-----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, Lg+w1MKo4CYUOmuJ/i9tMajYC+vVBzE984FqgJLnUgAs09tduaPYhjD6TnssQ9hZ anTE40cnMVgjcJKils5pMA== 0000950159-97-000105.txt : 19970416 0000950159-97-000105.hdr.sgml : 19970416 ACCESSION NUMBER: 0000950159-97-000105 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970415 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: 97580910 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, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-7865 HMG/COURTLAND PROPERTIES, INC. (Name of small business issuer in its charter) DELAWARE 59-1914299 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2701 S. Bayshore Drive, Coconut Grove, Florida 33133 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (305) 854-6803 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Share of Common Stock, American Stock Exchange Par value $1.00 per share Securities registered pursuant to Section 12(g) of the Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this form 10-KSB. [ x ] DOCUMENTS INCORPORATED BY REFERENCE: NONE Total Number of Pages: 39 Exhibit Index: Page No.: 38 (continued) State the issuer's revenues for the most recent fiscal year: $7,895,124 State the aggregate market value of the voting stock held by non-affiliates of the Registrant: $2,255,199 based on the closing price of the stock as traded on the American Stock Exchange on March 21, 1997. (Excludes shares of voting stock held by directors, executive officers and beneficial owners of more than 10% of the Registrant's voting stock; however, this does not constitute an admission that any such holder is an "affiliate" for any purpose.) Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date: 1,166,835 shares of common stock, $1 par value, as of March 21, 1997. (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, 1996: Percent of Geographic Distribution Investments (1) Florida 60% Texas 34% Northeastern United States (2) 6% ----- 100% ===== Type of Property (3) Undeveloped land 35% Hotel and club facility 41% Individual retail stores 5% Yacht slips 9% Restaurants 10% ---- 100% ===== ----------------- (1) For each category, the aggregate of cost less accumulated depreciation divided by the aggregate of such investments in all real estate owned directly by the Company or by joint ventures in which the Company has a majority interest. The Company's minority interests in joint ventures are not included in the above. (2) New York, Massachusetts, Maine and Vermont. (3) Based on predominant present or intended use. Reference is made to Item 12. Certain Relationships and Related Transactions for discussion of the Company's organizational structure and related party transactions. Consolidated Entities. Courtland Investments, Inc. ("CII"). The Company owns a 95% equity interest in CII (all non-voting). The other 5% equity interest (which is 100% of the voting interest) is held by Masscap Investment Company, Inc. ("MICI"), a wholly-owned subsidiary of Transco Realty Trust ("Transco") which is a 41% shareholder of the Company. CII owns equity interests in certain corporations and partnerships that (3) are passive (non-operating) in nature. CII also owns controlling interests in certain operating entities. These entities are a partnership owning a 50 room hotel and private club (Grove Isle Associates, Ltd. "GIA"), a corporation which operates the hotel and club (Grove Isle Club Inc."GICI") (see discussion below regarding the change in operators of the hotel and private club in November 1996 ) and a joint venture owning the marina adjacent to the hotel and club (Grove Isle Yacht Club Associates "GIYCA"). The properties are located in Coconut Grove, Florida, and a more detailed description of each follows: Grove Isle Associates, Ltd. ("GIA"). This limited partnership (owned 60% by CII and 40% by the Company) owns a 50 room hotel and private club facility (the "facility") located on 7 acres of a private island in Coconut Grove, Florida, known as "Grove Isle". In addition to the 50 hotel rooms, the facility includes public space, tennis courts, and a pool. GIA leased the facilities to GICI on a year to year basis for an annual base rent of $480,000. This rent is eliminated in consolidation. The facility is encumbered by a mortgage note payable with an outstanding balance of $4.3 million and $4.4 million as of December 31, 1996 and 1995, respectively. In November 1996, GIA terminated its lease with GICI and entered into a long-term lease with an unrelated tenant, Westgroup Grove Isle Associates, Ltd. ("Westgroup"). GIA and GICI also entered into a Master Agreement with Westgroup whereby among other things Westgroup assumed the operations of the Grove Isle hotel and club. The leased premises include all real property and all furniture, furnishings, fixtures, appliances and other equipment used in connection with the operation of the Grove Isle hotel, resort and membership club. The initial term of the lease is ten years and calls for annual net base rent of $880,000 plus real estate taxes and property insurance, payable in monthly installments. The lease also calls for an "initial payment" (as defined) of $1,000,000. The "initial payment" of $1,000,000 was paid by Westgroup to GIA on November 19, 1996 and the use of these funds is restricted in accordance with the Master Agreement between GIA and Westgroup. GIA is obligated to provide to Westgroup, upon receipt of required documentation, funds from the "initial payment" for capital improvements made to the Grove Isle property and operating shortfalls, as defined. In addition to the "initial payment" and base net rent, Westgroup shall also pay GIA participation rent consisting of a portion of Westgroup's operating surplus, as defined in the lease agreement. Participation rent is due at end of each lease year. In consideration for GICI relinquishment of its rights in and to the original lease with GIA, GIA agreed to pay to GICI the sum of $200,000 for each year that the Westgroup lease is in good standing and has also assigned to GICI the aforementioned participation rent due from Westgroup. This sum is payable annually commencing in November 1997. Grove Isle Club, Inc. ("GICI"). This corporation operated the aforementioned hotel and club through November 18, 1996. The primary sources of revenues for this corporation were from room rentals, food and beverage sales and from member dues. As discussed above, beginning November 19, 1996 the operations of the Grove Isle Hotel and Club were assumed by Westgroup. Grove Isle Yacht Club Associates ("GIYCA"). This partnership was the original developer of the 85 boat slips located at Grove Isle. As of December 31, 1996, forty-three slips remain unsold and are encumbered by the aforementioned $4.3 million mortgage note payable by GIA. GIYCA (through a 100% owned subsidiary) operates and maintains all aspects of the marina at Grove Isle in exchange for an annual maintenance fee from the slip owners to cover operational expenses. (4) HMG-Fieber Associates ("Fieber"). HMG-Fieber Associates, a joint venture owned 65% by the Company and 35% by NAF Associates (NAF), a Connecticut general partnership, owns 13 retail stores. The stores are leased to Grossman's, Inc., a chain of home improvements stores, under net leases, most of which provide for minimum and percentage rental payments. As of December 31, 1996, the percentage of leases expiring in 1997, 1998, 1999 and after 1999 was 33%, 20%, 47% and 0%, respectively. Approximately half of these leases contain renewal options of at least five years. Reference is made to Item 12. Certain Relationships and Related Transactions for further information regarding the failure of Mr. Gray and Mr. Fieber to disclose Mr. Gray's interest in NAF, the inquiry into that failure by a Special Committee appointed by the Board of Directors and the actions taken by the Board of Directors as a result of that inquiry. In March 1997, Fieber sold its store located in Vestal, New York recognizing a gain to the venture of approximately $233,000. In January 1997, Fieber sold its store located in Springfield, Massachusetts recognizing a gain to the venture of approximately $775,000. In November 1996, Fieber sold its store located in Bangor, Maine recognizing a gain to the venture of approximately $181,000. In November 1996, Fieber sold its store located in Ithaca, New York recognizing a gain to the venture of approximately $656,000. In November 1996, Fieber sold its store located in Johnstown, New York recognizing a gain to the venture of approximately $347,000. In September 1996, Fieber sold its store located in Portland, Maine recognizing a gain to the venture of approximately $1,007,000. In September 1996, Fieber sold its store located in West Springfield, Massachusetts recognizing a gain to the venture of approximately $376,000. In December 1995, Fieber sold its store located in Hartford, Connecticut recognizing a gain to the venture of approximately $122,000. In March 1995, Fieber sold its store located in Norristown, Pennsylvania recognizing a gain to the venture of approximately $620,000. In January 1995, Fieber sold its store located in Buzzards Bay, Massachusetts recognizing a gain to the venture of approximately $68,000. The Grove Towne Center - Texas, Ltd. ("TGTC"). The Grove Towne Center-Texas, Ltd. is a limited partnership owned 65% by the Company (including a 1% general partnership interest by a wholly-owned subsidiary of the Company). The remaining 35% partnership interest is held by two unrelated entities. TGTC was formed in 1994 for the purpose of developing an entertainment/value oriented retail center on a 41 acre site in suburban Houston, Texas. During the fourth quarter of 1995, TGTC decided not to go (5) forward with the project as designed due to various factors including a dispute with a major tenant. In 1995 TGTC expensed approximately $4.2 million of previously capitalized predevelopment costs. Included in these costs were developer fees, interest and loan costs, real estate taxes, legal and professional fees, marketing/advertising and other leasing related costs. TGTC is presently exploring various options for the land. In December 1996, TGTC sold a .7 acre corner site for approximately $433,000 and recognized a gain to the Company of approximately $129,000. Subsequent to December 31, 1996, TGTC sold approximately 4 acres for approximately $1.1 million and recognized a gain to the Company of approximately $99,000. South Bayshore Associates ("SBA"). SBA is a joint venture, formed in 1986 in which Transco Realty Trust (Transco) and the Company hold interests of 25% and 75%, respectively. The major asset of SBA is a demand note bearing interest at the prime rate from Transco with an outstanding balance as of December 31, 1996 and 1995 of approximately $425,000 and $420,000, respectively, in principal and accrued interest. The Company holds a demand note (which is eliminated in consolidation) from SBA bearing interest at the prime rate plus 1% with an outstanding balance including accrued interest as of December 31, 1996 and 1995 of approximately $877,000 and $848,000, respectively, in principal and accrued interest. HMG Fashion Square, Inc. This wholly-owned subsidiary has a 90% partnership interest in Fashion Square Partnership (the "partnership") formed in 1992 for the purpose of developing a shopping center located on approximately 11.5 acres near Jacksonville, Florida. As of December 1996, the shopping center is partially completed and being leased. In March 1994, the partnership entered into a ground lease with a tenant which is an operator of a 7,000 square foot restaurant on the one acre parcel covered by the ground lease. The partnership agreed to contribute approximately $100,000 in improvements to the leased site. The initial term of the lease is ten years and calls for base rent of $60,000 per year with 10% increases each subsequent year. This property is encumbered by a mortgage loan of $300,000 which bears interest at 9.75% which matured in November 1996 and was extended to July 1997. In November, 1994, the partnership entered into a ground lease with a tenant which is an operator of a restaurant. In 1995, this tenant completed construction of a restaurant on the 3/4 acres of land covered by the ground lease. The initial term of the lease is twenty years and calls for base rent of $60,000 per year with 12.5% increase every five years. In the fourth quarter of 1996, the partnership entered into a lease with a tenant which is an operator of a restaurant. The leased premises, a 6,242 square foot restaurant, was constructed in 1996 and the partnership contributed $200,000 towards the cost of the restaurant. The initial term of the lease is ten years and calls for annual base rent of $80,000 for years one through five and $88,000 for years six through ten. The lease also calls for percentage rent of 3% of gross sales exceeding approximately $2.7 million for years one through five and $2.9 million for years six through ten. The lease also provides three five year renewal options for years eleven through twenty-five with escalating base rent. HMG Sugargrove, Inc. This wholly-owned subsidiary owns approximately eight acres of land held for development located in Houston, Texas and is encumbered by a non-recourse mortgage loan which matured in February 1997 and was extended to February 1998. This loan, as amended, bears an annual rate of interest of 9.75% payable quarterly with principal payments of $16,000 due each February. The (6) remaining principal balances as of December 31, 1996 and 1995 were approximately $165,000 and $182,000, respectively. Insurance, Environmental Matters and Other. In the opinion of management, all assets of the Company are adequately covered by insurance and the cost and effects of complying with environmental laws do not have a material impact on the Company's operations. Other Transactions and Investments. (a) Sales of Property. Reference is made to the above sections of Item 1. Business and Item 6. Management's Discussion and Analysis or Plan of Operation for information concerning sales of properties. (b) Other Investments. Other Unconsolidated Investments of CII. T.G.I.F. Texas, Inc. (T.G.I.F.). CII owns 2,798,232 shares of common stock of T.G.I.F. Texas, Inc., a Texas publicly-held corporation (T.G.I.F.), (representing 49.31% of T.G.I.F. equity) with a carrying value of approximately $1.6 million. Mr. Wiener is a director and stockholder of T.G.I.F. T.G.I.F. is engaged in the business of net leasing properties in the Southern and Southwestern United States. As of December 31, 1996 and 1995, CII had outstanding loans due to T.G.I.F. of approximately $2,455,000 and $579,000, respectively. These loans are payable on demand and bear interest at the prime rate (8.25% as of December 31, 1996). Interest is payable annually in January. CII expects to repay these loans with proceeds from distributions of its investments. CII also owns investments primarily in the form of limited partnership interests in companies whose primary purpose is to make equity investments in growth oriented enterprises. The Company's ownership interest in these partnerships represents less than 3% of each partnership's ownership. Jack Baker 5th Avenue, Inc. CII and certain directors and officers of the Company, own an 85% interest in Jack Baker 5th Avenue, Inc. and its affiliates. CII has a 59% interest and certain directors and officers of the Company have a 41% interest. This company was a manufacturer's representative which discontinued operations in 1996. CII's investments in and loans to Jack Baker 5th Avenue, Inc., with a net carrying value of approximately $46,000 including accrued and unpaid interest, were written off as of December 31, 1996. Competition. The Company competes for suitable opportunities for real estate investments with other real estate investment trusts, foreign investors, pension funds, insurance companies and other investors. The Company also competes with other real estate investors and borrowers for available sources of financing. In addition, to the extent the Company directly and through its subsidiaries leases properties, it must compete for tenants with other lessors offering similar facilities. Tenants are sought by providing modern, well-maintained facilities at competitive rentals. The Company has attempted to facilitate successful leasing of its properties by investing in facilities that have been developed according to the specifications of tenants and special local needs. (7) Employees. The Company has no employees other than officers who are not compensated for their services as such. Advisory Agreement (the "Agreement"). Terms of the Agreement. Under the terms of the Agreement, amended and restated on June 15, 1988, Courtland Group, Inc. (the "Advisor") serves as the Company's investment advisor and, under the supervision of the directors of the Company, administers the day-to-day operations of the Company. All officers of the Company who are officers of the Advisor are compensated solely by the Advisor for their services. The Agreement is renewable annually upon the approval of a majority of the directors of the Company who are not affiliated with the Advisor and a majority of the Company's shareholders. The contract may be terminated at any time on 120 days' written notice by the Advisor or upon 60 days' written notice by a majority of the unaffiliated directors of the Company or the holders of a majority of the Company's outstanding shares. Under the Agreement, as amended at the Company's 1992 annual meeting of shareholders, the Advisor is entitled to receive a monthly fee of $72,917. The Advisor is entitled to an annual incentive compensation equal to the sum of 10% of net realized capital gains and extraordinary items of income for that year and 10% of the amount, if any, by which net profits of the Company for such fiscal year exceeded 8% per annum of the Average Net Worth of the Company, as defined. The Advisor also is entitled to a monthly fee of 20% of the amount of any unrefunded commitment fees received by the Company with respect to mortgage loans and other commitments which the Company was not required to fund and which expired within the next preceding calendar month. Advisory Fees. For the year ended December 31, 1996, the Company and its subsidiaries paid the Advisor $1,066,746 in fees, of which $875,000 represented regular compensation and $191,746 represented incentive compensation, including $26,548 paid by CII to the Advisor relating to capital gains realized by CII from sales of marketable securities. In 1995, the Advisor's regular compensation amounted to $875,000, while its incentive compensation amounted to $188,177, including $62,186 paid by CII to the Advisor relating to capital gains realized by CII from sales of marketable securities and capital gains from CII's investments in partnerships. The Advisor is also the manager for certain of the Company's affiliates and received fees of $30,000 and $44,000 in 1996 and 1995, respectively, for such services. New Advisory Agreement. On April 4, 1997, the Board of Directors approved a new advisory agreement between the Company and HMG Advisory Corp. effective for a term commencing January 1, 1998 through December 31, 1998. This new advisory agreement is subject to, and will be submitted for approval by a majority of the shareholders of the Company at the 1997 annual meeting of shareholders, currently scheduled for June 27, 1997. The new advisory agreement will be substantially the same as the current advisory agreement but with a 25% reduction in the regular compensation paid to the new advisor. HMG Advisory Corp. will be majority owned by Messrs. Wiener and Eyssell with the remaining shares owned by certain officers. The officers and directors of HMG Advisory Corp. are as follows: Maurice Wiener, Chairman of the Board and Chief Executive Officer; Lawrence I. Rothstein, President, Treasurer, Secretary and Director; Gustav S. Eyssell, Director; Carlos Camarotti, Vice President - Finance and Assistant Secretary; and Bernard Lerner, Vice President. Item 2. Description of Property. The principal executive offices of the Company and the Advisor are located at 2701 South Bayshore Drive, Coconut Grove, Florida, 33133, in premises furnished by the Advisor pursuant to the terms of the Agreement. Reference is made to Item 1. Business for a description of the Company's properties. Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1996. (8) Part II. Item 5. Market Price for Common Equity and Related Stockholder Matters. The high and low per share sales prices of the Company's stock on the American Stock Exchange for each quarter during the past two years were as follows: High Low March 31, 1995 8 1/8 7 1/2 June 30, 1995 8 3/8 7 3/4 September 30, 1995 8 1/8 7 3/4 December 31, 1995 8 1/2 7 1/2 March 31, 1996 7 3/4 7 1/4 June 30, 1996 7 1/4 6 7/8 September 30, 1996 6 7/8 6 1/2 December 31, 1996 6 3/8 4 5/8 The Company stopped paying dividends, beginning in the fourth quarter of 1990, in order to preserve its cash in light of the overall economic conditions and for future development opportunities. The Company's policy has been to pay such dividends as are necessary for it to qualify for taxation as a REIT under the Internal Revenue Code. The Company continues to meet all qualifications for taxation as a REIT. As of March 21, 1997, there were 244 holders of record of the Company's common stock. Item 6. Management's Discussion and Analysis or Plan of Operation. Discussion of Balance Sheet Items: At December 31, 1996, the balance sheet reflected assets consisting primarily of equity interests in real estate investment properties and investments in unconsolidated entities. Liabilities at December 31, 1996 consisted principally of mortgages on individual properties. Significant changes in specific balance sheet items between December 31, 1996 and 1995 are described below: Assets: Commercial and industrial properties increased from $2.0 million to $3.0 million, or $1.0 million. This was primarily due to additional construction of the shopping center located near Jacksonville, Florida. The carrying value of the hotel and club facility decreased from $9.0 million to $8.1 million, or $900,000. This was primarily the result of depreciation. Land held for development decreased from $8.1 million to $6.7 million, or $1.4 million, primarily as the result of sales of land located in Houston, Texas and Palm Bay, Florida. Real estate development in progress decreased by $1.2 million primarily due to the substantial completion of a portion of the Fashion Square Shopping Center near Jacksonville, Florida. (9) Investments in and receivables from unconsolidated entities increased from $2.4 million to $3.1 million or, approximately $700,000, primarily as a result of additional investments by CII in limited partnerships whose primary purpose is to make equity investments in growth-oriented enterprises. Restricted cash increased by $1 million as the result of the initial payment received by Grove Isle Associates, Ltd. In connection with the lease agreement and master agreement entered into with Westgroup in November 1996. Reference is made to the above sections of Item 1. Business for discussion regarding the Grove Isle lease. Liabilities and Minority Interests: Mortgages and notes payable increased from $8.9 million to $10.1 million, or $1.2 million, primarily due to additional borrowing by CII from its 49% owned Company, TGIF Texas, Inc. Other liabilities increased from $1.4 million to $2.1 million, or $700,000, primarily as the result of the $1 million restricted cash payment received from the new tenant at Grove Isle. (See Item 1. Business). This amount represents a prepayment to cover future capital improvements and cash operating shortfalls, etc. Minority interests decreased $492,000 in 1996 from $614,000 to $122,000. This was primarily the result of distributions to minority partners in excess of gains recognized by minority partners. Results of Operations: For the year ended December 31, 1996, the Company reported a net loss of $2.1 million compared with a net loss of $3.5 million for the year ended December 31, 1995. Changes in specific revenues and expenses are discussed below. Revenues: 1996 versus 1995: Total revenues for the year ended December 31, 1996 as compared with that of 1995 increased by approximately $495,000 (or 7%). This was primarily due to increased revenues from the Grove Isle hotel, club and marina of approximately $1.7 million (or 38%). This increase in revenues was partially offset by decreased rental and related revenues of $526,000 (or 28%) primarily due to the sale of the Texas office building in April 1995, decreased gain from sales of marketable securities of $374,000 (or 28%) and decreased interest from invested cash, dividends and other of $302,000 (or 67%) (primarily due to decreased dividends from CII's 49% investment in TGIF Texas, Inc.). Expenses: 1996 versus 1995: Total expenses for the year ended December 31, 1996 as compared to that of 1995 decreased by $1.7 million (or 13%). The primary factors contributing to this decrease were (1) the non-recurring expenses relating to the abandonment of predevelopment costs of $4.2 million of The Grove Towne Center project in 1995, (2) decreased minority partners' interest in operating losses of $1.2 million due to the aforementioned 1995 abandonment, and (3) increased operating cost of Grove Isle hotel and club of $1.4 million. Total operating expenses of the Grove Isle hotel, club and marina increased $1.2 million (or 22%) in fiscal 1996 versus 1995. Cost of food and beverage increased by $472,000 (or 68%), payroll and related costs increased by $346,000 (or 14%), other operating costs increased by $616,000 (or 25%) primarily as the result of increased advertising and promotional costs of $263,000 and other expenses relating to the food and beverage operations of approximately $350,000. (10) Net gain/(loss) on sale of real estate for the year ended December 31, 1996 consisted of the following: Net gain (loss) after incentive Property Sold Fee and minority interest HMG-Fieber retail stores in various states 1,501,000 Undeveloped land in Texas 40,000 Undeveloped land in Florida (55,000) $1,486,000 Projected Operating Results: The Company discontinued operating the Grove Isle property in November 1996. As a result of this the Company no longer generates hotel and club revenues, nor does it incur the related expenses. The Company's rental and related revenues in 1997 are expected to remain consistent with those of 1996. Effect of Inflation: Inflation affects the costs of operating and maintaining the Company's investments and the availability and terms of financing. In addition, rentals under certain leases are based in part on the lessee's sales and tend to increase with inflation, and certain leases provide for periodic adjustments according to changes in predetermined price indices. Liquidity and Capital Resources: The Company's material commitments primarily consist of maturities of debt obligations of approximately $4.7 million in 1997. The funds necessary to meet these obligations are expected from the proceeds of sales of properties, refinancing, distributions from investments and available cash. Included in the $4.7 million in maturing debt obligation is a note payable by CII to TGIF of approximately $2.5 million due on demand. CII intends to repay this obligation with funds available from distributions from investments. In addition, the Company intends to continue to seek opportunities for investment in income producing properties. The Company's cash flow from operating activities was a deficit of approximately $3 million for the year ended December 31, 1996 versus a deficit of $5 million in 1995. The Company's cash flow from operating activities in 1997 is expected to improve over that of 1996 primarily as the result of discontinuing the operations of the Grove Isle facilities effective November 1996. Material Changes in Operating, Investing and Financing Cash Flows: Discussion of 1996 Changes. For the year ended December 31, 1996, net cash provided by investing activities was approximately $3.4 million. This consisted primarily of net proceeds from disposals of properties of $4.3 million, less acquisitions and improvements of properties of $516,000 (primarily relating to Fashion Square Shopping Center near Jacksonville, Florida) and less additional investments made by CII in limited partnerships whose primary purpose is to invest in growth-oriented companies. For the year ended December 31, 1996, net cash used in financing activities was approximately $105,000. This consisted of repayment of mortgages and notes payable of $1.1 million and distributions to minority partners of $1.3 million, partially offset by additional borrowings of $2.3 million (primarily from CII's 49%-owned affiliate). (11) Item 7. Consolidated Financial Statements Report of Independent Certified Public Accountants...................13 Consolidated balance sheets December 31, 1996 and 1995...............14 Consolidated statements of operations for the years ended December 31, 1996 and 1995...............................15 Consolidated statements of stockholders' equity for the years ended December 31, 1996 and 1995...........................16 Consolidated statements of cash flows for the years ended December 31, 1996, and 1995..............................17 Notes to consolidated financial statements...........................18 (12) REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of HMG/Courtland Properties, Inc.: We have audited the accompanying consolidated balance sheets of HMG/Courtland Properties, Inc. and its subsidiaries (the "Company") as of December 31, 1996, and 1995 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1996, and 1995 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Miami, Florida March 21, 1997 (13) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
December 31, December 31, 1996 1995 ASSETS Notes Investment Properties, net of accumulated depreciation 2 Commercial and Industrial $3,044,789 $1,969,318 Hotel and Club Facility 8,086,619 8,971,370 Yacht Slips 1,708,307 1,689,283 Land Held for Development 6,712,173 8,103,304 Real Estate Development in Progress 1,204,390 ----------- ----------- Total investment properties, net 19,551,888 21,937,665 Investments In and Receivables From Unconsolidated Entities 3 3,088,925 2,439,010 Notes and Advances Due From Related Parties 4 1,396,068 1,168,788 Cash and Cash Equivalents 1,389,546 1,094,999 Cash Restricted 9 1,000,000 Other Assets 1,043,288 2,241,610 ----------- ----------- TOTAL ASSETS $27,469,715 $28,882,072 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Accounts Payable and Accrued Expenses $1,621,924 $2,254,024 Mortgages and Notes payable 5 10,084,395 8,905,166 Other Liabilities 2,072,319 1,421,131 ----------- ----------- TOTAL LIABILITIES 13,778,638 12,580,321 ----------- ----------- Minority interests 121,778 613,643 ----------- ----------- STOCKHOLDERS' EQUITY 7 Preferred Stock, no par value; 2,000,000 shares authorized; none issued Common Stock, $1 par value; 1,500,000 shares authorized; 1,245,635 shares issued and outstanding 1,245,635 1,245,635 Additional Paid-in Capital 26,283,222 26,283,222 Undistributed Gains From Sales of Real Estate, net of losses 33,123,339 31,637,177 Undistributed Losses From Operations (46,086,435) (42,481,464) ----------- ----------- 14,565,761 16,684,570 Less: Treasury Stock, at cost (78,800 shares) (996,462) (996,462) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 13,569,299 15,688,108 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,469,715 $28,882,072 =========== ===========
See notes to consolidated financial statements (14) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995
Notes 1996 1995 REVENUES Rentals and related revenue $1,337,527 $1,863,539 Hotel, club and marina revenues 6,154,686 4,458,476 Gain from sale of marketable securities 252,908 626,452 Interest from invested cash, dividends and other 150,003 451,832 ----------- ----------- Total revenues 7,895,124 7,400,299 ----------- ----------- EXPENSES Operating expenses: Rental Properties and other 1,044,816 1,195,532 Hotel, club and marina expenses: Payroll and related expenses 2,784,706 2,438,844 Cost of food and beverage 1,170,471 697,967 Administrative and general expenses 3,083,577 2,467,839 Advisor's fee 4 875,000 875,000 General and administrative 544,124 481,373 Directors' fees and expenses 69,248 71,863 Abandonment of pre-development costs 8 4,224,531 Depreciation and amortization 2 1,152,085 1,348,401 ----------- ----------- Total operating expenses 10,724,027 13,801,350 Interest expense 958,944 825,078 Minority partners' interests in operating losses of consolidated entities (182,876) (1,421,070) ----------- ----------- Total expenses 11,500,095 13,205,358 ----------- ----------- Loss before sales of real estate (3,604,971) (5,805,059) Gain on sales of real estate, net 1,486,162 2,255,896 ----------- ----------- Net loss ($2,118,809) ($3,549,163) =========== =========== Loss Per Common Share (Based on 1,166,835 weighted average shares outstanding) ($1.82) ($3.04) =========== ===========
See notes to consolidated financial statements (15) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996 AND 1995
Undistributed Gains from Undistributed Sales Losses from Total Common Stock Additional of Real Estate, Opera- Treasury Stock Stockholders' Shares Amount Paid-In Net of Losses tions Shares Cost Equity Capital Balance as of January 1, 1995 1,245,635 $ 1,245,635 $26,283,222 $29,381,281 ($36,676,405) 78,800 ($996,462) $19,237,271 Net Income (Loss) 2,255,896 (5,805,059) (3,549,163) --------- ----------- ----------- ----------- ------------ ------ --------- ----------- Balance as of December 31, 1995 1,245,635 1,245,635 26,283,222 31,637,177 (42,481,464) 78,800 (996,462) 15,688,108 Net Income (Loss) 1,486,162 (3,604,971) (2,118,809) --------- ----------- ----------- ----------- ------------ ------ --------- ----------- Balance as of December 31, 1996 1,245,635 $ 1,245,635 $26,283,222 $33,123,339 ($46,086,435) 78,800 ($996,462) $13,569,299 ========= =========== =========== =========== ============ ====== ========= ===========
See notes to consolidated financial statements (16) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($2,118,809) ($3,549,163) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,152,085 1,348,401 (Gain) loss from unconsolidated entities (20,856) 34,139 Gain on sales of real estate, net (1,486,162) (2,255,896) Abandonment of pre-development costs 1,902,914 Net gain from sales of marketable securities (252,908) (626,452) Minority partners' interest in operating losses (182,876) (1,421,070) Changes in assets and liabilities: Decrease (increase) in other assets 1,146,077 (301,265) Increase in due from affiliates (227,280) (303,433) Decrease in accounts payable and accrued expenses (632,100) (170,516) (Decrease) increase in other liabilities (348,812) 308,263 ----------- ----------- Total adjustments (852,832) (1,484,915) ----------- ----------- Net cash used in operating activities (2,971,641) (5,034,078) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Aquisitions and improvements of properties (516,009) (1,643,646) Net proceeds from disposals of properties 4,264,004 9,923,385 Net (contributions to) distributions from unconsolidated entities (629,059) 213,396 Net proceeds from sales and redemptions of securities 344,424 795,028 Purchases of investments in securities (91,995) (32,211) ----------- ----------- Net cash provided by investing activities 3,371,365 9,255,952 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of mortgages and notes payables (1,073,498) (5,886,683) Additions to mortgages and notes payables 2,252,727 700,000 Net distributions to minority partners (1,284,406) (3,322,693) ----------- ----------- Net cash used in financing activities (105,177) (8,509,376) ----------- ----------- Net increase (decrease) in cash and cash equivalents 294,547 (4,287,502) Cash and cash equivalents at beginning of the period 1,094,999 5,382,501 ----------- ----------- Cash and cash equivalents at end of the period $ 1,389,546 $ 1,094,999 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 959,000 $ 1,112,000 =========== =========== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES: As more fully described in Note 9, the Company leased its Grove Isle Facility in November 1996 and received an initial payment (as defined) of $1,000,000. The use of these funds is restricted per agreement and accordingly this amount has been recorded as restricted cash and included in other liabilities.
See notes to consolidated financial statements (17) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996 and 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation. The consolidated financial statements include the accounts of HMG/Courtland Properties, Inc. (the "Company") and entities in which the Company owns a majority voting interest or controlling financial interest. Investments in which the Company does not have a majority voting or financial controlling interest are accounted for under the equity method of accounting , even though the Company may have a majority interest in profits and losses. All material transactions with consolidated and unconsolidated entities have been eliminated in consolidation or as required under the equity method. The Company's consolidated subsidiaries are described below: Courtland Investments, Inc. ("CII"). A 95% owned corporation which owns 100% of Grove Isle Club, Inc. (through its wholly-owned subsidiary), 60% general partnership interests in Grove Isle Associates, Ltd., and a 100% interest in Grove Isle Yacht Club Associates. These entities are described below. CII's other assets primarily consist of investments recorded under the equity method of accounting (See Note 3.) Grove Isle Associates, Ltd. ("GIA"). This limited partnership owns a 50 room, hotel and private club facility located on approximately 7 acres of a private island in Coconut Grove, Florida known as Grove Isle. (See Note 9). Grove Isle Club, Inc. ("GICI"). This corporation operated the hotel and club of GIA until November 1996. Its primary sources of revenue were from room rentals, food and beverage sales and from membership dues. GICI ceased operating the hotel and club upon termination of its lease with GIA and a new lease with Westgroup Grove Isle Associates, Ltd. In future years, GICI's revenue will primarily consist of the amounts received in consideration for the relinquishment of its lease of the Grove Isle property (See Note 9). Grove Isle Yacht Club Associates ("GIYCA"). This partnership was the original developer of the 85 boat slips located at Grove Isle of which 43 remain unsold. GIYCA and its wholly-owned subsidiary operate all aspects of the Grove Isle marina. The Grove Towne Center - Texas, Ltd. A 65% owned limited partnership having a wholly-owned subsidiary of the Company as its sole general partner. This partnership was formed in 1994 for the purposes of developing an entertainment/value-oriented retail center on a 41 acre site in suburban Houston, Texas. During the fourth quarter of 1995, the partnership decided not to go forward with the project as designed due to various factors including a dispute with a major tenant. Accordingly, the partnership expensed approximately $4.2 million of previously capitalized pre-development costs in 1995. The partnership is presently exploring various options for the land. (See Note 8). South Bayshore Associates. A 75% owned venture of which the major asset is a receivable from the Company's venture partner. HMG - Fieber Associates. A 65% owned venture of which the major assets are commercial properties located in the northeastern United States. (See Note 4). (18) HMG Sugargrove, Inc. A wholly-owned Texas corporation of which the major asset is an 8 acre parcel of land in Houston, Texas, held for development. T.E.H.H. Corp. A wholly-owned Texas corporation of which the major asset is a 99% limited partnership interest in CourTrust Palm Bay, Ltd. which owns 1.5 acres of undeveloped land in Palm Bay, Florida. In the first quarter of 1996, the land was sold and the Company recognized a net loss of approximately $54,000. T.E.H.H. and CourTrust Palm Bay, Ltd. were dissolved in 1996. HMG Fashion Square, Inc. A wholly-owned Florida corporation of which the major asset is a 90% partnership interest in Fashion Square Partnership which owns a shopping center on an 11.5 acre site in Jacksonville, Florida. As of December 31, 1996, this shopping center has three tenants each operating restaurants. The remaining portion of the center is anticipated to be leased or developed. Unconsolidated entities are discussed in Note 3. The following table summarizes the Company's portfolio of real estate investments as of December 31, 1996: Percent of Geographic Distribution Investments (1) Florida 60% Texas 34% Northeastern United States (2) 6% ------ 100% ====== Type of Property (3) Undeveloped land 35% Hotel and club facility 41% Individual retail stores 5% Yacht slips 9% Restaurants 10% ----- 100% ====== ----------------- (1) For each category, the aggregate of cost less accumulated depreciation divided by the aggregate of such investments in all real estate owned directly by the Company or by joint ventures in which the Company has a majority interest. The Company's minority interests in joint ventures are not included in the above. (2) New York, Massachusetts, Maine and Vermont. (3) Based on predominant present or intended use. Preparation of Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (19) Income Taxes. The Company qualifies as a real estate investment trust and distributes its taxable operating income to stockholders in conformity with requirements of the Internal Revenue Code. In addition, net operating losses can be carried forward to reduce future taxable income but cannot be carried back. The Company intends to distribute any of its future taxable operating income and is not taxed on the amounts distributed. Distributed capital gains on sales of real estate are not subject to taxes; however, undistributed capital gains are taxed as capital gains. State income taxes are not significant. Any benefit from or provisions for income taxes relates solely to taxable losses or income of CII which is not consolidated with the Company for income tax purposes and accordingly files a separate tax return. Refer to Note 6 for further disclosure on income taxes. Depreciation and Amortization. Depreciation of properties held for investment is computed using the straight-line method over the estimated useful lives of the properties, which range up to 39.5 years. Deferred mortgage and leasing costs are amortized over the shorter of the respective term of the related indebtedness or life of the asset. Depreciation expense for the years ended December 31, 1996, and 1995 was approximately $1,099,000, and $1,052,000, respectively. Amortization expense for the years ended December 31, 1996 and 1995 was $53,000 and $296,000, respectively. Fair Value of Financial Instruments. The carrying value of financial instruments including investments in and receivables from unconsolidated entities, notes and advances due from related parties, accounts payable and accrued expenses and mortgages and notes payable approximate their fair values at December 31 1996. Investment Properties. The Company reviews the carrying values of its investment properties for possible impairment whenever events or changes in circumstances indicate that the true carrying amount of the asset may not be recoverable. Any long-lived assets held for sale are reported at the lower of their carrying amounts or fair values less cost to sell. Earnings (Loss) Per Common Share. Earnings (loss) per share are computed based upon the weighted-average number of shares outstanding during the period. Stock options outstanding did not have a dilutive effect or were immaterial in all years presented. The weighted average number of common shares outstanding for all of the years presented was 1,166,835. Gain on Sales of Real Estate. Gain on sales of real estate has been reduced, where applicable, by minority partners' interest in the gain of $975,000 and $540,000 and advisor's incentive fees of $165,000 and $106,000 for the years ended December 31, 1996 and 1995, respectively. Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalent. Restricted Cash. Restricted cash consists of the $1 million "initial payment" received by Grove Isle Associates, Ltd. (GIA), in connection with the lease of the Grove Isle Facility (see Note 9). The use of these funds is restricted in accordance with the Master Agreement between GIA and its tenant Westgroup. GIA is obligated to provide to Westgroup, upon receipt of required documentation, necessary funds drawn from the "initial payment" for capital improvements and to cover any operating shortfalls, as defined. Reclassifications. Certain amounts in prior year's consolidated financial statements have been reclassified to conform to the current year's presentation. (20) Minority Interest. Minority interest represents the minority partners' proportionate share of the equity of the Company's majority owned subsidiaries.
1996 1995 Minority interest balance at beginning of year $614,000 $4,817,000 Reduction of minority interest due to dissolution of Partnership -- (621,000) Minority partners' interest in operating gains of consolidated subsidiaries (183,000) (1,421,000) Minority partners' interest in net gain on sales of real estate of consolidated subsidiaries 975,000 540,000 Distributions to minority partners, net of contributions and note receivable from minority partner (1,297,000) (2,714,000) Other 13,000 13,000 ---------- ---------- Minority interest balance at end of year $122,000 $614,000 ======== ========
Long-Lived Assets. The Company adopted the provision of FASB No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," in 1996. The adoption of FASB No. 121 did not have a material effect on the carrying value of the Company's long-lived assets. Stock-Based Compensation. In October 1995, FASB issued SFAS No. 123, "Accounting for Stock- Based Compensation." SFAS No. 123 establishes a fair value method for accounting for stock-based compensation plans either through recognition or disclosure. The Company did not adopt the fair value based method but instead will disclose the proforma effects of the calculation required by the statement. Revenue Recognition. The Company is the lessor of various real estate. All of the lease agreements are classified as operating leases and accordingly all rental revenue is recognized as earned based upon total fixed cash flow over the initial term of the lease, using the straight line method. Percentage rents are based upon tenant sales levels for a specified period. Reimbursed expenses for real estate taxes, common area maintenance, utilities and insurance are recognized in the period in which the expenses are incurred, based upon the provisions of the tenant's lease. (21) 2. INVESTMENT PROPERTIES The components of the Company's properties and the related accumulated depreciation information follow:
December 31, 1996 Accumulated Cost Depreciation Net Commercial and Industrial Properties Land $1,365,282 $1,365,282 Buildings and improvements 3,309,092 1,629,585 1,679,507 --------- --------- --------- 4,674,374 1,629,585 3,044,789 --------- --------- --------- Hotel and Club Facility Land 1,338,518 1,338,518 Hotel/ club facility and improvements 6,890,309 1,147,028 5,743,281 Furniture, fixtures & equipment 2,196,131 1,191,311 1,004,820 --------- --------- --------- 10,424,958 2,338,339 8,086,619 ---------- --------- --------- Yacht Slips 1,708,307 1,708,307 --------- --------- --------- Land Held for Development 6,712,173 6,712,173 --------- --------- --------- Total $23,519,812 $3,967,924 $19,551,888 =========== ========== ===========
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 =========== ========== ===========
(22) 3. INVESTMENTS IN AND RECEIVABLES FROM UNCONSOLIDATED ENTITIES As of December 31, 1996, the Company's investments in and receivables from unconsolidated entities primarily consisted of CII's 49% equity interest in T.G.I.F. Texas, Inc. (T.G.I.F.) and CII's other investments. CII owns 49% of the outstanding common stock of T.G.I.F., a publicly-held Texas corporation engaged in the business of owing net leased properties in Texas and Louisiana, which is accounted for under the equity method. CII's other investments primarily consist of investments in four partnerships whose primary purpose is to make equity investments in growth oriented enterprises. CII's ownership interest in each of these partnerships is less than 3%. The carrying values of all investments in and receivables from unconsolidated entities are carried at the lower of cost or market. Carrying Values as of December 31, Description 1996 1995 T.G.I.F. Texas, Inc. $1,669,180 $1,656,131 Various Others 1,419,745 782,879 ---------- ---------- $3,088,925 $2,439,010 ========== ========== 4. NOTES AND ADVANCES DUE FROM AND TRANSACTIONS WITH RELATED PARTIES The Company has an agreement (the "Agreement") with Courtland Group, Inc. (the "Advisor") for its services as investment advisor and administrator of the Company's affairs. All officers of the Company who are officers of the Advisor are compensated solely by the Advisor for their services. The Agreement is renewable annually upon the approval of a majority of the directors of the Company who are not affiliated with the Advisor and a majority of the Company's shareholders. The contract may be terminated at any time on 120 days written notice by the Advisor or upon 60 days written notice by a majority of the unaffiliated directors of the Company or the holders of a majority of the Company's outstanding shares. Under the Agreement, as amended at the Company's 1992 Annual Meeting of Shareholders, the Advisor is entitled to receive a monthly fee of $72,917. The Advisor is entitled to a monthly fee of 20% of the amount of any unrefunded commitment fees received by the Company with respect to mortgage loans and other commitments which the Company was not required to fund and which expired within the next preceding calendar month. The Advisor is also entitled to an annual incentive compensation equal to the sum of 10% of net realized capital gains and extraordinary items of income for that year and 10% of the amount, if any, by which net profits of the Company for such fiscal year exceeded 8% per annum of the Average Net Worth of the Company, as defined. During 1996 and 1995, $1,067,000 and $1,063,000, respectively, was earned by the Advisor as advisory fees of which approximately $192,000 and $188,000, respectively, were for incentive compensation. The Advisor also received management fees from certain affiliates of the Company in the amount of approximately $30,000 and $44,000 in 1996 and 1995, respectively. At December 31, 1996, the Company had amounts due from the Advisor of $417,000 and $194,000, respectively. These amounts bear interest at prime plus 1% and are due on demand. (23) During 1988, the Company sold its interest in a 49% owned real estate investment company to Transco Realty Trust (Transco), a publicly-held 41% shareholder of the Company. The Company has notes receivable and convertible debentures due from this real estate investment company. The notes totaling $236,235 bear interest at prime plus 2% and are due on demand, and the debentures totaling $318,035 bear interest at 8% and matured in 1996. The debentures maturity date is presently being negotiated. In 1991, the Company began recognizing interest income on these notes as payments are received. No payments were received in 1996 and 1995. The Company also has a note receivable from Transco of $300,000 plus accrued interest of $125,000 and $120,000 as of December 1996 and 1995, respectively. This note bears interest at the prime rate and is due on demand. Mr. Wiener, Chairman of the Company, is an 18% shareholder and an officer and director of T.G.I.F. Texas, Inc., a 49% owned affiliate of CII (See Note 3). As of December 31, 1996, T.G.I.F. has amounts due from Mr. Wiener in the amount of approximately $60,000. These amounts are due on demand and bear interest at the prime rate. Furthermore, the Advisor receives a management fee of $18,000 per year from T.G.I.F. In December 1996, T.G.I.F. purchased 10,000 shares of the Company's stock at $5 per share, the market value at the time. In 1992, CII and certain directors and officers of the Company, acquired a 27% interest in Jack Baker 5th Avenue, Inc. and its affiliates. In 1993, that 27% interest was increased to 85% in which CII has a 59% interest and certain directors and officers of the Company have a 41% interest. In 1996, CII wrote off the remaining balance of its investment in and loans from Jack Baker in the amount of approximately $46,000. In October 1996, it was brought to the Company's attention that Mr. Lee Gray (then President, Treasurer and Director of the Company, "Gray") failed to disclose his interest, through a partnership of his and his sister's, in a 35% joint venture partner in HMG-Fieber Associates. Additionally, another director (Mr. Norman Fieber, "Fieber"), who had an interest in the joint venture partner, failed to disclose Gray's interest in such partnership. In November 1996, the Company appointed a Special Committee of the Board to review Gray's and Fieber's failure to disclose the interest in the joint venture partner. During the course of the inquiry it was discovered that Gray also failed to disclose an interest in the Company's 66 2/3% joint venture partner in another joint venture which operated through 1992. Based on the report of the Special Committee in March 1997, the Board concluded that Gray and Fieber breached their fiduciary duties to the Company by failing to disclose Gray's interest in the joint ventures. The Board removed Gray as President and Treasurer of the Company and is claiming damages up to approximately $1.1 million. Both Gray and Fieber refused to resign as directors of the Company. The Board has determined that neither of them will be nominated for re-election as directors. No amount of the claim has been included in the accompanying financial statements. (24) 5. NOTES, MORTGAGES AND OTHER PAYABLES
December 31, 1996 1995 Collateralized by Investment Properties (Note 2) Land Held for Development: Mortgage loan payable, interest at 9% payable quarterly with quarterly principal payments of $12,776, matures July 1998. $1,088,955 $1,385,453 Mortgage loan payable, interest at 1% over prime (9.25% at December 31, 1996) payable monthly. Principal due at maturity on July 1997. 890,000 1,040,000 Mortgage loan payable, interest at prime plus 1.75% (10% at December 31, 1996) payable monthly with all principal due June 1997. 431,104 431,104 Mortgage loan payable, interest fixed at 9.75% payable quarterly with principal payments of $15,867 due each February 1st and a balloon payment due February 1998. 165,033 180,900 Mortgage loan payable, interest at prime plus 1.75% (10% at December 31, 1996) payable monthly. The balance of the outstanding principal was paid in December 1996. -- 500,000 Note Payable to bank, interest at the prime rate plus 1% (9.25% as of December 31, 1996). Balance of outstanding principal and accrued interest matured and was paid in January 1997. 350,000 -- Joint Venture owning retail centers: Mortgage loan payable requiring monthly payments of principal and interest of $2,895 at 10% interest rate. Note matured in 1984 (1). 62,852 89,790 Partnerships owning hotel and club facility and Yacht Slips: Mortgage loan payable with interest at prime plus 2% (10.5%) at December 31, 1996. Payments of interest only through June 1995, thereafter, 20 year amortization of principal with all outstanding principal due September 2000. 4,322,601 4,398,320 ---------- ---------- Balance brought forward: $7,310,545 $8,025,567 ---------- ----------
(25) 5. NOTES, MORTGAGES AND OTHER PAYABLES (continued)
December 31, 1996 1995 Balance brought forward: $7,310,545 $8,025,567 Limited partnership owning ground lease: Mortgage loan payable interest fixed at 9.75% payable monthly with principal due at maturity in November 1997. 300,000 300,000 Note payable to individual with interest rate fixed at 8%. Payment of principal and interest quarterly, with maturity in May 1998. 18,538 -- Other: Note payable to affiliate, interest at prime (8.25% at December 31, 1996) payable annually in January. Principal outstanding due on demand. 2,455,312 579,599 ---------- ----------- $10,084,395 $8,905,166 ----------- ---------- (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.
(26) A summary of scheduled principal repayments or reductions for all types of notes and mortgages payable is as follows: Year ending December 31, Amount 1997 $4,669,797 1998 1,270,975 1999 103,778 2000 4,039,845 2001 -- ----------- Total $10,084,395 =========== The 1997 principal repayments are expected to be satisfied with proceeds from sales of real estate, distributions from investments, available cash or such debt may be refinanced. 6. INCOME TAXES The Company's income tax benefit or provision is solely attributable to CII which files a separate tax return. Deferred tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by income tax law. A valuation allowance is recognized to reduce deferred tax assets to the amounts more likely than not to be realized. As of December 31, 1996 and 1995, the components of the deferred tax assets and liabilities are as follows:
As of December 31, 1996 As of December 31, 1995 Deferred tax Deferred tax Assets Liabilities Assets Liabilities Net operating loss carryforward $ 3,104,000 $ 1,619,000 Membership dues deferred for book purposes and recognized when received for tax purposes 174,000 Excess of book basis of 49%-owned corporation over tax basis $ 142,000 $ 137,000 Excess of tax basis of 49%-owned corporation over book basis 115,000 Other 196,000 55,000 127,000 43,000 Valuation allowance (3,103,000) (1,855,000) ----------- ----------- ----------- ----------- Totals $ 197,000 $ 197,000 $ 180,000 $ 180,000 =========== =========== =========== ===========
The change in the valuation allowance between December 31, 1996 and 1995 was an increase of $1,248,000. There is no provision or benefit necessary for income taxes for the years ended December 31, 1996 and 1995. (27) 7. STOCK-BASED COMPENSATION At December 31, 1996, the Company has a fixed stock option plan which is described below. The Company applies APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for the plan. Under APB Opinion 25, if the exercise price of the Company's employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation is recognized. In July 1991, the shareholders approved the 1990 Stock Option Plan (which expires in 2001) for the issuance of options to the officers and directors of the Company. Under the 1990 Plan, options were authorized to be granted to purchase 120,000 common shares at no less than 100% of the fair market value at the date of grant. Options may be exercised at any time within ten years from the date of grant and are not transferable. Options expire upon termination of employment, except to a limited extent in the event of retirement, disability or death of the optionee. FASB Statement 123, Accounting for Stock-Based Compensation, requires the Company to provide proforma information regarding net income and net income per share as if compensation cost for the Company's stock option plan had been determined in accordance with the fair value based method prescribed in FASB Statement 123. There were no options granted during the years ended December 31, 1996 and 1995, and therefore, under the accounting provisions of FASB Statement 123, the Company's net loss and loss per share did not differ. A summary of the status of the Company's fixed stock option plan as of December 31, 1996 and 1995, and changes during the years ending on those dates are presented below:
As of December 31, 1996 As of December 31, 1995 Weighted- Weighted- Average Average Exercise Exercise Shares Price Shares Price Outstanding at beginning of year 105,000 $5.20 105,000 $5.20 Granted -- -- -- -- Exercised -- -- -- -- Forfeited -- -- -- -- - --------------------------------------------------------------------------------------------------------------------- Outstanding at end of year 105,000 $5.20 105,000 $5.20 - --------------------------------------------------------------------------------------------------------------------- Options exercisable at year-end 105,000 $5.20 105,000 $5.20 Weighted average fair value of -- -- -- -- options granted during the year - ---------------------------------------------------------------------------------------------------------------------
(28) The following table summarizes information about fixed stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable - --------------------------------------------------------------------------- ----------------------------------- Weighted- Average Number Remaining Weighted- Number Weighted- Range of outstanding at Contractual Average Exercisable Average Exercise Prices 12/31/96 Life Exercise Price at 12/31/96 Exercise Price - ------------------- ------------------- ---------------- ----------------- ---------------- ------------------ $3.75 - $5.50 105,000 3.9 $5.20 105,000 $5.20
8. ABANDONMENT OF PRE-DEVELOPMENT COSTS During the fourth quarter of 1995, the Grove Towne Center-Texas, Ltd. decided not to go forward with the project as designed due to various factors including a dispute with a major tenant. Accordingly, in 1995 the partnership expensed approximately $4.2 million of previously capitalized pre-development costs. Included in the $4.2 million of pre-development costs were developer fees and expenses, interest and loan costs, real estate taxes, legal and professional fees, marketing/advertising and other leasing-related costs. 9. LEASE OF GROVE ISLE FACILITY In November 1996, GIA terminated its lease with GICI and entered into a long-term lease with an unrelated tenant, Westgroup Grove Isle Associates, Ltd. ("Westgroup"). GIA and GICI also entered into a Master Agreement with Westgroup whereby among other things Westgroup assumed the operations of the Grove Isle hotel and club. The leased premises include all real property and all furniture, furnishings, fixtures, appliances and other equipment used in connection with the operation of the Grove Isle hotel, resort and membership club. The initial term of the lease is ten years and calls for annual net base rent of $880,000 plus real estate taxes and property insurance, payable in monthly installments. The lease also calls for an "initial payment" (as defined) of $1,000,000. The "initial payment" of $1,000,000 was paid by Westgroup to GIA on November 19, 1996 and the use of these funds is restricted in accordance with the Master Agreement between GIA and Westgroup. GIA is obligated to provide to Westgroup, upon receipt of required documentation, necessary funds drawn from the "initial payment" for capital improvements made to the Grove Isle property and to cover any operating shortfalls, as defined. In addition to the initial payment and net base rent, Westgroup shall also pay GIA participation rent consisting of a portion of Westgroup's operating surplus, as defined in the lease agreement. Participation rent is due at end of each lease year. In consideration for GICI, relinquishment of its rights in and to the original lease with GIA, GIA agreed to pay to GICI the sum of $200,000 for each year that the Westgroup lease is in good standing and has also assigned to GICI the aforementioned participation rent due from Westgroup. This sum is payable annually commencing in November 1997. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There has not been any disagreement with the Company's accountants withing the 24 months prior to the date of the most recent financial statements concerning any matter of accounting principles or practice or financial statement disclosure. (29) 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; Chairman of the 55 Chairman of the Board and Chief Executive Officer of the Board of Directors, President and Advisor; Executive Trustee, Transco; Director, TGIF Texas, Inc.; Chief Executive Officer Trustee, PRA Real Estate Securities Fund. (1) Lawrence I. Rothstein; Senior 44 President , Secretary and Director of the Advisor ; Vice President, Vice President, Treasurer and Transco. (2) Secretary Carlos Camarotti; Vice President- 36 Vice President - Finance and Assistant Secretary of the Advisor. Finance and Assistant Secretary Bernard Lerner; Vice President 54 Vice President of the Advisor. Walter Arader; Director 77 President, Arader, Herzig and Associates Inc. (financial management consultants); Director, Pep Boys-Manny, Moe & Jack; Director, Unitel Video; Former Secretary of Commerce, Commonwealth of Pennsylvania. (3) Harvey Comita; Director 67 President and Director of Pan-Optics, Inc. (1971-1991); Director of Mediq, Incorporated (1981-1991); Trustee of Transco Realty Trust. John B. Bailey; Director 70 Real Estate Consultant; Retired CEO, Landauer Associates, Inc. (Real Estate Consultants) (1977-1988). Gustav S. Eyssell; Director 95 Real Estate Consultant; Director of the Advisor. Norman Fieber; Director 67 Real Estate Developer; Partner in Stonegate Development Corp. (4) Lee Gray; Director 67 President and Director, Chartcraft, Inc.; Trustee and Treasurer, Transco; Director, LCS Industries, Inc. (5) -------------------- (1) As of April 2, 1997, Mr. Wiener was appointed to serve as President of the Company. (2) As of April 2, 1997, Mr. Rothstein was appointed to serve as Treasurer of the Company. As of April 3, 1997, Mr. Rothstein (previously Senior Vice President of the Advisor) was appointed to serve as President and Director of the Advisor. (3) As of April 2, 1997, Mr. Arader was appointed to service as a member of the Audit Committee of the Company. (4) As of April 2, 1997, Mr. Fieber was removed as a member of the Audit Committee of the Company. Mr. Fieber will not be nominated for reelection as a director of the Company at the Company's upcoming 1997 Annual Meeting of Shareholders. Reference is made to Item 12. Certain Relationship and Related Transactions for further information regarding the failure of Mr. Fieber to disclose Mr. Gray's interest in NAF, the inquiry into that failure by a Special Committee appointed by the Board of Directors and the actions taken by the board of Directors of the Company as a result of that inquiry. (5) As of April 2, 1997, Mr. Gray was removed as President, Treasurer and a member of the Audit Committee of the Company. Mr. Gray will not be nominated for reelection as a director of the Company at the Company's upcoming 1997 Annual Meeting of Shareholders. Reference is made to Item 12. Certain Relationships and Related Transactions for further information regarding the failure of Mr. Gray to disclose his interest in NAF, the inquiry into that failure by a Special Committee appointed by the Board of Directors and the actions taken by the Board of Directors of the Company as a result of that inquiry. As of April 3, 1997, Mr. Gray was removed as President and Director of the Advisor.
(30) Except as previously discussed, all executive officers of the Company were elected to their present positions to serve until their successors are elected and qualified at the 1996 annual organizational meeting of directors immediately following the annual meeting of shareholders. All directors of the Company were elected to serve until the next annual meeting of shareholders and until the election and qualification of their successors. Item 10. Executive Compensation. Executive officers received no cash compensation from the Company in their capacity as executive officers. Reference is made to Item 1. Business and Item 6. Management's Discussion and Analysis or Plan of Operation for information concerning fees paid to the Advisor. Compensation of Directors. Each Director receives an annual fee of $5,000, plus expenses and $500 per each Board of Directors meeting attended. Furthermore, Messrs. Wiener and Gray each receive $4,000 a year in directors' fees from CII. Stock Options. In July 1991, the shareholders approved the 1990 Stock Option Plan (the "Plan"). The Plan, which is non-qualified and expires in 2001, is intended to provide incentives to the directors and employees (the "employees") of the Company as well as to enable the Company to obtain and retain the services of such employees. The Plan is administered by a Stock Option Committee (the "Committee") appointed by the Board of Directors. The Committee selects those key officers and employees of the Company to whom options for shares of common stock of the Company shall be granted. The Committee determines the purchase price of shares deliverable upon exercise of an option; such price may not, however, be less than 100% of the fair market value of a share on the date the option is granted. Payment of the purchase price may be made in cash, Company stock, or by delivery of a promissory note, except that the par value of the stock must be paid in cash or Company stock. Shares purchased by delivery of a note must be pledged to the Company. Shares subject to an option may be purchased by the optionee within ten years from the date of the grant of the option. However, options automatically terminate if the optionee's employment with the Company terminates other than by reason of death, disability or retirement. Further, if, within one year following exercise of any option, an optionee terminates his employment other than by reason of death, disability or retirement, the shares acquired upon exercise of such option must be sold to the Company at a price equal to the lesser of the purchase price of the shares or their fair market value. As of December 31, 1996, 105,000 options have been granted, of which none have been exercised, and 15,000 options are reserved for issuance under the Plan, of which none have been granted. (31) 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 21, 1997 Additional Shares in Which the named Shares Owned by Person Has, or Named Persons & Participates in, the Members of His Voting or Total Shares & Name Family(1) Investment Power(2) Percent of Class Maurice Wiener 35,100 (4) 531,830 (3) 566,930 45% (3), (4) Lee Gray 58,000 (4) 531,830 (3) 589,830 46% (3), (4) Norman Fieber 5,700 (4) 0 5,700 (4) Walter G. Arader 12,800 (4) 0 12,800 (4) * John B. Bailey 7,100 (4) 0 7,100 (4) * Gustav S. Eyssell 6,400 (4) 54,530 60,930 5% (4) Harvey Comita 5,000 (4) 0 5,000 (4) * All 11 Directors and 165,100 (4) 531,830 696,930 55% (4) Officers as a Group Transco Realty Trust 477,300 (5) 0 477,300 37% (5) 2701 S. Bayshore Drive Coconut Grove, FL 33133 Maurice A. Halperin 133,500 0 133,500 10% Barry S. Halperin 441 South Federal Highway Deerfield Beach, FL 33441 * Less than 1 % ------------- (1) Unless otherwise indicated, beneficial ownership is based on sole voting and investment power. (2) Other than with respect to the shares described in footnote 6 below, shares listed in this column represent shares held by entities with which directors or officers are associated. Directors, officers and members of their families have no ownership interest in these shares. (3) This number includes the number of shares held by Transco Realty Trust (477,300 shares) and Courtland Group, Inc. (54,530 shares). Of those shares owned by Transco Realty Trust, 24,350 shares have been pledged to a brokerage firm pursuant to a margin agreement. Several of the directors of the Company are directors, trustees, officers or shareholders of certain of those firms. (4) This number includes options granted under the 1990 Stock Option Plan, none of which have been exercised. These options have been granted to Mr. Wiener, 30,000; Mr. Gray, 25,000; 5,000 each to Mr. Arader, Mr. Bailey, Mr. Eyssell, Mr. Fieber, and Mr. Comita; and a total of 25,000 to three officers who are not directors. Reference is made to Item 10. Executive Compensation for further information about the 1990 Stock Option Plan. (5) Messrs. Wiener and Gray each hold approximately 24%, respectively, of the stock of Transco and may therefore be deemed to be the beneficial owners of the shares of the Company held by Transco.
(32) Item 12. Certain Relationships and Related Transactions. The following discussion describes the organizational structure of the Company's subsidiaries and affiliates. Transco Realty Trust ("Transco"). Transco is a publicly-held 41% shareholder of the Company. Mr. Wiener is the executive trustee and Mr. Gray is a trustee and treasurer of Transco and they each hold approximately 24% of Transco's stock. Courtland Group, Inc. (the "Advisor"). Mr. Wiener is a director and officer of the Advisor, which owns 21% of Transco's stock and owns approximately 4% of the Company's common stock. Mr. Wiener is Chairman of the Board and a 40% shareholder of the Advisor and Mr. Gray and Mr. Eyssell are 40% and 14% shareholders, respectively, of the Advisor of which Mr. Eyssell serves on the Board of Directors Courtland Investments, Inc. ("CII"). The Company owns a 95% non-voting interest in CII. The other 5% (which represents 100% of the voting stock) is owned by a wholly-owned subsidiary of Transco. CII and its wholly-owned subsidiary own 100% of Grove Isle Club, Inc., Grove Isle Yacht Club Associates and Grove Isle Marina, Inc. CII also owns 60% of Grove Isle Associates, Ltd., and the other 40% is owned by the Company. HMG-Fieber Associates ("Fieber"). The Company also owns a 65% interest in Fieber and the other 35% is owned by NAF Associates ("NAF"). The partners in NAF include the following related parties: Mr. Fieber, a director of the Company (33.62%), Mr. Fieber's son, James A. Fieber, (1.08%), Mr. Fieber's brother Stanley S. Fieber, M.D. (7.59%), and Martine Avenue Associates (Martine), a New York general partnership in which Mr. Gray, an officer and director of the Company, and Mr. Gray's sister are the partners (13.02%). The following discussion describes all material transactions, receivables and payables involving related parties. All of the transactions described below were on terms as favorable to the Company as comparable transactions with unaffiliated third parties. The Advisor. The day-to-day operations of the Company are handled by the Advisor, as described above under Item 1. Business "Advisory Agreement." Reference is made to Item 1. Business and Item 6. Management's Discussion and Analysis or Plan of Operation for further information about the remuneration of the Advisor. As of December 31, 1996 and 1995, the Advisor owed the Company $417,000 and $194,000, respectively. Such sums bear interest at the prime rate plus 1% and are due on demand. (33) Transco. As of December 31, 1996, the Company has a note and accrued interest receivable from Transco of $425,000 compared to $420,000 as of December 31, 1995. This note bears interest at the prime rate and is due on demand.(See Item 1. Business- South Bayshore Associates). The Company has advances and debentures receivable from HMG Investment Corp., a wholly-owned subsidiary of Transco, which amount to approximately $236,000 and $318,000, bear interest at 8% and at the prime rate plus 2% and are due on demand. No payments were received in 1996 or 1995 and accrued and unpaid interest is not being capitalized. CII - T.G.I.F. Texas, Inc. CII owns approximately 49% of the outstanding shares of T.G.I.F. Texas, Inc. ("T.G.I.F.") Mr. Wiener is a director and officer of T.G.I.F and owns, directly and indirectly, approximately 18% of the outstanding shares of T.G.I.F. In the fourth quarter of 1996, T.G.I.F. purchased 10,000 shares of the Company at $5 per share which was the market value at the time. The Advisor receives a management fee of $18,000 per year from T.G.I.F. As of December 31, 1996 and 1995, CII owed approximately of $2,455,000 and $580,000, respectively to T.G.I.F., including accrued interest. All advances between CII and T.G.I.F. are due on demand and bear interest at the prime rate plus 1%. CII- Grove Isle. In 1986, CII acquired from the Company the rights to develop the marina at Grove Isle for a promissory note of $620,000 payable in 10 years at an annual interest rate equal to the prime rate. The principal matures on January 2, 2001. Interest payments are due each January 2. Because the Company consolidates CII, the note payable and related interest income are eliminated in consolidation. HMG-Fieber Wallingford Associates. In April of 1986, James A. Fieber, Trustee, acting for The Fieber Group purchased from the Company a two-thirds interest in a store located in Wallingford, Connecticut leased to Grossman's, Inc. for $233,000 based on the appraised value of the store, less existing indebtedness. Subsequently, on July 1, 1986, the Company purchased from Transco its 8 1/3% interest in the Wallingford store and concurrently entered into an agreement with The Fieber Group creating the joint venture titled HMG-Fieber Wallingford Associates, owned two-thirds by James A. Fieber, Trustee, acting for The Fieber Group, and one-third by the Company. Partners in The Fieber Group included the following related parties: Norman A. Fieber, a Director of the Company, James Fieber (Norman A. Fiebers' son) and Martine Avenue Associates, a New York general partnership in which Mr. Gray, an officer and director of the Company, and Mr. Gray's sister are the partners (13.02%). HMG-Fieber Associates ("Fieber"). On June 30, 1986, the Company purchased from Transco its 25% interest in certain retail stores located in Connecticut, Maine, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island and Vermont and owned by South Bayshore Associates, a joint venture owned 75% by the Company and 25% by Transco. These stores were leased to Grossman's, Inc, a chain of home improvement stores, under net leases, most of which provided for minimum and percentage rent payments. The purchase price paid the Company was $1,500,000 plus the assumption of liabilities of $660,355. Concurrently, the Company sold to NAF a 35% interest in the Grossman's stores for a price of approximately $2,100,000 plus the assumption of liabilities of $924,497, and entered into an agreement with NAF creating the joint venture titled HMG-Fieber Associates. The purchase price of Transco's 25% interest and of NAF's 35% interest were based on the appraised value of the Grossman's stores, less existing indebtedness. NAF is a Connecticut general partnership, the partners of which include the following related parties: Mr. Fieber, a director of the Company (33.62%), James A. Fieber, Mr. Fieber's son (1.08%), Stanley S. Fieber, M.D., (34) Mr. Fieber's brother (7.59%), and Martine Avenue Associates, a New York general partnership in which Mr. Gray, an officer and director the Company, and Mr. Gray's sister are the partners (13.02%). Inquiry Relating to HMG-Fieber Wallingford Associates and HMG-Fieber Associates. On November 15, 1996, the Board of Directors appointed a Special Committee of the Board to review Mr. Lee Gray's failure to disclose his interest, through Martine Avenue Associates ("Martine"), a partnership of Mr. Gray and his sister, in NAF Associates ("NAF"), the Company's 35% joint venture partner in HMG-Fieber Associates ("Fieber"), as well as Mr. Norman A. Fieber's failure to disclose Mr. Gray's interest in NAF. Mr. Gray's interest in NAF first came to the attention of the Company in October of 1996. During the course of the inquiry, it was discovered that Mr. Gray also had an interest in The Fieber Group, the Company's 66 2/3% joint venture partner in HMG-Fieber Wallingford Associates (Wallingford), which venture operated from 1986 to 1992, and that James A. Fieber, Mr. Fieber's son, and Stanley Fieber, Mr. Fieber's brother, were also partners in NAF. As a result of the inquiry, it was determined that in 1986, Mr. Gray, through Martine, acquired a 13.02% interest in NAF and a 20% interest in The Fieber Group, but did not then or at any time since disclose those interests to the Board of Directors of the Company. Mr. Fieber, a partner in both NAF and The Fieber Group, also failed to disclose Mr. Gray's interests in NAF and The Fieber Group. A special meeting of the Board of Directors was held on March 21, 1997, at which the Board considered the report of the Special Committee. Based on the Special Committee's report and in consultation with counsel, the Board concluded that Mr. Gray breached his fiduciary duty to the Company and to the Advisor by failing to disclose his interest in NAF and Wallingford, and that Mr. Fieber breached his fiduciary duty to the Company and assisted Gray by failing to disclose Mr. Gray's interest in NAF and Wallingford. Based on information available to the Company to date, it appears that, through December 31, 1996, Mr. Gray derived a benefit of approximately $936,926 from Fieber and approximately $193,670 from Wallingford. The Board requested the resignation of Mr. Gray as President, Treasurer, Director and as a member of the Audit Committee; requested the resignation of Mr. Fieber as a Director and member of the Audit Committee; and requested that the Board of Directors of the Advisor consider requesting the resignation of Mr. Gray as President, Treasurer and Director of the Advisor. Lee Gray has been removed as President and Treasurer of the Company and as a member of the Audit Committee and as President and a Director of the Advisor. Mr. Gray has refused to resign as a Director of the Company. Norman A. Fieber has been removed as a member of the Audit Committee of the Company and has refused to resign as a Director of the Company. The Board has determined that Mr. Gray and Mr. Fieber will not be renominated for election as directors of the Company at the 1997 Annual Meeting of Shareholders. The Board also authorized, and the Company has made, the following claims: against Mr. Gray, Martine, NAF and Norman Fieber for the total amount of the benefit received by Martine and Mr. Gray from NAF, in the approximate amount of $936,926; against Mr. Gray, Martine, Mr. Fieber and James Fieber, Trustee, for the total amount of the benefit received by Martine and Mr. Gray from Wallingford, in the approximate amount of $193,670; and against Mr. Gray, Martine, NAF, Mr. Fieber and James Fieber, Trustee, for reimbursement of all expenses incurred by the Company in investigating and pursuing this matter to resolution. The Board also directed that Mr. Gray, Martine, Mr. Fieber and NAF surrender to the Company the entire interest in NAF held by Martine. (35) Part IV. Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements - See Item 7. Index to Consolidated Financial Statements and Supplemental Data. All other schedules omitted because of the absence of the conditions under which they are required or because all information required to be reported is included in the consolidated financial statements or notes thereto. 2. Exhibits listed in the Index to Exhibits. (b) Reports on Form 8-K: None. (36) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HMG/Courtland Properties, Inc. April 14, 1997 By: /s/ Maurice Wiener ---------------------------------- Maurice Wiener Chairman of the Board & President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ Maurice Wiener April 14, 1997 Maurice Wiener Chairman of the Board & President (Chief Executive Officer) /s/ Walter G. Arader April 14, 1997 - ----------------------------------- Walter G. Arader, Director /s/ John B. Bailey April 14,1997 - ----------------------------------- John B. Bailey, Director /s/ Harvey Comita April 14, 1997 - ----------------------------------- Harvey Comita, Director /s/ Gustav S. Eyssell April 14, 1997 - ----------------------------------- Gustav S. Eyssell, Director - ----------------------------------- April , 1997 Norman A. Fieber, Director - ----------------------------------- April , 1997 Lee Gray, Director /s/ Lawrence I. Rothstein April 14, 1997 - ------------------------------- Lawrence I. Rothstein Senior Vice President, Treasurer & Secretary (Chief Financial Officer) /s/ Carlos Camarotti April 14, 1997 - ----------------------------------- Carlos Camarotti Vice President - Finance and Controller (37) 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-KSB (the "1987 Form 10-KSB"). (b) By-laws Incorporated by reference to Exhibit 6.1 to the Registration Statement of Hospital Mortgage Group, Inc. on Form S-14, No. 2-64, 789, filed July 2, 1979. (10) (a) Agreement between NAF Associates and the Incorporated by reference to Exhibit Company, dated June 30, 1986. 10(f) to the 1987 Form 19-K. (b) 1990 Incentive Stock Option Plan of Incorporated by reference to Exhibit 10(j) HMG/Courtland Properties, Inc. to the 1991 Form 10-KSB. (c) Amended and Restated Advisory Agreement Incorporated by reference to Exhibit between the Company and Courtland Group, Inc. 10(k) to the 1992 Form 10-KSB. dated July 17, 1992, effective January 1, 1993. (d) Amended and restated lease agreement between Filed herewith. Grove Isle Associates, Ltd. and Westgroup Grove Isle Associates, Ltd. dated November 19, 1996. (e) Master agreement between Grove Isle Filed herewith. Associates, Ltd. Grove Isle Club. Inc., Grove Isle Investments, Inc. and Westgroup Grove Isle Associates, Ltd. dated November 19, 1996. (f) Agreement Re: Lease Termination between Filed herewith. Grove Isle Associates, Ltd. And Grove Isle Club, Inc. dated November 19, 1996. (g) Martine Avenue Associates Partnership Agreement Filed herewith. dated May 24, 1968 and amendment dated January 29, 1987.
(38) (22) Subsidiaries of the Company: HMG-FIEBER ASSOCIATES, a Connecticut joint venture SOUTH BAYSHORE ASSOCIATES, a Florida joint venture HMG OF KEY LARGO, INC., a Florida corporation HMG FASHION SQUARE, INC., a Florida corporation HMG SUGARGROVE, INC., a Texas corporation COURTLAND INVESTMENT, INC., a Delaware corporation GROVE ISLE YACHT CLUB ASSOCIATES., a Florida joint venture GROVE ISLE ASSOCIATES, LTD., a Florida Limited Partnership GROVE ISLE CLUB, INC., a Florida Corporation GROVE ISLE BOATS, INC., a Florida Corporation HMG HOUSTON GROVE, INC., a Texas Corporation THE GROVE TOWNE CENTER-TEXAS, LTD. , a Texas Limited Partnership (39) EX-10 2 EXHIBIT 10(D) Exhibit 3.3 EXHIBIT "D" AMENDED AND RESTATED LEASE AGREEMENT THIS AMENDED AND RESTATED LEASE AGREEMENT is made and entered into at Miami, Dade County, Florida, as of November 19, 1996, by and between GROVE ISLE ASSOCIATES, LTD., a Florida limited partnership (the "Lessor") and WESTGROUP GROVE ISLE ASSOCIATES LTD., a Florida limited partnership (the "Lessee"). RECITALS A. Lessor is the owner in fee simple of the "Real Property" defined below and has entered into a certain Lease Agreement dated as of October 1, 1993, a copy of which is attached hereto as Exhibit "B" (the "Existing Lease"), whereby Lessor leased to Grove Isle Club, Inc., a Florida corporation ("GICI") the Real Property as well as any and all personal property belonging to Lessor and situated and/or contained therein (such personal property is herein called the "Lessor's Personalty"). B. Concurrently herewith, among other things, (i) GICI is assigning to Lessee the leasehold estate created under the Existing Lease and all of GICI's other rights under the Existing Lease, and (ii) Lessor, GICI and others are assigning to Lessee certain other personally used in the operation of the Real Property, and in connection therewith, Lessor and Lessee have agreed to execute this instrument in order to amend the Existing Lease. AGREEMENTS NOW, THEREFORE, in consideration of the premises as well as the mutual agreements set forth hereinafter, the Lessor and the Lessee agree as follows: 1. Correctness of Recitals. Each party represents to the other that to its knowledge, the above recitals are true and correct. 2. Status of Existing Lease. Lessor represents and warrants to the Lessee that the Existing Lease is in full force and effect without modification, that there are no uncured defaults thereunder and that all rent and other sums payable to Lessor thereunder through November 19, 1996 have been paid in full with the exception of the payment of the Initial Rent Payment due November 19, 1996 in accordance with Article III below plus one-half of the sales tax thereon (which amounts Lessor acknowledges have been paid to it concurrently herewith), and that except as aforesaid, there are no unsatisfied obligations of the lessee thereunder. Lessor further represents and warrants to the Lessee that the certain Lease dated January 1, 1987 from Lessor to GICI has expired and is of no further force or effect. 3. Amendment. The Existing Lease is hereby amended and restated in its entirety to read as follows: ARTICLE I Demised Premises 1.1 LESSOR'S DEMISE. Upon the terms and conditions hereinafter set forth, and in consideration of the payment of the rents and the prompt performance by the Lessee of the covenants and agreements, to be kept and performed by the Lessee, the Lessor does lease, let, and demise to the Lessee and the Lessee hereby leases from the Lessor, the following described premises (including the "Land", the "Improvements", the "Real Property" and "FF&E" described below, all of which are collectively called the "Demised Premises") situate, lying, and being in Dade County, State of Florida: The land located at 4 Grove Isle Drive, Miami, Florida, which is legally described on Exhibit "A". hereto (the "Land") and all improvements thereon (the "Improvements") (the Land and the Improvements, together with all easements, servitudes, reversions, remainders, benefits, and other rights and interests appurtenant thereto is together called the "Real Property"); and All furniture, furnishings, fixtures, appliances and other equipment (the "FF&E") located at or affixed to the Real Property and used in connection with the operation of the Real Property as a hotel, resort and membership club. 1.2 CONDITIONS. The demise is subject to the following: (a) All conditions, restrictions, and limitations now appearing of record; (b) Taxes and assessments for the year 1996 and all subsequent years; (c) The rights granted pursuant to Section 15.5 below; (d) Zoning ordinances of the City of Miami, Florida, and any other competent governmental body now existing or which may hereafter exist during the term of this Lease; and (e) The Lessee's proper performance of all the terms and conditions contained in this Lease. ARTICLE II Term To have and to hold the Demised Premises for a term commencing on November 19, 1996 (the "Commencement Date") and ending on December 31, 2006 (the "Termination Date") unless and to the extent such term is sooner terminated or extended as provided below, in -2- which event the Termination Date shall be, and the term of this Lease shall end on, such earlier or later date, as applicable. ARTICLE III Rent 3.1 FIRST LEASE YEAR. Rent for the first Lease Year shall be $1,991,260, accrued, paid and allocated as follows: (a) $1,000,000 on the Commencement Date (such amount is herein called the "Initial Rent Payment"), (b) $101,260 on January 1, 1997; and (c) $73,333.34 on February 1, 1997 and on the 1st day of each month thereafter to and including January 1, 1998. All such rent payable pursuant to this paragraph 3.1 is called "First Year Rent" Lessee shall also pay to Lessor, with each payment of First Year Rent, an amount equal to one-half of the applicable sales tax thereon. Lessor shall hold the Initial Rent Payment available for expenditure from time to time in accordance with that certain Master Agreement dated this date by and among Lessor, GICI, Lessee and others (the "Master Agreement"). 3.2 BASE RENT AFTER FIRST LEASE YEAR. (a) On February 1, 1998, and on the 1st day of each month thereafter during the term of this Lease, Lessee shall pay to Lessor in monthly installments, in advance, as rent accrued, paid and allocated, annual base rent ("Base Rent") in an amount equal, in any Lease Year, to eight percent (8%) per annum of Lessor's "Capital Investment" (defined in Section 3.5(c) below) for that Lease Year, determined in accordance with Section 3.5(c) below. Lessee shall also pay to Lessor, with each payment of Base Rent, an amount equal to one-half of the applicable sales tax thereon. 3.3 PARTICIPATION RENT. (a) In addition to First Year Rent and Base Rent, Lessee shall pay to Lessor during each Lease Year, as additional rent accrued, paid and allocated, from any Net Operating Surplus, a portion of such Net Operating Surplus, as follows: -3- (i) The lesser of (x) 50% of Net Operating Surplus for that Lease Year; or (y) 2% of Lessor's Capital Investment for that Lease Year. The amounts payable to Lessor under this paragraph are called the "First Tier Participation". (ii) After the First Tier Participation for that Lease Year is paid in full, an amount equal to 50% of the amount by which Net Operating Surplus for that Lease Year exceeds the sum of the First Tier Participation for that Lease Year and 8% per annum of Lessee's Capital Investment for that Lease Year. The amounts payable to Lessor under this paragraph are called the "Second Tier Participation". The First Tier Participation and the Second Tier Participation are sometimes together called "Participation Rent". Participation Rent shall be paid and determined in the manner set forth in Sections 3.3(b) and (c) below, and Lessee shall also pay to Lessor, with each payment of Participation Rent, an amount equal to one-half of the applicable sales tax thereon. (b) As an example of the computation of Participation Rent, for a particular Lease Year, assuming that Lessee's Capital Investment for that Lease Year is $3,000,000 and that Lessor's Capital Investment for that Lease Year is $11,000,000, Participation Rent for that Lease Year would be determined as follows: Assumed Net Operating Surplus: 220,000 440,000 1,000,000 First Tier Participation = the Lesser of: 50% of Net Operating Surplus or 110,000 220,000 500,000 2% of Lessor's Capital 220,000 220,000 220,000 Investment First Tier Participation 110,000 220,000 220,000 Assumed Net Operating Surplus 220,000 440,000 1,000,000 (from above) Less First Tier Participation 110,000 220,000 220,000 (from above) Balance of Net Operating Surplus 110,000 220,000 780,000 Less 8% of Lessee's Capital 240,000 240,000 240,000 Investment Balance of Net Operating Surplus (130,000) (20,000) 540,000 50% Second Tier Participation 0 0 270,000 (c) Participation Rent shall be payable in quarterly installments in arrears commencing on the 1st day of April, 1998 and on the 1st day of each July, October and January thereafter during the term of this Lease, as follows: -4- (i) The amount of each such installment payable during any Lease Year shall initially be estimated pursuant to Lessee's operating budget for that Lease Year, which budget shall be based on the past results of operations and Lessee's projections for operation during that Lease Year, and provided to Lessor for approval not later than November 15 of the previous Lease Year. (ii) Not later than 120 days after the end of each Lease Year, the Lessee shall determine and advise Lessor of the actual amount of actual Net Operating Surplus for that Lease Year, and, within 30 days thereafter, Lessor shall pay to Lessee the amount, if any, by which the payments of estimated Participation Rent and sales tax thereon paid by Lessee during that Lease Year exceeds the Participation Rent plus one-half of the sales tax actually due, or, if applicable, the Lessee shall pay to Lessor the amount, if any, by which Participation Rent plus one-half of the sales tax thereon actually due exceeds the payments of estimated Participation Rent and sales tax thereon actually paid by Lessee. (iii) Lessee shall maintain accurate books and records for the computation of Net Operating Surplus in accordance with generally accepted accounting principles consistently applied, shall provide Lessor with copies of bills, invoices and contracts relative to the computation of Net Operating Surplus for any period upon request within 30 days after Lessor receives notice of Lessee's computation thereof, and shall make its books and records with respect to such computation available for inspection by Lessor or Lessor's authorized representative during normal business hours, upon reasonable prior notice. If Lessor challenges Lessee's computation of Net Operating Surplus for any Lease Year: (A) Lessor shall give Lessee notice stating Lessor's objections within 60 days after Lessor receives notice of Lessee's computation thereof. (B) If an independent review performed on behalf of Lessor ("Lessor's Review") by a firm of certified public accountants at Lessor's sole expense within 60 days after such objection notice verifies that Lessee's computations of the Net Operating Surplus are incorrect, Lessor shall give Lessee notice of the error, accompanied by the appropriate supporting documentation. (C) Within 60 days after receipt of such notice from Lessor, the Lessee shall have the right to arrange for an independent review -5- performed on behalf of Lessee ("Lessee's Review") at Lessee's sole expense. (D) If Lessee fails to arrange for a Lessee's Review within the time provided above, then the results of the Lessor's Review shall be deemed conclusive, and the parties hereto shall promptly make all adjustments between themselves to account for any underpayments or overpayments. If, however, Lessee exercises its rights to obtain a Lessee's Review, then subject to the following paragraphs, the Net Operating Surplus indicated by Lessor's Review and Lessee's Review, respectively, shall be averaged and the parties hereto shall promptly make all adjustments between themselves to account for any underpayment or overpayment, based on such average of the net results of Lessor's Review and Lessee's Review (the "Averaged Result"). (E) Notwithstanding paragraph (D) above, if the difference between (X) the Averaged Result and (Y) the results of Lessor's Review exceeds $50,000, then Lessee shall have the right at its own election, to either treat the Averaged Result as $50,000 under or over (as applicable) the result of Lessor's Review, or to proceed under paragraph (F) below. (F) If Lessee so elects, then Lessee and Lessor shall each direct the firm of certified public accountants performing its review to confer with the other party's firm and mutually determine a third firm of certified public accountants to perform a third review (the "Neutral Review"), and if Lessee exercises this option, the results of Neutral Review shall be deemed conclusive and the parties hereto shall promptly make all adjustments between themselves to account for any underpayment or overpayment based on the results of such Neutral Review and the parties shall share equally the cost of the Neutral Review. (G) If any Lessor's Review or, if Lessee elects to obtain a Neutral Review with respect to that Lessor's Review, that Neutral Review, indicates that Lessee's computation of Net Operating Surplus for any Lease Year differs from actual Net Operating Surplus for that Lease Year by 3% or more, Lessee shall promptly reimburse Lessor for all of Lessor's reasonable accountant's fees incurred for that Lessor's Review or Neutral Review. -6- 3.4 CERTAIN COMPUTATIONS. Lessor and Lessee agree that Lessor's Capital Investment for the first Lease Year is $11,000,000. Base Rent and estimated Participation Rent for all periods after the first Lease Year shall be determined as of and not later than, November 15 of the immediately preceding Lease Year (November 15 of the Lease Year immediately preceding any Lease Year is the "Calculation Date" for that Lease Year), to take effect on the immediately succeeding February 1 in the case of Base Rent and April 1, in the case of Participation Rent. There shall be no adjustments in Base Rent or Participation Rent paid or payable during any Lease Year on account of changes to any party's Capital Investment occurring after the Calculation Date for such Lease Year, provided, however, that Participation Rent initially payable based on estimated Net Operating Surplus shall be adjusted based on the actual results of operations pursuant to Section 3.3(c)(iii) above. 3.5 CERTAIN DEFINITIONS. When used in this Lease: (a) The term "Lease Year" means (a) the period commencing on the Commencement Date and ending on December 31, 1997 (which period shall be the first Lease Year) and (b) each period of 12 consecutive months thereafter during the term of this Lease, the first of which shall commence on January 1, 1998, and end on the day immediately preceding the first anniversary thereof, and the remainder of which shall commence on termination of the immediately preceding Lease Year, provided, however, that no Lease Year shall extend beyond the Termination Date. (b) "Net Operating Surplus" for any period means the amount, if any, by which Operating Revenue for that period exceeds the Operating Expenses for that period. (c) The "Capital Investment" of any party for any Lease Year means an amount, determined as of the Calculation Date for such Lease Year, equal to: (i) in the case of the Lessee, the sum of (w) $1,000,000; (x) any amounts expended by Lessee for "Qualified Capital Improvements" (defined below), excluding any of the Initial Rent Payment disbursed to Lessee for such purpose; (y) any amounts expended by Lessee for "Operating Shortfalls" defined in the Master Agreement (excluding any of the Initial Rent Payment disbursed to Lessee for such purpose); and (z) the aggregate amounts, if any, of the Additional Equity Requirement paid to Lessor pursuant to Section 4.2 of the Master Agreement, from the Commencement Date through (but not including) the Calculation Date for such Lease Year, provided. however, that in no event shall Lessee's Capital Investment exceed $3,000,000 unless so agreed by Lessor in writing hereafter, and provided. further, that in no event shall Lessee's Capital Investment be -7- increased by deposits into the "Replacement Reserve (defined below); and (ii) in the case of the Lessor, $11,000,000 minus the amount, if any, of any portions of the Initial Rent Payment disbursed to Lessor pursuant to Section 4.1 of the Master Agreement and/or Additional Equity Requirement paid to Lessor pursuant to Section 4.2 of the Master Agreement, all on a cumulative basis from the Commencement Date to (but not including) the Calculation Date for such Lease Year. (d) The term "Operating Revenue" for any period means the gross amount of all receipts, revenue and income, of every kind or nature, derived during that period by or on behalf of Lessee from the Demised Premises or the operation of the Demised Premises, including, without limitation, sales of goods and/or services by Lessee at or from the Demised Premises, i.e., room revenues, food and beverage revenues, telephone revenues, proceeds of any business interruption insurance paid to Lessee, other insurance proceeds paid to Lessee but not used for Restoration, all other department revenues, "Club Dues" defined below, rents and other income from tenants and other income, paid or to be paid at any time to the Lessee (or to any of its agents for the Lessee's account) by any person, determined on an accrual basis, in accordance with generally accepted accounting principles (consistently applied), but in no event shall Operating Revenue include: (i) security deposits paid by or on behalf of tenants or others under valid leases or other agreements unless and until such security deposits are forfeited by, and Lessee shall have no further obligation to return such deposit to, the tenant or other person paying the same; (ii) any insurance proceeds used for Restoration; or (iii) eminent domain proceeds. -8- (f) The term "Operating Expenses" for any period shall mean the amounts paid or incurred by or on behalf of Lessee during that period in connection with the maintenance or operation of, or otherwise in connection with, the Demised Premises, determined on an accrual basis, including, without limitation: (i) costs and expenses related to department revenues, including, without limitation, rooms, food, beverages, telephones and other income, (ii) all payments required to be made pursuant to any management or similar agreement, so long as the management fee does not exceed 4% of Operating Revenue for that period (the "Management Fee"), (iii) undistributed expenses, including without limitation, general and administrative, marketing, utilities, operations and maintenance and other expenses, as appropriate, provided, however, that with respect to expenses incurred by Lessee for travel to and from the Demised Premises by Lessee's partners, officers, agents, and employees, the amount of such expenses includable as Operating Expenses shall not exceed $2,000 in any one month during the first Lease Year and $1,500 in any month thereafter, and provided, further that expenses incurred by Lessee for salaries, wages and salary compensation of persons not based at the Property full-time (other than for the services of the Regional Manager of Noble House Hotels & Resorts) shall not exceed $50,000 in any one calendar year (or the equivalent for any shorter period), (iv) legal, accounting, appraisal and other professional fees and disbursements, including annual fees and other amounts (including indemnity payments), payable annually or otherwise, (v) taxes, assessments, insurance premiums, and impositions of any type, (vi) replacement reserves not to exceed 3% of Operating Revenue for that period, to the extent such reserve is actually funded as required under this Lease (provided, however, that for the purpose of this subsection 3.5(e)(vi) and Section 15.3 below only, Operating Revenue shall be computed without regard to Club Dues, (vii) the cost of any Restoration in excess of insurance proceeds available therefor, and (viii) all Rent and other amounts payable by Lessee under or pursuant to this Lease. -9- Notwithstanding anything herein to the contrary, it is understood and agreed that the services included in the Management Fee do not include accounting services, that Lessee and Lessee's manager may avail themselves of the centralized accounting services offered by their affiliates, and that the "Allocable Amount" (defined below) of the cost thereof shall be included as Operating Expenses. Notwithstanding the foregoing, Operating Expenses will not include (A) for any expense which is allocable to both the Demised Premises and other property owned or managed by Lessee's affiliates, any portion in excess of the "Allocable Amount" of such expense; (B) depreciation or amortization, (C) any expenses that in accordance with generally accepted accounting principles (consistently applied), should be capitalized (other than current charges for any such expenses enumerated above), (D) any item of expense that would otherwise be considered as an Operating Expense pursuant to the provisions above but which is actually paid directly by any tenant as required by such tenant's lease or other agreement, (E) principal, interest or other charges payable to the holder of any Permitted Mortgage, (F) interest on any indebtedness (other than sums payable under equipment leases or to the seller of any FF&E or other item purchased by Lessee, or to any arms' length third party who finances such purchase of FF&E), (G) Participation Rent for the current period, or (H) any late charges, default interest and any other costs resulting from Lessee's failure to perform its obligations under this Lease The "Allocable Amount" of any expense means that portion of expense which is fairly attributable to the Demised Premises. 3.6 RENT; PLACE OF PAYMENT. Rent shall be payable to Lessor at its notice address set forth below or such other place as the Lessor may specify in writing from time to time. "Rent", as used in this Lease means First Year Rent, Base Rent and Participation Rent. 3.7 NET LEASE. All Rent shall be net to Lessor, so that this Lease shall, except as hereinafter provided to the contrary, yield net to Lessor the Rent to be paid during the term of this Lease, less one-half of any sales tax thereon. Accordingly, the Lessee shall pay one-half of all sales tax on Rent, as well as all costs, expenses, and obligations of every kind or nature on, or with respect to, the Demised Premises, which may arise or become due during the term of thin Lease, including, without limitation, real estate taxes and insurance premiums, but specifically excluding the Lessor's one-half share of sales tax and any amounts payable by Lessor pursuant to other provisions of this Lease or any document executed and delivered by Lessor in connection herewith. Lessor shall pay to the State of Florida as and when due Lessor's -10- one-half share of all sales tax on Rent, together with the remaining one-half thereof paid by Lessee. Except for Lessee's obligations under Section 13.4 of this Lease, nothing in this Lease shall be deemed to require the Lessee to pay or discharge any liens or mortgages of any character which now exists or which may be placed upon the Demised Premises by the Lessor or suffered or permitted by the Lessor. ARTICLE IV Option to Extend Provided that the Lessee is not in default under this Lease, and in addition to the "Right of First Offer" (defined below), the Lessee shall have the right to extend the term of this Lease for two (2) additional ten (10) year terms on the same terms and conditions as contained in this Lease (each such option to extend is called an "Extension Option"), provided Lessee gives Lessor written notice of Lessee's intention to exercise such Extension Option at least nine (9) months, but not more than twelve (12) months, prior to the Termination Date, or the first extended Termination Date, as applicable. ARTICLE V Termination 5.1 PAYMENT TO LESSEE. Provided Lessee exercises both Extension Options and is not then in default hereunder, then Lessor will pay to Lessee the "Termination Payment". The "Termination Payment" means fifty percent (50%) of the amount by which the value of the Demised Premises on the Termination Date exceeds $11,000,000.00. The Termination Payment shall be due on the 10th day after the amount thereof is determined pursuant to Section 5.2 below, but if Lessor fails to provide a "Lessor's Appraisal" within 60 days after Lessor receives "Lessee's Appraisal" (each defined below), then such payment shall be due on the 60th day after Lessor receives Lessee's Appraisal. The Termination Payment shall not be a personal obligation of the Lessor, and the Lessee's recourse for recovery of the Termination Payment shall be limited to the Demised Premises and the Retained Club Rights. In no event shall the Termination Payment or any part thereof be due or payable if the Lease is terminated for any reason (other than a material and/or willful default or breach by the Lessor) before the end of the 30th Lease Year. 5.2 DETERMINATION OF VALUE. For the purpose of this Article, the value of the Demised Premises shall be the fair market value of the Demised Premises (unencumbered by this Lease), the Club and the Retained Club Rights as reflected in an appraisal report prepared by an MAI appraiser selected by Lessee obtained by Lessee within sixty (60) days following the Termination Date (the "Lessee's Appraisal"). If Lessor wishes to contest the value as shown in such appraisal, Lessor shall obtain, within 60 days after Lessor's receipt of the Lessee's Appraisal, an appraisal report -11- prepared by an MAI appraiser (the "Lessor's Appraisal"). If the value of the Demised Premises reflected in Lessor's Appraisal assigns a value which is 110% or greater than the value reflected on the Lessee's Appraisal, then the respective parties shall each direct the appraiser performing its appraisal to select, mutually with the other party's appraiser, a third MAI appraiser to perform a comparable appraisal (the "Third Appraisal") and the value of the Demised Premises shall be the value reflected in the Third Appraisal. If the value shown by the Lessor's Appraisal is less than 110% of the value shown by the Lessee's Appraisal, then the value of the Demised Premises shall be deemed to be the average of the value shown in the Lessee's Appraisal and the Lessor's Appraisal. Lessee shall pay the cost of Lessee's Appraisal, Lessor shall pay the cost of any Lessor's Appraisal, and Lessee and Lessor shall each bear one-half of the cost of any Third Appraisal. 5.3 LIEN. Lessor's obligation to pay the Termination Payment to Lessee is and shall be a lien on the Demised Premises as of the date of this Lease, which lien is subordinate to any "Permitted Mortgage" defined below. 5.4 TERMINATION. On termination of this Lease: (a) Lessee shall assign to the applicable "Lessor Parties" (defined below), as applicable, without representation or warranty, the right to use any and all trademarks, trade names and fictitious names then in use by Lessee in connection with the Demised Premises or any component thereof, provided, however, that Lessee shall be under no obligation to assign any trademark, trade name or fictitious name which includes the terms "Westgroup", "Noble" or "Noble House", except that in the case of any such marks or names used by Lessee pursuant to a license, Lessee shall only be required to acknowledge termination of such license. (b) Lessee shall assign or reassign, as applicable, to the applicable Lessor Parties, any and all of its remaining rights under the Permits, such additional permits obtained by Lessee in connection with its operation of the Demised Premises, the Leases, the Contracts and the Other Rights (each defined in the Master Agreement) in existence on termination of this Lease, to the extent assignable, it being understood and agreed that (i) Lessor shall not be required to assume any obligations of Lessee under the Contracts or the Leases so assigned; and (ii) unless and to the extent expressly required under specific provisions of this Lease or any other of the "Closing Deliveries" (defined in the Master Agreement) Lessee shall not be required to maintain or keep in existence any such permits, Contracts or Other Rights and may terminate any Leases or Contracts not assumed by Lessor. (c) The assignment and other rights granted to Lessee by the Lessor Parties pursuant to Sections 15.7, 15.8, 15.9 and 15.10 below shall automatically terminate, but such termination shall not apply to or affect any such rights -12- accrued prior to such termination. In this regard, on termination of this Lease, at the request of the applicable Lessor Parties, Lessee shall execute and deliver such instruments which may be necessary to effectuate such termination of Lessee's rights under Sections 15.7, 15.8, 15.9 and 15.10, and to restore the same to the applicable Lessor Parties, all free and clear of any options, agreements, liens, security interests and encumbrances created by any act of Lessee. (d) Unless this Lease is terminated on account of the material and/or willful default of Lessee, Lessor shall pay to Lessee an amount equal to the cost of the Inventory and Consumables (defined in the Master Agreement) then in existence, which cost shall be evidenced by copies of paid invoices therefor or such other documentation reasonably requested by Lessor. (e) Lessee shall provide to Lessor a schedule of Lessee's accounts receivable in existence on termination of this Lease, which schedule shall be consistent with the Lessee's schedules of Operating Revenue through the date of such termination. If Lessor receives payment of any accounts which are listed on that schedule and are collected following termination of this Lease, it shall promptly remit the same to Lessee. In this regard, Lessor shall apply payments from each account debtor to the oldest account owed by that debtor, unless the payor designates a different account to which such payment shall be applied (in which event it shall be applied to the account so designated); or the account debtor has disputed the account to which such payment would otherwise be applied (in which event, it shall be credited to the oldest account which has not been disputed). (f) Club Dues shall be prorated as of the Termination Date, and the parties shall make such payments to each other as are required to account for any credit owed either party as a result of such proration. 5.5 POSSESSION. Upon termination of this Lease, the Lessee shall peaceably and quietly deliver to the Lessor possession of the Demised Premises. ARTICLE VI Taxes 6.1 LESSEE'S OBLIGATIONS. The Lessee shall pay, before any fine, penalty, interest, or cost may be added, become due, or be imposed for nonpayment thereof, all taxes, assessments, water and sewer rents, rates and charge, transit taxes, charges for public utilities, excises, levies, licenses and permit fees and other governmental charge, general and special, ordinary and extraordinary, unforeseen and foreseen, of any kind and nature, which at any time during the term of this Lease may be assessed, -13- levied, confirmed, imposed upon, or grow to become due and payable out of or in respect of, or become a lien on, the Demised Premises, or any part thereof or arising out of the rent received by the Lessee from subtenants, any use or occupation of the Demised Premises by Lessee, and such franchises as may be appurtenant to the use of the Demised Premises, or any document (to which the Lessee is a party) creating or transferring an interest or estate in the Demised Premises, provided, however, that Lessor shall be responsible for payment of one-half of any sales tax on Rent hereunder. In no event, however, shall the Lessee be required to pay (a) municipal, state, or federal income taxes assessed against the Lessor or its income, or (b) the Lessor's municipal, state, or federal capital levy, or (c) the Lessor's estate, succession, inheritance, or transfer taxes, or (d) corporate franchise taxes imposed upon any corporate owner of the fee of the Demised Premises, or (e) any tax on any other activities of GICI or Lessor, but Lessee shall pay all ad valorem real and personal property taxes on the Demised Premises. 6.2 MODE OF PAYMENT. Subject to Section 13.4 below, Lessee shall pay the taxes and other charges enumerated in this Article before the date that such tax or other charge would become delinquent in accordance with the then applicable law governing such payments, or if earlier, the date required under any Permitted Mortgage if Lessor specifically notifies Lessee of the earlier date on which a particular payment is due under a Permitted Mortgage. If, however, the Lessee desires to contest the validity of any tax or tax claim, it may do so without being in default hereunder, provided it gives the Lessor written notice of its intention to contest the tax or claim, and that any such contest stays the enforcement against the Demised Premises of such tax or claim. 6.3 LESSEE'S DEFAULT. If the Lessee fails, refuses, or neglects to make any payment required in this Article, the Lessor may do so. In that event, the Lessee shall, upon the Lessor's demand, repay to Lessor the amounts so paid, including reasonable attorneys fees and all other expenses reasonably incurred because of or in connection with the payments, together with interest thereon at the "Default Rate" defined below. The Lessor may collect or enforce any payment in the same manner as though it were an installment of Rent specifically required by the terms of the Lease to be paid by the Lessee, on the day when the Lessor demands repayment of or reimbursement therefor. 6.4 PRORATION. Notwithstanding anything to the contrary in this Lease, the taxes for the years in which the Commencement Date and Termination Date occur shall be prorated proportionately between Lessor and Lessee. -14- ARTICLE VII Construction Liens The Lessor's interest in the Demised Premises shall not be subject to liens for improvements made by the Lessee and the Lessee shall not subject the Lessor's interest in the Demised Premises to any mechanics' or materialmens' liens or other construction lien. If, notwithstanding the foregoing sentence, such a lien becomes effective against the Lessor's interest in the Demised Premises, the Lessee shall cause the Demised Premises to be released therefrom in any manner permitted under Florida law within thirty (30) days after written notice from the Lessor, provided, however, that Lessee shall have no such obligation if such lien arises from Lessor's failure to provide funds to Lessee to the extent that Lessor is obligated to do so under section 4.1 of the Master Agreement. ARTICLE VIII Mutual Indemnification During the entire term of the Lease, each party will indemnify and hold harmless the other against any and all claims, debts, demands, or obligations which may be made against such other party or against its interest in the Demised Premises, arising out of any act or omission of the indemnifying party or any contractor, agent, licensee or invitee of such indemnifying party. If it becomes necessary for any indemnified party to defend any action seeking to impose any such liability, the indemnifying party will pay such indemnified party all reasonable costs of court and reasonable attorneys' fees incurred by such indemnified party in effecting such defense in addition to all other sums that such indemnified party may be called upon to pay by reason of the entry of a judgment against it in the litigation in which such claim is asserted. ARTICLE IX Insurance 9.1 CASUALTY INSURANCE. At all times during the term of this Lease, the Lessee will keep insured the Demised Premises, including all buildings and improvements upon the Demised Premises, under a special cause of loss (all risk) policy, with n extended coverage", as well as against windstorm and flood. The amount of insurance shall at all times be sufficient to prevent any party in interest from being or becoming a co-insurer on any part of the risk, and in the case of the extended coverage insurance, shall not be less than 90% of the full insurable value, but in no event less than the amount required pursuant to the Existing Mortgage. All of the insurance policies shall include the Lessor and the mortgagee under any Permitted Mortgage as additional insured parties and shall fully protect both the Lessor, such mortgagee and the Lessee, as their respective interests may appear and shall provide for sixty (60) days prior written notice of cancellation to Lessor and -15- such Mortgagee. All insurance proceeds received for the destruction of buildings or improvements by fire, windstorm, flood, or other casualty shall be deposited in a joint account in a bank designated by the Lessee in Dade County, Florida and shall be made available to the Lessee to pay the cost of the construction, restoration or repair, as the case may be (including associated soft costs such as permitting, bonding, design, engineering, and reasonable professional fees), of any building, buildings or other improvements damaged or destroyed by fire, windstorm, or other casualty for which insurance is payable (such construction, restoration or repair is herein called "Restoration"). The Lessor and the Lessee shall periodically pay out these funds from the joint account on the estimate of any reliable and authorized architect licensed in the State of Florida, who must certify that the amount of the estimate is reasonable and is being applied to the payment of the costs of the Restoration. However, except as provided below, regardless of the sufficiency of insurance proceeds, the Lessee shall provide any funds necessary for the Restoration which are in excess of available insurance proceeds, shall assure the application of the money for such purpose, and shall effectuate Restoration of any buildings and improvements, or any part thereof, that are destroyed or damaged by fire, windstorm, or other casualty. The rebuilt or repaired building or improvement, or the replaced or repaired personal property on the Demised Premises, shall be of the same or higher value as prior to the damage or destruction, and shall be rebuilt and ready for occupancy within fifteen (15) months from the time of the loss or destruction, which 15-month period for reconstruction shall be extended by delays caused without the Lessee's fault or neglect by act of God, strikes, lockouts, or other conditions (other than matters of finance) beyond the Lessee's control. 9.2 DAMAGE NEAR END OF TERM. Notwithstanding anything herein to the contrary, if the Improvements are damaged or destroyed so that operation thereof as contemplated under this Agreement is significantly impaired or impracticable and such damage or destruction occurs within the last eighteen months of the term of this Lease (without giving effect to any unexercised Extension Options), then Lessee shall have no obligation to effect any Restoration, and unless Lessee agrees to do so, this Lease shall terminate as of the date of such damage or destruction and the Lessee shall have no further Extension Options, provided, however, Lessee shall ensure that the Demised Premises comply with all Legal Requirements with respect to casualty losses of such type (for example, any partially damaged buildings shall be secured and made safe from collapse or further damage), and shall be entitled to any available insurance proceeds for such purpose. Lessor shall be entitled to receive any insurance proceeds not used by Lessee in accordance with the immediately preceding sentence. 9.3 INSURANCE CLAIMS. Except as specifically provided otherwise herein, no damage or destruction to any building or improvements by fire, windstorm, or any other casualty shall be deemed to entitle the Lessee to surrender possession of the Demised Premises, to terminate this Lease, to violate any of its -16- provisions, or to cause any rebate or reduction in the Rent when due or thereafter becoming due under its terms. If the Lease is cancelled because of the Lessee's default while any obligation from an insurance company to pay for all or any part of the damage remains outstanding, the claim against the insurance company shall, upon cancellation of the Lease, be deemed immediately to become the absolute and unconditional property of the Lessor. 9.4 PROCEEDS PAYABLE TO MORTGAGEE. Any mortgagee holding a Permitted Mortgage may, in accordance with its terms, require that the insurance proceeds be paid to it and thereafter disbursed for the cost of repair and restoration in accordance with such mortgagee's own construction disbursement procedures, but subject to Section 9.2 above, the Lessee shall still be required to provide any funds necessary for the Restoration which are in excess of available insurance proceeds. 9.5 DAMAGES; INSURANCE PROCEEDS; JOINT BANK ACCOUNT. If the Lessee is not then in default under this Lease, then Lessee shall be paid-any excess money received from insurance remaining after the building or buildings are reconstructed or repaired, in which event such amounts shall be included as Operating Revenue. If, after damage or destruction caused by fire, windstorm, or other cause, the Lessee does not commence Restoration within 6 months from the date of payment of the loss and prosecute the Restoration so that it will be completed within fifteen (15) months after the damage or destruction occurs, then Lessee shall pay to the Lessor the amount collected, or the balance thereof remaining in the joint account, plus any additional funds required to complete such Restoration. If the Lessee is obligated under this Lease to effectuate any Restoration but fails to so do within the time specified, the Lessor may terminate this Lease and retain the amount as liquidated and agreed upon damages. The 15-month period for Restoration shall be extended by delays caused without the Lessee's fault or neglect by act of God, strikes, lockouts, or other conditions (other than matters of finance) beyond the Lessee's control. 9.6 DIRECT REPAYMENT. Notwithstanding the above, if the insurance proceeds are $25,000 or less, no joint bank account shall be created but the proceeds shall be paid directly to the Lessee, which shall use the funds to effectuate the Restoration. 9.7 BUSINESS INTERRUPTION. The Lessee shall also at its sole expense obtain for, deliver to and maintain for the benefit of, the Lessee and Lessor during the term of this Lease, business interruption/extra expense insurance, covering loss of revenue at the Demised Premises. 9.8 EVIDENCE OF INSURANCE. The Lessee shall deliver to the Lessor certified certificates of insurance with original signatures, along with the receipted bills evidencing payment of the premiums for them. However, nothing contained herein shall prohibit the Lessee from financing the premiums and if Lessee does so, such receipts shall evidence that the installment premium -17- payment or payments are paid at or before their respective maturities. If, however, the Demised Premises are encumbered by a "Permitted Mortgage" (defined below) and if the terms of that mortgage require the Lessee to cause the originals of the policies to be delivered to the mortgagee, the Lessee shall deliver to the Lessor duplicate certificates of the policies. 9.9 LIABILITY INSURANCE. The Lessee shall also at its sole expense obtain for, deliver to and maintain for the benefit of, the Lessee and Lessor during the life of this Lease liability insurance policies relating to the Demised Premises in an amount not less than $10,000,000. The Lessee shall pay promptly when due any premiums on such insurance policies and renewals thereof. ARTICLE X Sale and Assignment 10.1 BY LESSOR. (a) FIRST THREE LEASE YEARS. Except as expressly permitted under Article 13 below with respect to Permitted Mortgages, the Lessor may not sell, transfer, convey, grant options with respect to, or otherwise dispose of, or agree to sell, transfer, convey, grant options with respect to, or otherwise dispose of any or all of its interest in the Demised Premises or any part thereof (any such disposition, transaction or agreement is herein called a "Transfer") for the first three (3) Lease Years. (b) RIGHT OF FIRST OFFER. After the first three (3) Lease Years, except as expressly permitted under Article 13 below with respect to Permitted Mortgages, the Lessor shall not cause, suffer or permit any Transfer unless (i) GICI simultaneously Transfers to such transferee its retained rights with respect to the Club (the "Retained Club Rights"), and (ii) the transferee assumes the obligations of Lessor, GICI and "Yacht Club" defined below, as applicable, under this Lease and the "Sovereignty Lease" defined below; and (iii) such transaction is a bona fide, arms' length transaction, and (iv) Lessor and GICI have first notified the Lessee in writing of their intention to offer the Demised Premises and the Retained Club Rights for sale, which notice shall include the material terms and conditions of the proposed Transfer (e.g., price, terms, financing, and all other material terms) and afforded the Lessee the prior right (the "Right of First Offer") to purchase or otherwise acquire the Demised Premises or such part thereof and the Retained Club Rights on the terms and conditions stated in such notice. Such notice is called a "Notice of Intent". Such Notice of Intent shall be deemed Lessor's offer to Lessee to make such Transfer to Lessee on the terms stated therein. (c) PROCEDURE FOR RIGHT OF FIRST OFFER. The Lessee shall exercise its Right of First Offer granted by giving -18- written notice (a "Notice of Exercise") to the Lessor within thirty (30) days after it receives the Lessor's Notice of Intent. Any Notice of Exercise shall be deemed Lessee's acceptance of Lessor's offer made pursuant to its Notice of Intent. If the Lessee fails to give a Notice of Exercise within thirty (30) days after it receives Lessor's Notice of Intent, and the Lessor subsequently makes a Transfer under the provisions which were stated in such Notice of Intent, the above prohibition against Transfer shall expire and Lessee's Right of First Offer shall not apply to any subsequent offer on the same terms as set forth above. (d) CLOSING. If Lessee delivers any Notice of Intent, the parties shall mutually agree upon the time and place of closing (which may not be more than fifty (50) miles from the Demised Premises unless both parties so consent), but in the absence of such agreement, a reasonable time and place. At such closing (i) the Lessee shall pay to Lessor and GICI (by good certified check of a bank or trust company or by Federal Reserve wire transfer) the cash portion, if any, of the applicable purchase price; (ii) the Lessor and GICI shall convey good and marketable title to the Demised Premises and the Retained Club Rights to the Lessee, free and clear of all encumbrances and title defects other than those listed on Exhibit "C" hereto (but no such conveyance shall be subject to the Existing Mortgage or any other Permitted Mortgage unless Lessee specifically consents thereto) and those which arose at the Lessee's request or by virtue of its tenancy; and (iii) the Lessor, GICI and Lessee shall execute all documents which may be necessary to effectuate the closing and the transfer of title contemplated hereunder. (e) ACKNOWLEDGMENTS. Any third party purchaser shall be required to: (i) affirmatively assume the obligations of Lessor, GICI, and "Yacht Club" defined below, as applicable, under this Lease and the "Sovereignty Lease" defined below; (ii) acknowledge that title is transferred subject to this Lease and Lessee's rights hereunder, including, without limitation, Lessee's rights to the Termination Payment and this Right of First Offer. (f) ASSIGNMENT TO AFFILIATE. Notwithstanding said paragraphs (a) or (b) above, nothing herein shall be construed to prohibit Lessor from assigning to GICI or another person or entity which controls, is controlled by, or is under common control with Lessor ("Lessor's Affiliate"), the Lessor's right to receive Rent only under this Lease, provided, however, that no such assignment shall be binding on Lessee unless and until Lessee shall have received written notice thereof, and no such assignment shall be deemed an assignment or transfer of any interest in the Demised Premises to a Lessor's Affiliate or constitute an assignment of, or release of Lessor from, any obligations under this Lease nor shall anything herein be construed to permit such assignment, transfer or release. -19- 10.2 BY LESSEE. (a) FIRST THREE LEASE YEARS. The Lessee may not make any Transfer for the first three (3) Lease Years. (b) AFTER THIRD LEASE YEAR. After the first three (3) Lease Years, Lessee may assign this Lease (x) to an entity in which the Lessee or its general partner or the majority shareholder of its general partner maintains a majority interest ("Lessee's Affiliate"), or (y) to an entity having both the financial capability to perform the obligations of Lessee hereunder, and experience and expertise in the ownership or management of luxury resorts similar to the resort operated by Lessee at the Demised Premises (herein, a "Qualified Assignee"), provided, that (i) in each case, the assignee expressly assumes and agrees, for Lessor's express benefit, that it will perform every covenant of this Lease which, by its terms, the Lessee agrees to keep and perform; (ii) in the case of an assignment under clause (y), (A) Lessee shall have first notified Lessor of its intention to offer its leasehold estate and the Club for sale by giving the Lessor and GICI a Notice of Intent, affording to Lessor a Right of First Offer with respect to such leasehold estate and the Club, on the terms and conditions stated in such notice. Such Notice of Intent shall be deemed Lessee's offer to Lessor and GICI to make such Transfer on the terms stated herein. The time and procedures for acceptance of such offer and of consequences of acceptance and non-acceptance of such offer, shall be as set forth in Sections 10.1(c) and (d) above, substituting Lessee for Lessor and GICI and vice-versa, and reflecting that the leasehold estate and Club (and not the Demised Premises and the Retained Club Rights) shall be assigned, and that title to the Demised Premises may be subject to each of the matters listed on Exhibit "C" hereto, including any Permitted Mortgage. (B) Lessor shall have consented to such assignment (provided, however, that Lessor shall not be entitled to deny or withhold such consent unless the proposed assignee is not a Qualified Assignee, and Lessor shall have no right to charge Lessee any fee or other sum for such consent or for the cost of ascertaining the financial capability, -20- experience and expertise of the proposed assignee); and (iii) in either case, Lessee shall provide Lessor with copies of the instruments effectuating such assignment and assumption. If Lessee's interest in and to this Lease or the Demised Premises is assigned or transferred to a Lessee's Affiliate pursuant to clause (x), Lessee's liability for the performance of every term, condition, covenant, or agreement contained herein shall remain unimpaired, unreleased, and in full force and effect. If Lessee's interest in and to this Lease or the Demised Premises is assigned or transferred to a Qualified Assignee (other than a Lessee's Affiliate), then the assignor shall be released from all obligations coming due hereunder following the effectiveness of such assignee's assumption. ARTICLE XI Condemnation 11.1 EMINENT DOMAIN; CANCELLATION. If, at any time during the term of this Lease, all or any portion of the Demised Premises is taken, appropriated or condemned by reason of eminent domain, the Lessor and Lessee shall divide the proceeds and awards in the condemnation proceedings, abate the Rent, and make other adjustments in a just and equitable manner under the circumstances. If the parties cannot agree on a just and equitable division, abatement of Rent, or other adjustments within thirty (30) days after the award has been made, the disputed matters shall, by appropriate proceedings, be submitted to a court having jurisdiction of the subject matter for its decision and determination. If legal title to the entire Demised Premises is wholly taken by condemnation, the Lease shall be cancelled. 11.2 APPORTIONMENT. The parties intend that, upon condemnation, the parties shall share in their awards to the extent that their respective interests are depreciated, damaged, or destroyed by the exercise of the right of eminent domain. ARTICLE XII Construction 12.1 CAPITAL IMPROVEMENTS. This Lease is executed with the understanding and agreement that the Lessee may, but shall not be obligated to, alter, expand, renovate and/or remodel the existing Improvements or construct additional buildings or improvements on the Demised Premises and in connection therewith, perform any required demolition of the existing Improvements, all in accordance with the terms hereof. If Lessee elects to undertake any such work, it shall do so only if the work so undertaken will constitute a Qualified Capital Improvement, and Lessee will not undertake any capital improvements to the Demised Premises unless they will -21- constitute a Qualified Capital Improvement. A "Qualified Capital Improvement" means any capital improvements to the Demised Premises (including FF&E purchased as part of any restoration, renovation, or remodeling) which (a) are consistent in general concept to Exhibit "D" hereto (it being agreed that Lessee may in its discretion make refining adjustments to such concepts); (b) are made in a good and workmanlike manner, (c) are in accordance with all applicable Legal Requirements, and (d) do not violate any provision of this Lease. "Legal Requirements" means all laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of, and agreements with, all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, and any restrictions or agreements of record, which now or at any time hereafter may be applicable to the Demised Premises or any part thereof, or any of the adjoining sidewalks, streets or ways, or any use or condition of the Demised Premises or any part thereof or any persons from time to time employed thereon or occupants thereof or any business conducted therefrom; including, but without limiting the generality of the foregoing, all zoning, building and land use, noise abatements, occupational health and safety and other governmental requirements relating to health, safety, welfare and environmental protection. 12.2 LESSEE TO BEAR EXPENSES. Subject to (a) the terms and conditions of any separate agreement between Lessor and Lessee which may be entered into hereafter and (b) Lessor's obligation with respect to the Initial Rent Payment, the Lessee shall pay the entire cost of all improvements constructed by it on the Demised Premises, and before commencing such improvements, the Lessee shall arrange for sufficient financing or otherwise ensure the availability of funds to pay for such work, and on completion thereof shall deliver copies of the as-built plans therefor to Lessor. ARTICLE XIII Mortgages 13.1 PERMITTED MORTGAGES. Except as expressly permitted under this Article, Lessor shall not suffer or permit its interest in the Demised Premises to be subject to any mortgage or other lien. The mortgages expressly permitted under this Article are called "Permitted Mortgages". 13.2 LESSOR'S MORTGAGE. Lessee acknowledges that the Demised Premises are currently encumbered by the mortgage and related security documents described on Exhibit "C" hereto (the "Existing Mortgage"). Lessor shall pay and perform, and cause all other obligors thereunder to pay and perform, all of their obligations under the Existing Mortgage and any other Permitted Mortgage (as well as any other mortgage or security interest granted by Lessor, regardless of whether permitted under this Lease) and the obligations secured thereby (other than obligations which are the -22- responsibility of Lessee pursuant to specific provisions of this Lease), and shall indemnify and hold Lessee harmless from and against any and all claims, losses and expenses incurred by or threatened against Lessee on account of Lessor's failure to do so. 13.3 ADDITIONAL MORTGAGE. Lessor may grant additional mortgage liens on the Demised Premises so long as (a) total mortgage indebtedness under the Existing Mortgage and such additional mortgages does not exceed 75% of the value of the Demised Premises, and (b) the holder of each such mortgage enters into a "Non-disturbance Agreement" (hereafter defined), and any such additional mortgage shall also be a Permitted Mortgage hereunder. Lessee agrees to cooperate with the Lessor in executing a subordination and attornment agreement and any other document reasonably required by the Lessor's lender so long as such lender enters into a non-disturbance agreement in recordable form ("Non-disturbance Agreement"), satisfactory to Lessee in its reasonable judgment, prohibiting such lender from disturbing, interfering with or terminating Lessee's rights under this Lease in connection with the exercise of its remedies under the mortgage, unless Lessee shall then be in default hereunder past any notice, grace or cure period. 13.4 ESCROW PAYMENTS. So long as the holder of any Permitted Mortgage requires Lessor to make monthly escrow payments for real estate taxes and/or insurance premiums, then Lessee shall pay the same monthly to Lessor, for payment to such lender (or directly to such lender if Lessee so elects), (a) the monthly escrow payments required by such lender and (b) payment of any deficiency when required by such lender, and upon doing so shall have satisfied its obligation for payment of real estate taxes and/or such insurance premiums as are escrowed, as applicable, under this Lease. 13.5 SUBORDINATION. This Lease is and shall be subordinate to any Permitted Mortgage so long as the holder thereof has entered into a Non-disturbance Agreement. 13.6 LESSEE'S MORTGAGES. Lessee shall not suffer or permit its interest in the Demised Premises, the Club or the other rights assigned to Lessee pursuant to this Lease or the other Closing Deliveries to be subject to any mortgage or other lien. ARTICLE XIV Default 14.1 CROSS-DEFAULT. A "default" or "Default" by either party to this Agreement means the failure of such party and, in the case of Lessor, of GICI, Yacht Club or GIII (Lessor, GICI, Yacht Club and GIII are sometimes called "Lessor Parties") to pay or perform any of its obligation under this Lease or under any of the "Closing Deliveries" (defined in the Master Agreement) (such failure to pay or perform is called a "breach"), and in each case, expiration of any notice, grace or cure periods. -23- 14.2 BY LESSEE. (a) NOTICE; CURE. If at any time the Lessee fails to make any payment of any Rent on the day it is due and payable, or if the Lessee breaches any other covenant under this Lease, the Lessor shall give written notice thereof to Lessee, but Lessor shall not be entitled to declare this Lease in default unless, in the case of any Rent payable in monthly installments, the payment is not paid within 5 days after its due date (such 5-day period is called a "grace period") and continues for ten (10) days after Lessee receives Lessor's notice that such payment was not made within the grace period, and, in the case of any other breach, the breach continues for thirty (30) days after Lessee receives Lessor's notice to Lessee. In no event, however, shall Lessor be obligated to provide more than one notice of an overdue monthly installment of Rent in any one Lease Year, and after Lessee has received one such notice in any Lease Year, then, for the remainder of that Lease Year, Lessee shall be afforded the grace period only with respect to such monthly installments. However, nothing contained herein shall be construed as precluding the Lessor from having any other remedy that may be necessary to preserve its right and its interest in the Demised Premises and this Lease, even before expiration of the grace or notice periods provided for in this Section, if under the then existing circumstances, the allowance of the grace or the notice period would prejudice or endanger the Lessor's rights, estate and interest in this Lease or the Demised Premises. (b) REMEDIES. Upon any breach by Lessee and expiration of all applicable notice, grace and cure periods, the Lessor may declare the Lease term ended. In that event, the Lessor may re-enter upon any part of the Demised Premises, either with or without process of law, the Lessee waiving any demand for possession of the Demised Premises. The Lessor shall also have all other remedies provided by law and/or equity, this instrument and the other Closing Deliveries, including, without limitation, acceleration of Rent. Immediately upon termination of the term, at the Lessor's election or in any other way, the Lessee shall peaceably surrender and deliver up the Demised Premises to the Lessor, or its agent or attorney. If the Lessee, or its agent, attorney, or tenants, holds the Demised Premises, or any part thereof, one day after the date for their surrender, according to the terms of this Lease, the Lessee shall be deemed guilty of forcible detainer of the Demised Premises and shall be subject to eviction or removal, forcibly or otherwise, with or without process of law. (c) RENTS; RECEIVER. Subject to the rights of the holder of any first mortgage to which this Lease is or is made subordinate, the Lessee pledges with, and assigns to, the Lessor as security for Lessee's obligations under this Lease all rents, issues, and profits that might otherwise accrue to the Lessee for the use, enjoyment, and operation of the Demised Premises. In connection with such pledging of the -24- rents, the Lessee covenants and agrees with the Lessor that if the Lessor, upon the Lessee's default, elects to file suit to enforce the Lease and protect its rights, the Lessor may, as ancillary to such suit, apply to any court of competent jurisdiction for the appointment of a receiver of all and singular the Demised Premises. Nothing contained in this Section shall be construed as empowering the Lessor to collect or receive rents accruing from the Demised Premises, unless and until the Lessee is in default. 14.3 BY LESSOR. (a) In the event of a breach by the Lessor Parties, the Lessee shall give written notice to the Lessor, but Lessee shall not be entitled to declare this Lease in default unless, in the case of any failure to make a payment of money, such amount is not paid within ten (10) days after the Lessor receives Lessee's notice that such payment is due, and in the case of any other violation, the violation continues for thirty (30) days after Lessor receives Lessee's notice. However, nothing contained herein shall be construed as precluding the Lessee from having any other remedy that may be necessary to preserve its right and its interest in the Demised Premises, the Club, and this Lease, even before expiration of the notice period provided in this Section, if under the then existing circumstances, the allowance of the notice period would prejudice or endanger the Lessee's rights, estate and interest in this Lease, the Club, or the Demised Premises. (b) REMEDIES. Upon any default by Lessor and expiration of all applicable notice and cure periods, the Lessee may terminate this Lease, and except as may be specifically provided otherwise pursuant to any liquidated damages provision in the Master Agreement or any other Closing Deliveries, shall also have all other remedies provided by law and/or equity, this instrument and the other Closing Deliveries. 14.4 DEFAULT INTEREST. All arrearages in the payment of Rent and other sums payable hereunder by one party to the other shall bear interest from the termination of any grace period provided hereunder, payable at the rate (the "Default Rate") equal to the "prime rate" as in effect from time to time as reported in the Wall Street Journal, plus six percent (6%) per annum until paid. 14.5 CUMULATIVE REMEDIES. During the continuance of the Lease, each party shall have all rights and remedies which this Lease, the other Closing Deliveries and the laws of the State of Florida assure to it. Except as may be specifically provided otherwise pursuant to any liquidated damages provision in the Master Agreement or any other Closing Deliveries, all rights and remedies accruing to the Lessor shall be cumulative) that is, the Lessor may pursue all of such rights and remedies, in whatever -25- order it desires and the law permits without being compelled to resort to any one remedy in advance of any other. ARTICLE XV Additional Covenants of Lessee 15.1 REPAIR OBLIGATIONS. During the term of this Lease the Lessee shall keep in good state of repair and in first class condition all buildings and FF&E and shall not suffer or permit any waste, or neglect of the Demised Premises, provided, however, that Lessee shall be permitted to replace any or all of the FF&E with items of equal or better value, and, provided, further, that Lessee shall be permitted to make Qualified Capital Improvements. 15.2 USE. Lessee shall use the Demised Premises only as a luxury hotel and resort and related ancillary uses and businesses as permitted under the instruments listed on Exhibit "C" hereto, and in connection therewith, shall use the words "Grove Isle" as or as part of the name of its hotel and resort operations at the Demised Premises in accordance with the license granted pursuant to Section 15.6 below. Lessee shall comply with all applicable Legal Requirements with respect to its operation of the Demised Premises, provided, however, that nothing herein or in any other provision of this Lease shall obligate Lessee to correct or modify any aspect of the physical condition of the Demised Premises which existed on the Commencement Date. 15.3 REPLACEMENT RESERVE. Lessee shall establish, as a segregated bank account (the "Replacement Reserve"), a reserve for the replacement and repair of the FF&E and shall deposit in the Replacement Reserve during each Lease Year not less than 3% of the Operating Revenue (computed without regard to Club Revenue) for that Lease Year. Lessee shall use the funds held in the Replacement Reserve only for repair and replacement of the FF&E. Any funds held in the Replacement Reserve on termination of this Lease shall be transferred to Lessor, unless this Lease is terminated on account of any breach or default of Lessor, in which event the Replacement Reserve shall remain the property of the Lessee. 15.4 PRESERVATION OF RIGHTS. In the exercise of its rights under this Lease and the other "Closing Deliveries" (referred to in the Master Agreement), the Lessee shall not engage in any conduct which would invalidate or result in forfeiture or suspension of the alcoholic beverage license or the other material permits, licenses or governmental approvals assigned to Lessee pursuant to the Master Agreement. 15.5 SPA. The parties have entered into a separate letter agreement pursuant to which Lessor may hereafter construct and operate a spa on a portion of the Demised Premises. If and to the extent Lessor does elect to construct such spa in accordance with such letter, then in the absence of any superseding written agreement between Lessor and Lessee, such spa (the "Spa") and the -26- land on which it is located shall not be part of the Demised Premises, and Lessor and its employees, agents, contractors and lawful users of the Spa shall have and enjoy a non-exclusive right, for the term of this Lease, (a) to use and enjoy all driveways, walkways, parking facilities, tennis courts, restaurant and open spaces now or hereafter located at the Demised Premises to the extent necessary or appropriate for the construction of Spa and/or for their use and enjoyment of the Spa, as applicable, and (b) in the case of Lessor, to erect, maintain and repair directional signage for the Spa at the Demised Premises so long as such signs conform to all applicable Legal Requirements, and are in the same locations as, and are similar in size and design to, existing signage at the Demised Premises, subject, however, in all cases to the reasonable restrictions imposed by Lessee upon all users of such facilities, and Lessee's right to relocate, remove, alter or demolish such facilities from time to time to the extent not prohibited under this Lease. Lessor shall indemnify and hold Lessee harmless from and against any and all loss, claim or damage which may be incurred by or threatened against Lessee as a result of, or in connection with, the exercise of its right to maintain and repair its signage hereunder or any negligence or wrongful conduct of Lessor or its employees, agents, Spa invitees and licensees on or with respect to the Demised Premises and agrees to maintain and keep in effect at all times during the term of this Lease, liability insurance policies relating to the Demised Premises in an amount not less than $5,000,000. 15.6 LOANED SCULPTURE. The parties acknowledge that the objects scheduled on Exhibit "E" hereto (the "Loaned Property"), are the property of the persons indicated on Exhibit "E", who have loaned it to Lessor under unwritten agreements requiring use only at the Demised Premises and at no other location, and requiring that such objects be returned to the responsible owners listed on Exhibit "E", on request. Within 60 days after notice by either party hereto to the other, Lessor will, at Lessor's sole expense, remove such objects from the Demised Premises. Notwithstanding anything herein to the contrary, Lessee shall maintain insurance on the Loaned Property so long as it remains on the Demised Premises, but except to the extent covered by the proceeds of insurance received by Lessee, Lessee shall have no responsibility for the Loaned Property, and shall not be required to maintain, secure or repair the Loaned Property, or to replace the same as part of any Restoration or otherwise, and Lessor shall indemnify and hold Lessee harmless from and against any and all loss, cost, expense and damage, incurred or suffered by, or threatened against, Lessee, on account of personal injury or property damage caused by the existence of the Loaned Property at the Demised Premises, other than such loss, cost, expense or damage arising from the gross negligence or willful misconduct of Lessee. 15.7 MARINA. Pursuant to the Sovereignty Lease n defined below, Lessor and Grove Isle Yacht Club Associates, a Florida general partnership ("Yacht Club") (Lessor and Yacht Club are sometimes together called "Marina Parties") together own a leasehold estate in certain submerged land in Biscayne Bay, -27- adjacent to the Demised Premises, more particularly described in that certain Sovereignty Submerged Land Lease from the Board of Trustees of the Internal Improvement Trust Fund of the State of Florida to the Marina Parties recorded in Official Records Book 16401, Page 609, Public Records of Dade County, Florida (the "Sovereignty Lease", which term includes all renewals thereof). In order to provide assurances to each other with respect to the certain operations on the Demised Premises and the Marina Property, the parties agree that, for the term of this Lease: (a) The Marina Parties shall comply with all terms and conditions of the Sovereignty Lease and use their best efforts to keep the Sovereignty Lease and their rights thereunder in full force and effect. The Marina Parties shall apply for renewals of the Sovereignty Lease in sufficient time to enable renewal not later than the end of the term stated therein, and use its best efforts to obtain such renewal. Lessee agrees on request of the Marina Parties to execute such consents and joinders which may be required by the lessor under the Sovereignty Lease in order to obtain such renewal but Lessee shall not be required to subject itself or the Demised Premises to any liability (except, in the case of the Demised Premises, such liability to which they are presently subject pursuant to the Sovereignty Lease). The Marina Parties shall provide Lessee with copies of such application for renewal simultaneously with submission thereof to the lessor under the Sovereignty Lease. If the Marina Parties fail to do so within the time provided herein, the Marina Parties hereby make, appoint and constitute Lessee's president to do so in the name and on behalf of the Marina Parties, it being understood and agreed that such power is a power coupled with an interest and cannot be revoked. Nothing herein shall obligate Lessee to exercise the power of attorney granted hereunder. (b) The Marina Parties shall operate a marina on the Marina Property in accordance with the Sovereignty Lease and as the same is presently operated. Nothing herein shall be deemed to impose any obligations on the Marina Parties with respect to boatslips sold to third parties, however, the Marina Parties shall at all times ensure that a minimum of three (3) boatslips are maintained and are made available for transient users of any hotel and/or restaurant facilities located on the Demised Premises and shall afford the users of such spaces and their agents, contractors and invitees, access over and across the driveways, walkways, pier, docks and ramps located on the Marina Property between such spaces and the hotel, restaurant and other facilities located on the Demised Premises, subject to reasonable restrictions imposed by the marina Parties upon all users of such facilities Temporary dockage at such boatslips shall be free of charge but the Marina Parties shall have the right to charge and collect its normal dockage rates for dockage for overnight or longer. (c) The Lessee shall have the right to place and maintain directional signage on the Marina Property in order -28- to direct users to its facilities on the Demised Premises. The location, nature and appearance of such signage shall be mutually agreed to by the parties, but such agreement shall not be unreasonably withheld. (d) The Lessee shall afford the Marina Parties and their agents, contractors and invitees, the non-exclusive right to use and enjoy all driveways, walkways, parking facilities and open spaces now or hereafter located at the Demised Premises to the extent necessary or appropriate for their use and enjoyment of the marina operated on the Marina Property by the Marina Parties, subject, however, to reasonable restrictions imposed by Lessee upon all users of such facilities and Lessee's right to relocate, remove, alter or demolish such facilities from time to time to the extent permitted under the Lease. In addition, subject to normal membership criteria, rules and regulations and screening procedures for the Club, Lessee shall permit owners of boatslips at the Marina Property to become members of the Club. (e) The Marina Parties and the Lessee (in such capacity, each is an "indemnifying party") shall indemnify and hold the other (in such capacity, an "indemnified party") harmless from and against any and all loss, claim or damage which may be incurred by or threatened against the indemnified party as a result of any negligence or wrongful conduct of the indemnifying party or its employees, agents, invitees and licensees on or with respect to the property upon which the indemnifying party is granted rights under subsections (b), (c) or (d) above. (f) So long as the existing retail space at the Demised Premises is part of the Demised Premises, and thereafter so long as Lessee has the right to do so, Lessee shall lease to Yacht Club or its designee at least 400 square feet of such retail space, facing Biscayne Bay and the marina parking lot, for use as a dockmaster's office and a ships' store, at market rental rates. (g) From time to time upon the request of any party, the other shall make, execute and deliver, or cause to be made, executed and delivered to the requesting party any and all such further instruments of lease, transfer, conveyance and further assurance, easements, certificates, affidavits and other documents as the requesting party may consider necessary in order to effectuate, complete or perfect the transactions contemplated under this Section 15.7. -29- -30- 15.9 STOCK. By its joinder hereafter, Grove Isle Investments, Inc. ("GIII") hereby grants to Lessee an option (herein, the "Option") to purchase from GIII 60 shares of Class A common stock (the "Stock") prior to termination of the Lease for one (1) United States Dollar at any time from or after such date as Lessee shall have instituted an action in a court of competent jurisdiction against any of the Lessor Parties alleging the existence of an uncured default, so long as such action is pending and Lessee shall have posted a surety bond or other security for loss in the event that Lessee is not the prevailing party in such action. Lessee shall exercise the Option by giving written notice thereof to GIII not less than 30 days prior to the date on which Lessee intends to purchase the Stock (the "Purchase Date"). On the Purchase Date, GIII shall execute and deliver to Lessee the certificates representing the Stock, as well as sufficient stock powers and any and all other instruments which may be necessary to effectuate absolute transfer of the Stock to Lessee. In connection herewith: (a) GIII represents and warrants to Lessee that the Stock constitutes all of the authorized, issued and/or outstanding shares of GICI, and is free and clear -31- of any and all options, agreements, security interests, liens or encumbrances whatsoever. GIII further agrees that at no time between the date hereof and the Purchase Date shall the Stock be sold, transferred, pledged or assigned, nor shall the Stock be subject to any such agreement, option, lien, encumbrance or security interest whatsoever. (b) GICI shall: (i) execute no document or instrument, or take any other action with respect to the Club other than as requested by Lessee in writing. (ii) engage in no business other than its performance of this Section 15.9. (iii) not sell, transfer, liquidate or dispose of any of its rights, assets or other properties other than as contemplated under this Lease, provided, however, that GICI shall be permitted to transfer or dispose of any rights which it may have with respect to its net operating loss carryforward as reported on its United States income tax returns. (iv) neither authorize or issue any additional shares of stock, nor, without the written consent of Lessee, modify its Articles of Incorporation or bylaws. 15.10 LICENSE. Lessor and GICI grant to Lessee an exclusive license to use, during the term of this Lease, solely for the purposes set forth below in this section, any and all trademarks, trade names and fictitious names used or heretofore used by either of them in connection with the Club, the Demised Premises, or any part thereof, including without limitation, the names "Grove Isle Club", "Grove Isle Hotel", "Grove Isle Resort", "Little Grove Isle" or any combination or derivation thereof (collectively the "Name"), and the trademarks registered with the Florida Department of State, Trademark Registration Section, Registration numbers T941,324, T941,325, T941,326 and T941,327 (collectively, the "Marks") provided, however, that the license granted hereunder shall be utilized only in connection with the use, operation and management' advertisement and promotion of the Demised Premises and the Club and not for any other properties, provided, however, that Lessee shall also be authorized to use the Names and/or the Marks for and in connection with the corporate and marketing affairs of Lessee and Lessee's Affiliates. Lessee agrees that the quality of services provided by it with respect to the Marks and the Names shall conform to the operating standards set forth in Section 15.2 of this Lease. Notwithstanding that the license granted pursuant to this provision is exclusive, the Lessor Parties shall have the non-exclusive right (together with Lessee) to use the Names and the Marks in connection with their use and operation of the Spa and the -32- marina referred to above, and the Lessor Parties shall also have and retain the non-exclusive right (together with Lessee) to use the promotional video of the Demised Premises and such marina. The license granted hereunder shall remain in full force and effect for the term of this Lease, is not assignable or otherwise transferrable, directly or indirectly, except in conjunction with assignment of this Lease and/or the Club to the extent permitted under this Lease, and shall automatically terminate on termination of the Lease. ARTICLE XVI Quiet Enjoyment Subject to the terms hereof, so long as the Lessee keeps and performs all of its covenants and conditions under this Lease, it shall have quiet, undisturbed, and continued possession of the Demised Premises, free from all claims against the Lessor and all persons claiming under, by, or through the Lessor. ARTICLE XVII Right of Entry The Lessor and its agents may enter upon the Demised Premises at all reasonable times to examine their condition and use or to exhibit the same to its lenders, investors and prospective purchasers, so long as that right is exercised in a manner that does not unreasonably interfere with the Lessee in the conduct of its business on the Demised Premises. If the Demised Premises are damaged by fire, windstorm, or other casualty which causes them to be exposed to the elements, the Lessor may enter upon them to make emergency repairs if the Lessee fails to do so. However, if it does so, the act or acts shall not be deemed to excuse the Lessee from its obligation to keep the Demised Premises in repair, and the Lessee shall, upon the Lessor's demand, immediately reimburse it for the cost of the emergency repairs. ARTICLE XVIII Lessor's Obligations The parties acknowledge that the Lessor Parties have certain financial obligations to Lessee under the Master Agreement, this Lease and the Closing Deliveries and the other agreements and instruments referred to in the Master Agreement. To the extent that any such obligation is a determinable sum, Lessee shall have the right to set off against Lessee's obligations to Lessor under this Lease, the amount of any such obligation which is not paid within 45 days after Lessee's notice that such payment is due and owing. -33- ARTICLE XIX Miscellaneous 19.1 GOVERNING LAW. All of the rights and remedies of the parties shall be governed by the provisions of this instrument and by the laws of the State of Florida. 19.2 FORCE MAJEURE. If the Lessor or Lessee is delayed, hindered, or prevented from performing any act required hereunder (other than the payment of money) by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, restrictive government laws or regulations, riots, insurrection, the act, failure to act or default of the. other party, war, or other reason beyond its control, then performance of the act shall be excused for the period of the delay. In that event, the period for the performance of the act shall be extended for a period equivalent to the period of the delay. 19.3 ESTOPPEL CERTIFICATES. Either party shall, without charge, at any time and from time to time hereafter (but not more frequently than twice during any one Lease Year), within twenty (20) days after the other's written request to the other, certify by instrument duly executed and acknowledged to any mortgages or purchaser or proposed mortgagee or proposed purchaser, or any other person, firm, or corporation specified in the request as to: (a) Whether this Lease has been supplemented or amended, and, if so, the substance and manner of the supplement or amendment; (b) The validity and force and effect of this Lease, in accordance with its tenor as then constituted) (c) The existence of any default under this Lease; (d) The existence of all offsets, counterclaims, or defenses thereto on the part of the other party; (e) The Commencement Date and Termination Date; and (f) All other matters that may reasonably be so requested. Any such certificate may be relied upon by the party who requested it and any other person, firm, or corporation to whom it may be exhibited or delivered, and the contents of the certificate shall be binding on the party executing it. Failure within the 20-day period to give a written reply shall constitute a representation, which any person may rely upon as being true and correct, that the Lease is in good standing. 19.4 DUPLICATES; RECORDATION. Either party shall, at any time, at the other's request, promptly execute duplicate originals of an instrument, in recordable form, which shall constitute a short form of this Lease. This will set forth a description of the -34- demised premises, the term of this Lease, and any other portion thereof, except for the rental provisions, requested by either party. 19.5 NO RECOURSE. Notwithstanding anything to the contrary, the parties hereto shall look solely to the interest of the other in the Demised Premises, this Lease, the Club, and the Retained Club Rights, as applicable, for the satisfaction of any remedy it may have hereunder or in connection herewith and shall not look to any other assets of such other party or of any other person, firm or corporation. No personal liability shall attach to any of present or future shareholders, officers, or directors of any party or its partners, for any obligation hereunder or in connection herewith. Nothing in this section shall be construed to diminish or impair the effect of Article XVIII hereof, or of any separate guaranty or promissory note executed by any third party in connection with this Lease. 19.6 CONSENT NOT TO BE UNREASONABLY WITHHELD. Except to the extent, if any, specifically provided otherwise herein, the Lessor Parties shall not unreasonably withhold their consent, permission, or approval for any act which may be required or desired by the Lessee under the provisions of this Lease. Such consent, permission, or approval shall be deemed to have been granted if, within forty-five (45) days after any Lessor Party receives the request, fails to notify the Lessee of its express disapproval and the reasons therefor. 19.7 COVENANTS RUNNING WITH LAND; BINDING EFFECT. All covenants, conditions, and obligations contained herein or implied by law are covenants running with the land for the term of this Lease, or such longer period as may be specified herein, and shall attach and bind and inure to the benefit of the Lessor and Lessee and their respective heirs, legal representatives, successors, and assigns, except as otherwise provided herein. 19.8 NON-WAIVER. No waiver of a breach of any covenant in this Lease shall be construed to be a waiver of any succeeding breach of the same covenant. No delay or failure by either party to exercise any right under this Lease, and no partial or single exercise of that right, shall constitute a waiver of that or any other right, unless otherwise expressly provided herein. 19.9 RELATIONSHIP. The relationship between parties is that of landlord and tenant only, and in no event shall the parties be deemed to be partners or joint ventures. 19.10 WRITTEN MODIFICATIONS. No modification, release, discharge, or waiver of any provision hereof shall be of any force, effect, or value unless signed in writing by the party to be charged therewith, or its duly authorized agent or attorney. 19.11 ENTIRE AGREEMENT. This instrument, together with the Master Agreement and the other Closing Deliveries, contain the entire agreement between parties as of this date with respect to -35- the subject matter hereof. The execution hereof has not been induced by either party by representations, promises, or understandings not expressed herein. There are no collateral agreements, stipulations, promises, or undertakings whatsoever upon the respective parties in any way touching the subject matter of this instrument which are not expressly contained in it or such Master Agreement or the other Closing Deliveries. 19.12 NOTICES. All notices and responses which are required or permitted under this Lease shall be in writing, and shall be deemed complete only when actually delivered to the recipient as follows or delivery at such address is refused: (a) If to any Lessor Party: Grove Isle Associates, Ltd. 2701 South Bayshore Drive Penthouse Miami, FL 33133 Attention: Maurice Wiener With a copy to: Gary Saul, Esq. Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. 1221 Brickell Avenue Miami, FL 33131 (b) If to Lessee: Westgroup Grove Isle Associates Ltd. c/o Noble House Hotels & Resorts 25 Central Way, Suite 400 Kirkland, WA 97033 Attn: Mr. Patrick R. Colee With a copy to: Patrick Dyer, Esq. 25 Central Way Suite 400 Kirkland, WA 97033 Either party may change the place for giving notice by written notice in the manner set forth in this Section. 19.13 JOINT LIABILITY. If the parties upon either side (Lessor and Lessee) consist of more than one person, such persons shall be jointly and severally liable on the covenants of this Lease. 19.14 LIABILITY CONTINUED. All references to the Lessor and Lessee mean the persons who, from time to time, occupy the positions, respectively, of Lessor and Lessee. However, this shall not be construed as relieving a person of any liability incurred by it by reason of or in connection with it having been Lessor or Lessee at one time, unless such release is provided for under other provision of this Lease. -36- 19.15 NO THIRD PARTY BENEFITS. This Lease is made for the sole benefit of the parties hereto, and no third party shall be a beneficiary hereof or have any rights hereunder. 19.16 ATTORNEY'S FEES. In the event of any litigation, action, suit or proceeding between any parties to this Lease pertaining to the construction or enforcement of this Lease, the prevailing party shall be entitled to payment by the other of such prevailing parties reasonable attorney's fees and expenses in connection with such litigation, actions, suit or proceeding. 19.17 BROKER. The parties represent that there are no brokers involved in this transaction and that no brokerage commissions are payable to any third party. 19.18 HEADINGS. Headings in this Lease are for convenience and reference only and shall not be used to interpret or construe its provisions. 19.19 TIME OF ESSENCE. Time is expressly declared to be of the essence of this Lease and of each provision hereof. IN WITNESS WHEREOF, the Lessor and the Lessee have hereunto set their hands and seals as of the day and year above written. LESSOR: GROVE ISLE ASSOCIATES, LTD., a Florida limited partnership, by COURTLAND INVESTMENTS, INC., a Delaware corporation, its sole general partner /s/ Lawrence Rothstein By: /s/ Maurice Wiener - -------------------------------------- --------------------------------- Print Witness Name: Lawrence Rothstein Name: Maurice Wiener - -------------------------------------- --------------------------------- Philip Brown Title: - -------------------------------------- --------------------------------- Print Witness Name: Philip Brown (SEAL) LESSEE: WESTGROUP GROVE ISLE ASSOCIATES LTD., a Florida limited partnership, by WESTGROUP PARTNER, INC., a California corporation, its sole general partner /s/ Lawrence Rothstein By: /s/ Patrick R. Colee - -------------------------------------- --------------------------------- Patrick R. Colee, President Print Witness Name: Lawrence Rothstein - -------------------------------------- /s/ Philip Brown - -------------------------------------- Print Witness Name: Philip Brown (SEAL) - -37- ATTACHMENTS: EXHIBIT "A" -- Legal Description EXHIBIT "B" -- Existing Lease EXHIBIT "C" -- Title Exceptions EXHIBIT "D" -- Approved Capital Improvements EXHIBIT "E" -- Loaned Property -38- JOINDER The undersigned join herein in order to acknowledge and agree to the provisions of this Lease. GROVE ISLE CLUB, INC., a Florida corporation /s/ Lawrence Rothstein By: /s/ Maurice Wiener - -------------------------------------- --------------------------------- Print Witness Name: Lawrence Rothstein Name: Maurice Wiener - -------------------------------------- --------------------------------- /s/ Philip Brown Title: Chairman - -------------------------------------- --------------------------------- Print Witness Name: Philip Brown (SEAL) GROVE ISLE YACHT CLUB ASSOCIATES, a Florida general partnership By: COURTLAND INVESTMENTS, INC., a Delaware corporation, its general partner /s/ Lawrence Rothstein By: /s/ Maurice Wiener - -------------------------------------- --------------------------------- Print Witness Name: Lawrence Rothstein Name: Maurice Wiener - -------------------------------------- --------------------------------- /s/ Philip Brown Title: Chairman - -------------------------------------- --------------------------------- Print Witness Name: Philip Brown (SEAL) By: GROVE ISLE INVESTMENTS, INC., a Florida corporation, its general partner /s/ Lawrence Rothstein By: /s/ Maurice Wiener - -------------------------------------- --------------------------------- Print Witness Name: Lawrence Rothstein Name: Maurice Wiener - -------------------------------------- --------------------------------- /s/ Philip Brown Title: Chairman - -------------------------------------- --------------------------------- Print Witness Name: Philip Brown (SEAL) GROVE ISLE INVESTMENTS, INC., a Florida corporation /s/ Lawrence Rothstein By: /s/ Maurice Wiener - -------------------------------------- --------------------------------- Print Witness Name: Lawrence Rothstein Name: Maurice Wiener - -------------------------------------- --------------------------------- /s/ Philip Brown Title: Chairman - -------------------------------------- --------------------------------- Print Witness Name: Philip Brown (SEAL) -39- CONSENT The undersigned joins herein in order to consent to the foregoing Amended and Restated Lease Agreement and to attorn to the rights of Lessee hereunder. GROVE ISLE MARINA, INC., a Florida corporation By: /s/ Maurice Wiener --------------------------------- Name: Maurice Wiener --------------------------------- Title: Chairman --------------------------------- -40- EX-10 3 EXHIBIT 10(E) MASTER AGREEMENT THIS AGREEMENT is made and entered into as of November 19, 1996 and is by and among GROVE ISLE ASSOCIATES, LTD., a Florida limited partnership ("Associates"), GROVE ISLE CLUB, INC., a Florida corporation ("GICI") and Grove Isle Investments, Inc., a Florida corporation ("Investments") (Associates, GICI and Investments are sometimes collectively referred to as the "Owners") and WESTGROUP GROVE ISLE ASSOCIATES LTD., a Florida limited partnership ("Westgroup"). R E C I T A L S A. Associates is the owner in fee simple of the land located at 4 Grove Isle Drive, Miami, Dade County, Florida, which is legally described on Exhibit "A" hereto (the "Land"), all Improvements thereon (the "Improvements"), all easements, servitudes, reversions, remainders, benefits, and other rights and interests appurtenant thereto and all furniture, furnishings, fixtures, appliances and other equipment (the "FF&E") located at and used in connection with the operation of the Land and the Improvements (the Land, the Improvements, such appurtenances and the FF&E is together called the "Property"). B. Pursuant to the Declaration of Condominium recorded in Official Records Book 10279, Pages 1915 et seq., Public Records of Dade County, Florida, and all amendments to such declaration recorded to-date (the "Declaration of Condominium"), GICI has the exclusive right to operate the "Grove Isle Club" referred to in the Declaration of Condominium on the Real Property, membership in which is mandatory for owners of condominium units established under the Declaration of Condominium (the "Club"). C. The Improvements presently consist of, among other things, a hotel, restaurant, retail shops, pool, pool deck, tennis courts, driveways, accessways, a guard house, and parking areas (such Improvements are called the "Facilities"). GICI is the owner of a leasehold estate in the Property pursuant to that certain Lease Agreement dated an of October 1, 1993 by and between Associates, as Lessor and GICI, as Lessee (the "Existing Lease"), and has been operating the Facilities as a luxury hotel and restaurant (herein, the "Resort") as well as the Club. D. The Owners, in the aggregate, own (i) all food, beverages, catering supplies, cleaning supplies, stationery, and all other inventory, supplies and consumables used for the operation of the Resort and the Club (to the extent that such items are unopened or unsealed, as applicable, they are herein called the "Inventory and Consumables"), (ii) all licenses, permits and governmental approvals with respect to the Resort or the operation of the Resort, the Club, or any component of either, as well as any monies deposited with any governmental or quasi-governmental authorities in connection therewith (the "Permit"); (iii) all leases, subleases and occupancy agreements with respect to any portion of the Real Property, and all rents therefrom (collectively, the "Leases".); (iv) all contracts, warranties, deposits and advance payments made by or for the benefit of any Owner, goodwill, guaranties, contract rights and general intangibles (including, without limitation, providing access to and use of Owner's books and records, and making the originals thereof available where necessary) of Owners or any of them for or in connection with, or derived from, the ownership or operation of the Resort or the Club (the "Contracts".); and (v) all other properties, rights and interests whatsoever of Owners used for or in connection with the operation of the Resort, the Club, or any part of either but retaining unto the Owners such rights where necessary for their operation of a marina on the submerged land adjacent to the Real Property (the "Other Right"). E. The parties desire that Westgroup lease the Property and operate the same as the Resort and the Club, on an exclusive basis, for Westgroup's own account and that in connection therewith, the Owners sell, lease or assign, as applicable, to Westgroup the Inventory and Consumables, certain of the Permits (to the extent transferable), the Leases, the Contracts and the Other Rights, all on the terms and conditions hereinafter set forth. A G R E E M E N T S NOW, THEREFORE, in consideration of the promises and of the mutual agreements, covenants, terms, and conditions hereinafter set forth, the parties hereby agree as follows: 1. Correctness of Recitals. The above recitals are true and correct. 2. Certain Defined Terms. Any capitalized term used as if defined herein, but which is not otherwise defined herein, shall have the meaning attributed to that term on Exhibit "B" attached hereto. 3. Agreement to Close. On the "Closing Date" (hereafter defined), the parties shall consummate the transactions contemplated above by executing and delivering, or causing the execution and delivery as applicable, of the Owners' Closing Deliveries and the Westgroup's Closing Deliveries (each defined below). The Owners' Closing Deliveries and the Westgroup's Closing Deliveries are together called the "Closing Deliveries". 4. Capital Improvements: Operating Shortfalls. The parties acknowledge that revenue from the Property may not be sufficient to pay all costs of operating and maintaining the Property and the 2 cost of performing the Lease, and also that it is in their mutual interest to make capital improvements to the Resort. Accordingly: 4.1 Use of Initial Rent Payment. As more particularly set forth in the Lease, Westgroup is obligated to pay to Associates at Closing the sum of $1,000,000 in cash as the "Initial Rent Payment. defined in the Lease. Associates shall hold the Initial Rent Payment in a segregated account in a bank located in Dade County, Florida, the name of which account shall be "Noble House Grove Isle - Special Account". Such account may bear interest for the account of Associates. Associates shall disburse the Initial Rent Payment to Westgroup upon Associates' receipt of Westgroup's written requests for such disbursement from time to time until the first anniversary of the Closing Date. Each request shall be accompanied by Westgroup's written certification that the amount so requested is required to pay for the cost of Qualified Capital Improvements or Operating Shortfalls. If and to the extent that any of the Initial Rent Payment has not been requested to be disbursed on or before the first anniversary of the Closing Date, then Associates may disburse such undistributed portion to itself. 4.2 Additional Investment by Westgroup. In addition to its obligation to pay Initial Rent Payment, Westgroup shall expend not less than $2,000,000 (the "Additional Equity Requirement") for Qualified Capital Improvements from time to time prior to the "Equity Deadline" defined below, provided, however, that the amount of any Operating Shortfalls funded by Westgroup prior to the Equity Deadline (other than Operating Shortfalls funded by disbursement to Westgroup of Initial Rent Payment as set forth in Section 4.1 above) shall be credited toward the Additional Equity Requirement; and provided, further, that the amount of Operating Shortfalls funded by Westgroup which may be credited to the Additional Equity Requirement shall not exceed $800,000 plus the amount of the Initial Rental Payment disbursed for Qualified Capital Improvements pursuant to Section 4.1 above. If and to the extent that the Additional Equity Requirement is not satisfied prior to the Equity Deadline, then Associates may notify Westgroup to pay to Associates the amount of any such Additional Equity Requirement not satisfied, whereupon Westgroup shall pay such amount to Associates on demand. Nothing herein shall be construed to limit Westgroup's right or ability to make capital improvements or other investments in the Property in excess of the Additional Equity Requirement, or following the Equity Deadline, but "Westgroup's Capital Investment" defined in the Lease shall not exceed $3,000,000 unless so agreed by Associates in its sole and absolute discretion. The "Equity Deadline" means the earlier of (a) the third anniversary of the Closing Date, or (b) the Stabilization Date. The "Stabilization Date" means the 90th day following the end of the fourth consecutive calendar quarter (i.e., the three month periods ending on the last day of March, June September and December) for which Net Operating Surplus (defined in the Lease) has been a positive amount. 3 4.3 Accounting for Capital Improvements. Westgroup shall provide Associates, on a quarterly basis commencing April 1, 1997, a schedule of amounts expended by Westgroup for Qualified Capital Improvements since the date of the last such schedule provided, which schedule shall list the item purchased. Westgroup shall provide Associates with copies of bills, invoices, or contract. relative to any such capital improvements limited on any such schedule, within 15 days after Associates' request made within 30 days after it receives such schedule. Westgroup shall maintain accurate books and records with respect to any such capital improvements, in accordance with generally accepted accounting principles consistently applied, and shall make its books and records with respect to the cost of such improvements available for inspection by Associates or Associates, authorized representative during normal business hours, upon reasonable prior notice. 5. Restaurant. 5.1 Termination. Not later than the Closing Date, GICI shall give notice of termination of that certain Management and Licensing Agreement dated June 23, 1995 between GICI and MMJ Management, Inc. (the "Restaurant Agreement"), so that the same is terminated and possession delivered to Westgroup effective not later than 180 days following the Closing Date. 5.2 Indemnity. The Owners, jointly and severally, shall indemnify and hold Westgroup harmless of, from and against any loss, cost, damage, claim, expense or liability (including, without limitation, damages, lost profits, all amounts payable to MMJ Management, Inc. or any other person under or pursuant to the Restaurant Agreement and any and all promissory notes executed pursuant thereto and reasonable attorneys' fees and litigation expenses) incurred by or threatened against Westgroup as a result of any (a) termination or attempted termination of the Restaurant Agreement, (b) actual or alleged breach or violation of the Restaurant Agreement or of any promissory notes executed pursuant thereto or of any term, provision or condition of the Restaurant Agreement or such notes by or on behalf of any Owner, and/or (c) Equitable Relief. In this regard, the parties acknowledge that if Westgroup were unable to operate a restaurant at the Property, its damage would be extremely difficult to determine. Accordingly, owners shall pay Westgroup, as liquidated damages, and as Westgroup's sole damages (exclusive of reasonable attorneys' fees and litigation expenses) as a result of any Equitable Relief, $2,000.00 for each day that Westgroup is subject to any Equitable Relief but in no event more than $730,000. "Equitable Relief. means any injunction, restraining order, judgment, mandate or any other order or decree in favor of MMJ Management, Inc. or anyone claiming under MMJ Management, Inc., which prevents, limits or impairs, or purports to prevent, limit or impair, operation of a restaurant at the Property other than pursuant to the Restaurant Agreement, provided, however, that the Owners shall not be 4 responsible for any Equitable Relief (a) to the extent that it is operative prior to the earlier of the effective termination of the Restaurant Agreement or 180 days following the Closing Date, or (b) following such date that MMJ Management, Inc. shall have released Westgroup and its agents, contractors, partners, and employees from any liability or responsibility for any Equitable Relief. Westgroup shall have the right, but no obligation, to operate a restaurant at the Property, notwithstanding the pendency of any motion or petition for Equitable Relief and notwithstanding that such activity may increase the amount which the Owners are obligated to pay to Westgroup under this Section. 6. Associates' Loan to Westgroup. Concurrently herewith, Associates shall make an unsecured loan to Patrick R. Colee in the principal sum of $500,000, to be evidenced by and repayable in accordance with the "Note" defined below. Associates shall disburse the proceeds of such loan in two installments of $250,000, one of which shall be disbursed on such borrower's request not earlier than June 1, 1997 and the other on such borrower's request not earlier than September 1, 1997. 7. Closing. "Closing" means the date on which this Agreement is signed and becomes effective, and all Closing Deliveries are unconditionally exchanged and delivered. The Closing shall occur on November 19, 1996 (the "Closing Date"). 8. Closing Deliveries. At Closing, the parties shall do the following: 8.1 By Owners. The Owners shall execute and deliver, or cause to be executed and delivered, to Westgroup, the following documents (collectively, and together with this Agreement, the "Owners' Closing Deliveries"): (a) An Assignment of Lease in the form attached hereto as Exhibit "C" (the "Assignment of Lease"). (b) Two counterparts of each of an Amended and Restated Lease Agreement in the form of Exhibit "D" attached hereto (the "Lease Modification") and a Memorandum of Lease in the form of Exhibit "E" hereto (the "Lease Memorandum"). (c) Two counterparts of an Assignment and Assumption of Occupancy Leases in the form of Exhibit "F" attached hereto (the "Assignment of Occupancy Leases"). (d) A Bill of Sale in the form of Exhibit "G". attached hereto (the "Bill of Sale"). (e) An Assignment of Contracts, Permits and Other Rights in the form of Exhibit "H" attached hereto (the "Assignment of Contracts"). 5 (f) All instruments required to transfer to Westgroup the Beverage License in the name of GICI, issued by the State of Florida, Department of Business and Professional Regulation, Bureau of Alcoholic Beverages and Tobacco. (g) For each Owner and if a partnership, its corporate general partners: (i) a Certificate of Good Standing, issued by the appropriate governmental authority; (ii) for each limited partnership, its Certificate of Limited Partnership, certified by the appropriate governmental authority; (iii) for each corporation, a copy of its articles of incorporation, certified by the appropriate governmental authority; (iv) for each corporation, a certificate of its corporate secretary, certifying as to the status of its articles of incorporation, bylaws, incumbent officers and the adoption of resolutions authorizing the execution and delivery by such corporation of the Owners, Closing Deliveries, on its own behalf and if such corporation is a general partner of any limited partnership Owner, on behalf of such partnership; and (v) for each partnership, a certificate of its general partner certifying as to the status of its partnership agreement. (h) Such affidavits, certificates and additional items as are sufficient to enable deletion, on the Closing Date, of the exceptions set forth on the Title Commitment as items B-1 (3) through (8), (11), (12), (13) and B-2 (1), (2) a., d., and e. (i) A letter from City National Bank of Florida ("CNB") in the form of Exhibit "I" hereto. (j) Two counterparts of a Subordination, Non-Disturbance and Attornment Agreement in the form of Exhibit "J" hereto, signed by CNB (the "SNDA"). (k) Two counterparts of a Closing Statement providing for the payments required at Closing hereunder (the "Closing Statement"). (1) A schedule of the Inventory and Consumables located at the Property as of 11:59 p.m. on the Proration Date, initialed on behalf of the Owners (the "Inventory") for attachment to the Bill of Sale. (m) A schedule of the Accounts as of 11:59 p.m. on the Proration Date, initialed on behalf of the Owners (the "Receivables Schedule"), (n) A schedule of the FF&E located at the Property as of the Proration Date, initialed on behalf of the Owners (the "FF&E Schedule"). 8.2 By Westgroup. Westgroup shall execute and deliver, or cause to be executed and delivered, to the respective Owners the 6 following (collectively, and together with this Agreement, the "Westgroup's Closing Deliveries"): (a) Two counterparts of each of the Lease Modification and the Lease Memorandum. (b) Two counterparts of the Assignment of Occupancy Leases. (c) Two counterparts of the SNDA. (d) A promissory note in the form of Exhibit "K" hereto (the "Note"). (e) A guaranty in form of Exhibit "L" hereto (the "Guaranty"). (f) A Certificate of Good Standing for Westgroup and its general partner, Westgroup's certificate of limited partnership, and Westgroup's corporate general partner's certificate of incorporation, each issued by the appropriate governmental authority, as well as a certificate of Westgroup's general partner as to the status of Westgroup's partnership agreement, the status of such corporation's articles of incorporation, bylaws, incumbent officers and the adoption of resolutions authorizing its execution and delivery of the Westgroup's Closing Deliveries on behalf of Westgroup. (g) Westgroup's approval of the Inventory, the Receivables Schedule, and the FF&E Schedule, evidenced by the initials thereon of Westgroup's authorized representative. 9. Adjustments. At Closing, the parties shall make such payments to each other as may be required in order to effectuate the following: (a) All rent, revenue and other income from the Property, as well as real property taxes, service and other contracts assumed by Westgroup and associated deposits and any additional operating expenses for the Property shall be prorated as of 11:59 p.m. on the date immediately preceding the Closing Date (the "Proration Date"), provided, however, that as more particularly set forth in the Lease, n Club Dues n (defined in the Lease) shall be deemed to be prepaid and to accrue on a daily basis over the period for which they apply, and provided, further, that any credit due Westgroup on account of Club Dues received prior to the Closing Date shall be payable in six equal monthly installments due on the Closing Date and on the last business day of December, 1996, and January, February, March and April, 1997, on which date the entire balance of such credit shall be due and payable to Westgroup, and the Owners hereby agree to pay the amount of such credit to Westgroup within the time set forth above, and in the 7 amount so paid shall constitute "Operating Revenue n under the Lease, and provided further that if any prorations contemplated under this subsection (a) are not made at Closing the parties" shall, within 60 days after Closing, complete such prorations and make any payments to the other which are required as a result thereof; (b) Westgroup shall receive a credit for all tenant deposits, security deposits and prepaid bookings held by Owners as at 11:59 p.m. on the Proration Date; (c) Westgroup shall pay to Owner an amount equal to the cost of the Inventory and Consumables listed on the Inventory approved by Owners and Westgroup pursuant to section 8, as evidenced by copies of paid invoices therefor or such other documentation reasonably requested by Westgroup; (d) Rather than remove Owners' cash from the Property on the Closing Date, the parties shall cause the amount of Owner's cash at the Property to be counted at 3:00 a.m. on the Closing Date. Such cash shall not be removed by the Owner, and at Closing Owner shall be credited, and Westgroup shall be debited, the amount of such cash; and (e) Westgroup and Associates shall each pay half of the Florida documentary stamp tax on the Note. 10. Post-Closing Accounts and Payables. (a) Except to the extent that Westgroup is entitled to receive a credit under section 9(b) above, and also except to the extent otherwise provided in the Closing Statement, Westgroup shall not be entitled to any of Owners' accounts receivable which are listed on the Receivables Schedule and are collected on or after the Closing Date, and if Westgroup receives payment of any such accounts on or after the Closing Date, it shall promptly remit the same to Owners. In this regard, Westgroup shall apply payments from each account debtor to the oldest account owed by that debtor, unless the payor designates a different account to which such payment shall be applied (in which event it shall be applied to the account so designated); or the account debtor has disputed the account to which such payment would otherwise be applied (in which event, it shall be credited to the oldest account which has not been disputed). (b) Except for any accounts payable which may be expressly assumed by Westgroup and credited to Westgroup on the Closing Statement, Owners shall pay in due course all accounts payable currently due with respect to the Property as of the Closing Date for goods or services delivered to the Property before the Closing Date, without contribution or proration from Westgroup. 8 11. Representations and Warranties of Owner. Each Owner represents and warrants (for itself only) to Westgroup that: 11.1 It has the legal power and authority to enter into this Agreement and those of the other Owners' Closing Deliveries to be executed by it and to perform its obligations hereunder and thereunder. 11.2 Those of the Owners' Closing Deliveries to be executed by it are the valid and legally binding obligations of and are enforceable against it in accordance with their terms, subject only to applicable bankruptcy, insolvency, reorganization, moratorium laws or similar laws or equitable principles affecting or limiting the rights of contracting parties generally. 11.3 Neither its execution and delivery of, nor performance of its obligations under the Owners' Closing Deliveries, conflict with or do or will result in the material breach of any terms, conditions or provisions of, or constitute a default under, any bond, note, or other evidence of indebtedness or any contract, indenture, mortgage, deed of trust, loan, operating agreement, lease or other agreements or instruments to which such Owner is a party or which affects the Property. 11.4 To its knowledge, except as disclosed on "Exhibit "M" hereto, there are no pending, threatened or contemplated actions, suits, arbitrations, claims or proceedings, at law or in equity, affecting the Property or in which Owner is, or to the best of Owner's knowledge will be, a party by reason of Owner's ownership of or involvement with the Property. The Owner has disclosed all information known to it concerning the pending litigation reasonably requested by the Westgroup. 11.5 To its knowledge, it has obtained all permits, licenses and governmental approvals required for the use and operation of the Improvements as presently conducted, which permits, licenses and governmental approvals are listed on Exhibit "N" hereto. 11.6 No attachment, execution proceeding, assignment for the benefit of creditors, insolvency, bankruptcy, reorganization or other such proceedings are pending or threatened against it. 11.7 To its knowledge, the zoning and permitted uses. of the Real Property is as set forth in that certain Settlement Agreement recorded in Official Records Book 9912, Page 260, of the Public Records of Dade County, Florida, and to its knowledge, without investigation, Owners have operated the Real Property substantially in accordance therewith. 11.8 It has received no notice from any governmental authority of any violations of any Legal Requirement relating to 9 the Property and, to its knowledge, but without investigation, it has not committed any such violation. 11.9 The Owners have delivered, or are concurrently with Closing delivering to Westgroup the plans and specifications for construction of the Improvements, as well as copies of all of their books and records pertaining to the Property. 11.10 It has not received any notice from any insurance company or any governmental authority of any defects or inadequacies in the Property which has not been corrected. 11.11 To its knowledge, except as disclosed on the Phase I Report, there has been no production, disposal, storage, spillage or seepage of any Hazardous Material or any contamination therefrom at or on the Property, nor is there any pending proceeding or inquiry by any governmental authority with respect thereto. 11.12 With the exception of the Professional Employer Agreement for Grove Isle Club, Inc. d/b/a Grove Isle Club and Resort dated May 24, 1996 (the "Vincam Agreement"), there are no outstanding employment contracts affecting the Property. The Vincam Agreement is in full force and effect without modification and all amounts due or payable by it under the Vincam Agreement are paid through and including November 9, 1996. 11.13 There are no contracts, agreements, understandings or arrangements with third parties for the supply of goods or services to the Property other than as set forth on Exhibit "O" hereto. 11.14 Other than transient hotel guests, there are no parties in possession of the Demised Premises or any part thereof under any leases, subleases, occupancy agreements or similar arrangements or otherwise other than the tenants under those leases listed on Exhibit "P" hereto. Each of those tenants is in possession under a month-to-month tenancy. All rent payable under such leases is current. No such tenant has asserted any claim, offset or defense to its obligations under such leases. 11.15 With the exception of Sales Tax owed by Owners' predecessor in title, the Owners have paid all Sales Tax due through November 1, 1996 and no Owner has received any notice from the Florida Department of Revenue that any such Sales Tax is delinquent. Any delinquent Sales Tax owed by Owners' predecessor in title is the subject of a separate settlement agreement between Owners and the Florida Department of Revenue, and the Owners' obligations under such settlement agreement are current and in good standing. 10 11.16 Except as disclosed on the Title Report, the Property is free and clear of all liens, claims, security interests and all other encumbrances whatsoever. 11.17 The obligations secured by the instruments listed in item 27 of the Title Commitment (the "Owners' Mortgage Loan") are not in default for failure to pay any sum when due thereunder, and, to its knowledge, there exists no event, condition or circumstance which, with the giving of notice or the passage of time or both would constitute a default under the Owners' Mortgage Loan. 11.19 No representation, warranty or statement of Owner in this Agreement or in any document, certificate or schedule furnished or to be furnished to Westgroup pursuant hereto contains any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. 12. Westgroup's Representations and Warranties. Westgroup represents and warrants to Owners as follows: 12.1 Westgroup has the legal power and authority to execute and deliver this Agreement and the other Westgroup's Closing Deliveries herein, and to perform its obligations hereunder and thereunder. 12.2 Those of Westgroup's Closing Deliveries to be executed by it are the valid, legally binding obligations of and enforceable against it in accordance with their terms, subject only to applicable bankruptcy, insolvency, reorganization, moratorium laws or similar laws or equitable principles affecting or limiting the rights of contracting parties generally. 12.3 No attachment, execution proceeding, assignment for the benefit of creditors, insolvency, bankruptcy, reorganization or other such proceedings are pending or threatened against it. 12.4 Neither the execution and delivery of this Agreement or other Westgroup's Closing Deliveries, nor the incurrence of Westgroup's obligations set forth herein nor consummation of the transactions herein contemplated, nor compliance with the terms of this Agreement and the other Westgroup's Closing Deliveries conflict with or result in the material breach of any terms, 11 conditions or provisions of, or constitute a default under, any bond, note, or other evidence of indebtedness or any contact, indenture, mortgage, deed of trust, loan, operating agreement, lease or other agreements or instruments to which Westgroup is a party. 12.5 No representation, warranty or statement of Westgroup in this Agreement or in any document, certificate or schedule furnished or to be furnished by Westgroup pursuant hereto contains or will contain any untrue statement of a material fact, omits or will omit to state a material fact necessary to make the statements of facts contained therein for misleading. 13. Indemnity. In addition to its other obligations under this Agreement, the Owners shall, jointly and severally, indemnify and hold Westgroup harmless of, from and against any loss, cost, damage, claim, expense or liability (including, without limitation, reasonable attorney's fees and litigation expenses) incurred by or threatened against Westgroup as a result of (a) any breach or violation of any representations or warranties made under this Agreement; (b) any litigation, action or proceeding or any claim against it, whether or not disclosed herein, other than claims accrued, and litigation, actions, proceedings arising out of causes of actions accrued, prior to the Closing Date; (c) any failure by any Owner or any other person to fully pay and perform the Owners' Mortgage Loan when and as due (other than the obligation to make tax and insurance escrow payments expressly undertaken by Westgroup as Lessee under the Lease); (d) failure by any Owner to pay when due all sale and use tax, interest and penalties levied under Chapter 212, Florida Statutes, with respect to the Property and Owners' operations thereat (collectively, "Sales Tax") (it being understood, however, that Owners shall have no obligation to remit Sales Tax not timely paid to Owners by Westgroup, to the extent that Westgroup is obligated to pay the same under the Lease); (e) breach of any obligations of the grantee under, or Associates, as the upland owner referred to in, the Sovereignty Submerged Land Lease listed on the Title Report; and (f) any action or inaction taken by it with respect to the Property (other than the improvement of or physical condition of the Property) prior to the Closing Date which is not disclosed herein or in the other Owner's Closing Deliveries. 14. Written Modification. No modification, release, discharge, or waiver of any provision hereof shall be of any force, effect, or value unless signed in writing by the party to be charged therewith, or its duly authorized agent or attorney. 15. Notices. All notices and responses which are required or permitted under this Agreement shall be in writing, and shall be deemed complete only when actually delivered to the recipient as follows or delivery at such address is refused: 12 (a) If to any Owner: Grove Isle Associates, Ltd. 2701 South Bayshore Drive Penthouse Miami, FL 33133 Attention: Maurice Wiener With a copy to: Gary Saul, Esq. Greenberg, Traurig, Hoffman, Lipoff & Quentel 1221 Brickell Avenue Miami, FL 33131 (b) If to Westgroup: Westgroup Grove Isle Associates Ltd. c/o Noble House Hotels & Resorts 25 Central Way, Suite 400 Kirkland, WA 97033 Attn: Mr. Patrick R. Colee With a copy to: Patrick Dyer, Esq. 25 Central Way Suite 400 Kirkland, WA 97033 Either party may change the place for giving notice by written notice in the manner set forth in this Section. 16. Headings. Paragraph and section headings in this Agreement are for convenience and reference only and shall not be used to interpret or construe its provisions, or otherwise be accorded any effect in the interpretation of this Agreement. 17. Severability. If any provision of this Agreement or the application thereof to any person or situation shall, to any extent, be held invalid or unenforceable, the remainder of this Agreement and the application of such provision to such persons or situations other than those to which it shall have been held invalid or unenforceable, be affected thereby, but shall continue valid and enforceable to the fullest extent permitted by law. 18. No Recordation. Neither this Agreement nor any of the other Closing Deliveries shall be recorded, provided, however, that either may record the Assignment of Lease, the Lease Memorandum and/or the SNDA. 19. Attorneys, Fees. In the event of any litigation, action, suit or proceeding between any parties to this Agreement pertaining to the construction or enforcement of this Agreement or any of the other Closing Deliveries, the prevailing party shall be entitled to payment by the other of such prevailing party's reasonable attorney's fees and expenses in connection with such litigation, action, suit or proceeding. 13 20. Rights Cumulative. All rights and remedies provided to any party pursuant to this Agreement or any of the other Closing Delivery are cumulative and not exclusive of any right or remedy provided by law or otherwise. 21. Governing Law. This Agreement shall be governed by, and construed and enforced under, the laws of the State of Florida. 22. Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns, except that unless and to the extent stated otherwise in any other Closing Deliveries, no assignment shall release the assignor from its obligations under this Agreement or any of the other Closing Deliveries, and nothing herein shall be deemed to permit any assignment which is prohibited pursuant to any other provision hereof or of any of the other Closing Deliveries. 23. Entire Agreement. This Agreement and the other Closing Deliveries set forth the entire agreement of the parties hereto with respect to the subject matter hereof. 24. Brokers. Each party represents to the other that there are no brokerage commissions due or payable to any person or entity as a result of this transaction. Each party hereby agrees to hold the other harmless from and against any claim of any person or entity claiming any broker's commission, finder's fee or similar claim claiming through such party, and agrees to indemnify the other from any and all costs of defending or paying any such claim, including reasonable attorneys' fees. 25. Time of Essence. Time is of the essence of each and every provision hereof. 26. Survival. This Agreement and all indemnities, covenants, terms, conditions and provisions shall survive the Closing and shall not merge into any of the other Closing Deliveries, provided, however, that the representations and warranties made herein shall terminate two (2) years following the Closing as to any claims not yet asserted for breach of such representations and warranties by the beneficiary thereof. 27. FF&E. GICI hereby sells, assigns, conveys and quitclaims to Associates any and all right, title and interest of GICI to the FF&E. 28. Further Assurance. Each party hereto shall, at any time and from time to time upon the request of any other party hereto, make, execute and deliver, or cause to be made, executed and delivered to the requesting party any and all such further instruments of transfer, conveyance and further assurance, certificates, affidavits and other documents as the requesting party may consider necessary in order to effectuate, complete or 14 perfect the transactions contemplated by this Agreement, but no party shall be obligated to amend or modify this Agreement or any of the Closing Deliveries, nor shall any Owner be obligated to grant or request its mortgagee to grant non-disturbance or similar rights to any mortgagee of the Westgroup's interest in the Property, other than such rights as are contemplated to be afforded to Westgroup itself pursuant to the SNDA. In addition, if any Owner is requested to assign any Permits, Contracts, or Other Rights not assigned under any Closing Deliveries, such Owner may retain such rights therein as are necessary to their operation of the marina which is adjacent to the Resort. GROVE ISLE ASSOCIATES, LTD., by COURTLAND INVESTMENTS, INC., a Delaware corporation, its sole general partner By: /s/ Maurice Wiener Name: Maurice Wiener Title: Chairman (SEAL) GROVE ISLE CLUB, INC., a Florida corporation By: /s/ Maurice Wiener Name: Maurice Wiener Title: Chairman (SEAL) GROVE ISLE INVESTMENTS, INC., a Florida corporation By: /s/ Maurice Wiener Name: Maurice Wiener Title: Chairman (SEAL) 15 WESTGROUP GROVE ISLE ASSOCIATES, LTD., a Florida limited partnership, by Westgroup Partner, Inc., a California corporation, its sole general partner By: /s/ Patrick R. Colee Patrick R. Colee President (SEAL) EXHIBITS "A" - Legal Description "B" - Definitions "C" - Assignment of Lease "D" - Lease Modification "E" - Lease Memorandum "F" - Assignment of Occupancy Leases "G" - Bill of Sale "H" - Assignment of Contracts "I" - CNB Estoppel "J" - SNDA "K" - Note "L" - Guaranty "M" - Litigation Schedule "N" - List of Permits "O" - List of Service Contracts "P" - List of Occupancy Tenants "Q" - Club Arrangements 16 EX-10 4 EXHIBIT 10(F) AGREEMENT RE: LEASE TERMINATION THIS AGREEMENT is made the 19th day of November, 1996 by and between GROVE ISLE ASSOCIATES, LTD., a Florida limited partnership ("GIAL"), and GROVE ISLE CLUB, INC., a Florida corporation ("GICI"). R E C I T A L S A. GIAL, as landlord, and GICI, as tenant are the parties to that certain Lease Agreement dated October 1, 1993 (the "Original Lease") with respect to the property described therein, which is commonly referred to as the "Grove Isle Club Property". B. GIAL has requested that GICI terminate all of its rights, title and interest in and to the Lease and the Grove Isle Club Property so that GIAL may lease the Grove Isle Club Property to Westgroup Grove Isle Associates, Ltd., a Florida limited partnership ("Westgroup"). C. In furtherance of GICI's agreement to terminate all of its rights, title and interests in and to the Original Lease, GICI has, upon request of GIAL, agreed to assign its interest in the Lease to Westgroup, with the understanding that same would thereafter be amended and restated in its entirety pursuant to Amended and Restated Lease Agreement dated as of November 19, 1996 (the "Amended Lease"), in consideration of the terms hereinafter set forth. NOW, THEREFORE, for Ten and No/100 Dollars ($10.00) and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, GIAL and GICI hereby agree as follows: 1. The foregoing recitals are true and correct and are incorporated herein as if repeated at length. 2. In partial consideration for GICI's relinquishment of its rights in and to the Original Lease, but in recognition of GICI's continuing status as the "Grove Isle Club" under the condominium documents governing Grove Isle, GIAL agrees to pay to GICI the sum of $200,000.00 for each year that the Amended Lease is in good standing, said sum to be paid each year in a single annual installment due and payable on the 19th day of November of each such year that the Amended Lease exists and remains in good standing. In addition to the foregoing, GIAL hereby assigns to GICI any and all Participation Rent due from Westgroup pursuant to the Amended Lease. 3. GICI agrees to cooperate with GIAL and Westgroup from time to time in connection with maintaining and enforcing the rights of GICI as the "Grove Isle Club" under the condominium documents governing Grove Isle. 4. This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of Florida. The provisions of this Agreement may be enforced by all appropriate actions at law and in equity by the parties hereto, and their successors and assigns, with the prevailing party in any such action entitled to reimbursement of reasonable attorneys' fees and costs incurred at trial and all appellate levels. IN WITNESS WHEREOF, this Assignment of Lease Agreement has been executed as of the day and year first above written. Witnesses: ASSIGNOR GROVE ISLE ASSOCIATES, LTD., a Florida limited partnership /s/ Denise Abdelnour By: /s/ Maurice Wiener - ---------------------------- -------------------------------------- /s/ Lawrence I. Rothstein Name: Maurice Wiener - ---------------------------- ------------------------------------- Title: Chairman, Courland Investment, Inc. General Partner ------------------------------------ ASSIGNEE: GROVE ISLE CLUB, INC., a Florida corporation /s/ Denise Abdelnour By: /s/ Maurice Wiener - ---------------------------- -------------------------------------- /s/ Lawrence I. Rothstein Name: Maurice Wiener - ---------------------------- ------------------------------------- Title: Chairman ------------------------------------ EX-10 5 EXHIBIT 10(G) PARTNERSHIP AGREEMENT MARTINE AVENUE ASSOCIATES AGREEMENT made as of this 24th day of May 1968 by and among F. ANNE GRAY (hereinafter referred to as "ANNE"), residing at 234 Martine Avenue, White Plains, New York; LEE GRAY (hereinafter referred to as "LEE"), residing at South Bedford Road, Pound Ridge, New York; and BETTY ROBBINS (hereinafter referred to as "Betty"), residing at 234 Martine Avenue, White Plains, New York; (the aforesaid parties hereinafter collectively, referred to as the "Partners"). W I T N E S S E T H : WHEREAS, Anne is the owner of a certain parcel of land located in the City of White Plains, County of Westchester and State of New York, known as Two Martine Avenue and more particularly described in the Deed annexed hereto and made a part hereof (hereafter referred to as the "Property"); and WHEREAS, the Partners desire to form a partnership for the purpose of holding and managing the Property and any other real or personal property which, such partnership light obtain, receive or acquire; and WHEREAS, Anne desires to transfer the Property to such partnership formed by the Partners as hereafter provided; NOW THEREFORE, it is mutually agreed as follows: 1. The Partners do hereby form a partnership for the purpose of acquiring, by gift, donation, purchase or otherwise, real and personal property of all kinds and description and to hold and manage the same for the benefit of the Partner. The name of the partnership shall be MARTINE AVENUE ASSOCIATES (hereinafter referred to as the "Partnership"). The office of the Partnership shall be located at One West Avenue, Larchmont, New York. 2. The capital of the Partnership shall be contributed by Anne who shall simultaneously with the execution of this Agreement by the Partners, convey, set over and transfer as such capital all her right title and interest in and to the Property, by the execution and delivery to the Partnership of the Deed to the Property in the form annexed hereto and made a part hereof. Upon such transfer of the Property to the Partnership, each of the Partners shall for all purposes have a one third (1/3) interest in such capital and neither Lee nor Betty shall be required to make any capital contribution to the Partnership. 3. The Partners shall in the name of the Partnership hold, lease, operate, improve and manage the Property, collect the rents and other income therefrom and after the payment of all the expense incident thereto and to the Partnership distribute the net profits of the Partnership equally to the Partners. 4. The Partnership may mortgage, sell, transfer and otherwise encumber and/or dispose of the Property and may own, purchase, acquire, manage, operate, improve, deal in, mortgage, sell, transfer or otherwise encumber or dispose of such other property both real and personal as the Partners shall determine. 5. Lee shall be the General Manager of the Partnership and shall have authority to conduct the Partnership business as he in his sole discretion shall determine. The Partners shall devote such time and efforts to the conduct of the Partnership business as the demands of the business shall require or warrant. The funds of the Partnership shall be deposited in the name of the Partnership in -2- a commercial bank selected by Lee and checks drawn on the Partnership bank account shall be signed by any one of the Partners. 6. Proper and complete books of account of the business of the Partnership shall be kept by, and under the supervision of, Lee at the principal place of business of the Partnership and shall be open to inspection by any of the Partners or their accredited representatives at any reasonable time during business hours. The books and records of the Partnership shall be examined and reviewed at the close of each fiscal year by an independent accountant who shall make a report thereon. 7. The fiscal year of the Partnership shall be the calendar year or such other period as the Partners shall determine. The net profit or lose of the Partnership shall be determined in accordance with approved and accepted accounting practice as soon as possible after the close of each fiscal year. 8. The net profits earned by the Partnership during each fiscal year shall be credited as of the close thereof to the capital accounts of each of the Partners in equal proportions. Any net loss incurred by the Partnership during any fiscal year shall be debited as of the close thereof to the capital accounts of each of the Partners equal proportions. The total amount of the net profits earned by the Partnership during each fiscal year and credited to the capital accounts of each of the Partners as here-in provided less any withdrawals from such capital accounts during such fiscal year shall be distributed to each Partner as soon thereafter as practicable; provided however, that it the Partnership shall incur a net lose in any fiscal year, the net profit earned by the Partnership during any subsequent fiscal year or years, it necessary, shall, to the extent determined to be necessary by Lee, be retained as capital by the -3- Partnership to the extent of any such net loss . Notwithstanding the provisions for the distribution of the net profits of the Partnership as set forth above, should Lee determine in his sole discretion that any such net profits are required for the purposes of the Partnership, such net profits to the extent as determined shall be retained by the Partnership until such time as Lee shall determine otherwise. 9. Within thirty days after the date of death or insanity of any Partner the remaining Partners or Partner, by giving notice to the other Partner or Partners, or their respective legal representatives, shall elect either to have the business continue thereafter or to have such death effect a termination of the business of the Partnership as of the date of such election. If an election is made to continue the business after the death or insanity of any Partner such Partner shall cease to be a Partner upon the date of death or insanity of such Partner and shall not there after be entitled in any manner to engage in or to exercise any control over or have any voice in the business of the Partnership or have any further interest in or any rights against the Partnership accept to the following extent: (i) The value of the interest of any such former Partner and the amount due him or her as the case may be by the Partnership or due to the Partnership from such former Partner shall he determined in accordance with the capital account of the respective Partners as of the effective date of such death or insanity (such date in other case being hereinafter referred to as the "Determination Date") and shall be determined as soon as practicable by the Certified Public Accountant at the time employed by the Partnership, in accordance with good accounting practice; provided however, in making such - 4 - determination the value of the Property of the Partnership shall be included at the value determined for Federal Estate Tax purposes in the estate of the deceased Partner or if there be no such determination then at the market value thereof determined by the Certified Public Accountant then employed by the Partnership, and, in addition, no amount shall be credited in respect of Partnership goodwill or for the use of the Partnership name which name shall devolve upon the remaining Partners or Partner for their or his exclusive use and enjoyment. Any such determination by such Certified Public Accountant shall be final, conclusive and binding upon the former Partner, his legal representatives and the remaining Partners. (ii) The Partnership shall pay to the former Partner in cash the amount due him from the Partnership as specified in said accountant's certificate in equal monthly payments commencing no later than ninety days after the Determination Date and in no event over a period longer than two years after the Determination Date. 10. The Partnership may be terminated and the business discontinued upon the mutual consent of all the Partners or upon any election to terminate the Partnership as herein otherwise provided. Upon the termination of the Partnership or as soon thereafter as practicable the debts of the Partnership shall be discharged and all assets other than cash of the Partnership then remaining shall be liquidated and turned into cash or distributed in kind as determined by a majority of the Partners. The interests of each Partner shall be determined in accordance with the capital accounts of the respective Partners as soon as practicable thereafter by the Certified Public Accountant at the time employed by the Partnership in accordance with good accounting practice and the respective shares so determined shall be paid to the Partners or to such other persons as -5- may be legally entitled thereto. Any such determination by such Certified Public Accountant shall be final, conclusive and binding upon the parties hereto or anyone claiming through them. 11. This Agreement shall not be amended or modified in any respect except by an instrument in writing signed by all of the Partners. 12. This Agreement shall be governed by and construed in Accordance with the laws of the State of New York and shall be binding upon the parties hereto and their respective legal representatives, heirs and assigns. 13. Whenever the masculine gender 1s used in this agreement it shall be deemed to include, where applicable, the feminine gender as well. The term "legal representatives" as used herein with respect to any Partner, shall include in the appropriate case the executor, administrator, committee, trustee, trustee in bankruptcy, receiver or assignee of such person and all others claiming through them or any of them. 14. This Agreement may be executed in counterparts by each of the Partners separately each such counterpart constituting one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day and year first above written. /s/ F. Anne Gray, L.S. Witness F. Anne Gray, F.S. /s/ Lee Gray, L.S. Witness Lee Gray, F.S. /s/ Betty Robbins, L.S. Witness Betty Robbins -6- AGREEMENT The undersigned, being all of the partners who are members of a partnership known as MARTINE AVENUE ASSOCIATES, hereby agree as follows: 1. As of January 1, 1987, the net profits of the partnership shall be distributed so that Lee Gray shall receive seventy-five (75%) percent of such net profits, and Betty Robbins shall receive twenty-five (25%) percent of such net profits. Future funding will be on same basis. 2. In all other respects, the Partnership Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this 29th day of January, 1987. /s/ Lee Gray /s/ Betty Robbins EX-27 6
5 0000311817 HMG/COURTLAND PROPERTIES, INC. 12-MOS DEC-31-1996 DEC-31-1996 1,389,546 0 1,396,068 0 0 0 23,519,812 3,967,924 27,469,715 0 0 0 0 1,245,635 12,323,664 27,469,715 7,895,124 7,895,124 1,170,471 10,724,027 (182,876) 0 958,944 (2,118,809) 0 0 0 0 0 (2,118,809) (1.82) 0
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