity, trustee or nominee, a transfer of any equitable, partner, beneficial,
legal or principal interest in or to Buyer will constitute an assignment of the
Agreement requiring Seller's consent. Seller's consent may be conditioned in any
manner it desires, in its sole discretion, including, but not limited to, a
condition that Buyer pay to Seller a non-refundable fee for its consent in an
amount which Seller may determine in its sole discretion. The fact that the
Seller refuses to give its consent to an assignment shall not give rise to any
claim against Seller for damages or otherwise. Seller may freely assign,
transfer or sell any or all of its rights and obligations under this Agreement.
This Agreement is binding upon the Buyer's heirs and legal
representatives. If Buyer has received Seller's consent to assign, transfer or
sell Buyer's interest in this Agreement, this Agreement shall be binding upon
such assignee, transferee or purchaser. If Buyer is a corporation or other
business entity, this Agreement shall be binding upon Buyer's successors in
interest.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida. Venue for any action,
litigation or proceeding rising out of or concerning this Agreement shall be in
Broward County, Florida, and the parties expressly waive their right to venue
elsewhere.
It is Seller's and Buyer's mutual desire and intention that all
provisions of the Agreement be given full effect and be enforceable strictly in
accordance with their terms. If, however, any part of this Agreement is not
enforceable in accordance with its terms or would render other parts of this
Agreement or this Agreement in its entirety unenforceable, the unenforceable
part or parts are to be judicially modified, if at all possible, to come as
close as possible to the expressed intent of such part or parts and still be
enforceable without jeopardy to other parts of this Agreement, or this Agreement
in its entirety, and then are to be enforced as so modified. If the
unenforceable part or parts cannot be so modified, such part or parts shall be
10
<PAGE>
ANNEX D-1
unenforceable and considered null and void in order that the mutual paramount
goal that this Agreement is to be enforced to the maximum extent possible
strictly in accordance with its terms can be achieved.
Without limiting the generality of the foregoing, if the mere inclusion
in this Agreement of language granting to Seller certain rights, remedies and
powers, or waiving or limiting any of Buyer's rights, remedies or powers or
Seller's obligations, results in a final determination (after giving effect to
the above judicial modification, if possible) that Buyer has the right to cancel
this Agreement and receive a refund of Buyer's deposit, such offending rights,
powers, limitations and/or waivers shall be struck, cancelled, rendered
unenforceable, ineffective and null and void. Under no circumstances shall
either Buyer or Seller have the right to cancel this Agreement solely by reason
of the inclusion of certain language in this Agreement, unless the specific
purpose of that language is to grant a right of cancellation.
The following sentence will supersede and take precedence over anything
else in this Agreement which is in conflict with it: If any provisions serve to
limit or qualify Seller's substantial completion obligation as stated in this
Agreement, or Buyers remedies in the event that such obligation is breached, and
such limitations or qualifications are not permitted if the exemption of this
sale from the Interstate Land Sales Full Disclosure Act pursuant to 15 U.S.C.
Section 1702(a)(2) and the Florida Uniform Land Sales Practices Law pursuant to
Florida Statutes Section 498.025(l)(H) is to apply, or this Agreement is to
otherwise be fully enforceable, then all those provisions are hereby stricken
and made null and void as if never a part of this Agreement. For purposes of
this paragraph only, the words "this Agreement" include in their meaning the
condominium documents.
14. NOTICES. Notices to Seller shall be given by certified mail,
postage prepaid and return receipt requested, hand delivery or a nationally
recognized overnight courier and notices to the Buyer shall be given by first
class mail, postage prepaid or by recognized overnight courier. All notices
shall be sent to the addresses of the parties set forth on the first page of
this Agreement.
Either party may change its address for notice by giving notice to the
other as provided herein. All notices shall be deemed and considered given upon
mailing. Notwithstanding the foregoing, any notice by Seller of closing, closing
extension, postponement or rescheduling pursuant to Paragraph 4 hereof may be
given orally, by telephone, telegram, facsimile, telex or other means of
communication and an affidavit from Seller, its agents or employees, shall be
conclusive of the giving of such notice. Such form of notice shall be deemed
effective when given.
15. BROKERAGE. Other than the real estate brokers which Seller and
Buyer have acknowledged in writing, Buyer represents that there are no other
real estate brokers involved in this transaction, and Buyer covenants to defend,
indemnify and hold Seller and Seller's broker harmless against all claims of
real estate brokers or salesmen due to acts of the Buyer or the Buyer's
representatives, and Buyer shall be liable for Seller's costs, including
attorneys' fees and damages, which arise by virtue of such claims as set forth
in this paragraph. The Seller will not be liable for any brokerage commission
other than the commission due Seller's broker. This paragraph shall survive the
closing.
11
<PAGE>
ANNEX D-1
16. INSULATION DISCLOSURE. The Seller discloses to the Buyer that
insulation has been installed in the Condominium Unit as
follows:
<TABLE>
<CAPTION>
------------------------------- ----------------------- ----------------------- -----------------------
Type Thickness R-Value
------------------------------- ----------------------- ----------------------- -----------------------
------------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Exterior Walls Foil Type Nominal 3/4" R4.0
------------------------------- ----------------------- ----------------------- -----------------------
------------------------------- ----------------------- ----------------------- -----------------------
Roof Light weight concrete 2" to 6" R-15
and polystreme board (varies) (average)
------------------------------- ----------------------- ----------------------- -----------------------
------------------------------- ----------------------- ----------------------- -----------------------
Boundary walls between units Solid Concrete 18" N/A
------------------------------- ----------------------- ----------------------- -----------------------
------------------------------- ----------------------- ----------------------- -----------------------
Between all other units Fiberglass batt 4" R-9
------------------------------- ----------------------- ----------------------- -----------------------
</TABLE>
Buyer understands that the R-values given are based solely on information
provided Seller by the manufacturers of the insulation and that Seller is not
responsible for their errors. These insulation disclosures are subject to
Seller's right to make changes and to applicable limitations of liability stated
in this Agreement.
17. ASSESSMENT AND MAINTENANCE. Buyer understands and agrees to pay
assessments to FORTUNE HOUSE - FORT LAUDERDALE BEACH CONDOMINIUM HOTEL
ASSOCIATION, INC., a Florida not for profit corporation (the "Condominium
Association"). Buyer agrees to be bound by and comply with all the Condominium
Documents (as defined above herein) including, but not limited to, the
Declaration of Condominium, as amended from time to time and the Rental Pool
Agreement described therein.
18. ADJUSTMENTS WITH THE ASSOCIATION. Buyer understands that Seller may
have to advance money to the Association to permit it to pay for certain of its
initial expenses. Seller is entitled to be reimbursed by the Association for all
of its sums advanced by it. The Association may reimburse Seller out of
assessments paid by Buyer and other unit owners as those assessments are
collected at a later date, or by way of a credit against any obligations Seller
may have to pay to the Association, at Seller's election.
19. BUDGETS. Buyer understands that the estimated operating budgets
(the "Budgets") contained in the Condominium Documents provide only an estimate
of what it will cost to run the Association during the period of time stated in
the Budgets. The monthly assessments shown in the Budgets for the Unit are
guaranteed, if at all, in the manner stated in the Condominium Documents. The
Budgets, themselves, however, are not guaranteed. Seller may make changes in the
Budgets at any time to cover increases or decreases in actual expenses or in
estimates. Those changes will not give Buyer any right to cancel this Agreement
unless Seller also materially changes the guaranteed assessment for the Unit as
shown in the Budget in a manner which is inconsistent with the terms of the
guaranty.
20. LIABILITY FOR CASUALTY LOSS. If the Condominium Unit is damaged by
fire or other casualty after the date of this Agreement, but prior to the
closing of the Condominium Unit, then Seller shall be financially responsible
for the loss. If, however, such damage occurs after the closing of the sale of
any Condominium Unit in the Condominium, then the Buyer shall be financially
responsible for the loss.
12
<PAGE>
ANNEX D-1
In the event the Seller decides to repair the damage. then the Seller
shall have a reasonable time to complete repairs. Any such repair work will be
judged by the same standards used to evaluate new construction. In the event of
the foregoing, the Buyer shall not have any right to reduction in the Total
Purchase Price, nor have any claim against the Seller, and the Buyer agrees to
accept title on the scheduled Closing Date (provided the repairs are finished by
the Closing Date). Any monies that the Seller receives in settlement of any
damages (insurance, etc.) will belong to the Seller. In the event the Buyer
receives any money in connection with the damage, then the Buyer shall turn it
over to the Seller, as the case may be. If the Seller decides not to repair the
damage, then, and in that event, this Agreement shall be cancelled and all
deposits shall be returned to the Buyer, and the parties shall be relieved of
all further obligations, one unto the other. Notwithstanding anything to the
contrary contained hereinabove, in the event the Unit is damaged by casualty
prior to closing, Seller may elect not to repair, and to terminate this
Agreement, provided, however, that Buyer shall have the right of specific
performance to compel Seller to complete and deliver the Condominium Unit, if,
but only if, such right of specific performance is an absolute condition to
enable Seller to take advantage of (1) the provisions of 15 U.S.C. Section
1702(a)(2), under which Seller is exempt from the provisions of the Interstate
Land Sales Full Disclosure Act and (2) Florida Statutes Section 498.025(1)(H)
under which Seller is exempt from the provisions of the Florida Uniform Land
Sales Practices Law.
21. SELLER'S USE OF THE CONDOMINIUM PROPERTY. As long as Seller owns a
Unit or Units, it and its agents can keep offices and model apartments within
the Condominium Property. Seller's sales people can show these Units, erect
advertising signs and do whatever else is necessary in Seller's opinion to help
sell or lease Units or develop and manage the Condominium Property, but Seller's
use of the Condominium Property shall be appropriate in Seller's opinion and
cannot unreasonably interfere in Seller's opinion, with Buyer's use and
enjoyment of their Unit. This paragraph shall survive and continue to be
effective after closing.
22. SURVIVAL. The provisions and disclaimers in this Agreement which
are intended to have effect after closing shall survive (continue to be
effective after) closing and delivery of deed.
23. JOINT AND SEVERAL OBLIGATION. If more than one person signs this
Agreement as Buyer, each person shall be liable for full performance of all
Buyer's duties and obligations hereunder. Seller may enforce this Agreement
against each of the purchasers as individuals or together.
24. WAIVER. Seller's waiver of any of its rights or remedies shall not
operate to waive any other of Seller's rights or remedies or to prevent Seller
from enforcing the waived right or remedy in another instance.
25. NO REPRESENTATIONS. No broker, salesperson, or other person has
been authorized to give any information or make any representations other than
those contained in writing within the offering materials provided by Seller, and
if given or made, such information or representations must not be relied upon as
13
<PAGE>
ANNEX D-1
having been authorized by Seller. By executing this Agreement, Buyer
acknowledges that no representations have been or are made concerning the
economic benefits to be derived from the rental or resale of the Unit.
26. RADON GAS. The following disclosure is required by Florida law:
"RADON GAS: Radon is a naturally occurring radioactive gas that, when
it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of
radon that exceed federal and state guidelines have been found in
buildings in Florida. Additional information regarding radon and radon
testing may be obtained from your county public health unit."
Nothing contained herein shall be deemed to be a representation or warranty by
Seller as to the existence or non-existence of Radon Gas in or about the Unit or
Condominium.
27. INDUCEMENT. Buyer acknowledges that the inducement for Buyer to
purchase under this Agreement is the Unit itself, and not the recreational
amenities and other common elements.
28. LOCAL AGENT FOR OUT OF STATE BUYERS. Any Buyer who is not a
permanent resident of (or any Buyer entity that does not maintain a permanent
office or registered agent in) the State of Florida hereby appoints the
Secretary of State of the State of Florida as its agent for the service of any
and all legal process arising out of, related to or in any way concerning this
Agreement. Buyer may alter this appointment of the Secretary of State by
delivering to Seller the written, irrevocable appointment of a Florida resident
as Buyer's agent for such service of process, which appointment must be signed
by Buyer and counter-signed by the proposed agent acknowledging his or her
irrevocable appointment in that regard. However, in the event Seller cannot
serve such agent after reasonable efforts to do so during normal business hours,
Seller may serve the Secretary of State as set forth above.
29. CERTIFICATION. Buyer hereby certifies, under penalties of perjury,
that the taxpayer's identification number (social security number or federal
employer identification number) as set forth on page 1 hereof is correct. and
understands that failure to provide the correct taxpayer's identification
number, as required by law, may subject Buyer to civil or criminal penalties.
30. ATTORNEYS' FEES. In any action, litigation or proceeding arising
out of or concerning this Agreement, the prevailing party shall be entitled to
recover from the non-prevailing party its costs and reasonable attorneys' fees.
through the appellate level.
31. INTERPRETATION. Notwithstanding that this Agreement was prepared by
one party hereto, it shall not be construed more strongly against or more
favorably for either party, it being known that both parties have had equal
bargaining power, have been represented (or have had the opportunity to be
represented) by their own independent counsel and have equal business acumen
such that any rule of construction that a document is to be construed against
the drafting party shall not be applicable. Buyer acknowledges that Buyer has
had ample opportunity to inspect other similar condominiums and condominium
14
<PAGE>
ANNEX D-1
documents, that Seller has clearly disclosed to Buyer the right to cancel this
Agreement for any reason whatsoever, including the dissatisfaction Buyer may
have with this Agreement or the Condominium Documents, within 15 days of the
date Buyer executes this Agreement or has received the Condominium Documents,
whichever is later, and that although Seller's sales agents are not authorized
to change the form of this Agreement, they have strict instructions from Seller
to communicate any of Buyer's requests for such changes to Seller's management,
which has given Buyer the opportunity to discuss and negotiate such changes.
32. LEGAL ADVICE. The Condominium Purchase and Sale Agreement and other
purchase documents, all disclosure materials and brochure materials are
important legal documents and if not understood, prospective unit buyers should
seek legal advice.
33. ENTIRE AGREEMENT. This Agreement is wholly integrated and shall
supersede any and all previous and current understandings and agreements between
the Buyer and Seller, and this Agreement represents the entire agreement between
the Buyer and Seller. No modification of this Agreement shall be valid unless in
writing and signed by both Buyer and Seller. Any modification not in compliance
herewith shall be null and void and of no force or effect. Brochures and
advertising representations and illustrations constitute general concepts only,
and are subject to change and modification at Seller's sole discretion.
34. WAIVER OF JURY TRIAL. By Buyer's execution of this Agreement, Buyer
agrees that neither Buyer nor any partner, assignee, successor, heir, or legal
representative of Buyer (all of whom are hereinafter referred to as the
"Parties") shall seek a jury trial in any lawsuit, proceedings, counterclaim, or
any other litigation procedure based upon or arising out of this Agreement and
other obligations evidenced hereby, any related agreement or instrument. or the
dealing's or the relationship between or among the Parties, or any of them,
including but not limited to any claims of fraud or misrepresentation. None of
the Parties will seek to consolidate any such action, in which a jury trial has
been waived, with any other action in which a jury trial has not been waived.
The provisions of this paragraph have been fully, negotiated by the Parties with
Seller, and these provisions shall be subject to no exceptions. Seller has in no
way agreed with or represented to any of the Parties that the provisions of this
paragraph will not be fully enforced in all instances.
35. MANAGEMENT AGREEMENT. Buyer understands that certain management
services for the Condominium will be provided as described in the management
agreement contained in the Condominium Documents. Buyer has reviewed this
management agreement and considers it to be fair and reasonable and not
one-sided. Buyer understands that the Condominium Association is obligated to
pay fees to the Manager. Buyer does not consider this fee to be in excess of the
fair market value for similar services offered by service competitors and Buyer
consents to their payment. Buyer also recognizes that the Manger is an affiliate
of the Seller and that people Seller appoints will serve on the Board of
Directors of the Condominium Association, but Buyer does not find these facts
objectionable.
36. ENERGY-EFFICIENCY RATING DISCLOSURE. Florida law gives the Buyer
the right to have the energy-efficiency rating determined for any building
located on the real property located in Fort Lauderdale, Florida, known as
Fortune House - Fort Lauderdale Beach Condominium Hotel, a Condominium. Should
15
<PAGE>
ANNEX D-1
the Buyer wish to have the building rated, the Seller must have the
energy-efficiency rating determination performed at Seller's expense. Buyer
hereby states that Buyer has received a copy of the energy-efficiency rating
information brochure prepared by the Department of Community Affairs.
37. MANDATORY RENTAL POOL. Upon closing Buyer will become subject to
the terms and conditions of the Fortune House - Fort Lauderdale Beach
Condominium Hotel Operating and Rental Pool Agreement ("Rental Pool Agreement")
by and between Seller, the owners of all of the Units within the Condominium,
and the hotel operator referred to therein (the "Hotel Operator"). Buyer
acknowledges that concurrently with the execution of this Agreement, Seller has
furnished to Buyer a copy of the Rental Pool Agreement. At the Closing, Buyer
shall execute a written instrument reasonably satisfactory to Seller or an
execution counterpart of the Rental Pool Agreement confirming that Buyer adopts
and ratifies all the terms, covenants, provisions, conditions, and stipulations
of the Rental Pool Agreement. Buyer has carefully reviewed the Rental Pool
Agreement, and Buyer is familiar with and understands the development objectives
for the Condominium and the use restrictions on the Unit which are consistent
with such objectives.
38. TRADEMARKS AND SERVICE MARKS. The name "Fortune House", and all
similar names, along with all logos associated therewith, are the proprietary
tradenames and service marks of Seller or its affiliates. Buyer shall have no
rights to use the same for advertising or other purpose; provided that Buyer may
use the name, "Fortune House" pursuant to a license agreement which is included
within the terms of the Rental Pool Agreement. At the request of Seller, Buyer
shall sign a separate license agreement (in form and content required by Seller)
to protect and preserve the rights of Seller to the tradename and service mark.
39. MISCELLANEOUS.
(a) Time is of the essence in this Agreement with respect to Buyer's
obligations hereunder.
(b) This Unit has not been previously occupied.
(c) Buyer acknowledges that Buyer acquires no right, title, interest
or lien rights in the Unit prior to the conveyance of the title and Buyer agrees
not to file in the Public Records any claim, memorandum or notice (including a
Lis Pendens) concerning any dispute with Seller relative to the subject matter
of this Agreement. Any such recording shall be a default herein.
(d) This Agreement shall not be recorded in any public records
without prior written consent of the Seller, which consent may be arbitrarily or
unreasonably withheld, in Seller's sole discretion. The recording of this
Agreement, without Seller's prior written consent, shall be a default hereunder.
(e) If, at the time of closing, mortgages encumber the Unit, Seller
may use Buyer's closing funds to obtain a release of same subsequent to the
closing. Buyer subordinates all of Buyer's right. title and interest in and to
the Unit to the lien of any mortgage (and any modifications or extensions
thereto) presently existing or hereafter created by the Seller for the
16
<PAGE>
ANNEX D-1
purpose of acquiring funds for the construction and/or renovation of the
improvements referenced herein or for any other purpose.
(f) Seller shall have the right to litigate ad valorem tax matters,
impact charges, service fees and interim and/or special assessments concerning
the Unit or underlying lands for prior years and the year of conveyance.
(g) Should any term or provision of this Agreement be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
the remaining terms or provisions, all of which will remain in full force and
effect.
(h) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument which may be sufficiently evidenced by one such
counterpart.
(i) This Agreement shall be binding upon the parties upon its
execution by the Buyer, the transmission of a facsimile signature page to the
Seller and the execution by the Seller. This Agreement shall not be binding upon
the Seller until executed by an authorized representative of Terremark Fortune
House #2, Ltd.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
17
<PAGE>
ANNEX D-1
THIS AGREEMENT IS VOIDABLE BY BUYER BY DELIVERING WRITTEN NOTICE OF THE BUYER'S
INTENTION TO CANCEL WITHIN 15 DAYS AFTER THE DATE OF EXECUTION OF THIS AGREEMENT
BY THE BUYER, AND RECEIPT BY BUYER OF ALL OF THE ITEMS REQUIRED TO BE DELIVERED
TO HIM BY THE DEVELOPER UNDER SECTION 718.503, FLORIDA STATUTES. THIS AGREEMENT
IS ALSO VOIDABLE BY BUYER BY DELIVERING WRITTEN NOTICE OF THE BUYER'S INTENTION
TO CANCEL WITHIN 15 DAYS AFTER THE DATE OF RECEIPT FROM THE DEVELOPER OF ANY
AMENDMENT WHICH MATERIALLY ALTERS OR MODIFIES THE OFFERING IN A MANNER THAT IS
ADVERSE TO THE BUYER. ANY PURPORTED WAIVER OF THESE VOIDABILITY RIGHTS SHALL BE
OF NO EFFECT. BUYER MAY EXTEND THE TIME FOR CLOSING FOR A PERIOD OF NOT MORE
THAN 15 DAYS AFTER THE BUYER HAS RECEIVED ALL OF THE ITEMS REQUIRED. BUYER'S
RIGHT TO VOID THIS AGREEMENT SHALL TERMINATE AT CLOSING.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
set forth below.
WITNESSES: SELLER
TERREMARK FORTUNE HOUSE #2,
LTD., a Florida limited partnership
-------------------------------
(As to Seller) By: Terremark Fortune House #2, Inc. a
Florida corporation, as general partner
By:
----------------------------
-------------------------------
(As to Seller) Date of Acceptance:
--------------------
ANY PAYMENT IN EXCESS OF TEN
PERCENT (10%) OF THE PURCHASE
PRICE MADE TO DEVELOPER PRIOR
TO CLOSING PURSUANT TO THIS
AGREEMENT MAY BE USED FOR
CONSTRUCTION PURPOSES BY THE
DEVELOPER
-------------------------------- ---------------------------------------
(As to Buyer) Buyer
-------------------------------- ---------------------------------------
(As to Buyer) Buyer
Date:
----------------------------------
18
<PAGE>
ANNEX D-1
EXHIBIT "A"
TO THE CONDOMINIUM SALE AND PURCHASE AGREEMENT
RECEIPT FOR CONDOMINIUM DOCUMENTS OF
FORTUNE HOUSE - FORT LAUDERDALE BEACH CONDOMINIUM HOTEL
The undersigned acknowledges that the documents checked below have been
received or, as to plans and specifications, made available for inspection.
Place a check in the column by each document received or for the plans and
specifications made available for inspection. If an item does not apply, place
N/A in the column.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- -------------------------------------
Document Received
<S> <C>
-------------------------------------------------------------------------------- -------------------------------------
Prospectus Text
-------------------------------------------------------------------------------- -------------------------------------
Declaration of Condominium
-------------------------------------------------------------------------------- -------------------------------------
Certificate of Incorporation
-------------------------------------------------------------------------------- -------------------------------------
Articles of Incorporation
-------------------------------------------------------------------------------- -------------------------------------
By-Laws
-------------------------------------------------------------------------------- -------------------------------------
Estimated Operating Budget
-------------------------------------------------------------------------------- -------------------------------------
Form of Agreement for Sale and Purchase
-------------------------------------------------------------------------------- -------------------------------------
Rules and Regulations
-------------------------------------------------------------------------------- -------------------------------------
Covenants and Restrictions
-------------------------------------------------------------------------------- -------------------------------------
Hotel Operating and Rental Pool Agreement
-------------------------------------------------------------------------------- -------------------------------------
Management and Maintenance Contracts for More than One Year
-------------------------------------------------------------------------------- -------------------------------------
Renewable Management Contracts
-------------------------------------------------------------------------------- -------------------------------------
Lease of Recreational and Other Facilities to be Used Exclusively by Unit N/A
owners of Subject Condominium
-------------------------------------------------------------------------------- -------------------------------------
Form of Unit Lease if a Leasehold N/A
-------------------------------------------------------------------------------- -------------------------------------
Declaration of Servitude N/A
-------------------------------------------------------------------------------- -------------------------------------
Sales Brochure
-------------------------------------------------------------------------------- -------------------------------------
Phase Development Description (See 718.503 (2)(k) and 504(14) N/A
-------------------------------------------------------------------------------- -------------------------------------
Lease of Recreational and Other Facilities to be Used by Unit Owners with N/A
Other Condominiums (See 718.503 (2)(h)
-------------------------------------------------------------------------------- -------------------------------------
Description of Management for Single Management of Multiple Condominiums (See N/A
718.503 (2)(k))
-------------------------------------------------------------------------------- -------------------------------------
Conversion Inspection Report N/A
-------------------------------------------------------------------------------- -------------------------------------
Conversion Termite Inspection Report N/A
-------------------------------------------------------------------------------- -------------------------------------
Plot Plan
-------------------------------------------------------------------------------- -------------------------------------
Floor Plan
-------------------------------------------------------------------------------- -------------------------------------
Survey of Land and Graphic Description of Improvements
-------------------------------------------------------------------------------- -------------------------------------
Executed Escrow Agreement
-------------------------------------------------------------------------------- -------------------------------------
</TABLE>
19
<PAGE>
ANNEX D-1
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- -------------------------------------
Document Received
<S> <C>
-------------------------------------------------------------------------------- -------------------------------------
Plans and Specifications
-------------------------------------------------------------------------------- -------------------------------------
Frequently Asked Questions and Answers Sheet
-------------------------------------------------------------------------------- -------------------------------------
Executed Evidence of Developer's Ownership or Contractual Interest
-------------------------------------------------------------------------------- -------------------------------------
Florida Building Energy-Efficient Rating Act energy-efficiency rating
information brochure prepared by the State of Florida Department of Community
Affairs
-------------------------------------------------------------------------------- -------------------------------------
</TABLE>
THE PURCHASE AGREEMENT IS VOIDABLE BY BUYER BY DELIVERING WRITTEN
NOTICE OF THE BUYER'S INTENTION TO CANCEL WITHIN 15 DAYS AFTER THE DATE OF
EXECUTION OF THE PURCHASE AGREEMENT BY THE BUYER AND RECEIPT BY THE BUYER OF ALL
OF THE DOCUMENTS REQUIRED TO BE DELIVERED TO HIM BY THE DEVELOPER. THE AGREEMENT
IS ALSO VOIDABLE BY THE BUYER BY DELIVERING WRITTEN NOTICE OF THE BUYER'S
INTENTION TO CANCEL WITHIN 15 DAYS AFTER THE DATE OF RECEIPT FROM THE DEVELOPER
OF ANY AMENDMENT WHICH MATERIALLY ALTERS OR MODIFIES THE OFFERING IN A MANNER
THAT IS ADVERSE TO THE BUYER. ANY PURPORTED WAIVER OF THESE VOIDABILITY RIGHTS
SHALL BE OF NO EFFECT. BUYER MAY EXTEND THE TIME FOR CLOSING FOR A PERIOD OF NOT
MORE THAN 15 DAYS AFTER THE BUYER HAS RECEIVED ALL OF THE DOCUMENTS REQUIRED.
BUYER'S RIGHT TO VOID THE PURCHASE AGREEMENT SHALL TERMINATE AT CLOSING.
RECEIPT IS HEREBY ACKNOWLEDGED OF THE ABOVE ON THIS ______DAY OF
____________, 200_.
BUYER(S):
-----------------------------------
-----------------------------------
20
<PAGE>
ANNEX D-1
EXHIBIT "B"
TO THE CONDOMINIUM SALE AND PURCHASE AGREEMENT
SCHEDULE OF FURNITURE AND FURNISHINGS
21
<PAGE>
ANNEX D-2
CONDOMINIUM SALE AND PURCHASE AGREEMENT
FORTUNE HOUSE - FORT LAUDERDALE BEACH CONDOMINIUM HOTEL
AGREEMENT ("Agreement" or "Contract") by and between TERREMARK FORTUNE
HOUSE #2, LTD., a Florida limited partnership ("Seller" or "Developer") whose
address is 2601 South Bayshore Drive, Ninth Floor, Miami, Florida 33133, and
____________________________________________ ("Buyer") whose local address is
__________________________; whose permanent address is ________________________;
Residential Telephone Number: ______________________; Office Telephone Number:
_________________; Facsimile Number: _______________________; Social Security
Number: __________________________.
ORAL REPRESENTATIONS CANNOT BE RELIED UPON AS CORRECTLY
STATING THE REPRESENTATIONS OF THE DEVELOPER. FOR
CORRECT REPRESENTATIONS, REFERENCE SHOULD BE MADE TO
THIS CONTRACT AND THE DOCUMENTS REQUIRED BY SECTION
718.503, FLORIDA STATUTES, TO BE FURNISHED BY A DEVELOPER TO
BUYER OR LESSEE.
ANY PAYMENT IN EXCESS OF TEN PERCENT OF THE PURCHASE
PRICE MADE TO DEVELOPER PRIOR TO CLOSING PURSUANT TO THIS
AGREEMENT MAY BE USED FOR CONSTRUCTION PURPOSES BY THE
DEVELOPER.
In consideration of the terms and conditions hereafter set forth,
Seller agrees to sell and Buyer agrees to purchase the following described real
property ("Unit" or "Condominium Unit") located in Fort Lauderdale, Broward
County, Florida:
Condominium Unit No. _______________ of FORTUNE HOUSE - FORT LAUDERDALE
BEACH CONDOMINIUM HOTEL ("Condominium") according to the Declaration of
Condominium thereof, to be recorded in the Public Records of Broward County,
Florida, together with an undivided share in the common elements appurtenant
thereto.
THE PURCHASE OF THE UNIT INCLUDES PARTICIPATION BY BUYER
IN A MANDATORY RENTAL POOL FOR THE CONDOMINIUM AS MORE
FULLY DESCRIBED IN THE PROSPECTUS WHICH HAS BEEN
DELIVERED TO THE BUYER.
Buyer Initials
--------
1. PURCHASE AND SALE. Buyer agrees to buy and Seller agrees to sell (on
the terms and conditions contained in this Agreement) the above-mentioned Unit.
The Total Purchase Price for the Unit is $______________, payable in United
States dollars as follows:
1
<PAGE>
ANNEX D-2
<TABLE>
<CAPTION>
PAYMENT DUE DATE AMOUNT
------- -------- ------
<S> <C> <C>
Initial Deposit Upon execution of this Agreement $ ______________
Second Deposit Upon commencement of construction $ ______________
Third Deposit Upon topping off of the building $ ______________
Balance At Closing $ ______________
TOTAL PURCHASE PRICE $.
==============
</TABLE>
Deposits may be made by personal check (subject to clearance) or wire
transfer of funds. The balance due at closing must be paid by cashier's check,
certified check or wire transfer of federal funds. All payments must be made in
United States funds and all checks must be payable on a bank located in
Miami-Dade, Broward or Palm Beach County, Florida.
Buyer understands that Buyer will be obligated to pay all cash at
closing under this Agreement and that Buyer's obligation under this Agreement to
purchase the Unit will not depend on obtaining a mortgage from any lender or any
conditions imposed by such lender. Buyer will be solely responsible for making
Buyer's own financial arrangements. The fact that Seller may arrange for the
availability of mortgage loans for purchasers of units will not in any way
affect this obligation. Seller is under no obligation to arrange for the
availability of a mortgage loan to the Buyer. Seller agrees, however, to provide
information to the lender and to coordinate closing with it, but only if the
lender meets Seller's closing schedule and pays the proceeds of its mortgage at
closing. In the event that the lender does not pay Seller these proceeds at
closing, then the closing shall not be deemed to have occurred until Seller
actually receives the funds, and they have cleared.
Although Seller does not have to do so, if Seller agrees to delay
closing upon Buyer's request, or until the lender is ready to close, or to wait
for full or partial funding from lender, Buyer agrees to pay Seller a late
funding charge equal to interest at the then applicable highest lawful rate for
all sums due Seller which have not been paid to Seller (or which have not then
cleared) from the date Seller originally scheduled closing to the date of actual
payment (and clearance). This late funding charge may be estimated and charged
by Seller at closing. Seller's estimate will be adjusted after closing based on
actual funding and clearance dates upon either Seller or Buyer's written
request. Without limiting the generality of Paragraph 23 of this Agreement, the
foregoing sentence will continue to be effective after closing.
2. SELLER'S FINANCING. Seller may borrow money from lenders to
construct the Condominium or otherwise with regard to Seller's ownership of the
Condominium. Buyer agrees that any lender advancing funds or who has previously
advanced funds to Seller for Seller's use in connection with the Condominium
and/or otherwise with regard to Seller's acquisition and/or ownership of the
Condominium will have a prior mortgage on the Unit and the Condominium until
closing. At that time, Seller may use all the proceeds of Buyer's purchase which
are necessary to release the Unit from the then applicable mortgages for the
purpose of obtaining those releases. Neither this Agreement, nor Buyer's payment
of deposits, will give Buyer any lien or claim against the Unit or the
Condominium. Without limiting the generality of the foregoing, Buyer's rights
under this Agreement will be subordinate to all mortgages (and all
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<PAGE>
ANNEX D-2
modifications made to those mortgages) that secure the advance of construction
funds or otherwise, whether made or recorded before or after the date of this
Agreement.
3. CONSTRUCTION. The following provisions will apply if the
construction, furnishing and landscaping of the Unit and the Condominium in
which the Unit is located are not substantially complete on the date of this
Agreement (if the Unit is now completed, the Buyer hereby acknowledges having
inspected and approved it, and that Buyer is buying the Unit "As Is" except as
indicated on any addendum):
(a) Construction. Seller agrees to construct the Unit in substantial
conformance with the plans and specifications on file in Seller's office
("Seller's Plans and Specifications"), which Buyer can inspect upon reasonable
notice. Buyer acknowledges that the Seller's Plans and Specifications for the
Unit and Condominium have been made available by Seller for inspection at the
sales office. Buyer understands that the Unit may be the reverse or mirror image
of the floor plan of any model or that shown on Seller's sales brochures or
other materials. Buyer understands dimensions shown in Seller's Plans and
Specifications, and in any sales brochure, are approximate and may change due to
field conditions. Buyer understands the Total Purchase Price only includes the
construction of Buyer's Unit pursuant to Seller's Plans and Specifications,
standard items specified in Seller's sales brochures, and those items of
furniture and furnishings in a list attached to this Agreement as Exhibit "B".
Seller reserves the right, without liability to Buyer, to make any
modifications, changes or omissions to the Unit or Condominium common elements
as long as they do not substantially and adversely affect Buyer, or if they are
required by any governmental authority, and to substitute materials, equipment,
cabinets, fixtures, appliances, and/or floor coverings with items of similar or
better quality. Buyer understands and agrees that the dimensions of rooms and
balconies and the location of telephone, electric, cable TV and other utility
outlets, windows, doors, walls, partitions, fighting fixtures, electric panel
boxes and the general layout of the Unit are subject to change by Seller in its
sole discretion. Buyer understands that materials used in the construction such
as brick, wood, paint, tile, marble, and the like, are subject to shading and
gradation and may vary from samples, models or color charts, and from piece to
piece, and Seller will not be liable for such variation. Seller will have
complete discretion in "finishing details," including, but not limited to, the
exterior of the building, landscaping, amenities, and beautification of the
Condominium. Buyer further agrees and understands that trees and landscaping
which are located on portions of the Condominium property may be removed to
permit construction. Seller does not guaranty the survival of any trees or
landscaping which are left or planted on any portion of the Condominium
property.
Buyer acknowledges and agrees that it is a widely observed
construction industry practice for pre-construction plans and specifications for
any unit or building to be changed and adjusted from time to time in order to
accommodate ongoing "in the field" construction needs. These changes and
adjustments are essential in order to permit all components of the units and the
building to be integrated into a well-functioning and aesthetically pleasing
product in an expeditious manner. Because of the foregoing, Buyer acknowledges
and agrees that it is to its benefit to allow Seller to make such changes to the
Unit and the Condominium.
Buyer fully understands that the Seller's Plans and Specifications
for the Condominium and the Unit describe "proposed improvements" to be
3
<PAGE>
ANNEX D-2
constructed, and that the realities of construction are such that the final
building and improvements will, in all likelihood, contain variations and minor
deviations from the aforementioned plans and specifications. Buyer agrees that
his execution of this Agreement, and closing on the Unit, are not made in
reliance upon the aforementioned Seller's Plans and Specifications.
Buyer further acknowledges and agrees that (i) the plans and
specifications for the Unit and the Condominium on file with applicable
governmental authorities may not, initially, be identical in detail to Seller's
Plans and Specifications, and (ii) because of the day-to-day nature of the
changes described in this Paragraph 3, the plans and specifications on file with
the local governmental authorities may not include some or any of the changes
(there being no legal requirement to file all changes with such authorities).
As a result of the foregoing, Buyer and Seller both acknowledge and
agree:
THE UNIT AND THE CONDOMINIUM MAY NOT BE CONSTRUCTED IN
ACCORDANCE WITH THE PLANS AND SPECIFICATIONS ON FILE WITH
APPLICABLE GOVERNMENTAL AUTHORITIES. WITHOUT LIMITING
THE GENERALITY OF PARAGRAPH 8 BELOW, SELLER DISCLAIMS
AND BUYER WAIVES ANY AND ALL EXPRESS OR IMPLIED
WARRANTIES THAT CONSTRUCTION WILL BE ACCOMPLISHED IN
COMPLIANCE WITH ANY PARTICULAR PLANS AND SPECIFICATIONS.
SELLER HAS NOT GIVEN AND BUYER HAS NOT RELIED ON OR
BARGAINED FOR ANY SUCH WARRANTIES.
(b) Buyer's Selections. If Seller allows Buyer to select certain
colors and/or materials in the Unit (which Seller is not obligated to do), Buyer
understands and agrees that Buyer must submit their selections to Seller in
writing within ten (10) days of the date the list of selections, if any, is made
available to Buyer. If the selections, if any, are not delivered to Seller in
writing within the time-frame stated above, then it is agreed and understood
that the choices will be made by Seller in its discretion.
(c) Completion Date. Buyer understands that Seller cannot guarantee
completion by a specific date. Seller will not be liable for any delays and
Seller will not have to make, provide or compensate Buyer for any accommodations
or costs as a result of any delays in completion, and any delays will not permit
Buyer to cancel, amend, or diminish any of Buyer's obligations so long as such
Unit is completed within the two (2) year period referenced below. Seller is
unconditionally obligated to complete Buyer's Unit within two (2) years of the
date of this Agreement, except that such date may be extended by acts recognized
as constituting justification for legal impossibility under the laws of the
State of Florida or an act of God. However, such date may not be extended by any
other provision of this Agreement, including the provisions of Paragraph 10
hereof.
(d) Interference with Construction. Prior to the closing, Buyer will
not enter into or upon the Unit or Condominium or interfere with the progress of
construction or with workmen, and Buyer will not cause such entry or
interference by others. Seller will not be liable for any injury resulting from
Buyer's breach of this paragraph. Notwithstanding anything herein to the
contrary, Buyer may enter the Unit for the purpose of making one pre-closing
inspection and preparation of a "punch list" of items of workmanship or
materials (only within the boundaries of the Unit itself) which Seller may agree
to correct within a reasonable time subsequent to closing. The pre-closing
4
<PAGE>
ANNEX D-2
inspection shall be made by appointment with Seller's representative prior to
closing, and shall be scheduled on the date and at the time set by Seller. Both
Buyer and Seller's representative shall sign the punchlist which is prepared at
the pre-closing inspection. Seller shall only be required to correct those items
of workmanship and materials which should be corrected in order to conform
construction of the Unit to the prevailing standards of construction of similar
units in Broward County within a reasonable time after closing. Notwithstanding
the preparation of a punchlist, Seller's obligation to correct any items will
not be grounds for deferring the closing, nor imposing any condition on closing,
and there shall be no postponement of closing, holdbacks of closing funds, or
escrow of sums due to punchlist items.
(e) Completion. The issuance of a temporary, partial or permanent
Certificate of Occupancy or the equivalent for Buyer's Unit, the floor where
Buyer's Unit is located or the building in which the Unit is located will
conclusively establish completion of Buyer's Unit and Buyer's unconditional
obligation to close. If some items are not finished at closing, Buyer will not
hold back any funds or object to a final non-escrow closing. The Common Elements
and other portions of the Condominium Property need not then have certificates
of occupancy, nor be completed.
4. CLOSING. Upon the completion of the Unit as defined in Paragraph
3(e) above, the closing shall take place upon notification from the Seller to
the Buyer, which notice shall set forth the time, date and place of closing (the
"Closing Date"). The Closing Date specified in the notice shall be set by Seller
and shall not be less than three (3) nor more than ten (10) days from the date
of such notice. No extension of the Closing Date shall be effective unless given
in writing by the Seller. The date set forth in the notice shall be the date
utilized for calculation of all prorations and adjustments required by this
Agreement. Notwithstanding the foregoing, the Seller may and is authorized to
postpone the closing for any reason and Buyer agrees to close on the date Seller
specifies in its notice of postponement. A change of time or place of closing
only (one not involving a change of date) shall not require any additional
notice period. Any notice of closing, postponement or rescheduling may be given
orally, by telephone, telegraph, telex, facsimile, mail or other means of
communication at Seller's option. All of these notices will be sent or directed
to the address, or given by use of the telephone or telex or facsimile number
specified on Page 1 of this Agreement, unless Seller has received written notice
from Buyer of any change prior to the date the notice is given. Any notice
described above will be deemed effective on the date given or mailed. An
affidavit of one of Seller's employees or agents that notice was given to Buyer
will be conclusive for the purpose of proving that notice was given.
If Buyer fails to receive any notice because Buyer failed to advise
Seller of any change of address or telephone, telex or facsimile number, or
because Buyer failed to pick up a letter when Buyer had been advised of all
attempted delivery, or for any other reason, Buyer will not be relieved of
Buyer's obligation to close on the scheduled date unless Seller agrees in
writing to postpone the scheduled date. Buyer understands that Seller is not
required to reschedule or to permit a delay in closing.
In the event the Buyer fails to close this transaction on the Closing
Date for any reason other than for a delay desired, requested or caused by
Seller (including the Buyer's failure to obtain or procure any document or
instrument required at closing), the Buyer shall further be required to pay to
the Seller, at the time of closing, a sum equal to the highest applicable lawful
5
<PAGE>
ANNEX D-2
interest rate per annum calculated on a daily basis on the outstanding balance
of the purchase price, from the Closing Date through and including the date of
the actual closing. The provisions of Paragraph 10 of this Agreement relating to
default shall be considered paramount and shall prevail over the provisions of
this paragraph at the option of Seller. The acceptance by Buyer of the deed of
conveyance shall be conclusive that Seller has performed all of its obligations
under this Agreement.
5. DEED; TITLE TO UNIT. Seller and Buyer agree that Buyer is purchasing
the Unit subject to those items more particularly set forth in this paragraph,
and that title to the Unit which the Buyer will acquire according to the terms
and conditions of this Agreement will be good and insurable, and subject to the
"Permitted Exceptions" (as defined below). Seller will convey title to the Unit
by special warranty deed, subject only to (i) real estate taxes, drainage
district taxes and any other taxes and assessments imposed by other taxing
authorities for the year of the closing and subsequent years; (ii) conditions,
covenants, restrictions, agreements, limitations, reservations, declarations,
dedications, and easements of record or common to Fortune House - Fort
Lauderdale Beach Condominium Hotel or subsequently placed of record by Seller in
connection with replatting or development of the Condominium property including,
without limitation the Rental Pool Agreement (as defined in Paragraph 37 of this
Agreement); (iii) existing, zoning ordinances, publicly dedicated rights-
of-way, easements and other matters of public record, including, but not limited
to, utility agreements of record, and any other restrictions upon the use of the
Property or other requirements by governmental authorities having jurisdiction;
(iv) any state of facts which an accurate survey of the Unit and Condominium
would disclose; (v) any mortgage executed by the Buyer encumbering the Unit;
(vi) the Declaration of Condominium and Exhibits thereto, including but not
limited to the Bylaws and Articles of Incorporation and Rules and Regulations of
the Condominium Association and any amendments to the foregoing; (vii) standard
exceptions for waterfront property and for artificially filled in land in what
was formerly navigable waters and for similar property, if applicable; (viii)
the standard printed exceptions contained in an ALTA owner's policy of title
insurance; (ix) Chapter 718, Florida Statutes and all other laws, ordinances and
rules and regulations of all governmental agencies; (x) pending governmental
liens for public improvements as of closing (Seller will be responsible for
certified governmental liens for public improvements as of closing); and (xi)
any other matters not described herein for which affirmative title coverage may
be given. Seller hereby reserves the right to grant any and all easements over,
upon, under and across the Condominium (including the Unit) which may be
necessary or desirable in order to furnish utility service to the Condominium or
any portion thereof or otherwise required in connection with the development,
construction or operation of the Condominium and Buyer's title shall be subject
to any such easements. The foregoing exceptions shall hereinafter be referred to
as the "Permitted Exceptions."
If Seller cannot provide the quality of title described above, Seller
will have a reasonable period of time (at least 90 days) to correct any defects
in title, but Seller is not obligated to do so. If Seller cannot, or elects not
to, correct the title defects, Buyer will have two options:
(a) Buyer can accept title in the condition Seller offers it (with
defects) and pay the full purchase price for the Unit, waiving any right Buyer
may have against Seller because of the defects in title: or
6
<PAGE>
ANNEX D-2
(b) Buyer can cancel this Agreement and receive a full refund of
Buyer's deposit, whereupon both Seller and Buyer shall be relieved of all
obligations under this Agreement.
Buyer must exercise either option set forth in Paragraph 5(a)
or 5(b) by Buyer's delivery to Seller of written notice, which must be received
by Seller within no later than three (3) business days from the date that Seller
delivers written notice to Buyer that Seller cannot or will not correct the
title defects. If Seller does not receive Buyer's notice within the three (3)
day period set forth above, Buyer shall be deemed to have exercised the option
contained in Paragraph 5(a) and the parties shall proceed to close this
transaction in accordance with the terms of this Agreement.
6. CLOSING DOCUMENTS AND COSTS; PRORATIONS. In addition to the Total
Purchase Price, at closing, Buyer shall pay to Seller a sum equal to one and
one-half percent (1-1/2%) of the Total Purchase Price of the Unit and of any
charges for options or extras now or hereafter contracted for which are not
included in the Total Purchase Price, from which sum Seller shall pay the cost
of recording and documentary stamp tax on the special warranty deed and the
premium for issuance of an owner's title insurance policy in the amount of the
Total Purchase Price, which policy shall be subject to those Permitted
Exceptions set forth in Paragraph 5. The amount referred to as the Total
Purchase Price in Paragraph 1 shall be subject to adjustment by closing costs,
charges to Buyer, if any, prorations, and monthly maintenance assessments
required at closing. Buyer shall also pay any and all amounts required to be
paid at closing pursuant to the terms of the Rental Pool Agreement (as defined
in Paragraph 37 of this Agreement). Buyer shall reimburse Seller for any utility
deposits, hook-up and/or connection fees which Seller may have advanced prior to
closing for the Unit. Seller's acknowledgement that it is prepared to deliver,
at Buyer's cost in accordance with the terms of this Agreement, an owner's title
insurance policy subject only to the Permitted Exceptions set forth in Paragraph
5 above shall be conclusive that title is good, marketable and/or insurable.
Taxes, insurance premiums, Condominium maintenance assessments, government
assessments and other proratable items such as utility charges (other than
deposits) shall be prorated as of closing. If closing occurs in a year in which
taxes on the Condominium Property are assessed in a single tax bill on the
Condominium Property as a whole rather than on a unit-by-unit basis, Buyer will
pay to Seller Buyer's prorata share of taxes and Seller will pay the taxes for
that year. If closing occurs in a year in which taxes are assessed on an
individual Unit basis, Buyer will, upon presentation of the tax bill to Seller,
be reimbursed for Seller's prorata share of taxes, based upon the maximum
discount available (November amount). Any costs incurred in connection with
Buyer obtaining a mortgage loan on the Unit and the fees, points, prepayments,
expenses, and mortgagee title policy of and relating to such mortgage loan shall
be paid by Buyer and each party shall bear the costs of its own attorney's fees,
if any. Buyer shall also pay the cost of any increase in the Florida documentary
stamp tax and the minimum risk rate for title insurance promulgated by the
Insurance Commissioner of the State of Florida over the rate in effect on the
date hereof.
7. BILL OF SALE AND MECHANIC'S LIEN AFFIDAVIT. Buyer shall also receive
at closing: (i) a bill of sale for any appliances and personal property included
in the Unit, and (ii) Seller's form of owner's affidavit ("No Lien"), protecting
Buyer against mechanic's liens except for those resulting from any of Buyer's
work.
7
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ANNEX D-2
8. WARRANTY AND DISCLAIMER. Specimen copies of all manufacturer's
warranties which will be passed through to Buyer at closing, without recourse to
Seller, and which are not expressly warranted by Seller have been made readily
available for Buyer's review in the "Binder" located in the sales office and by
its execution of this Agreement Buyer acknowledges disclosure of such warranties
and the location thereof by Seller. Buyer, to the extent permitted by law, is
purchasing the Unit and its interest in the recreational facilities and common
elements "as is" and should undertake whatever inspections of the Unit, common
elements and recreational facilities Buyer so desires in order to assure Buyer
as to the quality and condition of the building and improvements.
EXCEPT FOR THE WARRANTIES CONTAINED IN THE DEED OF CONVEYANCE AND ANY
WRITTEN WARRANTIES DELIVERED AT CLOSING, NO WARRANTIES, EXPRESSED OR IMPLIED,
REPRESENTATIONS, UNDERSTANDINGS, GUARANTIES OR PROMISES HAVE BEEN MADE TO OR
RELIED UPON BY BUYER IN MAKING THE DETERMINATION TO EXECUTE AND CLOSE PURSUANT
TO THIS AGREEMENT AND, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL WARRANTIES,
INCLUDING IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE,
MERCHANTABILITY AND HABITABILITY, AND ALL WARRANTIES IMPOSED BY STATUTE (EXCEPT
TO THE EXTENT THEY CANNOT BE DISCLAIMED) ARE DISCLAIMED.
As to any implied warranties which cannot be disclaimed either in whole
or in part, incidental, special and consequential damages are disclaimed and
Seller shall have no responsibility for any incidental, special or consequential
damages, including, but not limited to, any claims for personal injury, property
damage or emotional distress. No warranties or guaranties are given as to
consumer products as defined in 15 U.S.C. Section 230 1. et seq. (Magnuson-Moss
Warranty Act). Seller has not given and Buyer has not relied on or bargained for
any such warranties.
The provisions of this paragraph 8 shall survive the closing of this
transaction.
9. ESCROW OF DEPOSITS. Seller has established an escrow account with
Broad and Cassel ("Escrow Agent"), with offices located at 7777 Glades Road,
Suite 300, Boca Raton, Florida 33434 and all deposits shall be held and
disbursed pursuant to and in accordance with the terms of this Agreement,
Chapter 718, Florida Statutes, and an Escrow Agreement (Exhibit "C" to the
Prospectus). Seller and Buyer hereto agree to be bound by the terms, conditions,
provisions and agreements of said Escrow Agreement. The Buyer may obtain a
receipt for any and all escrow deposits from the Escrow Agent upon request.
Seller may change escrow agents (as long as the new escrow agent is authorized
to be an escrow agent under applicable Florida law), in which case Buyer's
deposit (and any interest actually earned on them) may be transferred to the new
escrow agent at Seller's discretion. At closing, all deposits not previously
disbursed to Seller (and any interest actually earned) will be released to
Seller. If Buyer defaults, Seller is entitled to retain all deposits (and any
interest actually earned on them). If Buyer properly terminates this Agreement
in the manner allowed in this Agreement or by applicable law, all deposits (and
any interest actually earned on them) will be returned to Buyer within thirty
(30) days of the effective date of Buyer's cancellation (or date Buyer's deposit
check(s) clear, if later). In this Agreement, reference to deposits will be
8
<PAGE>
ANNEX D-2
considered to automatically include all interest actually earned on the deposits
so that the party who/which becomes entitled to receive the deposits will also
receive any interest earned thereon, provided that Buyer will be entitled to a
credit against the Total Purchase Price for the Unit for any interest earned
(subject to a reduction for any amount withheld and remitted to the Internal
Revenue Service for the payment of any income taxes if the Buyer has not
provided Buyer's social security number or completed the necessary tax forms
required under applicable law to exempt the Buyer from withholding of funds for
the payment of income tax due on such interest). Interest on deposits will be
governed by the following: (1) no interest will be deemed earned on deposits
unless it actually accrues and is paid by the applicable bank or other
institution; (2) Seller is not required to place (or cause to be placed)
deposits in an account which bears interest at all or at any particular rate;
and (3) if Seller is obligated to pay Buyer interest on Buyer's deposits, said
interest shall be earned at the passbook rate of the depository institution
chosen by the Escrow Agent and the amount of such interest will be computed as
stated above. Buyer recognizes that if Seller uses all or any portion of the
deposits in construction, or if all or any portion of the deposits are retained
in non-interest bearing accounts, no interest will be earned or deemed to be
earned (even if Seller indirectly benefits from any such use or retention). If
Seller does place the deposits in an interest bearing account, Seller may select
the kind of account (low-yielding or otherwise) in its sole discretion. Any
deposits made by Buyer in excess of ten percent (10%) of the Total Purchase
Price may be used by Seller for paying construction costs of the Condominium as
provided by Florida Law. Nothing contained herein shall be deemed a waiver of
any right or remedy Seller or Buyer may have at law or in equity.
10. DEFAULT. Should Buyer fail to do any and all acts and execute any
and all instruments necessary to close this transaction on the designated
Closing Date or should Buyer fail to perform any covenant, promise or obligation
required to be performed hereunder, Seller as its sole and exclusive remedy
shall terminate this Agreement and retain, or if not then paid by Buyer, Buyer
will pay to Seller, all of Buyer's deposits then made or which would have been
made or required had Buyer not defaulted, and all interest which was, or would
have been, earned on them, as liquidated and agreed upon damages; it being the
agreement of the parties that such damages are incapable of ascertainment and
that such sum is fair and reasonable compensation to Seller for removing the
Unit from the market and is not a penalty, and all parties hereto shall be
released from their obligations hereunder. The Escrow Agent, upon being notified
of Buyer's default, shall pay Buyer's deposits and interest thereon to Seller
and Escrow Agent shall be under no obligation to make any independent
investigation or confirmation of the alleged default. In the event Seller shall
fail to perform any of its obligations hereunder, Buyer shall give Seller
written notice specifying such default and if Seller, within 30 days subsequent
to receipt of said notice, fails to take such action which would cure the
default within a reasonable time after notice, and if Buyer has performed all of
Buyer's obligations under this Agreement, Buyer may request the return of
Buyer's deposits, together with all interest earned thereon, whereupon all
parties hereto shall be released from their obligations hereunder and this
Agreement shall be terminated, or Buyer may have the right to specifically
enforce this Agreement or to have such other remedies as may be available under
applicable law.
11. CONDOMINIUM DOCUMENTS. Buyer hereby acknowledges receipt of copies
of those instruments and documents listed on Exhibit "A" attached hereto and by
this reference made a part hereof, the floor plans of the Condominium Unit, and
all other documents required to be furnished pursuant to Chapter 718, Florida
9
<PAGE>
ANNEX D-2
Statutes (the "Condominium Documents"). The Buyer agrees that occupancy of the
Unit shall at all times be subject to the provisions of the Condominium
Documents. Seller has delivered to Buyer a full set of the Condominium
Documents, and Buyer shall execute a receipt in the form of Exhibit "A"
therefor. The Seller reserves the right, in its sole discretion, to amend any of
the Condominium Documents, provided that a copy of such amendment is transmitted
to the Buyer. Notwithstanding anything to the contrary contained herein, upon
recordation of the Condominium Documents, Seller shall only have the right to
amend the Condominium Documents in accordance with the Condominium Act. If this
Agreement is cancelled for any reason, Buyer will return to Seller all of the
Condominium Documents delivered to Buyer in the same condition received,
reasonable wear and tear excepted, or Buyer shall pay to Seller $50.00 if Buyer
fails to return same to Seller.
12. NON-ASSIGNABILITY. Buyer shall not, and has no right to, assign,
sell or transfer Buyer's interest in this Agreement without Seller's prior
written consent, which consent may be arbitrarily or unreasonably withheld, in
Seller's sole discretion. If Buyer is a corporation, partnership, other business
entity, trustee or nominee, a transfer of any equitable, partner, beneficial,
legal or principal interest in or to Buyer will constitute an assignment of the
Agreement requiring Seller's consent. Seller's consent may be conditioned in any
manner it desires, in its sole discretion, including, but not limited to, a
condition that Buyer pay to Seller a non-refundable fee for its consent in an
amount which Seller may determine in its sole discretion. The fact that the
Seller refuses to give its consent to an assignment shall not give rise to any
claim against Seller for damages or otherwise. Seller may freely assign,
transfer or sell any or all of its rights and obligations under this Agreement.
This Agreement is binding upon the Buyer's heirs and legal
representatives. If Buyer has received Seller's consent to assign, transfer or
sell Buyer's interest in this Agreement, this Agreement shall be binding upon
such assignee, transferee or purchaser. If Buyer is a corporation or other
business entity, this Agreement shall be binding upon Buyer's successors in
interest.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida. Venue for any action,
litigation or proceeding rising out of or concerning this Agreement shall be in
Broward County, Florida, and the parties expressly waive their right to venue
elsewhere.
It is Seller's and Buyer's mutual desire and intention that all
provisions of the Agreement be given full effect and be enforceable strictly in
accordance with their terms. If, however, any part of this Agreement is not
enforceable in accordance with its terms or would render other parts of this
Agreement or this Agreement in its entirety unenforceable, the unenforceable
part or parts are to be judicially modified, if at all possible, to come as
close as possible to the expressed intent of such part or parts and still be
enforceable without jeopardy to other parts of this Agreement, or this Agreement
in its entirety, and then are to be enforced as so modified. If the
unenforceable part or parts cannot be so modified, such part or parts shall be
unenforceable and considered null and void in order that the mutual paramount
goal that this Agreement is to be enforced to the maximum extent possible
strictly in accordance with its terms can be achieved.
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ANNEX D-2
Without limiting the generality of the foregoing, if the mere inclusion
in this Agreement of language granting to Seller certain rights, remedies and
powers, or waiving or limiting any of Buyer's rights, remedies or powers or
Seller's obligations, results in a final determination (after giving effect to
the above judicial modification, if possible) that Buyer has the right to cancel
this Agreement and receive a refund of Buyer's deposit, such offending rights,
powers, limitations and/or waivers shall be struck, cancelled, rendered
unenforceable, ineffective and null and void. Under no circumstances shall
either Buyer or Seller have the right to cancel this Agreement solely by reason
of the inclusion of certain language in this Agreement, unless the specific
purpose of that language is to grant a right of cancellation.
The following sentence will supersede and take precedence over anything
else in this Agreement which is in conflict with it: If any provisions serve to
limit or qualify Seller's substantial completion obligation as stated in this
Agreement, or Buyers remedies in the event that such obligation is breached, and
such limitations or qualifications are not permitted if the exemption of this
sale from the Interstate Land Sales Full Disclosure Act pursuant to 15 U.S.C.
Section 1702(a)(2) and the Florida Uniform Land Sales Practices Law pursuant to
Florida Statutes Section 498.025(l)(H) is to apply, or this Agreement is to
otherwise be fully enforceable, then all those provisions are hereby stricken
and made null and void as if never a part of this Agreement. For purposes of
this paragraph only, the words "this Agreement" include in their meaning the
condominium documents.
14. NOTICES. Notices to Seller shall be given by certified mail,
postage prepaid and return receipt requested, hand delivery or a nationally
recognized overnight courier and notices to the Buyer shall be given by first
class mail, postage prepaid or by recognized overnight courier. All notices
shall be sent to the addresses of the parties set forth on the first page of
this Agreement.
Either party may change its address for notice by giving notice to the
other as provided herein. All notices shall be deemed and considered given upon
mailing. Notwithstanding the foregoing, any notice by Seller of closing, closing
extension, postponement or rescheduling pursuant to Paragraph 4 hereof may be
given orally, by telephone, telegram, facsimile, telex or other means of
communication and an affidavit from Seller, its agents or employees, shall be
conclusive of the giving of such notice. Such form of notice shall be deemed
effective when given.
15. BROKERAGE. Other than the real estate brokers which Seller and
Buyer have acknowledged in writing, Buyer represents that there are no other
real estate brokers involved in this transaction, and Buyer covenants to defend,
indemnify and hold Seller and Seller's broker harmless against all claims of
real estate brokers or salesmen due to acts of the Buyer or the Buyer's
representatives, and Buyer shall be liable for Seller's costs, including
attorneys' fees and damages, which arise by virtue of such claims as set forth
in this paragraph. The Seller will not be liable for any brokerage commission
other than the commission due Seller's broker. This paragraph shall survive the
closing,
16. INSULATION DISCLOSURE. The Seller discloses to the Buyer that
insulation has been installed in the Condominium Unit as follows:
11
<PAGE>
ANNEX D-2
<TABLE>
<CAPTION>
------------------------------- ---------------------------- ---------------------------- ----------------------------
Type Thickness R-Value
<S> <C> <C> <C>
------------------------------- ---------------------------- ---------------------------- ----------------------------
Exterior Walls Foil Type Nominal 3/4" R4.0
------------------------------- ---------------------------- ---------------------------- ----------------------------
Roof Light weight concrete and 2" to 6" R-15
polystreme board (varies) (average)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Boundary walls between units Solid Concrete 18" N/A
------------------------------- ---------------------------- ---------------------------- ----------------------------
Between all other units Fiberglass batt 4" R-9
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
Buyer understands that the R-values given are based solely on information
provided Seller by the manufacturers of the insulation and that Seller is not
responsible for their errors. These insulation disclosures are subject to
Seller's right to make changes and to applicable limitations of liability stated
in this Agreement.
17. ASSESSMENT AND MAINTENANCE. Buyer understands and agrees to pay
assessments to FORTUNE HOUSE - FORT LAUDERDALE BEACH CONDOMINIUM HOTEL
ASSOCIATION, INC., a Florida not for profit corporation (the "Condominium
Association"). Buyer agrees to be bound by and comply with all the Condominium
Documents (as defined above herein) including, but not limited to, the
Declaration of Condominium, as amended from time to time and the Rental Pool
Agreement described therein.
18. ADJUSTMENTS WITH THE ASSOCIATION. Buyer understands that Seller may
have to advance money to the Association to permit it to pay for certain of its
initial expenses. Seller is entitled to be reimbursed by the Association for all
of its sums advanced by it. The Association may reimburse Seller out of
assessments paid by Buyer and other unit owners as those assessments are
collected at a later date, or by way of a credit against any obligations Seller
may have to pay to the Association, at Seller's election.
19. BUDGETS. Buyer understands that the estimated operating budgets
(the "Budgets") contained in the Condominium Documents provide only an estimate
of what it will cost to run the Association during the period of time stated in
the Budgets. The monthly assessments shown in the Budgets for the Unit are
guaranteed, if at all, in the manner stated in the Condominium Documents. The
Budgets, themselves, however, are not guaranteed. Seller may make changes in the
Budgets at any time to cover increases or decreases in actual expenses or in
estimates. Those changes will not give Buyer any right to cancel this Agreement
unless Seller also materially changes the guaranteed assessment for the Unit as
shown in the Budget in a manner which is inconsistent with the terms of the
guaranty.
20. LIABILITY FOR CASUALTY LOSS. If the Condominium Unit is damaged by
fire or other casualty after the date of this Agreement, but prior to the
closing of the Condominium Unit, then Seller shall be financially responsible
for the loss. If, however, such damage occurs after the closing of the sale of
any Condominium Unit in the Condominium, then the Buyer shall be financially
responsible for the loss.
In the event the Seller decides to repair the damage. then the Seller
shall have a reasonable time to complete repairs. Any such repair work will be
12
<PAGE>
ANNEX D-2
judged by the same standards used to evaluate new construction. In the event of
the foregoing, the Buyer shall not have any right to reduction in the Total
Purchase Price, nor have any claim against the Seller, and the Buyer agrees to
accept title on the scheduled Closing Date (provided the repairs are finished by
the Closing Date). Any monies that the Seller receives in settlement of any
damages (insurance, etc.) will belong to the Seller. In the event the Buyer
receives any money in connection with the damage, then the Buyer shall turn it
over to the Seller, as the case may be. If the Seller decides not to repair the
damage, then, and in that event, this Agreement shall be cancelled and all
deposits shall be returned to the Buyer, and the parties shall be relieved of
all further obligations, one unto the other. Notwithstanding anything to the
contrary contained hereinabove, in the event the Unit is damaged by casualty
prior to closing, Seller may elect not to repair, and to terminate this
Agreement, provided, however, that Buyer shall have the right of specific
performance to compel Seller to complete and deliver the Condominium Unit, if,
but only if, such right of specific performance is an absolute condition to
enable Seller to take advantage of (1) the provisions of 15 U.S.C. Section
1702(a)(2), under which Seller is exempt from the provisions of the Interstate
Land Sales Full Disclosure Act and (2) Florida Statutes Section 498.025(1)(H)
under which Seller is exempt from the provisions of the Florida Uniform Land
Sales Practices Law.
21. SELLER'S USE OF THE CONDOMINIUM PROPERTY. As long as Seller owns a
Unit or Units, it and its agents can keep offices and model apartments within
the Condominium Property. Seller's sales people can show these Units, erect
advertising signs and do whatever else is necessary in Seller's opinion to help
sell or lease Units or develop and manage the Condominium Property, but Seller's
use of the Condominium Property shall be appropriate in Seller's opinion and
cannot unreasonably interfere in Seller's opinion, with Buyer's use and
enjoyment of their Unit. This paragraph shall survive and continue to be
effective after closing.
22. SURVIVAL. The provisions and disclaimers in this Agreement which
are intended to have effect after closing shall survive (continue to be
effective after) closing and delivery of deed.
23. JOINT AND SEVERAL OBLIGATION. If more than one person signs this
Agreement as Buyer, each person shall be liable for full performance of all
Buyer's duties and obligations hereunder. Seller may enforce this Agreement
against each of the purchasers as individuals or together.
24. WAIVER. Seller's waiver of any of its rights or remedies shall not
operate to waive any other of Seller's rights or remedies or to prevent Seller
from enforcing the waived right or remedy in another instance.
25. NO REPRESENTATIONS. No broker, salesperson, or other person has
been authorized to give any information or make any representations other than
those contained in writing within the offering materials provided by Seller, and
if given or made, such information or representations must not be relied upon as
having been authorized by Seller. By executing this Agreement, Buyer
acknowledges that no representations have been or are made concerning the
economic benefits to be derived from the rental or resale of the Unit.
13
<PAGE>
ANNEX D-2
26. RADON GAS. The following disclosure is required by Florida law:
"RADON GAS: Radon is a naturally occurring radioactive gas that, when
it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of
radon that exceed federal and state guidelines have been found in
buildings in Florida. Additional information regarding radon and radon
testing may be obtained from your county public health unit."
Nothing contained herein shall be deemed to be a representation or warranty by
Seller as to the existence or non-existence of Radon Gas in or about the Unit or
Condominium.
27. INDUCEMENT. Buyer acknowledges that the inducement for Buyer to
purchase under this Agreement is the Unit itself, and not the recreational
amenities and other common elements.
28. LOCAL AGENT FOR OUT OF STATE BUYERS. Any Buyer who is not a
permanent resident of (or any Buyer entity that does not maintain a permanent
office or registered agent in) the State of Florida hereby appoints the
Secretary of State of the State of Florida as its agent for the service of any
and all legal process arising out of, related to or in any way concerning this
Agreement. Buyer may alter this appointment of the Secretary of State by
delivering to Seller the written, irrevocable appointment of a Florida resident
as Buyer's agent for such service of process, which appointment must be signed
by Buyer and counter-signed by the proposed agent acknowledging his or her
irrevocable appointment in that regard. However, in the event Seller cannot
serve such agent after reasonable efforts to do so during normal business hours,
Seller may serve the Secretary of State as set forth above.
29. CERTIFICATION. Buyer hereby certifies, under penalties of perjury,
that the taxpayer's identification number (social security number or federal
employer identification number) as set forth on page 1 hereof is correct. and
understands that failure to provide the correct taxpayer's identification
number, as required by law, may subject Buyer to civil or criminal penalties.
30. ATTORNEYS' FEES. In any action, litigation or proceeding arising
out of or concerning this Agreement, the prevailing party shall be entitled to
recover from the non-prevailing party its costs and reasonable attorneys' fees.
through the appellate level.
31. INTERPRETATION. Notwithstanding that this Agreement was prepared by
one party hereto, it shall not be construed more strongly against or more
favorably for either party, it being known that both parties have had equal
bargaining power, have been represented (or have had the opportunity to be
represented) by their own independent counsel and have equal business acumen
such that any rule of construction that a document is to be construed against
the drafting party shall not be applicable. Buyer acknowledges that Buyer has
had ample opportunity to inspect other similar condominiums and condominium
documents, that Seller has clearly disclosed to Buyer the right to cancel this
Agreement for any reason whatsoever, including the dissatisfaction Buyer may
have with this Agreement or the Condominium Documents, within 15 days of the
date Buyer executes this Agreement or has received the Condominium Documents,
14
<PAGE>
ANNEX D-2
whichever is later, and that although Seller's sales agents are not authorized
to change the form of this Agreement, they have strict instructions from Seller
to communicate any of Buyer's requests for such changes to Seller's management,
which has given Buyer the opportunity to discuss and negotiate such changes.
32. LEGAL ADVICE. The Condominium Purchase and Sale Agreement and other
purchase documents, all disclosure materials and brochure materials are
important legal documents and if not understood, prospective unit buyers should
seek legal advice.
33. ENTIRE AGREEMENT. This Agreement is wholly integrated and shall
supersede any and all previous and current understandings and agreements between
the Buyer and Seller, and this Agreement represents the entire agreement between
the Buyer and Seller. No modification of this Agreement shall be valid unless in
writing and signed by both Buyer and Seller. Any modification not in compliance
herewith shall be null and void and of no force or effect. Brochures and
advertising representations and illustrations constitute general concepts only,
and are subject to change and modification at Seller's sole discretion.
34. WAIVER OF JURY TRIAL. By Buyer's execution of this Agreement, Buyer
agrees that neither Buyer nor any partner, assignee, successor, heir, or legal
representative of Buyer (all of whom are hereinafter referred to as the
"Parties") shall seek a jury trial in any lawsuit, proceedings, counterclaim, or
any other litigation procedure based upon or arising out of this Agreement and
other obligations evidenced hereby, any related agreement or instrument. or the
dealing's or the relationship between or among the Parties, or any of them,
including but not limited to any claims of fraud or misrepresentation. None of
the Parties will seek to consolidate any such action, in which a jury trial has
been waived, with any other action in which a jury trial has not been waived.
The provisions of this paragraph have been fully, negotiated by the Parties with
Seller, and these provisions shall be subject to no exceptions. Seller has in no
way agreed with or represented to any of the Parties that the provisions of this
paragraph will not be fully enforced in all instances.
35. MANAGEMENT AGREEMENT. Buyer understands that certain management
services for the Condominium will be provided as described in the management
agreement contained in the Condominium Documents. Buyer has reviewed this
management agreement and considers it to be fair and reasonable and not
one-sided. Buyer understands that the Condominium Association is obligated to
pay fees to the Manager. Buyer does not consider this fee to be in excess of the
fair market value for similar services offered by service competitors and Buyer
consents to their payment. Buyer also recognizes that the Manger is an affiliate
of the Seller and that people Seller appoints will serve on the Board of
Directors of the Condominium Association, but Buyer does not find these facts
objectionable.
36. ENERGY-EFFICIENCY RATING DISCLOSURE. Florida law gives the Buyer
the right to have the energy-efficiency rating determined for any building
located on the real property located in Fort Lauderdale, Florida, known as
Fortune House - Fort Lauderdale Beach Condominium Hotel, a Condominium. Should
the Buyer wish to have the building rated, the Seller must have the
energy-efficiency rating determination performed at Seller's expense. Buyer
hereby states that Buyer has received a copy of the energy-efficiency rating
information brochure prepared by the Department of Community Affairs.
15
<PAGE>
ANNEX D-2
37. MANDATORY RENTAL POOL. Upon closing Buyer will become subject to
the terms and conditions of the Fortune House - Fort Lauderdale Beach
Condominium Hotel Operating and Rental Pool Agreement ("Rental Pool Agreement")
by and between Seller, the owners of all of the Units within the Condominium,
and the hotel operator referred to therein (the "Hotel Operator"). Buyer
acknowledges that concurrently with the execution of this Agreement, Seller has
furnished to Buyer a copy of the Rental Pool Agreement. At the Closing, Buyer
shall execute a written instrument reasonably satisfactory to Seller or an
execution counterpart of the Rental Pool Agreement confirming that Buyer adopts
and ratifies all the terms, covenants, provisions, conditions, and stipulations
of the Rental Pool Agreement. Buyer has carefully reviewed the Rental Pool
Agreement, and Buyer is familiar with and understands the development objectives
for the Condominium and the use restrictions on the Unit which are consistent
with such objectives.
38. TRADEMARKS AND SERVICE MARKS. The name "Fortune House", and all
similar names, along with all logos associated therewith, are the proprietary
tradenames and service marks of Seller or its affiliates. Buyer shall have no
rights to use the same for advertising or other purpose; provided that Buyer may
use the name, "Fortune House" pursuant to a license agreement which is included
within the terms of the Rental Pool Agreement. At the request of Seller, Buyer
shall sign a separate license agreement (in form and content required by Seller)
to protect and preserve the rights of Seller to the tradename and service mark.
39. MISCELLANEOUS.
(a) Time is of the essence in this Agreement with respect to Buyer's
obligations hereunder.
(b) This Unit has not been previously occupied.
(c) Buyer acknowledges that Buyer acquires no right, title, interest
or lien rights in the Unit prior to the conveyance of the title and Buyer agrees
not to file in the Public Records any claim, memorandum or notice (including a
Lis Pendens) concerning any dispute with Seller relative to the subject matter
of this Agreement. Any such recording shall be a default herein.
(d) This Agreement shall not be recorded in any public records
without prior written consent of the Seller, which consent may be arbitrarily or
unreasonably withheld, in Seller's sole discretion. The recording of this
Agreement, without Seller's prior written consent, shall be a default hereunder.
(e) If, at the time of closing, mortgages encumber the Unit, Seller
may use Buyer's closing funds to obtain a release of same subsequent to the
closing. Buyer subordinates all of Buyer's right. title and interest in and to
the Unit to the lien of any mortgage (and any modifications or extensions
thereto) presently existing or hereafter created by the Seller for the purpose
of acquiring funds for the construction and/or renovation of the improvements
referenced herein or for any other purpose.
16
<PAGE>
ANNEX D-2
(f) Seller shall have the right to litigate ad valorem tax matters,
impact charges, service fees and interim and/or special assessments concerning
the Unit or underlying lands for prior years and the year of conveyance.
(g) Should any term or provision of this Agreement be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
the remaining terms or provisions, all of which will remain in full force and
effect.
(h) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument which may be sufficiently evidenced by one such
counterpart.
(i) This Agreement shall be binding upon the parties upon its
execution by the Buyer, the transmission of a facsimile signature page to the
Seller and the execution by the Seller. This Agreement shall not be binding upon
the Seller until executed by an authorized representative of Terremark Fortune
House #2, Ltd.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
<PAGE>
ANNEX D-2
THIS AGREEMENT IS VOIDABLE BY BUYER BY DELIVERING WRITTEN NOTICE OF THE BUYER'S
INTENTION TO CANCEL WITHIN 15 DAYS AFTER THE DATE OF EXECUTION OF THIS AGREEMENT
BY THE BUYER, AND RECEIPT BY BUYER OF ALL OF THE ITEMS REQUIRED TO BE DELIVERED
TO HIM BY THE DEVELOPER UNDER SECTION 718.503, FLORIDA STATUTES. THIS AGREEMENT
IS ALSO VOIDABLE BY BUYER BY DELIVERING WRITTEN NOTICE OF THE BUYER'S INTENTION
TO CANCEL WITHIN 15 DAYS AFTER THE DATE OF RECEIPT FROM THE DEVELOPER OF ANY
AMENDMENT WHICH MATERIALLY ALTERS OR MODIFIES THE OFFERING IN A MANNER THAT IS
ADVERSE TO THE BUYER. ANY PURPORTED WAIVER OF THESE VOIDABILITY RIGHTS SHALL BE
OF NO EFFECT. BUYER MAY EXTEND THE TIME FOR CLOSING FOR A PERIOD OF NOT MORE
THAN 15 DAYS AFTER THE BUYER HAS RECEIVED ALL OF THE ITEMS REQUIRED. BUYER'S
RIGHT TO VOID THIS AGREEMENT SHALL TERMINATE AT CLOSING.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
set forth below.
WITNESSES: SELLER
TERREMARK FORTUNE HOUSE #2,
LTD., a Florida limited partnership
-------------------------------
(As to Seller) By: Terremark Fortune House #2, Inc. a
Florida corporation, as general partner
By:
------------------------------- -------------------------------
(As to Seller)
Date of Acceptance:
--------------------
ANY PAYMENT IN EXCESS OF TEN
PERCENT (10%)OF THE PURCHASE
PRICE MADE TO DEVELOPER PRIOR
TO CLOSING PURSUANT TO THIS
AGREEMENT MAY BE USED FOR
CONSTRUCTION PURPOSES BY THE
DEVELOPER
------------------------------- ---------------------------------------
(As to Buyer) Buyer
------------------------------- ---------------------------------------
(As to Buyer) Buyer
Date:
----------------------------------
<PAGE>
ANNEX D-2
EXHIBIT "A"
TO THE CONDOMINIUM SALE AND PURCHASE AGREEMENT
RECEIPT FOR CONDOMINIUM DOCUMENTS OF
FORTUNE HOUSE - FORT LAUDERDALE BEACH CONDOMINIUM HOTEL
The undersigned acknowledges that the documents checked below have been
received or, as to plans and specifications, made available for inspection.
Place a check in the column by each document received or for the plans and
specifications made available for inspection. If an item does not apply, place
N/A in the column.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- -------------------------------------
Document Received
<S> <C>
-------------------------------------------------------------------------------- -------------------------------------
Prospectus Text
-------------------------------------------------------------------------------- -------------------------------------
Declaration of Condominium
-------------------------------------------------------------------------------- -------------------------------------
Certificate of Incorporation
-------------------------------------------------------------------------------- -------------------------------------
Articles of Incorporation
-------------------------------------------------------------------------------- -------------------------------------
By-Laws
-------------------------------------------------------------------------------- -------------------------------------
Estimated Operating Budget
-------------------------------------------------------------------------------- -------------------------------------
Form of Agreement for Sale and Purchase
-------------------------------------------------------------------------------- -------------------------------------
Rules and Regulations
-------------------------------------------------------------------------------- -------------------------------------
Covenants and Restrictions
-------------------------------------------------------------------------------- -------------------------------------
Hotel Operating and Rental Pool Agreement
-------------------------------------------------------------------------------- -------------------------------------
Management and Maintenance Contracts for More than One Year
-------------------------------------------------------------------------------- -------------------------------------
Renewable Management Contracts
-------------------------------------------------------------------------------- -------------------------------------
Lease of Recreational and Other Facilities to be Used Exclusively by Unit N/A
owners of Subject Condominium
-------------------------------------------------------------------------------- -------------------------------------
Form of Unit Lease if a Leasehold N/A
-------------------------------------------------------------------------------- -------------------------------------
Declaration of Servitude N/A
-------------------------------------------------------------------------------- -------------------------------------
Sales Brochure
-------------------------------------------------------------------------------- -------------------------------------
Phase Development Description (See 718.503 (2)(k) and 504(14) N/A
-------------------------------------------------------------------------------- -------------------------------------
Lease of Recreational and Other Facilities to be Used by Unit Owners with N/A
Other Condominiums (See 718.503 (2)(h)
-------------------------------------------------------------------------------- -------------------------------------
Description of Management for Single Management of Multiple Condominiums (See N/A
718.503 (2)(k))
-------------------------------------------------------------------------------- -------------------------------------
Conversion Inspection Report N/A
-------------------------------------------------------------------------------- -------------------------------------
Conversion Termite Inspection Report N/A
-------------------------------------------------------------------------------- -------------------------------------
Plot Plan
-------------------------------------------------------------------------------- -------------------------------------
Floor Plan
-------------------------------------------------------------------------------- -------------------------------------
Survey of Land and Graphic Description of Improvements
-------------------------------------------------------------------------------- -------------------------------------
Executed Escrow Agreement
-------------------------------------------------------------------------------- -------------------------------------
Plans and Specifications
-------------------------------------------------------------------------------- -------------------------------------
Frequently Asked Questions and Answers Sheet
-------------------------------------------------------------------------------- -------------------------------------
Executed Evidence of Developer's Ownership or Contractual Interest
-------------------------------------------------------------------------------- -------------------------------------
Florida Building Energy-Efficient Rating Act energy-efficiency rating
information brochure prepared by the State of Florida Department of Community
Affairs
-------------------------------------------------------------------------------- -------------------------------------
</TABLE>
THE PURCHASE AGREEMENT IS VOIDABLE BY BUYER BY DELIVERING WRITTEN
NOTICE OF THE BUYER'S INTENTION TO CANCEL WITHIN 15 DAYS AFTER THE DATE OF
EXECUTION OF THE PURCHASE AGREEMENT BY THE BUYER AND RECEIPT BY THE BUYER OF ALL
OF THE DOCUMENTS REQUIRED TO BE DELIVERED TO HIM BY THE DEVELOPER. THE AGREEMENT
IS ALSO VOIDABLE BY THE BUYER BY DELIVERING WRITTEN NOTICE OF THE BUYER'S
INTENTION TO CANCEL WITHIN 15 DAYS AFTER THE DATE OF RECEIPT FROM THE DEVELOPER
OF ANY AMENDMENT WHICH MATERIALLY ALTERS OR MODIFIES THE OFFERING IN A MANNER
THAT IS ADVERSE TO THE BUYER. ANY PURPORTED WAIVER OF THESE VOIDABILITY RIGHTS
SHALL BE OF NO EFFECT. BUYER MAY EXTEND THE TIME FOR CLOSING FOR A PERIOD OF NOT
MORE THAN 15 DAYS AFTER THE BUYER HAS RECEIVED ALL OF THE DOCUMENTS REQUIRED.
BUYER'S RIGHT TO VOID THE PURCHASE AGREEMENT SHALL TERMINATE AT CLOSING.
RECEIPT IS HEREBY ACKNOWLEDGED OF THE ABOVE ON THIS ______DAY OF
____________, 200_.
BUYER(S):
-----------------------------------
-----------------------------------
<PAGE>
ANNEX D-2
EXHIBIT "B"
TO THE CONDOMINIUM SALE AND PURCHASE AGREEMENT
SCHEDULE OF FURNITURE AND FURNISHINGS
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses incurred in connection with the issuance and distribution
of the securities being registered hereby are as follows:
SEC registration fee . . . . . . $ 25,080
Accountants' fees and expenses* . . . . . $ 3,500
Legal fees and expenses* . . . . . . $ 65,000
Printing expenses* . . . . . . $ 7,000
--------
Total* . . . . . . . $100,580
========
*Estimated
ITEM 32. SALES TO SPECIAL PARTIES.
None.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Limited Partnership's General Partners and Limited Partners are and
will be indemnified to the fullest extent permitted under Florida law.
Provisions regarding indemnification of the General Partners of the
registrant contained in Article VI.G. of the Partnership Agreement
(Exhibit 3.2 to this Registration Statement) are incorporated herein by
this reference.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to the Partnership's Partners
pursuant to the indemnification provisions incorporated by the above
reference or otherwise, the Partnership has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
may be against public policy as expressed in the Act and may,
therefore, be unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Partnership for expenses incurred or paid by a Partner in the
successful defense of any action, suit or proceedings) is asserted by
such Partner in connection with the securities being registered, the
Partnership will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
Jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Independent Auditors' Report (included in the Prospectus)
Balance Sheets as of March 15, 2000 (included in the Prospectus)
Notes to Balance Sheets - March 15, 2000 (included in the Prospectus)
<PAGE>
(b) Exhibits
EXHIBIT
NUMBER EXHIBIT
------ -------
1.1(a) Selling Agent Agreement
1.1(b) Principal Distributor Agreement
3.1 Articles of Formation of the Registrant
3.2 Partnership Agreement
5.1 Opinion of Adorno & Zeder, P.A. ( To be filed by
Amendment)
8.1 Opinion of Adorno & Zeder, P.A. as to the Tax Matters
10.1 Condominium Declaration
10.2 Articles of Incorporation of Condominium Association
10.3 Bylaws of Condominium Association
10.4(a) Revolving Promissory Note
10.4(b) Stock Pledge and Security Agreement
10.4(c) Credit Agreement
10.4(d) Agreement for Mutual Credit Enhancement, Contribution
and Indemnity
23.1 Consent of Adorno & Zeder, P.A. (included as Exhibits
5.1 and 8.1 hereto)
23.2 Consent of Kaufman Rossin & Co.
27 Financial Data Schedule (to be filed by Amendment)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authrized, in the city of Miami, state of Florida, on June 26, 2000.
TERREMARK FORTUNE HOUSE #2, LTD. By: /S/ ROBERT FINVARB
-------------------------------- -----------------------------------
(Issuer) Vice President of Terremark Fortune
House #2, Inc., its general partner
("General Partner")
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/S/ MICHAEL KATZ /S/ IRVING PADRON
-------------------------------- --------------------------------
(Signature) (Signature)
Chief Executive Officer of Chief Financial Officer of
General Partner General Partner
-------------------------------- --------------------------------
(Title) (Title)
JUNE 26, 2000 JUNE 26, 2000
-------------------------------- --------------------------------
(Date) (Date)
/S/ IRVING PADRON /S/ MANUEL MEDINA
-------------------------------- --------------------------------
(Signature) (Signature)
Chief Accounting Officer of
General Partner Director of General Partner
-------------------------------- --------------------------------
(Title) (Title)
JUNE 26, 2000 JUNE 26, 2000
-------------------------------- --------------------------------
(Date) (Date)
/S/ BRIAN GOODKIND /S/ IRVING PADRON
-------------------------------- --------------------------------
(Signature) (Signature)
Director of General Partner Director of General Partner
-------------------------------- --------------------------------
(Title) (Title)
JUNE 26, 2000 JUNE 26, 2000
-------------------------------- --------------------------------
(Date) (Date)
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
1.1(a) Selling Agent Agreement
1.1(b) Principal Distributor Agreement
3.1 Articles of Formation of the Registrant
3.2 Partnership Agreement
5.1 Opinion of Adorno & Zeder, P.A. ( To be filed by
Amendment)
8.1 Opinion of Adorno & Zeder, P.A. as to the Tax Matters
10.1 Condominium Declaration
10.2 Articles of Incorporation of Condominium Association
10.3 Bylaws of Condominium Association
10.4(a) Revolving Promissory Note
10.4(b) Stock Pledge and Security Agreement
10.4(c) Credit Agreement
10.4(d) Agreement for Mutual Credit Enhancement, Contribution
and Indemnity
23.1 Consent of Adorno & Zeder, P.A. (included as Exhibits
5.1 and 8.1 hereto)
23.2 Consent of Kaufman Rossin & Co.
