-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F4dzUNA4SAeDTwHLLTRyDShUcUBD1U+jZlE/jL8A7m51ioCZFZJp6RKfeLlaWpcR wIkzFNhhU9ipd6jbfwUldg== 0000950159-96-000050.txt : 19960402 0000950159-96-000050.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950159-96-000050 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HMG COURTLAND PROPERTIES INC CENTRAL INDEX KEY: 0000311817 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 591914299 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07865 FILM NUMBER: 96543233 BUSINESS ADDRESS: STREET 1: 2701 S BAYSHORE DR CITY: COCONUT GROVE STATE: FL ZIP: 33133 BUSINESS PHONE: 3058546803 MAIL ADDRESS: STREET 1: 2701 S BAYSHORE DRIVE STREET 2: 2701 S BAYSHORE DRIVE CITY: COCONUT GROVE STATE: FL ZIP: 33133 FORMER COMPANY: FORMER CONFORMED NAME: HMG PROPERTY INVESTORS INC DATE OF NAME CHANGE: 19880215 FORMER COMPANY: FORMER CONFORMED NAME: HOSPITAL MORTGAGE GROUP INC DATE OF NAME CHANGE: 19810818 10KSB40 1 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, 1995 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: 83 Exhibit Index: Page No. 45 (continued) (1) State the issuer's revenues for the most recent fiscal year: $7,434,438 State the aggregate market value of the voting stock held by non-affiliates of the Registrant: $3,090,162 based on the closing price of the stock as traded on the American Stock Exchange on March 18, 1996. (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 18, 1996. (2) 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, 1995: Percent of Geographic Distribution Investments (1) Florida 58% Texas 35% Northeastern United States (2) 7% Type of Property (3) Undeveloped land 37% Hotel and club facility 41% Individual retail stores 7% Yacht slips 8% Restaurants 2% Real Estate development in progress 5% ------------------ (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 England, New York and Pennsylvania (3) Based on predominant present or intended use. (3) 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 are passive (non-operating) in nature. In September 1993, CII acquired controlling interests in certain operating entities. These entities are a partnership owning a 49 room hotel and private club (GIA), a corporation which operates the hotel and club (GICI), a joint venture owning a marina (GIYCA), and a joint venture which operates marina activities (GIYC). The acquired 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 49 room 63,530 square foot 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 49 hotel rooms, the facility includes 22,330 square feet of public space (banquet room, dining area, lounge, administrative area, etc.), 12 lighted clay tennis courts, 5,000 square feet of net rentable space, and pool and pool deck of approximately 18,000 square feet. GIA leases the facilities to Grove Isle Club, Inc. on a year to year basis for an annual base rent of $480,000. This rent is eliminated in consolidation. During 1995 and 1994 renovations were made to modernize the facility's restaurants, hotel rooms and recreational amenities. Costs capitalized relating to these renovations were approximately $974,000 and $ 4 million for the years ended December 31, 1995 and 1994, respectively. In December 1994, the debt which encumbered the facility and the unsold marina slips at Grove Isle was refinanced with a $4.5 million bank loan. This loan bears interest at 2% over the lender's prime rate with principal amortized over 20 years and a balloon payment due at maturity on September 8, 2000. The balance on December 31, 1995 is $4.4 million. Grove Isle Club, Inc.(GICI). This corporation operates the aforementioned hotel and club. Its primary sources of revenue are from room rentals, food and beverage sales and from members dues. The hotel and most common areas were closed for renovations from June to December 1994. This resulted in a substantial decrease in revenues for 1994. In conjunction with the renovations of the facility, GICI purchased approximately $485,000 and $1.3 million in furniture, fixtures and equipment in 1995 and in 1994, respectively. 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, 1995 forty-three slips remain unsold and are encumbered by the aforementioned $4.5 million mortgage note payable. 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. 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 (4) rate. The principal was due on January 2, 1996, and the maturity was extended to January 2, 2001. Interest payments are due each January 2. Because the Company now consolidates CII, the note payable and related interest income are eliminated in consolidation. See, Item 12. Certain Relationships and Related Transactions. HMG-Fieber Associates (Fieber). HMG-Fieber Associates, a joint venture in which the Company and N.A.F. Associates (a partnership controlled by Mr. Fieber, a director of the Company) hold 65% and 35% interests, respectively, owns 24 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, 1995 the percentage of leases expiring in 1996, 1997 and after 1997 was 10%, 35% and 55%, respectively. Approximately half of these leases contain renewal options of at least five years. The stores are located in Connecticut, Maine, Massachusetts, New Hampshire, New York, Pennsylvania, and Vermont. In January 1995, Fieber sold its store located in Buzzards Bay, Massachusetts recognizing a gain to the venture of approximately $68,000. In March 1995, Fieber sold its store located in Norristown, Pennsylvania recognizing a gain to the venture of approximately $620,000. In December 1995, Fieber sold its store located in Hartford, Connecticut recognizing a gain to the venture of approximately $122,000. Four Sugar Grove Associates (FSGA). FSGA was a Texas limited partnership in which the Company was the sole general partner and had a 96.6% interest. FSGA was dissolved in 1995 after the sale of its sole asset, a 128,000 square foot office building and a three-story parking garage with 480 spaces on 3.5 acres in Stafford, Texas. In April, 1995 FSGA sold the office building for approximately $4.5 million recognizing a loss of approximately $18,000 after giving effect to the $1.3 million valuation adjustment reported in 1994. The Grove Towne Center - Texas, Ltd (TGTC). Effective July 1, 1994, the Company and Grovpar, Ltd. (Grovpar) formed TGTC (a Texas limited partnership), for the purposes of development, construction, and leasing of the Grove Towne Center project, (the "Project") a 41- acre site planned for the development of an entertainment/value oriented retail center located in suburban Houston. Under the Limited Partnership Agreement governing TGTC ("Partnership Agreement"), HMG Houston Grove, Inc. (a wholly-owned subsidiary of the Company) is TGTC's sole general partner holding a 1% ownership interest, Grovpar and the Company being the initial limited partners, and holding 10% and 89% ownership interests, respectively. Upon formation of TGTC, the Company contributed approximately 41 acres of undeveloped land with an agreed upon value of $7.6 million less related debt of $3 million. Grovpar contributed expenses incurred for services performed for the Project valued at approximately $523,000. (5) On October 1, 1994 the Partnership Agreement was amended and restated to reflect the admittance of a new partner, Sunbelt Shopping Development, Ltd. ("Sunbelt"). In consideration for a 25% interest in TGTC Sunbelt agreed to contribute $3.5 million. This reduced the Company's interest from 89% to 64%. In October 1994, TGTC received $1.5 million of Sunbelt's initial contribution. In accordance with the Amended and Restated Partnership Agreement, the remainder of Sunbelt's contribution along with additional contributions from the Company and Grovpar of $1.3 million and $404,000, respectively, are required upon reaching certain thresholds stated in the Partnership Agreement. Concurrently with the execution of the Partnership Agreement, and in accordance with a separate agreement between the Company and Grovpar, the Company has agreed to loan Grovpar an amount equal to its initial capital contribution plus all future capital contributions as required under the Partnership Agreement. The loan made to Grovpar is evidenced by a promissory note dated July 1, 1994. The outstanding principal amount of this note, bears a per annum interest rate of 2% over the Prime Interest Rate (as defined) and is secured by Grovpar's partnership interest. Principal and interest are payable solely from distributions to Grovpar by the Partnership of net cash flow and capital proceeds, as defined. Interest income from this note will be recognized when collected. 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 has written-off approximately $4.2 million of pre-development costs. The partnership is presently exploring various options for the land. South Bayshore Associates (SBA). SBA is a joint venture 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, 1995 and 1994 of approximately $420,000 and $424,000, 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, 1995 and 1994 of approximately $848,000 and $807,000, respectively, in principal and accrued interest. T.E.H.H. Corp. This wholly-owned subsidiary has a 99% limited partnership interest in CourTrust Palm Bay, Ltd. which owns 1.5 acres of undeveloped land in Palm Bay, Florida. This land was sold in the first quarter of 1996 at a loss of $60,000. HMG of Key Largo, Inc. (HMGKL). As of December 31, 1994, this wholly-owned subsidiary had a 50.5% interest in Key Largo Lodge, Ltd., a limited partnership in which HMGKL was the sole general partner. (6) In February 1994, the partnership sold a 20.5 acre parcel of land to the State of Florida under the Conservation and Recreation Lands Programs for approximately $5.8 million and recognized a gain of approximately $893,000. As previously reported, HMGKL had pending a civil action in the Circuit Court of Dade County, Florida. In July 1995, the parties settled the litigation and on August 2, 1995 an order of dismissal with prejudice was entered by the court. Pursuant to the term of the settlement, the partnership was liquidated in 1995 and upon liquidation, the Company recognized a gain of approximately $620,000. HMG Orange Park North, Inc. This wholly-owned subsidiary has a 90% partnership interest in Orange Park North Partnership, which owns a 6,000 square foot commercial building located in Jacksonville, Florida. This building was constructed during 1992 and was leased beginning in June 1992 to a tenant which operated a restaurant. In August, 1995, the Partnership sold its property for approximately $1.3 million and recognized a gain of approximately $670,000. HMG Fashion Square, Inc. This wholly-owned subsidiary has a 90% partnership interest in Fashion Square partnership which owns approximately 11.5 acres of land currently under development in Jacksonville, Florida. In March 1994, the partnership entered into a ground lease with a tenant which is an operator of a restaurant. In September 1994, this tenant completed construction 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% and matures in November 1996. 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. HMG Sugargrove, Inc. This wholly-owned subsidiary owns eight acres of land held for development located in Houston, Texas and is encumbered by a non-recourse mortgage loan which matures in 1997 and bears interest at 10.5% payable quarterly with principal payments of $15,867 due each February. The remaining principal balances as of December 31, 1995 and 1994 were $181,000 and $206,000, respectively. In June 1994, this subsidiary purchased a 16 acre tract of land in Houston, Texas for $3 million which was financed by a bank loan of $1.5 million. This land was part of the 41 acres contributed to The Grove Towne Center - Texas, Ltd. (7) 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. The Company's unimproved land is intended to be developed into income producing property. 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 corporation (T.G.I.F.), (representing 49.31% of the equity) at a cost of approximately $1.4 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 In May 1992, CII purchased 345,000 shares of non-voting, redeemable 8% preferred stock of T.G.I.F. for $345,000. This purchase was paid for by the cancellation of $280,000 of notes receivable from T.G.I.F. plus cash of $65,000. As of December 31, 1995 all shares of the preferred stock held by CII have been redeemed. Jack Baker 5th Avenue, Inc. In 1992, CII and certain directors and officers of HMG, 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 HMG have a 41% interest. This company is a manufacturer's representative and CII's investments in and loans to Jack Baker 5th Avenue, Inc. including accrued and unpaid interest were approximately $315,000 and $277,000 as of December 31, 1995 and 1994, respectively. CII also owns certain parcels of undeveloped land in the northeastern United States and has investments primarily in the form of limited partnership interests in companies whose primary purpose is to make equity investments in growth oriented enterprises. 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. (8) 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. 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 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 also 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. Advisory Fees. For the year ended December 31, 1995, the Company and its subsidiaries paid the Advisor $1,063,181 in fees, of which $875,004 represented regular compensation and $188,177 represented incentive compensation, 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. In 1994, the Advisor's regular compensation amounted to $875,000, while its incentive compensation amounted to $254,659, including $65,235 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 properties and received fees of $20,000 and $76,500, in 1995, and 1994 respectively, for such services. (9) 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. Item 3. Legal Proceedings. Out Island Properties, Inc. ("Out Island") had pending a civil action in the Circuit Court of Dade County, Florida against HMG of Key Largo, Inc., a wholly-owned subsidiary of the Company. Out Island is the sole limited partner of Key Largo Lodge, Ltd., a Florida limited partnership of which HMG of Key Largo, Inc. is the sole general partner. Out Island filed its lawsuit in February, 1994. In July 1995, the parties settled this litigation and on August 2, 1995, an order of dismissal with prejudice was entered by the court. The partnership was liquidated in 1995. See Item 1. Business. 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, 1995. (10) 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, 1994 7 7/8 61/2 June 30, 1994 7 7/8 6 5/8 September 30, 1994 13 3/4 71/2 December 31, 1994 9 3/4 8 1/8 March 31, 1995 8 1/8 71/2 June 30, 1995 8 3/8 7 3/4 September 30, 1995 8 1/8 7 3/4 December 31, 1995 81/2 71/2 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. As of March 18, 1996, there were 277 holders of record of the Company's common stock. Item 6. Management's Discussion and Analysis or Plan of Operation. Overview: In 1995 the Company's results of operations were significantly affected by the abandonment of pre-development costs of the Grove Towne Center and operating losses of the Grove Isle hotel and club operations. Also in 1995, the Company, through its joint ventures and subsidiaries recognized net gain from sales of real estate of approximately $2.2 million. Discussion of Balance Sheet Items: At December 31, 1995, the balance sheet reflected assets consisting primarily of equity interests in real estate investment properties and investments in unconsolidated entities. Liabilities at December 31, 1995, consisted principally of mortgages on individual properties. Significant changes in specific balance sheet items between December 31, 1995 and 1994 are described below: (11) Assets: Commercial and industrial properties decreased from $8.8 million to $2.0 million, or $6.8 million. This was primarily due to the sale of the office building in Houston, Texas. The carrying value of the hotel and club facility increased from $8.3 million to $9.0 million, or approximately $700,000. This was the result of additional renovations and improvements at Grove Isle, net of depreciation. Land held for development increased from $2.6 million to $8.1 million, or $5.5 million, primarily due to the reclassification of the Grove Towne Center land due to the aforementioned abandonment, See, Item 1. Business. Real estate development in progress decreased from $8.9 million to $1.2 million, or $7.7 million, primarily due to the abandonment of pre-developments and reclassification of land of The Grove Towne Center in Houston, Texas. Investments in and receivables from unconsolidated entities decreased from $2.7 million to $2.4 million or, approximately $300,000, primarily as a result of distributions from CII's venture capital investments. Liabilities and Minority Interests: Mortgages and notes payable decreased by approximately $4.2 million primarily due to the repayments of debt made in conjunction with the sale of various properties. Minority interest decreased from $4.8 million to $614,000, or $4.2 million, primarily due to distributions to minority partners as a result of the dissolution of Key Largo Lodge, Ltd. (See, Item 1. Business), and sale of HMG Fieber retail stores. Minority interests also decreased as the result of losses from the aforementioned abandonment of Grove Towne Center. Results of Operations: For the year ended December 31, 1995, the Company reported a net loss of approximately $3.5 million compared with a net loss of $3.1 million for the year ended December 31, 1994. Changes in specific revenues and expenses are discussed below. Revenues: 1995 versus 1994: Total revenues for the year ended December 31, 1995 as compared with that of 1994 increased by approximately $921,000 or 14%. This was primarily due to increased revenues from the Grove Isle hotel, club and marina of approximately $1.6 million , or 60%, increased gain from sale of marketable securities of approximately $436,000 (229%) and increased interest income and dividends from investments of approximately $336,000 or 96%. These increases in revenues were partially offset by decreased rental and related revenues of $1.4 million, primarily due to the sale of the Texas office building in April 1995. (12) Expenses: 1995 versus 1994: Total operating expenses for the year ended December 31, 1995 as compared to that of 1994 increased by $304,000, or 4%. This was primarily attributable to increased operating expenses of the Grove Isle hotel, club and marina operations. More specifically, cost of food and beverage increased by $179,000 (due to an increase in the related revenues) administrative and general expenses increased $572,000, primarily as a result of a full year of operations in 1995 versus half a year of operations during renovations in 1994. These increases in operating expenses were partially offset by decreased operating expense of rental properties of $575,000 due, primarily, to the sale of the Texas office building in April 1995. General and administrative expenses for the year ended December 31, 1995 as compared to that of 1994, decreased by $657,000, or 58%. This decrease was primarily due to decreased legal costs relating to the Key Largo litigation which was settled in July 1995, and decreased legal costs of HMG Fieber Associates. Minority partners' interests in operating losses of consolidated entities for the year ended December 31, 1995 as compared to that of 1994 increased by $1.5 million. This was primarily due to increased losses from The Grove Towne Center as a result of the aforementioned abandonment of pre-development costs. Losses from unconsolidated entities for the year ended December 31, 1995 were $34,000 as compared to gains of $453,000 for 1994. This change was primarily due to a non-recurring gain of $504,000 in 1994 from an investment in a partnership in which CII held a 1.7% ownership interest. Net gain on sale of real estate for the year ended December 31, 1995 consisted of the following: Net gain after incentive fee and Property Sold minority interest Restaurant building and land in Texas $332,000 Restaurant building and land in Florida 537,000 HMG-Fieber retail store in various states 810,000 Undeveloped land in Texas (99,000) Undeveloped land in Florida 557,000 Undeveloped land in Massachusetts 5,000 Plus: reduction of incentive fee for realized losses on properties sold 114,000 ---------- $2,256,000 ========== (13) Cash Flow and the Effect of Inflation: The Company's cash flow from operating properties decreased significantly in 1995 as a result of of pre-development costs of the Grove Towne Center and operating losses from the Grove Isle hotel and club. Inflation affects the costs of operating and maintaining the Company's investments and 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. Other: Future Accouting Changes. The Company is required to adopt 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. Management does not expect that the adoption of FASB No. 121 will have a material effect on the carrying value of the Company's long-lived assets. The Company does not presently intend in 1996 to adopt the fair value based method as encouraged by FASB No.123 "Accounting for Stock-Based Compensation". Accordingly, there will be no effect to the financial statements. Liquidity and Capital Resources: The Company's material commitments include the completion of a shopping center in Jacksonville, Florida and required contributions relating to Grove Isle hotel and club operations. The sources of funds for these projects are being provided from available cash and financing. Maturities of debt obligations of approximately $ 2.5 million in 1996 are expected to be satisfied from the sale of properties, refinancing and available cash. In addition, the Company intends to continue to seek opportunities for investment in income producing properties. Also, refer to Item 1. Business - Other Transactions. Material Changes in Operating, Investing and Financing Cash Flows: Discussion of 1995 Changes. For the year ended December 31, 1995, net cash used in operating activities was approximately $5 million. Total expenses of 3.2 million exceeded revenues of 7.4 million. For the year ended December 31, 1995, net cash provided by investing activities was approximately $9.3 million. This consisted primarily of net proceeds from disposals of properties of $9.9 million which included the sale of the office building in Texas, restaurant properties in Texas and Florida and the sale of three HMG Fieber retail store. For the year ended December 31, 1995, net cash used in financing activities was approximately $8.5 million. This consisted primarily of repayment of mortgages and notes payable and net distributions to minority partners. (14) Item 7. Consolidated Financial Statements Independent Auditors' Reports...........................................16 Consolidated balance sheets, December 31, 1995 and 1994.................18 Consolidated statements of operations for the years ended December 31, 1995 and 1994..................................19 Consolidated statements of stockholders' equity for the years ended December 31, 1995 and 1994..............................20 Consolidated statements of cash flows for the years ended December 31, 1995, and 1994.................................21 Notes to consolidated financial statements..............................22 (15) INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of HMG/Courtland Properties, Inc.: We have audited the accompanying consolidated balance sheet of HMG/Courtland Properties, Inc. and its subsidiaries (the "Company") as of December 31, 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the year 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides 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, 1995, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Certified Public Accountants Miami, Florida March 20, 1996 (16) INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of HMG/Courtland Properties, Inc.: We have audited the accompanying consolidated balance sheet of HMG/Courtland Properties, Inc. and its subsidiaries (the "Company") as of December 31, 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for the year 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides 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, 1994, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE, LLP Certified Public Accountants Miami, Florida March 24, 1995 (17) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
December 31, December 31, 1995 1994 ASSETS NOTES Investment Properties, net of accumulated depreciation: Commercial and industrial 2 $1,969,318 $8,775,714 Hotel and club facility 8,971,370 8,297,760 Yacht Slips 1,689,283 1,767,421 Land held for development 8,103,304 2,608,776 Real estate development in progress 9 1,204,390 8,927,198 ----------- ----------- Total investment properties, net 21,937,665 30,376,869 Investments in and receivables from unconsolidated entities 3 2,439,010 2,686,545 Notes and Advances Due From Related Parties 4 1,168,788 865,355 Cash and Cash Equivalents 1,094,999 5,382,501 Other Assets 2,241,610 2,372,618 ----------- ----------- TOTAL ASSETS $28,882,072 $41,683,888 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Accounts Payable and Accrued Expenses $2,222,972 $2,393,488 Mortgages and Notes payable 5 8,325,567 13,512,250 Other Liabilities 2,031,782 1,723,519 ----------- ----------- TOTAL LIABILITIES 12,580,321 17,629,257 ----------- ----------- Commitments and Contingencies 1, 7 Minority interests 1 613,643 4,817,360 ----------- ----------- STOCKHOLDERS' EQUITY 8 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 in 1995 and 1994 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 31,637,177 29,381,281 Undistributed losses from operations (42,481,464) (36,676,405) ----------- ----------- 16,684,570 20,233,733 Less: Treasury Stock, at cost (78,800 shares) in 1995 and 1994 (996,462) (996,462) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 15,688,108 19,237,271 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,882,072 $41,683,888 =========== ===========
See notes to consolidated financial statements (18) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994
Notes 1995 1994 REVENUES Rentals and related revenue $1,863,539 $3,303,987 Hotel, club and marina revenues 4,256,194 2,666,826 Gain from sale of marketable securities 626,452 190,573 Interest from invested cash, dividends and other 688,253 351,773 ---------- ---------- Total revenues 7,434,438 6,513,159 ---------- ---------- EXPENSES Operating expenses: Rental Properties and other 1,195,532 1,770,147 Hotel, club and marina expenses: Payroll and related expenses 2,438,844 2,400,716 Cost of food and beverage 697,967 518,800 Administrative and general expenses 2,467,839 1,895,836 Depreciation and amortization 2 1,348,401 1,259,166 ---------- ---------- Total operating expenses 8,148,583 7,844,665 Interest 825,078 825,733 Advisor's fee 4 875,004 875,004 General and administrative 481,369 1,138,800 Directors' fees and expenses 71,863 75,998 Abandonment of pre-development costs 9 4,224,531 Minority partners' interests in operating (losses) gains of consolidated entities (1,421,070) 88,068 Losses (gains) from unconsolidated entities 34,139 (453,477) ---------- ---------- Total expenses 13,239,497 10,394,791 ---------- ---------- Loss before gain on sales of real estate, valuation adjustment and income tax benefit (5,805,059) (3,881,632) Gain on sales of real estate, net 2,255,896 1,678,251 Valuation adjustment of commercial property (1,300,000) ---------- ---------- Loss before income tax benefit (3,549,163) (3,503,381) Income tax benefit 6 (452,070) ---------- ---------- Net Loss ($3,549,163) ($3,051,311) =========== =========== Earnings (Loss) Per Common Share (Based on 1,166,835 weighted average shares outstanding) ($3.04) ($2.62) =========== ===========
See notes to consolidated financial statements (19) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995 AND 1994
Undistributed Gains from Sales Undistributed Total Common Stock Additional of Real Estate, Losses from Treasury Stock Stockholders' Shares Amount Paid-In Capital Net of Losses Operations Shares Cost Equity Balance as of January 1, 1994 1,245,635 $1,245,635 $26,283,222 $27,703,030 ($31,946,843) 78,800 ($996,462) $22,288,582 Net Income (Loss) 1,678,251 (4,729,562) (3,051,311) --------- ---------- ----------- ----------- ------------ ------ --------- ----------- Balance as of December 31, 1994 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) $15,688,108 ========= ========== =========== =========== ============ ====== ========= ===========
See notes to consolidated financial statements (20) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($ 3,549,163) ($ 3,051,311) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,348,401 1,259,166 Loss (gain) from unconsolidated entities 34,139 (453,477) Gain on sales of real estate, net (2,255,896) (1,678,251) Valuation adjustment of commercial property 1,300,000 Abandonment of pre-development costs of prior year 1,902,914 Net gain from sales of marketable securities (626,452) (190,573) Minority partners' interest in operating gains (1,421,070) 88,068 Changes in assets and liabilities: Increase in other assets (301,265) (1,216,278) (Increase) decrease in due from affiliates (303,433) 53,862 (Decrease) increase in accounts payable and accrued expenses (170,516) 1,192,727 Increase in other liabilities 308,263 (455,842) ------------ ------------ Total adjustments (1,484,915) (100,598) ------------ ------------ Net cash used in operating activities (5,034,078) (3,151,909) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Aquisitions and improvements of properties (1,643,646) (10,471,078) Net proceeds from disposals of properties 9,923,385 13,636,803 Net distributions from unconsolidated entities 213,396 1,175,365 Net proceeds from sales and redemptions of securities 795,028 1,023,147 Purchases of investments in securities (32,211) (111,457) ------------ ------------ Net cash provided by investing activities 9,255,952 5,252,780 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Additions to mortgages and notes payable 700,000 12,031,104 Repayment of mortgages and notes payables (5,886,683) (13,377,883) Net (distributions to) contributions from minority partners (3,322,693) 622,979 ------------ ------------ Net cash used in financing activities (8,509,376) (723,800) ------------ ------------ Net (decrease) increase in cash and cash equivalents (4,287,502) 1,377,071 Cash and cash equivalents at beginning of the period 5,382,501 4,005,430 ------------ ------------ Cash and cash equivalents at end of the period $ 1,094,999 $ 5,382,501 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest (net of amounts capitalized of $-0- and $143,000 for the years ended December 31, 1995 and 1994, respectively) $ 1,112,000 $ 820,000 ============ ============ Cash paid during the year for income taxes $ 450,000 ============
See notes to consolidated financial statements (21) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 and 1994 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, even though it may have a majority interest in profits and losses, are accounted for under the equity method of accounting. 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 49 room, hotel and private club facility located on approximately 7 acres of a private island in Coconut Grove, Florida known as Grove Isle. Grove Isle Club, Inc.(GICI) This corporation operates the hotel and club of GIA. Its primary sources of revenue are from room rentals, food and beverage sales and from membership dues. 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 operates 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. 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 has written-off approximately $4.2 million of pre-development costs. The partnership is presently exploring various options for the lands. South Bayshore Associates - A 75% owned venture of which the major asset is a receivable from the Company's venture partner. (22) HMG - Fieber Associates - A 65% owned venture of which the major assets are commercial properties located in the northeastern United States. 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 loss of approximately $60,000. HMG of Key Largo, Inc. - In January 1994, HMG of Key Largo, Inc.'s (a wholly-owned subsidiary of the Company) partnership interest in Key Largo Lodge, Ltd. (KLL) increased from 46.5% to 50.5%. Accordingly, the Company has changed its method of accounting for KLL from the equity method of accounting to consolidation. KLL owned property in Monroe, County Florida. In February 1994, KLL sold its major asset, a 20.5 acre parcel of land located in Monroe, County Florida. Out Island Properties, Inc. ("Out Island") had pending a civil action in the Circuit Court of Dade County, Florida against HMG of Key Largo, Inc. Out Island is the sole limited partner of Key Largo Lodge, Ltd., a Florida limited partnership of which HMG of Key Largo, Inc. is the sole general partner. Out Island filed its lawsuit in February, 1994. In July 1995, the parties settled the litigation and on August 2, 1995 an order of dismissal with prejudice was entered by the court. Pursuant to the terms of the settlement, the partnership was liquidated in 1995 and upon liquidation the Company recognized a gain of approximately $620,000. HMG Orange Park North, Inc. - A wholly owned Florida corporation of which the major asset is a 90% partnership interest in Orange Park North Partnership. This partnership sold its sole asset in 1995. 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 approximately 11.5 acres of land currently under development, in Jacksonville, Florida. In 1994, the partnership leased an approximate 2 acre parcel to a tenant which constructed and is operating a restaurant. Additionally, 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 covered by the ground lease. Unconsolidated entities are discussed in Note 3. Preparation of Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principle 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. (23) 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, 1995, and 1994 was approximately $1,052,000, and $1,112,000, respectively. Amortization expense for the years ended December 31, 1995 and 1994 was $296,000 and $147,000 respectively. Marketable Securities - The Company has adopted Financial Accounting Standards Board Statement of Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities, effective January 1, 1994, with no material effect on the Company's financial position or results of operations. Marketable debt and equity securities are classified as available for sale with unrealized gains and losses, net of tax, reported as a net amount in a separate component of stockholders' equity. Unrealized gains and losses as of December 31, 1995 and 1994 were not material. Investment Properties - The Company carries investment properties at historical cost less accumulated depreciation unless there has been an other than temporary impairment in the value of the investment or the property is held for sale, in which case the carrying value is adjusted to net realizable value. 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 $540,000 and $1,641,000 and advisor's incentive fees of $106,000 and $186,000 for the years ended December 31, 1995 and 1994, 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 . (24) Reclassifications - Certain amounts in prior year's consolidated financial statements have been reclassified to conform to the current year's presentation. Minority Interest - Minority interest represents the minority partners' proportionate share of the equity of the Company's majority owned subsidiaries.
1995 1994 Minority interest balance at beginning of year $ 4,817,000 $ 785,000 Change in method of accounting for KLL -- 2,308,000 Reduction of minority interest due to dissolution of (621,000) -- KLL Formation of new partnership (TGTC) -- 2,067,000 Minority partners' interest in operating gains of (1,421,000) 88,000 consolidated subsidiaries Minority partners' interest in net gain on sales of real 540,000 1,641,000 estate of consolidated subsidiaries Distributions to minority partners, net of contributions (2,714,000) (2,083,000) and note receivable from minority partner Other 13,000 11,000 ----------- ----------- Minority interest balance at end of year $ 614,000 $ 4,817,000 =========== ===========
Future Accouting Changes - The Company is required to adopt 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. Management does not expect that the adoption of FASB No. 121 will have a material effect on the carrying value of the Company's long-lived assets. The Company does not presently intend in 1996 to adopt the fair value based method as encouraged by FASB No.123 "Accounting for Stock-Based Compensation". Accordingly, there will be no effect to the financial statements. (25) 2. INVESTMENT PROPERTIES The components of the Company's properties and the related depreciation information follow:
December 31, 1995 Accumulated Cost Depreciation Net 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 =========== =========== ===========
December 31, 1994 Accumulated Cost Depreciation Net Commercial and Industrial Properties Land $ 2,382,769 $ 2,382,769 Buildings and improvements 13,466,662 $ 7,073,717 6,392,945 ----------- ----------- ----------- 15,849,431 7,073,717 8,775,714 Hotel and Club Facility Land 1,338,518 1,338,518 Hotel/club facility and improvements 5,956,847 291,107 5,665,740 Furniture, fixtures and equipment 1,591,716 298,214 1,293,502 ----------- ----------- ----------- 8,887,081 589,321 8,297,760 Yacht Slips 1,767,421 1,767,421 ----------- ----------- ----------- Land Held for Development 2,608,776 2,608,776 ----------- ----------- ----------- Real Estate Development in Progress Entertainment value/oriented retail center 7,721,561 7,721,561 Shopping center (Jacksonville, FL) 1,205,637 1,205,637 ----------- ----------- ----------- 8,927,198 8,927,198 ----------- ----------- ----------- Total $38,039,907 $ 7,663,038 $30,376,869 =========== =========== ===========
(26) 3. INVESTMENTS IN AND RECEIVABLES FROM UNCONSOLIDATED ENTITIES As of December 31, 1995, 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.). T.G.I.F. is engaged in the business of leasing net lease properties in Texas and Louisiana. CII owns 49% of the outstanding common stock of T.G.I.F. The carrying values of all unconsolidated investments are summarized below: Description 1995 1994 T.G.I.F. Texas, Inc. $1,656,131 $1,739,816 Various Others (a) 782,879 946,729 ---------- ---------- $2,439,010 $2,686,545 ========== ========== (a) Primarily investments in companies whose primary purpose is to make equity investments in growth oriented enterprises. 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 1995 and 1994, $1,063,000 and $1,130,000, respectively, was earned by the Advisor as advisory fees of which $188,000 and $255,000, respectively, were for incentive compensation. The Advisor is also the manager for certain of the Company's properties for which it received management fees of approximately $27,000 and $76,000 in 1995 and 1994, respectively. (27) At December 31, 1995 the Company had amounts due from the Advisor of $194,000, and as of December 31, 1994 the Company had amounts due to the Advisor of $112,000. These amounts bear interest at prime plus 1% and are due on demand. During 1988, the Company sold its interest in a 49% owned real estate investment company to a 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 mature in 1996. In 1991, the Company began recognizing interest income on these notes as payments are received. No payments were received in 1995 and 1994. The Company has a note receivable from a 41% shareholder of $300,000 plus accrued interest of $120,000 and $124,000 as of December 1995 and 1994, 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, 1995, T.G.I.F. has amounts due from Mr. Wiener in the amount of $56,000. These amounts are due on demand and bear interest at the prime rate. Furthermore, Courtland Group receives a management fee of $18,000 per year from T.G.I.F. In 1992, CII and certain directors and officers of HMG, 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 HMG have a 41% interest. This Company is a manufacturers' representative and CII's investments in and loans to (including accrued interest) Jack Baker 5th Avenue, Inc. were approximately $315,000 and $277,000 as of December 31, 1995 and 1994, respectively. In 1995 and 1994 CII recognized its portion of losses from Jack Baker 5th Avenue, Inc. of $80,000 and $86,000, respectively. (28) 5. NOTES, MORTGAGES AND OTHER PAYABLES
December 31, 1995 1994 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 7/1/98. $1,385,453 $1,443,229 Mortgage loan payable, interest at 1% over prime (9.5% at December 31, 1995) payable monthly. Principal payment of $750,000 due 7/1/96 with balance due at maturity on 7/1/97. 1,040,000 1,340,000 Mortgage loan payable, interest at prime plus 1% (9.5% at December 31, 1995) payable monthly with all principal due June 1996. 431,104 431,104 Mortgage loan payable, interest fixed at 10.5% payable quarterly with principal payments of $15,867 due each February 1st and a balloon payment due 2/4/97. 180,900 206,267 Mortgage loan payable, interest at prime plus 1.75% (10.25 at December 31, 1995) payable monthly with principal due as of June 30, 1996. 500,000 -- Limited partnership owning ground lease: Mortgage loan payable interest fixed at 9.75% payable monthly with principal due at maturity on 11/28/96. 300,000 300,000 Limited partnerships owning restaurants: Mortgage loan payable, interest fixed at 10.75% payable monthly with 20 year amortization of principal. The properties which collateralized this debt were sold and the debt was repaid during 1995. -- 1,798,388 ---------- ---------- Balance brought forward: $3,837,457 $5,518,988 ---------- ----------
(29) 5. NOTES, MORTGAGES AND OTHER PAYABLES (continued)
December 31, 1995 1994 Balance brought forward: $3,837,457 $5,518,988 Partnership owning an office building: Mortgage loan payable, interest fixed at 10.125% payable monthly, with 25 year principal amortization. The property which collateralized this debt was sold in 1995 and the purchaser of the property assumed the debt. -- $2,895,655 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). 89,790 114,189 Partnerships owning hotel and club facility and Yacht Slips: Mortgage loan payable with interest at prime plus 2% (10.5%) at December 31, 1995. Payments of interest only through June 1995, thereafter, 20 year amortization of principal with all outstanding principal due September, 2000. 4,398,320 4,500,000 Partnership owning rental property: Mortgage loan payable, interest fixed at 7% payable monthly with 5 year principal amortization. The property collateralizing this debt was sold in 1995. -- 172,759 Other: Unsecured bank line of credit, interest at prime plus 1% (9.5% at December 31, 1995) payable monthly. -- 300,000 Various lease obligations collateralized by office equipment, interest of 10% and 12%. -- 10,659 ---------- ----------- $8,325,567 $13,512,250 ---------- ----------- (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.
(30) A summary of scheduled principal repayments or reductions for all types of notes and mortgages payable is as follows: Year ending December 31, Amount 1996 $2,515,501 1997 317,583 1998 1,350,117 1999 103,778 2000 4,038,588 --------- Total $8,325,567 6. INCOME TAXES The Company's income tax benefit or provision is solely attributable to CII which files a separate tax return. As of December 31, 1995 and 1994, CII has a net deferred tax asset of approximately $1.5 million and $700,000, respectively. As of December 31, 1995 and 1994, this asset was primarily due to a net operating loss carryforward of approximately $3.7 million and $1.3 million, respectively. The Company has established a valuation allowance for the balance of the net deferred tax asset. Deferred tax liabilities at December 31, 1995 and 1994 were not material. 7. COMMITMENTS AND CONTINGENCIES Minimum lease payments receivable. The Company leases its commercial and industrial properties to lessees under agreements for which substantially all of the leases specify a base rent and a rent based on tenant sales exceeding a specified percentage. Such percentage rent approximated $431,000 and $609,000, in 1995, and 1994, respectively. These leases are classified as operating leases and generally require the tenant to pay all costs associated with the property. Minimum annual rentals on noncancelable leases in effect at December 31, 1995, are as follows: Years ended: Amount 1996 $533,000 1997 491,000 1998 346,000 1999 247,000 2000 242,000 Subsequent years 1,392,000 ---------- Total $3,251,000 ========== (31) 8. STOCKHOLDERS' EQUITY In July 1991, the shareholders approved the 1990 Stock Option Plan which expires in 2001. 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. As of December 31, 1995 105,000 options have been granted and none exercised. The exercise price of these options ranges from $3.75 to $5.50 per share. 9. 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, the partnership has written-off approximately $4.2 million of pre-development costs and has reclassified land cost of $5.8 million from real estate development in progress to land held for development. (32) Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. In the fourth quarter of 1995 the Company engaged BDO Seidman, LLP as its independent certified public accountant to audit its financial statements for the fiscal year ended December 31, 1995. This change did not arise because of any disagreements with Deloitte and Touche, LLP, its prior auditor. The report of Deloitte & Touche, LLP contained no adverse opinion, or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. There has not been any disagreement with the Company's accountants within 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. (33) 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:
Principal Occupation and Employment other than With the Company During the Past Five Name and Office Age Years - Other Directorships Maurice Wiener 54 Chairman of the Board and Chief Executive Chairman of the Board Advisor; of Directors and Chief Executive Trustee, Transco; Executive Officer Director, TGIF Texas, Inc.; Trustee, PRA Real Estate Securities Fund. Lee Gray President and 66 President, Treasurer and Director of the Advisor; Treasurer ; President and Director, Chartcraft, Inc.; Trustee Director and Treasurer, Transco, Director LCS Industries, Inc. Lawrence I. Rothstein 43 Senior Vice President and Secretary of the Senior Vice President Advisor and Vice President, Transco. and Secretary Carlos Camarotti 35 Vice President - Finance and Assistant Secretary Vice President-Finance of the Advisor. and Assistant Secretary (since 1990) Bernard Lerner 53 Vice President of the Advisor Vice President Walter Arader 76 President, Arader, Herzig and Associates Inc. Director (financial management consultants); Director, Pep Boys-Manny, Moe & Jack; Director Unitel Video; Former Secretary of Commerce, Commonwealth of Pennsylvania. John B. Bailey 69 Real Estate Consultant; Retired CEO, Landauer Director Associates, Inc. (Real Estate Consultants) (1977- 1988). Gustav S. Eyssell 94 Real Estate Consultant; Director of the Advisor. Director Norman Fieber 66 Real Estate Developer; Partner in Stonegate Director Development Corp. Harvey Comita 66 President and Director of Pan-Optics, Inc. (1971- Director 1991); Director of Mediq, Incorporated (1981- 1991); trustee of Transco Realty Trust.
(34) All executive officers of the Company were elected to their present positions to serve until their successors are elected and qualified at the 1995 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 meeting attended of the Board of Directors. 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, 1995, 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. (35) 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. Shares Held as of March 18, 1996
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 Maurice Wiener 30,100 (4) 531,830 (3) 561,930 44% (3), (4) Lee Gray 53,000 (4) 531,830 (3) 584,830 46% (3), (4) Norman Fieber 5,700 (4) 0 5,700 (4) Walter G. Arader 11,600 (4) 0 11,600 (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 143,900 (4) 531,830 675,730 53% (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 177,000 0 177,100 14% Barry S. Halperin 441 South Federal Highway Deerfield Beach, FL 33441 Tweedy Browne Co. 7,300 (6) 48,300 (6) 55,600 5% (6) L.P. TBK Partners L.P. ("TBK") Vanderbilt Partners 52 Vanderbilt Ave. NYC 10017 * Less than 1%
(36) (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). Of those shares owned by Transco Realty Trust, 24,350 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, 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. Effective March 27, 1995, Mr. Rothrock resigned as a Director of the Company. (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. (6) TBK and Vanderbilt Partners own 6,000 and 1,300 shares of Common Stock, respectively. Tweedy Browne Company LP (TBC) may be deemed the beneficial owner of 48,300 shares of Common Stock of the Company held by TBC in the accounts of various customers, with respect to which accounts TBC has investment discretion (the TBC Accounts). However, each of TBK, TBC and Vanderbilt Partners disclaims being the beneficial owner of any of the shares held in the TBC Accounts. Of the 48,300 shares held, TBC has sole voting power with respect to 38,300 shares and shared dispositive power with respect to all. (37) Item 12. Certain Relationships and Related Transactions. Mr. Wiener is the executive trustee and Mr. Gray is a trustee and treasurer of Transco and they each hold approximately 24% of its stock, respectively. They are also directors and officers of the Advisor, which owns 21% of Transco's stock. Mr. Wiener is Chairman of the Board and a 36% shareholder and Mr. Gray and Mr. Eyssell are directors and 36% and 14% shareholders, respectively, of the Advisor. Transco is a 41% shareholder of the Company. Mr. Rothstein, Senior Vice President and Secretary of the Company, is also an officer of the Advisor and Transco. 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, 1995, the Advisor owed the Company $194,000 and as of December 31, 1994, the Advisor was owed $112,000, by the Company. Such sums bear interest at the prime rate plus 1% and are due on demand. As of December 31, 1995, the Company has a note and accrued interest receivable from a 41% shareholder of $420,000 compared to $424,000 as of December 31, 1994. This note bears interest at the prime rate and is due on demand.(See Item 1. Business- South Bayshore Associates). Reference is made to Item 1. Business under "Courtland Investments, Inc." and "South Bayshore Associates" for a complete description of certain related transactions. 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 in 1996, respectively. No payments were received in 1995 or 1994 and accrued and unpaid interest is not being capitalized. 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 TGIF and owns, directly and indirectly, approximately 18% of the outstanding shares of T.G.I.F. In May 1992, CII purchased 345,000 non-voting preferred shares of T.G.I.F for $345,000. This purchase was paid by converting $280,000 of notes receivable from T.G.I.F plus $65,000 in cash. In 1993, T.G.I.F redeemed from CII and Mr. Wiener 36,250 and 18,130 preferred shares, respectively, at $1 per share. As of December 31, 1994 CII and Mr. Wiener owned 108,750 and 54,370, respectively, shares of preferred stock. As of December 31, 1995 all preferred shares have been redeemed. As of December 31, 1995 and 1994, CII owed approximately of $611,000 and 225,000, 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%. (38) 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. 3. Exhibits listed in the Index to Exhibits. (b) Reports on Form 8-K: A report on Form 8-K was filed during the fourth quarter of 1995 in connection with a change in accountants. See Item 8. Changes in and disagreements with accountants on Accounting and Financial Disclosure. (39) SIGNATURES In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HMG/COURTLAND PROPERTIES, INC. March 25, 1996 By: /s/ Maurice Wiener ----------------------------------- Maurice Wiener Chairman of the Board In accordance with Section 13 or 15 (d) of the Exchange Act, 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 March 25, 1996 - ----------------------------------- Maurice Wiener Chairman of the Board (Chief Executive Officer) /s/ Lee Gray March 25, 1996 - ----------------------------------- Lee Gray, President, Treasurer and Director /s/Walter G. Arader March 25, 1996 - ----------------------------------- Walter G. Arader, Director /s/ John B. Bailev March 25, 1996 - ----------------------------------- John B. Bailey, Director /s/ Gustav S. Evssell March 25, 1996 - ----------------------------------- Gustav S. Eyssell, Director /s/ Norman A Fieber March 25, 1996 - ----------------------------------- Norman A. Fieber, Director /s/ Harvev Comita March 25, 1996 - ----------------------------------- Harvey Comita, Director /s/ Lawrence I. Rothstein March 25, 1996 - ----------------------------------- Lawrence I. Rothstein, Senior Vice President & Secretary (Chief Financial Officer) /s/ Carlos Camarotti March 25, 1996 - ----------------------------------- Carlos Camarotti Vice President - Finance and Controller (40) EXHIBIT INDEX Description (3) (a) Restated Certificate of Incorporation Incorporated by reference to Exhibit 3(a) to the Company's 1987 Report on Form 10-K (the "1987 Form 10-K"). (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) Amended and Restated Advisory Incorporated by reference Agreement between the Company and to Exhibit 10(a) to the Courtland Group, Inc., Company's 1988 Report on dated July 15, 1988. Form 10-K (the "1988 Form 10-K"). (b) (i) Joint Venture Agreement between Incorporated by Transco Realty Trust ("Transco") reference to the and Hospital Mortgage Group, Inc. Company 5 Amend- dated August 10, 1979. ment No. 1 on Form 8 to the 1988 Form 10-K, dated April 11, 1989 (the "Form 8") (ii) Amendment to Joint Venture Incorporated by Agreement dated July 1, 1980 reference to Exhibit 10(b)(ii) to the Form 8. (41) (c) $1,181,250 Promissory Note of South Incorporated by Bayshore Associates to Hospital reference to Mortgage Group, Inc. dated July 3, Exhibit 10(b)(ii) 1980 to the Form 8. (d) Lease dated January 24, 1980 between Incorporated by Sun Bank of Miami, Grove Isle reference to Associates, Ltd. and Grove Isle Club, Exhibit 10(d) to Inc. the Form 8. (e) Agreement between NAF Associates and Incorporated by the Company, dated June 30, 1986. reference to Exhibit 10(f) to the 1987 Form 19-K. (f) Indemnification Agreement between the Incorporated by Company and Transco dated June 27, reference to 1985. Exhibit 10(t) of Transco's 1985 Report on Form 10-K. (g) Warrants and debentures issued by HMG Incorporated by Investment Corp. to the Company. reference to Exhibit 10(w) of Transco's 1986 Report on Form 10-K. (h) Agreement of purchase and sale of Incorporated by marina rights dated January 1, 1986 reference to between Courtland Investments, Inc. Exhibit 10(y) of (formerly MICI Properties, Inc.) and Transco's 1986 HMG/Courtland Properties, Inc. Report on Form 10-K. (i) $2,000,000 Promissory note of Four Incorporated by Sugar Grove Associates to Government reference to Personnel Mutual Life Insurance Exhibit 10(I) to the Company dated May 6, 1991. 1991 Form 10-K. (42) (j) 1990 Incentive Stock Option Plan of Incorporated by HMG/Courtland Properties, Inc. reference to Exhibit 10(j) to the 1991 Form 10-K. (k) Amendment of Promissory Notes in the Incorporated by amount of $300,000 dated 1986 between reference to Ex- Transco Realty Trust (Maker) and hibit 10(k) to the South Bayshore Associates 1991 Form 10-K. (l) Amended and Restated Advisory Incorporated by Agreement between the Company reference to exhibit And Courtland Group, Inc. dated 10(k) to the 1992 July 17, 1992, effective January 1, Form 10-KSB. 1993. (m) Indemnity Agreement (Grove Isle Incorporated by Settlement re: Citibank loan) reference to exhibit 10(m) To the 1993 Form 10-KSB. (n) Indemnity and Assumption Agreement Incorporated by reference (Grove Isle settlement) to Exhibit 10 (m) To the 1993 Form 10-KSB. (o) Contract for Sale and Purchase of Incorporated by reference Briar Bay Associates shopping center to Exhibit 10(o) Dated February 1994. To the 1994 Form 10-KSB. (p) The Grove Towne Center-Texas, Ltd. Limited Partnership agreement, as amended restated November 21, 1994. (43) (22) Subsidiaries of the Company: FOUR SUGAR GROVE ASSOCIATES, a Texas limited partnership T.E.H.H. CORP., a Texas corporation HMG-FIEBER ASSOCIATES, a Connecticut joint venture SOUTH BAYSHORE ASSOCIATES, a Florida joint venture HMG OF KEY LARGO, INC., a Florida corporation HMG ORANGE PARK NORTH, INC., a Florida corporation HMG FASHION SQUARE, INC., a Florida corporation HMG SUGARGROVE, INC., a Texas corporation HTW VENTURES II, INC., a Texas corporation APPLE GROVE APARTMENTS, LTD., a Texas limited partnership COURTLAND INVESTMENT, INC., a Delaware corporation GROVE ISLE YACHT CLUB ASSOCIATES., a Florida Partnership GROVE ISLE YACHT CLUB, Florida Partnership GROVE ISLE ASSOCIATES, a Florida Partnership GROVE ISLE CLUB, INC., a Florida Corporation HMG HOUSTON GROVE, INC., a Texas Corporation THE GROVE TOWNE CENTER-TEXAS, LTD. , a Texas Limited Partnership (44) Exhibit Index Description Reference The Grove Towne Center-Texas, Ltd. Exhibit 10 (p) Limited Partnership agreement, as amended restated November 21, 1994. (45) EX-10 2 AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF THE GROVE TOWNE CENTER-TEXAS, LTD. November 21, 1994 TABLE OF CONTENTS Page No. ARTICLE 1 ORGANIZATIONAL MATTERS Section 1.1 Formation of Partnership .......................................1 Section 1.2 Name ...........................................................1 Section 1.3 Registered Office; Registered Agent; Principal Office; Other Offices ........................................................1 Section 1.4 Term ...........................................................1 Section 1.5 Certain Definitions ............................................2 Section 1.6 Ownership Interest and Sharing Ratios ..........................4 ARTICLE 2 FUTURE DEVELOPMENTS Section 2.1 Participation Rights of Grovpar and HMG ....................4 Section 2.2 Other Activities ...............................................5 ARTICLE 3 PURPOSE AND SCOPE OF PARTNERSHIP Section 3.1 Purpose and Scope ..............................................6 ARTICLE 4 DEVELOPMENT, LEASING AND MANAGEMENT Section 4.1 Development Management .........................................6 Section 4.2 Construction Management ........................................7 Section 4.3 Leasing Management .............................................7 Section 4.4 AssetManagement ................................................7 Section 4.5 Property Management ............................................7 ARTICLE 5 RIGHTS OF LIMITED PARTNERS Section 5.1 Information ....................................................8 Section 5.2 Limitation on Participation in Management ......................8 Section 5.3 Limited Liability ..............................................8 ARTICLE 6 MANAGEMENT OF PARTNERSHIP Section 6.1 Management .....................................................8 Section 6.2 Indemnification ................................................9 Section 6.3 Budgets .......................................................10 Section 6.4 Reimbursement of Expenses .....................................10 Section 6.5 Compensation of Partners ......................................10 i Section 6.6 Power of Attorney .............................................10 Section 6.7 Admittance of Additional Partners .............................10 ARTICLE 7 ACCOUNTING AND REPORTING Section 7.1 Fiscal Year, Accounts, Reports ................................11 Section 7.2 Bank Accounts .................................................11 ARTICLE 8 CAPITAL CONTRIBUTIONS Section 8.1 Initial Capital Contributions .................................12 Section 8.2 Additional Capital Contributions ..............................12 Section 8.3 Failure to Make Contributions .................................13 Section 8.4 Reduction of Sharing Ratios in Certain Circumstances ..........13 Section 8.5 Return of Contributions .......................................15 ARTICLE 9 FINANCING Section 9.1 Financing .....................................................15 Section 9.2 Partner Loans .................................................16 ARTICLE 10 DISTRIBUTIONS Section 10.1 Distributions in General ......................................16 Section 10.2 Distribution of Net Cash Flow .................................16 Section 10.3 Distribution of Capital Proceeds ..............................17 Section 10.4 Distributions to Delinquent Partners ..........................17 Section 10.5 Payment of Distributions to Grovpar ...........................17 ARTICLE 11 TAX MATTERS AND ALLOCATIONS Section 11.1 Allocations ...................................................17 Section 11.2 Capital Accounts ..............................................19 Section 11.3 Tax Returns .................................................. 20 Section 11.4 Tax Elections .................................................20 Section 11.5 Tax Matters Partner ...........................................21 Section 11.6 Allocations on Transfer of Interests ..........................21 ARTICLE 12 WITHDRAWAL, DISSOLUTION, LIQUIDATION, AND TERMINATION Section 12.1 Voluntary Withdrawal ..........................................22 Section 12.2 Dissolution, Liquidation, and Termination Generally ...........22 Section 12.3 Liquidation and Termination ...................................22 Section 12.4 Cancellation of Certificate ...................................24 ii ARTICLE 13 TRANSFERS OF OWNERSHIP INTERESTS Section 13.1 Restriction of Transfers ......................................24 Section 13.2 Restrictions on Transfers as to Constituent Parties ...........24 ARTICLE 14 MISCELLANEOUS PROVISIONS Section 14.1 Notices .......................................................25 Section 14.2 Governing Law .................................................26 Section 14.3 Entireties; Amendments ........................................26 Section 14.4 Waiver ........................................................26 Section 14.5 Severability ..................................................26 Section 14.6 Ownership of Property and Right of Partition ..................26 Section 14.7 Captions, References ..........................................26 Section 14.8 Involvement of Partners in Certain Proceedings ................27 Section 14.9 Services Performed by Affiliates ..............................27 Section 14.10 Interest ......................................................27 Section 14.11 No Third-Party Beneficiaries ..................................27 iii AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT THE GROVE TOWNE CENTER-TEXAS, LTD. This Amended and Restated Limited Partnership Agreement ("Agreement") is entered into effective as of November 21, 1994, among the undersigned parties. This Agreement amends and restates the Limited Partnership Agreement of The Grove Towne Center-Texas, Ltd. dated September 7, 1994, and reflects the Partners agreement relative to the Partnership. ARTICLE 1 ORGANIZATIONAL MATTERS Section 1.1 Formation of Partnership. The undersigned hereby enter into and form a partnership (the "Partnership") for the limited purpose and scope set forth herein. HMG Houston Grove, Inc., a Texas corporation, shall be the initial "General Partner" of the Partnership, and Grovpar, Ltd., a Texas limited partnership ("Grovpar"), HMG/Courtland Properties, Inc., a Delaware corporation ("HMG"), and Sunbelt Shopping Development, Ltd., an Ohio limited liability company ("Sunbelt") shall be the initial "Limited Partners" of the Partnership. The General Partner and Limited Partners are sometimes herein referred to individually as a "Partner" and collectively as the "Partners." The Partnership is a limited partnership formed to accomplish the specific purposes hereafter set forth, and except as otherwise herein provided shall be subject to the provisions of the Texas Revised Limited Partnership Act, as amended from time to time (the "Act"). Section 1.2 Name. The name of the Partnership shall be The Grove Towne Center Texas, Ltd. Subject to applicable law, the business of the Partnership may be conducted under any other name the General Partner may from time to time deem appropriate. The Partnership shall file all assumed or fictitious name certificates required by law in all appropriate jurisdictions in connection with the conduct of the business of the Partnership. Section 1.3 Registered Office: Registered Agent Principal Office: Other Offices. The registered office of the Partnership in the State of Texas shall be at such place as the General Partner may designate from time to time, and the registered agent for service of process on the Partnership in the State of Texas shall be such person as the General Partner may designate from time to time. The principal office of the Partnership shall be at 4800 Sugar Grove Boulevard, Suite 380, Stafford, Texas 77477, and at such office the Partnership shall maintain the records required by Section 1.07 of the Act. Section 1.4 Term. The Partnership shall commence on the date designated in the introductory paragraph above that this Agreement is executed by all Partners, and shall terminate on December 31, 2050, unless sooner terminated as herein provided. 1 Section 1.5 Certain Definitions. As used in this Agreement, the following terms shall have the meanings indicated: "Adjusted Capital Account Deficit" means, with respect to a Partner, the deficit balance, if any, in that Partner's Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments: (a) the Capital Account will be increased by any amount that the Partner is obligated to restore, including any amount the Partner is deemed to be obligated to restore under the penultimate sentences of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), or any successor provisions; and (b) the Capital Account will be decreased by the items described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6). This definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d). "Affiliate" shall mean a Person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with any Partner. The term "control" as used in the preceding sentence means, with respect to a Person that is a corporation, the right to exercise, directly or indirectly, more than fifty percent (50%) of the voting rights attributable to the shares of the controlled corporation, and, with respect to a Person that is not a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled Person. "Book Basis" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, provided, however, (i) if property is contributed to the Partnership, the initial Book Basis of such Property shall equal its fair market value on the date of contribution; and (ii) if the Capital Accounts of the Partnership are adjusted pursuant to Treasury Regulation Section 1.704-1(b) to reflect the fair market value of any Partnership asset, the Book Basis of such asset shall be adjusted to equal its respective fair market value as of the time of such adjustment in accordance with such Treasury Regulation. The Book Basis of all assets shall be adjusted thereafter by depreciation and amortization as provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(g). "Budget" shall mean any budget approved by the General Partner from time to time as herein provided. "Capital Proceeds" shall mean funds of the Partnership that are the proceeds of a sale, financing, refinancing, or other similar transaction with regard to the Project (including condemnation awards, title insurance proceeds, and casualty loss insurance proceeds other than business interruption or rent loss insurance proceeds, to the extent not payable or paid (at the option of the 2 General Partner) to Partnership lenders or not utilized to repair damage caused by the casualty loss or taking in question, or in alleviation of any title defect), net of the actual costs incurred by the Partnership with third parties in connection with consummating the transaction giving rise to such funds. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Default Interest Rate" shall mean a rate equal to the Prime Interest Rate plus four percent (4%) per annum, but not in excess of the maximum rate permitted by applicable law. "GAAP" shall mean generally accepted accounting principles. "Gross Costs" shall mean all costs associated with the acquisition, construction, development, and financing of the Project which, under GAAP, would be treated as a capital expenditure rather than an operating expense. "Grovpar Note" shall mean the promissory note of even date executed by Grovpar and payable to the order of HMG and all renewals and replacements thereof; payment of the Grovpar Note is secured by a security interest in Grovpar's Ownership Interest granted by a Security Agreement of even date. "Improvements" shall mean all buildings or other improvements erected or to be erected on the Land. "Land" shall mean the real property in Fort Bend County, Texas containing approximately 41.6359 acres of land or 1,813,659.804 square feet as described on Exhibit A hereto. "Majority in Interest" shall mean Limited Partners holding in excess of fifty percent (50%) of the Sharing Ratios held by all Limited Partners. "Net Cash flow" shall mean, for any given fiscal period, the amount by which Operating Revenues exceed Operating Expenses for such period. "Operating expenses" shall mean, for any fiscal period, the current obligations of the Partnership for such period, determined in accordance with GAAP, for operating expenses of the Project, for capital expenditures not paid from the Partners' capital contributions to the Partnership, for payments of interest and principal on any Partnership loans, and for reasonable reserves actually funded. Operating Expenses shall not include any non-cash expenses such as depreciation or amortization. 3 "Operating Revenues" shall mean, for any fiscal period, the gross revenues of the Partnership that result from the ownership and operation of the Project during such period, including proceeds of any business interruption insurance maintained by the Partnership from time to time and amounts funded from Partnership reserves, but specifically excluding Capital Proceeds and capital contributions of the Partners. "Person" shall mean an individual, partnership, joint venture, corporation, trust, unincorporated association, or other entity or association. "Prime Interest Rate" shall mean the rate of interest per annum from time to time announced by the Wall Street Journal (Southwest Edition) in its "Money Rates" column as the prime rate of interest; if more than one rate or a range of rates is announced, the Prime Rate shall be the highest of such rates. "Project" shall mean the Land and Improvements. Section 1.6 Ownership Interest and Sharing Ratios. The "Ownership Interests" of the Partners in the Partnership consist of all of the rights and interests of whatsoever nature of the Partners in the Partnership, including without limitation the right to participate in management to the extent herein expressly provided, to receive distributions of funds, and to receive allocations of income, gain, loss, deduction, and credit. From time to time herein the rights of the Partners to share in, and the obligations of the Partners to bear, certain Partnership items are expressed as percentages, which percentages are herein referred to as "Sharing Ratios." The Sharing Ratios of the Partners are as set forth on Schedule 1 hereto. Section 1.7 Partner Meetings. Partner meetings may be called at any time and for any proper purpose or purposes by Partners whose combined Sharing Ratios are at least 10%; provided, however, that the Partner calling the Partner meeting shall pay all expenses associated with each Partner meeting in excess of 6 Partner meetings in any 12 month period. Partner meetings shall be held at the principal office of the Partnership or at such other locations as determined by the General Partner. ARTICLE 2 FUTURE DEVELOPMENTS Section 2.1 Participation Rights of Grovpar and HMG. (a) For a period of 10 years after the effective date of this Agreement, if either Grovpar or HMG (the participating Partner is referred to in this Section 2.1 as the "Developing Partner") participates (directly, or indirectly through an Affiliate) in a Value Oriented Development (defined below), then the Developing Partner shall offer to the nondeveloping Partner (the "Other Partner") in writing a right to purchase at least a 10% interest (a "Participating Interest") in each of the entities involved in such Value Oriented 4 Development (each a "Developing Entity") in which the Developing Partner is participating on the same economic basis as the other participants (the "Investment Participants") participate therein, subject to the approval of the Investment Participants. For purposes of this Agreement, "Value Oriented Development" shall mean a commercial development in which at least 65% of the total rentable area in the development consists of stores in the following categories: (1) manufacturer's outlets, (2) discount stores, or (3) off-price retailers. At the time of the written offer, the Developing Partner shall provide the Other Partner with information reasonably sufficient to enable the Other Partner to evaluate participating in the development, including without limitation land acquisition documents, development plans, construction costs, budgets, and cash flow forecasts (collectively, the "Investment Information"). (b) If the Investment Participants refuse to allow the Other Partner to purchase a Participating Interest in a Developing Entity, then the Developing Partner shall offer to the Other Partner in writing a right to purchase at least 40% of the Developing Partner's interest in the development in question on the same economic basis that the Developing Partner acquires its interest in the Developing Entity. (c) The Other Partner shall have 30 days after the receipt of the written offer and the Investment Information to exercise its right to purchase a Participating Interest as set forth in Section 2.1(a) by delivering written notification to the Developing Partner. If the Investment Participants refuse to allow the Other Partner to participate in the development as set forth in Section 2.1(a), then the Other Partner shall have 30 days after the receipt of written notice of such refusal and the Investment Information to elect to purchase 40% of the Developing Partner's interest in such development as set forth in Section 2.1(b) by delivering written notification to the Developing Partner. The Other Partner's rights under Sections 2.1(a) and 2.1(b) shall lapse (A) as to the particular investment in question if written notification is not delivered to the Developing Partner within the 30 day time period, and (B) as to any investment if the Other Partner refuses four consecutive offers under Sections 2.1(a) and 2.1(b). Section 2.2 Other Activities Except as set forth in Section 2.1 above, nothing contained in this Agreement or in the Act shall be deemed to restrict in any way the freedom of any Partner to conduct any business or activity whatsoever without accountability to the Partnership or the other Partners. Each Partner shall have the right at any time to acquire and exploit any property whatsoever and to engage in any business whatsoever, either individually or with other parties, whether or not in competition with the Partnership, and shall not be required to obtain the consent of the other Partners or to offer to the Partnership or the other Partners the right to participate therein. 5 ARTICLE 3 PURPOSE AND SCOPE OF PARTNERSHIP Section 3.1 Purpose and Scope. The purpose and scope of the Partnership are strictly limited to the acquisition of the Land; the construction of the Improvements and overall development of the Project; the maintenance, ownership, lease, and sale of the Project; the financing of the foregoing activities; and the performance of all other activities reasonably necessary or incidental to the furtherance of such purposes. ARTICLE 4 DEVELOPMENT. LEASING AND MANAGEMENT OF PROJECT Section 4.1 Development Management. (a) The General Partner shall appoint a person or persons (which may be the General Partner or an Affiliate of the General Partner) to be responsible for managing the development of the Project (the "Development Manager"). The Development Manager shall have the overall development and coordination responsibilities for the Project until its opening, which responsibilities shall include, but not be limited to, the definition of the concept for the Project, the financial evaluation of its feasibility and the direction and coordination of the different aspects of its implementation, including the financing, design, permitting, construction, leasing, marketing and administering the development. In general, the Development Manager, in performing its duties set forth herein, shall make in good faith all reasonable efforts to see that the Project is developed in accordance with the Development Plan (defined below). (b) The Development Manager shall have prepared, at Partnership expense, a site plan for the Project, the architectural design for the Improvements, a development schedule for the Project, and a development budget therefor (all of which is herein collectively referred as the "Development Plan"), and shall submit the same to the General Partner for approval no later than October 15, 1994. The General Partner hereby acknowledges that it has received and approved the Development Plan prior to the date hereof. After the General Partner has approved the Development Plan, then the Partnership shall seek to obtain development financing for the Project as hereafter provided, and shall undertake to develop the Project in accordance with the approved Development Plan. (c) Upon commencement of construction of the Improvements, the Development Manager shall be responsible for supervising the progress and quality thereof on behalf of the Partnership and shall use its best efforts to see that the Project is completed in accordance with the approved Development Plan and in accordance with good industry practice. 6 (d) The Partnership shall pay the Development Manager a reasonable development fee as determined by the General Partner for the performance of the services listed in this Section 4.1. Section 4.2 Construction Management. The Development Manager, with the prior written approval of the General Partner, shall appoint a person, which may be an employee or Affiliate of the General Partner or the Development Manager, as the "Construction Manager." The Construction Manager shall be responsible for coordinating the work of the architects and engineers with regard to the Project, as well as to be responsible for all permits for the Project required by the applicable governmental authorities, and the selection of contractors. In addition, the Construction Manager shall supervise and coordinate the construction of the Project and any tenant finishes. The Partnership shall pay the Construction Manager a reasonable fee as determined by the General Partner for the performance of the services listed in this Section 4.2. Section 4.3 Leasing Management. The Development Manager, with the prior written approval of the General Partner, shall appoint a person or persons (which may be an employee or an Affiliate of the General Partner or the Development Manager) who shall be the "Leasing Manager." The Leasing Manager shall be responsible for coordinating the marketing of lease space in the Project, including preparation of advertising materials, leasing brochures, standard lease forms; establishing, coordinating, and supervising the preparation of lease proposals; and conducting lease negotiations. The Partnership shall pay the Leasing Manager a reasonable fee as determined by the General Partner for the performance of the services listed in this Section 4.3. Section 4.4 Asset Management. The General Partner shall appoint a person or persons (which may be the General Partner or an Affiliate of the General Partner) to be responsible for managing the Project after its opening (the "Asset Manager"). The Asset Manager shall be responsible for the preparation, direction, and coordination of the business plan for the Project, the merchandising and releasing plan, community relations, supervision of the Leasing Manager and/or appointment of a new Leasing Manager and/or Property Manager, if necessary, and the monthly reporting to the Partnership. The Partnership shall pay the Asset Manager a reasonable fee as determined by the General Partner for the performance of the services listed in this Section 4.4. Section 4.5 Property Management. The Asset Manager, with the prior written approval of the General Partner, shall appoint a person or persons (which may be an employee or an Affiliate of the General Partner or the Asset Manager) to be responsible for the day-to-day implementation of the business plan and the day-to-day operation of the Project (the "Property Manager"). The Partnership shall pay the Property Manager a reasonable fee as determined by the General Partner for the performance of the services listed in this Section 4.5. 7 ARTICLE 5 RIGHTS OF LIMITED PARTNERS Section 5.1 Information. Each Limited Partner shall have access to all information as provided for in Section 1.07 of the Act under the circumstances and conditions therein stated. Section 5.2 Limitation on Participation in Management. No Limited Partner shall have any authority in its capacity as a Limited Partner to act for or on behalf of the Partnership or any other Partner, but this provision shall not be construed so as to limit the rights afforded to a Majority in Interest as herein provided. Section 5.3 Limited Liability. No Limited Partner shall be liable for the losses, debts, liabilities, contracts, or obligations of the Partnership except to the extent required by law or as otherwise expressly provided for herein. ARTICLE 6 MANAGEMENT OF PARTNERSHIP Section 6.1 Management. (a) The General Partner shall have complete and exclusive authority to manage the affairs of the Partnership and to make all decisions with regard thereto except where (i) the approval of a Majority in Interest is required pursuant to the terms of this Agreement, or (ii) the approval of one or more of the Limited Partners is expressly required by a non-waivable provision of applicable law. (b) Notwithstanding anything to the contrary in this Agreement, no action shall be taken, sum expended, or obligation incurred by the General Partner or the Partnership with respect to any Major Decision (defined below) unless the procedure set forth in this Section 6.1(b) has first been followed. All Major Decisions must be approved by a Majority in Interest after the procedures set forth in this Section 6.1(b) have been followed. As to any Major Decision which the General Partner desires to be approved, the General Partner shall first notify the Limited Partners in writing of the Major Decision in question at least 30 days prior to the time that the General Partner desires such Major Decision to be voted on and approved. Such notice shall be accompanied by an explanation of reasonable detail by the General Partner of the Major Decision in question and the reasons the General Partner considers it appropriate for approval and any background information that the General Partner determines appropriate (which in the case of a sale or refinancing transaction shall at a minimum include a current appraisal of the Project by an appraiser meeting the qualifications set forth in Section 13.2). Any Limited Partner may within 7 business days of receipt of such notice from the General Partner notify the General Partner of such Limited Partner's desire to have a meeting of the Partners relative to such Major Decision. Such Limited Partner shall designate in such notice two alternative meeting dates prior to the end of such 30-day period which dates are also at least 7 business days after the 8 date of such notice. The General Partner shall select one of such dates and notify the Partners of such meeting date at least 3 days prior to the meeting date. Such meeting shall be held at the offices of the Partnership, or such other place mutually agreeable to all parties who plan to attend. The General Partner may request a vote on such Major Decision at such meeting or at anytime thereafter. As used herein, "Major Decision" shall mean: (1) Any sale, transfer, or exchange (or any transaction that would in substance constitute a sale, transfer, or exchange) of all or substantially all of the assets of the Partnership; (2) The termination of an existing or appointment of a new Development Manager, Asset Manager, or Leasing Manager; (3) Any change in the Budget which by itself or cumulatively with all other changes represents a change of more than 5% of the total cost of the Improvements; (4) Any substantial change in the basic focus or orientation of the Project in terms of tenant mix; or (5) The post-conistruction financing for the Project. (c) The General Partner shall discharge its duties in a good and proper manner as provided for in this Agreement. The General Partner, on behalf of the Partnership, shall in good faith use all reasonable efforts to implement or cause to be implemented all Major Decisions approved by the Partners, enforce agreements entered into by the Partnership, and conduct or cause to be conducted the ordinary usual business and affairs of the Partnership in accordance with good industry practice and the provisions of this Agreement. The General Partner shall not be required to devote a particular amount of time to the Partnership's business, but shall devote sufficient time to perform its duties hereunder. Section 6.2 Indemnification. To the fullest extent permitted by the Act, and subject to the limitations therein set forth, the Partnership shall indemnify the General Partner and its agents and employees against all losses, liabilities, and expenses (including, without limitation, cost of suit and attorney's fees) they may incur in performing their obligations hereunder, and the Partnership shall advance expenses associated with the defense of any action related thereto; provided, however, that such indemnity shall not apply to actions or inactions constituting gross negligence, willful misconduct, or bad faith. The Indemnity set forth in this Section 6.2 shall be limited to the assets of the Partnership from time to time. and no Partner shall be obligated to contribute capital to the Partnership to pay any indemnified cost. 9 Section 6.3 Budgets. (a) During the time that the Partnership is developing the Project, the Partnership shall act under the development budget approved of as part of the Development Plan. (b) After completion of development of the Project, the Partnership shall operate under annual Budgets which shall be prepared by the General Partner. Each such Budget shall set forth the estimated receipts and expenditures (capital, operating, and other) of the Partnership for the period covered thereby and shall be in such detail as the General Partner may deem appropriate. After an annual Budget has been approved, the Asset Manager shall implement the same on behalf of the Partnership and shall have authority to incur the expenditures and obligations therein provided for. Section 6.4 Reimbursement of Expenses. The General Partner shall be reimbursed for all reasonable out-of-pocket expenses actually incurred by it directly in conjunction with the business and affairs of the Partnership, including without limitation, travel and entertainment expenses, telephone costs, and the like, but upon request shall provide reasonable supporting verification to the other Partners for all expenditures for which such reimbursement is requested. Section 6.5 Compensation of Partners. Except as herein otherwise specifically provided, no compensatory payment shall be made by the Partnership to any Partner for the services to the Partnership of such Partner. This Section shall not affect any agreements entered into by the Partnership with any Partner for services to be rendered by the Partner. Section 6.6 Power of Attorney. Each Partner hereby appoints the General Partner as its attorney-in-fact for the purpose of executing, swearing to, acknowledging, and delivering all certificates, documents, and other instruments as may be necessary, appropriate, or advisable in the judgment of the General Partner in order to create, qualify, or continue the existence of the Partnership as a limited partnership or to otherwise comply with applicable law relative to the continued existence of the Partnership as a limited partnership, including, without limitation, a certificate of limited partnership for the Partnership complying with the Act and all amendments necessary thereto. Such power shall be irrevocable and is coupled with an interest. Upon request by the General Partner, any Partner shall confirm its grant of such power of attorney or any use thereof by the General Partner or shall execute, swear to, acknowledge, and deliver any such certificate, document, or other instrument. Section 6.7 Admittance of Additional Partners. The General Partner, upon the approval of a Majority in Interest, may admit additional Limited Partners to the Partnership; provided, however, in such event, no Partner's Sharing Ratio shall be reduced without such Partner's consent. Except for an Affiliate of the General Partner, no new or additional General Partner may be admitted to the Partnership, nor shall any of the authority, duty, or responsibility of the General Partner be transferred or delegated, without 10 the prior written consent of all Partners. This Section 6.7 shall not affect the exercise of the rights set forth in Section 8.4. ARTICLE 7 ACCOUNTING AND REPORTING Section 7.1 Fiscal Year. Accounts. Reports. (a) The fiscal year of the Partnership shall be the calendar year. (b) The books of account of the Partnership shall, at Partnership expense, be kept and maintained by the General Partner on an accrual basis in accordance with generally accepted accounting principles and practices in effect from time to time consistently applied or on a cash basis, in accordance with good and proper accounting practice therefor, as determined by the General Partner. The books of account shall be kept at the principal place of business of the Partnership. (c) The General Partner shall, at Partnership expense, cause to be prepared or furnished to the Partners (1) on or before the thirtieth (30th) working day of each month, an unaudited statement setting forth and describing in reasonable detail the receipts and expenditures of the Partnership during the preceding calendar month and comparing the results of operations of the Partnership for such month and for the year to date to the appropriate budget, (2) on or before 60 days (or as soon thereafter as reasonably possible) after the end of each fiscal year, a balance sheet of the Partnership dated as of the end of such fiscal year and a statement setting forth the profits and losses of the Partnership for such fiscal year, and (3) from time to time and promptly upon request, all other information relating to the Partnership and its business and affairs reasonably requested by any Partner. Additionally, during the period that the Partnership is developing the Project, the Development Manager shall provide to the Partners monthly reports of the progress of construction of the Project, and status of negotiations with respect to leasing space therein in such form and detail as the General Partner may request. (d) Each Partner, at its cost and expense, shall have the right at all reasonable times during usual business hours to audit, examine, and make copies of or extracts from the books of account, records, files, and bank statements of the Partnership. Such right may be exercised by any Partner, or by its designated agents or employees. Section 7.2 Bank Accounts. The General Partner shall open and maintain (in the name of the Partnership) a special bank account or accounts in a bank or savings and loan association, the deposits of which are insured, up to the applicable limits, by an agency of the United States government, in which shall be deposited all funds of the Partnership. Withdrawals therefrom shall be made upon the signatures of such persons as the General Partner shall designate. 11 ARTICLE 8 CAPITAL CONTRIBUTIONS Section 8.1 Initial Capital Contributions. The General Partner, HMG, and Grovpar have contributed to the Partnership predevelopment work for the Project, including without limitation, zoning, leasing negotiations, contractor selection, architectural design coordination, and marketing, the expenses incurred for such predevelopment work, and the lease between American Multi-Cinema, Inc. and the Partnership. In addition, HMG has contributed the Land. The Partners hereby stipulate that as of September 30, 1994, the value of the contributions by the General Partner and HMG to the Partnership is $7,794,073; as of September 30, 1994, the value of the contributions by Grovpar to the Partnership is $995,638; and, as of the date hereof, Sunbelt has contributed to the Partnership cash in the amount of $1,500,000. Section 8.2 Additional Capital Contributions. (a) Within 10 days after the General Partner provides a written statement to each Partner informing the Partners that (1) qualifying leases with a term of not less than 5 years have been executed for at least 6S% of the gross leasable area of the Improvements, and (2) the General Partner has obtained a commitment letter for construction financing for the Project (and all substantial business conditions stated therein to fund the loan have been satisfied), from a lender unrelated to HMG, with terms comparable to market rate and in an amount (as determined by the General Partner) sufficient to develop the Project without the expectation of needing additional capital from the Partners beyond that specified in this Section 8.2(a) and 8.2(b), the General Partner and HMG shall contribute in cash the additional amount of $1,305,927 to the Partnership, Grovpar shall contribute in cash the additional amount of $404,362 to the Partnership, and Sunbelt shall contribute in cash the additional amount of $2,000,000 to the Partnership. (b) After the initial capital contributions called for in Section 8.1, and the additional capital contributions called for in Section 8.2(a), each Partner, upon receipt of 30-day prior written notice from the General Partner, shall be required to contribute capital to the Partnership in an amount equal to the product of its Sharing Ratio multiplied by an amount which shall not exceed $2,800,000. (c) After the capital contributions called for in Sections 8.1, 8.2(a), and 8.2(b), no Partner shall be required to contribute capital to the Partnership. (d) The General Partner shall notify the Partners of the need for additional capital and specify in such notice the amount of funds required, each Partner's share thereof in accordance with the terms of this Agreement, the paragraph of this section under which the capital is requested, and the purpose therefor. 12 Section 8.3 Failure to Make Contributions. (a) If any Partner shall fail to timely contribute all or any portion of any capital contribution required under Sections 8.1 or 8.2(a), then the Partnership may, upon notice to such Partner (the "Delinquent Partner"), exercise any one or more of the following rights or remedies: (1) permit such of the Partners as elect to do so, in proportion to their respective Sharing Ratios or in such other percentages as they may agree (the "Advancing Partners," whether one or more), to advance that portion of the capital contribution that is in default, with the following results: (a) the sum thus advanced shall constitute a loan to the Delinquent Partner, (b) such loan and all accrued unpaid interest thereon shall be due upon demand, (c) the loan shall bear interest at the Default Interest Rate from the date made until the date fully repaid, and (d) all Partnership distributions that otherwise would be made to the Delinquent Partner (whether before or after dissolution of the Partnership) shall be paid to the Advancing Partners until the loan and all interest accrued thereon is paid in full (with all such payments being applied first to accrued and unpaid interest and then to principal); or (2) permit Advancing Partners to advance as provided in Section 8.3(a)(1), with such advances being treated as capital contributions, which increase Advancing Partners' Sharing Ratio and reduce the Delinquent Partner's Sharing Ratio as provided in Section 8.4; (b) If any Partner shall fail to timely contribute all or any portion of any capital contribution required under 8.2(b), then the Partnership may, upon notice to such Delinquent Partner, as its sole remedy, exercise its rights under Section 8.3(a)(2), except that the Multiplier (defined below) shall be 1.0. (c) If the General Partner is a Delinquent Partner, then exercise of the remedies in Section 8.3(a) and 8.3(b) shall be determined by a Majority in Interest. If there is more than one Advancing Partner, determinations under Section 8.3(a)(1) or 8.3(a)(2) shall be made by Advancing Partners holding a majority of the Sharing Ratios held by all Advancing Partners. Section 8.4 Reduction of Sharing Ratios in Certain Circumstances. If Advancing Partners elect to proceed under Section 8.3(a)(2), the Delinquent Partner's Sharing Ratio shall be reduced and the Advancing Partners' Sharing Ratios shall be increased in an amount equal to the number of percentage points (or portions thereof obtained by (a) dividing (i) the additional capital contribution required under Section 8.2 at the time in question by (ii) the sum of the initial capital contribution made by the Delinquent Partner under Section 8.1, all previous capital contributions made by the Delinquent Partner under Section 8.2 and the additional capital contribution required of the Delinquent Partner under Section 8.2 at the time in question, (b) multiplying the quotient in (a) by 1.1 (the 13 "Multiplier"), and (c) multiplying the product in (b) by the Delinquent Partner's Sharing Ratio at that time. The following examples illustrate the foregoing (the amounts of the additional capital in the examples are unrelated to the additional capital that is called for in this Article 8): Example 1: Assume the Partnership requires an additional $4,000,000 in capital. If the Delinquent Partner's Sharing Ratio is 10%, its initial capital contribution was $600,000, no further capital contributions had been made, and the Delinquent Partner does not advance its share of additional capital to the Partnership (which would be 10~o of the $4,000,000 additional capital required by the Partnership), and Advancing Partners elect to proceed under Section 8.3(a)(2), then Delinquent Partner's Sharing Ratio would be reduced and the Advancing Partners' Sharing Ratio would be increased by 4.4 percentage points, calculated as follows: (a) additional capital - (initial capital + additional capital) = $400,000/($600,000+ $400,000) = $400,000/$1,000,000 = .40 (b) .40 x 1.1 = .44 (c) .44 x 10% = 4.4 percentage points The resulting Sharing Ratios for the Partners would be as follows: General Partner -- 1~G; Advancing Partners -- 93.4%; and Delinquent Partner -- 5.6%. Example 2: Assuming the scenario in Example 1, Partnership now requires a second additional capital contribution totaling $10,000,000. Delinquent Partner, whose current Sharing Ratio is 5.6%, would be required to make an additional capital contribution under Section 8.2 of $560,000 (5.6% of $10,000,000). If Delinquent Partner does not advance its share of the second additional capital contribution to the Partnership, and the Advancing Partners elect to proceed under Section 8.3(a)(2), then Delinquent Partner's Sharing Ratio would be reduced and the Advancing Partners' Sharing Ratio would be increased by 2.97 percentage points, calculated as follows: (a) 2nd addl. capital . (initial capital + addl. cap. made + 2nd addl. cap.) = $560,000/($600,000 + 0 + $560,000 ) = $560,000/$1,160,000 = .48 (b) 48 x 1.1 = .53 (c) .53 x 5.6% = 2.97 percentage points 14 The resulting Sharing Ratios for the Partners would be as follows: General Partner -- 1% Advancing Partners -- 96.37%; and Delinquent Partner -- 2.63%. Example 3: Assume in Example 1 that Delinquent Partner made the first required additional capital contribution of $400,000, therefore, its Sharing Ratio remained at 10 %. Now assume that the Partnership requires a second additional capital contribution of $10,000,000; Delinquent Partner's share of the second additional capital contribution would be $1,000,000.00 (10% of $10,000,000). If Delinquent Partner does not advance its share of the second additional capital contribution to the Partnership, and the Advancing Partners elect to proceed under Section 8.3(a)(2), then Delinquent Partner's Sharing Ratio would be reduced and the Advancing Partners' Sharing Ratio would be increased by 5.5 percentage points, calculated as follows: (a) additional capital - (initial capital + addl. cap. made + 2nd addl. cap.) = $1,000,000/($600,000 + $400,000 + $1,000,000) = $1,000,000/$2,000,000 = .50 (b) .50 x 1.1 = .55 (c) .55 x 10% = 5.5 percentage points The resulting Sharing Ratios would be as follows: General Partner -- 1%; Advancing Partners -- 94.5%; and Delinquent Partner -- 4.5%. Section 8.5 Return of Contributions. No Partner shall be entitled to the return of any part of its capital contributions, to be paid interest in respect of either its capital account or any capital contribution made by it or paid for the fair market value of its Ownership Interest. Unrepaid capital contributions shall not be a liability of the Partnership or of any Partner. No Partner shall be required to contribute or lend any cash or property to the Partnership to enable the Partnership to return any Partner's capital contributions to the Partnership. ARTICLE 9 FINANCING Section 9.1 Financing. The Partners intend, to the maximum extent reasonably possible, to finance the ownership and development of the Project by borrowing funds. To this end, the General Partner shall make reasonable efforts to arrange a loan (the "Construction Loan") the proceeds of which shall be used to defray the cost of constructing the Improvements and otherwise developing the Project. The General Partner shall also make reasonable efforts to obtain on a long term basis a "Permanent Loan" to be funded to finance ownership of the Project after development is completed, or if later, at the maturity of the Construction Loan, the proceeds of which shall be used, in part, to pay the 15 Construction Loan. No Partner shall be individually subject to recourse financing without the express written consent of such Partner. Section 9.2 Partner Loans. If the Partnership shall not have sufficient cash to pay its obligations, any Partner may (but shall not be obligated to) advance such funds for or on behalf of the Partnership. In the event that the Partnership requires funds not in excess of $1,000,000 the General Partner shall have no obligation to notify the other Partners, and the General Partner may advance such funds to the Partnership itself. In the case that the Partnership requires funds in excess of $1,000,000, or in any case where the General Partner determines to notify the Partners of a need for funds, the Partners shall have a right to advance such funds to the Partnership pro rata in accordance with their Sharing Ratios. Each such advance shall constitute a loan from such Partner to the Partnership and shall bear interest from the date of the advance until repaid at the per annum rate equal to 2% over the Prime Interest Rate, provided that the per annum rate of interest shall not exceed the greater of (i) the per annum rate of interest on the Permanent Loan, (ii) 13%, or (iii) the maximum lawful rate. Loans made pursuant to this Section 9.2 shall not constitute capital contributions, and all such loans shall be repaid out of the next available funds of the Partnership before distribution of funds to the Partners. ARTICLE 10 DISTRIBUTIONS Section 10.1 Distributions in General. From time to time, but not less often than quarterly, the General Partner shall determine the amount, if any, by which the Partnership funds then on hand exceed the reasonable working capital needs of the Partnership, including reasonable reserves for future Partnership obligations or reductions of indebtedness. Any excess funds shall be distributed to the Partners in accordance with the provisions of this Article 10. Section 10.2 Distribution of Net Cash Flow. (a) The Net Cash Flow during any particular calendar year shall, subject to Sections 8.3 and 10.4, be distributed to the Partners as follows: (i) first, to those Partners making contributions pursuant to Sections 8.1 and 8.2(a) in the aggregate, proportionately in return thereof, giving effect to all prior distributions pursuant to this Section 10.2(a)(i) and Section 10.3(a)(i), and (ii) thereafter, to those Partners making contributions pursuant to Section 8.2(b) proportionately in return thereof, giving effect to all prior distributions pursuant to this Section 10.2(a)(ii) and Section 10.3(a)(ii). (b) After making the distributions called for in Section 10.2(a), subject to Sections 8.3, 10.2(c), and 10.4, the Net Cash Flow during any particular calendar year shall be distributed to the Partners in accordance with their Sharing Ratios. (c) After making the distributions called for in Section 10.2(a), subject to Sections 8.3 and 10.4, if in any calendar year the sum of (i) Net Cash Flow and (ii) regularly 16 scheduled principal and interest paid on Partnership loans (other than under a refinancing of such loans) is greater than or equal to 13% of Gross Costs, then the General Partner shall be entitled to receive 1%, Grovpar shall be entitled to receive 12.5%, HMG shall be entitled to receive 62.2%, and Sunbelt shall be entitled to receive 24.3% of Net Cash Flow distributed for such calendar year. Section 10.3 Distribution of Capital Proceeds. Capital Proceeds of the Partnership shall, subject to Sections 8.3 and 10.4, be distributed to the Partners in accordance with this Section 10.3. (a) Capital Proceeds shall be distributed as follows: (i) first to those Partners making contributions pursuant to Sections 8.1 and 8.2(a) in the aggregate, proportionately in return thereof, giving effect to all prior distributions pursuant to this Section 10.3(a)(i) and Section 10.2(a)(i), and (ii) thereafter, to those Partners making contributions pursuant to Section 8.2(b) proportionately in return thereof, giving effect to all prior distributions pursuant to this Section 10.3(a)(ii) and Section 10.2(a)(ii). (b) After making the distributions called for in Section 10.3(a), Capital Proceeds in an amount equal to the positive difference between (i) 120% of the Gross Costs, and (ii) the amounts distributed pursuant to Sections 10.3(a) and 10.2(a) shall be distributed to the Partners in accordance with their Sharing Ratios; and (c) Thereafter, any excess Capital Proceeds shall be distributed as follows: to the General Partner - 1%; to Grovpar - 12.5%; to HMG - 62.2%; and to Sunbelt - 24.3~c. Section 10.4 Distributions to Delinquent Partners. If Grovpar is a Delinquent Partner, then notwithstanding anything herein to the contrary, Sections 10.2(c) and 10.3(c) shall be disregarded and all distributions thereafter of Net Cash Flow under Section 10.2 and Capital Proceeds under Section 10.3 shall be distributed to the Partners in accordance with their Sharing Ratios. Section 10.5 Payment of Distributions to Grovpar. So long as the Grovpar Note remains outstanding, all or a portion of the amounts distributable to Grovpar pursuant hereto shall be applied to payment of the Grovpar Note in accordance with its terms, and the General Partner is hereby instructed to make such payments directly to HMG. ARTICLE 11 TAX MATTERS AND ALLOCATIONS Section 11.1 Allocations. (a) General. Except as may be required by section 704(c) of the Code and Treas. Reg. 1.704-1(b)(2)(iv)(f)(4), and subject to the provisions of Section 12.3, all items of income, gain, loss, deduction, and credit of the Partnership shall be allocated among the Partners in accordance with their respective Sharing Ratios. 17 (b) Compliance with Section 704(b). The following special allocations will, except as otherwise provided, be made in the following order: (1) Minimum Gain Chargeback. Notwithstanding any other provision of this Agreement, if there is a net decrease in "Partnership Minimum Gain" as defined in Treasury Regulation Section 1.704-2(d) or in any "Partner Minimum Gain" as defined in Treasury Regulation Section 1.704-2(i) during any Partnership fiscal year or other period, prior to any other allocation pursuant hereto, the Partners shall be specially allocated items of Partnership income and gain for that year (and, if necessary, subsequent years) in an amount and manner required by Treasury Regulation Sections 1.704-2(f) or 1.704-2(i)(4). The items to be so allocated shall be determined in accordance with Treasury Regulation Section 1.704-2. (2) Qualified Income Offset. Any Partner who unexpectedly receives an adjustment, allocation or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), which causes or increases an Adjusted Capital Account Deficit of a Partner, shall be allocated items of Partnership income and gain in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulation, the Adjusted Capital Account Deficit of the Partner as quickly as possible. (3) Gross Income Allocation. Each Partner who has a deficit Capital Account at the end of any Partnership taxable year that is in excess of the amount the Partner is obligated to restore, including any amount that he is deemed to be obligated to restore under Treasury Regulations Section 1.704-2(g)(1) and Section 1.704-2(i)(5), will be specially allocated items of Partnership income and gain in the amount of the excess as quickly as possible. (4) Capital Proceeds Allocation. For any tax year in which Capital Proceeds are to be distributed in accordance with Section 10.3(c), Grovpar shall be allocated items of Partnership income and gain in an amount and manner sufficient to cause Grovpar's Capital Account balance to not be less than Grovpar's share of Capital Proceeds distributable under Section 10.3(c). (5) Nonrecourse Deductions. "Nonrecourse Deductions" as defined in Treasury Regulation Section 1.704-2(b) for any fiscal year or other period will be allocated among the Partners pro rata in proportion to their respective Sharing Ratios. (6) Partner Nonrecourse Deductions. Any "Partner Nonrecourse Deductions" as defined in Treasury Regulation Section 1.704-2(i) for any fiscal year or other period will be allocated to the Partner who bears the economic risk of loss with respect to the "Partner Nonrecourse Debt" (as described in Treasury Regulation Section 1.704-2(b)(4)) to which such Partner Nonrecourse Deductions are attributable in accordance with Treasury Regulation Section 1.704-2(i). 18 (c) Curative Allocations. The allocations set forth in Section 11.1(b) (the "Regulatory Allocations") are intended to comply with certain requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2. The Regulatory Allocations may effect results which would not be consistent with the manner in which the Partners intend to divide Partnership distributions. Accordingly, the General Partner is authorized to divide other allocations of income, gain, loss, deduction and credit among the Partners so as to prevent the Regulatory Allocations from distorting the manner in which the Partnership distributions would be divided among the Partners under Section 12.3. In general, the reallocation will be accomplished by specially allocating other items of income, gain, loss and deduction, to the extent they exist, among the Partners so that the net amount of the Regulatory Allocations and the special allocations to each Partner is zero. The General Partner will have discretion to accomplish this result in any reasonable manner that is consistent with Section 704 of the Code and the related Treasury Regulations. (d) Tax Allocations - Code Section 704(c). In accordance with Code Section 704(c) and the related Treasury Regulations, income, gain, loss and deduction with respect to any property contributed to the capital of the Partnership will be allocated among the Partners, solely for tax purposes, so as to take account of any variation between the adjusted basis to the Partnership of the property for federal income tax purposes and the Book Basis of the property, or the initial Book Basis of such property to the Partnership if such property was contributed to the Partnership. Any elections or other decisions relating to allocations under this Section 11.1(d) will be made in any manner that the General Partner determines is consistent with Section 704(c) of the Code and reasonably reflects the purpose and intention of this Agreement. Allocations under this Section 11.1(d) are solely for purposes of federal, state and local taxes and will not affect, or in any way be taken into account in computing, any Partner's Capital Account or share of distributions under any provision of this Agreement. (e) Partner Acknowledgment. The Partners agree to be bound by the provisions of this Section 11.1 in reporting their shares of Partnership income and loss for income tax purposes. Section 11.2 Capital Accounts. (a) Establishment and Maintenance. A capital account shall be established and maintained for each Partner. Each Partner's capital account shall be increased by (1) the amount of money contributed by that Partner to the Partnership, (2) the fair market value of property contributed by that Partner to the Partnership (net of liabilities secured by such contributed property that the Partnership is considered to assume or take subject to under section 752 of the Code), and (3) allocations to that Partner of Partnership income and gain (or items thereof), including income and gain exempt from tax and income and gain described in Treas. Reg. 1.704-1(b)(2)(iv)(g), but excluding income and gain described in Treas. Reg. 1.704-1(b)(4)(i), and shall be decreased by (4) the amount of money distributed to that Partner by the Partnership, (5) the fair market value of property distributed to that Partner by the Partnership (net of liabilities secured by such distributed property that such 19 Partner is considered to assume or take subject to under section 757 of the Code), (6) allocations to that Partner of expenditures of the Partnership described in section 705(a)(2)(B) of the Code, and (7) allocations of Partnership loss and deduction (or items thereof), including loss and deduction described in Treas. Reg. 1.704-1(b)(2)(iv)(g), but excluding items described in clause (6) above and loss or deduction described in Treas. Reg. 1.704-1(b)(4)(i) or 1.704-1(b)(4)(iii). The Partners' capital accounts also shall be maintained and adjusted as permitted by the provisions of Treas. Reg. 1.704-1(b)(2)(iv)(f) and as required by the other provisions of Treas. Reg. 1.704-1(b)(2)(iv) and 1.704-1(b)(4), including adjustments to reflect the allocations to the Partners of depreciation, depletion, amortization, and gain or loss as computed for book purposes rather than the allocation of the corresponding items as computed for tax purposes, as required by Treas. Reg. 1.704-1(b)(2)(iv)(g). A Partner that has more than one interest in the Partnership shall have a single capital account that reflects all such interests, regardless of the class of interests owned by such Partner and regardless of the time or manner in which such interests were acquired. Upon the transfer of all or part of an interest in the Partnership, the capital account of the transferor that is attributable to the transferred interest in the Partnership shall carry over to the transferee Partner in accordance with the provisions of Treas. Reg. 1.704-1(b)(2)(iv)(1). (b) Modifications by General Partner. The provisions of this Section 11.2 and the other provisions of this Agreement relating to the maintenance of Capital Accounts have been included in this Agreement to comply with section 704(b) of the Code and the Treasury Regulations promulgated thereunder and will be interpreted and applied in a manner consistent with those provisions. Without limiting the generality of this Section, the General Partner may modify the manner in which the Capital Accounts are maintained under this Section 11.2 in order to comply with those provisions, as well as upon the occurrence of events that might otherwise cause this Agreement not to comply with those provisions; provided, however, without the unanimous consent of all Partners, the General Partner may not make any modification to the way Capital Accounts are maintained if such modification would have the effect of changing the amount of distributions to which any Partner would be entitled during the operations, or upon the liquidation, of the Partnership. Section 11.3 Tax Returns. The General Partner shall cause to be prepared and filed all necessary federal and state income tax returns for the Partnership, including making the elections described in Section 11.4. Each Partner shall furnish to the General Partner all pertinent information in its possession relating to Partnership operations that is necessary to enable such income tax returns to be prepared and filed. Section 11.4 Tax Elections. The following elections shall be made on the appropriate returns of the Partnership: (a) to adopt the calendar year as the Partnership's fiscal year; 20 (b) to adopt the method of accounting of the Partnership as determined pursuant to Section 7.1(b) and to keep the Partnership's books and records on the income-tax method; (c) if there is a distribution of Partnership property as described in section 734 of the Code or if there is a transfer of a Partnership interest as described in section 743 of the Code, upon written request of any Partner, to elect, pursuant to section 754 of the Code, to adjust the basis of Partnership properties; or (d) to elect to amortize the organizational expenses of the Partnership ratably over a period of 60 months as permitted by section 709(b) of the Code. No election shall be made by the Partnership or any Partner to be excluded from the application of the provisions of subchapter K of chapter 1 of subtitle A of the Code or any similar provisions of applicable state laws. Section 11.5 Tax Matters Partner. The General Partner shall be the "tax matters partner" of the Partnership pursuant to section 6231(a)(7) of the Code. The General Partner shall take such action as may be necessary to cause each other Partner to become a "notice partner" within the meaning of section 6223 of the Code. The General Partner shall inform each other Partner of all significant matters that may come to its attention in its capacity as tax matters partner by giving notice thereof within ten Business Days after becoming aware thereof and, within such time, shall forward to each other Partner copies of all significant written communications it may receive such capacity. The General Partner shall not take any action contemplated by sections 6222 through 6232 of the Code without the consent of a Majority in Interest. This provision is not intended to authorize the General Partner to take any action left to the determination of an individual Partner under sections 6222 through 6232 of the Code. Section 11.6 Allocations on Transfer of Interests. All items of income, gain, loss, deduction, and credit allocable to any interest in the Partnership that may have been transferred shall be allocated between the transferor and the transferee based upon that portion of the calendar year during which each was recognized as owning such interest, without regard to the results of Partnership operations during any particular portion of such calendar year and without regard to whether cash distributions were made to the transferor or the transferee during such calendar year; provided, however, that such allocation shall be made in accordance with a method permissible under section 706 of the Code and the regulations thereunder. 21 ARTICLE 12 WITHDRAWAL, DISSOLUTION, LIQUIDATION. AND TERMINATION Section 12.1 Voluntary Withdrawal. No Partner shall have the right to voluntarily withdraw from the Partnership without the consent of the General Partner and a Majority in Interest, and any such withdrawal without such consent shall constitute a material default hereunder. No withdrawing Partner shall be entitled to any distribution in respect of its Ownership Interests other than normal distributions under Article 10 above, without the consent of all Partners. Section 12.2 Dissolution, Liquidation. and Termination Generally. The Partnership shall be dissolved upon the first to occur of any of the following: (a) The expiration of the term set forth in Section 1.4; (b) The sale or disposition of all of the assets of the Partnership and the receipt, in cash, of all consideration therefor; (c) The determination of the General Partner to dissolve the Partnership which is approved in writing by all of the Partners; and (d) The occurrence of any event which, as a matter of law, requires that the Partnership be dissolved. Notwithstanding the foregoing, if the Partnership is dissolved pursuant to Section 12.2(d) because an event of withdrawal, as defined in the Act, occurs with respect to the General Partner, then, to the extent permitted by the Act, a Majority in Interest may elect to reconstitute the Partnership and continue its business without being wound up provided that a Majority in Interest designates a new General Partner to take the place of the previous General Partner within 90 days after the Limited Partners have actual notice of the event of withdrawal as to the previous General Partner. In such event the Ownership Interest of the previous General Partner shall be converted automatically to the interest of a non-voting Limited Partner hereunder having the same Sharing Ratio and same obligations as that previously attributable to the General Partner's interest as a general partner, but such Partner shall have no right to vote on any Partnership matter, such conversion shall not cure any default hereunder, and a Majority in Interest may elect to forfeit to the Partnership the converted limited partnership interest of the previous General Partner, whereupon such interest will be allocated among the Partners in accordance with their respective Sharing Ratios. The interest attributable to any new General Partner admitted to the Partnership pursuant to this provision shall be taken ratably from all Limited Partners and shall afford such new General Partner a Sharing Ratio of one percent (1%) in all Partnership items unless the Partners otherwise then agree. Section 12.3 Liquidation and Termination. Upon dissolution of the Partnership, unless it is reconstituted and continued as provided above, the General Partner shall act as 22 liquidator or may appoint one or more other Persons as liquidator; provided, however, that if the Partnership shall be dissolved because of an event of withdrawal with respect to the General Partner, the liquidator shall be one or more Persons selected in writing by a Majority in Interest. The liquidator shall proceed diligently to wind up the affairs of the Partnership and make final distributions as provided herein. The costs of liquidation shall be borne as a Partnership expense. Until final distribution, the liquidator shall continue to operate the Partnership properties with all of the power and authority of the General Partner hereunder. The steps to be accomplished by the liquidator are as follows: (a) As promptly as possible after dissolution and again after final liquidation, the liquidator shall cause a proper accounting to be made by a recognized firm of certified public accountants of the Partnership's assets, liabilities, and operations through the last day of the calendar month in which the dissolution shall occur or the final liquidation shall be completed, as applicable; (b) The liquidator shall pay all of the debts and liabilities of the Partnership or otherwise make adequate provision therefor (including, without limitation, the establishment of a cash escrow fund for contingent liabilities in such amount and for such term as the liquidator may reasonably determine); and (c) All remaining assets of the Partnership shall be distributed to the Partners as follows: (1) the liquidator may sell any or all Partnership property, and any resulting gain or loss from each sale shall be computed and allocated to the capital accounts of the Partners; (2) with respect to all Partnership property that has not been sold, the fair market value of such property shall be determined and the capital accounts of the Partners shall be adjusted to reflect the manner in which the unrealized income, gain, loss, and deduction inherent in such property (that has not been reflected in the capital accounts previously) would be allocated among the Partners if there were a taxable disposition of such property for the fair market value of such property on the date of their distribution; (3) Capital Proceeds shall be distributed among the Partners in the manner provided in Section 10.3, provided that if dissolution and liquidation occurs before the Project is in fact developed, the assets of the partnership shall be distributed to the Partners in accordance with their respective capital account balances; in so doing the assets contributed by a Partner shall be distributed to the extent possible in kind. as is, to such Partner; accordingly, cash shall be distributed to a Partner who did not contribute cash only if and to the extent that the value of the asset contributed by such Partner is not sufficient to satisfy such Partner's capital account and after the capital accounts of Partners who did contribute cash have been repaid to the extent of the cash contributed by the Partner in question. 23 (4) Any remaining Partnership property shall be distributed among the Partners in accordance with the positive Capital Account balance of the Partners as determined after taking into account all capital account adjustments for the taxable year of the Partnership during which the liquidation of the partnership occurs (other than those made by reason of this clause); such distributions shall be made by the end of the taxable year of the Partnership during which the liquidation of the Partnership occurs (or, if later, within 90 days after the date of such liquidation); and (5) If the proceeds of liquidation of the Partnership exceed the Partners' positive balances in their respective Capital Accounts, such excess shall be distributed to the Partners in proportion to their respective Sharing Ratios. Section 12.4 Cancellation of Certificate. Upon completion of the distribution of Partnership assets as provided herein the Partnership shall be terminated, and the liquidator shall make all filings appropriate as required by law to evidence the same. ARTICLE 13 TRANSFERS OF OWNERSHIP INTERESTS Section 13.1 Restriction of Transfers. Subject to Section 13.2, no Partner may sell, assign, or otherwise transfer, mortgage, hypothecate, grant a security interest in, or otherwise encumber or permit or suffer any encumbrance of, all or part of any of its interest in the Partnership without the prior written approval of the General Partner and a Majority in Interest. Any attempt to so transfer or encumber any such interest shall be null and void and shall have no force and effect as to the Partnership or the other Partners and shall constitute a material default hereunder. The provisions of this Section 13.1 shall not be deemed to grant to any Partner a security interest in another Partner's Ownership Interest. Section 13.2 Restrictions on Transfers as to Constituent Parties. Yaromir Steiner ("Steiner") represents and warrants that he owns or controls directly or indirectly more than 50% of the equity interests in Grovpar and the general partner of Grovpar. Gilbert Weil ("GW") represents and warrants that Michelle Weil ("MW') owns directly or indirectly more than 50% of the equity interests in Sunbelt, and GW holds voting control of Sunbelt and manages the day-to-day operations of Sunbelt. In this Section 13.2, Steiner and GW shall be referred to as a "Transferring Partner" and Grovpar and Sunbelt shall be referred to as an "Investment Entity." During the term of this Agreement, a Transferring Partner may (i) transfer a portion of his interest (either direct or indirect) in his Investment Entity to third parties provided that the remaining interest of the Transferring Partner is sufficient for the Transferring Partner, acting alone, to control any vote required of the partners, shareholders, or members, as applicable, of his Investment Entity as a Limited Partner (including the exercise of any approval and voting rights under this Agreement), or (ii) upon the death or disability of a Transferring Partner, transfer his equity interest in his Investment Entity to his wife, his lineal descendants, or to one or more trusts, the sole beneficiaries of which are himself, his wife, or his lineal descendants (each a "Permitted Transferee" and collectively, the "Permitted Transferees"). For purposes of this 24 Section 13.2, MW's lineal descendants shall also be Permitted Transferees. Notwithstanding anything to the contrary in this Agreement, interests in Sunbelt may be transferred directly or indirectly so long as any vote required of Sunbelt as a Limited Partner in the Partnership (including any exercise of any approval and voting rights under this Agreement) is at all times controlled by GW, or, in the event of his death or disability, one or more Permitted Transferees. If, at any time, a Transferring Partner's equity interest in his Investment Entity should become vested in any person or entity other than as allowed in (i) and (ii) above such that the Transferring Partner, or the Permitted Transferees, if applicable, acting alone, does not control any vote required of the partners, shareholders, or members, as applicable, of his Investment Entity as a Limited Partner, then HMG shall have the right and option to purchase such Investment Entity's Ownership Interest at its then current fair market value which shall be determined as set forth in this Section 13.2. If HMG elects to so purchase the Investment Entity's Ownership Interest, it shall notify the Investment Entity (or the Investment Entity's representative) and the General Partner thereof within 30 days after HMG is notified of such transfer and the General Partner shall direct that the then fair market value of the Investment Entity's Ownership Interest be determined by an appraiser. Such fair market value shall be determined by the appraiser appraising the value of the Project, deducting therefrom all debts and liabilities of the Partnership and multiplying the value so obtained by the Investment Entity's Ownership Interest. The purchase price to be paid for the Investment Entity's Ownership Interest shall be such amount less any amounts owed by the Investment Entity to the Partnership or to HMG, including without limitation, the amount of the outstanding balance of the Grovpar Note, if applicable, and any damages HMG or the Partnership may have against the Investment Entity by virtue of any default under this Agreement. The closing shall occur 30 days after such value is determined at the offices of the Partnership and the consideration shall be paid in full in cash. The appraiser appointed by the General Partner shall be a member of the American Institute of Real Estate Appraisers, shall have at least five years experience in appraising projects like the Project in the Houston, Texas area, and shall have no interest in the outcome of the determination other than a reasonable fee for serving as an appraiser. ARTICLE 14 MISCELLANEOUS PROVISIONS Section 14.1 Notices. All notices provided for or permitted to be given pursuant to this Agreement must be in writing and shall be given or served by (a) depositing the same in the United States mail addressed to the party to be notified, postpaid and certified with return receipt requested, (b) by delivering such notice in person to such party, or (c) by prepaid telegram, telex, or telecopy. All notices are to be sent to or made at the addresses set forth on the signature pages hereto. All notices given in accordance with this Agreement shall be effective upon receipt at the address of the addressee. By giving written notice thereof, each Partner shall have the right from time to time to change its address pursuant hereto. A copy of any notice given under this Agreement to Sunbelt shall be sent to Andrew M. Shott, Esq., 2100 PNC Center, 201 East Fifth Street, Cincinnati, Ohio 45202, telecopy number (513) 241-8259. 25 Section 14.2 Governing Law. This Agreement and the obligations of the Partners hereunder shall be interpreted, construed, and enforced in accordance with the laws of the State of Texas, excluding any conflicts of law rule or principle which might refer such construction to the laws of another state or country. Each Partner submits to the jurisdiction of the state and federal courts in the State of Texas. Section 14.3 Entireties; Amendments. This Agreement and the exhibits hereto, which are made a part hereof, constitute the entire agreement between the parties hereto relative to the formation of the Partnership. No amendments to this Agreement shall be binding upon any Partner unless set forth in a document duly executed by such Partner. Section 14.4 Waiver. No consent or waiver, express or implied, by any party hereto of any breach or default by any other in the performance by the other of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligation hereunder. Failure on the part of any party hereto to complain of any act or to declare any other party hereto in default, irrespective of how long such failure continues, shall not constitute a waiver of rights hereunder. Section 14.5 Severability. If any provision of this Agreement or the application thereof to any person or circumstances shall be invalid or unenforceable to any extent, and such invalidity or unenforceability does not destroy the basis of the bargain between the parties, then the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. Section 14.6 Ownership of Property and Right of Partition. A Partner's interest in the Partnership shall be personal property for all purposes. All real and other property owned by the Partnership shall be owned by the Partnership as an entity, and no Partner, individually, shall own any interest as such therein, nor shall any Partner have a right to partition the property owned by the Partnership. Each Partner hereby covenants and agrees not to bring any action for partition of any property owned by the Partnership, either as a partition in kind or a partition by sale. Section 14.7 Captions. References. Pronouns, wherever used herein, and of whatever gender, shall include natural persons and corporations and associations of every kind and character, and the singular shall include the plural wherever and as often as may be appropriate. Article and section headings are for convenience of reference and shall not affect the construction or interpretation of this Agreement. Whenever the terms "hereof", "hereby", "herein", or words of similar import are used in this Agreement they shall be construed as referring to this Agreement in its entirety rather than to a particular section or provision, unless the context specifically indicates to the contrary. Any reference to a particular "Article" or a "Section" shall be construed as referring to the indicated article or section of this Agreement unless the context indicates to the contrary. 26 Section 14.8 Involvement of Partners in Certain Proceedings. Should any Partner become involved in legal proceedings unrelated to the Partnership's business in which the Partnership is required to provide books, records, an accounting, or other information, then such Partner shall indemnify the Partnership from all costs and expenses incurred in conjunction therewith. Section 14.9 Services Performed by Affiliates. When any service or activity to be performed on behalf of the Partnership is performed by an Affiliate of a Partner, it is agreed that the fee payable in respect of such service or activity shall be comparable to the fee which would be payable by the Partnership to an unaffiliated third party of comparable standing providing the same services. Section 14.10 Interest. No amount charged as interest on loans hereunder shall exceed the maximum rate from time to time allowed by applicable law. Section 14.11 No Third-Party Beneficiaries. The right of any third party to enforce the terms of this Agreement is expressly denied. Executed effective as of the date above written. GENERAL PARTNER HMG HOUSTON GROVE, INC., a Texas corporation By: /s/ Maurice Wiener --------------------------------------------- Maurice Wiener,President Address: 4800 Sugar Grove Boulevard,Suite 380 Stafford, Texas 77477 TIN: Fax: (713) 240-1329 27 LIMITED PARTNERS: GROVPAR, LTD., a Texas limited partnership By: Gerfalcon Interests, L.C., a Texas limited liability company, its sole general partner By: /s/ Yaromir Steiner --------------------------------------------- Yaromir Steiner, Managing Member Address: 2665 South Bayshore Drive, Suite 908 Miami, Florida 33133 TIN: Fax: (305) 857-9648 HMG/COURTLAND PROPERTIES, INC., a Delaware corporation By: /s/ Maurice Wiener --------------------------------------------- Maurice Wiener, President Address: 2701 South Bayshore Drive, Penthouse Coconut Grove, Florida 33133 TIN: Fax: (305) 856-7342 SUNBELT SHOPPING DEVELOPMENT, LTD., an Ohio limited liability company By: /s/ Gilbert Weil --------------------------------------------- Gilbert Weil, Manager Address: 1009 Catawba Valley Drive Cincinnati, Ohio 45226 TIN: Fax: (513) 533-3708 28 The undersigned execute this Agreement to acknowledge, agree to, and bind themselves individually by the restrictions in Section 13.2. /s/ Yaromir Steiner --------------------------------------------- Yaromir Steiner /s/ Gilbert Weil --------------------------------------------- Gilbert Weil 29 SCHEDULE 1 Partnership Sharing Interest Ratio HMG Houston Grove, Inc. General 1% Grovpar, Ltd. Limited 10% HMG/Courtland Properties, Inc. Limited 64% Sunbelt Shopping Development Ltd. Limited 25% 100% 30 Exhibit A 42.485 Acres James Alston Survey A-101 Fort Bend County, Texas All that certain 42.485 acres of land being all of unrestricted Reserve "A-1" per the plat of Reserve A-1, A-2, and A-3 Sugar Grove Section One as recorded in Slide 1285 B of the Map Records of Fort Bend County, Texas, all of a called 18.82 acre tract as recorded in Volume 2542, Pages 2582 - 2585 of the Fort Bend County Deed Records and a portion of a 15.95 acre tract of which a one-half interest was conveyed from the Ayrshire Corporation to John S. Dunn and J. F. Corley by deed and recorded in Volume 597, Page 328 of the Deed Records of Fort Bend County, Texas situated in the James Alston Survey Abstract No. 101, being more particularly described by metes and bounds as follows: BEGINNING at a found 5/8" iron rod at the southerly end of a cutback, being the southeasterly corner of unrestricted Reserve "A-1", and the easterly corner of unrestricted Reserve "A-3" per the plat of Reserve A-1, A-2 and A-3 Sugar Grove Section One as recorded in Slide 1285 B of the Map Records of Fort Bend County, Texas, said point also being in the northwest right-of-way line of U.S. Highway 59 (300 feet wide) as recorded in Volume 383, Page 472- 479 of the Fort Bend County Deed Records; THENCE along the common lines of said unrestricted Reserves "A-1" and "A-3" the following courses: North 03(degree)30'51" West, a distance of 14.14 feet to a found 5/8" iron rod at the northerly end of said cutback; THENCE North 48(degree)30'51" West, a distance of 31.56 feet to a found 5/8" iron rod at a point of curve; THENCE in a northwesterly direction along a curve to the left having a radius of 125.00 feet, an arc length of 59.76 feet and a central angle of 27(degree)23'35" to a found 5/8" iron rod at a point of tangent; THENCE North 75(degree)54'26" West, a distance of 19.93 feet to a found 5/8" iron rod at a point of curve; THENCE in a northwesterly direction along a curve to the right having a radius of 105.00 feet, an arc length of 50.13 feet and a central angle of 27(degree)21'13" to a found 5/8" iron rod at a point of tangent; THENCE North 48(degree)33'13" West, a distance of 143.65 feet to a found 5/8" iron rod at the northerly end of a cutback; THENCE South 86(degree)26'47" West, a distance of 14.14 feet to a found 5/8" iron rod at the southerly end of said cutback; 1 THENCE South 41(degree)26'47" West, a distance of 205.06 feet to a found 5/8" iron rod at the northerly end of a cutback; THENCE South 03(degree)33'13" East, a distance of 14.14 feet to a found 5/8" iron rod found in the northerly right-of-way line of Sugar Grove Boulevard (width varies) as recorded in Volume 24, Page 5 of the Fort Bend County Plat Records at the southerly end of said cutback; THENCE along the common lines of said Sugar Grove Boulevard and said unrestricted Reserve "A-1" the following courses: North 48(degree)33'13" West, a distance of 315.10 feet to a found 5/8" iron rod at a point of curve; THENCE in a northwesterly direction along a curve to the left having a radius of 500.00 feet, an arc length of 385.43 feet and a central angle of 44(degree)10'00" to a set 5/8" iron rod at a point of tangent from which a found 5/8" iron rod bears South 36(degree)42'24" East - 0.05 feet; THENCE South 87(degree)16'47" West, a distance of 27.49 feet to a set 5/8" iron rod at a point of curve from which a found 5/8" iron rod bears South 27(degree)40'47" West - 0.13 feet; THENCE in a northwesterly direction along a curve to the right having a radius of 25.00 feet, an arc length of 39.33 feet, and a central angle of 90(degree)08'13" to a set 5/8" iron rod at a point of tangent in the easterly right-of-way line of Kirkwood Drive (100 feet wide) as recorded in Volume 24, Page 5 of the Fort Bend County Plat Records from which a found 5/8" iron rod bears South 65(degree)22'49" West - 0.32 feet; THENCE North 02(degree)35'00" West along the common line of said Kirkwood Drive and said unrestricted Reserve '"A-1", a distance of 306.98 feet to a set 5/8" iron rod being the southwesterly corner of said called 18.82 acre tract from which a found 5/8" iron rod bears South 39(degree)08'57" West - 0.20 feet; THENCE North 02(degree)25'30" West along the common line of said Kirkwood Drive and said called 18.82 acre tract, a distance of 601.11 feet to a set 5/8" iron rod at the northwesterly corner of said called 18.82 acre tract also being the southwesterly corner of said 15.95 acre tract from which a found 5/8" iron rod bears North 33(degree)31'15" West - 0.27 feet; THENCE North 02(degree)32'27" West along the common line of said Kirkwood Drive and said 15.95 acre tract, a distance of 594.77 feet to a found 5/8" iron rod at the southerly end of a cutback at the intersection of the southerly right-of-way line of Airport Boulevard as recorded in Volume 870, Page 658 of the Fort Bend County Deed Records (100 feet wide). THENCE along the common lines of said Airport Boulevard and said 15.95 acre tract the following courses: North 49(degree)30'13" East, a distance of 12.33 feet to a found 5/8" iron rod at the northerly end of said cutback; THENCE in a southeasterly direction along a curve to the right having a radius of 1950.00 feet, an arc length of 1007.28 feet, a central angle of 29(degree)35'47" to a 5/8" iron rod found at a point of tangent; 2 THENCE South 48(degree)31'16" East, a distance of 653.08 feet to a 5/8" iron rod set at a point of curve; THENCE in a southeasterly direction along a curve to the right having a radius of 500.00 feet, a central angle of 04(degree)11'40", an arc length of 36.60 feet to a 5/8" iron rod found at a point of tangent; THENCE South 44(degree)19'26" East, a distance of 100.00 feet to a 5/8" iron rod found at a point of curve; THENCE in a southeasterly direction along a curve to the left having a radius of 500.00 feet, a central angle of 04(degree)11'40", an arc length of 36.60 feet to a point of tangent THENCE South 48(degree)31'06" East, a distance of 209.75 feet to a set 5/8" iron rod at the northerly end of a cutback in the proposed northwest right-of-way line of U.S. Highway 59 and the northerly corner of a 0.164 of one acre parcel of land conveyed to the State of Texas by Special Warranty Deed as recorded in Volume 2659, Page 884 of the Official Records of Fort Bend County, Texas from which a found 3" Texas Department of Transportation Aluminum Disk; bears North 03(degree)35'39" West - 0.15 feet; THENCE South 03(degree)35'9" East along the common line of said 0.164 of one acre parcel and the proposed northwest right-of-way line of said U.S. Highway 59, a distance of 28.09 feet to a found 3" Department of Transportation Aluminum Disk at the southerly end of said cutback; THENCE South 41(degree)28'24" West along the common line of said 0.164 of one acre parcel and the proposed northwest right-of-way line of said U.S. Highway 59, a distance of 120.31 feet to a set 5/8" iron rod in the common line of said 15.95 and called 18.82 acre tracts being the westerly corner of said 0.164 of one acre parcel; THENCE South 48(degree)33'49" East along the common line of said 15.95 and called 18.82 acre tracts, a distance of 50.37 feet to a found 5/8" iron rod in the northwest right-of-way line of said U.S. Highway 59 being the southeasterly corner of said 15.95 acre tract, the northeasterly corner of said called 18.82 acre tract and the southerly corner of said 0.164 of one acre parcel from which a 4" x 4" concrete monument bears South 52(degree)58'41" East - 3.77 feet; THENCE South 41(degree)29'32" West along the common line of said U.S. Highway 59 and said called 18.82 acre tract, a distance of 478.85 feet to a found 5/8" iron rod at the easterly corner of unrestricted Reserve "A-2" per the plat of Reserve A-1, A-2, and A 3 Sugar Grove Section One as recorded in Slide 1285B of the Map Records of Fort Bend County, Texas and the southeasterly corner of said called 18.82 acre tract; THENCE North 48(degree)30'51" West along the common line of said unrestricted Reserve "A-2" and the southerly line of said 18.82 acre tract, a distance of 260.94 feet to a found 5/8" iron rod at the northerly corner of said unrestricted Reserve "A-1"; THENCE along the common line of said unrestricted Reserves "A-1" and "A-2" the following courses: South 41(degree)29'09" West, a distance of 32.74 feet to a found 5/8" iron rod; 3 THENCE North 75(degree)54'30" West, a distance of 66.58 feet to a found 5/8" iron rod; THENCE South 14(degree)05'30" West, a distance of 273.00 feet to a found brass tag and tac in concrete; THENCE South 75(degree)54'26" East, a distance of 219.00 feet to a found 5/8" iron rod in the northwest right-of-way line of said U.S. Highway 59 being the southerly corner of said unrestricted Reserve "A-2"; THENCE South 41(degree)29'09" West along the common line of said unrestricted Reserve "A-1" and the northwest right-of-way line of said U.S. Highway 59, a distance of 103.63 feet to the POINT OF BEGINNING and containing 42.485 acres of land more or less. (All bearings are relative to the Texas Coordinate System, South Central Zone. All distances are surface and may be converted to grid by multiplying by a combined adjustment factor of 0.9998774). SAVE AND EXCEPT 0.8488 ACRES JAMES ALSTON SURVEY, A-101 HARRIS COUNTY, TEXAS ALL that certain 0.8488 acres of land in the James Alston Survey, A-101 Harris County, Texas being part of that certain 15.79 acres described in deed to HMG/SUGARGROVE, INC. recorded in Volume 2664 at page 1179 of the Official Records, Fort Bend County, Texas, said 0.8488 acres being more particularly described as follows (all bearings are based on Texas Coordinate System , South Central Zone Theta - 01(degree)40'35"); BEGINNING at a 3" Texas Department of Transportation aluminum disk found at the southerly end of a 20 foot cutback, a point in the northwest line of that certain 0.164 acres tract described in deed to the Texas Department of Transportation recorded in Volume 2659 at Page 875 of the Official Records, Fort Bend County, Texas; THENCE South 41(degree)28'44" West, 120.31 feet to a 5/8 inch iron rod found in the southwest line of said 15.79 acres tract, from which a found 3/4 inch iron pipe bears North 48(degree)33'49" West, 391.46 feet; THENCE North 48(degree)33'49" West, 264.90 feet to a 5/8 inch iron rod set for corner; THENCE North 41(degree)26'11" East, 141.60 feet to a 5/8 inch iron rod set for corner in the southwest right-of-way line of Airport Boulevard as described in Volume 870 at Page 658 Fort Bend County Deed Records, being a point in a curve concave to the northeast, a radial line to said point bears South 45(degree)32'01" West, 500.00 feet; THENCE Southeasterly 35.38 feet coincident with said right-of-way line of Airport Boulevard, along said 500.00 foot radius curve, through a central angle of 4(degree)03'17" to a 5/8 inch iron rod found at a point of tangency THENCE South 48(degree)31'16" East, 209.75 feet coincident with the southwest right-of-way line of said Airport Boulevard to a 5/8 inch iron rod found for corner at the northerly corner of said 0.164 acres tract; THENCE South 03(degree)35'39" East, 28.09 feet to the PLACE OF BEGINNING, containing 0.8488 acres of land, more or less. EX-27 3
5 0000311817 HMG/COURTLAND PROPERTIES, INC. YEAR DEC-31-1995 DEC-31-1995 1,094,999 0 1,168,788 0 0 0 25,276,418 3,338,753 28,882,072 0 0 0 0 1,245,635 14,442,473 28,882,072 7,343,438 7,343,438 697,967 7,450,616 5,090,914 0 825,078 (3,549,163) 0 0 0 0 0 (3,549,163) (3.04) 0
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