SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-7865
HMG/COURTLAND PROPERTIES, INC.
(Name of small business issuer in its charter)
DELAWARE 59-1914299
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2701 S. Bayshore Drive, Coconut Grove, Florida 33133
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (305) 854-6803
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Share of Common Stock, American Stock Exchange
Par value $1.00 per share
Securities registered pursuant to Section 12(g) of the Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [ x ]
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Total Number of Pages: 39 Exhibit Index: Page No.: 38
(continued)
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State the issuer's revenues for the most recent fiscal year:
$7,895,124
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant: $2,255,199 based on the closing price of the stock as traded on
the American Stock Exchange on March 21, 1997. (Excludes shares of voting stock
held by directors, executive officers and beneficial owners of more than 10% of
the Registrant's voting stock; however, this does not constitute an admission
that any such holder is an "affiliate" for any purpose.)
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practicable date: 1,166,835 shares of common
stock, $1 par value, as of March 21, 1997.
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Part I.
Item 1. Business.
HMG/Courtland Properties, Inc. (the "Company") invests in a portfolio of equity
interests in commercial real estate. The Company was organized in 1972 and
qualifies for taxation as a real estate investment trust ("REIT") under the
Internal Revenue Code. The Company's present investment policy is to invest
primarily in income producing commercial properties.
To implement its investment policy, the Company directly and through its
subsidiaries has invested in improved properties and in the commercial
development of unimproved properties held in its portfolio or acquired for that
purpose.
The following table summarizes the Company's portfolio of real estate
investments as of December 31, 1996:
Percent of
Geographic Distribution Investments (1)
Florida 60%
Texas 34%
Northeastern United States (2) 6%
-----
100%
=====
Type of Property (3)
Undeveloped land 35%
Hotel and club facility 41%
Individual retail stores 5%
Yacht slips 9%
Restaurants 10%
----
100%
=====
-----------------
(1) For each category, the aggregate of cost less accumulated
depreciation divided by the aggregate of such investments in all
real estate owned directly by the Company or by joint ventures in
which the Company has a majority interest. The Company's minority
interests in joint ventures are not included in the above.
(2) New York, Massachusetts, Maine and Vermont.
(3) Based on predominant present or intended use.
Reference is made to Item 12. Certain Relationships and Related Transactions for
discussion of the Company's organizational structure and related party
transactions.
Consolidated Entities.
Courtland Investments, Inc. ("CII"). The Company owns a 95% equity interest in
CII (all non-voting). The other 5% equity interest (which is 100% of the voting
interest) is held by Masscap Investment Company, Inc. ("MICI"), a wholly-owned
subsidiary of Transco Realty Trust ("Transco") which is a 41% shareholder of the
Company. CII owns equity interests in certain corporations and partnerships that
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are passive (non-operating) in nature. CII also owns controlling interests in
certain operating entities. These entities are a partnership owning a 50 room
hotel and private club (Grove Isle Associates, Ltd. "GIA"), a corporation which
operates the hotel and club (Grove Isle Club Inc."GICI") (see discussion below
regarding the change in operators of the hotel and private club in November 1996
) and a joint venture owning the marina adjacent to the hotel and club (Grove
Isle Yacht Club Associates "GIYCA"). The properties are located in Coconut
Grove, Florida, and a more detailed description of each follows:
Grove Isle Associates, Ltd. ("GIA"). This limited partnership (owned 60% by CII
and 40% by the Company) owns a 50 room hotel and private club facility (the
"facility") located on 7 acres of a private island in Coconut Grove, Florida,
known as "Grove Isle". In addition to the 50 hotel rooms, the facility includes
public space, tennis courts, and a pool. GIA leased the facilities to GICI on a
year to year basis for an annual base rent of $480,000. This rent is eliminated
in consolidation. The facility is encumbered by a mortgage note payable with an
outstanding balance of $4.3 million and $4.4 million as of December 31, 1996 and
1995, respectively.
In November 1996, GIA terminated its lease with GICI and entered into a
long-term lease with an unrelated tenant, Westgroup Grove Isle Associates, Ltd.
("Westgroup"). GIA and GICI also entered into a Master Agreement with Westgroup
whereby among other things Westgroup assumed the operations of the Grove Isle
hotel and club.
The leased premises include all real property and all furniture, furnishings,
fixtures, appliances and other equipment used in connection with the operation
of the Grove Isle hotel, resort and membership club. The initial term of the
lease is ten years and calls for annual net base rent of $880,000 plus real
estate taxes and property insurance, payable in monthly installments. The lease
also calls for an "initial payment" (as defined) of $1,000,000. The "initial
payment" of $1,000,000 was paid by Westgroup to GIA on November 19, 1996 and the
use of these funds is restricted in accordance with the Master Agreement between
GIA and Westgroup. GIA is obligated to provide to Westgroup, upon receipt of
required documentation, funds from the "initial payment" for capital
improvements made to the Grove Isle property and operating shortfalls, as
defined. In addition to the "initial payment" and base net rent, Westgroup shall
also pay GIA participation rent consisting of a portion of Westgroup's operating
surplus, as defined in the lease agreement. Participation rent is due at end of
each lease year. In consideration for GICI relinquishment of its rights in and
to the original lease with GIA, GIA agreed to pay to GICI the sum of $200,000
for each year that the Westgroup lease is in good standing and has also assigned
to GICI the aforementioned participation rent due from Westgroup. This sum is
payable annually commencing in November 1997.
Grove Isle Club, Inc. ("GICI"). This corporation operated the aforementioned
hotel and club through November 18, 1996. The primary sources of revenues for
this corporation were from room rentals, food and beverage sales and from member
dues. As discussed above, beginning November 19, 1996 the operations of the
Grove Isle Hotel and Club were assumed by Westgroup.
Grove Isle Yacht Club Associates ("GIYCA"). This partnership was the original
developer of the 85 boat slips located at Grove Isle. As of December 31, 1996,
forty-three slips remain unsold and are encumbered by the aforementioned $4.3
million mortgage note payable by GIA. GIYCA (through a 100% owned subsidiary)
operates and maintains all aspects of the marina at Grove Isle in exchange for
an annual maintenance fee from the slip owners to cover operational expenses.
(4)
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HMG-Fieber Associates ("Fieber"). HMG-Fieber Associates, a joint venture owned
65% by the Company and 35% by NAF Associates (NAF), a Connecticut general
partnership, owns 13 retail stores. The stores are leased to Grossman's, Inc., a
chain of home improvements stores, under net leases, most of which provide for
minimum and percentage rental payments. As of December 31, 1996, the percentage
of leases expiring in 1997, 1998, 1999 and after 1999 was 33%, 20%, 47% and 0%,
respectively. Approximately half of these leases contain renewal options of at
least five years.
Reference is made to Item 12. Certain Relationships and Related Transactions for
further information regarding the failure of Mr. Gray and Mr. Fieber to disclose
Mr. Gray's interest in NAF, the inquiry into that failure by a Special Committee
appointed by the Board of Directors and the actions taken by the Board of
Directors as a result of that inquiry.
In March 1997, Fieber sold its store located in Vestal, New York recognizing a
gain to the venture of approximately $233,000.
In January 1997, Fieber sold its store located in Springfield, Massachusetts
recognizing a gain to the venture of approximately $775,000.
In November 1996, Fieber sold its store located in Bangor, Maine recognizing a
gain to the venture of approximately $181,000.
In November 1996, Fieber sold its store located in Ithaca, New York recognizing
a gain to the venture of approximately $656,000.
In November 1996, Fieber sold its store located in Johnstown, New York
recognizing a gain to the venture of approximately $347,000.
In September 1996, Fieber sold its store located in Portland, Maine recognizing
a gain to the venture of approximately $1,007,000.
In September 1996, Fieber sold its store located in West Springfield,
Massachusetts recognizing a gain to the venture of approximately $376,000.
In December 1995, Fieber sold its store located in Hartford, Connecticut
recognizing a gain to the venture of approximately $122,000.
In March 1995, Fieber sold its store located in Norristown, Pennsylvania
recognizing a gain to the venture of approximately $620,000.
In January 1995, Fieber sold its store located in Buzzards Bay, Massachusetts
recognizing a gain to the venture of approximately $68,000.
The Grove Towne Center - Texas, Ltd. ("TGTC"). The Grove Towne Center-Texas,
Ltd. is a limited partnership owned 65% by the Company (including a 1% general
partnership interest by a wholly-owned subsidiary of the Company). The remaining
35% partnership interest is held by two unrelated entities.
TGTC was formed in 1994 for the purpose of developing an entertainment/value
oriented retail center on a 41 acre site in suburban Houston, Texas. During the
fourth quarter of 1995, TGTC decided not to go
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forward with the project as designed due to various factors including a dispute
with a major tenant. In 1995 TGTC expensed approximately $4.2 million of
previously capitalized predevelopment costs. Included in these costs were
developer fees, interest and loan costs, real estate taxes, legal and
professional fees, marketing/advertising and other leasing related costs. TGTC
is presently exploring various options for the land. In December 1996, TGTC sold
a .7 acre corner site for approximately $433,000 and recognized a gain to the
Company of approximately $129,000. Subsequent to December 31, 1996, TGTC sold
approximately 4 acres for approximately $1.1 million and recognized a gain to
the Company of approximately $99,000.
South Bayshore Associates ("SBA"). SBA is a joint venture, formed in 1986 in
which Transco Realty Trust (Transco) and the Company hold interests of 25% and
75%, respectively. The major asset of SBA is a demand note bearing interest at
the prime rate from Transco with an outstanding balance as of December 31, 1996
and 1995 of approximately $425,000 and $420,000, respectively, in principal and
accrued interest.
The Company holds a demand note (which is eliminated in consolidation) from SBA
bearing interest at the prime rate plus 1% with an outstanding balance including
accrued interest as of December 31, 1996 and 1995 of approximately $877,000 and
$848,000, respectively, in principal and accrued interest.
HMG Fashion Square, Inc. This wholly-owned subsidiary has a 90% partnership
interest in Fashion Square Partnership (the "partnership") formed in 1992 for
the purpose of developing a shopping center located on approximately 11.5 acres
near Jacksonville, Florida. As of December 1996, the shopping center is
partially completed and being leased.
In March 1994, the partnership entered into a ground lease with a tenant which
is an operator of a 7,000 square foot restaurant on the one acre parcel covered
by the ground lease. The partnership agreed to contribute approximately $100,000
in improvements to the leased site. The initial term of the lease is ten years
and calls for base rent of $60,000 per year with 10% increases each subsequent
year. This property is encumbered by a mortgage loan of $300,000 which bears
interest at 9.75% which matured in November 1996 and was extended to July 1997.
In November, 1994, the partnership entered into a ground lease with a tenant
which is an operator of a restaurant. In 1995, this tenant completed
construction of a restaurant on the 3/4 acres of land covered by the ground
lease. The initial term of the lease is twenty years and calls for base rent of
$60,000 per year with 12.5% increase every five years.
In the fourth quarter of 1996, the partnership entered into a lease with a
tenant which is an operator of a restaurant. The leased premises, a 6,242 square
foot restaurant, was constructed in 1996 and the partnership contributed
$200,000 towards the cost of the restaurant. The initial term of the lease is
ten years and calls for annual base rent of $80,000 for years one through five
and $88,000 for years six through ten. The lease also calls for percentage rent
of 3% of gross sales exceeding approximately $2.7 million for years one through
five and $2.9 million for years six through ten. The lease also provides three
five year renewal options for years eleven through twenty-five with escalating
base rent.
HMG Sugargrove, Inc. This wholly-owned subsidiary owns approximately eight acres
of land held for development located in Houston, Texas and is encumbered by a
non-recourse mortgage loan which matured in February 1997 and was extended to
February 1998. This loan, as amended, bears an annual rate of interest of 9.75%
payable quarterly with principal payments of $16,000 due each February. The
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remaining principal balances as of December 31, 1996 and 1995 were approximately
$165,000 and $182,000, respectively.
Insurance, Environmental Matters and Other.
In the opinion of management, all assets of the Company are adequately covered
by insurance and the cost and effects of complying with environmental laws do
not have a material impact on the Company's operations.
Other Transactions and Investments.
(a) Sales of Property.
Reference is made to the above sections of Item 1. Business and Item 6.
Management's Discussion and Analysis or Plan of Operation for information
concerning sales of properties.
(b) Other Investments.
Other Unconsolidated Investments of CII.
T.G.I.F. Texas, Inc. (T.G.I.F.). CII owns 2,798,232 shares of common stock
of T.G.I.F. Texas, Inc., a Texas publicly-held corporation (T.G.I.F.),
(representing 49.31% of T.G.I.F. equity) with a carrying value of
approximately $1.6 million. Mr. Wiener is a director and stockholder of
T.G.I.F. T.G.I.F. is engaged in the business of net leasing properties in
the Southern and Southwestern United States. As of December 31, 1996 and
1995, CII had outstanding loans due to T.G.I.F. of approximately $2,455,000
and $579,000, respectively. These loans are payable on demand and bear
interest at the prime rate (8.25% as of December 31, 1996). Interest is
payable annually in January. CII expects to repay these loans with proceeds
from distributions of its investments.
CII also owns investments primarily in the form of limited partnership
interests in companies whose primary purpose is to make equity investments
in growth oriented enterprises. The Company's ownership interest in these
partnerships represents less than 3% of each partnership's ownership.
Jack Baker 5th Avenue, Inc. CII and certain directors and officers of the
Company, own an 85% interest in Jack Baker 5th Avenue, Inc. and its
affiliates. CII has a 59% interest and certain directors and officers of
the Company have a 41% interest. This company was a manufacturer's
representative which discontinued operations in 1996. CII's investments in
and loans to Jack Baker 5th Avenue, Inc., with a net carrying value of
approximately $46,000 including accrued and unpaid interest, were written
off as of December 31, 1996.
Competition.
The Company competes for suitable opportunities for real estate investments with
other real estate investment trusts, foreign investors, pension funds, insurance
companies and other investors. The Company also competes with other real estate
investors and borrowers for available sources of financing.
In addition, to the extent the Company directly and through its subsidiaries
leases properties, it must compete for tenants with other lessors offering
similar facilities. Tenants are sought by providing modern, well-maintained
facilities at competitive rentals. The Company has attempted to facilitate
successful leasing of its properties by investing in facilities that have been
developed according to the specifications of tenants and special local needs.
(7)
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Employees.
The Company has no employees other than officers who are not compensated for
their services as such.
Advisory Agreement (the "Agreement").
Terms of the Agreement. Under the terms of the Agreement, amended and restated
on June 15, 1988, Courtland Group, Inc. (the "Advisor") serves as the Company's
investment advisor and, under the supervision of the directors of the Company,
administers the day-to-day operations of the Company. All officers of the
Company who are officers of the Advisor are compensated solely by the Advisor
for their services. The Agreement is renewable annually upon the approval of a
majority of the directors of the Company who are not affiliated with the Advisor
and a majority of the Company's shareholders. The contract may be terminated at
any time on 120 days' written notice by the Advisor or upon 60 days' written
notice by a majority of the unaffiliated directors of the Company or the holders
of a majority of the Company's outstanding shares.
Under the Agreement, as amended at the Company's 1992 annual meeting of
shareholders, the Advisor is entitled to receive a monthly fee of $72,917. The
Advisor is entitled to an annual incentive compensation equal to the sum of 10%
of net realized capital gains and extraordinary items of income for that year
and 10% of the amount, if any, by which net profits of the Company for such
fiscal year exceeded 8% per annum of the Average Net Worth of the Company, as
defined. The Advisor also is entitled to a monthly fee of 20% of the amount of
any unrefunded commitment fees received by the Company with respect to mortgage
loans and other commitments which the Company was not required to fund and which
expired within the next preceding calendar month.
Advisory Fees. For the year ended December 31, 1996, the Company and its
subsidiaries paid the Advisor $1,066,746 in fees, of which $875,000 represented
regular compensation and $191,746 represented incentive compensation, including
$26,548 paid by CII to the Advisor relating to capital gains realized by CII
from sales of marketable securities. In 1995, the Advisor's regular compensation
amounted to $875,000, while its incentive compensation amounted to $188,177,
including $62,186 paid by CII to the Advisor relating to capital gains realized
by CII from sales of marketable securities and capital gains from CII's
investments in partnerships. The Advisor is also the manager for certain of the
Company's affiliates and received fees of $30,000 and $44,000 in 1996 and 1995,
respectively, for such services.
New Advisory Agreement. On April 4, 1997, the Board of Directors approved a new
advisory agreement between the Company and HMG Advisory Corp. effective for a
term commencing January 1, 1998 through December 31, 1998. This new advisory
agreement is subject to, and will be submitted for approval by a majority of the
shareholders of the Company at the 1997 annual meeting of shareholders,
currently scheduled for June 27, 1997. The new advisory agreement will be
substantially the same as the current advisory agreement but with a 25%
reduction in the regular compensation paid to the new advisor.
HMG Advisory Corp. will be majority owned by Messrs. Wiener and Eyssell with the
remaining shares owned by certain officers. The officers and directors of HMG
Advisory Corp. are as follows: Maurice Wiener, Chairman of the Board and Chief
Executive Officer; Lawrence I. Rothstein, President, Treasurer, Secretary and
Director; Gustav S. Eyssell, Director; Carlos Camarotti, Vice President -
Finance and Assistant Secretary; and Bernard Lerner, Vice President.
Item 2. Description of Property.
The principal executive offices of the Company and the Advisor are located at
2701 South Bayshore Drive, Coconut Grove, Florida, 33133, in premises furnished
by the Advisor pursuant to the terms of the Agreement. Reference is made to Item
1. Business for a description of the Company's properties.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1996.
(8)
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Part II.
Item 5. Market Price for Common Equity and Related Stockholder Matters.
The high and low per share sales prices of the Company's stock on the American
Stock Exchange for each quarter during the past two years were as follows:
High Low
March 31, 1995 8 1/8 7 1/2
June 30, 1995 8 3/8 7 3/4
September 30, 1995 8 1/8 7 3/4
December 31, 1995 8 1/2 7 1/2
March 31, 1996 7 3/4 7 1/4
June 30, 1996 7 1/4 6 7/8
September 30, 1996 6 7/8 6 1/2
December 31, 1996 6 3/8 4 5/8
The Company stopped paying dividends, beginning in the fourth quarter of 1990,
in order to preserve its cash in light of the overall economic conditions and
for future development opportunities. The Company's policy has been to pay such
dividends as are necessary for it to qualify for taxation as a REIT under the
Internal Revenue Code. The Company continues to meet all qualifications for
taxation as a REIT.
As of March 21, 1997, there were 244 holders of record of the Company's common
stock.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Discussion of Balance Sheet Items:
At December 31, 1996, the balance sheet reflected assets consisting primarily of
equity interests in real estate investment properties and investments in
unconsolidated entities. Liabilities at December 31, 1996 consisted principally
of mortgages on individual properties.
Significant changes in specific balance sheet items between December 31, 1996
and 1995 are described below:
Assets:
Commercial and industrial properties increased from $2.0 million to $3.0
million, or $1.0 million. This was primarily due to additional construction of
the shopping center located near Jacksonville, Florida.
The carrying value of the hotel and club facility decreased from $9.0 million to
$8.1 million, or $900,000. This was primarily the result of depreciation.
Land held for development decreased from $8.1 million to $6.7 million, or $1.4
million, primarily as the result of sales of land located in Houston, Texas and
Palm Bay, Florida.
Real estate development in progress decreased by $1.2 million primarily due to
the substantial completion of a portion of the Fashion Square Shopping Center
near Jacksonville, Florida.
(9)
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Investments in and receivables from unconsolidated entities increased from $2.4
million to $3.1 million or, approximately $700,000, primarily as a result of
additional investments by CII in limited partnerships whose primary purpose is
to make equity investments in growth-oriented enterprises.
Restricted cash increased by $1 million as the result of the initial payment
received by Grove Isle Associates, Ltd. In connection with the lease agreement
and master agreement entered into with Westgroup in November 1996. Reference is
made to the above sections of Item 1. Business for discussion regarding the
Grove Isle lease.
Liabilities and Minority Interests:
Mortgages and notes payable increased from $8.9 million to $10.1 million, or
$1.2 million, primarily due to additional borrowing by CII from its 49% owned
Company, TGIF Texas, Inc.
Other liabilities increased from $1.4 million to $2.1 million, or $700,000,
primarily as the result of the $1 million restricted cash payment received from
the new tenant at Grove Isle. (See Item 1. Business). This amount represents a
prepayment to cover future capital improvements and cash operating shortfalls,
etc.
Minority interests decreased $492,000 in 1996 from $614,000 to $122,000. This
was primarily the result of distributions to minority partners in excess of
gains recognized by minority partners.
Results of Operations:
For the year ended December 31, 1996, the Company reported a net loss of $2.1
million compared with a net loss of $3.5 million for the year ended December 31,
1995. Changes in specific revenues and expenses are discussed below.
Revenues:
1996 versus 1995:
Total revenues for the year ended December 31, 1996 as compared with that of
1995 increased by approximately $495,000 (or 7%). This was primarily due to
increased revenues from the Grove Isle hotel, club and marina of approximately
$1.7 million (or 38%). This increase in revenues was partially offset by
decreased rental and related revenues of $526,000 (or 28%) primarily due to the
sale of the Texas office building in April 1995, decreased gain from sales of
marketable securities of $374,000 (or 28%) and decreased interest from invested
cash, dividends and other of $302,000 (or 67%) (primarily due to decreased
dividends from CII's 49% investment in TGIF Texas, Inc.).
Expenses:
1996 versus 1995:
Total expenses for the year ended December 31, 1996 as compared to that of 1995
decreased by $1.7 million (or 13%). The primary factors contributing to this
decrease were (1) the non-recurring expenses relating to the abandonment of
predevelopment costs of $4.2 million of The Grove Towne Center project in 1995,
(2) decreased minority partners' interest in operating losses of $1.2 million
due to the aforementioned 1995 abandonment, and (3) increased operating cost of
Grove Isle hotel and club of $1.4 million.
Total operating expenses of the Grove Isle hotel, club and marina increased $1.2
million (or 22%) in fiscal 1996 versus 1995. Cost of food and beverage increased
by $472,000 (or 68%), payroll and related costs increased by $346,000 (or 14%),
other operating costs increased by $616,000 (or 25%) primarily as the result of
increased advertising and promotional costs of $263,000 and other expenses
relating to the food and beverage operations of approximately $350,000.
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Net gain/(loss) on sale of real estate for the year ended December 31, 1996
consisted of the following:
Net gain (loss) after incentive
Property Sold Fee and minority interest
HMG-Fieber retail stores in various states 1,501,000
Undeveloped land in Texas 40,000
Undeveloped land in Florida (55,000)
$1,486,000
Projected Operating Results:
The Company discontinued operating the Grove Isle property in November 1996. As
a result of this the Company no longer generates hotel and club revenues, nor
does it incur the related expenses. The Company's rental and related revenues in
1997 are expected to remain consistent with those of 1996.
Effect of Inflation:
Inflation affects the costs of operating and maintaining the Company's
investments and the availability and terms of financing. In addition, rentals
under certain leases are based in part on the lessee's sales and tend to
increase with inflation, and certain leases provide for periodic adjustments
according to changes in predetermined price indices.
Liquidity and Capital Resources:
The Company's material commitments primarily consist of maturities of debt
obligations of approximately $4.7 million in 1997. The funds necessary to meet
these obligations are expected from the proceeds of sales of properties,
refinancing, distributions from investments and available cash. Included in the
$4.7 million in maturing debt obligation is a note payable by CII to TGIF of
approximately $2.5 million due on demand. CII intends to repay this obligation
with funds available from distributions from investments. In addition, the
Company intends to continue to seek opportunities for investment in income
producing properties.
The Company's cash flow from operating activities was a deficit of approximately
$3 million for the year ended December 31, 1996 versus a deficit of $5 million
in 1995. The Company's cash flow from operating activities in 1997 is expected
to improve over that of 1996 primarily as the result of discontinuing the
operations of the Grove Isle facilities effective November 1996.
Material Changes in Operating, Investing and Financing Cash Flows:
Discussion of 1996 Changes.
For the year ended December 31, 1996, net cash provided by investing activities
was approximately $3.4 million. This consisted primarily of net proceeds from
disposals of properties of $4.3 million, less acquisitions and improvements of
properties of $516,000 (primarily relating to Fashion Square Shopping Center
near Jacksonville, Florida) and less additional investments made by CII in
limited partnerships whose primary purpose is to invest in growth-oriented
companies.
For the year ended December 31, 1996, net cash used in financing activities was
approximately $105,000. This consisted of repayment of mortgages and notes
payable of $1.1 million and distributions to minority partners of $1.3 million,
partially offset by additional borrowings of $2.3 million (primarily from CII's
49%-owned affiliate).
(11)
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Item 7. Consolidated Financial Statements
Report of Independent Certified Public Accountants...................13
Consolidated balance sheets December 31, 1996 and 1995...............14
Consolidated statements of operations for the
years ended December 31, 1996 and 1995...............................15
Consolidated statements of stockholders' equity for
the years ended December 31, 1996 and 1995...........................16
Consolidated statements of cash flows for the
years ended December 31, 1996, and 1995..............................17
Notes to consolidated financial statements...........................18
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of HMG/Courtland Properties, Inc.:
We have audited the accompanying consolidated balance sheets of HMG/Courtland
Properties, Inc. and its subsidiaries (the "Company") as of December 31, 1996,
and 1995 and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1996, and 1995 and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Miami, Florida
March 21, 1997
(13)
<PAGE>
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
ASSETS Notes
<S> <C> <C> <C>
Investment Properties, net of accumulated
depreciation 2
Commercial and Industrial $3,044,789 $1,969,318
Hotel and Club Facility 8,086,619 8,971,370
Yacht Slips 1,708,307 1,689,283
Land Held for Development 6,712,173 8,103,304
Real Estate Development in Progress 1,204,390
----------- -----------
Total investment properties, net 19,551,888 21,937,665
Investments In and Receivables From
Unconsolidated Entities 3 3,088,925 2,439,010
Notes and Advances Due From Related Parties 4 1,396,068 1,168,788
Cash and Cash Equivalents 1,389,546 1,094,999
Cash Restricted 9 1,000,000
Other Assets 1,043,288 2,241,610
----------- -----------
TOTAL ASSETS $27,469,715 $28,882,072
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Accounts Payable and Accrued Expenses $1,621,924 $2,254,024
Mortgages and Notes payable 5 10,084,395 8,905,166
Other Liabilities 2,072,319 1,421,131
----------- -----------
TOTAL LIABILITIES 13,778,638 12,580,321
----------- -----------
Minority interests 121,778 613,643
----------- -----------
STOCKHOLDERS' EQUITY 7
Preferred Stock, no par value; 2,000,000 shares
authorized; none issued
Common Stock, $1 par value; 1,500,000 shares
authorized; 1,245,635 shares issued and
outstanding 1,245,635 1,245,635
Additional Paid-in Capital 26,283,222 26,283,222
Undistributed Gains From Sales of Real Estate,
net of losses 33,123,339 31,637,177
Undistributed Losses From Operations (46,086,435) (42,481,464)
----------- -----------
14,565,761 16,684,570
Less: Treasury Stock, at cost (78,800 shares) (996,462) (996,462)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,569,299 15,688,108
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,469,715 $28,882,072
=========== ===========
</TABLE>
See notes to consolidated financial statements
(14)
<PAGE>
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Notes 1996 1995
REVENUES
<S> <C> <C> <C>
Rentals and related revenue $1,337,527 $1,863,539
Hotel, club and marina revenues 6,154,686 4,458,476
Gain from sale of marketable securities 252,908 626,452
Interest from invested cash, dividends and other 150,003 451,832
----------- -----------
Total revenues 7,895,124 7,400,299
----------- -----------
EXPENSES
Operating expenses:
Rental Properties and other 1,044,816 1,195,532
Hotel, club and marina expenses:
Payroll and related expenses 2,784,706 2,438,844
Cost of food and beverage 1,170,471 697,967
Administrative and general expenses 3,083,577 2,467,839
Advisor's fee 4 875,000 875,000
General and administrative 544,124 481,373
Directors' fees and expenses 69,248 71,863
Abandonment of pre-development costs 8 4,224,531
Depreciation and amortization 2 1,152,085 1,348,401
----------- -----------
Total operating expenses 10,724,027 13,801,350
Interest expense 958,944 825,078
Minority partners' interests in operating
losses of consolidated entities (182,876) (1,421,070)
----------- -----------
Total expenses 11,500,095 13,205,358
----------- -----------
Loss before sales of real estate (3,604,971) (5,805,059)
Gain on sales of real estate, net 1,486,162 2,255,896
----------- -----------
Net loss ($2,118,809) ($3,549,163)
=========== ===========
Loss Per Common Share
(Based on 1,166,835 weighted average shares outstanding) ($1.82) ($3.04)
=========== ===========
</TABLE>
See notes to consolidated financial statements
(15)
<PAGE>
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Undistributed
Gains from Undistributed
Sales Losses from Total
Common Stock Additional of Real Estate, Opera- Treasury Stock Stockholders'
Shares Amount Paid-In Net of Losses tions Shares Cost Equity
Capital
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1995 1,245,635 $ 1,245,635 $26,283,222 $29,381,281 ($36,676,405) 78,800 ($996,462) $19,237,271
Net Income (Loss) 2,255,896 (5,805,059) (3,549,163)
--------- ----------- ----------- ----------- ------------ ------ --------- -----------
Balance as of December 31, 1995 1,245,635 1,245,635 26,283,222 31,637,177 (42,481,464) 78,800 (996,462) 15,688,108
Net Income (Loss) 1,486,162 (3,604,971) (2,118,809)
--------- ----------- ----------- ----------- ------------ ------ --------- -----------
Balance as of December 31, 1996 1,245,635 $ 1,245,635 $26,283,222 $33,123,339 ($46,086,435) 78,800 ($996,462) $13,569,299
========= =========== =========== =========== ============ ====== ========= ===========
</TABLE>
See notes to consolidated financial statements
(16)
<PAGE>
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,118,809) ($3,549,163)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,152,085 1,348,401
(Gain) loss from unconsolidated entities (20,856) 34,139
Gain on sales of real estate, net (1,486,162) (2,255,896)
Abandonment of pre-development costs 1,902,914
Net gain from sales of marketable securities (252,908) (626,452)
Minority partners' interest in operating losses (182,876) (1,421,070)
Changes in assets and liabilities:
Decrease (increase) in other assets 1,146,077 (301,265)
Increase in due from affiliates (227,280) (303,433)
Decrease in accounts payable and accrued expenses (632,100) (170,516)
(Decrease) increase in other liabilities (348,812) 308,263
----------- -----------
Total adjustments (852,832) (1,484,915)
----------- -----------
Net cash used in operating activities (2,971,641) (5,034,078)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Aquisitions and improvements of properties (516,009) (1,643,646)
Net proceeds from disposals of properties 4,264,004 9,923,385
Net (contributions to) distributions from
unconsolidated entities (629,059) 213,396
Net proceeds from sales and redemptions of securities 344,424 795,028
Purchases of investments in securities (91,995) (32,211)
----------- -----------
Net cash provided by investing activities 3,371,365 9,255,952
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgages and notes payables (1,073,498) (5,886,683)
Additions to mortgages and notes payables 2,252,727 700,000
Net distributions to minority partners (1,284,406) (3,322,693)
----------- -----------
Net cash used in financing activities (105,177) (8,509,376)
----------- -----------
Net increase (decrease) in cash and cash equivalents 294,547 (4,287,502)
Cash and cash equivalents at beginning of the period 1,094,999 5,382,501
----------- -----------
Cash and cash equivalents at end of the period $ 1,389,546 $ 1,094,999
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 959,000 $ 1,112,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
As more fully described in Note 9, the Company leased its Grove
Isle Facility in November 1996 and received an initial payment
(as defined) of $1,000,000. The use of these funds is restricted
per agreement and accordingly this amount has been recorded as
restricted cash and included in other liabilities.
</TABLE>
See notes to consolidated financial statements
(17)
<PAGE>
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the accounts of
HMG/Courtland Properties, Inc. (the "Company") and entities in which the Company
owns a majority voting interest or controlling financial interest. Investments
in which the Company does not have a majority voting or financial controlling
interest are accounted for under the equity method of accounting , even though
the Company may have a majority interest in profits and losses. All material
transactions with consolidated and unconsolidated entities have been eliminated
in consolidation or as required under the equity method.
The Company's consolidated subsidiaries are described below:
Courtland Investments, Inc. ("CII"). A 95% owned corporation which owns 100% of
Grove Isle Club, Inc. (through its wholly-owned subsidiary), 60% general
partnership interests in Grove Isle Associates, Ltd., and a 100% interest in
Grove Isle Yacht Club Associates. These entities are described below.
CII's other assets primarily consist of investments recorded under the equity
method of accounting (See Note 3.)
Grove Isle Associates, Ltd. ("GIA"). This limited partnership owns a 50 room,
hotel and private club facility located on approximately 7 acres of a private
island in Coconut Grove, Florida known as Grove Isle. (See Note 9).
Grove Isle Club, Inc. ("GICI"). This corporation operated the hotel and club of
GIA until November 1996. Its primary sources of revenue were from room rentals,
food and beverage sales and from membership dues. GICI ceased operating the
hotel and club upon termination of its lease with GIA and a new lease with
Westgroup Grove Isle Associates, Ltd. In future years, GICI's revenue will
primarily consist of the amounts received in consideration for the
relinquishment of its lease of the Grove Isle property (See Note 9).
Grove Isle Yacht Club Associates ("GIYCA"). This partnership was the original
developer of the 85 boat slips located at Grove Isle of which 43 remain unsold.
GIYCA and its wholly-owned subsidiary operate all aspects of the Grove Isle
marina.
The Grove Towne Center - Texas, Ltd. A 65% owned limited partnership having a
wholly-owned subsidiary of the Company as its sole general partner. This
partnership was formed in 1994 for the purposes of developing an
entertainment/value-oriented retail center on a 41 acre site in suburban
Houston, Texas. During the fourth quarter of 1995, the partnership decided not
to go forward with the project as designed due to various factors including a
dispute with a major tenant. Accordingly, the partnership expensed approximately
$4.2 million of previously capitalized pre-development costs in 1995. The
partnership is presently exploring various options for the land. (See Note 8).
South Bayshore Associates. A 75% owned venture of which the major asset is a
receivable from the Company's venture partner.
HMG - Fieber Associates. A 65% owned venture of which the major assets are
commercial properties located in the northeastern United States. (See Note 4).
(18)
<PAGE>
HMG Sugargrove, Inc. A wholly-owned Texas corporation of which the major asset
is an 8 acre parcel of land in Houston, Texas, held for development.
T.E.H.H. Corp. A wholly-owned Texas corporation of which the major asset is a
99% limited partnership interest in CourTrust Palm Bay, Ltd. which owns 1.5
acres of undeveloped land in Palm Bay, Florida. In the first quarter of 1996,
the land was sold and the Company recognized a net loss of approximately
$54,000. T.E.H.H. and CourTrust Palm Bay, Ltd. were dissolved in 1996.
HMG Fashion Square, Inc. A wholly-owned Florida corporation of which the major
asset is a 90% partnership interest in Fashion Square Partnership which owns a
shopping center on an 11.5 acre site in Jacksonville, Florida. As of December
31, 1996, this shopping center has three tenants each operating restaurants. The
remaining portion of the center is anticipated to be leased or developed.
Unconsolidated entities are discussed in Note 3.
The following table summarizes the Company's portfolio of real estate
investments as of December 31, 1996:
Percent of
Geographic Distribution Investments (1)
Florida 60%
Texas 34%
Northeastern United States (2) 6%
------
100%
======
Type of Property (3)
Undeveloped land 35%
Hotel and club facility 41%
Individual retail stores 5%
Yacht slips 9%
Restaurants 10%
-----
100%
======
-----------------
(1) For each category, the aggregate of cost less accumulated
depreciation divided by the aggregate of such investments in all
real estate owned directly by the Company or by joint ventures in
which the Company has a majority interest. The Company's minority
interests in joint ventures are not included in the above.
(2) New York, Massachusetts, Maine and Vermont.
(3) Based on predominant present or intended use.
Preparation of Financial Statements.
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.
(19)
<PAGE>
Income Taxes. The Company qualifies as a real estate investment trust and
distributes its taxable operating income to stockholders in conformity with
requirements of the Internal Revenue Code. In addition, net operating losses can
be carried forward to reduce future taxable income but cannot be carried back.
The Company intends to distribute any of its future taxable operating income and
is not taxed on the amounts distributed. Distributed capital gains on sales of
real estate are not subject to taxes; however, undistributed capital gains are
taxed as capital gains. State income taxes are not significant.
Any benefit from or provisions for income taxes relates solely to taxable losses
or income of CII which is not consolidated with the Company for income tax
purposes and accordingly files a separate tax return. Refer to Note 6 for
further disclosure on income taxes.
Depreciation and Amortization. Depreciation of properties held for investment is
computed using the straight-line method over the estimated useful lives of the
properties, which range up to 39.5 years. Deferred mortgage and leasing costs
are amortized over the shorter of the respective term of the related
indebtedness or life of the asset. Depreciation expense for the years ended
December 31, 1996, and 1995 was approximately $1,099,000, and $1,052,000,
respectively. Amortization expense for the years ended December 31, 1996 and
1995 was $53,000 and $296,000, respectively.
Fair Value of Financial Instruments. The carrying value of financial instruments
including investments in and receivables from unconsolidated entities, notes and
advances due from related parties, accounts payable and accrued expenses and
mortgages and notes payable approximate their fair values at December 31 1996.
Investment Properties. The Company reviews the carrying values of its investment
properties for possible impairment whenever events or changes in circumstances
indicate that the true carrying amount of the asset may not be recoverable. Any
long-lived assets held for sale are reported at the lower of their carrying
amounts or fair values less cost to sell.
Earnings (Loss) Per Common Share. Earnings (loss) per share are computed based
upon the weighted-average number of shares outstanding during the period. Stock
options outstanding did not have a dilutive effect or were immaterial in all
years presented. The weighted average number of common shares outstanding for
all of the years presented was 1,166,835.
Gain on Sales of Real Estate. Gain on sales of real estate has been reduced,
where applicable, by minority partners' interest in the gain of $975,000 and
$540,000 and advisor's incentive fees of $165,000 and $106,000 for the years
ended December 31, 1996 and 1995, respectively.
Cash and Cash Equivalents. For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid investments with a maturity of
three months or less to be cash and cash equivalent.
Restricted Cash. Restricted cash consists of the $1 million "initial payment"
received by Grove Isle Associates, Ltd. (GIA), in connection with the lease of
the Grove Isle Facility (see Note 9). The use of these funds is restricted in
accordance with the Master Agreement between GIA and its tenant Westgroup. GIA
is obligated to provide to Westgroup, upon receipt of required documentation,
necessary funds drawn from the "initial payment" for capital improvements and to
cover any operating shortfalls, as defined.
Reclassifications. Certain amounts in prior year's consolidated financial
statements have been reclassified to conform to the current year's presentation.
(20)
<PAGE>
Minority Interest. Minority interest represents the minority partners'
proportionate share of the equity of the Company's majority owned subsidiaries.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Minority interest balance at beginning of year $614,000 $4,817,000
Reduction of minority interest due to dissolution of
Partnership -- (621,000)
Minority partners' interest in operating gains of consolidated
subsidiaries (183,000) (1,421,000)
Minority partners' interest in net gain on sales of real estate
of consolidated subsidiaries 975,000 540,000
Distributions to minority partners, net of contributions and
note receivable from minority partner (1,297,000) (2,714,000)
Other 13,000 13,000
---------- ----------
Minority interest balance at end of year $122,000 $614,000
======== ========
</TABLE>
Long-Lived Assets. The Company adopted the provision of FASB No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," in 1996. The adoption of FASB No. 121 did not have a material
effect on the carrying value of the Company's long-lived assets.
Stock-Based Compensation. In October 1995, FASB issued SFAS No. 123, "Accounting
for Stock- Based Compensation." SFAS No. 123 establishes a fair value method for
accounting for stock-based compensation plans either through recognition or
disclosure. The Company did not adopt the fair value based method but instead
will disclose the proforma effects of the calculation required by the statement.
Revenue Recognition. The Company is the lessor of various real estate. All of
the lease agreements are classified as operating leases and accordingly all
rental revenue is recognized as earned based upon total fixed cash flow over the
initial term of the lease, using the straight line method. Percentage rents are
based upon tenant sales levels for a specified period. Reimbursed expenses for
real estate taxes, common area maintenance, utilities and insurance are
recognized in the period in which the expenses are incurred, based upon the
provisions of the tenant's lease.
(21)
<PAGE>
2. INVESTMENT PROPERTIES
The components of the Company's properties and the related accumulated
depreciation information follow:
<TABLE>
<CAPTION>
December 31, 1996
Accumulated
Cost Depreciation Net
<S> <C> <C> <C>
Commercial and Industrial Properties
Land $1,365,282 $1,365,282
Buildings and improvements 3,309,092 1,629,585 1,679,507
--------- --------- ---------
4,674,374 1,629,585 3,044,789
--------- --------- ---------
Hotel and Club Facility
Land 1,338,518 1,338,518
Hotel/ club facility and improvements 6,890,309 1,147,028 5,743,281
Furniture, fixtures & equipment 2,196,131 1,191,311 1,004,820
--------- --------- ---------
10,424,958 2,338,339 8,086,619
---------- --------- ---------
Yacht Slips 1,708,307 1,708,307
--------- --------- ---------
Land Held for Development 6,712,173 6,712,173
--------- --------- ---------
Total $23,519,812 $3,967,924 $19,551,888
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Accumulated
Cost Depreciation Net
<S> <C> <C>
Commercial and Industrial Properties
Land $1,092,868 $1,092,868
Buildings and improvements 2,840,421 $1,963,971 876,450
--------- --------- -------
3,933,289 1,963,971 1,969,318
--------- --------- ---------
Hotel and Club Facility
Land 1,338,518 1,338,518
Hotel/ club facility and improvements 6,930,547 702,823 6,227,724
Furniture, fixtures & equipment 2,077,087 671,959 1,405,128
--------- ------- ---------
10,346,152 1,374,782 8,971,370
---------- --------- ---------
Yacht Slips 1,689,283 1,689,283
--------- --------- ---------
Land Held for Development 8,103,304 8,103,304
--------- --------- ---------
Real Estate Development in Progress
Shopping center (Jacksonville, FL) 1,204,390 1,204,390
--------- --------- ---------
Total $25,276,418 $3,338,753 $21,937,665
=========== ========== ===========
</TABLE>
(22)
<PAGE>
3. INVESTMENTS IN AND RECEIVABLES FROM UNCONSOLIDATED ENTITIES
As of December 31, 1996, the Company's investments in and receivables from
unconsolidated entities primarily consisted of CII's 49% equity interest in
T.G.I.F. Texas, Inc. (T.G.I.F.) and CII's other investments.
CII owns 49% of the outstanding common stock of T.G.I.F., a publicly-held Texas
corporation engaged in the business of owing net leased properties in Texas and
Louisiana, which is accounted for under the equity method. CII's other
investments primarily consist of investments in four partnerships whose primary
purpose is to make equity investments in growth oriented enterprises. CII's
ownership interest in each of these partnerships is less than 3%. The carrying
values of all investments in and receivables from unconsolidated entities are
carried at the lower of cost or market.
Carrying Values as of December 31,
Description 1996 1995
T.G.I.F. Texas, Inc. $1,669,180 $1,656,131
Various Others 1,419,745 782,879
---------- ----------
$3,088,925 $2,439,010
========== ==========
4. NOTES AND ADVANCES DUE FROM AND TRANSACTIONS WITH RELATED PARTIES
The Company has an agreement (the "Agreement") with Courtland Group, Inc. (the
"Advisor") for its services as investment advisor and administrator of the
Company's affairs. All officers of the Company who are officers of the Advisor
are compensated solely by the Advisor for their services. The Agreement is
renewable annually upon the approval of a majority of the directors of the
Company who are not affiliated with the Advisor and a majority of the Company's
shareholders. The contract may be terminated at any time on 120 days written
notice by the Advisor or upon 60 days written notice by a majority of the
unaffiliated directors of the Company or the holders of a majority of the
Company's outstanding shares.
Under the Agreement, as amended at the Company's 1992 Annual Meeting of
Shareholders, the Advisor is entitled to receive a monthly fee of $72,917. The
Advisor is entitled to a monthly fee of 20% of the amount of any unrefunded
commitment fees received by the Company with respect to mortgage loans and other
commitments which the Company was not required to fund and which expired within
the next preceding calendar month. The Advisor is also entitled to an annual
incentive compensation equal to the sum of 10% of net realized capital gains and
extraordinary items of income for that year and 10% of the amount, if any, by
which net profits of the Company for such fiscal year exceeded 8% per annum of
the Average Net Worth of the Company, as defined.
During 1996 and 1995, $1,067,000 and $1,063,000, respectively, was earned by the
Advisor as advisory fees of which approximately $192,000 and $188,000,
respectively, were for incentive compensation. The Advisor also received
management fees from certain affiliates of the Company in the amount of
approximately $30,000 and $44,000 in 1996 and 1995, respectively.
At December 31, 1996, the Company had amounts due from the Advisor of $417,000
and $194,000, respectively. These amounts bear interest at prime plus 1% and are
due on demand.
(23)
<PAGE>
During 1988, the Company sold its interest in a 49% owned real estate investment
company to Transco Realty Trust (Transco), a publicly-held 41% shareholder of
the Company. The Company has notes receivable and convertible debentures due
from this real estate investment company. The notes totaling $236,235 bear
interest at prime plus 2% and are due on demand, and the debentures totaling
$318,035 bear interest at 8% and matured in 1996. The debentures maturity date
is presently being negotiated. In 1991, the Company began recognizing interest
income on these notes as payments are received. No payments were received in
1996 and 1995.
The Company also has a note receivable from Transco of $300,000 plus accrued
interest of $125,000 and $120,000 as of December 1996 and 1995, respectively.
This note bears interest at the prime rate and is due on demand.
Mr. Wiener, Chairman of the Company, is an 18% shareholder and an officer and
director of T.G.I.F. Texas, Inc., a 49% owned affiliate of CII (See Note 3). As
of December 31, 1996, T.G.I.F. has amounts due from Mr. Wiener in the amount of
approximately $60,000. These amounts are due on demand and bear interest at the
prime rate. Furthermore, the Advisor receives a management fee of $18,000 per
year from T.G.I.F. In December 1996, T.G.I.F. purchased 10,000 shares of the
Company's stock at $5 per share, the market value at the time.
In 1992, CII and certain directors and officers of the Company, acquired a 27%
interest in Jack Baker 5th Avenue, Inc. and its affiliates. In 1993, that 27%
interest was increased to 85% in which CII has a 59% interest and certain
directors and officers of the Company have a 41% interest. In 1996, CII wrote
off the remaining balance of its investment in and loans from Jack Baker in the
amount of approximately $46,000.
In October 1996, it was brought to the Company's attention that Mr. Lee Gray
(then President, Treasurer and Director of the Company, "Gray") failed to
disclose his interest, through a partnership of his and his sister's, in a 35%
joint venture partner in HMG-Fieber Associates. Additionally, another director
(Mr. Norman Fieber, "Fieber"), who had an interest in the joint venture partner,
failed to disclose Gray's interest in such partnership. In November 1996, the
Company appointed a Special Committee of the Board to review Gray's and Fieber's
failure to disclose the interest in the joint venture partner. During the course
of the inquiry it was discovered that Gray also failed to disclose an interest
in the Company's 66 2/3% joint venture partner in another joint venture which
operated through 1992. Based on the report of the Special Committee in March
1997, the Board concluded that Gray and Fieber breached their fiduciary duties
to the Company by failing to disclose Gray's interest in the joint ventures. The
Board removed Gray as President and Treasurer of the Company and is claiming
damages up to approximately $1.1 million. Both Gray and Fieber refused to resign
as directors of the Company. The Board has determined that neither of them will
be nominated for re-election as directors. No amount of the claim has been
included in the accompanying financial statements.
(24)
<PAGE>
5. NOTES, MORTGAGES AND OTHER PAYABLES
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Collateralized by Investment Properties (Note 2)
Land Held for Development:
Mortgage loan payable, interest at 9% payable
quarterly with quarterly principal payments of
$12,776, matures July 1998. $1,088,955 $1,385,453
Mortgage loan payable, interest at 1% over prime
(9.25% at December 31, 1996) payable monthly.
Principal due at maturity on July 1997. 890,000 1,040,000
Mortgage loan payable, interest at prime plus
1.75% (10% at December 31, 1996) payable
monthly with all principal due June 1997. 431,104 431,104
Mortgage loan payable, interest fixed at 9.75%
payable quarterly with principal payments of
$15,867 due each February 1st and a balloon
payment due February 1998. 165,033 180,900
Mortgage loan payable, interest at prime plus 1.75%
(10% at December 31, 1996) payable monthly. The
balance of the outstanding principal was paid in December 1996. -- 500,000
Note Payable to bank, interest at the prime rate
plus 1% (9.25% as of December 31, 1996).
Balance of outstanding principal and accrued
interest matured and was paid in January 1997. 350,000 --
Joint Venture owning retail centers:
Mortgage loan payable requiring monthly
payments of principal and interest of $2,895 at
10% interest rate.
Note matured in 1984 (1). 62,852 89,790
Partnerships owning hotel and club facility and Yacht Slips:
Mortgage loan payable with interest at prime plus 2% (10.5%)
at December 31, 1996. Payments of interest only through June
1995, thereafter, 20 year amortization of principal with all
outstanding principal due September 2000. 4,322,601 4,398,320
---------- ----------
Balance brought forward: $7,310,545 $8,025,567
---------- ----------
</TABLE>
(25)
<PAGE>
5. NOTES, MORTGAGES AND OTHER PAYABLES (continued)
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Balance brought forward: $7,310,545 $8,025,567
Limited partnership owning ground lease:
Mortgage loan payable interest fixed at 9.75%
payable monthly with principal due at
maturity in November 1997. 300,000 300,000
Note payable to individual with interest rate fixed
at 8%. Payment of principal and interest
quarterly, with maturity in May 1998. 18,538 --
Other:
Note payable to affiliate, interest at prime (8.25%
at December 31, 1996) payable annually in
January. Principal outstanding due on demand. 2,455,312 579,599
---------- -----------
$10,084,395 $8,905,166
----------- ----------
<FN>
(1) The Company has continued to make principal and interest payments on
this mortgage. No request for full payment has been made by the lender.
</FN>
</TABLE>
(26)
<PAGE>
A summary of scheduled principal repayments or reductions for all types of notes
and mortgages payable is as follows:
Year ending December 31, Amount
1997 $4,669,797
1998 1,270,975
1999 103,778
2000 4,039,845
2001 --
-----------
Total $10,084,395
===========
The 1997 principal repayments are expected to be satisfied with proceeds from
sales of real estate, distributions from investments, available cash or such
debt may be refinanced.
6. INCOME TAXES
The Company's income tax benefit or provision is solely attributable to CII
which files a separate tax return. Deferred tax assets and liabilities reflect
the impact of temporary differences between amounts of assets and liabilities
for financial reporting purposes and the bases of such assets and liabilities as
measured by income tax law. A valuation allowance is recognized to reduce
deferred tax assets to the amounts more likely than not to be realized. As of
December 31, 1996 and 1995, the components of the deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
As of December 31, 1996 As of December 31, 1995
Deferred tax Deferred tax
Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Net operating loss carryforward $ 3,104,000 $ 1,619,000
Membership dues deferred for
book purposes and recognized
when received for tax purposes 174,000
Excess of book basis of 49%-owned
corporation over tax basis $ 142,000 $ 137,000
Excess of tax basis of 49%-owned
corporation over book basis 115,000
Other 196,000 55,000 127,000 43,000
Valuation allowance (3,103,000) (1,855,000)
----------- ----------- ----------- -----------
Totals $ 197,000 $ 197,000 $ 180,000 $ 180,000
=========== =========== =========== ===========
</TABLE>
The change in the valuation allowance between December 31, 1996 and 1995 was an
increase of $1,248,000.
There is no provision or benefit necessary for income taxes for the years ended
December 31, 1996 and 1995.
(27)
<PAGE>
7. STOCK-BASED COMPENSATION
At December 31, 1996, the Company has a fixed stock option plan which is
described below. The Company applies APB Opinion 25, Accounting for Stock Issued
to Employees, and related Interpretations in accounting for the plan. Under APB
Opinion 25, if the exercise price of the Company's employee stock options equals
or exceeds the market price of the underlying stock on the date of grant, no
compensation is recognized.
In July 1991, the shareholders approved the 1990 Stock Option Plan (which
expires in 2001) for the issuance of options to the officers and directors of
the Company. Under the 1990 Plan, options were authorized to be granted to
purchase 120,000 common shares at no less than 100% of the fair market value at
the date of grant. Options may be exercised at any time within ten years from
the date of grant and are not transferable. Options expire upon termination of
employment, except to a limited extent in the event of retirement, disability or
death of the optionee.
FASB Statement 123, Accounting for Stock-Based Compensation, requires the
Company to provide proforma information regarding net income and net income per
share as if compensation cost for the Company's stock option plan had been
determined in accordance with the fair value based method prescribed in FASB
Statement 123. There were no options granted during the years ended December 31,
1996 and 1995, and therefore, under the accounting provisions of FASB Statement
123, the Company's net loss and loss per share did not differ.
A summary of the status of the Company's fixed stock option plan as of December
31, 1996 and 1995, and changes during the years ending on those dates are
presented below:
<TABLE>
<CAPTION>
As of December 31, 1996 As of December 31, 1995
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 105,000 $5.20 105,000 $5.20
Granted -- -- -- --
Exercised -- -- -- --
Forfeited -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 105,000 $5.20 105,000 $5.20
- ---------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 105,000 $5.20 105,000 $5.20
Weighted average fair value of -- -- -- --
options granted during the year
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(28)
<PAGE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------- -----------------------------------
Weighted-
Average
Number Remaining Weighted- Number Weighted-
Range of outstanding at Contractual Average Exercisable Average
Exercise Prices 12/31/96 Life Exercise Price at 12/31/96 Exercise Price
- ------------------- ------------------- ---------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
$3.75 - $5.50 105,000 3.9 $5.20 105,000 $5.20
</TABLE>
8. ABANDONMENT OF PRE-DEVELOPMENT COSTS
During the fourth quarter of 1995, the Grove Towne Center-Texas, Ltd. decided
not to go forward with the project as designed due to various factors including
a dispute with a major tenant. Accordingly, in 1995 the partnership expensed
approximately $4.2 million of previously capitalized pre-development costs.
Included in the $4.2 million of pre-development costs were developer fees and
expenses, interest and loan costs, real estate taxes, legal and professional
fees, marketing/advertising and other leasing-related costs.
9. LEASE OF GROVE ISLE FACILITY
In November 1996, GIA terminated its lease with GICI and entered into a
long-term lease with an unrelated tenant, Westgroup Grove Isle Associates, Ltd.
("Westgroup"). GIA and GICI also entered into a Master Agreement with Westgroup
whereby among other things Westgroup assumed the operations of the Grove Isle
hotel and club.
The leased premises include all real property and all furniture, furnishings,
fixtures, appliances and other equipment used in connection with the operation
of the Grove Isle hotel, resort and membership club. The initial term of the
lease is ten years and calls for annual net base rent of $880,000 plus real
estate taxes and property insurance, payable in monthly installments. The lease
also calls for an "initial payment" (as defined) of $1,000,000. The "initial
payment" of $1,000,000 was paid by Westgroup to GIA on November 19, 1996 and the
use of these funds is restricted in accordance with the Master Agreement between
GIA and Westgroup. GIA is obligated to provide to Westgroup, upon receipt of
required documentation, necessary funds drawn from the "initial payment" for
capital improvements made to the Grove Isle property and to cover any operating
shortfalls, as defined. In addition to the initial payment and net base rent,
Westgroup shall also pay GIA participation rent consisting of a portion of
Westgroup's operating surplus, as defined in the lease agreement. Participation
rent is due at end of each lease year. In consideration for GICI, relinquishment
of its rights in and to the original lease with GIA, GIA agreed to pay to GICI
the sum of $200,000 for each year that the Westgroup lease is in good standing
and has also assigned to GICI the aforementioned participation rent due from
Westgroup. This sum is payable annually commencing in November 1997.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. There has not been any disagreement with the Company's
accountants withing the 24 months prior to the date of the most recent financial
statements concerning any matter of accounting principles or practice or
financial statement disclosure.
(29)
<PAGE>
Part III.
Item 9. Directors. Executive Officers and Control Persons.
Listed below is certain information relating to the executive officers and
directors of the Company:
<TABLE>
<CAPTION>
Principal Occupation and Employment other than With the
Company During the Past Five
Name and Office Age Years - Other Directorships
<S> <C> <C>
Maurice Wiener; Chairman of the 55 Chairman of the Board and Chief Executive Officer of the
Board of Directors, President and Advisor; Executive Trustee, Transco; Director, TGIF Texas, Inc.;
Chief Executive Officer Trustee, PRA Real Estate Securities Fund. (1)
Lawrence I. Rothstein; Senior 44 President , Secretary and Director of the Advisor ; Vice President,
Vice President, Treasurer and Transco. (2)
Secretary
Carlos Camarotti; Vice President- 36 Vice President - Finance and Assistant Secretary of the Advisor.
Finance and Assistant Secretary
Bernard Lerner; Vice President 54 Vice President of the Advisor.
Walter Arader; Director 77 President, Arader, Herzig and Associates Inc. (financial
management consultants); Director, Pep Boys-Manny, Moe &
Jack; Director, Unitel Video; Former Secretary of Commerce,
Commonwealth of Pennsylvania. (3)
Harvey Comita; Director 67 President and Director of Pan-Optics, Inc. (1971-1991); Director of
Mediq, Incorporated (1981-1991); Trustee of Transco Realty Trust.
John B. Bailey; Director 70 Real Estate Consultant; Retired CEO, Landauer Associates, Inc.
(Real Estate Consultants) (1977-1988).
Gustav S. Eyssell; Director 95 Real Estate Consultant; Director of the Advisor.
Norman Fieber; Director 67 Real Estate Developer; Partner in Stonegate Development Corp. (4)
Lee Gray; Director 67 President and Director, Chartcraft, Inc.; Trustee and Treasurer,
Transco; Director, LCS Industries, Inc. (5)
<FN>
--------------------
(1) As of April 2, 1997, Mr. Wiener was appointed to serve as President of the
Company.
(2) As of April 2, 1997, Mr. Rothstein was appointed to serve as Treasurer of
the Company. As of April 3, 1997, Mr. Rothstein (previously Senior Vice
President of the Advisor) was appointed to serve as President and Director
of the Advisor.
(3) As of April 2, 1997, Mr. Arader was appointed to service as a member of the
Audit Committee of the Company.
(4) As of April 2, 1997, Mr. Fieber was removed as a member of the Audit
Committee of the Company. Mr. Fieber will not be nominated for reelection
as a director of the Company at the Company's upcoming 1997 Annual Meeting
of Shareholders. Reference is made to Item 12. Certain Relationship and
Related Transactions for further information regarding the failure of Mr.
Fieber to disclose Mr. Gray's interest in NAF, the inquiry into that
failure by a Special Committee appointed by the Board of Directors and the
actions taken by the board of Directors of the Company as a result of that
inquiry.
(5) As of April 2, 1997, Mr. Gray was removed as President, Treasurer and a
member of the Audit Committee of the Company. Mr. Gray will not be
nominated for reelection as a director of the Company at the Company's
upcoming 1997 Annual Meeting of Shareholders. Reference is made to Item 12.
Certain Relationships and Related Transactions for further information
regarding the failure of Mr. Gray to disclose his interest in NAF, the
inquiry into that failure by a Special Committee appointed by the Board of
Directors and the actions taken by the Board of Directors of the Company as
a result of that inquiry. As of April 3, 1997, Mr. Gray was removed as
President and Director of the Advisor.
</FN>
</TABLE>
(30)
<PAGE>
Except as previously discussed, all executive officers of the Company were
elected to their present positions to serve until their successors are elected
and qualified at the 1996 annual organizational meeting of directors immediately
following the annual meeting of shareholders. All directors of the Company were
elected to serve until the next annual meeting of shareholders and until the
election and qualification of their successors.
Item 10. Executive Compensation.
Executive officers received no cash compensation from the Company in their
capacity as executive officers. Reference is made to Item 1. Business and Item
6. Management's Discussion and Analysis or Plan of Operation for information
concerning fees paid to the Advisor.
Compensation of Directors. Each Director receives an annual fee of $5,000, plus
expenses and $500 per each Board of Directors meeting attended. Furthermore,
Messrs. Wiener and Gray each receive $4,000 a year in directors' fees from CII.
Stock Options. In July 1991, the shareholders approved the 1990 Stock Option
Plan (the "Plan"). The Plan, which is non-qualified and expires in 2001, is
intended to provide incentives to the directors and employees (the "employees")
of the Company as well as to enable the Company to obtain and retain the
services of such employees. The Plan is administered by a Stock Option Committee
(the "Committee") appointed by the Board of Directors. The Committee selects
those key officers and employees of the Company to whom options for shares of
common stock of the Company shall be granted. The Committee determines the
purchase price of shares deliverable upon exercise of an option; such price may
not, however, be less than 100% of the fair market value of a share on the date
the option is granted. Payment of the purchase price may be made in cash,
Company stock, or by delivery of a promissory note, except that the par value of
the stock must be paid in cash or Company stock. Shares purchased by delivery of
a note must be pledged to the Company. Shares subject to an option may be
purchased by the optionee within ten years from the date of the grant of the
option. However, options automatically terminate if the optionee's employment
with the Company terminates other than by reason of death, disability or
retirement. Further, if, within one year following exercise of any option, an
optionee terminates his employment other than by reason of death, disability or
retirement, the shares acquired upon exercise of such option must be sold to the
Company at a price equal to the lesser of the purchase price of the shares or
their fair market value.
As of December 31, 1996, 105,000 options have been granted, of which none have
been exercised, and 15,000 options are reserved for issuance under the Plan, of
which none have been granted.
(31)
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Set forth below is certain information concerning common stock ownership by
directors, directors and officers as a group, and holders of more than 5% of the
outstanding common stock.
<TABLE>
<CAPTION>
Shares Held as of March 21, 1997
Additional Shares in
Which the named
Shares Owned by Person Has, or
Named Persons & Participates in, the
Members of His Voting or Total Shares &
Name Family(1) Investment Power(2) Percent of Class
<S> <C> <C> <C> <C>
Maurice Wiener 35,100 (4) 531,830 (3) 566,930 45% (3), (4)
Lee Gray 58,000 (4) 531,830 (3) 589,830 46% (3), (4)
Norman Fieber 5,700 (4) 0 5,700 (4)
Walter G. Arader 12,800 (4) 0 12,800 (4) *
John B. Bailey 7,100 (4) 0 7,100 (4) *
Gustav S. Eyssell 6,400 (4) 54,530 60,930 5% (4)
Harvey Comita 5,000 (4) 0 5,000 (4) *
All 11 Directors and 165,100 (4) 531,830 696,930 55% (4)
Officers as a Group
Transco Realty Trust 477,300 (5) 0 477,300 37% (5)
2701 S. Bayshore Drive
Coconut Grove, FL 33133
Maurice A. Halperin 133,500 0 133,500 10%
Barry S. Halperin
441 South Federal Highway
Deerfield Beach, FL 33441
* Less than 1 %
-------------
<FN>
(1) Unless otherwise indicated, beneficial ownership is based on sole voting
and investment power.
(2) Other than with respect to the shares described in footnote 6 below, shares
listed in this column represent shares held by entities with which
directors or officers are associated. Directors, officers and members of
their families have no ownership interest in these shares.
(3) This number includes the number of shares held by Transco Realty Trust
(477,300 shares) and Courtland Group, Inc. (54,530 shares). Of those shares
owned by Transco Realty Trust, 24,350 shares have been pledged to a
brokerage firm pursuant to a margin agreement. Several of the directors of
the Company are directors, trustees, officers or shareholders of certain of
those firms.
(4) This number includes options granted under the 1990 Stock Option Plan, none
of which have been exercised. These options have been granted to Mr.
Wiener, 30,000; Mr. Gray, 25,000; 5,000 each to Mr. Arader, Mr. Bailey, Mr.
Eyssell, Mr. Fieber, and Mr. Comita; and a total of 25,000 to three
officers who are not directors. Reference is made to Item 10. Executive
Compensation for further information about the 1990 Stock Option Plan.
(5) Messrs. Wiener and Gray each hold approximately 24%, respectively, of the
stock of Transco and may therefore be deemed to be the beneficial owners of
the shares of the Company held by Transco.
</FN>
</TABLE>
(32)
<PAGE>
Item 12. Certain Relationships and Related Transactions. The following
discussion describes the organizational structure of the Company's subsidiaries
and affiliates.
Transco Realty Trust ("Transco").
Transco is a publicly-held 41% shareholder of the Company.
Mr. Wiener is the executive trustee and Mr. Gray is a trustee and treasurer
of Transco and they each hold approximately 24% of Transco's stock.
Courtland Group, Inc. (the "Advisor").
Mr. Wiener is a director and officer of the Advisor, which owns 21% of
Transco's stock and owns approximately 4% of the Company's common stock.
Mr. Wiener is Chairman of the Board and a 40% shareholder of the Advisor
and Mr. Gray and Mr. Eyssell are 40% and 14% shareholders, respectively, of
the Advisor of which Mr. Eyssell serves on the Board of Directors
Courtland Investments, Inc. ("CII").
The Company owns a 95% non-voting interest in CII. The other 5% (which
represents 100% of the voting stock) is owned by a wholly-owned subsidiary
of Transco.
CII and its wholly-owned subsidiary own 100% of Grove Isle Club, Inc.,
Grove Isle Yacht Club Associates and Grove Isle Marina, Inc. CII also owns
60% of Grove Isle Associates, Ltd., and the other 40% is owned by the
Company.
HMG-Fieber Associates ("Fieber").
The Company also owns a 65% interest in Fieber and the other 35% is owned
by NAF Associates ("NAF"). The partners in NAF include the following
related parties: Mr. Fieber, a director of the Company (33.62%), Mr.
Fieber's son, James A. Fieber, (1.08%), Mr. Fieber's brother Stanley S.
Fieber, M.D. (7.59%), and Martine Avenue Associates (Martine), a New York
general partnership in which Mr. Gray, an officer and director of the
Company, and Mr. Gray's sister are the partners (13.02%).
The following discussion describes all material transactions, receivables and
payables involving related parties. All of the transactions described below were
on terms as favorable to the Company as comparable transactions with
unaffiliated third parties.
The Advisor.
The day-to-day operations of the Company are handled by the Advisor, as
described above under Item 1. Business "Advisory Agreement." Reference is
made to Item 1. Business and Item 6. Management's Discussion and Analysis or
Plan of Operation for further information about the remuneration of the
Advisor.
As of December 31, 1996 and 1995, the Advisor owed the Company $417,000 and
$194,000, respectively. Such sums bear interest at the prime rate plus 1% and
are due on demand.
(33)
<PAGE>
Transco.
As of December 31, 1996, the Company has a note and accrued interest
receivable from Transco of $425,000 compared to $420,000 as of December 31,
1995. This note bears interest at the prime rate and is due on demand.(See
Item 1. Business- South Bayshore Associates).
The Company has advances and debentures receivable from HMG Investment
Corp., a wholly-owned subsidiary of Transco, which amount to approximately
$236,000 and $318,000, bear interest at 8% and at the prime rate plus 2%
and are due on demand. No payments were received in 1996 or 1995 and
accrued and unpaid interest is not being capitalized.
CII - T.G.I.F. Texas, Inc.
CII owns approximately 49% of the outstanding shares of T.G.I.F. Texas,
Inc. ("T.G.I.F.") Mr. Wiener is a director and officer of T.G.I.F and owns,
directly and indirectly, approximately 18% of the outstanding shares of
T.G.I.F. In the fourth quarter of 1996, T.G.I.F. purchased 10,000 shares of
the Company at $5 per share which was the market value at the time. The
Advisor receives a management fee of $18,000 per year from T.G.I.F.
As of December 31, 1996 and 1995, CII owed approximately of $2,455,000 and
$580,000, respectively to T.G.I.F., including accrued interest. All
advances between CII and T.G.I.F. are due on demand and bear interest at
the prime rate plus 1%.
CII- Grove Isle.
In 1986, CII acquired from the Company the rights to develop the marina at
Grove Isle for a promissory note of $620,000 payable in 10 years at an
annual interest rate equal to the prime rate. The principal matures on
January 2, 2001. Interest payments are due each January 2. Because the
Company consolidates CII, the note payable and related interest income are
eliminated in consolidation.
HMG-Fieber Wallingford Associates.
In April of 1986, James A. Fieber, Trustee, acting for The Fieber Group
purchased from the Company a two-thirds interest in a store located in
Wallingford, Connecticut leased to Grossman's, Inc. for $233,000 based on
the appraised value of the store, less existing indebtedness. Subsequently,
on July 1, 1986, the Company purchased from Transco its 8 1/3% interest in
the Wallingford store and concurrently entered into an agreement with The
Fieber Group creating the joint venture titled HMG-Fieber Wallingford
Associates, owned two-thirds by James A. Fieber, Trustee, acting for The
Fieber Group, and one-third by the Company. Partners in The Fieber Group
included the following related parties: Norman A. Fieber, a Director of the
Company, James Fieber (Norman A. Fiebers' son) and Martine Avenue
Associates, a New York general partnership in which Mr. Gray, an officer
and director of the Company, and Mr. Gray's sister are the partners
(13.02%).
HMG-Fieber Associates ("Fieber").
On June 30, 1986, the Company purchased from Transco its 25% interest in
certain retail stores located in Connecticut, Maine, Massachusetts, New
Hampshire, New York, Pennsylvania, Rhode Island and Vermont and owned by
South Bayshore Associates, a joint venture owned 75% by the Company and 25%
by Transco. These stores were leased to Grossman's, Inc, a chain of home
improvement stores, under net leases, most of which provided for minimum
and percentage rent payments. The purchase price paid the Company was
$1,500,000 plus the assumption of liabilities of $660,355. Concurrently,
the Company sold to NAF a 35% interest in the Grossman's stores for a price
of approximately $2,100,000 plus the assumption of liabilities of $924,497,
and entered into an agreement with NAF creating the joint venture titled
HMG-Fieber Associates. The purchase price of Transco's 25% interest and of
NAF's 35% interest were based on the appraised value of the Grossman's
stores, less existing indebtedness. NAF is a Connecticut general
partnership, the partners of which include the following related parties:
Mr. Fieber, a director of the Company (33.62%), James A. Fieber, Mr.
Fieber's son (1.08%), Stanley S. Fieber, M.D.,
(34)
<PAGE>
Mr. Fieber's brother (7.59%), and Martine Avenue Associates, a New York
general partnership in which Mr. Gray, an officer and director the Company,
and Mr. Gray's sister are the partners (13.02%).
Inquiry Relating to HMG-Fieber Wallingford Associates and HMG-Fieber Associates.
On November 15, 1996, the Board of Directors appointed a Special Committee of
the Board to review Mr. Lee Gray's failure to disclose his interest, through
Martine Avenue Associates ("Martine"), a partnership of Mr. Gray and his
sister, in NAF Associates ("NAF"), the Company's 35% joint venture partner in
HMG-Fieber Associates ("Fieber"), as well as Mr. Norman A. Fieber's failure
to disclose Mr. Gray's interest in NAF. Mr. Gray's interest in NAF first came
to the attention of the Company in October of 1996. During the course of the
inquiry, it was discovered that Mr. Gray also had an interest in The Fieber
Group, the Company's 66 2/3% joint venture partner in HMG-Fieber Wallingford
Associates (Wallingford), which venture operated from 1986 to 1992, and that
James A. Fieber, Mr. Fieber's son, and Stanley Fieber, Mr. Fieber's brother,
were also partners in NAF.
As a result of the inquiry, it was determined that in 1986, Mr. Gray, through
Martine, acquired a 13.02% interest in NAF and a 20% interest in The Fieber
Group, but did not then or at any time since disclose those interests to the
Board of Directors of the Company. Mr. Fieber, a partner in both NAF and The
Fieber Group, also failed to disclose Mr. Gray's interests in NAF and The
Fieber Group.
A special meeting of the Board of Directors was held on March 21, 1997, at
which the Board considered the report of the Special Committee. Based on the
Special Committee's report and in consultation with counsel, the Board
concluded that Mr. Gray breached his fiduciary duty to the Company and to the
Advisor by failing to disclose his interest in NAF and Wallingford, and that
Mr. Fieber breached his fiduciary duty to the Company and assisted Gray by
failing to disclose Mr. Gray's interest in NAF and Wallingford. Based on
information available to the Company to date, it appears that, through
December 31, 1996, Mr. Gray derived a benefit of approximately $936,926 from
Fieber and approximately $193,670 from Wallingford.
The Board requested the resignation of Mr. Gray as President, Treasurer,
Director and as a member of the Audit Committee; requested the resignation of
Mr. Fieber as a Director and member of the Audit Committee; and requested
that the Board of Directors of the Advisor consider requesting the
resignation of Mr. Gray as President, Treasurer and Director of the Advisor.
Lee Gray has been removed as President and Treasurer of the Company and as a
member of the Audit Committee and as President and a Director of the Advisor.
Mr. Gray has refused to resign as a Director of the Company. Norman A. Fieber
has been removed as a member of the Audit Committee of the Company and has
refused to resign as a Director of the Company. The Board has determined that
Mr. Gray and Mr. Fieber will not be renominated for election as directors of
the Company at the 1997 Annual Meeting of Shareholders.
The Board also authorized, and the Company has made, the following claims:
against Mr. Gray, Martine, NAF and Norman Fieber for the total amount of the
benefit received by Martine and Mr. Gray from NAF, in the approximate amount
of $936,926; against Mr. Gray, Martine, Mr. Fieber and James Fieber, Trustee,
for the total amount of the benefit received by Martine and Mr. Gray from
Wallingford, in the approximate amount of $193,670; and against Mr. Gray,
Martine, NAF, Mr. Fieber and James Fieber, Trustee, for reimbursement of all
expenses incurred by the Company in investigating and pursuing this matter to
resolution. The Board also directed that Mr. Gray, Martine, Mr. Fieber and
NAF surrender to the Company the entire interest in NAF held by Martine.
(35)
<PAGE>
Part IV.
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)
1. Financial Statements - See Item 7.
Index to Consolidated Financial Statements and Supplemental Data.
All other schedules omitted because of the absence of the conditions under which
they are required or because all information required to be reported is included
in the consolidated financial statements or notes thereto.
2. Exhibits listed in the Index to Exhibits.
(b)
Reports on Form 8-K: None.
(36)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HMG/Courtland Properties, Inc.
April 14, 1997 By: /s/ Maurice Wiener
----------------------------------
Maurice Wiener
Chairman of the Board & President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ Maurice Wiener April 14, 1997
Maurice Wiener
Chairman of the Board & President (Chief Executive Officer)
/s/ Walter G. Arader April 14, 1997
- -----------------------------------
Walter G. Arader, Director
/s/ John B. Bailey April 14,1997
- -----------------------------------
John B. Bailey, Director
/s/ Harvey Comita April 14, 1997
- -----------------------------------
Harvey Comita, Director
/s/ Gustav S. Eyssell April 14, 1997
- -----------------------------------
Gustav S. Eyssell, Director
- -----------------------------------
April , 1997
Norman A. Fieber, Director
- -----------------------------------
April , 1997
Lee Gray, Director
/s/ Lawrence I. Rothstein April 14, 1997
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Lawrence I. Rothstein
Senior Vice President, Treasurer &
Secretary (Chief Financial Officer)
/s/ Carlos Camarotti April 14, 1997
- -----------------------------------
Carlos Camarotti
Vice President - Finance and Controller
(37)
<PAGE>
EXHIBIT INDEX
Description
<TABLE>
<S> <C>
(3) (a) Restated Certificate of Incorporation Incorporated by reference to Exhibit 3(a)
to the Company's 1987 Report on Form
10-KSB (the "1987 Form 10-KSB").
(b) By-laws Incorporated by reference to Exhibit 6.1
to the Registration Statement of Hospital
Mortgage Group, Inc. on Form S-14, No.
2-64, 789, filed July 2, 1979.
(10) (a) Agreement between NAF Associates and the Incorporated by reference to Exhibit
Company, dated June 30, 1986. 10(f) to the 1987 Form 19-K.
(b) 1990 Incentive Stock Option Plan of Incorporated by reference to Exhibit 10(j)
HMG/Courtland Properties, Inc. to the 1991 Form 10-KSB.
(c) Amended and Restated Advisory Agreement Incorporated by reference to Exhibit
between the Company and Courtland Group, Inc. 10(k) to the 1992 Form 10-KSB.
dated July 17, 1992, effective January 1, 1993.
(d) Amended and restated lease agreement between Filed herewith.
Grove Isle Associates, Ltd. and Westgroup Grove
Isle Associates, Ltd. dated November 19, 1996.
(e) Master agreement between Grove Isle Filed herewith.
Associates, Ltd. Grove Isle Club. Inc., Grove
Isle Investments, Inc. and Westgroup Grove
Isle Associates, Ltd. dated November 19,
1996.
(f) Agreement Re: Lease Termination between Filed herewith.
Grove Isle Associates, Ltd. And Grove Isle
Club, Inc. dated November 19, 1996.
(g) Martine Avenue Associates Partnership Agreement Filed herewith.
dated May 24, 1968 and amendment dated January 29,
1987.
</TABLE>
(38)
<PAGE>
(22) Subsidiaries of the Company:
HMG-FIEBER ASSOCIATES, a Connecticut joint venture
SOUTH BAYSHORE ASSOCIATES, a Florida joint venture
HMG OF KEY LARGO, INC., a Florida corporation
HMG FASHION SQUARE, INC., a Florida corporation
HMG SUGARGROVE, INC., a Texas corporation
COURTLAND INVESTMENT, INC., a Delaware corporation
GROVE ISLE YACHT CLUB ASSOCIATES., a Florida joint venture
GROVE ISLE ASSOCIATES, LTD., a Florida Limited Partnership
GROVE ISLE CLUB, INC., a Florida Corporation
GROVE ISLE BOATS, INC., a Florida Corporation
HMG HOUSTON GROVE, INC., a Texas Corporation
THE GROVE TOWNE CENTER-TEXAS, LTD. , a Texas Limited Partnership
(39)
Exhibit 3.3
EXHIBIT "D"
AMENDED AND RESTATED LEASE AGREEMENT
THIS AMENDED AND RESTATED LEASE AGREEMENT is made and entered into at
Miami, Dade County, Florida, as of November 19, 1996, by and between GROVE ISLE
ASSOCIATES, LTD., a Florida limited partnership (the "Lessor") and WESTGROUP
GROVE ISLE ASSOCIATES LTD., a Florida limited partnership (the "Lessee").
RECITALS
A. Lessor is the owner in fee simple of the "Real Property" defined below
and has entered into a certain Lease Agreement dated as of October 1, 1993, a
copy of which is attached hereto as Exhibit "B" (the "Existing Lease"), whereby
Lessor leased to Grove Isle Club, Inc., a Florida corporation ("GICI") the Real
Property as well as any and all personal property belonging to Lessor and
situated and/or contained therein (such personal property is herein called the
"Lessor's Personalty").
B. Concurrently herewith, among other things, (i) GICI is assigning to
Lessee the leasehold estate created under the Existing Lease and all of GICI's
other rights under the Existing Lease, and (ii) Lessor, GICI and others are
assigning to Lessee certain other personally used in the operation of the Real
Property, and in connection therewith, Lessor and Lessee have agreed to execute
this instrument in order to amend the Existing Lease.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises as well as the mutual
agreements set forth hereinafter, the Lessor and the Lessee agree as follows:
1. Correctness of Recitals. Each party represents to the other that to its
knowledge, the above recitals are true and correct.
2. Status of Existing Lease. Lessor represents and warrants to the Lessee
that the Existing Lease is in full force and effect without modification, that
there are no uncured defaults thereunder and that all rent and other sums
payable to Lessor thereunder through November 19, 1996 have been paid in full
with the exception of the payment of the Initial Rent Payment due November 19,
1996 in accordance with Article III below plus one-half of the sales tax thereon
(which amounts Lessor acknowledges have been paid to it concurrently herewith),
and that except as aforesaid, there are no unsatisfied obligations of the lessee
thereunder. Lessor further represents and warrants to the Lessee that the
certain Lease dated January 1, 1987 from Lessor to GICI has expired and is of no
further force or effect.
3. Amendment. The Existing Lease is hereby amended and restated in its
entirety to read as follows:
<PAGE>
ARTICLE I
Demised Premises
1.1 LESSOR'S DEMISE. Upon the terms and conditions hereinafter set forth,
and in consideration of the payment of the rents and the prompt performance by
the Lessee of the covenants and agreements, to be kept and performed by the
Lessee, the Lessor does lease, let, and demise to the Lessee and the Lessee
hereby leases from the Lessor, the following described premises (including the
"Land", the "Improvements", the "Real Property" and "FF&E" described below, all
of which are collectively called the "Demised Premises") situate, lying, and
being in Dade County, State of Florida:
The land located at 4 Grove Isle Drive, Miami, Florida, which is legally
described on Exhibit "A". hereto (the "Land") and all improvements thereon
(the "Improvements") (the Land and the Improvements, together with all
easements, servitudes, reversions, remainders, benefits, and other rights
and interests appurtenant thereto is together called the "Real Property");
and
All furniture, furnishings, fixtures, appliances and other equipment (the
"FF&E") located at or affixed to the Real Property and used in connection
with the operation of the Real Property as a hotel, resort and membership
club.
1.2 CONDITIONS. The demise is subject to the following:
(a) All conditions, restrictions, and limitations now appearing of
record;
(b) Taxes and assessments for the year 1996 and all subsequent years;
(c) The rights granted pursuant to Section 15.5 below;
(d) Zoning ordinances of the City of Miami, Florida, and any other
competent governmental body now existing or which may hereafter exist
during the term of this Lease; and
(e) The Lessee's proper performance of all the terms and conditions
contained in this Lease.
ARTICLE II
Term
To have and to hold the Demised Premises for a term commencing on November
19, 1996 (the "Commencement Date") and ending on December 31, 2006 (the
"Termination Date") unless and to the extent such term is sooner terminated or
extended as provided below, in
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<PAGE>
which event the Termination Date shall be, and the term of this Lease shall end
on, such earlier or later date, as applicable.
ARTICLE III
Rent
3.1 FIRST LEASE YEAR. Rent for the first Lease Year shall be $1,991,260,
accrued, paid and allocated as follows: (a) $1,000,000 on the Commencement Date
(such amount is herein called the "Initial Rent Payment"), (b) $101,260 on
January 1, 1997; and (c) $73,333.34 on February 1, 1997 and on the 1st day of
each month thereafter to and including January 1, 1998. All such rent payable
pursuant to this paragraph 3.1 is called "First Year Rent" Lessee shall also pay
to Lessor, with each payment of First Year Rent, an amount equal to one-half of
the applicable sales tax thereon. Lessor shall hold the Initial Rent Payment
available for expenditure from time to time in accordance with that certain
Master Agreement dated this date by and among Lessor, GICI, Lessee and others
(the "Master Agreement").
3.2 BASE RENT AFTER FIRST LEASE YEAR.
(a) On February 1, 1998, and on the 1st day of each month thereafter
during the term of this Lease, Lessee shall pay to Lessor in monthly
installments, in advance, as rent accrued, paid and allocated, annual base
rent ("Base Rent") in an amount equal, in any Lease Year, to eight percent
(8%) per annum of Lessor's "Capital Investment" (defined in Section 3.5(c)
below) for that Lease Year, determined in accordance with Section 3.5(c)
below. Lessee shall also pay to Lessor, with each payment of Base Rent, an
amount equal to one-half of the applicable sales tax thereon.
3.3 PARTICIPATION RENT.
(a) In addition to First Year Rent and Base Rent, Lessee shall pay to
Lessor during each Lease Year, as additional rent accrued, paid and
allocated, from any Net Operating Surplus, a portion of such Net Operating
Surplus, as follows:
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<PAGE>
(i) The lesser of (x) 50% of Net Operating Surplus for that Lease
Year; or (y) 2% of Lessor's Capital Investment for that Lease Year.
The amounts payable to Lessor under this paragraph are called the
"First Tier Participation".
(ii) After the First Tier Participation for that Lease Year is
paid in full, an amount equal to 50% of the amount by which Net
Operating Surplus for that Lease Year exceeds the sum of the First
Tier Participation for that Lease Year and 8% per annum of Lessee's
Capital Investment for that Lease Year. The amounts payable to Lessor
under this paragraph are called the "Second Tier Participation". The
First Tier Participation and the Second Tier Participation are
sometimes together called "Participation Rent". Participation Rent
shall be paid and determined in the manner set forth in Sections
3.3(b) and (c) below, and Lessee shall also pay to Lessor, with each
payment of Participation Rent, an amount equal to one-half of the
applicable sales tax thereon.
(b) As an example of the computation of Participation Rent, for a
particular Lease Year, assuming that Lessee's Capital Investment for that
Lease Year is $3,000,000 and that Lessor's Capital Investment for that
Lease Year is $11,000,000, Participation Rent for that Lease Year would be
determined as follows:
Assumed Net Operating Surplus: 220,000 440,000 1,000,000
First Tier Participation = the
Lesser of:
50% of Net Operating Surplus or 110,000 220,000 500,000
2% of Lessor's Capital 220,000 220,000 220,000
Investment
First Tier Participation 110,000 220,000 220,000
Assumed Net Operating Surplus 220,000 440,000 1,000,000
(from above)
Less First Tier Participation 110,000 220,000 220,000
(from above)
Balance of Net Operating Surplus 110,000 220,000 780,000
Less 8% of Lessee's Capital 240,000 240,000 240,000
Investment
Balance of Net Operating Surplus (130,000) (20,000) 540,000
50% Second Tier Participation 0 0 270,000
(c) Participation Rent shall be payable in quarterly installments in
arrears commencing on the 1st day of April, 1998 and on the 1st day of each
July, October and January thereafter during the term of this Lease, as
follows:
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<PAGE>
(i) The amount of each such installment payable during any Lease
Year shall initially be estimated pursuant to Lessee's operating
budget for that Lease Year, which budget shall be based on the past
results of operations and Lessee's projections for operation during
that Lease Year, and provided to Lessor for approval not later than
November 15 of the previous Lease Year.
(ii) Not later than 120 days after the end of each Lease Year,
the Lessee shall determine and advise Lessor of the actual amount of
actual Net Operating Surplus for that Lease Year, and, within 30 days
thereafter, Lessor shall pay to Lessee the amount, if any, by which
the payments of estimated Participation Rent and sales tax thereon
paid by Lessee during that Lease Year exceeds the Participation Rent
plus one-half of the sales tax actually due, or, if applicable, the
Lessee shall pay to Lessor the amount, if any, by which Participation
Rent plus one-half of the sales tax thereon actually due exceeds the
payments of estimated Participation Rent and sales tax thereon
actually paid by Lessee.
(iii) Lessee shall maintain accurate books and records for the
computation of Net Operating Surplus in accordance with generally
accepted accounting principles consistently applied, shall provide
Lessor with copies of bills, invoices and contracts relative to the
computation of Net Operating Surplus for any period upon request
within 30 days after Lessor receives notice of Lessee's computation
thereof, and shall make its books and records with respect to such
computation available for inspection by Lessor or Lessor's authorized
representative during normal business hours, upon reasonable prior
notice. If Lessor challenges Lessee's computation of Net Operating
Surplus for any Lease Year:
(A) Lessor shall give Lessee notice stating Lessor's
objections within 60 days after Lessor receives notice of
Lessee's computation thereof.
(B) If an independent review performed on behalf of Lessor
("Lessor's Review") by a firm of certified public accountants at
Lessor's sole expense within 60 days after such objection notice
verifies that Lessee's computations of the Net Operating Surplus
are incorrect, Lessor shall give Lessee notice of the error,
accompanied by the appropriate supporting documentation.
(C) Within 60 days after receipt of such notice from Lessor,
the Lessee shall have the right to arrange for an independent
review
-5-
<PAGE>
performed on behalf of Lessee ("Lessee's Review") at Lessee's
sole expense.
(D) If Lessee fails to arrange for a Lessee's Review within
the time provided above, then the results of the Lessor's Review
shall be deemed conclusive, and the parties hereto shall promptly
make all adjustments between themselves to account for any
underpayments or overpayments. If, however, Lessee exercises its
rights to obtain a Lessee's Review, then subject to the following
paragraphs, the Net Operating Surplus indicated by Lessor's
Review and Lessee's Review, respectively, shall be averaged and
the parties hereto shall promptly make all adjustments between
themselves to account for any underpayment or overpayment, based
on such average of the net results of Lessor's Review and
Lessee's Review (the "Averaged Result").
(E) Notwithstanding paragraph (D) above, if the difference
between (X) the Averaged Result and (Y) the results of Lessor's
Review exceeds $50,000, then Lessee shall have the right at its
own election, to either treat the Averaged Result as $50,000
under or over (as applicable) the result of Lessor's Review, or
to proceed under paragraph (F) below.
(F) If Lessee so elects, then Lessee and Lessor shall each
direct the firm of certified public accountants performing its
review to confer with the other party's firm and mutually
determine a third firm of certified public accountants to perform
a third review (the "Neutral Review"), and if Lessee exercises
this option, the results of Neutral Review shall be deemed
conclusive and the parties hereto shall promptly make all
adjustments between themselves to account for any underpayment or
overpayment based on the results of such Neutral Review and the
parties shall share equally the cost of the Neutral Review.
(G) If any Lessor's Review or, if Lessee elects to obtain a
Neutral Review with respect to that Lessor's Review, that Neutral
Review, indicates that Lessee's computation of Net Operating
Surplus for any Lease Year differs from actual Net Operating
Surplus for that Lease Year by 3% or more, Lessee shall promptly
reimburse Lessor for all of Lessor's reasonable accountant's fees
incurred for that Lessor's Review or Neutral Review.
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<PAGE>
3.4 CERTAIN COMPUTATIONS. Lessor and Lessee agree that Lessor's Capital
Investment for the first Lease Year is $11,000,000. Base Rent and estimated
Participation Rent for all periods after the first Lease Year shall be
determined as of and not later than, November 15 of the immediately preceding
Lease Year (November 15 of the Lease Year immediately preceding any Lease Year
is the "Calculation Date" for that Lease Year), to take effect on the
immediately succeeding February 1 in the case of Base Rent and April 1, in the
case of Participation Rent. There shall be no adjustments in Base Rent or
Participation Rent paid or payable during any Lease Year on account of changes
to any party's Capital Investment occurring after the Calculation Date for such
Lease Year, provided, however, that Participation Rent initially payable based
on estimated Net Operating Surplus shall be adjusted based on the actual results
of operations pursuant to Section 3.3(c)(iii) above.
3.5 CERTAIN DEFINITIONS. When used in this Lease:
(a) The term "Lease Year" means (a) the period commencing on the
Commencement Date and ending on December 31, 1997 (which period shall be
the first Lease Year) and (b) each period of 12 consecutive months
thereafter during the term of this Lease, the first of which shall commence
on January 1, 1998, and end on the day immediately preceding the first
anniversary thereof, and the remainder of which shall commence on
termination of the immediately preceding Lease Year, provided, however,
that no Lease Year shall extend beyond the Termination Date.
(b) "Net Operating Surplus" for any period means the amount, if any,
by which Operating Revenue for that period exceeds the Operating Expenses
for that period.
(c) The "Capital Investment" of any party for any Lease Year means an
amount, determined as of the Calculation Date for such Lease Year, equal
to:
(i) in the case of the Lessee, the sum of (w) $1,000,000; (x) any
amounts expended by Lessee for "Qualified Capital Improvements"
(defined below), excluding any of the Initial Rent Payment disbursed
to Lessee for such purpose; (y) any amounts expended by Lessee for
"Operating Shortfalls" defined in the Master Agreement (excluding any
of the Initial Rent Payment disbursed to Lessee for such purpose); and
(z) the aggregate amounts, if any, of the Additional Equity
Requirement paid to Lessor pursuant to Section 4.2 of the Master
Agreement, from the Commencement Date through (but not including) the
Calculation Date for such Lease Year, provided. however, that in no
event shall Lessee's Capital Investment exceed $3,000,000 unless so
agreed by Lessor in writing hereafter, and provided. further, that in
no event shall Lessee's Capital Investment be
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<PAGE>
increased by deposits into the "Replacement Reserve (defined below);
and
(ii) in the case of the Lessor, $11,000,000 minus the amount, if
any, of any portions of the Initial Rent Payment disbursed to Lessor
pursuant to Section 4.1 of the Master Agreement and/or Additional
Equity Requirement paid to Lessor pursuant to Section 4.2 of the
Master Agreement, all on a cumulative basis from the Commencement Date
to (but not including) the Calculation Date for such Lease Year.
(d) The term "Operating Revenue" for any period means the gross amount
of all receipts, revenue and income, of every kind or nature, derived
during that period by or on behalf of Lessee from the Demised Premises or
the operation of the Demised Premises, including, without limitation, sales
of goods and/or services by Lessee at or from the Demised Premises, i.e.,
room revenues, food and beverage revenues, telephone revenues, proceeds of
any business interruption insurance paid to Lessee, other insurance
proceeds paid to Lessee but not used for Restoration, all other department
revenues, "Club Dues" defined below, rents and other income from tenants
and other income, paid or to be paid at any time to the Lessee (or to any
of its agents for the Lessee's account) by any person, determined on an
accrual basis, in accordance with generally accepted accounting principles
(consistently applied), but in no event shall Operating Revenue include:
(i) security deposits paid by or on behalf of tenants or others
under valid leases or other agreements unless and until such security
deposits are forfeited by, and Lessee shall have no further obligation
to return such deposit to, the tenant or other person paying the same;
(ii) any insurance proceeds used for Restoration; or
(iii) eminent domain proceeds.
-8-
<PAGE>
(f) The term "Operating Expenses" for any period shall mean the
amounts paid or incurred by or on behalf of Lessee during that period in
connection with the maintenance or operation of, or otherwise in connection
with, the Demised Premises, determined on an accrual basis, including,
without limitation:
(i) costs and expenses related to department revenues, including,
without limitation, rooms, food, beverages, telephones and other
income,
(ii) all payments required to be made pursuant to any management
or similar agreement, so long as the management fee does not exceed 4%
of Operating Revenue for that period (the "Management Fee"),
(iii) undistributed expenses, including without limitation,
general and administrative, marketing, utilities, operations and
maintenance and other expenses, as appropriate, provided, however,
that with respect to expenses incurred by Lessee for travel to and
from the Demised Premises by Lessee's partners, officers, agents, and
employees, the amount of such expenses includable as Operating
Expenses shall not exceed $2,000 in any one month during the first
Lease Year and $1,500 in any month thereafter, and provided, further
that expenses incurred by Lessee for salaries, wages and salary
compensation of persons not based at the Property full-time (other
than for the services of the Regional Manager of Noble House Hotels &
Resorts) shall not exceed $50,000 in any one calendar year (or the
equivalent for any shorter period),
(iv) legal, accounting, appraisal and other professional fees and
disbursements, including annual fees and other amounts (including
indemnity payments), payable annually or otherwise,
(v) taxes, assessments, insurance premiums, and impositions of
any type,
(vi) replacement reserves not to exceed 3% of Operating Revenue
for that period, to the extent such reserve is actually funded as
required under this Lease (provided, however, that for the purpose of
this subsection 3.5(e)(vi) and Section 15.3 below only, Operating
Revenue shall be computed without regard to Club Dues,
(vii) the cost of any Restoration in excess of insurance proceeds
available therefor, and
(viii) all Rent and other amounts payable by Lessee under or
pursuant to this Lease.
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<PAGE>
Notwithstanding anything herein to the contrary, it is understood
and agreed that the services included in the Management Fee do not
include accounting services, that Lessee and Lessee's manager may
avail themselves of the centralized accounting services offered by
their affiliates, and that the "Allocable Amount" (defined below) of
the cost thereof shall be included as Operating Expenses.
Notwithstanding the foregoing, Operating Expenses will not
include (A) for any expense which is allocable to both the Demised
Premises and other property owned or managed by Lessee's affiliates,
any portion in excess of the "Allocable Amount" of such expense; (B)
depreciation or amortization, (C) any expenses that in accordance with
generally accepted accounting principles (consistently applied),
should be capitalized (other than current charges for any such
expenses enumerated above), (D) any item of expense that would
otherwise be considered as an Operating Expense pursuant to the
provisions above but which is actually paid directly by any tenant as
required by such tenant's lease or other agreement, (E) principal,
interest or other charges payable to the holder of any Permitted
Mortgage, (F) interest on any indebtedness (other than sums payable
under equipment leases or to the seller of any FF&E or other item
purchased by Lessee, or to any arms' length third party who finances
such purchase of FF&E), (G) Participation Rent for the current period,
or (H) any late charges, default interest and any other costs
resulting from Lessee's failure to perform its obligations under this
Lease
The "Allocable Amount" of any expense means that portion of
expense which is fairly attributable to the Demised Premises.
3.6 RENT; PLACE OF PAYMENT. Rent shall be payable to Lessor at its notice
address set forth below or such other place as the Lessor may specify in writing
from time to time. "Rent", as used in this Lease means First Year Rent, Base
Rent and Participation Rent.
3.7 NET LEASE. All Rent shall be net to Lessor, so that this Lease shall,
except as hereinafter provided to the contrary, yield net to Lessor the Rent to
be paid during the term of this Lease, less one-half of any sales tax thereon.
Accordingly, the Lessee shall pay one-half of all sales tax on Rent, as well as
all costs, expenses, and obligations of every kind or nature on, or with respect
to, the Demised Premises, which may arise or become due during the term of thin
Lease, including, without limitation, real estate taxes and insurance premiums,
but specifically excluding the Lessor's one-half share of sales tax and any
amounts payable by Lessor pursuant to other provisions of this Lease or any
document executed and delivered by Lessor in connection herewith. Lessor shall
pay to the State of Florida as and when due Lessor's
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<PAGE>
one-half share of all sales tax on Rent, together with the remaining one-half
thereof paid by Lessee. Except for Lessee's obligations under Section 13.4 of
this Lease, nothing in this Lease shall be deemed to require the Lessee to pay
or discharge any liens or mortgages of any character which now exists or which
may be placed upon the Demised Premises by the Lessor or suffered or permitted
by the Lessor.
ARTICLE IV
Option to Extend
Provided that the Lessee is not in default under this Lease, and in
addition to the "Right of First Offer" (defined below), the Lessee shall have
the right to extend the term of this Lease for two (2) additional ten (10) year
terms on the same terms and conditions as contained in this Lease (each such
option to extend is called an "Extension Option"), provided Lessee gives Lessor
written notice of Lessee's intention to exercise such Extension Option at least
nine (9) months, but not more than twelve (12) months, prior to the Termination
Date, or the first extended Termination Date, as applicable.
ARTICLE V
Termination
5.1 PAYMENT TO LESSEE. Provided Lessee exercises both Extension Options and
is not then in default hereunder, then Lessor will pay to Lessee the
"Termination Payment". The "Termination Payment" means fifty percent (50%) of
the amount by which the value of the Demised Premises on the Termination Date
exceeds $11,000,000.00. The Termination Payment shall be due on the 10th day
after the amount thereof is determined pursuant to Section 5.2 below, but if
Lessor fails to provide a "Lessor's Appraisal" within 60 days after Lessor
receives "Lessee's Appraisal" (each defined below), then such payment shall be
due on the 60th day after Lessor receives Lessee's Appraisal. The Termination
Payment shall not be a personal obligation of the Lessor, and the Lessee's
recourse for recovery of the Termination Payment shall be limited to the Demised
Premises and the Retained Club Rights. In no event shall the Termination Payment
or any part thereof be due or payable if the Lease is terminated for any reason
(other than a material and/or willful default or breach by the Lessor) before
the end of the 30th Lease Year.
5.2 DETERMINATION OF VALUE. For the purpose of this Article, the value of
the Demised Premises shall be the fair market value of the Demised Premises
(unencumbered by this Lease), the Club and the Retained Club Rights as reflected
in an appraisal report prepared by an MAI appraiser selected by Lessee obtained
by Lessee within sixty (60) days following the Termination Date (the "Lessee's
Appraisal"). If Lessor wishes to contest the value as shown in such appraisal,
Lessor shall obtain, within 60 days after Lessor's receipt of the Lessee's
Appraisal, an appraisal report
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<PAGE>
prepared by an MAI appraiser (the "Lessor's Appraisal"). If the value of the
Demised Premises reflected in Lessor's Appraisal assigns a value which is 110%
or greater than the value reflected on the Lessee's Appraisal, then the
respective parties shall each direct the appraiser performing its appraisal to
select, mutually with the other party's appraiser, a third MAI appraiser to
perform a comparable appraisal (the "Third Appraisal") and the value of the
Demised Premises shall be the value reflected in the Third Appraisal. If the
value shown by the Lessor's Appraisal is less than 110% of the value shown by
the Lessee's Appraisal, then the value of the Demised Premises shall be deemed
to be the average of the value shown in the Lessee's Appraisal and the Lessor's
Appraisal. Lessee shall pay the cost of Lessee's Appraisal, Lessor shall pay the
cost of any Lessor's Appraisal, and Lessee and Lessor shall each bear one-half
of the cost of any Third Appraisal.
5.3 LIEN. Lessor's obligation to pay the Termination Payment to Lessee is
and shall be a lien on the Demised Premises as of the date of this Lease, which
lien is subordinate to any "Permitted Mortgage" defined below.
5.4 TERMINATION. On termination of this Lease:
(a) Lessee shall assign to the applicable "Lessor Parties" (defined
below), as applicable, without representation or warranty, the right to use
any and all trademarks, trade names and fictitious names then in use by
Lessee in connection with the Demised Premises or any component thereof,
provided, however, that Lessee shall be under no obligation to assign any
trademark, trade name or fictitious name which includes the terms
"Westgroup", "Noble" or "Noble House", except that in the case of any such
marks or names used by Lessee pursuant to a license, Lessee shall only be
required to acknowledge termination of such license.
(b) Lessee shall assign or reassign, as applicable, to the applicable
Lessor Parties, any and all of its remaining rights under the Permits, such
additional permits obtained by Lessee in connection with its operation of
the Demised Premises, the Leases, the Contracts and the Other Rights (each
defined in the Master Agreement) in existence on termination of this Lease,
to the extent assignable, it being understood and agreed that (i) Lessor
shall not be required to assume any obligations of Lessee under the
Contracts or the Leases so assigned; and (ii) unless and to the extent
expressly required under specific provisions of this Lease or any other of
the "Closing Deliveries" (defined in the Master Agreement) Lessee shall not
be required to maintain or keep in existence any such permits, Contracts or
Other Rights and may terminate any Leases or Contracts not assumed by
Lessor.
(c) The assignment and other rights granted to Lessee by the Lessor
Parties pursuant to Sections 15.7, 15.8, 15.9 and 15.10 below shall
automatically terminate, but such termination shall not apply to or affect
any such rights
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accrued prior to such termination. In this regard, on termination of this
Lease, at the request of the applicable Lessor Parties, Lessee shall
execute and deliver such instruments which may be necessary to effectuate
such termination of Lessee's rights under Sections 15.7, 15.8, 15.9 and
15.10, and to restore the same to the applicable Lessor Parties, all free
and clear of any options, agreements, liens, security interests and
encumbrances created by any act of Lessee.
(d) Unless this Lease is terminated on account of the material and/or
willful default of Lessee, Lessor shall pay to Lessee an amount equal to
the cost of the Inventory and Consumables (defined in the Master Agreement)
then in existence, which cost shall be evidenced by copies of paid invoices
therefor or such other documentation reasonably requested by Lessor.
(e) Lessee shall provide to Lessor a schedule of Lessee's accounts
receivable in existence on termination of this Lease, which schedule shall
be consistent with the Lessee's schedules of Operating Revenue through the
date of such termination. If Lessor receives payment of any accounts which
are listed on that schedule and are collected following termination of this
Lease, it shall promptly remit the same to Lessee. In this regard, Lessor
shall apply payments from each account debtor to the oldest account owed by
that debtor, unless the payor designates a different account to which such
payment shall be applied (in which event it shall be applied to the account
so designated); or the account debtor has disputed the account to which
such payment would otherwise be applied (in which event, it shall be
credited to the oldest account which has not been disputed).
(f) Club Dues shall be prorated as of the Termination Date, and the
parties shall make such payments to each other as are required to account
for any credit owed either party as a result of such proration.
5.5 POSSESSION. Upon termination of this Lease, the Lessee shall peaceably
and quietly deliver to the Lessor possession of the Demised Premises.
ARTICLE VI
Taxes
6.1 LESSEE'S OBLIGATIONS. The Lessee shall pay, before any fine, penalty,
interest, or cost may be added, become due, or be imposed for nonpayment
thereof, all taxes, assessments, water and sewer rents, rates and charge,
transit taxes, charges for public utilities, excises, levies, licenses and
permit fees and other governmental charge, general and special, ordinary and
extraordinary, unforeseen and foreseen, of any kind and nature, which at any
time during the term of this Lease may be assessed,
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levied, confirmed, imposed upon, or grow to become due and payable out of or in
respect of, or become a lien on, the Demised Premises, or any part thereof or
arising out of the rent received by the Lessee from subtenants, any use or
occupation of the Demised Premises by Lessee, and such franchises as may be
appurtenant to the use of the Demised Premises, or any document (to which the
Lessee is a party) creating or transferring an interest or estate in the Demised
Premises, provided, however, that Lessor shall be responsible for payment of
one-half of any sales tax on Rent hereunder. In no event, however, shall the
Lessee be required to pay (a) municipal, state, or federal income taxes assessed
against the Lessor or its income, or (b) the Lessor's municipal, state, or
federal capital levy, or (c) the Lessor's estate, succession, inheritance, or
transfer taxes, or (d) corporate franchise taxes imposed upon any corporate
owner of the fee of the Demised Premises, or (e) any tax on any other activities
of GICI or Lessor, but Lessee shall pay all ad valorem real and personal
property taxes on the Demised Premises.
6.2 MODE OF PAYMENT. Subject to Section 13.4 below, Lessee shall pay the
taxes and other charges enumerated in this Article before the date that such tax
or other charge would become delinquent in accordance with the then applicable
law governing such payments, or if earlier, the date required under any
Permitted Mortgage if Lessor specifically notifies Lessee of the earlier date on
which a particular payment is due under a Permitted Mortgage. If, however, the
Lessee desires to contest the validity of any tax or tax claim, it may do so
without being in default hereunder, provided it gives the Lessor written notice
of its intention to contest the tax or claim, and that any such contest stays
the enforcement against the Demised Premises of such tax or claim.
6.3 LESSEE'S DEFAULT. If the Lessee fails, refuses, or neglects to make any
payment required in this Article, the Lessor may do so. In that event, the
Lessee shall, upon the Lessor's demand, repay to Lessor the amounts so paid,
including reasonable attorneys fees and all other expenses reasonably incurred
because of or in connection with the payments, together with interest thereon at
the "Default Rate" defined below. The Lessor may collect or enforce any payment
in the same manner as though it were an installment of Rent specifically
required by the terms of the Lease to be paid by the Lessee, on the day when the
Lessor demands repayment of or reimbursement therefor.
6.4 PRORATION. Notwithstanding anything to the contrary in this Lease, the
taxes for the years in which the Commencement Date and Termination Date occur
shall be prorated proportionately between Lessor and Lessee.
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ARTICLE VII
Construction Liens
The Lessor's interest in the Demised Premises shall not be subject to liens
for improvements made by the Lessee and the Lessee shall not subject the
Lessor's interest in the Demised Premises to any mechanics' or materialmens'
liens or other construction lien. If, notwithstanding the foregoing sentence,
such a lien becomes effective against the Lessor's interest in the Demised
Premises, the Lessee shall cause the Demised Premises to be released therefrom
in any manner permitted under Florida law within thirty (30) days after written
notice from the Lessor, provided, however, that Lessee shall have no such
obligation if such lien arises from Lessor's failure to provide funds to Lessee
to the extent that Lessor is obligated to do so under section 4.1 of the Master
Agreement.
ARTICLE VIII
Mutual Indemnification
During the entire term of the Lease, each party will indemnify and hold
harmless the other against any and all claims, debts, demands, or obligations
which may be made against such other party or against its interest in the
Demised Premises, arising out of any act or omission of the indemnifying party
or any contractor, agent, licensee or invitee of such indemnifying party. If it
becomes necessary for any indemnified party to defend any action seeking to
impose any such liability, the indemnifying party will pay such indemnified
party all reasonable costs of court and reasonable attorneys' fees incurred by
such indemnified party in effecting such defense in addition to all other sums
that such indemnified party may be called upon to pay by reason of the entry of
a judgment against it in the litigation in which such claim is asserted.
ARTICLE IX
Insurance
9.1 CASUALTY INSURANCE. At all times during the term of this Lease, the
Lessee will keep insured the Demised Premises, including all buildings and
improvements upon the Demised Premises, under a special cause of loss (all risk)
policy, with n extended coverage", as well as against windstorm and flood. The
amount of insurance shall at all times be sufficient to prevent any party in
interest from being or becoming a co-insurer on any part of the risk, and in the
case of the extended coverage insurance, shall not be less than 90% of the full
insurable value, but in no event less than the amount required pursuant to the
Existing Mortgage. All of the insurance policies shall include the Lessor and
the mortgagee under any Permitted Mortgage as additional insured parties and
shall fully protect both the Lessor, such mortgagee and the Lessee, as their
respective interests may appear and shall provide for sixty (60) days prior
written notice of cancellation to Lessor and
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such Mortgagee. All insurance proceeds received for the destruction of buildings
or improvements by fire, windstorm, flood, or other casualty shall be deposited
in a joint account in a bank designated by the Lessee in Dade County, Florida
and shall be made available to the Lessee to pay the cost of the construction,
restoration or repair, as the case may be (including associated soft costs such
as permitting, bonding, design, engineering, and reasonable professional fees),
of any building, buildings or other improvements damaged or destroyed by fire,
windstorm, or other casualty for which insurance is payable (such construction,
restoration or repair is herein called "Restoration"). The Lessor and the Lessee
shall periodically pay out these funds from the joint account on the estimate of
any reliable and authorized architect licensed in the State of Florida, who must
certify that the amount of the estimate is reasonable and is being applied to
the payment of the costs of the Restoration. However, except as provided below,
regardless of the sufficiency of insurance proceeds, the Lessee shall provide
any funds necessary for the Restoration which are in excess of available
insurance proceeds, shall assure the application of the money for such purpose,
and shall effectuate Restoration of any buildings and improvements, or any part
thereof, that are destroyed or damaged by fire, windstorm, or other casualty.
The rebuilt or repaired building or improvement, or the replaced or repaired
personal property on the Demised Premises, shall be of the same or higher value
as prior to the damage or destruction, and shall be rebuilt and ready for
occupancy within fifteen (15) months from the time of the loss or destruction,
which 15-month period for reconstruction shall be extended by delays caused
without the Lessee's fault or neglect by act of God, strikes, lockouts, or other
conditions (other than matters of finance) beyond the Lessee's control.
9.2 DAMAGE NEAR END OF TERM. Notwithstanding anything herein to the
contrary, if the Improvements are damaged or destroyed so that operation thereof
as contemplated under this Agreement is significantly impaired or impracticable
and such damage or destruction occurs within the last eighteen months of the
term of this Lease (without giving effect to any unexercised Extension Options),
then Lessee shall have no obligation to effect any Restoration, and unless
Lessee agrees to do so, this Lease shall terminate as of the date of such damage
or destruction and the Lessee shall have no further Extension Options, provided,
however, Lessee shall ensure that the Demised Premises comply with all Legal
Requirements with respect to casualty losses of such type (for example, any
partially damaged buildings shall be secured and made safe from collapse or
further damage), and shall be entitled to any available insurance proceeds for
such purpose. Lessor shall be entitled to receive any insurance proceeds not
used by Lessee in accordance with the immediately preceding sentence.
9.3 INSURANCE CLAIMS. Except as specifically provided otherwise herein, no
damage or destruction to any building or improvements by fire, windstorm, or any
other casualty shall be deemed to entitle the Lessee to surrender possession of
the Demised Premises, to terminate this Lease, to violate any of its
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provisions, or to cause any rebate or reduction in the Rent when due or
thereafter becoming due under its terms. If the Lease is cancelled because of
the Lessee's default while any obligation from an insurance company to pay for
all or any part of the damage remains outstanding, the claim against the
insurance company shall, upon cancellation of the Lease, be deemed immediately
to become the absolute and unconditional property of the Lessor.
9.4 PROCEEDS PAYABLE TO MORTGAGEE. Any mortgagee holding a Permitted
Mortgage may, in accordance with its terms, require that the insurance proceeds
be paid to it and thereafter disbursed for the cost of repair and restoration in
accordance with such mortgagee's own construction disbursement procedures, but
subject to Section 9.2 above, the Lessee shall still be required to provide any
funds necessary for the Restoration which are in excess of available insurance
proceeds.
9.5 DAMAGES; INSURANCE PROCEEDS; JOINT BANK ACCOUNT. If the Lessee is not
then in default under this Lease, then Lessee shall be paid-any excess money
received from insurance remaining after the building or buildings are
reconstructed or repaired, in which event such amounts shall be included as
Operating Revenue. If, after damage or destruction caused by fire, windstorm, or
other cause, the Lessee does not commence Restoration within 6 months from the
date of payment of the loss and prosecute the Restoration so that it will be
completed within fifteen (15) months after the damage or destruction occurs,
then Lessee shall pay to the Lessor the amount collected, or the balance thereof
remaining in the joint account, plus any additional funds required to complete
such Restoration. If the Lessee is obligated under this Lease to effectuate any
Restoration but fails to so do within the time specified, the Lessor may
terminate this Lease and retain the amount as liquidated and agreed upon
damages. The 15-month period for Restoration shall be extended by delays caused
without the Lessee's fault or neglect by act of God, strikes, lockouts, or other
conditions (other than matters of finance) beyond the Lessee's control.
9.6 DIRECT REPAYMENT. Notwithstanding the above, if the insurance proceeds
are $25,000 or less, no joint bank account shall be created but the proceeds
shall be paid directly to the Lessee, which shall use the funds to effectuate
the Restoration.
9.7 BUSINESS INTERRUPTION. The Lessee shall also at its sole expense obtain
for, deliver to and maintain for the benefit of, the Lessee and Lessor during
the term of this Lease, business interruption/extra expense insurance, covering
loss of revenue at the Demised Premises.
9.8 EVIDENCE OF INSURANCE. The Lessee shall deliver to the Lessor certified
certificates of insurance with original signatures, along with the receipted
bills evidencing payment of the premiums for them. However, nothing contained
herein shall prohibit the Lessee from financing the premiums and if Lessee does
so, such receipts shall evidence that the installment premium
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payment or payments are paid at or before their respective maturities. If,
however, the Demised Premises are encumbered by a "Permitted Mortgage" (defined
below) and if the terms of that mortgage require the Lessee to cause the
originals of the policies to be delivered to the mortgagee, the Lessee shall
deliver to the Lessor duplicate certificates of the policies.
9.9 LIABILITY INSURANCE. The Lessee shall also at its sole expense obtain
for, deliver to and maintain for the benefit of, the Lessee and Lessor during
the life of this Lease liability insurance policies relating to the Demised
Premises in an amount not less than $10,000,000. The Lessee shall pay promptly
when due any premiums on such insurance policies and renewals thereof.
ARTICLE X
Sale and Assignment
10.1 BY LESSOR.
(a) FIRST THREE LEASE YEARS. Except as expressly permitted under
Article 13 below with respect to Permitted Mortgages, the Lessor may not
sell, transfer, convey, grant options with respect to, or otherwise dispose
of, or agree to sell, transfer, convey, grant options with respect to, or
otherwise dispose of any or all of its interest in the Demised Premises or
any part thereof (any such disposition, transaction or agreement is herein
called a "Transfer") for the first three (3) Lease Years.
(b) RIGHT OF FIRST OFFER. After the first three (3) Lease Years,
except as expressly permitted under Article 13 below with respect to
Permitted Mortgages, the Lessor shall not cause, suffer or permit any
Transfer unless (i) GICI simultaneously Transfers to such transferee its
retained rights with respect to the Club (the "Retained Club Rights"), and
(ii) the transferee assumes the obligations of Lessor, GICI and "Yacht
Club" defined below, as applicable, under this Lease and the "Sovereignty
Lease" defined below; and (iii) such transaction is a bona fide, arms'
length transaction, and (iv) Lessor and GICI have first notified the Lessee
in writing of their intention to offer the Demised Premises and the
Retained Club Rights for sale, which notice shall include the material
terms and conditions of the proposed Transfer (e.g., price, terms,
financing, and all other material terms) and afforded the Lessee the prior
right (the "Right of First Offer") to purchase or otherwise acquire the
Demised Premises or such part thereof and the Retained Club Rights on the
terms and conditions stated in such notice. Such notice is called a "Notice
of Intent". Such Notice of Intent shall be deemed Lessor's offer to Lessee
to make such Transfer to Lessee on the terms stated therein.
(c) PROCEDURE FOR RIGHT OF FIRST OFFER. The Lessee shall exercise its
Right of First Offer granted by giving
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written notice (a "Notice of Exercise") to the Lessor within thirty (30)
days after it receives the Lessor's Notice of Intent. Any Notice of
Exercise shall be deemed Lessee's acceptance of Lessor's offer made
pursuant to its Notice of Intent. If the Lessee fails to give a Notice of
Exercise within thirty (30) days after it receives Lessor's Notice of
Intent, and the Lessor subsequently makes a Transfer under the provisions
which were stated in such Notice of Intent, the above prohibition against
Transfer shall expire and Lessee's Right of First Offer shall not apply to
any subsequent offer on the same terms as set forth above.
(d) CLOSING. If Lessee delivers any Notice of Intent, the parties
shall mutually agree upon the time and place of closing (which may not be
more than fifty (50) miles from the Demised Premises unless both parties so
consent), but in the absence of such agreement, a reasonable time and
place. At such closing (i) the Lessee shall pay to Lessor and GICI (by good
certified check of a bank or trust company or by Federal Reserve wire
transfer) the cash portion, if any, of the applicable purchase price; (ii)
the Lessor and GICI shall convey good and marketable title to the Demised
Premises and the Retained Club Rights to the Lessee, free and clear of all
encumbrances and title defects other than those listed on Exhibit "C"
hereto (but no such conveyance shall be subject to the Existing Mortgage or
any other Permitted Mortgage unless Lessee specifically consents thereto)
and those which arose at the Lessee's request or by virtue of its tenancy;
and (iii) the Lessor, GICI and Lessee shall execute all documents which may
be necessary to effectuate the closing and the transfer of title
contemplated hereunder.
(e) ACKNOWLEDGMENTS. Any third party purchaser shall be required to:
(i) affirmatively assume the obligations of Lessor, GICI, and "Yacht Club"
defined below, as applicable, under this Lease and the "Sovereignty Lease"
defined below; (ii) acknowledge that title is transferred subject to this
Lease and Lessee's rights hereunder, including, without limitation,
Lessee's rights to the Termination Payment and this Right of First Offer.
(f) ASSIGNMENT TO AFFILIATE. Notwithstanding said paragraphs (a) or
(b) above, nothing herein shall be construed to prohibit Lessor from
assigning to GICI or another person or entity which controls, is controlled
by, or is under common control with Lessor ("Lessor's Affiliate"), the
Lessor's right to receive Rent only under this Lease, provided, however,
that no such assignment shall be binding on Lessee unless and until Lessee
shall have received written notice thereof, and no such assignment shall be
deemed an assignment or transfer of any interest in the Demised Premises to
a Lessor's Affiliate or constitute an assignment of, or release of Lessor
from, any obligations under this Lease nor shall anything herein be
construed to permit such assignment, transfer or release.
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10.2 BY LESSEE.
(a) FIRST THREE LEASE YEARS. The Lessee may not make any Transfer for
the first three (3) Lease Years.
(b) AFTER THIRD LEASE YEAR. After the first three (3) Lease Years,
Lessee may assign this Lease (x) to an entity in which the Lessee or its
general partner or the majority shareholder of its general partner
maintains a majority interest ("Lessee's Affiliate"), or (y) to an entity
having both the financial capability to perform the obligations of Lessee
hereunder, and experience and expertise in the ownership or management of
luxury resorts similar to the resort operated by Lessee at the Demised
Premises (herein, a "Qualified Assignee"), provided, that
(i) in each case, the assignee expressly assumes and agrees, for
Lessor's express benefit, that it will perform every covenant of this
Lease which, by its terms, the Lessee agrees to keep and perform;
(ii) in the case of an assignment under clause (y),
(A) Lessee shall have first notified Lessor of its intention
to offer its leasehold estate and the Club for sale by giving the
Lessor and GICI a Notice of Intent, affording to Lessor a Right
of First Offer with respect to such leasehold estate and the
Club, on the terms and conditions stated in such notice. Such
Notice of Intent shall be deemed Lessee's offer to Lessor and
GICI to make such Transfer on the terms stated herein. The time
and procedures for acceptance of such offer and of consequences
of acceptance and non-acceptance of such offer, shall be as set
forth in Sections 10.1(c) and (d) above, substituting Lessee for
Lessor and GICI and vice-versa, and reflecting that the leasehold
estate and Club (and not the Demised Premises and the Retained
Club Rights) shall be assigned, and that title to the Demised
Premises may be subject to each of the matters listed on Exhibit
"C" hereto, including any Permitted Mortgage.
(B) Lessor shall have consented to such assignment
(provided, however, that Lessor shall not be entitled to deny or
withhold such consent unless the proposed assignee is not a
Qualified Assignee, and Lessor shall have no right to charge
Lessee any fee or other sum for such consent or for the cost of
ascertaining the financial capability,
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experience and expertise of the proposed assignee); and
(iii) in either case, Lessee shall provide Lessor with copies of
the instruments effectuating such assignment and assumption.
If Lessee's interest in and to this Lease or the Demised Premises is
assigned or transferred to a Lessee's Affiliate pursuant to clause (x),
Lessee's liability for the performance of every term, condition, covenant,
or agreement contained herein shall remain unimpaired, unreleased, and in
full force and effect. If Lessee's interest in and to this Lease or the
Demised Premises is assigned or transferred to a Qualified Assignee (other
than a Lessee's Affiliate), then the assignor shall be released from all
obligations coming due hereunder following the effectiveness of such
assignee's assumption.
ARTICLE XI
Condemnation
11.1 EMINENT DOMAIN; CANCELLATION. If, at any time during the term of this
Lease, all or any portion of the Demised Premises is taken, appropriated or
condemned by reason of eminent domain, the Lessor and Lessee shall divide the
proceeds and awards in the condemnation proceedings, abate the Rent, and make
other adjustments in a just and equitable manner under the circumstances. If the
parties cannot agree on a just and equitable division, abatement of Rent, or
other adjustments within thirty (30) days after the award has been made, the
disputed matters shall, by appropriate proceedings, be submitted to a court
having jurisdiction of the subject matter for its decision and determination. If
legal title to the entire Demised Premises is wholly taken by condemnation, the
Lease shall be cancelled.
11.2 APPORTIONMENT. The parties intend that, upon condemnation, the parties
shall share in their awards to the extent that their respective interests are
depreciated, damaged, or destroyed by the exercise of the right of eminent
domain.
ARTICLE XII
Construction
12.1 CAPITAL IMPROVEMENTS. This Lease is executed with the understanding
and agreement that the Lessee may, but shall not be obligated to, alter, expand,
renovate and/or remodel the existing Improvements or construct additional
buildings or improvements on the Demised Premises and in connection therewith,
perform any required demolition of the existing Improvements, all in accordance
with the terms hereof. If Lessee elects to undertake any such work, it shall do
so only if the work so undertaken will constitute a Qualified Capital
Improvement, and Lessee will not undertake any capital improvements to the
Demised Premises unless they will
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constitute a Qualified Capital Improvement. A "Qualified Capital Improvement"
means any capital improvements to the Demised Premises (including FF&E purchased
as part of any restoration, renovation, or remodeling) which (a) are consistent
in general concept to Exhibit "D" hereto (it being agreed that Lessee may in its
discretion make refining adjustments to such concepts); (b) are made in a good
and workmanlike manner, (c) are in accordance with all applicable Legal
Requirements, and (d) do not violate any provision of this Lease. "Legal
Requirements" means all laws, statutes, codes, ordinances, orders, judgments,
decrees, injunctions, rules, regulations, permits, licenses, authorizations,
directions and requirements of, and agreements with, all governments,
departments, commissions, boards, courts, authorities, agencies, officials and
officers, foreseen or unforeseen, ordinary or extraordinary, and any
restrictions or agreements of record, which now or at any time hereafter may be
applicable to the Demised Premises or any part thereof, or any of the adjoining
sidewalks, streets or ways, or any use or condition of the Demised Premises or
any part thereof or any persons from time to time employed thereon or occupants
thereof or any business conducted therefrom; including, but without limiting the
generality of the foregoing, all zoning, building and land use, noise
abatements, occupational health and safety and other governmental requirements
relating to health, safety, welfare and environmental protection.
12.2 LESSEE TO BEAR EXPENSES. Subject to (a) the terms and conditions of
any separate agreement between Lessor and Lessee which may be entered into
hereafter and (b) Lessor's obligation with respect to the Initial Rent Payment,
the Lessee shall pay the entire cost of all improvements constructed by it on
the Demised Premises, and before commencing such improvements, the Lessee shall
arrange for sufficient financing or otherwise ensure the availability of funds
to pay for such work, and on completion thereof shall deliver copies of the
as-built plans therefor to Lessor.
ARTICLE XIII
Mortgages
13.1 PERMITTED MORTGAGES. Except as expressly permitted under this Article,
Lessor shall not suffer or permit its interest in the Demised Premises to be
subject to any mortgage or other lien. The mortgages expressly permitted under
this Article are called "Permitted Mortgages".
13.2 LESSOR'S MORTGAGE. Lessee acknowledges that the Demised Premises are
currently encumbered by the mortgage and related security documents described on
Exhibit "C" hereto (the "Existing Mortgage"). Lessor shall pay and perform, and
cause all other obligors thereunder to pay and perform, all of their obligations
under the Existing Mortgage and any other Permitted Mortgage (as well as any
other mortgage or security interest granted by Lessor, regardless of whether
permitted under this Lease) and the obligations secured thereby (other than
obligations which are the
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responsibility of Lessee pursuant to specific provisions of this Lease), and
shall indemnify and hold Lessee harmless from and against any and all claims,
losses and expenses incurred by or threatened against Lessee on account of
Lessor's failure to do so.
13.3 ADDITIONAL MORTGAGE. Lessor may grant additional mortgage liens on the
Demised Premises so long as (a) total mortgage indebtedness under the Existing
Mortgage and such additional mortgages does not exceed 75% of the value of the
Demised Premises, and (b) the holder of each such mortgage enters into a
"Non-disturbance Agreement" (hereafter defined), and any such additional
mortgage shall also be a Permitted Mortgage hereunder. Lessee agrees to
cooperate with the Lessor in executing a subordination and attornment agreement
and any other document reasonably required by the Lessor's lender so long as
such lender enters into a non-disturbance agreement in recordable form
("Non-disturbance Agreement"), satisfactory to Lessee in its reasonable
judgment, prohibiting such lender from disturbing, interfering with or
terminating Lessee's rights under this Lease in connection with the exercise of
its remedies under the mortgage, unless Lessee shall then be in default
hereunder past any notice, grace or cure period.
13.4 ESCROW PAYMENTS. So long as the holder of any Permitted Mortgage
requires Lessor to make monthly escrow payments for real estate taxes and/or
insurance premiums, then Lessee shall pay the same monthly to Lessor, for
payment to such lender (or directly to such lender if Lessee so elects), (a) the
monthly escrow payments required by such lender and (b) payment of any
deficiency when required by such lender, and upon doing so shall have satisfied
its obligation for payment of real estate taxes and/or such insurance premiums
as are escrowed, as applicable, under this Lease.
13.5 SUBORDINATION. This Lease is and shall be subordinate to any Permitted
Mortgage so long as the holder thereof has entered into a Non-disturbance
Agreement.
13.6 LESSEE'S MORTGAGES. Lessee shall not suffer or permit its interest in
the Demised Premises, the Club or the other rights assigned to Lessee pursuant
to this Lease or the other Closing Deliveries to be subject to any mortgage or
other lien.
ARTICLE XIV
Default
14.1 CROSS-DEFAULT. A "default" or "Default" by either party to this
Agreement means the failure of such party and, in the case of Lessor, of GICI,
Yacht Club or GIII (Lessor, GICI, Yacht Club and GIII are sometimes called
"Lessor Parties") to pay or perform any of its obligation under this Lease or
under any of the "Closing Deliveries" (defined in the Master Agreement) (such
failure to pay or perform is called a "breach"), and in each case, expiration of
any notice, grace or cure periods.
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14.2 BY LESSEE.
(a) NOTICE; CURE. If at any time the Lessee fails to make any payment
of any Rent on the day it is due and payable, or if the Lessee breaches any
other covenant under this Lease, the Lessor shall give written notice
thereof to Lessee, but Lessor shall not be entitled to declare this Lease
in default unless, in the case of any Rent payable in monthly installments,
the payment is not paid within 5 days after its due date (such 5-day period
is called a "grace period") and continues for ten (10) days after Lessee
receives Lessor's notice that such payment was not made within the grace
period, and, in the case of any other breach, the breach continues for
thirty (30) days after Lessee receives Lessor's notice to Lessee. In no
event, however, shall Lessor be obligated to provide more than one notice
of an overdue monthly installment of Rent in any one Lease Year, and after
Lessee has received one such notice in any Lease Year, then, for the
remainder of that Lease Year, Lessee shall be afforded the grace period
only with respect to such monthly installments. However, nothing contained
herein shall be construed as precluding the Lessor from having any other
remedy that may be necessary to preserve its right and its interest in the
Demised Premises and this Lease, even before expiration of the grace or
notice periods provided for in this Section, if under the then existing
circumstances, the allowance of the grace or the notice period would
prejudice or endanger the Lessor's rights, estate and interest in this
Lease or the Demised Premises.
(b) REMEDIES. Upon any breach by Lessee and expiration of all
applicable notice, grace and cure periods, the Lessor may declare the Lease
term ended. In that event, the Lessor may re-enter upon any part of the
Demised Premises, either with or without process of law, the Lessee waiving
any demand for possession of the Demised Premises. The Lessor shall also
have all other remedies provided by law and/or equity, this instrument and
the other Closing Deliveries, including, without limitation, acceleration
of Rent. Immediately upon termination of the term, at the Lessor's election
or in any other way, the Lessee shall peaceably surrender and deliver up
the Demised Premises to the Lessor, or its agent or attorney. If the
Lessee, or its agent, attorney, or tenants, holds the Demised Premises, or
any part thereof, one day after the date for their surrender, according to
the terms of this Lease, the Lessee shall be deemed guilty of forcible
detainer of the Demised Premises and shall be subject to eviction or
removal, forcibly or otherwise, with or without process of law.
(c) RENTS; RECEIVER. Subject to the rights of the holder of any first
mortgage to which this Lease is or is made subordinate, the Lessee pledges
with, and assigns to, the Lessor as security for Lessee's obligations under
this Lease all rents, issues, and profits that might otherwise accrue to
the Lessee for the use, enjoyment, and operation of the Demised Premises.
In connection with such pledging of the
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rents, the Lessee covenants and agrees with the Lessor that if the Lessor,
upon the Lessee's default, elects to file suit to enforce the Lease and
protect its rights, the Lessor may, as ancillary to such suit, apply to any
court of competent jurisdiction for the appointment of a receiver of all
and singular the Demised Premises. Nothing contained in this Section shall
be construed as empowering the Lessor to collect or receive rents accruing
from the Demised Premises, unless and until the Lessee is in default.
14.3 BY LESSOR.
(a) In the event of a breach by the Lessor Parties, the Lessee shall
give written notice to the Lessor, but Lessee shall not be entitled to
declare this Lease in default unless, in the case of any failure to make a
payment of money, such amount is not paid within ten (10) days after the
Lessor receives Lessee's notice that such payment is due, and in the case
of any other violation, the violation continues for thirty (30) days after
Lessor receives Lessee's notice. However, nothing contained herein shall be
construed as precluding the Lessee from having any other remedy that may be
necessary to preserve its right and its interest in the Demised Premises,
the Club, and this Lease, even before expiration of the notice period
provided in this Section, if under the then existing circumstances, the
allowance of the notice period would prejudice or endanger the Lessee's
rights, estate and interest in this Lease, the Club, or the Demised
Premises.
(b) REMEDIES. Upon any default by Lessor and expiration of all
applicable notice and cure periods, the Lessee may terminate this Lease,
and except as may be specifically provided otherwise pursuant to any
liquidated damages provision in the Master Agreement or any other Closing
Deliveries, shall also have all other remedies provided by law and/or
equity, this instrument and the other Closing Deliveries.
14.4 DEFAULT INTEREST. All arrearages in the payment of Rent and other sums
payable hereunder by one party to the other shall bear interest from the
termination of any grace period provided hereunder, payable at the rate (the
"Default Rate") equal to the "prime rate" as in effect from time to time as
reported in the Wall Street Journal, plus six percent (6%) per annum until paid.
14.5 CUMULATIVE REMEDIES. During the continuance of the Lease, each party
shall have all rights and remedies which this Lease, the other Closing
Deliveries and the laws of the State of Florida assure to it. Except as may be
specifically provided otherwise pursuant to any liquidated damages provision in
the Master Agreement or any other Closing Deliveries, all rights and remedies
accruing to the Lessor shall be cumulative) that is, the Lessor may pursue all
of such rights and remedies, in whatever
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order it desires and the law permits without being compelled to resort to any
one remedy in advance of any other.
ARTICLE XV
Additional Covenants of Lessee
15.1 REPAIR OBLIGATIONS. During the term of this Lease the Lessee shall
keep in good state of repair and in first class condition all buildings and FF&E
and shall not suffer or permit any waste, or neglect of the Demised Premises,
provided, however, that Lessee shall be permitted to replace any or all of the
FF&E with items of equal or better value, and, provided, further, that Lessee
shall be permitted to make Qualified Capital Improvements.
15.2 USE. Lessee shall use the Demised Premises only as a luxury hotel and
resort and related ancillary uses and businesses as permitted under the
instruments listed on Exhibit "C" hereto, and in connection therewith, shall use
the words "Grove Isle" as or as part of the name of its hotel and resort
operations at the Demised Premises in accordance with the license granted
pursuant to Section 15.6 below. Lessee shall comply with all applicable Legal
Requirements with respect to its operation of the Demised Premises, provided,
however, that nothing herein or in any other provision of this Lease shall
obligate Lessee to correct or modify any aspect of the physical condition of the
Demised Premises which existed on the Commencement Date.
15.3 REPLACEMENT RESERVE. Lessee shall establish, as a segregated bank
account (the "Replacement Reserve"), a reserve for the replacement and repair of
the FF&E and shall deposit in the Replacement Reserve during each Lease Year not
less than 3% of the Operating Revenue (computed without regard to Club Revenue)
for that Lease Year. Lessee shall use the funds held in the Replacement Reserve
only for repair and replacement of the FF&E. Any funds held in the Replacement
Reserve on termination of this Lease shall be transferred to Lessor, unless this
Lease is terminated on account of any breach or default of Lessor, in which
event the Replacement Reserve shall remain the property of the Lessee.
15.4 PRESERVATION OF RIGHTS. In the exercise of its rights under this Lease
and the other "Closing Deliveries" (referred to in the Master Agreement), the
Lessee shall not engage in any conduct which would invalidate or result in
forfeiture or suspension of the alcoholic beverage license or the other material
permits, licenses or governmental approvals assigned to Lessee pursuant to the
Master Agreement.
15.5 SPA. The parties have entered into a separate letter agreement
pursuant to which Lessor may hereafter construct and operate a spa on a portion
of the Demised Premises. If and to the extent Lessor does elect to construct
such spa in accordance with such letter, then in the absence of any superseding
written agreement between Lessor and Lessee, such spa (the "Spa") and the
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land on which it is located shall not be part of the Demised Premises, and
Lessor and its employees, agents, contractors and lawful users of the Spa shall
have and enjoy a non-exclusive right, for the term of this Lease, (a) to use and
enjoy all driveways, walkways, parking facilities, tennis courts, restaurant and
open spaces now or hereafter located at the Demised Premises to the extent
necessary or appropriate for the construction of Spa and/or for their use and
enjoyment of the Spa, as applicable, and (b) in the case of Lessor, to erect,
maintain and repair directional signage for the Spa at the Demised Premises so
long as such signs conform to all applicable Legal Requirements, and are in the
same locations as, and are similar in size and design to, existing signage at
the Demised Premises, subject, however, in all cases to the reasonable
restrictions imposed by Lessee upon all users of such facilities, and Lessee's
right to relocate, remove, alter or demolish such facilities from time to time
to the extent not prohibited under this Lease. Lessor shall indemnify and hold
Lessee harmless from and against any and all loss, claim or damage which may be
incurred by or threatened against Lessee as a result of, or in connection with,
the exercise of its right to maintain and repair its signage hereunder or any
negligence or wrongful conduct of Lessor or its employees, agents, Spa invitees
and licensees on or with respect to the Demised Premises and agrees to maintain
and keep in effect at all times during the term of this Lease, liability
insurance policies relating to the Demised Premises in an amount not less than
$5,000,000.
15.6 LOANED SCULPTURE. The parties acknowledge that the objects scheduled
on Exhibit "E" hereto (the "Loaned Property"), are the property of the persons
indicated on Exhibit "E", who have loaned it to Lessor under unwritten
agreements requiring use only at the Demised Premises and at no other location,
and requiring that such objects be returned to the responsible owners listed on
Exhibit "E", on request. Within 60 days after notice by either party hereto to
the other, Lessor will, at Lessor's sole expense, remove such objects from the
Demised Premises. Notwithstanding anything herein to the contrary, Lessee shall
maintain insurance on the Loaned Property so long as it remains on the Demised
Premises, but except to the extent covered by the proceeds of insurance received
by Lessee, Lessee shall have no responsibility for the Loaned Property, and
shall not be required to maintain, secure or repair the Loaned Property, or to
replace the same as part of any Restoration or otherwise, and Lessor shall
indemnify and hold Lessee harmless from and against any and all loss, cost,
expense and damage, incurred or suffered by, or threatened against, Lessee, on
account of personal injury or property damage caused by the existence of the
Loaned Property at the Demised Premises, other than such loss, cost, expense or
damage arising from the gross negligence or willful misconduct of Lessee.
15.7 MARINA. Pursuant to the Sovereignty Lease n defined below, Lessor and
Grove Isle Yacht Club Associates, a Florida general partnership ("Yacht Club")
(Lessor and Yacht Club are sometimes together called "Marina Parties") together
own a leasehold estate in certain submerged land in Biscayne Bay,
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adjacent to the Demised Premises, more particularly described in that certain
Sovereignty Submerged Land Lease from the Board of Trustees of the Internal
Improvement Trust Fund of the State of Florida to the Marina Parties recorded in
Official Records Book 16401, Page 609, Public Records of Dade County, Florida
(the "Sovereignty Lease", which term includes all renewals thereof). In order to
provide assurances to each other with respect to the certain operations on the
Demised Premises and the Marina Property, the parties agree that, for the term
of this Lease:
(a) The Marina Parties shall comply with all terms and conditions of
the Sovereignty Lease and use their best efforts to keep the Sovereignty
Lease and their rights thereunder in full force and effect. The Marina
Parties shall apply for renewals of the Sovereignty Lease in sufficient
time to enable renewal not later than the end of the term stated therein,
and use its best efforts to obtain such renewal. Lessee agrees on request
of the Marina Parties to execute such consents and joinders which may be
required by the lessor under the Sovereignty Lease in order to obtain such
renewal but Lessee shall not be required to subject itself or the Demised
Premises to any liability (except, in the case of the Demised Premises,
such liability to which they are presently subject pursuant to the
Sovereignty Lease). The Marina Parties shall provide Lessee with copies of
such application for renewal simultaneously with submission thereof to the
lessor under the Sovereignty Lease. If the Marina Parties fail to do so
within the time provided herein, the Marina Parties hereby make, appoint
and constitute Lessee's president to do so in the name and on behalf of the
Marina Parties, it being understood and agreed that such power is a power
coupled with an interest and cannot be revoked. Nothing herein shall
obligate Lessee to exercise the power of attorney granted hereunder.
(b) The Marina Parties shall operate a marina on the Marina Property
in accordance with the Sovereignty Lease and as the same is presently
operated. Nothing herein shall be deemed to impose any obligations on the
Marina Parties with respect to boatslips sold to third parties, however,
the Marina Parties shall at all times ensure that a minimum of three (3)
boatslips are maintained and are made available for transient users of any
hotel and/or restaurant facilities located on the Demised Premises and
shall afford the users of such spaces and their agents, contractors and
invitees, access over and across the driveways, walkways, pier, docks and
ramps located on the Marina Property between such spaces and the hotel,
restaurant and other facilities located on the Demised Premises, subject to
reasonable restrictions imposed by the marina Parties upon all users of
such facilities Temporary dockage at such boatslips shall be free of charge
but the Marina Parties shall have the right to charge and collect its
normal dockage rates for dockage for overnight or longer.
(c) The Lessee shall have the right to place and maintain directional
signage on the Marina Property in order
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to direct users to its facilities on the Demised Premises. The location,
nature and appearance of such signage shall be mutually agreed to by the
parties, but such agreement shall not be unreasonably withheld.
(d) The Lessee shall afford the Marina Parties and their agents,
contractors and invitees, the non-exclusive right to use and enjoy all
driveways, walkways, parking facilities and open spaces now or hereafter
located at the Demised Premises to the extent necessary or appropriate for
their use and enjoyment of the marina operated on the Marina Property by
the Marina Parties, subject, however, to reasonable restrictions imposed by
Lessee upon all users of such facilities and Lessee's right to relocate,
remove, alter or demolish such facilities from time to time to the extent
permitted under the Lease. In addition, subject to normal membership
criteria, rules and regulations and screening procedures for the Club,
Lessee shall permit owners of boatslips at the Marina Property to become
members of the Club.
(e) The Marina Parties and the Lessee (in such capacity, each is an
"indemnifying party") shall indemnify and hold the other (in such capacity,
an "indemnified party") harmless from and against any and all loss, claim
or damage which may be incurred by or threatened against the indemnified
party as a result of any negligence or wrongful conduct of the indemnifying
party or its employees, agents, invitees and licensees on or with respect
to the property upon which the indemnifying party is granted rights under
subsections (b), (c) or (d) above.
(f) So long as the existing retail space at the Demised Premises is
part of the Demised Premises, and thereafter so long as Lessee has the
right to do so, Lessee shall lease to Yacht Club or its designee at least
400 square feet of such retail space, facing Biscayne Bay and the marina
parking lot, for use as a dockmaster's office and a ships' store, at market
rental rates.
(g) From time to time upon the request of any party, the other shall
make, execute and deliver, or cause to be made, executed and delivered to
the requesting party any and all such further instruments of lease,
transfer, conveyance and further assurance, easements, certificates,
affidavits and other documents as the requesting party may consider
necessary in order to effectuate, complete or perfect the transactions
contemplated under this Section 15.7.
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15.9 STOCK. By its joinder hereafter, Grove Isle Investments, Inc. ("GIII")
hereby grants to Lessee an option (herein, the "Option") to purchase from GIII
60 shares of Class A common stock (the "Stock") prior to termination of the
Lease for one (1) United States Dollar at any time from or after such date as
Lessee shall have instituted an action in a court of competent jurisdiction
against any of the Lessor Parties alleging the existence of an uncured default,
so long as such action is pending and Lessee shall have posted a surety bond or
other security for loss in the event that Lessee is not the prevailing party in
such action. Lessee shall exercise the Option by giving written notice thereof
to GIII not less than 30 days prior to the date on which Lessee intends to
purchase the Stock (the "Purchase Date"). On the Purchase Date, GIII shall
execute and deliver to Lessee the certificates representing the Stock, as well
as sufficient stock powers and any and all other instruments which may be
necessary to effectuate absolute transfer of the Stock to Lessee. In connection
herewith:
(a) GIII represents and warrants to Lessee that the Stock constitutes
all of the authorized, issued and/or outstanding shares of GICI, and is
free and clear
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of any and all options, agreements, security interests, liens or
encumbrances whatsoever. GIII further agrees that at no time between the
date hereof and the Purchase Date shall the Stock be sold, transferred,
pledged or assigned, nor shall the Stock be subject to any such agreement,
option, lien, encumbrance or security interest whatsoever.
(b) GICI shall:
(i) execute no document or instrument, or take any other action
with respect to the Club other than as requested by Lessee in writing.
(ii) engage in no business other than its performance of this
Section 15.9.
(iii) not sell, transfer, liquidate or dispose of any of its
rights, assets or other properties other than as contemplated under
this Lease, provided, however, that GICI shall be permitted to
transfer or dispose of any rights which it may have with respect to
its net operating loss carryforward as reported on its United States
income tax returns.
(iv) neither authorize or issue any additional shares of stock,
nor, without the written consent of Lessee, modify its Articles of
Incorporation or bylaws.
15.10 LICENSE. Lessor and GICI grant to Lessee an exclusive license to use,
during the term of this Lease, solely for the purposes set forth below in this
section, any and all trademarks, trade names and fictitious names used or
heretofore used by either of them in connection with the Club, the Demised
Premises, or any part thereof, including without limitation, the names "Grove
Isle Club", "Grove Isle Hotel", "Grove Isle Resort", "Little Grove Isle" or any
combination or derivation thereof (collectively the "Name"), and the trademarks
registered with the Florida Department of State, Trademark Registration Section,
Registration numbers T941,324, T941,325, T941,326 and T941,327 (collectively,
the "Marks") provided, however, that the license granted hereunder shall be
utilized only in connection with the use, operation and management'
advertisement and promotion of the Demised Premises and the Club and not for any
other properties, provided, however, that Lessee shall also be authorized to use
the Names and/or the Marks for and in connection with the corporate and
marketing affairs of Lessee and Lessee's Affiliates. Lessee agrees that the
quality of services provided by it with respect to the Marks and the Names shall
conform to the operating standards set forth in Section 15.2 of this Lease.
Notwithstanding that the license granted pursuant to this provision is
exclusive, the Lessor Parties shall have the non-exclusive right (together with
Lessee) to use the Names and the Marks in connection with their use and
operation of the Spa and the
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marina referred to above, and the Lessor Parties shall also have and retain the
non-exclusive right (together with Lessee) to use the promotional video of the
Demised Premises and such marina. The license granted hereunder shall remain in
full force and effect for the term of this Lease, is not assignable or otherwise
transferrable, directly or indirectly, except in conjunction with assignment of
this Lease and/or the Club to the extent permitted under this Lease, and shall
automatically terminate on termination of the Lease.
ARTICLE XVI
Quiet Enjoyment
Subject to the terms hereof, so long as the Lessee keeps and performs all
of its covenants and conditions under this Lease, it shall have quiet,
undisturbed, and continued possession of the Demised Premises, free from all
claims against the Lessor and all persons claiming under, by, or through the
Lessor.
ARTICLE XVII
Right of Entry
The Lessor and its agents may enter upon the Demised Premises at all
reasonable times to examine their condition and use or to exhibit the same to
its lenders, investors and prospective purchasers, so long as that right is
exercised in a manner that does not unreasonably interfere with the Lessee in
the conduct of its business on the Demised Premises. If the Demised Premises are
damaged by fire, windstorm, or other casualty which causes them to be exposed to
the elements, the Lessor may enter upon them to make emergency repairs if the
Lessee fails to do so. However, if it does so, the act or acts shall not be
deemed to excuse the Lessee from its obligation to keep the Demised Premises in
repair, and the Lessee shall, upon the Lessor's demand, immediately reimburse it
for the cost of the emergency repairs.
ARTICLE XVIII
Lessor's Obligations
The parties acknowledge that the Lessor Parties have certain financial
obligations to Lessee under the Master Agreement, this Lease and the Closing
Deliveries and the other agreements and instruments referred to in the Master
Agreement. To the extent that any such obligation is a determinable sum, Lessee
shall have the right to set off against Lessee's obligations to Lessor under
this Lease, the amount of any such obligation which is not paid within 45 days
after Lessee's notice that such payment is due and owing.
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ARTICLE XIX
Miscellaneous
19.1 GOVERNING LAW. All of the rights and remedies of the parties shall be
governed by the provisions of this instrument and by the laws of the State of
Florida.
19.2 FORCE MAJEURE. If the Lessor or Lessee is delayed, hindered, or
prevented from performing any act required hereunder (other than the payment of
money) by reason of strikes, lockouts, labor troubles, inability to procure
materials, failure of power, restrictive government laws or regulations, riots,
insurrection, the act, failure to act or default of the. other party, war, or
other reason beyond its control, then performance of the act shall be excused
for the period of the delay. In that event, the period for the performance of
the act shall be extended for a period equivalent to the period of the delay.
19.3 ESTOPPEL CERTIFICATES. Either party shall, without charge, at any time
and from time to time hereafter (but not more frequently than twice during any
one Lease Year), within twenty (20) days after the other's written request to
the other, certify by instrument duly executed and acknowledged to any mortgages
or purchaser or proposed mortgagee or proposed purchaser, or any other person,
firm, or corporation specified in the request as to:
(a) Whether this Lease has been supplemented or amended, and, if so,
the substance and manner of the supplement or amendment;
(b) The validity and force and effect of this Lease, in accordance
with its tenor as then constituted)
(c) The existence of any default under this Lease;
(d) The existence of all offsets, counterclaims, or defenses thereto
on the part of the other party;
(e) The Commencement Date and Termination Date; and
(f) All other matters that may reasonably be so requested.
Any such certificate may be relied upon by the party who requested it and
any other person, firm, or corporation to whom it may be exhibited or delivered,
and the contents of the certificate shall be binding on the party executing it.
Failure within the 20-day period to give a written reply shall constitute a
representation, which any person may rely upon as being true and correct, that
the Lease is in good standing.
19.4 DUPLICATES; RECORDATION. Either party shall, at any time, at the
other's request, promptly execute duplicate originals of an instrument, in
recordable form, which shall constitute a short form of this Lease. This will
set forth a description of the
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demised premises, the term of this Lease, and any other portion thereof, except
for the rental provisions, requested by either party.
19.5 NO RECOURSE. Notwithstanding anything to the contrary, the parties
hereto shall look solely to the interest of the other in the Demised Premises,
this Lease, the Club, and the Retained Club Rights, as applicable, for the
satisfaction of any remedy it may have hereunder or in connection herewith and
shall not look to any other assets of such other party or of any other person,
firm or corporation. No personal liability shall attach to any of present or
future shareholders, officers, or directors of any party or its partners, for
any obligation hereunder or in connection herewith. Nothing in this section
shall be construed to diminish or impair the effect of Article XVIII hereof, or
of any separate guaranty or promissory note executed by any third party in
connection with this Lease.
19.6 CONSENT NOT TO BE UNREASONABLY WITHHELD. Except to the extent, if any,
specifically provided otherwise herein, the Lessor Parties shall not
unreasonably withhold their consent, permission, or approval for any act which
may be required or desired by the Lessee under the provisions of this Lease.
Such consent, permission, or approval shall be deemed to have been granted if,
within forty-five (45) days after any Lessor Party receives the request, fails
to notify the Lessee of its express disapproval and the reasons therefor.
19.7 COVENANTS RUNNING WITH LAND; BINDING EFFECT. All covenants,
conditions, and obligations contained herein or implied by law are covenants
running with the land for the term of this Lease, or such longer period as may
be specified herein, and shall attach and bind and inure to the benefit of the
Lessor and Lessee and their respective heirs, legal representatives, successors,
and assigns, except as otherwise provided herein.
19.8 NON-WAIVER. No waiver of a breach of any covenant in this Lease shall
be construed to be a waiver of any succeeding breach of the same covenant. No
delay or failure by either party to exercise any right under this Lease, and no
partial or single exercise of that right, shall constitute a waiver of that or
any other right, unless otherwise expressly provided herein.
19.9 RELATIONSHIP. The relationship between parties is that of landlord and
tenant only, and in no event shall the parties be deemed to be partners or joint
ventures.
19.10 WRITTEN MODIFICATIONS. No modification, release, discharge, or waiver
of any provision hereof shall be of any force, effect, or value unless signed in
writing by the party to be charged therewith, or its duly authorized agent or
attorney.
19.11 ENTIRE AGREEMENT. This instrument, together with the Master Agreement
and the other Closing Deliveries, contain the entire agreement between parties
as of this date with respect to
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the subject matter hereof. The execution hereof has not been induced by either
party by representations, promises, or understandings not expressed herein.
There are no collateral agreements, stipulations, promises, or undertakings
whatsoever upon the respective parties in any way touching the subject matter of
this instrument which are not expressly contained in it or such Master Agreement
or the other Closing Deliveries.
19.12 NOTICES. All notices and responses which are required or permitted
under this Lease shall be in writing, and shall be deemed complete only when
actually delivered to the recipient as follows or delivery at such address is
refused:
(a) If to any
Lessor Party: Grove Isle Associates, Ltd.
2701 South Bayshore Drive
Penthouse
Miami, FL 33133
Attention: Maurice Wiener
With a copy to: Gary Saul, Esq.
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, FL 33131
(b) If to Lessee: Westgroup Grove Isle
Associates Ltd.
c/o Noble House Hotels & Resorts
25 Central Way, Suite 400
Kirkland, WA 97033
Attn: Mr. Patrick R. Colee
With a copy to: Patrick Dyer, Esq.
25 Central Way
Suite 400
Kirkland, WA 97033
Either party may change the place for giving notice by written notice in
the manner set forth in this Section.
19.13 JOINT LIABILITY. If the parties upon either side (Lessor and Lessee)
consist of more than one person, such persons shall be jointly and severally
liable on the covenants of this Lease.
19.14 LIABILITY CONTINUED. All references to the Lessor and Lessee mean the
persons who, from time to time, occupy the positions, respectively, of Lessor
and Lessee. However, this shall not be construed as relieving a person of any
liability incurred by it by reason of or in connection with it having been
Lessor or Lessee at one time, unless such release is provided for under other
provision of this Lease.
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19.15 NO THIRD PARTY BENEFITS. This Lease is made for the sole benefit of
the parties hereto, and no third party shall be a beneficiary hereof or have any
rights hereunder.
19.16 ATTORNEY'S FEES. In the event of any litigation, action, suit or
proceeding between any parties to this Lease pertaining to the construction or
enforcement of this Lease, the prevailing party shall be entitled to payment by
the other of such prevailing parties reasonable attorney's fees and expenses in
connection with such litigation, actions, suit or proceeding.
19.17 BROKER. The parties represent that there are no brokers involved in
this transaction and that no brokerage commissions are payable to any third
party.
19.18 HEADINGS. Headings in this Lease are for convenience and reference
only and shall not be used to interpret or construe its provisions.
19.19 TIME OF ESSENCE. Time is expressly declared to be of the essence of
this Lease and of each provision hereof.
IN WITNESS WHEREOF, the Lessor and the Lessee have hereunto set their hands
and seals as of the day and year above written.
LESSOR:
GROVE ISLE ASSOCIATES, LTD.,
a Florida limited partnership,
by COURTLAND INVESTMENTS, INC.,
a Delaware corporation,
its sole general partner
/s/ Lawrence Rothstein By: /s/ Maurice Wiener
- -------------------------------------- ---------------------------------
Print Witness Name: Lawrence Rothstein Name: Maurice Wiener
- -------------------------------------- ---------------------------------
Philip Brown Title:
- -------------------------------------- ---------------------------------
Print Witness Name: Philip Brown
(SEAL)
LESSEE:
WESTGROUP GROVE ISLE ASSOCIATES LTD.,
a Florida limited partnership, by
WESTGROUP PARTNER, INC.,
a California corporation,
its sole general partner
/s/ Lawrence Rothstein By: /s/ Patrick R. Colee
- -------------------------------------- ---------------------------------
Patrick R. Colee, President
Print Witness Name: Lawrence Rothstein
- --------------------------------------
/s/ Philip Brown
- --------------------------------------
Print Witness Name: Philip Brown
(SEAL)
- -37-
<PAGE>
ATTACHMENTS:
EXHIBIT "A" -- Legal Description
EXHIBIT "B" -- Existing Lease
EXHIBIT "C" -- Title Exceptions
EXHIBIT "D" -- Approved Capital Improvements
EXHIBIT "E" -- Loaned Property
-38-
<PAGE>
JOINDER
The undersigned join herein in order to acknowledge and agree to the
provisions of this Lease.
GROVE ISLE CLUB, INC.,
a Florida corporation
/s/ Lawrence Rothstein By: /s/ Maurice Wiener
- -------------------------------------- ---------------------------------
Print Witness Name: Lawrence Rothstein Name: Maurice Wiener
- -------------------------------------- ---------------------------------
/s/ Philip Brown Title: Chairman
- -------------------------------------- ---------------------------------
Print Witness Name: Philip Brown
(SEAL)
GROVE ISLE YACHT CLUB ASSOCIATES,
a Florida general partnership
By: COURTLAND INVESTMENTS, INC.,
a Delaware corporation, its
general partner
/s/ Lawrence Rothstein By: /s/ Maurice Wiener
- -------------------------------------- ---------------------------------
Print Witness Name: Lawrence Rothstein Name: Maurice Wiener
- -------------------------------------- ---------------------------------
/s/ Philip Brown Title: Chairman
- -------------------------------------- ---------------------------------
Print Witness Name: Philip Brown
(SEAL)
By: GROVE ISLE INVESTMENTS, INC.,
a Florida corporation, its
general partner
/s/ Lawrence Rothstein By: /s/ Maurice Wiener
- -------------------------------------- ---------------------------------
Print Witness Name: Lawrence Rothstein Name: Maurice Wiener
- -------------------------------------- ---------------------------------
/s/ Philip Brown Title: Chairman
- -------------------------------------- ---------------------------------
Print Witness Name: Philip Brown
(SEAL)
GROVE ISLE INVESTMENTS, INC.,
a Florida corporation
/s/ Lawrence Rothstein By: /s/ Maurice Wiener
- -------------------------------------- ---------------------------------
Print Witness Name: Lawrence Rothstein Name: Maurice Wiener
- -------------------------------------- ---------------------------------
/s/ Philip Brown Title: Chairman
- -------------------------------------- ---------------------------------
Print Witness Name: Philip Brown
(SEAL)
-39-
<PAGE>
CONSENT
The undersigned joins herein in order to consent to the foregoing Amended
and Restated Lease Agreement and to attorn to the rights of Lessee hereunder.
GROVE ISLE MARINA, INC.,
a Florida corporation
By: /s/ Maurice Wiener
---------------------------------
Name: Maurice Wiener
---------------------------------
Title: Chairman
---------------------------------
-40-
MASTER AGREEMENT
THIS AGREEMENT is made and entered into as of November 19, 1996 and is by
and among GROVE ISLE ASSOCIATES, LTD., a Florida limited partnership
("Associates"), GROVE ISLE CLUB, INC., a Florida corporation ("GICI") and Grove
Isle Investments, Inc., a Florida corporation ("Investments") (Associates, GICI
and Investments are sometimes collectively referred to as the "Owners") and
WESTGROUP GROVE ISLE ASSOCIATES LTD., a Florida limited partnership
("Westgroup").
R E C I T A L S
A. Associates is the owner in fee simple of the land located at 4 Grove
Isle Drive, Miami, Dade County, Florida, which is legally described on Exhibit
"A" hereto (the "Land"), all Improvements thereon (the "Improvements"), all
easements, servitudes, reversions, remainders, benefits, and other rights and
interests appurtenant thereto and all furniture, furnishings, fixtures,
appliances and other equipment (the "FF&E") located at and used in connection
with the operation of the Land and the Improvements (the Land, the Improvements,
such appurtenances and the FF&E is together called the "Property").
B. Pursuant to the Declaration of Condominium recorded in Official Records
Book 10279, Pages 1915 et seq., Public Records of Dade County, Florida, and all
amendments to such declaration recorded to-date (the "Declaration of
Condominium"), GICI has the exclusive right to operate the "Grove Isle Club"
referred to in the Declaration of Condominium on the Real Property, membership
in which is mandatory for owners of condominium units established under the
Declaration of Condominium (the "Club").
C. The Improvements presently consist of, among other things, a hotel,
restaurant, retail shops, pool, pool deck, tennis courts, driveways, accessways,
a guard house, and parking areas (such Improvements are called the
"Facilities"). GICI is the owner of a leasehold estate in the Property pursuant
to that certain Lease Agreement dated an of October 1, 1993 by and between
Associates, as Lessor and GICI, as Lessee (the "Existing Lease"), and has been
operating the Facilities as a luxury hotel and restaurant (herein, the "Resort")
as well as the Club.
D. The Owners, in the aggregate, own (i) all food, beverages, catering
supplies, cleaning supplies, stationery, and all other inventory, supplies and
consumables used for the operation of the Resort and the Club (to the extent
that such items are unopened or unsealed, as applicable, they are herein called
the "Inventory and Consumables"), (ii) all licenses, permits and governmental
approvals with respect to the Resort or the operation of the Resort, the Club,
or any component of either, as well as any monies deposited with any
governmental or quasi-governmental authorities in connection therewith (the
"Permit"); (iii) all
<PAGE>
leases, subleases and occupancy agreements with respect to any portion of the
Real Property, and all rents therefrom (collectively, the "Leases".); (iv) all
contracts, warranties, deposits and advance payments made by or for the benefit
of any Owner, goodwill, guaranties, contract rights and general intangibles
(including, without limitation, providing access to and use of Owner's books and
records, and making the originals thereof available where necessary) of Owners
or any of them for or in connection with, or derived from, the ownership or
operation of the Resort or the Club (the "Contracts".); and (v) all other
properties, rights and interests whatsoever of Owners used for or in connection
with the operation of the Resort, the Club, or any part of either but retaining
unto the Owners such rights where necessary for their operation of a marina on
the submerged land adjacent to the Real Property (the "Other Right").
E. The parties desire that Westgroup lease the Property and operate the
same as the Resort and the Club, on an exclusive basis, for Westgroup's own
account and that in connection therewith, the Owners sell, lease or assign, as
applicable, to Westgroup the Inventory and Consumables, certain of the Permits
(to the extent transferable), the Leases, the Contracts and the Other Rights,
all on the terms and conditions hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements, covenants, terms, and conditions hereinafter set forth, the parties
hereby agree as follows:
1. Correctness of Recitals. The above recitals are true and correct.
2. Certain Defined Terms. Any capitalized term used as if defined herein,
but which is not otherwise defined herein, shall have the meaning attributed to
that term on Exhibit "B" attached hereto.
3. Agreement to Close. On the "Closing Date" (hereafter defined), the
parties shall consummate the transactions contemplated above by executing and
delivering, or causing the execution and delivery as applicable, of the Owners'
Closing Deliveries and the Westgroup's Closing Deliveries (each defined below).
The Owners' Closing Deliveries and the Westgroup's Closing Deliveries are
together called the "Closing Deliveries".
4. Capital Improvements: Operating Shortfalls. The parties acknowledge that
revenue from the Property may not be sufficient to pay all costs of operating
and maintaining the Property and the
2
<PAGE>
cost of performing the Lease, and also that it is in their mutual interest to
make capital improvements to the Resort. Accordingly:
4.1 Use of Initial Rent Payment. As more particularly set forth in the
Lease, Westgroup is obligated to pay to Associates at Closing the sum of
$1,000,000 in cash as the "Initial Rent Payment. defined in the Lease.
Associates shall hold the Initial Rent Payment in a segregated account in a bank
located in Dade County, Florida, the name of which account shall be "Noble House
Grove Isle - Special Account". Such account may bear interest for the account of
Associates. Associates shall disburse the Initial Rent Payment to Westgroup upon
Associates' receipt of Westgroup's written requests for such disbursement from
time to time until the first anniversary of the Closing Date. Each request shall
be accompanied by Westgroup's written certification that the amount so requested
is required to pay for the cost of Qualified Capital Improvements or Operating
Shortfalls. If and to the extent that any of the Initial Rent Payment has not
been requested to be disbursed on or before the first anniversary of the Closing
Date, then Associates may disburse such undistributed portion to itself.
4.2 Additional Investment by Westgroup. In addition to its obligation
to pay Initial Rent Payment, Westgroup shall expend not less than $2,000,000
(the "Additional Equity Requirement") for Qualified Capital Improvements from
time to time prior to the "Equity Deadline" defined below, provided, however,
that the amount of any Operating Shortfalls funded by Westgroup prior to the
Equity Deadline (other than Operating Shortfalls funded by disbursement to
Westgroup of Initial Rent Payment as set forth in Section 4.1 above) shall be
credited toward the Additional Equity Requirement; and provided, further, that
the amount of Operating Shortfalls funded by Westgroup which may be credited to
the Additional Equity Requirement shall not exceed $800,000 plus the amount of
the Initial Rental Payment disbursed for Qualified Capital Improvements pursuant
to Section 4.1 above. If and to the extent that the Additional Equity
Requirement is not satisfied prior to the Equity Deadline, then Associates may
notify Westgroup to pay to Associates the amount of any such Additional Equity
Requirement not satisfied, whereupon Westgroup shall pay such amount to
Associates on demand. Nothing herein shall be construed to limit Westgroup's
right or ability to make capital improvements or other investments in the
Property in excess of the Additional Equity Requirement, or following the Equity
Deadline, but "Westgroup's Capital Investment" defined in the Lease shall not
exceed $3,000,000 unless so agreed by Associates in its sole and absolute
discretion. The "Equity Deadline" means the earlier of (a) the third anniversary
of the Closing Date, or (b) the Stabilization Date. The "Stabilization Date"
means the 90th day following the end of the fourth consecutive calendar quarter
(i.e., the three month periods ending on the last day of March, June September
and December) for which Net Operating Surplus (defined in the Lease) has been a
positive amount.
3
<PAGE>
4.3 Accounting for Capital Improvements. Westgroup shall provide
Associates, on a quarterly basis commencing April 1, 1997, a schedule of amounts
expended by Westgroup for Qualified Capital Improvements since the date of the
last such schedule provided, which schedule shall list the item purchased.
Westgroup shall provide Associates with copies of bills, invoices, or contract.
relative to any such capital improvements limited on any such schedule, within
15 days after Associates' request made within 30 days after it receives such
schedule. Westgroup shall maintain accurate books and records with respect to
any such capital improvements, in accordance with generally accepted accounting
principles consistently applied, and shall make its books and records with
respect to the cost of such improvements available for inspection by Associates
or Associates, authorized representative during normal business hours, upon
reasonable prior notice.
5. Restaurant.
5.1 Termination. Not later than the Closing Date, GICI shall give
notice of termination of that certain Management and Licensing Agreement dated
June 23, 1995 between GICI and MMJ Management, Inc. (the "Restaurant
Agreement"), so that the same is terminated and possession delivered to
Westgroup effective not later than 180 days following the Closing Date.
5.2 Indemnity. The Owners, jointly and severally, shall indemnify and
hold Westgroup harmless of, from and against any loss, cost, damage, claim,
expense or liability (including, without limitation, damages, lost profits, all
amounts payable to MMJ Management, Inc. or any other person under or pursuant to
the Restaurant Agreement and any and all promissory notes executed pursuant
thereto and reasonable attorneys' fees and litigation expenses) incurred by or
threatened against Westgroup as a result of any (a) termination or attempted
termination of the Restaurant Agreement, (b) actual or alleged breach or
violation of the Restaurant Agreement or of any promissory notes executed
pursuant thereto or of any term, provision or condition of the Restaurant
Agreement or such notes by or on behalf of any Owner, and/or (c) Equitable
Relief. In this regard, the parties acknowledge that if Westgroup were unable to
operate a restaurant at the Property, its damage would be extremely difficult to
determine. Accordingly, owners shall pay Westgroup, as liquidated damages, and
as Westgroup's sole damages (exclusive of reasonable attorneys' fees and
litigation expenses) as a result of any Equitable Relief, $2,000.00 for each day
that Westgroup is subject to any Equitable Relief but in no event more than
$730,000. "Equitable Relief. means any injunction, restraining order, judgment,
mandate or any other order or decree in favor of MMJ Management, Inc. or anyone
claiming under MMJ Management, Inc., which prevents, limits or impairs, or
purports to prevent, limit or impair, operation of a restaurant at the Property
other than pursuant to the Restaurant Agreement, provided, however, that the
Owners shall not be
4
<PAGE>
responsible for any Equitable Relief (a) to the extent that it is operative
prior to the earlier of the effective termination of the Restaurant Agreement or
180 days following the Closing Date, or (b) following such date that MMJ
Management, Inc. shall have released Westgroup and its agents, contractors,
partners, and employees from any liability or responsibility for any Equitable
Relief. Westgroup shall have the right, but no obligation, to operate a
restaurant at the Property, notwithstanding the pendency of any motion or
petition for Equitable Relief and notwithstanding that such activity may
increase the amount which the Owners are obligated to pay to Westgroup under
this Section.
6. Associates' Loan to Westgroup. Concurrently herewith, Associates shall
make an unsecured loan to Patrick R. Colee in the principal sum of $500,000, to
be evidenced by and repayable in accordance with the "Note" defined below.
Associates shall disburse the proceeds of such loan in two installments of
$250,000, one of which shall be disbursed on such borrower's request not earlier
than June 1, 1997 and the other on such borrower's request not earlier than
September 1, 1997.
7. Closing. "Closing" means the date on which this Agreement is signed and
becomes effective, and all Closing Deliveries are unconditionally exchanged and
delivered. The Closing shall occur on November 19, 1996 (the "Closing Date").
8. Closing Deliveries. At Closing, the parties shall do the following:
8.1 By Owners. The Owners shall execute and deliver, or cause to be
executed and delivered, to Westgroup, the following documents (collectively, and
together with this Agreement, the "Owners' Closing Deliveries"):
(a) An Assignment of Lease in the form attached hereto as Exhibit
"C" (the "Assignment of Lease").
(b) Two counterparts of each of an Amended and Restated Lease
Agreement in the form of Exhibit "D" attached hereto (the "Lease Modification")
and a Memorandum of Lease in the form of Exhibit "E" hereto (the "Lease
Memorandum").
(c) Two counterparts of an Assignment and Assumption of Occupancy
Leases in the form of Exhibit "F" attached hereto (the "Assignment of Occupancy
Leases").
(d) A Bill of Sale in the form of Exhibit "G". attached hereto
(the "Bill of Sale").
(e) An Assignment of Contracts, Permits and Other Rights in the
form of Exhibit "H" attached hereto (the "Assignment of Contracts").
5
<PAGE>
(f) All instruments required to transfer to Westgroup the
Beverage License in the name of GICI, issued by the State of Florida, Department
of Business and Professional Regulation, Bureau of Alcoholic Beverages and
Tobacco.
(g) For each Owner and if a partnership, its corporate general
partners: (i) a Certificate of Good Standing, issued by the appropriate
governmental authority; (ii) for each limited partnership, its Certificate of
Limited Partnership, certified by the appropriate governmental authority; (iii)
for each corporation, a copy of its articles of incorporation, certified by the
appropriate governmental authority; (iv) for each corporation, a certificate of
its corporate secretary, certifying as to the status of its articles of
incorporation, bylaws, incumbent officers and the adoption of resolutions
authorizing the execution and delivery by such corporation of the Owners,
Closing Deliveries, on its own behalf and if such corporation is a general
partner of any limited partnership Owner, on behalf of such partnership; and (v)
for each partnership, a certificate of its general partner certifying as to the
status of its partnership agreement.
(h) Such affidavits, certificates and additional items as are
sufficient to enable deletion, on the Closing Date, of the exceptions set forth
on the Title Commitment as items B-1 (3) through (8), (11), (12), (13) and B-2
(1), (2) a., d., and e.
(i) A letter from City National Bank of Florida ("CNB") in the
form of Exhibit "I" hereto.
(j) Two counterparts of a Subordination, Non-Disturbance and
Attornment Agreement in the form of Exhibit "J" hereto, signed by CNB (the
"SNDA").
(k) Two counterparts of a Closing Statement providing for the
payments required at Closing hereunder (the "Closing Statement").
(1) A schedule of the Inventory and Consumables located at the
Property as of 11:59 p.m. on the Proration Date, initialed on behalf of the
Owners (the "Inventory") for attachment to the Bill of Sale.
(m) A schedule of the Accounts as of 11:59 p.m. on the Proration
Date, initialed on behalf of the Owners (the "Receivables Schedule"),
(n) A schedule of the FF&E located at the Property as of the
Proration Date, initialed on behalf of the Owners (the "FF&E Schedule").
8.2 By Westgroup. Westgroup shall execute and deliver, or cause to be
executed and delivered, to the respective Owners the
6
<PAGE>
following (collectively, and together with this Agreement, the "Westgroup's
Closing Deliveries"):
(a) Two counterparts of each of the Lease Modification and the
Lease Memorandum.
(b) Two counterparts of the Assignment of Occupancy Leases.
(c) Two counterparts of the SNDA.
(d) A promissory note in the form of Exhibit "K" hereto (the
"Note").
(e) A guaranty in form of Exhibit "L" hereto (the "Guaranty").
(f) A Certificate of Good Standing for Westgroup and its general
partner, Westgroup's certificate of limited partnership, and Westgroup's
corporate general partner's certificate of incorporation, each issued by the
appropriate governmental authority, as well as a certificate of Westgroup's
general partner as to the status of Westgroup's partnership agreement, the
status of such corporation's articles of incorporation, bylaws, incumbent
officers and the adoption of resolutions authorizing its execution and delivery
of the Westgroup's Closing Deliveries on behalf of Westgroup.
(g) Westgroup's approval of the Inventory, the Receivables
Schedule, and the FF&E Schedule, evidenced by the initials thereon of
Westgroup's authorized representative.
9. Adjustments. At Closing, the parties shall make such payments to each
other as may be required in order to effectuate the following:
(a) All rent, revenue and other income from the Property, as well
as real property taxes, service and other contracts assumed by Westgroup and
associated deposits and any additional operating expenses for the Property shall
be prorated as of 11:59 p.m. on the date immediately preceding the Closing Date
(the "Proration Date"), provided, however, that as more particularly set forth
in the Lease, n Club Dues n (defined in the Lease) shall be deemed to be prepaid
and to accrue on a daily basis over the period for which they apply, and
provided, further, that any credit due Westgroup on account of Club Dues
received prior to the Closing Date shall be payable in six equal monthly
installments due on the Closing Date and on the last business day of December,
1996, and January, February, March and April, 1997, on which date the entire
balance of such credit shall be due and payable to Westgroup, and the Owners
hereby agree to pay the amount of such credit to Westgroup within the time set
forth above, and in the
7
<PAGE>
amount so paid shall constitute "Operating Revenue n under the Lease, and
provided further that if any prorations contemplated under this subsection (a)
are not made at Closing the parties" shall, within 60 days after Closing,
complete such prorations and make any payments to the other which are required
as a result thereof;
(b) Westgroup shall receive a credit for all tenant deposits,
security deposits and prepaid bookings held by Owners as at 11:59 p.m. on the
Proration Date;
(c) Westgroup shall pay to Owner an amount equal to the cost of
the Inventory and Consumables listed on the Inventory approved by Owners and
Westgroup pursuant to section 8, as evidenced by copies of paid invoices
therefor or such other documentation reasonably requested by Westgroup;
(d) Rather than remove Owners' cash from the Property on the
Closing Date, the parties shall cause the amount of Owner's cash at the Property
to be counted at 3:00 a.m. on the Closing Date. Such cash shall not be removed
by the Owner, and at Closing Owner shall be credited, and Westgroup shall be
debited, the amount of such cash; and
(e) Westgroup and Associates shall each pay half of the Florida
documentary stamp tax on the Note.
10. Post-Closing Accounts and Payables.
(a) Except to the extent that Westgroup is entitled to receive a
credit under section 9(b) above, and also except to the extent otherwise
provided in the Closing Statement, Westgroup shall not be entitled to any of
Owners' accounts receivable which are listed on the Receivables Schedule and are
collected on or after the Closing Date, and if Westgroup receives payment of any
such accounts on or after the Closing Date, it shall promptly remit the same to
Owners. In this regard, Westgroup shall apply payments from each account debtor
to the oldest account owed by that debtor, unless the payor designates a
different account to which such payment shall be applied (in which event it
shall be applied to the account so designated); or the account debtor has
disputed the account to which such payment would otherwise be applied (in which
event, it shall be credited to the oldest account which has not been disputed).
(b) Except for any accounts payable which may be expressly assumed by
Westgroup and credited to Westgroup on the Closing Statement, Owners shall pay
in due course all accounts payable currently due with respect to the Property as
of the Closing Date for goods or services delivered to the Property before the
Closing Date, without contribution or proration from Westgroup.
8
<PAGE>
11. Representations and Warranties of Owner. Each Owner represents and
warrants (for itself only) to Westgroup that:
11.1 It has the legal power and authority to enter into this Agreement
and those of the other Owners' Closing Deliveries to be executed by it and to
perform its obligations hereunder and thereunder.
11.2 Those of the Owners' Closing Deliveries to be executed by it are
the valid and legally binding obligations of and are enforceable against it in
accordance with their terms, subject only to applicable bankruptcy, insolvency,
reorganization, moratorium laws or similar laws or equitable principles
affecting or limiting the rights of contracting parties generally.
11.3 Neither its execution and delivery of, nor performance of its
obligations under the Owners' Closing Deliveries, conflict with or do or will
result in the material breach of any terms, conditions or provisions of, or
constitute a default under, any bond, note, or other evidence of indebtedness or
any contract, indenture, mortgage, deed of trust, loan, operating agreement,
lease or other agreements or instruments to which such Owner is a party or which
affects the Property.
11.4 To its knowledge, except as disclosed on "Exhibit "M" hereto,
there are no pending, threatened or contemplated actions, suits, arbitrations,
claims or proceedings, at law or in equity, affecting the Property or in which
Owner is, or to the best of Owner's knowledge will be, a party by reason of
Owner's ownership of or involvement with the Property. The Owner has disclosed
all information known to it concerning the pending litigation reasonably
requested by the Westgroup.
11.5 To its knowledge, it has obtained all permits, licenses and
governmental approvals required for the use and operation of the Improvements as
presently conducted, which permits, licenses and governmental approvals are
listed on Exhibit "N" hereto.
11.6 No attachment, execution proceeding, assignment for the benefit
of creditors, insolvency, bankruptcy, reorganization or other such proceedings
are pending or threatened against it.
11.7 To its knowledge, the zoning and permitted uses. of the Real
Property is as set forth in that certain Settlement Agreement recorded in
Official Records Book 9912, Page 260, of the Public Records of Dade County,
Florida, and to its knowledge, without investigation, Owners have operated the
Real Property substantially in accordance therewith.
11.8 It has received no notice from any governmental authority of any
violations of any Legal Requirement relating to
9
<PAGE>
the Property and, to its knowledge, but without investigation, it has not
committed any such violation.
11.9 The Owners have delivered, or are concurrently with Closing
delivering to Westgroup the plans and specifications for construction of the
Improvements, as well as copies of all of their books and records pertaining to
the Property.
11.10 It has not received any notice from any insurance company or any
governmental authority of any defects or inadequacies in the Property which has
not been corrected.
11.11 To its knowledge, except as disclosed on the Phase I Report,
there has been no production, disposal, storage, spillage or seepage of any
Hazardous Material or any contamination therefrom at or on the Property, nor is
there any pending proceeding or inquiry by any governmental authority with
respect thereto.
11.12 With the exception of the Professional Employer Agreement for
Grove Isle Club, Inc. d/b/a Grove Isle Club and Resort dated May 24, 1996 (the
"Vincam Agreement"), there are no outstanding employment contracts affecting the
Property. The Vincam Agreement is in full force and effect without modification
and all amounts due or payable by it under the Vincam Agreement are paid through
and including November 9, 1996.
11.13 There are no contracts, agreements, understandings or
arrangements with third parties for the supply of goods or services to the
Property other than as set forth on Exhibit "O" hereto.
11.14 Other than transient hotel guests, there are no parties in
possession of the Demised Premises or any part thereof under any leases,
subleases, occupancy agreements or similar arrangements or otherwise other than
the tenants under those leases listed on Exhibit "P" hereto. Each of those
tenants is in possession under a month-to-month tenancy. All rent payable under
such leases is current. No such tenant has asserted any claim, offset or defense
to its obligations under such leases.
11.15 With the exception of Sales Tax owed by Owners' predecessor in
title, the Owners have paid all Sales Tax due through November 1, 1996 and no
Owner has received any notice from the Florida Department of Revenue that any
such Sales Tax is delinquent. Any delinquent Sales Tax owed by Owners'
predecessor in title is the subject of a separate settlement agreement between
Owners and the Florida Department of Revenue, and the Owners' obligations under
such settlement agreement are current and in good standing.
10
<PAGE>
11.16 Except as disclosed on the Title Report, the Property is free
and clear of all liens, claims, security interests and all other encumbrances
whatsoever.
11.17 The obligations secured by the instruments listed in item 27 of
the Title Commitment (the "Owners' Mortgage Loan") are not in default for
failure to pay any sum when due thereunder, and, to its knowledge, there exists
no event, condition or circumstance which, with the giving of notice or the
passage of time or both would constitute a default under the Owners' Mortgage
Loan.
11.19 No representation, warranty or statement of Owner in this
Agreement or in any document, certificate or schedule furnished or to be
furnished to Westgroup pursuant hereto contains any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements or facts contained therein not misleading.
12. Westgroup's Representations and Warranties. Westgroup represents and
warrants to Owners as follows:
12.1 Westgroup has the legal power and authority to execute and
deliver this Agreement and the other Westgroup's Closing Deliveries herein, and
to perform its obligations hereunder and thereunder.
12.2 Those of Westgroup's Closing Deliveries to be executed by it are
the valid, legally binding obligations of and enforceable against it in
accordance with their terms, subject only to applicable bankruptcy, insolvency,
reorganization, moratorium laws or similar laws or equitable principles
affecting or limiting the rights of contracting parties generally.
12.3 No attachment, execution proceeding, assignment for the benefit
of creditors, insolvency, bankruptcy, reorganization or other such proceedings
are pending or threatened against it.
12.4 Neither the execution and delivery of this Agreement or other
Westgroup's Closing Deliveries, nor the incurrence of Westgroup's obligations
set forth herein nor consummation of the transactions herein contemplated, nor
compliance with the terms of this Agreement and the other Westgroup's Closing
Deliveries conflict with or result in the material breach of any terms,
11
<PAGE>
conditions or provisions of, or constitute a default under, any bond, note, or
other evidence of indebtedness or any contact, indenture, mortgage, deed of
trust, loan, operating agreement, lease or other agreements or instruments to
which Westgroup is a party.
12.5 No representation, warranty or statement of Westgroup in this
Agreement or in any document, certificate or schedule furnished or to be
furnished by Westgroup pursuant hereto contains or will contain any untrue
statement of a material fact, omits or will omit to state a material fact
necessary to make the statements of facts contained therein for misleading.
13. Indemnity. In addition to its other obligations under this Agreement,
the Owners shall, jointly and severally, indemnify and hold Westgroup harmless
of, from and against any loss, cost, damage, claim, expense or liability
(including, without limitation, reasonable attorney's fees and litigation
expenses) incurred by or threatened against Westgroup as a result of (a) any
breach or violation of any representations or warranties made under this
Agreement; (b) any litigation, action or proceeding or any claim against it,
whether or not disclosed herein, other than claims accrued, and litigation,
actions, proceedings arising out of causes of actions accrued, prior to the
Closing Date; (c) any failure by any Owner or any other person to fully pay and
perform the Owners' Mortgage Loan when and as due (other than the obligation to
make tax and insurance escrow payments expressly undertaken by Westgroup as
Lessee under the Lease); (d) failure by any Owner to pay when due all sale and
use tax, interest and penalties levied under Chapter 212, Florida Statutes, with
respect to the Property and Owners' operations thereat (collectively, "Sales
Tax") (it being understood, however, that Owners shall have no obligation to
remit Sales Tax not timely paid to Owners by Westgroup, to the extent that
Westgroup is obligated to pay the same under the Lease); (e) breach of any
obligations of the grantee under, or Associates, as the upland owner referred to
in, the Sovereignty Submerged Land Lease listed on the Title Report; and (f) any
action or inaction taken by it with respect to the Property (other than the
improvement of or physical condition of the Property) prior to the Closing Date
which is not disclosed herein or in the other Owner's Closing Deliveries.
14. Written Modification. No modification, release, discharge, or waiver of
any provision hereof shall be of any force, effect, or value unless signed in
writing by the party to be charged therewith, or its duly authorized agent or
attorney.
15. Notices. All notices and responses which are required or permitted
under this Agreement shall be in writing, and shall be deemed complete only when
actually delivered to the recipient as follows or delivery at such address is
refused:
12
<PAGE>
(a) If to any Owner: Grove Isle Associates, Ltd.
2701 South Bayshore Drive
Penthouse
Miami, FL 33133
Attention: Maurice Wiener
With a copy to: Gary Saul, Esq.
Greenberg, Traurig, Hoffman,
Lipoff & Quentel
1221 Brickell Avenue
Miami, FL 33131
(b) If to Westgroup: Westgroup Grove Isle
Associates Ltd.
c/o Noble House Hotels & Resorts
25 Central Way, Suite 400
Kirkland, WA 97033
Attn: Mr. Patrick R. Colee
With a copy to: Patrick Dyer, Esq.
25 Central Way
Suite 400
Kirkland, WA 97033
Either party may change the place for giving notice by written notice in
the manner set forth in this Section.
16. Headings. Paragraph and section headings in this Agreement are for
convenience and reference only and shall not be used to interpret or construe
its provisions, or otherwise be accorded any effect in the interpretation of
this Agreement.
17. Severability. If any provision of this Agreement or the application
thereof to any person or situation shall, to any extent, be held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to such persons or situations other than those to which it shall have
been held invalid or unenforceable, be affected thereby, but shall continue
valid and enforceable to the fullest extent permitted by law.
18. No Recordation. Neither this Agreement nor any of the other Closing
Deliveries shall be recorded, provided, however, that either may record the
Assignment of Lease, the Lease Memorandum and/or the SNDA.
19. Attorneys, Fees. In the event of any litigation, action, suit or
proceeding between any parties to this Agreement pertaining to the construction
or enforcement of this Agreement or any of the other Closing Deliveries, the
prevailing party shall be entitled to payment by the other of such prevailing
party's reasonable attorney's fees and expenses in connection with such
litigation, action, suit or proceeding.
13
<PAGE>
20. Rights Cumulative. All rights and remedies provided to any party
pursuant to this Agreement or any of the other Closing Delivery are cumulative
and not exclusive of any right or remedy provided by law or otherwise.
21. Governing Law. This Agreement shall be governed by, and construed and
enforced under, the laws of the State of Florida.
22. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties and their respective successors and assigns, except that
unless and to the extent stated otherwise in any other Closing Deliveries, no
assignment shall release the assignor from its obligations under this Agreement
or any of the other Closing Deliveries, and nothing herein shall be deemed to
permit any assignment which is prohibited pursuant to any other provision hereof
or of any of the other Closing Deliveries.
23. Entire Agreement. This Agreement and the other Closing Deliveries set
forth the entire agreement of the parties hereto with respect to the subject
matter hereof.
24. Brokers. Each party represents to the other that there are no brokerage
commissions due or payable to any person or entity as a result of this
transaction. Each party hereby agrees to hold the other harmless from and
against any claim of any person or entity claiming any broker's commission,
finder's fee or similar claim claiming through such party, and agrees to
indemnify the other from any and all costs of defending or paying any such
claim, including reasonable attorneys' fees.
25. Time of Essence. Time is of the essence of each and every provision
hereof.
26. Survival. This Agreement and all indemnities, covenants, terms,
conditions and provisions shall survive the Closing and shall not merge into any
of the other Closing Deliveries, provided, however, that the representations and
warranties made herein shall terminate two (2) years following the Closing as to
any claims not yet asserted for breach of such representations and warranties by
the beneficiary thereof.
27. FF&E. GICI hereby sells, assigns, conveys and quitclaims to Associates
any and all right, title and interest of GICI to the FF&E.
28. Further Assurance. Each party hereto shall, at any time and from time
to time upon the request of any other party hereto, make, execute and deliver,
or cause to be made, executed and delivered to the requesting party any and all
such further instruments of transfer, conveyance and further assurance,
certificates, affidavits and other documents as the requesting party may
consider necessary in order to effectuate, complete or
14
<PAGE>
perfect the transactions contemplated by this Agreement, but no party shall be
obligated to amend or modify this Agreement or any of the Closing Deliveries,
nor shall any Owner be obligated to grant or request its mortgagee to grant
non-disturbance or similar rights to any mortgagee of the Westgroup's interest
in the Property, other than such rights as are contemplated to be afforded to
Westgroup itself pursuant to the SNDA. In addition, if any Owner is requested to
assign any Permits, Contracts, or Other Rights not assigned under any Closing
Deliveries, such Owner may retain such rights therein as are necessary to their
operation of the marina which is adjacent to the Resort.
GROVE ISLE ASSOCIATES, LTD., by
COURTLAND INVESTMENTS, INC., a Delaware
corporation, its sole general partner
By: /s/ Maurice Wiener
Name: Maurice Wiener
Title: Chairman
(SEAL)
GROVE ISLE CLUB, INC.,
a Florida corporation
By: /s/ Maurice Wiener
Name: Maurice Wiener
Title: Chairman
(SEAL)
GROVE ISLE INVESTMENTS, INC.,
a Florida corporation
By: /s/ Maurice Wiener
Name: Maurice Wiener
Title: Chairman
(SEAL)
15
<PAGE>
WESTGROUP GROVE ISLE ASSOCIATES, LTD.,
a Florida limited partnership, by
Westgroup Partner, Inc., a California corporation,
its sole general partner
By: /s/ Patrick R. Colee
Patrick R. Colee
President
(SEAL)
EXHIBITS
"A" - Legal Description
"B" - Definitions
"C" - Assignment of Lease
"D" - Lease Modification
"E" - Lease Memorandum
"F" - Assignment of Occupancy Leases
"G" - Bill of Sale
"H" - Assignment of Contracts
"I" - CNB Estoppel
"J" - SNDA
"K" - Note
"L" - Guaranty
"M" - Litigation Schedule
"N" - List of Permits
"O" - List of Service Contracts
"P" - List of Occupancy Tenants
"Q" - Club Arrangements
16
AGREEMENT RE: LEASE TERMINATION
THIS AGREEMENT is made the 19th day of November, 1996 by and between GROVE
ISLE ASSOCIATES, LTD., a Florida limited partnership ("GIAL"), and GROVE ISLE
CLUB, INC., a Florida corporation ("GICI").
R E C I T A L S
A. GIAL, as landlord, and GICI, as tenant are the parties to that certain
Lease Agreement dated October 1, 1993 (the "Original Lease") with respect to the
property described therein, which is commonly referred to as the "Grove Isle
Club Property".
B. GIAL has requested that GICI terminate all of its rights, title and
interest in and to the Lease and the Grove Isle Club Property so that GIAL may
lease the Grove Isle Club Property to Westgroup Grove Isle Associates, Ltd., a
Florida limited partnership ("Westgroup").
C. In furtherance of GICI's agreement to terminate all of its rights, title
and interests in and to the Original Lease, GICI has, upon request of GIAL,
agreed to assign its interest in the Lease to Westgroup, with the understanding
that same would thereafter be amended and restated in its entirety pursuant to
Amended and Restated Lease Agreement dated as of November 19, 1996 (the "Amended
Lease"), in consideration of the terms hereinafter set forth.
NOW, THEREFORE, for Ten and No/100 Dollars ($10.00) and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, GIAL and GICI hereby agree as follows:
1. The foregoing recitals are true and correct and are incorporated herein
as if repeated at length.
2. In partial consideration for GICI's relinquishment of its rights in and
to the Original Lease, but in recognition of GICI's continuing status as the
"Grove Isle Club" under the condominium documents governing Grove Isle, GIAL
agrees to pay to GICI the sum of $200,000.00 for each year that the Amended
Lease is in good standing, said sum to be paid each year in a single annual
installment due and payable on the 19th day of November of each such year that
the Amended Lease exists and remains in good standing. In addition to the
foregoing, GIAL hereby assigns to GICI any and all Participation Rent due from
Westgroup pursuant to the Amended Lease.
3. GICI agrees to cooperate with GIAL and Westgroup from time to time in
connection with maintaining and enforcing the
<PAGE>
rights of GICI as the "Grove Isle Club" under the condominium documents
governing Grove Isle.
4. This Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Florida. The provisions of this
Agreement may be enforced by all appropriate actions at law and in equity by the
parties hereto, and their successors and assigns, with the prevailing party in
any such action entitled to reimbursement of reasonable attorneys' fees and
costs incurred at trial and all appellate levels.
IN WITNESS WHEREOF, this Assignment of Lease Agreement has been executed as
of the day and year first above written.
Witnesses: ASSIGNOR
GROVE ISLE ASSOCIATES, LTD., a
Florida limited partnership
/s/ Denise Abdelnour By: /s/ Maurice Wiener
- ---------------------------- --------------------------------------
/s/ Lawrence I. Rothstein Name: Maurice Wiener
- ---------------------------- -------------------------------------
Title: Chairman, Courland Investment, Inc.
General Partner
------------------------------------
ASSIGNEE:
GROVE ISLE CLUB, INC., a
Florida corporation
/s/ Denise Abdelnour By: /s/ Maurice Wiener
- ---------------------------- --------------------------------------
/s/ Lawrence I. Rothstein Name: Maurice Wiener
- ---------------------------- -------------------------------------
Title: Chairman
------------------------------------
PARTNERSHIP AGREEMENT
MARTINE AVENUE ASSOCIATES
AGREEMENT made as of this 24th day of May 1968 by and among F. ANNE GRAY
(hereinafter referred to as "ANNE"), residing at 234 Martine Avenue, White
Plains, New York; LEE GRAY (hereinafter referred to as "LEE"), residing at South
Bedford Road, Pound Ridge, New York; and BETTY ROBBINS (hereinafter referred to
as "Betty"), residing at 234 Martine Avenue, White Plains, New York; (the
aforesaid parties hereinafter collectively, referred to as the "Partners").
W I T N E S S E T H :
WHEREAS, Anne is the owner of a certain parcel of land located in the City
of White Plains, County of Westchester and State of New York, known as Two
Martine Avenue and more particularly described in the Deed annexed hereto and
made a part hereof (hereafter referred to as the "Property"); and
WHEREAS, the Partners desire to form a partnership for the purpose of
holding and managing the Property and any other real or personal property which,
such partnership light obtain, receive or acquire; and
WHEREAS, Anne desires to transfer the Property to such partnership formed
by the Partners as hereafter provided;
NOW THEREFORE, it is mutually agreed as follows:
1. The Partners do hereby form a partnership for the purpose of acquiring,
by gift, donation, purchase or otherwise, real and personal property of all
kinds and description and to hold and manage the same for the benefit of the
Partner. The name of the partnership shall be MARTINE AVENUE ASSOCIATES
(hereinafter referred
<PAGE>
to as the "Partnership"). The office of the Partnership shall be located at One
West Avenue, Larchmont, New York.
2. The capital of the Partnership shall be contributed by Anne who shall
simultaneously with the execution of this Agreement by the Partners, convey, set
over and transfer as such capital all her right title and interest in and to the
Property, by the execution and delivery to the Partnership of the Deed to the
Property in the form annexed hereto and made a part hereof. Upon such transfer
of the Property to the Partnership, each of the Partners shall for all purposes
have a one third (1/3) interest in such capital and neither Lee nor Betty shall
be required to make any capital contribution to the Partnership.
3. The Partners shall in the name of the Partnership hold, lease, operate,
improve and manage the Property, collect the rents and other income therefrom
and after the payment of all the expense incident thereto and to the Partnership
distribute the net profits of the Partnership equally to the Partners.
4. The Partnership may mortgage, sell, transfer and otherwise encumber
and/or dispose of the Property and may own, purchase, acquire, manage, operate,
improve, deal in, mortgage, sell, transfer or otherwise encumber or dispose of
such other property both real and personal as the Partners shall determine.
5. Lee shall be the General Manager of the Partnership and shall have
authority to conduct the Partnership business as he in his sole discretion shall
determine. The Partners shall devote such time and efforts to the conduct of the
Partnership business as the demands of the business shall require or warrant.
The funds of the Partnership shall be deposited in the name of the Partnership
in
-2-
<PAGE>
a commercial bank selected by Lee and checks drawn on the Partnership bank
account shall be signed by any one of the Partners.
6. Proper and complete books of account of the business of the Partnership
shall be kept by, and under the supervision of, Lee at the principal place of
business of the Partnership and shall be open to inspection by any of the
Partners or their accredited representatives at any reasonable time during
business hours. The books and records of the Partnership shall be examined and
reviewed at the close of each fiscal year by an independent accountant who shall
make a report thereon.
7. The fiscal year of the Partnership shall be the calendar year or such
other period as the Partners shall determine. The net profit or lose of the
Partnership shall be determined in accordance with approved and accepted
accounting practice as soon as possible after the close of each fiscal year.
8. The net profits earned by the Partnership during each fiscal year shall
be credited as of the close thereof to the capital accounts of each of the
Partners in equal proportions. Any net loss incurred by the Partnership during
any fiscal year shall be debited as of the close thereof to the capital accounts
of each of the Partners equal proportions. The total amount of the net profits
earned by the Partnership during each fiscal year and credited to the capital
accounts of each of the Partners as here-in provided less any withdrawals from
such capital accounts during such fiscal year shall be distributed to each
Partner as soon thereafter as practicable; provided however, that it the
Partnership shall incur a net lose in any fiscal year, the net profit earned by
the Partnership during any subsequent fiscal year or years, it necessary, shall,
to the extent determined to be necessary by Lee, be retained as capital by the
-3-
<PAGE>
Partnership to the extent of any such net loss . Notwithstanding the provisions
for the distribution of the net profits of the Partnership as set forth above,
should Lee determine in his sole discretion that any such net profits are
required for the purposes of the Partnership, such net profits to the extent as
determined shall be retained by the Partnership until such time as Lee shall
determine otherwise.
9. Within thirty days after the date of death or insanity of any Partner
the remaining Partners or Partner, by giving notice to the other Partner or
Partners, or their respective legal representatives, shall elect either to have
the business continue thereafter or to have such death effect a termination of
the business of the Partnership as of the date of such election.
If an election is made to continue the business after the death or insanity
of any Partner such Partner shall cease to be a Partner upon the date of death
or insanity of such Partner and shall not there after be entitled in any manner
to engage in or to exercise any control over or have any voice in the business
of the Partnership or have any further interest in or any rights against the
Partnership accept to the following extent:
(i) The value of the interest of any such former Partner and the
amount due him or her as the case may be by the Partnership or due to the
Partnership from such former Partner shall he determined in accordance with
the capital account of the respective Partners as of the effective date of
such death or insanity (such date in other case being hereinafter referred
to as the "Determination Date") and shall be determined as soon as
practicable by the Certified Public Accountant at the time employed by the
Partnership, in accordance with good accounting practice; provided however,
in making such
- 4 -
<PAGE>
determination the value of the Property of the Partnership shall be
included at the value determined for Federal Estate Tax purposes in the
estate of the deceased Partner or if there be no such determination then at
the market value thereof determined by the Certified Public Accountant then
employed by the Partnership, and, in addition, no amount shall be credited
in respect of Partnership goodwill or for the use of the Partnership name
which name shall devolve upon the remaining Partners or Partner for their
or his exclusive use and enjoyment. Any such determination by such
Certified Public Accountant shall be final, conclusive and binding upon the
former Partner, his legal representatives and the remaining Partners.
(ii) The Partnership shall pay to the former Partner in cash the
amount due him from the Partnership as specified in said accountant's
certificate in equal monthly payments commencing no later than ninety days
after the Determination Date and in no event over a period longer than two
years after the Determination Date.
10. The Partnership may be terminated and the business discontinued upon
the mutual consent of all the Partners or upon any election to terminate the
Partnership as herein otherwise provided. Upon the termination of the
Partnership or as soon thereafter as practicable the debts of the Partnership
shall be discharged and all assets other than cash of the Partnership then
remaining shall be liquidated and turned into cash or distributed in kind as
determined by a majority of the Partners. The interests of each Partner shall be
determined in accordance with the capital accounts of the respective Partners as
soon as practicable thereafter by the Certified Public Accountant at the time
employed by the Partnership in accordance with good accounting practice and the
respective shares so determined shall be paid to the Partners or to such other
persons as
-5-
<PAGE>
may be legally entitled thereto. Any such determination by such Certified Public
Accountant shall be final, conclusive and binding upon the parties hereto or
anyone claiming through them.
11. This Agreement shall not be amended or modified in any respect except
by an instrument in writing signed by all of the Partners.
12. This Agreement shall be governed by and construed in Accordance with
the laws of the State of New York and shall be binding upon the parties hereto
and their respective legal representatives, heirs and assigns.
13. Whenever the masculine gender 1s used in this agreement it shall be
deemed to include, where applicable, the feminine gender as well. The term
"legal representatives" as used herein with respect to any Partner, shall
include in the appropriate case the executor, administrator, committee, trustee,
trustee in bankruptcy, receiver or assignee of such person and all others
claiming through them or any of them.
14. This Agreement may be executed in counterparts by each of the Partners
separately each such counterpart constituting one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
day and year first above written.
/s/ F. Anne Gray, L.S.
Witness F. Anne Gray, F.S.
/s/ Lee Gray, L.S.
Witness Lee Gray, F.S.
/s/ Betty Robbins, L.S.
Witness Betty Robbins
-6-
<PAGE>
AGREEMENT
The undersigned, being all of the partners who are members of a partnership
known as MARTINE AVENUE ASSOCIATES, hereby agree as follows:
1. As of January 1, 1987, the net profits of the partnership shall be
distributed so that Lee Gray shall receive seventy-five (75%) percent of
such net profits, and Betty Robbins shall receive twenty-five (25%) percent
of such net profits. Future funding will be on same basis.
2. In all other respects, the Partnership Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals this 29th day of January, 1987.
/s/ Lee Gray
/s/ Betty Robbins
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000311817
<NAME> HMG/COURTLAND PROPERTIES, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,389,546
<SECURITIES> 0
<RECEIVABLES> 1,396,068
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 23,519,812
<DEPRECIATION> 3,967,924
<TOTAL-ASSETS> 27,469,715
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,245,635
<OTHER-SE> 12,323,664
<TOTAL-LIABILITY-AND-EQUITY> 27,469,715
<SALES> 7,895,124
<TOTAL-REVENUES> 7,895,124
<CGS> 1,170,471
<TOTAL-COSTS> 10,724,027
<OTHER-EXPENSES> (182,876)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 958,944
<INCOME-PRETAX> (2,118,809)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,118,809)
<EPS-PRIMARY> (1.82)
<EPS-DILUTED> 0
</TABLE>
